Question No.-1

Illustrate the strategic management model (SMP). Explain the levels in SMP.

Answer

Strategic Management Model-

The strategic management process consist of four stages-

1. Defining organisational mission2. Formulation of strategy3. Implementation of strategy4. Strategy evaluation and control

The strategic management process may best be illustrated in the form of a model. We can call this strategic management model. Relationship among the major components of the strategic management process is shown in the model. Generally, application of SMP is more formal and model driven in large, well structured organisations with many divisions, products, markets, different priorities for investment, etc. Smaller businesses or companies tend to be less formal. In other words, formality in SMP refers to the extent to which participants in SMP, Their responsibilities, authority and roles/duties are clearly specified. Also in practice, strategies may not always follow the strategic management model as rigid steps or chains in the management process.

Levels in Strategic Management Model-

Here are the following three levels of the strategic management levels as follows-

1. Corporate Level2. Strategic Business Unit (SBU) level3. Functional level

Corporate level strategy sets the long term objectives of an organisations and broad policies and controls within which a Strategic Business Unit (SBU) operates. The corporate level strategies also help and SBU to define its scope of operations and also limit or enhance SBU’s operations through resources the corporate management allocates for securing competitive advantage. Functional level strategies follow from, and also support, SBU-level strategies. Strategies at the functional level are often describes as tactical. Such strategies are guided and controlled by overall SBU strategies. Functional strategies are more concerned with implementation of corporate and SBU level strategies rather than formulation of strategies. Strategic management process at three levels also involves decision making. But, the types of decision making, their scope and impact are different at different levels. The characteristics of decision making at three levels may be more clearly understood in terms of major dimensions of decision making.

A distinction can be made between functional level or functional area strategies and operating strategies. Functional area strategies involves approaches, actions and practices to be undertaken for managing particular functions or business processes or key activities within a business marketing strategy. Operating strategies in comparison are relatively narrow strategies for managing different operating units (plants etc.) and specific operating activities of specific significance. Operating strategies provide more specific details about functional area strategies and render completeness to functional level strategies and also to overall corporate strategy.

Hindustan Unilever (HUL) is a multi SBU fast moving consumer goods (FMCG) company. It markets about 100 products/brands. It has grouped its big range of products into three categories: home and personal care, foods and beverages and, industrial and agricultural. In addition to domestic marketing, it is also engaged in export which is a separate SBU. Like most organisations, strategies at HUL also operate at three levels: corporate, SBU and functional. The strategic management process in HUL is shown below as a model structure.

Corporate Level1. Resource Mibilization 2. Resource Deployment3. Merger and acquisition

4. Divestment5. Appropriation of earnings

Business Level (SBU)1. Beverages

2. Personal Products3. Detergents

4. Icecream & frozen dessels

Question No.-2

“Business needs to be planned not only for today but also for future this implies the continuity and need for sustainability” Enumerate.

Answer

Business need to be planned not only for today, but also for tomorrow, that is, for future. This implies business continuity and the need for sustainability. Sustainability requires understanding and analysing the environment. Besides business fluctuations or business cycles, business interruptions occur business of natural disaster like floods, earthquakes, cyclones, etc. To safeguard against such threats or disasters, planning for business continuity is essential.

Business Continuity Planning-

It means proactively working out a means or method of preventing or mitigating the consequences of a disaster-natural or manmade-and managing it to limit to the level or degree that a business unit can afford.

Need or Importance of Business Continuity Planning (BCP)-

Business Continuity Planning (BCP) prepares companies to prevent or respond to such situations so that the damage or looses are minimised and the business or company survives. Thus, BCP plays a critical role in a business- its survival and sustainability.

Business Impact Analysis-

It is the process of identifying major functions in an organisation which have impacts of different degrees on the business of the organisation. The analysis is usually done for each major function to determine its criticality for the business.

Strategies for Business Continuity Planning-

Business 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. These ares-

Prevention- Conventionally it is the best strategy; this means taking steps or actions to prevent or minimise the chances of occurring of a disaster. Companies can adopt many preventive control measures as safeguards.

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. 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.

Resumption- In this the strategy is for resumption of normal or pre damage activities of the organisation. Activities now shift to the command centre. The command centre is different from the location of the normal business activity. Both resumption and recovery actions are planned and coordinated from the command centre. The centre should have required, communication facilities, systems and equipments for effective functioning of the BCP/ Technical team.

Recovery- Along with the resumption of critical operations either at the original site or an alternative location, the recovery process also begins. Recovery essentiality means reinstallation of the operating and control system. Naturally critical operations are restored. As this happens, information restoration from back-up tapes or offsite storage also begins. As soon as information/ data restoration is complete, critical business functions can resume.

Restoration- Restoration means restoration of the original site for normal functioning. The restoration process is initiated simultaneously with the recovery work. Infect recovery and restoration teams are often common.

Developing a Business Continuity Plan and Implementation-

Plans and strategies work together. A plan is also essential for implementation of a strategy. A separate plan can be made for each of the five strategies. i.e. prevention, response, resumption, recovery and restoration or an integrated plan can be prepared incorporating or dealing with all the strategies. In either case plan would have four important aspects or elements. These are:

Objectives: What exactly is to be done? Assumptions: These indicate availability of back up services, trained team to handle

operations vendors, etc. Team: The BCP team entrusted with the project – Their sub teams roles and

responsibilities should be specified. Scope and Limitations: The role of the BCP team should be clearly defined. Any

limitation in their functioning, including resources, are to be mentioned.

Implementation-

Implementation of business continuity plans are mostly technology driven. Implementation involves development and testing of IT system or solution. The software and hardware elements are built into the system. Implementations of the mechanical and physical process of restoration/recovery also take place simultaneously. Infect technology and other systems have to be harmonised for the proper implementation of a business continuity plan. During continuity planning and implementation care should also be takes to ensure that the organisation’s business process does not come into a complete halt when there is a disruption of the process flow. This is ensured through planning or building redundancy. i.e. incorporating back up service elements which may be redundant during normal course of business.

An example will make this clear. A bank may be selling fixed deposits to its account holders or customers through net banking. But the bank can also keep phone banking facility ready as a standby so that this can be availed of by the customers if net services break down. There can also be emergency phone numbers which consumers can use in case of failure of normal communication services.

Question No.-3

Explain the following-

(a) Core competence(b) Value chain analysis

Answer

(a) Core Competence

Core competence of the company is one of its spatial 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. Core competence gives a company a clear competitive advantage over its competitors. Sony has core competence in miniaturization, Xerox core competence is in photocopying.

To achieve core competence, a particular competence level of a company should satisfy three criteria:

It should relate to an activity or process that inherently underlies the value in the product or service as perceived by the customer. This is important because managers often take an internal view of the value and either miss or deliberately overlook the customer perspective.

It should lead to a level of a performance in a product or process which is significantly better than those of competitors. Benchmarking is a good way and is generally recommended for undertaking performance standard and also for differentiating between good and bad performance.

It should be robust i.e. difficult for competitors to imitate. In a fast changing world many advantages gained in different ways (like a superior product feature, a new benchmarking campaign or an innovative price policy/strategy) are not robust and are likely to be short lived. Core competence is not about such incremental changes or improvements, but about the whole process through which continuous change and improvement take place which lead to or sustain clearly differentiated advantage.

(b) Value Chain Analysis-

Various competences and resources of an organisation can be integrated into a chain of activities which an organisation performs to meet customer demand. Since of these activities is expected to create value when it is performed, the chain can appropriable be called a value chain. Michael porter introduced the concept of value chain analysis. Now it has become common for professional companies to do this analysis.

Value chain analysis helps in understanding how value is created in organizations through various activities. These activities can be divided into two broad categories: primary activities and secondary activities. Primary activities are directly concerned with the creation or delivery of a product or service or customer value. Support activities, as the name indicates, support the primary activities, or, more, correctly, help to improve the effectiveness of efficiency of primary activities.

Primary activities can be divided into five major areas as follows-

Inbound logistics- These are activities concerned with the receiving, storing and disturbing raw materials and inputs to the production or service division.

Operations- These are activities involved in transforming various inputs into final product or service.

Outbound Logistics- These include collecting, storing and distributing or delivering final products to customers.

Marketing and Sales- These comprise activities such as advertising, sales, promotion, selling, sales force management, pricing, channel section, channel management etc.

Service- These include activities which maintain or enhance value of a product or service such as installation, repair, training, supply of spares and prompts after sales service, etc.

Support services can be divided into four categories as follows-

Procurement- This relates to the processes for acquiring or purchasing various resource inputs like raw materials, intermediate inputs, equipment machinery, etc. Procurement primarily supports inbound logistics and operations.

Technology Development- Technology is involved in all value creation key technologies are concerned directly with the product or with processes. Technology development is fundamental to the innovative capacity of an organisation. Technology mainly supports operations.

Human Resource management- This provides supports to all primary activities in the values chain. More specifically, HRM is concerned with training, managing, recruiting and developing people within the organisation.

Infrastructure- This is the organisational system including finance, MIS, general management, strategic planning, etc. Infrastructure also comprises organizational structures, values and culture. Infrastructure, directly or indirectly, supports all primary activities.

Competences or activities in the value chain can contribute to customer value in two ways. First in competences in individual activities. Second is the competence in linking activities together. This includes the ability to integrate all the separate activities to deliver some customer value, and, thereby ensure that they do not contribute to conflicting goals. An organization may have core competence in manufacturing processes that produce engineering products of unique specifications very difficult for competitors to match or imitate. But, the company may not be able to gain competitive advantage from this unless it is able to take care of its inbound logistics, outbound logistics and marketing and sales. It is the combined effect of all these activities which creates or destroys value.

Organizations can effectively use value chain analysis to identify the weak links in the chain for further analysis, review and necessary action. In using the value chain, an organization should concentrate on two aspects. First, it should ascertain how different activities, both primary and support, are being performed so that contribution of each activity to organizational objectives or goals can be measured. If a particular activity is not contributing satisfactorily, required changes can be made in that. This is the job of strategic management. The second aspect is the coordination or integration of various activities into a cohesive value chain.

Question No.-4

Write a brief note on turnaround strategy.

Answer

Turnaround Strategy-

Corporate turnaround may be defined as organizational recovery from business decline or crisis. Business decline for a company means continues fall in turnover or revenue, eroding profit, or accrual or accumulation of losses. So business or organisational decline, like business performance, is understood in relative terms that are compared with the past. But some strategy analysis describe business decline in terms of current comparisons also.

Turnaround strategies are usually required for crisis situations. If organisational decline is not continuous or severe, corporate restructuring can provide the solutions. That is why turnaround strategy may be said to be an extension of restructuring strategy. When restructuring is very comprehensive and leads to corporate recovery, it almost becomes a turnaround strategy.

Corporate or business decline manifests itself in many forms or symptoms, including profitability. These symptoms are actually different performance criteria of companies. Major systems or criteria or situations which signals towards the need for a turnaround strategy are:

Steadily declining market share Continuous negative cash flow Negative profit or accumulating losses Accumulation of debt Falling share price in a steady market Mismanagement or low moral

With some or all these symptoms becoming clearly visible for a company, a turnaround strategy or recovery becomes highly imperative. But the situation should be carefully reviewed to assess the extent or recovery possible before undertaking any such program. Given a strategy, in some situations, recovery may be more or less successful than others. Slatter contends that there are four situations in terms of feasibility or success. These situations are-

Realistically non recoverable situation- It is one in which chances of survival are very little, because the company is not competitive, the potential for improvement is low, clear cost disadvantages exists and demand for the company’s product is in decline stage. In such situations divestment may be a better option.

Temporary Recovery- This situation exists when there can be initial successful recovery but sustained turnaround is not possible. This can happen because repositioning of the product is not possible.

Sustained survival situation- It means that recovery is possible but potential for future growth does not exist. This may happen primarily because the industry is in a declining phase.

Sustain recovery situation- It is the situation in which successful turnaround is possible for sustained growth. In such cases business decline might have been caused by internal

organizational factors or external or environmental conditions which the company is able to deal with effectively. Inherently the company is strong in terms of competence.

Surgical Turnaround and Non-surgical Turnaround-

Generally these are the two methods for corporate turnaround. The surgical method more commonly practiced in the west, involves sweeping changes like firing of staff, managers, wholesales reshuffling of portfolios closing down operations etc. Some call it bloodbath. Non surgical turnaround adopts the opposite approach, that is peaceful means revamping of recovery through meetings, discussions etc.

The operations in surgical turnaround are like this, the first step is to replace chief executive of the ailing company by a new iron chief. The new chief promptly gets into action; he asserts his authority. He issue pre-emptory orders, centralises functions and spears some convenient scapegoats. Then he goes about firing employees en masse and auctioning/ selling whole plants and divisions until the fat is satisfactorily cut to the bone. The bloodbath over the product mix is revamped, obsolete machinery is replaced, marketing is strengthened, controls are toughened, and accountability for performance is focused and so on.

Turnaround management of the humane type may involve negotiated and humane layoffs and divestiture but not a bloodbath. This type of turnaround also is generally brought about by the new helmsman. But he spends a great deal of time in trying to understand organisational problems and deliberating on them. He takes all the stakeholders including unions into confidence; forms group within the organisation to brainstorm together on what needs to be done to get over the crises; tries to create a new work culture; and generally infuses a strong sense of participation among the employees and many critical decisions become participative decisions. There are many examples of successful turnarounds of the humane type including Enfield, Volkswagen, Lucas, Air India, SPIC, BHEL and SAIL.

Question No.-5

What is stability strategy?

Explain the BCG (Boston Consulting Group) portfolio model.

Answer

(a) Stability Strategy-

Stability strategy is the most commonly used by the organizations. But the nomenclature stability strategy often creates confusion, among managers, planners and strategies. Stability does not mean static. Most organizations which follow the strategy look for growth and do not remain stable or static for a long period of time. Therefore some prefer to call it stable growth strategy. The basic approach In stability is to remain present course; steady as it goes. Stability strategy can be defined as –In an effective stability strategy, companies will concentrate their resources where the company presently has or can rapidly develop a meaningful competitive advantage in the narrowest possible product market scope consistent with the firm’s resources and market requirements.

As the definition indicates, stability strategy implies that an organisation will continue in the same or similar business as it currently pursues with the same or similar objectives and resource base. Three distinctive features of a stability strategy are:

No major changes take place in the product, market, service or functions Focus is on developing and maintaining competitive advantage consistent with present

resources and market requirements. The strategy thrust is not only on maintenance of the present level of performance, but also on

ensuring that the rate of improvement achieved in the past is sustained

In following strategy strategies, companies pursue same objectives which are consistent overall corporate stability. Companies generally have one or more of the four objectives in view:

Incremental Growth- Small incremental growth in sales or market share, sometimes to offset the inflation, is quite consistent with general corporate stability. This is different from quantum or discontinuous growth targeted in expansion strategies.

Profitability- The purpose is to sustain portability if it is tending to drift. The objective is to achieve stability, if not increase in profit.

Sustainability in growth- Past growth in sales or revenue should be maintained so that the company does not become static.

Pause or caution- Stability in a phase of caution or consolidation before an organisation embarks on expansion strategies. This can be also be a period of pause or rest after a blistering pace of extension.

Organisations follow stability strategies because they neither go for any major internal changes or restricting nor embark upon any ambitious expansion strategies. But, stability or sustenance also is neither simple nor to be taken for granted. It is often said, and correctly too, that if an organization aims to growth, it may be least achieved stability, but, if it aims at stability, it is most likely to slip into deceleration. Companies have therefore to regularly review there competence level, resource level, customer structure or cost management levels, react or respond timely to market developments.

(b) BCG (Boston Consulting Group) portfolio model-

BCG (Boston Consulting Group) portfolio model is a growth market share matrix, depicting a company’s competiveness in terms of market growth rate and its relative market share. This model is also knows as portfolio matrix because on the basis of BCG matrix a company can determine its optimal product portfolio on the basis of cash flow or profitability analysis of each of its products or product groups in terms of two dimensions i.e. market growth and market share. The BCG model based on the assumption that relative market share is a good indicator of profitability of a product or product group.

The BCG model was originally conceived and developed in the early 1970s for analysis of performance or cash flow generation of strategic business unit of a company. A strategic business unit is a division or a product/product group unit which operates as a separate profit centre that has its own set of market and competitors and its own business strategies. The company or the corporate unit consist of related businesses and/or product group into SBUs which are homogeneous enough to manage and controls most factors which affect their performance. Resources are allocated to the SBUs in relation to their contribution to the corporate objectives, growth and profitability.

The original BCG formulation has used ‘cash use’ for growth rate ‘cash generation’ for market share. Four performance situation of the product groups of SBUs were identified as four quadrants in the matrix as follows-

Stars- Stars are high market share products or SBUs operating in high growth markets. The model predicts that stars will have very strong need to support their growth. But, because they are in a strong competitive position they are in fact the highest share competitors- it is assumed that they will produce high margin and generate large amounts of cash. Therefore they will be both users and generators of large cash flows. On balance they should generally be self supporting with respect to their cash needs.

Cash Flows- Cash flows are high share products or SBUs operating in a low growth market. Because of their market position their cash generation should be high but because the market is assumed to be mature their cash investment needs to be small. And these products and businesses should be a source of substantial amounts of cash which can be channelled to other areas or businesses.

Question marks/problems children- These are the low share businesses in high growth markets. They are assumed to have cash needs because they need to finance growth. But they generate little cash. If a question mark’s/problem child’s market share cannot be changed, it will continue to absorb cash. If however market share can be adequately improved, a question mark/problem child can be converted into a star. Usually such a strategy will require heavy investment in the short run. Improved position should enable it to generate cash, become a star and ultimately a cash cow.

Dogs- Dogs are low share businesses in low growth markets. Because of their low share, it is assumed that their progress is low and therefore their profits will also to be low. Since growth is low, expansion of share is assumed to be very costly. Dogs are cash users and probably even ‘cash traps’ products or businesses that perpetually absorb cash.

Question No.-6

Define the term ‘Strategic alliance’

Enumerate its characteristics and objectives.

Answer

Strategic Alliance-

Strategic alliance may be defined as cooperation between two or more organisations with a common objective, shared control and contribution by the partners for mutual benefits. This definition may be expanded and made more comprehensive in term of essential features or characteristics of strategic alliance.

Characteristics of Strategic Alliance-

Two or more organisations join together to pursue a defined objective or goal during a specified period but remain organisationally independent entities.

The organisations pool their resources and investments and also share risks for their mutual interest/benefit.

The alliance partners contribute on a continuing basis in one or more strategic areas like technology, process, design etc.

The relationship among the partners is reciprocal with partners sharing specific individual strengths or capabilities to render power to the alliance.

The partners jointly exercise control over the performance or progress of the arrangement with regard to the defined goal or objective and share the benefits or results collectively.

Objectives of strategic alliance-

The basic objective behind all strategic alliance is to secure competitive or strategic advantage in the market. All strategic alliances have long term objective or purpose. Many companies realise that they do not possess adequate resources financial and managerial to pursue an innovation, developed a new product or technology. They look towards other organizations to supplement or augment their resources or capabilities for the fulfilment of their objectives. It can also be functional area where they have very little expertise. Different authors have analysed the purpose or objectives or reasons of strategic alliance. Six objectives or purposes are more commonly observed-

Development of a new product- In the pharmaceutical industry, new product development takes place on a continuous basis and in this many strategic alliances are formed between pharmaceutical companies and research laboratories and institutions for R&D. We have already given the example of boeing and their Japanese partners.

Reducing Manufacturing Cost- Co production common in the pharmaceutical industry is a good form of strategic alliance to reduce manufacturing cost through economies of scale.

Development of a New Technology- Development of technology is a long term process and also many times involves considerable cost. Collaboration leverages the resources and technical expertise of two or more companies.

Entering new markets- This is often the objective in international business. Many foreign companies enter into strategic alliance with some local companies to enter into and establish themselves in that country.

Market and Sales- This is common in both national and international business. Many manufacturers in India have marketing and sales arrangements with companies like MMTC and Tata Exports for both domestic and international marketing.

Distribution- In pharmaceutical and other industries where distribution represents high fixed cost, potential competitors swap their products for distribution in the respective markets where they have well established distribution system. Many such alliances exists between the US and Japanese pharmaceutical companies.

Strategic alliances are non equity based i.e. none of parties invest any equity capitals in such alliances. But funding in not involved and funding can be by one of the parties or all of them. The nature of funding depends on the type of strategic alliances, i.e. whether new product development, technology development and transfer, marketing or sales etc and also the parties involved. For examples if research laboratories or institutes are involved most of the funding is done by the corporate concerned.