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Q 1. What is meant by Strategy? What are the levels of strategy? Differentiate between goals and objectives. Ans: -

Strategy Means: We all have loosely played around with the term strategy in our daily lives without identifying the key features that are implicitly addressed in our usage. My aim here is to isolate the key aspects of strategy as they pertain to starting and running a business.

Putting it simply, strategy refers to the action/method/trick/technique/direction one would adopt in achieving a certain objective. For business purposes, objectives are usually more precisely defined using numerical values 10% increase in sales in the next year could be an example of a business objective (sales). Objectives differ depending upon the conditions one may find himself in and therefore would result in the adoption of varied strategies. In a football field the formation of on-field players like 4-4-2 could be a part of the winning strategy, changing interest rates by the fed or the central bank could be a part of an economic strategy. Similarly, there could be political strategies, business strategies and so on. It is nothing but natural for strategies to differ in substance but they all share some common issues that get addressed in the process. So, in order to work on strategic substance it is imperative we understand the issues that need to be answered in our strategic choices. Let us look at this rather fundamental structure of strategy definition. Firstly, when we think of strategy we are thinking on a long term basis. Strategies are formed keeping in mind the mission of an organization that help further decide the direction to be adopted. Mission is basically the broad reason for an organization's existence. This is the first structural block. Secondly, strategies are crafted under the characteristics of an organization's strengths and weaknesses. The resources and competencies of a system help define and shape the multitude of strategic choices available to the management to choose from. This forms the second major structural block and alongside the first lays the basic foundation for strategy formation. The rest is basically a web where we need to analyze the current domain of the organization's activities and possible future expanse, the culture of the organization, the values and expectations of stakeholders, the operational and business environment and the competition. Once this analysis is done, strategies can be derived that help to provide a competitive advantage in the given environment after also considering its expected future developments. This aspect is rather important as strategies cannot be altered time and again. They, however, should keep room for a little change as they have to stand the test of time and therefore need to be aligned correspondingly to dynamic environments. To sum it up, strategies are essentially long term directions of an organization that define the manner in which competitive advantage shall be achieved, alongside the fulfillment of stakeholders' expectations, within the boundaries of the organization's strengths and weaknesses. Evidently, the process of developing strategies is a tedious one and requires concrete analysis of many inter-related factors. It is extremely complex and has an inherent uncertainty about its conception. As strategy developer one has to be harmonized with the vagueness of the opportunity costs for a particular strategic choice and once committed, should focus entirely on the chosen strategic direction. All actions are linked to the strategy of the organization and hence a thorough analysis of various mediating factors is critical to its success. We shall look into the analysis in the following sections but for now it is important to accept and understand strategy in all its inherent individual colors. The Levels of Strategy: The three levels of strategy for a company are corporate, business and functional. Corporate strategy focuses on determining which businesses the company should be in. Business strategy develops competitive advantages within a businesses segment. Functional strategy operates at

the level of marketing, operations and finance to ensure that each part of the company has strategies to support the business. For single-business companies, corporate strategy consists of continuously evaluating the benefits of remaining in a single business versus becoming active in complementary industries. Corporate Strategy: Single-business companies have the advantage of focus and rapid response but are vulnerable to problems in their industry. Their corporate strategy must demonstrate the advantages of remaining active in only one industry while evaluating business opportunities in areas with complementary activities. With a goal of optimizing company operations, profitability and growth, the corporate strategy must compare the return of a continuing investment in the single business with the acquisition or starting up of complementary businesses. Business Strategy: The business strategy of a single-business company is similar to that of a business unit of a diversified company except that the business strategy must support corporate strategic initiatives aimed at the single business. The business strategy sets goals for performance, evaluates the actions of competitors and specifies actions the company must take to maintain and improve its competitive advantages. Typical strategies are to become a low-price leader, to achieve differentiation in quality or other desirable features or to focus on promotion. Marketing Functional Strategy: In companies that are marketing oriented, the marketing strategy on a functional level influences the other functions and their strategies. A typical marketing strategy is to determine customer needs in an area where the company has a natural competitive advantage. Such advantages might be in location, facilities, reputation or staffing. Once the marketing strategy has identified the kind of product customers want, it passes the information to operations to design and produce such a product at the required cost. The advertising department must develop a promotional strategy, sales must sell the product and customer service must support it. The marketing strategy forms the basis for the strategies of these other departments. Other Functional Strategies: The non-marketing functional strategies must support the marketing strategy that, in turn, is a component of the overall business strategy. In a singlebusiness company, those strategies are tightly focused on one industry, but they must also deliver data that allows the corporate strategy to examine possible diversification. Singlebusiness companies are usually either highly ranked in their single business or dominant in their niche. The strategies at the functional level try to maintain such a position but also look for external danger signs. If events outside the company's control lead to a deterioration of its position, strategic components from a functional level must signal to the corporate level that an implementation of alternative strategies is required. Differentiate between goals and objectives: Goals are statements that provide an overview about what the project should achieve. It should align with the business goals. Goals are long-term targets that should be achieved in a business. Goals are indefinable, and abstract. Goals are hard to measure and do not have definite timeline. Writing clear goals is an essential section of planning the strategy.

Example - One of the goals of a company helpdesk is to increase the customer satisfaction for customers calling for support. Objectives are the targets that an organization wants to achieve over a period of time. Example - The objective of a marketing company is to raise the sales by 20% by the end of the financial year. Example - An automobile company has a Goal to become the leading manufacturer of a particular type of car with certain advanced technological features and the Objective is to manufacture 30,000 cars in 2011. Both goals and objectives are the tools for achieving the target. The two concepts are different but related. Goals are high level statements that provide overall framework about the purpose of the project. Objectives are lower level statements that describe the tangible products and deliverables that the project will deliver. Goals are indefinable and the achievement cannot be measured whereas the success of an objective can be easily measured. Goals cannot be put in a timeframe, but objectives are set with specific timelines.

Q 2. Define the term Strategic Management. Explain the importance of strategic management. Ans: The Term Strategic Management: Strategic management is a systematic approach of analyzing, planning and implementing the strategy in an organization to ensure a continued success. Strategic management is a long term procedure which helps the organization in achieving a long term goal and its overall responsibility lies with the general management team. It focuses on building a solid foundation that will be subsequently achieved by the combined efforts of each and every employee of the organization. The importance of strategic management: Organizational policies and strategy provide guidelines for action. Unfavorable and ambiguous policies or strategy may affect the functioning of the individuals adversely and they may experience stress. Thus, unfair and arbitrary performance evaluation, unrealistic job description, frequent reallocation of activities, rotating work shifts, ambiguous procedures, inflexible rules, inequality of incentives, etc., work as stressors. Organization wide policies designed to achieve major organizational objectives. Specifying all factors that compose the environment is a complex and perhaps unmanageable task. Focused Purpose Clearly defining short-term purpose Ensuring mission is realistic

 Serving the best interests of all stakeholders Defining a point of differentiation Future Perspective Clearly defining long-term outlook Appealing to the long-term interests of the company's stakeholders Providing a foundation for decision-making Strategic Advantage: Competitive advantage is a key driver to forming an organizational strategy. Competitive advantage is clearly understood by all stakeholders. Employees clearly understand how their role supports the company's organizational strategy second key strategy element is External Assessment, which reflects an organization's approach to gathering and analyzing essential market data. Included in this data are developing competitive profiles, studying macro and micro economic information, identifying industry opportunities and threats, and understanding what it takes to be successful in a given market. Strategy formulation: Strategy consists of a set of long-range decisions which establish actions to exploit opportunities or combat threats in response to environmental forces and developments. These decisions are the result of a complex decision-making process designed to establish organizational goals and long-range plans for resource allocation. Process involved in strategy formulation is the same as discussed in policy formulation; however, a major difficulty in the strategic decision process is the identifying and analysis the factors bearing on the problem. Evaluation of a Strategy: There are, of course, many factors determining organization's success or failure. But a valid strategy can gain extraordinary results for the organization whose general level of competence is only average. Internal Consistency: Internal consistency refers to the cumulative impact of individual policies on corporate goals, and in a well-worked out strategy, each policy fits into an integrated pattern. A strategy must be judged on the basis of its relationships to other policies and goals of the organization. Consistency with the Environment: The strategy should be consistent with the environment, that is, this should make sense with respect to what is going on outside. Consistency with the environment has both static and dynamic aspects. In a static sense, it implies judging the strategy; with its suitability to the existing environment. Appropriateness in the Light of Available Resources: The strategy should be appropriate in the light of available resources. Resources are those things that help an organization achieve its objectives. There are two basic issues which management must decide in relating strategy and resources. These are what the critical resources are? The three resources most frequently identified as critical are money, competence, and physical facilities. Satisfactory Degree of Risk: Strategy and resources, taken together, determine the degree of risk which the organization is under taking. Thus, each organization must decide the degree of risk it can take. This, in turn, depends upon several factors. Appropriate Time Horizon: A good strategy not only provides what objectives would be achieved, it also indicates when objective would be achieved. This is due to the fact that a

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significant part of every strategy is the time horizon on which it is based. In choosing an appropriate time horizon, the organization must pay careful attention to the goals being pursued. Goals have time-based utility and must be established far enough in advance to allow the organization to adjust to them. 6. Worth ability: The strategy must have enough degree of workability. The workability of a strategy can be measured in terms of results which are obtained. However, the results measure two factors: the strategy selected and the skill with which it is being executed. If the results are not up to standards, both these factors can be examined.

Q 3. Describe Porters five forces Model. Ans: Porters five forces Model: Michael Porter (Harvard Business School Management Researcher) designed various vital frameworks for developing an organizations strategy. One of the most renowned among managers making strategic decisions is the five competitive forces model that determines industry structure. According to Porter, the nature of competition in any industry is personified in the following five forces: i) ii) iii) iv) v) Threat of new potential entrants Threat of substitute product/services Bargaining power of suppliers Bargaining power of buyers Rivalry among current competitors

The five forces mentioned above are very significant from point of view of strategy formulation. The potential of these forces differs from industry to industry. These forces jointly determine the profitability of industry because they shape the prices which can be charged, the costs which can be borne, and the investment required to compete in the industry. Before making strategic decisions, the managers should use the five forces framework to determine the competitive structure of industry. Lets discuss the five factors of Porters model in detail:
1. Risk of entry by potential competitors: Potential competitors refer to the firms which are not currently competing in the industry but have the potential to do so if given a choice. Entry of new players increases the industry capacity, begins a competition for market share and lowers the current costs. The threat of entry by potential competitors is partially a function of extent of barriers to entry. The various barriers to entry are Economies of scale Brand loyalty Government Regulation Customer Switching Costs Absolute Cost Advantage Ease in distribution Strong Capital base

Rivalry among current competitors: Rivalry refers to the competitive struggle for market share between firms in an industry. Extreme rivalry among established firms poses a strong threat to profitability. The strength of rivalry among established firms within an industry is a function of following factors: Extent of exit barriers Amount of fixed cost Competitive structure of industry Presence of global customers Absence of switching costs Growth Rate of industry Demand conditions
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Bargaining Power of Buyers: Buyers refer to the customers who finally consume the product or the firms who distribute the industrys product to the final consumers. Bargaining power of buyers refer to the potential of buyers to bargain down the prices charged by the firms in the industry or to increase the firms cost in the industry by demanding better quality and service of product. Strong buyers can extract profits out of an industry by lowering the prices and increasing the costs. They purchase
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in large quantities. They have full information about the product and the market. They emphasize upon quality products. They pose credible threat of backward integration. In this way, they are regarded as a threat. Bargaining Power of Suppliers: Suppliers refer to the firms that provide inputs to the industry. Bargaining power of the suppliers refer to the potential of the suppliers to increase the prices of inputs( labour, raw materials, services, etc) or the costs of industry in other ways. Strong suppliers can extract profits out of an industry by increasing costs of firms in the industry. Suppliers products have a few substitutes. Strong suppliers products are unique. They have high switching cost. Their product is an important input to buyers product. They pose credible threat of forward integration. Buyers are not significant to strong suppliers. In this way, they are regarded as a threat.
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Threat of Substitute products: Substitute products refer to the products having ability of satisfying customers needs effectively. Substitutes pose a ceiling (upper limit) on the potential returns of an industry by putting a setting a limit on the price that firms can charge for their product in an industry. Lesser the number of close substitutes a product has, greater is the opportunity for the firms in industry to raise their product prices and earn greater profits (other things being equal).
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The power of Porters five forces varies from industry to industry. Whatever be the industry, these five forces influence the profitability as they affect the prices, the costs, and the capital investment essential for survival and competition in industry. This five forces model also help in making strategic decisions as it is used by the managers to determine industrys competitive structure. Porter ignored, however, a sixth significant factor- complementary. This term refers to the reliance that develops between the companies whose products work is in combination with each other. Strong complementary might have a strong positive effect on the industry. Also, the five forces model overlooks the role of innovation as well as the significance of individual firm differences. It presents a stagnant view of competition.

Q 4. What is strategic formulation and what are its processes? Ans: Strategic formulation and its processes: Strategy formulation refers to the process of choosing the most appropriate course of action for the realization of organizational goals and objectives and thereby achieving the organizational vision. The process of strategy formulation basically involves six main steps. Though these steps do not follow a rigid chronological order, however they are very rational and can be easily followed in this order.
1. Setting Organizations objectives - The key component of any strategy statement is to

set the long-term objectives of the organization. It is known that strategy is generally a

medium for realization of organizational objectives. Objectives stress the state of being there whereas Strategy stresses upon the process of reaching there. Strategy includes both the fixation of objectives as well the medium to be used to realize those objectives. Thus, strategy is a wider term which believes in the manner of deployment of resources so as to achieve the objectives. While fixing the organizational objectives, it is essential that the factors which influence the selection of objectives must be analyzed before the selection of objectives. Once the objectives and the factors influencing strategic decisions have been determined, it is easy to take strategic decisions. 2. Evaluating the Organizational Environment - The next step is to evaluate the general economic and industrial environment in which the organization operates. This includes a review of the organizations competitive position. It is essential to conduct a qualitative and quantitative review of an organizations existing product line. The purpose of such a review is to make sure that the factors important for competitive success in the market can be discovered so that the management can identify their own strengths and weaknesses as well as their competitors strengths and weaknesses. After identifying its strengths and weaknesses, an organization must keep a track of competitors moves and actions so as to discover probable opportunities of threats to its market or supply sources. a. Setting Quantitative Targets - In this step, an organization must practically fix the quantitative target values for some of the organizational objectives. The idea behind this is to compare with long term customers, so as to evaluate the contribution that might be made by various product zones or operating departments. b. Aiming in context with the divisional plans - In this step, the contributions made by each department or division or product category within the organization is identified and accordingly strategic planning is done for each sub-unit. This requires a careful analysis of macroeconomic trends. c. Performance Analysis - Performance analysis includes discovering and analyzing the gap between the planned or desired performance. A critical evaluation of the organizations past performance, present condition and the desired future conditions must be done by the organization. This critical evaluation identifies the degree of gap that persists between the actual reality and the long-term aspirations of the organization. An attempt is made by the organization to estimate its probable future condition if the current trends persist. d. Choice of Strategy - This is the ultimate step in Strategy Formulation. The best course of action is actually chosen after considering organizational goals, organizational strengths, potential and limitations as well as the external opportunities.

Q 5. What is Strategic Business Unit? What are its features and advantages? Ans: Strategic Business Unit: Strategic business units are absolutely essential for multi product organizations. These business units are basically known as profit centers. They are focused towards a set of products

and are responsible for each and every decision / strategy to be taken for that particular set of products. Strategic business units can be best explained with an example. Example of Strategic business units The best example of strategic business unit would be to take organizations like HUL, P&G or LG in focus. These organizations are characterized by multiple categories and multiple product lines. For example, HUL may have a line of products in the shampoo category; Similarly LG might have a line of products in the television category. Thus to track the investments against return, they may classify the category as a different SBU itself. Strategic Business Units features and advantages: There are several reasons SBUs are used in an organization and they are mentioned in my post on the importance for using SBUs in a multi product organization. However, along with the reasons for using SBUs there are also some powers which needs to be inferred on an SBU. Planning independence, Empowerment and others are such powers which influence a SBU. 3 of such features are discussed below. 1) Empowerment of the SBU manager Several times the empowerment of SBU managers is crucial for the success of the SBU / products. This is mainly because this manager is the one who is actually in touch with the market and knows the best strategies which can be used for optimum returns. Thus several times, the SBU manager might need a higher investment for his products. At such times the manager should be supported from the organization. Only this confidence will help the manager in the progress of the SBU. 2) Degree of sharing of one SBU with another This point is directly connected to the first one. What if one SBU needs some budget but the same is not offered because the budget is being shared by 2 other SBUs and as it is the budget is short. Thus the first SBU does not get the independence to implement some important strategies. Similarly there might be other restrictions applied to one SBU as it is using some resources which are shared by another SBU. This might not always be negative. Of one SBU gains more profit then usual, this revenue might also become useful for the other SBU thereby promoting growth of both of them. This is where sharing actually plays a positive role. 3) Changes in the market An SBU absolutely needs to be flexible because it needs to adapt to any major changes in the market. For example if an LCD manager knows that LEDs are more in demand now, he needs to communicate to the top management that he would also like a range of LED products to make the SBU even more profitable. Thus by adding LED to its portfolio, the SBU can immediately become double profitable. Thus by adjusting to change on SBU levels, the organization as a whole can become profitable. The key to Strategic business management is to have a strict watch on the investment and returns from each SBU. The SBU manager too plays a crucial role in this and hence he is recruited from the industry with extensive experience of that particular industry. Portfolio / Multi SBU management and is done at the absolute top level of the management. Each and every change in the market, and its affect on SBUs is anticipated which is then taken into consideration. Hence, for a multi product organization, business management may actually mean product portfolio management or SBU management.

Q 6. Define the term Business policy. Explain its importance. Ans: The Term Business policy: Business Policy defines the scope or spheres within which decisions can be taken by the subordinates in an organization. It permits the lower level management to deal with the problems and issues without consulting top level management every time for decisions. Business policies are the guidelines developed by an organization to govern its actions. They define the limits within which decisions must be made. Business policy also deals with acquisition of resources with which organizational goals can be achieved. Business policy is the study of the roles and responsibilities of top level management, the significant issues affecting organizational success and the decisions affecting organization in long-run. Importance of Business Policy: Strategic management is wide and encompasses all function and thus it seeks to integrate the knowledge and experience gained in various functional area of management. It enables one to understand and make sense of complex interaction that takes place between different functional areas. In real life there are constraints and complexities, which strategic management deals with. In order to develop a theoretical structure of its own, strategic management cut across the narrow functional boundaries. This in turn helps to create an understanding of how policies are formulated and also in creating an appreciation of the complexities of the environment that the senior management faces in policy formulation. Managers need to be in control and therefore begin by gaining an understanding of the business environment. They then can become more receptive to the ideas and suggestions of the senior management. When they become capable of relating environmental changes to policy changes with in an organization, and what the top management are thinking, managers feel themselves to be a part of the process, which helps to reduce their feeling of isolation.