Strategic Management and Business Policy MB0052

Assignment Fall 2012 MBA IV

Q1. What do you understand by the term Strategy in the context of Business Management and Policy? And what are the stages in the formulation of a Strategy? Ans: The word strategy is derived from the Geek word strategia, and conventionally used as a military term. It means a plan of action that is designed to achieve a particular goal. Strategy is the method by which an organization systematically achieves its future objectives. Strategy is a common direction set for the company and its various components to accomplish a desired position in the future. A meticulous planning process results in strategy. The strategy is advantageous to the organization through its configuration of resources within a challenging 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 organization over rivals through differentiation. Creating a strategy begins with extensive research and analysis. It is a process through which senior management concentrates on top priority issues tackled by the company to be successful in a long term. Strategy is always improving and is amendable. Business strategy is the method by which an organization achieves and maintains its success. If an organization cannot identify its strategy clearly then it will struggle to survive in the competitive market. The main stages involved in strategy formulation are as follows: Stimulate the identification - Identifying useful information like planning for strategic management, objectives to achieve the goals of the employees and the stakeholders. Utilization and transfer of useful information as per the business strategies - A number of questions arising during utilization and transfer of information have to be solved The questions that arise during utilization and transfer of information are the following: Who has the requested information? What is the relationship between the partners who holds the requested information? What is the nature of the requested information? How can we transfer the information? We will learn about Henry Mintzbergs contribution to strategic planning in this section. Henry Mint berg is a well-known academician and generalist writer who has written about strategy and organizational 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. Mint berg 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 Mint berg, 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 Mint berg 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.

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Strategic Management and Business Policy MB0052

Assignment Fall 2012 MBA IV

In 1993, Henry Mint berg 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. Strategic implementation plays a significant role in the smooth functioning of systematic management. A task is not completed until it is implemented properly. We can define the implementation process as a link between the projects or resources and their action plans. It finally helps us in strategic evaluation. A broad implementation plan drives the strategic implementation, which in turn, drives an individual project action plan. The action plan follows a hierarchy of tasks, realistic time tables, by means of identifying proper human resource, performance measures and evaluation systems. We will discuss strategy implementation in the following three aspects: Organizational structure and systems Resource procurement Functional and operational plans Q2. What, in brief, are the types of Strategic Alliances and the purpose of each? Supplement your answer with one real life example of each. Ans: Strategic alliance is the process of mutual agreement between the organisations to achieve objectives of common interest. They are obtained by the co-operation between the companies. Strategic alliance involves the individual organisations to modify its basic business activities and join in agreement with similar organisations to reduce duplication of manufacturing products and improve performance. It is stronger when the organisations involved have balancing strengths. Strategic alliances contribute in successful implementation of strategic plan because it is strategic in nature. It provides relationship between organisations to plan various strategies in achieving a common goal. The mutual agreements between the organisations can take a number of forms and are increasing their common goals to get upper hand over their competitors. 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 organisations 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

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Strategic Management and Business Policy MB0052

Assignment Fall 2012 MBA IV

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 individuallyThere 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 customers 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 organisations 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: 1. 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. 2. 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

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Strategic Management and Business Policy MB0052

Assignment Fall 2012 MBA IV

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. 3. 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 organisations to achieve higher positions in bigger markets and ensure a bigger base for client. 4. 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 organisations to pool their products to serve a common market. 5. 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. 6. 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 organisations insist upon each other to gain equal profits with no negative attitude of acquiring each others 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. a. The work culture in the organisation must encourage teamwork, cooperation and collaboration. b. There must be effective team work and cooperation among the employees of both the organisations to achieve the goal.

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Strategic Management and Business Policy MB0052

Assignment Fall 2012 MBA IV

c. 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 organisations 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 Nikes 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. 7. Technological partnering - It is the process of associating the technologies of two different companies to achieve a common goal. The two organisations work as coowners 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.

Q3.

What is a Business Plan? What purpose does it serve?

Ans: A business plan is a complete internal document that summarises the operational and financial objectives of a business. It also contains the detailed plans which show how the objectives are being accomplished. An accurately made business plan helps to allocate resources properly, to handle unforeseen complications like financial crisis and to make good business decisions. On the other hand, business venture is a start-up enterprise which is formed with expectations and plans of achieving financial gain. Once the need of the organisation is identified, it can be started by a small investor that has valuable resources and time. Other investors involve Sudip Konar Roll No. 521135105, Page 5 of 12

Strategic Management and Business Policy MB0052

Assignment Fall 2012 MBA IV

themselves by providing support for further development of the venture once the business is created. In the case of establishing a business venture, a formal business plan is written to outline the purpose and mission of the business for the future use. Every entrepreneur creates a business plan and its completion will determine the feasibility of the plan. The strategies for creating a business plan are as follows: Define your business vision You must clear the following queries while defining the business vision: o Who is the customer? o What business are you in? o What do you sell (product/service)? o What is your plan for growth? o What is your primary competitive advantage? Make a list of your goals You must create a list of goals after proper research. In case of a start up business, more effort must be put on the short-term goals. Certain things must be kept clear before setting up your goal. They are listed below: o What do you want to achieve? o How much growth you want to achieve? o Describe the quality and quantity of the service and the customer satisfaction levels? o How would you describe your primary competitive advantages? Understanding the customer Understanding the customer is essential for a perfect business plan. You must understand the customer in terms of the following factors: o Needs The following customer requirements should be understood clearly: What unmet needs do your customers have? How does your business meet those needs? o Problems Customers buy things to solve their specific problems. Always be specific about the advantages of the product/services of your business which resolve the customers problems. o Perceptions Always try to know the perception of the customer. Clarify the doubts of the customer regarding your profession and the products/services of your business. Learn from your competitors You can learn a lot about the business and the customers by looking at the business of your competitors. Always get the answers of the following questions which will assist you in learning from your competitor and focusing on your customer. o What do you know about your target market? o What competitors do you have? o How are competitors approaching the market? o What are the competitors weaknesses and strengths? o How can you improve upon the competitions approach? Resolving financial matters Several questions might arise when we need to make financial decisions. They are as follows: o How will you make money? o What is the profit potential of your business? o You can resolve the financial issues by taking smart strategic investment decisions. Sudip Konar Roll No. 521135105, Page 6 of 12

Strategic Management and Business Policy MB0052

Assignment Fall 2012 MBA IV

Identify your marketing strategy Identifying the marketing strategy is another essential skill which you must have. The following are the four steps to create a marketing strategy for your business: o Identify all the target markets o Qualify the best target markets o Identify the tools, strategies and methods o Test the marketing strategy and tools

Q4. What is the chief purpose of a Business Continuity Plan and what are its components for effective implementation. Explain in a sentence or two as to how it is different from a Business Plan. Ans: The Business Continuity Plan is a tool to allow organizations to consider the factors and steps necessary to prepare for a crisis (disaster or emergency) so that it can manage and survive the crisis and take all appropriate actions to help ensure the organizations continued viability. The advisory portion of the plan is divided into two parts: Planning process: It provides step-by-step Business Continuity Plan preparation and activation guidance, including readiness, prevention, response, and recovery/ resumption. Implementation and maintenance: It gives the details of tasks required for the Business Continuity Plan to be maintained as a living document, changing and growing with the organization and remaining relevant and executable. The purpose of the business continuity plan is to prepare to face the unthinkable situations that may threaten an organizations future. This new challenge goes beyond the mere emergency response plan or disaster management activities that we previously employed. Organizations now must engage in a comprehensive process best described generically as Business Continuity. It is no longer enough to draft a response plan that anticipates naturally, accidentally, or intentionally caused disaster or emergency scenarios. Todays threats require the creation of an on-going, interactive process that serves to assure the continuation of an organizations core activities before, during, and most importantly, after a major crisis event. In the simplest of terms, it is good business for a company to secure its assets. CEOs and shareholders must be prepared to budget for and secure the necessary resources to make this happen. It is necessary that an appropriate administrative structure be put in place to effectively deal with crisis management. Following steps are required to fulfilled for effective implementation of the business continuity plan: Sudip Konar Roll No. 521135105, Page 7 of 12

Strategic Management and Business Policy MB0052

1.

Assignment Fall 2012 MBA IV

Educate and Train: The BCP is only as valuable as the knowledge that others have of it. Education and training are necessary components of the BCP process. They require a time commitment from the Crisis Management Team, the Response Teams, and the general employee population.

2.

Educate and Train Teams: The Crisis Management and Response Teams should be educated about their responsibilities and duties. Check lists of critical actions and information to be gathered are valuable tools in the education and response processes.

3.

Educate and Train All Personnel: All personnel should be trained to perform their individual responsibilities in case of a crisis. Such training could include procedures for evacuation, shelter-in-place, check-in processes to account for employees, arrangements at alternate worksites, and the handling of media inquiries by the company.

4.

Review of BCP: The BCP should be regularly reviewed and evaluated. Reviews should occur according to a pre-determined schedule, and documentation of the review should be maintained as necessary. The following factors can trigger a review and should otherwise be examined once a review is scheduled: Risk Assessment Sector/Industry Trends Regulatory Requirements Event Experience Test/Exercise Results

5.

Maintenance of BCP: Regular maintenance of the BCP cannot be overemphasized. Clear responsibility for BCP maintenance should be assigned. Maintenance can be either planned or unplanned and should reflect changes in the operation of the organization that will affect the BCP.

Difference between a Business plan & Business continuity Plan a. A Business plan is a detailed description of how an organisation intends to produce, market and sale a product or service. A Business continuity plan is an ongoing process supported by senior management and funded to ensure that the necessary steps are taken to identify the impact of potential losses, maintain viable recovery strategies and plans, and ensure the continuity of operations through personnel training, plan ,testing and maintenance.

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Strategic Management and Business Policy MB0052

b.

Assignment Fall 2012 MBA IV

A Business continuity plan is a tool which allows organisations to consider the factors and steps necessary to prepare for a crisis.(disaster or emergency). Whereas a business plan is not prepared for such type of disaster or emergency.

In a business continuity plan, a necessary Administrative structure is put in place to effectively deal with crisis management, whereas, in a business plan, no such administrative structure is available. Q5. Take any three examples of the components of a Decision Support System and explain how they help decision making. Ans: Following are the three components of a Decision Support System.

1. Annual Budget: It is really a business plan. The budget allocates amounts of money to every activity and/or department of the firm. As time passes, the actual expenditures are compared to the budget in a feedback loop. During the year, or at the end of the fiscal year, the firm generates its financial statements: the income statement, the balance sheet, the cash flow statement. When putting together, these four documents are the formal edifice of the firms finances. However, they can not serve as day-to-day guides to the General Manager. 2. Daily Financial Statements: The Manager should have access to continuously updated statements of income, cash flow, and a balance sheet. The most important statement is that of the cash flow. The manager should be able to know, at each and every stage, what his real cash situation is as opposed to the theoretical cash situation which includes accounts payable and account receivable in the form of expenses and income. 3. The Daily Ratios Report: This is the most important part of the decision support system. It enables the Manager to instantly analyse dozens of important aspects of the functioning of his company. It allows him to compare the behaviour of these parameters to historical data and to simulate the future functioning of his company under different scenarios. It also allows him to compare the performance of his company to the performance of his competitors, other firms in his branch and to the overall performance of the industry that he is operating in. The Manager can review these financial and production ratios. Where there is a strong deviation from historical patterns, or where the ratios warn about problems in the future management intervention may be required. Examples of the Ratios to be Included in the Decision System

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Strategic Management and Business Policy MB0052

SUE measure deviation of actual profits from expected profits ROE the return on the adjusted equity capital Debt to equity ratios ROA the return on the assets The financial average ROS the profit margin on the sales ATO asset turnover, how efficiently assets are used Tax burden and interest burden ratios Compounded leverage Sales to fixed assets ratios Inventory turnover ratios Days receivable and days payable

Assignment Fall 2012 MBA IV

Current ratio, quick ratio, interest coverage ratio and other liquidity and coverage ratios Valuation price ratios And many others A decision system has great impact on the profits of the company. It forces the management to rationalize the depreciation, inventory and inflation policies. It warns the management against impending crises and problems in the company. It specially helps in following areas: a. The management knows exactly how much credit it could take, for how long (for which maturities) and in which interest rate. It has been proven that without proper feedback, managers tend to take too much credit and burden the cash flow of their companies. b. A decision system allows for careful financial planning and tax planning. Profits go up, non cash outlays are controlled, tax liabilities are minimized and cash flows are maintained positive throughout. The decision system is an integral part of financial management in the West. It is completely compatible with western accounting methods and derives all the data that it needs from information extant in the company. So, the establishment of a decision system does not hinder the functioning of the company in any way and does not interfere with the authority and functioning of the financial department, but infact helps the manager to take quick decisions and make profit to the company.

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Strategic Management and Business Policy MB0052

Assignment Fall 2012 MBA IV

Q6.

Name and explain any three ways in which a Companys CSR can be expressed.

Ans: It CSR is a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis as they are increasingly aware that responsible behavior leads to sustainable business success. CSR is also about managing change at company level in a socially responsible manner. This happens when a company seeks to set the trade-offs between the requirements and the needs of the various stakeholders into a balance, which is acceptable to all parties. If companies succeed in managing change in a socially responsible manner, this will have a positive impact at the macro-economic level. Following are the different ways in which company's CSR can be expressed. 1. Employment and Social Affairs Policy Within a business CSR relates to quality employment, life-long learning, information, consultation and participation of workers, equal opportunities, integration of people with disabilities anticipation of industrial change and restructuring. Social dialogue is seen as a powerful instrument to address employment-related issues. Employment and social policy integrates the principles of CSR, in particular, through the European Employment Strategy, an initiative on socially responsible restructuring, the European Social Inclusion Strategy, initiatives to promote equality and diversity in the workplace, the EU Disability Strategy and the Health and Safety Strategy. In its document "Anticipating and managing change: a dynamic approach to the social aspects of corporate restructuring", the Commission has stressed that properly taking into account and addressing the social impact of restructuring contributes to its acceptance and to enhance its positive potential. The Commission has called upon the social partners to give their opinion in relation to the usefulness of establishing at Community level a number of principles for action, which would support business good practice in restructuring situations. Deeply rooted societal changes such as increasing participation of women in the labour market should be reflected in CSR, adapting structural changes and changing the work environment in order to create more balanced conditions for both genders acknowledging the valuable contribution of women as strategies which will benefit the society as well as the enterprise itself. 2. Enterprise policy

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Strategic Management and Business Policy MB0052

Assignment Fall 2012 MBA IV

Only competitive and profitable enterprises are able to make a long-term contribution to sustainable development by generating wealth and jobs without compromising the social and environmental needs of society. In fact, only profitable firms are sustainable and have better chances to adopt/develop responsible practices. The role of enterprise policy is to help create a business environment, which supports the Lisbon objective of becoming the worlds most dynamic knowledge-driven economy, supports entrepreneurship and a sustainable economic growth. Its objective is to ensure a balanced approach to sustainable development, which maximizes synergies between its economic, social and environmental dimensions. 3. Consumer Policy CSR has partly evolved in response to consumer demands and expectations. Consumers, in their purchasing behavior, increasingly require information and reassurance that their wider interests, such as environmental and social concerns, are being taken into account. Consumers and their representative organisations have an important role to play in the evolution of CSR. If CSR is therefore to continue to serve its purpose, strong lines of communication between enterprises and consumers need to be created.

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