Strategic Management - Selected Questions and Answers
1. Our understanding of how strategy development in organizations can be enhanced through
employing different strategy lenses. Describe the design and experience lenses. Give examples
to illustrate your understanding.
Strategic lenses provide four angles of strategy which can be viewed and implemented at corporate
level. These strategic lenses help in approaching strategic problems from different perspectives.
Looking at problems from different perspectives will raise new issues and provide new solutions.
The four lenses of strategy are as follows:
a) Strategy as a design ± this takes the view that strategy development can be a logical process in
which the forces and constraints on the organisation are weighed carefully through analytic and
evaluative techniques to establish a clear strategic direction. This creates conditions in which
carefully planned strategic implementation should occur. Apple- feasibility , stakeholders,
b) Strategy as experience ± here, the view is that future strategies of the organization are based
heavily on the experience of managers and others in the organization based on their experience
in previous strategies.
c) Strategy as ideas ± the ideas lens lays emphasis on the importance of promoting diversity in and
around organizations, which can potentially generate genuinely new ideas. Here, strategy is
seen as not so much planned from the top as emergent from within and around organizations as
people respond to an uncertain and changing environment with a variety of initiatives. Google
d) Strategy as discourse ± this lens sees strategy in terms of language. Managers spend most of
their time communicating. Therefore, command of strategy language becomes a resource for
managers by which to shape objective strategic analyses to their personal views and to gain
influence, power and legitimacy. Approaching strategy as a discourse makes managers very
attentive to the language in which they frame strategic problems, make strategy proposals,
debate issues and then finally communicate strategic decisions. Infosys, General Electricals
Strategic Design Lens
A basic premise of the business is that companies have goals and customers have needs. Strategic
choice can be made logically and objectively on the basis of linear, analytic, evaluative procedures
driven by top managers or other managers working with them. This involves:
a) Establishing clear objectives developed to reflect stakeholder expectations and use them as a
basis for evaluating various options.
b) Making argued cases for explicit options on the basis of clear understanding of the strategic
position of the strategic position of the organization arrived at analytically.
c) Evaluating options by systematically examining their relative merits in terms of:
a. Whether the strategic options significantly address the strategic issues of the
b. Whether it is feasible to implement the strategic option
c. Whether the option is acceptable to stakeholders
This approach is high on rationality and legitimacy, but low on innovation as the process is pre-defined.
Strategic Experience Lens
As per the strategic experience lens, the strategy develops incrementally on past strategy, past
experience and the culture of the organization within a political context. Hence, strategic choices made
are heavily influenced by past experience. Hence, such past experience may restrict innovation or
constraint innovation as it may not be in line with the existing corporate culture. As this approach relies
on past experience, managers have ready-made solutions on the basis of their experience and applying
them to circumstances which match such strategic actions.
The strategies that have been evolved have been done so on the basis of experimentation in the past,
hence it is possible that strategies of successful organizations will be imitated by new competitors.
This approach is high on legitimacy, but low on rationality and innovation.
Eg: low cost airlines,airtel
2. Describe the four criteria for an organization¶s core competence. Explain how core
competences can be identified and leveraged to develop strategies. Give example(s) to
support your argument.
Key success factors in industry for survival- Support activities in a Value chain
Critical success factors for competitive advantage ± on basis of primary activities, competitive
advantage can be derived.
Resource based ±
Threshold- Minimum ± find out with help of key success factors
Unique ± VRHN ± Critical success factors
Core competences are the skills and abilities by which resources are deployed through an
organization's activities and processes such as to achieve competitive advantage in ways that others
cannot imitate or obtain.
Core competencies are always a balance between the unique capabilities that we have already
demonstrated and those we need to acquire to maintain or gain competitive advantage.
Core competencies serve as a source of competitive advantages. But core competencies create
competitive advantages on long-term. So, we can also look at Hanson¶s model that uses 4 criteria to
identify long term competitive advantages:
- Valuable- it refers to swot analysis because it allows using opportunities and/or disabling threats.
- Costly to imitate
These 4 elements are equivalent to the previous points that describe core competencies.
Core competencies don¶t only concern R&D and final products. It could also be a process, an
Organization evolution, and human resources methods and so on.
Core competency lead to competitive advantage when:
They relate to an activity that underpins the value in the product features
They lead to levels of performance that are significantly better than competitors
They are difficult for competitors to imitate
St t i ilit i t t t i t i
it i t :
y C t
y Threshol ilities
y C ilities for competiti e advantage
Competitive advantage and strategic capabilities:
This includes tangible and intangible resources of the company.Tangible resources are the physical
assets of the company li e the labor, plant etc. intangible includes the intellectual properties, reputation
Again, the resources can be classified in four categories:
y Physical resources- eg: plant
y Financial resources- eg: cash
y Human resources- eg: people in the firm
y Intellectual capital- eg: patents
Competency means the skills and abilities by which resources are deployed effectively through an
organi ation¶s activities and resources.
These are those capabilities needed for an organization to meet the necessary requirements to compete
in a given market.
Identifying and managing threshold capabilities raises at least two significant challenges:
y Threshold levels of capability changes as critical success factors change or through the activities
of competitors and new entrants.
y Trade-offs may need to be made to achieve the threshold capability required for different sorts
Packages by sun DTH
Set up box, antenna, firm infrastructure, and logistics.
Capabilities for competitive advantage include:
y Unique resources
y Core competences
This includes those resources that strengthen the competitive advantage and those that cannot be
imitated by others.
Core competences includes the skills and capabilities by which resources are deployed through an
organization¶s activities and processes, so as to achieve competitive advantage in ways that others
cannot imitate and obtain.
Putting these concepts together, to survive in the changing environment the firm has to address the
challenges that it faces. The strategic capabilities to face these challenges are dependent on the
resources and the competencies a firm has. The further challenge is to achieve competitive advantage
and this can be achieved by developing strategic capabilities that the competitors find difficult to obtain
or imitate. This could be attained through the unique resources that the firm has.
Low cost, Understanding market and needs of people. In different languages
Resources ± Set Top Box, Antenna, Firm Infrastructure, Logistics, Channels, Radio Stations
Threshold ± Set Top Box, Antenna, Firm Infrastructure, Channels, Radio Stations
Unique ± HD Set Top Box, Logistics, Strategic Alliance and Bundling of products
3. Describe the concepts of organizational culture and the cultural web. Explain how these
concepts can influence the process of strategic management. Give example to support your
argument. (page ± 194 ± 203)
The culture of an organization is often conceived as consisting of 4 layers:
Values ± which include statements about an organization¶s mission statement, objectives or
Beliefs ± these are more specific, in that they can be distinguished in how people talk about issues
in the organization, not possible to understand culture fully.
Behaviours ± these are the day to day in which an organization operates and can be seen by people
both inside and outside the organization. This includes the work routines, how the organization is
structured and controlled and softer issues around symbolic behaviours
Taken for granted assumptions ± they are the core of an organization¶s culture. They are the
aspects of the organizational life, which people find difficult to explain. It is also referred to as
paradigm, which is a set of assumptions held in common and taken for granted within an
organization. Like- same for middle management top management- like place for sitting
The cultural web is a means of understanding the existing culture and its effects on the performance of
the organization. The various elements of cultural web include:
Paradigm ± these are the collective experiences applied to a particular situation to make sense of
it and inform a particular course of action. Trying to identify a paradigm is difficult as these are
assumed to exist within an organization. The insiders within the organization cannot view these
taken for granted assumptions and hence, a pattern can be understood by taking into
consideration other aspects of the culture. Assumptions about company
Rituals and Routines ± They are the ways things are done on a day to day basis and which have
been followed for a long period of time within the organization. An instance of routine may be
long working hours because of the nature of work, weekly meetings, focus on process rather
than outcomes and so on. How many working days
Stories ± Stories told by members of the organization to each other, to new recruits and so on,
may act to implant organizational history and also flag up important events and personalities.
This is a way of letting people know what is important in an organization. When go for
interview can be get view about company
Symbols ± They are objects, events and acts, that convey, maintain or create meaning over and
above their functional purpose. For example, office layout, offices, cars and titles have a
functional purpose but are also about maintaining status and hierarchy. The form of language
used in an organization may also be particularly revealing.
Power Structures ± the most powerful groupings within an organization are likely to be closely
associated with core assumptions and beliefs. If there is high power distance, then it will be
difficult for employees to address their grievances with the top management. Power distance is
Organizational structure ± organizational structure is likely to reflect power and show important
roles and relationships. For instance a hierarchical structure will reveal that taking orders is
mandatory within an organization.
Control Systems ± Measurements and reward systems emphasize what is important to monitor
within the organization. For instance, a performance management central system will help the
managers in effectively appraising their employees by measuring standards with actual
performance and so on.
4. Consider Porter¶s three generic strategies. In your opinion, how cost-based advantages can
be sustained? Give example to support your argument.
Porters Generic Strategies - These three generic strategies are defined along two dimensions:
strategic scope and strategic strength. Strategic scope is a demand-side dimension and looks at the size
and composition of the market you intend to target. Strategic strength is a supply-side dimension and
looks at the strength or core competency of the firm. In particular he identified two competencies that
he felt were most important: product differentiation and product cost (efficiency).
1. Cost Leadership Strategy
Air Deccan, Tata Nano
This strategy involves the firm winning market share by appealing to cost-conscious or price-sensitive
customers. This is achieved by having the lowest prices in the target market segment, or at least the
lowest price to value ratio. To succeed at offering the lowest price while still achieving profitability and
a high return on investment, the firm must be able to operate at a lower cost than its rivals. There are
three main ways to achieve this.
The first approach is achieving a high asset turnover. In service industries, this may mean for
example a restaurant that turns tables around very quickly, or an airline that turns around flights very
fast. In manufacturing, it will involve production of high volumes of output. These approaches mean
fixed costs are spread over a larger number of units of the product or service, resulting in a lower unit
cost, i.e the firm hopes to take advantage of economies of scale and experience curve effects. For
industrial firms, mass production becomes both a strategy and an end in itself. Higher levels of output
both require and result in high market share, and create an entry barrier to potential competitors, who
may be unable to achieve the scale necessary to match the firms low costs and prices.
The second dimension is achieving low direct and indirect operating costs. This is achieved by
offering high volumes of standardized products, offering basic no-frills products and limiting
customization and personalization of service. Production costs are kept low by using fewer
components, using standard components, and limiting the number of models produced to ensure larger
production runs. Overheads are kept low by paying low wages, locating premises in low rent areas,
establishing a cost-conscious culture, etc. Maintaining this strategy requires a continuous search for
cost reductions in all aspects of the business. This will include outsourcing, controlling production
costs, increasing asset capacity utilization, and minimizing other costs including distribution, RD and
advertising. The associated distribution strategy is to obtain the most extensive distribution possible.
Promotional strategy often involves trying to make a virtue out of low cost product features.
The third dimension is control over the supply/procurement chain to ensure low costs. This could
be achieved by bulk buying to enjoy quantity discounts, squeezing suppliers on price, instituting
competitive bidding for contracts, working with vendors to keep inventories low using methods such as
Just-in-Time purchasing. Wal-Mart is famous for squeezing its suppliers to ensure low prices for its
goods. Dell Computer initially achieved market share by keeping inventories low and only building
computers to order. Other procurement advantages could come from preferential access to raw
materials, or backward integration.
2. Differentiation Strategy
Can be in Product Differentiation
Differentiation is aimed at the broad market that involves the creation of a product or services that is
perceived throughout its industry as unique. The company or business unit may then charge a premium
for its product. This specialty can be associated with design, brand image, technology, features, dealers,
network, or customers service. Differentiation is a viable strategy for earning above average returns in a
specific business because the resulting brand loyalty lowers customers' sensitivity to price. Increased
costs can usually be passed on to the buyers. Buyers loyalty can also serve as an entry barrier-new
firms must develop their own distinctive competence to differentiate their products in some way in
order to compete successfully. Examples of the successful use of a differentiation strategy are Hero
Honda, Asian Paints, HLL, Nike athletic shoes, Perstorp BioProducts, Apple Computer, and Mercedes-
A differentiation strategy is appropriate where the target customer segment is not price-sensitive, the
market is competitive or saturated, customers have very specific needs which are possibly under-
served, and the firm has unique resources and capabilities which enable it to satisfy these needs in ways
that are difficult to copy. These could include patents or other Intellectual Property (IP), unique
technical expertise (e.g. Apple's design skills or Pixar's animation prowess), talented personnel (e.g. a
sports team's star players or a brokerage firm's star traders), or innovative processes. Successful brand
management also results in perceived uniqueness even when the physical product is the same as
competitors. This way, Chiquita was able to brand bananas, Starbucks could brand coffee, and Nike
could brand sneakers. Fashion brands rely heavily on this form of image differentiation.
Variants on the Differentiation Strategy
The shareholder value model holds that the timing of the use of specialized knowledge can create a
differentiation advantage as long as the knowledge remains unique. This model suggests that customers
buy products or services from an organization to have access to its unique knowledge. The advantage is
static, rather than dynamic, because the purchase is a one-time event.
The unlimited resources model utilizes a large base of resources that allows an organization to outlast
competitors by practicing a differentiation strategy. An organization with greater resources can manage
risk and sustain losses more easily than one with fewer resources. This deep-pocket strategy provides a
short-term advantage only. If a firm lacks the capacity for continual innovation, it will not sustain its
competitive position is over time.
3. Focus or Strategic Scope
Can target mass market- broad market-
Can target niche ʹ narrow - BMW
This dimension is not a separate strategy per se, but describes the scope over which the company
should compete based on cost leadership or differentiation. The firm can choose to compete in the mass
market (like Wal-Mart) with a broad scope, or in a defined, focused market segment with a narrow
scope. In either case, the basis of competition will still be either cost leadership or differentiation.
In adopting a narrow focus, the company ideally focuses on a few target markets (niche strategy).
These should be distinct groups with specialized needs. The choice of offering low prices or
differentiated products/services should depend on the needs of the selected segment and the resources
and capabilities of the firm. It is hoped that by focusing your marketing efforts on one or two narrow
market segments and tailoring your marketing mix to these specialized markets, you can better meet the
needs of that target market. The firm typically looks to gain a competitive advantage through product
innovation or brand marketing rather than efficiency. It is most suitable for relatively small firms but
can be used by any company. A focused strategy should target market segments that are less vulnerable
to substitutes or where a competition is weakest to earn above-average return on investment.
Examples of firm using a focus strategy include Southwest Airlines, with provides short-haul point-to-
point flights in contrast to the hub-and-spoke model of mainstream carriers, and Family Dollar, which
targets poor urban American families who cannot drive to Wall-Marts in the suburbs because they do
not own a car.
How cost-based advantages can be sustained?
Cost leadership strategies are only viable for large firms with the opportunity to enjoy economies of
scale and large production volumes. However, this takes a limited industrial view of strategy. Small
businesses can also be cost leaders if they enjoy any advantages conducive to low costs. For example, a
local restaurant in a low rent location can attract price-sensitive customers if it offers a limited menu,
rapid table turnover and employs staff on minimum wage. Innovation of products or processes may
also enable a startup or small company to offer a cheaper product or service where incumbents' costs
and prices have become too high. An example is the success of low-cost budget airlines who despite
having fewer planes than the major airlines, were able to achieve market share growth by offering
cheap, no-frills services at prices much cheaper than those of the larger incumbents.
5. People are at the heart of strategy. In your opinion, how human resources can enable the
success of strategy? And how human resources should be managed to enable the strategic
success for a business organization? (Page ± 475 ± 481)
Knowledge and the experiences of the people in the organization are the two very crucial factors
that can influence the success of the strategy because of this the people related issues should be the
focal part for the managers of the organizations not only the HR manager. Though the role of formal
HR structures and systems is quite important in supporting the successful strategies but sometimes they
might obstruct the strategy if they are not adapted to the types of strategies being pursued.
People element of the strategy has three related issues:
1) People as resources
2) People and behaviour
3) Need to organize people
People as resource
Use full knowledge of employees
Right person at right place
It is important to note that the ownership of resources whether human resource or any other kind of
resource does not ensures the strategic capability rather the strategic capability is concerned with the
deployment, management and the control of these resources. And for the human resources it is
particularly important that a climate is created wherein the people strive towards achieving success.
This hard side of HR management is concerned with the issues related to performance management.
HR activities can ensure that the strategies employed are successful in following ways:
I. Audit to assess HR requirements to support strategies
II. Goal setting and performance assessment of the individuals working in the organization.
III. Recruitment and retention are the means of improving the strategic capability and also
succession planning is also to be considered properly so as to ensure that sufficient numbers of
talented people are there in the organization to meet the future leadership requirements.
It is important to link the HR strategies with the organizations strategy
People ± hard and behaviour- Soft
Culture can be core competency- Google, Infosys
People in the organization influence strategy through their competence and their collective behaviour
which forms the culture. This is the soft side of HR which is concerned with the behaviour of the
people both individually and collectively. The softer changes may include the understanding of the way
the idea or the paradigm of the organization needs to change in case of rapidly changing business
environment, understanding the relationship between the culture and the strategic choices as sometimes
the culture of the organization can itself be the core competency, being realistic about the difficulty and
the time scales in achieving the change in the culture because the process of changing the culture is a
long process by itself and finally being able to change the management style with the magnitude of
change and as well as with the organizational context.
Need to organizing people
An organization can ensure the successful business strategies with the help of HR functions, Line
managers and through its own structures and processes. For the HR function to contribute towards the
successful strategy it is imperative that the HR managers are clear about the strategy of the organization
and once that is done the HR functions can help in achieving the strategic success in following ways:
I. As a service provider by recruiting and arranging training sessions.
II. As a regulator setting the rules within which the line managers operate.
III. As a change agent
IV. As an advisor on issues of the HR strategy to the line managers.
It is crucial to recognise the crucial influence of middle managers on the day to day performance and
behaviour of people in the organization. This implies that it is necessary for the top managers to include
the line managers in the strategy development process otherwise the strategy may not be successfully
stick with the people in the organization.
Structures and processes
Strategic success may be hampered if the traditional structures and roles do not match with the future
strategies. Furthermore the structures and processes have to be changed with the changing
circumstances. Another challenge is that whether the HR issues should be kept within the organization
or should be out sourced to the external consultants. The advantage of outsourcing is that wide
expertise is available but the disadvantage is that the external consultant may not be familiar with the
circumstances of the organization.
The various points about the relationships between the business strategies and people can be
I. There must be activities to ensure the maintenance of competitiveness like objective setting and
II. There must be activities to provide a platform on which new strategies can be built in long term.
For example leadership, competencies and culture.
III. The above mentioned points should be linked so as to ensure that the long term goals do not get
overshadowed by the short term goals. For example using the short term success incentives like
bonuses may compromise the ability to take strategic interventions such as creating new roles
The organizations that are able to manage these processes are most likely to gain competitive
advantage whereas others face the risk of failure because the HR strategies are not in line with
the organizational strategies or the people competencies and culture are out of line either with
the HR or the organizational strategies or because of the fact that business strategies fail to build
on the organizational capabilities.
6. Logical incrementalism is widely used by organizations to develop its strategy. Explain the
term ³logical incrementalism´ and describe the major steps (or characteristics) involved
when it is used for strategy development. Give an example to illustrate your understanding.
Logical Incrementalism is the development of strategy by experimentation and µlearning from
partial commitments rather than through global formulations of total strategies¶. Incrementalism in the
study of rationality it can be seen as a stealthy way to bring about radical changes that were not initially
Logical Incrementalism is a philosophy of achieving broad organizational goals by making strategic
decisions in small steps. The small steps to resolve conflicting views of participants and reduce risk by
capitalizing on knowledge that is gained during the process. Logical Incrementalism benefits from
flexibility, but is likely to be time-consuming and inefficient.
4 Characteristics of Logical Incrementalism
y Environmental uncertainty: The Managers realise that they cannot do away with the uncertainty
of their environment by relying on analysis of historical data or predicting how it will change.
Rather, they try to be sensitive to environmental signals by encouraging constant environmental
scanning through the organization. It can be also said that it is a situation where the management of
a firm has little information about its external environment that is in a state of flux and, hence,
y Generalised views of strategy: Managers have a generalised rather than specific view of where
they want the organization to be in the future and try to move towards this position incrementally.
There is also a reluctance to specify precise objectives too early as this might stifle ideas and
prevent innovation and experimentation. Objectives may therefore be general in nature.
y Experimentation: Managers may seek to develop strong secure, but flexible core business. They
will then build on the experience gained in that business to inform decisions both about its
development and experimentation with µside-bet¶ bet ventures. Commitment to strategic options
may therefore be tentative to the early stages of strategy development. Such experiments are not the
sole responsibility of top management.
y Coordinating emergent strategies: Top managers may then utilise a mix of formal and informal
social and political process to draw together an emerging pattern of strategies from these
subsystems. These may then be formed into coherent statements of strategy for stakeholders that
need to understand the organisation¶s strategy.
Pros and Cons of Logical Incrementalism
The advantages of incrementalism over other formal systems is that no time is wasted planning
for outcomes which may not occur. Disadvantages are that time may be wasted dealing with the
immediate problems and no overall strategy is developed.
IKEA using Logical Incrementalism
IKEA has been using logical incrementalism since its very first store opened for business.IKEA¶s
founder, Ingvar Kamprad, had a strong but very general vision. From that, IKEA¶s strategy gradually
took shape as Kamprad both proactively took action and reactively adapted to the situation as it
extended. Even the decision to sell furniture was an adaptation to the market, not a deliberate strategy.
Because of this ³short-term scepticism,´ whenever the company stumbled across an obstacle, it could
quickly turn the obstacle into an opportunity. IKEA¶s approach is incredibly refreshing. Its strategy
stated that business could succeed without predicting the future and wasting time writing strategy
roadmaps that are obsolete.
HP using Logical Incrementalism
Hewlett Packard is another company which follows Logical Incrementalism. A core technology in test
and measurement lead them to improve things for the customer that led them to begin to develop
computer capabilities, information processing capabilities, because that was part of building better test
and measurement organizations. And then they began to applythose same ideas in other ways into the
computer business, the server business and the printing business, which was an offshoot of that whole
7. Strategic alliance and acquisitions are two different methods of strategic development.
Compare and contrast the motives of these two development methods. Discuss factors that
can influence the success of strategic alliances/acquisition. (Page 357 ± 365)
The company goes for strategic alliances in order to reach its goals in more efficient way, where they
can share their resources to be more competent in producing a product and engage in business activities
for mutual economic gain. This is mainly undertaken to support one another in terms of:
y Material skills
y Access to different markets.
y Take advantage of partner¶s local market knowledge and working relationships with key
government officials in host country. It is very important to get working relationship with local
government officials, (social capitals).
y Capture economies of scale in production and/or marketing, when they operate together, they
can use the same machine or equipment to produce products and use the same marketing
channel for both products.
y Fill gaps in technical expertise or knowledge of local market; they will learn technical
knowledge from each other.
y Share distribution facilities and dealer networks, they can use the same agent or retailers to
reduce the logistic cost and penetrate the market more easily; they can use the put-together
technical and financial resources to attack the rivals.
y Direct combined competitive energies toward defeating mutual rivals
y Can reduce the cost and more efficient to penetrate the market by doing the followings
1) Joint research efforts
3) Joint use of production and distribution facilities
4) Marketing/promoting one another¶s products.
CRITICAL FACTORS OF STRATEGIC ALLIANCES
Difficulties may arise because partners are not in complete agreement about the purpose of an alliance
and the process by which its goals can be achieved. It is also possible that the short- and long-term
objectives of partners are misunderstood, so the direction of the alliance may be rather fuzzy.
Governmental policies may create structural impediments or facilitate the operation of cooperative
arrangements. In countries where economic nationalism is high, alliances often have to be approved at
the governmental level. For example, the IBM-Groupe Bull alliance was approved by the French
government. Alliances that have the support of governments in such environments may actually
perform better because access may be opened to resources that are otherwise highly controlled and
Organizations may not have shared mental maps on business assumptions, criticality of events, and
operating procedures . An alliance between IBM and Motorola was almost dissolved because of
disagreements on security inspection procedures.
Human Resource Management (HRM) Practices
Staffing and selection of key personnel for the alliance, performance appraisal, maintaining continuity
of key personnel, and reward and compensation systems have been recognized as important HRM
issues for strategic alliances. The differences in pay for individuals in the same position may lead to an
problem. A recent alliance between HP and a computer firm in India almost got derailed due to
Mergers and Acquisitions:
An Acquisition is where organization takes ownership of another organization and Merger Implies
Mutually agreed decisions for joint ownership between organizations. Here in case of both managers of
one organization exert strategic influence over other.
Acquisition can be
Horizontal- Takes place between firms in same line of business.
Vertical -A merger between two companies producing different goods or services for one
specific finished product. Eg- A car manufacturer purchasing a tire company.
Conglomerate- Formed through combination of unrelated business.
Economies of Scale ±This generally refers to a method in which average cost per unit is
decreased through increased production since fixed cost is shared over an increased number of
Increased market share/ Increase revenue ± This motives assumes that the company will be
absorbing the major competitor and thus increase its power (by capturing increased market
share) to set prices.
Taxes ± In order to have tax advantage benefit the giant company may acquire small so that tax
can be set off against the losses of the acquiring company.
Improved market reach and Industry visibility ± Company buys companies in order to have
a access over the new markets and increase its revenue and earnings through reaching more
markets. It helps them to expand marketing and distribution channels, giving them new sales
Plugging a gap in the market - Business may feel that its product portfolio is not sufficient to
cater for different customer needs in its market. Acquiring another firm that is already in that
market enables it to plug that gap. It may be the case that a firm has a seasonal sales trend.
Buying a business that has its predominant sales in a different season of the year will also be an
example of how the firm's product portfolio might be enhanced through a merger and
acquisition. The example of Fuller's and Gales is an excellent example of this.
Accessing technology or skills
A firm may be targeted for acquisition because it has specific skills within its staff or has a
particular technology that would be useful to another business. Businesses that are relatively
new and might have hit upon a new idea or who have developed specific skills in a certain area
might be ripe targets for acquisition.
Critical factors drive for mergers and Acquisitions.
Lack of brand Images
To survive in the market
To expand market share
To achieve economies of scale.
8. Strategic control, financial control, and strategic planning are three ways of dividing
responsibilities between corporate centre and its business units. Discuss these three ways and
The responsibilities for strategic decision making between business units and corporate centre are
divided in the following three ways;
Strategic planning: It refers to the particular style of relationship between the centre and business
units. This is the most centralised form in among all the three styles. The centre is the master planner
recommending detailed roles for departments and business units, whose roe is basically limited to the
operational delivery of the plan. The centre orchestrates, coordinates and controls all of business unit
activities through the extensive use of the formal planning and control system. The centre also directly
manages the infrastructure and provides many corporate services.
Financial control: It is the most extreme form of decentralization, dissolving the organisation into
highly independent business units. In this style, the role of the centre is limited to setting financial
targets, allocating resources, appraising performance and dominant to avoid or correct poor
performance. These involvements would usually be replacing business unit managers rather than
dictating changes in strategies. Therefore, the dominant processes are performance targets and business
unit managers are held strictly responsible for meeting these targets.
Strategic control: This style is mostly operates in the organisations. It lies between the two extremes
of the strategic planning and financial control styles. The relationship between the centre and the
business units is one of a parent who behaves as a strategic shaper, influencing the behaviour in
business units and forming the context within which manages are operating.
y Strategic planning is more appropriate where corporate managers have a detailed working
knowledge of each business units whereas financial control is more appropriate to organisations
operating in stable markets with mature technologies. Similarly Strategic control is more
suitable where the centre has little knowledge about business unit strategies and operations.
y Strategic planning is more suitable where business unit strategies are of a size or sensitivity that
can have major implication for the whole corporate whereas financial control is only a short
time lag between management decisions and the financial consequences. Similarly strategic
control is built through the processes of supportive strategies with business units but within
central boundaries and guidelines.
y In strategic planning, there are bureaucratic costs of centralisation and de-motivating effects on
business unit manager who may feel little commitment to strategies handed down from the
centres but in financial control, the business units are focussed on meeting tough short term
target set by a centre that does not have the resources or the competences to manage the
knowledge creations and integration process. In strategic control the biggest risk would be the
centre which tries to shape strategies without being clear about the corporate logic or having the
competences essentially to add value in these ways.
9. Describe the concept of corporate social responsibility and four possible corporate stances on
social responsibility. Explain the rationale under each stance and the leadership and
stakeholder relationship required for each of these four stances.
Corporate social responsibility (CSR), the European Commission presented CSR as: ³a concept
whereby companies integrate social and environmental concerns in their business operations and in
their interaction with their stakeholders on a voluntary basis.´ It is concerned with the ways in which an
organization exceeds its minimum obligation to its stakeholders specified through regulation. It is a
form of corporate self-regulation integrated in the business model of the company which is used as the
framework for measuring an organization¶s performance against economic, social and environmental
parameters. However the legal regulatory frameworks under which business operate pay uneven
attention to the rights of different stakeholders. For example-
Contractual stakeholders- such as customers (in general), suppliers or employees- have legal
relationship with an organization.
Community stakeholders-such as local communities, consumers (in general) and pressure groups that
do not have protection for the law
Different organizations take different stances on social responsibility. These different stances will also
be reflected I how they manage their responsibilities. Furthermore, CSR-focused businesses
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, Profit. Below are the examples of some organizations which are
y Shell Foundation's involvement in the Flower Valley, South Africa. In Flower Valley they set
up an Early Learning Centre to help educate the community's children as well as develop new
skills for the adults.
y Marks and Spencer is also active in this community through the building of a trade network
with the community - guaranteeing regular fair trade purchases. Often activities companies
participate in are establishing education facilities for adults and HIV/AIDS education
programmes. The majority of these CSR projects are established in Africa. JIDF For You is an
attempt to promote these activities in India.
Stances of Corporate Social Responsibilities:
y The Laissez-faire view:
Rationale: It represents an extreme stance where organizations take the view that the
only responsibility of the business is short term interest of shareholders and to make
profit, pay taxes and provide jobs. They mainly focus towards maximization of profit
because in they not only serve the society but also help in the economic development of
Leadership: leadership under this stance is peripheral. This stance is taken by the
executives who are persuaded of it ideologically or by smaller businesses that do not
have resources other than minimally comply with the regulations. Insofar as social good
is persuade, this is justified in terms of improving profitability.
Stakeholder Relationship: relationships with stakeholders are likely to be largely
unilateral. And one way rather than interactive. The danger here is, of course that this
may not be how society expects organization to act.
y Enlightened self-interest:
Rationale: It is tempered with the recognition of the long term benefit to the
shareholders of well managed relationship with other stakeholders. The justification for
social action is that it makes good business sense.
Leadership: leadership in this case is supportive because an organization¶s reputation is
important to its long term financials success and there is a business case to be made
more proactive stance on social issues in order to recruit or retain staff.
Stakeholder relationship: managers here would take the view that organizations not only
have responsibility to their shareholders but also a responsibility or relationship with
stakeholders likely to be more interactive.
y Forum for stakeholders interactions:
Rationale: it explicitly incorporates multiple stakeholders¶ interests and expectations
rather than just shareholders as influences on organizational purpose and strategy. It
emphasize that the performance of organization should be measured in pluralistic way
rather than just through financial bottom line.
Leadership: companies in this category might retain uneconomic units to preserve jobs,
avoid manufacturing or selling µanti-social¶ products and prepared to bear reductions in
the profitability for social good. Therefore the leadership in this stance is champion.
Stakeholder relationship: organization in this category inevitably take longer over the
development of new strategies as they are committed to wide consultation with
stakeholders and with managing the difficult political trade-offs between conflicting
y Shapers of Society:
Rationale: regard financial considerations as of secondary importance or a constraint.
These are activists, seeking to change society and social norms. The firm may have
been founded for this purpose, as in the case of body shop. They may see their strategic
purpose as ³changing rules of the game´ through which they may benefit but by which
they wish to assure that society benefit.
Leadership: the leadership in this stance is visionary. It is fundamental to their existence
that organizations have zeal to improve the interest of the society but they also need to
remain financially viable which can lead to them being seen as over-commercial and
spending too much on administration or promotional activities.
Stakeholder relationship: in this stance organization have multi-organization alliances.
10. The competitive (positioning) and competence (resource-based) views are two dominant
theoretical perspectives in strategic management. Compare and contrast these two
perspectives. Give examples to support your arguments.
When a firm sustains profits that exceed the average for its industry, the firm is said to possess a
competitive advantage over its rivals. The goal of business strategy is to achieve sustainable
There are two basic types of competitive advantage:
1. Cost advantage
2. Differentiation advantage
A resource based view emphasizes that a firm utilizes its resources and capabilities to create a
competitive advantage that ultimately results in superior value creation.
In order to develop distinctive capabilities a firm should have both resources and capabilities. In
absence of any one of them the competitors can replicate and any prevailing advantage would
Resources can be described as the firm¶s specific assets which are useful for creating a cost or
differentiation advantage which only few competitors can acquire, whereas capabilities are the firms
ability to utilize the available resources in an effective manner. Capabilities are not documented; indeed
they are embedded in the routine process of the organisation which makes it difficult for the
competitors to replicate. E.g. the ability of the organisation is to bring a product to the market faster
than the competitors. The competitive advantage usually is a fall out of the resource based
competencies held by the organisation.
A firm is said to be in a competitive position when it implements a value creating strategy which is
simultaneously not being implemented by its competitors and also is Valuable, Rare, Hard to Imitate
and Non Substitutable.
Further, an organisation can position itself in the market on the basis of cost or differentiation strategy.
A cost advantage can be created by the effective use of available resources in order to reduce the cost
of the product so as to compete in the market with the products of the competitors on the basis of low
cost. Whereas, the competitive edge can also be achieved by differentiation strategy, where the product
is differentiated by a competitors product on certain features which are not easily replicable.
A competitive edge or a competence cannot add value to an organisation alone. This is due to the fact
that a competitive positioning of an organisation is completely dependent on the resource based
competence possessed by the firm.
11. Strategy of an enterprise is defined by answers of two questions:
a) Where does the firm compete (Domain selection)
b) How does it compete (Domain navigation)
Explain this statement from perspective of corporate level and business level strategy with
1) Domain Selection:
Mission statement aims to provide employees and stakeholders with clarity about overall
purpose. Strategy should be according to mission statement and it has to according to fulfilment
of mission of organization.
Vision: to set out a view for future
Objectives: a quantified term which explain how an organization will achieve its vision.
b) Deliberate Chosen Direction
I would like to explain different directions that can an organization choose through Ansoff Matrix.
An organization can choose market
penetration if it wants to go with its
existing products in existing
market. This can be done due to
achieve market share. This means
increasing our revenue by
promoting the product,
repositioning the brand, and so on.
Other ways include attracting non-
users of your product or convincing
current clients to use more of your
product/service, with advertising or
other promotions. Market
penetration is the least risky way
for a company to grow.
An organization will come under
product development segment if it will
choose to go with new product in
existing market. For example,
McDonald's is always within the fast-
food industry, but frequently markets
new burgers. Frequently, when a firm
creates new products, it can gain new
customers for these products. Hence,
new product development can be a
crucial business development strategy
for firms to stay competitive.
If a company is going with existing
product in new market, this option
called market development. This is
for existing customers. For
example, Lucozade was first
If a company choose to go with new
product in new market, it will come
under diversification. Two types of
a) Related diversification means
Existing Products New
marketed for sick children and then
rebranded to target athletes. This is
a good example of developing a
new market for an existing product.
Again, the market need not be new
in itself, the point is that the market
is new to the company.
that we remain in a market or
industry with which we are
familiar. For example, a soup
manufacturer diversifies into
cake manufacture (i.e. the food
b) Unrelated diversification is
where we have neither
previous industry nor market
experience. For example a
soup manufacturer invests in
the rail business.
Virgin Cola, Virgin Megastores,
Virgin Airlines, Virgin
Telecommunications are examples of
new products created by the Virgin
Group of UK, to leverage the Virgin
brand. This resulted in the company
entering new markets where it had no
Corporate Level Strategy:
It is strategy which will be made according to whole organization. This strategy could include
geographical expansion, diversity of products/services or business units. For instance Yahoo can sell its
SBU Yahoo Music if it wants. So on basis of whole organization which strategy will be made that will
be corporate level strategy. While preparing this strategy organization has to keep in mind that it will
not affect even its single SBU. It also concerned with shareholders and can affect stock market of that
Corporate level strategy is concerned with:
y Reach ± Defining the issues that are corporate responsibilities. These might include identifying
the overall vision, mission, and goals of the corporation, the type of business your corporation
should be involved, and the way in which businesses will be integrated and managed.
y Competitive Contact ± defining where in your corporation competition is to be localized.
y Managing Activities and Business Interrelationships ± corporate strategy seeks to develop
synergies by sharing and coordinating staff and other resources across business units,
investing financial resources across business units, and using business units to complement
other corporate business activities.
y Management Practices ± corporations decide how business units are to be governed: through
direct corporate intervention (centralization) or through autonomous government
BUSINESS LEVEL STRATEGY:
This strategy is made by SBU¶s of an organization for themselves individually. This is called
competitive strategy also. How SBU¶s can provide best services is a decision under business level
strategy. SBU will make strategy according to its internal and external environment. SBU¶ business
level strategy should not affect the other SBU¶s of same organization and corporate level strategy
should be according to SBU¶s.
Porter generic strategies
1) RED OCEAN STRATEGY
In red ocean strategy a firm compete in existing market space with the exiting competitors and focus on
the existing customers and the firm is catering to the same demand and does not create new demand. To
survive in this environment the firm needs to create greater value for the customers at a higher cost or
create reasonable value at a lower cost.
y Compete in existing market space
y Beat the competition
y Focus on existing customers
y Exploit existing demand
y Make the value-cost trade off
Align the whole system of a firm¶s activities with its strategic choice of differentiation or low cost
2) BLUE OCEAN STRATEGY
In blue ocean strategy a firm compete in new market by offering a product/service that is uni ue in
market, where there is no competitor, thus making competition irrelevant. This is to create and develop
new demand for its products and services.
y Create uncontested market space
y Make the competition irrelevant
y Focus on non-customers
y Create and capture new demand
y Break the value-cost trade off
(Seek greater value to customers and low cost simultaneously)
Align the whole system of a firm¶s activities in pursuit of differentiation and low cost.
Airtel, Sun DTH, Air Deccan
Corporate Level strategy:
Moser Baer is working on strategy of hybrid for corporate level. In this strategy it is providing quality
products at fewer prices. Like CD¶s, DVD¶s. It is working on strategy of combination of differential
products at fewer prices. It is putting itself different from competitors by giving quality and with low
B si ess level Strategy:
It is working on differentiation strategy for its SBU Moser Baer Photovoltaic. It is providing quality
products to its customers. It is working for quality and for increasing efficiency. Due to its quality it has
got a contract from BSNL worth Rs. 111.9 millions on 23-2 2010. So this is business level strategy to
centre on quality.
12. Explain the following statement: ³The styles of management in managing change need to
match to the scale of change and the organisational context.´
A change agent is the individual or the group that helps affect strategic change in the organization. The
creator of the strategy may not be the change agent, as he may need to rely on others to take a lead in
affecting changes to strategy. Leadership is the process of influencing the organization and it is not
necessary that top management are the leaders in an organization. Furthermore, the leadership style will
affect the outcome, given the strategic objectives of the organization.
The different styles of management are as follows:
Education ± It involves the explanation of the reasons for and means of strategic change. Under
this process, group briefings are conducted to provide detailed information on the strategic
objectives of the organization. This type of change management is usually adopted when there
is a clear lack of misunderstanding or lack of communication of the objectives amongst the
subordinates. While it does provide clarity, it is a time consuming process.
Collaboration /participative± It is the involvement of those who will be affected by the strategic
change in the organization. These people affected will be invited to form focus groups and ask
to provide solutions to the extent of avoiding negative effects of such change. While it increases
responsibility amongst the employees, it is a time consuming process.
Intervention ± It involves the change manager retaining the authority of change while delegating
the elements of change to different teams. These teams are not responsible for the overall
change, but they are responsible to the extent of their role in the change process. The people,
who are intervention managers, are a part of the organization and will warrant higher level of
commitment from them. However, while delegation of work will ensure speedy process of
implementation, there are chances of manipulation taking place.
Direction ± it involves the use of personal managerial authority to establish a clear strategy and
how change will occur. The top management has a clear vision or strategic intent and may also
be accompanied by similar clarity about critical success factors and priorities. The direction is
provided to the subordinates with regards to achievement of their objectives.
Coercion ± It is the imposition of change or the issuing of edicts about change. This is an
explicit use of power and may be necessary if the organization is facing a crisis. Eg ± Air India
and Indian Airlines Merger.
The management style adopted depends on a number of factors, which include:
Different stages of the organization growth ± Here, the management style will vary according to
the stage of growth in the organization. For instance, in the introduction stage, direction style or
education style is followed.
Time and Scope ± under the incremental stage, direction style is more appropriate style of
change management because there is a requirement for transformational change.
Power ± In organizations with hierarchical power structures, a directive power may be common
but in a flatter organization, collaboration and education styles of change management are more
13. Explain the three corporate rationales and discuss their logic, strategic requirements and
organisational requirements. Can more than one rationale co-exist in a particular
Diversification is a strategy that takes the organizations into the new markets, products or services it
offers. The main need of a diversification analysis is to demonstrate that the business will be able to
achieve a return on the investment that more than compensates for the risk. A business owner needs to
consider efficient diversification strategies to build competitive advantage in order to achieve
economies of scale and to take advantage of the financial opportunities that align with the business s
Diversification can be segmented into related diversification and unrelated diversification.
Related diversification -when a business expands or adds its existing product lines or markets. An
example to this would be a phone company which adds or expands its wireless products and services by
purchasing another wireless company is engaging is called as related diversification. The advantage of
going in for a related diversification is that the understanding of the business and knowing the industry
opportunities and the threats. However numbers of related acquisitions fail to provide the benefits or
the returns that are originally predicted. The reason for this is that the diversification analysis
underestimates the cost of some of the softer issues like the change management, integration of the two
cultures, handling of the employees, layoffs and terminations, promotions and even recruitment. On the
other hand the diversification analysis might over estimates the benefits to be gained in synergies.
Vertical integration is describing either backward or forward integration into adjacent activities in the
value network. Backward integration refers to development into activities concerned with inputs into
company¶s current business. For example the acquisitions by the car manufacture of component
suppliers would be related diversification through backward integration. Forward integration refers to
development into activities which are concerned with a company¶s output. For example car
manufacturer acquire distribution, repair and servicing.
Horizontal integration is the development into activities which are complementary or adjacent to the
present activities. For example the internet search company Google has spread horizontally into news,
images, and maps.
It is important to recognise the capabilities and value links are distinct. A link though a value network
does not necessarily imply the existence of capabilities.
When a business adds new or unrelated product lines or markets it is called as unrelated diversification.
For example the same company can go into the business of television business. This is unrelated
diversification since there is no direct fit with the existing business. The companies go in for an
unrelated diversification as there can be cost efficiencies. Another reason can be that it can provide an
offsetting cash flow during a seasonal full. The main driver for this type of acquisition decisions is
profit which needs to be a low risk investment with a high potential of returns.
Ensure that you review the costs and benefits of investment
In new equipment;
In labor saving costs;
In improving productivity and/or workflow;
In serving existing customers better and more profitably;
In diversifying by adding new products and services and/or new markets;
By addressing safety and/or environmental issues and more. Does your capital investment plan
Assess the Opportunity for a Good Return:
New markets and new products or services are usually good diversification opportunities; but consider
these opportunities in the context of integrating benefits into a much stronger overall unique value
Does adding the new products or services provide you with a leveraged opportunity?
For example, if you are a commercial printer and you add basic graphic design services and packaging
services to your product line, you will have a leveraged diversification opportunit`y. Why? Because
your print services can be combined with graphic design services upstream (same end client) and be
combined with packaging services downstream (same end client and/or same destination). You will
have saved your client time and money by enabling the client to 'shop' in one-stop (providing you can
excel at delivering those services). If you are prepared (and able) to invest in your business during
either good or challenging times, make sure that you develop business performance measures to track
the costs and the benefits expected? You need to ensure that the advantages of diversification and the
expected benefits from investment are met as you planned. Ensure that you build those business
measures, set up reporting (even if it's a manual process), and make sure that someone is accountable
for the planned results. Understanding the advantages and disadvantages of unrelated or related
diversification strategies is important to the growth of your business
Diversification and performance Today many corporations have been diversified where it acts in the
managements self interest in order to gain advantage than the undiversified companies. The
diversification tends to follow an inverted (upside down) U shape .this tells us that diversification is
good but to a certain extent. Diversification is usually undertaken by large corporations in order to
spread the risk through a portfolio in order to preserve the image of the growth of the company.