MB0052 Strategic Management and Business Policy 4 Credits
(Book I! B"#"4$ Assignment Set " %"& '(at is meant )y *Strategy+, ifferentiate )et-een goals and o).ecti/es& Ans-er! 0 Strategy is a common direction set for the company and its various components to accomplish a desired position in the future. A meticulous planning process results in strategy. It is the comprehension of the goals which has logical step by step process. It defines the general mission and vision of an organisation. It is important to consider that the decisions taken by an organisation are likely to affect the employees, customers and competitors. Strategy guides the organisation to achieve a long term goal. The strategy is advantageous to the organisation through its configuration of resources within a challenging environment. It helps to meet the requirements of market and stakeholder expectations. Strategy is a plan that is aimed to give a competitive advantage to the organisation over rivals through differentiation. reating a strategy begins with extensive research and analysis. It is a process through which senior management concentrates on top priority issues tackled by the company to be successful in a long term. It is the design of decisions in an organisation that sets its goals and plans to achieve it. The organisation plans the future goals to contribute at large to its shareholders, customers and to the society. Strategy is always improving and is amendable. It is a plan of future activities which is aimed at the progress of an organisation. It is a set of directions to enhance the position of the organisation in the overall market. !usiness strategy is the method by which an organisation achieves and maintains its success. If an organi"ation cannot identify its strategy clearly then it will struggle to survive in the competitive market. A steadfast strategy should be built to grow in the market. A fundamental concept is required to direct an organisation to create a sustainable and successful plan. The organisation must understand the customer requirements and relate to its customers for the success of business strategy. This understanding should be based on the attitude of the organisation to progress rather than focusing on a specific competitor or on current ob#ectives. It is from this principle that the other ob#ectives follow. !usiness strategy is used to achieve competitive advantage. The efficient development and implementation of strategy depends on the capability of the organisation. This includes the ability to prepare the strategic goals and implement the plans through strategic management. 1e/els of strategy Strategy exists at different business levels. The different levels of strategies are as follows$ Corporate Strategy % This is regarding the general function and scope of the business to meet the stakeholder&s expectations. As it is significantly influenced by the investors in the business, it is also called the critical level strategy. Business Strategy % This is regarding how a business competes effectively in a particular market. It includes strategic decisions about the selection of products and meeting customer requirements. Operational Strategy % This is regarding how each part of the business is organised and delivered to the corporate and business level. 'perational strategy focuses on issues of resources and practices of an organisation. ifference )et-een 2oals and 3).ecti/es of Business ! 0 (oals are statements that provide an overview about what the pro#ect should achieve. It should align with the business goals. (oals are long)term targets that should be achieved in a business. (oals are indefinable, and abstract. (oals are hard to measure and do not have definite timeline. *riting clear goals is an essential section of planning the strategy. Example ) 'ne of the goals of a company helpdesk is to increase the customer satisfaction for customers calling for support. 'b#ectives are the targets that an organisation wants to achieve over a period of time. Example ) The ob#ective of a marketing company is to raise the sales by +,- by the end of the financial year. Example ) An automobile company has a (oal to become the leading manufacturer of a particular type of car with certain advanced technological features and the 'b#ective is to manufacture .,,,,, cars in +,//. !oth goals and ob#ectives are the tools for achieving the target. The two concepts are different but related. (oals are high level statements that provide overall framework about the purpose of the pro#ect. 'b#ectives are lower level statements that describe the tangible products and deliverables that the pro#ect will deliver. (oals are indefinable and the achievement cannot be measured whereas the success of an ob#ective can be easily measured. (oals cannot be put in a timeframe, but ob#ectives are set with specific timelines. The difference between organisational goals and ob#ectives is depicted in table /.0. %2& efine t(e term 4Strategic Management5& '(at are t(e ty6es of strategies, Strategic management is a systematic approach of analysing, planning and implementing the strategy in an organisation to ensure a continued success. Strategic management is a long term procedure which helps the organisation in achieving a long term goal and its overall responsibility lies with the general management team. It focuses on building a solid foundation that will be subsequently achieved by the combined efforts of each and every employee of the organisation. 7y6es of Strategies! 0 /. Cor6orate le/el ! 0 The board of directors and chief executive officers are involved in developing strategies at corporate level. orporate level strategies are innovative, pervasive and futuristic in nature. The four grand strategies in a corporate level are$ 1Stability and expansion strategy 12etrenchment 1orporate restructuring 1ombination strategies % concept of synergy 3et us now discuss each of the grand strategies in detail. Stability strategy The basic approach of the stability strategy is to maintain the present status of the organisation. In an effective stability strategy, the organisation tries to maintain consistency by concentrating on their present resources and rapidly develops a meaningful competitiveness with the market requirements. 4urther classifications of stability strategy are as follows$ 1No change strategy % 5o change strategy is the process of continuing the current operation and creating nothing new. 6sually small business organisations follow no change strategy with an intention to maintain the same level of operations for a long period. 1Pause/Proceed with caution strategy % 7ause87roceed with caution strategy provides an opportunity to halt the growth strategy. It analyses the advantages and disadvantages before processing the growth strategy. 9ence it is termed as pause8proceed with caution strategy. 1Profit strategy % 7rofit strategy is the process of reducing the amount of investments and short term discretionary expenditures in the organisation. Expansion strategy The organisations adopt expansion strategy when it increases its level of ob#ectives much higher than the past achievement level. 'rganisations select expansion strategy to increase their profit, sales and market share. :xpansion strategy also provides a significant increase in the performance of the organisation. ;any organisations pursue expansion strategy to reduce the cost production per unit. :xpansion strategy also broadens the scope of customer groups, and customer functions. Example % 7rior to /<0,&s most of the furniture industry did not venture into expanding their industry globally. This was because furniture got damaged easily while shipping and the cost of transport was high. 3ater in /<=,&s a Swedish furniture company, I>:A, pioneered towards expanding the industry to other geographical areas. The new idea of transporting unassembled furniture parts lead to minimi"ing the costs of transport. The customers were able to easily assemble the furniture. I>:A also lowered the costs by involving customer in the value chain. I>:A successfully expanded in many :uropean countries since customers were willing to purchase similar furniture. The further classification of expansion strategy is as follows$ 1Diversification ) ?iversification is a process of entry into a new business in the organisation either marketwise or technology wise or both. ;any organisations adopt diversification strategy to minimise the risk of loss. It is also used to capitalise organisational strengths. ?iversification may be the only strategy that can be used if the existing process of an organisation is discontinued due to environmental and regulatory factors. The two basic diversification strategies are$ 1oncentric diversification $ ) The organisation adopts concentric diversification when it takes up an activity that relates to the characteristics of its current business activity. The organisation prefers to diversify concentrically either in terms of customer group, customer functions, or alternative technologies of the organisation. It is also called as related strategy. 1onglometric diversification$ ) The organisation adopts conglometric diversification when it takes up an activity that does not relate to the characteristics of its current business activity. The organisation chooses to diversify conglometrically either in terms of customer group, customer functions, or alternative technologies of the organisation. It is also called as unrelated diversification. 1Concentration % oncentric expansion strategy is the first route towards growth in expanding the present lines of activities in the organisation. The present line of activities in an organisation indicates its real growth potential in the present activities, concentration of resources for present activity which means strategy for growth. The two basic concentration strategies are$ 1@ertical expansion $ ) The organisation adopts vertical expansion when it takes over the activity to make its own supplies. @ertical expansion reduces costs, gains control over a limited resource, obtain access to potential customers. 19ori"ontal expansion$ ) The organisation adopts hori"ontal growth when it takes over the activity to expand into other geographical locations. This increases the range of products and services offered to the current markets. Retrenchment : - 2etrenchment strategy is followed by an organisation which aims to reduce the si"e of activities in terms of its customer groups, customer functions, or alternative technologies. Example % A healthcare hospital decides to focus only on special treatment to obtain higher revenue and hence reduces its commitment to the treatment of general cases which is less profitable. ?ifferent types of retrenchment strategies are$ 1urnaround % Turnaround is a process of undertaking temporary reduction in the activities to make a stronger organisation. This kind of processing is called downsi"ing or rightsi"ing. The idea behind this strategy is to have a temporary reduction of activities in the organi"ation to pursue growth strategy at some future point. Turnaround strategy acts as a doctor when issues like negative profits, mismanagement and decline in market share arise in the organisation. 1Captive company strategy % aptive company strategy is a process of tying up with larger organisations and staying viable as an exclusive supplier to the large organisations. An organisation may also be taken as captive if their competitive position is irreparably weak. 1Divestment strategy % ?ivestment strategy is followed when an organisation involves in the sale of one or more portion of its business. 6sually if any unit within the organisation is performing poorly then that unit is sold and the money is reinvested in another business which has a greater potential. 1Ban!ruptcy % !ankruptcy is a legal protective strategy that does not allow others to restructure the organisation&s debt obligations or other payments. If an organisation declares bankruptcy with customers then there is a possibility of turnaround strategy. 1"i#uidation % 3iquidation strategy is considered to be the most unattractive process in an organisation. This process involves in closing down an organisation and selling its assets. It results in unemployment, selling of buildings and equipments and the products become obsolete. 9ence, most of the managers work hard to avoid this strategy. Corporate restructuring : - orporate restructuring is the process of fundamental change in the current strategy and direction of the organisation. This change affects the structure of the organisation. orporate restructuring involves increasing or decreasing the levels of personnel among top level, mid)level and lower level management. It is reorganising and reassigning of roles and responsibilities of the personnel due to unsatisfactory performance and poor results. Combination strategies concept of synergy: - ombination strategy is a process of combining ) stability, expansion and retrenchment strategies. This is used either at the same time in various businesses or at different times in the same business. It results in better performance of the organisation. The effect towards the success is greater when there is a synergy between the strategies. Synergy is obtained in terms of sales, operations, investments and management in the organisation. Example % 3evis A co, a #eans manufacturing company suffered corrosion in market share in /<<,. This was due to the manufacture of #eans that did not attract the younger generation. 9ence there was a change in strategies laid at the corporate level with diversification of products. This led to the change in acquiring new resources, selling the current resources, changing the personnel at various levels of management and analysing the competitors in the market. *ith these changes the company was able to make profits and achieved success. %#& escri)e Porter+s fi/e forces Model& Answer: - ;ichael :. 7orter developed the 4ive 4orce ;odel in his book, Bompetitive Strategy&. 7orter has identified five competitive forces that influence every industry and market. The level of these forces determines the intensity of competition in an industry. The ob#ective of corporate strategy should be to revise these competitive forces in a way that improves the position of the organisation. 4igure ..C describes forces driving industry competitions. 8igure #&4 8orces ri/ing Industry Com6etitions 4orces driving industry competitions are$ hreat of new entrants % 5ew entrants to an industry generally bring new capacityD desire to gain market share and substantial resources. Therefore, they are threats to an established organisation. The threat of an entry depends on the presence of entry barriers and the reactions can be expected from existing competitors. An entry barrier is a hindrance that makes it difficult for a company to enter an industry. Suppliers % Suppliers affect the industry by raising prices or reducing the quality of purchased goods and services. $ivalry among existing firms % In most industries, organisations are mutually dependent. A competitive move by one organisation may result in a noticeable effect on its competitors and thus cause retaliation or counter efforts. Buyers % !uyers affect an industry through their ability to reduce prices, bargain for higher quality or more services. hreat of su%stitute products and services % Substitute products appear different but satisfy the same needs as the original product. Substitute products curb the potential returns of an industry by placing a ceiling on the prices firms can profitably charge. Other sta!eholders ) A sixth force should be included to 7orter&s list to include a variety of stakeholder groups. Some of these groups include governments, local communities, trade association unions, and shareholders. The importance of stakeholders varies according to the industry. %4& '(at is strategic formulation and -(at are its 6rocesses, Answer$ ) Strategy formulation is the development of long term plans. It is used for the effective management of environmental opportunities and for the threats which weaken corporate management. Its ob#ective is to express strategical information to achieve a definite goal. The following are the features of strategy formulation$ ?efining the corporate mission and goals Specifying achievable ob#ectives ?eveloping strategies Setting company policy guidelines Strategic formulation involves effective strategic decision making and strategic choice, which are discussed in the following sections. Process in Strategy 8ormulation! 0 The main processes involved in strategy formulation are as follows$ Stimulate the identification ) Identifying useful information like planning for strategic management, ob#ectives to achieve the goals of the employees and the stakeholders. &tilisation and transfer of useful information as per the %usiness strategies ) A number of questions arising during utilisation and transfer of information have to be solved The questions that arise during utilisation and transfer of information are the following$ *ho has the requested informationE *hat is the relationship between the partners who holds the requested informationE *hat is the nature of the requested informationE 9ow can we transfer the informationE 9enry Mint:)erg+s contri)ution to strategic 6lanning ! 0 9enry ;int"berg is a well) known academician and generalist writer who has written about strategy and organisational management. 9is approach is broad, involving the study of the actions of a manager and the way the manager does it. 9e believes that management is about applying human skills to systems, but not systems to people. ;int"berg states certain factors as the reason for planning failure. The factors are as follows$ Processes ) The elaborate processes used in the management such as creation of bureaucracy and suppression of innovation leads to strategic planning failure. Data ) According to ;int"berg, hard data Fthe raw material of all strategistsG provides information whereas soft data Fthe data gathered from experienceG provides wisdom which means that soft data is more relevant than the hard data. Detachment % ;int"berg says that effective strategists are people who do not distance themselves from the details of a business. They are the ones who immerse themselves into the details and are able to extract the strategic messages from it. In /<<., 9enry ;int"berg concluded that planning is a formalised procedure to produce a coherent result in the form of an integrated system of decisions. The ob#ectives must be explicitly labeled by words after being carefully decomposed into strategies and sub) strategies. %5& ;<6lain strategic e/aluation and its significance& Ans-er! 0 Strategy ;/aluation ! 0 The core aim of strategic management succeeds only if it generates a positive outcome. Strategic evaluation and control consists of data and reports about the performance of the organisation. Improper analysis, planning or implementation of the strategies will result in negative performance of the organisation. The top management needs to be updated about the performance to take corrective actions for controlling the undesired performance. All strategies are sub#ect to constant modifications as the internal and external factors influencing a strategy change constantly. It is essential for the strategist to constantly evaluate the performance of the strategies on a timely basis. Strategic evaluation and control ensures that the organi"ation is implementing the relevant strategy to reach its ob#ectives. It compares the current performance with the desired results and if necessary, provides feedback to the management to take corrective measures. Strategic evaluation consists of performance and activity reports. If performance results are beyond the tolerance range, new implementation procedures are introduced. 'ne of the obstacles to effective strategic control is the difficulty in developing appropriate measures for important activities. Strategic control stimulates the strategic managers to investigate the use of strategic planning and implementation. After the evaluation, the manager will have knowledge about the cause of the problem and the corrective actions. The five step process of strategic evaluation and control is illustrated in figure H./. figure 5&"& Im6ortance of effecti/e strategic e/aluation ! 0 The strategic)evaluation process with constantly updated corrective actions results in significant and long)lasting consequences. Strategy evaluation is vital to an organisations well)being as timely evaluations can alert the management about potential problems before the situation becomes critical. Successful strategists combine patience with a willingness to take corrective actions promptly, when necessary. The process of evaluating the implemented strategy is explained in 4igure H.+. 8igure 5&2! ;/aluation Process of an Im6lemented Strategy 2etrieved from oncepts in Strategic ;anagement and !usiness 7olicy by Thomas 3.*heelen, I.?avid 9unger F+,,+G, 7earson :ducation, 5ew ?elhi. 4requent strategic evaluation activities can control the negative consequences of the environmental complexity and instability issues. Success today does not guarantee success tomorrowJ 9owever, the frequencies of strategic evaluation performed were surprisingly found to be vice)versa in stable and unstable industries. ;anagement in dynamic industries seems to have performed fewer strategic evaluation activities when compared to those in stable industries. 3indsay and 2ue concluded that forecasting is more difficult under complex and unstable environmental conditions. So, strategists may see less need for frequent evaluation of their long)range plans. %=& efine t(e term 4Business 6olicy5& ;<6lain its im6ortance& Answer$ ) !usiness policies are the instructions laid by an organisation to manage its activities. It identifies the range within which the subordinates can take decisions in an organisation. It authorises the lower level management to resolve their issues and take decisions without consulting the top level management repeatedly. The limits within which the decisions are made are well defined. !usiness policy involves the acquirement of resources through which the organisational goals can be achieved. !usiness policy analyses roles and responsibilities of top level management and the decisions affecting the organisation in the long)run. It also deals with the ma#or issues that affect the success of the organisation. Features of business policy 4ollowing are the features of an effective business policy$ Specific) 7olicy should be specific and identifiable. The implementation of policy is easier if it is precise. Clear ) 7olicy should be clear and instantly recognisable. 6sage of #argons and connotations should be avoided to prevent any misinterpretation in the policy. &niform % 7olicy should be uniform and consistent. It should ensure uniformity of operations at different levels in an organisation. 'ppropriate % 7olicy should be appropriate and suitable to the organisational goal. It should be aimed at achieving the organi"ational ob#ectives. Comprehensive % 7olicy has a wide scope in an organisation. 9ence, it should be comprehensive. (lexi%le % 7olicy should be flexible to ensure that it is followed in the routine scenario. )ritten form % To ensure uniformity of application at all times, the policy should be in writing. Sta%le * Policy serves as a guidance to manage day to day activities. Thus, it should be stable. Im6ortance of Business Policies A company operates consistently, both internally and externally when the policies are established. !usiness policies should be set up before hiring the first employee in the organisation. It deals with the constraints of real)life business. It is important to formulate policies to achieve the organisational ob#ectives. The policies are articulated by the management. 7olicies serve as a guidance to administer activities that are repetitive in nature. It channels the thinking and action in decision making. It is a mechanism adopted by the top management to ensure that the activities are performed in the desired way. The complete process of management is organised by business policies. !usiness policies are important due to the following reasons$ Coordination % 2eliable policies coordinate the purpose by focusing on organisational activities. This helps in ensuring uniformity of action throughout the organisation. 7olicies encourage cooperation and promote initiative. +uic! decisions % 7olicies help subordinates to take prompt action and quick decisions. They demarcate the section within which decisions are to be taken. They help subordinates to take decisions with confidence without consulting their superiors every time. :very policy is a guide to activities that should be followed in a particular situation. It saves time by predicting frequent problems and providing ways to solve them. Effective control % 7olicies provide logical basis for assessing performance. They ensure that the activities are synchronised with the ob#ectives of the organisation. It prevents divergence from the planned course of action. The management tends to deviate from the ob#ective if policies are not defined precisely. This affects the overall efficiency of the organisation. 7olicies are derived ob#ectives and provide the outline for procedures. Decentralisation % *ell defined policies help in decentralisation as the executive roles and responsibility are clearly identified. Authority is delegated to the executives who refer the policies to work efficiently. The required managerial procedures can be derived from the given policies. 7olicies provide guidelines to the executives to help them in determining the suitable actions which are within the limits of the stated policies. 7olicies contribute in building coordination in larger organisations. Assignment Set 2 %"&'(at is meant )y 4Business Continuity Plan5 (BCP$, iscuss t(e ste6s in/ol/ed in BCP& Answer$ ) According to the !usiness ontinuity Institute, a !usiness ontinuity 7lan F!7G is defined as$ KA document containing the recovery timeline methodology, test)validated documentation, procedures, and action instructions developed specifically for use in restoring organisation operations in the event of a declared disaster. To be effective, most !usiness ontinuity 7lans also require testing, skilled personnel, access to vital records, and alternate recovery resources including facilitiesL. !7 is a collection of procedures which is developed, recorded and maintained in readiness for use in the event of an emergency or disaster. Ste6s in Business Continuity Plan The !7s senior management committee is responsible for the initiation, planning, approval, testing and audit of the !7. The !7s senior management committee also implements the !7, coordinates its activities, supervises its creation and reviews the results of quality assurance activities. These steps are discussed below$ Initiation !usiness impact analysis ?isaster readiness strategies ?evelop and implement the plan ;aintenance and testing " Initiation! 0 The senior management initiates the pro#ect and conducts the meeting to review the following$ :stablish a business continuity planning committee % The senior management identifies a team and discusses the business continuity planning pro#ect with them. The management forms a team and clearly defines the roles of pro#ect team members. ?raw up business continuity policies % The team establishes the basic principles and framework necessary to ensure emergency response for resumption and recovery, restoration and permanent recovery of the organisational operations and business activities during a business interruption event. 2 Business im6act analysis (BIA$! 0 !IA is the most important element of the continuity plan. !IA reveals the financial and operational impact of a ma#or disruption. !IA report describes the potential risks specific to the organisation. It will provide the organi"ation with the following details$ The identification of time sensitive business operations and services. An analysis of the organisations financial status and operational impacts. The time)frames in which the time)sensitive processes, operations and functions must resume. An estimation of the resources necessary for successful resumption, recovery and restoration. The !IA will provide a basis and cost #ustification for risk management, response, recovery and restoration. # isaster readiness strategies! 0 The disaster readiness strategies include the following activities$ ?efine business continuity alternatives % 6sing the information from !IA, the pro#ect team should assess the alternative strategies that are available to the organisation and identify two or three strategies that are more credible. :stimate cost of business continuity alternatives % !ased on these strategies, the organisation develops the budgetary plan. The resumption timeframe plays an important role in examining which elements may require pre)positioning. 2ecommend disaster readiness strategy ) !ased on the needs of the business and evaluation of alternatives, the pro#ect team should develop recommendations of strategies to provide funds for implementation. 7repare a formal report based on the findings of the !IA for the strategy alternatives that were developed and analysed Take approval from senior management to proceed with the pro#ect. 4 e/elo6 and im6lement t(e 6lan! 0 ?evelop and implement the plan includes the following activities$ :mergency response and operations % It establishes a crisis management process to respond to these incidents. ?evelop and implement a business continuity plan % The plan describes specifically how to deal with the incidents. It should focus on the priorities of overall business continuity strategy. Apply business unit plans for each department % ?escribe the roles that each department has to perform in the event of an emergency. Example % It should detail the actions that the IT department will have to carry out if IT services are lost. 5 Maintenance and testing! 0 ;aintenance and testing includes the following activities$ :stablish a plan exercise program % !7 should develop and schedule the exercises to achieve and maintain high levels of competence and readiness. ?ocument the ob#ectives of each exercise and it should include the measurement criteria. :valuate the results of each exercise against pre)stated values and document the results along with proposed plan enhancement. Awareness and training plans % It should ensure that the personnel is aware of the importance of business continuity plan and can operate effectively in case of an event .2eview the effectiveness of awareness training and identify the need for further training. Sample emergency response exercises % :mergency response exercises should be ongoing. The exercises can be repeated using alternate setup and it should involve whole organisation within a particular facility that may be affected by a system disaster. Audit and update the plans regularly % It should regularly audit the plans to check if it meets the needs of the organisation and ensures that the documentation remains accurate and reflects any changes inside or outside the business. %2& '(at is meant )y 4Business 6lan5, escri)e t(e strategies to create a )usiness 6lan& Answer$ ) A business plan is a complete internal document that summarises the operational and financial ob#ectives of a business. It also contains the detailed plans which show how the ob#ectives are being accomplished. An accurately made business plan helps to allocate resources properly, to handle unforeseen complications like financial crisis and to make good business decisions. Strategies for creating a )usiness 6lan This section describes the strategies for creating a business plan. :very entrepreneur creates a business plan and its completion will determine the feasibility of the plan. The strategies for creating a business plan are as follows$ Define your %usiness vision % Mou must clear the following queries while defining the business vision$ *ho is the customerE *hat business are you inE *hat do you sell Fproduct8serviceGE *hat is your plan for growthE *hat is your primary competitive advantageE ,a!e a list of your goals % Mou must create a list of goals after proper research. In case of a start up business, more effort must be put on the short)term goals. ertain things must be kept clear before setting up your goal. They are listed below$ *hat do you want to achieveE 9ow much growth you want to achieveE ?escribe the quality and quantity of the service and the customer satisfaction levelsE 9ow would you describe your primary competitive advantagesE &nderstanding the customer % 6nderstanding the customer is essential for a perfect business plan. Mou must understand the customer in terms of the following factors$ 5eeds % The following customer requirements should be understood clearly$ o *hat unmet needs do your customers haveE o 9ow does your business meet those needsE 7roblems % ustomers buy things to solve their specific problems. Always be specific about the advantages of the product8services of your business which resolve the customer&s problems. 7erceptions % Always try to know the perception of the customer. larify the doubts of the customer regarding your profession and the products8services of your business. "earn from your competitors % Mou can learn a lot about the business and the customers by looking at the business of your competitors. Always get the answers of the following questions which will assist you in learning from your competitor and focusing on your customer. *hat do you know about your target marketE *hat competitors do you haveE 9ow are competitors approaching the marketE *hat are the competitor&s weaknesses and strengthsE 9ow can you improve upon the competition&s approachE $esolving financial matters % Several questions might arise when we need to make financial decisions. They are as follows$ 9ow will you make moneyE *hat is the profit potential of your businessE Mou can resolve the financial issues by taking smart strategic investment decisions. -dentify your mar!eting strategy % Identifying the marketing strategy is another essential skill which you must have. The following are the four steps to create a marketing strategy for your business$ Identify all the target markets Nualify the best target markets Identify the tools, strategies and methods Test the marketing strategy and tools %#& '(at are t(e )enefits of M>Cs, Ans-er! 0 ;5s have certain unique advantages in their operations that are not benefited by domestic oriented companies. The international success of ;5s is mainly because of the ability to capitalise the advantages. The advantages widely depend on the nature of individual corporations and the type of their business. !enefits are % " 7o t(e com6any Superior technical !nowledge % The most important advantage of ;5s is the patented technical knowledge which enables them to compete internationally. 3arge ;5s have access to advanced levels of technology which are either developed or acquired by the corporation. These technologies are patented. It can be in the areas of management, services or production. :xtensive application of these technologies gives a competitive advantage to the ;5 in international market, as it results in efficient, low)priced, hi)tech products and services that dominate a large international market. This results in efficient production and services like that of I!; or ;icrosoft. "arge si.e of economy % (enerally, ;5s are large like *al);art and :xxon;obil which has sales larger than the gross national products of many countries. The large si"e gives the advantage of significant economic growth to the ;5s. The higher volume of production leads to lower fixed costs per)unit for the companys products. ompetitors, whose volume of production of goods is smaller, must raise the price to recover the higher fixed costs. This situation implies to capital)intensive industries like steel, automobiles etc., in which fixed costs form a ma#or proportion of total costs. Example % ;5 like 5ippon Steel of Iapan can sell its products at lower prices than those of companies with smaller plants. "ower input costs due to large si.e % The production levels of ;5s are large and thus the purchase of inputs is in large volumes. !ulk purchases of inputs enable the corporation to bargain for lower input costs and obtain considerable amount of discount. 3ower input costs means less expensive and more competitive products. Example % 5estle, which buys huge quantities of coffee from the market, can bargain for lower prices than small buyers can. *al);art sells products at lower prices relative to its competitors due to bulk purchasing and efficient inventory control. !y identifying which product sell effectively, *al);art combines low)cost purchasing with efficient inventor to achieve competitive advantage in retail market. '%ility to access raw materials overseas % !y accessing raw materials in foreign countries, many ;5s lower the input and production costs. In many cases, ;5s supply the technology to extract raw materials. Such access can give ;5s monopolistic control over raw materials because they supply technology in exchange for monopolistic control. This control enables them to supply or deny raw materials to their competitors. '%ility to shift production overseas % Another advantage of ;5s is the ability to shift the production overseas. ;5s relocate their production facilities to take advantage of lower labour costs, raw materials and other incentives offered by the host countries. They take advantage of the lower costs by exporting lower)cost goods to foreign markets. ;any ;5s have set up factories in low)cost areas like hina, India, ;exico, etc. Brand image and goodwill advantage % ;ost of the ;5s possess product lines that have created a good reputation for quality, value and service. This reputation spread to other countries through exports and promotion and adds to the goodwill or brand image of the company. ;5s are able to influence this brand image by standardi"ing their product lines in different countries. Example % Sony 7layStations do not have any modifications for different countries and the parent factory produces standardised products for the world market. !rand names like Sony help the company to charge premium prices for its products, because the customers are ready to buy quality products at premium prices. -nformation advantage % ;5s have a global market view with which it collects, analyses, and processes the in)depth knowledge of worldwide markets. This knowledge is used to create new products for potential market niches and expand the market coverage of their products. The ;5s have good information gathering capabilities in all aspects of their operations. Through this information network, the ;5 is able to forecast government controls and gather commercial information. The network also helps in providing important information about economic conditions, changing market trends, social and cultural changes that affect the business of ;5s in different countries. *ith these information ;5s can position themselves appropriately to contingencies. ,anagerial experience and expertise % The ;5s function in large number in different countries simultaneously. This enables them to integrate wealth for valuable managerial experience. This experience helps them in dealing with different business situations around the globe. Example % An ;5 located in Iapan can attain knowledge of Iapanese management techniques and apply them successfully in a different location. 2 7o t(e nations -(ere it o6erates (domestic nations$ ! 0 ;5s bring advantage to the countries in which they operate. The benefits of ;5s to the nations where it operate are$ Economic growth and employment % An ;5 comes to a country with more amount of money to invest than any local company. The countries from where the ;5s operate are also called host countries. It brings inward investment to the host countries. This helps in boosting the national economy. Example % onstructing new plants requires resources like land, capital and labour. It provides employment to a large number of people which helps in dealing with the unemployment problem in the host countries. The inward investment can help in generating wealth in the local economy because it increases the spending ability of the people by providing them employment. As the ;5s provide employment to the people, they pay taxes to the local government. The people have more money to spend which provides market for local companies to sell their goods. The ;5s also attracts other smaller firms to the area where it is located. These firms provide different services to the ;5s. S!ills/ techni#ues and #uality human capital % The ;5s bring with them new ideas and new techniques to improve the quality of production. This helps in improving the quality of human capital in the host country. The ;5s employ local labour and train them in new skills to improve productivity and efficiency. Example % Sunderland is one of the most productive car manufacturing plants in :urope. The workers had to get used to different ways of working that were used in other !ritish firms. This can be a challenge and can also lead to improvement in productivity. The skills that the workers build up can be passed on the other workers which help in improving the supply of skilled labour in that area. 'vaila%ility of #uality goods and services % (enerally, production in a host country is aimed at the export market. 9owever, in some cases, the inward investment can gain access to the host country market to avoid trade barriers. Availability of quality goods leads to improved quality in other related industries. Example % The 6> has access to high quality vehicles at cheaper priceD this competition has led to improvement in prices, working practices and quality in other related industries. -mprovement in infrastructure % The ;5s invest in a country for production and distribution facilities. In addition to this, the company might also invest in additional infrastructure facilities like road, port and communication facilities. This can benefit the entire country. %4& efine t(e term 4Strategic Alliance5& ifferentiate )et-een ?oint /entures and Mergers& Ans-er! 0 Strategic alliance is the process of mutual agreement between the organisations to achieve ob#ectives of common interest. They are obtained by the co)operation between the companies. Strategic alliance involves the individual organisations to modify its basic business activities and #oin in agreement with similar organisations to reduce duplication of manufacturing products and improve performance. It is stronger when the organi"ations involved have balancing strengths. Strategic alliances contribute in successful implementation of strategic plan because it is strategic in nature. It provides relationship between organisations to plan various strategies in achieving a common goal. The various characteristics of strategic alliances are$ The two independent organisations involving in agreement have a similar idea of achieving ob#ectives with respect to alliances. The organisations share the advantages and organise the management of alliance until the agreement lasts. To develop more areas in alliances, the organisations contribute their own resources like technology, production, 2A?, marketing etc to increase the performance. According to 4aulkner F/<<HG % Strategic alliance is the inter)organisational relationship in which the partners make substantial investment in developing a long) term collaborative effort, and obtain common orientation. In ?oint @entures or I@s two or more companies come together and form a new entity to pursue some business activity. It may be uneconomical for a company to pursue a business activity all alone. This is why it may go in for a I@. In a I@, the two companies can combine their capabilities and strengths and share the business risks. This way they can overcome all difficulties and hurdles effectively. Merger Strategy ! ) A merger takes place two or more companies #oin together to form a single company. Types of ;ergers$ 9ori"ontal ;ergers$ The combining companies are of the same business. @ertical ;ergers$ The #oining companies are at different stages of the production process of the same product. oncentric ;ergers$ The Ioining companies are from similar businesses. They however, have no buyer seller relationship. onglomerate ;ergers$ In onglomerate ;ergers the combining companies are from unrelated or completely different businesses. 2everse ;erger$ *hen profit making company merges with the financially weaker company. %5& '(at do you mean )y *inno/ation+, '(at are t(e ty6es of inno/ation, Inno/ation Innovation is the production or implementation of ideas. Innovation can be described as an action or implementation which results in an improvementD a gain, or a profit. The 5ational Innovation Initiative F5IIG defines innovation as 0he intersection of invention and insight/ leading to the creation of social and economic value10 " Com6onents of inno/ation! 0 Innovation involves the whole process from opportunity identification, invention to development, prototyping, production, marketing and sales, while entrepreneurship only needs to involve commercialisation. The components of innovations are as follows$ Implementation reativity -mplementation % It is to put ideas into practice. Implementation is made up of three aspectsD idea selection, development and commercialisation. 'rganisations need processes, procedures and frameworks for achieving implementation. Some organisations in spite of having all right processes, procedures and frameworks, are yet to be innovative. Creativity % reativity is less straight forward than implementation. reativity is not about establishing a new process or structure. 7eople think differently to be creative and behave differently to be innovative. 7y6es of inno/ation Innovation is defined as using new ideas to apply current thinking in different ways that results in a significant change. The types of innovation are as follows$ 'rchitectural innovation % This innovation defines the basic configuration of the product and the process. It will establish the technical and marketing agendas that will guide subsequent developments. ,ar!et niche innovation % This innovation involves development of new marketing methods for the existing products. It provides the scope for improvement in product design, product promotion, and pricing. $egular innovation % This innovation involves the change that is applied on established technical and production competence of the existing markets and customers. The effect of these changes is to develop the existing skills and resources. $evolutionary innovation % This innovation disrupts and renders established technical and production competence that out of date, yet it is applied to existing markets and customers. %=& escri)e Cor6orate Social Aes6onsi)ility& Ans-er! 0 Cor6orate Social Aes6onsi)ilities (CSA$ orporate Social 2esponsibility FS2G is the continuing obligation of a business to behave ethically and contribute to the economic development of the organisation. It improves the quality of life of the organisation. The meaning of S2 has two folds. 'n one hand, it exhibits the ethical behaviour that an organisation exhibit towards its internal and external stakeholders. And on the other hand, it denotes the responsibility of an organisation towards the environment and society in which it operates. Thus S2 makes a significant contribution towards sustainability and competitiveness of the organisation. S2 is effective in number of areas such as human rights, safety at work, consumer protection, climate protection, caring for the environment, sustainable management of natural resources, and such other issues. S2 also provides health and safety measures, preserves employee rights and discourages discrimination at workplace. S2 activities include commitment to product quality, fair pricing policies, providing correct information to the consumers, resorting to legal assistance in case of unresolved business problems, so on. :xample % TATA implemented social welfare provisions for its employees since /<CH. 8eatures of CSA S2 improves the customer satisfaction through its products and services. It also assists in environmental protection and contributes towards social activities. The following are the features of S2$ -mproves the #uality of an organisation in terms of economic/ legal and ethical factors % S2 improves the economic features of an organi"ation by earning profits for the owners. It also improves the legal and ethical features by fulfilling the law and implementing ethical standards. Builds an improved management system % S2 improves the management system by providing products which meets the essential customer needs. It develops relevant regulations through the utili"ation of innovative technologies in the organisation Contri%utes to countries %y improving the #uality of management % S2 contributes high quality product, environment conservation and occupational health safety to various regions and countries. Enhances information security systems and implementing effective security measures % S2 enhances the information security measures by establishing improved information security system and distributing them to overseas business sites. The information system has improved by enhancing better responses to complex security accidents. Creates a new value in transportation % S2 creates a new value in transportation for the greater safety of pedestrians and automobiles. This is done by utilising information and technology for automobiles. The information and technology helps in establishing a safety driving assistance system. Creates awareness towards environmental issues % S2 serves in preventing global warming by reducing the harmful gases emitted into the atmosphere during the process of business activities. Aoles 6layed in terms of et(ical conduct! 0 S2 plays a significant role in maintaining ethical conduct in an organisation. The following are the roles played by S2$ Improves the relationships with the investment community and develops better access to capital and risks :nhances ability to recruit, develop and retain staff Improves the reputation and branding of the organisation Improves innovation, competitiveness and market positioning Improves the ability to attract and build effective and efficient supply chain relationships Improves relationships with regulators 2educes the costs through re)cycling process :nhances stronger financial performance and profitability through operational efficiency gains