Master of Business Administration-MBA Semester 4MB0052 – Strategic Management and Business Policy

Assignment Set- 1

Q1. What is meant by ‘Strategy’? Differentiate between goals and objectives.

Ans: Johnson and Scholes define strategy as follows:

"Strategy is the direction and scope of an organisation over the long-term: which achieves advantage for the organisation through its configuration of resources within a challenging environment, to meet the needs of markets and to fulfil stakeholder expectations".

In other words, strategy is about:

* Where is the business trying to get to in the long-term (direction)

* Which markets should a business compete in and what kind of activities are involved in such markets (markets; scope)

* How can the business perform better than the competition in those markets (advantage)

* What resources (skills, assets, finance, relationships, technical competence, facilities) are required in order to be able to compete (resources)

* What external, environmental factors affect the businesses' ability to compete (environment)

* What are the values and expectations of those who have power in and around the business? (stakeholders)

Differentiate between Goals and Objectives

Goals are statements that provide an overview about what the project should achieve. It should align with the business goals. Goals are long-term targets that should be achieved in a business. Goals are indefinable, and abstract. Goals are hard to measure and do not have definite timeline. Writing clear goals is an essential section of planning the strategy.

Example - One of the goals of a company helpdesk is to increase the customer satisfaction for customers calling for support.

Objectives are the targets that an organisation wants to achieve over a period of time.

Example - The objective of a marketing company is to raise the sales by 20% by the end of the financial year.

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Example - An automobile company has a Goal to become the leading manufacturer of a particular type of car with certain advanced technological features and the Objective is to manufacture 30,000 cars in 2011.

Both goals and objectives are the tools for achieving the target. The two concepts are different but related. Goals are high level statements that provide overall framework about the purpose of the project. Objectives are lower level statements that describe the tangible products and deliverables that the project will deliver.

Goals are indefinable and the achievement cannot be measured whereas the success of an objective can be easily measured. Goals cannot be put in a timeframe, but objectives are set with specific timelines. The difference between organisational goals and objectives is depicted in table given below.

Differences between Organisational Goals and Objectives

Goals ObjectivesAre long term Are usually meant for short termAre general intentions with broad outcome Are precise statements with specific outcome

Cannot be validated Can be validatedAre intangible can be qualitative as well as quantitative

Are tangible are usually quantitative and measurable

Are abstract Are concrete

Q2. Define the term “Strategic Management”. What are the types of strategies?

Ans: Strategic management is a systematic procedure of analysing, planning and implementing strategies in an organisation to gain continued success.

Importance of strategic management:• To cope with changing business environment in an organisation. • To formulate business activities which provide financial performance.• To gain competitive advantages.

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The Key features of strategic management are:

The role of strategists involve thinking, planning and implementing relevant strategies to gain long term goal in the organisation.Strategists are present at various management levels in an organisation:

• Top level management• Board of directors• Planning staff

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Type of strategies

1. Corporate level – It consists of board of directors and CEO in framing strategies. The strategies are influential, pioneering and futuristic in nature.

The strategies in corporate level are:• Stability and expansion strategy• Retrenchment strategy • Corporate restructure • Concept of synergy (Combination strategy)

2. Business level – It deals with formulating the objectives and allocating appropriate resources to various functional areas in the organisation.

The main features of business strategies are:• Business stakeholders • Achieving Cost Leadership and differentiation • Risk factors • External risk• Internal risk

3. Tactical of Functional level – It consists of strategies specific to functional areas and decisions at functional level are tactical.

The two types of functional level strategies are:

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• Procuring and managing• Monitoring and directing

4. Operational level – It refers to the implementation of strategic decisions and translation of strategic decisions into strategic actions at corporate level.

The main aspects of operational level are:• Achieving cost and operational efficiency • Optimal utilisation of resources • Productivity

Q3. Describe Porter’s five forces Model?

Ans: Porters Five Force model

Michael E. Porter has identified five competitive forces that influence every industry and market. The level of these forces determines the intensity of competition in an industry. The objective of corporate strategy should be to revise these competitive forces in a way that improves the position of the organisation.

Porter explains that there are five forces that determine industry attractiveness and long-run industry profitability. These five "competitive forces" are

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- 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 competitors

Threat of New Entrants

New entrants to an industry can raise the level of competition, thereby reducing its attractiveness. The threat of new entrants largely depends on the barriers to entry. High entry barriers exist in some industries (e.g. shipbuilding) whereas other industries are very easy to enter (e.g. estate agency, restaurants). Key barriers to entry include

- Economies of scale- Capital / investment requirements- Customer switching costs- Access to industry distribution channels- The likelihood of retaliation from existing industry players.

Threat of Substitutes

The presence of substitute products can lower industry attractiveness and profitability because 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 substitutes

Bargaining Power of Suppliers

Suppliers 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 a significant impact on a company's profitability. If suppliers have high bargaining power over a company, then in theory the company's industry is less attractive. The bargaining 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 manufacturers threatening to set up their own retail outlets)- Buyers do not threaten to integrate backwards into supply- The industry is not a key customer group to the suppliers

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Bargaining Power of Buyers

Buyers are the people / organisations who create demand in an industry

The bargaining power of buyers is greater when

- There are few dominant buyers and many sellers in the industry- Products are standardised- Buyers threaten to integrate backward into the industry- Suppliers do not threaten to integrate forward into the buyer's industry - The industry is not a key supplying group for buyers

Intensity of Rivalry

The intensity of rivalry between competitors in an industry will depend on:

- The structure of competition - for example, rivalry is more intense where there are many small or equally sized competitors; rivalry is less when an industry has a clear market leader

- The structure of industry costs - for example, industries with high fixed costs encourage competitors to fill unused capacity by price cutting

- Degree of differentiation - industries where products are commodities (e.g. steel, coal) have greater rivalry; industries where competitors can differentiate their products have less rivalry

- Switching costs - rivalry is reduced where buyers have high switching costs - i.e. there is a significant cost associated with the decision to buy a product from an alternative supplier

- Strategic objectives - when competitors are pursuing aggressive growth strategies, rivalry is more intense. Where competitors are "milking" profits in a mature industry, the degree of rivalry is less

- Exit barriers - when barriers to leaving an industry are high (e.g. the cost of closing down factories) - then competitors tend to exhibit greater rivalry.

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Q4. What is strategic formulation and what are its processes?

Ans: Strategy Formulation

Strategy formulation is the development of long term plans. It is used for the effective management of environmental opportunities and for the threats which weaken corporate management. Its objective is to express strategical information to achieve a definite goal.

The following are the features of strategy formulation:

• Defining the corporate mission and goal• Specifying achievable objectives• Developing strategies• Setting company policy guidelines

Strategic formulation involves effective strategic decision making and strategic choice.

Process in Strategy Formulation

In this section, we will discuss about the strategy formulation process. The main processes involved in strategy formulation are as follows:

1. Stimulate the identification - Identifying useful information like planning for strategic management, objectives to achieve the goals of the employees and the stakeholders.

2. Utilisation and transfer of useful information as per the business strategies - A number of questions arising during utilisation and transfer of information have to be solved The questions that arise during utilisation and transfer of information are the following:

3. Who has the requested information?

4. What is the relationship between the partners who holds the requested information?

5. What is the nature of the requested information?

6. How can we transfer the information?

Henry Mintzbergs contribution to strategic planning

Henry Mintzberg is a well-known academician and generalist writer who has written about strategy and organisational management. His approach is broad, involving the study of the actions of a manager and the way the manager does it. He believes that management is about applying human skills to systems, but not systems to people.

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Mintzberg states certain factors as the reason for planning failure. The factors are as follows:

Processes - The elaborate processes used in the management such as creation of bureaucracy and suppression of innovation leads to strategic planning failure.

Data - According to Mintzberg, hard data (the raw material of all strategists) provides information whereas soft data (the data gathered from experience) provides wisdom which means that soft data is more relevant than the hard data.

Detachment - Mintzberg says that effective strategists are people who do not distance themselves from the details of a business. They are the ones who immerse themselves into the details and are able to extract the strategic messages from it.

In 1993, Henry Mintzberg concluded that planning is a formalized procedure to produce a coherent result in the form of an integrated system of decisions. The objectives must be explicitly labeled by words after being carefully decomposed into strategies and sub-strategies.

Q5. Explain strategic evaluation and its significance?

Ans: Strategy Evaluation

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 organisation 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.

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The five step process of strategic evaluation and control is illustrated in figure 5.1.

Strategy Evaluation and Control Process

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 organisations 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.

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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?

Requirements of strategic evaluation

Information of strategic evaluation activities needs to be economical, crisp, clear and concise. It should be directly related to the organisations objectives. It should provide valuable information to the managers about the activities over which they have control and authority. Strategic activities should provide well-timed information. At times, managers need this information on a regular basis.

Strategic management should provide an accurate picture of the current activities of the organisation. Example In a severe financial dip, profit ratio will fluctuate irrespective of the hard work of the employees and the managers. Strategic evaluation should deliver action oriented reports rather than information oriented. These reports should be directed to those individuals who are influenced to take corrective measures.

This process should not dictate the decision but rather promote reasonability, faith and mutual understanding between the personnel and the organisation. Strategic evaluation needs active participation and cooperation of all the departments in the organisation. Strategic evaluation should be simple, manageable and encourage to achieving the common goal. Strategic evaluation is rewarding only when it is effectively used.

It is more difficult to organise and develop cooperation between different departments and functional areas in large organisations. So, they need highly structured and in depth strategic evaluation system. Small companies just need a brief report of evaluation as their familiarity and internal communication within the organisation to gather and evaluate information from local environment is at ease. The key to an effective strategic evaluation lies in the managers ability to convince participants. Strategic evaluation system differs for every organisation depending on its objectives, strengths, challenges, size, management style etc.

Importance of effective strategic evaluation

The strategic-evaluation process with constantly updated corrective actions results in significant and long-lasting consequences. Strategy evaluation is vital to an organisations well-being as timely evaluations can alert the management about potential problems before the situation becomes critical. Successful strategists combine patience with a willingness to take corrective actions promptly, when necessary.

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Evaluation Process of an Implemented Strategy

Frequent strategic evaluation activities can control the negative consequences of the environmental complexity and instability issues. Success today does not guarantee success tomorrow! However, the frequencies of strategic evaluation performed were surprisingly found to be vice-versa in stable and unstable industries. Management in dynamic industries seems to have performed fewer strategic evaluation activities when compared to those in stable industries. Lindsay and Rue concluded that forecasting is more difficult under complex and unstable environmental conditions. So, strategists may see less need for frequent evaluation of their long-range plans.

Q6. Define the term “Business policy”. Explain its importance.

Ans: Business policies are the instructions laid by an organisation to manage its activities. It identifies the range within which the subordinates can take decisions in an organisation. It authorizes the lower level management to resolve their issues and take decisions without consulting the top level management repeatedly. The limits within which the decisions are made are well defined. Business policy involves the acquirement of resources through which the organisational goals can be achieved. Business policy analyses roles and responsibilities of top level management and the decisions affecting

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the organisation in the long-run. It also deals with the major issues that affect the success of the organisation.

Features of business policy

Following are the features of an effective business policy:

Specific- Policy should be specific and identifiable. The implementation of policy is easier if it is precise.

Clear - Policy should be clear and instantly recognizable. Usage of jargons and connotations should be avoided to prevent any misinterpretation in the policy.

Uniform Policy should be uniform and consistent. It should ensure uniformity of operations at different levels in an organisation.

Appropriate Policy should be appropriate and suitable to the organisational goal. It should be aimed at achieving the organisational objectives.

Comprehensive Policy has a wide scope in an organisation. Hence, it should be comprehensive.

Flexible Policy should be flexible to ensure that it is followed in the routine scenario.

Written form To ensure uniformity of application at all times, the policy should be in writing.

Stable Policy serves as a guidance to manage day to day activities. Thus, it should be stable.

Importance of Business Policies

A company operates consistently, both internally and externally when the policies are established. Business policies should be set up before hiring the first employee in the organisation. It deals with the constraints of real-life business.

It is important to formulate policies to achieve the organisational objectives. The policies are articulated by the management. Policies serve as a guidance to administer activities that are repetitive in nature. It channels the thinking and action in decision making. It is a mechanism adopted by the top management to ensure that the activities are performed in the desired way. The complete process of management is organised by business policies.

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Business policies are important due to the following reasons:

Coordination Reliable policies coordinate the purpose by focusing on organisational activities. 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 help subordinates to take decisions with confidence without consulting their superiors every time. Every policy is a guide to activities that should be followed in a particular situation. It saves time by predicting frequent problems and providing ways to solve them.

Effective control Policies provide logical basis for assessing performance. They ensure that the activities are synchronized with the objectives of the organisation. It prevents divergence from the planned course of action. The management tends to deviate from the objective if policies are not defined precisely. This affects the overall efficiency of the organisation. Policies are derived objectives and provide the outline for procedures.

Decentralization Well defined policies help in decentralization as the executive roles and responsibility are clearly identified. Authority is delegated to the executives who refer the policies to work efficiently. The required managerial procedures can be derived from the given policies. Policies provide guidelines to the executives to help them in determining the suitable actions which are within the limits of the stated policies. Policies contribute in building coordination in larger organisations.

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