Master of Business Administration

MB0052 Strategic Management and Business Policy 4 Credits

(Book I! B"#"4$
Assignment
Set "
%"& '(at is meant )y *Strategy+, ifferentiate )et-een goals and o).ecti/es&
Ans-er! 0 Strategy is a common direction set for the company and its various components
to accomplish a desired position in the future. A meticulous planning process results in
strategy. It is the comprehension of the goals which has logical step by step process. It
defines the general mission and vision of an organisation. It is important to consider that
the decisions taken by an organisation are likely to affect the employees, customers and
competitors.
Strategy guides the organisation to achieve a long term goal. The strategy is advantageous
to the organisation through its configuration of resources within a challenging environment.
It helps to meet the requirements of market and stakeholder expectations.
Strategy is a plan that is aimed to give a competitive advantage to the organisation over
rivals through differentiation. reating a strategy begins with extensive research and
analysis. It is a process through which senior management concentrates on top priority
issues tackled by the company to be successful in a long term.
It is the design of decisions in an organisation that sets its goals and plans to achieve it. The
organisation plans the future goals to contribute at large to its shareholders, customers and
to the society. Strategy is always improving and is amendable. It is a plan of future
activities which is aimed at the progress of an organisation. It is a set of directions to
enhance the position of the organisation in the overall market. !usiness strategy is the
method by which an organisation achieves and maintains its success. If an organi"ation
cannot identify its strategy clearly then it will struggle to survive in the competitive market.
A steadfast strategy should be built to grow in the market.
A fundamental concept is required to direct an organisation to create a sustainable and
successful plan. The organisation must understand the customer requirements and relate to
its customers for the success of business strategy. This understanding should be based on
the attitude of the organisation to progress rather than focusing on a specific competitor or
on current ob#ectives. It is from this principle that the other ob#ectives follow. !usiness
strategy is used to achieve competitive advantage. The efficient development and
implementation of strategy depends on the capability of the organisation. This includes the
ability to prepare the strategic goals and implement the plans through strategic
management.
1e/els of strategy
Strategy exists at different business levels. The different levels of strategies are as follows$
Corporate Strategy % This is regarding the general function and scope of the business
to meet the stakeholder&s expectations. As it is significantly influenced by the
investors in the business, it is also called the critical level strategy.
Business Strategy % This is regarding how a business competes effectively in a
particular market. It includes strategic decisions about the selection of products and
meeting customer requirements.
Operational Strategy % This is regarding how each part of the business is organised
and delivered to the corporate and business level. 'perational strategy focuses on
issues of resources and practices of an organisation.
ifference )et-een 2oals and 3).ecti/es of Business ! 0 (oals are statements that
provide an overview about what the pro#ect should achieve. It should align with the
business goals. (oals are long)term targets that should be achieved in a business. (oals are
indefinable, and abstract. (oals are hard to measure and do not have definite timeline.
*riting clear goals is an essential section of planning the strategy.
Example ) 'ne of the goals of a company helpdesk is to increase the customer satisfaction
for customers calling for support. 'b#ectives are the targets that an organisation wants to
achieve over a period of time.
Example ) The ob#ective of a marketing company is to raise the sales by +,- by the end of
the financial year.
Example ) An automobile company has a (oal to become the leading manufacturer of a
particular type of car with certain advanced technological features and the 'b#ective is to
manufacture .,,,,, cars in +,//. !oth goals and ob#ectives are the tools for achieving the
target. The two concepts are different but related. (oals are high level statements that
provide overall framework about the purpose of the pro#ect. 'b#ectives are lower level
statements that describe the tangible products and deliverables that the pro#ect will deliver.
(oals are indefinable and the achievement cannot be measured whereas the success of an
ob#ective can be easily measured. (oals cannot be put in a timeframe, but ob#ectives are
set with specific timelines. The difference between organisational goals and ob#ectives is
depicted in table /.0.
%2& efine t(e term 4Strategic Management5& '(at are t(e ty6es of strategies,
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.
7y6es of Strategies! 0
/. Cor6orate le/el ! 0 The board of directors and chief executive officers are involved
in developing strategies at corporate level. orporate level strategies are innovative,
pervasive and futuristic in nature. The four grand strategies in a corporate level are$
1Stability and expansion strategy
12etrenchment
1orporate restructuring
1ombination strategies % concept of synergy
3et us now discuss each of the grand strategies in detail.
Stability strategy
The basic approach of the stability strategy is to maintain the present status of the
organisation. In an effective stability strategy, the organisation tries to maintain
consistency by concentrating on their present resources and rapidly develops a
meaningful competitiveness with the market requirements. 4urther classifications of
stability strategy are as follows$
1No change strategy % 5o change strategy is the process of continuing the
current operation and creating nothing new. 6sually small business
organisations follow no change strategy with an intention to maintain the
same level of operations for a long period.
1Pause/Proceed with caution strategy % 7ause87roceed with caution strategy
provides an opportunity to halt the growth strategy. It analyses the
advantages and disadvantages before processing the growth strategy. 9ence
it is termed as pause8proceed with caution strategy.
1Profit strategy % 7rofit strategy is the process of reducing the amount of
investments and short term discretionary expenditures in the organisation.
Expansion strategy
The organisations adopt expansion strategy when it increases its level of ob#ectives
much higher than the past achievement level. 'rganisations select expansion
strategy to increase their profit, sales and market share. :xpansion strategy also
provides a significant increase in the performance of the organisation. ;any
organisations pursue expansion strategy to reduce the cost production per unit.
:xpansion strategy also broadens the scope of customer groups, and customer
functions.
Example % 7rior to /<0,&s most of the furniture industry did not venture into
expanding their industry globally. This was because furniture got damaged easily
while shipping and the cost of transport was high. 3ater in /<=,&s a Swedish
furniture company, I>:A, pioneered towards expanding the industry to other
geographical areas. The new idea of transporting unassembled furniture parts lead to
minimi"ing the costs of transport. The customers were able to easily assemble the
furniture. I>:A also lowered the costs by involving customer in the value chain. I>:A
successfully expanded in many :uropean countries since customers were willing to
purchase similar furniture. The further classification of expansion strategy is as
follows$
1Diversification ) ?iversification is a process of entry into a new business in
the organisation either marketwise or technology wise or both. ;any
organisations adopt diversification strategy to minimise the risk of loss. It is
also used to capitalise organisational strengths. ?iversification may be the
only strategy that can be used if the existing process of an organisation is
discontinued due to environmental and regulatory factors. The two basic
diversification strategies are$
1oncentric diversification $ ) The organisation adopts concentric
diversification when it takes up an activity that relates to the characteristics of
its current business activity. The organisation prefers to diversify
concentrically either in terms of customer group, customer functions, or
alternative technologies of the organisation. It is also called as related
strategy.
1onglometric diversification$ ) The organisation adopts conglometric
diversification when it takes up an activity that does not relate to the
characteristics of its current business activity. The organisation chooses to
diversify conglometrically either in terms of customer group, customer
functions, or alternative technologies of the organisation. It is also called as
unrelated diversification.
1Concentration % oncentric expansion strategy is the first route towards
growth in expanding the present lines of activities in the organisation. The
present line of activities in an organisation indicates its real growth potential
in the present activities, concentration of resources for present activity which
means strategy for growth. The two basic concentration strategies are$
1@ertical expansion $ ) The organisation adopts vertical expansion when it
takes over the activity to make its own supplies. @ertical expansion reduces
costs, gains control over a limited resource, obtain access to potential
customers.
19ori"ontal expansion$ ) The organisation adopts hori"ontal growth when it
takes over the activity to expand into other geographical locations. This
increases the range of products and services offered to the current markets.
Retrenchment : - 2etrenchment strategy is followed by an organisation which aims
to reduce the si"e of activities in terms of its customer groups, customer functions,
or alternative technologies. Example % A healthcare hospital decides to focus only on
special treatment to obtain higher revenue and hence reduces its commitment to the
treatment of general cases which is less profitable. ?ifferent types of retrenchment
strategies are$
1urnaround % Turnaround is a process of undertaking temporary reduction
in the activities to make a stronger organisation. This kind of processing is
called downsi"ing or rightsi"ing. The idea behind this strategy is to have a
temporary reduction of activities in the organi"ation to pursue growth
strategy at some future point. Turnaround strategy acts as a doctor when
issues like negative profits, mismanagement and decline in market share
arise in the organisation.
1Captive company strategy % aptive company strategy is a process of tying
up with larger organisations and staying viable as an exclusive supplier to the
large organisations. An organisation may also be taken as captive if their
competitive position is irreparably weak.
1Divestment strategy % ?ivestment strategy is followed when an
organisation involves in the sale of one or more portion of its business.
6sually if any unit within the organisation is performing poorly then that unit
is sold and the money is reinvested in another business which has a greater
potential.
1Ban!ruptcy % !ankruptcy is a legal protective strategy that does not allow
others to restructure the organisation&s debt obligations or other payments. If
an organisation declares bankruptcy with customers then there is a possibility
of turnaround strategy.
1"i#uidation % 3iquidation strategy is considered to be the most unattractive
process in an organisation. This process involves in closing down an
organisation and selling its assets. It results in unemployment, selling of
buildings and equipments and the products become obsolete. 9ence, most of
the managers work hard to avoid this strategy.
Corporate restructuring : - orporate restructuring is the process of fundamental
change in the current strategy and direction of the organisation. This change affects
the structure of the organisation. orporate restructuring involves increasing or
decreasing the levels of personnel among top level, mid)level and lower level
management. It is reorganising and reassigning of roles and responsibilities of the
personnel due to unsatisfactory performance and poor results.
Combination strategies concept of synergy: - ombination strategy is a
process of combining ) stability, expansion and retrenchment strategies. This is used
either at the same time in various businesses or at different times in the same
business. It results in better performance of the organisation. The effect towards the
success is greater when there is a synergy between the strategies. Synergy is
obtained in terms of sales, operations, investments and management in the
organisation. Example % 3evis A co, a #eans manufacturing company suffered
corrosion in market share in /<<,. This was due to the manufacture of #eans that did
not attract the younger generation. 9ence there was a change in strategies laid at
the corporate level with diversification of products. This led to the change in
acquiring new resources, selling the current resources, changing the personnel at
various levels of management and analysing the competitors in the market. *ith
these changes the company was able to make profits and achieved success.
%#& escri)e Porter+s fi/e forces Model&
Answer: - ;ichael :. 7orter developed the 4ive 4orce ;odel in his book, Bompetitive
Strategy&. 7orter has identified five competitive forces that influence every industry and
market. The level of these forces determines the intensity of competition in an industry. The
ob#ective of corporate strategy should be to revise these competitive forces in a way that
improves the position of the organisation. 4igure ..C describes forces driving industry
competitions.
8igure #&4 8orces ri/ing Industry Com6etitions
4orces driving industry competitions are$
hreat of new entrants % 5ew entrants to an industry generally bring new capacityD
desire to gain market share and substantial resources. Therefore, they are threats to
an established organisation. The threat of an entry depends on the presence of entry
barriers and the reactions can be expected from existing competitors. An entry
barrier is a hindrance that makes it difficult for a company to enter an industry.
Suppliers % Suppliers affect the industry by raising prices or reducing the quality of
purchased goods and services.
$ivalry among existing firms % In most industries, organisations are mutually
dependent. A competitive move by one organisation may result in a noticeable effect
on its competitors and thus cause retaliation or counter efforts.
Buyers % !uyers affect an industry through their ability to reduce prices, bargain for
higher quality or more services.
hreat of su%stitute products and services % Substitute products appear different but
satisfy the same needs as the original product. Substitute products curb the potential
returns of an industry by placing a ceiling on the prices firms can profitably charge.
Other sta!eholders ) A sixth force should be included to 7orter&s list to include a
variety of stakeholder groups. Some of these groups include governments, local
communities, trade association unions, and shareholders. The importance of
stakeholders varies according to the industry.
%4& '(at is strategic formulation and -(at are its 6rocesses,
Answer$ ) Strategy formulation is the development of long term plans. It is used for the
effective management of environmental opportunities and for the threats which weaken
corporate management. Its ob#ective is to express strategical information to achieve a
definite goal. The following are the features of strategy formulation$
?efining the corporate mission and goals
Specifying achievable ob#ectives
?eveloping strategies
Setting company policy guidelines
Strategic formulation involves effective strategic decision making and strategic choice,
which are discussed in the following sections.
Process in Strategy 8ormulation! 0 The main processes involved in strategy formulation
are as follows$
Stimulate the identification ) Identifying useful information like planning for strategic
management, ob#ectives to achieve the goals of the employees and the stakeholders.
&tilisation and transfer of useful information as per the %usiness strategies ) A
number of questions arising during utilisation and transfer of information have to be
solved The questions that arise during utilisation and transfer of information are the
following$
*ho has the requested informationE
*hat is the relationship between the partners who holds the requested informationE
*hat is the nature of the requested informationE
9ow can we transfer the informationE
9enry Mint:)erg+s contri)ution to strategic 6lanning ! 0 9enry ;int"berg is a well)
known academician and generalist writer who has written about strategy and organisational
management. 9is approach is broad, involving the study of the actions of a manager and
the way the manager does it. 9e believes that management is about applying human skills
to systems, but not systems to people. ;int"berg states certain factors as the reason for
planning failure. The factors are as follows$
Processes ) The elaborate processes used in the management such as creation of
bureaucracy and suppression of innovation leads to strategic planning failure.
Data ) According to ;int"berg, hard data Fthe raw material of all strategistsG
provides information whereas soft data Fthe data gathered from experienceG provides
wisdom which means that soft data is more relevant than the hard data.
Detachment % ;int"berg says that effective strategists are people who do not
distance themselves from the details of a business. They are the ones who immerse
themselves into the details and are able to extract the strategic messages from it.
In /<<., 9enry ;int"berg concluded that planning is a formalised procedure to produce a
coherent result in the form of an integrated system of decisions. The ob#ectives must be
explicitly labeled by words after being carefully decomposed into strategies and sub)
strategies.
%5& ;<6lain strategic e/aluation and its significance&
Ans-er! 0 Strategy ;/aluation ! 0 The core aim of strategic management succeeds only if
it generates a positive outcome. Strategic evaluation and control consists of data and
reports about the performance of the organisation. Improper analysis, planning or
implementation of the strategies will result in negative performance of the organisation. The
top management needs to be updated about the performance to take corrective actions for
controlling the undesired performance.
All strategies are sub#ect to constant modifications as the internal and external factors
influencing a strategy change constantly. It is essential for the strategist to constantly
evaluate the performance of the strategies on a timely basis. Strategic evaluation and
control ensures that the organi"ation is implementing the relevant strategy to reach its
ob#ectives. It compares the current performance with the desired results and if necessary,
provides feedback to the management to take corrective measures. Strategic evaluation
consists of performance and activity reports. If performance results are beyond the
tolerance range, new implementation procedures are introduced. 'ne of the obstacles to
effective strategic control is the difficulty in developing appropriate measures for important
activities. Strategic control stimulates the strategic managers to investigate the use of
strategic planning and implementation. After the evaluation, the manager will have
knowledge about the cause of the problem and the corrective actions. The five step process
of strategic evaluation and control is illustrated in figure H./.
figure 5&"&
Im6ortance of effecti/e strategic e/aluation ! 0 The strategic)evaluation process with
constantly updated corrective actions results in significant and long)lasting consequences.
Strategy evaluation is vital to an organisations well)being as timely evaluations can alert
the management about potential problems before the situation becomes critical. Successful
strategists combine patience with a willingness to take corrective actions promptly, when
necessary. The process of evaluating the implemented strategy is explained in 4igure H.+.
8igure 5&2! ;/aluation Process of an Im6lemented Strategy
2etrieved from oncepts in Strategic ;anagement and !usiness 7olicy by Thomas
3.*heelen, I.?avid 9unger F+,,+G, 7earson :ducation, 5ew ?elhi. 4requent strategic
evaluation activities can control the negative consequences of the environmental complexity
and instability issues. Success today does not guarantee success tomorrowJ 9owever, the
frequencies of strategic evaluation performed were surprisingly found to be vice)versa in
stable and unstable industries. ;anagement in dynamic industries seems to have performed
fewer strategic evaluation activities when compared to those in stable industries. 3indsay
and 2ue concluded that forecasting is more difficult under complex and unstable
environmental conditions. So, strategists may see less need for frequent evaluation of their
long)range plans.
%=& efine t(e term 4Business 6olicy5& ;<6lain its im6ortance&
Answer$ ) !usiness policies are the instructions laid by an organisation to manage its
activities. It identifies the range within which the subordinates can take decisions in an
organisation. It authorises the lower level management to resolve their issues and take
decisions without consulting the top level management repeatedly. The limits within which
the decisions are made are well defined. !usiness policy involves the acquirement of
resources through which the organisational goals can be achieved. !usiness policy analyses
roles and responsibilities of top level management and the decisions affecting the
organisation in the long)run. It also deals with the ma#or issues that affect the success of
the organisation.
Features of business policy
4ollowing are the features of an effective business policy$
Specific) 7olicy should be specific and identifiable. The implementation of policy is
easier if it is precise.
Clear ) 7olicy should be clear and instantly recognisable. 6sage of #argons and
connotations should be avoided to prevent any misinterpretation in the policy.
&niform % 7olicy should be uniform and consistent. It should ensure uniformity of
operations at different levels in an organisation.
'ppropriate % 7olicy should be appropriate and suitable to the organisational goal. It
should be aimed at achieving the organi"ational ob#ectives.
Comprehensive % 7olicy has a wide scope in an organisation. 9ence, it should be
comprehensive.
(lexi%le % 7olicy should be flexible to ensure that it is followed in the routine
scenario.
)ritten form % To ensure uniformity of application at all times, the policy should be
in writing.
Sta%le * Policy serves as a guidance to manage day to day activities. Thus, it should
be stable.
Im6ortance of Business Policies
A company operates consistently, both internally and externally when the policies are
established. !usiness policies should be set up before hiring the first employee in the
organisation. It deals with the constraints of real)life business.
It is important to formulate policies to achieve the organisational ob#ectives. The policies are
articulated by the management. 7olicies serve as a guidance to administer activities that are
repetitive in nature. It channels the thinking and action in decision making. It is a
mechanism adopted by the top management to ensure that the activities are performed in
the desired way. The complete process of management is organised by business policies.
!usiness policies are important due to the following reasons$
Coordination % 2eliable policies coordinate the purpose by focusing on organisational
activities. This helps in ensuring uniformity of action throughout the organisation.
7olicies encourage cooperation and promote initiative.
+uic! decisions % 7olicies help subordinates to take prompt action and quick
decisions. They demarcate the section within which decisions are to be taken. They
help subordinates to take decisions with confidence without consulting their superiors
every time. :very policy is a guide to activities that should be followed in a particular
situation. It saves time by predicting frequent problems and providing ways to solve
them.
Effective control % 7olicies provide logical basis for assessing performance. They
ensure that the activities are synchronised with the ob#ectives of the organisation. It
prevents divergence from the planned course of action. The management tends to
deviate from the ob#ective if policies are not defined precisely. This affects the overall
efficiency of the organisation. 7olicies are derived ob#ectives and provide the outline
for procedures.
Decentralisation % *ell defined policies help in decentralisation as the executive roles
and responsibility are clearly identified. Authority is delegated to the executives who
refer the policies to work efficiently. The required managerial procedures can be
derived from the given policies. 7olicies provide guidelines to the executives to help
them in determining the suitable actions which are within the limits of the stated
policies. 7olicies contribute in building coordination in larger organisations.
Assignment Set 2
%"&'(at is meant )y 4Business Continuity Plan5 (BCP$, iscuss t(e ste6s in/ol/ed
in BCP&
Answer$ ) According to the !usiness ontinuity Institute, a !usiness ontinuity 7lan F!7G is
defined as$ KA document containing the recovery timeline methodology, test)validated
documentation, procedures, and action instructions developed specifically for use in
restoring organisation operations in the event of a declared disaster. To be effective, most
!usiness ontinuity 7lans also require testing, skilled personnel, access to vital records, and
alternate recovery resources including facilitiesL. !7 is a collection of procedures which is
developed, recorded and maintained in readiness for use in the event of an emergency or
disaster.
Ste6s in Business Continuity Plan The !7s senior management committee is
responsible for the initiation, planning, approval, testing and audit of the !7. The !7s
senior management committee also implements the !7, coordinates its activities,
supervises its creation and reviews the results of quality assurance activities. These steps
are discussed below$
Initiation
!usiness impact analysis
?isaster readiness strategies
?evelop and implement the plan
;aintenance and testing
" Initiation! 0 The senior management initiates the pro#ect and conducts the meeting
to review the following$
:stablish a business continuity planning committee % The senior management
identifies a team and discusses the business continuity planning pro#ect with them.
The management forms a team and clearly defines the roles of pro#ect team
members.
?raw up business continuity policies % The team establishes the basic principles and
framework necessary to ensure emergency response for resumption and recovery,
restoration and permanent recovery of the organisational operations and business
activities during a business interruption event.
2 Business im6act analysis (BIA$! 0 !IA is the most important element of the
continuity plan. !IA reveals the financial and operational impact of a ma#or disruption. !IA
report describes the potential risks specific to the organisation. It will provide the
organi"ation with the following details$
The identification of time sensitive business operations and services.
An analysis of the organisations financial status and operational impacts.
The time)frames in which the time)sensitive processes, operations and functions
must resume.
An estimation of the resources necessary for successful resumption, recovery and
restoration.
The !IA will provide a basis and cost #ustification for risk management, response,
recovery and restoration.
# isaster readiness strategies! 0 The disaster readiness strategies include the
following activities$
?efine business continuity alternatives % 6sing the information from !IA, the pro#ect
team should assess the alternative strategies that are available to the organisation
and identify two or three strategies that are more credible.
:stimate cost of business continuity alternatives % !ased on these strategies, the
organisation develops the budgetary plan. The resumption timeframe plays an
important role in examining which elements may require pre)positioning.
2ecommend disaster readiness strategy ) !ased on the needs of the business and
evaluation of alternatives, the pro#ect team should develop recommendations of
strategies to provide funds for implementation. 7repare a formal report based on the
findings of the !IA for the strategy alternatives that were developed and analysed
Take approval from senior management to proceed with the pro#ect.
4 e/elo6 and im6lement t(e 6lan! 0 ?evelop and implement the plan includes the
following activities$
:mergency response and operations % It establishes a crisis management process to
respond to these incidents.
?evelop and implement a business continuity plan % The plan describes specifically
how to deal with the incidents. It should focus on the priorities of overall business
continuity strategy.
Apply business unit plans for each department % ?escribe the roles that each
department has to perform in the event of an emergency. Example % It should detail
the actions that the IT department will have to carry out if IT services are lost.
5 Maintenance and testing! 0 ;aintenance and testing includes the following
activities$
:stablish a plan exercise program % !7 should develop and schedule the exercises
to achieve and maintain high levels of competence and readiness. ?ocument the
ob#ectives of each exercise and it should include the measurement criteria. :valuate
the results of each exercise against pre)stated values and document the results
along with proposed plan enhancement.
Awareness and training plans % It should ensure that the personnel is aware of the
importance of business continuity plan and can operate effectively in case of an
event .2eview the effectiveness of awareness training and identify the need for
further training.
Sample emergency response exercises % :mergency response exercises should be
ongoing. The exercises can be repeated using alternate setup and it should involve
whole organisation within a particular facility that may be affected by a system
disaster.
Audit and update the plans regularly % It should regularly audit the plans to check if
it meets the needs of the organisation and ensures that the documentation remains
accurate and reflects any changes inside or outside the business.
%2& '(at is meant )y 4Business 6lan5, escri)e t(e strategies to create a
)usiness 6lan&
Answer$ ) A business plan is a complete internal document that summarises the operational
and financial ob#ectives of a business. It also contains the detailed plans which show how
the ob#ectives are being accomplished. An accurately made business plan helps to allocate
resources properly, to handle unforeseen complications like financial crisis and to make
good business decisions.
Strategies for creating a )usiness 6lan
This section describes the strategies for creating a business plan. :very entrepreneur
creates a business plan and its completion will determine the feasibility of the plan. The
strategies for creating a business plan are as follows$
Define your %usiness vision % Mou must clear the following queries while defining the
business vision$
*ho is the customerE
*hat business are you inE
*hat do you sell Fproduct8serviceGE
*hat is your plan for growthE
*hat is your primary competitive advantageE
,a!e a list of your goals % Mou must create a list of goals after proper research. In
case of a start up business, more effort must be put on the short)term goals.
ertain things must be kept clear before setting up your goal. They are listed below$
*hat do you want to achieveE
9ow much growth you want to achieveE
?escribe the quality and quantity of the service and the customer satisfaction levelsE
9ow would you describe your primary competitive advantagesE
&nderstanding the customer % 6nderstanding the customer is essential for a perfect
business plan. Mou must understand the customer in terms of the following factors$
5eeds % The following customer requirements should be understood clearly$
o *hat unmet needs do your customers haveE
o 9ow does your business meet those needsE
7roblems % ustomers buy things to solve their specific problems. Always be specific
about the advantages of the product8services of your business which resolve the
customer&s problems.
7erceptions % Always try to know the perception of the customer. larify the doubts
of the customer regarding your profession and the products8services of your
business.
"earn from your competitors % Mou can learn a lot about the business and the
customers by looking at the business of your competitors. Always get the answers of
the following questions which will assist you in learning from your competitor and
focusing on your customer.
*hat do you know about your target marketE
*hat competitors do you haveE
9ow are competitors approaching the marketE
*hat are the competitor&s weaknesses and strengthsE
9ow can you improve upon the competition&s approachE
$esolving financial matters % Several questions might arise when we need to make
financial decisions. They are as follows$
9ow will you make moneyE
*hat is the profit potential of your businessE Mou can resolve the financial issues
by taking smart strategic investment decisions.
-dentify your mar!eting strategy % Identifying the marketing strategy is another
essential skill which you must have. The following are the four steps to create a
marketing strategy for your business$
Identify all the target markets
Nualify the best target markets
Identify the tools, strategies and methods
Test the marketing strategy and tools
%#& '(at are t(e )enefits of M>Cs,
Ans-er! 0 ;5s have certain unique advantages in their operations that are not benefited
by domestic oriented companies. The international success of ;5s is mainly because of the
ability to capitalise the advantages. The advantages widely depend on the nature of
individual corporations and the type of their business. !enefits are %
" 7o t(e com6any
Superior technical !nowledge % The most important advantage of ;5s is the
patented technical knowledge which enables them to compete internationally. 3arge
;5s have access to advanced levels of technology which are either developed or
acquired by the corporation. These technologies are patented. It can be in the areas
of management, services or production. :xtensive application of these technologies
gives a competitive advantage to the ;5 in international market, as it results in
efficient, low)priced, hi)tech products and services that dominate a large
international market. This results in efficient production and services like that of I!;
or ;icrosoft.
"arge si.e of economy % (enerally, ;5s are large like *al);art and :xxon;obil
which has sales larger than the gross national products of many countries. The large
si"e gives the advantage of significant economic growth to the ;5s. The higher
volume of production leads to lower fixed costs per)unit for the companys products.
ompetitors, whose volume of production of goods is smaller, must raise the price to
recover the higher fixed costs. This situation implies to capital)intensive industries
like steel, automobiles etc., in which fixed costs form a ma#or proportion of total
costs. Example % ;5 like 5ippon Steel of Iapan can sell its products at lower prices
than those of companies with smaller plants.
"ower input costs due to large si.e % The production levels of ;5s are large and
thus the purchase of inputs is in large volumes. !ulk purchases of inputs enable the
corporation to bargain for lower input costs and obtain considerable amount of
discount. 3ower input costs means less expensive and more competitive products.
Example % 5estle, which buys huge quantities of coffee from the market, can bargain
for lower prices than small buyers can. *al);art sells products at lower prices
relative to its competitors due to bulk purchasing and efficient inventory control. !y
identifying which product sell effectively, *al);art combines low)cost purchasing
with efficient inventor to achieve competitive advantage in retail market.
'%ility to access raw materials overseas % !y accessing raw materials in foreign
countries, many ;5s lower the input and production costs. In many cases, ;5s
supply the technology to extract raw materials. Such access can give ;5s
monopolistic control over raw materials because they supply technology in exchange
for monopolistic control. This control enables them to supply or deny raw materials
to their competitors.
'%ility to shift production overseas % Another advantage of ;5s is the ability to
shift the production overseas. ;5s relocate their production facilities to take
advantage of lower labour costs, raw materials and other incentives offered by the
host countries. They take advantage of the lower costs by exporting lower)cost
goods to foreign markets. ;any ;5s have set up factories in low)cost areas like
hina, India, ;exico, etc.
Brand image and goodwill advantage % ;ost of the ;5s possess product lines that
have created a good reputation for quality, value and service. This reputation spread
to other countries through exports and promotion and adds to the goodwill or brand
image of the company. ;5s are able to influence this brand image by standardi"ing
their product lines in different countries. Example % Sony 7layStations do not have
any modifications for different countries and the parent factory produces
standardised products for the world market. !rand names like Sony help the
company to charge premium prices for its products, because the customers are
ready to buy quality products at premium prices.
-nformation advantage % ;5s have a global market view with which it collects,
analyses, and processes the in)depth knowledge of worldwide markets. This
knowledge is used to create new products for potential market niches and expand
the market coverage of their products. The ;5s have good information gathering
capabilities in all aspects of their operations. Through this information network, the
;5 is able to forecast government controls and gather commercial information. The
network also helps in providing important information about economic conditions,
changing market trends, social and cultural changes that affect the business of ;5s
in different countries. *ith these information ;5s can position themselves
appropriately to contingencies.
,anagerial experience and expertise % The ;5s function in large number in
different countries simultaneously. This enables them to integrate wealth for valuable
managerial experience. This experience helps them in dealing with different business
situations around the globe. Example % An ;5 located in Iapan can attain
knowledge of Iapanese management techniques and apply them successfully in a
different location.
2 7o t(e nations -(ere it o6erates (domestic nations$ ! 0 ;5s bring advantage
to the countries in which they operate. The benefits of ;5s to the nations where it operate
are$
Economic growth and employment % An ;5 comes to a country with more amount
of money to invest than any local company. The countries from where the ;5s
operate are also called host countries. It brings inward investment to the host
countries. This helps in boosting the national economy. Example % onstructing new
plants requires resources like land, capital and labour. It provides employment to a
large number of people which helps in dealing with the unemployment problem in the
host countries. The inward investment can help in generating wealth in the local
economy because it increases the spending ability of the people by providing them
employment. As the ;5s provide employment to the people, they pay taxes to the
local government. The people have more money to spend which provides market for
local companies to sell their goods. The ;5s also attracts other smaller firms to the
area where it is located. These firms provide different services to the ;5s.
S!ills/ techni#ues and #uality human capital % The ;5s bring with them new ideas
and new techniques to improve the quality of production. This helps in improving the
quality of human capital in the host country. The ;5s employ local labour and train
them in new skills to improve productivity and efficiency. Example % Sunderland is
one of the most productive car manufacturing plants in :urope. The workers had to
get used to different ways of working that were used in other !ritish firms. This can
be a challenge and can also lead to improvement in productivity. The skills that the
workers build up can be passed on the other workers which help in improving the
supply of skilled labour in that area.
'vaila%ility of #uality goods and services % (enerally, production in a host country is
aimed at the export market. 9owever, in some cases, the inward investment can
gain access to the host country market to avoid trade barriers. Availability of quality
goods leads to improved quality in other related industries. Example % The 6> has
access to high quality vehicles at cheaper priceD this competition has led to
improvement in prices, working practices and quality in other related industries.
-mprovement in infrastructure % The ;5s invest in a country for production and
distribution facilities. In addition to this, the company might also invest in additional
infrastructure facilities like road, port and communication facilities. This can benefit
the entire country.
%4& efine t(e term 4Strategic Alliance5& ifferentiate )et-een ?oint /entures and
Mergers&
Ans-er! 0 Strategic alliance is the process of mutual agreement between the organisations
to achieve ob#ectives of common interest. They are obtained by the co)operation between
the companies. Strategic alliance involves the individual organisations to modify its basic
business activities and #oin in agreement with similar organisations to reduce duplication of
manufacturing products and improve performance. It is stronger when the organi"ations
involved have balancing strengths. Strategic alliances contribute in successful
implementation of strategic plan because it is strategic in nature. It provides relationship
between organisations to plan various strategies in achieving a common goal. The various
characteristics of strategic alliances are$
The two independent organisations involving in agreement have a similar idea of
achieving ob#ectives with respect to alliances.
The organisations share the advantages and organise the management of alliance
until the agreement lasts.
To develop more areas in alliances, the organisations contribute their own resources
like technology, production, 2A?, marketing etc to increase the performance.
According to 4aulkner F/<<HG % Strategic alliance is the inter)organisational
relationship in which the partners make substantial investment in developing a long)
term collaborative effort, and obtain common orientation.
In ?oint @entures or I@s two or more companies come together and form a new entity to
pursue some business activity.
It may be uneconomical for a company to pursue a business activity all alone. This is why it
may go in for a I@.
In a I@, the two companies can combine their capabilities and strengths and share the
business risks. This way they can overcome all difficulties and hurdles effectively.
Merger Strategy ! ) A merger takes place two or more companies #oin together to form a
single company.
Types of ;ergers$
9ori"ontal ;ergers$ The combining companies are of the same business.
@ertical ;ergers$ The #oining companies are at different stages of the production
process of the same product.
oncentric ;ergers$ The Ioining companies are from similar businesses. They
however, have no buyer seller relationship.
onglomerate ;ergers$ In onglomerate ;ergers the combining companies are from
unrelated or completely different businesses.
2everse ;erger$ *hen profit making company merges with the financially weaker
company.
%5& '(at do you mean )y *inno/ation+, '(at are t(e ty6es of inno/ation,
Inno/ation
Innovation is the production or implementation of ideas. Innovation can be described as an
action or implementation which results in an improvementD a gain, or a profit. The 5ational
Innovation Initiative F5IIG defines innovation as 0he intersection of invention and insight/
leading to the creation of social and economic value10
" Com6onents of inno/ation! 0 Innovation involves the whole process from
opportunity identification, invention to development, prototyping, production, marketing and
sales, while entrepreneurship only needs to involve commercialisation.
The components of innovations are as follows$
Implementation
reativity
-mplementation % It is to put ideas into practice. Implementation is made up of
three aspectsD idea selection, development and commercialisation. 'rganisations
need processes, procedures and frameworks for achieving implementation. Some
organisations in spite of having all right processes, procedures and frameworks,
are yet to be innovative.
Creativity % reativity is less straight forward than implementation. reativity is
not about establishing a new process or structure. 7eople think differently to be
creative and behave differently to be innovative.
7y6es of inno/ation
Innovation is defined as using new ideas to apply current thinking in different ways that
results in a significant change. The types of innovation are as follows$
'rchitectural innovation % This innovation defines the basic configuration of the
product and the process. It will establish the technical and marketing agendas that
will guide subsequent developments.
,ar!et niche innovation % This innovation involves development of new marketing
methods for the existing products. It provides the scope for improvement in product
design, product promotion, and pricing.
$egular innovation % This innovation involves the change that is applied on
established technical and production competence of the existing markets and
customers. The effect of these changes is to develop the existing skills and
resources.
$evolutionary innovation % This innovation disrupts and renders established technical
and production competence that out of date, yet it is applied to existing markets and
customers.
%=& escri)e Cor6orate Social Aes6onsi)ility&
Ans-er! 0 Cor6orate Social Aes6onsi)ilities (CSA$ orporate Social 2esponsibility
FS2G is the continuing obligation of a business to behave ethically and contribute to the
economic development of the organisation. It improves the quality of life of the
organisation. The meaning of S2 has two folds. 'n one hand, it exhibits the ethical
behaviour that an organisation exhibit towards its internal and external stakeholders. And
on the other hand, it denotes the responsibility of an organisation towards the environment
and society in which it operates. Thus S2 makes a significant contribution towards
sustainability and competitiveness of the organisation. S2 is effective in number of areas
such as human rights, safety at work, consumer protection, climate protection, caring for
the environment, sustainable management of natural resources, and such other issues. S2
also provides health and safety measures, preserves employee rights and discourages
discrimination at workplace. S2 activities include commitment to product quality, fair
pricing policies, providing correct information to the consumers, resorting to legal assistance
in case of unresolved business problems, so on. :xample % TATA implemented social welfare
provisions for its employees since /<CH.
8eatures of CSA
S2 improves the customer satisfaction through its products and services. It also assists in
environmental protection and contributes towards social activities. The following are the
features of S2$
-mproves the #uality of an organisation in terms of economic/ legal and ethical
factors % S2 improves the economic features of an organi"ation by earning profits
for the owners. It also improves the legal and ethical features by fulfilling the law
and implementing ethical standards.
Builds an improved management system % S2 improves the management system
by providing products which meets the essential customer needs. It develops
relevant regulations through the utili"ation of innovative technologies in the
organisation
Contri%utes to countries %y improving the #uality of management % S2 contributes
high quality product, environment conservation and occupational health safety to
various regions and countries.
Enhances information security systems and implementing effective security
measures % S2 enhances the information security measures by establishing
improved information security system and distributing them to overseas business
sites. The information system has improved by enhancing better responses to
complex security accidents.
Creates a new value in transportation % S2 creates a new value in transportation
for the greater safety of pedestrians and automobiles. This is done by utilising
information and technology for automobiles. The information and technology helps in
establishing a safety driving assistance system.
Creates awareness towards environmental issues % S2 serves in preventing global
warming by reducing the harmful gases emitted into the atmosphere during the
process of business activities.
Aoles 6layed in terms of et(ical conduct! 0 S2 plays a significant role in maintaining
ethical conduct in an organisation. The following are the roles played by S2$
Improves the relationships with the investment community and develops better
access to capital and risks
:nhances ability to recruit, develop and retain staff
Improves the reputation and branding of the organisation
Improves innovation, competitiveness and market positioning
Improves the ability to attract and build effective and efficient supply chain
relationships
Improves relationships with regulators
2educes the costs through re)cycling process
:nhances stronger financial performance and profitability through operational
efficiency gains