Fall 2016

MBA Semester 4

MB0052: Strategic Management and Business Policy

Q1. Briefly discuss concept of strategy? Explain the various levels of strategy in an
organization.

The concept and practice of strategy and planning started in the military, and, over time, it
entered business and management. Strategy is a method or plan chosen to bring about a
desired future, such as achievement of a goal or solution to a problem.

Definitions of strategy given by different authors.

Ansoff (1984): Basically, a strategy is a set of decision-making rules for the guidance of
organizational behaviour.

Porter (1996): Developing and communicating the companys unique position, making
trade-offs, and, forging fit among activities.

Three levels in the strategic management process are:

The corporate level,
The business unit or SBU level and
The functional level.

Strategies concerned with overall purpose or objective of the organization are corporate-
level strategies; for example, diversification through joint venture, merger or acquisition.
Corporate level strategy is concerned with the strategic decisions a business makes that
affect the entire organization. Financial performance, mergers and acquisitions, human
resource management and the allocation of resources are considered part of corporate level
strategy.

Unit-level strategies of business address themselves to issues of a particular business unit

or product group of an organizationstrategies for product development and/or identification
and exploitation of new market opportunities. Business-level strategies represent plans or
methods companies use to conduct various functions in their business operations. Larger
companies often use more business strategies since they often have several departments
with different business functions.
Functional strategies (sometimes, called operational strategies) concentrate on particular
functional or operational areas like manufacturing, marketing, logistics, etc. The functional
strategy of a company is customized to a specific industry and is used to back up other
corporate and business strategies.

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

Q2. How strategic planning and strategic management are interrelated to each other?
Which comes first?

A strategic plan, also called a corporate plan or perspective plan, is a blueprint or document
which incorporates details regarding different elements of strategic management.
Plan or planning should precede action. And, strategic planning should precede strategic
management. Strategic planning (also called corporate planning) provides the framework
(some call it a tool) for all major decisions of an enterprisedecisions on products, markets,
investments and organizational structure. In a successful organization, strategic planning or
strategic planning division acts as the nerve center of business opportunities and growth. It
also acts as a restraint or defence mechanism that helps an organization foresee and avoid
major mistakes in product, market, or investment decisions.

Strategic plan includes vision/mission, goals, organizational appraisal, environmental

analysis, resource allocation and the manner in which an organization proposes to put the
strategies into action. The concept and role of strategic planning would be clear if we
mention the major areas of strategic planning in an organization. First, strategic planning is
concerned with environment or rather, the fit between the environment, the internal
competencies and business(es) of a company. Second, it is concerned with the portfolio of
businesses a company should have. More specifically, it is concerned with changes
additions or deletionsin a companys product-market postures. Then strategic planning is
mostly concerned with the future or the long-term dynamics of an organization rather than its
day-to-day tasks or operations.

Strategic planning is concerned with growthdirection, pattern and timing of growth. Fifth,
strategy is the concern of strategic planning. Growth priorities and choice of corporate
strategy are also its concerns. Finally, strategic planning is intended to suggest to an
organization, measures or capabilities required to face uncertainties to the extent possible.
All large organizations formulate strategic plans. In 1997, All India Management Association
(AlMA) conducted a study to find out about business plans, strategies, techniques and tools
adopted by various Indian companies.

The study results were published in Business Today. The study showed that 56 per cent of
the total number of companies (160) surveyed had published strategy.

As far as planning horizon is concerned, the period covered in the strategic plan was less
than 3 years by 44 per cent of the companies, 35 years by 40 per cent of the companies
and more than 5 years by 16 per cent. Analysed in terms of company size, bigger
companies planned for a longer period. For 45 per cent of the large companies, the planning
period was more than 5 years, but for 70 per cent of the small companies, the period was
less than 3 years.

Q3. What is a mission statement? Differentiate between a mission statement and a

vision statement.

The starting point for the formulation of any strategy is the mission statement of a company.
The mission statement actually starts with a definition of business of the company. Related
to mission is vision. Also related to mission statement or development is corporate
philosophy. From mission statement and corporate philosophy follow corporate objectives,
goals and also strategic intent. In developing its mission and objectives, a company has
certain responsibility to its stakeholders and the society. This is expressed in stakeholders
approach to company responsibility and corporate social responsibility. Corporate social
responsibility also implies social audit.
The mission statement should be as explicit or comprehensive as possible. Some feel that
the mission statement should have seven dimensions or serve seven different purposes or
objectives. These are:

To ensure unanimity of purposes within the organization

To develop a basis or standard for allocating organizational resources
To provide a basis for motivating the use of the organizations resources
To establish a general culture or organizational climate; for example, to suggest a
business-like approach
To facilitate the translation of objectives and goals into jobs and responsibilities and
assignment of tasks to responsible segments within the organization
To serve as a focal point for those who can identify themselves with the
organizations purpose and business
To specify organizational purposes and inspire translation of these purposes into
goals in such a way that cost, time and performance parameters can be assessed
and controlled.

Mission and Vision

Sometimes, mission and vision of a company are used synonymously or interchangeably.
This is not correct. 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 focusses on the present strategic thrust, while the vision statement outlines the
strategic path. All visionary companies have a vision statement.

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.

Vision and mission statements can be generally found in the beginning of annual reports of
companies. These statements are also seen in the corporate or long-term strategic plans of
companies. These also appear in many company reports or documents like customer
service agreements, loan requests, labour relations contracts, etc. Many companies also
display them at prominent points or locations in company premises.

Q4. What is SWOT analysis in terms of Internal & External Analysis? Explain SWOT
analysis in the form of a matrix?

SWOT analysis is an important tool for auditing the overall strategic position of a business
and its environment. Strengths and weaknesses are internal factors. For example, strength
could be your specialist marketing expertise. A weakness could be the lack of a new product.
Opportunities and threats are external factors. For example, an opportunity could be a
developing distribution channel such as the internet, or changing consumer lifestyles that
potentially increase demand for a company's products. A threat could be a new competitor in
an important existing market or a technological change that makes existing products
potentially obsolete.

First, the decision makers have to determine whether the objective is attainable, given the
SWOT analysis. If the objective is not attainable, a different objective must be selected and
the process repeated.

For systematic SWOT analysis, major strengths and weaknesses of the organization for the
strategy should be worked out. Then, the important factors in the environment relevant to
this strategy should be identified. Finally, the strengths and weaknesses should be matched
with the environmental factors through matching analysis or a matrix.

SWOT Analysis for an International Retail Chain Seeking Entry into the Indian Market:

In SWOT analysis in above Table, opportunities far outweigh threats (O T

= 11)shown in the last row. On this basis, it can be said that the environment is project or
strategy friendly and the project is recommended. If threats are more than opportunities, the
environment is to be considered hostile unless some threats can be converted into
opportunities by working on the weaknesses.
If opportunities are equal to threats, the matter should be put to vote of the senior/top
management for decision.

The matrix in above Table can also be presented in a more clear quantitative form by
assigning numbers in places of O and T. Numbers would indicate relating significance of
opportunities and threats. Opportunities will have positive signs; threats will have negative
signs. On this basis, the matrix and the outcome of SWOT analysis can be reformulated as
shown in followingTable.

Q5. Define corporate turnaround? Distinguish between surgical and nonsurgical

turnaround. Explain with some examples?

Corporate turnaround may be defined as organizational recovery from business decline or

crisis. Business decline for a company means continuous fall in turnover or revenue, eroding
profit, or accrual or accumulation of losses. So, business or organizational decline, like
business performance, is understood in relative terms, that is, compared with the past. But,
some strategy analysts describe business decline in terms of current comparisons also; for
example, relative to industry rates or averages or even relative to economic growth of the
country. Corporate crisis means deepening or perpetuation of a decline.

Surgical Turnaround and Non-surgical Turnaround

Generally, there are two methods of corporate turnaround: surgical and nonsurgical. The
surgical method, more commonly practiced in the West, involves sweeping changes like
firing of staff, managers, wholesale reshuffling of portfolios, closing down operations, etc.
Some call it bloodbath or bloodshed. Non-surgical turnaround adopts the opposite approach,
that is, peaceful meansrevamping or recovery through meetings, discussions,
persuasions, consensus, etc.

The operations in surgical turnaround are like this: the first step is to replace the chief
executive of the ailing company by a new iron chief. The new chief promptly gets into
action; he asserts his authority. He issues pre-emptory orders, centralizes functions and
spears some convenient scapegoats. Then he goes about firing employees en masse and
auctioning/selling whole plants and divisions until the fat is satisfactorily cut to the bone.
The bloodbath over, the product mix is revamped, obsolete machinery is replaced, marketing
is strengthened, controls are toughened, accountability for performance is focussed and so
on. How bloody this sort of turnaround can be may be seen from the examples of
companies like the US video games manufacturer Atari, which, among other actions, cut its
labour force by two-thirds to 3500 to turn itself around. At British Leyland, 84,000 employees
(40 per cent) were axed to complete the surgery. At GE, 1,00, 000 of a workforce of 4,00,
000 lost their jobs; at Imperial Chemical Industries (ICI), the labour force was reduced from
90,000 to 59, 000; half the staff at Chrysler Corporation disappeared; at British Steel, half the
companys production capacity and 80 per cent of workforce were gone.

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

Q6. What are the major characteristics of an effective strategy evaluation system?
Analyse these characteristics.

Strategic analysts have laid down certain basic requirements which evaluation should
comply with to be effective.

Strategy evaluation and control is an elaborate, and, at times, complex, process. It can also
be a sensitive process because of the human factor involved. Too much or too rigorous
evaluation and control may be expensive and, sometimes counterproductive alsoauthority
and flexibility may be challenged, minimized or even eliminated. Too little or no evaluation
may create the opposite effectlack of responsibility and accountability. In some
companies, strategy evaluation simply means performance appraisal of the organization.
This is also not correct. The evaluation system should be balanced and follow some norms
and standards. Strategic analysts have laid down certain basic requirements which
evaluation should comply with to be effective.
First, strategy evaluation process or measures should be meaningful.

These should specifically relate to the objectives/targets and the plan. There should be clear
focus and no ambiguity.

Second, strategy evaluation and control process should be economical. This means that the
process should not be made unnecessarily elaborate and incur too much cost on evaluation
itself. Use of too much of information which may not be necessary increases cost which is
avoidable.

Third, the evaluation process should conform to a proper time dimension for control and
information retrieval or dissemination. Time dimension of control should coincide with the
time span of the activity or the implementation phase.
Also, information on developments or feedback should be timely (not delayed or provided
too early) to make evaluation and control more appropriate.

Fourth, strategy evaluation system should give a true picture of what is actually happening.
The objective of evaluation is not fault finding. Sometimes, performance may be
overshadowed by external factors or the environment.

For example, during a severe slump in economic/business activity, productivity and

profitability may decline in spite of best efforts by the managers to implement strategy. This
should be analysed in the correct perspective.

Fifth, strategy evaluation process should not dominate or curb decisions; it should promote
mutual understanding, trust and common cause. All functional and operational areas should
cooperate with each other in evaluating and controlling strategies. Strategy evaluation
process should be simple and not too complex or restrictive. Complex evaluation systems
may confuse managers and result in lack of accomplishments.