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MB0052 - Strategic Management and Business Policy

:Q. 1 (a) Define Strategic Management and Strategic Planning.
(b) Discuss the benefits of Strategic Management.
Ans :- (a) Strategic Management and Strategic Planning
Strategic Management Like strategy, strategic management also has been defined differently by
different authors and strategy analysts. Below three definitions of strategic management together
give completeness to the concept of strategic management.
Strategic management is that set of decisions and actions which leads to the development of an
effective strategy or strategies to help achieve corporate objectives.
Strategic management is defined as the set of decisions and actions in formulation and
implementation of strategies designed to achieve the objectives of an organization:
Strategic management is primarily concerned with relating the organization to its environment,
formulating strategies to adapt to that environment, and, assuming that implementation of
strategies takes place.
Strategic planning: (also called corporate planning) provides the framework (some call it a tool)
for all major decisions of an enterprisedecisions on products, markets, investments and
organizational structure. In a successful organization, strategic planning or strategic planning
division acts as the nerve centre of business opportunities and growth. It also acts as a restraint or
defense mechanism that helps an organization foresee and avoid major mistakes in product,
market, or investment decisions.
b) Benefits of Strategic Management:
Different research studies indicate that organizations using strategic management are more
profitable and successful than those which do not. Companies using strategic management
techniques show significant improvement in productivity, sales and profitability compared to the
ones without systematic planning.
Greenley (1986) has analyzed various non-financial benefits of strategic management. He has
enunciated the benefits of strategic management as given below:
It provides for an objective view of management problems.
It allows for identification, prioritization and exploitation of opportunities.
It allows for more effective allocation of time and resources to identified opportunities.
It provides a framework for improved coordination and control of activities.
It enables major decisions to support established objectives and priorities better..
It helps to integrate the behavior of individuals into a total effect.
It provides a cooperative and integrated approach to tackling problems and opportunities.
It creates a framework for internal communication among managers.
It encourages forward thinking.
It imparts a degree of discipline, formality and positiveness to the management of a business.
It encourages a favorable attitude towards change.
Q 2 :- Discuss the difference between defensive strategies and pre-emptive strategies. Give
examples to support your answer
Ans

Difference between defensive strategies and pre-emptive strategies:

Defensive Strategies: The classic form of retaining existing (civil) territory is to mount a position
defense by constructing strong ramparts to keep out the enemy. In business, position defense is
problem with many organizations is that the defender often becomes complacent and, does not
realize that the enemy is making slow, but steady, inroads into the customer base. One of the
unfortunate examples of this situation is IBM. The company built a big global business in the

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computer industry based on unmatched customer loyalty. But, IBM ignored the threats, may be
unknowingly, and posed by the advent of the networked PC and more powerful operating
systems. The company realized, rather late in the 1990s, that customer loyalty had been
completely eroded by competitors who were more strongly committed to fulfilling the changing
needs of customers. Counter-offensive strategy has a different advantage. It has the advantage of
not having to respond before one measure up the real nature of the competitive threat.
Nevertheless, it is a belated response, and there is always the risk that by waiting until you see
the whites of the enemys eyes, a company may be forced to spend massive resources to recover
lost grounds.
Example: Xerox Corporation is an example. Xerox had been forced to make large investments in
R&D, technology, manufacturing process and organizational structure during the last few years to
regain some of the lost ground in the photocopier market to competitors such as Canon. Retreat is
sometimes a good defense. After a careful review of circumstances, if it is evident that the
competitor has the potential to overwhelm the company, then there may be very little logic in
defending a position which will be eventually lost to the Enemy
Pre-emptive Strategies:
Attack is the best form of defense is the basis of pre-emptive defense strategies. As the name
indicates, in pre-emptive defense strategies, companies, after having identified a possible threat,
take action ahead of competitors.
Pre-emption is considered by many as one of the smartest strategies. Pre-emption, as a strategy,
requires a close understanding of the planned and potential moves of competitors for slowing
down or blocking those moves. To develop pre-emptive strategies, companies need to consider
five steps.
Ascertain where the market or competitors are moving or might move;
dentify potential strategies for getting there first or for blocking the competitors moves;
Ascertain whether these strategies are consistent with the companys current strategic goals;
Determine whether these strategies are feasible in terms of resources and competences;
Determine whether and how far they are likely to affect the competitors objectives, actions and
reactions.
The ability to pre-empt requires companies to be creative or innovative. In fact, creativity or
innovation is often a key resource in pre-emption. It allows companies to see the unexpected
opportunity, threat or competition and design the strategy in advance.
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(a) Why Turnaround strategy is sometimes called as an extension of restructuring
strategy?
(b) Differentiate between surgical and non-surgical turnaround. Give examples.

Ans :- (a) Reason for calling turnaround strategy as extension of restructuring strategy
Corporate turnaround may be defined as organizational recovery from business decline or crisis.
Business decline for a company means continuous fall in turnover or revenue, eroding profit, or
accrual or accumulation of losses. So, business or organizational decline, like business
performance, is understood in relative terms, that are, compared with the past. But, some strategy
analysts describe business decline in terms of current comparisons also; for example, relative to
industry rates or averages or even relative to economic growth of the country. Corporate crisis
means deepening or perpetuation of a decline. Turnaround strategies are usually required for
crisis situations
b) Surgical Turnaround and Non-surgical Turnaround:
Generally, there are two methods of corporate turnaround:
Surgical and
Nonsurgical.

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The surgical method, more commonly practiced in the West, involves sweeping changes like
firing of staff, managers, wholesale reshuffling of portfolios, closing down operations, etc. Some
call it bloodbath or bloodshed. Non-surgical turnaround adopts the opposite approach, that is,
peaceful meansrevamping or recovery through meetings, discussions, persuasions, consensus,
etc.
The operations in surgical turnaround are like this: the first step is to replace the chief executive
of the ailing company by a new iron chief. The new chief promptly gets into action; he asserts
his authority. He issues pre-emptory orders, centralizes functions and spears some convenient
scapegoats. Then he goes about firing employees en masse and auctioning/selling whole plants
and divisions until the fat is satisfactorily cut to the bone. The bloodbath over, the product mix
is revamped, obsolete machinery is replaced, marketing is strengthened, controls are toughened,
accountability for performance is focused and so on.
Example of Surgical Turnaround Strategy:
At GE, 1,00, 000 of a workforce of 4,00, 000 lost their jobs; at Imperial Chemical Industries
(ICI), the labor force was reduced from 90,000 to 59, 000; half the staff at Chrysler Corporation
disappeared; at British Steel, half the companys production capacity and 80 per cent of
workforce were gone.
Non- Surgical Turnaround Strategy:
Turnaround management of the humane type may involve negotiated and humane layoffs and
divestiture, but, not a bloodbath. This type of turnaround also is generally brought about by the
new helmsman. But, he spends a great deal of time in trying to understand organizational
problems and deliberating on them. He takes all the stakeholders including unions into
confidence; forms groups within the organization to brainstorm together on what needs to be done
to get over the crisis; tries to create a new work culture; and, generally infuses a strong sense of
participation among the employees and many critical decisions become participative decisions.
Example: There are many examples of successful turnarounds of the humane type including
Enfield, Volkswagen, Lucas, Air India, SPIC, BHEL and SAIL.
Q :- 4 Write short notes on the following expansion strategies:
(a) Penetration strategy for growth in existing markets
(b) Expansion through Diversification
Ans:- Penetration Strategy for Growth in Existing Markets
A company has a number of ways for penetrating into the existing markets andgenerating growth.
The most obvious way to grow is to increase market share.Companies like Bajaj Auto have
successfully penetrated the existing marketand sustained their market share. But, this generally
happens in a high growthmarket or industry (like two-wheelers). Also, one companys share gain
is anothercompanys share loss. Therefore, market share battle increases competitive pressures,
and, market share gain may soon be neutralized, or, in the least,may be difficult to sustain.
An alternative strategy which may pose lesser threat from competitors (and which may also
ultimately lead to increase in market share) is to increase the product usage. There are three ways
to increase product usage, namely, the frequency of use, the quantity used and new applications
and users. Of the three ways, the last one, that is, new applications and users, may be the most
effective. Cadbury had shown this. Cadbury Dairy Milk Chocolate (CDM) was the market leader.
But, with a market share of already 70 per cent, winning away customers from competitors in the
slow-moving market was almost impossible. Cadbury found the solution in new users among
parents (elderly people) who were earlier keeping away from CDM.1
The best way to identify new uses or applications is to conduct market research or surveys. Such
research or survey would include ascertaining details about applications of competing products
and brands, that is, substitutes. Cost of such research or studies, and, also, subsequent advertising
and promotion should be taken into consideration to determine the cost effectiveness of such
programmes. Investment in research should be justified by returns in terms of results or findings,
and, applicability of the results.

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Arm & Hammer conducted more than 150 market research studies to support its programmes for
development of new applications and products. Hindustan Unilever undertakes such studies for
its FMCG products on a regular basis. And, many companies have achieved results. Arm &
Hammer succeeded in achieving ten-fold growth in its baking soda sales by persuading people to
use the product as a refrigerator deodorizer. Sales of Lipton soup increased when it included
recipes for new uses on packets/boxes and in ads that say: Great meals start with Liptonrecipe
soup mix-soup. A chemical process used by oil fields to separate water from oil is used by water
plants to eliminate unwanted oil.
Expansion through Diversification
Diversification, as a strategy, may generate growth in a number of ways. Product development
and market development are two different methods to diversify, and, we had discussed these two
methods earlier. Diversification can also take place through both new products and new markets.
And, a diversification strategy, whether through product development, market development or
both or any other way, may, mean a new business venture of the company, a joint venture, etc. We
shall discuss here the related issues of diversification and their implications.
It is useful to distinguish between related diversification and unrelated diversification.
Related diversification means that the new business has commonalities with the core
business or core competence of the company; and, these commonalities provide the basis or
strength for generating synergies or economies of scale or higher returns by exploiting existing
resources and skills in R&D, production process, distribution process, etc. Unrelated
diversification, on the other hand, is less related to the present business and skills and resources
(except financial) and, may mean venturing into an entirely new area. The company may have to
acquire new skills and expertise for this. The main reason or motivation for unrelated
diversification may be high growth potential in terms
of revenue, market share or profitability. There can be a number of other reasons
also.
In strategic management literature, related diversification is more commonly known as concentric
diversification and unrelated diversification, as conglomerate diversification, although some
analysts may like to make some distinction between the two.
Q:- 5 Discuss the competitive strategy in:
(a) Emerging industry
(b) Declining industry
Ans :-(a) Emerging industry
(b) Declining industry
(a) Emerging industry An emerging industry is a developing or newly formed industry in which
market for products initially exists in latent form, and, becomes visible later. An emerging
industry may be created by technological innovations, new consumers or industrial needs for
economic or sociological changes which create the environment or potential market for a new
product or service. Emerging industries
are being created all the time; or, to put it in other words, most of the existing industries today
were emerging industries at some point of time or the other.
Examples are word processors, photocopiers, computers, VCR/VCP, CTV, etc.
Different emerging industries may have different structuresstructural
details always vary. But, most of the emerging industries exhibit some common
structural characteristics.
Mature industry

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A mature industry is one which has passed through transition from period of fast growth to more
modest or stable growth. Maturity is an important or critical phase in the industry life cycle.
During this period, fundamental changes often take place in the competitive environment, and,
companies are usually faced with difficult strategic decisions for survival and growth because
competition becomes very intense. Industry maturity, in some cases, may be delayed or postponed
because of innovations or other events or developments including environmental changes. This
would mean prolonging the industry growth cycle or the transition to maturity.
Transition to maturity is associated with important changes in the industry
structure and competitive environment. Industry maturity is characterized by new trends or
tendencies for change. Porter (1980) has identified and analysed nine such trends or tendencies.
Declining industry A declining industry is one with negative growth, that is, an industry which
has registered absolute decline in sales over a sustained period of time. Such decline in sales is
not because of business cycles or any other short-term factors like strike, lockouts or material
shortages. Therefore, a declining industry does not represent a short-term discontinuity, but, a
trend expressed in falling industry output, sales, profitability and dwindling number of
competitors. In industry life cycle, decline follows maturity. Decline sets in generally because of
product obsolescence or emergence of a strong substitute product. For example, demand for oilbased laundry soaps for cloth washing declined fast because of
introduction of synthetic washing materials.
In-depth study of a wide cross-section of declining industries shows that industry reactions and
the nature of competition during decline vary markedly. Some industries age gracefully; these
industries have avoided losses by exiting either before the decline or in time during the decline.
Many other industries in similar situations have got involved in bitter marketing warfare,
prolonged excess capacity and heavy operating losses.3
Global industry
In global industry, the strategic position of companies in different countries or national markets
are governed by their overall global positions. For example, IBMs strategic position in
competing for computer sales in France and Germany
has improved significantly because of technology and marketing skills developed
in other countries, and a worldwide manufacturing system which is well coordinated. To be called
a global industry, an industrys economics and competitors in different national markets should be
considered jointly rather than individually.
4 Distinction should be made between an international industry and a global industry. An industry
in a country may be international if it comprises a number of multinational companies. But,
industries with multinational competitors are not necessarily global industries. To be a global
industry, as explained above about IBM, an industry should have multi-locational manufacturing
facilities, and, compete worldwide to secure global synergy or competitive advantage.
Q:- 6

Benchmarking is the process by which companies look at the best in the industry and try
to imitate their styles and processes
Evaluate the rationale for benchmarking exercises and discuss the features and types of
benchmarking. Please ensure to include an example to support your answer.

Ans :- Reasons of benchmarking An organizations strategic capability or strategic choice is to be always

understood in relative terms because it involves comparison with competitors or industry norms.
This implies that organizations need to understand and analyse performance standards, i.e., what
constitutes good and bad performance. Since performance is intrinsically related to strategy
formulation and implementation, the relativity factor should be kept in mind during the process
of selection of the strategy itself. A strategy, along with resource base, should be so selected that it
can deliver results of high standards or standards which can compare with the best in the industry.
This necessitates an analysis of benchmarking and best practices.

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Benchmarking is comparison with, and adherence to, prescribed norms, standards or
practices. Benchmarking can also be defined in a more functional way:
Benchmarking is a process of identifying, understanding, and adopting outstanding
practices from the same organization or from other businesses to help improve performance.3
Features of benchmarking
(a) Benchmarking enables an organization to analyse where it stands in comparison to other
organizations, where it excels or lags behind. So, benchmarking is a useful diagnostic tool.
(b) Benchmarking involves identification of two things: first, what is to be compared, i.e.,
product, process, performance, etc.; and, second, whom to compare with, i.e., competitors,
organizations in the same industry, organizations outside the industry, etc.
(c) Benchmarking is applicable to all facets of business products, processes, services, methods,
etc. It goes beyond traditional competitor analysis and focusses on understanding what are the
best practices and, how the best practices can be emulated, if not improved upon further.
(d) Benchmarking is not confined to comparison only with direct product competitors but, all
those businesses or organizations which are recognized as industry leaders or the best.
(e) Benchmarking is a continuous process and not just one-off initiative. Industry standards and
practices constantly change, and an effective benchmarking initiative has to regularly monitor
these changes and accordingly adapt itself.
Types of benchmarking
Benchmarking can be broadly divided into two major types or
categories: the first category is primarily based on what is to be benchmarked, and the other type
is dominantly based on whom to benchmark against.
What is to be benchmarked
(Dominant factor)
Product benchmarking
Process benchmarking
Functional benchmarking
Performance benchmarking
Strategic benchmarking

Whom to benchmark against

(Dominant factor)
Internal benchmarking
Competitive benchmarking
Generic benchmarking

Product benchmarking is a comparison of product(s) with competitors or industry leader to

ascertain what customers value most. Process benchmarking