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Mb0036 II

  1. 1. MB0036 STRATEGIC MANAGEMENT AND BUSINESS POLICY Q 1.Imagine you are running a leather garment unit for export. What data flow in terms of ratios as part of the decision support system would you install, in order to monitor and manage the key aspects of the activity? Explain how you would use them for managerial decisions and actions. (10 marks) Answer: Decision Support Systems (DSS) are a specific class of computerized information systems that supports business and organizational decision-making activities. A properly- designed DSS is an interactive software-based system intended to help decision makers compile useful information from raw data, documents, personal knowledge, and/or business models to identify and solve problems and make decisions. For a running a leather garment unit for export the Decision Support System will gives an added advantage. Typical information that a decision support application might gather and present would be: • An inventory of all of your current information assets (including legacy and relational data sources, cubes, data warehouses, and data marts), • Comparative sales figures between one week and the next, • Projected revenue figures based on new product sales assumptions; • The consequences of different decision alternatives, given past experience in a context that is described. DSS components may be classified as: 1. Inputs: Factors, numbers, and characteristics to analyze, these are managed by the administrative cadre. 2. User Knowledge and Expertise: Inputs are requiring manual analysis by user. It is solved by appointing an experienced person, who can handle the analysis of the inputs successfully. Page 1 of 17
  2. 2. MB0036 STRATEGIC MANAGEMENT AND BUSINESS POLICY 3. Outputs: At the end of analysis expert will give the output. Transformed data from which DSS "decisions" are generated. 4. Decisions: Results generated by the DSS based on user criteria. DSSs which perform selected cognitive decision-making functions and are based on artificial intelligence or intelligent agents’ technologies are called Intelligent Decision Support Systems (IDSS). Benefits of DSS 1. Improves personal efficiency 2. Expedites problem solving 3. Facilitates interpersonal communication 4. Promotes learning or training 5. Increases organizational control 6. Generates new evidence in support of a decision 7. Creates a competitive advantage over competition 8. Encourages exploration and discovery on the part of the decision maker 9. Reveals new approaches to thinking about the problem space Page 2 of 17
  3. 3. MB0036 STRATEGIC MANAGEMENT AND BUSINESS POLICY Q.2). What are the elements of a Marketing Plan? List the steps necessary to implement, monitor and control it to achieve its objectives. (10 marks) Answer: Concepts addressed include 'generic' strategies and strategies for pricing, distribution, promotion, advertising and market segmentation. Factors such as market penetration, market share, profit margins, budgets, financial analysis, capital investment, government actions, demographic changes, emerging technology and cultural trends are also addressed. There are two major components to your marketing strategy: • How your enterprise will address the competitive marketplace • How you will implement and support your day to day operations. In today's very competitive marketplace a strategy that insures a consistent approach to offering your product or service in a way that will outsell the competition is critical. However, in concert with defining the marketing strategy you must also have a well defined methodology for the day to day process of implementing it. It is of little value to have a strategy if you lack either the resources or the expertise to implement it. In the process of creating a marketing strategy you must consider many factors. Of those many factors, some are more important than others. Because each strategy must address some unique considerations, it is not reasonable to identify 'every' important factor at a generic level. However, many are common to all marketing strategies. You begin the creation of your strategy by deciding what the overall objective of your enterprise should be. In general this falls into one of four categories: • If the market is very attractive and your enterprise is one of the strongest in the industry you will want to invest your best resources in support of your offering. • If the market is very attractive but your enterprise is one of the weaker ones in the industry you must concentrate on strengthening the enterprise, using your offering as a stepping stone toward this objective. Page 3 of 17
  4. 4. MB0036 STRATEGIC MANAGEMENT AND BUSINESS POLICY • If the market is not especially attractive, but your enterprise is one of the strongest in the industry then an effective marketing and sales effort for your offering will be good for generating near term profits. • If the market is not especially attractive and your enterprise is one of the weaker ones in the industry you should promote this offering only if it supports a more profitable part of your business (for instance, if this segment completes a product line range) or if it absorbs some of the overhead costs of a more profitable segment. Otherwise, you should determine the most cost effective way to divest your enterprise of this offering. Having selected the direction most beneficial for the overall interests of the enterprise, the next step is to choose a strategy for the offering that will be most effective in the market. This means choosing one of the following 'generic' strategies (first described by Michael Porter in his work, Competitive Advantage). • A COST LEADERSHIP STRATEGY is based on the concept that you can produce and market a good quality product or service at a lower cost than your competitors. These low costs should translate to profit margins that are higher than the industry average. Some of the conditions that should exist to support a cost leadership strategy include an on-going availability of operating capital, good process engineering skills, management of labor, products designed for ease of manufacturing and low cost distribution. • A DIFFERENTIATION STRATEGY is one of creating a product or service that is perceived as being unique "throughout the industry". The emphasis can be on brand image, proprietary technology, special features, superior service, a strong distributor network or other aspects that might be specific to your industry. This uniqueness should also translate to profit margins that are higher than the industry average. In addition, some of the conditions that should exist to support a differentiation strategy include strong marketing abilities, effective product engineering, creative personnel, the ability to perform basic research and a good reputation. Page 4 of 17
  5. 5. MB0036 STRATEGIC MANAGEMENT AND BUSINESS POLICY • A FOCUS STRATEGY may be the most sophisticated of the generic strategies, in that it is a more 'intense' form of either the cost leadership or differentiation strategy. It is designed to address a "focused" segment of the marketplace, product form or cost management process and is usually employed when it isn't appropriate to attempt an 'across the board' application of cost leadership or differentiation. It is based on the concept of serving a particular target in such an exceptional manner, those others cannot compete. Usually this means addressing a substantially smaller market segment than others in the industry, but because of minimal competition, profit margins can be very high. Pricing Having defined the overall offering objective and selecting the generic strategy you must then decide on a variety of closely related operational strategies. One of these is how you will price the offering. A pricing strategy is mostly influenced by your requirement for net income and your objectives for long term market control. There are three basic strategies you can consider. • A SKIMMING STRATEGY: If your offering has enough differentiation to justify a high price and you desire quick cash and have minimal desires for significant market penetration and control, then you set your prices very high. • A MARKET PENETRATION STRATEGY: If near term income is not so critical and rapid market penetration for eventual market control is desired, then you set your prices very low. • A COMPARABLE PRICING STRATEGY: If you are not the market leader in your industry then the leaders will most likely have created a 'price expectation' in the minds of the marketplace. In this case you can price your offering comparably to those of your competitors. Page 5 of 17
  6. 6. MB0036 STRATEGIC MANAGEMENT AND BUSINESS POLICY Promotion To sell an offering you must effectively promote and advertise it. There are two basic promotion strategies, PUSH and PULL. • The PUSH STRATEGY maximizes the use of all available channels of distribution to "push" the offering into the marketplace. This usually requires generous discounts to achieve the objective of giving the channels incentive to promote the offering, thus minimizing your need for advertising. • The PULL STRATEGY requires direct interface with the end user of the offering. Use of channels of distribution is minimized during the first stages of promotion and a major commitment to advertising is required. The objective is to "pull" the prospects into the various channel outlets creating a demand the channels cannot ignore. There are many strategies for advertising an offering. Some of these include: • Product Comparison advertising: In a market where your offering is one of several providing similar capabilities, if your offering stacks up well when comparing features then a product comparison ad can be beneficial. • Product Benefits advertising: When you want to promote your offering without comparison to competitors, the product benefits ad is the correct approach. This is especially beneficial when you have introduced a new approach to solving a user need and comparison to the old approaches is inappropriate. • Product Family advertising: If your offering is part of a group or family of offerings that can be of benefit to the customer as a set, then the product family ad can be of benefit. • Corporate advertising: When you have a variety of offerings and your audience is fairly broad, it is often beneficial to promote your enterprise identity rather than a specific offering. Page 6 of 17
  7. 7. MB0036 STRATEGIC MANAGEMENT AND BUSINESS POLICY Distribution: You must also select the distribution method(s) you will use to get the offering into the hands of the customer. The Environment: Environmental factors positively or negatively impact the industry and the market growth potential of your product/service. The Prospect: It is essential to understand the market segment(s) as defined by the prospect characteristics you have selected as the target for your offering. The Product/Service: You should be thoroughly familiar with the factors that establish products/services as strong contenders in the marketplace. The Competition: It is essential to know who the competition is and to understand their strengths and weaknesses. Each of your competitor's experience, staying power, market position, strength, predictability and freedom to abandon the market must be evaluated. Development: A review of the strength and viability of the product/service development program will heavily influence the direction of your strategy. Production: Marketer should review, the enterprise's production organization with respect to their ability to cost effectively produce products/ services. Marketing/Sales: The marketing and sales organization is analyzed for its strengths and current activities. Customer Services: The strength of the customer service function has a strong influence on long term market success. Page 7 of 17
  8. 8. MB0036 STRATEGIC MANAGEMENT AND BUSINESS POLICY Q.3 What are the preparatory actions necessary for Strategy formulation and which functionaries of the organization should be involved in shaping them? (10 marks) Answer: Strategy refers to the course of action desired to achieve the objectives of the enterprise. Formulation, together with its implementation, constitutes an integral part of the management activity. Managers use strategies for different purposes such as to overcome competition, to increase sales, to increase production, to motivate the employees to provide their best, and so on. Implementation of a strategy is a crucial task as the formulation of it. There may be a lot of resistance during the implementation process. It is necessary for the manager to be very tactful to involve the members of his group in the formulation of strategy to implementation process. Stages in Strategy Formulation and Implementation: a) Identification of mission and objectives: Mission statement is a formal document that describes the organization’s overall purpose and what it hopes to achieve in terms of its customers, products, and resources. The ideal mission statement is not too broad, too narrow, or too shortsighted. Then, the strategy should have certain specified objectives. b) Environment scanning Environmental factors positively or negatively impact the industry and the market growth potential of your product/service. Factors to consider include: • Government actions - Government actions (current or under consideration) can support or detract from your strategy. Consider subsidies, safety, efficacy and operational regulations, licensing requirements, materials access restrictions and price controls. Page 8 of 17
  9. 9. MB0036 STRATEGIC MANAGEMENT AND BUSINESS POLICY • Demographic changes - Anticipated demographic changes may support or negatively impact the growth potential of your industry and market. This includes factors such as education, age, income and geographic location. • Emerging technology - Technological changes that are occurring may or may not favor the actions of your enterprise. • Cultural trends - Cultural changes such as fashion trends and life style trends may or may not support your offering's penetration of the market. c) Generic strategy alternatives: After the nature of the business of the firm is defined, the next task is to focus on the type of strategic alternative, in general, the firm should pursue. There are four strategy alternatives available to a firm or business: i To expand ii To stabilize iii To wind up or retrench, and iv To continue its operations pertaining to its products, markets or functions. d) Strategy variations There can be a number of variations of the generic strategy alternatives. For instance, if the strategy is to expand, then the alternatives are internal expansion or external expansion. Strategy variations can attain the following forms: • Internal or external • Related or unrelated • Horizontal or vertical • Active or passive Page 9 of 17
  10. 10. MB0036 STRATEGIC MANAGEMENT AND BUSINESS POLICY e) Strategic choice: It involves the decision to select from among alternatives, the best strategy which effectively contributes to the business objectives. The spade work before making a strategic choice consists of: • Identifying the few viable alternative courses of action. • Considering the parameters for selection of best alternative. • Evaluating each alternative on its own merits and in relation to other alternatives. • Making the final choice. • Keeping the next best alternative as stand by. f) Allocation of resources and formulation of organizational structure: The process of strategy implementation calls for an integrated set of choices and activities. These include allocating resources, organizing, assigning appropriate authority to the key managers, setting policies and developing procedures. A good strategy with effective implementation has a higher probability of success. There source allocation decisions, such as, which department is sanctioned how much of money and resources, in the name of budget, and so on- set the operative strategy of the firm. g) Formulation of plans, policies, programmes and administration: The implementation of plans and policies is designed in accordance with the strategy chosen. The firm creates plans and policies to guide managerial performance, and these make the chosen strategies work. The corporate success lies ultimately in the ability to convert corporate strategy into plans and policies that are compatible and workable. h) Evaluation and control: It is at the stage that the success of the programmes can be assessed. There should be a built- in mechanism to examine the deviations and initiate corrections as and when required. This assures that the chosen strategies will be implemented properly. Page 10 of 17
  11. 11. MB0036 STRATEGIC MANAGEMENT AND BUSINESS POLICY Q. 4). What are the types of capital needed by a business and explain their purposes. (10 marks) Answer: When implementing a new business concept, only one definition captures the real essence of capital: "It takes money to make money." From the aspiring entrepreneur designing new software in a home office to the executive of a multinational corporation looking to expand foreign distribution channels, launching any new business concept requires capital, or money, as a basis to execute the business plan. One of the most common reasons businesses fail is a lack of or inappropriately structured capital resources. For the sake of simplicity, capital is the amount of financial resources needed to implement and execute a business plan. Before a business sells its first product or service, it needs financial resources for product development, sales, marketing, administrative support, the company's formation, and countless other critical business functions. Capital should not be perceived as just the amount of "cash on hand" but rather the amount of financial resources available to support the execution of a business plan. While financial resources come in countless forms, types, and structures, two basic types of financial resources are available to most businesses: debt and equity. Debt represents a liability or obligation of a business. Debt is generally governed by mutually agreed upon terms and conditions as provided by the party extending credit. For example, a bank lends $2 million to a company to purchase additional production equipment to support expansion. The bank establishes the terms and conditions of the debt agreement, including the interest rate, repayment term, collateral required, and other elements. These terms and conditions must be adhered to by the company, or it runs the risk of default. Equity represents an investment in the business, usually doesn't have set repayment terms, but the owners of the equity investments do have a right to future earnings they may be paid dividends or distributions if profits and cash flows are available. For example, a software technology company requires $2 million in capital to develop and launch a new software Page 11 of 17
  12. 12. MB0036 STRATEGIC MANAGEMENT AND BUSINESS POLICY solution. A venture capitalist group invests the required capital under the terms and conditions present in the equity offering, including what their percentage ownership in the company will be, rights to future earnings, representation on the board of directors, conversion rights, and so on. The company isn't required to remit any payments to the capital source per a set repayment agreement but has given up a partial right to ownership (which can be even more costly). Of course, many variations, alternatives, subtypes, and classifications are present for each type of capital. If it were as easy as debt versus equity, there wouldn't be much need for bankers, accountants, venture capitalists, and the like (which would be a welcomed change to most business owners). We may be wondering whether debt or equity capital is best suited for the company. This decision really depends on the company's stage in terms of its operating history, industry profile, profitability levels, asset structure, future growth prospects, and general capital requirements, as well as where the sources of capital lie. Page 12 of 17
  13. 13. MB0036 STRATEGIC MANAGEMENT AND BUSINESS POLICY Q.5). Which are the main functionaries in a business? How do they share responsibility for the Business Plan, in terms of key result areas, and how do they coordinate with each other? (10 marks) Answer: Planning for the future is the key to prosperity. Business planning is an ongoing process of making decisions that guide the firm both in the short term and for the long term. Planning identifies and builds on a firm’s strengths, and it helps managers at all levels to make informed decisions in a changing business environment. Business plans are decision-making tools. There is no fixed content for a business plan. Rather the content and format of the business plan is determined by the goals and audience. A business plan should contain whatever information is needed to decide whether or not to pursue a goal. For example, a business plan for a non-profit might discuss the fit between the business plan and the organization’s mission. Banks are quite concerned about defaults, so a business plan for a bank loan will build a convincing case for the organization’s ability to repay the loan. Venture capitalists are primarily concerned about initial investment, feasibility, and exit valuation. A business plan for a project requiring equity financing will need to explain why current resources, upcoming growth opportunities, and sustainable competitive advantage will lead to a high exit valuation. Preparing a business plan draws on a wide range of knowledge from many different business disciplines: finance, human resource management, intellectual property management, supply chain management, operations management, and marketing, among others. It can be helpful to view the business plan as a collection of sub-plans, one for each of the main business disciplines. Page 13 of 17
  14. 14. MB0036 STRATEGIC MANAGEMENT AND BUSINESS POLICY While preparing your business plan, you may follow: 1. Company and Product Description: In describing your company be sure to include what type of business you are planning and the legal structure. 2. Product or Service: after describing your company and its industry context, describe the products or services you plan to provide. Focus on what distinguishes your product or service form the rest of the market. 3. Price: Provide a realistic estimate of the price for your product or service, and discuss the rationale behind that price. An unrealistic price estimate may undermine the credibility of your plan and raise concerns that your product or service may not be of sufficient quality or that you will not be able to maintain profitability in the long run. 4. Place: Describe the location where you will produce or distribute your product or provide service. Depending on your anticipated customer base, accessibility to your location via public transportation could affect the marketability of your product or service. 5. Customers: In this section of your business plan, you will describe the customer base or market of your product or service. 6. Competition: Discuss how people identified in your target market currently meet their need for your product or service. Briefly describe what differentiates your proposed venture from the existing businesses and discuss why you are entering this market. 7. Sales Projections: Present an estimate of how many people you expect will purchase your product or service. Your estimate should be based on the size of your market, the characteristics of your customers and the share of the market you will gain over your competition. 8. Market Description: In this section, you will describe how you plan to operate the business. Page 14 of 17
  15. 15. MB0036 STRATEGIC MANAGEMENT AND BUSINESS POLICY 9. Production Description: Describe the steps for creating your product, from the raw material or initial stage to the finished product, packaged and ready for distribution and sale. 10. Staffing: Describe the staff required to operate your business; how many people you need; tasks they will carry out; and skills they will need. Provide information on how you will recruit staff and provide initial and ongoing training of employees, outline of the salaries and benefits you will provide them. 11. Facility: Describe the type of facility you will house your business. Indicate the amount of building space you will need for production and administration. 12. Operations: Describe the type ownerships and the senior managers responsible for overseeing the start-up and operations of your business. All of the steps discussed above are inter-related each other for the smooth flow of the operations of the proposed business venture. Each and every point is an important factor for the purpose. Page 15 of 17
  16. 16. MB0036 STRATEGIC MANAGEMENT AND BUSINESS POLICY Q.6). Explain with any real or imaginary example, the four generic Strategy Alternatives for Products. (10 marks) Answer: With the advent of generic strategies the task of the executive suddenly became much simpler. Rather than by slogging through a structured analytical process, success could be achieved by following the checklist in the latest airport book. So the search for unique strategies has been replaced by a simplistic choice between a prescribed and limited set of generic alternatives. Many large firms have become multiproduct companies with self-contained divisions organized around products or brands. These self-contained divisions are called strategic business units (SBUs), individual units representing different areas of business within the firm that are each different enough to have their own mission, business objectives, resources, managers, and competitors. Listed below are typical steps followed in strategic planning. 1. Define the Mission Questions asked in this stage include: What business are we in? What customers should we serve? How should we develop the firm’s capabilities and focus its efforts? Answers to these questions become part of the mission statement, a formal document that describes the organization’s overall purpose and what it hopes to achieve in terms of its customers, products, and resources. The ideal mission statement is not too broad, too narrow, or too shortsighted. 2. Evaluate the Internal and External Environment This is referred to as a situation analysis, environmental analysis, or sometimes a business review. The analysis includes a discussion of the firm’s internal environment, which can identify a firm’s strengths and weaknesses, as well as the external environment in which the firm does business so the firm can identify opportunities and threats. Page 16 of 17
  17. 17. MB0036 STRATEGIC MANAGEMENT AND BUSINESS POLICY The internal environment is all controllable elements inside a firm that influence how well the firm operates. Examples include the firm’s technologies, physical facilities, financial stability, and relationships with suppliers. The external environment consists of elements outside the firm that may affect it either positively or negatively. The external environment includes consumers, government regulations, competitors, the overall economy, and trends in popular culture. Both threats and opportunities can come from any part of the external environment. A SWOT analysis is the outcome of the analysis of a firm’s internal and external environments. A SWOT analysis allows managers to focus clearly on meaningful strengths (S) and weaknesses (W) in the firm’s internal environment, and opportunities (O) and threats (T) coming from outside the firm (the external environment). 3. Set Organizational or SBU Objectives Organizational objectives are a direct outgrowth of the mission statement and broadly identify what the firm hopes to accomplish within the general time frame of the firm’s long- range business plan. Objectives need to be specific, measurable, and attainable. Objectives may relate to a number of elements such as revenue and sales, profitability, the firm’s standing in the market, or return on investment. 4. Establish the Business Portfolio Companies with several different SBUs must make decisions about how to best allocate resources across these businesses to ensure growth for the total organization. Each SBU has its own focus within the firm’s overall strategic plan, and each has its own target market and strategies for reaching its objectives. The range of different businesses that a large firm operates is called its business portfolio. Having a large business portfolio reduces the firm’s dependence on one product line or one group of customers. Portfolio analysis is a tool management uses to assess the potential of a firm’s business portfolio, helping management decide which of its SBUs should receive more or less of the firm’s resources and which of its SBUs are most consistent with the firm’s overall mission. Page 17 of 17