strategic management qa

8/14/2019 Strategic Management QA

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Strategic Management

STRATEGIC MANAGEMENT

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Q1) Explain the evolution, role and importance of business policy and strategic

management. What would be the role of manager in this age?

Introduction: The term strategic management has been traditionally used. Newtitle such as business policy, corporate strategy and policy, corporate policies is essentially

and extensively used which means more less the same concept.

Evolution of Strategic Management:

1) In early 1920s and 1930s the managers used day-to-day planning methods to

perform any task.2) To anticipate the future, they tried using tools like preparation of budgets and

control systems like capital budgeting and management by objectives.3) The techniques were unable to emphasize the future adequately.

4) The next step was they tried using long range planning which was replaced by

strategic planning and later by strategic management.

5) In mid 1930s, according to the nature of business the planning was done during

Adhoc policy making.6) As many businesses had just started operations and were mostly in a single product

line, there arose a need for policy making.7) As companies grew they expanded their products and they catered to more

customers and which in turn increased their geographical coverage.8) The expansion brought in complexity and lot of changes in the external

environment. Hence there was a need to integrate functional areas.9) This integration was brought about by framing policies to guide managerial action.

10) Policies helped to have pre-defined set of actions, which helped people to

make decision.11) Policymaking was the owners prime responsibility.

12) Due to increase in the environment changes, in 1930s and 40s policy

formulation replaced ad-hoc policy making, which led to emphasis shifted to theintegration of functional areas in this rapidly changing environment.

13) Especially after II World War there was more complexity and significant

changes in the environment.14) Competition increased with many companies entering into the market.

15) Policy making and functional area integration was not sufficient for the

complex needs of a business.

ROLE OF STRATEGIC MANAGEMENT: -

1) Due to increase in the competition, in 1960s there was a demand for critical look at

the bane corrupt of business.2) The environment played an important role in the business.

3) The relationship of business with the environment leads to the concept of strategy.4) In early sixties, this helped the management to manage between the business and

the environment.

5) In early eighties, as many companies were globalised which lead to the competitionof the rivals access the world.

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6) Japanese companies along with other Asian companies unleashed a force across theworld and posed a threat for the US and European companies, which led to the

current thinking.7) Strategic management focused on 2 aspects: -

Strategic process of business.

Responsibilities of strategic management.

8) Unlike others, in this phase the role of senior management is vital and of utmost

importance. Their role was important in decision-making like -

a) Whether a company promotes a joint venture/new decision.b) Decides to go for an expansion.

c) Takes other important actions.

8) All these actions and decision had a long-term impact on the company and its future

operations, which was the result of senior management decision-making.9) Strategic management is both about the present and future course of action, which

was the prime responsibility senior management.

Strategic Management is

I. The study of function and responsibilities of senior management

II. A crucial problem that affects success in total enterprise.III. The decision that determine the direction of the organization and shape of its future

IV. Identity and molding of its characterV. Mobilization and their allocation of the resources.

Hence as managers had variety of choices, decisions were based on the circumstances,

which would take the company in specified directions.

IMPORTANCE AND ROLE OF MANAGERS IN STRATEGIC MANAGEMENT: -

I. Strategic management integrates the knowledge and experience gained in variousfunctional areas.

II. It helps to understand and make sense of complex interaction in various areas ofmanagement.

III. It helps in understanding how policies are formulated and in creating appreciation ofcomplexities of environment that the senior management faces in policy

formulation.IV. Managers need to begin by gaining an understanding of the business environment

and to in control.

Here are few steps Indian managers need to do.a) They should know to manage and understand information technology, which

is changing the face of business.b) As public and common investors own and more companies managers need to

acquire skills to maximize shareholder value.c) To have/take a strategic perspective, managers should foresee the future

and track changes in customer expectation. Intuitive, logic reasoning isrequired for proper decision-making.

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d) Successful companies depend on people. For people, management managersshould create capability for imitating and manage things through leadership

and should possess qualities like patience, commitment and perseverance.e) Managers need to provide speed responses to environmental changes

through informational systems and organizational process.f) As corporates are becoming more integrated with the public life, corporate

governance is becoming important which manager may have to practice.g) Managers should learn to deal with confused and complex situations. They

should know to deal with global managers, business protocols and market

conditions.

h) In complex and certain situations, managers should have the courage indecision-making to make unconventional decisions.

i) Managers should possess high ethical standards in business and focus onsocial responsibility.

Conclusion

Thus we can say the purpose of strategic management is manifold. To be successful

in the business one should possess/have holistic approach and should know to integrate the

knowledge gained in various functional area of management. By having generalisticapproach, a senior manager can understand the complex inter linkages operating within theorganisation and should have systematic approach in decision-making in relation with the

changes which takes place in the environment.

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Q2. What is strategy? At what levels is it formulated?

INTRODUCTION: -

To understand the process of strategic management the concept should be understood and

controlled. The term strategy is derived from the Greek word STRATEGOS Generalship.The actual direction of military force, as distinct from governing its deployment. The word

strategy means THE ART OF GENERAL . Based on the studies and views by variousexperts and management gurus Strategy in business has taken various connotations.

STRATEGY:

1. Before making a decision managers have to look into the course of deciding sinceStrategy involves situations like

a) How to face the competition.

b) Whether to undertake expansions/diversificationc) To be focused/ broad based

d) How to chart a turn around

e) Ensuring stability/should we go in for disinvestments etc

2. An establishment and successful company would start to face new threats in the

environment. This is due to its success and emergence of new competitors. It hasto rethink the course of action it has been following. This is called strategy.

3. With such rethinking and environment analysis, new opportunities may emerge andbe identified.

4. To make use of these opportunities, the company might fundamentally rethink andreason the ways and means, the actions it had been following in the past. These are

called strategies .5. For a company to survive and to be successful strategy is one of the most

significant concepts to emerge in the field of management. According to Alfredchandler the determination of basic long-term goals and objectives of an enterprise

and the adoption of the course of action and the allocation of resources for carryingout these goals.

William Gluck defines strategy as a unified, comprehension and integrated plandesigned to assure that the basic objectives of the enterprises are achieved.

6. Michael Porter views strategy as the core of general management is strategy.Managers must make companies flexible, respond rapidly, benchmark the best

practices, outsource aggressively, develop core competencies; Infact should know

how to play new roles everyday. Hyper competition is a common phenomenon thatrivals copy very fast.

7. Companies can outperform rivals only if it can establish a difference it can preserve

and deliver greater value at a reasonable cost.8. Strategy rests on unique activities The essence of strategy is in the activities

choosing to perform things differently and to perform different activities thanrivals.

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9. Strategy is long term. If company focus is only on operational effectiveness. It canbecome good and not better. Overemphasis on growth leads to the dilutions of

strategy. Growth is achieved by deepening strategy.10. Strategy is the future plan of action, which relates to the companies activities and

its mission/vision i.e. when it would like to reach from its current position.11. It is concerned with the resource available today and those that will be required for

the future plan of action. It is about the trade off between its different activities andcreating a fit among these activities.

LEVELS OF STRATEGY:

1) When a company performs different business/ has portfolio of products, the

company will organize itself in the form of strategic business units (SBUs).

2) In order to segregate different units each performing a common set of activities,many companies are organized on the basis of operating divisions/decisions. These

are known as strategic business units.

CORPORATE LEVEL

FUNCTIONAL LEVEL STRTEGIES [CORPORATE]

SBU1 SBU2 SBU3 (SBU LEVEL)

FUNCTIONAL LEVEL STRATEGIES

3) Strategies are looked at

Corporate level

SBU level

4) There exists a difference at functional levels like marketing, finance, productions etc.Functional level strategies exist at both corporate and SBU level. It has to be aligned and

integrated.

5) CORPORATE LEVEL STRATEGY: Its a broad level strategy and all its plan of actions isat corporate level i.e. what the company as a whole. It covers the various strategies

performed by different SBUs. Strategies needs should be in align with the companyobjective.

6) Resources should be allocated to each SBU and broad level functional strategies. To

ensure things there would need to have co-ordination of different business of the SBUs.

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FUNCTIONAL STRATEGY: As the SBU level deals with a relatively. Smaller area thatprovides objectives for a specific function in that SBU environment are marketing, finance,

production, operation etc.

7) For most companies strategies plans are made at 3 levels.a) FUNCTIONAL STRATEGYb) SOCIETAL STRATEGY

c) OPERATIONAL STRATEGY

Societal Strategy:

Larger Companies like conglometers with multiple business in different countries needs

larger level strategy.

1) A relatively smaller company may require a strategy at a level higher than corporate

level.2) Its how the company perceives itself in its role towards the society/ even countries

in terms of vision/ mission statement/ a set of needs that strives to fulfill corporate

level strategies are then derived from the societal strategy.

Operational Level Strategy:In the dynamic environment & due to the complexities of business strategies are needed to

be set at lower levels i.e. one step down the functional level, operational level strategies.There are more specific & has a defined scope. E.g. Marketing Strategy could be subdivided

into sales Strategies for different segments & markets, pricing, distribution etc.Some of them may be common & some unique to the target markets.

It should contribute to the functional objectives of marketing function. These are interlinkedwith other strategies at functional level like those of finance, production etc

MISSION/VISION LEVELCORPORATE LEVEL

FUNCTIONAL LEVEL STRTEGIES [CORPORATE]

SBU1 SBU2 SBU3 (SBU LEVEL)

FUNCTIONAL LEVEL STRATEGIES

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OPERATIONAL LEVEL

Corporate level is divided from the societal level strategy of a corporationS.B.U Level is put in to action under the corporate level strategy.Functional Strategies operate under SBU Level.

Operational Level is derived from functional level strategies

Conclusion:

These are the levels at which strategies are formulated

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Role Of Entrepreneur: They are independent in thought and action and they set / start upa new business. A Company can promote the entrepreneurial spirit and this can be internal

attitude of an organization. They provide a sense of direction and are active inimplementation.

Role of Senior Management: They are answerable to B.O.Directors & The C.E.O as they

would look after Strategic Management a responsible of certain areas / parts of terms.

Role of SBU Level Executives: They Co-ordinate with other SBUs & with Senior

Management. They are more focused on their product / burners line.

They are more on the implementation role.

Role of Corporate Planning Staff: It provides administrative support tools andtechniques and is a Co-ordinate function.

Role of Consultant: Often Consultants may be hired for a specified new business or

Expertise even to get an unbiased opinion on the business & the Strategy.

Role of Middle Level Managers: They form an important link in strategizing &

Implementation. They are not actively involved in formulation of Strategies and they aredeveloped to be the future management.

Conclusion: These are the issues in strategic decision-making and the role in StrategicManagement.

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4) What is Strategic Management Process? Explain each step briefly.

Here are few definitions of Strategic Management Process.1) According to Glueck its a stream of decisions and actions that lead to the

development of an effective strategy/ Strategies to help achieve CorporateStrategies.

2) According to Hofer its the process, which deals with fundamental Organisational,

renewal & growth with the development of strategies, Structures and Systems

necessary to achieve such renewal and growth and with the organizational systemsneeded to effectively manage the strategy formulation and implementation process.

3) Ansoff defines it as The Systematic approach & important responsibility of general

management to position and relate the firm to its environment in a way that will

assure its Continued Success and make it secure from surprises.4) Sharplin defines as the formulation & implementation of plans and Carrying out

activities related to the matters, which are vital, and of continuing importance to the

total organization.5) According to Harrison & St John Strategic Management is the process through

which organization learn from their internal & external environment, establish

strategic decision create strategies that are intended to help achieve establish goals& execute there strategies achieve Establish goals and execute there Strategies all

in an effort to satisfy key organizational stake holders.

From the above block diagram it states that Strategic Management is a process, whichleads to the formulation of Strategy/ Set of Strategies & managing thru Organisational

System for the achievement of Vision, Mission Goals and Objectives.

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COMPANY VISION &MISSION/ REQUIREMENTSOF MAJOR STOCK HOLDERS STRATEGIC

EXTENAL & INTERNAL ANALYSIS /SWOT ENVIRONMENT ANALYSIS

DEFINE STRENGTHS/WEAKNESS/ CORECOMPENTENCIES

GENERATE STRATEGIC ALTENATIVES/EVALUATE & SELECT

IMPLEMENT/ FEEDBACK/CONTROL


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Company Vision / Mission

1) Company Vision is What a Company Wishes to become or aspire to be.

2) Company Mission is what the Company is and why it exists

3) James Parras & James Collins divides Vision/Mission into 2 Parts.

Vision/ Core Ideology Core Values Core Purpose

Mission Envisioned Future Audaclous Goals Vivid Description

Core Ideology: Is the unchanging part of organization. It is the character of an

organization, this would not change for a longer time even it weredisadvantage.

Core Values : what it believes in.Core Purpose : Existence of Organization and that goes far behind

Envisioned Future: Are the goals to be reached.

It is classified into:

Audaclous Goals: These are the goals that the company would like to achieve. They aretough needs extraordinary commitment and effort.

Vivid Description: These Goals are put into words that evoke a picture of what it would be

like to achieve the Audaclous Goals.

SWOT Analysis: External & Internal Analysis:

1. The External Environment is made up of all the Factors, Conditions & influencesoutside the organizations.

2. it gives rise to opportunities which can be exploited or it may give rise to threatswhich can weaken / cause problem to the organization.

STRENGTHS/WEAKNESS/CORE COMPETENCIES

Strengths: its always in relation to the environment. Its an unborn capacity, which needs

to fulfill two conditions.

1) Requirement for success.2) It gives the Strategic Advantage.

It has strengths more than the competitor; it could gain more than the Competitor.

E.g. Superior research where new products & Innovations are required.

Weakness: Its something required for success is missing/inherent inadequacy. It givesstrategic disadvantage to the Organisation.

E.g. Over dependence on a single product line in a mature market.

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Core Competencies: Is developed over a period of time, using these competenciesexceeding well, it develops a fine art of Competition with its rules. This capacity of exercing

turns them to core competencies.

General Strategic Alternatives / Evaluate & Select.It means that there is a proper evaluation and exercing a choice from various alternative

available resources in such a way it may lead to the achievement of companys objective.

Implement / Feedback/ Control

Implementation is the responsibility of CEO. He is responsible from implementation toreview of Strategic Management.

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5) Explain Core Competencies, Strategic intent, stretch, leverage & Fit.

Introduction: for an effective strategic intent one has to develop effective

strategy, rather than focusing at the resourcefulness of Competition & their pace at whichthey are building competencies one has to focus on existing position.

Core Competencies :

1) An organization with its resources and the capacity of converting the resources in to

outputs and the behavior of there (i.e. capability and resources) develops certainstrength and weakness, which their combined lead to synergistic effects.

2) Synergy Total (is greater) sum of the parts. In terms of organizational

competencies it manifest themselves in advantages over competition.3) Competencies develop over a period of time.

4) Its a fine art of competing with its rivals over a period of time and it uses these

competencies to exceed well. The capability of using these competencies to exceedwell turns them into core competence.

5) Core competencies have joined greater currency and popularity as per C.K Prahaled

and Gary Hamel. Its a portfolio of products/services/different business.6) In short run competencies for a company is derived from the price performance and

in longer run its the ability to build at lower cost and speedily than others.7) A diversified company is like a large tree. What are not easily visible and apparent

are the core products and leaves, flowers, fruits are the end product.

8) Root is akin to Core Competence.9) Core competence is communication, collective learning and co-ordination of diverse

production skills and deep involvement and commitment to work and delivery of

value across all levels and functions.10) Core competencies are the glue that binds existing business and guide

market entries instead of market attractiveness.11) Core competencies can be identified by conducting 3 tests i.e. provides

potential access to wide variety of markets and significant contributions to the

benefit of the end product difficult for competitors to imitate.12) Building competencies are not sharing costs by SBU (or) out pending rivals

on R and D13) By not building competencies in emerging markets you may lose the chance

of competing in existing markets.

Its important to maintain the competencies even it not active in the market.

Strategic Intent is something more than the unfettered ambition. Its not a softtarget. According to Prahlad & Gray

1) It forsees a desired leadership position and establishes the criteria the organization

will chart its progress.

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2) It Captures the essence of winning & is stable over time.

3) It requires personal effort, Commitment and bit of luck to achieve the target.

4) The Important thing that a company asks for is not How Well Next Year be

different? But they ask, What must we do differently next year to get closer to ourstrategic intent?

5) Most companies look at change and innovations in isolation

6) Innovations come from everywhere & top Management role is to add value to it.7) Strategic intent leaves room for creativity, innovation & top Management directs it.

8) There must be a balance between resources as a Constrain Vs Resource as leverage

so as to reduce risk. Former is done through building a balanced portfolio of cashgenerating and cash consuming business and in the latter a well balanced and

sufficiently broad portfolio/ collection of advantages is assured.9) It implies a servable stretch for an organization.

10) Since the current capabilities & resources are not------- it will force

inventiveness and the management will keep on involving challenges and they give

time to digest one challenge before launching another.11) One important parameter is reciprocal responsibility - Which means equal

blame & credit for both operating levels & top management.

12) Companies with good strategic intent know the importance of documenting

failure but instead of blame fixing and nailing people they are more interested in themanagement reasons and the orthodoxy, that may have led to future.

Stretch: To Achieve strategic intent one has to stretch forward and has to look at the

resourcefulness instead of looking at resources. One has to make use of Innovation andresources. Stretch leads to leverage.

Leverage: Refers to concentrating on the resources to achieve strategic intent,

accumulating, learning, experiences & Competencies in a manner to meet the aspirationsby stretching the scarce resource that an organizational resource to the environment.

Instead of allotting the competitors blindly & taking their head companies must leveragethe resources.

Fit: Strategic fit is the traditional way of looking at strategy. Strategic fit is

conservative and seems to be more realistic but u may not be aware of the potential. Understretch & leverage Strategic extent could be impossible, idealistic but under fit strategic

something far beyond possibilities and look at the potential possibilities.

Conclusion.

Thus Strategic intent is what the organization strives for e.g. Canon wanted to beat Xerox.

Its an obsession to an organization & it is to win at all levels of the organization, sustainingthat obsession is in quest for global leadership.

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7) What is Environment ? How is it Changing? Explain the process of

SWOT analysis? Elaborate what you would study in the environment?

Introduction : -

Environment means the surrounding. It includes both internal and external objects,factors & influences under which someone/something exist.

Environment :

1) The Environment of an organization is the aggregate/total of all conditions eventsthat influences itself & its Surroundings,

2) The dynamic & has relationships with each other.

3) The factors in environment may affect the company and visa versa.

4) It has a great impact on the company.

Environment Changes:

According to Michael Hommer and James Chapey.

1) An Organisation must be flexible enough to adjust quickly with this changing

environment.

2) The Efficiency of the company comes at the expenses of the efficiency of thecompany as a whole.

3) It requires co-operation & Co-ordination within the organization.

4) Few Companies are rigid, non-competitive, inefficient and losing money because

they are not able to adjust themselves with the changing environment.

5) In 1776 Adam Smith described in his book, The Wealth of Nations. The Principle of

division of labour for increasing the productivity and there by reducing the cost ofgoods. American Companies became best in the world after applying the principles.

6) But in todays world, nothing is constant or predictable & these principles dont

work.7) Market growth, customer demand, the rate of technological change, and nature of

competition keeps changing.8) The three forces that drives company are

CustomersCompetition &

Change.Customers : Earlier days, Customers had little choice they used to buy the product

that was offered to them. These days customers come with more specifications and theydemand for customized products and they want individual attention. Hence customers have

upper hands these days. Its difficult for an organization to survive in the long run unlessthey satisfy customers needs.

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Competition : As many companies emerge, the competition rises. They offer goodquality of products at lesser price and consumers prefer such products. Earlier the company

could get into market with an acceptable product/service at the best price would go to sell.But these days customers prefer high quality at lowest price. The Company, which offers

these at best price, goes high quality and best service becomes standard of all thecompetitors.

Changes : Changes has become both pervasive and persistent because companiesface a greater competitors and each one introduces a product and service innovation to the

market with the globalization of the economy. Hence the companies need to move fast in

pace with the changing environment otherwise its difficult to move.

CONCLUSION: In todays environment nothing is constant and predictable hence

for a company to survive in the long run, it has to satisfy customer needs and cope with thechanges in the environment at a faster rate.

INTRODUCTION SWOT ANALYSIS:

The external environment is made of factors, conditions that influences

outside the organization. The external environment gives rise to opportunities,which can be accomplished, or it may cause problems to the organization.

SWOT ANALYSIS:

The internal environment refers to all factors within the control of and within the

organization. These factors may impart strengths that can be utilized by the organization orcause weakness, which becomes threat to the organization.

S Strength O- OpportunityW Weakness T Threats

Strength: It is an inherent capacity that is in relation to the environment. For an

organization to be a success it requires strength and it gives strategic advantage to gainmore than the competition.

E.g. Innovation and new products are required for superior research and development

facilities.

Weakness: - It is an inherent inadequacy that is again in relation to theenvironment. It gives strategic disadvantage and something that required for success is

missing. It leads to competition where weakness can be used to gain more due to inherentlimitation / constraint/inadequacy.

E.g.1) In a mature market over dependence on a single product line.2) Lack of capabilities for the development of new product, which is potentially risky for a

company during the time of crisis.

Opportunity : can be accomplished and can help to consolidate and strengthen the

organization. Its a favorable condition for an organization in its environment.E.g. Due to better GDP growth a company provides increase in demand for the

products/services. It helps in strengthening its position.

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Threats : when the opportunities are not utilized properly it can cause problem to

the to the organization which causes threat. It is unfavorable condition for the organization.It causes risk/damage to an organization.

E.g. Due to opening up of economy, the emergence of multinational companies, which arestronger and has good resources, offers stiff competition to the existing companies in an

industry.

CONCLUSION SWOT Analysis

An understanding of both internal and external environment in terms of opportunities,

threat, strength, weaknesses important for existence, growth and profitability of anorganization. A systematic approach and understanding the environment is SWOT analysis

all about.

Environment to be studied

1) Events: Is some specific occurrence that takes place in different environmentalsectors. E.g. Bilateral agreement between 2 countries in which the company is

operating and facing competition from local companies.2) Trends: is the way the environment is shaping up. They are he course of action

along which events take place like global warming, nuclear families etc.3) Issues: are the current concerns that arise in response to events and trends. E.g.

Pollution Control, Business ethics after scams.4) Expectations: are the demands made by interested groups in light of their concern.

Like corporate governance, greater transparency, stricted auditing norms.

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Q9) Explain the various types of Expansion strategies.

Introduction : Corporate level strategies are the topmost level for the company

as a whole. They are basically about the direction the company intends to pursue in orderto achieving its objectives. As growth is the most easily accepted as way of life. All

organization looks for the expansion, thus expansion strategies are the most popular andcommon corporate strategies. Companies aim for substantial growth. A growing economy,

burgeoning markets, customer seeking new ways of need satisfaction, and emergingtechnologies offer ample opportunities for companies to seek expansion. When a company

follows the expansion strategy, it aims at high growth. This can be done by a large increasein one or more of its business. The scope of the business is broadened in terms of their

respective customer groups, customer functions, and alternative technologies-singly or

jointly in order to improve its overall performance. An expansion strategy has a significantand profound impact on a companys internal structure and processes, leading to changesin most of the aspects of internal functioning. Expansion strategies are more risky as

compared to stability strategies.

Expansion strategies are when environment demand increase in pace of activity,due to increase in market size and image opportunities being available. Management feels

more satisfied with the prospects of growth from expansion; it is a matter of pride, foremployees to the chief executives, in working for the companies perceived to growth

oriented.

Expansion strategies can be undertaken in a variety of ways:1. Expansion through concentration:

For expansion, concentrations often the first preference strategy for a company. The

simple reason for this is that it would like to do more of what it is already doing. Acompany that is familiar with an industry would naturally like to invest more in known

business rather than unknown ones. Each industry is unique in the sense that there areestablished ways of doing things.

Concentration strategies has several advantages:-

a) Concentration involves fewer organizational changes.b) It is less threatening and more comfortable staying with present business.

c) It also enables the company to specialize by gaining an in-depth

knowledge of these businesses and thus master the knowledge.d) The decision-making has a high level of predictability.e) Past experience is valuable as it is replicable.

Limitation of concentration strategies:-

a) Firstly, concentration strategies are heavily dependent on the industry, soadverse conditions in an industry can also do affect companys if they are

intensely concentrated.

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b) Secondly, factors such as product obsolescence, fickleness of markets,and emergence of newer technologies can be threats

c) Thirdly, doing too much of a known thing may create an organizationalinertia; managers may not be able to sustain interest and find the work

less challenging and less challenging and less stimulating.

d) Finally, concentration strategies may lead to cash flow problems that may

pose a dilemma before a company. For expansion through concentration

large cash inflows are required for building up assets while the businessare growing. But when these business mature, company often faces a

cash surplus with little scope for investing in the present business.

2) Expansion through Integration

Integration basically means combining activities on the basis of the value chainrelated to the present activity of a company. Sets of interlinked activities performed by

an organization right from the procurement of basic raw materials right down to the

marketing of the finished products to the ultimate consumers is a value chain. So acompany may prove up or down the value chain and expand their business. This helps itto concentrate more comprehensively on the customer groups and needs than it is

already serving.

Integration results in a widening of scope of the business definition of a company.Integration is also a part of diversification strategies as it involves doing something

different from what the company has been doing previously.

There are certain conditions under which a company adopts integration strategies.Most common condition is a make or buy decision. Transaction cost economies, a

branch of study in the economics of transaction and their costs helps to explain the

situation where integration strategies are feasible.

Types of integration:

There are two types of integration- vertical and horizontal

Vertical integration: this could be of two types: backward and forward

integration. Backward integration means retreating to the source of rawmaterials- in simple terms becoming your own supplier-while forward

integration moves the organization nearer to the ultimate customer-in simpleterms becoming your own customer. When an organization starts making

new products that are serve its own needs, vertical integration takes place.

Horizontal integration: when a company starts serving the same

customers that it knows very well with additional products that are different

from the earlier products in any of the termsof their respective customerneeds. The simplest example is, a hardware manufacture starts supplying

software also.

3) Expansion through Diversification:

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Diversification is a much debated strategy and involves all the dimensions ofstrategic alternatives. Diversification involves a drastic change in the business in terms of

customer functions, customer groups, or alternatives technologies of one or more of acompanys business in isolation or in combination.

Different types of diversification strategies

There are basically two types of diversification strategies

1. Concentric diversification: when an organization takes up an activity in such amanner that it is related to the existing business, it is called concentricdiversification.

2. Conglomerate diversification: When an organization undertakes a strategywhich requires taking up those activities which are unrelated to the existing

business, it is called conglomerate diversification.

4) Expansion through cooperation

Cooperative strategies could be of the following types:

Mergers: For a merger to take place two organizations are needed. one is the buyerorganization and the other is the seller. Both these types of organizations have a set of

reasons on the basis of which they merge.

The buyers wishes to merge

to increase the value of the organizations stock-to increase the growth rate andmake a good investment- to improve stability of earning and sales to balance,

complete, or diversify product line- to reduce competition and to take advantages of

synergy.

The seller wishes to merge

to increase the value of the owners stock and investment to increase the growthrate- to acquire resources to stabilize operations- to benefit from tax concessions.

Joint Ventures Strategies: joint ventures conditions may be useful to gain access to

a new business under the following condition:

activity is uneconomical for one organization alone.

Risk of business has to be shared and, is reduced for the participation companies.

Distinctive competence of two or more organizations can be brought together

Joint ventures are common within industries and in various countries. But they areespecially useful for entering international markets.

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Q11) Write short notes on Integration & Diversification.

Integration:

Integration basically means combining activities on the basis of the value chain related to

the present activity of a company. Sets of interlinked activities performed by an organizationright from the procurement of basic raw materials right down to the marketing of finished

products to the ultimate consumers is a value chain. So a company may move up or down the

value chain and expand their business. This helps it to concentrate more comprehensively onthe customer groups and needs than it is already serving.

Integration results in a widening of the scope of the business definition of a company.Integration is also a part of diversification strategies as it involves doing something different

from what the company has been doing previously. Typically in process-based industries such

as, petrochemicals, steel, textiles or hydrocarbons, we see enough examples of integrated

companies. These companies deal with products with a value chain extending from the basicraw material to be ultimate consumer. One of the best examples is the Reliance Group.

Companies operating at one end of the value chain attempt to move up or down in the process

while integrating activities adjacent to their present activities.

These are certain conditions under which a company adopts integration strategies. Most

common condition is a make or buy decision. Transaction cost economics, a branch of studyin the economics of transactions and their costs helps to explain the situation where integration

strategies are feasible. The cost of making the items used in the manufacture of ones own

products is to be evaluated against the cost of procuring them from suppliers. If the cost of

making is less than the cost of procurement then the company moves up the value chain to makethe items itself. Likewise, if the cost of selling the finished products is lesser than the price paid

to the sellers to do the same thing then it is profitable for the company to move down on the

value chain. In both these cases the company adopts an integration strategy.

Types of Integration:

Integration is actually of two types namely,

Vertical Integration &

Horizontal Integration.

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1. Vertical Integration: Vertical integration could be of two types: backward and

forward integration. Backward integration means retreating to the source of raw

material in simple terms becoming your own supplier- while forward integration

moves the organization nearer to the ultimate customer in simple terms becomingyour own customer. When an organization starts making new products that serve its

own needs, vertical integration taken place. In other words, any new activity

undertaken with the purpose of either supplying inputs (such as raw materials, an

automobile company going in for a steel mill, this is backward integration) or servingas a customer for outputs (such as marketing of companys product, for example,

Titan going into setting their own retail outlets this is forward integration) isvertical integration.

2. Horizontal Integration: When a company starts serving the same customers that itknows very well with additional products that are different from the earlier products

in any of the terms of their respective customer needs, customer functions, or

alternative technologies, either singly or jointly, it is horizontal integration. Anexample, a hardware manufacturer starts supplying software also, a car manufacturer

getting into vehicle insurance or selling fuel.

Diversification:

Diversification is a much-debated strategy and involves all the dimensions of strategic

alternatives. Diversification involves a drastic change in the business in terms of customer

functions, customer groups, or alternative technologies of one or more of a companys

businesses in isolation or in combination.

Types of Diversification:

1. Concentric diversification: When an organization takes up an activity in such a manner

that it is related to the existing business, it is called concentric diversification.2. Conglomerate diversification: When an organization undertakes a strategy, which

requires taking up those activities, which are unrelated to the existing business, it is

called conglomerate diversification.

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Q14) What do you understand strategic evaluation and control?

Introduction: Strategic evaluation operates at two levels; strategic evaluation and

operational evaluation. At the strategic level, we are concerned more with the consistency of

strategy with the environment. At the operation level, the effort is directed at accessing how wellthe organization is pursuing a given strategy.

Nature of strategic Evaluation: the purpose of strategic evaluation is to evaluate the

effectiveness of strategy in achieving organizational objectives, thus it is process of determiningthe effectiveness of a given strategy in achieving the organizational objectives and taking

corrective action wherever required.From this definition, we can infer that the nature of the strategic evaluation and control process

is to test the effectiveness of strategy.

Importance of strategic evaluation: the importance of strategic evaluation lies in itsability to coordinate the tasks performed by individual managers, divisions or SBUs, through

the control of performance. In the absence of this, individual managers may pursue goals, which

are inconsistent with the e overall objectives, there is a need of feedback, appraisal and reward;check on the validity of strategic choice; congruence between decision and intended strategy;

and creating inputs for new strategic planning.

Strategic evaluation helps to keep a check on the validity of a strategic choice. An ongoing process of evaluation would, in fact, provide feedback on the continued relevance of the

strategic choice made during the formulation phase. This is due to the efficacy of strategic

evaluation to determine the effectiveness of strategy.

Participation in strategic evaluation:

The board of directors enacts the formal role of reviewing executive decisions in thelight of their environment, business and organizational implications.

Chief executives are ultimately responsible for all the administrative aspects of strategic

evaluation and control.

The SBU or profit-center heads may be involved in performance evaluation at their

levels and may facilitate evaluation by corporate level executives.Audit and executive comities may be changed with the responsibility of continuous screening of

performances.

The corporate planning staff or department may also be involved in strategic evaluation.

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Barriers in Evaluation:

The limits of control,

Difficulties in measurement,

Resistance to evaluation, Tendency to rely on the short term assessment, and

Relying on efficiency versus effectiveness.

Requirements for effective evaluation:

Control should involve only the minimum amount of information. Too much informationtends to clutter up the control system and creates confusion.

Control should monitor the managerial activities and results even if the evaluation is

difficult to problem.Long term and short term controls should be used so that a balanced approach to

evaluation can be adopted.Rewards for meeting or exceeding standards should be emphasized so that, managers are

motivated to perform. Unnecessary emphasis on penalties tends to pressurize the managers to

rely on the efficiency rather than effectiveness.

Premise Control :

Every strategy is based on certain assumptions about environment and organizational

factors. Some of these factors are highly significant and lay change in them can affect thestrategy to a large extent. Premise control is necessary to identify the key assumptions, and keep

track of any change in them so as to assess their impact on strategy and its implementation. It

enables the strategies to take the corrective action at the right time.

Implementation control :

The implementation control is aimed at evaluating whether the plans, programs andprojects are actually guiding the organization towards its predetermined objectives or not.

Implementation control may be put into practice through the identification and monitoring of

strategic thrusts.

Another method of implementation control is milestone review.

Strategic Surveillance:

The premises and implementation types of strategy controls are specific in nature.

Strategy surveillance, is designed to monitor a broad range of events inside and outside thecompany that are likely to threaten the course of a firms strategy.

Broad based, general monitoring on the basis of selected information sources to uncover events

that are likely to affect the strategy of an organization.

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Emergency alert control:

It is base on a trigger mechanism for rapid response and immediate reassessment ofstrategy in the light of sudden and unexpected events.

Emergency alert control can be exercised through the formulation of contingency strategies and

assigning the responsibility of handling unforeseen events to crisis management teams.

The first step of signal detection can be performed by the emergency alert control

systems.

Process of Evaluation:

The process of evaluation basically deals with four steps:

1) Setting standards of performance.

2) Measurement of performance.

3) Analyzing variances.4) Taking Corrective actions.

Measurement of performance:

Standards of performance act as the benchmark against which the actual performanceis to be compared.

Understand how the measurement of performance can take place.

The information system is the key element in any measurement exercise.

Operationally, measuring is done through the accounting, reporting, andcommunication systems.

Important to look at the difficulties, timing and periodically in measuring.

Difficulties in measurement :

It is not so difficult to measure effort, as it is to assess departmental performance.

Timing of measurement.

Delay in measurement can defeat the purpose of evaluation itself.

On the other hand measuring before time cannot serve the purpose either.

It is better to measure at critical points in a task schedule.

strategic management qa

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