Q1 Define the term “Strategic Management”. Explain theimportance of strategic management?Ans: Strategic ManagementDefinition: Strategic management is a systematic approach of analysing, planning andimplementing the strategy in an organisation to ensure a continued success. Strategicmanagement is a long term procedure which helps the organisation in achieving a longterm goal and its overall responsibility lies with the general management team. It focuseson building a solid foundation that will be subsequently achieved by the combined effortsof each and every employee of the organisation.Importance of strategic management • A rapidly changing environment in organisations requires a greater awareness of changes and their impact on the organisation. Hence strategic management plays an important role in an organisation. • Strategic management helps in building a stable organisation. • Strategic management controls the crises that are aroused due to rapid change in an organisation. • Strategic management considers the opportunities and threats as the strengths and weaknesses of the organisation in the crucial environment for survival in a competitive market. • Strategic management helps the top level management to examine the relevant factors before deciding their course of action that needs to be implemented in changing environment and thus aids them to better cope with uncertain situations. • Changes rapidly happen in large organisations. Hence strategic management becomes necessary to develop appropriate responses to anticipate changes. • The implementation of clear strategy enhances corporate harmony in the organisation. The employees will be able to analyse the organisation’s ethics and rules and can tailor their contribution accordingly. • Systematically formulated business activities helps in providing consistent financial performance in the organisation. • A well designed global strategy helps the organisation to gain competitive advantages. It increases the economies of scale in the global market, exploits other countries resources, broadens learning opportunities, and provides reputation and brand identification.
Q 2. Describe Porter’s five forces Model.Ans: Porter’s Five Force modelMichael E. Porter developed the Five Force Model in his book, ‘Competitive Strategy’.Porter has identified five competitive forces that influence every industry and market.The level of these forces determines the intensity of competition in an industry. Theobjective of corporate strategy should be to revise these competitive forces in a way thatimproves the position of the organisation.Figure below describes forces driving industry competitions.Figure: Forces Driving Industry CompetitionsForces driving industry competitions are:Threat of new entrants – New entrants to an industry generally bring new capacity;desire to gain market share and substantial resources. Therefore, they are threats to anestablished organisation. The threat of an entry depends on the presence of entrybarriers and the reactions can be expected from existing competitors. An entry barrier isa hindrance that makes it difficult for a company to enter an industry.Suppliers – Suppliers affect the industry by raising prices or reducing the quality ofpurchased goods and services.Rivalry among existing firms – In most industries, organisations are mutually dependent.A competitive move by one organisation may result in a noticeable effect on itscompetitors and thus cause retaliation or counter effortsBuyers – Buyers affect an industry through their ability to reduce prices, bargain for higher qualityor more services.Threat of substitute products and services – Substitute products appear different but satisfy thesame needs as the original product. Substitute products curb the potential returns of an industryby placing a ceiling on the prices firms can profitably charge.Other stakeholders - A sixth force should be included to Porter’s list to include a variety ofstakeholder groups. Some of these groups include governments, local communities, tradeassociation unions, and shareholders. The importance of stakeholders varies according to theindustry.
Q 3. Define the term “Business Policy”, Explain its importance.Ans Business PoliciesBusiness policies are the instructions laid by an organisation to manage its activities. Itidentifies the range within which the subordinates can take decisions in an organisation.It authorises the lower level management to resolve their issues and take decisionswithout consulting the top level management repeatedly. The limits within which thedecisions are made are well defined. Business policy involves the acquirement ofresources through which the organisational goals can be achieved. Business policyanalyses roles and responsibilities of top level management and the decisions affectingthe organisation in the long-run. It also deals with the major issues that affect thesuccess of the organisation.Importance of Business PoliciesA company operates consistently, both internally and externally when the policiesare established. Business policies should be set up before hiring the first employeein the organisation. It deals with the constraints of real-life business.It is important to formulate policies to achieve the organisational objectives. Thepolicies are articulated by the management. Policies serve as a guidance toadminister activities that are repetitive in nature. It channels the thinking and actionin decision making. It is a mechanism adopted by the top management to ensurethat the activities are performed in the desired way. The complete process ofmanagement is organised by business policies.Business policies are important due to the following reasons:— Coordination – Reliable policies coordinate the purpose by focusing onorganisational activities. This helps in ensuring uniformity of actionthroughout the organisation. Policies encourage cooperation and promote initiative.— Quick decisions – Policies help subordinates to take prompt action and quickdecisions. They demarcate the section within which decisions are to be taken. Theyhelp subordinates to take decisions with confidence without consulting their
superiors every time. Every policy is a guide to activities that should be followed in aparticular situation. It saves time by predicting frequent problems and providing waysto solve them.— Effective control – Policies provide logical basis for assessing performance. Theyensure that the activities are synchronised with the objectives of the organisation. Itprevents divergence from the planned course of action. The management tends todeviate from the objective if policies are not defined precisely. This affects the overallefficiency of the organisation. Policies are derived objectives and provide the outlinefor procedures.— Decentralisation – Well defined policies help in decentralisation as the executiveroles and responsibility are clearly identified. Authority is delegated to the executiveswho refer the policies to work efficiently. The required managerial procedures can bederived from the given policies. Policies provide guidelines to the executives to helpthem in determining the suitable actions which are within the limits of the statedpolicies. Policies contribute in building coordination in larger organisations.
Q 4: What, in brief, are the types of Strategic Alliances and the Purposeof each? Supplement your answer with real life examples.Ans: Strategic alliances constitute a viable alternative in addition to StrategicAlternatives. Companies can develop alliances with the members of the strategic groupand 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 synergies 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 thumps Up. 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. 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 parlors of Baskin-Robbins.2. 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.3. 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.Pricing collaborations: Companies may join together for special pricing collaborations.Example :- It is customary to find that hardware and software companies in informationtechnology sector offer each other price discounts. Companies should be very careful inselecting strategic partners. The strategy should be to select such a partner who hascomplementary strengths and who can offset the present weaknesses.
Q 5. Explain the concept, need for and importance of a DecisionSupport System.Ans: Annual Budget: It is really a business plan. The budget allocates amounts ofmoney to every activity and/or department of the firm. As time passes, the actualexpenditures are compared to the budget in a feedback loop. During the year, or at theend of the fiscal year, the firm generates its financial statements: the income statement,the balance sheet, the cash flow statement. When putting together, these fourdocuments are the formal edifice of the firm’s finances. However, they can not serve asday-to-day guides to the General Manager. 1. Daily Financial Statements: The Manager should have access to continuously updated statements of income, cash flow, and a balance sheet. The most important statement is that of the cash flow. The manager should be able to know, at each and every stage, what his real cash situation is – as opposed to the theoretical cash situation which includes accounts payable and account receivable in the form of expenses and income.2. The Daily Ratios Report: This is the most important part of the decision support system. It enables the Manager to instantly analyse dozens of important aspects of the functioning of his company. It allows him to compare the behaviour of these parameters to historical data and to simulate the future functioning of his company under different scenarios. It also allows him to compare the performance of his company to the performance of his competitors, other firms in his branch and to the overall performance of the industry that he is operating in. The Manager can review these financial and production ratios. Where there is a strong deviation from historical patterns, or where the ratios warn about problems in the future – management intervention may be required.Examples of the Ratios to be Included in the Decision System SUE measure – deviation of actual profits from expected profits ROE – the return on the adjusted equity capital Debt to equity ratios ROA – the return on the assets The financial average ROS – the profit margin on the sales ATO – asset turnover, how efficiently assets are used Tax burden and interest burden ratios
Compounded leverage Sales to fixed assets ratios Inventory turnover ratios Days receivable and days payable Current ratio, quick ratio, interest coverage ratio and other liquidity and coverage ratios Valuation price ratios And many othersA decision system has great impact on the profits of the company. It forces themanagement to rationalize the depreciation, inventory and inflation policies. It warns themanagement against impending crises and problems in the company. It specially helpsin following areas: a. 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.b. 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 iscompletely compatible with western accounting methods and derives all the data that itneeds from information extant in the company.So, the establishment of a decision system does not hinder the functioning of thecompany in any way and does not interfere with the authority and functioning of thefinancial department, but infact helps the manager to take quick decisions and makeprofit to the company.
Q 6. Write Short Notes on: 1. Corporate Social Responsibility 2. Business Plan.Ans: 1: Corporate Social Responsibilities (CSR)Corporate Social Responsibility (CSR) is the continuing obligation of a business tobehave ethically and contribute to the economic development of the organization. Itimproves the quality of life of the organization. The meaning of CSR has two folds. Onone hand, it exhibits the ethical behaviour that an organization exhibit towards its internaland external stakeholders. And on the other hand, it denotes the responsibility of anorganization towards the environment and society in which it operates. Thus CSR makesa significant contribution towards sustainability and competitiveness of the organization.CSR is effective in number of areas such as human rights, safety at work,consumer protection, climate protection, caring for the environment, sustainablemanagement of natural resources, and such other issues. CSR also provideshealth and safety measures, preserves employee rights and discouragesdiscrimination at workplace. CSR activities include commitment to productquality, fair pricing policies, providing correct information to the consumers,resorting to legal assistance in case of unresolved business problems, so on.Example – TATA implemented social welfare provisions for its employees since 1945.Features of CSRCSR improves the customer satisfaction through its products and services. It alsoassists in environmental protection and contributes towards social activities. Thefollowing are the features of CSR: • Improves the quality of an organization in terms of economic, legal and ethical factors – CSR improves the economic features of an organization by earning profits for the owners. It also improves the legal and ethical features by fulfilling the law and implementing ethical standards. • Builds an improved management system – CSR improves the management system by providing products which meets the essential customer needs. It develops relevant regulations through the utilization of innovative technologies in the organization • Contributes to countries by improving the quality of management – CSR contributes high quality product, environment conservation and occupational health safety to various regions and countries.
• Enhances information security systems and implementing effective security measures – CSR enhances the information security measures by establishing improved information security system and distributing them to overseas business sites. The information system has improved by enhancing better responses to complex security accidents. • Creates a new value in transportation – CSR creates a new value in transportation for the greater safety of pedestrians and automobiles. This is done by utilizing information and technology for automobiles. The information and technology helps in establishing a safety driving assistance system. • Creates awareness towards environmental issues – CSR serves in preventing global warming by reducing the harmful gases emitted into the atmosphere during the process of business activities.2 Business PlansA business plan is a complete internal document that summarises the operational andfinancial objectives of a business. It also contains the detailed plans which show how theobjectives are being accomplished.An accurately made business plan helps to allocate resources properly, to handleunforeseen complications like financial crisis and to make good business decisions.Strategies for creating a business planThis section describes the strategies for creating a business plan. Every entrepreneurcreates a business plan and its completion will determine the feasibility of the plan. Thestrategies for creating a business plan are as follows: • Define your business vision – You must clear the following queries while defining the business vision: • Who is the customer? • What business are you in? • What do you sell (product/service)? • What is your plan for growth? • What is your primary competitive advantage? • Make a list of your goals – You must create a list of goals after proper research. In case of a start up business, more effort must be put on the short-term goals. • Certain things must be kept clear before setting up your goal. They are listed below: • What do you want to achieve? • How much growth you want to achieve?
• Describe the quality and quantity of the service and the customer satisfaction levels?• How would you describe your primary competitive advantages?• Understanding the customer – Understanding the customer is essential for a perfect business plan. You must understand the customer in terms of the following factors:• Needs – The following customer requirements should be understood clearly:• What unmet needs do your customers have?• How does your business meet those needs?• Problems – Customers buy things to solve their specific problems. Always be specific about the advantages of the product/services of your business which resolve the customer’s problems.• Perceptions – Always try to know the perception of the customer. Clarify the doubts of the customer regarding your profession and the products/services of your business.• Learn from your competitors – You can learn a lot about the business and the customers by looking at the business of your competitors. Always get the answers of the following questions which will assist you in learning from your competitor and focusing on your customer.• What do you know about your target market?• What competitors do you have?• How are competitors approaching the market?• What are the competitor’s weaknesses and strengths?• How can you improve upon the competition’s approach?• Resolving financial matters – Several questions might arise when we need to make financial decisions. They are as follows:• How will you make money?• What is the profit potential of your business?• You can resolve the financial issues by taking smart strategic investment decisions.• Identify your marketing strategy – Identifying the marketing strategy is another essential skill which you must have. The following are the four steps to create a marketing strategy for your business:• Identify all the target markets• Qualify the best target markets• Identify the tools, strategies and methods• Test the marketing strategy and tools