Description
Smu assignment for MBA 4th sem
MB0052- Strategic Management and Business Policy
Q. 1) What is strategy? Explain some of the major reasons for lack of strategic management in some companies? Ans. The word strategy comes from Greek strategies, which refers to a military general & combines status (the army) & ago (to lead). The concept & practice of strategy & planning started in the military & over time, It entered business & management. The key & common objective of both business strategy & military strategy is the same i.e. to source competitive advantage over the rivals or opponents. Definition of strategy: According to author Chandler(1962): The determination of the basic long-term goals & objectives of an enterprise & the adoption of the course of action & the allocation of resources necessary for carrying out these goals. Lack of strategic management in some companies: Some companies do not undertake strategic planning & management. Some other companies do strategic planning, but receive no support from managers & employees. In some other cases managers & employees do not get enough support from the top management. A number of such & other reasons explains why certain companies do not take to strategic planning & management. David (2003) has mentioned various reason for poor or no strategic planning & management by companies. These are as discussed below: i. Poor reward structure: When an organization achieves success, it often fails to rewards it managers or planners. But when failure occurs the company may punish the managers concerned. In such a situation, it is better for individual managers to do nothing than to risk trying to achieve something, fail & be punished. Content with success: If an organization is generally successful, the top management or individual managers may feel that there is no need to plan & strategize because everything is fine. However they forget that success today does not guarantee success tomorrow. Overconfidence: As managers gain experience, they may rely less on formalized planning & more on individual initiative & decisions. But that is not appropriate. Overconfidence or overestimating experience leads to complacency & ultimately can bring downfall. Forethought & planning are the right virtues & are sign of professionalism. Waste of time: Some organizations view planning as a waste of time because no tangible marketable products are produced through planning. But they forget that time spent on planning Is an investment, & there would be returns, both tangible & intangible, in due course. Previous bad experience: Managers may have had previous bad experience with planning, that is, case in which plans have been cumbersome, impractical or inflexible. There could be experience of failure also. They would like to avoid recurrence of this. Self Interest: When management has achieved status, privilege or self-esteem through effectively using an old system, t often sees a new plan or new system as unnecessary or a threat . Fear of Failure: Whenever something new or different is attempted, there is a chance of success, but, there is also risk of failure. Many companies & managers may like to avoid strategic planning & management for fear of failure. Suspicion: Employees may not trust management, or, the management may not have enough confidence in the managers. This gives rise to mutual suspicion.
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Q.2) Explain the following: (a) Core competence (b) Value chain analysis Ans. (a) Core Competence: Core competence of a company is one of its special or unique internal competence. Core competence is not just a single strength or skill or capability of a company. It is ‘interwoven resources, technology and
skill’ or synergy culminating into a special or core competence. Core competence gives a company a clear competitive advantage over its competitors. 3M’s core competence is in sticky tape technology; Jvc in video tape technology; ITC’s in tobacco & cigarettes & Godrej’s in locks & storewels. Hamel & Prahalad, (HBR, 1990) explain that the central building block of the corporate strategy is core competence. They define core competence as the combination of individual technologies & Production skills that underlie a company’s product lines. According to them Sony utilizes its core competence in miniaturization to manufacture a range of products: Sony Walkman to video cameras to notebook computer. Canon’s core competence in optics, imaging and laser controls has enabled it to enter markets as seemingly diverse as copiers, laser printers, cameras and image scanners. A particular competence level of a company can become its core competence if it meets three criteria:
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It should relate to an activity or process, where naturally underlies the value in the product or service as observed by the customer. It should lead to a level of performance in a product or process which is significantly better than those of competitors. It should be robust, i.e., difficult for competitors to imitate.
Core competence focuses predominantly on the product or process and technology. There are two problems with this approach:
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First, strong and aggressive competitors may develop, either through parallel innovations or imitations, similar products or processes which are highly competitive. Second, to secure competitive advantage product, process or technology or technological innovation should be fully supported with capabilities in the areas like resource or financial management, cost management, marketing, and logistics etc.
(b) Value chain analysis: Michael Porter (1985) introduced the concept of value of chain analysis. Now it has become common for professional companies to do this analysis. Value chain analysis helps in understanding how value is created in organizations through various activities. These activities can be divided into two broad categories: primary activities and support activities. Since each of these activities is expected to create value when it is performed, the chain can appropriately be called a value chain. Primary activities can be divided into five major areas:
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Inbound logistics: Activities concerned with receiving, storing & distributing raw materials & inputs to the production or service division. Operations: Activities involved in transforming various inputs in to final product or service, machinery, packing, assembly, testing etc. Outbound logistics: This includes collecting, storing & distributing or delivering final products to customers. For tangible products, warehousing, material handling, transportation etc. In case of service it is concerned with arrangements for bringing customers close to the service location (e.g., sports, events, entertainment events etc.). Marketing and sales: It provides the most important link between the company & the customers. These comprise activities such as advertising, sale promotion, personal selling, pricing, channel selection & management etc. Service: These includes activities which maintain or enhance value of a product or service such as installation, repair, training, supply of spares & after sales service etc.
Support activities support the primary activities, or help to improve the ‘effectiveness or efficiency’ of primary activities. It can be divided into four categories:
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Procurement: This relates to the process for acquiring or purchasing various resource inputs like raw materials, intermediate inputs, machinery & equipment etc. It depends on inbound logistics & operations. Technology development: Technology is involved in value creations. Technology mainly supports operations. Key technologies are concerned directly with the product (e.g., R&D, product design, quality control, etc.) or with process, (e.g., process development). It is fundamental to the innovative capacity of an organization. Human resource management: This support all primary activities in the work force or human capital. Organizational infrastructure: Infrastructure directly or indirectly supports all primary activities. This is the organizational system including finance, MIS, general management, strategic planning, organizational structures, values & culture.
Competences or activities can contribute to customer value in two ways in the value chain.
First is a competence in individual activities (for example, operations or production or marketing). Second is the competence in linking activities together. In using the value chain, an organization should concentrate on two aspects.
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It should ascertain how different activities performed so that contribution of each activity to organizational objectives or goals can be measured. It should ensure the coordination or integration of various activities into a cohesive value chain.
Q. 3) Describe in brief the following environmental factors which a business strategist considers: (a) Political factors (b) Technology Ans. (a) 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 have affected business conditions. Rubock (1971) has developed an analytical framework for identifying and assessing political risks which may affect business conditions. Sources of political risks can be many. Major risk factors identified by Rubock are: electoral majority of the party in power; internal dissensions within the
ruling party; strengths of the parliamentary opposition parties; conflicting political ideologies; insurgencies in border areas, international power alignments and alliances, etc. IT companies have found Hyderabad, nicknamed by the media as ‘Cyberabad’, to be the most hospitable location for development of IT, mostly because of highly supportive political climate. Chandrababu had taken keen personal interest in IT; and, had encouraged and ensured use of IT in governance by simplifying rules and procedures, offering concessions and building good supportive infrastructure. The AyodhyaBabri Masjid episode became a political issue and provoked violence in different parts of the country, and caused serious law and order problems during December,1992 and January 1993. Apart from the apprehensions of political instability, the events disrupted transport, slowed down industrial production and growth of exports. (b) 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 caneduced government revenue 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. In a different way, technological developments affect a company’s raw material, packaging, operations, products and services. For example, developments in the plastics and packaging industry have brought in new packaging in the form of tetrapacks, pet bottles, cellophane, etc. This has made the packing more attractive, carrying of the product more convenient and has definitely reduced the cost of packaging and the product. Similarly, containerized movement of cargo, deep freezers and trawlers have influenced the operations of the companies. Technological development also provides an opportunity to companies to develop new products. On the other hand, companies which ignore these developments face a crisis and eventually may even face extinction. The Indian automobile industry gives a good illustration. With the introduction of Maruti 800 which caught the imagination of consumers, Hindustan Motors (Ambassador) and Premier Automobiles (Padmini) had to improve their vehicle performances in terms of fuel efficiency, driving comfort, aesthetic appeal, etc. But what they did was to bring in peripheral changes only and those were not enough. Q-4) Write a brief note on Turnaround strategy? Ans. Corporate turnaround may be defined as organizational recovery from business decline or crisis.
Business decline for a company means:
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continuous fall in turnover or revenue erosion of profit accumulation of losses
Turnaround strategies are required for crisis situations. If organizational decline is not continuous or severe, corporate restructuring can provide the solutions. Thus, turnaround strategy may be said to be an extension of restructuring strategy. Major drivers for a turnaround strategy are: declining market share ? continuous negative cash flow ? growing losses ? surging debt ? falling share price in a steady market ? mismanagement and low morale With some or all these symptoms becoming clearly visible for a company, a turnaround or recovery becomes highly imperative. But, the situation should be carefully reviewed to assess the extent of recovery possible before undertaking any such programmes. Given a strategy, in some situations, recovery may be more or less successful than in others. Slatter (1984) contends that there are four recovery situations in terms of feasibility or success. These situations are: ? Realistically non-recoverable situation: Chances of survival are very little, the potential for improvement is low, clear cost disadvantage exist & demand for the company’s product is in decline stage. ? Temporary recovery situation: It exists when there can be initial successful recovery, but, sustained turnaround is not possible. Some cost reduction programmes may be successful, & revenue generation is also possible at least form some time. ? Sustained survival situation: It means that recovery is possible but potential for future growth does not exist. ? Sustained recovery situation: It is one in which successful turnaround is possible for sustained growth. In such cases, business decline might have been caused by internal organizational factors or external or environmental conditions. Surgical Turnaround and Non-surgical Turnaround The surgical method, more commonly practiced in the West, involves sweeping changes like firing of staff, managers, wholesale reshuffling of portfolios, closing down operations, etc. Some call it bloodbath or bloodshed. Non-surgical turnaround adopts the opposite approach, that is, peaceful means—revamping or recovery through meetings, discussions, persuasions, consensus, etc. The operations in surgical turnaround are like this: the first step is to replace the chief executive of the ailing company by a new ‘iron’ chief. The new chief promptly gets into action; he asserts his authority. He issues pre -emptory orders, centralizes functions and spears some convenient scapegoats. Then he goes about firing employees en masse and auctioning/selling whole plants and divisions ‘until the fat is satisfactorily cut to the bone’. The bloodbath over, the product mix is revamped, obsolete machinery is replaced, marketing is strengthened, controls are toughened, accountability for performance is focussed and so on. How ‘bloody’ this sort of turnaround can be may be seen from the examples of companies like the US video games manufacturer Atari, which, among other actions, cut its labour force by two-thirds to 3500 to turn itself around. At British Leyland, 84,000 employees (40 per cent) were axed to complete the surgery. At GE, 1,00, 000 of a workforce of 4,00, 000 lost their jobs; at Imperial Chemical Industries (ICI), the labour force was reduced from 90,000 to 59, 000; half the staff at Chrysler Corporation disappeared; at British Steel, half the company’s production capacity and 80 per cent of workforce were gone. 10 Turnaround management of the humane type may involve negotiated and humane layoffs and divestiture, but, not a bloodbath. This type of turnaround also is generally brought about by the new helmsman. But, he spends a great deal of time in trying to understand organizational problems and deliberating on them. He takes all the stakeholders including unions into confidence; forms
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groups within the organization to brainstorm together on what needs to be done to get over the crisis; tries to create a new work culture; and, generally infuses a strong sense of participation among the employees and many critical decisions become participative decisions. Q-5) Define the term ‘strategic alliance’. What are its characteristics and objectives? Ans. Strategic alliance may be defined as cooperation between two or more organizations with a common objective, shared control and contributions (in terms of resources, skills and capabilities) by the partners for mutual benefit. This definition can be expanded and made more comprehensive in terms of essential features or characteristics of strategic alliance. A typical strategic alliance exhibits five essential features or characteristics: (a) Two or more organizations join together to pursue a defined objective or goal during a specified period, but, remain organizationally independent entities; (b) The organizations pool their resources and investments and also share risks for their mutual (and not individual) interest/benefit; (c) The alliance partners contribute, on a continuing basis, in one or more strategic areas like technology, process, product, design, etc; (d) The relationship among the partners is reciprocal with partners sharing specific individual strengths or capabilities to render power to the alliance; (e) The partners jointly exercise control over the performance or progress of the arrangement with regard to the defined goal or objective and share the benefits or results collectively. Objectives and Forms of Strategic Alliance The basic objective behind all strategic alliances is to secure competitive or strategic advantage in the market. All strategic alliances have long-term objective or purpose. Many companies realize that they do not possess adequate resources—financial and managerial—to pursue an innovation, develop a new product or technology. They look towards other organizations to supplement or augment their resources or capabilities for the fulfilment of their objective. It can also be a functional area where they have very little expertise. Different authors have analysed the objectives or purposes or reasons for strategic alliance. Six objectives or purposes are more commonly observed: (a) Development of a new product: In the pharmaceutical industry, new product development takes place on a continuous basis, and, in this, many strategic alliances are formed between pharmaceutical companies and research laboratories and institutions for R&D. We have already given the example of Boeing and their Japanese partners. (b) Development of a new technology: Development of technology is a long- term process, and, also, many times, involves considerable cost. Collaboration leverages the resources and technical expertise of two or more companies. (c) Reducing manufacturing cost: Co-production, common in the pharmaceutical industry, is a good form of strategic alliance to reduce manufacturing cost through economies of scale. (d) Entering new markets: This is often the objective in international business. Many foreign companies enter into strategic alliances with some local companies (host country) to enter into and establish themselves in that country. ‘Piggybacking’ is a common form of strategic alliance. Some of the Japanese electronic manufacturing companies like Matsushita Electricals, during their initial years, had entered into strategic alliances with some US electrical or electronic manufacturers for entering into the US market.
(e) Marketing and Sales: This is common in both national and international business. Many manufacturers in India have marketing and sales arrangements with companies like MMTC and Tata Exports for both domestic and international marketing. (f) Distribution: In pharmaceutical and other industries where distribution represents high fixed cost, potential competitors swap their products for distribution in the respective markets where they have well-established distribution systems. Many such alliances exist between the US and Japanese pharmaceutical companies. Strategic alliances are non-equity based, i.e., none of the parties invest any equity capital in such alliances. But, funding is involved and funding can be by one of the parties or all of them. The nature of funding depends on the type of strategic alliance, i.e., whether new product development, technology development or transfer, marketing or sales, etc., and also the parties involved. Q-6) Write short notes on the following: a) Competitive advantage b) Porter’s Competitive threat model ? Ans. a) Competitive advantage: Competitive advantage, also called strategic advantage, is essentially a position of superiority of an organization in relation to its competitors. A more formal definition of competitive advantage is: P D Bennett define that competitive advantage exists when there is a match between the distinctive competences of a firm and the factors critical for success within its industry that permits the firms to outperform competitors. The definition shows that superiority of a company over its competitors exists because the company has developed some unique competence—core competence or distinctive competence—which matches the environmental factors or success factors in the industry in a better way than the capabilities of competitors.. South (1981) has given a definition of competitive advantage which also gives a good perspective: ‘The process of strategic management is coming to be defined, in fact, as the management of competitive advantage, that is, a process of identifying, developing and taking advantage of enclaves in which a tangible and preservable business advantage can be achieved. Developing Competitive Advantage Competitive advantage can be secured through two primary routes: Product manufacturing route: The product manufacturing route reflects core competences, special capabilities, superior product design, etc. Marketing route: The marketing route reflects marketing mix application, positioning, offering a bundle of benefits or value to the customer.
Why to compete Product strategy Pricing strategy Promotion Strategy Distribution Strategy (Marketing Mix)
How to compete (basis) Business assets & skill
Competitive Advantage
Where to compete Product- market selection Whom to compete against Product-market selection
For securing competitive advantage, there are three important factors that a corporate strategy should be based on.
The first important factor is that corporate strategy should be based on appropriate assets, skills and capabilities. The second factor is the choice of the target product-market. The third important factor for competitive advantage is competitor position. b) Porter’s Competitive threat model: 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 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: productfor-product substitution, substitution of need and generic substitution, ? 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. ? 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. ? 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. We have the examples of Padmini (earlier Fiat) cars, HMT watches, Weston TV, etc.
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Smu assignment for MBA 4th sem
MB0052- Strategic Management and Business Policy
Q. 1) What is strategy? Explain some of the major reasons for lack of strategic management in some companies? Ans. The word strategy comes from Greek strategies, which refers to a military general & combines status (the army) & ago (to lead). The concept & practice of strategy & planning started in the military & over time, It entered business & management. The key & common objective of both business strategy & military strategy is the same i.e. to source competitive advantage over the rivals or opponents. Definition of strategy: According to author Chandler(1962): The determination of the basic long-term goals & objectives of an enterprise & the adoption of the course of action & the allocation of resources necessary for carrying out these goals. Lack of strategic management in some companies: Some companies do not undertake strategic planning & management. Some other companies do strategic planning, but receive no support from managers & employees. In some other cases managers & employees do not get enough support from the top management. A number of such & other reasons explains why certain companies do not take to strategic planning & management. David (2003) has mentioned various reason for poor or no strategic planning & management by companies. These are as discussed below: i. Poor reward structure: When an organization achieves success, it often fails to rewards it managers or planners. But when failure occurs the company may punish the managers concerned. In such a situation, it is better for individual managers to do nothing than to risk trying to achieve something, fail & be punished. Content with success: If an organization is generally successful, the top management or individual managers may feel that there is no need to plan & strategize because everything is fine. However they forget that success today does not guarantee success tomorrow. Overconfidence: As managers gain experience, they may rely less on formalized planning & more on individual initiative & decisions. But that is not appropriate. Overconfidence or overestimating experience leads to complacency & ultimately can bring downfall. Forethought & planning are the right virtues & are sign of professionalism. Waste of time: Some organizations view planning as a waste of time because no tangible marketable products are produced through planning. But they forget that time spent on planning Is an investment, & there would be returns, both tangible & intangible, in due course. Previous bad experience: Managers may have had previous bad experience with planning, that is, case in which plans have been cumbersome, impractical or inflexible. There could be experience of failure also. They would like to avoid recurrence of this. Self Interest: When management has achieved status, privilege or self-esteem through effectively using an old system, t often sees a new plan or new system as unnecessary or a threat . Fear of Failure: Whenever something new or different is attempted, there is a chance of success, but, there is also risk of failure. Many companies & managers may like to avoid strategic planning & management for fear of failure. Suspicion: Employees may not trust management, or, the management may not have enough confidence in the managers. This gives rise to mutual suspicion.
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Q.2) Explain the following: (a) Core competence (b) Value chain analysis Ans. (a) Core Competence: Core competence of a company is one of its special or unique internal competence. Core competence is not just a single strength or skill or capability of a company. It is ‘interwoven resources, technology and
skill’ or synergy culminating into a special or core competence. Core competence gives a company a clear competitive advantage over its competitors. 3M’s core competence is in sticky tape technology; Jvc in video tape technology; ITC’s in tobacco & cigarettes & Godrej’s in locks & storewels. Hamel & Prahalad, (HBR, 1990) explain that the central building block of the corporate strategy is core competence. They define core competence as the combination of individual technologies & Production skills that underlie a company’s product lines. According to them Sony utilizes its core competence in miniaturization to manufacture a range of products: Sony Walkman to video cameras to notebook computer. Canon’s core competence in optics, imaging and laser controls has enabled it to enter markets as seemingly diverse as copiers, laser printers, cameras and image scanners. A particular competence level of a company can become its core competence if it meets three criteria:
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It should relate to an activity or process, where naturally underlies the value in the product or service as observed by the customer. It should lead to a level of performance in a product or process which is significantly better than those of competitors. It should be robust, i.e., difficult for competitors to imitate.
Core competence focuses predominantly on the product or process and technology. There are two problems with this approach:
? ?
First, strong and aggressive competitors may develop, either through parallel innovations or imitations, similar products or processes which are highly competitive. Second, to secure competitive advantage product, process or technology or technological innovation should be fully supported with capabilities in the areas like resource or financial management, cost management, marketing, and logistics etc.
(b) Value chain analysis: Michael Porter (1985) introduced the concept of value of chain analysis. Now it has become common for professional companies to do this analysis. Value chain analysis helps in understanding how value is created in organizations through various activities. These activities can be divided into two broad categories: primary activities and support activities. Since each of these activities is expected to create value when it is performed, the chain can appropriately be called a value chain. Primary activities can be divided into five major areas:
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Inbound logistics: Activities concerned with receiving, storing & distributing raw materials & inputs to the production or service division. Operations: Activities involved in transforming various inputs in to final product or service, machinery, packing, assembly, testing etc. Outbound logistics: This includes collecting, storing & distributing or delivering final products to customers. For tangible products, warehousing, material handling, transportation etc. In case of service it is concerned with arrangements for bringing customers close to the service location (e.g., sports, events, entertainment events etc.). Marketing and sales: It provides the most important link between the company & the customers. These comprise activities such as advertising, sale promotion, personal selling, pricing, channel selection & management etc. Service: These includes activities which maintain or enhance value of a product or service such as installation, repair, training, supply of spares & after sales service etc.
Support activities support the primary activities, or help to improve the ‘effectiveness or efficiency’ of primary activities. It can be divided into four categories:
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Procurement: This relates to the process for acquiring or purchasing various resource inputs like raw materials, intermediate inputs, machinery & equipment etc. It depends on inbound logistics & operations. Technology development: Technology is involved in value creations. Technology mainly supports operations. Key technologies are concerned directly with the product (e.g., R&D, product design, quality control, etc.) or with process, (e.g., process development). It is fundamental to the innovative capacity of an organization. Human resource management: This support all primary activities in the work force or human capital. Organizational infrastructure: Infrastructure directly or indirectly supports all primary activities. This is the organizational system including finance, MIS, general management, strategic planning, organizational structures, values & culture.
Competences or activities can contribute to customer value in two ways in the value chain.
First is a competence in individual activities (for example, operations or production or marketing). Second is the competence in linking activities together. In using the value chain, an organization should concentrate on two aspects.
? ?
It should ascertain how different activities performed so that contribution of each activity to organizational objectives or goals can be measured. It should ensure the coordination or integration of various activities into a cohesive value chain.
Q. 3) Describe in brief the following environmental factors which a business strategist considers: (a) Political factors (b) Technology Ans. (a) 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 have affected business conditions. Rubock (1971) has developed an analytical framework for identifying and assessing political risks which may affect business conditions. Sources of political risks can be many. Major risk factors identified by Rubock are: electoral majority of the party in power; internal dissensions within the
ruling party; strengths of the parliamentary opposition parties; conflicting political ideologies; insurgencies in border areas, international power alignments and alliances, etc. IT companies have found Hyderabad, nicknamed by the media as ‘Cyberabad’, to be the most hospitable location for development of IT, mostly because of highly supportive political climate. Chandrababu had taken keen personal interest in IT; and, had encouraged and ensured use of IT in governance by simplifying rules and procedures, offering concessions and building good supportive infrastructure. The AyodhyaBabri Masjid episode became a political issue and provoked violence in different parts of the country, and caused serious law and order problems during December,1992 and January 1993. Apart from the apprehensions of political instability, the events disrupted transport, slowed down industrial production and growth of exports. (b) 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 caneduced government revenue 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. In a different way, technological developments affect a company’s raw material, packaging, operations, products and services. For example, developments in the plastics and packaging industry have brought in new packaging in the form of tetrapacks, pet bottles, cellophane, etc. This has made the packing more attractive, carrying of the product more convenient and has definitely reduced the cost of packaging and the product. Similarly, containerized movement of cargo, deep freezers and trawlers have influenced the operations of the companies. Technological development also provides an opportunity to companies to develop new products. On the other hand, companies which ignore these developments face a crisis and eventually may even face extinction. The Indian automobile industry gives a good illustration. With the introduction of Maruti 800 which caught the imagination of consumers, Hindustan Motors (Ambassador) and Premier Automobiles (Padmini) had to improve their vehicle performances in terms of fuel efficiency, driving comfort, aesthetic appeal, etc. But what they did was to bring in peripheral changes only and those were not enough. Q-4) Write a brief note on Turnaround strategy? Ans. Corporate turnaround may be defined as organizational recovery from business decline or crisis.
Business decline for a company means:
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continuous fall in turnover or revenue erosion of profit accumulation of losses
Turnaround strategies are required for crisis situations. If organizational decline is not continuous or severe, corporate restructuring can provide the solutions. Thus, turnaround strategy may be said to be an extension of restructuring strategy. Major drivers for a turnaround strategy are: declining market share ? continuous negative cash flow ? growing losses ? surging debt ? falling share price in a steady market ? mismanagement and low morale With some or all these symptoms becoming clearly visible for a company, a turnaround or recovery becomes highly imperative. But, the situation should be carefully reviewed to assess the extent of recovery possible before undertaking any such programmes. Given a strategy, in some situations, recovery may be more or less successful than in others. Slatter (1984) contends that there are four recovery situations in terms of feasibility or success. These situations are: ? Realistically non-recoverable situation: Chances of survival are very little, the potential for improvement is low, clear cost disadvantage exist & demand for the company’s product is in decline stage. ? Temporary recovery situation: It exists when there can be initial successful recovery, but, sustained turnaround is not possible. Some cost reduction programmes may be successful, & revenue generation is also possible at least form some time. ? Sustained survival situation: It means that recovery is possible but potential for future growth does not exist. ? Sustained recovery situation: It is one in which successful turnaround is possible for sustained growth. In such cases, business decline might have been caused by internal organizational factors or external or environmental conditions. Surgical Turnaround and Non-surgical Turnaround The surgical method, more commonly practiced in the West, involves sweeping changes like firing of staff, managers, wholesale reshuffling of portfolios, closing down operations, etc. Some call it bloodbath or bloodshed. Non-surgical turnaround adopts the opposite approach, that is, peaceful means—revamping or recovery through meetings, discussions, persuasions, consensus, etc. The operations in surgical turnaround are like this: the first step is to replace the chief executive of the ailing company by a new ‘iron’ chief. The new chief promptly gets into action; he asserts his authority. He issues pre -emptory orders, centralizes functions and spears some convenient scapegoats. Then he goes about firing employees en masse and auctioning/selling whole plants and divisions ‘until the fat is satisfactorily cut to the bone’. The bloodbath over, the product mix is revamped, obsolete machinery is replaced, marketing is strengthened, controls are toughened, accountability for performance is focussed and so on. How ‘bloody’ this sort of turnaround can be may be seen from the examples of companies like the US video games manufacturer Atari, which, among other actions, cut its labour force by two-thirds to 3500 to turn itself around. At British Leyland, 84,000 employees (40 per cent) were axed to complete the surgery. At GE, 1,00, 000 of a workforce of 4,00, 000 lost their jobs; at Imperial Chemical Industries (ICI), the labour force was reduced from 90,000 to 59, 000; half the staff at Chrysler Corporation disappeared; at British Steel, half the company’s production capacity and 80 per cent of workforce were gone. 10 Turnaround management of the humane type may involve negotiated and humane layoffs and divestiture, but, not a bloodbath. This type of turnaround also is generally brought about by the new helmsman. But, he spends a great deal of time in trying to understand organizational problems and deliberating on them. He takes all the stakeholders including unions into confidence; forms
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groups within the organization to brainstorm together on what needs to be done to get over the crisis; tries to create a new work culture; and, generally infuses a strong sense of participation among the employees and many critical decisions become participative decisions. Q-5) Define the term ‘strategic alliance’. What are its characteristics and objectives? Ans. Strategic alliance may be defined as cooperation between two or more organizations with a common objective, shared control and contributions (in terms of resources, skills and capabilities) by the partners for mutual benefit. This definition can be expanded and made more comprehensive in terms of essential features or characteristics of strategic alliance. A typical strategic alliance exhibits five essential features or characteristics: (a) Two or more organizations join together to pursue a defined objective or goal during a specified period, but, remain organizationally independent entities; (b) The organizations pool their resources and investments and also share risks for their mutual (and not individual) interest/benefit; (c) The alliance partners contribute, on a continuing basis, in one or more strategic areas like technology, process, product, design, etc; (d) The relationship among the partners is reciprocal with partners sharing specific individual strengths or capabilities to render power to the alliance; (e) The partners jointly exercise control over the performance or progress of the arrangement with regard to the defined goal or objective and share the benefits or results collectively. Objectives and Forms of Strategic Alliance The basic objective behind all strategic alliances is to secure competitive or strategic advantage in the market. All strategic alliances have long-term objective or purpose. Many companies realize that they do not possess adequate resources—financial and managerial—to pursue an innovation, develop a new product or technology. They look towards other organizations to supplement or augment their resources or capabilities for the fulfilment of their objective. It can also be a functional area where they have very little expertise. Different authors have analysed the objectives or purposes or reasons for strategic alliance. Six objectives or purposes are more commonly observed: (a) Development of a new product: In the pharmaceutical industry, new product development takes place on a continuous basis, and, in this, many strategic alliances are formed between pharmaceutical companies and research laboratories and institutions for R&D. We have already given the example of Boeing and their Japanese partners. (b) Development of a new technology: Development of technology is a long- term process, and, also, many times, involves considerable cost. Collaboration leverages the resources and technical expertise of two or more companies. (c) Reducing manufacturing cost: Co-production, common in the pharmaceutical industry, is a good form of strategic alliance to reduce manufacturing cost through economies of scale. (d) Entering new markets: This is often the objective in international business. Many foreign companies enter into strategic alliances with some local companies (host country) to enter into and establish themselves in that country. ‘Piggybacking’ is a common form of strategic alliance. Some of the Japanese electronic manufacturing companies like Matsushita Electricals, during their initial years, had entered into strategic alliances with some US electrical or electronic manufacturers for entering into the US market.
(e) Marketing and Sales: This is common in both national and international business. Many manufacturers in India have marketing and sales arrangements with companies like MMTC and Tata Exports for both domestic and international marketing. (f) Distribution: In pharmaceutical and other industries where distribution represents high fixed cost, potential competitors swap their products for distribution in the respective markets where they have well-established distribution systems. Many such alliances exist between the US and Japanese pharmaceutical companies. Strategic alliances are non-equity based, i.e., none of the parties invest any equity capital in such alliances. But, funding is involved and funding can be by one of the parties or all of them. The nature of funding depends on the type of strategic alliance, i.e., whether new product development, technology development or transfer, marketing or sales, etc., and also the parties involved. Q-6) Write short notes on the following: a) Competitive advantage b) Porter’s Competitive threat model ? Ans. a) Competitive advantage: Competitive advantage, also called strategic advantage, is essentially a position of superiority of an organization in relation to its competitors. A more formal definition of competitive advantage is: P D Bennett define that competitive advantage exists when there is a match between the distinctive competences of a firm and the factors critical for success within its industry that permits the firms to outperform competitors. The definition shows that superiority of a company over its competitors exists because the company has developed some unique competence—core competence or distinctive competence—which matches the environmental factors or success factors in the industry in a better way than the capabilities of competitors.. South (1981) has given a definition of competitive advantage which also gives a good perspective: ‘The process of strategic management is coming to be defined, in fact, as the management of competitive advantage, that is, a process of identifying, developing and taking advantage of enclaves in which a tangible and preservable business advantage can be achieved. Developing Competitive Advantage Competitive advantage can be secured through two primary routes: Product manufacturing route: The product manufacturing route reflects core competences, special capabilities, superior product design, etc. Marketing route: The marketing route reflects marketing mix application, positioning, offering a bundle of benefits or value to the customer.
Why to compete Product strategy Pricing strategy Promotion Strategy Distribution Strategy (Marketing Mix)
How to compete (basis) Business assets & skill
Competitive Advantage
Where to compete Product- market selection Whom to compete against Product-market selection
For securing competitive advantage, there are three important factors that a corporate strategy should be based on.
The first important factor is that corporate strategy should be based on appropriate assets, skills and capabilities. The second factor is the choice of the target product-market. The third important factor for competitive advantage is competitor position. b) Porter’s Competitive threat model: 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 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: productfor-product substitution, substitution of need and generic substitution, ? 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. ? 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. ? 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. We have the examples of Padmini (earlier Fiat) cars, HMT watches, Weston TV, etc.
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