Master of Business Administration- MBA Semester 4

NAME : PUJA GUHA

ROLL NO. : 571112609

LEARNING CENTER CODE : 01637

DATE OF SUBMISSION : 15-02-2013

MB0052– Strategic Management and Business Policy

Q1. Define the term “Strategic Management”. Explain the importance of strategic management.

Ans. Strategic management is the art and science of formulating, implementing and evaluating cross-functional decisions that will enable an organization to achieve its objectives. It involves the systematic identification of specifying the firm's objectives, nurturing policies and strategies to achieve these objectives, and acquiring and making available these resources to implement the policies and strategies to achieve the firm's objectives. Strategic management, therefore, integrates the activities of the various functional sectors of a business, such as marketing, sales, production etc., to achieve organizational goals.

A well-formulated strategy can bring various benefits to the organization in present as well as in future.

1. Strategic management takes into account the future and anticipates for it.

2. A strategy is made on rational and logical manner, thus its efficiency and its success are ensured.

3. Strategic management reduces frustration because it has been planned in such a way that it follows a procedure.

4. It brings growth in the organization because it seeks opportunities.

5. With strategic management organizations can avoid helter & skelter and they can work directionally.

6. Strategic management also adds to the reputation of the organization because of consistency that results from organizations success.

7. Often companies draw to a close because of lack of proper strategy to run it. With strategic management companies can foresee the events in future and that’s why they can remain stable in the market.

8. Strategic management looks at the threats present in the external environment and thus companies can either work to get rid of them or else neutralizes the threats in such a way that they become an opportunity for their success.

9. Strategic management focuses on proactive approach which enables organization to grasp every opportunity that is available in the market.

Q2. Describe Porter’s five forces Model.

Ans. Porters model of competitive forces assumes that there are five competitive forces that identifies the

competitive power in a business situation. These five competitive forces identified by the Michael

Porter are:

1. Threat of substitute products2. Threat of new entrants3. Intense rivalry among existing players4. Bargaining power of suppliers5. Bargaining power of Buyers

1. Threat of substitute products

Threat of substitute products means how easily your customers can switch to your competitors

product. Threat of substitute is high when:

There are many substitute products available

Customer can easily find the product or service that you’re offering at the same or less price

Quality of the competitors’ product is better

Substitute product is by a company earning high profits so can reduce prices to the lowest level.

In the above mentioned situations, Customer can easily switch to substitute products. So substitutes

are a threat to your company. When there are actual and potential substitute products available then

segment is unattractive. Profits and prices are effected by substitutes so, there is need to closely

monitor price trends. In substitute industries, if competition rises or technology modernizes then prices

and profits decline.

2. Threat of new entrants

A new entry of a competitor into your market also weakens your power. Threat of new entry depends

upon entry and exit barriers. Threat of new entry is high when:

Capital requirements to start the business are less

Few economies of scale are in place

Customers can easily switch (low switching cost)

Your key technology is not hard to acquire or isn’t protected well

Your product is not differentiated

There is variation in attractiveness of segment depending upon entry and exit barriers. That segment is

more attractive which has high entry barriers and low exit barriers.

Some new firms enter into industry and low performing companies leave the market easily. When

both entry and exit barriers are high then profit margin is also high but companies face more risk

because poor performance companies stay in and fight it out. When these barriers are low then firms

easily enter and exit the industry, profit is low. The worst condition is when entry barriers are low and

exit barriers are high then in good times firms enter and it become very difficult to exit in bad times.

3. Industry Rivalry

Industry rivalry mean the intensity of competition among the existing competitors in the market.

Intensity of rivalry depends on the number of competitors and their capabilities. Industry rivalry is high

when:

There are number of small or equal competitors and less when there’s a clear market leader.

Customers have low switching costs

Industry is growing

Exit barriers are high and rivals stay and compete

Fixed cost are high resulting huge production and reduction in prices

These situations make the reasons for advertising wars, price wars, modifications, ultimately costs

increase and it is difficult to compete.

4. Bargaining power of suppliers

Bargaining Power of supplier means how strong is the position of a seller. How much your supplier

have control over increasing the Price of supplies. Suppliers are more powerful when

Suppliers are concentrated and well organized

a few substitutes available to supplies

Their product is most effective or unique

Switching cost, from one suppliers to another, is high

You are not an important customer to Supplier

When suppliers have more control over supplies and its prices that segment is less attractive. It is best

way to make win-win relation with suppliers. It’s good idea to have multi-sources of supply.

5. Bargaining power of Buyers

Bargaining Power of Buyers means, How much control the buyers have to drive down your products

price, Can they work together in ordering large volumes. Buyers have more bargaining power when:

Few buyers chasing too many goods

Buyer purchases in bulk quantities

Product is not differentiated

Buyer’s cost of switching to a competitors’ product is low

Shopping cost is low

Buyers are price sensitive

Credible Threat of integration

Buyer’s bargaining power may be lowered down by offering differentiated product. If you’re serving a

few but huge quantity ordering buyers, then they have the power to dictate you.

Q3. Define the term ‘Business Policy’. Explain its importanceAns. Business policies are guidelines used to dictate the culture of a company and create expectations for employees and management. Policies can spell out specific behaviors that are deemed unacceptable and outline the disciplinary actions that will occur when they happen. Business policy is also used to establish organization in a company. Creating a chain of command is a vital business function for allowing all parties to know which employees are responsible for which departments and duties.

Importance of Business Policy: - Integrates knowledge Deals with constraint and complexity of real life business Broad perspective Make study and practice of management more meaningful For understanding business environment – Formulation of policies Makes management receptive Reduces feeling of isolation For understanding the organization Presents a basic frame work for understanding decision making Brings the knowledge in strategic decision making Importance of job performance For personal development – Career choice Offers unique perspective to employees

Q4. What, in brief, are the types of Strategic Alliances and the purpose of each? Supplement your answer with one real life example of each.Ans. Strategic alliances constitute a viable alternative in addition to Strategic Alternatives. Companies can develop alliances with the members of the strategic group and perform more effectively. These alliances may take any of the following forms. Following are the different types of strategic Alliances:

1. Product and/or service alliance: Two or more companies may get together to synergise their operations, seeking alliance for their products and/or services. A manufacturing company may grant license to another company to produce its products. The necessary market and product support, including technical know-how, is provided as part of the alliance. Example :- Coca-cola initially provided such support to Thums Up.

2. Two companies may jointly market their products which are complementary in nature. Example :- 1) Chocolate companies more often tie up with toy companies. 2) TV Channels tie-up with Cricket boards to telecast entire series of cricket matches live.

3. Two companies, who come together in such an alliance, may produce a new product altogether. Example :- Sony Music created a retail corner for itself in the ice-cream parlours of Baskin-Robbins.

4. Promotional alliance: Two or more companies may come together to promote their products and services. A company may agree to carry out a promotion campaign during a given period for the products and/or services of another company. Example :- The Cricket Board may permit Coke’s products to be displayed during the cricket matches for a period of one year.

5. Logistic alliance: Here the focus is on developing or extending logistics support. One company extends logistics support for another company’s products and services. Example:- The outlets of Pizza Hut, Kolkata entered into a logistic alliance with TDK Logistics Ltd., Hyderabad, to outsource the requirements of these outlets from more than 30 vendors all over India – for instance, meat and eggs from Hyderabad etc.

6. Pricing collaborations: Companies may join together for special pricing collaborations. Example :- It is customary to find that hardware and software companies in information technology sector offer each other price discounts. Companies should be very careful in selecting strategic partners. The strategy should be to select such a partner who has complementary strengths and who can offset the present weaknesses.

Q5. Explain the concept, need for and importance of a Decision Support System.

Ans. Concept: Decision support systems constitute a class of computer-based information systems including knowledge-based systems that support decision-making activities.

It is also explained as a class of information systems (including but not limited to computerized systems) that support business and organizational decision-making activities. A properly designed DSS is an interactive software-based system intended to help decision makers compile useful information from a combination of raw data, documents, personal knowledge, or business models to identify and solve problems and make decisions.

Typical information that a decision support application might gather and present are:

an inventory of all of your current information assets (including legacy and relational data sources, cubes, data warehouses, and data marts),

comparative sales figures between one week and the next, Projected revenue figures based on new product sales assumptions.

Need: Many companies in developing countries have a very detailed reporting system going down to the level of a single product, a single supplier, a single day. However, these reports – which are normally provided to the General Manager – should not be used by them at all. They are too detailed and, thus, tend to obscure the true picture. A General Manager must have a bird’s eye view of his company. He must be alerted to unusual happenings, disturbing financial data and other irregularities. As things stand now, the following phenomena could happen:

That the management will highly leverage the company by assuming excessive debts burdening the cash flow of the company.

That a false Profit and Loss (PNL) picture will emerge – both on the single product level – and generally. This could lead to wrong decision-making, based on wrong data.

That the company will pay excessive taxes on its earnings. That the inventory will not be fully controlled and appraised centrally. That the wrong cash flow picture will distort the decisions of the management and lead to wrong

(even to dangerous) decisions.

Importance: A decision system has great impact on the profits of the company. It forces the management to rationalize the depreciation, inventory and inflation policies. It warns the management against impending crises and problems in the company. It specially helps in following areas:

The management knows exactly how much credit it could take, for how long (for which maturities) and in which interest rate. It has been proven that without proper feedback, managers tend to take too much credit and burden the cash flow of their companies.

A decision system allows for careful financial planning and tax planning. Profits go up, non cash outlays are controlled, tax liabilities are minimized and cash flows are maintained positive throughout. The decision system is an integral part of financial management in the West. It is completely compatible with western accounting methods and derives all the data that it needs from information extant in the company. So, the establishment of a decision system does not hinder the functioning of the company in any way and does not interfere with the authority and functioning of the financial department.

Q6. Write short notes on: a) Corporate social responsibility b) Business plan

Ans.

a) Corporate social responsibility (CSR), also known as corporate responsibility, corporate citizenship, responsible business, sustainable responsible business (SRB), or corporate social performance, is a form of corporate self-regulation integrated into a business model. Ideally, CSR policy would function as a built-in, self-regulating mechanism whereby business would monitor and ensure its adherence to law, ethical standards, and international norms. Business would embrace responsibility for the impact of their activities on the environment, consumers, employees, communities, stakeholders and all other members of the public sphere. Furthermore, business would proactively promote the public interest by encouraging community growth and development, and voluntarily eliminating practices that harm the public sphere, regardless of legality.

Essentially, CSR is the deliberate inclusion of public interest into corporate decision-making, and the honoring of a triple bottom line: People, Planet and Profit.

b) Business plan is a formal statement of a set of business goals, the reasons they are believed attainable, and the plan for reaching those goals. It may also contain background information about the organization or team attempting to reach those goals.Business plans may also target changes in perception and branding by the customer, client, taxpayer, or larger community. When the existing business is to assume a major change or when planning a new venture, a 3 to 5 year business plan is required, since investors will look for their annual return in that timeframe.Business plans are decision-making tools. There is no fixed content for a business plan. Rather, the content and format of the business plan is determined by the goals and audience. A business plan represents all aspects of business planning process declaring vision and strategy alongside sub-plans to cover marketing, finance, operations, human resources as well as a legal plan, when required. A business plan is a summary of those disciplinary plans.For example, a business plan for a non-profit might discuss the fit between the business plan and the organization’s mission. Banks are quite concerned about defaults, so a business plan for a bank loan will build a convincing case for the organization’s ability to repay the loan. Venture capitalists are primarily concerned about initial investment, feasibility, and exit valuation. A business plan for a project requiring equity financing will need to explain why current resources, upcoming growth opportunities, and sustainable competitive advantage will lead to a high exit valuation.

Preparing a business plan draws on a wide range of knowledge from many different business disciplines: finance, human resource management, intellectual property management, supply chain management, operations management, and marketing, among others. It can be helpful to view the business plan as a collection of sub-plans, one for each of the main business disciplines."a good business plan can help to make a good business credible, understandable, and attractive to someone who is unfamiliar with the business. Writing a good business plan can’t guarantee success, but it can go a long way toward reducing the odds of failure."