MB0052 Strategic Management and Business Policy

Q1. Define the term Strategic Management. Explain the importance of strategic management. Answer: Strategic management is a systematic approach of analysing, planning and implementing the strategy in an organisation to ensure a continued success. Strategic management is a long term procedure which helps the organisation 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 organisation. Importance of strategic management A rapidly changing environment in organisations requires a greater awareness of changes and their impact on the organisation. Hence strategic management plays an important role in an organisation. Strategic management helps in building a stable organisation. Strategic management controls the crises that are aroused due to rapid change in an organisation. Strategic management considers the opportunities and threats as the strengths and weaknesses of the organisation in the crucial environment for survival in a competitive market. Strategic management helps the top level management to examine the relevant factors before deciding their course of action that needs to be implemented in changing environment and thus aids them to better cope with uncertain situations. Changes rapidly happen in large organisations. Hence strategic management becomes necessary to develop appropriate responses to anticipate changes. The implementation of clear strategy enhances corporate harmony in the organisation. The employees will be able to analyse the organisations ethics and rules and can tailor their contribution accordingly. Systematically formulated business activities helps in providing consistent financial performance in the organisation.

A well designed global strategy helps the organisation to gain competitive advantages. It increases the economies of scale in the global market, exploits other countries resources, broadens learning opportunities, and provides reputation and brand identification.

Q2. Describe Porters five forces Model. Answer: Porter suggests that there are five basic competitive forces, which influence the state of competition in an industry. He calls the structural determinants of the intensity of competition, which collectively determine the profit potential of the industry as a whole. Some industries have a bigger profit potential than others, since keener competition means lower profits. These five competitive forces are as follows: Threat of New Entrants: A new entrant into an industry will bring extra capacity. The new entrant will have to make an investment to break into the market, and will want to obtain a certain market share. The strength of the threat from new entrants depends on two factors: The strength of the barriers of entry The likely response of existing competitors to the new entrants. Threat from Substitute Products: The products or services that are produced in one industry are likely to have substitutes that are produced by another industry, which satisfy the same customers need. Which firms in an industry are faced with threats from substitute products, they are likely to find that demand for their products is relatively sensitive to price. Bargaining Power of Customers: Customers should want better quality products and services at a lower price, and if they succeed in getting what they want, they will force down the profitability of supplies in the industry. The profitability of an industry is therefore dependent on the customers bargaining power. The Bargaining Power of Suppliers: Just customers can influence the profitability of an industry by exerting pressure for higher quality products or lower prices, so too can suppliers influence profitability by exerting pressure for higher prices. The Rivalry amongst Current Competitors in the Industry: The intensity of competitive rivalry within an industry will affect profitability of the industry as a whole. Competitive action might take the form of price competition, advertising battles, sales promotion campaigns, introducing new product from the market, improving after sales services or providing guarantee or warranties.

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