Question 1 - Explain the corporate strategy in different types of organization.

Answer - A well-formulated strategy is vital for growth and development of any organizationwhether it is a small business, a big private enterprise, a public sector company, a multinational corporation or a non-profit organization. But, the nature and focus of corporate strategy in these different types of organizations will be different, primarily because of the nature of their operations and organizational objectives and priorities. Small businesses, for example, generally operate in a single market or a limited number of markets with a single product or a limited range of products. The nature and scope of operations are likely to be less of a strategic issue than in larger organizations. Not much of strategic planning may also be required or involved; and, the company may be content with making and selling existing products and generating some profit. In many cases, the founder or the owner himself forms the senior/top management and his/her wisdom gives direction to the company. In large businesses or companieswhether in the private sector, public sector or multinationalsthe situation is entirely different. Both the internal and the external environment and the organizational objectives and priorities are different. For all large private sector enterprises, there is a clear growth perspective, because the stakeholders want the companies to grow, increase market share and generate more revenue and profit. For all such companies, both strategic planning and strategic management play dominant roles. Multinationals have a greater focus on growth and development, and also diversification in terms of both products and markets. This is necessary to remain internationally competitive and sustain their global presence. For example, multinational companies like General Motors, Honda and Toyota may have to decide about the most strategic locations or configurations of plants for manufacturing the cars. They are already operating multi location (country) strategies, and, in such companies, roles of strategic planning and management become more critical in optimizing manufacturing facilities, resource allocation and control. In public sector companies, objectives and priorities can be quite different from those in the private sector. Generation of employment and maximizing output may be more important objectives than maximizing profit. Stability rather than growth may be the priority many times. Accountability system is also very different in public sector from that in private sector. There is also greater focus on corporate social responsibility. The corporate planning system and management have to take into account all these factors and evolve more balancing strategies. In non-profit organizations, the focus on social responsibilities is even greater than in the public sector. In these organizations, ideology and underlying values are of central strategic significance. Many of these organizations have multiple service objectives, and the beneficiaries of service are not necessarily the contributors to revenue or resource. All these make strategic planning and management in these organizations quite different from all other organizations. The evaluation criteria also become different.

Question 2 - What role consultants play in the strategic planning and management process of a company? Is it an essential role? Answer - Management consultants can play very useful roles in the strategic planning process of a company. Consultants render services in different functional areas of 1

management including the strategic planning and management process. In companies with no separate planning division or unit, consultants can fill that gap. They can undertake planning and strategy exercises as and when the company management feels the need for such exercises or consultancies. Even in companies with a corporate planning division/unit, consultants may provide specialized inputs or insights into identified management or strategy areas. Top strategic consultants like McKinsey & Company use or develop latest tools, techniques or models to work out solutions to specific strategic management problems or issuesbe it productivity, cost efficiency, restructuring, long-term growth or diversification. Consultants bring with them diversified skills (most of the consulting companies are multidisciplinary) and experience from various companies which may not be available internally in a single company. This is the reason why even large multinational companies hire consultants for achieving their goals or objectives. There are many international consultants who are in demand in different countries. There are also national consultants. Leading international consultants, in addition to McKinsey & Company, are Boston Consulting Group (BCG), Arthur D Little and Accenture (formerly Anderson Consulting). Prominent Indian consulting companies are A F Ferguson, Tata Consultancy Services (TCS) and ABC Consultants. Consultants, sometimes have a difficult or delicate role to play. In many companies, a situation develops when the chief executive or the top management needs to bank upon the support of an external agency like a consultant to push through a strategic change in the organizational structure or management system of the company. It may be for growth and development or downsizing. In both cases, many companies face internal resistance to change. The resistance is more if it is downsizing even when it is required for turning around a company. This happens particularly in public sector companies where implementing change is always difficult. Consultants are engaged to support or substantiate the companys point of view (in the form of their recommendations) so that change is more easily acceptable to the internal stakeholders of the company. Consultants role may become delicate and, sometimes, tricky in such cases, and they should carefully weigh the ethical implication of their participation.

Question 3 - What is strategic audit? Explain its relevance to corporate strategy and corporate governance. Answer - With increasing pressure on boards from external stakeholders to be more active, many directors are seeking more practical ways to conduct strategic overview of company management without getting directly involved in it. Donaldson (1995) has suggested strategic audit as 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, which imposes its own discipline on both the board and the management very much like the financial audit process. But, it is different from management audit, which is undertaken in many companies by the senior/top management on the progress and outcome of important corporate activities. To understand strategic audit in the correct perspective, one needs to analyse this in terms of its various elements. Donaldson has specified five elements of strategic audit. These are: 1. Establishing criteria for performance 2. Database design and maintenance 3. Strategic audit committee 4. Relationship with the CEO 2

5. Alert to duty (by board members) The performance criteria should be simple, well-understood and well accepted measures of financial performance. A number of measures of financial performance are available. One common measure, used by many companies, is return on investment (ROI). The ROI can be analysed like this: profit per unit of sales (profit margin); sales per unit of capital employed (asset turnover); and, capital employed per unit of equity invested (leverage). If these three ratios are multiplied together, the resultant ratio will give profit per unit of equity. This criterion would fulfil two objectives: first, sustainable rate of return on shareholder investment, and, second, to decide whether the return is less, or equal to or more than returns on alternative investments with comparable risk, i.e., whether the companys chosen strategy is justifiable or not. To calculate different performance ratios and monitor performance criteria, a proper database is essential. This involves both database design and maintenance. This has to be a regular and an ongoing process. Data on financial performance can sometimes be sensitive to the managers/ employees of a company. It is, therefore, suggested that financial and related data design, maintenance and analyses should be entrusted to the auditors of the company or outside consultants. For effective strategic audit, a strategic audit committee should be constituted. According to Donaldson, outside directors should select three of their own members to form the committee. This will impart regularity and more commitment to the strategic audit process. The committee would decide on the frequency of their meeting, periodicity of interaction with the CEO or top management of the company and, also when they should make presentation to or hold discussion with the full board. A sensitive issue is the strategic audit committees relationship with the CEO. Any CEO would be generally apprehensive of such a committee. The strategic audit committee needs to create and maintain an atmosphere of mutuality. It is true that whenever a question or a discussion on the strategic direction of a company comes up in a board meeting, it is perceived by many CEOs as an implicit criticism of the current strategy and leadership of the company. It is also true that regular strategic process involving the CEO reduces chances of unpleasant or confronting situations. In fact, ideally, the functioning of the strategic audit committee should be seen as a low-key operation, positive in approach, designed to lend support and credibility to company leadership and management. The strategic audit committee and also the board should always be alert and vigilant to ensure that there are no slippages. Business cycles indicate that period of success may be followed by a period of slump. The strategic audit committee and the board should be alert enough to get signals so that they can act in time. This is necessary because complacence develops after success both in the board and in the management. If properly conceived, designed and conducted, strategic audit, more than management audit, can be a powerful tool for monitoring the strategic process of a company and also strike a good balance between corporate strategy and corporate governance.

Question 4 - What is Corporate Social Responsibility (CSR)? Which are the issues involved in analysis of CSR? Name 3 companies with high CSR rating. Answer - Corporate social responsibility (CSR) can be defined as the alignment of business operations with social values. External stakeholders of an organization are 3

too many and varied and many of them represent different sections or social groups. This implies that organizations should be socially responsible; that is, in addition to the interests of the shareholders, businesses or companies should also serve the society. This is corporate social responsibility (CSR). Issues involved in analysis of CSR Even after four decades since Friedman said this, corporate social responsibility has remained a contentious issue. Managers are struggling to decide to what extent they should adopt CSR in their strategy-building process. The debate or dichotomy is clear: 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. Exponents of CSR argue that business depends on, exists to serve and, cannot be separated from the environment; the environment is represented by external stakeholders like customers, competitors, suppliers, government agencies, local communities and society in general. Proponents of profit maximization like Friedman, on the other hand, think that a company has responsibility only for the financial well-being of its stockholders; and other objective or policy may threaten the health and prosperity of the company. The relationship between CSR and profit is complex. Although the two are not mutually exclusive, neither of them is a prerequisite for the other. Advocates of corporate pragmatism suggest that CSR and profit need not necessarily be viewed as two competing concepts. It may be more rational to include CSR as a factor or component in the strategy-building process of the business which should determine, along with other objectives, how to increase or maximize profit. Several research studies10 have been undertaken to determine the relationship between corporate social performance and financial performance. But, none of these studies has been able to establish the precise nature of relationship between the two. There may be a number of reasons for this. One reason may be that there is no significant correlation between social and financial performance. Another reason may be that the benefits of CSR are offset by its negative effect on profitability with no consequentially visible financial impact on the company. Other reasons include methodological weaknesses or drawbacks and/or problems with operational definitions or inadequacy of the conceptual models used in the studies. A general conclusion from these studies, however, is that certain relationship between CSR and profitability may exist, but, the nature of the relationship is not clear. 3 companies with high CSR rating are 1. Johnson & Johnson 2. Coca-Cola 3. Wal-Mart

Question 5 - Distinguish between core competence, distinctive competence, strategic competence and threshold competence. Use examples. Answer Four major types or levels of competence may be distinguished: 1. Core competence 2. Distinctive competence 3. Strategic competence 4

4. Threshold competence Core Competence Core competence of a company is one of its special or unique internal competence. Core competence is not just a single strength or skill or capability of a company; it is interwoven resources, technology and skill or synergy culminating into a special or core competence. Core competence gives a company a clear competitive advantage over its competitors. Sony has a core competence in miniaturization; Xeroxs core competence is in photocopying; Canons core competence lies in optics, imaging and laser control; Hondas core competence is in engines (for cars and motorcycles); 3Ms core competence is in sticky tape technology; JVCs in video tape technology; ITCs in tobacco and cigarettes and Godrejs in locks and storewels. Distinctive Competence Core competence may not be enough, because it focuses predominantly on the product or process and technology, or, as Hamel and Prahalad put it; The combination of individual technologies and production skills. There are two problems with this. First, strong and aggressive competitors may develop, either through parallel innovations or imitations, similar products or processes which are highly competitive. This is what Japanese companies have done in the fields of electronics and automobiles, and now South Korea is doing to Japanese electronics; IBMs core computer technology is also facing the same problem. Second, to secure competitive advantage, only product, process or technology or technological innovation may not be enough; this has to be amply supported by special capabilities in the related vital areas like resource or financial management, cost management, marketing, logistics, etc. Strategic Competence Strategic competence coexists with, or supports, core competence and distinctive competence. Strategic competence is the competence level required to formulate, implement and produce results with a particular strategy, for example, to outwit competitors. Hindustan Unilever did this. In the mid- and the late 80s, they used their strategic competence to out manoeuvre Nirma (which was launched very aggressively) and re-establish their leadership in the detergent market. Strategic competence may also involve combination or convergence of different capabilities as in the case of Hindustan Unilever. Threshold Competence Threshold competence is the competence level required just for survival in the market or business. The competence level of a company may be weaker than many of its competitors. Threshold competence may be adopted by No. 5 or No. 6 player in the market or those struggling to survive. Companies with threshold competence can, over time, graduate to a higher level of competence. But, continued threshold competence can also lead to closure of business. Multi-product or multi-SBU companies may often possess a portfolio of competences. In some product or business, they may have core competence, but, not in all. ITCs core competence is in tobacco and cigarettes, but, they have distinctive competence in hospitality business and agri-business. Hindustan Unilever has distinctive competence and strategic competence in many businesses. But, they had been surviving with threshold competence in vanaspati business for some time, and finally, they exited from that business. A conceptual portfolio of organizational competence consisting of core competence, distinctive competence, strategic competence and threshold competence is shown in figure below 5

Core competence Organizational Competence Threshold competence

Distinctive competence

Strategic competence Portfolio of Organizational Competence

Question 6 - What is global industry? Explain with examples, international strategy, multi-domestic strategy, global strategy and transnational strategy. Answer - In global industry, the strategic position of companies in different countries or national markets are governed by their overall global positions. For example, IBMs strategic position in competing for computer sales in France and Germany has improved significantly because of technology and marketing skills developed in other countries, and a worldwide manufacturing system which is well coordinated. To be called a global industry, an industrys economics and competitors in different national markets should be considered jointly rather than individually. International strategy, multi-domestic strategy, global strategy, and transnational strategy Pressure for local responsiveness Low High

Low

International strategy

Multidomestic strategy

Cost Pressure

High

Global strategy

Transnational strategy

1. International strategy can be adopted for those products and services which are not available in some countries and can be transferred from other countries. These are standard products with little or no differentiation. International strategies are not very common or popular. Some examples are: Kelloggs, Indian software, and Indian handicrafts.

2. Multidomestic strategy is almost opposite of international strategy. Multidomestic strategy involves high degree of local responsiveness or local content. Products are highly customized to suit local requirements or conditions. Because of high customization, cost pressure is less; cost effectiveness may be also difficult to achieve because of lack of scale economies. Examples : Asian Paints (paints in general), Indian garments. 3. Global strategy suits companies which make highly standardized sophisticated products, and, are in a position to reap benefits of economies of scale and experience effects. These also include high technology products which have universal applicability and hardly require any local adaptation. Examples are: Intel, Motorola, Microsoft, Texas Instruments. Global retail chains like Walmart and Marks & Spencer also come under this category. 4. Transnational strategy is the most difficult strategy to follow because this is based on a combination of two apparently contradictory factors, i.e., cost effectiveness and local adaptation. But, this may be a true global strategy because, in global business, there is always a price pressure or cost pressure; and, also the need to make the product as close to a particular countrys expectation as possible to maximize value offerings. In fact, many, including Bartlett and Ghoshal (1989), feel that the transnational strategy is the only viable competitive strategy in global business. Many companies are adopting this approach to become successful. Some good examples are : Caterpillar (taking on Komatsu and Hitachi), McDonalds, Coca-Cola, Pepsi and Dominos Pizza. Many multinational FMCG companies like Unilever and Procter & Gamble follow transnational strategies through their fully owned subsidiaries in different countries. ****************************************