Assignment summer 2013 Master of Business Administration - Semester 4 MH0052: Strategic Management and Business policy (Book ID:

B1699) Q:1 A well- formulated strategy is vital for growth and development of any organization. Explain corporate strategy in different types of organizations. Ans: A well-formulated strategy is vital for growth and development of any Organization whether it is a small business, a big private enterprise, a public Sector company a multinational corporation or a non-profit organization. But, The nature and focus of corporate strategy in these different types of organizations will be different, primarily because of the nature of their operations and organizational objectives and priorities. 1. In Small businesses, for example, generally operate in a single market or a limited number of markets with a single product or a limited range of products. The nature and scope of operations are likely to be less of a strategic issue than in larger organizations. Not much of strategic planning may also be required or involved; and, the company may be content with making and selling existing product(s) and generating some profit. In many cases, the founder or the owner himself forms the senior/top management and his (her) wisdom gives direction to the company. 2. In large businesses or companies whether in the private sector, public sector or multinationals the situation is entirely different. Both the internal and the external environment and the organizational objectives and priorities are different. For all large private sector enterprises, there is a clear growth perspective, because the stakeholders want the companies to grow, increase market share and generate more revenue and profit. For all such companies, both strategic planning and strategic management play dominant roles. Multinationals have a greater focus on growth and development, and also diversification in terms of both products and markets. This is necessary to remain internationally competitive and sustain their global presence. For example, multinational companies like General Motors, Honda and Toyota may have to decide about the most strategic locations or configurations of plants for manufacturing the cars. They are already operating multi location (country) strategies, and, in such companies, roles of strategic planning and management become more critical in optimizing manufacturing facilities, resource allocation and control. 3. In public sector companies, objectives and priorities can be quite different from those in the private sector. Generation of employment and maximizing output may be more important objectives than maximizing profit. Stability rather than growth may be the priority many times. Accountability system is also very different in public sector from that in private sector. There is also greater focus on corporate social responsibility. The corporate planning system and management have to take into account all these factors and evolve more balancing strategies. 4. In non-profit organizations, the focus on social responsibilities is even greater than in the public sector. In these organizations, ideology and underlying values are of central strategic significance. Many of these organizations have multiple service objectives, and the beneficiaries of service are not necessarily the contributors to revenue or resource. All these make strategic planning and management in these organizations quite different from all other organizations.The evaluation criteria also become different. Thus, corporate strategies in different types of organizations can be explained.

Q:2 Businesses need to be planned not only for today, but also for tomorrow, that is, for the future which implies business continuity. Write the importance of business continuity planning. Explain any two strategies for business continuity planning. Ans: Business Continuity Planning: 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 (BCP): As indicated in the definition, businesses today 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. Business impact analysis is the process of identifying major functions in an organization which have impacts of different degrees on the business of the organization. The analysis is usually done for each major function to determine its criticality for the business. 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 1. 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: (a) 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. (b) Infrastructure controls: These include appropriate infrastructural facilities like UPS/back-up power, smoke/fire detectors, fire extinguishers, weather forecasting systems , etc. (c) Personnel controls: Skilled/trained personnel are posted to man sensitive zones where key or critical resources may be located. (d) Software controls: These involve modern methods of controls through computerized systems or software. These include authentication, encryption, firewall, intrusion detection systems, etc. 2. 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 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. 3. Resumption In this, the strategy is for resumption of normal or pre-damage activities of the organization. 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. The first decision to be taken by the Technical Team is whether important or critical business operations can be resumed at the present site or those have to move to an alternative location. If the present site is badly damaged and, is not accessible for immediate use, operations may have to move to an alternative site. Different kinds or types of alternatives may be available based on infrastructure and facilities and the Technical Team has to choose the most appropriate site. 4. Recovery Along with the resumption of critical operations either at the original site or an alternative location, the recovery process also begins. Recovery essentially means reinstallation of the operating and control system. Necessary 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. 5. Restoration Restoration means restoration of the original site for normal functioning. The restoration process is initiated simultaneously with the recovery work. In fact, recovery and restoration teams are often common. The five strategies mentioned above have to be planned and executed within a time span usually decided by the top management in consultation with the BCP team. The time span or duration of the process would depend on the magnitude of the damage or disaster, recovery/restoration goals and the speed with which different teams " BCP, Technical and Operational " can function incorporating or dealing with all the strategies. Q:3 Governed corporation is a model of successful corporate governance. Define and explain governed corporation. Distinguish between managed corporation and governed corporation in terms of boards role, major characteristics and policies of a company. Ans: Governed Corporation The answer to problems of corporate failure in the managed corporation lies in the governed corporation. In the governed corporation, the focus is not on powernot monitoring or controlling the managersbut, on improving decision making. The objective is to minimize chances of mistakes; and, even if they occur, to mutually work out effective ways to rectify the mistake rather than fire the management. The result is a positive change in the way companies discuss, decide and review policy. Major differences in approach between the managed corporation and the Governed corporation in terms of boards role, characteristics and policies are shown below. To create the governed corporation, companies should start

Re thinking about the role of directors, and, also, of shareholders. Both the directors and shareholders should be proactive, and, not reactive in the policymaking process. Managers will continue to play their roles. This means that there are three critical constituents of the governed corporation: the board or directors, the managers and shareholders. Directors should guide managers to take best possible decisions; major shareholders should be able to communicate directly with the senior managers/CEO and, also the directors about what they think of corporate policies and decisions. With shareholders and board/ directors participating in policy and decision making, and, the managers already involved, the corporation is governed rather than managed because all the three critical constituents (managers, directors and shareholders) have a voice in the governance of the company. The Managed Corporation vs the Governed Corporation Boards Role, Characteristics and Policies: 1.The Managed Corporation The Governed Corporation: Boards Role Boards role is to hire, monitor and, when necessary, change failed management. Board Characteristics Power sufficient to control the CEO and the performance-evaluation process. Independence to ensure that the CEO is impartially evaluated and that directors are not compromised or co-opted by management. Board methods and procedures to allow outside directors to evaluate managers independently and effectively. Policies Separate the CEO and chairman (or lead outside director). Board meeting may take place without CEO being present. Committee of independent directors to evaluate the CEO. Independent financial and legal advisors available to outside directors. Measurable norms or yardsticks for judging CEOs performance. 2.The Governed Corporation: Boards Role Boards role is to hire, monitor and, when necessary, change failed management. Board Characteristics Power sufficient to control the CEO and the performance-evaluation process. Independence to ensure that the CEO is impartially evaluated and that directors are not compromised or co-opted by management. Board methods and procedures to allow outside directors to evaluate managers independently and effectively. Policies Separate the CEO and chairman (or lead outside director). Board meeting may take place without CEO being present. Committee of independent directors to evaluate the CEO. Independent financial and legal advisors available to outside directors. Measurable norms or yardsticks for judging CEOs performance. Thus, both governed and managed corporations can be differentiated.

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 determinants of cost efficiency. Ans: Price or market competitiveness of a product or business depends on its cost

competitiveness. Cost competitiveness itself is a competence or capability. Therefore, cost management becomes a very important strategic function of an organization. Cost competitiveness implies two things cost efficiency and cost Effectiveness. Both may appear same or similar as concepts, but analytically the difference between the two is quite significant. Efficiency is an input-output relationshiphow much has been produced or achieved per unit of input or cost. Given an input or cost level, higher the output, more efficient is the production process. Conversely, cost efficiency may be defined as the level of resources or cost required to produce a particular output or create a given value. So, lesser the resources or cost, more efficient is the value creation process. Effectiveness is more plan-output relationshiphow much of the plan has been fulfilled or realized given a resource level or cost. Effectiveness, therefore, is the ability to contribute to the defined level of objectives or goals or to produce results. Both cost efficiency and cost effectiveness are important dimensions of cost management. Cost efficiency and cost effectiveness are not exclusive to each other. So, companies can simultaneously aim at cost efficiency and cost competitiveness which can lead to cost competence. Cost competence, achieved through proper cost management, can also contribute to cost efficiency and cost effectiveness. FOUR MAJOR FACTORS: 1.Economies of scale: We know from economics that 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 effected 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. 2.Supply cost: Costs of raw materials and various inputs constitute supply cost. Inputs generally include raw material inputs or intermediate inputs and energy inputs. In an extended sense, these inputs can include factor inputs like Labour also. 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. This is why steel manufacturers like Tata Steel and nonferrous metal Manufacturers, like NALCO, BALCO, and HINDALCO, have their own captive sources of raw materials (ores). In fact, NALCO, primarily because of its captive sourcing of high quality bauxite, is one of the lowest cost producers of aluminium in the world. Even in those industries which are not highly raw material-intensive, supply cost management becomes an important determinant of cost advantage or cost disadvantage. Inventory (of raw materials, components and spares) Planning and management are also part of this. Companies are becoming Increasingly aware of this. The automobile sector is a good example. All Japanese automobile manufacturers have established close linkages with their vendors suppliers of automobile ancillaries through different kinds of partnerships and alliances and implementation of JIT principles. Maruti in India is also a very good example. Companies are also reducing the number of vendors to make the raw material supply chain more cohesive

and cost efficient. 3.Product/process design: Product design starts at the R&D stage even if itis 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. Cost competitiveness through product design need not, however, be confined to manufacturing or production process alone. Innovative product design can lead to cost saving through its influence on other parts of the value chain also like distribution or after-sales service. Canon proved this in its battle with Xerox. Xeroxs competitive advantage was built on its service and support network. Canon designed a copier which needed far less servicing8 and, through this, made one of the strong competence areas of Xerox largely redundant. In the process, Canon also achieved cost efficiency by spending much less on its service network. 4.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. 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. Labour, for example, 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. Similarly, in a new production process, management learns over time, how to manage the new operations more efficiently; and, management efficiency eventually leads to cost efficiency. Same applies to operations like logistics. Economies of scale as mentioned above contribute to cost reduction by distributing fixed cost over larger output. Learning effects, however, may die out after some time. Some feel that learning effects are really important during the start-up period of a new process. Even if it is a complex assembly process, workers may almost reach perfection after a few years, and all effects on the experience curve may cease after two or three years. Any further downward slope of the curve (that is, cost reduction) may occur only because of economies of scale which can continue over larger output. In a cost-conscious organization, all the four major factors, i.e., economies of scale, supply cost, product/process design and experience may play active roles for achieving cost efficiency. However, economies of scale and experience effect can occur only after an organization has been in operation for sometime. Newly launched companies or products must concentrate on product/ process design and supply cost and try to reduce the experience cycle through a more efficient management system.

Q:5 Stability strategy is most commonly used by an organization. An organization will continue in similar business as it currently pursues similar objectives and resource base. Discuss six situations when it is good/best to pursue stability strategy. Give some Indian examples. Ans: Good parenting can help SBUs to follow any strategy effectively including stability

Strategies. In large multi-business organizations, some SBUs may follow stability Strategy; some other SBUs may have to adopt strategy for internal change and Restructuring; other SBUs may pursue expansion strategy. Stability strategies are followed by organizations as corporate-level strategy also. In fact, most Organizations (single business or multi-business) follow stability strategies for a period of time; some organizations follow this for a longer period than others. It has been generally observed that as companies/corporations grow older, they get more rooted in structures and systems and, are more likely to follow a stability strategy. L&T is an example. We can also identity some specific situations when it is best to pursue stability strategy: (a) Perception of management about performance: If the management is satisfied with present performance and, is not willing to take market risks, they may like to adopt stability strategy and continue with it. The management may consider change of strategy only if results are not forthcoming. (b) Slowness to change: Some organizations are slow to change or resistant to change. This is particularly true of public sector companies. Many such companies are not organizationally equipped for fast or sudden change and lack the ability to cope with risk and uncertainty inherent in such change. (c) Frequent past changes: If a company had made frequent strategic changes in the past, it should follow stability strategy for some period for more efficient management. In fact, it is always recommended that, after a period of internal change and restructuring or expansions, stability strategy should be pursued as a pause or rehabilitation. Otherwise, the organization may show signs of destabilization. (d) Strategic advantage: If an organizations strategic advantage lies in the present business and market, it should pursue stability strategy. If, for example, an organization has high market share, it can continue in the same business and defend its position through incremental strategic changes. (e) Profit objective/maximization: Every company has some profit objective which is commensurate with the level of investment, output level, market structure, willingness to take risk, etc. If the stability strategy helps the company achieve its profit objective, the company should stick to this. Sometimes, stability strategy may even help in profit maximization. (f) Stable environment: Given the organizational resources and capabilities, the nature of environment determines, to a large extent, the kind of strategy to be followed by a company. If the environment is generally stable in terms of macroeconomic situation, government policy regulations and competition, stability strategy may be the best. The particular strategy to be followed depends on the precise nature of the environmental impact. If the environment is hostile or volatile, stability strategy is not recommended. Stability Strategies in Practice In practice, many companies in India and various other countries follow stability strategies. The reasons or situations can be those mentioned above. Such factors and circumstances relate to conditions in a particular country. In India, in addition to the situations mentioned above, reasons for pursuit of stability strategy by companies are of three types: 1. Overcapacity or underutilization of capacity; 2. Regulatory restrictions or controls; 3. Lack or withdrawal of budgetary support for expansion. The steel industry, cement industry and coal industry in India have Over capacity. This is one of the most important reasons why companies like SAIL, Coal India and ACC are adopting the stability strategy. Such companies cannot go for expansion strategies. Instead, they are concentrating on improving their operational efficiency. Cigarette and alcoholic beverages industries are subject to regulatory restrictions and there is strict control over expansion of these industries. Companies in the cigarette industry, like ITC, are going for

growth and diversification in agri business, hospitality business and export. Many companies in the public sector are forced to adopt stability strategy because of governments policy of privatization or divestment and curtailing or stopping budgetary support for any expansion programme. Many public sector companies in India also adopt stability strategies because of their size, slowness to change, unwillingness to take risk and the accountability system. Examples are many: BHEL, BPCL, HPCL, IOC, HCL, RCF, STC, MMTC, etc., in addition to SAIL and Coal India. Q:6 Corporate culture governs, to a large extent, business ethics and values in an organization. Describe the state of business ethics in Indian companies. Analyze in terms of KPMG business ethics survey. Ans: Business Ethics in Indian Companies: In terms of ethical practices, companies in India, as in many other countries, can be classified as good and bad. We have just given the examples of Infosys, Amul, ICICI, etc., which are highly ethical. There are also companies which do not conform to strong ethical norms. We also have regulations like the MRTP Act and FEMA (earlier FERA) for curbing unethical business practices. KPMG India conducted a survey of 280 top Indian companies for ascertaining the level of business ethics in India. Study analysis and findings are contained in Business Ethics Survey Report: India, 1999. Major findings of the study are summarized below: (a) Mission statement: About 85 per cent of the companies surveyed are reported to have a mission statement. But, most of these statements focus on customer service and customer satisfaction. Very few companies emphasize ethical and moral issues such as organizational values, integrity in business, harassment in the workplace, etc. (b) Company policy on ethics: Many companies have a documented policy on ethics. But, implementation or reinforcement of a formal ethical system is weak in most of these companies. Some companies have a grievance cell; some companies conduct periodic workshop on business ethics, but nothing much beyond that. (c) Ethical risk in the workplace: Many companies express concern about lack of ethics in the workplace. Some of the major ethical concerns expressed by companies are: leakage or misuse of confidential information (77 per cent); insider trading (48 per cent); receiving gifts or favours from suppliers (48 per cent); promoting personal interest (47 per cent). (d) External factors in corporate ethics: Most Indian companies feel that ethical problems in business arise because of external or environmental factors. Two major external factors are government policies/regulations and political interference. (e) Training in business ethics: Majority of the companies feel that training in business ethics should be given high priority. Education in ethics should be incorporated in the formal management development programmes of companies. (f) Strengthening ethical practices: Most Indian companies are of the opinion that, for strengthening ethical business practices, two factors are important: first, professionalizing company management; and, second, minimizing state or governmental control and interference.