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

1.A well- formulated strategy is vital for growth and development of any organization. Explain corporate strategy in different types of organizations. Ans1 A well-formulated strategy is vital for growth and development of any Organization whether itis a small business, a big private enterprise, a public sector company, a multinational corporation or a non-profit organization. But, the nature and focus of corporate strategy in these different types of organizations will be different, primarily because of the nature of their operations and organizational objectives and priorities. Small businesses, for example, generally operate in a single market or a limited number of markets with a single product or a limited range of products. The nature and scope of operations are likely to be less of a strategic issue than in larger organizations. Not much of strategic planning may also be required or involved; and, the company may be content with making and selling existing product(s) and generating some profit. In many cases, the founder or the owner himself forms the senior/top management and his (her) wisdom gives direction to the company. In large businesses or companieswhether in the private sector, public sector or multinationals the situation is entirely different. Both the internal and the external environment and the organizational objectives and priorities are different. For all large private sector enterprises, there is a clear growth perspective, because the stakeholders want the companies to grow, increase market share and generate more revenue and profit. For all such companies, both strategic planning and strategic management play dominant roles. Multinationals have a greater focus on growth and development, and also diversification in terms of both products and markets. This is necessary to remain internationally competitive and sustain their global presence. For example, multinational companies like General Motors, Honda and Toyota may have to decide about the most strategic locations or configurations of plants for manufacturing the cars. They are already operating multi location (country) strategies, and, in such companies, roles of strategic planning and management become more critical in optimizing manufacturing facilities, resource allocation and control. In public sector companies, objectives and priorities can be quite different from those in the private sector. Generation of employment and maximizing output may be more important objectives than maximizing profit. Stability rather than growth may be the priority many times. Accountability system is also very different in public sector from that in private sector. There is also greater focus on corporate social responsibility. The corporate planning system and management have to take into account all these factors and evolve more balancing strategies. In non-profit organizations, the focus on social responsibilities is even greater than in the public sector. In these organizations, ideology and underlying values are of central strategic

significance. Many of these organizations have multiple service objectives, and the beneficiaries of service are not necessarily the contributors to revenue or resource. All these make strategic planning and management in these organizations quite different from all other organizations. The evaluation criteria also become different. Johnson and Scholes (2005) have given a good and detailed exposition of strategic management in various types of organizations mentioned above.

Q2. What is the role consultants play in the strategic planning and management process of a company? Is it an essential role? Ans:- Management consultants can play very useful roles in the strategic planning process of a company. Consultants render services in different functional areas of management including the strategic planning and management process. In companies with no separate planning division or unit, consultants can fill that gap. They can undertake planning and strategy exercises as and when the company management feels the need for such exercises or consultancies. Even in companies with a corporate planning division/unit, consultants may provide specialized inputs or insights into identified management or strategy areas. Top strategic consultants like McKinsey & Company use or develop latest tools, techniques or models to work out solutions to specific strategic management problems or issuesbe it productivity, cost efficiency, restructuring, long-term growth or diversification. Consultants bring with them diversified skills (most of the consulting companies are multidisciplinary) and experience from various companies which may not be available internally in a single company. This is the reason why even large multinational companies hire consultants for achieving their goals or objectives. There are many international consultants who are in demand in different countries. There are also national consultants. Leading international consultants, in addition to McKinsey & Company, are Boston Consulting Group (BCG), Arthur D Little and Accenture (formerly Anderson Consulting). Prominent Indian consulting companies are A F Ferguson, Tata Consultancy Services (TCS) and ABC Consultants. Consultants, sometimes have a difficult or delicate role to play. In many companies, a situation develops when the chief executive or the top management needs to bank upon the support of an external agency like a consultant to push through a strategic change in the organizational structure or management system of the company. It may be for growth and development or downsizing. In both cases, many companies face internal resistance to change. The resistance is more if it is downsizing even when it is required for turning around a company. This happens particularly in public sector companies where implementing change is always difficult. Consultants are engaged to support or substantiate the companys point of view (in the form of their recommendations) so that change is more easily acceptable to the internal stakeholders of the company. Consultants role may

become delicate and, sometimes, tricky in such cases, and they should carefully weigh the ethical implication of their participation. 3.Governed corporation is a model of successful corporate governance. Define and explain governed corporation. Distinguish between managed corporation and governed corporation in terms of boards role, major characteristics and policies of a company. Ans3:- Strategic audit is a formal strategic-review process, which imposes its own discipline on both the board and the management very much like the financial audit process8. But, it is different from management audit, which is undertaken in many companies by the senior/top management on the progress and outcome of important corporate activities. To understand strategic audit in the correct perspective, one needs to analyse this in terms of its various elements. Donaldson has specified five elements of strategic audit. These are: 1. Establishing criteria for performance 2. Database design and maintenance 3. Strategic audit committee 4. Relationship with the CEO 5. Alert to duty (by board members) The performance criteria should be simple, well-understood and wellaccepted measures of financial performance. A number of measures of financial performance are available. One common measure, used by many companies, is return on investment (ROI). The ROI can be analysed like this: profit per unit of sales (profit margin); sales per unit of capital employed (asset turnover); and, capital employed per unit of equity invested (leverage). If these three ratios are multiplied together, the resultant ratio will give profit per unit of equity. This criterion would fulfil two objectives: first, sustainable rate of return on shareholder investment, and, second, to decide whether the return is less, or equal to or more than returns on alternative investments with comparable risk, i.e., whether the companys chosen strategy is justifiable or not. To calculate different performance ratios and monitor performance criteria, a proper database is essential. This involves both database design and maintenance. This has to be a regular and an ongoing process. Data on financial performance can sometimes be sensitive to the managers/ employees of a company. It is, therefore, suggested that financial and related data design, maintenance and analyses should be entrusted to the auditors of the company or outside consultants. For effective strategic audit, a strategic audit committee should be constituted. According to Donaldson, outside directors should select three of their own members to form the committee. This will impart regularity and more commitment to the strategic audit process. The committee would decide on the frequency of their meeting, periodicity of interaction with the CEO or top management of the company and, also when they should make presentation to or hold discussion with the full board. A sensitive issue is the strategic audit committees relationship with the CEO. Any CEO would be generally

apprehensive of such a committee. The strategic audit committee needs to create and maintain an atmosphere of mutuality. It is true that whenever a question or a discussion on the strategic direction of a company comes up in a board meeting, it is perceived by many CEOs as an implicit criticism of the current strategy and leadership of the company. It is also true that regular strategic process involving the CEO reduces chances of unpleasant or confronting situations. In fact, ideally, the functioning of the strategic audit committee should be seen as a low-key operation, positive in approach, designed to lend support and credibility to company

leadership and management. The strategic audit committee and also the board should always be alert and vigilant to ensure that there are no slippages. Business cycles indicate that period of success may be followed by a period of slump. The strategic audit committee and the board should be alert enough to get signals so that they can act in time. This is necessary because complacence develops after success both in the board and in the management. If properly conceived, designed and conducted, strategic audit, more than management audit, can be a powerful tool for monitoring the strategic process of a company and also strike a good balance between corporate strategy and corporate governance.

4.Price or market competitiveness of a product or business depends on its cost competitiveness. Cost competitiveness implies two things-cost efficiency and cost effectiveness. Explain the concept of cost efficiency of an organization. Analyze the major determinants of cost efficiency. Ans4: Management consultants can play very useful roles in the strategic planning process of a company.Consultants render services in different functional areas of management including the strategic planning andmanagement process. In companies with no separate planning division or unit, consultants can fill that gap.They can undertake planning and strategy exercises as and when thecompany management feels the need for such exercises or consultancies. Even in companies with a corporate planning division/unit, consultants may provide specialized inputs or insights into identified management or strategy areas. Top strategic consultants like McKinsey & Company use or develop latest tools, techniques or models to work out solutions to specific strategic management problems or issues be it productivity, cost efficiency, restructuring, long-term growth or diversification.Consultants bring with them diversified skills (most of the consulting companies are multidisciplinary) andexperience from various companies which may not be available internally in a single

company. This is thereason why even large multinational companies hire consultants for achieving their goals or objectives.There are many international consultants who are in demand in different countries. There are also nationalconsultants. Leading international consultants, in addition to McKinsey & Company, are Boston ConsultingGroup (BCG), Arthur D Little and Accenture (formerly Anderson Consulting). Prominent Indian consultingcompanies are A F Ferguson, Tata Consultancy Services (TCS) andABC Consultants.Consultants, sometimes have a difficult or delicate role to play. In many companies, a situation develops whenthe chief executive or the top management needs to bank upon the support of an external agency like aconsultant to push through a strategic change in the organizational structure or management system of thecompany. It may be for growth and development or downsizing. In bothcases, many companies face internal resistance to change. The resistance is more if it is downsizing evenwhen it is required for turning around a company. This happens particularly in public sector companies where implementing change is always difficult. Consultants are engaged to support or substantiate the companys point of view (in the form of their recommendations) so that change is more easily acceptable to the internalstakeholders of the company. Consultants role may become delicate and, sometimes, tricky in such cases, and they should carefully weighthe ethical implication of their participation.

5.Stability strategy is most commonly used by an organization. An organization will continue in similar business as it currently pursues similar objectives and resource base. Discuss six situations when it is good/best to pursue stability strategy. Give some Indian examples. Ans5. Strategic audit is a formal strategic-review process, which imposes its own discipline on both the board and the management very much like the financial audit process8. But, it is different from management audit, which is undertaken in many companies by the senior/top management on the progress and outcome of important corporate activities. To understand strategic audit in the correct perspective, one needs to analyse this in terms of its various elements. Donaldson has specified five elements of strategic audit. These are: 1. Establishing criteria for performance 2. Database design and maintenance 3. Strategic audit committee 4. Relationship with the CEO 5. Alert to duty (by board members)

The performance criteria should be simple, well-understood and wellaccepted measures of financial performance. A number of measures of financial performance are available. One common measure, used by many companies, is return on investment (ROI). The ROI can be analysed like this: profit per unit of sales (profit margin); sales per unit of capital employed (asset turnover); and, capital employed per unit of equity invested (leverage). If these three ratios are multiplied together, the resultant ratio will give profit per unit of equity. This criterion would fulfil two objectives: first, sustainable rate of return on shareholder investment, and, second, to decide whether the return is less, or equal to or more than returns on alternative investments with comparable risk, i.e., whether the companys chosen strategy is justifiable or not. To calculate different performance ratios and monitor performance criteria, a proper database is essential. This involves both database design and maintenance. This has to be a regular and an ongoing process. Data on financial performance can sometimes be sensitive to the managers/ employees of a company. It is, therefore, suggested that financial and related data design, maintenance and analyses should be entrusted to the auditors of the company or outside consultants. For effective strategic audit, a strategic audit committee should be constituted. According to Donaldson, outside directors should select three of their own members to form the committee. This will impart regularity and more commitment to the strategic audit process. The committee would decide on the frequency of their meeting, periodicity of interaction with the CEO or top management of the company and, also when they should make presentation to or hold discussion with the full board. A sensitive issue is the strategic audit committees relationship with the CEO. Any CEO would be generally apprehensive of such a committee. The strategic audit committee needs to create and maintain an atmosphere of mutuality. It is true that whenever a question or a discussion on the strategic direction of a company comes up in a board meeting, it is perceived by many CEOs as an implicit criticism of the current strategy and leadership of the company. It is also true that regular strategic process involving the CEO reduces chances of unpleasant or confronting situations. In fact, ideally, the functioning of the strategic audit committee should be seen as a low-key operation, positive in approach, designed to lend support and credibility to company leadership and management. The strategic audit committee and also the board should always be alert and vigilant to ensure that there are no slippages. Business cycles indicate that period

of success may be followed by a period of slump. The strategic audit committee and the board should be alert enough to get signals so that they can act in time. This is necessary because complacence develops after success both in the board and in the management. If properly conceived, designed and conducted, strategic audit, more than management audit, can be a powerful tool for monitoring the strategic process of a company and also strike a good balance between corporate strategy and corporate governance. 6.Corporate culture governs, to a large extent, business ethics and values in an organization. Describe the state of business ethics in Indian companies. Analyze in terms of KPMG business ethics survey. Ans6. Business policies are the instructions laid by an organization to manage its activities. It identifiesthe range within which the subordinates can take decisions in an organization. It authorizes thelower level management to resolve their issues and take decisions without consulting the toplevel management repeatedly. The limits within which the decisions are made are well defined.Business policy involves the acquirement of resources through which the organizational goalscan be achieved. Business policy analyses roles and responsibilities of top-level managementand the decisions affecting the organization in the long-run. It also deals with the major issuesthat affect the success of the organization."A Business Policy is a predefined course of action set up by top level management to provideguidance towards business strategies and objectives. It identifies the fundamental activities and provides strategic ways to handle different issues. It recommends the manner in which theobjectives are achieved."Importance of Business PoliciesA company operates consistently, both internally and externally when the policies areestablished. Business policies should be set up before hiring the first employee in theorganization. It deals with the constraints of real-life business. It is important to formulatepolicies to achieve the organizational objectives. The policies are articulated by themanagement. Policies serve as a guidance to administer activities that are repetitive in nature. Itchannels the thinking and action in decision making. It is mechanism adopted by the topmanagement to ensure that the activities are performed in the desired way. The completeprocess of management is organized by business policies. Business policies are important due tothe following reasons:Coordination Reliable policies coordinate the purpose by focusing on organizational activities.This helps in ensuring uniformity of action throughout the organization. Policies encouragecooperation and promote initiative.Quick decisions Policies help subordinates to take prompt action and quick decisions. Theydemarcate the section within which decisions are to be taken. They help subordinates to takedecisions with confidence without consulting their superiors every time. Every policy is a guideto activities that should be followed in a particular situation. It saves time by predicting frequentproblems and providing ways to solve them.Effective control

 Policies provide logical basis for assessing performance. They ensure that theactivities are synchronized with the objectives of the organization. It prevents divergence fromthe planned course of action. The management tends to deviate from the objective if policiesare not defined precisely. This affects the overall efficiency of the organization. Policies arederived objectives and provide the outline for procedures.Decentralization Well defined policies help in decentralization as the executive roles andresponsibility are clearly identified. Authority is delegated to the executives who refer thepolicies to work efficiently. The required managerial procedures can be derived from the givenpolicies. Policies provide guidelines to the executives to helpThem in determining the suitable actions which are within the limits of the stated policies.Policies contribute in building coordination in larger organizations