UNIT – 1 : STRATEGY AND PROCESS

PART – A

1. Define ‘Strategy’.
Strategy refers to the ideas, plans and support that firms employ to compete successfully
against their rivals. Each firm devises its own strategy that involves two key choices- the
customers a firm will serve and the competencies and strengths it will develop to serve
customers effectively. Strategy is designed to help firms achieve competitive advantage.
“A strategy is a pattern or plan that integrates an organization’s major goals, policies and
action sequences into a cohesive whole.” – Quinn.
Ex: Non-profit organizations such as colleges face numerous rivals eagerly seeking the
same students.

2. Define the term ‘Strategic Management’.

Strategic management is defined as the art and science of formulating, implementing and
evaluating cross-functional decisions that enable an organization to achieve its objectives.
It is the set of managerial decisions and actions that determine the long-run performance
of an organization. It is the stream of decisions taken over time by top managers which,
when understood as a whole, reveal the goals they are seeking and the means used to
reach these goals.

3. What is Strategic Thinking?

Strategic thinking is a process of developing or examining the assumptions about the
future upon which the organization’s mission, goals and strategy are based to evaluate
whether they still reflect the realities the firm faces. It is a growing awareness and
appreciation to understand how changes in the industry environment can ultimately affect
an organization’s competitive posture. It is important as every organization in every
industry confronts a variety of challenges each day, including new technologies, new
forms of competition, changes in regulations and shifting customer needs. It is the
application of key strategic principles to build and sustain new sources of competitive
advantage.

4. What is Strategic Planning?

Strategic planning is the process by which an organization examines its purpose and
goals,
visualizes its future, and outlines a course of action to reach that envisioned future. It is a
disciplined effort to produce fundamental decisions and actions that shape and guide an
organization and what it does. It is a set of concepts, procedures, and tools designed to
assist leaders with the tasks of making decisions for their organization.

5. What is a Business Strategy?

Business strategy refers to the plans and actions that firms devise to compete in a given
product or market scope or setting. It addresses the question, “How do we compete within
and industry?” Business strategies may fit within the two overall categories of
competitive or cooperative strategies.
Ex: The business strategy pursued by KFC is to provide different types of food based on
its famous chicken recipes.

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6. Define (a) Mission (b) Vision (c) Objectives (d) Values (e) Goals (f) Policies (g)
Procedures (h) Budgets (i) Programs (j) Tactics (k) Targets (l) Rules (m) Business
Ethics (n) Code of Ethics.
(a) Mission: A mission is the fundamental, unique purpose and direction that sets an
organization apart from other firms of its type and identifies the scope of the
organization’s operations in terms of products or services offered and markets served. It
tells who we are and what we do. It promotes a sense of shared expectations in
employees and communicates a public image to important stakeholder groups in the
organization’s task environment.
Ex: Mission statement of ONGC Ltd., “To be a world-class Oil and Gas company
integrated in energy business with dominant Indian leadership and global presence”.

(b) Vision: A vision is what organizational leadership believes are worthy

purposes and objectives to aspire to within a given time period and how the
leadership feels the organization can achieve those objectives. It relates to the
firm’s broadest and most desirable goals. It is designed to capture the imagination
of the firm’s people and galvanize their efforts to achieve a higher purpose, cause
or ideal.
Ex: Vision of Coca-Cola is to make sure that “a Coke is in arm’s reach” of any customer.

(c) Objectives: Objectives are specific, measurable statements of what an organization’s

sub-unit is expected to achieve as a part of the business strategy. Objectives are the end
results of planned activity. They state what is to be accomplished by when and should be
quantifiable if possible. They guide the firm in achieving its mission.
Ex: “Increase profits 10% over last year” may be an objective of a firm.

(d) Values: Values are those which are considered to be desirable by individuals.
A value is a view of life and a judgment of what is desirable and which is a part of
a person’s personality and a group’s morale. Values set the tone for organizational
operations by defining what is considered right and wrong in the organization and
what the members of the organization think is important -
1. Communicate how employees should behave;
2. Build team spirit; and
3. Influence marketing efforts.
Ex: Benign attitude to labour, Service-mindedness is values.

(e) Goals: Goal is an open-ended statement of what one wants to accomplish with no
quantification of what is to be achieved and no time criteria for completion. It indicates a
desired future state that a firm attempts to realize. It should be precise and measurable
and address important issues.
Ex: A simple statement of “Increased profitability” is a goal.

(f) Policies: A policy is a broad guideline for decision-making that links the formulation
of strategy with its implementation. Firms use policies to make sure that employees
throughout the firm make decisions and take actions that support the firm’s mission,
objectives and strategies.
Ex: Policy of GE – “GE must be number one or two wherever it competes”.

(g) Procedures: Procedures or Standard Operating Procedures (SOPs) are a system of

sequential steps or techniques that describe in detail how a particular task or job is to be

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done. They typically detail the various activities that must be carried out in order to
complete the firm’s programs.
Ex: Infosys uses PRIDE (Process Repository @ Infosys for Driving excellence), an
online resource for its SOPs.

(h) Budgets: A budget is a statement of a firm’s programs in monetary terms. Used in

planning and control, a budget lists the detailed cost of each program. They indicate how
much should be spent, by which department, when and for what purpose. It specifies the
expected impact on the firm’s financial future through proforma financial statements.
Ex: Manufacturing budget, Sales budget.

(i) Programs: A Program is a statement of the activities or steps needed to accomplish a

single-use plan. It makes the strategy action-oriented. It may involve restructuring the
firm, changing the firm’s internal culture or beginning a new research effort.
Ex: FedEx Corporation’s program to install a sophisticated information system to enable
its customers to track their shipments at any point of time.

(j) Tactics: A Tactic is a specific operating plan detailing how a strategy is to be

implemented in terms of when and where it is to be put into action. ‘Tactics’ is a
technique or science of dispensing and maneuvering forces to accomplish a limited
objective or an immediate end. Tactics are narrower in their scope and shorter in their
time horizon than strategies. Some of the tactics available to implement competitive
strategies are timing tactics and market location tactics.
 Timing tactics
 First mover or Pioneer
 Late mover
 Market location tactics
 Offensive Tactics
 Frontal Assault
 Flanking Maneuver
 Bypass attack
 Encirclement
 Guerilla Warfare
 Defensive tactics
 Raise structural barriers
 Increase expected retaliation
 Lower the inducement for attack.
Ex: Coca-Cola offers unprofitable non-carbonated beverages to keep competitors off
store shelves.

(k) Targets: Targets are operational plans which contribute to the achievement of the
objectives of strategic plans. They are short-term plans devised to achieve the objective
of a firm.
Ex: Target for a salesman in a home appliances industry is Rs. 1 lakh per month.

(l) Rules: A rule is prescribed by a conduct or action. It is established authoritatively and

utilized in order to inform employees of conditions under which designated activities are
to be performed. Rules are a form of communication for acting in a particular way which
is helpful in completing the task and hence contributing to the achievement of
organizational objectives.

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 Ex: While working in a company the workers should not whistle blow the secrets of the
company.

(m) Business Ethics: Ethics is defined as the discipline dealing with good and bad and
with moral duty and obligations. Business ethics is concerned with truth, justice and a
variety of aspects such as the expectations of society, fair competition, advertising, public
relations, social responsibilities, consumer autonomy and corporate behaviour at home
country and abroad. It encompasses the morality of issues in business.
Ex: Incorporating ethics in employee training.

(n) Code of Ethics: Code of Ethics specifies how an organization expects its employees
to behave while on the job. It is a useful way to promote ethical behaviour among
employees. The importance of Code of Ethics is that it-
* clarifies company expectations of employee conduct in various situations and
* makes clear that the company expects its people to recognize the ethical
dimensions in decisions and actions.
Ex: Reebok International has developed a set of production standards for the
manufacturers that supply the company with its athletic shoes on a contract basis.

7. What is Strategic Decision-making?

Strategic decision-making is the process of taking strategic decisions which are likely to
be concerned with:
 the long-term direction;
 achieve some advantage;
 scope of an organization’s activities;
 matching of an organization’s activities to the environment;
 major financial or other resource implications;
 building on or stretching an organization’s resources, competencies;
 entails significant risks;
 affect operational decisions and/or
 raises issues of complexity and ‘cross-cutting’ interactions.
Strategic decision-making is a senior and top management responsibility. The
fundamental question in the strategy decision are whom the organization be there
to serve and how the direction and purposes of an organization should be
determined.

8. What is Strategy formulation?

Strategy formulation is the development of long-range plans for the effective
management of environmental opportunities and threats, in light of corporate strengths
and weaknesses. It includes defining the corporate mission, specifying achievable
objectives, developing strategies and setting policy guidelines. It helps an organization to:
 Capitalize on available opportunities;
 Address the challenges faced by the organization;
 Provide leadership that understands and masters change; and
 Incorporate an in-depth planning model that involves the community.

9. What is Strategy implementation?

Strategy implementation is the process by which strategies and policies are put into
action through the development of programs, budgets and procedures. This process might
involve changes within the overall culture, structure, and/or management system of the
entire organization. It often involves day-to-day decisions in resource allocation. It is

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 typically handled by middle and lower level managers, except when drastic company-
wide changes are needed. It is reviewed by top management from time to time.

10. What are the characteristics of a Mission statement?

A mission is the fundamental, unique purpose and direction that sets an
organization apart from other firms of its type and identifies the scope of the
organization’s operations in terms of products or services offered and markets
served. It tells who we are and what we do. The characteristics of a mission
statement are:
 It should be realistic and achievable;
 It should be precise;
 It should lead to action;
 It should be motivating for the employees; and
 It should be distinctive.

11. How Mission contributes to Strategic management?

A mission is the fundamental, unique purpose and direction that sets an
organization apart from other firms of its type and identifies the scope of the
organization’s operations in terms of products or services offered and markets
served. It tells who we are and what we do. Mission contributes to strategic
management in many ways:
 It provides direction to corporate planning;
 It clarifies the firm’s aspirations;
 It communicates to employees at various levels the direction in which they
should move; and
 It focuses on business purpose and long-term objective of the firm.

12. List the characteristics of Objectives.

Objectives are the end results of planned activity. They state what is to be
accomplished by when and should be quantifiable if possible. They guide the firm
in achieving its mission. The characteristics of objectives are:
 It should be specific;
 It should be time bound;
 It should be measurable;
 It should be challenging;
 It should be set at different levels; and
 It should be verifiable.

13. How would you classify objectives?

Objectives are the end results of planned activity. They state what is to be
accomplished by when and should be quantifiable if possible. They guide the firm
in achieving its mission. Hierarchy of objectives can be in two forms: top-down
approach and bottom-up approach. To what extent both will be combined depends
on situations such as the size of the organization, organizational culture,
leadership of managers, etc.

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14. What is an Intended or Deliberate strategy?
An Intended strategy is the strategy a firm thought it was going to pursue. It is a planned
strategy and put into action. Intended strategy is strategy as conceived by the top
management team. It is the result of a process of negotiation, bargaining and compromise,
involving many individuals and groups within the organization. It is the set of intentional
acts that is contemplated and planned to accomplish a goal. An intended strategy is also
sometimes called a deliberate strategy.
Ex: “Research cooperations in America”, are not explicitly stated on either of the intended
strategies for Ciba or Sandoz.

15. What is an Emergent strategy?

Emergent strategies are the unplanned responses to unforeseen circumstances. They often
arise from autonomous action by individual managers deep within the organization or
from discoveries or events. They are not the product of formal top-down planning
mechanisms. An emergent strategy is a strategy that emerges over time or that has been
radically reshaped once implemented. In emergent strategy, the strategy is not known
ahead of time, but through the rough and tumble of everyday work, a strategy emerges
and it is senior management’s job to bolt these things together into a system that drives
the company forward.
Ex: In Toyota Motor Manufacturing Australia Ltd., a strategy of overseas manufacturing
capability-building and global networking of managerial resources has emerged as a
result of inevitable responses to intensifying local competition in Australia.

16. Distinguish between Realized and Unrealized strategy.

Realized strategy: Realized Strategies are the result of a combination of purely
deliberate and purely emergent strategies.
For example, rather than pursuing a strategy (read plan) of diversification, a company
simply makes diversification decisions one by one, in effect testing the market. First it
buys an urban hotel, next a restaurant, then a resort hotel, then another urban hotel with
restaurant, and then another of these, etc., until the strategy (pattern) of diversifying into
urban hotels with restaurants finally emerges.

Unrealized strategy: Unrealized strategies are strategies that do not become realized.

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17. What are the three broad factors that influence the success of a company? (OR)
What are the determinants of a company’s performance?
An Enterprise’s success mainly depends on three broad factors
 The industry (it belongs to) – Some industries are profitable than others due
to industry attractiveness.
Ex: In the last decade software industry was more profitable than the
pharmaceutical industry.
 The nation (it is located) – The country also influences the competitiveness
of companies based within the nation.
Ex: The world’s most successful pharmaceutical companies are located in
U.S.A. and Switzerland.
 Company’s resources, capabilities and strategies – are the strongest
reasons for the success or failure of the firm.

18. What are the five tasks of Strategic Management?

Strategic Management is the set of managerial decisions and actions that determine the
long-run performance of an organization.

19. What do you mean by Evaluation and Control?

Evaluation and Control is the process in which corporate activities and performance
results are monitored so that actual performance can be compared with desired
performance. Managers at all levels use the resulting information to take corrective action
and resolve problems. It can also pinpoint weaknesses in previously implemented
strategic plans and thus stimulate the entire process to begin with.
Ex: The success of Delta Airline’s turnaround strategy was evaluated in terms of the
amount spent on each airline seat per mile of flight.

20. What do you mean by ‘Triggering event’ in initiation of strategy?

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 A ‘Triggering event’ is something that acts as a stimulus for a change in strategy. Some
possible triggering events are:
 New CEO
 External Intervention of a customer or lender
 Threat of change in ownership
 Performance gap and
 Change in customer’s values or customer’s preference.

21. What is a Learning Organization?

A Learning organization is an organization which is skilled at creating, acquiring, and
transferring knowledge and at modifying its behaviour to reflect new knowledge and
insights. Organizational learning is a critical component of competitiveness in a dynamic
environment. Learning organizations are skilled at four main activities:
 Solving problems systematically;
 Experimenting with new approaches;
 Learning from their own experiences and past history as well as from the
experiences of others; and
 Transferring knowledge quickly and efficiently throughout the organization.
Ex: Hewlett-Packard uses an extensive network of informal committees to transfer
knowledge among its cross-functional teams and to help spread new sources of
knowledge
quickly.

22. Define Corporate Governance.

Corporate Governance is defined as “the system by which companies are directed and
controlled”. Corporate Governance decides whom should the organization be there to
serve, and how the direction and purposes of the organization should be determined. It
helps determine the choices the organization makes for society and how it ensures that
these choices are faithfully implemented. The role of Corporate Governance– to provide
entrepreneurial leadership, to set and implement strategy within a framework of effective
internal controls, and to ensure the best performance of resources for stakeholders– is a
challenge that has to be faced.
Ex: In India, SEBI has stated that listed companies should have at least 50% of the board
as non-executive.

23. Who are the actors involved in Corporate Governance?

Corporate Governance decides whom should the organization be there to serve,
and how the direction and purposes of the organization should be determined. The
actors involved in Corporate Governance are:
 Shareholders of the Company – They share the profit without being
responsible for the operations; they have limited liability and elect the Board
of Directors.
 Board of Directors – They normally approve all decisions that affect the
long-term performance of the company.
 Top Management – They include the CEO, COO or President, Executive
Vice-President and Vice-Presidents of divisions and functional areas.

24. Define Corporate Social Responsibility.

Corporate Social Responsibility (CSR) means open and transparent business practices
that are based on values and respect for employees, communities and the environment. It

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 is designed t deliver sustainable value to society at large as well as to shareholders. The
CSR theories and related approaches are classified into four groups:
 Instrumentation Theory – The Corporation is seen as only an instrument
for wealth creation and its social activities are only a means to achieve
economic results.
 Political Theory – The firm, with the power of Corporations in society
responsibly uses this power in the political arena.
 Integrative Theory – The firm is focused on the satisfaction of social
demands.
 Ethical Theory – Based on ethical responsibilities of Corporations to
society.

25. What are the responsibilities of a business firm according to Milton Friedman and
Archie Carroll?
The concept of Social Responsibility proposes that a private corporation has
responsibilities to society that extend beyond making a profit.
Friedman’s traditional view of Business responsibility
Friedman referred to social responsibility of business as a ‘fundamentally subversive
doctrine’ and stated that: “There is one and only one social responsibility of business- to
use its resources and engage in activities designed to increase its profits so long as it stays
within the rule of the game, which is to say, engages in open and free competition
without deception or fraud”.
Carroll’s four responsibilities of business
Archie Carroll proposes that managers of business organizations have four
responsibilities:
Economic Responsibilities of a business firm’s management is to produce goods and
services of value to society;
Legal Responsibilities are defined by governments in laws that maangment is expected to
obey;
Ethical Responsibilities of a firm’s management are to follow the generally held beliefs
about behavior in a society; and
Discretionary Responsibilities are the purely voluntary obligations a corporation
assumes.

26. What do you mean by Corporate Stake holders?

A Corporation’s task environment includes a large number of groups with interest in a
business organization’s activities. These groups are referred to as Corporate Stakeholders
because they affect or are affected by the achievement of the firm’s objectives. They are
the shareholders, customers, employees, suppliers, and distributors, for sources of
product and service improvements. Before making a strategic decision, strategic
managers should consider how each alternative will affect various stakeholder groups.

PART – B

1. Explain the conceptual framework of Strategic Management Process. (OR) Discuss

the elements of Strategic Management process.
Meaning of Strategic management – definition of Strategic management – strategic
management framework – strategic planning – strategy formulation – strategy
implementation and control – conclusion.

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2. How do the terms mission, objectives, strategies, programs, budgets, procedures
differ in the true sense? – Explain.
Meaning and definition of mission, objectives, strategies, programs, budgets and
procedures with examples and differences to be explained.

3. What are the different modes of Strategic decision-making and explain the process
of strategic decision-making?
Definition of strategy, decision-making and strategic decision-making – modes of
strategic decision-making like entrepreneurial, adaptive, planning and logical
incrementalism – 8 steps in strategic decision-making process – benefits of strategic
decision-making – conclusion.

4. Explain in detail a formal Strategic planning process.

Definition of strategy, strategic planning – 6 stages of strategic planning –
environmental scanning, evaluation of issues, forecasting, goal setting,
implementation and monitoring – benefits of strategic planning – conclusion.

5. Explain the relationship between corporate Governance and Social responsibility.

Take the case of an Indian company and elucidate.
Definition of Corporate governance (CG), Corporate social responsibility (CSR) –
features of Corporate governance and CSR – relationship between CG and CSR –
example of TATA or ITC Ltd. – benefits and limitations of CG and CSR – conclusion.

6. What is Corporate Governance? Indicate how and why companies are embracing
Corporate Governance practices.
Definition of Corporate governance (CG) – features of Corporate governance – reasons
for companies embracing CG with examples – benefits of CG – conclusion.

7. “Corporate Governance is not suitable for Indian Business environment” – Discuss.

Definition of Corporate governance (CG) – features of Corporate governance –
reasons for CG not suitable for Indian companies with examples – limitations of
CG – conclusion.

8. What recommendations would you make to improve the effectiveness of today’s

Boards of Directors?
Definition of Corporate governance (CG) – features of CG – role of the Board of
Directors (BOD) – recommendations to improve effectiveness of BOD – conclusion.

9. How are Companies fulfilling their Social responsibility?

Definition of Social responsibility, Corporate social responsibility (CSR) – features of
CSR – explain with examples how Indian and foreign companies fulfill CSR – benefits of
CSR – conclusion.

10. Discuss the popular theories of Social Responsibility.

Definition of Social responsibility, Corporate social responsibility (CSR) –
features of CSR – theories of CSR – Instrumentation, Political, Integrative and
Ethical – Friedman’s traditional view and Carroll’s four business responsibilities
– conclusion.

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UNIT – 2 : COMPETITIVE ADVANTAGE

PART – A

1. Distinguish between Economies of Scope and Economies of Scale.

Economies of Scale refer to the decline in the per-unit cost of production or any other
activity as volume grows. It is obtained through cost reductions and mass production,
discount on bulk purchase of raw materials and advertising.
Ex: In the semiconductor industry, companies such as IBM, Intel, Motorola and so on,
enjoy substantial economies of scale in the production of microprocessors, ICs, etc.
Economies of Scope is an economic characteristic that results when two or more goods
can be done more efficiently with one set of assets than from separate assets dedicated to
each product. It arises when one or more business units share common resources such as
manufacturing facilities, distribution channels, advertising campaigns, R&D and so on.
Ex: EICHER was engaged in manufacturing and marketing of tractors in 1990s and later
diversified with interests in trucks, motorcycles, financial services and management
consultancy.

2. Define the term ‘Environment’ in business? (OR) Differentiate between Internal

and External environment.
A firm’s environment represents all internal or external forces, factors, or conditions that
exert some degree of impact on the strategies, decisions and actions taken by the firm.
There are two types of environment:
Internal – pertaining to the forces within the organization (Ex: Functional areas of
management) and
External – pertaining to the external forces namely macro environment or general
environment and micro environment or competitive environment (Ex: Macro
environment – Political environment and Micro environment – Customers).

3. What are macro and micro environmental factors?

A firm’s environment represents all internal or external forces, factors, or conditions that
exert some degree of impact on the strategies, decisions and actions taken by the firm.
There are two types of external environments:
 The broader macro or general or societal environment – which includes all of
those environmental forces and conditions that have an impact on every firm and
organization within the economy. The macro environmental factors include the
demographic, political, social/cultural, technological and the global
environments; and
 The industry-specific micro or competitive or task environment – which
includes the key forces shaping competition in an industry. The micro
environmental factors are governments, local communities, suppliers,
competitors, customers, creditors, employees/labour unions, special-interest
groups, and trade associations.

4. What are the characteristics of environment?

A firm’s environment represents all internal or external forces, factors, or
conditions that exert some degree of impact on the strategies, decisions and actions
taken by the firm. The characteristics of an environment are:
 strengths and weaknesses of the firm and
 opportunities and threats of the external environment.

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5. What is environmental scanning?
Environmental scanning is the monitoring, evaluating, and disseminating of information
from the external and internal environments to key people within the organization. It is an
important ongoing activity because it helps managers understand and oversee potential
changes in market demand, industry rivalry patterns, the rise of potential substitute
products, and general macro environmental forces that may have long-term effects on the
firm. It plays a key role in strategy formulation by analyzing the strengths, weaknesses,
opportunities and threats in the environment. A firm uses this tool to avoid strategic
surprise and to ensure its long-term health. There are two types of environmental
scanning- internal and external environmental scanning.

6. What are ‘Barriers to Entry’?

‘Barriers to entry’ represent economic forces or hurdles that slow down or impede entry
by other firms. It is an obstruction that makes it difficult for a company to enter an
industry.
Some of the barriers to entry include:
Capital requirements, economies of scale, product differentiation, switching costs, brand
identity, access to distribution channels and promise of aggressive retaliation.
Ex: No new companies successfully enter the Indian FMCG market because of the high
product differentiation and the need for a strong dealer distribution network.

7. What do you mean by ‘Exit Barrier’?

Exit barriers are serious threats when the demand is dwindling. Exit barriers are
economic, strategic and emotional factors which make the companies compete though the
return is low. Common exit barriers may result from,
 earlier excessive investment in a specialized technology that has yet to be
paid for,
 emotional commitment by managers to a given business; and
 natural resistance by workers, managers, and the society in which they reside
to shutting down plants.
The presence of strong exit barriers means that firms will continue to compete fiercely
with one another for a declining share of the market.
Ex: Motorola has pursued a declining niche strategy in deciding to stick with the basic
transistor business.

8. What do you mean by industry analysis?

An industry is a group of firms producing a similar product or service, such as soft drinks
or financial services. Industry analysis refers to an in-depth examination of key factors
within a corporation’s task environment. Both the societal and task environments must be
monitored to detect the strategic factors that are likely to have a strong impact on
corporate success or failure. It consists of seven aspects- basic or general features,
industry environment, industry structure, industry attractiveness, industry performance,
industry practices and emerging trends. Analysis of industry helps in strategy formulation
and in building competitive advantage.

9. What do you mean by (a) Societal environment and (b) Task environment?
 Societal environment: The societal environment includes general forces that do
not directly touch on the short-run activities of the organization but that can,
often do, influence its long-run decisions. They comprise:-

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  Economic forces that regulate the exchange of materials, money, energy
and information;
 Technological forces that generate problem-solving inventions;
 Political-legal forces that allocate power and provide constraining and
protecting laws and regulations; and
 Socio-cultural forces that regulate the values, mores and customs of
society.
 Task environment: The task environment includes those elements or groups that
directly affect the corporation and in turn are affected by it. These are
governments, local communities, suppliers, competitors, customers, creditors,
employees/labour unions, special interest groups and trade associations. A
corporation’s task environment is typically the industry within which that firm
operates.
For ex: At Procter & Gamble (P&G), people from each of the brand management teams
work with key people from the sales, market research and purchasing departments and
prepare necessary reports useful for strategic decision-making.

10. Write the name of factors in Task environment?

The task environment includes those elements or groups that directly affect the
corporation and in turn are affected by it. A corporation’s task environment is typically
the industry within which that firm operates. The name of factors in task environment
include:
 governments,
 local communities
 suppliers
 competitors
 customers
 creditors
 employees/labour unions
 special interest groups and
 trade associations.

11. What is a Strategic Group?

A Strategic group is a set of business firms or units that “pursue similar strategies with
similar resources”. Categorizing firms in any one industry into a set of strategic groups is
very useful as a way of better understanding the competitive environment. Because a
corporation’s structure and culture tend to reflect the kinds of strategies it follows,
companies or business units belonging to a particular strategic group within the same
industry tend to be strong rivals and tend to be more similar to each other than to
competitors in each other strategic groups within the same industry.
For ex: Although McDonalds and Haldirams are a part of the same restaurant industry,
they have different missions, objectives and strategies and thus belong to different
strategic groups. Burger King and Domino’s, however, have a great deal in common with
McDonald’s in terms of their similar strategies of producing a high volume of low-priced
meals targeted for sale to the average family.

12. What is a Strategic type?

A Strategic type is a category of firms based on a common strategic orientation and a
combination of structure, culture and processes consistent with that strategy. According
to Miles & Snow, competing firms within a single industry can be categorized on the
basis of their general strategic orientation into one of four basic types. They are:

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  Defenders are companies with a limited product line that focus on improving the
efficiency of their existing operations. This cost orientations makes them unlikely
to innovate in new areas.
 Prospectors are companies with fairly broad product lines that focus on product
innovation and market opportunities. This sales orientation makes them
somewhat inefficient. They tend to emphasize creativity over efficiency.
 Analyzers are corporations that operate at least two different product- market
areas, one stable and one variable. In the stable areas, efficiency is emphasized.
In variable areas, innovation is emphasized.
 Reactors are corporations that lack a consistent strategy– structure-culture
relationship. Their (often ineffective) responses to environmental pressures tend
to be piecemeal strategic changes.
This classification helps the managers to monitor the effectiveness of certain strategic
orientations and also to develop scenarios of future industry development.

13. What is hyper competition?

Most industries today are facing an ever increasing of environmental uncertainty that is
becoming more complex and more dynamic. New flexible, aggressive, innovative
competitors are moving into established markets to erode rapidly the advantages of
dominant firms. Variation in distribution channels, closer relationships with suppliers
makes companies to quickly imitate the successful strategies of market leaders, which
becomes harder to sustain any competitive advantage. This type of environmental
turbulence reaches more industries and competition becomes hyper competition. In hyper
competition the frequency, boldness and aggressiveness of dynamic movement by the
players accelerates to create a condition of constant disequilibria and change.
Environments escalate toward higher and higher levels of uncertainty, dynamism
heterogeneity of the players and hostility.
Ex: Microsoft is a hyper competitive firm operating in a hyper competitive computer
industry.

14. What is an Issues Priority Matrix?

Issues priority matrix is a technique that deals with enormous data and helps to identify
and analyze developments in the external environment. Each development is examined
for its intensity and impact on the business and probability of such an impact on business.
If a firm needs to change its strategy it might not be gathering the appropriate external
information to change strategies successfully. It is used as follow:
 Identify a number of likely trends emerging in the societal and task
environments. These are strategic environmental issues that determine what the
industry or the world will look like in the near future.
 Assess the probability of these trends actually occurring from low to high.
 Attempt to ascertain the likely impact (from low to high) of each of these trends
on the corporation being examined.
The Issues priority matrix is used to help managers decide which environmental
trends should be merely scanned (low priority) and which should be monitored as
strategic factors (high priority).

15. What are Key Success factors?

Key Success factors are those functions, activities or business practices, defined by the
market and as viewed by the customers, which can affect significantly the overall
competitive positions of all companies within any particular industry. They typically vary
from industry to industry and are crucial to determining a company’s ability to succeed

14
 within that industry. They are usually determined by the economic and technological
characteristics of the industry and by the competitive weapons on which the firms in the
industry have built their strategies.
Ex: In the major home appliance industry, a firm must achieve low cost, typically by
building large manufacturing facilities dedicated to making multiple versions of one type
of appliance, such as washing machines.

16. What is Competitive Intelligence?

Competitive intelligence is a formal program of gathering information on a company’s
competitors. External environmental scanning is done on an informal and individual
basis, obtained from a variety of sources- suppliers, customers, industry publications,
employees, industry experts, industry conferences and the internet. Many business firms
have establish their own in-house libraries and computerized information systems to deal
with the growing mass of available information’s. Strategies can use this data to spot
regional and national trends and as well as to assess market share.
Ex: Avon products hired private investigators to retrieve from a public dumpster
documents that Mary Kay Corporation had thrown away.

17. What is (a) Brainstorming (b) Delphi Technique?

 Brainstorming: is a non-quantitative approach requiring the presence of people
with some knowledge of the situation to be predicted. The basic ground rule is to
propose ideas without first mentally screening them. No criticism is allowed.
Ideas tend to build on previous ideas until a consensus is reached. This is a good
technique to use with operating managers who have more faith in “gut feel” than
in more quantitative “number crunching” techniques.
 Delphi Technique: is a technique in which separated experts independently
assess the likelihood of specified events. These assessments are combined and
sent back to each expert for fine-tuning until an agreement is reached.

18. What is an Industry scenario?

An Industry scenario is a forecasted description of particular industry’s likely future.
Such a scenario is developed by analyzing the probable impact of future societal forces
on key groups in a particular industry. The process may operate as follows:
 Examine possible shifts in the societal variables globally.
 Identify uncertainty in each of the forces of the task environment.
 Make a range of plausible assumptions about future trends.
 Combine assumptions about individual trends into internally consistent scenarios.
 Analyses the industry situation that would prevail under each scenario.
 Determine the sources of competitive advantage under each scenario.
 Predict competitors’ behavior under each scenario.
Select the scenarios that are either most likely to occur on most likely to have a strong
impact on the future of the company. Use these scenarios in strategy formulation.

19. Define (a) Resource (b) Competency (c) Capability (d) Core competence
(e) Distinctive competence.
(a) Resource: A Resource is an asset, competency, process, skill, or knowledge
controlled by the operation. A resource is strength if it provides a company with a
competitive advantage. It is something the firm does or has the potential to do
particularly well relative to the abilities of existing or potential competitors. A resource is
a weakness if it is something the corporation does poorly or doesn’t have the capacity to
do although its competitors have that capacity.

15
 Resources may be classified as:
 Tangible resources such as land, buildings, plant & machinery, etc., and
 Intangible resources such as brand names, reputation, patents, know-how, R&D,
etc.
(b) Competency: Competencies are those measurable or observable knowledge, skills,
abilities and other behaviors critical to success in a key job role or function.
By providing a more holistic view of all the important attributes for success of an
organization, a competency approach will improve the understanding of what it
really takes to perform well. Using competencies can create a foundation for high-
performance of the firm’s programs to attract, develop and retain the talent
needed to succeed in achieving a competitive advantage.
Ex: Reliance Industries competencies are its project management skills.

(c) Capability: Capabilities are skills which bring together resources and put
them to purposeful use. The organization’s structure and control system gives rise
to capabilities which are intangible. Capabilities are by-products of internal
operations and decision-making process of a company and it is difficult for
competitors to comprehend it. Capabilities are invisible to outsiders and rather
difficult to imitate.
Ex: General Motors investments in large sized cars served as a setback in shifting
their massive investments for low cost small sized cars made by Japanese
competitors.

(d) Core Competence: Core competence is a fundamental enduring strength,

which is a key to competitive advantage. Core competence may be a competency
in technology, process, engineering capability or expertise, which is difficult for
competitors to imitate. By and large, it is a technological competence, which
provides the firm access to a variety of products and markets and contributes to
customer delight.
Ex: HONDA’s core competence in designing and manufacturing engines had led
to several products and business such as cars, motorcycles, lawnmowers,
generators, etc.

(e) Distinctive Competence: Distinctive competence is a unique strength that

allows a company to achieve superior efficiency, quality, innovation and customer
responsiveness. In order to possess distinctive competence, a company should
have both unique and valuable resources and capabilities to exploit resources and a
unique capability to manage common resources. It allows the firm to charge
premium price and achieve low costs compared to rivals, which results in a profit
rate above the industry average. It should satisfy three conditions of value,
uniqueness and extendibility.
Ex: Toyota achieved success through distinctive competence in world class
manufacturing process.

20. What is a Value chain?

A Value chain is a linked set of value-creating activities beginning with basic raw
materials coming from suppliers, moving on to a series of value-added activities involved
in producing and marketing a product or services, and ending with distributors getting the
final goods into the hands of the ultimate consumers.
Ex: A typical value chain for a manufactured product.
Raw Primary Product
Fabrication Distributor Retailer
materials manufacturing Producer

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 The focus of value chain analysis is to examine the corporation in the context of the
overall chain of value-creating activities, of which the firm may be only a small part.

21. What is a TOWS matrix?

The TOWS matrix (TOWS is just another way of saying SWOT) illustrates how the
external opportunities and threats facing a particular corporation can be matched with that
company’s internal strengths and weakness to result in four sets of possible strategic
alternatives. This is a good way to use brainstorming to create alternative strategies that
might not otherwise be considered .It forces strategic managers to create various kinds of
growth as well as retrenchment strategies. It can be used to generate corporate as well as
business strategies.
Strengths (S) – denote all the good and advantageous aspects of the firm;
Weaknesses (W) – represent retarding influences on the success of the organization;
Opportunities (O) – may come about fortuitously or by undertaking some research; and
Threats (T) – are adverse repercussions on the organization;
as involved in a project or in a business venture or in any other situation of an
organization or individual requiring a decision in pursuit of an objective. It involves
monitoring the marketing environment internal and external to the organization or
individual.

Internal INTERNAL INTERNAL

External STRENGTHS WEAKNESS
(S) (W)
EXTERNAL SO: Strategy WO: Strategy
OPPORTUNITIES(O) Max-Max Min-Max
EXTERNAL ST: Strategy WT: Strategy
THREATS(T) Max-Min Min-Min
22. What is ‘Competitive Advantage’?
A company is said to have attained competitive advantage when the profit rate of a
company is higher than industry average. Competitive Advantage is the result of a
strategy capable of helping a firm to maintain and sustain a favorable market position.
This position is translated into higher profits compared to those obtained by competitors
operating in the same industry. Competitive advantage comes from a firm’s ability to
perform activities more distinctively or more effectively than rivals. It enables a firm to
generate successful performance over an extended period of time. Firms from a variety of
industries, settings and situations develop strategies to achieve competitive advantage.
Activities undertaken to achieve this end form the basis of strategic management process.
Ex: Making the highest-quality product.

23. What are the generic strategies?

Competitive strategies or Generic strategies are designed to help firms deploy their
value chains and other strengths to build competitive advantage. Each company
formulates its specific competitive strategy according to its own analysis of internal
strengths and weaknesses, the value it can provide, the competitive environment, and the
needs of its environment. The three broad types of competitive strategies or generic
strategies are-
 Low-cost leadership strategies

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  Differentiation strategies and
 Focus strategies.

24. How does Traditional Business differ from E-Business?

Key differences between E-Business and Traditional Business are:
E-Business Traditional Business
* Always open and on-24/7 * Limited by time constraints/
schedules
* No geographical boundaries * Physical location important
* High pricing transparency * Uneven availability
* Decisions have fast impact * Decisions take time to implement
* Immediate competitor response * Competitor response time lagging
* Customer has more power * Supplier usually has more power
* Easy to compare rival offerings * Effort required to compare
offerings
* Firm is part of larger value network * High distance between firms with
suppliers and customers
* Convenience and cost are key- * Convenience and cost defined by
defined by customer supplier in many cases.

25. What is a VRIO framework?

A Resource is an asset, competency, process, skill, or knowledge controlled by the
operation. ‘VRIO’ framework of analysis was evolved by Barney to evaluate a firm’s
key resources. The following questions are asked to assess the nature of resources:
Value – Does it provide competitive advantage?
Rareness – Do other competitors possess it?
Imitability – Is it costly for others to imitate?
Organization – Does the firm exploit the resource?
A resource is considered to be valuable if it helps to create strong demand for the
product.

PART – B

1. Discuss how a development in a Corporation’s societal (Macro) environment can

affect the corporation through its task environment.
Definition of societal environment, task environment – list the factors of societal
environment with respect to a corporation – list the factors of task environment with
reference to how it affects the corporation – conclusion.

2. What is relevance of the resource-based view of the firm to strategic management in

a global environment?
Definition of resource – types of resources – VRIO framework – using resources to gain
competitive advantage (competencies, capabilities) – sustainability of an advantage
(durability, imitability, transparency, transferability, replicability) with reference to
global environment – conclusion.

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 3. If your organization could get accurate answers to 12 questions about its
competitive environment, what questions would it ask?
Definition of environment – competitive environment – questions based on opportunities
and threats – answers through the organization’s strengths and weaknesses – conclusion.

4. Explain how value chain analysis could help in organizational analysis.

Definition of value chain, value chain analysis – Value chain of a corporation –
components of value chain – conclusion.

5. Explain the application of TOWS matrix in strategy formulation.

Definition of strategy formulation, TOWS matrix or SWOT analysis – explain each of s,
w, o, t in SWOT – advantages and demerits of SWOT – conclusion.

6. According to Porter, what determines the level of competitive intensity in an

industry? (OR) Explain the role of Porter’s approach in industry analysis.
Definition of industry, competitive intensity in an industry, Porter’s approach – five
forces model – explain each of these forces – merits and demerits of five forces model –
conclusion.

7. Explain the concept of SWOT analysis and Portfolio analysis.

Definition of strategy formulation – SWOT analysis – merits and demerits of SWOT
analysis – Portfolio analysis – merits and demerits of portfolio analysis – conclusion.

8. What are the generic building blocks of competitive advantage? Elaborate.

Definition of competitive advantage – generic building blocks of competitive advantage –
quote examples – conclusion.

9. Elaborate on the sources of distinctive competencies.

Definition of competency, distinctive competency – sources of distinctive competencies –
distinctive competencies in functional areas – conclusion.

10. Explain the impact of the Product life cycle on sources of competitive advantage.
Definition of competitive advantage – relationship between product life cycle and
competitive advantage with reference to each of the stage in product life cycle – merits
and demerits – conclusion.

UNIT – 3 : STRATEGIES

PART – A

1. Define (a) Functional Strategy (b) Business Strategy (c) Corporate Strategy (d)
Global Strategy (e) Marketing Strategy (f) Financial Strategy (g) R&D Strategy (h)
Operations Strategy (i) Purchasing Strategy (j) Logistics Strategy (k) HRM Strategy
(l) IS Strategy (m) Low-Cost Strategy (n) Differentiation Strategy (o) Focus Strategy
(p) Directional Strategy (q) Growth Strategy (r) Stability Strategy (s) Retrenchment
Strategy (t) Competitive strategy (u) Cooperative strategy.
(a) Functional Strategy: Functional strategy is the approach a functional area takes to
achieve corporate and business unit objectives and strategies by maximizing resource
productivity. It is concerned with developing and nurturing a distinctive competence to
provide a company or business unit with a competitive advantage. Each business unit has

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its own set of departments, each with its own functional strategy.
Ex: A business unit following a competitive strategy of differentiation through high-
quality needs a manufacturing functional strategy that emphasizes expensive, quality
assurance process over cheaper, high volume production; a human resource functional
strategy that emphasizes the hiring and training of a high skilled, but costly, workforce;
and a marketing functional strategy that emphasizes distribution channel “pull” using
advertising to increase consumer demand over “push” using promotional allowances to
retailers.

(b) Business Strategy: The plans and actions that firms devise to compete in a
given product/market scope or setting and asks the question “How do we compete
within an industry?” is a business strategy. It focuses on improving the
competitive position of a company’s business unit’s products or services within
the specific industry or market segment that the company or business unit serves.
It can be:
 Competitive – battling against all competitors for advantage which includes Low-
cost leadership, Differentiation and Focus strategies; and/or
 Cooperative – working with one or more competitors to gain advantage against
other competitors which includes Collusion and Strategic alliances.
Ex: Wet grinder companies like Shantha and Sowbhagya seeks differentiation in a
targeted market segment.

(c) Corporate Strategy: Plans and actions that firms need to formulate and
implement when managing a portfolio of businesses is a corporate strategy. It is
especially a critical issue when firms seek to diversify from their initial activities
or operations into new areas. It deals with three key issues facing the corporation
as a whole:-
 The firm’s overall orientation growth, stability or retrenchment – Directional
strategy;
 The industries or markets in which the firm competes through its products
and business units – Portfolio strategy;
 The manner in which the management coordinates the activities, transfers
resources and cultivates capabilities among product lines and business units –
Parenting strategy.
Ex: In the textile industry, Arvind Mills and Raymonds have started investing big
money to strengthen their design and brand capabilities as a directional strategy.

(d) Global Strategy: is a strategy that seeks to achieve a high level of consistency
and standardization of products, processes and operations around the world;
coordination of the firm’s subsidiaries to achieve high interdependence and mutual
support. The key characteristics of a global strategy are:
 Standardized products;
 Global economies of scale in key components and activities;
 Leverage technology across many markets; and
 Global coordination of marketing and sales system wide.
Ex: IBM (Big Blue) develops and manufactures all of the computers in the world .

(e) Marketing Strategy: Marketing strategy defines how a firm can communicate with
the market efficiently in order to sell its products and services. It deals with four

20
components, viz, product, price, place and promotion. These strategies help to determine
who will sell what, where, when, to whom, in what quantity and how.
Ex: For advertising and promotion, a firm can choose either a “push” or a “pull”
marketing strategy.

KEY FUNCTIONAL STRATEGIES KEY CONSIDERATIONS

PRODUCT  Type of product

 Key contributors to profitability
 Product image
 Consumer need
 Changes that influence customers
PRICE  Price as the basis of competition
 Rice modifications through
discounts
 Uniformity in pricing policies
 Target segments
 Gross profit margin
PLACE  Level of market coverage
 Priority geographic areas
 Key distribution channels
 Channel objectives, structure and
management
 Change in marketing mix
 Sales force organization
PROMOTION  Key promotion priorities and
approaches
 Advertising and communication
priorities
 Media

(f) Financial Strategy: Financial strategy examines the financial implications of

corporate and business-level strategic options and identifies the best financial course of
action. It can also provide competitive advantage through a lower cost of funds and a
flexible ability to raise capital to support a business strategy. Financial strategy usually
attempts to maximize the financial value of the firm. A firm’s financial strategy is
influenced by its corporate diversification strategy.
Ex: Equity financing is preferred for related diversification while debt financing is
preferred for unrelated diversification.

KEY FUNCTIONAL STRATEGIES KEY CONSIDERATIONS

CAPITAL ACQUISITION  Cost of capital
 Proportion of short and long-term debt
 Balance between internal and external
funding
 Appropriate risk and ownership
 Level and forms of leasing
CAPITAL ALLOCATION  Priorities in allocation to projects
 Basis of final selection of projects
 Capital allocation authority

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 DIVIDEND AND WORKING  Dividend-payout ratio
CAPITAL MANAGEMENT  Stability of dividends
 Cash flow requirements
 Credit policies
 Credit limits, terms of repayment and
collection procedures
 Payment timing and procedure

(g) R&D Strategy: R&D strategy deals with product and process innovation and
improvement. It also deals with the appropriate mix of different types of R&D (basic,
product or process) and with the question of how new technology should be accessed-
internal development, external acquisition or through strategic alliances. One of the R&D
choices is to be either a technological leader in which one pioneers an innovation or a
technological follower in which one imitates the products of competitors.
Ex: Nike Inc. spends more than most in the industry on R&D to differentiate the
performance of its athletic shoes from that of its competitors.

R&D DECISION AREA KEY CONSIDERATIONS

BASIC RESEARCH VS  Extent of innovation vis-à-vis product

COMMERCIAL DEVELOPMENT development, refinement and
modification
 New projects that support growth
TIME HORIZON  Emphasis on short-term or long-term
ORGANIZATION FIT  Nature of research (in-house or
contracted)
 Departmental structure (centralized or
decentralized
 Relations with other departments
BASIC R&D POSTURE  Offensive or defensive

(h) Operations Strategy: Operations strategy determines how and where a product or
service is to be manufactured, the level of vertical integration in the production process,
and the deployment of physical resources. It should also deal with the optimum level of
technology the firm should use in its operations processes. The differences in national
conditions can lead to differences in product design and manufacturing facilities from one
country to another.
Ex: “Personal Pair” system introduced by Levi Strauss to combat the growing
competition from private label jeans is an example of mass customization.

KEY OPERATING STRATEGIES KEY CONSIDERATIONS

FACILITIES AND EQUIPMENT  Importance of facilities
 Extent of integration of processes
 Size and capacity
OPERATIONS PLANNING &  Level of inventory
CONTROL  Inventory use
 Key control efforts
 Nature of maintenance (preventive or
market-oriented)

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  Job specialization
 Plant safety

(i) Purchasing Strategy: Purchasing strategy deals with obtaining the raw materials,
parts and supplies needed to perform the operation function. The basic purchasing
choices are-
 Multiple sourcing – the purchasing company orders a particular part from several
vendors;
 Sole sourcing – the purchasing company orders a particular part from only one
supplier; and
 Parallel sourcing – two suppliers are the sole suppliers of two different parts, but
they are also backup suppliers for other parts.
Key purchasing strategies are:-
 Sources
 Selection of suppliers and managing relations and
 Acceptable forward buying level.
Ex: Hewlett-Packard enables its employees to buy office supplies from a standard set of
suppliers.

(j) Logistics Strategy: Logistics strategy deals with the flow of products into and out of
the manufacturing process. Three trends are evident-
 Centralization – the headquarters group of a firm contains specialists with
expertise in different transportation modes such as rail, trucking or shipping.
They work across the entire firm to gain better contracts with transporters.
Ex: Union Carbide.
 Outsourcing – Many firms are outsourcing logistics operations to reduce
costs and improve delivery time. Ex: HP contracted with Roadway logistics
to manage its inbound raw materials warehousing.
 Internet – Many firms are using the internet to simplify their logistical
system. Ex: Ace Hardware created an online system for its retailers and
suppliers.

(k) HRM Strategy: HRM strategy addresses the issue of whether a company or business
unit should
 hire a large number of low-skilled employees who receive low pay, perform
repetitive jobs, and most likely quit after a short-time or
 hire skilled employees who receive relatively high pay and are cross-trained
to participate in self-managing work teams.
Business firms are experimenting with different category of workers, namely,
 Part-time workers
 Temporary employees and
 Leasing of employees.
Companies are finding that having a diverse workforce can be a competitive advantage.
Ex: Avon was able to turn around its unprofitable inner-city markets by putting African
American and Hispanic managers in charge of marketing in these markets.

(l) IS Strategy: Information System strategies provide business units with competitive
advantage. Many companies are attempting to use information systems to form closer
relationships with both their customers and suppliers through sophisticated extranets.
Instant translation software enables workers to have online communication with
coworkers in other countries who use a different language. By practicing follow-the-sun

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management the project team members living in one country can pass their work to team
members in another country in which the work day is just beginning.
Ex: General Electric’s Trading Process Network allows suppliers to communicate with
GE purchasing managers.

(m) Low-Cost Strategy: is the ability of a company or a business unit to design, produce
and market a comparable product more efficiently than its competitors. It is a competitive
strategy based on the firm’s ability to provide products or services at lower cost than its
rivals. It is formulated to acquire a substantial cost advantage over other competitors that
can be passed on to consumers to gain a large market share. As a result the firm can earn
a higher profit margin that result from selling products at current market prices.
Ex: Whirlpool has successfully used a low-cost leadership strategy to build competitive
advantage.

(n) Differentiation Strategy: is the ability to provide unique and superior value to the
buyer in terms of product quality, special features or after-sale service. It is a competitive
strategy based on providing buyers with something special or unique that makes the
firm’s product or service distinctive. The customers are willing to pay a higher price for a
product that is distinct in some special way. Superior value is created because the product
is of higher quality and technically superior which builds competitive advantage by
making customers more loyal and less-price sensitive to a given firm’s product or service
Ex: Mercedes and BMW have successfully pursued differentiation strategies.

(o) Focus Strategy: is designed to help a firm target a specific niche within an industry.
Unlike both low-cost leadership and differentiation strategies that are designed to target a
broader or industry-wide market, focus strategies aim at a specific and typically small
niche. These niches could be a particular buyer group, a narrow segment of a given
product line, a geographic or regional market, or a niche with distinctive special tastes
and preferences.
Ex: Solectron is a highly specialized manufacturer of circuit boards used in PCs and other
electronic devices which has adopted a well-defined focus strategy.

(p) Directional Strategy: is a corporate strategy based on an organization’s orientation

toward growth, survival and success. These strategies are useful both to corporations
operating in only one industry with one product line and to those operating in many
industries with many product lines. A firm’s directional strategy is composed of three
general orientations also called as grand strategies-
 Growth strategies expand the company’s activities – Ex: Concentration and
diversification strategies;
 Stability strategies make no change to the company’s current activities –
Ex: No change strategy; and
 Retrenchment strategies reduce the company’s level of activities –
Ex: turnaround strategy.

(q) Growth Strategy: is a directional strategy designed to achieve growth in sales,

assets, profits or a combination of these. Continuing growth means increasing sales and a
chance to take advantage of the experience curve to reduce the per-unit cost of products
sold, thereby increasing profits. This cost reduction becomes extremely important if a
corporation’s industry is growing quickly and competitors are engaging in price wars in
attempts to increase their shares of the market.

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Ex: Motorola Inc. is spending large sums on product development to ensure future
returns.

(r) Stability Strategy: is a strategy chosen by a corporation to continue with its current
activities without any significant change in direction. It can be appropriate for a
successful corporation operating in a reasonably predictable environment. They are very
popular with small business owners who found a niche and are happy with success and
the manageable size of the firms. Stability strategies may be useful in the short run, but
they can be dangerous if followed for too long. Some of the stability strategies are-
 Pause/Proceed with caution strategy is a decision to make only incremental
improvements;
 No change strategy is a decision to do nothing new and continue with current
operations and policies for the foreseeable future; and
 Profit strategy is a decision to artificially support profits by reducing
investment and other expenditures.

(s) Retrenchment Strategy: is a strategy chosen by a corporation to reduce its level of

activities. A firm may pursue retrenchment strategies when it has a weak competitive
position in some or all of its product lines resulting in poor performance- sales are down
and profits are becoming losses. These strategies impose a great deal of pressure to
improve performance. In an attempt to eliminate the weaknesses that are dragging the
company down, management may follow one of several retrenchment strategies ranging
from-
 Turnaround strategy – emphasizes the improvement of operational
efficiency;
 Captive company strategy – giving up independence in exchange for
security;
 Sell out / Divestment strategy – selling the entire company to another firm or
selling off a division with low growth potential to another firm;
 Bankruptcy / Liquidation – involves giving up management of the firm to
courts in return for some settlement or termination of the firm; and
 Harvest strategy – involves halting investment in a unit.

(t) Competitive strategy: is a business strategy which battles against all competitors on
the basis of low-cost or differentiate the products or services. Competitive strategies are
called generic strategies because they can be pursued by any type or size of business firm,
even by not-for-profit organizations, namely-
 Low-cost strategy – is the ability of a company or business units to design,
produce and market a comparable product more efficiently than its
competitors;
 Differentiation strategy – is the ability to provide unique and superior value
to the buyer in terms of product quality, special features or after-sale service;
 Focus strategy – is designed to help a firm target a specific niche within an
industry.

(u) Cooperative strategy: is a business strategy by which a firm can work with one or
more competitors to gain advantage against other competitors within an industry. The
two general types of cooperative strategies are-
 Collusion – active cooperation of firms within an industry to reduce output
and raise prices in order to get around the normal economic law of supply
and demand; and

25
  Strategic alliance – is a partnership of two or more corporations or business
units to achieve strategically significant objectives that are mutually
beneficial.

2. What is Outsourcing?
Outsourcing is purchasing from someone else a product or service that had been
previously provided internally. It is becoming an increasingly important part of strategic
decision-making and an important way to increase efficiency and often quality. The key
to outsourcing is to purchase from outside only those activities that are not key to the
company’s distinctive competencies. A firm should consider outsourcing any activity or
function that has low potential for competitive advantage.
Ex: DuPont outsourced project engineering and design to Morrison Knudsen.

3. What do you mean (a) Merger (b) Acquisition (c) Joint Venture (d) Vertical
Integration (e) Horizontal Integration (f) Concentric Diversification (g)
Conglomerate Diversification (h) Bankruptcy/Liquidation (i) Horizontal strategy (j)
Corporate Parenting Strategy (k)Horizontal growth (l) Vertical growth (m)
Turnkey operations (n) Takeover.
(a) Merger: is defined as any transaction through which two or more firms integrate
their operations on a relatively co-equal basis in which stock is exchanged, but from
which only one firm survives. It refers to any transaction that forms one economic unit
from two or more previous ones. Mergers can be classified as-
 Horizontal merger – is a merger between two or more firms involved in the same
kind of business activity. Ex: Merger between oil giants Exxon and Mobil.
 Vertical merger – takes place when one firm acquires another firm that is in the
same industry but at a different stage of production. Ex: Merger between Pharma
company Merck & Co and the drug distributor, Medco Containment Services.
 Conglomerate merger – takes place when two firms from unrelated business
activities merge. Ex: Merger of Tenneco and Textron. Conglomerate mergers may
be-
 Product-extension merger – two firms in a related business activity merge to
broaden the product line of firms;
 Geographic extension merger – two firms operating in non-overlapping
geographic areas merge;
 Pure conglomerate merger – two firms from unrelated business activities merge.

(b) Acquisition: is the purchase of a company that is completely absorbed as an

operating subsidy or division of the acquiring corporation. It facilitates quick
expansion. Building a brand is time consuming and hence firms buy ongoing
brands, which provide advantages like no gestation period and entry into a ready
market.
Ex: Godrej acquired Good Knight brand.

(c) Joint Venture: is a cooperative business activity, formed by two or more separate
organizations for strategic purposes, that creates an independent business entity and
allocates ownership, operational responsibilities and financial risks and rewards to each
member, while preserving their separate identity/autonomy. It involves collaboration
rather than mere exchange and it creates value by bringing in money, skill and expertise.
Ex: Ford with Mahindra & Mahindra.

(d) Vertical Integration: is the degree to which a firm operates vertically in multiple

26
 locations on an industry’s value chain from extracting raw materials to
manufacturing to retailing. More specifically, assuming a function previously
provided by a supplier is called Backward integration.
Ex: Purchase of Pentasia Chemicals by Asian Paints Ltd. for the chemicals required for
the manufacturing of paints.
Assuming a function previously provided by a distributor is labeled Forward integration.
Ex: Arvind Mills expanded its business to make and market its own branded
pants and shirts.

(e) Horizontal Integration: is the degree to which a firm operates in multiple

geographic locations and/or by increasing the range of products and services offered to
current markets at the same point in an industry’s value chain. It may range from full to
partial ownership to long-term contracts.
Ex: IBM purchased the Indian BPO major Daksh to obtain access to American and Asian
Markets.

(f) Concentric Diversification: occurs when an organization diversifies into a

related, but distinct business. It involves the acquisition of businesses that are
related to the acquiring firm in terms of technology, markets or products. The
selected businesses possess a high degree of compatibility with the firm’s current
businesses.
Ex: Titan Industries Ltd. diversified out of watches into designer jewellery and
sunglasses, ranging from a watch company to a lifestyle product company.

(g) Conglomerate Diversification: is a strategy that expands the firm’s operations into
industries and markets that are not similar or related to the firm’s initial base of
functional or skill-based interrelationship. It does not involve sharing the firm’s
distinctive competence across different lines of business.
Ex: Intel’s moves to establish a web-hosting business.

(h) Bankruptcy/Liquidation:
Bankruptcy is a retrenchment strategy that involves giving up management of the firm to
the courts in return for some settlement of the corporation’s obligations. Top
management
hopes that once the court decides the claims of the company, the company will be
stronger and better able to compete in a more attractive industry.
Ex: Global Trust Bank (GTB) became in 2004 and was merged with a public sector bank,
Oriental Bank of Commerce.
Liquidation is the termination of the firm. Because the industry is unattractive and the
company too weak to be sold as a going concern, management may choose to convert as
many saleable assets as possible to cash, which is then distributed to the shareholders
after all obligations are paid. The benefit of liquidation over bankruptcy is that the board
of directors, as representatives of the shareholders, together with top management make
the decisions instead of turning them over to the court, which may choose to ignore
shareholders completely.
Ex: Precision Thermoforming & Packaging (PTP) was a successful company whose
prospective customer was America Online (AOL). When AOL failed to pay the amount
for its order placed with PTP, PTP went out of its business as it could not pay the debtors
and awaited the result of the lawsuit.

(i) Horizontal strategy: is a corporate strategy that cuts across business unit boundaries

27
to build synergy across business units and to improve the competitive position of one or
more business units. When used to build synergy, it acts like a parenting strategy. When
used to improve the competitive position of one or more business units, it can be thought
of as a corporate competitive strategy. It is developed to coordinate the various goals and
strategies of related business units.
Ex: P&G, HLL and Nirma compete with one another in the consumer soap products.
Nirma competes with the high-share lux brand of HLL and inturn HLL competes with the
low-share brand of Nirma. Once Nirma had perceived HLL’s response, it might choose to
stop challenging lux so that HLL stops challenging Nirma’s detergent soap.

(j) Corporate Parenting Strategy: is a corporate strategy that views a firm in terms
of resources and capabilities that can be used to build business unit as well as generate
synergies across business units. It focuses on the core competencies of the parent
corporation and on the value created from the relationship between the parent and its
businesses. If there is a good fit between the parent’s skills and resources and the needs
and opportunities of the business units, the corporation is likely to create value. If
however there is not a good fit, the corporation is likely to destroy value. This approach
to corporate strategy is useful not only in deciding what new businesses to acquire, but
also in choosing how each business unit should be managed.
Ex: Success of GE is by imposing tough standards of profitability around GE’s empire.

(k)Horizontal growth: can be achieved by expanding the firm’s products into other
geographic locations and/or by increasing the range of products and services offered
to current markets. The company expands sideways at the same location on the industry’s
value chain.
Ex: Ranbaxy Labs followed this strategy to extend its pharmaceutical business to Europe
and to USA.

(l) Vertical growth: can be achieved by taking over a function previously provided
by a supplier or by a distributor. The company grows by making its own supplies
and/or by distributing its own products. This growth can be achieved either by internally
by expanding current operations or externally through acquisitions.
Ex: Cisco systems, maker of internet hardware chose to vertical growth by purchasing
Radiata Inc., a maker of chip sets for wireless networks.

(m) Turnkey operations: are typically contracts for the construction of operating
facilities in exchange for a fee. The facilities are transferred to the host country or firm
when they are complete. The customer is usually a government agency that has decreed
that a particular product must be locally produced and under its control.
Ex: ECC (an L&T Company) built a urea prilling tower and storage silo for State
Fertilizer Manufacturing Corporation of Sri Lanka.

(n) Takeover: refers to the acquisition of a certain block of paid-up equity capital of
a company with the intention of acquiring control over the affairs of the company. It is
used as a method for expansion. If the management accepts the takeover, it is considered
a smooth or friendly takeover. If the management resists it, it is considered a hostile
takeover.
Ex: HLL’s takeover of TOMCO is a smooth takeover.
India Cement’s effort to takeover Raasi Cements is a hostile takeover.

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4. What is Strategic alliance?
A Strategic alliance is a partnership of two or more corporations or business units to
achieve strategically significant objectives that are mutually beneficial. It may take the
form of formal joint venture or short-term contractual agreement with equity participation
or issue-based participation. It is a cooperative agreement between potential or actual
competitors.
Ex: strategic alliance between General Motors and Toyota to assemble automobiles.

5. Define Sell-out/Divestment or Divestiture strategy.

Sell-out: If a corporation with a weak competitive position in its industry is unable either
to pull itself up or to find a customer to which it can become a captive company, it may
have no choice but to sell-out. The sell-out strategy makes sense if management can still
obtain a good price for its shareholders and the employees can keep their jobs by selling
the entire company to another firm. The hope is that another company will have the
necessary resources and determination to return the company to profitability.
Ex: Sale of TOMCO (Tata Oil Mills Company) to Hindustan Unilever (HLL).
Divestment or Divestiture: If the corporation has multiple business lines and it chooses to
sell off a division with low growth potential, this is called Divestment or Divestiture. It is
used when the firm wants to increase the efficiency of a strategic business unit or major
operating division or product line that has failed to achieve the desired results.
Ex: Hindustan Unilever Ltd (HLL) announced the divestment of its edible business to
American company Bunge Co.

6. What is SBU?
Some firms find it difficult in controlling their divisional operations because of the
increase in diversity, size and number of divisional units. So, it becomes a tough task for
the corporate management to evaluate and control its numerous units, to improve strategy
implementation, promote synergy and gain greater control the diverse business interests,
it may become essential to add another layer of management when corporate
management finds difficulty managing the organization. This can be successfully
achieved by grouping various divisions in terms of common strategic elements. These
groups are commonly called Strategic Business Units (SBUs) and are usually structure
based on the independent segments of the product or market served by the firm. An SBU
may be of any size or level, but it must have
 A unique mission
 Identifiable competitors
 An external market focus and
 Control of its business functions.
Ex: General Electric faced with massive sales growth divided its 48 divisions into 6
SBUs.

7. What is Balanced Scorecard?

Balanced Scorecard is a performance measurement tool which provides executives with
a comprehensive framework that translates a company’s strategic objectives into a
coherent set of performance measures. It has been proposed and popularized by
Robert.S.Kaplan and David.P.Norton. It is a management system which can motivate
breakthrough improvements in critical areas such as product, process, customer and
market development. The scorecard consists of four different perspectives such as:
 Financial perspective
 Customer perspective

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  Internal business perspective and
 Innovation and learning perspective.

8. What is (a) Devil’s advocacy (b) Dialectical Enquiry?

(a) Devil’s advocacy: It is a technique of strategic choice. In strategic decision-making,
the devil’s advocate who may be an individual or a group is assigned to identify potential
pitfalls and problems with a proposed alternative strategy in a formal presentation. One
member highlights the reason why the plan is unacceptable and acts like the devil’s
advocate.
(b) Dialectical Enquiry: It is a technique of strategic choice. In strategic decision-
making, the dialectical enquiry consists of designing a plan and a counter plan in order to
reflect plausible and conflicting courses of action. The debate between advocates of plan
and counter plan reveals problem areas with definitions, suggested courses of actions and
assumptions. Based on the identification of problem areas, final plan is evolved which is
comprehensive.

9. What is meant by Bundling strategy?

A bundling strategy is an optimal strategy for a monopolist since it helps the monopolist
to capture a large portion of the consumer surplus in the face of buyer heterogeneity. It is
a type of price discrimination. Price bundling is a promotional tool, while product
bundling is a marketing strategy for packaging complementary or related products.
Ex: Bundling in banking and financial services – banks offer special programs in which
customers with large deposits can obtain home loans, credit cards for lesser rates.

10. What is (a) Horizontal expansion (b) Vertical expansion?

(a) Horizontal expansion: is the degree to which a firm operates in multiple
geographic locations and/or by increasing the range of products and services offered to
current markets at the same point in an industry’s value chain. It may range from full to
partial ownership to long-term contracts.
Ex: IBM purchased the Indian BPO major Daksh to obtain access to American and Asian
Markets.

(b) Vertical expansion: is the degree to which a firm operates vertically in multiple
locations on an industry’s value chain from extracting raw materials to manufacturing to
retailing. More specifically, assuming a function previously provided by a supplier is
called Backward integration.
Ex: Purchase of Pentasia
Chemicals by Asian Paints Ltd. for the chemicals required for the manufacturing of
paints.
Assuming a function previously provided by a distributor is labeled Forward integration.
Ex: Arvind Mills expanded its business to make and market its own branded
pants and shirts.

11. Distinguish between Hostile takeover and Friendly takeover?

Takeover refers to the acquisition of a certain block of paid-up equity capital of
a company with the intention of acquiring control over the affairs of the company. It is
used as a method for expansion.
Friendly takeover: If the management accepts the takeover, it is considered
a smooth or friendly takeover.
Ex: HLL’s takeover of TOMCO is a friendly or smooth takeover.
Hostile takeover: If the management resists the takeover by another company, it is

30
 considered a hostile takeover.
Ex: India Cement’s effort to takeover Raasi Cements is a hostile takeover.

12. What is Flanking Maneuver?

Flanking Maneuver is an offensive market location tactic which usually takes place
in an established competitor’s market location. Rather than going for a competitor’s
position of strength with a head to head competition, a firm may attack a part of the
market where the competitor is weak. To be successful, the flanker must be patient and
willing to carefully expand out of the relatively undefended market niche or else face
retaliation by an established competitor.
Ex: Cyrix Corporation followed this tactic with its entry into the microprocessor market
which was dominated by Intel Corporation.

13. What is Value-chain partnership?

Value-chain partnership is a strong and close alliance in which one company or unit
forms a long-term arrangement with a key supplier or distributor for mutual advantage.
Such partnerships are also a way for a firm to acquire new technology to use its own
products.
Ex: Maytag Company was approached by one of its suppliers, Honeywell’s microswitch
division, which offered its expertise in fuzzy logic technology- a technology Maytag did
not have then.

14. What is an Offensive strategy?

15. What is Conglomerate merger?

Conglomerate merger – takes place when two firms from unrelated business activities
merge. Ex: Merger of Tenneco and Textron.
Conglomerate mergers may be-
 Product-extension merger – two firms in a related business activity merge to
broaden the product line of firms;
 Geographic extension merger – two firms operating in non-overlapping
geographic areas merge;
 Pure conglomerate merger – two firms from unrelated business activities merge.

16. What is a Grand strategy?

A Grand strategy is a strategy that provides the basic strategic direction at the corporate
level. It is a comprehensive general approach that guides a firm’s major actions. It is the
basis of coordinated and sustained efforts directed towards achieving long-term business
objectives. It indicates the time period over which objectives are to be achieved. The
grand strategies may be divided into three groups, namely:
 Growth strategies – concentration or diversification;
 Stability strategies – pause/proceed or profit; and
 Retrenchment or Defensive strategies – turnaround or divestment.

17. Explain Entry strategy.

18. Define (a) Embryonic industry (b) Growth industry (c) Shakeout industry (d)
Mature industry (e) Declining industry.
(a) Embryonic industry:

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 (b) Growth industry:
(c) Shakeout industry:
(d) Mature industry:
(e) Declining industry:

PART – B

1. Business units have a choice of three generic strategies. Explain these strategies.
Definition of generic strategy – types of generic strategies – merits and demerits of each
of low cost, differentiation and focus strategies – conclusion.

2. What is the rationale of strategic alliance? Why do such alliances fail?

Definition of strategic alliance – reasons for formation of strategic alliances – how it
works – why alliances fail – how to manage alliance – conclusion.

3. “Joint Ventures are emerging as the best tool for reaching new markets”. -
Comment.
Definition of joint venture – entry approach to new markets – reasons for choosing joint
ventures – merits and demerits of JVs – conclusion.

4. Explain in detail the corporate strategy in terms of directional strategies such as

Growth, Stability and Retrenchment strategies.
Definition of corporate strategy – meaning of directional strategy – types of directional
strategies (Growth, Stability and Retrenchment strategies) – conclusion.

5. What is Portfolio analysis? Explain the components of Portfolio analysis.

Definition of portfolio analysis – BCG matrix – components of portfolio analysis ( stars,
cashcows, dogs and question marks) – merits and demerits of portfolio analysis –
conclusion.

6. Define Functional strategy. Explain various functional strategies in an organization.

Definition of functional strategy – various functional strategies (marketing, finance, HR,
logistics, production, R&D, purchasing, information systems) – conclusion.

7. Explain in detail the Strategic Choice process.

Definition of strategic choice – factors influencing strategic choice (objective and
subjective factors) – internal political considerations – constructing corporate scenario –
techniques of strategic choice (devil’s advocate, dialectical enquiry) – conclusion.

8. “Balanced Scorecard is a superior performance measurement tool”. Explain.

Definition of balanced scorecard – perspectives of balanced scorecard – explain each of
the perspectives with an example – merits and demerits – conclusion.

UNIT – 4 : STRATEGY IMPLEMENTATION & CONTROL

PART – A

1. What is Strategic implementation?

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 Strategy implementation is the sum total of the activities and choices required for the
execution of a strategic plan. It is the process by which strategies and policies are put into
action through the development of programs, budgets and procedures. To begin the
implementation process three aspects are to be considered:
 People who will carry out the strategic plan;
 The alignment of the company’s operations in the new intended direction; and
 Everyone is going to work together to do what is needed.
Ex: Arvind mills showed how a good strategy can result in disaster through poor strategy
implementation.

2. What is Politics management?

3. Name the stages in Organizational Life Cycle.

The Organization life cycle describes how organizations grow, develop and eventually
decline. It places the primary emphasis on the dominant issue facing the corporation. The
key is to be able to identify indications that a firm is in the process of changing stages and
to make the appropriate strategic and structural adjustments to ensure that corporate
performance is maintained or even improved. The stages of the organizational life cycle
are:
 Stage I – Birth
 Stage II – Growth
 Stage III – Maturity
 Stage IV – Decline and
 Stage V – Death.

4. What is (a) Differentiation (b) Integration?

(a) Differentiation: Differentiation means the way in which a company allocates
people and resources to organizational tasks in order to create value. Differentiation
is of two types-
Vertical differentiation – is the way in which decision-making authority gets
distributed at functional/divisional level towards value creation activity;
Horizontal differentiation – is the way management pays attention to division of
tasks into functions and divisions to increase their ability to create value.

(b) Integration: Integration is the means by which a firm tries to coordinate people
and functions to accomplish organizational tasks. In order to promote coordination
between functions and divisions, integration and control systems are established.

5. What do you mean by Horizontal differentiation and Vertical differentiation?

Horizontal differentiation: involves decision to group organizational activities and
tasks in order to create value and to fulfill organizational objectives. A company’s
structure changes as its strategy changes in a predictable way. It can be established in
three forms-
 Simple structure
 Functional structure and
 Multidivisional structure.

Vertical differentiation: involves establishment of reporting relationship, which

connects people, tasks and functions at all levels of the firm. The managers have to
choose appropriate number of hierarchical levels, which is the outcome of their decisions

33
 regarding span of control. Span of control means the number of subordinates controlled
by
a manager effectively. Two types of structure emanates from span of control-
 Flat structure – few hierarchical levels
 Tall structure – too many levels.

6. What do you mean by Centralization and Decentralization?

Centralization: refers to the degree to which senior managers have the authority to make
decisions for the entire organization. In a highly centralized organization, senior
management retains most of the authority to decide how subunits will act. Senior
managers in a centralized company decide strategy and objectives, even for smaller units
within the firm.
Ex: Chemical and Pharmaceutical companies like Dow, Dupont, Merck have centralized
management.
Decentralization: refers to the degree to which an organization places wide discretion
with lower-level managers and employees. Senior management plays a lesser role in
setting goals and objectives for the company’s subunits. By delegating authority to lower-
level managers and personnel, senior management can harness the decision-making
capabilities of many people throughout the company.
Ex: High-tech and software firms such as Microsoft, Adobe systems and Sun
Microsystems prefer a high degree of decentralization.

7. Define Strategic control.

Strategic control is a process by which suitable control systems are established at the
corporate, business and functional levels in a company in order to evaluate whether a
firm is able to achieve superior efficiency, quality, innovation and customer
responsiveness. It ensures that the company is achieving what is set out to accomplish. It
compares performance with desired results and provides the feedback necessary for
management to evaluate results and take corrective action, as needed. Its purpose is to aid
managers in making a determination, based on strategy implementation, whether to alter
the basic strategic direction. Strategic control systems are classified into four types:
 Premise controls
 Implementation controls
 Strategic surveillance and
 Special alert control.

8. What is Organizational Culture?

Organization culture is defined as the values, norms and beliefs which are shared by
members of the organization. It affects the way the organization operates and its business.
The employees through socialization learn organization culture. Through the process of
socialization, the norms and beliefs are internalized and are made part of the value system
of employees. The culture is propagated through stories, myths, rituals, ceremonies,
symbols and language that people use in organizations. The top management and
founders play a crucial role in shaping strategic leadership.

34
 Signs,
Socialization symbols and Rites and Norms and Organizational
tactics stories ceremonies values rewards

Organizational Culture

9. What is related and unrelated diversification?

Related diversification: In related diversification, the firm enters into a new business
activity, which is linked to a company’s existing business activity by commonality
between one or more components of each activity’s value chain. The diversified
companies create value in the following ways:
 By transferring competencies among businesses and
 By realizing economies of scope.
Ex: IBM operates in 20 fields all related to each other and such diversifications have
greater probability of success.

Unrelated diversification: In unrelated diversification, the firm enters into a new

business that has no obvious connection with an of the existing business. It is suitable, if
the company’s core functional skills are highly specialized and have few applications
outside the company’s core business. The new businesses or products are unrelated to
process or technology or function of existing business.
Ex: The entry of Godrej entry into poultry business.

10. What is Organizational conflict?

Organizational conflict may be defined as a situation when the goal directed behavior of
one group blocks the goal directed behavior of another. It is necessary for organizational
change as it strikes at the root of the sources of organizational inertia. The sources of
conflict are:
 Differentiation
 Task relationships and
 Scarcity of resources.

11. What is Strategic leadership?

Strategic leadership

12. What is a Matrix organizational structure and Network structure?

Matrix organizational structure: is a combination of functional, product or project
patterns of departmentation. It was developed to combine the stability of the functional
structure with the flexibility of the product form. It is very useful when the external
environment especially its technological and market aspects is very complex and
changeable. It does produce conflicts revolving around duties, authority and resource
allocation.

35
 Ex: This structure is used in construction, aerospace and high-tech industries.

Network structure: is composed of a series of project groups or collaborations linked by

constantly changing nonhierarchical, cobweb like networks. It is a radical organizational
design with elimination of in-house business functions. It provides an organization with
increased flexibility and adaptability to cope with rapid technological change and shifting
patterns of international trade and competition.
Ex: Companies like Nike, Reebok and Benetton use this structure in their operations
function.

13. What is a Cellular organization?

A Cellular organization is composed of cells (self-managing teams, autonomous
business units, etc.) that can operate alone but that can interact with other cells to produce
a more potent and competent business mechanism. Each cell has an entrepreneurial
responsibility to the larger organization. It is this combination of independence and
interdependence that allows the cellular organizational form to generate and share the
knowledge and expertise to produce continuous innovation. The cellular form adds value
by keeping the firm’s total knowledge assets more fully in use than any other type of
structure.

14. What is Executive succession?

Executive succession is the process of replacing a key top manager. It is especially
important for a company that usually promotes from within to prepare its current
managers for promotion. The board of directors of firms help their CEO create a
succession plan, identifying succession candidates below the top layer, measuring
internal candidates against outside candidates to ensure the development of a
comprehensive set of skills, and providing appropriate financial incentives.
Ex: GE’s employees are trained at Leadership Development Center in New York.

15. What is Downsizing?

Downsizing refers to the planned elimination of positions or jobs. This program is often
used to implement retrenchment strategies. Because the financial community is likely to
react favourably to announcements of downsizing from a company in difficulty, such a
program may provide some short-term benefits such as raising the company’s stock price.
Creativity drops significantly and it becomes very difficult to keep high performers from
leaving the company. Companies use downsizing as part of a larger restructuring
program to narrow focus, they enjoy better performance.
Ex: Xerox followed this strategy in the 1990s.

16. Define (a) Behavior control (b) Input control (c) Output control.
(a) Behavior control: Controls can be established to focus on actual performance
results (output), the activities that generate the performance (behavior), or on
resources that are used in performance (input). Behavior controls (such as following
company procedures, making sales calls to potential customers, and getting to work on
time) specify how something is to be done through policies, rules, standard operating
procedures and orders from a superior. They are most appropriate when performance
results are hard to measure but the cause-effect connection between activities and results
is clear.
Ex: ISO 9000 standards series on quality management and assurance.

36
 (b) Input control: Controls can be established to focus on actual performance
results (output), the activities that generate the performance (behavior), or on
resources that are used in performance (input). Input controls (such as number of years of
education and experience) focus on resources such as knowledge, skills, abilities, values
and motives of employees. They are most appropriate when output is difficult to measure
and there is no clear cause-effect relationship between behavior and performance.
Ex: College teaching.

(c) Output control: Controls can be established to focus on actual performance

results (output), the activities that generate the performance (behavior), or on
resources that are used in performance (input). Output controls (such as sales quotas,
specific cost reduction or profit objectives, and surveys of customer satisfaction) specify
what is to be accomplished by focusing on the end result of the behaviors through the use
of objectives and performance targets or milestones. They are most appropriate when
specific output measures have been agreed on but the cause-effect connection between
activities and results is not clear.
Ex: Goals related to sales function’s efficiency.

17. What is (a) Shareholder value (b) Economic Value Added (EVA) (c) Market Value
Added (MVA)?
(a) Shareholder value: can be defined as the present value of the anticipated future
stream of cash flows from the business plus the value of the company if liquidated.
Shareholder value analysis concentrates on cash flow as the key measure of performance.
The value of the corporation is thus the value of its cash flows discounted back to their
present value, using the business’s cost of capital as the discount rate. As long as the
returns from a business exceed its cost of capital, the business will create value and be
worth more than the capital invested in it.

(b) Economic Value Added (EVA): has become an extremely popular shareholder value
method of measuring corporate and divisional performance and may be on its way to
replacing ROI (Return On Investment) as the standard performance measure. EVA
measures the difference between the pre-strategy and post-strategy value for the business.
EVA is after-tax operating income minus the total annual cost of capital and is given by-
EVA = After-tax operating income – (Investment in assets (+ or -) Weighted average cost
of capital)

(c) Market Value Added (MVA): is the difference between market value of a
corporation and the capital contributed by shareholders and lenders. Like net present
value, it measures the stock market’s estimate of the net present value of a firm’s past and
expected capital investment projects. MVA is the present value of future EVA. To
calculate MVA:
 Add all the capital – Shareholders, bondholders and retained earnings.
 Firm’s total capital is the actually investments in future earnings.
 Using the current stock price, total the value of all outstanding stock, adding it to the
company’s debt. This is the company’s market value.

18. What are Responsibility centers?

Responsibility centers are used to isolate a unit so that it can be evaluated separately
from the rest of the corporation. Each responsibility center has its own budget and is
evaluated on its use of budgeted resources. It is headed by the manager responsible for
the center’s performance. The center uses resources (measured in terms of costs or

37
 expenses) to produce a service or a product (measured in terms of volume or revenues).
There are five major types of responsibility centers namely,
 Standard cost centers
 Revenue centers
 Expense centers
 Profit centers and
 Investment centers.

PART – B

1. Describe the steps in strategic evaluation and control process.

Definition of strategic evaluation and control – types of control – steps in control process
– levels of control – limitations – conclusion.

2. Discuss the role of Corporate Culture in strategic management.

Definition of corporate/organization culture – culture and strategic leadership – suitable
reward systems (piecework plans, commission payment, bonus plans, group reward
system) – conclusion.

3. Explain the strategic management process in organizational life cycle.

Definition of strategic management, Organizational life cycle – stages in organization life
cycle with reference to strategic management process – conclusion.

4. How can a corporate keep sliding into the decline stage of the organizational life
cycle?
Definition of organization, organization life cycle – stages of organization life cycle –
emphasis on decline stage of organization life cycle with an example – conclusion.

5. Explain the steps in control process and various types of control system.
Definition of strategic control – types of control – steps in control process – explain with
suitable examples – conclusion.

6. What are some ways to implement a retrenchment strategy without creating a lot of
resentment and conflict with Labour unions?
Definition of retrenchment strategy – reasons for implementing this strategy – employees
to be made known about the outcome of this strategy – resolution of conflict with labour
unions – conclusion.

7. How can corporate culture be changed?

Definition of corporate culture, organizational change – changing the organization –
conflict resolution strategies – steps in change process – conclusion.

8. Elaborate on the broad forms of organization structure.

Definition of organization structure – components of organization structure – types of
organization structure – merits and demerits of each – conclusion.

9. How do conflict and politics affect formulation and implementation of generic

competitive strategies?

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 Definition of generic competitive strategy, strategy formulation and strategy
implementation – types of generic competitive strategies – meaning of conflict and
politics – how strategies are affected by conflict and politics – conclusion.

UNIT – 5 : OTHER STRATEGIC ISSUES

PART – A

1. What is a small-business firm?

A small-business firm is independently owned and operated, not dominant in its field,
and does not engage in innovative practices. In India, a unit with investment in plant and
machinery up to Rs.1 crore is regarded as a SSI undertaking. Industry related
service/business enterprise with an investment up to Rs.25 lakhs in fixed assets,
excluding land and building is treated as Small Scale Service and Business (industry
related) Enterprise. In the United States a small-business firm is one which employs
fewer than 500 people and that generates less than US $ 20 million annually.
Ex:

2. What are Entrepreneurial ventures?

Entrepreneurial venture is any business whose primary goals are profitability and growth
and that can be characterized by innovative strategic practices. Many entrepreneurial
firms start with a single product and plan for further growth. An entrepreneur is a
strategist as he plans, organizes and manages a business undertaking and takes risks for
the sake of survival and growth.
Ex: Mr.C.K.Renganathan of Kevincare created ‘Velvette’ brand sachet shampoo
revolution.

3. What is the meaning of ‘Strategic Piggybacking’?

Strategic piggybacking refers to the development of a new activity for the not-for-profit
organization that would generate funds needed to make up the difference between
revenues and expenses. The primary purpose is to subsidize the service programme. It is
gaining popularity in recent times. It appears to be a form of concentric diversification,
but it is engaged in only for its money-generating value.
Ex: Hospitals offering wellness programmes ranging from meditation classes to aerobics.

4. What is Technology sourcing?

Technology sourcing is a make-or-buy decision that can be important in a firm’s R&D
strategy. Although in-house R&D has traditionally been an important source of technical
knowledge for companies, firms can also tap the R&D capabilities of competitors,
suppliers and other organizations through contractual agreements (such as licensing,
R&D agreements and joint ventures). Firms that are unable to finance alone the huge
costs of developing a new technology may coordinate their R&D with other firms
through a strategic R&D alliance.
Ex: Matsushita’s licensing of Iomega’s zip drive technology so that it could also
manufacture and sell removable cartridges for personal computers.

5. Define Reengineering.
Reengineering is the radical redesign of business processes to achieve major gains in
cost, service or time. It is not in itself a type of structure, but it is an effective way to

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 implement a turnaround strategy. It strives to break away from the old rules and
procedures and become ingrained in every organization over the years. These may be a
combination of policies, rules and procedures that have never been seriously questioned
because they were established years earlier. These rules of organization and work design
were based on assumptions about technology, people and organizational goals that may
no longer be relevant.
Ex: Mossville Engine center, a business unit of Caterpillar Inc., used reengineering to
decrease process cycle times by 50%.

6. How are process innovations different from product innovations?

Process innovations: such as improved manufacturing facilities, increasing product
quality, and faster distribution become important to maintaining the product’s economic
returns. Process R&D has been the core of successful cost leadership strategies.
Ex: The key to the success of the U.S. major home appliance industry is process
innovation.
Product innovations: are most important because the product’s physical attributes and
capabilities most affect financial performance. Product R&D has been the key to
achieving differentiation strategies.
Ex: Toto Ltd. of Japan which is into bathroom fixture manufacturing emphasizes on
product R&D.

7. What are the stages of New Product Development?

If a corporation decides to develop innovations internally, it must make sure that its
corporate system and culture are suitable for such a strategy. It must make sufficient
resources available for new products, provide collaborative structures and processes, and
incorporate innovation into its overall corporate strategy. It must establish procedures to
support all six stages of new product development, namely-
 Idea generation
 Concept evaluation
 Preliminary design
 Prototype build and test
 Final design and pilot production and
 New business development.

8. Define Corporate Entrepreneurship / Intrapreneurship.

Corporate Entrepreneurship / Intrapreneurship is defined as “the birth of new
businesses within existing organizations, that is, internal innovation or venturing;
and the transformation of organizations through renewal of key ideas on which they
are built, that is, strategic renewal”. A large that wants to encourage innovation and
creativity within its firm must choose a structure that will give the new business unit an
appropriate amount of freedom while maintaining some degree of control at headquarters.
Ex: Maytag Corporation built a new plant near its current Newton, Iowa, washer plant to
manufacture front-loading dish-washers.

9. What is Absorptive capacity?

Absorptive capacity is a firm’s ability to value, assimilate and utilize new external
knowledge. Firms having absorptive capacity are able to use knowledge obtained
externally to increase the productivity of their research expenditures. R&D creates a
capacity in a firm to assimilate and exploit new knowledge. A corporation may acquire a
smaller high technology company in order to learn not only the new technology, but also
a new way of managing its business.

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 Ex: Northern Telecom purchase Bay networks and formed Nortel networks that produced
shortened product life cycles and innovative new products.

10. What is Technological competence?

11. What are the sources of Innovation?

Innovation is a product of divergent and convergent thinking. It includes initiation of the
idea, acquisition of necessary knowledge, its transformation into usable hardware or
procedure, its introduction into society, and its diffusion and adoption. The sources of
innovation are:
 The unexpected
 The incongruity
 Innovation based on process need
 Changes in industry or market structure
 Demographics
 Changes in perception, mood and meaning
 New Knowledge.

12. What is an Advisory board?

An Advisory board is a group of external business people who voluntarily meet
periodically with the owner/managers of the firm to discuss strategic and other issues.
The members are usually invited to join the board by the president of the company. The
advisory board has no official capacity but is expected to provide management with
useful suggestions and act as a sounding board. Advisory boards are an easy way to
obtain free professional consulting advice. It is important to staff the advisory board with
knowledgeable people with significant business experience or skills who can complement
the background and skills of the company owner/managers.

13. Who are Lead users?

Customers are a key source of innovation in many industries. One way to commercialize
a new technology is through early and in-depth involvement with a firm’s customer in a
process called co-development. This type of customer can be called a ‘Lead user’. Lead
users are “companies, organizations, or individuals that are well ahead of market trends
and have needs that go far beyond those of the average user”.
Ex: 3M successfully applied the lead user method in 8 of its 55 divisions.

14. What are the characteristics of an Entrepreneur? (OR) What are the
entrepreneurial characteristics to new venture’s success?
An entrepreneur is a strategist as he plans, organizes and manages a business undertaking
and takes risks for the sake of survival and growth. The success of an enterprise is closely
related to the entrepreneurial traits of a businessman. The characteristics of an
entrepreneur or successful entrepreneurial characteristics to new venture’s success are:
 Ability to identify potential venture opportunities
 High need for achievement
 Detailed knowledge about key functions to success in the industry and
 Network with outsiders to supplement their skills, knowledge and abilities.

15. What is Goal displacement?

Goal displacement is the confusion of means with ends and occurs when activities
originally intended to help managers attain corporate objectives become ends in

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 themselves or are adapted to meet ends other than those for which they are intended. Two
types of goal displacement are:
Behaviour substitution – refers to a phenomenon when people substitute activities that do
not lead to goal accomplishment for activities that do lead to goal accomplishment
because the wrong activities are being rewarded.
Suboptimization – refers to a phenomenon when a unit optimizes its goal accomplishment
to the detriment of the organization as a whole.

16. What are the salient features of a not-for-profit organization?

Not-for-organizations may be classified, as
 Private non-profit organizations such as private hospitals, private educational
institutions and charities and
 Public governmental agencies such as universities, libraries and museums.
The features of not-for-organizations are:
 They receive a lot of benefits from society
 They depend heavily on donations from members and funds from sponsoring agency
 They are more market oriented.

17. Narrate how internet has affected not-for-profit organizations.

Not-for-organizations may be classified, as
 Private non-profit organizations such as private hospitals, private educational
institutions and charities and
 Public governmental agencies such as universities, libraries and museums.
The impact of the internet upon not-for-organizations are:
 The issue of taxation
 Improvement of government services and
 Higher education and health care.

18. How to develop an innovative entrepreneurial culture?

To create a more innovative corporation, top management must develop an
entrepreneurial culture- one that is open to the transfer of new technology into company
activities and products and services. Innovative organizations tend to have the following
characteristics:
 Positive attitude toward change
 Decentralized decision-making
 Complexity
 Informal structure
 Interconnectedness
 Organizational slack (unused resources)
 Large size and
 System openness.

PART – B

1. Distinguish between profit-making organizations and not-for-profit organization?

Explain with suitable examples.
Definition of profit-making, not-for-profit organizations – bring out the differences by
way of organization setup, organization structure, investment, etc. – conclusion.

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2. How should a small entrepreneurial company engage in environmental scanning?
To what aspects of the environment should management pay most attention?
Definition of a small entrepreneurial company – environmental scanning (internal and
external environments) – entrepreneur’s characteristics affect the survival and growth –
conclusion.

3. What considerations should small-business entrepreneurs keep in mind when they

are deciding if a company should follow a growth or a stability strategy? (OR) What
considerations should small-business entrepreneurs keep in mind when the
company grows and develops over time?
Definition of a small entrepreneurial company, entrepreneur – stages in small business
development – factors that influence the success of an entrepreneur – conclusion.

4. Discuss the strategic issues in Not-for-profit organizations.

Definition of not-for-profit organizations – issues in strategy formulation – issues in
strategy implementation – issues in evaluation and control – conclusion.

5. How can a company develop Corporate Entrepreneurship culture? (OR) How can a
company develop an Entrepreneurial culture?
Definition of corporate entrepreneurship, corporate entrepreneurship culture – how a
company develops entrepreneurial culture – merits and demerits – conclusion.

6. How does innovation occur in an organization? Identify the characteristics of

innovative organizations and what are the factors that limit an organization’s
capacity to innovate?
Definition of innovation – types of innovation – innovative organization – factors that
limit innovation of an organization with examples – conclusion.

7. What is technology research and how does it differ from market research?
Definition of technology research, market research – differences between technology and
market research – give examples – conclusion.

8. In terms of Strategic Management, how does a new venture’s situation differ from
that of an ongoing small company?
Definition of a small company and entrepreneurial venture – differences between small
company and entrepreneurial venture – conclusion.

9. What factors help determine whether a company should outsource a technology?

Definition of technology outsourcing – types of technology outsourcing – factors which
determine the outsourcing capacity – merits and demerits of outsourcing – conclusion.

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