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ROLL NO

1 Describe the role of five major participants in the Strategic Management Process (SMP) of a
company.
Description of the role of 5 participants (BoD, CEO, corporate planning staff, senior managers and
Consultants)

Answer: Role of five major participants in the Strategic Management Process

Role of Board of Directors
In any organizational hierarchy, the board of directors is the apex/highest level body. The board is
the final authority in managing the affairs of a company, strategic or non-strategic. They perform
these functions according to or subject to the memorandum of association and articles of
association of the company. The role of a board member depends on his (her) degree of
involvement in the strategic process; and the degree of involvement of a member depends partly on
the management philosophy of a company and partly on the interest a particular board member
takes in the affairs of the company. The levels of involvement and, therefore, the roles of the board
members can vary widely.

Role of Chief Executive

The chief executive plays the most important role in the strategic management process of a
company. Major management functions of a chief executive, however, can be broadly divided into
two categories; strategic and non-strategic. Every chief executive should clearly distinguish
between his/her strategic functions and non-strategic or operational functions so that he can
appropriately allocate his time and concentrate more on strategic functions.

Role of Corporate Planning Staff

Every chief executive needs the support of his corporate planning staff. With increasing volatility of
the competitive environment, the strategic planning and management process is becoming more
complex. Also, with the introduction of new tools, techniques and planning models, the planning
system is also becoming more technical and specialized. Therefore, almost all large companies and
multinationals have created a separate corporate planning division or unit. This division or unit is
equipped with specialized planning staff who forms the nucleus of strategic planning activities of a
company.

Role of Senior Managers

Not only the corporate planning staff but other managers, particularly the senior managers, also
play an important role in the strategic management process of a company. The senior managers
include SBU heads and also functional heads. Some of these heads are at the level of directors who
are represented on the board. The senior managers are members of different management
committees, including top management committees which are involved in strategic planning and
management. Some of these committees consider and evaluate proposals for new investment,
restructuring, diversification, etc. In all these committees some corporate planning staff members
are also represented.

Role of Consultants
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 issues—be it productivity, cost efficiency, restructuring, long-term
growth or diversification.

2 Differentiate between mission and vision of a company? Explain with examples.

Meaning and explanation of mission statement of a company with examples
Meaning and explanation of vision of a company with examples

Answer: Mission Statement

‘A business is not defined by its name, statutes or articles of incorporation. It is defined by the
business mission. Only a clear definition of the mission and the purpose of the organization makes
possible clear and realistic business objectives.’ — Peter Drucker

The mission statement of a company is variously called a statement of philosophy, a statement of

beliefs, a statement of purpose and, a statement of business principles. A mission statement is many
in one. It embodies the business philosophy of a company’s decision makers, implies the image the
company wishes to project for itself, reflects the company’s self-concept; indicates the company’s
principal product or service areas and, the customer needs the company seeks to satisfy. In short, it
describes the company’s product, market and technological focus; and it does so in a way that
reflects the values and priorities of the company’s strategic decision makers.

EXAMPLE: Vision and mission statements of Indian Oil Corporation are:

• Vision: Indian Oil aims to achieve international standards of excellence in all aspects of energy
and diversified business with focus on customer delight through quality products and services.
• Mission: Maintaining national leadership in oil refining, marketing and pipeline transportation.

Vision Statement: All visionary companies have a vision statement. The vision of Microsoft (since
1999) has been ‘to broad base its outlook to empower people through great software anytime,
anywhere and on any device including the PC and an incredibly rich variety of digital devices
accessing the power of the Internet’.

Vision and mission statements can be generally found in the beginning of annual reports of
companies. These statements are also seen in the corporate or long-term strategic plans of
companies. These also appear in many company reports or documents like customer service
agreements, loan requests, labour relations contracts, etc. Many companies also display them at
prominent points or locations in company premises.

3 Explain in detail Porter’s four generic strategies.

Explanation of Porter’s generic strategies
(Cost leadership, Focuses cost leadership, differentiation, focused differentiation)

Answer: Porter (1985) evolved the theory that there are four generic strategic options available to
companies. These are:
  Cost leadership
 Focused cost leadership
 Differentiation
 Focused differentiation
Porter’s theory is based on the concepts of niche marketing and mass marketing and product
proposition to be offered by different companies. Two dimensions of the strategy analysis are
market coverage and basis of product performance.
 Cost leadership strategy is based on exploiting some aspects of the production process,
which can be executed at a cost significantly lower than that of competitors. There can be
various sources of this cost advantage:
i. lower input costs, (e.g., the price paid by New Zealand timber mills for the logs
produced by the country’s highly efficient forestry industry or cheap source of high
quality bauxite for National Aluminium Company (NALCO) in India from its mines);
ii. in-plant production costs, (e.g., lower labour costs enjoyed by Japanese companies
locating their video assembly operations in Thailand);
iii. lower delivery cost because of proximity of key markets, (e.g., the practice of major beer
producers in Europe to locate micro-breweries in or around major metropolitan cities).
 Focused cost leadership exploits the same advantages as in cost leadership strategy, but
the company occupies a specific niche or niches serving only a part of the total market. For
example horticulture enterprise, which operates an onsite farm shop, offers low-priced
fresh vegetables to the inhabitants in the immediate neighbourhood area. Porter has
mentioned that cost leadership and focused cost leadership represent a ‘low scale
advantage’ because it is quite likely that eventually a company’s capabilities will be eroded
by rising costs (labour cost in particular) or its market position will be challenged by an
even lower cost producer of goods.
 Differentiation strategy is based on offering superior performance, and Porter argues that
this is a ‘high scale advantage’ because, first, the producer can usually command a premium
price for its product and, second, competitors are less of a threat, because to be successful,
they must be able to offer an even higher performance product.
 Focused differentiation, which is typically a strategy of smaller and most specialist
companies, is also based on superior performance. The only difference is that in this
strategy, a company specializes in serving the needs of a specific market or markets. For,
e.g., the Cray Corporation supplies ‘super computers’ to the aerospace and defence
industries

4 Differentiate between core competence and distinctive competence.

Explanation of core competence with examples
Explanation of distinctive competence with examples

Answer: Core Competence

Core competence of a company is one of its special or unique internal competence. Core
competence is not just a single strength or skill or capability of a company; it is ‘interwoven
resources, technology and skill’ or synergy culminating into a special or core competence. Core
competence gives a company a clear competitive advantage over its competitors. Sony has a core
competence in miniaturization; Xerox’s core competence is in photocopying; Canon’s core
competence lies in optics, imaging and laser control; Honda’s core competence is in engines (for
cars and motorcycles); 3M’s core competence is in sticky tape technology; JVC’s in video tape
technology; ITC’s in tobacco and cigarettes and Godrej’s in locks and storewels. Hamel and
Prahalad, two of the greatest exponents of core competence, argue in ‘The Core Competence of the
Corporation’ (HBR, 1990) that the central building block of the corporate strategy is core
competence. Hamel and Prahalad defined core competence as the combination of individual
technologies and production skills that underlie a company’s product lines.

Example: According to them, Sony’s core competence in manufacturing allows the company to
make everything from the Sony walkman to video cameras to notebook computer. Canon’s core
competence in optics, imaging and microprocessor controls have enabled it to enter markets as
seemingly diverse as copiers, laser printers, cameras and image scanners.

Distinctive Competence
Core competence may not be enough, because it focuses predominantly on the product or process
and technology, or, as Hamel and Prahalad put it; ‘The combination of individual technologies and
production skills’. There are two problems with this. First, strong and aggressive competitors may
develop, either through parallel innovations or imitations, similar products or processes which are
highly competitive. This is what Japanese companies have done in the fields of electronics and
automobiles, and now South Korea is doing to Japanese electronics; IBM’s core computer
technology is also facing the same problem. Second, to secure competitive advantage, only product,
process or technology or technological innovation may not be enough; this has to be amply
supported by special capabilities in the related vital areas like resource or financial management,
cost management, marketing, logistics, etc. Distinctive competences may provide an answer to
some of these points. Distinctive competence is based on the assumption that there are different
alternative ways to secure competitive advantage and not only special technical and production
expertise as emphasized by core competence.

Example: Reliance Industries, has developed its distinctive competence in ‘conceiving,

implementing and managing large scale projects’ and mobilizing requisite resources for that. They
do not think in terms of core competence. Mukesh Ambani, Chairman and MD, has described it like
this: ‘We do not believe in core competence; we believe in building competence around people and
processes to create value’

5 Define the term ‘industry’. List the types of industries. How do you conduct an industry
analysis?
Definition of ‘industry’
Mentioning the types of industries
Explanation on conducting industry analysis (including steps to be followed)

Answer: An industry can be broadly defined as ‘the group of firms producing products that are
close substitutes for each other’. There is, however, a great deal of controversy over an appropriate
definition of industry. The debate or controversy mostly centres on ‘how close substitutability
needs to be in terms of product, process or geographic market boundaries’.

Industries can be broadly classified into five categories according to Porter:

1. Fragmented industry
2. Emerging industry
3. Mature industry
4. Declining industry
5. Global industry
Understanding industry structure and formulating competitive strategies imply industry analysis.
But, conducting a proper industry analysis is a very big task. To conduct such an analysis, the
industry analyst has to find answers to many important questions:
 What should be the starting point?
 Which types of data one looks for?
 Should one look for only published or secondary data?
 Or, should one also generate primary data from industry observers (participants)?
 What are the analytical techniques to be used for data processing and analysis?
Answers to these questions would make possible an appropriate industry analysis. This is about
complete or comprehensive industry analysis. If, however, one is interested in a particular aspect of
an industry, say, only industry growth, one can also conduct a partial industry analysis with respect
to the particular object. In that case, data requirements would be less, and data processing and
analysis also would be much easier. Porter (1980) has suggested some detailed guidelines for
conducting industry analysis. These are contained in ‘How to Conduct an Industry Analysis’
(Appendix B) in Competitive Strategy (1980). Porter discusses sources of published or secondary
data, generation or collection of primary data, various categories of data, scheme of data processing
and strategy for industry analysis. He has also suggested a broad framework for industry analysis in
terms of categories of data and competition.

Industry analysis should follow a number of logical or strategic steps. These are shown below:
Step 1: Determine or specify the objective or objectives so that there is no lack of focus.
Step 2: Collect and scan through available published or secondary data.
Step 3: Identify data or information gaps for generation of primary data.
Step 4: Generate primary data (through survey, interviews, meetings) to fill data information gap.
Step 5: Process/tabulate various data
Step 6: Prepare a general overview of the industry using the processed/tabulated data/information.
Step 7: Prepare specific Sectoral analysis—technology, product, marketing pattern, competition
analysis
Step 8: Draw inferences or conclusions to complete the analysis.

6 What is meant by ‘structure of an organization’? Describe the five major structural types or
forms of an organization.
Meaning of ‘structure of an organization’
Description of the 5 structural types

Answer: Structure of an Organization

Structure of an organization defines the levels and roles of management in a hierarchical way. One
can also say that an organizational structure spells out the way tasks, functions and responsibilities
are allocated for implementing a policy or strategy. These also imply that an organizational
structure facilitates or constrains how processes and relationships work. An organizational
structure is presented through the organizational chart. The organizational chart, however, is only a
visual expression of the tasks, functions responsibilities, and the links and hierarchies among them.
The structure goes beyond the visible chart and signifies the mechanism through which an
organization works.

Major structural types

Entrepreneurial Structure
This is the most elementary form of structure. The entrepreneurial structure represents an
organization which is owned and managed by a single individual— the entrepreneur. Some call it a
simple structure and contend that this is no formal structure at all. Organizations with such
structures are typically single business product or service companies which cater to local or
regional markets. This is the way most small businesses operate. The owner-entrepreneur
assumes/discharges most of the responsibilities of management with some manager(s)/staff
assisting him/her. The manager(s)/staff hardly exercise any authority and there is no or very little
division of management responsibilities

Functional Structure
A functional structure is based on differentiation and allocation of primary functions such as
production, marketing, finance, and HR along with certain delegation of powers. Each of these
functions is headed by a general manager or director usually at board level. Other important
functions or activities like public relations and ‘legal’ may be directly under the charge of CEO or
MD. The functional structure is most commonly used by medium and large organizations with
narrow or limited product range.

Divisional Structure
A divisional structure—some call it multidivisional structure—consists of separate divisions
constituted on the basis of products, services or geographical areas. Need for a divisional structure
arises primarily because of inadequacy of a simple functional structure to deal with the
complexities of business as an organization grows very large. The more common form of
divisionalization is on the basis of product or business. Divisionalization gives focus on different
divisions with separate product/market strategies. The divisional structure, however, does not do
away with the functional structure.

SBU Structure
Divisions closely approximate strategic business units (SBUs) in all large multi business
organizations. The fundamental factor in the SBU structure is to identify independent
product/market segment which requires distinct strategies. Each of these product/market
segments also face a different environment, and, therefore, more is the need for separate strategies.
In many companies, particularly in the public sector, the earlier divisional structure has been
replaced by an SBU structure to give more focus on individual business and clearly define the role
of corporate parents.

Matrix Structure
A matrix structure is a need-based or project-based structure which does not follow the
conventional lines of hierarchy or control. We can call it a combination structure—combination of
different divisions or functions—designed to form a project team for launching a new product,
development of a new market or geographical operations. In the matrix structure, a project
manager is appointed to coordinate and manage project activities. Functional/specialist resources
are drawn from different divisions/functional areas to constitute the project team. The members of
the team have dual responsibility and authority—one is project responsibility and authority and
the other their ‘line’ responsibility and authority in terms of hierarchy and command. Every matrix
structure usually has a defined duration, that is, the project period.