MB0052 GÇô Strategic Management and Business Policy

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Master of Business Administration

MB0052Strategic Management and Business Policy

Assignment Set - 1

1. What is meant by Strategy? Differentiate between goals and objectives.

Strategy is a common direction set for the company and its variouscomponents to accomplish a desired position in the future. A meticulous planningprocess results in strategy. It is the comprehension of the goals which has logical stepby step process. It defines the general mission and vision of an organisation. It isimportant to consider that the decisions taken by an organisation are likely to affectthe employees, customers and competitors.Strategy guides the organisation to achieve a long term goal. The strategy isadvantageous to the organisation through its configuration of resources within achallenging environment. It helps to meet the requirements of market and stakeholder

expectations.Strategy is a plan that is aimed to give a competitive advantage to the organisationover rivals through differentiation. Creating a strategy begins with extensive researchand analysis. It is a process through which senior management concentrates on toppriority issues tackled by the company to be successful in a long term.It is the design of decisions in an organisation that sets its goals and plans to achieveit. The organisation plans the future goals to contribute at large to its shareholders,customers and to the society. Strategy is always improving and is amendable. It is aplan of future activities which is aimed at the progress of an organisation. It is a set ofdirections to enhance the position of the organisation in the overall market. Businessstrategy is the method by which an organisation achieves and maintains its success. Ifan organisation cannot identify its strategy clearly then it will struggle to survive inthe competitive market. A steadfast strategy should be built to grow in the market.A fundamental concept is required to direct an organisation to create a sustainable andsuccessful plan. The organisation must understand the customer requirements andrelate to its customers for the success of business strategy. This understanding shouldbe based on the attitude of the organisation to progress rather than focusing on aspecific competitor or on current objectives. It is from this principle that the otherobjectives follow.Business strategy is used to achieve competitive advantage. The efficientdevelopment and implementation of strategy depends on the capability of the

organisation. This includes the ability to prepare the strategic goals and implement theplans through strategic management.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 beachieved in a business. Goals are indefinable, and abstract. Goals are hard to measureand do not have definite timeline. Writing clear goals is an essential section ofplanning the strategy.Both goals and objectives are the tools for achieving the target. The two concepts aredifferent but related. Goals are high level statements that provide overall frameworkabout the purpose of the project. Objectives are lower level statements that describethe tangible products and deliverables that the project will deliver.

Goals are indefinable and the achievement cannot be measured whereas the success ofan objective can be easily measured. Goals cannot be put in a timeframe, but


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objectives are set with specific timelines. The difference between organisational goalsand objectives is depicted in table 1.6.Differences between Organisational Goals and Objectives

Goals Objectives

Are long term Are usually meant for short termAre general intentions with broadoutcome

Are precise statements with specificoutcome

Cannot be validated Can be validated

Are intangible can be qualitative as wellas quantitative

Are tangible are usually quantitative andmeasurable

Are abstract Are concrete

2. Define the term Strategic Management. What are the types of strategies?Strategic management is a systematic approach of analysing, planning and

implementing the strategy in an organisation to ensure a continued success. Strategicmanagement is a long term procedure which helps the organisation in achieving along term goal and its overall responsibility lies with the general management team. Itfocuses on building a solid foundation that will be subsequently achieved by thecombined efforts of each and every employee of the organisation.Corporate levelThe board of directors and chief executive officers are involved in developingstrategies at corporate level. Corporate level strategies are innovative, pervasive andfuturistic in nature.The four grand strategies in a corporate level are:Stability and expansion strategyRetrenchmentCorporate restructuringCombination strategies concept of synergyLet us now discuss each of the grand strategies in detail.Stability strategyThe basic approach of the stability strategy is to maintain the present status of theorganisation. In an effective stability strategy, the organisation tries to maintainconsistency by concentrating on their present resources and rapidly develops a

meaningful competitiveness with the market requirements.Further classifications of stability strategy are as follows:No change strategy No change strategy is the process of continuing the currentoperation and creating nothing new. Usually small business organisations follow nochange strategy with an intention to maintain the same level of operations for a longperiod.Pause/Proceed with caution strategy Pause/Proceed with caution strategy provides anopportunity to halt the growth strategy. It analyses the advantages and disadvantagesbefore processing the growth strategy. Hence it is termed as pause/proceed withcaution strategy.Profit strategy Profit strategy is the process of reducing the amount of investments

and short term discretionary expenditures in the organisation.


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Expansion strategyThe organisations adopt expansion strategy when it increases its level of objectivesmuch higher than the past achievement level. Organisations select expansion strategyto increase their profit, sales and market share. Expansion strategy also provides asignificant increase in the performance of the organisation. Many organisations

pursue expansion strategy to reduce the cost production per unit.Expansion strategy also broadens the scope of customer groups, and customerfunctions.

Example Prior to 1960s most of the furniture industry did not venture into expandingtheir industry globally. This was because furniture got damaged easily while shippingand the cost of transport was high. Later in 1970s a Swedish furniture company,IKEA, pioneered towards expanding the industry to other geographical areas. Thenew idea of transporting unassembled furniture parts lead to minimizing the costs oftransport. The customers were able to easily assemble the furniture. IKEA alsolowered the costs by involving customer in the value chain. IKEA successfullyexpanded in many European countries since customers were willing to purchase

similar furniture.The further classification of expansion strategy is as follows:

Diversification - Diversification is a process of entry into a new business in theorganisation either marketwise or technology wise or both. Many organisations adoptdiversification strategy to minimise the risk of loss. It is also used to capitaliseorganisational strengths.Diversification may be the only strategy that can be used if the existing process of anorganisation is discontinued due to environmental and regulatory factors.The two basic diversification strategies are:Concentric diversificationThe organisation adopts concentric diversification when it takes up an activity thatrelates to the characteristics of its current business activity. The organisation prefersto diversify concentrically either in terms of customer group, customer functions, oralternative technologies of the organisation. It is also called as related strategy.Conglometric diversificationThe organisation adopts conglometric diversification when it takes up an activity thatdoes not relate to the characteristics of its current business activity. The organisationchooses to diversify conglometrically either in terms of customer group, customerfunctions, or alternative technologies of the organisation. It is also called as unrelateddiversification.Concentration Concentric expansion strategy is the first route towards growth in

expanding the present lines of activities in the organisation. The present line ofactivities in an organisation indicates its real growth potential in the present activities,concentration of resources for present activity which means strategy for growth.The two basic concentration strategies are:Vertical expansionThe organisation adopts vertical expansion when it takes over the activity to make itsown supplies. Vertical expansion reduces costs, gains control over a limited resource,obtain access to potential customers.Horizontal expansionThe organisation adopts horizontal growth when it takes over the activity to expandinto other geographical locations. This increases the range of products and services

offered to the current markets.


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RetrenchmentRetrenchment strategy is followed by an organisation which aims to reduce the size ofactivities in terms of its customer groups, customer functions, or alternativetechnologies.

Example A healthcare hospital decides to focus only on special treatment to obtain

higher revenue and hence reduces its commitment to the treatment of general caseswhich is less profitable.Different types of retrenchment strategies are:Turnaround Turnaround is a process of undertaking temporary reduction in theactivities to make a stronger organisation. This kind of processing is calleddownsizing or rightsizing. The idea behind this strategy is to have a temporaryreduction of activities in the organisation to pursue growth strategy at some futurepoint.Turnaround strategy acts as a doctor when issues like negative profits,mismanagement and decline in market share arise in the organisation.Captive company strategy Captive company strategy is a process of tying up with

larger organisations and staying viable as an exclusive supplier to the largeorganisations. An organisation may also be taken as captive if their competitiveposition is irreparably weak.

Divestment strategy Divestment strategy is followed when an organisation involves inthe sale of one or more portion of its business. Usually if any unit within theorganisation is performing poorly then that unit is sold and the money is reinvested inanother business which has a greater potential.

Bankruptcy Bankruptcy is a legal protective strategy that does not allow others torestructure the organisations debt obligations or other payments. If an organisationdeclares bankruptcy with customers then there is a possibility of turnaround strategy.

Liquidation Liquidation strategy is considered to be the most unattractive process inan organisation. This process involves in closing down an organisation and selling itsassets. It results in unemployment, selling of buildings and equipments and theproducts become obsolete. Hence, most of the managers work hard to avoid thisstrategy.Corporate restructuringCorporate restructuring is the process of fundamental change in the current strategyand direction of the organisation. This change affects the structure of the organisation.Corporate restructuring involves increasing or decreasing the levels of personnelamong top level, mid-level and lower level management. It is reorganising andreassigning of roles and responsibilities of the personnel due to unsatisfactory

performance and poor results.Combination strategies concept of synergyCombination strategy is a process of combining - stability, expansion andretrenchment strategies. This is used either at the same time in various businesses orat different times in the same business. It results in better performance of theorganisation.The effect towards the success is greater when there is a synergy between thestrategies. Synergy is obtained in terms of sales, operations, investments andmanagement in the organisation.

Example Levis & co, a jeans manufacturing company suffered corrosion in marketshare in 1990. This was due to the manufacture of jeans that did not attract the

younger generation. Hence there was a change in strategies laid at the corporate levelwith diversification of products. This led to the change in acquiring new resources,


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selling the current resources, changing the personnel at various levels of managementand analysing the competitors in the market. With these changes the company wasable to make profits and achieved success.Business levelBusiness level strategy relates to a unit within an organisation. Mainly strategic

business unit (SBU) managers are involved in this level. It is the process offormulating the objectives of the organisation and allocating the resources amongvarious 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 corporatelevel.

The main aspects of business level strategies are related with: Business stakeholders Achieving cost leadership and differentiation Risk factors

Business stakeholdersBusiness stakeholders are a part of business. Any operation which is affected inbusiness also affects the business stakeholders along with profit or loss of thebusiness. Business stakeholders include employees, owners and customers. Otherindirect business stakeholders are competitors, government etc. They play a veryimportant role in ups and downs of the organisation.Cost leadership and differentiationCost leadership strategy is adopted by the organisations to produce a relativelystandardised products or services to the customer. It must be acceptable to thecharacteristics as mentioned by customers. Customers value the company if it adoptscost leadership strategy.Differentiation strategy mainly deals with providing the products or services with

unique features to the customers. Differentiated products satisfy the customers needs.The unique features of the product attract the customers more when compared to thetraditional features of the products.But cost leadership must be pursued in conjunction with differentiation strategy toproduce a cost effective, superior quality, efficient sales and a unique collection offeatures in the product or services.According to Porters generic strategy, the organisation that succeeds in costleadership and differentiation often has the following internal strengths:The company possesses the skills in designing efficient productsHigh level of expertise in the manufacturing processWell organised distribution channel

Industry reputation for quality and innovationStrong sales department with the ability to communicate successfully the realstrengths of the product

Risk factorsRisk is the probability of good or bad things that may happen in the business. Riskwill impact the objectives of the organisation. The risk factors in the businessstrategies include two types - external and internal risks.

External risks External risk includes various risks experienced externally likecompetition with companies, political issues, interest rates, natural hazards etc.

Internal risks Internal risks include issues of employees, maintenance of processes,impact of changes in strategies, cash flows, security of employees and equipments.


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Tactical of functional levelThe functional strategy mainly includes the strategies related to specific functionalarea in the organisation 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

a larger purpose. Considering tactical decisions in functional level strategy describesinvolving actions to specific functional area. The aim of the functional strategy isdoing things right whereas the corporate and business level strategy stresses on doingthe right thing.The different types of strategies at functional level are:Procuring and managingMonitoring and directing resources towards the goalProcuring and managingProcuring basically means purchasing or owning. In the management field procuringis the process of purchasing goods or services which includes ordering, obtainingtransport, and storage for organisation use.

Most of the individual organisations set procurement strategy to obtain their choice ofproducts, methods, suppliers and the procedures that are used to communicate withtheir suppliers.Steps involved in procuring strategy are:Identify the need of purchase and the required quantity.Plan the cost budget of the goods or services being purchased and the procedure ofcontracting by checking the cost and requirements with various sellers.Select the seller who is matching the cost and requirement criteria as per theorganisation.Perform the contract deal with selected seller and monitor the contract.Close the contract once the goods or services are acquired.Managing is the process of monitoring the strategies that are implemented in thebusiness. Many strategies are implemented at various levels of the business. Hencecatering these strategies is termed as managing.Managing includes completing the task effectively in every sector of the organisation.It can be managing employees, the external and internal factors of organisation, andthe equipments.An effective managing process strengthens the critical activities in the business suchas marketing, manufacturing, human resource planning, performance assessment, andcommunications.

Monitoring and directing resources towards the goal

Monitoring and directing is the essential part of management. Monitoring meansknowing what is going on. Monitoring is also called as measuring. In an organisationmonitoring includes measuring the performance of the organisation to check whetherthe strategy implemented is achieved or not.Monitoring the resources includes monitoring the employees, the equipments, and theactivities being performed in the organisation.It leads to risk if monitoring of the resources show a deviation from the true path asexpected by the organisation. The directing process will make path to ensure arelevant action is performed to remove the deviation and lay all the resources on theright track. Directing process uses principles and statement of the objectives to solvethe problem which was identified during monitoring process.


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Monitoring and directing process of resources sets the organisation to work on theright track by removing all hurdles and produces effective outcome in reaching thegoals of the organisation efficiently.Operational levelOperational level is concerned with successful implementation of strategic decisions

made at corporate and business level. The basic function of this level is translating thestrategic decisions into strategic actions.The basic aspects in operational level are:Achieving cost and operational efficiencyOptimal utilisation of resourcesProductivity

Achieving cost and operational efficiencyAchieving cost deals with achieving greater profits by reducing the cost for variousresources within the organisation to balance the expenditure and investment.Organisations must implement cost achievement in targeted operational areas likeHR, supply chain, and procurement.

The operational efficiency comes into picture once the cost reduction is achieved withgreater profits. It deals with minimising the waste and maximising the resourcecapabilities.Optimal utilisation of resourcesOptimal utilisation of resources includes usage of resources in a planned manner. Theusage of resources must be cost effective. Usually the board of directors ensures thatthe process of optimal utilisation of resources is implemented and monitored on aregular basis.Planning and scheduling activities in business plays a major impact on the utilisationof resources. The systematic planning and scheduling of activities result in utilisationof less budgeted resources for greater profits in an organisation.

ProductivityProductivity basically means a relative measure of the efficiency of production interms of converting the ratio of inputs to useful outputs. Productivity is a key tosuccess of an organisation. Productivity growth is a vital factor for continuous growthof the organisation.

3. Describe Porters five forces Model.An industry is a group of firms that market products which are close substitutes foreach other (e.g. the car industry, the travel industry).

Some industries are more profitable than others. Why? The answer lies inunderstanding the dynamics of competitive structure in an industry.The most influential analytical model for assessing the nature of competition in anindustry is Michael Porter's Five Forces Model, which is described below:


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Porter explains that there are five forces that determine industry attractiveness andlong-run industry profitability. These five "competitive forces" are- The threat of entry of new competitors (new entrants)- The threat of substitutes- The bargaining power of buyers- The bargaining power of suppliers- The degree of rivalry between existing competitorsThreat of New EntrantsNew entrants to an industry can raise the level of competition, thereby reducing itsattractiveness. The threat of new entrants largely depends on the barriers to entry.

High entry barriers exist in some industries (e.g. shipbuilding) whereas otherindustries are very easy to enter (e.g. estate agency, restaurants). Key barriers to entryinclude- Economies of scale- Capital / investment requirements- Customer switching costs- Access to industry distribution channels- The likelihood of retaliation from existing industry players.Threat of SubstitutesThe presence of substitute products can lower industry attractiveness and profitabilitybecause they limit price levels. The threat of substitute products depends on:

- Buyers' willingness to substitute- The relative price and performance of substitutes- The costs of switching to substitutesBargaining Power of SuppliersSuppliers are the businesses that supply materials & other products into the industry.The cost of items bought from suppliers (e.g. raw materials, components) can have asignificant impact on a company's profitability. If suppliers have high bargainingpower over a company, then in theory the company's industry is less attractive. Thebargaining power of suppliers will be high when:- There are many buyers and few dominant suppliers- There are undifferentiated, highly valued products

- Suppliers threaten to integrate forward into the industry (e.g. brand manufacturersthreatening to set up their own retail outlets)


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Effective decision making involves the following six steps which are shown in thetable.Table Steps of Strategic Decision Making Process

1) Creating a constructiveenvironment

As a strategist, you must do the following to create aconstructive environment:

i. Establish the objectives Define what you want toachieve.ii. Agree on the process You must focus on the finaldecision, which is made after establishing the objective.iii. Involve the right people Make sure you have the rightteam of people.iv. Allow opinions to be heardEncourage participants tocontribute in discussions, debates and analyse.v. Need to ask the right question Ask yourself whetheryou are questioning the right issue or not.vi. Use creativity tools from the beginning Applycreativity by thinking from a different perspective andangle.

2) Generating goodalternatives

When you generate alternatives, you force yourself toview the problem from different angles, which in turngives you effective results. Some of the techniques are asfollows:i.Brainstorming It is an effective process which developscreative solutions to problems and enhances theproductivity of the organisation.ii. Generating ideas from a large number of people

Everybodys ideas must be heard and given equalweightage, irrespective of the persons position or powerwithin the organisation.iii.Inviting others Asking outsiders to join the discussion.

3) Exploring the chosenalternatives

When you are satisfied with your collection of realisticalternatives, you can evaluate the feasibility, risk and theimplications of each choice. Few factors that need to beconsidered when the alternatives are explored are asfollows:i.RiskIn decision making, there is usually some degree of

uncertainty, which leads to risk. By evaluating it, you candetermine whether the risk is manageable or not.ii. Implications Another way to look at your options is toconsider the potential consequences of each alternative.iii. Validation Exploring the resources leads to a validitycheck of the product.

4) Choosing the bestalternative

After you have evaluated the alternatives, choose the bestamong the available choices. Take your valuable time todo 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 decisionsproperly. This includes methodical testing of the


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assumptions and thoroughly reviewing the same.

6) Communicate yourdecision and move toaction

After you have made your decision, it is important toexplain it to others and start implementing it.

Issues involved in taking difficult strategic decisionsTaking strategic decisions is not an easy task all the times. There could also bescenarios when we are not confident about the positive result of the decisions beingmade. Few examples of the issues involved in taking difficult strategic decisions are:Uncertainty - A problem occurring in the production and distribution planning of aproduct for a series of time period due to uncertain probability distribution of futuresales of the productComplexity - You are a jury member and must decide the guilt or innocence of anaccused. Due to complexity in your decision making, you become emotionallyattached to irrelevant opinions, rather than listening thoughtfully to the fact anddeciding the case on its merits

High-risk consequences - In 1984, Gavilan Computers faced bankruptcy due tostrategic decision failure

Irrelevant alternatives - In 1987, the owner of the Shoreham plant located at LongIsland Sound, New York, had wasted $5.5 billion on bricks, mortar, fuel rods andinterest as the operating license had not been granted

Interpersonal issues - An individual is not interested in playing a business game andignores playing with the team as he has an out of game disagreement with a fellowmember, then it affects the whole team to take a proper strategic decision.Effective decision making process has the following merits:A broadened perspective of managing complex decisionsDesigning more effective decision processesTransforming risk into opportunity and thinking strategicallyYou will not miss the important factors which help you to make better decisions bytaking an organised and right approach. The next section deals in outlining a processthat will help you improve the quality of your decisions.Strategic choice approachStrategic choice is an ongoing process in which planned management system plays asignificant role. The main objectives of any management are survival, growth andprofitability, which it achieves through effective strategic choices. The features ofstrategic choice are as follows:Focusing on decisions and judgments made in a particular planning situation

Highlighting judgments involved in handling uncertaintiesCreating a framework which explicitly balances present and future decisionsCreating a framework for communication and collaboration between different peoplewith different backgrounds and skills

5. Explain strategic evaluation and its significance.The core aim of strategic management succeeds only if it generates a positive

outcome. Strategic evaluation and control consists of data and reports about theperformance of the organisation. Improper analysis, planning or implementation ofthe strategies will result in negative performance of the organisation. The top

management needs to be updated about the performance to take corrective actions forcontrolling the undesired performance.


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All strategies are subject to constant modifications as the internal and external factorsinfluencing a strategy change constantly. It is essential for the strategist to constantlyevaluate the performance of the strategies on a timely basis. Strategic evaluation andcontrol ensures that the organisation is implementing the relevant strategy to reach itsobjectives. It compares the current performance with the desired results and if

necessary, provides feedback to the management to take corrective measures.Strategic evaluation consists of performance and activity reports. If performanceresults are beyond the tolerance range, new implementation procedures areintroduced. One of the obstacles to effective strategic control is the difficulty indeveloping appropriate measures for important activities. Strategic control stimulatesthe strategic managers to investigate the use of strategic planning and implementation.After the evaluation, the manager will have knowledge about the cause of the problemand the corrective actions.The strategic-evaluation process with constantly updated corrective actions results insignificant and long-lasting consequences. Strategy evaluation is vital to anorganisations well-being as timely evaluations can alert the management about

potential problems before the situation becomes critical. Successful strategistscombine patience with a willingness to take corrective actions promptly, whennecessary.The process of evaluating the implemented strategy is explained in Figure.

Figure : Evaluation Process of an Implemented StrategyRetrieved from Concepts in Strategic Management and Business Policy by ThomasL.Wheelen, J.David Hunger (2002), Pearson Education, New Delhi.Frequent strategic evaluation activities can control the negative consequences of theenvironmental complexity and instability issues. Success today does not guaranteesuccess tomorrow! However, the frequencies of strategic evaluation performed weresurprisingly found to be vice-versa in stable and unstable industries. Management indynamic industries seems to have performed fewer strategic evaluation activities
http://resources.smude.edu.in/slm/wp-content/uploads/2011/01/clip-image0042.jpg


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when compared to those in stable industries. Lindsay and Rue concluded thatforecasting 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 organisation to manage its

activities. It identifies the range within which the subordinates can take decisions inan organisation. It authorises the lower level management to resolve their issues andtake decisions without consulting the top level management repeatedly. The limitswithin which the decisions are made are well defined. Business policy involves theacquirement of resources through which the organisational goals can be achieved.Business policy analyses roles and responsibilities of top level management and thedecisions affecting the organisation in the long-run. It also deals with the major issuesthat affect the success of the organisation.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 theorganisation. It deals with the constraints of real-life business.It is important to formulate policies to achieve the organisational objectives. Thepolicies are articulated by the management. Policies serve as a guidance to administeractivities that are repetitive in nature. It channels the thinking and action in decisionmaking. It is a mechanism adopted by the top management to ensure that the activitiesare performed in the desired way. The complete process of management is organisedby business policies.Business policies are important due to the following reasons:Coordination Reliable policies coordinate the purpose by focusing on organisationalactivities. This helps in ensuring uniformity of action throughout the organisation.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 helpsubordinates to take decisions with confidence without consulting their superiorsevery time. Every policy is a guide to activities that should be followed in a particularsituation. It saves time by predicting frequent problems and providing ways to solvethem.

Effective control Policies provide logical basis for assessing performance. Theyensure that the activities are synchronised with the objectives of the organisation. Itprevents divergence from the planned course of action. The management tends to

deviate from the objective if policies are not defined precisely. This affects the overallefficiency of the organisation. Policies are derived objectives and provide the outlinefor procedures.

Decentralisation Well defined policies help in decentralisation as the executive rolesand responsibility are clearly identified. Authority is delegated to the executives whorefer the policies to work efficiently. The required managerial procedures can bederived from the given policies. Policies provide guidelines to the executives to helpthem in determining the suitable actions which are within the limits of the statedpolicies. Policies contribute in building coordination in larger organisations.


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Assignment Set - 2

1. What is meant by Business Continuity Plan (BCP)? Discuss the steps

involved in BCP.

Business Continuity Plan (BCP) is defined as:

A document containing the recovery timeline methodology, test-validateddocumentation, procedures, and action instructions developed specifically for use inrestoring organisation operations in the event of a declared disaster. To be effective,most Business Continuity Plans also require testing, skilled personnel, access to vitalrecords, and alternate recovery resources including facilities.BCP is a collection of procedures which is developed, recorded and maintained inreadiness for use in the event of an emergency or disaster.The BCPs senior management committee is responsible for the initiation, planning,approval, testing and audit of the BCP. The BCPs senior management committee alsoimplements the BCP, coordinates its activities, supervises its creation and reviews theresults of quality assurance activities. These steps are discussed below:

Initiation Business impact analysis Disaster readiness strategies Develop and implement the plan Maintenance and testing

InitiationThe senior management initiates the project and conducts the meeting to review thefollowing:Establish a business continuity planning committee The senior management identifiesa team and discusses the business continuity planning project with them. The

management forms a team and clearly defines the roles of project team members.Draw up business continuity policies The team establishes the basic principles andframework necessary to ensure emergency response for resumption and recovery,restoration and permanent recovery of the organisational operations and businessactivities during a business interruption event.Business impact analysis (BIA)BIA is the most important element of the continuity plan. BIA reveals the financialand operational impact of a major disruption. BIA report describes the potential risksspecific to the organisation. It will provide the organisation with the following details:

The identification of time sensitive business operations and services. An analysis of the organisations financial status and operational impacts. The time-frames in which the time-sensitive processes, operations and

functions must resume.

An estimation of the resources necessary for successful resumption, recoveryand restoration.

The BIA will provide a basis and cost justification for risk management,response, recovery and restoration.

Disaster readiness strategiesThe disaster readiness strategies include the following activities:Define business continuity alternatives Using the information from BIA, the projectteam should assess the alternative strategies that are available to the organisation andidentify two or three strategies that are more credible.


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mainly because of the ability to capitalise the advantages. The advantages widelydepend on the nature of individual corporations and the type of their business.Benefits areTo the companySuperior technical knowledge The most important advantage of MNCs is the patented

technical knowledge which enables them to compete internationally. Large MNCshave access to advanced levels of technology which are either developed or acquiredby the corporation. These technologies are patented. It can be in the areas ofmanagement, services or production. Extensive application of these technologiesgives a competitive advantage to the MNC in international market, as it results inefficient, low-priced, hi-tech products and services that dominate a large internationalmarket. This results in efficient production and services like that of IBM or Microsoft.

Large size of economy Generally, MNCs are large like Wal-Mart and ExxonMobilwhich has sales larger than the gross national products of many countries. The largesize gives the advantage of significant economic growth to the MNCs. The highervolume of production leads to lower fixed costs per-unit for the companys products.

Competitors, whose volume of production of goods is smaller, must raise the price torecover the higher fixed costs. This situation implies to capital-intensive industrieslike steel, automobiles etc., in which fixed costs form a major proportion of totalcosts. Example MNC like Nippon Steel of Japan can sell its products at lower pricesthan those of companies with smaller plants.

Lower input costs due to large size The production levels of MNCs are large and thusthe purchase of inputs is in large volumes. Bulk purchases of inputs enable thecorporation to bargain for lower input costs and obtain considerable amount ofdiscount. Lower input costs means less expensive and more competitive products.

Example Nestle, which buys huge quantities of coffee from the market, can bargainfor lower prices than small buyers can. Wal-Mart sells products at lower pricesrelative to its competitors due to bulk purchasing and efficient inventory control. Byidentifying which product sell effectively, Wal-Mart combines low-cost purchasingwith efficient inventor to achieve competitive advantage in retail market.

Ability to access raw materials overseas By accessing raw materials in foreigncountries, many MNCs lower the input and production costs. In many cases, MNCssupply the technology to extract raw materials. Such access can give MNCsmonopolistic control over raw materials because they supply technology in exchangefor monopolistic control. This control enables them to supply or deny raw materials totheir competitors.

Ability to shift production overseas Another advantage of MNCs is the ability to shift

the production overseas. MNCs relocate their production facilities to take advantageof lower labour costs, raw materials and other incentives offered by the host countries.They take advantage of the lower costs by exporting lower-cost goods to foreignmarkets. Many MNCs have set up factories in low-cost areas like China, India,Mexico, etc.

Brand image and goodwill advantage Most of the MNCs possess product lines thathave created a good reputation for quality, value and service. This reputation spreadto other countries through exports and promotion and adds to the goodwill or brandimage of the company. MNCs are able to influence this brand image by standardizingtheir product lines in different countries.Example Sony PlayStations do not have anymodifications for different countries and the parent factory produces standardised

products for the world market. Brand names like Sony help the company to charge


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premium prices for its products, because the customers are ready to buy qualityproducts at premium prices.

Information advantage MNCs have a global market view with which it collects,analyses, and processes the in-depth knowledge of worldwide markets. Thisknowledge is used to create new products for potential market niches and expand the

market coverage of their products. The MNCs have good information gatheringcapabilities in all aspects of their operations. Through this information network, theMNC is able to forecast government controls and gather commercial information. Thenetwork also helps in providing important information about economic conditions,changing market trends, social and cultural changes that affect the business of MNCsin different countries. With these information MNCs can position themselvesappropriately to contingencies.

Managerial experience and expertise The MNCs function in large number in differentcountries simultaneously. This enables them to integrate wealth for valuablemanagerial experience. This experience helps them in dealing with different businesssituations around the globe.Example An MNC located in Japan can attain knowledge

of Japanese management techniques and apply them successfully in a differentlocation.To the nations where it operates (domestic nations)MNCs bring advantage to the countries in which they operate. The benefits of MNCsto the nations where it operate are:

Economic growth and employmentAn MNC comes to a country with more amount ofmoney to invest than any local company. The countries from where the MNCs operateare also called host countries. It brings inward investment to the host countries. Thishelps in boosting the national economy. Example Constructing new plants requiresresources like land, capital and labour. It provides employment to a large number ofpeople which helps in dealing with the unemployment problem in the host countries.The inward investment can help in generating wealth in the local economy because itincreases the spending ability of the people by providing them employment. As theMNCs provide employment to the people, they pay taxes to the local government.The people have more money to spend which provides market for local companies tosell their goods. The MNCs also attracts other smaller firms to the area where it islocated. These firms provide different services to the MNCs.Skills, techniques and quality human capital The MNCs bring with them new ideasand new techniques to improve the quality of production. This helps in improving thequality of human capital in the host country. The MNCs employ local labour and trainthem in new skills to improve productivity and efficiency.Example Sunderland is one

of the most productive car manufacturing plants in Europe. The workers had to getused to different ways of working that were used in other British firms. This can be achallenge and can also lead to improvement in productivity. The skills that theworkers build up can be passed on the other workers which help in improving thesupply of skilled labour in that area.

Availability of quality goods and services Generally, production in a host country isaimed at the export market. However, in some cases, the inward investment can gainaccess to the host country market to avoid trade barriers. Availability of quality goodsleads to improved quality in other related industries. Example The UK has access tohigh quality vehicles at cheaper price; this competition has led to improvement inprices, working practices and quality in other related industries.

Improvement in infrastructure The MNCs invest in a country for production anddistribution facilities. In addition to this, the company might also invest in additional


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infrastructure facilities like road, port and communication facilities. This can benefitthe entire country.

4. Define the term Strategic Alliance. Differentiate between Joint ventures and

Mergers.

Strategic alliance is the process of mutual agreement between theorganisations to achieve objectives of common interest. They are obtained by the co-operation between the companies. Strategic alliance involves the individualorganisations to modify its basic business activities and join in agreement with similarorganisations to reduce duplication of manufacturing products and improveperformance. It is stronger when the organisations involved have balancing strengths.Strategic alliances contribute in successful implementation of strategic plan because itis strategic in nature. It provides relationship between organisations to plan variousstrategies in achieving a common goal.Joint ventureJoint venture is the most powerful business concept that has the ability to pool two or

more organisations in one project to achieve a common goal. In a joint venture, boththe organisations invest on the resources like money, time and skills to achieve theobjectives. Joint venture has been the hallmark for most successful organisations inthe world. An individual partner in joint venture may offer time and services whereasthe other focuses on investments. This pools the resources among the organisationsand helps each other in achieving the objectives. An agreement is formed between thetwo parties and the nature of agreement is truly beneficial with huge rewards such thatthe profits are shared by both the organisations.Mergers and acquisitionsMerger is the process of combining two or more organisations to form a singleorganisation and achieve greater efficiencies of scale and productivity. The mainreason to involve into mergers is to join with other company and reap the rewardsobtained by the combined strengths of two organisations. A smart organisationsmerger helps to enter into new markets, acquire more customers, and excel among thecompetitors in the market. The participating organisation can help the active partnerin acquiring products, distribution channel, technical knowledge, infrastructure todrive into new levels of success.

5. What do you mean by innovation? What are the types of innovation?

Innovation is the production or implementation of ideas. Innovation can be

described as an action or implementation which results in an improvement; a gain, ora profit. The National Innovation Initiative (NII) defines innovation as "Theintersection of invention and insight, leading to the creation of social and economic

value."

Types of innovationInnovation is defined as using new ideas to apply current thinking in different waysthat results in a significant change. The types of innovation are as follows:

Architectural innovation This innovation defines the basic configuration of theproduct and the process. It will establish the technical and marketing agendas that willguide subsequent developments.

Market niche innovation This innovation involves development of new marketing

methods for the existing products. It provides the scope for improvement in productdesign, product promotion, and pricing.


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Regular innovation This innovation involves the change that is applied on establishedtechnical and production competence of the existing markets and customers. Theeffect of these changes is to develop the existing skills and resources.

Revolutionary innovation This innovation disrupts and renders established technicaland production competence that out of date, yet it is applied to existing markets and

customers.

6. Describe Corporate Social Responsibility.

Corporate Social Responsibility (CSR) is the continuing obligation of abusiness to behave ethically and contribute to the economic development of theorganisation. It improves the quality of life of the organisation. The meaning of CSRhas two folds. On one hand, it exhibits the ethical behaviour that an organisationexhibit towards its internal and external stakeholders. And on the other hand, itdenotes the responsibility of an organisation towards the environment and society inwhich it operates. Thus CSR makes a significant contribution towards sustainability

and competitiveness of the organisation.CSR is effective in number of areas such as human rights, safety at work, consumerprotection, climate protection, caring for the environment, sustainable management ofnatural resources, and such other issues. CSR also provides health and safetymeasures, preserves employee rights and discourages discrimination at workplace.CSR activities include commitment to product quality, fair pricing policies, providingcorrect information to the consumers, resorting to legal assistance in case ofunresolved business problems, so on.Example TATA implemented social welfare provisions for its employees since 1945.Features of CSRCSR improves the customer satisfaction through its products and services. It alsoassists in environmental protection and contributes towards social activities. Thefollowing are the features of CSR:

Improves the quality of an organisation in terms of economic, legal and ethical

factors CSR improves the economic features of an organisation by earning profits forthe owners. It also improves the legal and ethical features by fulfilling the law andimplementing ethical standards.

Builds an improved management system CSR improves the management system byproviding products which meets the essential customer needs. It develops relevantregulations through the utilisation of innovative technologies in the organisationContributes to countries by improving the quality of management CSR contributes

high quality product, environment conservation and occupational health safety tovarious regions and countries.Enhances information security systems and implementing effective security measuresCSR enhances the information security measures by establishing improvedinformation security system and distributing them to overseas business sites. Theinformation system has improved by enhancing better responses to complex securityaccidents.Creates a new value in transportation CSR creates a new value in transportation forthe greater safety of pedestrians and automobiles. This is done by utilisinginformation and technology for automobiles. The information and technology helps inestablishing a safety driving assistance system.


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Creates awareness towards environmental issues CSR serves in preventing globalwarming by reducing the harmful gases emitted into the atmosphere during theprocess of business activities.

MB0052 GÇô Strategic Management and Business Policy

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