Roll No.

1205002417

Spring 2014

Master of Business Administration- MBA Semester 4

MB0052 Strategic Management and Business Policy -4 Credits

(Book ID: B1699)

Assignment- 60 marks


Q.1. Define the term strategy. Explain the concept of strategic window.

Ans.

The word strategy comes from Greek strategies, which refers to a military general and combines stratus (the army) and ago
(to lead). The concept and practice of strategy and planning started in the military, and, over time, it entered business and
management. The key or common objective of both business strategy and military strategy is the same, i.e., to secure
competitive advantage over the rivals or opponents.

Definitions of Strategy: -

Chandler (1962): The determination of the basic long-term goals and objectives of an enterprise and the adoption of the
courses of action and the allocation of resources necessary for carrying out these goals.

Glueck (1972): A unified, comprehensive and integrated plan designed to assure that the basic objectives of the enterprise are
achieved.

Mintzberg (1987): A pattern in a stream of decisions and action

Ansoff (1984): Basically, a strategy is a set of decision-making rules for the guidance of organizational behaviour.


Strategic Window: -

The concept of strategic windows was introduced by Abell (1978). The basic idea behind the concept of a strategic window is
this: there are only limited periods during which the fit or the match between the key requirements of a market and the
particular competencies of the firm are at the optimum. Companies should exploit such optimum opportunities or windows.

Strategic windows arise as a result of business or market evolution. Businesses and markets are never static. They are
constantly evolving. Businesses and markets may evolve because of

Development of new product (new demand);
Emergence of new competing technologies; and
Market redefinition or changes.

Due to such evolution, it is recommended that investment in a product line or market area should be made to coincide with the
period(s) during which a strategic window is open. Companies which do this, optimize returns. For example, Maruti-Suzuki
entered the Indian car market at the right time. The strategic window was open because of the obsolescence of technology of
Premier Padmini (earlier Fiat), which was the only available passenger car in the market. (There was also Ambassador, but
that was used more as an official car). Even after Marutis entry, the strategic windows for cars remained open and other car
companiesGeneral Motors, Tata Motors, Ford, Honda, Hyundai all entered the Indian car market. Maruti, however, was
the first mover and continues to be the market leader.

Strategic windows are also important for timing the exit from a product or a market. There are times when it is advisable, and
also possible, to divert a business which a company cannot operate profitably any longer. This means that the strategic
window for exit is open, that is, there are buyers or companies, who are willing to acquire the business, and, the company
should act on it. This is what Hindustan Unilever did. They hived off their vanaspati (Dalda) business to the US-based
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Bunge Ltd, who had plans to relaunch the product. If a company does not exist in time, the strategic window may get closed;
there may not be any buyer, and the business may have to be closed down at considerable losses.


Q.2. The essence of business continuity is that businesses need to be planned not only for today, but also for tomorrow,
that is, for the future.
Write the meaning and importance of business continuity planning. Explain any two strategies for business continuity
planning.


Ans.

Business continuity planning means proactively working out a means or method of preventing or mitigating the consequences
of a disasternatural or manmade (sabotage or terrorism) and managing it to limit to the level or degree that a business unit
can afford.

Importance of business continuity planning: - Today businesses can be exposed to different types of threats natural or
man-made. Major threats are:

Natural disasters such as floods or earthquakes or accidents
Man-made threats like sabotage or terrorism
Financial crisis or disaster can be partly man-made and partly due to environmental factors.

BCP prepares companies to prevent or respond to such situations so that the damages or losses are minimized and the
business or company survives. Thus, BCP plays a critical role in a businessits survival and sustainability.


Strategies for Business Continuity Planning: - Because of the possibility of different kinds of impacts, and depending on
the nature of damage or disaster, appropriate strategies should be developed and used to deal with particular situations. Five
different strategies should be developed for five different situations/actions. These are:

1. Prevention
2. Response
3. Resumption
4. Recovery
5. Restoration

From above five, two business continuity planning strategies are explained below: -

Prevention: - Conventionally, prevention is the best strategy; this means taking steps or actions to prevent or minimize the
chances of occurring of a disaster. Companies can adopt many preventive control measures as safeguards. Common
preventive control measures are:

Security controls: - These involve controls by setting up barriers to protect the site and prevent unauthorized entry
into the premises. This means, in other words, manned surveillance at the location.
Infrastructure controls: - These include appropriate infrastructural facilities like UPS/back-up power, smoke/fire
detectors, fire extinguishers, weather forecasting systems, etc.
Personnel controls: - Skilled/trained personnel are posted to man sensitive zones where key or critical resources
may be located.
Software controls: - These involve modern methods of controls through computerized systems or software. These
include authentication, encryption, firewall, intrusion detection systems, etc.

Response: - Prevention is a pre-emptive measure; response is a reactive step. If prevention is not possible, fast response is the
next best alternative strategy. After an interruption or damage has taken place, the BCP team should immediately inform the
management and the Damage Assessment Team. Two other teams would also be involved: the Technical Team and the
Operations Team.

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The Damage Assessment Team would assess the nature and magnitude of the damage. More specifically, the team should
investigate into:

The cause of disruption or damage
The scope for preventing additional damage
What can be salvaged
What repairs, restorations and replacements are required

Based on the report of the Damage Assessment Team, the Technical Team and Operations Team should get into action. The
Technical Team is the key decision maker for further actions of the BCP and the Operations Team executes the actual damage
control operations of BCP.



Q.3. Write a brief note on Strategic Audit.

Ans.

With increasing pressure on boards from external stakeholders to be more active, many directors are seeking more practical
ways to conduct strategic overview of company management without getting directly involved in it. Donaldson (1995) has
suggested strategic audit as a new tool for systematic review of strategy by board members without directly involving
themselves with management of companies.

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 process. 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:

Establishing criteria for performance
Database design and maintenance
Strategic audit committee
Relationship with the CEO
Alert to duty (by board members)

The performance criteria should be simple, well-understood and well accepted measures of financial performance. 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 fulfill 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.

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.

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.

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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.


Q.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 factors of cost efficiency.

Ans.

Various factors contribute to cost efficiency in an organization. These may even include factors which are not directly related
to cost or cost management like general work environment or culture in the organization, motivation levels of managers,
approach of the top management, etc. However, here we shall consider the factors that are directly related to cost competence
or cost efficiency. Four major factors may be identified: economies of scale, supply cost or cost of raw materials and
inputs, product or process design, and experience or experience effect.

Economies of scale: - Economies of scale are the most conventional and, also a very important source of cost efficiency. In
manufacturing organizations, fixed cost (per unit of output), which initially remains very high, starts going down
progressively as output increases. Because of this, average cost of output decreases as output increases, or the scale of
operations increases. This also means increase in capacity utilization of plant and machinery. In non-manufacturing
organizations or non-manufacturing activities, economies of scale can be affected through mass advertising, mass marketing,
extensive distribution, etc. Economies of scale can also be achieved through global partnering and global networks. Many
MNEs sustain their competitiveness in the market through scale advantage.

Supply cost: - Costs of raw materials and various inputs constitute supply cost. Inputs generally include raw material inputs
or intermediate inputs, factor inputs and energy inputs. In highly raw material-intensive industries like steel, cement and non-
ferrous metals, supply costs constitute a very high proportion of total cost of the product and, therefore, become a very
important determinant of the level of cost efficiency. In these industries, location influences supply cost because
transportation becomes a significant component of total raw material cost. This is the reason why, in these industries, many
plants are located near the raw material source or mines. This gives cost advantage to companies. In such industries,
ownership of raw material can also give definite cost advantage. All Japanese automobile manufacturers have established
close linkages with their vendors suppliers of automobile ancillariesthrough different kinds of partnerships and alliances
and implementation of JIT principles. Companies are also reducing the number of vendors to make the raw material supply
chain more cohesive and cost efficient.

Product/process design: - Product design starts at the R&D stage even if it is an imitation. Many feel that product design is
the first step in efficient cost management, because the nature of the product determines, to a large extent, the raw material
and other input requirements and supply cost. Cost efficiency in production processes can be achieved through better process
engineering, increase in productivity (depends partly on the technology level) and better working capital management. Many
companies have achieved cost efficiency through these methods.

Experience: - Experience in any activity in an organization can be an important source of cost advantage or cost efficiency
be it manufacturing or any other functional area. Many studies have been conducted to establish the relationship between
cumulative experience gained in an organization and its unit cost. The relationship is generally expressed as an inverse
relationship between cumulative output and unit costunit cost decreases as cumulative output increases. This is shown in
the experience curve


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The experience curve is the result of two major factors, namely, the learning effects and economies of scale. Learning effects
refer to cost saving which comes from learning by doing. For example, labour learns through repetitive processes, how to
perform a task more efficiently on the shop floor or in assembly lines. Due to this, labour productivity increases and this leads
to cost reduction or cost efficiency.



Q.5. Write short notes on the following:
a) Divestment strategy
b) Liquidation strategy

Ans.

a) Divestment strategy: - Divestment means selling a part of a companya major division or an SBU. This is also
called divestiture. Divestment is usually a part of corporate restructuring or rehabilitation programme. Divestment
can be part of an overall downsizing or retrenchment strategy of an organization to get rid of businesses which are
unprofitable or which require too much capital or which do not fit well with the companys other existing businesses
or activities. Divestment is many a time used to raise capital for new acquisitions or investment. Sometimes
divestment becomes a forced option when an attempt has been made to turnaround the business, but, has not been
successful.

Divestment can be done in two ways: selling a business outright or spinning it off as an independent company.
Selling a business outright is the more commonly used form of divestment.

Selling a business outright involves finding a suitable buyer. Finding a suitable buyer may be easy or difficult
depending on the nature of the business to be divested. It also depends on the structure, size and growth of the
industry or market. Many times, businesses are sold not necessarily because they are unprofitable, but because of
strategic or environmental reason, say, emerging competitive threat. Parle Products sold its profitable soft drinks
business to Coca-Cola because the company did not want to get involved into a marketing warfare with giants like
Coke and Pepsi. Also, while selling a business, the seller company should look for a buyer who finds the business a
good fit with their existing product mix or product portfolio.

Spinning off business into a separate company may be done because of some strategic reason; may be it does not fit
well with the core business of the company. If a company decides to spin off a business, one important decision the
corporate parent has to take is whether to retain partial ownership in the divested business or not. Retaining partial
control is generally recommended if the business to be divested has good profit prospects.

b) Liquidation strategy: - Liquidation means closing down a company and selling its assets. Liquidation can also be
defined as selling of a companys assets, in parts, for their tangible worth. This should be the strategy of last resort
when no other alternatives like turnaround, restructuring or divestment are applicable or workable. Liquidation is
actually a recognition of defeat. But, at some stage of the organizational life cycle, it is advisable to cease operating
than continue to operate and accumulate losses.

Liquidation should be planned. Liquidation may be the toughest decision for a company, but, if it is unavoidable/
inevitable, it should be done at the right time and, in a planned manner. Planned liquidation involves a systematic
process for maximum benefits for the company and its shareholders. If liquidation is unplanned or haphazard, the
company may incur avoidable or unnecessary losses.

In India, liquidation is governed by the Companies Act, 1956. In the Companies Act, liquidation is officially termed
as winding. The Act defines winding up of a company as the process whereby its life is ended and its property
administered for the benefit of its creditors and members. The Act stipulates appointment of a liquidator who
handles the liquidation process. The liquidator takes control of the company, collects its assets, pays its debts and,
finally, distributes any surplus among the members, according to their rights. According to the Act, liquidation or
winding up may be done in three ways:

i. Voluntary winding up;
ii. Voluntary winding up under supervision of the court;
iii. Compulsory winding up under an order of the court.
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Q.6. Describe the different approaches to business ethics.

Ans.

Different companies have different approaches to business ethics. It depends on their prioritization of ethical practices in
conducting business. Some companies accord highest priority to the achievement of organizational objectives and business
targets; ethical practices may have to be compromised. Some companies give almost equal priorities to both. Some companies
give very high priorities to ethics and values; management and strategic functions are governed or dictated by this. According
to Rossouw and Vuuren (2003), approaches adopted by various companies to deal with business ethics may take one of the
four forms. These are shown below in terms of increasing order of ethical concern:

a) Unconcerned or ethical non-issue approach

b) Ethical damage control approach

c) Ethics compliance approach

d) Ethical culture approach

a. Unconcerned or ethical non-issue approach: - This approach is adopted by companies whose managers are either
immoral or amoral. Such companies believe that organizational objectives and business targets are the foremost.
Business must grow; profit should be generated and maximized. These companies plan and adopt strategies which
may follow general legal and business principles, but may be ethically unsound. They are not really concerned with
the ethical issues in the conventional sense. Many feel that Mittal Steels (L N Mittal) international acquisitions fall
in this category.

b. Ethical damage control approach: - In this approach, managers are generally amoral, but, they fear adverse
publicity or scandal. The objective of this approach is to protect the company from adverse publicity which may be
made by unhappy stakeholders, external investigation agencies, threats of litigation, punitive government action, etc.
To avoid such a contingent situation, there is a need for rejecting unethical behaviour and introducing corporate
governance safeguards through window-dressing ethics.

c. Ethics compliance approach: - In this approach, companies are conscious that they should comply with ethical
standards and requirements. The managers are either moral and view strong compliance to prescribed norms or
methods as the best way to enforce ethical practices; or, are unintentionally amoral but are highly concerned about
their ethical reputation. Companies which adopt a compliance approach adhere to certain practices to demonstrate
their commitment to ethical conduct: make the code of ethics visible and a regular part of communication with
employees, form ethics committees to give guidance on ethical matters, introduce ethics training programmes, lay
down formal procedures for investigating alleged ethical violations, conduct ethics audit to measure and monitor
compliance and institute ethics awards for employees for outstanding efforts for creating an ethical environment and
improving ethical performance.

d. Ethical culture approach: - In this approach, ethical business practices are rooted in the organizational culture
itself. The top management/ CEO believe that high ethical principles embedded in the corporate culture should guide
the managers and staff.

The ethical principles contained in the companys code of ethics and/or corporate values are seen as integral to the
companys identity and image. The prevalence and success of the ethical culture approach depends heavily on the
personal integrity of the individual managers who create and nurture the culture. It is clearly understood in such
companies that corporate strategy should be ethical in all respects and ethical behaviour should also be reflected in
strategy implementation.