Sikkim Manipal University - DE

Student Name: Manisha Verma Course: MBA (HR)

Registration Number: 521112626 LC Code: 3034

Subject Name: Strategic Management and Business Policy Subject Code: MB0052

Q 1. Explain the corporate strategy in different types of organization.

Answer 1: A well formulated strategy of any organization depends mainly on the nature and focus of corporate strategy in these different types of organizations is different, due to

1. the nature of the operations of organization 2. Organizational objectives and priorities.

Small businesses operate in a single market or a limited number of markets with a single product or a limited range of products. The nature and scope of operations are likely to be less of a strategic issue than in larger organizations. In such small enterprises not much of strategic planning may be required and, the company may be content with making and selling existingProducts and generating some profit. In many cases, the founder or the owner himself forms the senior/top management and his wisdom gives direction to the company.

In large businesses or companies in the private sector, public sector or multinationals both the internal and the external environment and the organizational objectives and priorities are different. In all large private sector enterprises, the emphasis is on growth. The stakeholders want the companies to grow, increase market share and generate more revenue and profit. Hence in such companies, both strategic planning and strategic management play dominant roles.

Multinationals have a greater focus on growth and development, and also diversification in terms of both products and markets. The focus is on to remain internationally competitive and sustain global presence. In such companies, roles of strategic planning and management become more critical in optimizing manufacturing facilities, resource allocation and control.

In public sector companies, objectives and priorities can be quite different from those in the private sector. They may emphasize on creating employment and maximizing output rather than simply making profits. The focus may be on stability and not so much as on growth or expansion. The Social accountability may also be a priority. Hence their strategy might be concentrated towards balancing their varied aims.

Non-profit organizations focus on social responsibilities mainly. In these organizations, ideology and underlying values are of central strategic significance. Many of these organizations haveMultiple service objectives and the beneficiaries of service are not necessarily the contributors to revenue or resource. All these make strategic planning and management in these organizations quite different from all other organizations. The evaluation criteria also become different.

Q2. What is the role consultants play in the strategic planning and management process of a company? Is it an essential role?

Answer 2: Management consultants render services in different functional areas of management including the strategic planning and management process. Consultants in fact fill the gap in companies with no separate planning division. They take up planning and strategy exercises as and when the management feels the need for such consultancies. Even in companies with a corporate planning division, consultants provide their specialized insights into key areas of management or strategy. Consultants with their professional insights can work out solutions to specific strategic management problems or issues like productivity, cost efficiency, restructuring, long-term growth or diversification.

Consultants bring with them diversified skills (most of the consulting companies are multidisciplinary) and experience from various companies which may not be available internally in a single company. This is the reason why even large multinational companies hire consultants for achieving their goals or objectives.

There are many international consultants can be working at National or International Leading international consultants, McKinsey & Company, are Boston Consulting Group (BCG), Arthur D Little and Accenture (formerly Anderson Consulting) are some of the International consultant companies. While some prominent Indian consulting companies are A F Ferguson, Tata Consultancy Services (TCS) and ABC Consultants.

In some cases, Consultants, have a difficult or delicate role to play. They at times help the chief executive or the top management to push through a strategic change in the organizational structure or management system of the company. It may be for growth and development or downsizing especially if the company is facing internal resistance to change. This happens particularly in public sector companies where implementing changes always difficult. Consultants are engaged to support or substantiate the company’s point of view in form of their recommendations and helping the internal stakeholders understand and accept change. In case where downsizing is required the role of a consultant becomes delicate and sometimes they have to tread a fine line and may be pondering if their recommendations are ethical.

Q3. What is strategic audit? Explain its relevance to corporate strategy and corporate governance.

Answer 3: Donaldson (1995) says that ‘strategic audit’ is a new tool for systematic Review of strategy by board members without directly involving themselves with Management of companies.Strategic audit is a formal strategic-review process.Donaldson has specified five elements of strategic audit. These are:1. Establishing criteria for performance2. Database design and maintenance3. Strategic audit committee4. Relationship with the CEO5. Alert to duty (by board members)

The performance criteria should be simple, well-understood and well acceptedmeasures of financial performance, Such criterion would fulfill two objectives: first, sustainable rate of return on shareholder investment, and, second, to decide whether the return is less, or equal to or more than returns on alternative investments with comparable risk, i.e., whetherthe company’s chosen strategy is justifiable or not.

To calculate different performance ratios and monitor performance criteria, a proper database is essential. Therefore financial and related data design, maintenance and analyses should be entrusted to the auditors of the company or outside consultants.For effective strategic audit, a strategic audit committee should be constituted. According to Donaldson, outside directors should select three of their own members to form the committee.This will impart regularity and more commitment to the strategic audit process. The committee would decide on the frequency of their meeting, periodicity of interaction with the CEO or top management of the company and, also when they should make presentation to or hold discussion with the full board.

The strategic audit committee’s relationship with the CEO is a sensitive issue. The strategic audit committee needs to create and maintain an atmosphere of mutuality. CEOs should not see any discussions or questions put up as an implicit criticism of the current strategy and leadership of the company. Regular strategic process involving the CEO reduces chances of unpleasant or confronting situations. The functioning of the strategic audit committee should be seen as a low-key operation, positive in approach, designed to lend support and credibility to company leadership and management.

The strategic audit committee and also the board should always be alert and vigilant to ensure that there are no slippages and be prepared to act in time in case a need arises. This is necessary because complacence develops after success both in the board and in the management.

If properly conceived, designed and conducted, strategic audit can be a powerful tool for monitoring the strategic process of a company and also strike a good balance between corporate strategy and corporate governance.

Q4. What is Corporate Social Responsibility (CSR)? Which are the issues involved in analysis of CSR? Name three companies with high CSR rating.Answer 4: Milton Friedman said in 1962 “Few trends could so thoroughly undermine the very foundations of our free society as the acceptance by corporate officials of a social responsibility other than to make as much money for their stockholders as possible.”

This implies that organizations should be socially responsible; that is, in addition to the interests of the shareholders, businesses or companies should also serve the society. Thus Corporate social responsibility can be defined as the alignment of business operations with social values CSR is about how companies manage the business processes to produce an overall positive impact on society. Key areas of concern are environmental protection and the wellbeing of employees, the community and civil society in general, both now and in the future. The concept of CSR is underpinned by the idea that corporations can no longer act as isolated economic entities operating in detachment from broader society. As stakeholders are becoming increasingly interested in business affairs, many companies are taking steps to ensure that their partners conduct themselves in a socially responsible manner. Some are introducing codes of conduct for their suppliers, to ensure that other companies' policies or practices do not tarnish their reputation. Employees are increasingly looking beyond paychecks and benefits, and seeking out employers whose philosophies and operating practices match their own principles. In order to hire and retain skilled employees, companies are being forced to improve working conditions. There is a growing demand for corporate disclosure from stakeholders, including customers, suppliers, employees, communities, investors, and activist organizations.

External stakeholders argue that internal stakeholders’ demand be made secondary to the greater need of the society; that is, greater good of the external stakeholders. Many of them feel that issues like pollution, waste disposals, environmental safety and conservation of natural resources should be the overriding considerations for formulation of policy and strategic decision making. Internal stakeholders, on the other hand, think that the competing or social claims of external stakeholders should be balanced in such a way that it protects the company mission, objectives and profitability. As the debate continues strong exponents of CSR also say that corporate social policy should be articulated during strategy formulation, administered during strategy implementation and reaffirmed or changed during strategy evaluation.

So the issues mainly consists of two counter points Should a company behave in a socially responsible manner and make the profitability policy follow from this; or, should a company aim at profit maximization and try to be as socially responsible as possible.

In India, many companies are integrating corporate social responsibility (CSR) into their business practices and are making significant contributions to society. To name three: Infosys, Tata Group and Wipro.

Q5. Distinguish between core competence, distinctive competence, strategic competence and threshold competence. Use examples.

Answer 5: Competency refers to the ability of a firm to carry out an activity well. It is built and developed by firms consciously through experience and learning. Competencies reside in people in the firm and not in physical assets.A Core competency is an activity central to a firm's profitability and competitiveness that is performed well by the firm. Core competencies create and sustain firm's ability to meet the critical success factors of particular customer groups. Core competence gives a company a clear competitive advantage over its competitors. Sony has a core competence in miniaturization; Xerox’s core competence is in photocopying; Canon’s core competence lies in optics, imaging and laser control; Honda’s core competence is in engines (for cars and motorcycles); 3M’s core competence is in sticky tape technology; JVC’s in video tape technology; ITC’s in tobacco and cigarettes and Gore’s in locks and stonewalls.Hamel and Prahalad defined core competence as the combination of individual technologies and production skills that underlie a company’s product lines. According to them, Sony’s core competence in manufacturing allows the company to make everything from the Sony walkman to video cameras to notebook computer. Canon’s core competence in optics, imaging and microprocessor controls have enabled it to enter markets as seemingly diverse as copiers, laser printers, cameras and image scanners.

To achieve core competence, a particular competence level of a company should satisfy three criteria:(a) It should relate to an activity or process that inherently underlies the value in the product or service as perceived by the customer. This is important because managers often take an internal view of value and either miss or deliberately overlook the customer perspective.b) It should lead to a level of performance in a product or process which is significantly better than those of competitors. Benchmarking is a good way and is generally recommended for undertaking performance standard and also for differentiating between good and bad performance(c) It should be robust, i.e., difficult for competitors to imitate. In a fast changing world, many advantages gained in different ways (like a superior product feature, a new marketing campaign or an innovative price policy/strategy) are not robust and are likely to be short lived. Core competence is not about such incremental changes or improvements, but, about the whole process through which continuous change and improvement take place which lead to or sustain clearly differentiated advantage.

A distinctive competency is a competitively valuable activity that a firm performs better than its competitors. These provide the basis for competitive advantage. These are cornerstone of strategy. Distinctive competence is based on the assumption that there are different alternative ways to secure competitive advantage and not only special technical and production expertise as emphasized by core competence. Distinctive competence is broader based.Thompson and Strickland (1992) have defined distinctive competence as:‘The unique capability that helps an organization in capitalizing upon a particular opportunity; the competitive edge it may give a firm in the marketplace.’ So, the focus in distinctive

competence is on exploiting a market opportunity. And, depending on the market or competitive situation, one or some of the alternative competences may work. For example, Reliance Industries has developed its distinctive competence in ‘conceiving, implementing and managing large scale projects’ and mobilizing requisite resources for that. They do not think in terms of core competence.Strategic competence is the competence level required to formulate, implement and produce results with a particular strategy, for example, to outwit competitors. In the mid- and the late 80s, Hindustan Unilever used their strategic competence to out man oeuvre Nirma (which was launched very aggressively) and re-establish their leadership in the detergent market. Strategic competence may also involve combination or convergence of different capabilities.

Threshold competence is the competence level required just for survival in the market or business. The competence level of a company may be weaker than many of its competitors. Threshold competence may be adopted by No. 5 or No. 6 player in the market or those struggling to survive. Companies with threshold competence can, over time, graduate to a higher level of competence. But, continued threshold competence can also lead to closure of business. For example Hindustan Unilever has distinctive competence and strategic competence in many businesses. But, they had been surviving with threshold competence in vanaspati business, Dalda for some time, and finally, they exited from that business.

Q6. What is global industry? Explain with examples, international strategy, multi-domestic strategy, global strategy and transnational strategy.

Answer 6: Global industry is an industry that has multi-location manufacturing facilities and they compete worldwide to secure global synergy or competitive advantage. In a global industry, the strategic positions of companies in different countries or national markets are governed by their overall global positions. An industry in a country may be international if it comprises a number of multinational companies. But, industries with multinational competitors are not necessarily global industries. For a global industry, an industry’s economics and competitors in different national markets should be considered jointly rather than individually. Competition in global industries cuts across national boundaries and, international or global forces come into play. These forces create, two distinctive pressures: cost pressure because of global competition and, pressure for local responsiveness, that is, adaptation to local needs or values and consumer tastes and preferences. These two factors and product type or structure of competitor companies, companies generally adopt one of the four strategies:

1. International strategy: It is adopted for those products and services which are not available in some countries and can be transferred from other countries. These are standard products with little or no differentiation. For examples:Kellogg’s, Indian software, and Indian handicrafts.

2. Multi-domestic strategy: This strategy involves high degree of local responsiveness or local content. Products are highly customized to suit local requirements or conditions. Thus cost pressure is less. Cost effectiveness may be also difficult to achieve because of lack of scale economies. For Examples Asian Paints, Indian garments.

3. Global strategy: This strategy is adopted by companies which make highly standardized sophisticated products, and are in a position to reap benefits of economies of scale and experience effects. These also include high technology products which have universal applicability and hardly require any local adaptation. For example: Intel, Motorola, Microsoft, and Texas Instruments. Global retail chains like Wal-Mart and Marks & Spencer

4. Transnational strategy: This strategy is based on a combination of two apparently contradictory factors, i.e., cost effectiveness and local adaptation. It is the most difficult but most viable strategy to follow in Global business. That is this may be a ‘true’ global strategy because, in global business, there is always a price pressure or cost pressure and, also the need to make the product as close to a particular country’s expectation as possible to maximize value offerings. According to Bartlett and Ghoshal (1989) the transnational strategy is the only viable competitive strategy in global business. For examples: Caterpillar (taking on Komatsu and Hitachi), McDonald’s, Coca-Cola, Pepsi and Domino’s Pizza. Many multinational FMCG companies like Unilever and Procter & Gamble.