2 Mark For Strategic Management

GANESH.
P,MBA,PGPMIR(MSSW)
UNIT 1 : STRATEGY AND PROCESS PART A

1. Define Strategy. Strategy refers to the ideas, plans and support that firms employ to compete successfully against their rivals. Each firm devises its own strategy that involves two key choices- the customers a firm will serve and the competencies and strengths it will develop to serve customers effectively. Strategy is designed to help firms achieve competitive advantage. A strategy is a pattern or plan that integrates an organizations major goals, policies and action sequences into a cohesive whole. Quinn. Ex: Non-profit organizations such as colleges face numerous rivals eagerly seeking the same students. 2. Define the term Strategic Management. Strategic management is defined as the art and science of formulating, implementing and evaluating cross-functional decisions that enable an organization to achieve its objectives. It is the set of managerial decisions and actions that determine the long-run performance of an organization. It is the stream of decisions taken over time by top managers which, when understood as a whole, reveal the goals they are seeking and the means used to reach these goals. 3. What is Strategic Thinking? Strategic thinking is a process of developing or examining the assumptions about the future upon which the organizations mission, goals and strategy are based to evaluate whether they still reflect the realities the firm faces. It is a growing awareness and appreciation to understand how changes in the industry environment can ultimately affect an organizations competitive posture. It is important as every organization in every industry confronts a variety of challenges each day, including new technologies, new forms of competition, changes in regulations and shifting customer needs. It is the application of key strategic principles to build and sustain new sources of competitive advantage. 4. What is Strategic Planning? Strategic planning is the process by which an organization examines its purpose and goals, visualizes its future, and outlines a course of action to reach that envisioned future. It is a disciplined effort to produce fundamental decisions and actions that shape and guide an organization and what it does. It is a set of concepts, procedures, and tools designed to assist leaders with the tasks of making decisions for their organization.
S.NAVEEN KUMAR
5. What is a Business Strategy? Business strategy refers to the plans and actions that firms devise to compete in a given product or market scope or setting. It addresses the question, How do we compete within and industry? Business strategies may fit within the two overall categories of competitive or cooperative strategies.
GANESH.P,MBA,PGPMIR(MSSW)
Ex: The business strategy pursued by KFC (Kentucky Fried Chicken) is to provide different types of food based on its famous chicken recipes.
6. Define (a) Mission (b) Vision (c) Objectives (d) Values (e) Goals (f) Policies (g) Procedures (h) Budgets (i) Programs (j) Tactics (k) Targets (l) Rules (m) Business Ethics (n) Code of Ethics. (a) Mission: A mission is the fundamental, unique purpose and direction that sets an organization apart from other firms of its type and identifies the scope of the organizations operations in terms of products or services offered and markets served. It tells who we are and what we do. It promotes a sense of shared expectations in employees and communicates a public image to important stakeholder groups in the organizations task environment. Ex: Mission statement of ONGC Ltd., To be a world-class Oil and Gas company integrated in energy business with dominant Indian leadership and global presence. (b) Vision: A vision is what organizational leadership believes are worthy purposes and objectives to aspire to within a given time period and how the leadership feels the organization can achieve those objectives. It relates to the firms broadest and most desirable goals. It is designed to capture the imagination of the firms people and galvanize their efforts to achieve a higher purpose, cause or ideal. Ex: Vision of Coca-Cola is to make sure that a Coke is in arms reach of any customer. (c) Objectives: Objectives are specific, measurable statements of what an organizations sub-unit is expected to achieve as a part of the business strategy. They indicate the result that the organization expects to achieve in the long run. Objectives are the end results of planned activity. They state what is to be accomplished by when and should be quantifiable if possible. They guide the firm in achieving its mission. Ex: Increase profits 10% over last year may be an objective of a firm. (d) Values: Values are those which are considered to be desirable by individuals. A value is a view of life and a judgment of what is desirable and which is a part of a persons personality and a groups morale. Values set the tone for organizational operations by defining what is considered right and wrong in the organization and what the members of the organization think is important 1. Communicate how employees should behave; 2. Build team spirit; and 3. Influence marketing efforts. Ex: Benign attitude to labour, Service-mindedness is values. (e) Goals: Goal is an open-ended statement of what one wants to accomplish with no quantification of what is to be achieved and no time criteria for completion. It indicates a desired future state that a firm attempts to realize. It should be precise and measurable and address important issues. There are two types of goals namely (i) Stated or Official goals are simply statements about desired results. They reflect what the organization should be doing; and (ii)Operational or Real goals specify the way in which certain formal goals are to be achieved. Ex: Increased profitability is an official or stated goal. Customer satisfaction is an operational or real goal.
(f) Policies: A policy is a broad guideline for decision-making that links the formulation of strategy with its implementation. Firms use policies to make sure that employees throughout the firm make decisions and take actions that support the firms mission, objectives and strategies. Ex: Policy of GE GE must be number one or two wherever it competes. (g) Procedures: Procedures or Standard Operating Procedures (SOPs) are a system of sequential steps or techniques that describe in detail how a particular task or job is to be done. They typically detail the various activities that must be carried out in order to complete the firms programs. Ex: Infosys uses PRIDE (Process Repository @ Infosys for Driving excellence), an online resource for its SOPs. (h) Budgets: A budget is a statement of a firms programs in monetary terms. Used in planning and control, a budget lists the detailed cost of each program. They indicate how much should be spent, by which department, when and for what purpose. It specifies the expected impact on the firms financial future through proforma financial statements. Ex: Manufacturing budget, Sales budget. (i) Programs: A Program is a statement of the activities or steps needed to accomplish a single-use plan. It makes the strategy action-oriented. It may involve restructuring the firm, changing the firms internal culture or beginning a new research effort. Ex: FedEx Corporations program to install a sophisticated information system to enable its customers to track their shipments at any point of time. (j) Tactics: A Tactic is a specific operating plan detailing how a strategy is to be implemented in terms of when and where it is to be put into action. Tactics is a technique or science of dispensing and maneuvering forces to accomplish a limited objective or an immediate end. Tactics are narrower in their scope and shorter in their time horizon than strategies. Some of the tactics available to implement competitive strategies are timing tactics and market location tactics. Timing tactics First mover or Pioneer Late mover Market location tactics Offensive Tactics Frontal Assault Flanking Maneuver Bypass attack Encirclement Guerilla Warfare Defensive tactics Raise structural barriers Increase expected retaliation Lower the inducement for attack. Ex: Coca-Cola offers unprofitable non-carbonated beverages to keep competitors off store shelves.
(k) Targets: Targets are operational plans which contribute to the achievement of the objectives of strategic plans. They are short-term plans devised to achieve the objective of a firm. Ex: Target for a salesman in a home appliances industry is Rs. 1 lakh per month. (l) Rules: A rule is prescribed by a conduct or action. It is established authoritatively and utilized in order to inform employees of conditions under which designated activities are to be performed. Rules are a form of communication for acting in a particular way which is helpful in completing the task and hence contributing to the achievement of organizational objectives. Ex: While working in a company the workers should not whistle blow the secrets of the company. (m) Business Ethics: Ethics is defined as the discipline dealing with good and bad and with moral duty and obligations. Business ethics is concerned with truth, justice and a variety of aspects such as the expectations of society, fair competition, advertising, public relations, social responsibilities, consumer autonomy and corporate behaviour at home country and abroad. It encompasses the morality of issues in business. Ex: Incorporating ethics in employee training. (n) Code of Ethics: Code of Ethics specifies how an organization expects its employees to behave while on the job. It is a useful way to promote ethical behaviour among employees. The importance of Code of Ethics is that it* clarifies company expectations of employee conduct in various situations and * makes clear that the company expects its people to recognize the ethical dimensions in decisions and actions. Ex: Reebok International has developed a set of production standards for the manufacturers that supply the company with its athletic shoes on a contract basis. 7. What is Strategic Decision-making? Strategic decision-making is the process of taking strategic decisions which are likely to be concerned with: the long-term direction; achieving some advantage; the scope of an organizations activities; matching of an organizations activities to the environment; major financial or other resource implications; building on or stretching an organizations resources, competencies; entailing significant risks; affecting operational decisions and/or raising issues of complexity and cross-cutting interactions. Strategic decision-making is a senior and top management responsibility. The fundamental question in the strategy decision are whom the organization should be there to serve and how the direction and purposes of an organization should be determined. 8. What is Strategy formulation?
Strategy formulation is the development of long-range plans for the effective management of environmental opportunities and threats, in light of corporate strengths and weaknesses. It includes defining the corporate mission, specifying achievable objectives, developing strategies and setting policy guidelines. It helps an organization to: Capitalize on available opportunities; Address the challenges faced by the organization; Provide leadership that understands and masters change; and Incorporate an in-depth planning model that involves the community. 9. What is Strategy implementation? Strategy implementation is the process by which strategies and policies are put into action through the development of programs, budgets and procedures. This process might involve changes within the overall culture, structure, and/or management system of the entire organization. It often involves day-to-day decisions in resource allocation. It is typically handled by middle and lower level managers, except when drastic companywide changes are needed. It is reviewed by top management from time to time. 10. What are the characteristics of a Mission statement? A mission is the fundamental, unique purpose and direction that sets an organization apart from other firms of its type and identifies the scope of the organizations operations in terms of products or services offered and markets served. It tells who we are and what we do. The characteristics of a mission statement are: It should be realistic and achievable; It should be precise; It should lead to action; It should be motivating for the employees; and It should be distinctive. Ex: To be a world-class Oil & Gas company integrated in energy business with dominant Indian leadership and global presence. - Mission statement of ONGC Ltd. 11. How Mission contributes to Strategic management? A mission is the fundamental, unique purpose and direction that sets an organization apart from other firms of its type and identifies the scope of the organizations operations in terms of products or services offered and markets served. It tells who we are and what we do. Mission contributes to strategic management in many ways: It provides direction to corporate planning; It clarifies the firms aspirations; It communicates to employees at various levels the direction in which they should move; and It focuses on business purpose and long-term objective of the firm. 12. List the characteristics of Objectives. Objectives are the end results of a planned activity. They state what is to be accomplished by when and should be quantifiable if possible. They guide the firm in achieving its mission. The characteristics of objectives are: It should be specific; It should be time bound; It should be measurable;
It should be challenging; It should be set at different levels; and It should be verifiable. Ex: The sales objective of Deere & Company, worlds largest maker of farm equipment, is to have sales ($13 billion in 2000) double and double again over the next 10 years. 13. How would you classify objectives? Objectives are the end results of planned activity. They state what is to be accomplished by when and should be quantifiable if possible. They guide the firm in achieving its mission. Hierarchy of objectives can be in two forms: top-down approach and bottom-up approach. To what extent both will be combined depends on situations such as the size of the organization, organizational culture, leadership of managers, etc.
14. What is an Intended or Deliberate strategy? An Intended strategy is the strategy a firm thought it was going to pursue. It is a planned strategy and put into action. Intended strategy is strategy as conceived by the top management team. It is the result of a process of negotiation, bargaining and compromise, involving many individuals and groups within the organization. It is the set of intentional acts that is contemplated and planned to accomplish a goal. An intended strategy is also sometimes called a deliberate strategy. Ex: Research cooperations in America, are not explicitly stated on either of the intended strategies for Ciba or Sandoz. 15. What is an Emergent strategy? Emergent strategies are the unplanned responses to unforeseen circumstances. They often arise from autonomous action by individual managers deep within the organization or from discoveries or events. They are not the product of formal top-down planning mechanisms. An emergent strategy is a strategy that emerges over time or that has been radically reshaped once implemented. In emergent strategy, the strategy is not known ahead of time, but through the rough and tumble of everyday work, a strategy emerges and it is senior managements job to bolt these things together into a system that drives the company forward.
Ex: In Toyota Motor Manufacturing Australia Ltd., a strategy of overseas manufacturing capability-building and global networking of managerial resources has emerged as a result of inevitable responses to intensifying local competition in Australia. 16. Distinguish between Realized and Unrealized strategy. Realized strategy: Realized Strategy is the result of a combination of purely deliberate and purely emergent strategies. It is the strategy a firm is actually pursuing. For example, rather than pursuing a strategy (read plan) of diversification, a company simply makes diversification decisions one by one, in effect testing the market. First it buys an urban hotel, next a restaurant, then a resort hotel, then another urban hotel with restaurant, and then another of these, etc., until the strategy (pattern) of diversifying into urban hotels with restaurants finally emerges. Unrealized strategy: An unrealized strategy is an intended strategy a firm does not actually implement. Unrealized strategies are strategies that do not become realized. 17. What are the three broad factors that influence the success of a company? (OR) What are the determinants of a companys performance? An Enterprises success mainly depends on three broad factors The industry (it belongs to) Some industries are profitable than others due to industry attractiveness. Ex: In the last decade (1990s) software industry was more profitable than the pharmaceutical industry. The nation (it is located) The country also influences the competitiveness of companies based within the nation. Ex: The worlds most successful pharmaceutical companies are located in U.S.A. and Switzerland. Companys resources, capabilities and strategies are the strongest reasons for the success or failure of the firm. Ex: Dell has developed a core competence in speedy delivery which makes it the market leader in the PC industry. 18. What are the five tasks of Strategic Management? Strategic Management is the set of managerial decisions and actions that determine the long-run performance of an organization.
19. What do you mean by Evaluation and Control? Evaluation and Control is the process in which corporate activities and performance results are monitored so that actual performance can be compared with desired performance. Managers at all levels use the resulting information to take corrective action and resolve problems. It can also pinpoint weaknesses in previously implemented strategic plans and thus stimulate the entire process to begin with. Ex: The success of Delta Airlines turnaround strategy was evaluated in terms of the amount spent on each airline seat per mile of flight. 20. What do you mean by Triggering event in initiation of strategy? A Triggering event is something that acts as a stimulus for a change in strategy. Some possible triggering events are: New CEO External Intervention of a customer or lender Threat of change in ownership Performance gap and Change in customers values or customers preference. 21. What is a Learning Organization? A Learning organization is an organization which is skilled at creating, acquiring, and transferring knowledge and at modifying its behaviour to reflect new knowledge and insights. Organizational learning is a critical component of competitiveness in a dynamic environment. Learning organizations are skilled at four main activities: Solving problems systematically; Experimenting with new approaches; Learning from their own experiences and past history as well as from the experiences of others; and Transferring knowledge quickly and efficiently throughout the organization. Ex: Hewlett-Packard uses an extensive network of informal committees to transfer
knowledge among its cross-functional teams and to help spread new sources of knowledge quickly.
22. Define Corporate Governance. Corporate Governance is defined as the system by which companies are directed and controlled. Corporate Governance decides whom should the organization be there to serve, and how the direction and purposes of the organization should be determined. It helps determine the choices the organization makes for society and how it ensures that these choices are faithfully implemented. The role of Corporate Governance to provide entrepreneurial leadership, to set and implement strategy within a framework of effective internal controls, and to ensure the best performance of resources for stakeholders is a challenge that has to be faced. Ex: In India, SEBI has stated that listed companies should have at least 50% of the board as non-executive. 23. Who are the actors involved in Corporate Governance? Corporate Governance decides whom should the organization be there to serve, and how the direction and purposes of the organization should be determined. The actors involved in Corporate Governance are: Shareholders of the Company They share the profit without being responsible for the operations; they have limited liability and elect the Board of Directors. Board of Directors They normally approve all decisions that affect the long-term performance of the company. Top Management They include the CEO, COO or President, Executive Vice-President and Vice-Presidents of divisions and functional areas. 24. Define Corporate Social Responsibility. Corporate Social Responsibility (CSR) means open and transparent business practices that are based on values and respect for employees, communities and the environment. It is designed to deliver sustainable value to society at large as well as to shareholders. It is the idea that business has social obligations above and beyond making a profit. The CSR theories and related approaches are classified into four groups: Instrumentation Theory The Corporation is seen as only an instrument for wealth creation and its social activities are only a means to achieve economic results. Political Theory The firm, with the power of Corporations in society responsibly uses this power in the political arena. Integrative Theory The firm is focused on the satisfaction of social demands. Ethical Theory Based on ethical responsibilities of Corporations to society. Ex: L&T (Larsen & Toubro) spends about Rs.5 crore annually on social projects. 25. What are the responsibilities of a business firm according to Milton Friedman and Archie Carroll?
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Social responsibility is the implied, enforced or felt obligation of managers to serve or protect the interest of groups other than themselves. The concept of Social Responsibility proposes that a private corporation has responsibilities to society that extend beyond making a profit. Friedmans traditional view of Business responsibility Friedman referred to social responsibility of business as a fundamentally subversive doctrine and stated that: There is one and only one social responsibility of business- to use its resources and engage in activities designed to increase its profits so long as it stays within the rule of the game, which is to say, engages in open and free competition without deception or fraud. Carrolls four responsibilities of business Archie Carroll proposes that managers of business organizations have four responsibilities: Economic Responsibilities of a business firms management is to produce goods and services of value to society; Legal Responsibilities are defined by governments in laws that management is expected to obey; Ethical Responsibilities of a firms management are to follow the generally held beliefs about behavior in a society; and Discretionary Responsibilities are the purely voluntary obligations a corporation assumes. 26. What do you mean by Corporate Stake holders? A Corporations task environment includes a large number of groups with interest in a business organizations activities. These groups are referred to as Corporate Stakeholders because they affect or are affected by the achievement of the firms objectives. They are the shareholders, customers, employees, suppliers, and distributors, for sources of product and service improvements. Before making a strategic decision, strategic managers should consider how each alternative will affect various stakeholder groups. 27. What makes a decision strategic? Strategic decisions are mainly concerned with the selection of the product-mix that the firm intends to produce and the markets in which it will sell its products. Unlike many other decisions, strategic decisions deal with the long-run future of the entire organization and have three characteristics: Rare Strategic decisions are unusual and typically have no precedent to be followed Consequential Strategic decisions commit substantial resources and demand a great deal of commitment from people at all levels. Directive Strategic decisions set precedents for lesser decisions and future actions throughout the organization. Ex: BPL Ltd., took a strategic decision by moving away from manufacturing sealed precision panel meters to a major consumer electronics company in order to give its customers the best value for their money. 28. What are the modes/approaches of strategic decision-making? Strategic decisions are mainly concerned with the selection of the product-mix that the firm intends to produce and the markets in which it will sell its products. Unlike many other decisions, strategic decisions deal with the long-run future of the entire
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organization. There are four modes of strategic decision-making formulated by Henry Mintzberg (entrepreneurial, adaptive and planning) and Quinn (logical incrementalism). Entrepreneurial mode Strategy is made by one powerful individual. It is guided by the founders own vision of direction exemplified by large, bold decisions. The dominant goal is the growth of the organization. Ex: Satyam Computer Services Ltd, founded by Ramalinga Raju reflects his vision. Adaptive mode It is characterised by reactive solutions to existing probems, rather than a proactive approach for new opportunities. Strategy is fragmented and is developed to move the corporation forward incrementally. Ex: Encyclopaedia Britannica Inc., operated in this mode. Planning mode This mode involves the systematic gathering of appropriate information for situation analysis, the generation of feasible alternative strategies, and the rational selection of the most appropriate strategy. It includes both the proactive search for new opportunities and the reactive solution of existing problems. Ex: Hewlett Packard focused on instrumentation and communications industries. Logical incrementalism It is a synthesis of entrepreneurial, adaptive and planning modes where the top management has reasonably a clear idea of the organizations mission and objectives. The strategy emerges out of debate, discussion and experimentation. Ex: Infosys in the IT industry adopts this approach. 29. What is a Corporation? A Corporation is a mechanism established to allow different parties to contribute capital, expertise and labor for their mutual benefit. The investor/shareholder participates in the profits of the organization without taking responsibility for the operations. Management runs the company without being responsible for personally providing the funds. To make this possible, laws have been passed so that shareholders have limited liability and, correspondingly, limited involvement in a corporations activities. Ex: Enron Inc. 30. What are the responsibilities of the Board of Directors? The Board of Directors normally approves all decisions that affect the long-term performance of the company. The responsibilities of the Board of Directors are: Setting corporate strategy, overall direction, mission, or vision. Hiring and firing the CEO and top management Controlling, monitoring, or supervising top management Reviewing and approving the use of resources and Caring for shareholder interests. 31. What is Executive leadership? Executive leadership is the directing of activities toward the accomplishment of corporate objectives. It is important because it sets the tone for the entire corporation. CEOs with a clear strategic vision are often perceived as dynamic and charismatic leaders. Ex: The positive attitude characterizing many well-known leaders like Bill Gates at Microsoft. 32. What are the basic approaches to Ethical behaviour? Ethics is defined as the consensually accepted standards of behavior for an
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occupation, a trade or a profession. The three basic approaches to ethical behaviour are: Utilitarian approach proposes that actions and plans should be judged by their consequences. People should therefore behave in a way that will produce the greatest benefit to the society and produce the least harm or the lowest cost. It fails to recognize all the benefits and the costs of any particular decision. Ex: A CEO may favour most obvious stakeholders. Individual rights approach proposes that human beings have certain fundamental rights that should be respected in all decisions. A particular decision or behavior should be avoided if it interferes with the rights of others. It fails to define fundamental rights. Ex: US constitution includes a Bill of Rights which may or may not be accepted throughout the world. Justice approach proposes that decision-makers be equitable fair and impartial in the distribution of costs and benefits to individuals and groups. It follows the principles of distributive justice and fairness. Ex: Reverse discrimination is an example of conflicts between distributive and compensatory justice. 33. What are the challenges to strategic management? Strategic management is defined as the art and science of formulating, implementing and evaluating cross-functional decisions that enable an organization to achieve its objectives. It is the set of managerial decisions and actions that determine the long-run performance of an organization. The challenges to strategic management are: (i) Impact of Globalization: To reach the economies of scale necessary to achieve the low costs, and thus the low prices, needed to be competitive, companies are now thinking of a global(worldwide) market instead of a national market. As more industries become global, strategic management is becoming an increasingly important way to keep track of international developments and position the company for long-term competitive advantage. Ex: Maytag Corporation purchased Hoover not so much for its vacuum cleaner business, but for its European laundry, cooking, and refrigeration business. (ii)Impact of Electronic Commerce: Electronic Commerce refers to the use of the internet to conduct business transactions. It has affected the basis of competition in many industries. It is shifting competition to a more strategic level in which the traditional value chain of an industry is drastically altered. Ex: NECX and Buildpoint are the net market makers which focus on business processes to mediate multiple transactions among businesses. 34. What are the benefits of strategic management? Strategic Management is the set of managerial decisions and actions that determine the long-run performance of an organization. The benefits of strategic management are: Improved communication Increased understanding Enhanced commitment Greater and higher productivity More effective strategies formulation Allows firm to influence, initiate and anticipate and
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Emphasizes proactive rather than reactive behaviour.
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35. What are the theories of Organizational adaptation? A Learning organization is an organization which is skilled at creating, acquiring, and transferring knowledge and at modifying its behaviour to reflect new knowledge and insights. Organizational learning is a critical component of competitiveness in a dynamic environment. The theories of Organizational adaptation are Theory of Population Ecology proposes that once an organization is successfully established in a particular niche, it is unable to adapt to changing conditions. Too much inertia prevents the company from changing. Institution theory proposes that organizations can and do adapt to changing conditions by imitating other successful organizations Strategic choice perspective proposes that not only do organizations adapt to a changing environment, but that they also have the opportunity and power to reshape their environment. Organizational learning theory proposes that organizations adjust defensively to a changing environment and use knowledge offensively to improve the fit between the organization and its environment. 36. What are the levels of decision-making? Decision making is the process of sufficiently reducing uncertainty and doubt about alternatives to allow a reasonable choice to be made from among them. As a means of understanding the significance of a decision so that we can know how much time and resources to spend on it, three levels of decision have been identified: Strategic Strategic decisions are the highest level. Here a decision concerns general direction, long term goals, philosophies and values. These decisions are the least structured and most imaginative; they are the most risky and of the most uncertain outcome. Ex: Whether to produce a low priced product and gain market share or produce a high priced product for a niche market would be a strategic decision. Tactical Tactical decisions support strategic decisions. They tend to be medium range, medium significance, with moderate consequences. Ex: If your company decides to produce a low priced product, a tactical decision might be to build a new factory to produce them at a low manufacturing cost. Operational These are every day decisions, used to support tactical decisions. They are often made with little thought and are structured. Their impact is immediate, short term, short range, and usually low cost. Operational decisions can be preprogrammed, pre-made, or set out clearly in policy manuals. Ex: If your company decides to build a new factory to produce products at a low manufacturing cost, then an operational decision would be scheduling of machinery usage hours. 37. Why has strategic management become so important to today's corporations? Research indicates that organizations that engage in strategic management generally outperform those that do not. The attainment of an appropriate match or fit between an organization's environment and its strategy, structure, and processes has positive effects on the organization's performance. Bruce Henderson, founder of the Boston Consulting
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Group, pointed out that a firm cannot afford to follow intuitive strategies once it becomes large, has layers of management, or its environment changes substantially. As the world's environment becomes increasingly complex and changing, strategic management is used by today's corporations as one way to make the environment more manageable. 38. How does strategic management typically evolve in a corporation? Strategic management in a corporation appears to evolve through four sequential phases according to Glueck, Kaufman and Walleck. Beginning with basic financial planning, it develops into forecast-based planning, and then into externally-oriented planning, and finally into a full-blown strategic management system. The evolution is most likely caused by increasing change and complexity in the corporation's external environment. The phases are thus likely to be characterized by a change from primarily an inwardlooking orientation in the first phase to primarily an outward-looking orientation in the third phase, and to a more integrative orientation in the final strategic management phase with equal emphasis on both the external and internal environments. 39. What is a learning organization? Is this approach to strategic management better than the more traditional top-down approach? A Learning organization is an organization which is skilled at creating, acquiring, and transferring knowledge and at modifying its behaviour to reflect new knowledge and insights. Learning organizations are skilled at four main activities: (1) systematic problem solving, (2) experimenting with new approaches, (3) learning from their own experience and past history as well as from the experiences of others, and (4) transferring knowledge quickly and efficiently throughout the organization. This means that people at all levels, not just top management, need to be involved in strategic management - by helping to scan the environment for critical information, suggesting changes to strategies and programs to take advantage of environmental shifts, and working with others to continuously improve work methods, procedures, and evaluation techniques. Research indicates that those organizations that are willing to experiment and are able to learn from their experiences are more successful than are those which do not. Top-down strategic management assumes that only top management is in a position to contribute to strategic planning. Top-down strategic planning forces all units to get involved in the planning process and makes sure that all units fit into the overall corporate mission, objectives, strategies, and policies. A limitation of the top-down approach is that all motivation comes from the top and lower units may simply go through the motions in order to please the boss. The likelihood of fresh, new strategic concepts at lower levels of the organization becomes less, the more the stimulus for strategic planning comes from above. 40. Why are strategic decisions different from other types of decisions? Strategic decisions deal with the long-run future of the entire organization and have three characteristics which differentiate them from other types of decisions: (1) They are rare. Strategic decisions are unusual and typically have no precedent to follow; (2) They are consequential. Strategic decisions commit substantial resources and demand a great deal of commitment; (3) They are directive. Strategic decisions set precedents for lesser decisions and future actions throughout the organization. 41. When is the planning mode of strategic decision-making superior to the entrepreneurial and adaptive modes?
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The planning mode is generally superior to the entrepreneurial and adaptive modes when the organization is fairly large, when knowledge is spread throughout the organization, and when the organization has at least a moderate amount of time to engage in strategic planning. The book proposes that the planning mode is more rational and thus a better way of making most strategic decisions. It may not, however, always be possible. The entrepreneurial mode can be very useful when time is short, one person or group is able to grasp the essentials of the business and its environment, and that person or group is able to influence the rest of the organization to accept its strategic decision. The adaptive mode is generally not considered to be very effective in most situations, but seems to be the fallback mode when entrepreurial or planning modes can't operate effectively because of political infighting or lethargy. 42. What is meant by the hierarchy of strategy? The hierarchy of strategy is a term used to describe the interrelationships among the three levels of strategy (corporate, business, and functional) typically found in large business corporations. Beginning with the corporate level, each level of strategy forms the strategic environment of the next level in the corporation. This means that corporate level objectives, strategies, and policies form a key part of the environment of a division or business unit. The objectives, strategies, and policies of the division or unit must therefore be formulated so as to help achieve the plans of the corporate level. The same is true of functional departments which must operate within the objectives, strategies, and policies of a division or unit. 43. Does every business firm have business strategies? Every business firm should have a business strategy for every industry or market segment it serves. A business strategy aims at improving the competitive position of a business firm's products or services in a specific industry or market segment. Firms must therefore have business strategies even if they are not organized on the basis of operating divisions. Nevertheless, it is still possible that some business firms do not have clearly stated business strategies. If they hope to be successful, however, they must have at least some rudimentary (even though unstated) position they take in terms of getting and keeping customers or clients. 44. What information is needed for the proper formulation of strategy? Why? In order to properly formulate strategy, it is essential to have information on the important variables in both the external and internal environments of the corporation. This includes general forces in the societal environment as well as the more easy-toidentify groups such as customers and competitors in the task environment. A corporation needs to have this information in order to identify a need it can fulfill via its corporate mission. It is also important to have information on the corporation's structure, culture, and resources. A corporation needs to have this information in order to assess its capabilities to satisfy a customer's need by making and/or distributing a product or service. Information on both the internal and external environments can also help a corporation to predict likely opportunities and threats. Long-term strategies can be designed with these in mind. 45. Does a corporation really need a board of directors? Given that a number of people do not consider the board of directors to have much of a
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role in a corporation's strategic management, this is no idle question. A good case can be made that a closely-held corporation has no need of a board. Since the owners are likely to compose both top management and board membership, the board becomes superfluous at best and may even create more problems than it solves by getting in the way of management's quick response to opportunities and threats. Even in a publicly-held corporation, the board may be composed of nothing but a few insiders who occupy key executive positions and few "good old boy" outsiders who go along with the CEO on all major issues. Nevertheless, the rationale for the board of directors seems to be changing from simply one of safeguarding stockholder investments to a broader role of buffering the corporation from its task environment and forcing management to manage strategically. If nothing else, the board can do the corporation a great service by simply offering to top management a different point of view. The board's connections to key stakeholders in the corporation's task environment can also provide invaluable information for strategic decision-making. 46. What recommendations would you make to improve the effectiveness of today's boards of directors? To improve the effectiveness of today's boards of directors the following suggestions may be made: Add more outsiders (people not affiliated with the corporation) to the board of directors. Keep the percentage of insiders (typically top management) to less than 50% of board membership. Separate the positions of CEO and Chairman so that top management cannot unduly influence the board's meetings and agenda. This should improve the board's ability to properly evaluate top management. If they can't separate Chair from CEO, select a Lead Director from the outside directors. Use a committee composed of outsiders to nominate potential new directors. This will help to ensure that potential members are not friends of top management who may owe more allegiance to the CEO than to the shareholders. Nominate people to the board who have knowledge valuable to the board and who have expertise of value to top management. These should be people who will have the respect of top management and who can both advise and criticize top management as needed. Require board members to own substantial amounts of stock in the corporation to ensure that they have a personal as well as professional stake in the welfare of the corporation. 47. What is the relationship between corporate governance and social responsibility? Quite simply, it states that society in the form of special interest groups increasingly expects boards of directors to balance the economic goal of profitability with the social needs of society. Issues dealing with workforce diversity and the environment are now reaching the board level. If business corporations are to avoid increased governmental restrictions on their activities, management will need to be even more aware of the various needs of their stakeholder groups. The board of directors is in a unique position to view the corporation as a whole and to evaluate management's performance in terms of stakeholder criteria. To the extent that boards only use shareholder value as their key criteria, they may not be acting responsibly from society's point of view. Increasingly, concerns over social responsibility may be directed through the board of directors. Agency theory defines the boards interests quite narrowly. Perhaps it is time for agency theory to be expanded to include stakeholders other than just shareholders. This is likely
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48. Does a corporation have to act selflessly to be considered socially responsible? At first, it seems to be more appropriate to a philosophy class than to a strategic management class. Should motivation and attitudes be considered when judging a company's actions? The legal system normally does this when differentiating between different degrees of guilt: Intentionally killing is called murder and is usually punished severely; unintentional killing is called homicide and may not be punished at all if it is considered to be an accident. Using this approach, one could say that a company is not socially responsible unless its motives fit its actions. A counter argument could be made, however, by arguing that the essence of the free enterprise system is laissez-faire capitalism in which the selfish motivations of business people result in a better society in terms of material goods. In this system, it is acceptable for a successful business firm to selfishly work for its own good - given that its actions result in side effects that are functional for society as a whole. We do not demand that a firm be altruistic when fulfilling its economic and legal responsibilities. 49. What aspects of a corporation's environment should be represented on a board of directors? Some may argue that representatives from each stakeholder group in the corporation's task environment should be included so as to keep top management aware of key environmental considerations. Others may argue that only outsiders with no personal stake in the corporation (i.e., not a member of a local bank or a key supplier, etc.) would be best able to bring the amount of objectivity needed to help make strategic decisions. A good argument can be started by suggesting that a representative from labor be a director. If this makes some sense, who should it be an employee of the corporation or an employee of another corporation? If the firm is not unionized, what then? Further discussion can be generated by suggesting that the composition of the board reflect the key demographics of the corporation's workforce in terms of race, sex, and age. 50. Differentiate between Agency theory and Stewardship theory in Corporate Governance. Agency theory: According to the Agency theory, Top managers are hired hands who may very likely be more interested in their personal welfare than in that of the shareholders. It focuses on extrinsic rewards that serve the lower-level needs, such as pay and security. The risk-sharing problem arises when the owners and agents have different attitudes towards risk. Stewardship theory: According to Stewardship theory, Top managers tend to be more motivated to act in the best interests of the Corporation than in their own self-interests. It focuses on the higher-order needs, such as achievement and self-actualization. Top management care more about a companys long-term success than do more short-oriented shareholders.
PART B
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1. Explain the conceptual framework of Strategic Management Process. (OR) Discuss the elements of Strategic Management process (OR) Explain in detail the components of strategic management process. Meaning of Strategic management definition of Strategic management strategic management framework environmental scanning strategy formulation strategy implementation strategy evaluation and control conclusion. 2. How do the terms mission, objectives, strategies, programs, budgets, procedures differ in the true sense? Explain. Meaning and definition of mission, objectives, strategies, programs, budgets and procedures with examples and differences to be explained. 3. What are the different modes of Strategic decision-making and explain the process of strategic decision-making? Definition of strategy, decision-making and strategic decision-making modes of strategic decision-making like entrepreneurial, adaptive, planning and logical incrementalism 8 steps in strategic decision-making process benefits of strategic decision-making conclusion. 4. Explain in detail a formal Strategic planning process (OR) Illustrate the strategic planning process. Definition of strategy, strategic planning 6 stages of strategic planning environmental scanning, evaluation of issues, forecasting, goal setting, implementation and monitoring benefits of strategic planning conclusion. 5. Explain the relationship between corporate Governance and Social responsibility. Take the case of an Indian company and elucidate. Definition of Corporate governance (CG), Corporate social responsibility (CSR) features of Corporate governance and CSR relationship between CG and CSR example of TATA or ITC Ltd. benefits and limitations of CG and CSR conclusion. 6. What is Corporate Governance? Indicate how and why companies are embracing Corporate Governance practices. Definition of Corporate governance (CG) features of Corporate governance reasons for companies embracing CG with examples benefits of CG conclusion. 7. Corporate Governance is not suitable for Indian Business environment Discuss. Definition of Corporate governance (CG) features of Corporate governance reasons for CG not suitable for Indian companies with examples limitations of CG conclusion. 8. What recommendations would you make to improve the effectiveness of todays Boards of Directors? Definition of Corporate governance (CG) features of CG role of the Board of Directors (BOD) recommendations to improve effectiveness of BOD conclusion. 9. How are Companies fulfilling their Social responsibility?
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Definition of Social responsibility, Corporate social responsibility (CSR) features of CSR explain with examples how Indian and foreign companies fulfill CSR benefits of CSR conclusion. 10. Discuss the popular theories of Social Responsibility. Definition of Social responsibility, Corporate Social Responsibility (CSR) features of CSR theories of CSR Instrumentation, Political, Integrative and Ethical Friedmans traditional view and Carrolls four business responsibilities conclusion. 11. How does strategic management typically evolve in a corporation? Definition of strategic management 4 phases of strategic management Basic financial Planning forecast-based planning externally-oriented planning full-blown strategic management system challenges and benefits of strategic management conclusion. 12. Explain the various governance mechanisms followed to remove incompetent or ineffective managers. Definition of Corporate governance (CG) Features of CG CG mechanisms (broad size, outsider representation on board, ownership structure, leverage) based on the mechanisms remove managers conclusion. 13. Discuss the popular theories of Corporate Governance. Definition of Corporate governance (CG) Features of CG theories of CG (Agency and Stewardship theory) benefits of CG conclusion. 14. Discuss the impact of the internet on Corporate Governance and Social responsibility. Definition of Corporate Governance, Social Responsibility features of CG and CSR internet problems (Cybersquatting, fraud, taxation, public interest, etc.) Conclusion. 15. What are the various trends in Corporate Governance? Definition of Corporate governance (CG) Features of CG trends in CG (Boards role in managing risk, funds focus, benchmarking, stakeholder issues, international alliances etc) conclusion.
UNIT 2 : COMPETITIVE ADVANTAGE PART A

1. Distinguish between Economies of Scope and Economies of Scale. Economies of Scale refer to the decline in the per-unit cost of production or any other activity as volume grows. It is obtained through cost reductions and mass production, discount on bulk purchase of raw materials and advertising. Ex: In the semiconductor industry, companies such as IBM, Intel, Motorola and so on, enjoy substantial economies of scale in the production of microprocessors, ICs, etc. Economies of Scope is an economic characteristic that results when two or more goods can be done more efficiently with one set of assets than from separate assets dedicated to
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each product. It arises when one or more business units share common resources such as manufacturing facilities, distribution channels, advertising campaigns, R&D and so on. Ex: EICHER was engaged in manufacturing and marketing of tractors in 1990s and later diversified with interests in trucks, motorcycles, financial services and management consultancy. 2. Define the term Environment in business? (OR) Differentiate between Internal and External environment. A firms environment represents all internal or external forces, factors, or conditions that exert some degree of impact on the strategies, decisions and actions taken by the firm. There are two types of environment: Internal pertaining to the forces within the organization (Ex: Functional areas of management) and External pertaining to the external forces namely macro environment or general environment and micro environment or competitive environment (Ex: Macro environment Political environment and Micro environment Customers). 3. What are macro and micro environmental factors? A firms environment represents all internal or external forces, factors, or conditions that exert some degree of impact on the strategies, decisions and actions taken by the firm. There are two types of external environments: The broader macro or general or societal environment which includes all of those environmental forces and conditions that have an impact on every firm and organization within the economy. The macro environmental factors include the demographic, political, social/cultural, technological and the global environments; and The industry-specific micro or competitive or task environment which includes the key forces shaping competition in an industry. The micro environmental factors are governments, local communities, suppliers, competitors, customers, creditors, employees/labour unions, special-interest groups, and trade associations. 4. What are the characteristics of environment? A firms environment represents all internal or external forces, factors, or conditions that exert some degree of impact on the strategies, decisions and actions taken by the firm. The characteristics of an environment are: strengths and weaknesses of the firm and opportunities and threats of the external environment. 5. What is environmental scanning? Environmental scanning is the monitoring, evaluating, and disseminating of information from the external and internal environments to key people within the organization. It is an important ongoing activity because it helps managers understand and oversee potential changes in market demand, industry rivalry patterns, the rise of potential substitute products, and general macro environmental forces that may have long-term effects on the firm. It plays a key role in strategy formulation by analyzing the strengths, weaknesses, opportunities and threats in the environment. A firm uses this tool to avoid strategic surprise and to ensure its long-term health. There are two types of environmental scanning- internal and external environmental scanning.
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6. What is PEST analysis? PEST analysis is merely a framework that categorizes environmental influences as political, economic, social and technological forces. It is a useful strategic tool for understanding market growth or decline, business position, potential and direction for operations. In conducting PEST analysis, it is required to consider each PEST factor as they all play a part in determining the overall business environment. Some f the factors are: Political: (includes legal and regulatory): elections, employment law, consumer protection, environmental regulations, industry-specific regulations, competitive regulations, inter-country relationships/attitudes, war, terrorism, political trends, governmental leadership, taxes, and government structures. Economic: economic growth trends (various countries), taxation, government spending levels, disposable income, job growth/unemployment, exchange rates, tariffs, inflation, consumer confidence index, import/export ratios, and production levels. Social: demographics (age, gender, race, family size, etc.), lifestyle changes, population shifts, education, trends, fads, diversity, immigration/emigration, health, living standards, housing trends, fashion, attitudes to work, leisure activities, occupations, and earning capacity. Technological: inventions, new discoveries, research, energy uses/sources/fuels, communications, rates of obsolescence, health (pharmaceutical, equipment, etc.), manufacturing advances, information technology, internet, transportation, bio-tech, genetics, agri-tech, waste removal/recycling, and so on. 7. What are Barriers to Entry? Barriers to entry represent economic forces or hurdles that slow down or impede entry by other firms. It is an obstruction that makes it difficult for a company to enter an industry. Some of the barriers to entry include: Capital requirements, economies of scale, product differentiation, switching costs, brand identity, access to distribution channels and promise of aggressive retaliation. Ex: No new companies successfully enter the Indian FMCG market because of the high product differentiation and the need for a strong dealer distribution network. 8. What do you mean by Exit Barrier? Exit barriers are serious threats when the demand is dwindling. Exit barriers are economic, strategic and emotional factors which make the companies compete though the return is low. Common exit barriers may result from, earlier excessive investment in a specialized technology that has yet to be paid for, emotional commitment by managers to a given business; and natural resistance by workers, managers, and the society in which they reside to shutting down plants. The presence of strong exit barriers means that firms will continue to compete fiercely with one another for a declining share of the market. Ex: Motorola has pursued a declining niche strategy in deciding to stick with the basic transistor business.
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9. What do you mean by industry analysis? An industry is a group of firms producing a similar product or service, such as soft drinks or financial services. Industry analysis refers to an in-depth examination of key factors within a corporations task environment. Both the societal and task environments must be monitored to detect the strategic factors that are likely to have a strong impact on corporate success or failure. It consists of seven aspects- basic or general features, industry environment, industry structure, industry attractiveness, industry performance, industry practices and emerging trends. Analysis of industry helps in strategy formulation and in building competitive advantage. 10. What do you mean by (a) Societal environment and (b) Task environment? Societal environment: The societal environment includes general forces that do not directly touch on the short-run activities of the organization but that can, often do, influence its long-run decisions. They comprise: Economic forces that regulate the exchange of materials, money, energy and information; Technological forces that generate problem-solving inventions; Political-legal forces that allocate power and provide constraining and protecting laws and regulations; and Socio-cultural forces that regulate the values, mores and customs of society. Task environment: The task environment includes those elements or groups that directly affect the corporation and in turn are affected by it. These are governments, local communities, suppliers, competitors, customers, creditors, employees/labour unions, special interest groups and trade associations. A corporations task environment is typically the industry within which that firm operates. For ex: At Procter & Gamble (P&G), people from each of the brand management teams work with key people from the sales, market research and purchasing departments and prepare necessary reports useful for strategic decision-making. 11. Write the name of factors in Task environment? The task environment includes those elements or groups that directly affect the corporation and in turn are affected by it. A corporations task environment is typically the industry within which that firm operates. The names of factors in task environment include: governments, local communities suppliers competitors customers creditors employees/labour unions special interest groups and trade associations. 12. What is a Strategic Group?
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A Strategic group is a set of business firms or units that pursue similar strategies with similar resources. Categorizing firms in any one industry into a set of strategic groups is very useful as a way of better understanding the competitive environment. Because a corporations structure and culture tend to reflect the kinds of strategies it follows, companies or business units belonging to a particular strategic group within the same industry tend to be strong rivals and tend to be more similar to each other than to competitors in each other strategic groups within the same industry. For ex: Although McDonalds and Haldirams are a part of the same restaurant industry, they have different missions, objectives and strategies and thus belong to different strategic groups. Burger King and Dominos, however, have a great deal in common with McDonalds in terms of their similar strategies of producing a high volume of low-priced meals targeted for sale to the average family. 13. What is a Strategic type? A Strategic type is a category of firms based on a common strategic orientation and a combination of structure, culture and processes consistent with that strategy. According to Miles & Snow, competing firms within a single industry can be categorized on the basis of their general strategic orientation into one of four basic types. They are: Defenders are companies with a limited product line that focus on improving the efficiency of their existing operations. This cost orientations makes them unlikely to innovate in new areas. Prospectors are companies with fairly broad product lines that focus on product innovation and market opportunities. This sales orientation makes them somewhat inefficient. They tend to emphasize creativity over efficiency. Analyzers are corporations that operate at least two different product- market areas, one stable and one variable. In the stable areas, efficiency is emphasized. In variable areas, innovation is emphasized. Reactors are corporations that lack a consistent strategy structure-culture relationship. Their (often ineffective) responses to environmental pressures tend to be piecemeal strategic changes. This classification helps the managers to monitor the effectiveness of certain strategic orientations and also to develop scenarios of future industry development. 14. What is hyper competition? Most industries today are facing an ever increasing of environmental uncertainty that is becoming more complex and more dynamic. New flexible, aggressive, innovative competitors are moving into established markets to erode rapidly the advantages of dominant firms. Variation in distribution channels, closer relationships with suppliers makes companies to quickly imitate the successful strategies of market leaders, which becomes harder to sustain any competitive advantage. This type of environmental turbulence reaches more industries and competition becomes hyper competition. In hyper competition the frequency, boldness and aggressiveness of dynamic movement by the players accelerates to create a condition of constant disequilibria and change. Environments escalate toward higher and higher levels of uncertainty, dynamism heterogeneity of the players and hostility. Ex: Microsoft is a hyper competitive firm operating in a hyper competitive computer industry. 15. What is an Issues Priority Matrix?
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Issues priority matrix is a technique that deals with enormous data and helps to identify and analyze developments in the external environment. Each development is examined for its intensity and impact on the business and probability of such an impact on business. If a firm needs to change its strategy it might not be gathering the appropriate external information to change strategies successfully. It is used as follow: Identify a number of likely trends emerging in the societal and task environments. These are strategic environmental issues that determine what the industry or the world will look like in the near future. Assess the probability of these trends actually occurring from low to high. Attempt to ascertain the likely impact (from low to high) of each of these trends on the corporation being examined. The Issues priority matrix is used to help managers decide which environmental trends should be merely scanned (low priority) and which should be monitored as strategic factors (high priority). 16. What are Key Success factors? Key Success factors are those functions, activities or business practices, defined by the market and as viewed by the customers, which can affect significantly the overall competitive positions of all companies within any particular industry. They typically vary from industry to industry and are crucial to determining a companys ability to succeed within that industry. They are usually determined by the economic and technological characteristics of the industry and by the competitive weapons on which the firms in the industry have built their strategies. Ex: In the major home appliance industry, a firm must achieve low cost, typically by building large manufacturing facilities dedicated to making multiple versions of one type of appliance, such as washing machines. 17. What is Competitive Intelligence? Competitive intelligence is a formal program of gathering information on a companys competitors. External environmental scanning is done on an informal and individual basis, obtained from a variety of sources- suppliers, customers, industry publications, employees, industry experts, industry conferences and the internet. Many business firms have establish their own in-house libraries and computerized information systems to deal with the growing mass of available informations. Strategies can use this data to spot regional and national trends and as well as to assess market share. Ex: Avon products hired private investigators to retrieve from a public dumpster documents that Mary Kay Corporation had thrown away. 18. What is (a) Brainstorming (b) Delphi Technique? Brainstorming: is a non-quantitative approach requiring the presence of people with some knowledge of the situation to be predicted. The basic ground rule is to propose ideas without first mentally screening them. No criticism is allowed. Ideas tend to build on previous ideas until a consensus is reached. This is a good technique to use with operating managers who have more faith in gut feel than in more quantitative number crunching techniques. Delphi Technique: is a technique in which separated experts independently assess the likelihood of specified events. These assessments are combined and sent back to each expert for fine-tuning until an agreement is reached.
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19. What is an Industry scenario? An Industry scenario is a forecasted description of particular industrys likely future. Such a scenario is developed by analyzing the probable impact of future societal forces on key groups in a particular industry. The process may operate as follows: Examine possible shifts in the societal variables globally. 33Identify uncertainty in each of the forces of the task environment. Make a range of plausible assumptions about future trends. Combine assumptions about individual trends into internally consistent scenarios. Analyses the industry situation that would prevail under each scenario. Determine the sources of competitive advantage under each scenario. Predict competitors behavior under each scenario. Select the scenarios that are either most likely to occur on most likely to have a strong impact on the future of the company. Use these scenarios in strategy formulation. 20. Define (a) Resource (b) Competency (c) Capability (d) Core competence (e) Distinctive competence. (a) Resource: A Resource is an asset, competency, process, skill, or knowledge controlled by the operation. A resource is strength if it provides a company with a competitive advantage. It is something the firm does or has the potential to do particularly well relative to the abilities of existing or potential competitors. A resource is a weakness if it is something the corporation does poorly or doesnt have the capacity to do although its competitors have that capacity. Resources may be classified as: Tangible resources such as land, buildings, plant & machinery, etc., and Intangible resources such as brand names, reputation, patents, know-how, R&D, etc. (b) Competency: Competencies are those measurable or observable knowledge, skills, abilities and other behaviors critical to success in a key job role or function. By providing a more holistic view of all the important attributes for success of an organization, a competency approach will improve the understanding of what it really takes to perform well. Using competencies can create a foundation for highperformance of the firms programs to attract, develop and retain the talent needed to succeed in achieving a competitive advantage. Ex: Reliance Industries competencies are its project management skills. (c) Capability: Capabilities are skills which bring together resources and put them to purposeful use. The organizations structure and control system gives rise to capabilities which are intangible. Capabilities are by-products of internal operations and decision-making process of a company and it is difficult for competitors to comprehend it. Capabilities are invisible to outsiders and rather difficult to imitate. Ex: General Motors investments in large sized cars served as a setback in shifting their massive investments for low cost small sized cars made by Japanese competitors. (d) Core Competence: Core competence is a fundamental enduring strength, which is a key to competitive advantage. Core competence may be a competency in technology, process, engineering capability or expertise, which is difficult for competitors to imitate. By and large, it is a technological competence, which
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provides the firm access to a variety of products and markets and contributes to customer delight. Ex: Hondas core competence in designing and manufacturing engines had led to several products and business such as cars, motorcycles, lawnmowers, generators, etc. (e) Distinctive Competence: Distinctive competence is a unique strength that allows a company to achieve superior efficiency, quality, innovation and customer responsiveness. In order to possess distinctive competence, a company should have both unique and valuable resources and capabilities to exploit resources and a unique capability to manage common resources. It allows the firm to charge premium price and achieve low costs compared to rivals, which results in a profit rate above the industry average. It should satisfy three conditions of value, uniqueness and extendibility. Ex: Toyota achieved success through distinctive competence in world class manufacturing process.
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21. What is a Value chain? A Value chain is a linked set of value-creating activities beginning with basic raw materials coming from suppliers, moving on to a series of value-added activities involved in producing and marketing a product or services, and ending with distributors getting the final goods into the hands of the ultimate consumers. Ex: A typical value chain for a manufactured product.
Raw materials Primary manufacturing Fabrication Product Producer Distributor Retailer
The focus of value chain analysis is to examine the corporation in the context of the overall chain of value-creating activities, of which the firm may be only a small part. 22. What is a TOWS matrix? The TOWS matrix (TOWS is just another way of saying SWOT) illustrates how the external opportunities and threats facing a particular corporation can be matched with that companys internal strengths and weakness to result in four sets of possible strategic alternatives. This is a good way to use brainstorming to create alternative strategies that might not otherwise be considered .It forces strategic managers to create various kinds of growth as well as retrenchment strategies. It can be used to generate corporate as well as business strategies. Strengths (S) denote all the good and advantageous aspects of the firm; Weaknesses (W) represent retarding influences on the success of the organization; Opportunities (O) may come about fortuitously or by undertaking some research; and Threats (T) are adverse repercussions on the organization; as involved in a project or in a business venture or in any other situation of an organization or individual requiring a decision in pursuit of an objective. It involves monitoring the marketing environment internal and external to the organization or individual. Internal External EXTERNAL INTERNAL STRENGTHS (S) SO: Strategy INTERNAL WEAKNESS (W) WO: Strategy
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OPPORTUNITIES(O) Max-Max EXTERNAL ST: Strategy THREATS(T) Max-Min Min-Max WT: Strategy Min-Min
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23. What is Competitive Advantage? A company is said to have attained competitive advantage when the profit rate of a company is higher than industry average. Competitive Advantage is the result of a strategy capable of helping a firm to maintain and sustain a favorable market position. This position is translated into higher profits compared to those obtained by competitors operating in the same industry. Competitive advantage comes from a firms ability to perform activities more distinctively or more effectively than rivals. It enables a firm to generate successful performance over an extended period of time. Firms from a variety of industries, settings and situations develop strategies to achieve competitive advantage. Activities undertaken to achieve this end form the basis of strategic management process. Ex: Making the highest-quality product. 24. What are the generic strategies? Competitive strategies or Generic strategies are designed to help firms deploy their value chains and other strengths to build competitive advantage. Each company formulates its specific competitive strategy according to its own analysis of internal strengths and weaknesses, the value it can provide, the competitive environment, and the needs of its environment. The three broad types of competitive strategies or generic strategies are Low-cost leadership strategies Differentiation strategies and Focus strategies. 25. How does Traditional Business differ from E-Business? Key differences between E-Business and Traditional Business are: E-Business * Always open and on-24/7 * No geographical boundaries * High pricing transparency * Decisions have fast impact * Immediate competitor response * Customer has more power * Easy to compare rival offerings * Firm is part of larger value network * Convenience and cost are keydefined by customer. Traditional Business * Limited by time constraints/ schedules * Physical location important * Uneven availability * Decisions take time to implement * Competitor response time lagging * Supplier usually has more power * Effort required to compare offerings * High distance between firms with suppliers and customers * Convenience and cost defined by supplier in many cases.
26. What is a VRIO framework? A Resource is an asset, competency, process, skill, or knowledge controlled by the operation. VRIO framework of analysis was evolved by Barney to evaluate a firms
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key resources. It is a mechanism that integrates two existing theoretical frameworks- the positioning perspective and the resource-based view. It is a primary tool for accomplishing internal analysis. The following questions are asked to assess the nature of resources: Value Does a resource enable a firm to exploit an environmental opportunity, and/or neutralize an environmental threat? (Does it provide competitive advantage?) Rareness Is a resource currently controlled by only a small number of competing firms? (Do other competitors possess it?) Imitability Do firms without a resource face a cost disadvantage in obtaining or developing it? (Is it costly for others to imitate?) Organization Are a firms other policies and procedures organized to support the exploitation of its valuable, rare and costly-to-imitate resources? (Does the firm exploit the resource?) A resource is considered to be valuable if it helps to create strong demand for the product. 27. What is PESTLE analysis? PESTLE stands for - Political, Economic, Sociological, Technological, Legal, Environmental. PESTLE analysis is an audit of an organisation's environmental influences with the purpose of using this information to guide strategic decision-making. The assumption is that if the organisation is able to audit its current environment and assess potential changes, it will be better placed than its competitors to respond to changes. It is a useful tool for understanding risks associated with market (the need for a product or service) growth or decline, and as such the position, potential and direction for an individual business or organisation. The PESTLE model provides users with a series of headings under which users can brainstorm or research key factors: Political: what is happening politically in the environment in which you operate, including areas such as tax policy, employment laws, environmental regulations, trade restrictions and reform, tariffs and political stability. Economic: what is happening within the economy, for example; economic growth/decline, interest rates, exchange rates and inflation rate, wage rates, minimum wage, working hours, unemployment (local and national), credit availability, cost of living, etc. Sociological: what is occurring socially in the markets in which you operate or expect to operate, cultural norms and expectations, health consciousness, population growth rate, age distribution, career attitudes, emphasis on safety, global warming. Technological: what is happening technology-wise which can impact what you do, technology is leaping every two years, how will this impact your products or services, things that were not possible five years ago are now mainstream, for example mobile phone technology, web 2.0, blogs, social networking websites. New technologies are continually being developed and the rate of change itself is increasing. There are also changes to barriers to entry in given markets, and changes to financial decisions like outsourcing and insourcing. Legal: what is happening with changes to legislation. This may impact employment, access to materials, quotas, resources, imports/ exports, taxation etc.
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GANESH.P,MBA,PGPMIR(MSSW) Environmental: what is happening with respect to ecological and
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environmental aspects. Many of these factors will be economic or social in nature. 28. List some of the political factors influencing the industry analysis. Some of the political factors influencing the industry analysis are: Stability of Government Form of Government Political ideology Government attitude towards foreign companies Foreign policies Antitrust regulations Foreign trade regulations Regulations on foreign ownership of assets Ecological or environmental issues Terrorist activity and Strength of opposition groups. 29. List some of the environmental factors influencing the industry analysis. Some of the environmental factors influencing the industry analysis are: Environmental impact Environmental legislation Soil and Pollution control Energy consumption and Waste disposal. 30. List some of the social and cultural factors influencing the industry analysis. Some of the social and cultural factors influencing the industry analysis are: Customs, norms, values Language Demographics Life expectancies Social institutions Status symbols Lifestyle Religious beliefs Literacy level and Human rights. 31. List some of the technological factors influencing the industry analysis. Some of the technological factors influencing the industry analysis are: Natural resource availability New products New developments in technology transfer from lab to market place Patent-Trademark protection
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Productivity improvements through automation Total Government and industry spending for R&D Internet availability Telecommunication infrastructure and Skill level of workforce.
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32. List some of the legal factors influencing the industry analysis. Some of the legal factors influencing the industry analysis are: Tax laws Export-import regulations Special local, state, national laws International law Employment law Competition law Health & Safety law and Legal system. 33. List some of the economic factors influencing the industry analysis. Some of the economic factors influencing the industry analysis are: GDP trends Interest rates Per capita income Monetary and fiscal policies Money supply Inflation rates Unemployment levels Wage/price controls Currency convertibility Devaluation /Revaluation Energy availability and cost Disposable and discretionary income. 34. What are Strategic factors? Strategic factors are those internal and external elements that will determine the future of the organization. They are identified through environmental scanning. These factors deal with a particular company. They provide the necessary information for strategy formulation. Strategic factors are those trends that are judged to have both medium to high probability of occurrence and a medium to high probability of impact on the organization. They form the key factors of the strengths, weaknesses, opportunities and threats of an organization. Ex: Current assets management may be a strategic factor. 35. What is Forecasting? Forecasting is a way of estimating the future events that are likely to have a major impact on the enterprise. It is a technique whereby the managers try to predict the future characteristics of the organizational environment and hence make decisions today that
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will help the firm deal with the environment of tomorrow. The forecasts are based on a set of assumptions that may or may not be valid. Ex: Management assumed that Tupperware parties would continue being an excellent distribution channel for Tupperware products. 36. List the various techniques of forecasting. Forecasting is a way of estimating the future events that are likely to have a major impact on the enterprise. The various techniques of forecasting are: Trend extrapolation is the extension of present trends into the future. It assumes that the world is reasonably consistent and changes slowly in the short run. Brainstorming is a non quantitative approach which proposes ideas without first mentally screening them. Expert opinion is a non quantitative technique in which experts in a particular area attempt to forecast likely developments. Delphi technique in which separated experts independently assess the likelihoods of specified events. Statistical modeling is a quantitative technique that attempts to discover casual or atleast explanatory factors that link two or more time series together. Scenario writing are focused descriptions of different likely futures presented in a narrative fashion. 37. Discuss how a development in a corporation's societal environment can affect the corporation through its task environment. Developments or trends in a corporation's societal environment typically do not affect the corporation directly but indirectly through their impact on one or more stakeholder groups in the corporation's task environment. Sociocultural forces regarding the changing role of women plus the trend toward single family households combined with the economic forces of high interest rates and inflation in the 1970s to send both men and women searching for full-time jobs in addition to their being parents. This development in the societal environment continues to affect companies through its impact on employee/union groups (who ask for parental leave and/or company-sponsored day care centers), customers (employed parents who increasingly shop for convenience goods because of time constraints), and special interest groups and even governments (who ask business firms to help support local schools and deal with community social problems). 38. According to Porter, what factors determine the level of competitive intensity in an industry? According to Porter, the factors that determine the level of competitive intensity in an industry are: Threat of new entrants Rivalry among existing firms Threat of substitute products or services Bargaining power of buyers Bargaining power of suppliers and Relative power of other stakeholders. The collective strength of these forces determines the ultimate profit potential in any industry, where profit potential is measured in terms of long run return on invested capital.
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39. According to Porter's discussion of industry analysis, is Pepsi Cola a substitute for Coca Cola? Since Coke and Pepsi are both colas, most people think of them as substitutes for one another. They have almost identical product characteristics. According to Porter, however, substitute products are those products that appear to be different but can satisfy the same need as another product. This means that in Porter's mind substitutes do not have similar product characteristics, but are still able to satisfy the same need. This indicates that Porter would not view Pepsi and Coke as true substitutes, but just as two versions of the same product. Thus, Porter would view coffee and tea (both having caffeine) as being substitutes for a soft drink cola. The whole idea of Porter's approach to industry analysis is to get people to go beyond the obvious when considering what effects the level of competitive intensity within an industry. 40. How can a decision maker identify external strategic factors in a corporation's external international environment? One begin by listing three or more trends emerging in each of the four forces of a firm's societal environment in an environmental trend analysis matrix. Then estimate the likely impact of these general trends upon the primary stakeholders, e.g., communities, creditors, competitors, etc. These data form a series of strategic issues - those trends and developments that are very likely to determine the future environment. Plot these strategic issues on an issues priority matrix. Those issues judged to have a high probability of occurring and a high probable impact on the corporation are strategic factors. Categorize these factors as opportunities or threats. Keep in mind that some strategic factors may be both opportunities and threats depending upon how one views them. 41. Compare and contrast trend extrapolation with the writing of scenarios as forecasting techniques. Extrapolation is simply the extension of present trends into the future. It relies on the assumption that the environment is reasonably consistent and changes slowly in the short run. As a result, extrapolation is fairly easy to do - as witnessed by its being the most widely used form of forecasting. Nevertheless, extrapolation is like driving a car backwards without using a mirror or twisting one's head to look backward. Everything will be fine until a sudden turn is reached! Like driving backwards, extrapolation is fine if the time frame to be predicted is short and one is lucky. In contrast, scenario-writing is based upon a series of historical data plus informed hunches from key people in the company who have access to environmental information or from a Delphi panel of outside experts. Like extrapolation, scenario-writing is a very popular forecasting technique, but unlike extrapolation, it can get very complicated and time consuming. It has at least one clear-cut advantage over extrapolation. It encourages forecasters to make their assumptions explicit. One is thus more likely to recognize the dangerousness of driving backwards. Scenario writing, if done conscientiously, could thus be seen as an attempt to construct a mirror to use in such hazardous driving! 42. Why is environmental uncertainty an important concept in strategic management? It can be argued that without environmental uncertainty, there would be no need for strategic management. The Arab oil embargo of 1973 is said to be the single most influential event causing the formation of planning departments in most U.S.
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corporations. The embargo showed managers just how vulnerable their companies were to environmental change. A key part of strategic management, environmental scanning is a tool used to help avoid strategic surprise and cope with an uncertain environment. If the environment was certain and predictable, environmental scanning would be a rather easy chore. Simple extrapolation would be the only type of forecasting needed. In a complex and changing world, however, those corporations which engage in environmental scanning and strategic planning tend to deal better with environmental uncertainty and to be more successful than their non-planning brethren. 43. What can a corporation do to ensure that information about strategic environmental factors gets to the attention of strategy makers? This is a very real problem in most large corporations given the usual obstacles to good communication. The very people who are in the best positions to gather this data are often the ones who either fail to pass it on because it's too much of a chore or they fail to notice it because no one told them how important certain developments are to top management. Since proper information dissemination is an important part of environmental scanning, corporations attempt to schedule a series of analytical reports for top management's information. The purchasing department, for example, might be tasked with the job of compiling a quarterly analysis of the availability and reliability of present and future suppliers. The market research department might prepare analyses of present and future customers for certain products and services with special attention to demographic shifts. Each report would need to conclude with a list of strategic factors to monitor in the coming months or years. Other approaches are, of course, possible to get needed information to the attention of strategy makers 44. If most long-term forecasts are usually incorrect, why bother doing them? One must keep in mind that some things are easier to forecast than others. For ex: a forecasted drop in the demand for tricycles in three years will very likely occur if it is based upon a strong drop in the present birth rate. Forecasts going out five to ten years have a low probability of becoming reality in today's dynamic world. Even if predictions prove to be wrong, the very act of scanning and forecasting the environment helps managers take a broader perspective. It also forces managers to take an active orientation toward its external environment. It encourages calculated risks and is more likely to result in strategic management instead of reactive management. 45. What are the characteristics that determine the sustainability of a firms distinctive competency? Distinctive competence is a unique strength that allows a company to achieve superior efficiency, quality, innovation and customer responsiveness. In order to possess distinctive competence, a company should have both unique and valuable resources and capabilities to exploit resources and a unique capability to manage common resources. The characteristics that determine the sustainability of a firms distinctive competencies are: Durability is the rate at which a firms underlying resources and capabilities depreciate or become obsolete. Ex: Intels management decided that without basic R&D of its own it is difficult to stay in the market with the Pentium chip. Imitability is the rate at which a firms underlying resources and core competencies can be duplicated by others. A core competency can be easily imitated to the extent that
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its transparent, transferable and replicable. Ex: Hiring employees from the competitor.
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46. What do you mean by Corporate culture? Corporate culture is the collection of beliefs, expectations, and values learned and shared by an organizations members and transmitted from generation of employees to another. It generally reflects the values of the founder(s) and the mission of the firm. It has two distinct attributes, intensity and integration. It gives a company a sense of identity. Cultural intensity is the degree to which members of a unit accept the norms, values or other culture content associated with the unit. It shows the cultures depth. Cultural integration is the extent which units throughout an organization share a common culture. It shows the cultures breadth. Ex: Product quality at TVS group, R&D at Hewlett-Packard. 47. What is the relevance of the resource-based view of the firm to strategic management in a global environment? The resource-based view of the firm is an attempt to bring attention to the importance of a corporation's resources in strategic management. For much of the 1980s, Porter's concepts of industry analysis and competitive strategy dominated the field of strategic management to such an extent that many felt that industry structure alone seemed to determine a firm's profit potential. Unfortunately, this emphasis on the industry tended to ignore a firm's core skills and competencies. What good is the knowledge that a niche in the market exists that can be reached through a focused differentiation competitive strategy if a corporation doesn't have the resources to implement such a strategy? Experts on the resource-based view suggest that differences in performance among companies may be explained best, not through differences in industry structure identified by industry analysis, but through differences in corporate assets and resources and their application. The resource-based view of the firm is compatible with the traditional concepts of S.W.O.T. and distinctive competence popular in the field since the 1960s. The only danger with the resource-based approach is that people may go overboard again and tend to put too much emphasis on internal factors and not enough on external factors. Nevertheless, the idea that the durability and imitability of corporate resources determine competitive advance is a very useful one. 48. How can value chain analysis help identify a company's strengths and weaknesses? Value chain analysis, as proposed by Porter, is a way of examining the nature and extent of the synergies that do or do not exist between the internal activities of a corporation. The systematic examination of individual value activities can lead to a better understanding of a corporation's strengths and weaknesses. Its advantage over other methods of analyzing a firm's internal environment is its ability to visualize a company in terms of strings of product value chains which can be tied together in places to achieve economies of scope. 49. In what ways may a corporation's structure and culture be internal strengths or weaknesses? If a corporation's structure is compatible with present and potential strategies, it can be viewed as an internal corporate strength. If, however, the structure is not compatible with
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either present or potential strategies, it is a definite weakness and will act to constrain strategy formulation. For ex: if a corporation is structured on the basis of function, this may be a weakness if the firm wishes to grow by acquiring other profitable corporations. In order to implement such a strategy, the strategy formulators may have to reorganize on a divisional basis. To the extent that top and middle managers have no experience with such a structure, a lot of unforeseen problems can emerge which may seriously affect the success of the strategy. Corporate culture is a collection of beliefs, expectations, and values shared by a corporation's members, acts to shape the behavior of people in a corporation. Since corporate culture has a powerful influence on the behavior of managers as well as other employees, it may strongly affect a corporation's ability to shift its strategic direction. Acting in a manner similar to structure, to the extent that a corporation's culture is compatible with present and potential strategies, it can be viewed as an internal corporate strength. To the extent that it is not compatible, it may spell disaster for a strategic change in the implementation stage. A strategy that contradicts an entrenched culture may find itself being quietly (or not so quietly) sabotaged by the corporation's most loyal and competent employees. 50. What are the pros and cons of managements using the experience curve to determine strategy? Bruce Henderson of the Boston Consulting Group popularized the experience (or learning) curve concept in strategic management. Based on the assumption underlying the BCG growth-share portfolio matrix, He argues that the key to profits lies in market share. If a corporation is able to sell a very large number of new products by offering them at a very low price (actually below per unit cost unless vast quantities are sold), it will gain a dominant market share and pre-empt competition by keeping the price too low for potential competitors to earn profits. This forms a formidable entry barrier. The corporation successfully using the experience curve will earn large profits either as a star or when it eventually becomes a cash cow. Certainly a glance at history supports Henderson's argument. Ex: Model-T Fords and Bic ball point pens. The experience curve thus is a basis for using financial and operating leverage to achieve a low cost business-level strategy. The experience curve concept does have its limitations, however. For one thing, it does not consider that a corporation can be very profitable with very low leverage by occupying a dependable niche in the marketplace based upon some differentiating strategy such as quality or snob appeal. Ex: Rolls Royce automobiles and Maytag washers ignore the experience curve by pricing at a cost above the market price and still achieving solid profits. Differentiation and focus strategies can be very successful without using the experience curve. Another limitation of the experience curve is that much of its success is based upon economies of scale. The use of computers and robots, however, negates much of the experience curve advantages. The curve in a CAD/CAM plant might be so steep that all the experience advantages are learned in the production of two thousand instead of two million units. The implication is that a firm following Henderson's strategy of cost leadership based on an assumed experience curve might find it very difficult to reach the required high market share break-even point when its competitors using CAD/CAM can quickly meet its price in the marketplace by going quickly down their own experience curves. Although it is possible to have a number of successful niches in a given product/service market, only one star position is available in the growth-share matrix.
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51. How might a firm's management decide whether it should continue to invest in current known technology or in new, but untested, technology? What factors might encourage or discourage such a shift? Strategic managers deal with the issue of technology substitution by (1) continuously searching for sources from which new technologies are likely, (2) as the technology surfaces, making a timely commitment either to acquire the new technology or to prepare to leave the market, and (3) reallocating resources from improvements in the older process-oriented technology to investments in the newer, typically product-oriented, technology as the new technology approaches commercial realization. A Deterioration of Cost Index compares the average unit cost of the currently installed technology to that of the expected average unit cost of state-of-the-art technology. 52. Why should information systems be included in the analysis of a corporation's strengths and weaknesses? Although not yet considered a major part of the traditional, functionally organized business corporation, information systems has become very important to those corporations operating in a dynamic and complex environment. From a strategic management point of view, information systems are important because they can (i) provide a basis for analyzing early warning signals that originate both externally and internally, and (ii) provide the information necessary to make strategic decisions. To the extent that a corporation has a completely integrated information system, it is a strength that can provide a significant competitive advantage. Environmental scanning is more systematic with information dealing with strategic factors getting to corporate and business level planners and decision makers in a timely manner. A computerized information system can be used to develop a series of likely industry scenarios as well as a number of alternative strategies and implementation programs. Efficiencies coming from a well-integrated information system can also be shared with customers and suppliers - thus serving as a competitive weapon in a dynamic marketplace. 53. What is Supply chain management? Supply chain management is the forming of networks for sourcing raw materials, manufacturing products or creating services, storing and distributing the goods, and delivering them to customers and consumers. Industry leaders are integrating modern information systems into their corporate value chains to harmonize companywide efforts and to achieve competitive advantage. Ex: Heineken Beer distributors input actual depletion figures and replenishment orders to the Netherlands brewer through their linked web pages. 54. What are Virtual Teams? Virtual teams are groups of geographically and/or organizationally dispersed co-workers that are assembled using a combination of telecommunications and information technologies to accomplish an organizational task. Internet, intranet and extranet systems are combining with other new technologies such as desktop videoconferencing and collaborative software to create a new workplace in which teams of workers are no longer restrained by geography, time or organizational boundaries. Membership on these teams is often fluid, depending upon the task tobe accomplished. Ex: Team for strategic planning.
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55. What are Critical Success factors? Critical Success factors (CSFs) are those factors that form the basis for business strategy in any industry. They allow the business to put concentrated focus on a particular area and exploit the opportunities available therein to its advantage. Every firm needs to keep its eyes wide open so that it can spot opportunities early, convert these value-adding business propositions and enhance shareholder value without diluting its focus on its core competencies. Ex: Openness, honest practices, transparency, proactive management and talent pool are the CSFs of Infosys Technologies Ltd. 56. What do you mean by Value-chain analysis? A Value chain is a linked set of value-creating activities beginning with basic raw materials coming from suppliers, moving on to a series of value-added activities involved in producing and marketing a product or services, and ending with distributors getting the final goods into the hands of the ultimate consumers. Value-chain analysis is to examine an organization in the context of the overall chain of value-creating activities, of which the firm may be only a part. It may be an industry or a corporate value chain analysis. Ex: Industry value chain analysis Indian auto industrys revenues and profits are divided among many value chain activities including manufacturing, new and used car sales, petrol/diesel retailing, insurance, after-sales service and parts, and lease financing. Corporate value chain analysis Arvind Millss expertise is in spinning and weaving, which are the primary activities and human resource management, firm infrastructure and R&D are its support activities.
PART B
1. Discuss how a development in a Corporations societal (Macro) environment can affect the corporation through its task environment. Definition of societal environment, task environment list the factors of societal environment with respect to a corporation list the factors of task environment with reference to how it affects the corporation conclusion. 2. What is relevance of the resource-based view of the firm to strategic management in a global environment? Definition of resource types of resources VRIO framework using resources to gain competitive advantage (competencies, capabilities) sustainability of an advantage (durability, imitability, transparency, transferability, replicability) with reference to global environment conclusion. 3. If your organization could get accurate answers to 12 questions about its competitive environment, what questions would it ask? Definition of environment competitive environment questions based on opportunities and threats answers through the organizations strengths and weaknesses conclusion. 4. Explain how value chain analysis could help in organizational analysis. Definition of value chain, value chain analysis Value chain of a corporation components of value chain conclusion.
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5. Explain the application of TOWS matrix in strategy formulation. Definition of strategy formulation, TOWS matrix or SWOT analysis explain each of s, w, o, t in SWOT advantages and demerits of SWOT conclusion. 6. According to Porter, what determines the level of competitive intensity in an industry? (OR) Explain the role of Porters approach in industry analysis (OR) Explain the Porters Five Forces Model to analyze competitive forces in an industry environment (OR) Discuss Porters model for analyzing industries and competitors. Definition of industry, competitive intensity in an industry, Porters approach five forces model explain each of these forces merits and demerits of five forces model conclusion. 7. Explain the concept of SWOT analysis and Portfolio analysis. Definition of strategy formulation SWOT analysis merits and demerits of SWOT analysis Portfolio analysis BCG matrix and GE business screen merits and demerits of portfolio analysis conclusion. 8. What are the generic building blocks of competitive advantage? Elaborate (OR) Explain the four generic building blocks of competitive advantage. How to achieve this competitive advantage and make it durable? Definition of competitive advantage generic building blocks of competitive advantage quote examples conclusion. 9. Elaborate on the sources of distinctive competencies. Definition of competency, distinctive competency sources of distinctive competencies distinctive competencies in functional areas conclusion. 10. Explain the impact of the Product life cycle on sources of competitive advantage. Definition of competitive advantage relationship between product life cycle and competitive advantage with reference to each of the stage in product life cycle merits and demerits conclusion. 11. Elaborate on a Corporations value chain. Definition of value chain, value chain analysis (VCA) Corporate value chain analysis primary and support activities steps in VCA explanation of VCA with an example benefits of VCA conclusion. 12. Discuss the impact of the internet on environmental scanning and industry analysis. Definition of environmental scanning, industry analysis use of IT impact of internet on environmental scanning, industry analysis merits and demerits conclusion.
UNIT 3 : STRATEGIES PART A

1. Define (a) Functional Strategy (b) Business Strategy (c) Corporate Strategy (d) Global Strategy (e) Marketing Strategy (f) Financial Strategy (g) R&D Strategy (h) Operations Strategy (i) Purchasing Strategy (j) Logistics Strategy (k) HRM Strategy
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(l) IS Strategy (m) Low-Cost Strategy (n) Differentiation Strategy (o) Focus Strategy (p) Directional Strategy (q) Growth Strategy (r) Stability Strategy (s) Retrenchment Strategy (t) Competitive strategy (u) Cooperative strategy. (a) Functional Strategy: Functional strategy is the approach a functional area takes to achieve corporate and business unit objectives and strategies by maximizing resource productivity. It is concerned with developing and nurturing a distinctive competence to provide a company or business unit with a competitive advantage. Each business unit has its own set of departments, each with its own functional strategy. Ex: A business unit following a competitive strategy of differentiation through highquality needs a manufacturing functional strategy that emphasizes expensive, quality assurance process over cheaper, high volume production; a human resource functional strategy that emphasizes the hiring and training of a high skilled, but costly, workforce; and a marketing functional strategy that emphasizes distribution channel pull using advertising to increase consumer demand over push using promotional allowances to retailers. (b) Business Strategy: The plans and actions that firms devise to compete in a given product/market scope or setting and asks the question How do we compete within an industry? is a business strategy. It focuses on improving the competitive position of a companys business units products or services within the specific industry or market segment that the company or business unit serves. It can be: Competitive battling against all competitors for advantage which includes Lowcost leadership, Differentiation and Focus strategies; and/or Cooperative working with one or more competitors to gain advantage against other competitors which includes Collusion and Strategic alliances. Ex: Wet grinder companies like Shantha and Sowbhagya seeks differentiation in a targeted market segment. (c) Corporate Strategy: Plans and actions that firms need to formulate and implement when managing a portfolio of businesses is a corporate strategy. It is especially a critical issue when firms seek to diversify from their initial activities or operations into new areas. It deals with three key issues facing the corporation as a whole: The firms overall orientation growth, stability or retrenchment Directional strategy; The industries or markets in which the firm competes through its products and business units Portfolio strategy; The manner in which the management coordinates the activities, transfers resources and cultivates capabilities among product lines and business units Parenting strategy. Ex: In the textile industry, Arvind Mills and Raymonds have started investing big money to strengthen their design and brand capabilities as a directional strategy. (d) Global Strategy: is a strategy that seeks to achieve a high level of consistency and standardization of products, processes and operations around the world; coordination of the firms subsidiaries to achieve high interdependence and mutual support. The key characteristics of a global strategy are: Standardized products;
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Global economies of scale in key components and activities; Leverage technology across many markets; and Global coordination of marketing and sales system wide. Ex: IBM (Big Blue) develops and manufactures all of the computers in the world.
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(e) Marketing Strategy: Marketing strategy defines how a firm can communicate with the market efficiently in order to sell its products and services. It deals with four components, viz, product, price, place and promotion. These strategies help to determine who will sell what, where, when, to whom, in what quantity and how. Ex: For advertising and promotion, a firm can choose either a push or a pull marketing strategy.
KEY FUNCTIONAL STRATEGIES PRODUCT KEY CONSIDERATIONS
PRICE
PLACE
PROMOTION
Type of product Key contributors to profitability Product image Consumer need Changes that influence customers Price as the basis of competition Rice modifications through discounts Uniformity in pricing policies Target segments Gross profit margin Level of market coverage Priority geographic areas Key distribution channels Channel objectives, structure and management Change in marketing mix Sales force organization Key promotion priorities and approaches Advertising and communication priorities Media
(f) Financial Strategy: Financial strategy examines the financial implications of corporate and business-level strategic options and identifies the best financial course of action. It can also provide competitive advantage through a lower cost of funds and a flexible ability to raise capital to support a business strategy. Financial strategy usually attempts to maximize the financial value of the firm. A firms financial strategy is influenced by its corporate diversification strategy. Ex: Equity financing is preferred for related diversification while debt financing is preferred for unrelated diversification.
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KEY FUNCTIONAL STRATEGIES CAPITAL ACQUISITION
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CAPITAL ALLOCATION
DIVIDEND AND WORKING CAPITAL MANAGEMENT
KEY CONSIDERATIONS Cost of capital Proportion of short and long-term debt Balance between internal and external funding Appropriate risk and ownership Level and forms of leasing Priorities in allocation to projects Basis of final selection of projects Capital allocation authority Dividend-payout ratio Stability of dividends Cash flow requirements Credit policies Credit limits, terms of repayment and collection procedures Payment timing and procedure
(g) R&D Strategy: R&D strategy deals with product and process innovation and improvement. It also deals with the appropriate mix of different types of R&D (basic, product or process) and with the question of how new technology should be accessedinternal development, external acquisition or through strategic alliances. One of the R&D choices is to be either a technological leader in which one pioneers an innovation or a technological follower in which one imitates the products of competitors. Ex: Nike Inc. spends more than most in the industry on R&D to differentiate the performance of its athletic shoes from that of its competitors.
R&D DECISION AREA BASIC RESEARCH VS COMMERCIAL DEVELOPMENT KEY CONSIDERATIONS
TIME HORIZON ORGANIZATION FIT
BASIC R&D POSTURE
Extent of innovation vis--vis product development, refinement and modification New projects that support growth Emphasis on short-term or long-term Nature of research (in-house or contracted) Departmental structure (centralized or decentralized Relations with other departments Offensive or defensive
(h) Operations Strategy: Operations strategy determines how and where a product or service is to be manufactured, the level of vertical integration in the production process, and the deployment of physical resources. It should also deal with the optimum level of technology the firm should use in its operations processes. The differences in national conditions can lead to differences in product design and manufacturing facilities from one country to another.
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Ex: Personal Pair system introduced by Levi Strauss to combat the growing competition from private label jeans is an example of mass customization.
KEY OPERATING STRATEGIES FACILITIES AND EQUIPMENT KEY CONSIDERATIONS
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OPERATIONS PLANNING & CONTROL
Importance of facilities Extent of integration of processes Size and capacity Level of inventory Inventory use Key control efforts Nature of maintenance (preventive or market-oriented) Job specialization Plant safety
(i) Purchasing Strategy: Purchasing strategy deals with obtaining the raw materials, parts and supplies needed to perform the operation function. The basic purchasing choices are Multiple sourcing the purchasing company orders a particular part from several vendors; Sole sourcing the purchasing company orders a particular part from only one supplier; and Parallel sourcing two suppliers are the sole suppliers of two different parts, but they are also backup suppliers for other parts. Key purchasing strategies are: Sources Selection of suppliers and managing relations and Acceptable forward buying level. Ex: Hewlett-Packard enables its employees to buy office supplies from a standard set of suppliers. (j) Logistics Strategy: Logistics strategy deals with the flow of products into and out of the manufacturing process. Three trends are evident Centralization the headquarters group of a firm contains specialists with expertise in different transportation modes such as rail, trucking or shipping. They work across the entire firm to gain better contracts with transporters. Ex: Union Carbide. Outsourcing Many firms are outsourcing logistics operations to reduce costs and improve delivery time. Ex: HP contracted with Roadway logistics to manage its inbound raw materials warehousing. Internet Many firms are using the internet to simplify their logistical system. Ex: Ace Hardware created an online system for its retailers and suppliers. (k) HRM Strategy: HRM strategy addresses the issue of whether a company or business unit should
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hire a large number of low-skilled employees who receive low pay, perform repetitive jobs, and most likely quit after a short-time or hire skilled employees who receive relatively high pay and are cross-trained to participate in self-managing work teams. Business firms are experimenting with different category of workers, namely, Part-time workers Temporary employees and Leasing of employees. Companies are finding that having a diverse workforce can be a competitive advantage. Ex: Avon was able to turn around its unprofitable inner-city markets by putting African American and Hispanic managers in charge of marketing in these markets. (l) IS Strategy: Information System strategies provide business units with competitive advantage. Many companies are attempting to use information systems to form closer relationships with both their customers and suppliers through sophisticated extranets. Instant translation software enables workers to have online communication with coworkers in other countries who use a different language. By practicing follow-the-sun management the project team members living in one country can pass their work to team members in another country in which the work day is just beginning. Ex: General Electrics Trading Process Network allows suppliers to communicate with GE purchasing managers. (m) Low-Cost Strategy: is the ability of a company or a business unit to design, produce and market a comparable product more efficiently than its competitors. It is a competitive strategy based on the firms ability to provide products or services at lower cost than its rivals. It is formulated to acquire a substantial cost advantage over other competitors that can be passed on to consumers to gain a large market share. As a result the firm can earn a higher profit margin that result from selling products at current market prices. Ex: Whirlpool has successfully used a low-cost leadership strategy to build competitive advantage. (n) Differentiation Strategy: is the ability to provide unique and superior value to the buyer in terms of product quality, special features or after-sale service. It is a competitive strategy based on providing buyers with something special or unique that makes the firms product or service distinctive. The customers are willing to pay a higher price for a product that is distinct in some special way. Superior value is created because the product is of higher quality and technically superior which builds competitive advantage by making customers more loyal and less-price sensitive to a given firms product or service Ex: Mercedes and BMW have successfully pursued differentiation strategies. (o) Focus Strategy: is designed to help a firm target a specific niche within an industry. Unlike both low-cost leadership and differentiation strategies that are designed to target a broader or industry-wide market, focus strategies aim at a specific and typically small niche. These niches could be a particular buyer group, a narrow segment of a given product line, a geographic or regional market, or a niche with distinctive special tastes and preferences. Ex: Solectron is a highly specialized manufacturer of circuit boards used in PCs and other electronic devices which has adopted a well-defined focus strategy.
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(p) Directional Strategy: is a corporate strategy based on an organizations orientation toward growth, survival and success. These strategies are useful both to corporations operating in only one industry with one product line and to those operating in many industries with many product lines. A firms directional strategy is composed of three general orientations also called as grand strategies Growth strategies expand the companys activities Ex: Concentration and diversification strategies; Stability strategies make no change to the companys current activities Ex: No change strategy; and Retrenchment strategies reduce the companys level of activities Ex: turnaround strategy. (q) Growth Strategy: is a directional strategy designed to achieve growth in sales, assets, profits or a combination of these. Continuing growth means increasing sales and a chance to take advantage of the experience curve to reduce the per-unit cost of products sold, thereby increasing profits. This cost reduction becomes extremely important if a corporations industry is growing quickly and competitors are engaging in price wars in attempts to increase their shares of the market. Ex: Motorola Inc. is spending large sums on product development to ensure future returns. (r) Stability Strategy: is a strategy chosen by a corporation to continue with its current activities without any significant change in direction. It can be appropriate for a successful corporation operating in a reasonably predictable environment. They are very popular with small business owners who found a niche and are happy with success and the manageable size of the firms. Stability strategies may be useful in the short run, but they can be dangerous if followed for too long. Some of the stability strategies are Pause/Proceed with caution strategy is a decision to make only incremental improvements; No change strategy is a decision to do nothing new and continue with current operations and policies for the foreseeable future; and Profit strategy is a decision to artificially support profits by reducing investment and other expenditures. (s) Retrenchment Strategy: is a strategy chosen by a corporation to reduce its level of activities. A firm may pursue retrenchment strategies when it has a weak competitive position in some or all of its product lines resulting in poor performance- sales are down and profits are becoming losses. These strategies impose a great deal of pressure to improve performance. In an attempt to eliminate the weaknesses that are dragging the company down, management may follow one of several retrenchment strategies ranging from Turnaround strategy emphasizes the improvement of operational efficiency; Captive company strategy giving up independence in exchange for security; Sell out / Divestment strategy selling the entire company to another firm or selling off a division with low growth potential to another firm;
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Bankruptcy / Liquidation involves giving up management of the firm to

courts in return for some settlement or termination of the firm; and Harvest strategy involves halting investment in a unit. (t) Competitive strategy: is a business strategy which battles against all competitors on the basis of low-cost or differentiate the products or services. Competitive strategies are called generic strategies because they can be pursued by any type or size of business firm, even by not-for-profit organizations, namely Low-cost strategy is the ability of a company or business units to design, produce and market a comparable product more efficiently than its competitors; Differentiation strategy is the ability to provide unique and superior value to the buyer in terms of product quality, special features or after-sale service; Focus strategy is designed to help a firm target a specific niche within an industry. (u) Cooperative strategy: is a business strategy by which a firm can work with one or more competitors to gain advantage against other competitors within an industry. The two general types of cooperative strategies are Collusion active cooperation of firms within an industry to reduce output and raise prices in order to get around the normal economic law of supply and demand; and Strategic alliance is a partnership of two or more corporations or business units to achieve strategically significant objectives that are mutually beneficial. 2. What is Outsourcing? Outsourcing is purchasing from someone else a product or service that had been previously provided internally. It is becoming an increasingly important part of strategic decision-making and an important way to increase efficiency and often quality. The key to outsourcing is to purchase from outside only those activities that are not key to the companys distinctive competencies. A firm should consider outsourcing any activity or function that has low potential for competitive advantage. Ex: DuPont outsourced project engineering and design to Morrison Knudsen. 3. What do you mean (a) Merger (b) Acquisition (c) Joint Venture (d) Vertical Integration (e) Horizontal Integration (f) Concentric Diversification (g) Conglomerate Diversification (h) Bankruptcy/Liquidation (i) Horizontal strategy (j) Corporate Parenting Strategy (k)Horizontal growth (l) Vertical growth (m) Turnkey operations (n) Takeover. (a) Merger: is defined as any transaction through which two or more firms integrate their operations on a relatively co-equal basis in which stock is exchanged, but from which only one firm survives. It refers to any transaction that forms one economic unit from two or more previous ones. Mergers can be classified as Horizontal merger is a merger between two or more firms involved in the same kind of business activity. Ex: Merger between oil giants Exxon and Mobil. Vertical merger takes place when one firm acquires another firm that is in the same industry but at a different stage of production. Ex: Merger between Pharma
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company Merck & Co and the drug distributor, Medco Containment Services. Conglomerate merger takes place when two firms from unrelated business activities merge. Ex: Merger of Tenneco and Textron. Conglomerate mergers may be Product-extension merger two firms in a related business activity merge to broaden the product line of firms; Geographic extension merger two firms operating in non-overlapping geographic areas merge; Pure conglomerate merger two firms from unrelated business activities merge. (b) Acquisition: is the purchase of a company that is completely absorbed as an operating subsidy or division of the acquiring corporation. It facilitates quick expansion. Building a brand is time consuming and hence firms buy ongoing brands, which provide advantages like no gestation period and entry into a ready market. Ex: Godrej acquired Good Knight brand. (c) Joint Venture: is a cooperative business activity, formed by two or more separate organizations for strategic purposes, that creates an independent business entity and allocates ownership, operational responsibilities and financial risks and rewards to each member, while preserving their separate identity/autonomy. It involves collaboration rather than mere exchange and it creates value by bringing in money, skill and expertise. Ex: Ford with Mahindra & Mahindra. (d) Vertical Integration: is the degree to which a firm operates vertically in multiple locations on an industrys value chain from extracting raw materials to manufacturing to retailing. More specifically, assuming a function previously provided by a supplier is called Backward integration. Ex: Purchase of Pentasia Chemicals by Asian Paints Ltd. for the chemicals required for the manufacturing of paints. Assuming a function previously provided by a distributor is labeled Forward integration. Ex: Arvind Mills expanded its business to make and market its own branded pants and shirts. (e) Horizontal Integration: is the degree to which a firm operates in multiple geographic locations and/or by increasing the range of products and services offered to current markets at the same point in an industrys value chain. It may range from full to partial ownership to long-term contracts. Ex: IBM purchased the Indian BPO major Daksh to obtain access to American and Asian Markets. (f) Concentric Diversification: occurs when an organization diversifies into a related, but distinct business. It involves the acquisition of businesses that are related to the acquiring firm in terms of technology, markets or products. The selected businesses possess a high degree of compatibility with the firms current businesses. Ex: Titan Industries Ltd. diversified out of watches into designer jewellery and sunglasses, ranging from a watch company to a lifestyle product company. (g) Conglomerate Diversification: is a strategy that expands the firms operations into
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industries and markets that are not similar or related to the firms initial base of functional or skill-based interrelationship. It does not involve sharing the firms distinctive competence across different lines of business. Ex: Intels moves to establish a web-hosting business.
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(h) Bankruptcy/Liquidation: Bankruptcy is a retrenchment strategy that involves giving up management of the firm to the courts in return for some settlement of the corporations obligations. Top management hopes that once the court decides the claims of the company, the company will be stronger and better able to compete in a more attractive industry. Ex: Global Trust Bank (GTB) became in 2004 and was merged with a public sector bank, Oriental Bank of Commerce. Liquidation is the termination of the firm. Because the industry is unattractive and the company too weak to be sold as a going concern, management may choose to convert as many saleable assets as possible to cash, which is then distributed to the shareholders after all obligations are paid. The benefit of liquidation over bankruptcy is that the board of directors, as representatives of the shareholders, together with top management make the decisions instead of turning them over to the court, which may choose to ignore shareholders completely. Ex: Precision Thermoforming & Packaging (PTP) was a successful company whose prospective customer was America Online (AOL). When AOL failed to pay the amount for its order placed with PTP, PTP went out of its business as it could not pay the debtors and awaited the result of the lawsuit. (i) Horizontal strategy: is a corporate strategy that cuts across business unit boundaries to build synergy across business units and to improve the competitive position of one or more business units. When used to build synergy, it acts like a parenting strategy. When used to improve the competitive position of one or more business units, it can be thought of as a corporate competitive strategy. It is developed to coordinate the various goals and strategies of related business units. Ex: P&G, HLL and Nirma compete with one another in the consumer soap products. Nirma competes with the high-share lux brand of HLL and inturn HLL competes with the low-share brand of Nirma. Once Nirma had perceived HLLs response, it might choose to stop challenging lux so that HLL stops challenging Nirmas detergent soap. (j) Corporate Parenting Strategy: is a corporate strategy that views a firm in terms of resources and capabilities that can be used to build business unit as well as generate synergies across business units. It focuses on the core competencies of the parent corporation and on the value created from the relationship between the parent and its businesses. If there is a good fit between the parents skills and resources and the needs and opportunities of the business units, the corporation is likely to create value. If however there is not a good fit, the corporation is likely to destroy value. This approach to corporate strategy is useful not only in deciding what new businesses to acquire, but also in choosing how each business unit should be managed. Ex: Success of GE is by imposing tough standards of profitability around GEs empire. (k)Horizontal growth: can be achieved by expanding the firms products into other geographic locations and/or by increasing the range of products and services offered
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to current markets. The company expands sideways at the same location on the industrys value chain. Ex: Ranbaxy Labs followed this strategy to extend its pharmaceutical business to Europe and to USA. (l) Vertical growth: can be achieved by taking over a function previously provided by a supplier or by a distributor. The company grows by making its own supplies and/or by distributing its own products. This growth can be achieved either by internally by expanding current operations or externally through acquisitions. Ex: Cisco systems, maker of internet hardware chose to vertical growth by purchasing Radiata Inc., a maker of chip sets for wireless networks. (m) Turnkey operations: are typically contracts for the construction of operating facilities in exchange for a fee. The facilities are transferred to the host country or firm when they are complete. The customer is usually a government agency that has decreed that a particular product must be locally produced and under its control. Ex: ECC (an L&T Company) built a urea prilling tower and storage silo for State Fertilizer Manufacturing Corporation of Sri Lanka. (n) Takeover: refers to the acquisition of a certain block of paid-up equity capital of a company with the intention of acquiring control over the affairs of the company. It is used as a method for expansion. If the management accepts the takeover, it is considered a smooth or friendly takeover. If the management resists it, it is considered a hostile takeover. Ex: HLLs takeover of TOMCO is a smooth takeover. India Cements effort to takeover Raasi Cements is a hostile takeover. 4. What is Strategic alliance? A Strategic alliance is a partnership of two or more corporations or business units to achieve strategically significant objectives that are mutually beneficial. It may take the form of formal joint venture or short-term contractual agreement with equity participation or issue-based participation. It is a cooperative agreement between potential or actual competitors. Ex: strategic alliance between General Motors and Toyota to assemble automobiles. 5. Define Sell-out/Divestment or Disinvestment or Divestiture strategy. Sell-out: If a corporation with a weak competitive position in its industry is unable either to pull itself up or to find a customer to which it can become a captive company, it may have no choice but to sell-out. The sell-out strategy makes sense if management can still obtain a good price for its shareholders and the employees can keep their jobs by selling the entire company to another firm. The hope is that another company will have the necessary resources and determination to return the company to profitability. Ex: Sale of TOMCO (Tata Oil Mills Company) to Hindustan Unilever (HLL). Divestment or Disinvestment or Divestiture: If the corporation has multiple business lines and it chooses to sell off a division with low growth potential, this is called Divestment or Divestiture. It is used when the firm wants to increase the efficiency of a strategic business unit or major operating division or product line that has failed to achieve the desired results.
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Ex: Hindustan Unilever Ltd (HLL) announced the divestment of its edible business to American company Bunge Co. 6. What is SBU? Some firms find it difficult in controlling their divisional operations because of the increase in diversity, size and number of divisional units. So, it becomes a tough task for the corporate management to evaluate and control its numerous units, to improve strategy implementation, promote synergy and gain greater control the diverse business interests, it may become essential to add another layer of management when corporate management finds difficulty managing the organization. This can be successfully achieved by grouping various divisions in terms of common strategic elements. These groups are commonly called Strategic Business Units (SBUs) and are usually structure based on the independent segments of the product or market served by the firm. An SBU may be of any size or level, but it must have A unique mission Identifiable competitors An external market focus and Control of its business functions. Ex: General Electric faced with massive sales growth divided its 48 divisions into 6 SBUs. 7. What are the 3 forms of diversification? State the means and mode of diversification. Diversification refers to seeking unfamiliar products or markets or both in the pursuit of growth. Every company is best at certain products; diversification requires substantially different knowledge, thinking, skills, and processes. Thus, diversification is at best a risky strategy, and a company should choose this path only when current product/market orientation does not seem to provide further opportunities for growth. Vertical Integration integrating business along your value chain, both upstream and downstream, so that one efficiently feeds the other. Ex: Arvind Mills expanded its business to make and market its own branded pants and shirts. Horizontal Diversification moving into more than one industry; the new business usually somehow relates to the existing one, although a few conglomerates instead pursue a strategy of unrelated diversification. Ex: A media companys ownership of radio, television, newspapers, books and magazines. Geographical Diversification moving into new geographical area to overcome limited growth opportunities in the local market and/or to gain global leadership positions. Ex: Ranbaxy Labs followed this strategy to extend its pharmaceutical business to Europe and to USA. 8. What is Balanced Scorecard? Balanced Scorecard is a performance measurement tool which provides executives with a comprehensive framework that translates a companys strategic objectives into a coherent set of performance measures. It has been proposed and popularized by Robert.S.Kaplan and David.P.Norton. It is a management system which can motivate breakthrough improvements in critical areas such as product, process, customer and market development. The scorecard consists of four different perspectives such as:
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Financial perspective Customer perspective Internal business perspective and Innovation and learning perspective.
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9. What is (a) Devils advocacy (b) Dialectical Enquiry? (a) Devils advocacy: It is a technique of strategic choice. In strategic decision-making, the devils advocate who may be an individual or a group is assigned to identify potential pitfalls and problems with a proposed alternative strategy in a formal presentation. One member highlights the reason why the plan is unacceptable and acts like the devils advocate. (b) Dialectical Enquiry: It is a technique of strategic choice. In strategic decisionmaking, the dialectical enquiry consists of designing a plan and a counter plan in order to reflect plausible and conflicting courses of action. The debate between advocates of plan and counter plan reveals problem areas with definitions, suggested courses of actions and assumptions. Based on the identification of problem areas, final plan is evolved which is comprehensive. 10. What is meant by Bundling strategy? A bundling strategy is an optimal strategy for a monopolist since it helps the monopolist to capture a large portion of the consumer surplus in the face of buyer heterogeneity. It is a type of price discrimination. Price bundling is a promotional tool, while product bundling is a marketing strategy for packaging complementary or related products. Ex: Bundling in banking and financial services banks offer special programs in which customers with large deposits can obtain home loans, credit cards for lesser rates. 11. What is (a) Horizontal expansion (b) Vertical expansion? (a) Horizontal expansion: is the degree to which a firm operates in multiple geographic locations and/or by increasing the range of products and services offered to current markets at the same point in an industrys value chain. It may range from full to partial ownership to long-term contracts. Ex: IBM purchased the Indian BPO major Daksh to obtain access to American and Asian Markets. (b) Vertical expansion: is the degree to which a firm operates vertically in multiple locations on an industrys value chain from extracting raw materials to manufacturing to retailing. More specifically, assuming a function previously provided by a supplier is called Backward integration. Ex: Purchase of Pentasia Chemicals by Asian Paints Ltd. for the chemicals required for the manufacturing of paints. Assuming a function previously provided by a distributor is labeled Forward integration. Ex: Arvind Mills expanded its business to make and market its own branded pants and shirts. 12. Distinguish between Hostile takeover and Friendly takeover? Takeover refers to the acquisition of a certain block of paid-up equity capital of a company with the intention of acquiring control over the affairs of the company. It is
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used as a method for expansion. Friendly takeover: If the management accepts the takeover, it is considered a smooth or friendly takeover. Ex: HLLs takeover of TOMCO is a friendly or smooth takeover. Hostile takeover: If the management resists the takeover by another company, it is considered a hostile takeover. Ex: India Cements effort to takeover Raasi Cements is a hostile takeover.
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13. What is Flanking Maneuver? Flanking Maneuver is an offensive market location tactic which usually takes place in an established competitors market location. Rather than going for a competitors position of strength with a head to head competition, a firm may attack a part of the market where the competitor is weak. To be successful, the flanker must be patient and willing to carefully expand out of the relatively undefended market niche or else face retaliation by an established competitor. Ex: Cyrix Corporation followed this tactic with its entry into the microprocessor market which was dominated by Intel Corporation. 14. What is Value-chain partnership? Value-chain partnership is a strong and close alliance in which one company or unit forms a long-term arrangement with a key supplier or distributor for mutual advantage. Such partnerships are also a way for a firm to acquire new technology to use its own products. Ex: Maytag Company was approached by one of its suppliers, Honeywells microswitch division, which offered its expertise in fuzzy logic technology- a technology Maytag did not have then. 15. What is an Offensive tactic? Tactics are the action plans of specific, step-by-step methods by which strategies are executed. Tactics convert the philosophy of management into practice and force the enterprise to go down to the nuts and bolts of its operations. An offensive tactic is a market location tactic (where) which usually takes place in an established competitors market location. Some of the offensive tactics used to attack a competitors position are: Frontal assault Flanking maneuver Bypass attack Encirclement and Guerilla warfare. Ex: Awakening a sleeping giant and depressing profit for the whole industry. Nirma did to HLL in the detergent cakes. This is frontal assault. 16. What is a Defensive tactic? Tactics are the action plans of specific, step-by-step methods by which strategies are executed. Tactics convert the philosophy of management into practice and force the enterprise to go down to the nuts and bolts of its operations. A defensive tactic is a market location tactic (where) which usually takes place in the firms own current market position as a defense against possible attack by a rival. It aims to lower the probability of attack or lessen the intensity of an attack. Some of the defensive tactics used to attack a competitors position are:
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Raising structural barriers Increase expected retaliation and Lower the inducement for attack. Ex: Air Deccan, an airlines company in India, deliberately keeps prices low and constantly invests in cost-reducing measures.
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17. What is Conglomerate merger? Conglomerate merger takes place when two firms from unrelated business activities merge. Ex: Merger of Tenneco and Textron. Conglomerate mergers may be Product-extension merger two firms in a related business activity merge to broaden the product line of firms; Geographic extension merger two firms operating in non-overlapping geographic areas merge; Pure conglomerate merger two firms from unrelated business activities merge. 18. What is a Grand strategy? A Grand strategy or Directional strategy is a strategy that provides the basic strategic direction at the corporate level. It is a comprehensive general approach that guides a firms major actions. It is the basis of coordinated and sustained efforts directed towards achieving long-term business objectives. It indicates the time period over which objectives are to be achieved. The grand strategies may be divided into three groups, namely: Growth strategies concentration or diversification; Stability strategies pause/proceed or profit; and Retrenchment or Defensive strategies turnaround or divestment. 19. Explain Entry strategy. An Entry Strategy is the set of rules specifying the conditions to enter a trade. Having a strategy for entry allows a trader to plan with a cool head rather than getting caught up in the heat of the moment. The main goal of an entry strategy is getting into profitable trades. on the flip side, it is useful to stay out of losing trades, making it a Do-Not-Enter Strategy as well. Ex: For a long trade, entering means buying a stock. For a short trade, entering means selling the stock. 20. Define (a) Embryonic industry (b) Growth industry (c) Shakeout industry (d) Mature industry (e) Declining industry. (a) Embryonic industry: An embryonic industry is one that is just beginning to develop. Growth is slow because of buyer unfamiliarity with the industrys products, poor distribution channels, and high prices stemming from the inability of companies to reap economies of scale. Barriers to entry at this stage in an industrys evolution tend to be based on access to key technological know-how, rather than cost economies or brand loyalty. Rivalry in embryonic industries is based not so much on price as on educating customers, opening up distribution channels, and perfecting the design of the product. Ex: Stem cell research Healthcare industry.
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(b) Growth industry: A growth industry is one where first-time demand is expanding rapidly as new consumers enter the marketplace. Typically, demand takes off when consumers become familiar with the product, prices fall with the attainment of economies of scale, and distribution channels develop. During an industrys growth stage, there tends to be little rivalry. Rapid growth in demand enables companies to expand their revenues and profits without taking market share away from competitors. Ex: Personal computer industry. (c) Shakeout industry: An industry shakeout occurs when the rate of industry growth slows down as demand approaches saturation levels. A saturated market is one where there are few first-time buyers left. Most of the demand is limited to replacement demand. As an industry enters the shakeout stage, rivalry between companies becomes intense. Companies that have become accustomed to rapid growth during an industrys growth phase continue to add capacity at rates consistent with past growth. Managers use historic growth rates to forecast future growth rates and plan expansions in productive capacity accordingly. As an industry approaches maturity, however, demand no longer grows at historic rates. The consequence is the emergence of excess productive capacity and severe price discounting. Ex: IT industry. (d) Mature industry: A mature industry is one where the market is totally saturated and demand is limited to replacement demand. During this stage, growth is low or zero. What little growth there is comes from population expansion bringing new consumers into the market. As an industry enters maturity, barriers to entry increase and the threat of entry from potential competitors decreases. As growth slows during the shakeout, companies can no longer maintain historic growth rates merely by holding on to their market share. Competition for market share can develop, driving down prices. As a result of the shakeout, by maturity most industries have consolidated and become oligopolies. In mature industries, companies tend to recognize their interdependence and try to avoid price wars if possible. Stable demand gives them the opportunity to enter into priceleadership agreements. The net effect is to reduce the threat of intense rivalry among established companies, thereby allowing greater profitability. However, the stability of a mature industry is always threatened by further price wars. A general slump in economic activity can depress industry demand. As companies fight to maintain their revenues in the face of declining demand, price-leadership agreements break down, rivalry increases, and prices and profits fall. Ex: Airline industry. (e) Declining industry: A declining industry is one where growth becomes negative for a variety of reasons, including technological substitution, social changes, demographics, and international competition. Within a declining industry, the degree of rivalry among established companies usually increases. Depending on the speed of the decline and the height of exit barriers, competitive pressures can become as fierce as in the shakeout stage. The main problem in a declining industry is that falling demand leads to the emergence of excess capacity. In an attempt to utilize this capacity, companies begin to cut prices, thus sparking a price war. Exit barriers play a part in adjusting excess capacity. The greater the exit barriers, the harder it is for companies to reduce capacity and the greater is the threat of severe price competition. Ex: Mining industry.
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21. What is a propitious niche? A niche is a need in the marketplace that is currently unsatisfied. The goal is to find a propitious nichean extremely favorable nichethat is so well suited to the firms internal and external environment that other corporations are not likely to challenge or dislodge it. A propitious niche a niche is propitious to the extent that it is just large enough for one firm to satisfy the demand. Ex: When Microsoft developed its first disk operating system (DOS) in 1980 for IBMs personal computers, the demand for such open systems software was very small a small niche for a then very small Microsoft. The company was able to fill that niche and to successfully grow with it. 22. What are Timing tactics? Tactics are the action plans of specific, step-by-step methods by which strategies are executed. Tactics convert the philosophy of management into practice and force the enterprise to go down to the nuts and bolts of its operations. To implement cooperative strategies timing tactics (when) are used: First mover or Pioneer: is the first company to manufacture and sell a new product or service. Ex: Netscape garnered over 80% of the internet browser market by being first to commercialize. Late mover: is the company which may be able to imitate the technological advances of others. Ex: Microsoft used its huge resources to attack Netscape later. 23. What are Market location tactics? Market location tactics refer to where a company should compete. Offensive tactics are generally employed in an established competitive market location. It can be: Frontal assault on the competitor (Pepsi is using this tactic against Coca-cola) Flanking maneuver attacking a part of the market where the competitor is weak; (Titan used this tactic to outwit HMT) Bypass offering a new product which makes the competitors product redundant; (MTNL provided WLL technology against other services of cell phone operators) Encirclement where a company has encircled the competitor in relation to product/market or both; (Microsoft used this tactic against Netscape) and Guerilla warfare where the firms may choose to hit and run (Nirma used this tactic against Surf). Defensive tactics aim to lower the profitability of attack, divert attacks to less threatening avenues or lessen the intensity of the attack. It can be: Raise structural barriers raising entry barrier to block the avenues of attack (avoid suppliers who supply competitors); Increase expected retaliation Surf against Nirma; and Lower the inducement for attack South West airlines and Delta airlines in U.S. 24. What is Guerilla warfare? Tactics are the action plans of specific, step-by-step methods by which strategies are executed. Tactics convert the philosophy of management into practice and force the enterprise to go down to the nuts and bolts of its operations. Guerilla warfare is a market
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location tactic which refers to where a company should compete. It is an offensive tactic. Guerilla warfare where the firms may choose to hit and run is a market location tactic used by Nirma against Surf. 25. What industry forces might cause a company's propitious niche to disappear? A "propitious" niche is that which is so well-suited to the firm's internal and external environment that competitors are not likely to challenge or dislodge it. In terms of automobiles, both Rolls Royce and Morgan fill two very different niches in the industry. A propitious niche exists not only because of environmental opportunities, but also because a company has the resources to take advantage of these opportunities. Therefore a niche can disappear because of changes within a company as well as because of environmental changes. Some of the possible changes are: (a) The environment/industry changes: The company/SBU continues to make its products or services, but the size of the market changes. (i) Contracts - The market gets smaller because of factors beyond the control of the company/SBU. For example, the increasing price of gasoline in the 1970s contracted the market for gas-guzzling performance-oriented automobiles. The niche could then only support the strongest companies/SBUs. (ii) Expands - The company/SBU, through its own efforts, not only fills a demand in the market but actually causes the market to expand. Unless the company/SBU can manufacture sufficient products to meet growing demand or is able to defend a patented process (as Proctor & Gamble did with Crest-Fluoride toothpaste for years), profit opportunities will cause competitors with sufficient internal resources to join the niche. Such competitors may be stronger and drive the original company/SBU out of the market, thus causing it to lose its niche. (b) The company/SBU changes: The same market demand continues for specific products or services, but the company/SBU itself changes so that there is no longer a synchronization between itself and the market. (i) Contracts - Due to demands for resources elsewhere in the corporation, the company/SBU may be forced to cut back its activities unable to satisfy market demand. Customers either leave the market by buying a substitute product or stay in the market by buying a competitor's product. Such unfulfilled demand encourages competitors, which may drive the original company/SBU out of the niche. (ii) Expands - Its own success in the niche may cause the company/SBU to move into nearby niches. The need for resources in the battle for new niches may cause the company/SBU to take its original niche for granted. Small competitors may take advantage of the lack of concern by fighting to expand their piece of the market, thereby squeezing the company/SBU out of the original market and thus out of its niche. If a company/SBU loses its niche, it is likely to become much less profitable unless it can find a new niche. 26. Is it possible for a company or business unit to follow a cost leadership strategy and a differentiation strategy simultaneously? Why or why not? Michael Porter argues that a business unit which is unable to achieve one of the competitive strategies is likely to be "stuck in the middle" of the competitive marketplace with no competitive advantage. That unit, according to Porter, is doomed to belowaverage performance. Research by Greg Dess and Peter Davis as well as by Rod White, suggests however, that this may not be the case. Examples can be found of businesses
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which have been able to jointly follow overall low cost and high quality differentiation strategy. Japanese companies such as Toyota in automobiles and Matsushita (Panasonic and National) in consumer electronics are good examples. Their offer of low price and high quality created serious problems for those companies following only cost leadership in the U.S. 27. Is it possible for a company to have a sustainable competitive advantage when its industry becomes hypercompetitive? According to D'Aveni, companies in a hypercompetitive industry learn to quickly imitate the successful strategies of market leaders - making it increasingly difficult to sustain any competitive advantage. Competitive advantage in a hypercompetitive industry comes from an up-to-date knowledge of environmental trends and competitive activity coupled with a willingness to risk a current advantage for a possible new advantage. Companies must thus be willing to cannibalize their own successful products in order to sustain their competitive advantage. Since hypercompetitive industries go through escalating stages of competition, the only real sustainable competitive advantage lies not in a corporation's product line, but in its ability to learn and to adapt to constantly changing conditions. 28. What are the advantages and disadvantages of being the first mover in an industry? Give some examples of first mover and late mover firms. Were they successful? The first company to manufacture and sell a new product or service is called the first mover. Research indicates that pioneers in industries not only tend to obtain higher market shares than do later entrants, but that they tend to enjoy a long-term advantage over their rivals. This occurs because the first mover has certain advantages: (1) The company is able to establish a reputation as a leader in the industry. (2) The company is able to move down the experience curve to gain economies of scale which it can use to underprice the competition, plow into R&D to improve the product, or skim off good profits early by keeping the price high before competition moves into the industry. A good example of a first mover firm is Apple Computer - for all practical purposes the inventor of the personal computer. It was the first computer to be "user friendly." Consumers could learn how to use the PC quickly and they were fascinated with Apple's graphic capabilities. By continuing to emphasize "user friendly" personal computers using its own specially-developed software, Apple was able to keep and build the home and school markets while other competitors flailed unsuccessfully against IBM for the business market. Late mover firms can have certain advantages as well. Like IBM, they can wait until demand has been developed by the pioneer. They can evaluate which product ideas work and which tend to fail. They can look for weaknesses in the current competition and develop a product to get around these weaknesses. IBM, for example, noted Apple Computer's difficulty in being accepted in business firms - a market where IBM had tremendous strength and customer loyalty. Instead of having to develop everything internally, IBM was able to use a large number of outside vendors, like Microsoft and Intel among others, to supply almost everything it needed (in terms of software and hardware) to make and market its IBM PC. IBM was successful because of its ability to envision the trend in personal computers. It took advantage of the consumer's dual needs to use the PC for business applications and to be assured that they were not buying a PC which would soon be discontinued and incompatible with other future personal computers.
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29. Why are most strategic alliances temporary? The temporary nature of most strategic alliances comes from their rationale for being established. Alliances are usually formed in order to remedy a weakness or to generate a new strength. It is thus an admission that a firm cannot achieve an objective on its own. Alliances may be formed in order to obtain access to a new technology or manufacturing facilities, enter a new market, reduce financial or political risk, and/or achieve competitive advantage. It is thus likely that many firms enter alliances with the primary goal of learning from the alliance how to overcome an identified weakness or how to build a competitive advantage. Once a firm learns what it needs, it has less reason to continue with the alliance and share with a partner the profits that a company now can earn on its own. This is likely to be especially true to the extent that the environment is highly uncertain. Strategic alliances became especially popular during the 1990s when too much vertical integration kept a firm from adapting successfully to changing conditions. 30. What are the tradeoffs between an internal and an external growth strategy? Which approach is best as an international entry strategy? Research suggests that there is no significant sales or profits advantage to either external or internal growth. There are, however, some tradeoffs for each approach. Here are some of them: Internal Growth Pros More likely to be based on some proprietary development giving competitive advantage. More likely to fit well with current business units/products. Can finance slowly out of returned earnings. If plan no good, can always cut losses before in too deep. Cons May take a long time to develop a new product or new concept. May be hard to get current managers to try something new. May ignore other uses of money with quicker return. Favored program may take time away from current businesses.
External Growth Pros Can grow quickly. Good way to use financial leverage to boost EPS. Don't have to build anything from scratch. Can generate a lot of excitement on Wall Street and boost stock price. Cons All or nothing gamble. Need a lot of money and/or financial moxie to do it right. Can purchase someone else's problems. 50% of all acquisitions fail to achieve the purchaser's objective.
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The same list of pros and cons fit an international entry strategy. Internal growth in the form of a green-field development has an additional con of sometimes going against a particular country's laws. External growth in the form of acquisitions has an additional con of running up against a country's laws against foreigners purchasing total control of a company important to national interests. 31. Is stability really a strategy or is it just a term for no strategy? An argument can be made that stability is not really a strategy in itself, but is just a pause between strategies. Since one way to view strategy is as a direction the corporation is taking in order to reach its objectives, standing still has no direction and thus is not a strategy. Just as no decision is the same as making a decision, it is argued that even though stability may be viewed as not choosing a strategy, it is therefore a strategy by default. Stability may be a very appropriate long-term strategy for a small business in which the owner/manager does not want the corporation to grow beyond his/her abilities to manage it personally and is very happy with the level of lifestyle the business provides. Typically, however, stability is perceived only as a viable short-term strategy while strategic managers are waiting for key factors needed for growth to fall into place. Nevertheless, to the extent that stability helps explain the movement of a corporation toward its objectives, it deserves to be called a strategy. 32. How is corporate parenting different from portfolio analysis? How is it alike? Is it a useful concept in a global industry? The basic difference between these two approaches to corporate strategy lies in the questions they attempt to answer. Portfolio analysis attempts to answer the following two questions: How much of our time and money should we spend on our best products and business units in order to ensure that they continue to be successful? How much of our time and money should we spend developing new costly products, most of which will never be successful? The basic theme of portfolio analysis is its emphasis on cash flow. Portfolio analysis puts corporate headquarters into the role of an internal banker. In portfolio analysis, top management views its product lines and business units as a series of investments from which it expects to get a profitable return. The product lines/business units form a portfolio of investments which top management must constantly juggle to ensure the best return on the corporation's invested money. Corporate parenting attempts to answer two similar, but different questions: What businesses should this company own and why? What organizational structure, management processes, and philosophy will foster superior performance from the company's business units? Portfolio analysis attempts to answer these questions by examining the attractiveness of various industries and by managing business units for cash flow, i.e., by using cash generated from mature units to build new product lines. Unfortunately, portfolio analysis fails to deal with the question of what industries a corporation should enter or with how a corporation can attain synergy among its product lines and business units. As suggested by its name, portfolio analysis tends to primarily take a financial point of view and views business units and product lines as if they were separate and independent investments. Corporate parenting, in contrast, views the corporation in terms of resources and capabilities that can be used to build business unit value as well as generate synergies across business units. The central job of corporate headquarters is not to be a banker, but
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to coordinate diverse units to achieve synergy. This is especially important in a global industry in which a corporation must manage interrelated business units for global advantage. Corporate parenting is similar to portfolio analysis in that it attempts to manage a set of diverse product lines/business units to achieve better overall corporate performance. 33. How does transaction cost economics apply to vertical growth? To concentric versus conglomerate diversification? Transaction cost economics is especially applicable to the question of vertical growth versus outsourcing, i.e., the classic make or buy decision. It argues that vertical growth is more efficient than contracting for goods and services in the marketplace when the transaction costs of buying goods on the open market become too great. The transaction costs become too great when the transactions (a) involve a high level of uncertainty, (b) involve highly specialized assets, and (c) must occur frequently. However, when highly integrated firms become excessively large and bureaucratic, the costs of managing the internal transactions may become greater than simply purchasing the goods on the open market - thus justifying outsourcing over vertical growth. Transaction cost economics might suggest that diversification of any kind is more efficient than just concentrating in one industry when the costs of one firm's operating in two industries are lower than are the summed costs of two separate firms. This phenomenon can occur when synergies exist to provide economies of scale or scope. Given that such synergies are more likely to exist when a firm engages in concentric diversification, transaction cost economics would propose that concentric diversification should be generally more efficient than conglomerate diversification. 34. Must a corporation have a common thread running through its many activities in order to be successful? Why or why not? The concept of a corporate mission implies that throughout a corporation's many activities, there should be a "common thread" or unifying theme, and that those corporations with such a common thread are better able to direct and administer their many activities. This is one way to achieve a "strategic fit" so that overall corporate effectiveness and efficiency are achieved. There are, however, a number of corporations, which do not have a common thread connecting their divisions, yet are successful. These corporations are often referred to as conglomerates because they are an assemblage of separate firms having different products in different markets but operating together under one corporate umbrella. Operating in effect as holding companies, they typically have no real common thread other than return on investment (i.e., financial synergy). Transamerica Corporation and ITT are just two of the many examples of successful conglomerates. They can be very successful because their operations in many diverse businesses allow them to spread their risks over many different markets. Just as the common thread concept implies a heavy marketing orientation, the conglomerate approach implies a heavy finance orientation. The lack of concern for a common thread enables a conglomerate to acquire and sell off divisions without regard to any synergy other than financial. Corporate strategy makers are thus able to focus entirely on ROI. They only need to involve themselves in divisional (business) strategies to the extent that funds are requested to support the strategies. The problem with this approach, however, is that corporate top management typically does not understand divisional problems in any sense other than financial and is thus strongly tempted to sell off troubled divisions rather than help them recover. One could therefore conclude that a common thread is not
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necessary for corporate success, at least in the short run. It does imply, however, that such a heavy financial orientation leads to short-run thinking and may actually cause long-run decline. 35. What concepts or assumptions underlie the BCG growth-share matrix? Are these concepts valid? Why or why not? The product life cycle and the experience curve underlie the BCG growth-share matrix. The development of question marks into stars and then into cash cows suggests the introduction, growth, and maturity stages of the product life cycle. Dogs appear to be those products or units on the decline stage of the product life cycle. The experience curve is based on the idea that unit production costs decline by some fixed percentage as the accumulated volume of production in units doubles. In order in make a question mark product a star, the suggested manufacturing strategy is to build capacity ahead of demand in order to achieve the lower unit costs that develop from the experience curve. On the basis of some future point on the experience curve, the idea is to price the product very low to preempt competition and quickly increase market demand and thus market share. The resulting high number of units sold and high market share should result in high profits when overall market growth slows and the company reduces its investment in the product - thus a cash cow is born. Both of these concepts are well-known and useful ways to conceptualize the useful lives of specific products and of the relation of unit costs to volume. Unfortunately, they lose some of their value when they are taken too much at face value and generalized too far. Different products have different product life cycles. What applies to one product probably will not apply to another. The experience curve does not "just happen"; a firm has to invest a lot of time and money into getting that experience. The trend toward computerized robot technology and flexible manufacturing mean that learning times (and thus experience time) are becoming shorter and products can now be economically manufactured in small, customized batches instead of in large assembly-line production. This potential quick movement down the experience curve coupled with the ability to target an increasing number of market niches may mean that the strategy of building large mass-production facilities ahead of demand may be doomed to failure. Future market share may be composed of a series of market segments - each with their own specialized (and thus low volume) product. In this instance, the prescriptions of the BCG matrix will not be useful and may in fact hurt a company if applied as given. 36. How can a corporation identify its core competencies? Its distinctive competencies? A core competency is something that a corporation can do exceedingly well. It is a key strength. When these competencies or capabilities are superior to the competition, they are called distinctive competencies. Although it is typically not an asset in the accounting sense, a core competency is a very valuable capability. It does not "wear out" - In general, the more core competencies are used, the more refined they get and the more valuable they become. To be considered a distinctive competency, it must meet three tests: (i) Customer Value: It must make a disproportionate contribution to customer-perceived value. (ii) Competitor Unique: It must be unique and superior to competitor capabilities. (iii) Extendibility: It must be something that can be used to develop new products/services or enter new markets.
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37. When should a corporation or business unit outsource a function or activity? Outsourcing is purchasing from someone else a product or service that had been previously provided internally. As such, it is an example of reverse vertical growth/integration. The key to outsourcing is to purchase from outside only those activities that are not key to the company's distinctive competencies. Otherwise, the company may give up the very capabilities that made it successful in the first place - thus putting itself on the road to eventual decline. An outsourcing decision will depend upon the fraction of total value added that is represented by the activity under consideration and by the amount of potential competitive advantage in that activity for the company or business unit. A firm should consider outsourcing an activity or function whenever it has low potential for competitive advantage. If that activity comprises only a small part of the total value of the firm's products or services, it should be purchased on the open market (assuming that quality providers of the activity are plentiful). If, however, the activity contributes highly to the company's products or services, the firm should purchase it through longterm contracts with trusted suppliers or distributors. A firm should always produce at least some of the activity or function (taper vertical integration) if that activity has the potential for providing the company some competitive advantage. Full vertical integration should only be considered, however, when that activity or function adds significant value to the company's products or services in addition to providing competitive advantage. 38. Why is penetration pricing more likely than skim pricing to raise a company's or a business unit's operating profit in the long run? When pricing a new product, a company or business unit can follow a marketing strategy of skim pricing or penetration pricing. For new product pioneers, skim pricing offers the opportunity to skim the cream from the top of the demand curve while the product is novel and competitors are few. Penetration pricing offers the pioneer the opportunity to utilize the experience curve to gain market share and dominate the industry. Skim pricing is purely a short-term phenomenon and is used to gain high profits quickly in order to pay for expensive R&D and marketing costs before new entrants engage in price competition. It therefore cannot be used to raise long term operating profits unless the firm follows a differentiation strategy of continually entering markets early through exceptional R&D and exiting before the heavy-hitting late movers like IBM or Procter & Gamble force margins down. 39. How does mass customization support a business unit's competitive strategy? Mass customization is an operations functional strategy. According to the text, mass customization requires flexibility and quick responsiveness. Appropriate for an everchanging environment, mass customization requires that people, processes, units, and technology reconfigure themselves to give customers exactly what they want, when they want it. The result is low-cost, high quality, customized goods and services. Mass customization is one way to support a differentiation strategy in a hypercompetitive market in which customers are demanding a highly differentiated product at a reasonable price. The customer is primarily interested in purchasing a product designed to its own specifications and delivered where and when it needs them. Even though price may be secondary to specific product characteristics, it cannot be significantly higher than the price for a mass produced good.
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40. What is the relationship of policies to strategies? Generally speaking, policies are the link between strategy formulation and implementation. They are the broad guidelines to be used in the implementation of strategy. The dividing line between formulation and implementation is the difference between the planning activities of formulation and the action-oriented activities of organizing, directing, and controlling. Since the development of policies is primarily planning, not action-oriented, they more properly belong within strategy formulation. 41. What are the pros and cons of technological leader versus technological follower as a functional strategy? The technological leader strategy is a functional strategy necessary for a company to be a first mover in an industry. R&D can help a company to pioneer an innovation and reap the first mover advantages. The leader strategy is normally expensive. In contrast, the technological follower strategy can be fairly cheap in comparison. This functional strategy is appropriate for those firms choosing to reap the benefits of late movers.
TECHNOLOGICAL LEADERSHIP COST ADVANTAGE TECHNOLOGICAL FOLLOWERSHIP
DIFFERENTIATION
* Pioneer the lowest cost product design; * Be the first firm down the learning curve; and * Create low cost ways of performing value activities. * Pioneer a unique product that increases buyer value; * Innovate in other activities to increase buyer value.
* Lower the cost of the product or value activities by learning from the leaders experience; * Avoid R&D costs through imitation. * Adapt the product or delivery system more closely to buyer needs by learning from the leaders experience.
42. What are the advantages and disadvantages of the devil's advocate, dialectical inquiry, and consensus approaches to making strategic choices? Research generally indicates that either the devil's advocate or dialectical inquiry methods are superior to consensus in decision making. The drive in consensus to get everyone to agree on an alternative can result in "groupthink" - a situation when all try to overcome their personal reservations in order to show unanimity and be a team player even if the alternative chosen is defective. On the positive side, however, consensus results in a positive team approach to implementation. Both devil's advocate and dialectical inquiry are conflict-oriented and can create problems in implementation. Nevertheless, both work to ensure that an alternative is critically evaluated before agreement is reached. Both need to be set up in advance of the discussion. In the case of the devil's advocate, one person or group is assigned the task of finding everything wrong with a particular alternative. The advocate must propose nothing - only criticize the alternative in question. In contrast, dialectical inquiry requires two separate proposals be developed. Both sides must defend their own alternative and attack the alternative presented by the other. The limitations of the devil's advocate are: (a) Only one proposal is presented. It is either accepted or rejected. Thus, participants don't have an opportunity to compare the
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alternative under consideration with another possibility. (b) Since the devil's advocate defends nothing, the person(s) taking this position may be criticized for "taking cheap shots" at an alternative everyone likes and may hesitate to continue the attack in the face of group pressure. Thus, the devil's advocate must have the strong support of the leader of the group in order to be effective. The limitations of dialectical inquiry are: (a) Two people or groups must spend much time preparing their position for debate in front of an audience. The emphasis may turn to presentation skills and "scoring points" over serious analysis. (b) The win-lose nature of this approach may create ill feelings and conflict among participants. Thus, people on the losing side may find difficulty joining the "winners" in implementing the alternative chosen. 43. Should functional strategies be categorized under strategy formulation or under strategy implementation? At the top management level of a corporation both divisional (business-level) and functional strategies could be viewed as ways of implementing corporate strategy. For example, suppose a corporation decides to concentrate in one industry as its corporate growth strategy. This strategy would need to be implemented by a business strategy oriented to improving the company's competitive position. The same can be said of functional strategy. Strategy formulation and implementation can be interchangeable terms based on one's location in a corporate hierarchy. Implementation begins when one moves from planning into organizing and directing activities. 44. What is a Mutual service consortium? A Mutual service consortium is a partnership of similar companies in similar industries who pool their resources to gain a benefit that is too expensive to develop alone, such as access to advanced technology. It is a fairly weak and distant alliance- appropriate for partners who wish to work together but not share their core competencies. There is very little interaction or communication among the partners. Ex: IBM of United States, Toshiba of Japan and Siemens of Germany formed a consortium to develop new generations of computer chips. 45. Define Corporate Restructuring. Corporate restructuring strategy involves destroying old paradigms, old technology, old ways of doing things and starting all over fresh. It demands a strong cultural willingness to make a clear beginning taking a realistic look at ones company and deciding to reshape the whole place to remain tea continuously competitive. Ex: Sony exemplifies creative marketing in its introduction of many successful new Products- Walkmans, Video cameras, CDs.
PART B
1. Business units have a choice of three generic strategies. Explain these strategies. Definition of generic strategy types of generic strategies merits and demerits of each of low cost, differentiation and focus strategies conclusion. 2. What is the rationale of strategic alliance? Why do such alliances fail? Definition of strategic alliance reasons for formation of strategic alliances how it works why alliances fail how to manage alliance conclusion.
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3. Joint Ventures are emerging as the best tool for reaching new markets. Comment. Definition of joint venture entry approach to new markets reasons for choosing joint ventures merits and demerits of JVs conclusion. 4. Explain in detail the corporate strategy in terms of directional strategies such as Growth, Stability and Retrenchment strategies. Definition of corporate strategy meaning of directional strategy types of directional strategies (Growth, Stability and Retrenchment strategies) conclusion. 5. What is Portfolio analysis? Explain the components of Portfolio analysis. Definition of portfolio analysis BCG matrix components of portfolio analysis (stars, cashcows, dogs and question marks) merits and demerits of portfolio analysis conclusion. 6. Define Functional strategy. Explain various functional strategies in an organization. Definition of functional strategy various functional strategies (marketing, finance, HR, logistics, production, R&D, purchasing, information systems) conclusion. 7. Briefly discuss the five generic business level strategies. Definition of business or generic strategy competitive and cooperative strategies low cost leadership, differentiation, focus, collusion and strategic alliance merits and demerits conclusion. 8. What are Grand strategies? Explain the various retrenchment strategies a firm may follow. Definition of corporations directional or grand strategy retrenchment strategies turnaround, captive company, sell-out/Divestment or disinvestment or divestiture, bankruptcy/liquidation, harvest strategies with examples conclusion. 9. Explain the Cooperative strategies used to gain competitive advantage within an industry. Definition of business or generic strategy cooperative strategies collusion, strategic alliance with examples merits and demerits conclusion. 10. Explain in detail the Strategic Choice process. Definition of strategic choice factors influencing strategic choice (objective and subjective factors) internal political considerations constructing corporate scenario techniques of strategic choice (devils advocate, dialectical enquiry) conclusion. 11. Explain the various strategies to manage rivalry in mature industries. Definition of mature industry characteristics of mature industry - rivalry among existing firms strategies adopted in mature industry development of new products, development of new technology, emphasis on refining a firms products, increasing quality of service, focus on reducing manufacturing costs, increased quality through process innovations conclusion.
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12. What are Strategic alliances? Explain their advantages and disadvantages. How to make strategic alliances work successfully? Definition of strategic alliances advantages and disadvantages of strategic alliances reasons for strategic alliance to successfully make alliances work conclusion. 13. Explain in detail the strategies pursued by International companies. Definition of global strategy multinational or transnational, global, international, multidomestic strategies with examples and characteristics conclusion. 14. Balanced Scorecard is a superior performance measurement tool. Explain. Definition of balanced scorecard perspectives of balanced scorecard explain each of the perspectives with an example merits and demerits conclusion. 15. Japanese corporations typically involve many more organizational levels and people in the development of implementation plans than do U.S. corporations. Is this appropriate? Why or why not? Definition of strategy implementation organizational culture of Japanese firms and U.S. firms Participative management (Japanese firms) and Top management involvement alone (U.S. firms) merits and demerits conclusion. 16. Explain the process of corporate restructuring citing examples wherever necessary. Definition of Corporate restructuring 4 steps in the process of corporate restructuring (customer focus, core business processes, structural changes through reengineering, cultural changes) key elements of corporate restructuring methods of restructuring (mergers, acquisitions) merits and demerits conclusion. 17. Why are Joint ventures promoted? What are the problems associated with joint venture projects? Definition of JV reasons for implementing JV benefits of JV problems associated with JV conclusion. 18. Explain the various risks of using cooperative strategies. Definition of business strategy, cooperative strategy collusion and strategic alliance strategies merits and demerits of each conclusion.
UNIT 4 : STRATEGY IMPLEMENTATION & CONTROL PART A

1. What is Strategic implementation? Strategy implementation is the sum total of the activities and choices required for the execution of a strategic plan. It is the process by which strategies and policies are put into action through the development of programs, budgets and procedures. To begin the implementation process three aspects are to be considered: People who will carry out the strategic plan; The alignment of the companys operations in the new intended direction; and
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Everyone is going to work together to do what is needed. Ex: Arvind mills showed how a good strategy can result in disaster through poor strategy implementation. 2. What is Politics management? Politics management refers to managing individual or group behavior that is informal, ostensibly parochial, typically divisive, and above all, in the technical sense, illegitimate--sanctioned neither by formal authority, accepted ideology, nor certified expertise. Organizational politics, then, exist when individuals make decisions and take actions designed to benefit particular individuals or groups rather than the organization as a whole. When managers engage in internal politics, the effects on the development and implementation of the strategic business plan can be disastrous. Ex: In one bank, interest rate information was deliberately routed around one particular loan officer. This resulted in the officer's making poor loan decisions and eventually led to her dismissal. 3. Name the stages in Organizational Life Cycle. The Organization life cycle describes how organizations grow, develop and eventually decline. It places the primary emphasis on the dominant issue facing the corporation. The key is to be able to identify indications that a firm is in the process of changing stages and to make the appropriate strategic and structural adjustments to ensure that corporate performance is maintained or even improved. The stages of the organizational life cycle are: Stage I Birth Stage II Growth Stage III Maturity Stage IV Decline and Stage V Death. 4. What is (a) Differentiation (b) Integration? (a) Differentiation: Differentiation means the way in which a company allocates people and resources to organizational tasks in order to create value. Differentiation is of two typesVertical differentiation is the way in which decision-making authority gets distributed at functional/divisional level towards value creation activity; Horizontal differentiation is the way management pays attention to division of tasks into functions and divisions to increase their ability to create value. (b) Integration: Integration is the means by which a firm tries to coordinate people and functions to accomplish organizational tasks. In order to promote coordination between functions and divisions, integration and control systems are established. 5. What do you mean by Horizontal differentiation and Vertical differentiation? Horizontal differentiation: involves decision to group organizational activities and tasks in order to create value and to fulfill organizational objectives. A companys structure changes as its strategy changes in a predictable way. It can be established in three forms Simple structure Functional structure and Multidivisional structure.
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Vertical differentiation: involves establishment of reporting relationship, which connects people, tasks and functions at all levels of the firm. The managers have to choose appropriate number of hierarchical levels, which is the outcome of their decisions regarding span of control. Span of control means the number of subordinates controlled by a manager effectively. Two types of structure emanates from span of control Flat structure few hierarchical levels Tall structure too many levels. 6. What do you mean by Centralization and Decentralization? Centralization: refers to the degree to which senior managers have the authority to make decisions for the entire organization. In a highly centralized organization, senior management retains most of the authority to decide how subunits will act. Senior managers in a centralized company decide strategy and objectives, even for smaller units within the firm. Ex: Chemical and Pharmaceutical companies like Dow, Dupont, Merck have centralized management. Decentralization: refers to the degree to which an organization places wide discretion with lower-level managers and employees. Senior management plays a lesser role in setting goals and objectives for the companys subunits. By delegating authority to lowerlevel managers and personnel, senior management can harness the decision-making capabilities of many people throughout the company. Ex: High-tech and software firms such as Microsoft, Adobe systems and Sun Microsystems prefer a high degree of decentralization. 7. Define Strategic control. Strategic control is a process by which suitable control systems are established at the corporate, business and functional levels in a company in order to evaluate whether a firm is able to achieve superior efficiency, quality, innovation and customer responsiveness. It ensures that the company is achieving what is set out to accomplish. It compares performance with desired results and provides the feedback necessary for management to evaluate results and take corrective action, as needed. Its purpose is to aid managers in making a determination, based on strategy implementation, whether to alter the basic strategic direction. Strategic control systems are classified into four types: Premise controls Implementation controls Strategic surveillance and Special alert control. 8. What is Organizational Culture? Organization culture is defined as the values, norms and beliefs which are shared by members of the organization. It affects the way the organization operates and its business. The employees through socialization learn organization culture. Through the process of socialization, the norms and beliefs are internalized and are made part of the value system of employees. The culture is propagated through stories, myths, rituals, ceremonies, symbols and language that people use in organizations. The top management and founders play a crucial role in shaping strategic leadership.
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Socialization tactics
Signs, symbols and stories
Rites and ceremonies
Norms and values
Organizational rewards
Organizational Culture
9. What is related and unrelated diversification? Related diversification: In related diversification, the firm enters into a new business activity, which is linked to a companys existing business activity by commonality between one or more components of each activitys value chain. The diversified companies create value in the following ways: By transferring competencies among businesses and By realizing economies of scope. Ex: IBM operates in 20 fields all related to each other and such diversifications have greater probability of success. Unrelated diversification: In unrelated diversification, the firm enters into a new business that has no obvious connection with an of the existing business. It is suitable, if the companys core functional skills are highly specialized and have few applications outside the companys core business. The new businesses or products are unrelated to process or technology or function of existing business. Ex: The entry of Godrej into poultry business. 10. What is Organizational conflict? Organizational conflict may be defined as a situation when the goal directed behavior of one group blocks the goal directed behavior of another. It is necessary for organizational change as it strikes at the root of the sources of organizational inertia. The sources of conflict are: Differentiation Task relationships and Scarcity of resources. 11. What is Strategic leadership? Strategic leadership is the ability to articulate a strategic vision for the company or part of the company, and to motivate others to buy into that vision. It provides the vision, direction, the purpose for growth, and context for the success of the corporation. It also initiates "outside-the-box" thinking to generate future growth. It provides the umbrella under which businesses devise appropriate strategies and create value. In short, strategic leadership answers two questions: What by providing the vision and direction, creating the context for growth, and
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How by sketching out a road map for the organization that will allow it to unleash its full potential; by crafting the corporation's portfolio, determining what businesses should be there, what the performance requirements of the business are, and what types of alliances make sense; and by defining the means (the culture, values, and way of working together) needed to achieve corporate goals. 12. What is a Matrix organizational structure and Network structure? Matrix organizational structure: is a combination of functional, product or project patterns of departmentation. It was developed to combine the stability of the functional structure with the flexibility of the product form. It is very useful when the external environment especially its technological and market aspects is very complex and changeable. It does produce conflicts revolving around duties, authority and resource allocation. Ex: This structure is used in construction, aerospace and high-tech industries. Network structure: is composed of a series of project groups or collaborations linked by constantly changing nonhierarchical, cobweb like networks. It is a radical organizational design with elimination of in-house business functions. It provides an organization with increased flexibility and adaptability to cope with rapid technological change and shifting patterns of international trade and competition. Ex: Companies like Nike, Reebok and Benetton use this structure in their operations function. 13. What is a Cellular organization? A Cellular organization is composed of cells (self-managing teams, autonomous business units, etc.) that can operate alone but that can interact with other cells to produce a more potent and competent business mechanism. Each cell has an entrepreneurial responsibility to the larger organization. It is this combination of independence and interdependence that allows the cellular organizational form to generate and share the knowledge and expertise to produce continuous innovation. The cellular form adds value by keeping the firms total knowledge assets more fully in use than any other type of structure. 14. What is Executive succession? Executive succession is the process of replacing a key top manager. It is especially important for a company that usually promotes from within to prepare its current managers for promotion. The board of directors of firms help their CEO create a succession plan, identifying succession candidates below the top layer, measuring internal candidates against outside candidates to ensure the development of a comprehensive set of skills, and providing appropriate financial incentives. Ex: GEs employees are trained at Leadership Development Center in New York. 15. What is Downsizing? Downsizing refers to the planned elimination of positions or jobs. This program is often used to implement retrenchment strategies. Because the financial community is likely to react favourably to announcements of downsizing from a company in difficulty, such a program may provide some short-term benefits such as raising the companys stock price. Creativity drops significantly and it becomes very difficult to keep high performers from leaving the company. Companies use downsizing as part of a larger restructuring program to narrow focus, they enjoy better performance.
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Ex: Xerox followed this strategy in the 1990s.
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16. Define (a) Behavior control (b) Input control (c) Output control. (a) Behavior control: Controls can be established to focus on actual performance results (output), the activities that generate the performance (behavior), or on resources that are used in performance (input). Behavior controls (such as following company procedures, making sales calls to potential customers, and getting to work on time) specify how something is to be done through policies, rules, standard operating procedures and orders from a superior. They are most appropriate when performance results are hard to measure but the cause-effect connection between activities and results is clear. Ex: ISO 9000 standards series on quality management and assurance. (b) Input control: Controls can be established to focus on actual performance results (output), the activities that generate the performance (behavior), or on resources that are used in performance (input). Input controls (such as number of years of education and experience) focus on resources such as knowledge, skills, abilities, values and motives of employees. They are most appropriate when output is difficult to measure and there is no clear cause-effect relationship between behavior and performance. Ex: College teaching. (c) Output control: Controls can be established to focus on actual performance results (output), the activities that generate the performance (behavior), or on resources that are used in performance (input). Output controls (such as sales quotas, specific cost reduction or profit objectives, and surveys of customer satisfaction) specify what is to be accomplished by focusing on the end result of the behaviors through the use of objectives and performance targets or milestones. They are most appropriate when specific output measures have been agreed on but the cause-effect connection between activities and results is not clear. Ex: Goals related to sales functions efficiency. 17. What is (a) Shareholder value (b) Economic Value Added (EVA) (c) Market Value Added (MVA)? (a) Shareholder value: can be defined as the present value of the anticipated future stream of cash flows from the business plus the value of the company if liquidated. Shareholder value analysis concentrates on cash flow as the key measure of performance. The value of the corporation is thus the value of its cash flows discounted back to their present value, using the businesss cost of capital as the discount rate. As long as the returns from a business exceed its cost of capital, the business will create value and be worth more than the capital invested in it. (b) Economic Value Added (EVA): has become an extremely popular shareholder value method of measuring corporate and divisional performance and may be on its way to replacing ROI (Return On Investment) as the standard performance measure. EVA measures the difference between the pre-strategy and post-strategy value for the business. EVA is after-tax operating income minus the total annual cost of capital and is given byEVA = After-tax operating income (Investment in assets (+ or -) Weighted average cost of capital)
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(c) Market Value Added (MVA): is the difference between market value of a corporation and the capital contributed by shareholders and lenders. Like net present value, it measures the stock markets estimate of the net present value of a firms past and expected capital investment projects. MVA is the present value of future EVA. To calculate MVA: Add all the capital Shareholders, bondholders and retained earnings. Firms total capital is the actually investments in future earnings. Using the current stock price, total the value of all outstanding stock, adding it to the companys debt. This is the companys market value. 18. What are Responsibility centers? Responsibility centers are used to isolate a unit so that it can be evaluated separately from the rest of the corporation. Each responsibility center has its own budget and is evaluated on its use of budgeted resources. It is headed by the manager responsible for the centers performance. The center uses resources (measured in terms of costs or expenses) to produce a service or a product (measured in terms of volume or revenues). There are five major types of responsibility centers namely, Standard cost centers Revenue centers Expense centers Profit centers and Investment centers. 19. How should a corporation attempt to achieve synergy between and among functions and business units? One of the goals to be achieved in strategy implementation is synergy between and among functions and business units. This is one reason why corporations commonly reorganize after an acquisition. If some sort of synergy cannot be achieved, there is no real reason to acquire another firm - other than trying to exit one business and enter another. The extent to which synergy should be achieved depends upon the strategy being pursued. A lot of synergy is needed in vertical and horizontal growth as well as in concentric diversification. The corporation pursues these strategies in order to achieve the benefits of efficiency coming from marketing, operating, investment, or management synergy. The firm is looking for advantages of scale or scope. If, however, the corporation is pursuing conglomerate diversification as a strategy, top management may only wish financial synergy in which high cash flow from one unit makes up for low cash flow from another unit. In this case, there is no attempt to combine any activities across business units (in this case usually called subsidiaries) because of the holding company nature of the corporation. Management's philosophy is one of buying and selling companies without much attempt to gain the benefits of synergy. 20. How should an owner-manager prepare the company for its movement from Stage I to Stage II? The corporation reaches the transition point from Stage I to Stage II when it gets too big for the owner-manager and his/her team of do-everything managers and workers to effectively keep track of all of the firm's activities. They lack the necessary in-depth knowledge of functional areas. To prepare the firm for this transition, the ownermanager needs to train those in the company who are willing to learn functional skills and knowledge. Some may take night courses at a local community college or university.
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Others may participate in various management development programs offered by organizations like the American Management Association. In some instances, specialists in certain areas may need to be hired from outside the company. The owner-manager will also need to start changing his/her style from one of making all the important decisions to one of delegating some areas of responsibility to others with more in-depth knowledge and experience. As others in the company build their expertise in certain areas, the owner-manager needs to begin giving them increasing decision-making autonomy. 21. How can a corporation keep from sliding into the decline stage of the organizational life cycle? The concept of the organizational life cycle proposes that, like the product life cycle, organizations tend to move through the stages of birth, growth, maturity, decline, and death. Companies go into decline because the very characteristics that helped make them successful tend to be taken to extremes over time and eventually cause a decrease in performance. This phenomenon is referred to as "trained incapacity" in which one's abilities can function as "blind spots" when those abilities are pushed too far. This tendency to do things the "company way" can lead to an inability to adapt appropriately to changing conditions. A company may need to "unlearn" its traditions and policies in order to revitalize itself. This is the revival stage. One way to keep from getting in a rut like this is for top management in particular to frequently question its mission, objectives, strategies, and policies, as well as its programs, budgets, and procedures. People within the organization need to be told to always be looking at other companies for better ways of doing things. Reengineering is being heavily touted as one way for a corporation to renew itself by rethinking and redesigning its business activities. 22. Is reengineering just another management fad or does it offers something of lasting value? Reengineering is the radical redesign of business processes to achieve major gains in cost, service, or time. It involves a fundamental rethinking of the way work is done, the use of cross-functional work teams, a new information and management system, and a new value system with greater emphasis on the customer. It is an effective way to implement a turnaround strategy and can thus be a part of the revival stage of the organizational life cycle. Just as zero defects, management by objectives, and zero-based budgeting were hot topics in the 1960s and 1970s, total quality management and reengineering were the hot topics of the early 1990s. Like other fads, reengineering will go through the various stages of discovery, successful application by a few well-known firms, followed quickly by oversaturation by the business media, research studies showing mixed results, and finally the stage when business firms view the concept as "out of fashion" and move on to the next emerging fad - leaving the concept to live on only as a paragraph in textbooks. In the late 1990s, reengineering went through the mixed results stage. Since it had only taken total quality management a couple years for it to lose support in the business world (and ironically to just become popular in not-for-profit organization like universities!), reengineering was soon going out of favor in the business world. As such, this concept may find a permanent place in the literature on organizational change. Reengineering is important because it looks at job design as the building block to organization design something that org theorists have been slow to do. Traditional org theory views org design from the outside in. Structure is thus viewed as a response to environmental
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change. Job design tends to be ignored by org theorists in favor of the "macro" approach. Reengineering, in contrast, views org design from the inside out. Job design comes first, then organizational design. Reengineering thus tends to combine the "macro" approach of organizational theory and the "micro" approach of organizational behavior. This is one reason why traditional academics who like to segment their areas of study have difficulty with the more integrative and practitioner-oriented concept of reengineering. Unless these academics are able to see reengineering as a useful way to bridge the gap between organization and job design, they may help cynics ridicule it as another fad and thus bury an otherwise useful approach to strategy implementation and organizational change. 23. How is the cellular organization different from the network structure? "A cellular organization is composed of cells (self-managing teams, autonomous business units, etc.) that can operate alone but that can interact with other cells to produce a more potent and competent business mechanism." It is this combination of independence and interdependence which allows the cellular organizational form to generate and share the knowledge and expertise to produce continuous innovation. The cellular form includes the dispersed entrepreneurship of the divisional structure, customer responsiveness of the matrix, and self-organizing knowledge and asset sharing of the network. As proposed, the cellular structure is similar to a current trend in industry of using internal joint ventures to temporarily combine specialized expertise and skills within a corporation to accomplish a task individual unit alone could not accomplish. In contrast, the network structure is really a sort of non-structure by its virtual elimination of in-house business activities. Long-term contracts with suppliers and other strategic alliances replace the services the company could provide for itself. 24. Does structure follow strategy or does strategy follow structure? Why? To the extent that the formulators of strategy seriously consider implementation issues in choosing a strategic alternative, they will have to assess the compatibility of a desired strategy with the present corporate structure. If the desired strategy cannot be implemented given the present structure, how much time, money, and effort will be needed to change the structure? Such a cost-benefit analysis may find the desired strategy to be too costly to implement. Research does support the contention that structure follows strategy. Logic suggests that responsible strategy makers will consider present corporate structure as a serious consideration in the choice of a strategic alternative. One of the problems of strategy formulation in the past has been a lack of serious consideration of structural issues. The creation of new strategy is followed by the appearance of new administrative problems which contribute to a decline in economic performance. One is left wondering why the strategy makers in the corporations failed to foresee the need for structural changes at the time they created their strategy. Perhaps if they had been able to foresee all the needed implementation problems, the chosen strategy might have been quite different and more in line with their present structure. All this is merely conjecture, of course. Hindsight is always clearer than foresight. 25. Japanese corporations typically involve many more organizational levels and people in the development of implementation plans than do U.S. corporations. Is this appropriate? Why or why not?
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The Japanese "ringi" process involves circulating a formal proposal throughout an organization for approval at every level before the decision is made. In American terms, it may seem to take the Japanese forever to make a decision. This results from the Japanese managers' desire to involve those who will implement the decision in the initial formulation of strategy. Western strategy makers, in contrast, tend to make key decisions at the top and assume that it will be accepted without criticism and implemented appropriately. Implementation plans may thus be drafted rather generally by top management and given to lower level managers to implement the required plan of action. Arguments for and against the Japanese-style participative approach to implementation planning tend to boil down to the question of tradeoffs. The Japanese method appears to see less of a distinction between strategy formulation and implementation. The two tend to be handled together in the planning stages. This is done because the Japanese tend to involve more corporate levels in the formulation process and thus cannot ignore implementation issues. In the U.S., these issues might be ignored because often only top management considers itself to be "responsible" for strategy formulation decisions. 26. What skills should a person have for managing a business unit using a differentiation strategy? Why? What should a company do if no one having these skills is available internally and the company has a policy of promotion only from within? Research does appear to support the proposition that the manager of a corporation or business unit should be matched to the strategy for successful implementation. Those executives who successfully implement a differentiation business strategy tend to have a high internal locus of control and have more experience in R&D. Because of the likely growth orientation of the strategy, managers should probably have a greater willingness to take risks, a higher tolerance for ambiguity, and sales/marketing experience. These characteristics make sense because of the product/market orientation needed of any unit interested in setting its products or services apart in the competitive marketplace. If this type of person is not available internally, then the company must recruit an appropriate outsider. Under the condition of a promotion from within policy, the policy should be reconsidered and an exception made. Otherwise, the company must take a chance on promoting one of its own - a good reason for proceeding cautiously. 27. When should someone from outside the company be hired to manage the company or one of its business units? Research does suggest that firms in difficulty can improve their chances for success if they bring in an outsider who does not have the same devotion to past management practices as do most internal candidates. Certainly, examples can be provided of corporations turning to external turnover specialists to regain their past success by firing and eliminating popular, but unprofitable divisions, units, and projects. The probability of hiring an outsider to lead a firm in difficulty increases if there is no heir apparent, the last CEO was fired, and if the board of directors is composed of a large percentage of outsiders. The insider/outsider distinction may not really be the important issue. The best answer may lie in finding the right person to implement the needed strategy regardless of where the person is found. 28. What are some ways to implement a retrenchment strategy without creating a lot of resentment and conflict with labor unions?
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"Downsizing" is a program usually used in implementing a retrenchment strategy. Unless staffing issues are dealt with appropriately in retrenchment, a situation can develop in which retrenchment feeds on it and acts to further weaken instead of strengthening the company. There are six guidelines for successful downsizing: - Eliminate unnecessary work instead of making across-the-board cuts; - Contract out work that others can do cheaper; - Plan for long-run efficiencies; - Communicate the reasons for actions; - Invest in the remaining employees; and, - Develop value-added jobs to balance out job elimination.
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29. How can corporate culture be changed? Communication is the key to effective management of change in culture. Top management must be committed to a culture change and communicate that commitment to everyone in the organization. The new culture must be part of a "strategic vision" which can capture the emotions of the employees. A series of programs need to be established to move the corporation from one culture to another and a strong rationale given to justify such a radical change. Progress toward the goal must be measured at intervals and results communicated widely. A system of incentives must also be developed to reward those who support and encourage the culture change. 30. Why is an understanding of national cultures important in strategic management? An understanding of different national cultures is important in all aspects of strategic management. Since international trade is becoming increasingly important, knowledge of national cultures is important to environmental scanning. One must scan not only key forces in one's industry, but also different societal forces in other parts of the world where the company might do business. An understanding of national cultures is also important to the formulation of strategy. Many cultures are very ethnocentric and do not like foreigners controlling key parts of their country. In Saudi Arabia, for example, nonSaudis cannot own land - they can only rent it. Most countries have rules regarding ownership of companies in industries which are deemed important to that country's welfare (for example, the U.S. defense industry). A company must have an understanding of these differences if it is to formulate various entry strategies into different countries or regions. An understanding of different cultures is especially important in strategy implementation. Because of cultural differences, managerial style and human resource practices must be tailored to fit the particular situations in other countries. National culture is so influential that it tends to overwhelm even a strong corporate culture. A certain management practice might be successful in one nation, but fail in another. Knowledge of these kinds of differences is crucial for any multinational corporation. An understanding of national cultures is also important to evaluation and control. 31. How might manager-strategy fit be accomplished short of firing current managers? If the current manager of an SBU is capable, but does not appear to have the skills and experiences necessary to implement a particular strategy, the company might wish to either provide him/her with additional training or an assistant having some of those skills/experiences. Unfortunately, since most companies want to get implementation moving quickly and don't want two managers to do the job of one, a better option is to transfer existing managers from one unit to another. Another approach is to consider the
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skills and experiences of the existing manager in the process of strategy formulation when choosing among strategic alternatives. If there is little difference in the expected results from two different strategies, it makes sense to select the strategy which best fits the existing manager's skills and experiences. 32. Does culture follow strategy or does strategy follow culture? Why? To the extent that the formulators of strategy seriously consider implementation issues in choosing a strategic alternative, they will have to assess the compatibility of a desired strategy with the present culture. If the desired strategy cannot be implemented given the present culture, a lot of time, money, and effort will be needed to change the culture. The type of culture within a corporation will act to influence the selection of feasible alternative strategies. To the extent that the culture derives from the "distinctive competence" of the company, this may be very appropriate. Don't throw away a good culture just because the current strategy is not as successful as it could be. Some might even say that a good culture is more important than is a good strategy. Clearly, both strategy and culture are very important and need to be carefully evaluated before any significant change in either is recommended. Both strategy and culture affect each other simultaneously. 33. Compare and contrast action planning with Management By Objectives. An action plan states what actions are going to be taken, by whom, during what time frame, and with what expected results. Action plans are the primary means by which programs are developed for the implementation of strategy. Management By Objectives is also a technique useful for the development of programs. Like action planning, MBO pinpoints individual responsibilities for each unit objective and specifies a time frame when that objective is to be achieved. Unlike action planning, however, MBO takes a more organization-wide approach to planning implementation programs and budgets. For MBO to work, it should be a complete system. Action planning can be done, in contrast, at the individual level only. The key difference is that MBO is a system of hierarchical objectives beginning at the top of the corporation and cascading down through the divisions and work units. MBO also encourages the superior to negotiate the subordinate's objectives with the subordinate's input. MBO includes action planning as part of the discussions between a manager and his/her subordinate. Action planning alone, however, can be done strictly on a top down basis with little to no input from the subordinate. 34. What value does a Total Quality Management program have in implementing strategy? Total Quality Management (TQM) is an operational philosophy that stresses commitment to customer satisfaction and continuous improvement. It aims at improving quality, increasing flexibility, and reducing costs in order to better satisfy the customer. Because TQM aims to reduce costs as well as improve quality, it can be used as a program to implement either an overall low cost or a differentiation business strategy. Like MBO, Total Quality Management helps keep employees' minds on a crucial objective of strategic management - increasing sales and profits by pleasing the customer. Since the mission of most business firms is customer driven, TQM helps to clarify and fine tune the company's mission statement. TQM makes the key point that since competitive advantage is usually only temporary, the organization must emphasize continuous improvement to improve product quality and reduce costs. According to TQM,
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customers can be internal as well as external to the organization. To the extent that a company is able to continually improve its service to its internal customers, it is more likely to keep internal transaction costs low and thus be in a better position to reap the benefits and avoid the disadvantages of vertical integration. 35. How can MBO help improve the implementation of strategy? Management By Objectives is a powerful implementation technique because it is a system that links plans with performance. It forces managers to communicate to their subordinates the objectives of the overall business unit so that a subordinate is better able to see how he/she fits into the company's goal accomplishment. MBO, therefore, acts to tie together corporate, business, and functional objectives, as well as the strategies developed to achieve them. This tying together forms a hierarchy of objectives similar to the hierarchy of strategy. The mutual give and take plus the sense of personal responsibility exemplifying a successful MBO program serves to motivate employees to help implementation activities succeed. 36. Is EVA an improvement over ROI, ROE, or EPS? Economic value added (EVA) is being increasingly recommended as an improvement over traditional measures like ROI, ROE or EPS because of EVA's strong relationship to a company's stock price. It uses stock price to measure the difference between the prestrategy and post-strategy value of a corporation. 37. How much faith can a manager place in a transfer price as a substitute for a market price in measuring a profit center's performance? The use of a transfer price allows a corporation to convert a cost or expense center into a profit center. In theory, this sounds like a good way to avoid the kind of suboptimization often occurring in large corporations when a unit or division thinks only of achieving its own goals to the detriment of the corporation as a whole. To the extent that the transfer price reflects the true market price of the items in question, this approach can improve efficiency within a corporation. If, however, it is difficult to decide upon a "fair market price" (because the item in question is rarely sold on the open market or because the market is regulated by government), the exact amount of the transfer price is open to manipulation by powerful, interested parties within the corporation. Corporate politics may dictate a certain price, which gives advantage to the president's favorite project or division and unfairly penalizes another division which happens to be out of favor. 38. Is the evaluation and control process appropriate for a corporation that emphasizes creativity? Are control and creativity compatible? Explain. There is some feeling that a large number of controls do constrain creative impulses. A person's mind must be able to run free without constraint in order to generate new innovative concepts. Data from advertising agencies and R&D labs do suggest that corporations emphasizing creativity tend to reduce the number of controls used. Control is not ignored, however. Data is just not collected on intermediate activities such as time in the office or manner of dress. The emphasis tends to be on the end-result of activities rather than upon the activities themselves. Control and creativity are thus compatible if the controls are appropriate and used properly. Creative types may be like artists. To be successful, they need both talent and discipline. Most creative types, however, choose to impose their own form of discipline on themselves. To the extent that managers attempt
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to regulate the activities which go into creativity, they may destroy the very thing they are trying to nurture. 39. Why bother with shareholder value or a stakeholder scorecard? Isn't it simpler to evaluate a corporation and its SBUs just by using standard measures like ROI or earnings per share? The standard measures like sales, profits, earnings per share, and return on investment, etc. are certainly easier to grasp and more commonly used than any of the proposed "improved" models. Nevertheless, the proposed measures have problems of their own. The stakeholder score card seems to violate guidelines one and two from the text. Although the scorecard provides much more information on a corporation's task environment than does any set of traditional measures, it runs the risk of overwhelming management with too many controls. Unless the score card includes some priorities indicating which measures are most important and least important to the corporation, it may just create confusion. The management needs to consider more than just the standard measures of performance. Economic value added (EVA), a measure of shareholder value is being increasingly touted as an improvement over traditional measures. Based on the assumption that the stock market is the ultimate decider of corporate performance, an emphasis on this measure forces management to especially monitor all forces that can affect stock price and dividend rate. In the long-run, this may be an excellent measure, but it is hard to see how it is an improvement over ROI (if ROI is used in a long-term manner) other than its relationship to stock price. Like the traditional measures, shareholder value can be manipulated in the short run by following a profit strategy or by manipulating the buying and selling of stock. Another limitation is this measure's concern with only one aspect of the task environment - the stockholder. There is no one best measure or group of measures. The key is to use those measures which have the most value to those most affected by corporate performance and to keep them in perspective by understanding their advantages and limitations. In contrast, the balanced scorecard combines financial measures that tell the results of actions already taken with operational measures on customer satisfaction, internal processes, and the corporations innovation and improvement activities - the drivers of future financial performance. This may be the best way to measure overall corporate performance. 40. Is benchmarking just another fad or is it really useful for all firms? Why? Benchmarking involves learning how other successful companies do something and imitating or perhaps even improving on their techniques. Pioneered in the U.S. by Xerox Corporation, benchmarking is similar to the time-tested practice of "reverse engineering" in which a company buys the product of another company to take it apart in order to learn how it is made. Given that Xerox developed the concept of competitive benchmarking in the early 1980s, it appears that the concept is here to stay. It is especially useful to companies that find themselves falling behind others in the industry. Xerox developed the concept when management realized that Japanese companies were slowly taking over the copier market by making and selling products superior to those of Xerox at a cheaper price. Since this is a situation that is bound to affect various companies in the future, benchmarking is bound to be increasingly adopted. Unlike MBO, TQM, or reengineering, almost everyone who uses benchmarking finds it to be very useful and well worth the time and money to do it.
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41. Why are goal displacement and short-run orientation likely side effects of the monitoring of performance? What can a corporation do to avoid them? Goal displacement and short-run orientation are likely side effects of evaluation and control because no system can be all-inclusive. Goal displacement occurs because people find it easier to focus on a surrogate of performance (the measure) than on the performance itself. To the extent that the measure tends to be confused with what it is supposed to be measuring, work activities will be oriented more toward the measures used and less toward total performance. A short-term orientation occurs not because of poor measures, but because most managers tend to want quick feedback. Those activities, which require a great deal of time before feedback occurs, tend to be neglected for those activities providing more immediate feedback. The measures by themselves do not cause a short-term orientation. It is the time frames in which they are used which causes the result. ROI, for example, can be calculated over a five-year period just as well as a oneyear period. The measures, however, do cause managers to focus their activities and to want feedback on how they are doing. To the extent that short-run performance is measured and rewarded, a short-term orientation is a natural result. In order to avoid these negative side effects, a corporation should consider the guidelines for proper control given in the text. Emphasis should be especially placed on measuring all meaningful activities and results regardless of measurement difficulty and upon using long-term controls. As long as we are dealing with human beings, however, we must keep in mind that these side effects will never go away completely. A good control system can only hope to minimize them. 42. What are the strengths and weaknesses of the strategic audit as a technique for assessing corporate performance? In terms of strengths, the strategic audit provides a useful framework for a student who is not very familiar with case analysis. The audit serves to highlight and review important concepts, tools, and techniques from functionally-oriented areas. To the extent that a student spends less time trying to figure out how to get into the case, the audit may improve the quality of analysis. The student will be more efficient with his/her time and will develop a better organized report. If nothing else, the audit serves as a valuable checklist for a student to make sure all important areas have been covered. In terms of weaknesses, the strategic audit may mislead the inexperienced student to believe that strategic management is simply a matter of going through a series of checklists and sequentially organized questions. A more serious criticism is that to the extent that the audit provides a structure for case analysis, it may serve as a crutch for the lazy student and discourage innovative approaches to case analysis. A shortcoming of the audit approach is that no audit can ask all the questions relevant to any particular situation. It is thus merely a starting point, not an ending point for case analysis. The student should be encouraged to develop his/her own questions. 43. What is Strategic change? Strategic change is the process of making strategic decisions that enhance the competitiveness and create new sources of value within an organization. The nature of the changes inherent in the process of strategic change tend to be significantly different than with changes that evolve over time and that generates reactive responses. Strategic changes are consciously planned for and tend to be steeped in personal meaning. They are designed to make the present obsolete and, more often than not, require the presence of
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some compelling "vision" that positions the change as being a necessary step along the pathway. Ex: A firm choosing a diversification strategy from the existing concentric strategy. 44. What are the methods of managing diverse cultures? Top management should give some consideration to a potential clash of corporate cultures when merging with or acquiring another company. The greater the gap between the cultures of the acquired firm and the acquiring firm, the faster the executives in the acquired firm quit their jobs and value talent is lost. There are 4 general methods of managing two different cultures, namely: Integration merges the cultures in such a way that the separate cultures of both the firms are preserved in the resulting culture; Assimilation involves the domination of one organizations culture over the other; Separation is characterized by structural separation, without cultural exchange; and Deculturation involves the disintegration of one companys culture resulting from unwanted and extreme pressure from the other to impose its culture and practices. 45. What are the primary measures of corporate performance? Performance is the end result of activity. Which measures to select to assess performance depends on the organizational unit to be appraised and the objectives to be achieved. The objectives of the strategic management process should be used to measure corporate performance once the strategies have been implemented. The primary measures of corporate performance are: Traditional financial measures Return On Investment (ROI), Return on Equity (ROE), Earnings Per Share (EPS); Stakeholder measures The criteria which deal with the direct and indirect impact of corporate activities on stakeholder interests; Shareholder Value Economic Value Added (EVA), Market Value Added (MVA); Balanced Scorecard approach evaluating the objectives in financial, customer, internal business, innovation and learning; and Evaluating Top management Management audit.
PART B
1. Describe the steps in strategic evaluation and control process. Definition of strategic evaluation and control types of control steps in control process levels of control limitations conclusion. 2. Discuss the role of Corporate Culture in strategic management. Definition of corporate/organization culture culture and strategic leadership suitable reward systems (piecework plans, commission payment, bonus plans, group reward system) conclusion. 3. Explain the strategic management process in organizational life cycle.
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Definition of strategic management, Organizational life cycle stages in organization life cycle with reference to strategic management process conclusion. 4. How can a corporate keep sliding into the decline stage of the organizational life cycle? Definition of organization, organization life cycle stages of organization life cycle emphasis on decline stage of organization life cycle with an example conclusion. 5. Explain the steps in control process and various types of control system. Definition of strategic control types of control steps in control process explain with suitable examples conclusion. 6. Describe the steps in designing an effective control system. Definition of Strategy evaluation and control Types of control (input, output, behavioural) steps in control process Effective control system through measuring corporate performance conclusion. 7. What are some ways to implement a retrenchment strategy without creating a lot of resentment and conflict with Labour unions? Definition of retrenchment strategy reasons for implementing this strategy employees to be made known about the outcome of this strategy resolution of conflict with labour unions conclusion. 8. What is organizational conflict? What are its sources? Explain its process. Suggest strategies to resolve it. Definition of conflict, organizational conflict sources of conflict conflict process conflict resolution strategies merits and demerits of organizational conflict conclusion. 9. How can corporate culture be changed? Definition of corporate culture, organizational change changing the organization conflict resolution strategies steps in change process conclusion. 10. Elaborate on the broad forms of organization structure. Definition of organization structure components of organization structure types of organization structure merits and demerits of each structure conclusion. 11. What is the role of organizational structure on strategy implementation? Explain the two types of organizational design concepts that decide how a structure will work. Definition of strategy implementation, Organization structure 2 types of organization design concepts (page 185) the design concepts coincides with the organization structure merits and demerits conclusion. 12. Elucidate the pattern of structural development corporations follow as they expand and grow. Definition of organizational design, structure steps in organizational lifecycle relate to a structural development firm benefits of that design and structure conclusion. 13. Explain why organizational structure is so important in strategy implementation.
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Definition of strategy implementation, Organization structure Developing
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budgets, procedures and programs achieving synergy structure follows strategy designing jobs to implement strategy importance of structure follows strategy conclusion.
14. How do conflict and politics affect formulation and implementation of generic competitive strategies? Definition of generic competitive strategy, strategy formulation and strategy implementation types of generic competitive strategies meaning of conflict and politics how strategies are affected by conflict and politics conclusion. 15. Read the given case below and answer the questions given at the end: GETTING IT RIGHT AT McDONALDS In the restaurant business maintaining product quality is a major problem because the quality of food, service, and the restaurant premises varies with the chefs and waiters as they come and go. If a customer gets a bad meal or poor service or dirty silverware, not only that customer may be lost, but other potential customers, too, as negative comments travel by word of mouth. Consider then the problem Ray Kroc, the man who pioneered McDonalds growth, faces when McDonalds franchises began to open by the thousands throughout the US. How could he maintain product quality to protect the companys reputation as it grew? Moreover, how could he try to increase efficiency and make the organization responsive to the needs of customers to promote its competitive advantage? Krocs answer was to develop a sophisticated control system, which specified every detail of how each McDonalds restaurant, was to be operated and managed. Krocs control system was based on several components. First, he developed a comprehensive system of rules and procedures for both franchise owners and employees to follow in running each restaurant. The most effective way to perform such tasks as cooking burgers, making fries, greeting customers, or cleaning tables was worked out in advance, written down in rule books, and then taught to each McDonalds manager and employee through a formal training process. For example, prospective franchise owners had to attend Hamburger University the companys training center in Chicago, where in an intensive, month-long program they learnt all aspects of a McDonalds operation. In turn, they were expected to train their work force and make sure that employees understood operating procedures thoroughly. Krocs goal in establishing this system of rules and procedures was to standardize McDonalds activities so that whatever franchise customer walked into they would always find the same level of quality of food and service. If customers always get what they expect from a restaurant, the restaurant has developed superior customer responsiveness. However, Krocs attempt to control quality went well beyond written rules and procedures specifying task activities. He also developed McDonalds franchise system to help the company control its structure as it grew. Kroc believed that a manager who is also a franchise owner (and receives a large share of the profits) is more motivated to maintain higher efficiency and quality than a manager paid on a straight salary. Thus McDonalds reward and incentive system allowed it to keep control over its operating structure as it expanded. Moreover, McDonalds was very
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selective in selling its franchises; the franchises had to be people with the skills and capabilities to manage the business, and a franchise could be revoked if the holder did not maintain quality standards. McDonalds managers frequently visited restaurants to monitor franchises, and franchises were allowed to operate their restaurant only according to McDonalds rules. For instance, they could not put in a television or otherwise modify the restaurant. McDonalds was also able to monitor and control the performance of its franchisees through output control. Each franchise provided McDonalds with information on how many meals were sold, on operating costs, and so forth. So using this mix of personal supervision and output control, managers at McDonalds corporate headquarters would quickly learn if sales in a franchise declined suddenly, and thus they could take corrective action. Within each restaurant, franchise owners also paid particular attention to training their employees and instilling in them the norms and values of quality service. Having learned about McDonalds core cultural values at their training sessions, franchise owners were expected to transmit McDonalds concepts of efficiency, quality and customer service to their employees. The development of shared norms, values and an organizational culture also helped McDonalds standardize employee behaviour so that customer would know how they would be treated in a McDonalds tried to include customers in its culture. It had customers bus their own tables, but it also showed concern for customer needs by building playgrounds, offering happy meals, and organizing birthday parties for customers children. In creating its family oriented culture, McDonalds was ensuring future customer loyalty because satisfied children are likely to remain loyal customers as adults. Through all these means, McDonalds developed a control system that allowed it to expand its organization successfully and create an organizational structure that has led to superior efficiency, quality and customer responsiveness. Its control system has played an important role in McDonalds becoming the largest and most successful fast-food company in the world, and many other fast-food companies have imitated it. Questions: (i) What were the main elements of the control system created by Ray Kroc? Ray Krocs control system was based on several components. They are: (i) He developed a comprehensive system of rules and procedures for both franchise owners and employees to follow in running each restaurant. (ii) He also developed McDonalds franchise system to help the company control its structure as it grew. (iii) McDonalds reward and incentive system allowed it to keep control over its operating structure as it expanded. (iv) McDonalds was very selective in selling its franchises; the franchises had to be people with the skills and capabilities to manage the business, and a franchise could be revoked if the holder did not maintain quality standards. (v) Having learned about McDonalds core cultural values at their training sessions, franchise owners were expected to transmit McDonalds concepts of efficiency, quality and customer service to their employees.
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McDonalds developed a control system that allowed it to expand its organization successfully and create an organizational structure that has led to superior efficiency, quality and customer responsiveness. (ii) In what ways would this control system facilitate McDonalds strategy of global expansion?
Market entry strategy is necessary to be choosy. Point out the effectiveness of the control system imposed by McDonalds on the franchisees.
UNIT 5 : OTHER STRATEGIC ISSUES PART A

1. What is a small-business firm? A small-business firm is independently owned and operated, not dominant in its field, and does not engage in innovative practices. In India, a unit with investment in plant and machinery up to Rs.1 crore is regarded as a SSI undertaking. Industry related service/business enterprise with an investment up to Rs.25 lakhs in fixed assets, excluding land and building is treated as Small Scale Service and Business (industry related) Enterprise. In the United States a small-business firm is one which employs fewer than 500 people and that generates less than US $ 20 million annually. Ex: 2. What are Entrepreneurial ventures? Entrepreneurial venture is any business whose primary goals are profitability and growth and that can be characterized by innovative strategic practices. Many entrepreneurial firms start with a single product and plan for further growth. An entrepreneur is a strategist as he plans, organizes and manages a business undertaking and takes risks for the sake of survival and growth. Ex: Mr.C.K.Renganathan of Kevincare created Velvette brand sachet shampoo revolution. 3. What is the meaning of Strategic Piggybacking? Strategic piggybacking refers to the development of a new activity for the not-for-profit organization that would generate funds needed to make up the difference between revenues and expenses. The primary purpose is to subsidize the service programme. It is gaining popularity in recent times. It appears to be a form of concentric diversification, but it is engaged in only for its money-generating value. Ex: Hospitals offering wellness programmes ranging from meditation classes to aerobics. 4. What is Technology sourcing? Technology sourcing is a make-or-buy decision that can be important in a firms R&D strategy. Although in-house R&D has traditionally been an important source of technical knowledge for companies, firms can also tap the R&D capabilities of competitors, suppliers and other organizations through contractual agreements (such as licensing, R&D agreements and joint ventures). Firms that are unable to finance alone the huge
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costs of developing a new technology may coordinate their R&D with other firms through a strategic R&D alliance. Ex: Matsushitas licensing of Iomegas zip drive technology so that it could also manufacture and sell removable cartridges for personal computers.
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5. Define Reengineering. Reengineering is the radical redesign of business processes to achieve major gains in cost, service or time. It is not in itself a type of structure, but it is an effective way to implement a turnaround strategy. It strives to break away from the old rules and procedures and become ingrained in every organization over the years. These may be a combination of policies, rules and procedures that have never been seriously questioned because they were established years earlier. These rules of organization and work design were based on assumptions about technology, people and organizational goals that may no longer be relevant. Ex: Mossville Engine center, a business unit of Caterpillar Inc., used reengineering to decrease process cycle times by 50%. 6. How are process innovations different from product innovations? Process innovations: such as improved manufacturing facilities, increasing product quality, and faster distribution become important to maintaining the products economic returns. Process R&D has been the core of successful cost leadership strategies. Ex: The key to the success of the U.S. major home appliance industry is process innovation. Product innovations: are most important because the products physical attributes and capabilities most affect financial performance. Product R&D has been the key to achieving differentiation strategies. Ex: Toto Ltd. of Japan which is into bathroom fixture manufacturing emphasizes on product R&D. 7. What are the stages of New Product Development? If a corporation decides to develop innovations internally, it must make sure that its corporate system and culture are suitable for such a strategy. It must make sufficient resources available for new products, provide collaborative structures and processes, and incorporate innovation into its overall corporate strategy. It must establish procedures to support all six stages of new product development, namely Idea generation Concept evaluation Preliminary design Prototype build and test Final design and pilot production and New business development. 8. Define Corporate Entrepreneurship / Intrapreneurship. Corporate Entrepreneurship / Intrapreneurship is defined as the birth of new businesses within existing organizations, that is, internal innovation or venturing; and the transformation of organizations through renewal of key ideas on which they are built, that is, strategic renewal. A large that wants to encourage innovation and creativity within its firm must choose a structure that will give the new business unit an appropriate amount of freedom while maintaining some degree of control at headquarters.
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Ex: Maytag Corporation built a new plant near its current Newton, Iowa, washer plant to manufacture front-loading dish-washers. 9. What is Absorptive capacity? Absorptive capacity is a firms ability to value, assimilate and utilize new external knowledge. Firms having absorptive capacity are able to use knowledge obtained externally to increase the productivity of their research expenditures. R&D creates a capacity in a firm to assimilate and exploit new knowledge. A corporation may acquire a smaller high technology company in order to learn not only the new technology, but also a new way of managing its business. Ex: Northern Telecom purchase Bay networks and formed Nortel networks that produced shortened product life cycles and innovative new products. 10. What is Technological competence? Technological Competence is the capability to develop and use innovative technology. A firm having technological competence should make a consistent research effort. It should also be proficient in managing research personnel and integrating their innovations into its day-to-day operations. Ex: Xerox Corporation failed to take advantage of various innovations such as mouse and GUI for personal computers developed in its Palo Alto Research Center. 11. What are the entrepreneurial characteristics to new ventures success? (OR) Give the characteristics of innovative entrepreneurial culture (OR) How can a company develop an entrepreneurial culture? Innovation is a key to success for many business corporations. Innovation means new products, new processes, new services, and even more. Simply, it means the successful exploitation of technological advances - the translation of a new idea or concept into improved goods and services for society's use. In order to develop an entrepreneurial culture within a company, management should introduce many of the characteristics held in common by innovative organizations. Rogers points out on page 290 that these characteristics are: Positive attitude toward change Decentralized decision-making Complexity Informal Structure Interconnectedness Organizational Slack (unused resources) Large Size System Openness Some will argue that strategic management and all that it implies actually discourages innovation by enforcing a long-term direction on the firm - thus stamping out the serendipity needed for creativity. For a corporation to be more innovative, top management must develop an innovative culture - one that is open to the transfer of new technology into company activities and products and services. Management encourages the development of innovative ideas by its employees and often separates these internal ventures from the rest of the company to provide them the freedom to grow. A large corporation that wishes to encourage innovation and creativity within its firm must choose a type of structure that will give the new business unit an appropriate amount of freedom while headquarters still has some degree of control.
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12. What are the sources of Innovation? Innovation is a product of divergent and convergent thinking. It includes initiation of the idea, acquisition of necessary knowledge, its transformation into usable hardware or procedure, its introduction into society, and its diffusion and adoption. The sources of innovation are: The unexpected The incongruity Innovation based on process need Changes in industry or market structure Demographics Changes in perception, mood and meaning New Knowledge. 13. What is an Advisory board? An Advisory board is a group of external business people who voluntarily meet periodically with the owner/managers of the firm to discuss strategic and other issues. The members are usually invited to join the board by the president of the company. The advisory board has no official capacity but is expected to provide management with useful suggestions and act as a sounding board. Advisory boards are an easy way to obtain free professional consulting advice. It is important to staff the advisory board with knowledgeable people with significant business experience or skills who can complement the background and skills of the company owner/managers. 14. Who are Lead users? Customers are a key source of innovation in many industries. One way to commercialize a new technology is through early and in-depth involvement with a firms customer in a process called co-development. This type of customer can be called a Lead user. Lead users are companies, organizations, or individuals that are well ahead of market trends and have needs that go far beyond those of the average user. Ex: 3M successfully applied the lead user method in 8 of its 55 divisions. 15. What are the characteristics of an Entrepreneur? (OR) What are the entrepreneurial characteristics to new ventures success? An entrepreneur is a strategist as he plans, organizes and manages a business undertaking and takes risks for the sake of survival and growth. The success of an enterprise is closely related to the entrepreneurial traits of a businessman. The characteristics of an entrepreneur or successful entrepreneurial characteristics to new ventures success are: Ability to identify potential venture opportunities High need for achievement Detailed knowledge about key functions to success in the industry and Network with outsiders to supplement their skills, knowledge and abilities. 16. What is Goal displacement? Goal displacement is the confusion of means with ends and occurs when activities originally intended to help managers attain corporate objectives become ends in themselves or are adapted to meet ends other than those for which they are intended. Two types of goal displacement are:
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Behaviour substitution refers to a phenomenon when people substitute activities that do not lead to goal accomplishment for activities that do lead to goal accomplishment because the wrong activities are being rewarded. Suboptimization refers to a phenomenon when a unit optimizes its goal accomplishment to the detriment of the organization as a whole. 17. What are the salient features of a not-for-profit organization? Not-for-profit organizations may be classified, as Private non-profit organizations such as private hospitals, private educational institutions and charities and Public governmental agencies such as universities, libraries and museums. The features of not-for-organizations are: They receive a lot of benefits from society They depend heavily on donations from members and funds from sponsoring agency They are more market oriented. 18. Narrate how internet has affected not-for-profit organizations. Not-for-organizations may be classified, as Private non-profit organizations such as private hospitals, private educational institutions and charities and Public governmental agencies such as universities, libraries and museums. The impact of the internet upon not-for-organizations are: The issue of taxation Improvement of government services and Higher education and health care. 19. How to develop an innovative entrepreneurial culture? To create a more innovative corporation, top management must develop an entrepreneurial culture- one that is open to the transfer of new technology into company activities and products and services. Innovative organizations tend to have the following characteristics: Positive attitude toward change Decentralized decision-making Complexity Informal structure Interconnectedness Organizational slack (unused resources) Large size and System openness. 20. In terms of strategic management, how does a new venture's situation differ from that of an ongoing small company? Authorities in the field tend to agree that the typical ongoing small business firm is not as innovative as an entrepreneurial venture. The small company has worked hard to establish itself and is one of the few new small businesses to survive its beginning years. At this point, many owner/managers choose to stabilize their businesses at a manageable size and move from a strategy of growth in order to survive to a stability strategy so that the owner/manager can begin to enjoy some of the fruits of success. It may take all of the
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owner's ability just to keep the company on an even footing. The entrepreneurial mode is replaced by an adaptive or perhaps planning mode. After all, a company can be very successful living off one innovative concept if it has been able to find and satisfy a favorable niche. The new venture, in contrast, still must prove itself. It faces a situation in which it only has a 50% chance of survival, let alone of success. It must grow or die. Operating in the entrepreneurial mode, managers must think strategically when putting together a business plan. 21. How should a small company engage in environmental scanning? To what aspects of the environment should management pay most attention? The small company needs to be constantly monitoring its environment, but the process should be reasonably informal with the minimum of paperwork. Since most small businesses tend to be local in orientation, managers must pay close attention to developments in the local community and to competitive activities. Employees need to be constantly asking customers for feedback or suggestions - this is probably the most important source of new ideas and information about competitors. 22. What are the characteristics of an attractive industry from an entrepreneur's point of view? What role does innovation play? Industry structure is one of the three most important factors in determining the success of a new venture. The most attractive industries from an entrepreneur's point of view have a number of characteristics. These are: - Rapidly growing market; - One dominant competitor has 50% or more market share; - Heterogeneous products are being made and sold; and, - Product is relatively unimportant to customers' total purchasing needs. 23. What considerations should small business entrepreneurs keep in mind when they are deciding if a company should follow a growth or a stability strategy? The most important consideration in deciding upon a strategy is to clearly delineate the company's mission and objectives. The objective is the destination. The strategy is the route. The available alternative strategies include every road on the road map. Too often a small business entrepreneur looks for a hot new strategy without thinking through its impact on the company and on the people involved. Personal objectives are extremely important in an entrepreneurial venture or an owner-operated small business. The entrepreneur may want the company to be listed on a stock exchange or the entrepreneur simply may look for a decent living and in being the boss of a firm small enough that he/she can manage it comfortably. 24. If the owner/manager of a small company asked you for some advice concerning the introduction of strategic planning, what would you tell her? I would encourage that person to go ahead with the idea, but would strongly encourage her to keep it simple and fairly informal. Research does reveal that strategic planning is related to small business financial performance. Research in the area also concludes that the strategic planning process should be far more informal in small, developing companies than it is in large established corporations. Some studies have found that too much formalization of the planning process can even result in reduced performance. Advise the entrepreneur not to get bogged down in trivia. Don't waste time writing a comprehensive planning document, which will only be filed away and probably lost. The
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key is the process. Just get the key people together in a room and deal with the questions: Where are we trying to go? How are we going to get there? What are the roadblocks keeping us from getting where we want to go? What do we do about them - run over them or go around them? What can each one of us do to get us on track and keep us there? 25. What are the pros and cons of using a standard financial reporting system in a small business? Owners, operators, and outside observers should be wary of using standard financial methods of analysis to indicate the health of a small, privately-owned company. They present five reasons for their conclusion: (1) the line between debt and equity is blurred; (2) lifestyle is a part of financial statements: (3) standard financial formulas don't always apply; (4) personal preference determines financial policies' and (5) banks combine personal and business wealth. Obviously, a standard financial reporting system is needed for tax purposes and for bank loans, among other reasons. Such a system is not, however, of much value for strategic decision making. Ratios are inappropriate for analysis. Common-size financial statements are of little value unless personal benefits can be factored out of the key category (which is just about impossible). The small business owner-manager needs to develop a second reporting system, which will list the categories that can be organized around the satisfaction of personal or family objectives. The system should be organized around the critical success factors that determine the company's survival and success. 26. Are not-for-profit organizations less efficient than profit-making organizations? Why or why not? Private businesses that go bankrupt and are taken over by a governmental unit to run the business at a loss is an example. When run by a city, the bus system is said to be inefficient because it cannot meet its own costs without revenue from sources other than customers. In contrast, examples can be given of organized charities, such as the United Way or churches, which provide a large amount of desired service with a large number of no-cost volunteers. If simple financial measures of inputs and outputs are considered, these organizations are very efficient. If, however, one is able to properly measure the amount of energy contributed to the volunteer organization, the organization may possibly be considered inefficient. How does one measure the value of church-related activities? It is important to remember that not-for-profit organizations are usually established to provide goods and services judged valuable by society that profit-making firms cannot or will not provide. It is dangerous to judge their performance on the basis of simple economic considerations because they are designed to deal with conditions under which profit-making corporations could not easily survive. 27. How does the lack of a clear-cut performance measure, such as profits, affect the strategic measurement of a not-for-profit organization? Why or why not? The lack of clear-cut performance criteria strongly affects the strategic management of a not-for-profit organization in a number of ways. - Divergent goals and objectives are likely to exist. This leads to goal conflicts and to a very broad mission statements. - Since the value of outputs is hard to measure in dollar terms, planning becomes very concerned with resource inputs which can easily be measured. - Control focuses on resources going into performance rather than on the
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performance itself. As a result, the emphasis is on punishing people for exceeding maximum budget limits rather than on rewarding good performance. 28. What are the pros and cons of strategic piggybacking? In what way is it "unfair competition" for NFP organizations engage in revenue generating activities? The arguments in favor of strategic piggybacking revolve around revenue generation. In times when revenue sources are unable to keep up with the revenue needs of the not-forprofit organization's primary mission, this strategy can be a very attractive one. It enables the N-F-P to continue funding its main programs while staying somewhat independent of important sponsors. Since the piggyback focuses on selling products or services to paying customers, it can serve as a means of advertising the N-F-P's primary service programs to potential donors or sponsors. The arguments against strategic piggybacking revolve around mission and culture. Employees and trustees with a strong service orientation may claim that the N-F-P is prostituting itself by using its energies to earn money instead of providing needed services. The very success of the piggyback strategy may give its sponsors a good excuse to cut back on their funding - thus causing the N-F-P to increase its reliance on profitproducing instead of service-providing ventures. This may create real problems for the organization. The organization may find that to make the piggyback a success, it has to assign its best people to earning cash instead of providing service. Eventually, goal displacement may occur as the N-F-P begins to define itself more in terms of its successful piggybacks than in terms of its traditional service mission. Small business firms sometimes claim "unfair competition" when an N-F-P engages in revenue-generating activities in competition with local business firms. Such activities may be viewed as unfair because the N-F-P doesn't have to pay taxes and thus can price its products or services below the market price. 29. What are the pros and cons of mergers and strategic alliances? Should not-forprofits engage in alliances with business firms? Dwindling resources are leading an increasing number of not-for-profits to consider mergers and alliances with similar N-F-Ps as ways to reduce costs. In a merger, two N-FPs officially combine in order to have economies of scale and/or scope and to be able to present the market a common face. For ex: A well-known hospital in a city may merge with lesser-known smaller hospitals in surrounding rural communities. Instead of the smaller towns having separate hospitals, they would have branches of the well-known city hospital. Doctors could be rotated between the main hospital and its rural branches to provide better health care. Costs of services could be lowered because of purchasing economies. Unfortunately, the small town hospitals would lose their special identities. Merging into one large hospital system would probably lead to a more bureaucratic set of controls. From the large city hospital's point of view, the smaller rural hospitals would be smaller and thus more expensive to operate. The larger number of hospitals would be more difficult to manage. Similar arguments can be made for strategic alliances, even though the hospitals remain separate with their independent identities intact. In the case of alliances, the N-F-Ps share some expensive equipment and pool purchase orders in order to reduce ordering costs. Again, the advantages of forming cooperative systems must be balanced against the disadvantages of a likely increase in transaction costs.
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30. Do you agree that the source of revenue is the best way to differentiate between notfor-profit and profit-making organizations as well as among the many different kinds of not-for-profit organizations? Explain. The power of one unit over a second equals the dependence of the second on the first. Dependence is (1) directly proportional to the criticality of the resources controlled by the first unit to the second unit's functioning, and (2) inversely proportional to the availability of those resources from other units. Certainly other methods can be used to categorize organizations. Profit-making and non profit-making have been used for years. A classification based upon the prime beneficiary: (1) the participants, (2) the owners or managers, (3) the clients, and (4) the public-at-large. Using this approach, they develop four types of organizations: (1) mutual-benefit associations, (2) business concerns, (3) service organizations, and (4) commonweal organizations. The key is to decide which approach is most helpful in terms of understanding the strategic management of not-for-profit organizations 31. Is client influence always weak in the not-for-profit organization? Why or why not? The client influence upon the actions of any organization is dependent upon the percentage of revenue contributed by the client. This appears to be one of those hard-toaccept facts of life. As noted in England when parliament took over control of taxation from the king, the one who controls the purse strings controls how it is spent. It is accepted in business that the customer who buys only one percent of a firm's output will have less influence on the firm than will the customer who buys over half of the firm's output. The same appears to be true in the not-for-profit organization. To the extent that outside sponsors assume a heavy percentage of the funding for an organization's activities, direct client influence upon the organization is bound to be weaker than that of the sponsors. Nevertheless, the client can always indirectly influence the not-for-profit organization by putting pressure on the sponsors. 32. Why does the employment of a large number of people who consider they to be professionals complicate the strategic management process? How can it also occur in profit-making firms? Strong employee commitment to a profession or to a cause may undermine a person's allegiance to the organization employing that person. This can occur, of course, in any type of organization hiring people who consider themselves to be professionals. Professionals, by most definitions, tend to profess a greater loyalty to their profession in general than to their specific employer. The strong service orientation of most not-forprofit organizations tends to appeal to professionally-oriented people. Thus, the question of managing professionals becomes more relevant to not-for-profit organizations than to profit making because they tend to employ more professionals. The problems, nevertheless, tend to be much the same. Professionally-oriented people complicate the strategic management process in a number of ways. Professional values and traditions tend to have a heavy impact on defining the mission of an organization. Professionals will lobby strongly for their particular profession's mission to be accepted as the dominant mission of the employing organization. They are more likely to achieve this in not-for-profit organizations where the mission is generally service-oriented and objectives are often vague. Professionals will also complicate things by refusing to define or design their job in terms other than those accepted by their profession. This makes it very difficult to get people to focus their activities on organizational goal accomplishment. The control process is also
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complicated by the professional's tendency to look to the profession rather than to the employing organization for rewards and punishments 33. Why should one begin a case analysis with a financial analysis? When are other approaches appropriate? Starting with a financial analysis of a case is a good way to assess the seriousness of the situation. Since one of the key objectives of any business corporation is to earn a profit, a lot can be learned by considering how it is doing financially. If the firm is doing badly financially, one will need to consider short term problems ("How does it avoid bankruptcy?" as well as long term problems ("How can it position itself in the market to take advantage of its strengths?"). If the firm is doing well financially, one has free reign to take a long range viewpoint and consider how a good firm can do better. Nevertheless, the best place to begin a case is to assess the firm's current performance. This may be quickly done by using financial data found in annual report. If not available, a logical starting point is whatever problems are given in the case. This would be especially appropriate when the case under consideration focuses on only one aspect of a corporation's functioning, such as conflict between a board of directors and top management.
34. What are common-size financial statements? What is their value to case analysis? How are they calculated? A useful approach to the analysis of financial statements is to convert both the income statement and balance sheet into common-size statements. Convert every category from dollar terms to percentages. For the income statement, net sales represent 100%: calculate the percentage of each category so that the categories sum to the net sales percentage (100%). For the balance sheet, give the total assets a value of 100%, and calculate other asset and liability categories as percentages of the total assets. (Individual asset and liability items, such as accounts receivable and accounts payable, can also be calculated as a percentage of net sales.) To more easily note category changes, plot the annual percentages over a five year period for each of the categories, such as cost of goods sold and accounts receivable. Connect the dots to view trends in each category. A poor trend indicates an underlying problem needing attention. When you convert statements to this form, it is relatively easy to note the percentage that each category represents of the total. Comparisons of these percentages over the years can point out areas for additional analysis. If a firm's trends are generally in line with those of the rest of the industry, there is a lower likelihood of problems than if the firm's trends are worse than industry averages. These statements are especially helpful in developing scenarios and proforma statements, since they provide a series of historical relationships (for example, cost of goods sold to sales, interest to sales, and inventories as a percentage of assets). 35. When should you gather information outside the case by going to the library or using the Internet? What should you be looking for? Students check each case to find out the date when the case situation occurred and then screen the business periodicals for that time period. The key is to stay within the time frame of the case. This background should provide students an appreciation for the situation as it was experienced by the participants in the case. A company's annual report
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can be very helpful. An understanding of the economy during that period will help students avoid making a serious error in analysis - for example, suggesting a sale of stock when the stock market is at an all-time low or taking on more debt when the prime interest rate is over 15%. Information on the industry will provide insights on its competitive activities. This research is especially useful when preparing for group oral presentations. Many instructors do not want students to obtain outside information on a company described in an assigned case. They want everyone in the class to have the same information so that in an open class discussion or a written paper, analyses by different people will be comparable. Everyone is, in effect, analyzing the same case. Other instructors want students to go the library in order to update the case and analyze the company's current situation rather than the situation described in the case. This is a special situation, however. It is the obligation of the instructor to tell the students what level of outside research is allowable for the purpose of assignments. 36. When is inflation an important issue in conducting case analysis? Why bother? The impact of inflation upon daily life strikes a person when watching old movies on television. For example, in the movie "The Man in the Grey Flannel Suit," the character played by Gregory Peck works in public relations for a corporation located in New York City in the mid-1950s. He was earning $7,000 and was being interviewed by the president of a large radio/television network for an important job paying $9,000. By the mid-1990s, earning only $9,000 in New York City would probably not keep a family above the poverty level! If the movie were done now, the character played by Gregory Peck would be demanding ten times that amount! Forty years of inflation makes a big difference. Adjusting for inflation is very useful when the case being analyzed takes place over a time period when a great deal of inflation was taking place. The danger in ignoring inflation when doing financial analysis is that one can miss key data signaling a corporation's slow decline over time. Chief executive officers wish to keep their jobs and will tend to bias figures in their favor - especially in annual reports. Sales and profits stated in current or historical dollars (or whatever currency is being used) may seem to show substantial growth, but when they're converted to constant dollars (or whatever currency is being used), they may show a steady decline. There are two methods of adjusting for inflation. One is to use whatever base year is being used in that country. In the U.S., 1967 has been used as the base year for many years. It equaled 100 and other years were adjusted around it. Given that in the U.S. (like any other country) politicians dislike people seeing how much inflation has been occurring, a new, more recent base year (1982-84) has been selected to replace 1967 - a simple, but insidious disguise. Another approach is to adjust previous years in a financial statement using the most recent year as the base year - again using an index of inflation like the Consumer Price Index (CPI). Divide the CPI factors for the other years by the one for the most recent year to obtain the appropriate adjustment factors to use in dividing into the reported figures for the previous years. 37. What are the pros and cons of using the strategic audit as a framework for case analysis? The advantages of using the strategic audit are presented clearly in the text. Its limitations are, however, not so obvious. Like everything else in the world, a technique's strengths can also serve as its weaknesses. For example, the strategic audit provides a
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checklist of questions, by area or issue that enables a systematic analysis of various corporate activities to be made. The problem with any checklist is that the user may tend to use it almost automatically. Even though all the questions in the audit may not be relevant to a specific situation, a person may unthinkingly use them without considering that there may be other, perhaps more important questions which need to be raised, but are not on the list of questions. Strategic audit is only a tool to help in organizing analysis. 38. Why do family businesses fail? Small businesses are often family business. The founders of the companies are the primary forces in starting the entrepreneurial ventures, their needs for business support and financial assistance will case them to turn to family members who can be trusted, over unknown outsiders of questionable integrity whom may demand more salary than the enterprise can afford. Some of the reasons why family businesses fail to succeed are: Inherited wealth destroys entrepreneurial drive; The entrepreneur does not allow for a changing firm; Emphasis on business means the family is neglected; The businesss financial growth cant keep up with rising family lifestyles; Family members are not prepared to run business; and The business becomes an arena for family conflicts. 39. How does transfer of power takes place in a family business? Small businesses are often family business. The founders of the companies are the primary forces in starting the entrepreneurial ventures, their needs for business support and financial assistance will case them to turn to family members who can be trusted, over unknown outsiders of questionable integrity whom may demand more salary than the enterprise can afford. The phases in the transfer of power in a family business are: Owner-managed business begins at a start up and continues till the entrance of another family members into the business; Training and development of new generation children begin to learn the business during early childhood through part-time and vacation employment; Partnership between generations A son or daughter of the founder has acquired sufficient business and managerial competence so that he or she can be involved in key decisions; and Transfer of power The founder assumes the role of Chairman and the children take up responsible positions like CEO. When founders try to meddle with day to day work creating an embarrassing situation then the founder is relieved of his shares, leaving the enterprise at the custody of the next generation. 40. What are the issues in family businesses? Small businesses are often family business. The founders of the companies are the primary forces in starting the entrepreneurial ventures, their needs for business support and financial assistance will case them to turn to family members who can be trusted, over unknown outsiders of questionable integrity whom may demand more salary than the enterprise can afford. The issues in family business are: The line between debt and equity is blurred; Lifestyle is a part of financial statements; Standard financial formulae dont apply always;
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41. What is technology transfer and why is it important? Technology transfer is the process of taking new technology from the laboratory to the marketplace. It has become an important issue in recent decades because technology is now viewed as a resource that can be used to obtain competitive advantage. Xerox Corporation's famous Palo Alto Research Laboratory (PARC) developed some brilliant new technologies but Xerox was unable to take advantage of many of them. As a result, Xerox had great difficulty moving away from its dependence on copier technology to its envisioned "office of the future" concept. It was left to other more flexible companies such as Apple Computer to harvest some of PARC's new technological developments. Technology transfer seems to be increasingly difficult as a corporation gets larger in size. Although large firms spent almost twice as much per R&D patent than did smaller firms, the smaller firms utilized more of their patents. Another study revealed the maximum innovator in various industries tended to be the middle-size firm. These firms tended to be more effective and efficient in technology transfer. Organizations are flexible and responsive up to some threshold size but encounter inertia after that point. This suggests that splitting organizations into smaller more autonomous units may help them to better take advantage of technological developments through more effective technology transfer. 42. What factors help determine whether a company should outsource a technology? The make or buy decision can be important to a firm's R&D strategy. Some of the factors that would force management to go outside the company for new technology would be: - how much time the company has before competitors take advantage of the new technology, - how much the new technology costs (market price versus internal costs of development), and - how long it would take for the company to develop the technology internally. The resource-based view of the firm would also consider the durability of the technology (how long before it is replaced by another technology) and, if developed by the company in question, its transparency, transferability, and replicability (factors which determine the amount of time before the new technology is imitated by a competitor). These questions are especially important when the company is competing in a fast-cycle industry. When technological cycles are longer, a company is more likely to choose an independent R&D strategy of internal development. In a fast-cycle industry, a company may not have the luxury of waiting to reap a long-term profit from internal development. In this type of industry, companies tap the R&D capabilities of competitors, suppliers, and other organizations through contractual agreements such as licensing, R&D agreements, and joint ventures. 43. What is the importance of product and process R&D to competitive strategy? The proportion of product and process R&D tend to vary proportionally as the product moves along its life cycle. In the early stages, product innovations are most important because the product's physical attributes and capabilities most affect financial performance. The design of the product has not yet been finalized and many competitors are experimenting with a series of designs, each firm attempting to find the best design that will give the pioneering firm a competitive advantage. Later, once the product
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design has stabilized, the product enters the mature stage of its life cycle. Process innovations, such as improved manufacturing facilities, increasing product quality, and faster distribution become important in maintaining the product's economic returns. Generally, product R&D has been instrumental in achieving differentiation competitive strategies, whereas process R&D has been at the core of successful cost leadership strategies. 44. What is technology research and how does it differ from market research? Technology research focuses on discovering the latest advances in technology that can be applied to a company's present or future products. As done at Motorola, its intelligence department monitors the latest technology developments introduced at scientific conferences, journals, and in trade gossip. This information helps it build "technology roadmaps" that assess where breakthroughs are likely to occur, when they can be incorporated into new products, how much money their development will cost, and which of the developments is being worked on by the competition. In contrast, market research focuses on discovering consumer needs that could be translated into increased sales of current products and into new versions of current products. Technology research attempts to understand new technological developments. Market research attempts to better understand consumer preferences. Both types of research are needed in product development. 45. How should a corporation scan the external environment for new technological developments? Who should be responsible? The R&D Department should be the primary group tasked with the job of scanning the external environment for new technology. Workers should be urged to read the latest scientific journals and attend professional meetings to keep up with the latest developments. The director of the R&D Department should hire people with backgrounds in potentially useful developing technologies. The company may wish to develop ties with technology-oriented universities through joint ventures and scientist exchanges. Motorola, a company well known for its ability to invest in profitable new technologies and manufacturing improvements, has a sophisticated scanning system. Its intelligence department monitors the latest technology developments introduced at scientific conferences, journals, and in trade gossip. This information helps it build "technology roadmaps" that assess where breakthroughs are likely to occur, when they can be incorporated into new products, how much money their development will cost, and which of the developments is being worked on by the competition.
PART B
1. Distinguish between profit-making organizations and not-for-profit organization? Explain with suitable examples. Definition of profit-making, not-for-profit organizations bring out the differences by way of organization setup, organization structure, investment, etc. conclusion. 2. How should a small entrepreneurial company engage in environmental scanning? To what aspects of the environment should management pay most attention?
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Definition of a small entrepreneurial company environmental scanning (internal and external environments) entrepreneurs characteristics affect the survival and growth conclusion. 3. What considerations should small-business entrepreneurs keep in mind when they are deciding if a company should follow a growth or a stability strategy? (OR) What considerations should small-business entrepreneurs keep in mind when the company grows and develops over time? Definition of a small entrepreneurial company, entrepreneur stages in small business development factors that influence the success of an entrepreneur conclusion. 4. Discuss the strategic issues in Not-for-profit organizations. Definition of not-for-profit organizations issues in strategy formulation issues in strategy implementation issues in evaluation and control conclusion. 5. How can a company develop Corporate Entrepreneurship culture? (OR) How can a company develop an Entrepreneurial culture? Definition of corporate entrepreneurship, corporate entrepreneurship culture how a company develops entrepreneurial culture merits and demerits conclusion. 6. How does innovation occur in an organization? Identify the characteristics of innovative organizations and what are the factors that limit an organizations capacity to innovate? Definition of innovation types of innovation innovative organization factors that limit innovation of an organization with examples conclusion. 7. Discuss the factors affecting new venture success. Definition of entrepreneurial venture characteristics of an entrepreneurial venture Reasons for starting a new venture Factors affecting new venture success conclusion. 8. How does innovation occur in an organization? Identify the characteristics of innovative organizations and what are the factors that limit an organizations capacity to innovate? Definition of innovation characteristics of innovative organization factors that limit an organizations capacity to innovate examples of successful organizations benefits of innovation conclusion. 9. What is technology research and how does it differ from market research? Definition of technology research, market research differences between technology and market research give examples conclusion. 10. In terms of Strategic Management, how does a new ventures situation differ from that of an ongoing small company? Definition of a small company and entrepreneurial venture differences between small company and entrepreneurial venture conclusion. 11. What factors help determine whether a company should outsource a technology? Definition of technology outsourcing types of technology outsourcing factors which determine the outsourcing capacity merits and demerits of outsourcing conclusion.
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12. Why failure rate with regard to innovations is high? Elaborate the various steps to build a competency in innovation and avoid failure.
Definition of innovation reasons for innovation steps to build competency in innovation how to avoid failure conclusion.
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2 Mark For Strategic Management

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GANESH.

UNIT 1 : STRATEGY AND PROCESS PART A

UNIT 2 : COMPETITIVE ADVANTAGE PART A

GANESH.P,MBA,PGPMIR(MSSW) Environmental: what is happening with respect to ecological and

UNIT 3 : STRATEGIES PART A

DIVIDEND AND WORKING CAPITAL MANAGEMENT

TIME HORIZON ORGANIZATION FIT

BASIC R&D POSTURE

OPERATIONS PLANNING & CONTROL

Bankruptcy / Liquidation involves giving up management of the firm to

UNIT 4 : STRATEGY IMPLEMENTATION & CONTROL PART A

Signs, symbols and stories

Rites and ceremonies

Norms and values

UNIT 5 : OTHER STRATEGIC ISSUES PART A

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