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Master of Business Administration- MBA Semester 4 MB0052- Strategic Management and Business Policy (Book ID B!

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%! &'at is strategy( )*+lain some of t'e ma,or reasons for lack of strategic management in some com+anies( Ans-er Strategy The word strategy comes from Greek strategies, which refers to a military general and combines stratus (the army) and ago (to lead). However, strategy, as mostly used or understood, is an action lan or, a scheme of action or design of e!ecution of a lan. "ccording to .'andler (!#"2$ / strategy is The determination of the basic long#term goals and ob$ectives of an enter rise and the ado tion of the courses of action and the allocation of resources necessary for carrying out these goals. "ccording to 0lueck (!#12$ " unified, com rehensive and integrated lan designed to assure that the basic ob$ectives of the enter rise are achieved. "ccording to Ansoff (!#24$ / %asically, a strategy is a set of decision#making rules for the guidance of organi&ational behaviour. Ma,or 3easons for 4ack of Strategic Management in Some .om+anies 'avid (())*) has mentioned various reasons for oor or no strategic lanning and management by com anies. These are , !5 Poor re-ard structure +hen an organi&ation achieves success, it often fails to reward its managers or lanners. %ut when failure occurs, the com any may unish the managers concerned 2 .ontent -it' success ,f an organi&ation is generally successful, the to management or individual managers may feel that there is no need to lan and strategi&e because everything is fine. 6 78erconfidence "s managers gain e! erience, they may rely less on formali&ed lanning and more on individual initiative and decisions. %ut, this is not a ro riate. 4 9ire-fig'ting- "n organi&ation may be so dee ly engrossed in crisis management and fire fighting that it may not have time to lan and strategi&e. 5 &aste of time .ome organi&ations view lanning as a waste of time because no tangible marketable roducts are roduced through lanning. " :oo e*+ensi8e .ome organi&ations are culturally o osed to s ending resources on matters like lanning which do not roduce instant or immediate results. 1 Pre8ious ;ad e*+erience /anagers may have had revious bad e! erience with lanning, that is, cases in which lans have been cumbersome, im ractical or infle!ible. 2 <onest difference of o+inion .ome managers may sincerely think that a lan is not correct. They may see the situation from a different view oint, or, they may have as irations for themselves or the organi&ation, which are different from those envisaged in the lan. # Self-interest +hen management has achieved status, rivilege or selfe steem through effectively using an old system, it often sees a new lan or a new system as unnecessary or a threat. !05 9ear of t'e unkno-n /anagers may not be sure of their abilities to learn new skills or take on new roles or ada t to new system. This is basically inertia against change or fear for change. !!5 9ear of failure +henever something new or different is attem ted, there is a chance of success, but, there is also some risk of failure.

!25 Sus+icion- 0m loyees may not trust management, or, the management may not have enough confidence in the managers. This gives rise to mutual sus icion. %2 )*+lain t'e follo-ing (a$ .ore com+etence (;$ =alue c'ain analysis Ans-er (a$ .ore com+etence 1ore com etence of a com any is one of its s ecial or uni2ue internal com etence. 1ore com etence is not $ust a single strength or skill or ca ability of a com any3 it is interwoven resources, technology and skill or synergy culminating into a s ecial or core com etence. 1ore com etence gives a com any a clear com etitive advantage over its com etitors. )*am+le- .ony has a core com etence in miniaturi&ation3 4ero!s core com etence is in hotoco ying3 1anons core com etence lies in o tics, imaging and laser control3 Hondas core com etence is in engines (for cars and motorcycles) etc. To achieve core com etence, a articular com etence level of a com any should satisfy three criteria! ,t should relate to an activity or rocess that inherently underlies the value in the roduct or service as erceived by the customer. This is im ortant because managers often take an internal view of value and either miss or deliberately overlook the customer ers ective. 2 ,t should lead to a level of erformance in a roduct or rocess which is significantly better than those of com etitors. %enchmarking is a good way and is generally recommended for undertaking erformance standard and also for differentiating between good and bad erformance. 6 ,t should be robust, i.e., difficult for com etitors to imitate. ,n a fast changing world, many advantages gained in different ways are not robust and are likely to be short lived. 1ore com etence is not about such incremental changes or im rovements, but, about the whole rocess through which continuous change and im rovement take lace which lead to or sustain clearly differentiated advantage. (;$ =alue c'ain analysis 5arious com etences and resources of an organi&ation can be integrated into a chain of activities which an organi&ation erforms to meet customer demand. .ince each of these activities is e! ected to create value when it is erformed, the chain can a ro riately be called a 8alue c'ain. Mic'ael Porter (!#25$ introduced the conce t of value chain analysis. 5alue chain analysis hel s in understanding how value is created in organi&ations through various activities. These activities can be divided into two broad categories- rimary activities and su ort activities. 6rimary activities are directly concerned with the creation or delivery of a roduct or service or customer value. .u ort activities, as the name indicates, su ort the rimary activities, or, more, correctly, hel to im rove the effectiveness or efficiency of rimary activities. Primary acti8ities can be divided into five ma$or areas7. inbound logistics, (. o erations, *. outbound logistics, 8. marketing and 9. sales and service. Su++ort acti8ities can be divided into four categories-

7. rocurement, (. technology develo ment, *. human resource management and 8. organi&ational infrastructure.

%6 3egional Descri;e in ;rief t'e follo-ing en8ironmental factors -'ic' a ;usiness strategist considers (a$ Political factors (;$ :ec'nology Ans-er (a$ Political factors Political factors or +olitical conditions can have significant im act on industry, business and the cor orates. 6olitical stability im roves business environment and encourages economic and business activities. 6olitical instability roduces the o osite effects. 6olitical factors do not refer to only national olitical conditions or relations, but also to international relations. )*am+le ,m roved olitical relations between the :. and 1hina in the mid#;)s resulted in trade agreement between the two countries. 3u;ock (!#1!$ has develo ed an analytical framework for identifying and assessing olitical risks which may affect business conditions. .ources of olitical risks can be many. Ma,or risk factors identified by <ubock are7. electoral ma$ority of the arty in ower3 (. internal dissensions within the ruling arty3 *. strengths of the arliamentary o osition arties3 8. conflicting olitical ideologies3 insurgencies in border areas, 9. international ower alignments and =. alliances etc. Indian e*am+les of t'e im+act of +olitical en8ironment on ;usiness The "yodhya#%abri /as$id e isode became a olitical issue and rovoked violence in different arts of the country, and caused serious law and order roblems during 'ecember,7>>( and ?anuary 7>>*. " art from the a rehensions of olitical instability, the events disru ted trans ort, slowed down industrial roduction and growth of e! orts, and, also reduced government revenue. (;$ :ec'nology Technology, as an environmental factor, influences strategic lanning and management in a number of ways. Technological changes lead to the shortening of roduct life cycles and create new sets of consumer e! ectations. 0lectronic roducts are a good e!am le. This sector is e! eriencing the most ra id changes today. @ne can clearly see the technological revolution in the colour T5 market. .ometimes, advance signals on technological develo ments are available through research and develo ment and industryAtrade $ournals and maga&ines. ,n a different way, technological develo ments affect a com anys raw material, ackaging, o erations, roducts and services. 9or e*am+le/ develo ments in the lastics and ackaging industry have brought in new ackaging in the form of tetra acks, et bottles, cello hane, etc. Technological develo ment also rovides an o ortunity to com anies to develo new roducts. @n the other hand, com anies which ignore these develo ments face a crisis and eventually may even face e!tinction. The ,ndian automobile industry gives a good illustration.

+ith the introduction of /aruti B)) which caught the imagination of consumers, Hindustan /otors ("mbassador) and 6remier "utomobiles (6admini) had to im rove their vehicle erformances in terms of fuel efficiency, driving comfort, aesthetic a eal, etc. % 4 &rite a ;rief note on :urnaround strategy5 Ans-er :urnaround strategy is the strategy analysts describe business decline in terms of current com arisons also> for e*am+le/ relative to industry rates or averages or even relative to economic growth of the country. 1or orate crisis means dee ening or er etuation of a decline. Turnaround strategies are usually re2uired for crisis situations. ,f organi&ational decline is not continuous or severe, cor orate restructuring can rovide the solutions. That is why turnaround strategy may be said to be an e!tension of restructuring strategy. +hen restructuring is very com rehensive and leads to cor orate recovery, it almost becomes a turnaround strategy. Ma,or sym+toms or criteria or situations -'ic' signal to-ards t'e need for a turnaround strategy are .teadily declining market share3 1ontinuous negative cash flow3 Cegative rofit or accumulating losses3 "ccumulation of debt3 Dalling share rice in a steady market3 /ismanagement and low morale. ,n some situations, recovery may be more or less successful than in others. .latter (7>B8) contends that there are four recovery situations in terms of feasibility or success. These situations are! 3ealistically non-reco8era;le situation - ,t is one in which chances of survival are very little, because the com any is not com etitive, the otential for im rovement is low, clear cost disadvantage e!ists and demand for the com anys roduct is in decline stage. 2 :em+orary reco8ery- This situation e!ists when there can be initial successful recovery, but, sustained turnaround is not ossible. This can ha en because re ositioning of the roduct is ossible. 6 Sustained sur8i8al situation - ,t means that recovery is ossible but otential for future growth does not e!ist. This may ha en rimarily because the industry is in a declining hase (say, black and white T5, audio cassettes, 51<). 4 Sustained reco8ery situation ,t is one in which successful turnaround is ossible for sustained growth. ,n such cases, business decline might have been caused by internal organi&ational factors or e!ternal or environmental conditions which the com any is able to deal with effectively. Surgical :urnaround and ?on-surgical :urnaround There are two methods of cor orate turnaroundsurgical and nonsurgical. The o erations in surgical turnaround are like this- the first ste is to re lace the chief e!ecutive of the ailing com any by a new iron chief. The new chief rom tly gets into action3 he asserts his authority. He issues re#em tory orders, centrali&es functions and s ears some convenient sca egoats. Then he goes about firing em loyees en masse and auctioningAselling whole lants and divisions until the fat is satisfactorily cut to the bone.

Turnaround management of the humane ty e may involve negotiated and humane layoffs and divestiture, but, not a bloodbath. This ty e of turnaround also is generally brought about by the new helmsman. %ut, he s ends a great deal of time in trying to understand organi&ational roblems and deliberating on them. There are many e!am les of successful turnarounds of the humane ty e including 0nfield, 5olkswagen, Eucas, "ir ,ndia, .6,1, %H0E and .",E. %5 Define t'e term @strategic allianceA5 &'at are its c'aracteristics and o;,ecti8es( Ans-er Strategic alliance may be defined as coo eration between two or more organi&ations with a common ob$ective, shared control and contributions (in terms of resources, skills and ca abilities) by the artners for mutual benefit. This definition can be e! anded and made more com rehensive in terms of essential features or characteristics of strategic alliance. .'aracteristics of Strategic Alliance " ty ical strategic alliance e!hibits five essential features or characteristics! Two or more organi&ations $oin together to ursue a defined ob$ective or goal during a s ecified eriod, but, remain organi&ationally inde endent entities3 2 The organi&ations ool their resources and investments and also share risks for their mutual (and not individual) interestAbenefit3 6 The alliance artners contribute, on a continuing basis, in one or more strategic areas like technology, rocess, roduct, design, etc3 4 The relationshi among the artners is reci rocal with artners sharing s ecific individual strengths or ca abilities to render ower to the alliance3 5 The artners $ointly e!ercise control over the erformance or rogress of the arrangement with regard to the defined goal or ob$ective and share the benefits or results collectively. 7;,ecti8es of Strategic Alliance .i! ob$ectives or ur oses are more commonly observed! De8elo+ment of a ne- +roduct- ,n the harmaceutical industry, new roduct develo ment takes lace on a continuous basis, and, in this, many strategic alliances are formed between harmaceutical com anies and research laboratories and institutions for <F'. +e have already given the e!am le of %oeing and their ?a anese artners. 2 De8elo+ment of a ne- tec'nology 'evelo ment of technology is a longterm rocess, and, also, many times, involves considerable cost. 1ollaboration leverages the resources and technical e! ertise of two or more com anies. 6 3educing manufacturing cost 1o# roduction, common in the harmaceutical industry, is a good form of strategic alliance to reduce manufacturing cost through economies of scale. 4 )ntering ne- markets This is often the ob$ective in international business. /any foreign com anies enter into strategic alliances with some local com anies (host country) to enter into and establish themselves in that country. 6iggybacking is a common form of strategic alliance. 5 Marketing and Sales This is common in both national and international business. /any manufacturers in ,ndia have marketing and sales arrangements with com anies like //T1 and Tata 0! orts for both domestic and international marketing.

" Distri;ution ,n harmaceutical and other industries where distribution re resents high fi!ed cost, otential com etitors swa their roducts for distribution in the res ective markets where they have well# established distribution systems.

%" Discuss t'e &rite s'ort notes on t'e follo-ing a$ .om+etiti8e ad8antage ;$ PorterAs .om+etiti8e t'reat model Ans-er (a$ .om+etiti8e ad8antage 1om etitive advantage, also called strategic advantage, is essentially a osition of su eriority of an organi&ation in relation to its com etitors. " more formal definition of com etitive advantage is@.om+etiti8e ad8antage e*ists -'en t'ere is a matc' ;et-een t'e distincti8e com+etences of a firm and t'e factors critical for success -it'in its industry t'at +ermits t'e firms to out+erform com+etitors5

De8elo+ing .om+etiti8e Ad8antage 1om etitive advantage can be secured through two rimary routes- roduct manufacturing and marketing route. The roduct manufacturing route reflects core com etences, s ecial ca abilities, su erior roduct design, etc. The marketing route reflects marketing mi! a lication, ositioning, offering a bundle of benefits or value to the customer, etc. The roduct#making route and the marketing route are obviously not e!clusive to each other3 they are, in fact, com lementary to or su orting or reinforcing each other.

9igure .om+etiti8e Ad8antage Product and Marketing Strategic factors There are at three strategic factors which are essential for creation of a com etitive advantage which can be sustained over time. These three factors are7. how to com ete (basics), i.e., business assets and skills, (. where to com ete, i.e., roductGmarket selection, and *. whom to com ete against, i.e., com etitor osition Dor securing com etitive advantage, cor orate strategy should be based on a ro riate assets, skills and ca abilities. ,m ortant business assets are customer base, 2uality re utation, good management or com any image, ro er engineering or skilled staff, etc. (;$ PorterAs .om+etiti8e t'reat model 6orter (7>B)) in his ioneering work on com etitive strategy had identified five ma$or ty es of com etitive threats which are valid even today. These are-

7. ,ndustry (e!isting) com etitors (. Threat of substitutes *. %argaining ower of buyers 8. %argaining ower of su liers 9. Threat of new entrants

9igure PorterAs 9i8e 9orces Model ! Industry com+etitors 5arious degrees or intensities of com etitive rivalry e!ist in the market for a roduct. This is the battle for market share and is the most immediate concern of a com any, articularly if it is a market leader or challenger. @ngoing battles between 1oca#1ola and 6e si, .urf and "riel, 1olgate and 6e sodent are good e!am les. 2 :'reat of su;stitutes .ubstitute roducts reduce demand for a articular roduct or a category of roducts because some customers switch over to the alternatives.. .ubstitution may take three different forms- roduct#for# roduct substitution, substitution of need and generic substitution, 6roduct#for# roduct substitution or substitution for the same use are same. 6 Bargaining +o-er of ;uyers %uyers are generally in a better bargaining osition. %ut, they can become stronger bargainers or create com etition among su liers under certain s ecific conditions. )*am+le of these conditions is - the buyer urchases a very significant ro ortion of total out ut of the su lierH can ha en ty ically in industrial roducts. 4 Bargaining +o-er of su++liers .u liers, or sellers, generally in a weak bargaining osition, can be strong bargainers under certain conditions. .uch market conditions are - i. no close substitutes available for the roduct offered by the su lier 3 ii. the roduct(s) sold by the su lier(s) is an im ortant or critical in ut in the buyers roduct. 5 :'reat of ne- entrants /any times, new entrants ose a ma$or threat to the e!isting market layers. 0!am les of entry of Toyota and Honda in the :. car market (and also in the global market), /aruti .u&ukis entry into the ,ndian car market, 5imal fabrics in the ,ndian te!tile market and Titan in the ,ndian watch market are well known.