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Master of Business Administration MB0052 Strategic Management and Business Policy 4 Credits (Book ID: B1314) Assignment Set

et - 1 (60 Marks)
Note: Each Question carries 10 marks. Answer all the questions. 1. What is meant by Strategy? Differentiate between goals and objectives.
Strategy is the method by which an organization systematically achieves its future objectives. A business cannot progress for a long term without a reliable strategy. In this unit, you will learn meaning of business strategies, its conceptual evolution, scope and its importance, distinction between goals and objectives, analyzing strategic intent through vision and mission statements and finding out the significance of core competencies of business and critical success factors. Difference between Goals and Objectives In the previous section, you studied objectives of business and how it is different from tactics. In this section we will discuss the difference between goals and objectives. For that we first need to understand the goals of business. Goals are statements that provide an overview about what the project should achieve. It should align with the business goals. Goals are long-term targets that should be achieved in a business. Goals are indefinable, and abstract. Goals are hard to measure and do not have definite timeline. Writing clear goals is an essential section of planning the strategy. Example- One of the goals of a company helpdesk is to increase the customer satisfaction for customers calling for support. Objectives are the targets that an organization wants to achieve over a period of time. Example- The objective of a marketing company is to raise the sales by 20% by the end of the financial year. Example- An automobile company has a Goal to become the leading manufacturer of particular type of car with certain advanced technological features and the Objective is to manufacture 30,000 cars in 2011.Both goals and objectives are the tools for achieving the target. The two concepts are different but related. Goals are high level statements that provide overall framework about the purpose of the project. Objectives are lower level statements that describe the tangible products and deliverables that the project will deliver. Goals are indefinable and the achievement cannot be measured whereas the success of an objective can be easily measured. Goals cannot be put in a timeframe, but objectives are set with specific timelines.

Differences between Organizational Goals and Objectives Goals Are long term Are general intentions with broad outcome Cannot be validated Are intangible can be qualitative as well as quantitative Are abstract Objectives Are usually meant for short term Are precise statements with specific outcome Can be validated Are tangible are usually quantitative and measurable Are concrete

2. Define the term Strategic Management. What are the types of strategies?
Strategic management is a systematic approach of analyzing, planning and implementing the strategy in an organization to ensure a continued success. Strategic management is a long term procedure which helps the organization 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 organization. Types of Strategies 1 Corporate level-The board of directors and chief executive officers are involved in developing strategies at corporate level. Corporate level strategies are innovative, pervasive and futuristic innature. The four grand strategies in a corporate level are: Stability and expansion strategy Retrenchment Corporate restructuring Combination strategies concept of synergy 2. Business level-Business level strategy relates to a unit within an organization. Mainly strategic business unit (SBU) managers are involved in this level. It is the process of formulating the objectives of the organization and allocating the resources among various functional areas. Business level strategy is more specific and action oriented. It mainly relates to how a strategy functions rather than what a strategy is in corporate level. The main aspects of business level strategies are related with: Business stakeholders Achieving cost leadership and differentiation Risk factors

3. Tactical of functional level-The functional strategy mainly includes the strategies related to specific functional area in the organization such as production, marketing, finance and personnel (employees).Decisions at functional level are often described as tactical decisions. Tactical decision means involving or pertaining to actions for short term than those of larger purpose. Considering tactical decisions in functional level strategy describes involving actions to specific functional area. The aim of the functional strategy is doing things right whereas the corporate and business level strategy stresses on doing the right thing. The different types of strategies at functional level are: Procuring and managing Monitoring and directing resources towards the goal

4. Operational level-Operational level is concerned with successful implementation of strategic decisions made at corporate and business level. The basic function of this level is translating the strategic decisions into strategic actions. The basic aspects in operational level are: Achieving cost and operational efficiency Optimal utilization of resources Productivity 3. Describe Porters five forces Model. Three of Porter's five forces refer to competition from external sources. The remainder is internal threats. Porter referred to these forces as the micro environment, to contrast it with the more general term macro environment. They consist of those forces close to a company that affect its ability to serve its customers and make a profit. A change in any of the forces normally requires a business unit to re-assess the market place given the overall change in industry information. The overall industry attractiveness does not imply that every firm in the industry will return the same profitability. Firms are able to apply their core competencies, business model or network to achieve a profit above the industry average. Clear example of this is the airline industry. As an industry, profitability is low and yet individual companies, by applying unique business models, have been able to make are turn in excess of the industry average. Porters five forces include - three forces from 'horizontal' competition: threat of substitute products, the threat of established rivals, and the threat of new entrants; and two forces from 'vertical' competition: the bargaining power of suppliers and the bargaining power of customers.

Figure 1 Porters Five Force Model

This five forces analysis is just one part of the complete Porter strategic models. The other elements are the value chain and the generic strategies. Porter developed his Five Forces analysis in reaction to the then-popular SWOT analysis, which he found rigorous and Ad hoc . Porter's five forces are based on the Structure-Conduct-Performance paradigm in industrial organizational economics. It has been applied to a diverse range of problems, from helping businesses become more profitable to helping governments stabilize industries. 1. Threat of new competition Profitable markets that yield high returns will attract new firms. This results in many new entrants, which eventually will decrease profitability for all firms in the industry. Unless the entry of new firms can be blocked by incumbents, the abnormal profit rate will tend towards zero (perfect competition).The existence of barriers to entry (patents, rights, etc.) The most attractive segments one in which entry barriers are high and exit barriers are low. Few new firms can enter and non-performing firms can exit easily. 2. Threat of substitute products or services The existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch to alternatives. Note that this should not be confused with competitors' similar products but entirely different ones instead. For example, Pepsi is a substitute for coke as, if the price of Coke were to rise above the price of Pepsi; it is possible that the Coke drinker would substitute Pepsi for Coke. 3. Bargaining power of customers (buyers) The bargaining power of customers is also described as the market of outputs: the ability of customers to put the firm under pressure, which also affects the customers sensitivity to price changes.

4. Bargaining power of suppliers The bargaining power of suppliers is also described as the market of inputs. Suppliers of raw materials, components, labor, and services (such as expertise) to the firm can be a source of power over the firm, when there are few substitutes. Suppliers may refuse to work with the firm, or, e.g., charge excessively high prices for unique resources. 5. Intensity of competitive rivalry For most industries, the intensity of competitive rivalry is the major determinant of the competitiveness of the industry

4. What is strategic formulation and what are its processes?

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 objective is to express strategically information to achieve a definite goal. The following are the features of strategy formulation: Defining the corporate mission and goals Specifying achievable objectives Developing strategies Setting company policy guidelines Systematic approach to strategic decision making process Strategic decision making is a tool to do business in a smarter way. It enhances a managers abilities to obtain insight of strategic decision making problems and to do justice by extracting their decision making skills. An individual takes the first step towards decision making by dividing decision problems into more manageable fragments and explicitly considering the possible options. Effective decision making involves the following six steps Steps of Strategic Decision Making Process 1) Creating a constructive environment As a strategist, you must do the following to create a constructive environment: i. ii. iii. iv. Establish the objectives Define what you want to achieve . Agree on the process You must focus on the final decision, which is made after establishing the objective. Involve the right people Make sure you have the right team of people. Allow opinions to be heard Encourage participants to contribute in discussions, debates and analyze.

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Need to ask the right question Ask yourself whether you are questioning the right issue or not. Use creativity tools from the beginning Apply creativity bethinking from a different perspective and angle.

2) Generating good alternatives When you generate alternatives, you force yourself to view the problem from different angles, which in turn gives you effective results. Some of the techniques are as follows: i. ii. Brainstorming It is an effective process which develops creative solutions to problems and enhances the productivity of theorganisation Generating ideas from a large number of people Everybodys ideas must be heard and given equal weightage, irrespective of the persons position or power within the organization Inviting others Asking outsiders to join the discussion


3) Exploring the chosen alternatives-When you are satisfied with your collection of realistic alternatives, you can evaluate the feasibility, risk and the implications of each choice. Few factors that need to be considered when the alternatives are explored are as follows: i. Risk In decision making, there is usually some degree of uncertainty, which leads to risk. By evaluating it, you can determine whether the risk is manageable or not.


Implications Another way to look at your options is to consider the potential consequences of each alternative. iii. Validation Exploring the resources leads to a validity check of the product 4) Choosing the best alternative-After you have evaluated the alternatives, choose the best among the available choices. Take your valuable time to do so 5) Checking and confirming your decision-You must be sure that common errors have not crept into the decision making process, so check your decisions properly. This includes methodical testing of the assumptions and thoroughly reviewing the same 6) Communicate your decision and move to action-After you have made your decision, it is important to explain it to others and start implementing it Process in Strategy Formulation The main processes involved in strategy formulation are as follows: 1. Stimulate the identification - Identifying useful information like planning for strategic management, objectives to achieve the goals of the employees and the stakeholders. 2. Utilization and transfer of useful information as per the business strategies - Number of questions arising during utilization and transfer of information have to be solved The questions that arise during utilization and transfer of information are the following: 3. Who has the requested information? 4. What is the relationship between the partners who holds the requested information? 5. What is the nature of the requested information?

6. How can we transfer the information?

5. Explain strategic evaluation and its significance.

Strategic evaluation and control consists of data and reports about the performance of the organization. Improper analysis, planning or implementation of the strategies will result in negative performance of the organization. The top management needs to be updated about the performance to take corrective actions for controlling the undesired performance. Strategic evaluation consists of performance and activity reports. If performance results are beyond the tolerance range, new implementation procedures are introduced. One 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. Significance of effective strategic evaluation The strategic-evaluation process with constantly updated corrective actions results in significant and long-lasting consequences. Strategy evaluation is vital to an organizations 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. Frequent strategic evaluation activities can control the negative consequences of the environmental complexity and instability issues. Success today does not guarantee success tomorrow! However, the frequencies of strategic evaluation performed were surprisingly found to be vice-versa in stable and unstable industries. Management in dynamic industries seems to have performed fewer strategic evaluation activities when compared to those in stable industries. Lindsay and Rue 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 6. Define the term Business policy. Explain its importance.

Business policies are the instructions laid by an organization to manage its activities. It identifies the range within which the subordinates can take decisions in an organization. It authorizes 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. Business policy involves the acquirement of resources through which the organizational goals can be achieved. Business policy analyses roles and responsibilities of top-level management and the decisions affecting the organization in the long-run. It also deals with the major issues that affect the success of the organization. "A Business Policy is a predefined course of action set up by top level management to provide guidance towards business strategies and objectives. It identifies the fundamental activities and

provides strategic ways to handle different issues. It recommends the manner in which the objectives are achieved." Importance of Business Policies A company operates consistently, both internally and externally when the policies are established. Business policies should be set up before hiring the first employee in the organization. It deals with the constraints of real-life business. It is important to formulate policies to achieve the organizational objectives. The policies are articulated by the management. Policies serve as a guidance to administer activities that are repetitive in nature. It channels the thinking and action in decision making. It is mechanism adopted by the top management to ensure that the activities are performed in the desired way. The complete process of management is organized by business policies. Business policies are important due to the following reasons: Coordination Reliable policies coordinate the purpose by focusing on organizational activities. This helps in ensuring uniformity of action throughout the organization. Policies encourage cooperation and promote initiative. Quick decisions Policies 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. Every 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 Policies provide logical basis for assessing performance. They ensure that the activities are synchronized with the objectives of the organization. It prevents divergence from the planned course of action. The management tends to deviate from the objective if policies are not defined precisely. This affects the overall efficiency of the organization. Policies are derived objectives and provide the outline for procedures. Decentralization Well defined policies help in decentralization 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. Policies provide guidelines to the executives to help Them in determining the suitable actions which are within the limits of the stated policies. Policies contribute in building coordination in larger organizations