Assignment

Drive SPRING 2014

Program MBA SEM 4
Subject code & name M00!2 " Strategic Management and usiness Po#ic$
NAM% S&I'%NDRA SING&
R())N(* 120+00!,!-
1.De/ine t0e term 1strateg$2* %34#ain t0e conce4t o/ 1strategic 5indo52*
Strateg$6
The word strategy comes from Greek strategies, which refers to a military general and combines stratus the
army! and ago to lead!" The conce#t and #ractice of strategy and #lanning started in the military, and, o$er
time, it entered b%siness and management" The key or common ob&ecti$e of both b%siness strategy and military
strategy is the same, i"e", to sec%re com#etiti$e ad$antage o$er the ri$als or o##onents" 'e will disc%ss the
similarity between b%siness and military strategies in detail later"
70and#er 819,2:6 The determination of the basic long(term goals and ob&ecti$es of an enter#rise and the
ado#tion of the co%rses of action and the allocation of reso%rces necessary for carrying o%t these goals"
Strategic ;indo56
)om#anies need to e$ol$e and ada#t to changing sit%ations, as is clear from the e*am#le of Shell that yo% read
in the beginning of the %nit" They sho%ld always look for o##ort%nities and make the best of them at the right
time" +ere, we are referring to strategic windows, the conce#t which was introd%ced by Abell ,-./!" The
basic idea behind the conce#t of a strategic window is this0 there are only limited #eriods d%ring which the fit
or the match between the key re1%irements of a market and the #artic%lar com#etencies of the firm are at the
o#tim%m" )om#anies sho%ld e*#loit s%ch o#tim%m o##ort%nities or windows"
Strategic windows arise as a res%lt of b%siness or market e$ol%tion" B%sinesses and markets are ne$er static"
They are constantly e$ol$ing" B%sinesses and markets may e$ol$e beca%se of
2 3e$elo#ment of new #rod%ct new demand!4
2 Emergence of new com#eting technologies4 and
2 Market redefinition or changes"
3%e to s%ch e$ol%tion, it is recommended that in$estment in a #rod%ct line or market area sho%ld be made to
coincide with the #eriods! d%ring which a strategic window is o#en" )om#anies which do this, o#timi5e
ret%rns"
"
Strategic windows are also im#ortant for timing the e*it from a #rod%ct or a market" There are times when it is
ad$isable, and also #ossible, to di$ert a b%siness which a com#any cannot o#erate #rofitably any longer" This
means that the strategic window for e*it is o#en, that is, there are b%yers or com#anies, who are willing to
ac1%ire the b%siness, and, the com#any sho%ld act on it"
2. <0e essence o/ business continuit$ is t0at businesses need to be 4#anned not on#$ /or toda$= but a#so
/or tomorro5= t0at is= /or t0e /uture* ;rite t0e meaning and im4ortance o/ business continuit$
4#anning* %34#ain an$ t5o strategies /or business continuit$ 4#anning*
usiness 7ontinuit$ P#anning6
B%siness contin%ity #lanning means #roacti$ely working o%t a means or method of #re$enting or mitigating
the conse1%ences of a disaster6nat%ral or manmade sabotage or terrorism!7 and managing it to limit to the
le$el or degree that a b%siness %nit can afford"
Need or Im4ortance o/ usiness 7ontinuit$ P#anning 87P:6
As indicated in the definition, b%sinesses today can be e*#osed to different ty#es of threats 7 nat%ral or man(
made" Ma&or threats are0
2 8at%ral disasters s%ch as floods or earth1%akes or accidents
2 Man(made threats like sabotage or terrorism
2 9inancial crisis or disaster can be #artly man(made and #artly d%e to en$ironmental factors"
Strategies /or usiness 7ontinuit$ P#anning6
Beca%se of the #ossibility of different kinds of im#acts, and de#ending on the nat%re of damage or disaster,
a##ro#riate strategies sho%ld be de$elo#ed and %sed to deal with #artic%lar sit%ations" 9i$e different strategies
sho%ld be de$elo#ed for fi$e different sit%ations:actions" These are0
1* Prevention6 )on$entionally, #re$ention is the best strategy4 this means taking ste#s or actions to #re$ent or
minimi5e the chances of occ%rring of a disaster" )om#anies can ado#t many #re$enti$e control meas%res as
safeg%ards" )ommon #re$enti$e control meas%res are0
a! Securit$ contro#s6 These in$ol$e controls by setting %# barriers to #rotect the site and #re$ent
%na%thori5ed entry into the #remises" This means, in other words, manned s%r$eillance at the location"
b! In/rastructure contro#s6 These incl%de a##ro#riate infrastr%ct%ral facilities"
c! Personne# contro#s6 Skilled:trained #ersonnel are #osted to man sensiti$e 5ones where key or critical
reso%rces may be located"
d! So/t5are contro#s6 These in$ol$e modern methods of controls thro%gh com#%teri5ed systems or software"
These incl%de a%thentication, encry#tion, firewall, intr%sion detection systems, etc"
2* Res4onse6
;re$ention is a #re(em#ti$e meas%re4 res#onse is a reacti$e ste#" <f #re$ention is not #ossible, fast res#onse is
the ne*t best alternati$e strategy" After an interr%#tion or damage has taken #lace, the B); team sho%ld
immediately inform the management and the 3amage Assessment Team" Two other teams wo%ld also be
in$ol$ed0 the Technical Team and the =#erations Team" The 3amage Assessment Team wo%ld assess the
nat%re and magnit%de of the damage" The team sho%ld in$estigate into0
2 The ca%se of disr%#tion or damage
2 The sco#e for #re$enting additional damage
2 'hat can be sal$aged>
2 'hat re#airs, restorations and re#lacements are re1%ired>
Based on the re#ort of the 3amage Assessment Team, the Technical Team and =#erations Team sho%ld get
into action" The Technical Team is the key decision maker for f%rther actions of the B); and the =#erations
Team e*ec%tes the act%al damage control o#erations of B);"
-. ;rite a brie/ note on 1Strategic Audit2*
'ith increasing #ress%re on boards from e*ternal stakeholders to be more acti$e, many directors are seeking
more #ractical ways to cond%ct strategic o$er$iew of com#any management witho%t getting directly in$ol$ed
in it"
3onaldson ,--?! has s%ggested strategic a%dit as a new tool for systematic re$iew of strategy by board
members witho%t directly in$ol$ing themsel$es with management of com#anies" Strategic a%dit is a formal
strategic(re$iew #rocess, which im#oses its own disci#line on both the board and the management $ery m%ch
like the financial a%dit #rocess" B%t, it is different from management a%dit, which is %ndertaken in many
com#anies by the senior:to# management on the #rogress and o%tcome of im#ortant cor#orate acti$ities" To
%nderstand strategic a%dit in the correct #ers#ecti$e, one needs to analy5e this in terms of its $ario%s elements"
3onaldson has s#ecified fi$e elements of strategic a%dit" These are0
," Establishing criteria for #erformance
@" 3atabase design and maintenance
A" Strategic a%dit committee
4" Belationshi# with the )E=
?" Alert to d%ty by board members!
The #erformance criteria sho%ld be sim#le, well(%nderstood and well acce#ted meas%res of financial
#erformance" A n%mber of meas%res of financial #erformance are a$ailable" =ne common meas%re, %sed by
many com#anies, is ret%rn on in$estment B=<!" The B=< can be analy5ed like this0 #rofit #er %nit of sales
#rofit margin!4 sales #er %nit of ca#ital em#loyed asset t%rno$er!4 and, ca#ital em#loyed #er %nit of e1%ity
in$ested le$erage!" This in$ol$es both database design and maintenance" This has to be a reg%lar and an
ongoing #rocess" 3ata on financial #erformance can sometimes be sensiti$e to the managers: em#loyees of a
com#any" <t is, therefore, s%ggested that financial and related data design, maintenance and analyses sho%ld be
entr%sted to the a%ditors of the com#any or o%tside cons%ltants"
4. Price or mar>et com4etitiveness o/ a 4roduct or business de4ends on its cost
com4etitiveness* 7ost com4etitiveness im4#ies t5o t0ings6 cost e//icienc$ and cost e//ectiveness* %34#ain
t0e conce4t o/ cost e//icienc$ o/ an organi?ation* Ana#$?e t0e major /actors o/ cost e//icienc$*
7ost %//icienc$6
Cario%s factors contrib%te to cost efficiency in an organi5ation" These may e$en incl%de factors which are not
directly related to cost or cost management like general work en$ironment or c%lt%re in the organi5ation,
moti$ation le$els of managers, a##roach of the to# management, etc" 9o%r ma&or factors may be identified0
economies of scale, s%##ly cost or cost of raw materials and in#%ts, #rod%ct or #rocess design, and e*#erience
or e*#erience effect 9ig%re!"
%conomies o/ sca#e6 'e know from economics that economies of scale are the most con$entional and, also a
$ery im#ortant so%rce of cost efficiency" <n man%fact%ring organi5ations, fi*ed cost #er %nit of o%t#%t!, which
initially remains $ery high, starts going down #rogressi$ely as o%t#%t increases" Beca%se of this, a$erage cost
of o%t#%t decreases as o%t#%t increases, or the scale of o#erations increases" This also means increase in
ca#acity %tili5ation of #lant and machinery" <n non(man%fact%ring organi5ations or non(man%fact%ring
acti$ities, economies of scale can be affected thro%gh mass ad$ertising, mass marketing, e*tensi$e distrib%tion,
etc" Economies of scale can also be achie$ed thro%gh global #artnering and global networks" Many M8Es
s%stain their com#etiti$eness in the market thro%gh scale ad$antage"
Su44#$ cost6 )osts of raw materials and $ario%s in#%ts constit%te s%##ly cost" <n#%ts generally incl%de raw
material in#%ts or intermediate in#%ts and energy in#%ts" <n an e*tended sense, these in#%ts can incl%de factor
in#%ts like labo%r also" <n highly raw material(intensi$e ind%stries like steel, cement and non(ferro%s metals,
s%##ly costs constit%te a $ery high #ro#ortion of total cost of the #rod%ct and, therefore, become a $ery
im#ortant determinant of the le$el of cost efficiency" <n these ind%stries, location infl%ences s%##ly cost
beca%se trans#ortation becomes a significant com#onent of total raw material cost" This is the reason why, in
these ind%stries, many #lants are located near the raw material so%rce or mines" This gi$es cost ad$antage to
com#anies" <n s%ch ind%stries, ownershi# of raw material can also gi$e definite cost ad$antage"
Product@4rocess design6 ;rod%ct design starts at the BD3 stage e$en if it is an imitation" Many feel that
#rod%ct design is the first ste# in efficient cost management, beca%se the nat%re of the #rod%ct determines, to a
large e*tent, the raw material and other in#%t re1%irements and s%##ly cost" )ost efficiency in #rod%ction
#rocesses can be achie$ed thro%gh better #rocess engineering, increase in #rod%cti$ity de#ends #artly on the
technology le$el! and better working ca#ital management" Many com#anies ha$e achie$ed cost efficiency
thro%gh these methods"
%34erience6 E*#erience in any acti$ity in an organi5ation can be an im#ortant so%rce of cost ad$antage or cost
efficiency6be it man%fact%ring or any other f%nctional area" Many st%dies ha$e been cond%cted to establish
the relationshi# between c%m%lati$e e*#erience gained in an organi5ation and its %nit cost" The relationshi# is
generally e*#ressed as an in$erse relationshi# between c%m%lati$e o%t#%t and %nit cost6%nit cost decreases as
c%m%lati$e o%t#%t increases" This is shown in the e*#erience c%r$e 9ig%re!"


!. ;rite s0ort notes on t0e /o##o5ing6
8a: Divestment strateg$6
Divestment, also called divestiture, means selling a #art of a com#any6a ma&or di$ision or an SBE"
3i$estment is %s%ally a #art of cor#orate restr%ct%ring or rehabilitation 3i$estment can be #art of an o$erall
downsi5ing or retrenchment strategy of an organi5ation to get rid of b%sinesses which are %n#rofitable or
which re1%ire too m%ch ca#ital or which do not fit well with the com#anys other e*isting b%sinesses or
acti$ities" 3i$estment is many a time %sed to raise ca#ital for new ac1%isitions or in$estment" Sometimes
di$estment becomes a forced o#tion when an attem#t has been made to t%rnaro%nd the b%siness, b%t, has not
been s%ccessf%l"
3i$estment can be done in two ways0 selling a b%siness o%tright or s#inning it off as an inde#endent com#any"
Selling a b%siness o%tright is the more commonly %sed form of di$estment" A b%siness becomes a good
candidate for s#inning off as an inde#endent com#any if it #ossesses s%fficient reso%rce strength to com#ete
s%ccessf%lly on its own" S#inning off b%siness into a se#arate com#any may be done beca%se of some strategic
reason4 may be, it does not fit well with the core b%siness of the com#any" <f a com#any decides to s#in off a
b%siness, one im#ortant decision the cor#orate #arent has to take is whether to retain #artial ownershi# in the
di$ested b%siness" Betaining #artial control is generally recommended if the b%siness to be di$ested has good
#rofit #ros#ects" S#inning off a b%siness, with or witho%t #artial ownershi#, may be done either by selling
shares to the #%blic thro%gh an initial #%blic offering <;=! or by distrib%ting shares of the new com#any to the
e*isting shareholders of the cor#orate #arent" Selling a b%siness o%tright in$ol$es finding a s%itable b%yer"
8b: )iAuidation strateg$6
)iAuidation means closing down a com#any and selling its assets" Fi1%idation can also be defined as selling
of a com#anys assets, in #arts, for their tangible worth" This sho%ld be the strategy of last resort when no
other alternati$es like t%rnaro%nd, restr%ct%ring or di$estment are a##licable or workable" Fi1%idation is
act%ally recognition of defeat" B%t, at some stage of the organi5ational life cycle, it is ad$isable to cease
o#erating than contin%e to o#erate and acc%m%late losses" Fi1%idation sho%ld be #lanned" Fi1%idation may be
the to%ghest decision for a com#any, b%t, if it is %na$oidable:ine$itable, it sho%ld be done at the right time and,
in a #lanned manner" ;lanned li1%idation in$ol$es a systematic #rocess for ma*im%m benefits for the com#any
and its shareholders" <f li1%idation is %n#lanned or ha#ha5ard, the com#any may inc%r a$oidable or
%nnecessary losses" <n <ndia, li1%idation is go$erned by the )om#anies Act, ,-?G" <n the )om#anies Act,
li1%idation is officially termed as winding" The Act defines winding %# of a com#any as the #rocess
whereby its life is ended and its #ro#erty administered for the benefit of its creditors and members" The Act
sti#%lates a##ointment of a li1%idator who handles the li1%idation #rocess" The li1%idator takes control of the
com#any, collects its assets, #ays its debts and, finally, distrib%tes any s%r#l%s among the members, according
to their rights"
According to the Act, li1%idation or winding %# may be done in three ways0
a! Col%ntary winding %#4
b! Col%ntary winding %# %nder s%#er$ision of the co%rt4
c! )om#%lsory winding %# %nder an order of the co%rt
,.Describe t0e di//erent a44roac0es to business et0ics*
Di//erent A44roac0es to usiness %t0ics
According to Bosso%w and C%%ren @HHA!, a##roaches ado#ted by $ario%s com#anies to deal with b%siness
ethics may take one of the fo%r forms" These are shown below in terms of increasing order of ethical concern0
a! Enconcerned or ethical non(iss%e a##roach
I
b! Ethical damage control a##roach
I
c! Ethics com#liance a##roach
I
d! Ethical c%lt%re a##roach
Bnconcerned or et0ica# non.issue a44roac06 This a##roach is ado#ted by com#anies whose managers are
either immoral or amoral" S%ch com#anies belie$e that organi5ational ob&ecti$es and b%siness targets are the
foremost" B%siness m%st grow4 #rofit sho%ld be generated and ma*imi5ed" These com#anies #lan and ado#t
strategies which may follow general legal and b%siness #rinci#les, b%t may be ethically %nso%nd" They are not
really concerned with the ethical iss%es in the con$entional sense
%t0ica# damage contro# a44roac06 <n com#anies in this category, managers are generally amoral, b%t, they
fear ad$erse #%blicity or scandal" The ob&ecti$e in this a##roach is to #rotect the com#any from ad$erse
#%blicity which may be made by %nha##y stakeholders, e*ternal in$estigation agencies, threats of litigation,
#%niti$e go$ernment action, etc" To a$oid s%ch a contingent sit%ation, there is a need for re&ecting %nethical
beha$ior and introd%cing cor#orate go$ernance safeg%ards thro%gh window(dressing ethics"
%t0ics com4#iance a44roac06 <n this a##roach, com#anies are conscio%s that they sho%ld com#ly with ethical
standards and re1%irements" The managers are either moral and $iew strong com#liance to #rescribed norms or
methods as the best way to enforce ethical #ractices4 or, are %nintentionally amoral b%t are highly concerned
abo%t their ethical re#%tation" )om#anies which ado#t a com#liance a##roach adhere to certain #ractices to
demonstrate their commitment to ethical cond%ct0 make the code of ethics $isible and a reg%lar #art of
comm%nication with em#loyees, form ethics committees to gi$e g%idance on ethical matters, introd%ce ethics
training #rograms, lay down formal #roced%res for in$estigating alleged ethical $iolations, cond%ct ethics a%dit
to meas%re and monitor com#liance and instit%te ethics awards for em#loyees for o%tstanding efforts for
creating an ethical en$ironment and im#ro$ing ethical #erformance"
%t0ica# cu#ture a44roac00 <n com#anies with this a##roach, ethical b%siness #ractices are rooted in the
organi5ational c%lt%re itself" The to# management belie$es that high ethical #rinci#les embedded in the
cor#orate c%lt%re sho%ld g%ide the managers and staff" The ethical #rinci#les contained in the com#anys code
of ethics and:or cor#orate $al%es are seen as integral to the com#anys identity and image" The #re$alence and
s%ccess of the ethical c%lt%re a##roach de#ends hea$ily on the #ersonal integrity of the indi$id%al managers
who create and n%rt%re the c%lt%re" <t is clearly %nderstood in s%ch com#anies that cor#orate strategy sho%ld be
ethical in all res#ects and ethical beha$ior sho%ld also be reflected in strategy im#lementation"