Master of Business Administration Semester 4 Assignment Set - 1 (60 Marks) MB0052 Strategic Management and Business Po ic!

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Q1. A well- formulated strategy is vital for growth and development of any organization. Explain corporate strategy in different types of organizations. (Corporate strategy in small business 2marks ; Corporate strategy in large business 2marks; Corporate strategy on non-profit organizations 2marks) Ans: Explanation of corporate strategy in different type of organizations are: 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 re uired or in!ol!ed" and, the company may be content with making and selling existing product#s$ and generating some profit. %n many cases, the founder or the owner himself forms the senior&top management and his #her$ wisdom gi!es direction to the company. %n large businesses or companies'whether in the pri!ate sector, public sector or multinationals'the situation is entirely different. (oth the internal and the external en!ironment and the organizational ob)ecti!es and priorities are different. *or all large pri!ate sector enterprises, there is a clear growth perspecti!e, because the stakeholders want the companies to grow, increase market share and generate more re!enue and profit. *or all such companies, both strategic planning and strategic management play dominant roles. +ultinationals ha!e a greater focus on growth and de!elopment, and also di!ersification in terms of both products and markets. This is necessary to remain internationally competiti!e and sustain their global presence. *or example, multinational companies like ,eneral +otors, -onda and Toyota may ha!e 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. %n public sector companies, ob)ecti!es and priorities can be uite different from those in the pri!ate sector. ,eneration of employment and maximizing output may be more important ob)ecti!es than maximizing profit. Stability rather than growth may be the priority many times. .ccountability system is also !ery different in public sector from that in pri!ate sector. There is also greater focus on corporate social responsibility. The corporate planning system and management ha!e to take into account all these factors and e!ol!e more balancing strategies. %n non/profit organizations, the focus on social responsibilities is e!en greater than in the public sector. %n these organizations, ideology and underlying !alues are of central strategic significance. +any of these organizations ha!e multiple ser!ice ob)ecti!es, and the beneficiaries of ser!ice are not necessarily the contributors to re!enue or resource. .ll these make strategic planning and management in these organizations uite different from all other organizations. The e!aluation criteria also become different.

Q2. usinesses need to !e planned not only for today" !ut also for tomorrow" that is" for the future which implies !usiness continuity. #rite the importance of !usiness continuity planning. Explain any two strategies for !usiness continuity planning. (Meaning of business continuity planning 2 marks; Importance of business continuity planning 3 marks ; Explanation of any 2 business continuity planning marks) Ans: (usiness continuity planning means proacti!ely working out a means or method of pre!enting or mitigating the conse uences of a disaster'natural or manmade #sabotage or terrorism$ 0 and managing it to limit to the le!el or degree that a business unit can afford. %mportance of (usiness 1ontinuity 2lanning #(12$ : .s indicated in the definition, businesses today can be exposed to different types of threats 0 natural or man/made. +a)or threats are: Natural disasters such as floods or earth uakes or accidents +an/made threats like sabotage or terrorism *inancial crisis or disaster can be partly man/made and partly due to en!ironmental factors. (12 prepares companies to pre!ent or respond to such situations so that the damages or losses are minimized and the business or company sur!i!es. Thus, (12 plays a critical role in a business'its sur!i!al and sustainability. (ecause of the possibility of different kinds of impacts, and depending on the nature of damage or disaster, appropriate strategies should be de!eloped and used to deal with particular situations. *i!e different strategies should be de!eloped for fi!e different situations&actions. These are: 3. 2re!ention 4. 5esponse 6. 5esumption 7. 5eco!ery 8. 5estoration 3. $revention: 1on!entionally, pre!ention is the best strategy" this means taking steps or actions to pre!ent or minimize the chances of occurring of a disaster. 1ompanies can adopt many pre!enti!e control measures as safeguards. 1ommon pre!enti!e control measures are: a$ Security controls: These in!ol!e controls by setting up barriers to protect the site and pre!ent unauthorized entry into the premises. This means, in other words, manned sur!eillance at the location. b$ %nfrastructure controls: These include appropriate infrastructural facilities like 92S&back/up power, smoke&fire detectors, fire extinguishers, weather forecasting systems , etc. c$ 2ersonnel controls: Skilled&trained personnel are posted to man sensiti!e zones where key or critical resources may be located. d$ Software controls: These in!ol!e modern methods of controls through computerized systems or software. These include authentication, encryption, firewall, intrusion detection systems, etc. 4. %esponse: 2re!ention is a pre/empti!e measure" response is a reacti!e step. %f pre!ention is not possible, fast response is the next best alternati!e strategy. .fter an interruption or damage has taken place, the (12 team should immediately inform the management and the :amage .ssessment Team. Two other teams would also be in!ol!ed: the Technical Team and the ;perations Team. The :amage .ssessment Team would assess the nature and magnitude of the damage. +ore specifically, the team should in!estigate into: The cause of disruption or damage The scope for pre!enting additional damage <hat can be sal!aged <hat repairs, restorations and replacements are re uired (ased on the report of the :amage .ssessment Team, the Technical Team and ;perations Team should get into action. The Technical Team is the key decision maker for further actions of the (12 and the ;perations Team executes the actual damage control operations of (12.

Q&. 'overned corporation is a model of successful corporate governance. (efine and explain governed corporation. (istinguish !etween managed corporation and governed corporation in terms of !oard)s role" ma*or characteristics and policies of a company. (!efinition an" intro"uction go#erne" corporation $ marks; !istinguis% bet&een manage" corporation an" go#erne" corporation'(eac% point of "ifference carries 2 marks) Ans: %n the go!erned corporation, the focus is not on power'not monitoring or controlling the managers but, on impro!ing decision making. The ob)ecti!e is to minimize chances of mistakes" and, e!en if they occur, to mutually work out effecti!e ways to rectify the mistake rather than fire the management. The result is a positi!e change in the way companies discuss, decide and re!iew policy. To create the go!erned corporation, companies should start rethinking about the role of directors, and, also, of shareholders. (oth the directors and shareholders should be proacti!e, and, not reacti!e in the policymaking process. +anagers will continue to play their roles. This means that there are three critical constituents of the go!erned corporation: the board or directors, the managers and shareholders. :irectors should guide managers to take best possible decisions" ma)or shareholders should be able to communicate directly with the senior managers&1E; and, also the directors about what they think of corporate policies and decisions. <ith shareholders and board& directors participating in policy and decision making, and, the managers already in!ol!ed, the corporation is go!erned rather than managed because all the three critical constituents #managers, directors and shareholders$ ha!e a !oice in the go!ernance of the company. Things that distinguish managed corporation !s the go!erned corporations are +he ,anaged -orporation oard)s %ole = (oard>s role is to hire, monitor and, when necessary, change failed management. oard -haracteristics = 2ower sufficient to control the 1E; and the performance/e!aluation process. = %ndependence to ensure that the 1E; is impartially e!aluated and that directors are not compromised or co/opted by management. = (oard methods and procedures to allow outside directors to e!aluate managers independently and effecti!ely. $olicies = Separate the 1E; and chairman #or lead outside director$. = (oard meeting may take place without 1E; being present. = 1ommittee of independent directors to e!aluate the 1E;. = %ndependent financial and legal ad!isors a!ailable to outside directors. = +easurable norms or yardsticks for )udging 1E;>s performance. +he 'overned -orporation oard)s %ole = (oard>s role is to foster effecti!e decisions and monitor and re!erse failed policies. oard -haracteristics = Expertise sufficient to allow the board to add !alue to the decision/making process and performance. = %ncenti!es to ensure that the board is committed to create organizational !alue. = +ethods and procedures to foster open debate and keep the board apprised of shareholders> concerns. $olicies = ?ital areas of expertise must be represented on the board such as core industry and finance. = +inimum time commitment by the board members #may be two days in a month$. = :esignated committee to e!aluate new policy proposals. = 5egular meetings shareholders with large shareholders. = (oard members free to ask for information from any employee.

Q.. $rice or mar/et competitiveness of a product or !usiness depends on its cost competitiveness. -ost competitiveness implies two things-cost efficiency and cost effectiveness. Explain the concept of cost efficiency of an organization. Analyze the ma*or determinants of cost efficiency. (Intro"uction of cost efficiency 2 marks; explanation of four ma(or factors of cost efficiency ) marks) Ans: 1ost efficiency may be defined as the le!el of resources or cost re uired to produce a particular output or create a gi!en !alue. So, lesser the resources or cost, more efficient is the !alue creation process. Efficiency is an input/output relationship'how much has been produced or achie!ed per unit of input or cost. ,i!en an input or cost le!el, higher the output, more efficient is the production process. *our ma)or factors of cost efficiency are: 3$ 4$ 6$ 7$ Economies of scale Supply cost or cost of raw materials and inputs 2roduct or process design Experience or experience effect

3$ Economies of scale: <e know from economics that economies of scale are the most con!entional and, also a !ery important source of cost efficiency. %n manufacturing organizations, fixed cost #per unit of output$, which initially remains !ery high, starts going down progressi!ely as output increases. (ecause of this, a!erage cost of output decreases as output increases, or the scale of operations increases. This also means increase in capacity utilization of plant and machinery. %n non/ manufacturing organizations or non/manufacturing acti!ities, economies of scale can be effected through mass ad!ertising, mass marketing, extensi!e distribution, etc. Economies of scale can also be achie!ed through global partnering and global networks. +any +NEs sustain their competiti!eness in the market through scale ad!antage. 4$ 0upply cost: 1osts of raw materials and !arious inputs constitute supply cost. %nputs generally include raw material inputs or intermediate inputs and energy inputs. %n an extended sense, these inputs can include factor inputs like labour also. %n highly raw material/intensi!e industries like steel, cement and non/ferrous metals, supply costs constitute a !ery high proportion of total cost of the product and, therefore, become a !ery important determinant of the le!el of cost efficiency. %n these industries, location influences supply cost because transportation becomes a significant component of total raw material cost. This is the reason why, in these industries, many plants are located near the raw material source or mines. This gi!es cost ad!antage to companies. %n such industries, ownership of raw material can also gi!e definite cost ad!antage. This is why steel manufacturers like Tata Steel and nonferrous metal manufacturers, like N.@1;, (.@1;, and -%N:.@1;, ha!e their own capti!e sources of raw materials #ores$. %n fact, N.@1;, primarily because of its capti!e sourcing of high uality bauxite, is one of the lowest cost producers of aluminum in the world. E!en in those industries which are not highly raw material/intensi!e, supply cost management becomes an important determinant of cost ad!antage or cost disad!antage. %n!entory #of raw materials, components and spares$ planning and management are also part of this. 1ompanies are becoming increasingly aware of this. The automobile sector is a good example. .ll Aapanese automobile manufacturers ha!e established close linkages with their !endors' suppliers of automobile ancillaries'through different kinds of partnerships and alliances and implementation of A%T principles. +aruti in %ndia is also a !ery good example. 1ompanies are also reducing the number of !endors to make the raw material supply chain more cohesi!e and cost efficient. 6$ $roduct1process design: 2roduct design starts at the 5B: stage e!en if it is an imitation. +any feel that product design is the first step in efficient cost management, because the nature of the product determines, to a large extent, the raw material and other input re uirements and supply cost. 1ost efficiency in production processes can be achie!ed through better process engineering, increase in producti!ity #depends partly on the technology le!el$ and better working capital management. +any companies ha!e achie!ed cost efficiency through these methods. 1ost competiti!eness through product design need not, howe!er, be confined to manufacturing or production process alone. %nno!ati!e product design can lead to cost sa!ing through its influence on other parts of the !alue chain also like distribution or after/sales ser!ice. 1anon pro!ed this in its battle with Cerox. Cerox>s competiti!e ad!antage was built on its ser!ice and support network. 1anon designed a copier which needed far less ser!icing and, through this, made one of the strong competence areas of Cerox

largely redundant. %n the process, 1anon also achie!ed cost efficiency by spending much less on its ser!ice network. 7$ Experience: Experience in any acti!ity in an organization can be an important source of cost ad!antage or cost efficiency'be it manufacturing or any other functional area. +any studies ha!e been conducted to establish the relationship between cumulati!e experience gained in an organization and its unit cost. The relationship is generally expressed as an in!erse relationship between cumulati!e output and unit cost'unit cost decreases as cumulati!e output increases.

The experience cur!e is the result of two ma)or factors, namely, the learning effects and economies of scale. @earning effects refer to cost sa!ing which comes from learning by doing. @abor, for example, learns through repetiti!e processes, how to perform a task more efficiently on the shop floor or in assembly lines. :ue to this, labor producti!ity increases and this leads to cost reduction or cost efficiency. Similarly, in a new production process, management learns o!er time, how to manage the new operations more efficiently" and, management efficiency e!entually leads to cost efficiency. Same applies to operations like logistics. Economies of scale as mentioned abo!e contribute to cost reduction by distributing fixed cost o!er larger output. @earning effects, howe!er, may die out after some time. Some feel that learning effects are really important during the start/up period of a new process. E!en if it is a complex assembly process, workers may almost reach perfection after a few years, and all effects on the experience cur!e may cease after two or three years. .ny further downward slope of the cur!e #that is, cost reduction$ may occur only because of economies of scale which can continue o!er larger output. %n a cost/conscious organization, all the four ma)or factors, i.e., economies of scale, supply cost, product&process design and experience may play acti!e roles for achie!ing cost efficiency. -owe!er, economies of scale and experience effect can occur only after an organization has been in operation for sometime. Newly launched companies or products must concentrate on product& process design and supply cost and try to reduce the experience cycle through a more efficient management system.

Q2. 0ta!ility strategy is most commonly used !y an organization. An organization will continue in similar !usiness as it currently pursues similar o!*ectives and resource !ase. (iscuss six situations when it is good1!est to pursue sta!ility strategy. 'ive some 3ndian examples. (Explanation of six situations * marks; examples $ marks) Ans: Stability strategy is most commonly used by organizations. (ut, the nomenclature, Dstability strategy> often creates confusion among managers, planners and strategists. Stability does not mean Dstatic>. +ost organizations, which follow stability strategy, look for growth and do not remain stable or static for a long period of time. Therefore, some prefer to call it Dstable growth strategy>. The basic approach in stability is Dto maintain present course" steady as it goes>. Six Situation when it is best for organization to pursue stability strategy are: 3$ 2erception of management about performance: %f the management is satisfied with present performance and, is not willing to take market risks, they may like to adopt stability strategy and continue with it. The management may consider change of strategy only if results are not forthcoming. 4$ Slowness to change: Some organizations are slow to change or resistant to change. This is particularly true of public sector companies. +any such companies are not organizationally e uipped for fast or sudden change and lack the ability to cope with risk and uncertainty inherent in such change 6$ *re uent past changes: %f a follow stability strategy for recommended that, after a strategy should be pursued signs of destabilization. company had made fre uent strategic changes in the past, it should some period for more efficient management. %n fact, it is always period of internal change and restructuring or expansions, stability as a pause or rehabilitation. ;therwise, the organization may show

7$ Strategic ad!antage: %f an organization>s strategic ad!antage lies in the present business and market, it should pursue stability strategy. %f, for example, an organization has high market share, it can continue in the same business and defend its position through incremental strategic changes. 8$ 2rofit ob)ecti!e&maximization: E!ery company has some profit ob)ecti!e which is commensurate with the le!el of in!estment, output le!el, market structure, willingness to take risk, etc. %f the stability strategy helps the company achie!e its profit ob)ecti!e, the company should stick to this. Sometimes, stability strategy may e!en help in profit maximization. E$ Stable en!ironment: ,i!en the organizational resources and capabilities, the nature of en!ironment determines, to a large extent, the kind of strategy to be followed by a company. %f the en!ironment is generally stable in terms of macroeconomic situation, go!ernment policy regulations and competition, stability strategy may be the best. The particular strategy to be followed depends on the precise nature of the en!ironmental impact. %f the en!ironment is hostile or !olatile, stability strategy is not recommended.

Q4. -orporate culture governs" to a large extent" !usiness ethics and values in an organization. (escri!e the state of !usiness ethics in 3ndian companies. Analyze in terms of 5$,' !usiness ethics survey. (Intro"uction of business et%ics in In"ian companies 2 marks; Ma(or fin"ings of +,M- ) marks) Ans: Ethical practices, companies in %ndia, as in many other countries, can be classified as good and bad. <e ha!e )ust gi!en the examples of %nfosys, .mul, %1%1%, etc., which are highly ethical. There are also companies which do not conform to strong ethical norms. <e also ha!e regulations like the +5T2 .ct and *E+. #earlier *E5.$ for curbing unethical business practices. F2+, %ndia conducted a sur!ey of 4GH top %ndian companies for ascertaining the le!el of business ethics in %ndia. Study analysis and findings are contained in (usiness Ethics Sur!ey 5eport: %ndia, 3III. +a)or findings of the study are summarized below: 3$ +ission statement: .bout G8 per cent of the companies sur!eyed are reported to ha!e a mission statement. (ut, most of these statements focus on customer ser!ice and customer satisfaction. ?ery few companies emphasize ethical and moral issues such as organizational !alues, integrity in business, harassment in the workplace, etc. 4$ 1ompany policy on ethics: +any companies ha!e a documented policy on ethics. (ut, implementation or reinforcement of a formal ethical system is weak in most of these companies. Some companies ha!e a grie!ance cell" some companies conduct periodic workshop on business ethics, but nothing much beyond that. 6$ Ethical risk in the workplace: +any companies express concern about lack of ethics in the workplace. Some of the ma)or ethical concerns expressed by companies are: leakage or misuse of confidential information #JJ per cent$" insider trading #7G per cent$" recei!ing gifts or fa!ours from suppliers #7G per cent$" promoting personal interest #7J per cent$. 7$ External factors in corporate ethics: +ost %ndian companies feel that ethical problems in business arise because of external or en!ironmental factors. Two ma)or external factors are go!ernment policies&regulations and political interference. 8$ Training in business ethics: +a)ority of the companies feel that training in business ethics should be gi!en high priority. Education in ethics should be incorporated in the formal management de!elopment programmers of companies. E$ Strengthening ethical practices: +ost %ndian companies are of the opinion that, for strengthening ethical business practices, two factors are important: first, professionalizing company management" and, second, minimizing state or go!ernmental control and interference.4H