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MB0052 STRATEGIC MANAGEMENT AND BUSINESS POLICY

1. Write Short notes on the following: (a) Value Chain Analysis Value Chain Analysis is a useful tool for working out how you can create the greatest possible value for your customers. In business, we're paid to take raw inputs, and to "add value" to them by turning them into something of worth to other people. This is easy to see in manufacturing, where the manufacturer "adds value" by taking a raw material of little use to the end-user (for example, wood pulp) and converting it into something that people are prepared to pay money for (e.g. paper). But this idea is just as important in service industries, where people use inputs of time, knowledge, equipment and systems to create services of real value to the person being served the customer. And remember that your customers aren't necessarily outside your organization: they can be your bosses, your co-workers, or the people who depend on you for what you do. Now, this is really important: In most cases, the more value you create, the more people will be prepared to pay a good price for your product or service, and the more they will they keep on buying from you. On a personal level, if you add a lot of value to your team, you will excel in what you do. You should then expect to be rewarded in line with your contribution. So how do you find out where you, your team or your company can create value? This is where the "Value Chain Analysis" tool is useful. Value Chain Analysis helps you identify the ways in which you create value for your customers, and then helps you think through how you can maximize this value: whether through superb products, great services, or jobs well done.

(b) Corporate Restructuring Restructuring is the corporate management term for the act of reorganizing the legal, ownership, operational, or other structures of a company for the purpose of making it more profitable, or better organized for its present needs. Other reasons for restructuring include a change of ownership or ownership structure, demerger, or a response to a crisis or major change in the business such as bankruptcy, repositioning, or buyout. Restructuring may also be described as corporate restructuring, debt restructuring and financial restructuring. Executives involved in restructuring often hire financial and legal advisors to assist in the transaction details and negotiation. It may also be done by a new CEO hired specifically to make the difficult and controversial decisions required to save or reposition the company. It

generally involves financing debt, selling portions of the company to investors, and reorganizing or reducing operations. The basic nature of restructuring is a zero-sum game. Strategic restructuring reduces financial losses, simultaneously reducing tensions between debt and equity holders to facilitate a prompt resolution of a distressed situation.

2. Differentiate between mission and vision of a company? Explain with examples. A

About

Answer

Time

Function

Change

Mission Statement A Mission statement talks about HOW you will get to where you want to be. Defines the purpose and primary objectives related to your customer needs and team values. It answers the question, What do we do? What makes us different? A mission statement talks about the present leading to its future. It lists the broad goals for which the organization is formed. Its prime function is internal; to define the key measure or measures of the organization's success and its prime audience is the leadership, team and stockholders. Your mission statement may change, but it should still tie back to your core values, customer needs and vision.

Vision Statement A Vision statement outlines WHERE you want to be. Communicates both the purpose and values of your business.

It answers the question, Where do we aim to be? A vision statement talks about your future. It lists where you see yourself some years from now. It inspires you to give your best. It shapes your understanding of why you are working here.

As your organization evolves, you might feel tempted to change your vision. However, mission or

Developing a statement

Features of an effective statement

What do we do today? For whom do we do it? What is the benefit? In other words, Why we do what we do? What, For Whom and Why? Purpose and values of the organization: Who are the organization's primary "clients" (stakeholders)? What are the responsibilities of the organization towards the clients?

vision statements explain your organization's foundation, so change should be kept to a minimum. Where do we want to be going forward? When do we want to reach that stage? How do we want to do it? Clarity and lack of ambiguity: Describing a bright future (hope); Memorable and engaging expression; realistic aspirations, achievable; alignment with organizational values and culture. Indian oils aims to achieve international standards of excellence in all aspects of energy and diversified business with focus on customer delight through quality products and services.

Example Indian Oil Corporation(IOC)

Maintaining national leadership in oil refining, marketing and pipeline transportation

3. Explain in detail Porters four generic strategies.

A Porters generic strategies (Cost leadership, Focuses cost leadership, differentiation, focused differentiation) Michael Porter has described a category scheme consisting of three general types of strategies that are commonly used by businesses to achieve and maintain competitive advantage. These three generic strategies are defined along two dimensions: strategic scope and strategic strength. Strategic scope is a demand-side dimension (Michael E. Porter was originally an engineer, then an economist before he specialized in strategy) and looks at the size and composition of the market you intend to target. Strategic strength is a supply-side dimension and looks at the strength or core competency of the firm. In particular he identified two competencies that he felt were most important: product differentiation and product cost (efficiency). Cost Leadership Strategy This strategy involves the firm winning market share by appealing to cost-conscious or pricesensitive customers. This is achieved by having the lowest prices in the target market segment, or at least the lowest price to value ratio (price compared to what customers receive). To succeed at offering the lowest price while still achieving profitability and a high return on investment, the firm must be able to operate at a lower cost than its rivals. There are three main ways to achieve this. Focus or Leadership This dimension is not a separate strategy per se, but describes the scope over which the company should compete based on cost leadership or differentiation. The firm can choose to compete in the mass market (like Wal-Mart) with a broad scope, or in a defined, focused market segment with a narrow scope. In either case, the basis of competition will still be either cost leadership or differentiation. Differentiation Strategy Differentiate the products in some way in order to compete successfully. Examples of the successful use of a differentiation strategy are Hero Honda, Asian Paints, HLL, Nike athletic shoes, BMW Group Automobiles, Perstorp BioProducts, Apple Computer, Mercedes-Benz automobiles, and Renault-Nissan Alliance. Focus or Leadership This dimension is not a separate strategy per se, but describes the scope over which the company should compete based on cost leadership or differentiation. The firm can choose to compete in the mass market (like Wal-Mart) with a broad scope, or in a defined, focused

market segment with a narrow scope. In either case, the basis of competition will still be either cost leadership or differentiation. In adopting a narrow focus, the company ideally focuses on a few target markets (also called a segmentation strategy or niche strategy).

4. Differentiate between core competence and distinctive competence. A 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. Canons core competence in optics, imaging and microprocessor controls have enabled it to enter markets as seemingly diverse as copiers, laser printers, cameras and image scanners. To achieve core competence, a particular competence level of a company should satisfy three criteria: (a) It should relate to an activity or process that inherently underlies the value in the product or service as perceived by the customer. (b) It should lead to a level of performance in a product or process which is significantly better than those of competitors. (c) It should be robust, i.e., difficult for competitors to imitate. In a fast changing world, many advantages gained in different ways (like a superior product feature, a new marketing campaign or an innovative price policy/strategy) are not robust and are likely to be short lived.

Distinctive competence with examples 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.

5. Define the term industry. List the types of industries. How do you conduct an industry analysis? A Industry Industry is the production of an economic good or service within an economy. Manufacturing industry became a key sector of production and labour in European and North American countries during the Industrial Revolution, upsetting previous mercantile and feudal economies. This occurred through many successive rapid advances in technology, such as the production of steel and coal.

Mentioning the types of industries 1. Fragmented industry As fragmented industry is characterized by the existence of a large number of small and medium units, and, no single company has any significant market share, and, none of these units can individually affect the market or industry outcome. The uniqueness of a fragmented industry is the absence of any market leader, and, typically, the market share of the largest unit does not exceed 10 per cent.

2. Emerging industry An emerging industry is a developing or newly formed industry in which market for products initially exists in latent form, and, becomes visible later. An emerging industry may be created by technological innovations, new consumers or industrial needs for economic or sociological changes which create the environment or potential market for a new product or service. 3. Mature industry

A mature industry is one which has passed through transition from period of fast growth to more modest or stable growth. Maturity is an important or critical phase in the industry life cycle. 4. Declining industry A declining industry is one with negative growth, that is, an industry which has registered absolute decline in sales over a sustained period of time. Such decline in sales is not because of business cycles or any other short-term factors like strike, lockouts or material shortages 5. Global industry In global industry, the strategic position of companies in different countries or national markets are governed by their overall global positions.

Conducting industry analysis Industry analysis should follow a number of logical or strategic steps. These are shown below: Step 1: Determine or specify the objective or objectives so that there is no lack of focus. Step 2: Collect and scan through available published or secondary data. Step 3: Identify data or information gaps for generation of primary data. Step 4: Generate primary data (through survey, interviews, meetings, etc.,) to fill the data information gap. Step 5: Process/tabulate various data. Step 6: Prepare a general overview of the industry using the processed/tabulated data/information. Step 7: Prepare specific sectoral analysistechnology, product, marketing pattern, competition analysis. Step 8: Draw inferences or conclusions to complete the analysis.

6. Describe the different approaches to business ethics. A Approaches to business ethics In practice, different companies have different approaches to business ethics. It depends on their prioritization of ethical practices in conducting business. Some companies accord highest priority to the achievement of organizational objectives and business targets; ethical practices may have to be compromised.

Some companies give almost equal priorities to both. Some companies give very high priorities to ethics and values; management and strategic functions are governed or dictated by this. According to Rossouw and Vuuren (2003), approaches adopted by various companies to deal with business ethics may take one of the four forms. These are shown below in terms of increasing order of ethical concern: (a) Unconcerned or ethical non-issue approach (b) Ethical damage control approach (c) Ethics compliance approach (d) Ethical culture approach Unconcerned or ethical non-issue approach: This approach is adopted by companies whose managers are either immoral or amoral. Such companies believe that organizational objectives and business targets are the foremost. Business must grow; profit should be generated and maximized. These companies plan and adopt strategies which may follow general legal and business principles, but may be ethically unsound. They are not really concerned with the ethical issues in the conventional sense. Ethical damage control approach: In companies in this category, managers are generally amoral, but, they fear adverse publicity or scandal. The objective in this approach is to protect the company from adverse publicity which may be made by unhappy stakeholders, external investigation agencies, threats of litigation, punitive government action, etc. To avoid such a contingent situation, there is a need for rejecting unethical behaviour and introducing corporate governance safeguards through window-dressing ethics. Ethics compliance approach: In this approach, companies are conscious that they should comply with ethical standards and requirements. The managers are either moral and view strong compliance to prescribed norms or methods as the best way to enforce ethical practices; or, are unintentionally amoral but are highly concerned about their ethical reputation. Ethical culture approach: In companies with this approach, ethical business practices are rooted in the organizational culture itself. The top management/CEO believes that high ethical principles embedded in the corporate culture should guide the managers and staff. The ethical principles contained in the companys code of ethics and/or corporate values are seen as integral to the companys identity and image.