ASSIGNMENT DRIVE- SPRING 2017

PROGRAM – MBA
SEMESTER 4TH
Subject code & name - MB0052- Strategic Management and Business Policy

Q1. 1 What do you mean by Strategic Management Process (SMP)? Explain the three levels
in Strategic Management Process.
 Explain the concept of Strategic Management Process (SMP)
 Elaborate the levels of Strategic Management Process 4+6= 10

Answer:-
Strategic Management Model
The strategic management process consists of four distinct steps or stages:
(a) Defining organizational mission, objectives or goals
(b) Formulation of strategy/strategic plan
(c) Implementation of strategies
(d) Strategy evaluation and control

For understanding these four stages, a company has to consider a number of other factors like
organizational competence and resources, the environment, various strategy alternatives available, strategy
selection criteria, etc. All these are internal parts of SMP. The strategic management process may best be
illustrated in the form of a model. We can call this the strategic management model.

Companies may or may not follow the strategic management process as rigidly as shown in the model.
Generally, application of SMP is more formal and model driven in large, well-structured organizations with
many divisions, products, markets, different priorities for investment, etc. Smaller businesses or companies
tend to be less formal. In other words, formality in SMP refers to the extent to which participants in SMP,
their responsibilities, authority and roles/ duties are clearly specified. Also, in practice, strategists may not
always follow the strategic management model as rigid steps or chains in the management process.
Situations may not always warrant this. It would also depend on a company’s approach to SMP.

Levels in SMP:-
Three levels in the strategic management process are: the corporate level, the business unit or SBU level and
the functional level.
Corporate-level strategy sets the long-term objectives of an organization and broad policies and controls
within which an SBU operates. The corporate-level strategies also help an SBU to define its scope of
operations and also limit or enhance SBU’s operations through resources the corporate management
allocates for securing competitive advantage. Functional-level strategies follow from, and also support, SBU-
level strategies. Strategies at the functional level are often described as tactical. Such strategies are guided
and controlled by overall SBU strategies. Functional strategies are more concerned with implementation of
corporate-and SBU-level strategies rather than formulation of strategies. Strategic management process at
three levels also involves decision making. But, the types of decision making, their scope and impact are
different at different levels. The characteristics of decision making at three levels may be more clearly
understood in terms of major dimensions of decision making. These are shown in Table 2.1.

Table: Characteristics of Strategic Decisions at Corporate, SBU and Functional Levels

Level of Strategy
Dimension Corporate SBU Functional
Type of decision Conceptual/policy Policy/operational Operational
Investment High Medium Low/Nil
Risk involved High Medium Low
Time horizon Long term Medium term Short term
Impact Critical Major Minor
Flexibility High Medium Low
Adaptability Low Medium High

A distinction can be made between functional-level or functional-area strategies and operating strategies.
Functional-area strategies involve approaches, actions and practices to be undertaken for managing
particular functions or business processes or key activities within a business marketing strategy. Operating
strategies in comparison are relatively narrow strategies for managing different operating units (plants,
distribution centres in different geographic locations, etc.,) and specific operating activities of strategic
significance (advertising campaigns, management of particular brands, website sales and operations, etc).3
Operating strategies provide more specific details about functional-area strategies and render completeness
to functional-level strategies and also to overall corporate strategy.

Q2 Write short notes on Corporate Governance and Strategic Audit.

 Corporate Governance
 Strategic Audit 4+6=10
Answer:-
Corporate governance is equated with corporate management, which is not correct. As has been pointed
out above, corporate governance is concerned with serving the interest of the owners (stockholders) and, is
much broader in perspective than corporate management. Corporate management is a part of or can be a
useful partner in corporate governance. There is some confusion about the concept and meaning of
corporate governance. Two definitions given below may give some clarity to the meaning and the role of
corporate governance.
Corporate governance ensures that long-term strategic objectives and plans are established and that the
proper management structure (organization, systems and people) is in place to achieve those objectives
while at the same time, making sure that the structure functions to maintain the corporate’s integrity,
reputation and responsibility to its various constituencies.
Corporate governance denotes direction and control of the affairs of the company. The role of corporate
governance is to ensure that the directors of a company are subject to their duties, obligations and
responsibilities to act in the best interest of their company, to give direction and remain accountable to their
shareholders, and other beneficiaries for their action.

Strategic Audit
With increasing pressure on boards from external stakeholders to be more active, many directors are
seeking more practical ways to conduct strategic overview of company management without getting directly
involved in it. Donaldson (1995) has suggested ‘strategic audit’ as a new tool for systematic review of
strategy by board members without directly involving themselves with management of companies.
Strategic audit is a formal strategic-review process, which imposes its own discipline on both the board and
the management very much like the financial audit process8. But, it is different from management audit,
which is undertaken in many companies by the senior/top management on the progress and outcome of
important corporate activities. To understand strategic audit in the correct perspective, one needs to analyse
this in terms of its various elements. Donaldson has specified five elements of strategic audit. These are: 1.
Establishing criteria for performance 2. Database design and maintenance
3. Strategic audit committee 4. Relationship with the CEO 5. Alert to duty (by board members) The
performance criteria should be simple, well-understood and wellaccepted measures of financial
performance. A number of measures of financial performance are available. One common measure, used by
many companies, is return on investment (ROI). The ROI can be analysed like this: profit per unit of sales
(profit margin); sales per unit of capital employed (asset turnover); and, capital employed per unit of equity
invested (leverage). If these three ratios are multiplied together, the resultant ratio will give profit per unit of
equity. This criterion would fulfil two objectives: first, sustainable rate of return on shareholder investment,
and, second, to decide whether the return is less, or equal to or more than returns on alternative investments
with comparable risk, i.e., whether the company’s chosen strategy is justifiable or not. To calculate different
performance ratios and monitor performance criteria, a proper database is essential. This involves both
database design and maintenance. This has to be a regular and an ongoing process. Data on financial
performance can sometimes be sensitive to the managers/ employees of a company. It is, therefore,
suggested that financial and related data design, maintenance and analyses should be entrusted to the
auditors of the company or outside consultants. For effective strategic audit, a strategic audit committee
should be constituted. According to Donaldson, outside directors should select three of their own members
to form the committee. This will impart regularity and more commitment to the strategic audit process. The
committee would decide on the frequency of their meeting, periodicity of interaction with the CEO or top
management of the company and, also when they should make presentation to or hold discussion with the
full board.
A sensitive issue is the strategic audit committee’s relationship with the CEO. Any CEO would be generally
apprehensive of such a committee. The strategic audit committee needs to create and maintain an
atmosphere of mutuality. It is true that whenever a question or a discussion on the strategic direction of a
company comes up in a board meeting, it is perceived by many CEOs as an implicit criticism of the current
strategy and leadership of the company. It is also true that regular strategic process involving the CEO
reduces chances of unpleasant or confronting situations. In fact, ideally, the functioning of the strategic
audit committee should be seen as a low-key operation, positive in approach, designed to lend support and
credibility to company leadership and management.

Q3 Explain the major environmental factors a business strategist should consider while
formulating business strategies.
 Elaborate the important environmental factors that affects a business. 10
Answer:-
The major environmental factors a business strategist should reckon with are: • Political factors • Economic
factors • Sociological factors • Government policies/controls
• Technology • Competition • Intermediaries • Suppliers

Political Factors
Political factors or political conditions can have significant impact on industry, business and the corporates.
Political stability improves business environment and encourages economic and business activities. Political
instability produces the opposite effects. Political factors do not refer to only national political conditions or
relations, but also to international relations. Improved political relations between the US and China in the
mid-70s resulted in trade agreement between the two countries. The trade agreement provided
opportunities to US electronics manufacturers to commence operations in China. There are many instances
where deteriorating political relations between countries (India and Pakistan), have affected business
conditions.

Economic Factors
Economic environment is an amalgam; it comprises all aspects or areas of economic activity—national
income (GDP or GNP), the manufacturing sector, the services sector, capital or financial sector, investment,
savings, etc. All these areas or sectors together influence the structure and trends of the economy and
determine the economic environment. The major economic factors, which influence any market system, are:
(a) GDP or GNP (b) Income distribution or income levels
(c) Business cycles or different phases of the cycle like boom, recession, depression and recovery (d) Price
levels of goods and services, i.e., whether the trend is inflationary or deflationary
(e) Rate of interest on market borrowing

Sociological Factors
Sociological factors include demographic factors or population profiles, value system in society and lifestyles
of individuals. Demographic factors or population profiles reflect age and sex composition of the population,
occupational patterns, literacy levels, etc. Demographic parameters are a very intimate component of the
market environment because they directly affect consumer behaviour. For example, today there is a lot of
focus on the youth and many products and brands are promoted for the young generation. Apart from Pepsi
(which has been specially positioned on the age factor), mobikes Hero Honda, TVS Suzuki and Kawasaki
Bajaj—all are focusing on this segment. Readymade garment companies are invading the children’s sector.
Many FMCG brands are targeted at women of particular age groups. Occupational patterns and literacy
levels are also influencing consumption patterns of males and females.
Government Policies and Controls
Government policies have a more direct impact on business decision and marketing strategies than
macroeconomic indicators like GDP or GNP. Government regulations and controls have even more
immediate impact than government policies.
Technology
Technology, as an environmental factor, influences strategic planning and management in a number of
ways.
Technological changes lead to the shortening of product life cycles and create new sets of consumer
expectations. Electronic products are a good example. This sector is experiencing the most rapid changes
today. One can clearly see the technological revolution in the colour TV market. Sometimes, advance signals
on technological developments are available through research and development and industry/trade journals
and magazines. Companies in the pharmaceutical industry, for example, are continuously aware of
developments in new formulations and drugs in the world through medical journals and periodicals.
Developments in information technology are greatly affecting the competitive position of companies.
Intermediaries
The primary role of intermediaries is to link the producers to the end-user market in those cases where the
latter are unable or unwilling to manage the delivery or the distribution process. Intermediaries play a really
big role in consumer goods2, particularly in FMCGs. FMCG majors such as Kellogg’s, Heinz and Unilever
(Hindustan Unilever in India) and many other companies utilize the services of large supermarket chains to
distribute their products to households.
The selection of appropriate intermediaries is a matter of marketing choice and strategy.
Suppliers
Suppliers to a company can be raw material suppliers, energy suppliers, suppliers of labour and capital; and
the suppliers can affect the competitive position and business capabilities and therefore, the corporate
strategy of a company. According to Porter, the relationship between suppliers and a company represents a
power equation between them. The equation is based on, or governed by, the market environment, industry
conditions and the extent to which one is dependent on the other.

Q4 Explain Corporate Restructuring using examples.

 Elaborate Corporate Restructuring Give at least 2 examples from Indian corporate
sector 10
Answer:-
Corporate restructuring means organizational change to create a more efficient or profitable enterprise.
Similar terms which are used for ‘restructuring’ are ‘revamping’, ‘regrouping’, ‘rationalization’ or
‘consolidation’.
Corporate restructuring has three meanings or connotations: organizational restructuring, business-level
restructuring and financial restructuring. Organizational restructuring means changes in the structure of the
organization— changing or reducing hierarchies or delayering, down sizing, i.e., reducing the number of
employees, redesigning positions, reallocation of jobs or portfolios or changing the reporting system.
Business-level restructuring (applies to multibusiness organizations) deals with changes in the composition
of a company’s businesses or product portfolios. The changes are done on the basis of movements in market
share or performance of different businesses or products to improve efficiency or profitability at the
corporate level. Financial restructuring is concerned with changes in financial management in terms of
equity pattern or equity holdings, debt-equity ratio, borrowing pattern, debt servicing schedule, etc. More
common forms of restructuring are organizational restructuring and business-level restructuring.
Sometimes, when major crisis develops, restructuring may be comprehensive, which may simultaneously
involve, rather combine, business-level restructuring, organizational restructuring and even financial
restructuring. This may happen more during a turnaround situation (discussed later).
Restructuring is essentially an adaptation strategy. It is about adaptation to change and is mostly
incremental in nature. In contemporary business, most companies are in the process of constant change.
Often older companies require more restructuring than the newer ones. This may happen for a number of
reasons. First, those companies might have over-diversified including diversification into unrelated areas;
second, the organizational structure might be very hierarchical not fitting into a dynamic market
environment; third, there might be a conservative financial management system in relation to funds flow
and investments.
A survey by the All India Management Association (AIMA) shows that corporate restructuring is a
continuous process, and, in India, it accelerated after 1991 with the initiation of the liberalization process.
The main objective of restructuring in the Indian companies was to gain customer focus.

Another research study on corporate restructuring revealed that most of the restructuring exercises carried
out by the Indian companies after 1991 were at business portfolio level followed by changes in ownership or
shareholding structure. The instruments of restructuring in these companies were primarily joint ventures,
mergers and acquisitions and diversification into newly opened sectors like power and telecom. These are
actually expansion strategies and are discussed in detail in the next unit. The conclusion of the study is that
large traditional business houses, medium-sized enterprises of recent origin and public sector enterprises
are the major participants in restructuring, their primary concern being delivering better shareholder value.

Examples:-
Hindustan Unilever
Hindustan Unilever’s restructuring plan was christened ‘Project Millennium’. This was primarily a project
on business restructuring. This was a comprehensive transformation programme to restructure the
company from being ‘a large, diversified conglomerate to becoming a configuration of empowered virtual
companies, each built around a single category of products’. The objective was to reduce or regroup over 50
existing businesses into 18 businesses grouped under seven major divisions: detergents, beverages, personal
products, frozen foods, culinary products, agribusiness and oil-fats. The restructuring programme envisaged
a combination of different strategies including acquisition in the identified core business, dairy products,
animal feeds and specialty chemicals.

Larsen and Toubro (L&T)

L&T had developed ‘Vision 2005’ as the basis for its restructuring. The company had a minor restructuring
in 1993 in which it divested non-core businesses like shipping and shoe manufacturing. The objective of
‘Vision 2005’ was to focus on its core businesses and deliver better shareholder value. The core businesses
were re-identified as engineering projects, construction and software. As part of the restructuring
programme, the company had planned for entering into joint ventures for cement, tractors and earth-
moving equipment businesses. Divestments are to continue for minor businesses like glass bottles and
crown caps.

Q5 Explain Michael E Porter’s Competitive Threat Model with suitable examples.

 Elucidate the Porter’s Competitive Threat Model with suitable examples. 10

Answer:-
A vital task of a strategist is to anticipate and/or recognize the nature of competition and potential threat
from competitors and to develop appropriate response strategies. The most difficult task in this is to
properly assess the magnitude of existing competition and correctly foresee the threat from new and
emerging competitors. Porter (1980) in his pioneering work on competitive strategy had identified five
major types of competitive threats (Figure below), which are valid even today. These are:

1. Industry (existing) competitors 2. Threat of substitutes 3. Bargaining power of buyers

4. Bargaining power of suppliers 5.

Threat of new entrants Industry competitors:

Various degrees or intensities of competitive rivalry exist in the market for a product. This is the battle for
market share and is the most immediate concern of a company, particularly if it is a market leader or
challenger. Ongoing battles between Coca-Cola and Pepsi, Surf and Ariel, Colgate and Pepsodent are good
examples. Competitive intensity or rivalry depends, to a large extent, on the stage of the product life cycle.
Competition is practically non-existent at the introduction stage, then starts growing steadily and becomes
significant till the product enters the decline stage.

Threat of substitutes:
Substitute products reduce demand for a particular product or a category of products because some
customers switch over to the alternatives. Substitution depends on whether an alternative product offers
higher perceived value to the customers. Substitution may take three different forms: product-for-product
substitution, substitution of need and generic substitution, Product-for-product substitution or substitution
for the same use are same; for example, e-mail substituting for postal service or mobile phones substituting
for landlines. Substitution of need means that a new product or service makes an existing product or service
redundant.
Bargaining power of buyers: Buyers are generally in a better bargaining position. But, they can become
stronger bargainers or create competition among suppliers under certain specific conditions. Some of these
conditions are: i. the buyer purchases a very significant proportion of total output of the supplier— can
happen typically in industrial products; ii. the industry consists of a large number of small operators so that
buyers can easily create competition among them; iii. cost of switching a supplier is low, i.e., substitutes are
available or there is no product differentiation, or, for industrial or service products, there is no long-term
contract; iv. backward integration into supplier’s product—a truck or car manufacturer beginning to make
components or accessories

Bargaining power of suppliers:

Suppliers, or sellers, generally in a weak bargaining position, can be strong bargainers under certain
conditions. Such market conditions are : i. no close substitutes available for the product offered by the
supplier ; ii. the product(s) sold by the supplier(s) is an important or critical input in the buyer’s product; for
example, ICs and chips in electronic products which can be bought only from few or selected suppliers; iii.
high switching cost of changing a supplier—may be because the supplier manufactures a special product or
the product is clearly differentiated; iv. forward integration into buyer’s product; for example, a carbon black
producer entering into tyre manufacturing and competing with tyre manufacturers or TVS (earlier Lucas-
TVS), traditionally a component or accessories maker, enters into production of motor cycles (TVS-Suzuki).

Threat of new entrants:

Many times, new entrants pose a major threat to the existing market players. Examples of entry of Toyota
and Honda in the US car market (and also in the global market), Maruti Suzuki’s entry into the Indian car
market, Vimal fabrics in the Indian textile market and Titan in the Indian watch market are well known. In
fact, most of the established products and brands in consumer and industrial markets today were new
entrants at some point of time. Forecasting the emergence of new entrants is very important for existing
competitors and it is also one of the most difficult jobs. But, companies which fail to foresee the new
entrants or ignore them may even face disastrous results.

Q6 Explain whether Leadership style is Portable? Also explain the leadership Role of Top
Management.

 Give your views with example on whether a leader successful in one organization, be
necessarily successful in another company Elaborate the Leadership Role of Top
Management 5+ 5=10

Answer:-
Is Leadership Style Portable?
Nohria and others (2006) have researched on a very interesting subject: Is leadership or leadership style
portable? Or, to put it in another way: Will a leader, successful in one organization, be necessarily successful
in another company? The authors studied job switching of 20 executives of GE (who left the company
between 1989 and 2001) to become chairmen, CEO or CEO-designates of other companies. These
companies include some of the big international names like 3M, Fiat and Home Depot. GE was chosen
because the company is widely regarded in the US as one of the best talent generators. The authors
conducted their analysis of CEO/leadership portability in terms of four different types of human capital:
strategic human capital, industry human capital, relationship human capital and company-specific human
capital. Strategic human capital refers to skills or capabilities required to control or manage different
strategic situations—cost control, competitive threat or fierce competition, new product development, etc.
Strategic capability or strategic human capital may be the most portable. Industry human capital pertains to
skills and capabilities which are successful in one particular industry, but need not be transferable to
another industry. GE top executives who moved to industries which were quite different from GE businesses
were found generally ineffective. Relationship human capital, which may also be called ‘social capital’,
relates to skills, relationships and understanding an executive develops in course of working with his/her
team or colleagues, and, a manager would be always more successful in a new job or company if he/she
brings along with him/her some of his/her former colleagues or team members. Lee lacocca did this when
he joined Chrysler. Company-specific human capital refers to skill, knowledge, culture, systems, procedures,
informal processes, etc., which exist in a company and, are unique to particular organizations and, therefore,
are least portable or transferable.

Based on their study of the selected GE executives in terms of the four types of human capital, Nohria et al.
have come to some interesting findings and conclusions about leadership portability or transferability.
These are summarized below: (a) Certain skills—mostly company-specific ones—will not be relevant to the
new job and will have to be unlearned, which takes time. (b) The more closely the new environment (the
company and the business) matches the old environment, the higher the chances of success of the portable
managers. (c) The new company should be prepared to make necessary changes to allow the newcomer to
succeed—changes in systems, procedures business portfolios, hiring a new team, etc. (d) The efforts of
CEOs/leaders to replicate their performances in new jobs may have only mixed success.
(e) Even the best management talent (CEO/leader) may not be portable if it does not match the new
environment.
Leadership Role of Top Management:-

The top/senior level managers are vested with the responsibility (under the guidance/supervision of CEO)
for formulating and implementing strategies of the organization. The top/senior level managers take most of
the strategic initiative in the company, and, participate in the process of formulation of strategic plans.
Strategic decisions by top/senior level managers influence, to a large extent, how far corporate goals will be
achieved. Top/senior managers also help to develop appropriate organizational structures and systems for
successful implementation of strategies. In Unit 12, we had analysed how organizational structure and
reward systems affect implementation of strategies. The top/senior managers perform their leadership roles
individually or, more often, as a team.
The top management team should be, and usually is, heterogeneous in composition. A heterogeneous team
consists of top/senior managers from manufacturing, marketing, finance, etc., with varied experience and
skills. The more heterogeneous a top management team is, the more varied knowledge and experience will
be at its disposal for effective interaction and decision making. Different perspectives given by team
members during meetings are likely to increase the quality of the team’s decision, particularly when a
consensus or synthesis emerges from diverse perspectives. Research has shown that greater heterogeneity
among top management team members generates healthy debate which often leads to better strategic
decisions, implementation and organizational performance.

Top Management Team, CEO and Board

Diversity among team members may, however, lead to differences of views and also conflicts. In general, the
more heterogeneous and large the top management team is, the more difficult it may be for the team to
effectively implement strategies. Comprehensive and long-term strategic plans can be constrained because
of communication barriers or problems among top executives who have different backgrounds of education,
experience and skills. A group of top executives with diverse backgrounds may complicate the process of
decision making if it is not properly managed. In such situations, top management teams may fail to
logically examine all the issues, opportunities and threats leading to a sub-optimal strategic decision. In
such cases, the CEO must attempt to seek behavioural integration among the team members and ensure that
the members function cohesively.
The characteristics of top management teams should be related to innovation and strategic change. More
heterogeneous top management teams are likely to be associated positively with innovation and strategic
change because of diverse capability inputs. The heterogeneity may force the team or some of the members
to ‘think out of the box’ and thus be more creative in making decisions. Companies which need to change
their strategies are more likely to succeed if they have top management teams with diverse backgrounds and
expertise. When a new CEO is hired from outside the industry, the probability of strategic change is greater
than if the new CEO is from inside the organization or inside the industry.9 Hiring a new CEO from outside
the company or industry adds diversity to the team, but, the top management team must be managed
effectively to use the diversity in a positive way.