MB0052 STRATEGIC MANAGEMENT AND BUSINESS POLICY

Q1. A well formulated strategy is vital for growth and development of any organization. Explain corporate strategy in different types of organizations.
A well-formulated strategy is vital for growth and development of any organization. In Small businesses 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 product(s) and generating 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 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. Here strategic planning and strategic management play dominant roles. In 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 strategies, and, in such companies, roles of strategic planning and management become more critical 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 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

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strategic planning and management in these organizations quite different from all other organizations.

Q2. Businesses need to be planned not only for today, but also for tomorrow, that is, for the future which implies business continuity. Write the importance of business continuity planning. Explain any two strategies for business continuity planning.

Business continuity planning means proactively working out a means or method of preventing or mitigating the consequences of a disasternatural or manmade and managing it to limit to the level or degree that a business unit can afford. An extension of strategic planning is business continuity planning. Appropriate planning and strategies are required to handle such damages or disasters Importance of Business Continuity Planning (BCP) As indicated in the definition, businesses today can be exposed to different types of threats natural or man-made. Major threats are: Natural disasters Man-made threats like sabotage or terrorism Financial crisis or disaster BCP prepares companies to prevent or respond to such situations so that the damages or losses are minimized and the business or company survives. It essentially deals with the minimizing the risk associated with such disasters. Thus, BCP plays a critical role in a business The two important strategies in business continuity planning are: 1. Prevention: Conventionally, prevention is the best strategy; this means taking steps or actions to prevent or minimize the chances of occurring of a disaster. Common preventive control measures are: (a) Security controls: These involve controls by setting up barriers to protect the site and prevent unauthorized entry into the premises. (b) Infrastructure controls: These include appropriate infrastructural facilities like UPS/back-up power, smoke/fire detectors, fire extinguishers, weather forecasting systems , etc. (c) Personnel controls: Skilled/trained personnel are posted to man sensitive zones where key or critical resources may be located. (d) Software controls: These involve modern methods of controls through computerized systems or software. 2. Response: Prevention is a pre-emptive measure; response is a reactive step. If prevention is not possible, fast response is the next best alternative

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strategy. After an interruption or damage has taken place, the BCP team should immediately inform the management and the Damage Assessment Team. The Damage Assessment Team would assess the nature and magnitude of the damage. More specifically, the team should investigate into: The cause of disruption or damage The scope for preventing additional damage What can be salvaged What repairs, restorations and replacements are required Based on the report of the Damage Assessment Team, the Technical Team and Operations Team should get into action. The Technical Team is the key decision maker for further actions of the BCP and the Operations Team executes the actual damage control operations of BCP.

Q3. Governed corporation is a model of successful corporate governance. Define and explain governed corporation. Distinguish between managed corporation and governed corporation in terms of boards role, major characteristics and policies of a company
The answer to problems of corporate failure in the managed corporation lies in the governed corporation. In the governed corporation, the focus is not on powernot monitoring or controlling the managersbut, on improving decision making. The objective is to minimize chances of mistakes; and, even if they occur, to mutually work out effective ways to rectify the mistake rather than fire the management. The result is a positive change in the way companies discuss, decide and review policy. To create the governed corporation, companies should start rethinking about the role of directors, and, also, of shareholders. Both the directors and shareholders should be proactive, and, not reactive in the policymaking process. Managers will continue to play their roles. Directors should guide managers to take best possible decisions; major shareholders should be able to communicate directly with the senior managers/CEO and, also the directors about what they think of corporate policies and decisions. With shareholders and board/ directors participating in policy and decision making, and, the managers already involved, the corporation is governed rather than managed because all the three critical constituents (managers, directors and shareholders) have a voice in the governance of the company. The below table depicts difference between managed corporation and governed corporation

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Q4. Price or market competitiveness of a product or business depends on its cost competitiveness. Cost competitiveness implies two things-cost efficiency and cost effectiveness. Explain the concept of cost efficiency of an organization. Analyze the major determinants of cost efficiency.
Cost Efficiency: Cost efficiency may be defined as the level of resources or cost required to produce a particular output or create a given value. So, lesser the resources or cost, more efficient is the value creation process. Various factors contribute to cost efficiency in an organization. These may even include factors which are not directly related to cost or cost management like general work environment or culture in the organization, motivation levels of managers and approach of the top management.
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The factors related to cost efficiency are: Economies of scale: Economies of scale are the most conventional and, also a very important source of cost efficiency. In manufacturing organizations, fixed cost (per unit of output), which initially remains very high, starts going down progressively as output increases. Because of this, average cost of output decreases as output increases, or the scale of operations increases. This also means increase in capacity utilization of plant and machinery. Economies of scale can also be achieved through global partnering and global networks. Supply cost: Costs of raw materials and various inputs constitute supply cost. Inputs generally include raw material inputs or intermediate inputs and energy inputs. In an extended sense, these inputs can include factor inputs like labour also. In highly raw material-intensive industries supply costs constitute a very high proportion of total cost and become a very important determinant of the level of cost efficiency. This gives cost advantage to companies. Supply cost management and Inventory planning and management are an important determinant of cost. Product/process design: Product design starts at the R&D stage even if it is an imitation. Many feel that product design is the first step in efficient cost management, because the nature of the product determines, to a large extent. The raw material and other input requirements and supply cost. Cost efficiency in production processes can be achieved through better process engineering, increase in productivity and better working capital management. Many companies have achieved cost efficiency through these methods. Experience: Experience in any activity in an organization can be an important source of cost advantage or cost efficiencybe it manufacturing or any other functional area. Many studies have been conducted to establish the relationship between cumulative experience gained in an organization and its unit cost. The relationship is generally expressed as an inverse relationship between cumulative output and unit costunit cost decreases as cumulative output increases.

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Q5. Stability strategy is most commonly used by an organization. An organization will continue in similar business as it currently pursues similar objectives and resource base. Discuss six situations when it is good/best to pursue stability strategy. Give some Indian examples.
The six situation best to pursue stability strategy are (a) Perception of management about performance: If the management is satisfied with present performance and, is not willing to take market risks, they may like to adopt stability. (b) Slowness to change: Some organizations are slow to change or resistant to change. This is particularly true of public sector companies. Many such companies are not organizationally equipped for fast or sudden change. (c) Frequent past changes: If a company had made frequent strategic changes in the past, it should follow stability strategy for some period for moreefficient management. (d) Strategic advantage: If an organizations strategic advantage lies in the present business and market, it should pursue stability strategy. If, for example, an organization has high market share, it can continue in the same business and defend its position through incremental strategic changes. (e) Profit objective/maximization: Every company has some profit objective which is commensurate with the level of investment, output level, market structure, willingness to take risk, etc. If the stability strategy helps the company achieve its profit objective, the company should stick to this. (f) Stable environment: Given the organizational resources and capabilities, the nature of environment determines, to a large extent, the kind of strategy to be followed by a company. If the environment is generally stable in terms of macroeconomic situation, government policy regulations and competition, stability strategy may be the best. Some of the examples in Indian companies are as follows: The steel industry, cement industry and coal industry in India have overcapacity. This is one of the most important reasons why companies like SAIL, Coal India and ACC are adopting the stability strategy. Cigarette and alcoholic beverages industries are subject to regulatory restrictions and there is strict control over expansion. Companies in the cigarette industry, like ITC, are going for growth and diversification in agri business, hospitality business and export. Many companies in the public sector are forced to adopt stability strategy because of governments policy of privatization or divestment and curtailing or stopping budgetary support for any expansion programme. Many public sector companies in India also adopt stability strategies because of their size, slowness to change, unwillingness to take risk and the accountability system. Examples are many: BHEL, BPCL, HPCL, IOC, HCL, RCF, STC, MMTC, etc., in addition to SAIL and Coal India.
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Q6. Corporate culture governs, to a large extent, business ethics and values in an organization. Describe the state of business ethics in Indian companies. Analyze in terms of KPMG business ethics survey.
Business Ethics in Indian Companies In terms of ethical practices, companies in India, as in many other countries can be classified as good and bad. We have just given the examples of Infosys, Amul, ICICI, etc., which are highly ethical. There are also companies which do not conform to strong ethical norms. We also have regulations like the MRTP Act and FEMA (earlier FERA) for curbing unethical business practices. KPMG India conducted a survey of 280 top Indian companies for ascertaining the level of business ethics in India. Study analysis and findings are contained in Business Ethics Survey Report: India, 1999. Major findings of the KPMG Business Ethics Survey Report study are summarized below: (a) Mission statement: About 85 per cent of the companies surveyed are reported to have a mission statement. But, most of these statements focus on customer service and customer satisfaction. Very few companies emphasize ethical and moral issues such as organizational values, integrity in business, harassment in the workplace, etc. (b) Company policy on ethics: Many companies have a documented policy on ethics. But, implementation or reinforcement of a formal ethical system is weak in most of these companies. Some companies have a grievance cell; some companies conduct periodic workshop on business ethics, but nothing much beyond that. (c) Ethical risk in the workplace: Many companies express concern about lack of ethics in the workplace. Some of the major ethical concerns expressed by companies are: leakage or misuse of confidential information (77 per cent); insider trading (48 per cent); receiving gifts or favors from suppliers (48 per cent); promoting personal interest (47 per cent). (d) External factors in corporate ethics: Most Indian companies feel that ethical problems in business arise because of external or environmental factors. Two major external factors are government policies/regulations and political interference. (e) Training in business ethics: Majority of the companies feel that training in business ethics should be given high priority. Education in ethics should be incorporated in the formal management development programs of companies.
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(f) Strengthening ethical practices: Most Indian companies are of the opinion that, for strengthening ethical business practices, two factors are important: first, professionalizing company management; and, second, minimizing state or governmental control and interference.

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