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Master of Business Administration- MBA Semester 4

MB00 52 Strategic Management and Business Policy


Question 1 - Write Short notes on the following: (a) Value Chain Analysis (b) Corporate Restructuring 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 support activities. Since each of these activities is expected to create value when it is performed, the chain can appropriately be called a value chain. Primary activities can be divided into five major areas: Inbound logistics: Activities concerned with receiving, storing and distributing raw materials and inputs to the production or service division. Operations: Activities involved in transforming various inputs into final product or service. Operations also include machinery, packaging, assembly, testing, etc. Outbound logistics: Include collecting, storing and distributing or delivering final products to customers. For tangible products (industrial or consumer goods), this would include warehousing, materials handling, transportation, etc. Marketing and sales: Activities such as advertising, sales promotion, selling, sales force management, pricing, channel selection, channel management, etc. Marketing and sales provide the most important link between the company and the customer. Service: These include activities which maintain or enhance value of a product or service such as installation, repair, training, supply of spares and prompt after-sales service, etc. Support activities can be divided into four categories: procurement, technology development, human resource management and organizational infrastructure. 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 creations. Key technologies are concerned directly with the product, (e.g., R&D, product design, quality control, etc.,) or with processes, (e.g., process development). Human resource management: This provides support to all primary activities in the value chain. More specifically, HRM is concerned with recruiting, managing, training and developing people within the organization. Infrastructure: This is the organizational system including finance, MIS, general management, strategic planning, etc.

Above shows the value chain in an organization in terms of primary activities and support activities and the value or margin these activities are expected to create.
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Master of Business Administration- MBA Semester 4

MB00 52 Strategic Management and Business Policy


Corporate restructuring means organizational change to create more efficient or profitable enterprise. Similar terms which are used for restructuring are revamping, regrouping, rationalization or consolidation. Corporate restructuring has three meanings or connotations: organizational restructuring, business-level restructuring and financial restructuring. Organizational restructuring means changes in the structure of the organization changing or reducing hierarchies or delayering, downsizing, i.e., reducing the number of employees, redesigning positions, reallocation of jobs or portfolios or changing the reporting system. Business-level restructuring (applies to multi-business organizations) deals with changes in the composition of a companys businesses or product portfolios. The changes are done on the basis of movements in market share or performance of different businesses or products to improve efficiency or profitability at the corporate level. Financial restructuring is concerned with changes in financial management in terms of equity pattern or equity holdings, debt-equity ratio, borrowing pattern, debt servicing schedule, etc. More common forms of restructuring are organizational restructuring and business-level restructuring. Sometimes, when major crisis develops, restructuring may be comprehensive, which may simultaneously involve, rather combine, business-level restructuring, organizational restructuring and even financial restructuring. This may happen more during a turnaround situation Restructuring is essentially an adaptation strategy. It is about adaptation to change and is mostly incremental in nature. In contemporary business, most companies are in the process of constant change. Often older companies require more restructuring than the newer ones. This may happen for a number of reasons. First, those companies might have over-diversified including diversification into unrelated areas; second, the organizational structure might be very hierarchical not fitting into a dynamic market environment; third, there might be a conservative financial management system in relation to funds flow rand investments. Question 2 - Differentiate between mission and vision of a company? Explain with examples.
A clear distinction exists between the two. Mission is concerned more with the present; the vision more with the future. The mission statement answers the question: What is our business? The vision statement answers the question: What do we want to become or, which way should we be going? The mission statement focuses on the present strategic thrust, while the vision statement outlines the strategic path. 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. Most progressive companies develop both a mission statement and a vision statement. Indian Oil Corporation (IOC) is a good example. Vision and mission statements of IOC 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. The other good example for vision and mission statement is the Vision and mission of Tata consultancy services as fallows,
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Master of Business Administration- MBA Semester 4

MB00 52 Strategic Management and Business Policy


Vision Statement "TCS will be recognized and respected as professional, innovative, profitable information, and knowledge based logistics/services enterprise. TCS embeds internet based technologies into its internal operating structures and as business solutions for customers; with customer, employee and shareholder interests at the core of its operations; demonstrating a clear concern for ethical conduct and good corporate citizenship; with the objective of growing into a regional and global player, with emphasis on the Middle East, Europe and North America". Mission Statement "To direct all our organizational efforts at building upon the existing organizational strengths and brand recognition to achieve enhanced levels of profitable growth in the core business, and diversify into new areas that compliment and supplement the core business, with the diversification aimed at achieving excellence and industry leader status in the new areas. The TCS People will however be encouraged to be open to unconventional ideas and services and recognize new trends at very early stages". Question 3 - Explain in detail Porters four generic strategies 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 Porters 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. Porters theory or the strategy option matrix is shown in Figure

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: lower input costs, (e.g., the price paid by New Zealand timber mills for the logs produced by the countrys highly efficient forestry industry or cheap source of high quality bauxite for National Aluminium Company (NALCO) in India from its mines); in-plant production costs, (e.g., lower labour costs enjoyed by Japanese companies locating their video assembly operations in Thailand); 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).

Master of Business Administration- MBA Semester 4

MB00 52 Strategic Management and Business Policy


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 neighborhood area. Porter has mentioned that cost leadership and focused cost leadership represent a low scale advantage because it is quite likely that eventually a companys 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, (e.g., Russias post-Perestroika entry in the world arms market offering extremely competitive prices). 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 defense industries.

Question 4- Differentiate between core competence and distinctive competence. Core competence of a company is one of its special or unique internal competences. 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; Xeroxs core competence is in photocopying; Canons core competence lies in optics, imaging and laser control; Hondas core competence is in engines (for cars and motorcycles); 3Ms core competence is in sticky tape technology; JVCs in video tape technology; ITCs in tobacco and cigarettes and Godrejs in locks and stairwells. 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 companys product lines. According to them, Sonys core competence in manufacturing allows the company to make everything from the Sony Walkman to video cameras to notebook computer. Canons 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. To achieve core competence, a particular competence level of a company should satisfy three criteria: (a) 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 value and either miss or deliberately overlook the customer perspective. (b) It should lead to a level of 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. (c) 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 marketing 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
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Master of Business Administration- MBA Semester 4

MB00 52 Strategic Management and Business Policy


improvements, but, about the whole process through which continuous change and improvement take place which lead to or sustain clearly differentiated advantage.

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; IBMs 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.
Hamel and Prahalad themselves have said later (1994): We have to look at the organization as a portfolio of competencies, of underlying strengths, and, not just a portfolio and business unit.... We must also identify those core competencies that would allow us to create new products; and we must ask ourselves what we can leverage as we move into the future, and what we can do that other companies might find difficult. 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. Distinctive competence includes core competence as one of the alternatives. But, there are other alternatives that are also based on organizational capabilities. So, distinctive competence is broader based. Thompson and Strickland (1992) have defined distinctive competence as: Distinctive competence is the unique capability that helps an organization in capitalizing upon a particular opportunity; the competitive edge it may give a firm in the marketplace. So, the focus in distinctive competence is on exploiting a market opportunity. And, depending on the market or competitive situation, one or some of the alternative competences may work; for example, product or process superiority (core competence), product differentiation (situational or adaptability), cost effectiveness or cost efficiency to support a price strategy, special capability in marketing or distribution, etc. Under given circumstances, one of these, or a combination of some of these, will produce a distinctive competence which would be appropriate or best suited to exploit the opportunity and produce desired results. Since resources are limited, identification of distinctive competence may also help efficient allocation of resources. Reliance Industries, for example, 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.

Question 5- Define the term industry. List the types of industries. How do you conduct an industry analysis?
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Master of Business Administration- MBA Semester 4

MB00 52 Strategic Management and Business Policy


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 centers on how close substitutability needs to be in terms of product, process or geographic market boundaries. For example, if we take computers, desktop computers may be an industry; similarly laptop computers may be another industry. But, because there is a good deal of substitutability between desktop and laptop computers, an appropriate industry definition may be personal computer which includes both. An important point in the debate or controversy over industry definition is about overlooking latent sources of competition which may affect a company. Any definition of an industry is essentially a matter of choice about where to draw the line between established competitors and substitute products, between existing companies in the industry and potential entrants and, between existing manufacturers of the product(s) and suppliers of inputs and buyers. Drawing these lines may, many times, be a matter of degree, but, it has implications for choice of strategy by a company. Industries can be of various typeseach major product group constitutes an industry (subject to the definition above). Industries can also be classified in terms of size of the constituent units or companies, state or pace of development of the industry, spread of the market, etc. These are important ways of looking at the structure of an industry. Based on such factors, various 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 answer 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. 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.

Master of Business Administration- MBA Semester 4

MB00 52 Strategic Management and Business Policy


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, etc.,) to fill the data information gap. Step 5: Process/tabulate various data Step 6: Prepare a general overview of the industry using the processed/ tabulated data/information. Question 6- Describe the different approaches to business ethics. In practice, 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 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. Ethical damage control approach: In companies in this category, managers are generally amoral, but, they fear adverse publicity or scandal. The objective in 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 behavior and introducing corporate governance safeguards through window-dressing ethics. A company may generally ignore or condone questionable methods or actions which may help to achieve business targets or improve its market position so long as it does not publicly tarnish the image of the company. 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 programs, lay down formal procedures for investigating alleged ethical violations, conduct ethics audit to measure and monitor 7

Master of Business Administration- MBA Semester 4

MB00 52 Strategic Management and Business Policy


compliance and institute ethics awards for employees for outstanding efforts for creating an ethical environment and improving ethical performance. Ethical culture approach: In companies with 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 behavior should also be reflected in strategy implementation.