MB0052 STRATEGIC MANAGEMENT AND BUSINESS POLICY

Q1. Explain the corporate strategy in different types of organization. A well-formulated strategy is vital for growth and development of any organizationwhether it is a small business, a big private enterprise, a public sector company, a multinational corporation or a non-profit organization. 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. 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. In large businesses or companieswhether 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. In 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 may have to decide about the most strategic locations or configurations of plants for manufacturing the cars. They are already operating multi-location strategies, and, in such companies, roles of strategic planning and management become more critical in optimizing manufacturing facilities, resource allocation and control. 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. 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.

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Q2. What is the role consultants play in the strategic planning and management process of a company? Is it an essential role? 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 issuesbe it productivity, cost efficiency, restructuring, long-term growth or diversification. Consultants bring with them diversified skills (most of the consulting companies are multidisciplinary) and experience from various companies which may not be available internally in a single company. This is the reason why even large multinational companies hire consultants for achieving their goals or objectives. There are many international consultants who are in demand in different countries. There are also national consultants. Leading international consultants, in addition to McKinsey & Company, are Boston Consulting Group (BCG), Arthur D Little and Accenture. Prominent Indian consulting companies are A F Ferguson, Tata Consultancy Services (TCS) and ABC Consultants. Consultants, sometimes have a difficult or delicate role to play. In many companies, a situation develops when the chief executive or the top management needs to bank upon the support of an external agency like a consultant to push through a strategic change in the organizational structure or management system of the company. It may be for growth and development or downsizing. In both cases, many companies face internal resistance to change. The resistance is more if it is downsizing even when it is required for turning around a company. This happens particularly in public sector companies where implementing change is always difficult. Consultants are engaged to support or substantiate the companys point of view (in the form of their recommendations) so that change is more easily acceptable to the internal stakeholders of the company. Consultants role may become delicate and, sometimes, tricky in such cases, and they should carefully weigh the ethical implication of their participation.

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Q3. What is strategic audit? Explain its relevance to corporate strategy and corporate governance. Strategic audit is a formal strategic-review process, which imposes its own discipline on both the board and the management very much like the financial audit process. But, it is different from management audit, which is undertaken in many companies by the senior/top management on the progress and outcome of important corporate activities. Donaldson has specified five elements of strategic audit. These are: 1. Establishing criteria for performance 2. Database design and maintenance 3. Strategic audit committee 4. Relationship with the CEO 5. Alert to duty (by board members) The analysis so far has focused on different aspects or characteristics of corporate strategy and corporate governance, the way they are differentiated and, also, areas of complementarities and some possible conflicts between the two. The objective of corporate strategy is more to focus on long-term growth and profitability, which gives sustenance to the company. This, however, is a common organizational conflict in many companies, i.e., matching or balancing the short- term and long-term goals of the organization. Balancing the stockholder interests and stakeholder expectations is another issue. This also relates to strategygovernance relationship. To serve the interests of all major stakeholders, good corporate governance is not enough; effective corporate strategy is required in important functional areas of manufacturing, finance and marketing to deal with competition, market and business development. In corporate governance, there is a growing emphasis on inclusiveness or inclusive governance, i.e., focusing on the society, community and environmental development. The strategic management processes of companies are also trying to find ways to strike a balance between CSR and profitability, realizing that, ideally, both should coexist for optimal/proper organizational growth. This is one area where both corporate strategy and governance are showing a common focus. Companies like Bajaj Auto, Tata Motors and Nirma are good examples. This is possible if the board and the CEO work in close unison. In fact, this implies another vital aspect of strategygovernance balancing, i.e., board CEO relationship. The board represents the owners; the CEO represents the management. The boards basic responsibility is to ensure that the company is managed properly, in order to sustain the business and also serve the interest of the owners. In other words, it acts as a monitor of management. The CEO gives annually a management development report to the board. 521103011 Page 3

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Q4. What is Corporate Social Responsibility(CSR) ? Which are the issues involved in analysis of CSR? Name three companies with high CSR rating. External stakeholders of an organization are too many and varied and many of them represent different sections or social groups. This implies that organizations should be socially responsible; that is, in addition to the interests of the shareholders, businesses or companies should also serve the society. This is corporate social responsibility (CSR). Corporate social responsibility can be defined as the alignment of business operations with social values. The conflict between internal and external stakeholders can go much further than mentioned so far. Some feel that this is the most problematic issue in deciding company responsibility. External stakeholders argue that internal stakeholders demand be made secondary to the greater need of the society; that is, greater good of the external stakeholders. Many of them feel that issues like: pollution, waste disposals, environmental safety and conservation of natural resources should be the overriding considerations for formulation of policy and strategic decision making.

Internal stakeholders, on the other hand, think that the competing or social claims of external stakeholders should be balanced in such a way that it protects the company mission, objectives and profitability. The debate continues. Strong exponents of CSR also talk of social policy for companies. They feel that social responsibilities of companies should be clearly enunciated and declared as social policy. Social policies may directly affect a companys products and services, technology, markets, customers and self-image. According to these thinkers, an organizations social policy should be integrated into all management activities including the mission statement and objectives. Many feel that corporate social policy should be articulated during strategy formulation, administered during strategy implementation and reaffirmed or changed during strategy evaluation. Three companies with high CSR rating are: 1. Johnson & Johnson 2. Coca-Cola 3. Wal-Mart

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Q5. Distinguish between core competence, distinctive competence, strategic competence and threshold competence. Use examples. 1) 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. 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 storewels. 2) Distinctive Competence 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 more broad based. 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. 3) Strategic Competence Strategic competence coexists with, or supports, core competence and distinctive competence. Strategic competence is the competence level required to formulate, implement and produce results with a particular strategy, for example, to outwit competitors. Hindustan Unilever did this. In the mid- and the late 80s, they used their strategic competence to out manoeuvre Nirma and reestablish their leadership in the detergent market. Strategic competence may also involve combination or convergence of different capabilities as in the case of Hindustan Unilever. 4) Threshold Competence Threshold competence is the competence level required just for survival in the market or business. The competence level of a company may be weaker than many of its competitors. Threshold competence may be adopted by No. 5 or No. 6 player in the market or those struggling to survive. Companies with threshold competence can, over time, graduate to a higher level of competence. But, continued threshold competence can also lead to closure of business.

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Q6. What is global industry? Explain with examples, international strategy, multi-domestic strategy, global strategy and transnational strategy. In global industry , the strategic position of companies in different countries or national markets are governed by their overall global positions. For example, IBMs strategic position in competing for computer sales in France and Germany has improved significantly because of technology and marketing skills developed in other countries, and a worldwide manufacturing system which is well coordinated. Competition in global industries poses a different kind of challenge because it cuts across national boundaries and, international or global forces come into play. International strategy can be adopted for those products and services which are not available in some countries and can be transferred from other countries. These are standard products with little or no differentiation. International strategies are not very common or popular. Some examples are: Kelloggs, Indian software, and Indian handicrafts. Multidomestic strategy is almost opposite of international strategy. Multidomestic strategy involves high degree of local responsiveness or local content. Products are highly customized to suit local requirements or conditions. Because of high customization, cost pressure is less; cost effectiveness may be also difficult to achieve because of lack of scale economies. Examples : Asian Paints (paints in general), Indian garments. Global strategy suits companies which make highly standardized sophisticated products, and, are in a position to reap benefits of economies of scale and experience effects. These also include high technology products which have universal applicability and hardly require any local adaptation. Examples are: Intel, Motorola, Microsoft, Texas Instruments. Global retail chains like Walmart and Marks & Spencer also come under this category. Transnational strategy is the most difficult strategy to follow because this is based on a combination of two apparently contradictory factors, i.e., cost effectiveness and local adaptation. But, this may be a true global strategy because, in global business, there is always a price pressure or cost pressure; and, also the need to make the product as close to a particular countrys expectation as possible to maximize value offerings. In fact, many, including Bartlett and Ghoshal (1989), feel that the transnational strategy is the only viable competitive strategy in global business. Many companies are adopting this approach to become successful. Some good examples are : Caterpillar, McDonalds, Coca-Cola, Pepsi and Dominos Pizza. Many multinational FMCG companies like Unilever and Procter & Gamble follow transnational strategies through their fully owned subsidiaries in different countries.

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