Master of Business Administration-MBA Semester 4

MB0052 – Strategic Management and Business Policy - 4 Credits

Assignment Set- 2 (60 Marks)

Note: Each question carries 10 Marks. Answer all the questions.

Q.1 Explain with respect to policies – steps in framing business policy and stages

of policy cycle. Will these help in decision making? (10 marks)

Answer:

Policy formulation is the process of designing the policy. The major function of

designing the policy relies upon the managers. Policy framing is one of the phases of

strategic planning in the organisation. It is based on the underlying objectives of the

organisation. Framing and monitoring the policy is one of the critical tasks in the

organisation.

The process of framing policies consists of the following steps:

• Definition of purpose – The first step towards framing policies includes the process of

identifying the objectives and the philosophy of the organisation. The purpose is to

select the guidelines for measuring the performance based on the organisation‟s

strengths and weaknesses, its available resources and the personnel. The basic

concept of the business activities is defined in this phase.

Example – The perception of the garment company is to develop the finest cloth at less

cost. Adding to such a conceptual view, the company must define the purpose in terms

of guidelines needed for measuring the performance and obtaining the desired targets.

• Preparation of strategic intelligence – This step involves analysing the

internal environment of the organisation. The strategic intelligence is the process of

detailed description of what the company is and assessing its sphere of operations. The

prediction of the future happenings including the opportunities and risks must be known

because it lays heavy impact on the company‟s position in the market.

• Policy alternatives – Alternating policies must be identified and analysed once the

objectives of the organisation are defined. The managers recognise the problems faced

by the organisation and discover the alternative policies. This step is the central phase

of framing a policy. A list of policy alternatives is generated by considering the

probabilities of the problems faced by the organisation.

Example – Inventory systems in Das n Das Company The Das n Das Company

invested on control systems to avoid taking decisions on the routine matter regarding

the orders, timings of production, etc. In such a situation, many factors are considered

by the top level management to increase the production rate and the size of orders.

Hence meetings are held to discuss the implementation of the policy that suits the best.

The top level management introduced an alternative to the inventory control policy that

consisted of determination and evaluation of various conflicting factors. The policy is

adopted to represent a balance between the internal factors like employees, resources

and the production.

• Policy analysis – This step involves analysing the alternative policies and examining its

contribution towards the objectives of the

organisation. An alternative policy is based on the consequences to be faced by the

organisation. The elements of policy analysis process include evaluating the

consequences of various alternatives and their effects on the objectives of the

organisation.

• Strategic choice – It is the process of selecting the policies that is best suited for the

organisation. This is done by the top level management.

The policies act as guidelines to fulfill the organisation‟s purpose. Establishing the

specific policies represents the strategic commitment towards achieving the objective of

organisation.

• Policy review – Policy review is the process to evaluate whether the framed policy is

matching the organisational performance. A periodical review of policies is necessary to

maintain the policies up to date.

This section explained the various steps involved in framing business policies. The next

section defines policy cycle and describes the stages of policy cycle.

Policy Cycle and its Stages

Policy cycle is the process of analysing, planning, designing, and implementing the

policies in the organisation. Every organisation typically has high and low level policies.

The high level policies govern the entire company in all circumstances. They mainly

deal with the organisation‟s needs. It forms a standard and does not lend procedures.

The low level policies deal with a set of specific circumstances. It helps in creating

procedures to govern the organisation in specific situations.

These policies are necessary to govern the organisation. Hence it must be reviewed

and reshaped as the objectives of the organisation changes. The policy cycle is

necessary to implement this process.

Stages of policy cycle

The policy cycle consists of the following stages:

Setting the policy agenda

Policy agenda is the process of describing the sequence of business activities in the

organisation and planning the measures to frame a policy. A list of factors is considered

which includes processes, resources, revenue etc. The top level management

organises committee meetings to discuss these factors and make a detailed planning

for framing a policy.

Writing policy

It is the process of drafting the policy for the organisation. The policy is drafted based on

the various factors discussed in the meetings. A separate team under framing business

policies is responsible for writing policies. The policy statements must be clear, concise

and easily implemented in the organisation. The policies are created in such a way that

it does not lead to controversies. The drafted policies adhere to the organisations

objectives.

Implementation of policy

The implementation process is necessary to effectively communicate the drafted

policies. This phase makes the policy visible to the employees in the organisation. An

environment of compliance is achieved between the organisation norms and the

employees only if the employees are aware of policies in the organisation. Generally,

employees view the policies as restrictions. Hence, implementing the policies

systematically reduces the negative perception of the employees.

Policy implementation tasks are:

• Policy legitimating – The proposed policy must obtain authenticity from the team

implementing the policy.

• Constituency structure – The policy must be marketed in such a way that it promotes

the relationship between the beneficiaries.

• Resource allocation – The resources that are supporting the implementation of policy

must be acquired or reallocated depending on the implementation of the strategy.

• Organisational design and modification – The existing organisation must be re-

engineered or modified according to the new policy.

• Resource mobilisation – The resources in the organisation must be redirected to

provide the capacity to conduct action as per the implemented policy.

Enforcing policy

Enforcing policy is the process of applying the drafted policies in situations that are in

compliance between the organisation and the employees. The top level management

has the clear responsibility for enforcing the policies. If the employees are found

exploiting the policies then the organisation has powers to impose penalties to the

employees. Hence enforcing policies develops responses to the problems faced in the

organisation without hampering the organisation‟s success.

Reviewing the policy

Reviewing the policies is the process of checking whether the policies are matching the

business activities in the organisation. This phase includes reexamining the existing

policies. All the policies must be reviewed on daily basis. If any errors are found that are

not compatible to the organisation‟s views then it is reverted to the policy drafting team

to re-draft. Reviewing policies ensures that they reflect the business realities of the

moment.

Updating policy

If any changes are made in the process of the business activities then the existing

policies also must be changed. The review team holds the responsibilities of updating

policies. If the policies are not updated then the organisation experiences issues with

various factors in the organisation.

Figure below given below depicts the policy cycle.

Figure : Policy Cycle

Business Policy and Decision making

Whenever any business policy is framed, it has to be observed by the decision makers

as feasible and beneficial for the organisation‟s growth and success. Just because a

policy is in place, it doesn‟t mean that it will help business decisions. Therefore,

business policies have to be framed after a careful scrutiny and then decided whether

such policies are needed or not.

Once policies are in place and implemented, it should further help in functional and

operational decisions without causing any ambiguities or delays in procedures. Policies

should act as guiding light to lead the organisation and business strategies in the right

path.

A change in policy or amendments done to existing policies should also be considered

in decision making before implementing them. Further, it should not cause any major

disruptions in the internal environment.

Policy making decisions together with strategic decisions must provide clarity, flexibility

and assistance to other business decisions.

Interdependence between policy and strategy Business policies and business strategies

requires compatibility. A policy should not hinder strategic decisions and in the same

way, a strategy should not restrict policy decisions. Both have to be complementary to

each other.

For example, if a company‟s policy states that it can have suppliers from any country of

the world and then later a cost-cutting strategy is formulated to have only the best

suppliers from a particular country, this will contradict with the policy. It will limit the

company‟s reach even if cost is reduced. The interdependency between policy and

strategy is a seal. The strategies are developed with collective ideas of “how they must

be recognised”. The existing policies within strategic framework explain “how they

contribute to achieve the desired results”. The terms strategy and policy are used in

different ways, and in sometimes are even interchangeable.

Strategy is the process of determining the goals and methods to achieve them. Strategy

consists of various methods in achieving the goal. The organisation utilises strategic

direction as one of the methods. The strategic direction illustrates the desired future and

identifies the need of it. It portrays the measures to be considered to achieve the

desired goal. It acts as guiding principles that provide framework and coherence to the

action.

Policy acts as a method to move in the direction planned by the strategic direction

planning team. Numerous policies are framed in the organisation. The collaborative

work effort of the policies results in delivering the specific strategic outcomes. Policy

design process involves in identifying methods to achieve strategic objectives. Selecting

the most suitable policy and evaluating the impact of policy mainly lies with the top level

management.

The interdependency between policy and strategy provides effective outcomes to the

organisation.

Separation of strategy and policy generates the risk of making strategic objectives

unachievable. This leads the policy to develop authority from their prolonged existence

rather than contributing to the customer needs. The integration ensures that strategies

implemented use the most suitable policies. Different policies may be framed but

applying them in working together achieves the desired strategic outcomes.

Q.2 Assess the challenges involved in Strategic Management in the near future.

(10 marks)

Answer:

Each and every organisation faces certain challenges irrespective of the industry. The

key challenges of an organisation are:

• Growth – The increasing impact of economic and social behaviour has made the

organisations to improve its quality, service and responsiveness either in saturated or

declining markets. The organisations must emphasise that current share price, earnings

per share, revenues and market share reflects the growth of the organisation. The

growth of the organisation can be improved with respect to quality, service to its

constituencies, influencing their business activities with efficient personnel and facilities

etc.

• Value – The organisation must follow certain values that act as foundation to growth.

The organisation benefits by enhancing relationships among business activities

according to the changing environment. The critical elements in improving the value of

organization are, understanding the nature of values, its evolution, and consequent

growth opportunities.

• Focus – Focusing on the specific objective is difficult in the present era. The innovation

of new technology, society and social factors result in diversification of objectives.

Hence it’s a great challenge for organisations to focus on particular objective and avoid

diversification.

• Change – The organisation adopts change when it expands its business activities in

different fields. To meet the needs of the customers, the change is deployed in terms of

resources, technology, internal environment etc. It is a challenge to the organisations to

overcome many obstacles that emerge due to the changes made. Organisations need

to invest more to implement change. Hence the organisations must compete more

creatively while maintaining continuity in the existing business activities.

• Future – The future of the organisation depends on long term goals and plans. The

uncertainties and risks are associated with organisation’s future view which creates

need for hedges against downsides, while being focused on upside of the organisation.

• Knowledge – It acts as the medium to address the challenges in organisation. Most of

the organisations face difficulties in transforming data, information and knowledge into

actions to produce desired results. It involves understanding the role of information and

knowledge to solve problems; and decision making in different domains. Archiving

knowledge is required to meet the needs of the customers.

• Time – It is a big challenge to the top level management of the organisations. Time is

one of the important resources in the

organisation. Transformational leadership includes devoting personal time for creating

things that values more. It is a classic challenge for top management to maintain time in

all business activities.

Challenges of liberalisation are:

• The advent of globalisation has changed the view of market and organisation’s ability

to do business. This is essential to be competitive. Organisations have to think of a

global market instead confining to a local or national market. This may need redefining

the organizational structure. Organisations may have to create many divisions to

manage the international management instead of single division for local markets.

• As organisations become global, strategic management become increasingly

important to track international developments and position the organisation for long term

competitive advantage. It may necessitate creating a shift to a horizontally managed

interactive organisation. In other words, organisation has to quickly adapt to changes by

learning from other organisations.

The major challenges over next generation are:

• Adaptability – It is the process of building an environment that suits various conditions.

• Innovation – Mobilising the imagination of each individual in the organisation.

• Engagement – It is the process of creating an environment that emotionally and

intellectually makes individuals to apply their capabilities at work.

The challenges of information management for an organisation are as follows:

• Large number of dissimilar information management systems

• Less integration or coordination between the information systems

• Competitions between information management systems

• No clear strategic direction for overall technology environment

• Limited resources to deploy, manage and improve information systems

• Lack of clarity in major organisational strategies and directions

Q.3 Four years back, Pure Ltd. was a newly started company. It deals in designer

fabrics. Its top management comprises mainly of young talented persons. They

would to know to make the company follow ethical codes and practice CSR as the

company moves ahead. They are also interested in meeting its business

obligations. Could you suggest to the management on how to go about it? (10

marks)

Answer:

There are across several disciplinary actions to be undertaken by Pure Ltd. while

introducing and maintaining the business ethics, corporate social responsibility (CSR).

Ethics and corporate social responsibility are essential factors which influences

business undertakings and its functional operations. Business ethics are referred as

moral rules and regulations governing the business world to guide in making effective

corporate decisions. Corporate Social Responsibility (CSR) means operating a business

that meets or exceeds the ethical, legal, commercial and public expectations. CSR

focuses in maintaining the effective business features in an Organization.

The business ethics and business values followed by an organisation to maintaining

consistent growth in an organisation. Business

ethics is the behaviour that an organisation holds firmly in its daily dealings with the

world. The ethics of an organisation is specific from others. Good business ethics

should be a part of every business organisation. If a company does not adhere to its

business ethics properly and breaks the laws, they usually end up being charged for

penalty.

Values are the image of, what an organisation stands for and are the basis for the

behaviour of its members. Values provide the basis for judgements about the important

factors essential for an organisation to succeed. There is a relation between ethics and

values. Values determine the right and wrong act in an organisation, whereas doing the

right or the wrong act is termed as ethics.

Organisations can manage ethics in their workplaces by establishing an ethics

management program. Basically an ethics management program conveys corporate

values; suggest policies to guide decisions, etc. It includes extensive training and

evaluation of the practices. A corporate ethics management program is made up of

values, policies and activities which influence the behaviour of the organisation. The

greater the potential risk, the more important are the ethical practices in an organisation.

Benefits of developing ethical standards in an organisation are as follows:

• Reduces risks and cost in an organisation

• Protects the organisation from unethical employees and agents

• Enhances performance, productivity, and competitive position

• Expands access to capital, credit and foreign investment

• Cultivates strong teamwork and productivity

• Manages values associated with quality

• Promotes a strong public image

• Increases profits and sustains long-term growth

The following are the characteristics of an organisation which are integrated with ethical

standards:

• A clear vision and image of integrity exists throughout the organisation

• The mission and vision of the organisation is possessed and represented by the top

management

• Policies and practices of the organisation are aligned according to the vision of the

organisation

• The organisation has different dimensions which are of proper ethical values

The roles of ethics management program are as follows:

• Establishing ethics committee at the board level

• Establishing ethics management committee

• Assigning an ethics officer

Code of ethics

The code of ethics is the written guidelines issued by an organisation to its management

which assists in conducting its actions according to the ethical standards.

Every organisation needs to develop the code of ethics. The prime goal of the code of

ethics is to focus on the top ethical values needed in the organisation and to avoid

potential ethical dilemmas. The following are the guidelines to develop the code of

ethics in an organisation:

• Reviewing the values that must adhere to the relevant laws and

regulations in an organisation

• Reviewing the values which produce the best traits of a highly ethical and successful

product or service

• Identifying values that address the current issues in the workplace

• Identifying values which needs to undergo proper strategic planning

• Considering the ethical values that are appreciated by stakeholders

• Collecting the high priority ethical values in the organisation. Ethical values include the

following features:

• Trustworthiness – honesty, integrity, promise-keeping, loyalty so on.

• Respect – autonomy, privacy, dignity, courtesy, tolerance, acceptance so on.

• Responsibility – accountability, pursuit of excellence, so on.

• Care – compassion, consideration, giving, sharing, kindness, so on.

• Justice and fairness – procedural fairness, impartiality, consistency, equity, equality,

and due process so on.

• Civic virtue and citizenship – following laws, community service, and environment

protection so on.

• Composing the code of ethics and associating examples with each value which reflect

the idea of each value.

• Phrasing the terms which indicates that all employees are expected to obey the rules

to the values stated in the code of ethics

• Obtaining the reviews from key members of the organisation

• Announcing and distributing the new code of ethics

• Updating the code, at least once a year

Business ethics and business values play a significant role in maintaining standards of

an organisation. The following are the roles played by them:

• Maximises profit – The importance of ethics in business can be understood by the fact

that ethical businesses tend to make more profits than the others. The reason for this is

that the customers of the business which follows ethics are loyal and satisfied with their

services and product offerings. Thus business ethics create loyalty in customers and

maximises the profits.

• Efficient utilisation of business resources – In an organisation, if the top management

officials follow ethical business practices like not appreciating bribe, not cheating the

customers, investors and suppliers etc, then the employees are expected to follow the

same practices. This will result in better and efficient utilisation of the business

resources.

• Creates goodwill in the market – An organisation, which is well known for its ethical

practices always creates goodwill in the market. Investors or venture capitalists always

want to invest in a trustable business. The shareholders also remain satisfied with the

practices of an ethical business.

Corporate Social Responsibility (CSR) is the continuing obligation of a business to

behave ethically and contribute to the economic development of the organisation. It

improves the quality of life of the organisation. The meaning of CSR has two folds. On

one hand, it exhibits the ethical behaviour that an organisation exhibit towards its

internal and external stakeholders. And on the other hand, it denotes the responsibility

of an organisation towards the environment and society in which it operates. Thus 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, consumer

protection, climate protection, caring for the environment, sustainable management of

natural resources, and such other issues. CSR also provides health and safety

measures, preserves employee rights and discourages discrimination at workplace.

CSR activities include commitment to product quality, fair pricing policies, providing

correct information to the consumers, resorting to legal assistance in case of unresolved

business problems, so on.

Example – TATA implemented social welfare provisions for its employees since 1945.

1 Features of CSR

CSR improves the customer satisfaction through its products and services. It also

assists in environmental protection and contributes towards social activities. The

following are the features of CSR:

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

– CSR improves the economic features of an organization by earning profits for the

owners. It also improves the legal and ethical features by fulfilling the law and

implementing ethical standards.

• Builds an improved management system – CSR improves the management system by

providing products which meets the essential customer needs. It develops relevant

regulations through the utilization of innovative technologies in the organisation

• Contributes to countries by improving the quality of management – CSR contributes

high quality product, environment conservation and occupational health safety to

various regions and countries.

• Enhances information security systems and implementing effective security measures

– CSR enhances the information security measures by establishing improved

information security system and distributing them to overseas business sites. The

information system has improved by enhancing better responses to complex security

accidents.

• Creates a new value in transportation – CSR creates a new value in transportation for

the greater safety of pedestrians and automobiles.

This is done by utilising information and technology for automobiles. The information

and technology helps in establishing a safety driving assistance system.

• Creates awareness towards environmental issues – CSR serves in preventing global

warming by reducing the harmful gases emitted into the atmosphere during the process

of business activities.

2 Roles played in terms of ethical conduct

CSR plays a significant role in maintaining ethical conduct in an organisation. The

following are the roles played by CSR:

• Improves the relationships with the investment community and develops better access

to capital and risks

• Enhances ability to recruit, develop and retain staff

• Improves the reputation and branding of the organisation

• Improves innovation, competitiveness and market positioning

• Improves the ability to attract and build effective and efficient supply chain

relationships

• Improves relationships with regulators

• Reduces the costs through re-cycling process

• Enhances stronger financial performance and profitability through operational

efficiency gains

Q.4. What is BCP? Discuss its importance and influence on strategic

management. How contingency planning is related to BCP? (10 marks)

Answer:

Business continuity plan (BCP) is a process followed by an organisation to survive in an

event that causes disruption to normal business processes.

BCP not only includes major disasters (e.g. loss of a building due to natural calamities,

fire accident etc) but also routine interruption (e.g. hard disk crash due to virus, major

power interruption etc).In such cases BCP ensures that critical operations continue to

be available.

According to the Business Continuity Institute, a Business Continuity Plan (BCP) is

defined as:

“A document containing the recovery timeline methodology, test-validated

documentation, procedures, and action instructions developed specifically for use in

restoring organisation operations in the event of a declared disaster. To be effective,

most Business Continuity Plans also require testing, skilled personnel, access to vital

records, and alternate recovery resources including facilities”.

BCP is a collection of procedures which is developed, recorded and maintained in

readiness for use in the event of an emergency or disaster.

Importance of BCP

Every organisation is at risk due to natural disasters like flooding, hurricanes or

earthquakes, or any common causes of systems disasters. Sometimes it can also be

due to human interference like hacking or virus attack. Business Continuity Planning is

important to the continued success of an organisation. They are critical for the

continuous operations in all types of businesses. Every company needs a detailed

contingency plan that ensures continuous business operations in case of any

unforeseen, difficult or catastrophic event occurs. Recently most of the organisations

rely on technology to do business and give more importance to IT and communication

services. They become highly vulnerable to loss of information and service a result of

catastrophe.

BCP is very important due to the following reasons:

• Advanced planning

• Threats

Advanced planning

Many companies have realised that it is not sufficient to implement a generic BCP. For

an efficient response, with respect to continuous operations, it must adopt to specific

risks and catastrophic situations which could range from major building loss to local

system failure. Organisations must plan for the recovery of critical business functions,

using priorities and timescales that were obtained from assessed risks and

accompanying data. BCP must cover the requirements of IT, data and voice

communications as well as of essential personnel and offsite locations. In today's

scenario, it is no longer sufficient for an organisation to recover its technology and

communications infrastructure but it must also have accessible people and

accommodations in which they can work.

Threats

Natural disasters are not the only threats to a business operation. Corporate espionage

organised crime, hacking, whacking packet sniffing etc are some of the man-made

disasters. Hackers could destabilise an organisation's entire operation. To respond to

this threat, it is important to use results generated from risk analysis and management

activity to undertake focused, organisation-specific security testing, including

vulnerability assessment and penetration testing of the network infrastructure.

Where an event causes a company to close down its entire network, it is critical to

ensure that employees and other users still get access to their data and applications as

quickly and securely as possible. To accomplish this, companies can organise various

information management solutions by implementing network management procedures.

In spite of giving attention to Business Continuity Planning following recent terrorist

activities, organisations are still failing to put strategic contingency plans in place.

Gartner, an analyst firm estimates that only 35% of the organisations have a

comprehensive disaster recovery plan in place and fewer than 10% have crisis

management, contingency, business recovery and business resumption plans. This is

an alarming statistic.

Example for corporate espionage and organised crime – An employee of Ellery

Systems Inc. resigned and took the computer software codes with him. The codes had

a potential market value of billion dollars. As they didn‟t implement BCP, Ellery systems

went out of business and its employees lost their jobs. Millions of dollars invested and

many years of hard work were lost.

Influence on Strategy Management

Strategy Management refers to the formation of vision and direction of an organisation,

setting mission statements, identifying markets to achieve the objective of an

organisation.

BCP is concerned with the determination and selection of alternative operating

strategies to be used to maintain the organisation‟s critical activities. BCP strategy

ensures that its activities are aligned with and supports the overall business strategy.

1 Positive effects of BCP on strategy management

A BCP strategy has both positive and negative effects on the organisation. The positive

effects of BCP on strategic management are as follows:

• Structural problems within an organisation can be recognised and resolved. Few

structural problems are as follows:

• Bad organisation of workflow

• Processes moving away from their original purpose within the organisational model

• A clear understanding of processes within an organisation can be obtained by a

business impact analysis within a BCP. This enhances process optimisation program

which results in expenditure reduction in BCP.

• The BCP program addresses „Backlog Trap‟ problem. „Backlog Trap‟ is the combined

restart of the current work and the previous backlog, in situations where severe

backlogs happen due to interruptions for various reasons.

• The BCP program assists in simplifying the processes of recovery from an event.

• BCP program overcomes the effects of organisation‟s hierarchy at all levels which was

affected by an event.

• BCP program identifies the mission critical activities of an organization. This allows the

service level to be monitored in the organisation.

• A good BCP program will identify the vital records to be stored within the

organisational budget.

• Mission critical activities along with BCP program has to focus on the protection of

physical and logistical securities.

2 Negative effects of BCP on strategy management

The negative effects of BCP on strategic management are as follows:

• Change in the BCP program may introduce other risk which has to be identified,

assessed and controlled. In some cases it is beyond the design stage.

• The cost of implementing and testing a BCP program is high.

• Relocating and accommodating recovery team members lead to logistical difficulties.

• More time is required to set up facilities, although it is within the recovery time frame of

BCP program.

• The whole BCP program is time consuming.

Contingency Planning

Contingency planning is a planning strategy that deals with uncertainty by identifying

specific responses to possible future conditions. Contingency planning realises that

future is impossible to predict, so it is best to have a variety of flexible and responsive

solutions available. It is an alternative course of action that can be implemented in the

event when a primary approach fails to function as it should. Contingency plans allow

the businesses and other entities to quickly adapt to the changing circumstances.

1 Concepts

Contingency plans are developed by identifying possible failure in the usual flow of

operations and strategies. Contingency plans should overcome these failures and

continue with the functions of the organisation. Organisations create contingency plans

to achieve the objectives that are listed below:

• Day to day operations of the organisation continue without a great deal of interruption

or interference.

• Backup plan is capable of remaining functional as long as it takes to restore primary

plan.

• Emergency plan minimizes inconvenience to customers, allowing the organisation to

continue providing good and services.

2 Implementation

Contingency plans can be practically applied to any level of organisation as a part of

planning process. It involves the following steps:

• Identify the objectives and targets

• Identify various strategies that help to achieve objectives and targets.

• Evaluate the costs and benefits of each strategy, and rank them according to cost-

effectiveness or benefit/cost ratios. The ranking can take other significant factors into

account such as implementation and other additional benefits.

• Implement the required strategies to achieve the targets. It generally starts with the

most cost effective and easy to implement strategies, and working down the list to more

costly and difficult strategies.

• After they are implemented, assess the programs and strategies with regard to various

performance measures, to ensure that they are effective.

• Evaluate overall results with regard to targets to decide if the additional strategies

should be implemented.

3 Benefits and limitations

Contingency Planning tends to reduce costs, improve efficiency, and increase the range

of possible solutions compared with more rigid planning.

Benefits

As strategies and programs are only implemented if actually needed, so it can be

adjusted to reflect future conditions. Some of the benefits of contingency planning are

as follows:

• Maintains customer support due to excessive system downtime.

• Recovers of vital and or critical business data such as client records, customer data

etc.

• Ability to validate data flow and integrity.

• Decreasing of employee‟s stress and increases in morale.

• Protects key revenue generating projects.

• Decreases operational expenses.

Limitations

The Contingency plan is a special type of system that many professionals find complex

and difficult to work. It has to be kept in readiness to perform in the needed situation. It

is expected to provide an orderly, efficient means for reaching a particular result. Some

of the limitations of Contingency plan are as follows:

• Too complicated - The documentations are not detailed enough for those who need to

use them when they are invoked. There are several plans where there is so much detail

contained within them but the core information is lost under different categories and

levels of incident in the end.

• Poor assumptions – Most of the contingency planning fails because of a bad

assumption of the staff that put it together. Example - Why should it be assumed that

there could be one incident affecting the organization at any one time, it can be more

also. When identifying their key threats, there is also a danger of assuming that “we will

get by”, or even “someone else will do that”.

• Narrow plans – A contingency plan needs to take the threats to the operation in all

aspects of an organisation into account. Plans are too operational, i.e. only including the

threats to specific projects and locations, such as IT, human resources and finance.

Clearly, neither of these approaches led to the contingency plan documentation being

worthy of the name, and each time the organisation needed a significant re-think.

• Not process driven – Many plans have a specific solution in place for dealing with a

specific incident, normally a fire, power failure, IT failure and more recently flu

pandemic. The problem with this method is that the organisation is essentially

unprepared for any other incident, unless the actual incident exactly matches the

planned potential incidents.

Contingency plans need to focus on processes and generic threats such as a building

being unusable, lack of power, lack of telecommunications or a significant proportion of

staff being unavailable.

• Lack of tested contingency plans – Only by testing a plan in actual conditions, it is

possible for an organisation to identify the improvements that are needed, and the

limitations inbuilt within the plan. Organisations must test their contingency plans before

they are needed to ensure they work, and that they are prepared to move on to the next

level of response when necessary.

• Outdated – Any contingency plan document needs to be updated to ensure that it

remains relevant in the time of crisis.

Q. 5 Mention any 5 successful strategic alliances and discuss the key aspects

concerned with it. What kinds of problems were faced by companies that were

involved in these strategic alliances? (10 marks)

Answer:

The different types of strategic alliances are listed below:

1 Joint venture

Joint 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, both the

organisations invest on the resources like money, time and skills to achieve the

objectives. Joint venture has been the hallmark for most successful organisations in the

world. An individual partner in joint venture may offer time and services whereas the

other focuses on investments. This pools the resources among the organizations and

helps each other in achieving the objectives. An agreement is formed between the two

parties and the nature of agreement is truly beneficial with huge rewards such that the

profits are shared by both the organisations.

The advantages of joint venture are:

• A long term relationship is built among the participating organisations

• It Increases integrity by teaming with other reputable and branded organisations

• Helps in gaining new customers

• It helps in investing little money or no money

• It provides the capability to compete in the market with other organisations

• Reduces production time as the organisations are into join venture

• More new products and services can be offered to the customers

The disadvantages of joint venture are:

• Sometimes the organisations deal with wrong people, thereby losing investments

• The organisations do not have the opportunity to take up decisions individually

• There are risks of disputes among the organisations that lead to poor performance

• If the organisation enters into joint venture agreement with unprofessional selfish

organisation, then it increases the risk of hurting business reputation and devastating

customer’s trust.

Example – The China Wireless Technologies, a mobile handset maker is getting into an

agreement with the Reliance Communications Ltd (RCom) to launch its new mobile.

The joint venture between the two companies is to gain profits and provide affordable

mobile phones to the market that consists of advanced features and aims to earn eight

billion dollars in the next five years. The new mobile consists of dual SIM smart phone

with 3G technology at a cheaper rate.

2 Mergers and acquisitions

Merger is the process of combining two or more organisations to form a single

organisation and achieve greater efficiencies of scale and productivity. The main reason

to involve into mergers is to join with other company and reap the rewards obtained by

the combined strengths of two organisations. A smart organisation’s merger helps to

enter into new markets, acquire more customers, and excel among the competitors in

the market. The participating organisation can help the active partner in acquiring

products, distribution channel, technical knowledge, infrastructure to drive into new

levels of success.

With the perception of the organisation structure, here are a few types of mergers. The

different types of mergers are:

• Horizontal merger – The horizontal merger takes place when two organisations

competing in the same market join together. This type of merger either has a maximum

or minimum effect on the market. The minimum effect could also be zero. They share

the same product line and markets. The results of the mergers are less noticeable if the

small organisations horizontally merge. Consider a small local drug store that

horizontally merges with another small local drug store, then the effect of this merger on

drug market would be minimal.

But when the large organisations set up horizontal merger, then higher profits are

obtained in the market share providing advantages over its competitors. Consider two

large organisations that merge with twenty percent share in the market. They achieve

forty percent increase in the market share. This is an added advantage of the

organisations over its competitors in the market.

• Vertical merger – This involves the union of a customer with the vendor. It is the

process of combining assets to capture a sector of the market that it fails to acquire as

an individual organisation. The participating organisations determine the intentions of

joining forces that will strengthen the current positions of both the organisations and lay

basis for expanding into other areas. The purpose of a vertical merger is to build the

strengths of the two organisations for an effective future growth. In order to explore new

methods of using existing products to create a new product line for wider markets, it is

also important to consider the assets like property, buildings, inventories and cash

assets.

The vertical merger involves careful planning.

• Market-extension merger – It is the process of merging two organisations that sell

same products in different geographical areas.

The main purpose of this merger is to make the merging organizations to achieve higher

positions in bigger markets and ensure a bigger base for client.

• Product-extension merger – Most of the organisations execute product extension

merger to sell different products of a related category. They serve the common market.

This merger enables the new organizations to pool their products to serve a common

market.

• Conglomerate merger – This merger involves organisations alliance with unrelated

type of business activities. The organisations under conglomerate merger are not

related either horizontally or vertically. There are no important common factors among

the organisations in terms of production, marketing, research, development and

technology. It is the union of different kinds of businesses under one management

organisation. The main purpose of this merger is to utilise financial resources; enlarge

debt capacity and obtaining synergy of managerial functions. The organisations do not

share the resources; instead it focuses on the process of acquiring stability and using

resources in a better way to generate additional revenue.

Acquisition is the process of purchasing an organisation by another organisation, either

through the purchase of its shares or assets.

Massive growth can only be achieved in less time by buying other organisations.

Acquisitions have become the major entity for growth in market these days. Most of the

organisations choose to grow by acquiring other organisations to increase market

share, gain access to new technologies, achieve synergies in the operations, to develop

distribution channels, and to obtain control of undervalued assets. There are many risks

in acquisition like clashes in the culture of organisation, key employees may leave,

synergies may fail to emerge, assets may be less valued than perceived etc.

Mergers and acquisitions are often similar. In many cases, a larger firm may acquire a

relatively less powerful organisation and force it to announce the process as merger.

But in reality, an acquisition has taken place. Most of the firms declare it as merger to

avoid disputes and negative impression.

3 Collaborations and co-branding

Collaboration is the process of cooperative agreement of two or more organisations

which may or may not have previous relationship of working together to achieve a

common goal. It is the beginning to pool resources like knowledge, experience and

sharing skills of team members to effectively contribute to the development of a product

rather working on narrow tasks as an individual team member in support to the

development. Such collaborations are the foundation for concepts like concurrent

engineering or integrated product development.

Collaboration is a win-win methodology. It means that both the organizations insist upon

each other to gain equal profits with no negative attitude of acquiring each other’s

possessions.

Effective collaboration can be obtained by the following actions:

The organisations must get involve in the process from the beginning and avail the

necessary resources for collaboration.

• The work culture in the organisation must encourage teamwork, cooperation and

collaboration.

• There must be effective team work and cooperation among the employees of both the

organisations to achieve the goal.

• Systematic approach of product development process must be based on sharing of

information, technology etc.

Co-branding involves the process of combining two or more brands into a single product

or service. It is becoming a positive way to associate different brands and develop a

strong brand in the market. It creates synergy among the various brands. An organised

co-branding strategy leads the co brand partners to a win-win situation and helps in

realising large demands in the market.

The co-branding agreement includes the important aspects such as rights, obligations,

and restrictions that are abiding to both the organisations. It also includes important

provisions and the needs must be carefully drafted to provide clear guidelines to the

involved organisations. The organizations form co-branding to accomplish many goals

which include expansion of customers, obtain financial benefits, respond to the needs of

customers, strengthening its competitive position, introducing new product with strong

image and to gain operational benefits.

It is more frequently used in the field of fashion and apparels. It can also be used for

promoting campaigns, using cartoons on T-shirts, logos, distributing through branded

retailer etc.

Example – The sportswear giant Nike formed co-branding agreements with Philips

consumer electronic products. The Philips electronic products will contain Nike’s logos

and it is mainly marketed in United States since the market share of Philips is not much

impressive. The newly introduced digital audio player and portable CD players of Philips

will be unveiled with the Nike logo to enhance profits in the market share in United

States.

4 Technological partnering

It is the process of associating the technologies of two different companies to achieve a

common goal. The two organisations work as co-owners in business and share the

profits and losses. The technologies of individual organisations are shared to achieve

desired outcome. The required resources like knowledge, machinery, and expertise are

collaborated between the organisations.

Example – The software giant, Infosys Technologies Ltd. has entered into partnership

with US based NVIDIA, GPU inventor and the world's visual technologies giant. The

purpose of this partnering is to develop NVIDIA CUDA (Compute Unified Device

Architecture). This technology is viewed as the next big revolution in the field of

technology in lending high performance in computing. The software helps the

developers of various applications to tap into the previously uncultivated power of the

GPU. This will enable certain applications to achieve high performance. The capacity of

CUDA is expected to multiply fifty times the performance of existing computing and

reduce the run time to advance the user enterprise.

5 Contractual agreements

It is the process of agreement with specific terms between two or more organisations

which guarantee in performing a specific task in return for a valuable benefit. The

contractual agreement is the heart of business dealings. It is the most significant areas

of legal concern and involves variations in certain situations and complexities.

The organisations require analysing fundamental factors before involving in contractual

agreements.

The elements to be analysed are:

• It is necessary to identify the type of offer being laid by the organization to make an

agreement.

• The acceptance of the information involved in offer which results in meeting the market

needs.

• The organisations are required to recognise the strong commitment towards the

contractual agreement.

• Systematic scheduling of the process involved in manufacturing product without any

hindrances to both the organisations.

• Discover the terms and conditions for manufacturing the product and the guarantee of

the organisations in fulfilling it.

The contract agreement includes several documents such as letters, orders, offers and

counteroffers.

There are various types of contractual agreements. They are:

• Conditional – It is based on occurrence of an event.

• Joint and several – The organisations promise to perform together but still they

possess individual responsibilities.

• Implied – The judicial court will determine the contract between the organisations

based on circumstances. The parties will be able to buy all manufactured products,

enter into a contract to supply other’s requirements, or renewal of the existing contract.

Problems Involved in Strategic Alliances

There are numerous problems related to strategic alliances. Some of them are:

• One of the organisations suffers benefits due to incoherent goals

• Lack of trust between the organisations lead to poor performance in achieving the

desired goal

• The existence of conflicts between the organisations due to internal

issues like personnel and resources causes problem to the strategic

alliance

• Lack of commitment between the organisations leads to termination of

the alliance contract

• Many organisations experience the risk of sharing too much knowledge

with the partner organisation to become a competitor

• Reduces the possibility of future opportunities of getting into agreement

with partner’s competitors

Q. 6 Give a note on strategic evaluation and strategic control. (10 marks)

Answer:

The core aim of strategic management succeeds only if it generates a positive outcome.

Strategic evaluation and control consists of data and reports about the performance of

the organisation. Improper analysis, planning or implementation of the strategies will

result in negative performance of the organisation. The top management needs to be

updated about the performance to take corrective actions for controlling the undesired

performance.

All strategies are subject to constant modifications as the internal and external factors

influencing a strategy change constantly. It is essential for the strategist to constantly

evaluate the performance of the strategies on a timely basis. Strategic evaluation and

control ensures that the organization is implementing the relevant strategy to reach its

objectives. It compares the current performance with the desired results and if

necessary, provides feedback to the management to take corrective measures.

Strategic evaluation consists of performance and activity reports. If performance results

are beyond the tolerance range, new implementation procedures are introduced. One of

the obstacles to effective strategic control is the difficulty in developing appropriate

measures for important activities. Strategic control stimulates the strategic managers to

investigate the use of strategic planning and implementation. After the evaluation, the

manager will have knowledge about the cause of the problem and the corrective

actions.

The five step process of strategic evaluation and control is illustrated in Figure

Figure : Strategy Evaluation and Control Process

Retrieved from Concepts in Strategic Management and Business Policy by Thomas

L.Wheelen, J.David Hunger (2002), Pearson Education, New Delhi.

• Recognise the activity to be measured – Top management including the operations

manager has to specify the implementation processes and the results that are to be

evaluated. The processes and results must be compared with the organisation‟s

objectives in a consistent manner. The strategy of all the important areas must be

evaluated irrespective of the difficulty. However, focus should be on the most significant

elements in a process. Example – The process that accounts for the highest proportion

of expense, the greatest number of problems etc.

• Create the pre-established standards – Strategic objectives provide a crystal view of

the standards to measure performance. Each standard defines a tolerance range for

acceptable deviations. Standards can also be set for the output of intermediate stages

of production along with the final output.

• Measure actual performance – Actual performance must be measured on a timely

basis.

• Status of actual performance – If the results of the actual performance are within the

tolerance range, the evaluation process stops here.

• Take remedial action – If the actual performance result exceeds the tolerance range,

corrective actions must be taken to control the deviation. The following questions must

be answered:

i) Is the variation, a minor or temporary fluctuation?

ii) Are the procedures being implemented appropriately?

iii) Are the procedures appropriate to the achievement of the desired standard?

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