1 Nature and Scope of Strategic Management

Transcription

1 Star Rating On the basis of Maximum marks from a chapter On the basis of Questions included every year from a chapter On the basis of Compulsory questions from a chapter Nil Nil Nil 1 Nature and Scope of Strategic Management This Chapter Includes: Concept; role, functions and processes of strategic management in globally, competitive and knowledge-based environment. Marks of Short Notes, Distinguish Between, Descriptive & Practical Questions Question upto May 2007 are from PCC Gr. II and from June 2009 onwards are from Professional Programme New Course. Q&A-5.13

2 Q&A-5.14 Solved Scanner CS Prof. Prog. M-III Paper 5 SHORT NOTES Dec [3] Write notes on the following: (ii) Functional level strategies (5 marks) (v) Risks in global business. (5 marks) (ii) Functional Level Strategies: Functional level strategy involves decision-making with respect to specific functional areas, say, production, marketing, personnel finance, etc. decisions at the functional level and are often described as tactical decisions. Functional strategies emphasize on doing things right. But these decisions are guided by overall strategic consider-ations and must be consistent with the frame work of the business strategy. Functional strategy is the approach taken by functional area to achieve corporate and business objectives and strategies by maximising resource productivity. It is concerned with developing and nurturing a distinct competence to provide a company or business unit with a competitive advantage. (v) Risks in Global Business: Global Business has some additional risks besides the usual business risk which are of the following types: (i) Political and Regulatory Risks: Many countries of the world are not politically stable and transfer of political power does not happen in smooth ways in these countries. Therefore, companies doing business in these countries may have risk in new political regimes. Similarly, many countries have different types of regulations for doing business. Such regulations may be of quite different nature as compared to those prevailing in the domestic country. Therefore, the regulations of the host countries should be taken into account. (ii) Cultural and Managerial Risks: Countries differ widely in terms of cultural characteristics like customer preferences and tastes, attitudes towards certain types of products/ services, transitions, values and beliefs, and a host of other cultural factors. Therefore, products/services have to be tailored according to such requirements. Further, since management practices are culture - bound, the kinds of management practices which are effective in the domestic contry may not be suitable in foreign countries. Therefore, there is a need for suitable change in management practices, more particularly related to human resource aspects.

3 [Chapter 1] Nature and Scope of Strategic Management Q&A-5.15 DISTINGUISH BETWEEN Dec [3] Distinguish between of the following: (i) Corporate strategies and business strategies. (5 marks) Corporate Strategies and Business Strategies: Corporate Strategies Business Strategies 1 It is formulated by a top management It is decided by the business unit managers in consultation with the top management team. 2 Shareholders return, economic profit, growth, net income, income diversity, synergy, corporate citizenship. 3 An overarching plan of action covering various functions, performed by different SBUs, deals with the objective of the company. allocation of resources and co-ordination of the SBUs for optimal performance. Growth, Economic profit quality, market share, employee development, productivity knowledge generation. Comprehensive plan providing objective for SBU, allocation of resources amongst functional areas and Coordination between them for making optional contribution to the achievement of corporate level objectives Dec [1] Distinguish between the following: (i) International strategy and transnational strategy. (5 marks) (iv) Corporate level strategy and business level strategy. (5 marks) (i) Difference between International Strategy and Transnational strategy : International strategy: International strategy which involves creating an international division and exporting the products through that division to those countries where the products are needed. At this stage of globalisation, a company is really focussed on the domestic market and just exporting what is demanded abroad. As the product becomes successful abroad, the company may set up manufacturing and marketing facilities with certain degree of differentiation based on product customization. Transnational Strategy: Transnational strategy involves adopting a combined approach of low costs and high local responsiveness simultaneously by the companies for their products/ services. Integrating these two contradictory approaches is a difficult proposition and requires innovative ways. (iv) Please refer Dec [3] (i) on page no. 15

4 Q&A-5.16 Solved Scanner CS Prof. Prog. M-III Paper 5 DESCRIPTIVE QUESTIONS May [8] What do you understand by Strategy? Explain the four generic strategies as discussed by Glueck and Jauch. (10 marks) Strategy is the creation of a unique and valuable position involving a different set of activities. Strategy requires you to make trade-offs in competing to choose what not to do. Operational effectiveness is not strategy, it is necessary but not sufficient. A company can outperform rivals only if it can establish a difference that it can preserve. Strategy rests on unique activities, the essence of strategy is choosing to perform activities differently than rivals do. According to Glueck and Jauch there are four generic ways in which strategic alternatives can be considered. (i) Stability strategies One of the important goals of business enterprise is stability to safeguard its existing interest and strength, to pursue well established and tested objectives, to continue in the chosen business path, to maintain operational efficiency on a sustained basis, to consolidate the commanding position already reached, and to optimise returns on the resources committed in the business. (ii) Expansion strategy Expansion strategy is implemented by redefining the business by adding the scope of business substantially increasing the efforts of the current business. Expansion is a promising and popular strategy that tends to be equated with dynamism, vigor, promise and success. It is often characterised by significant reformulation of goals and directions, major initiatives and moves involving investment, exploration and on slaught into new products, new technology and new markets, innovative decisions and action programme and so on. Expansion include diversifying, acquiring and merging businesses. (iii) Retrenchment Strategy: A business organisation can redefine its business by divesting a major product line or market. Retrenchment or retreat becomes necessary or expedient for coping with particularly mostly and adverse situations in the environment and when any other strategy is likely to be suicidal. In business parlance also, retreat is not always a bad proposition to save the enterprises vital interests, to minimize the adverse environmental effects, or even to regroup and recoup the resources before a fresh assault and ascent on the growth ladder is launched.

5 [Chapter 1] Nature and Scope of Strategic Management Q&A-5.17 (iv) Combination Strategies: Stability, expansion or retrenchment strategies are not mutually exclusive. It is possible to adopt a mix to suit particular situations. An enterprise may seek stability in some area of activity, expansion in some and retrenchment in others. Retrenchment of ailing products followed by stability and capped by expansion in some situations may be thought of. For some organisations, a strategy by diversification and/or acquisition may call for a retrenchment in some absolute product lines, production facilities and plant locations Nov [8] What is Strategic Management? What benefits accrue by following a strategic approach to managing? (10 marks) Strategies Management is the art and science of formulating implementing and evaluating cross-functional decision that will enable an organisation to achieve its objectives. Strategic management, therefore combines the activities of the various functional areas of a business to achieve organizational objectives. Strategic Management provides overall direction to the enterprise. Strategic Management does not replace traditional management activities such as budgeting, planning, monitoring, marketing reporting and controlling. Rather, it integrates them into a broader context, taking into account the external environment, internal organizational capabilities, and organizations overall purpose and direction. Thus, strategic management is an ongoing process that assesses the business environment and the industries in which the company is involved assesses its competitors and set goals and strategies to meet all existing and potential competitors and then reassesses each strategy annually or quarterly. Benefits of Strategic Management: (a) It allows for identification, prioritization and exploitation of opportunities; (b) It provides an objective views of management problems; (c) It represents a framework for improved co-ordination and control of activities; (d) It minimizes the effects of adverse conditions and changes; (e) It allows major decisions to support established objectives; (f) It allows more effective allocation of time and resources to identified opportunities; (g) It allows fewer resources and less time to be devoted to correcting erroneous or ad hoc decisions; (h) It creates a framework for internal communication among personnel; (i) It helps to integrate the behaviour of individuals into a total effort,

6 Q&A-5.18 Solved Scanner CS Prof. Prog. M-III Paper 5 (j) It provides a basis for clarifying individual responsibilities; (k) It encourages forward thinking. (l) It provides a cooperative, integrated and enthusiastic approach to tackling problems and opportunities; (m) It encourages a favourable attitude toward change; (n) It gives a degree of discipline and formality to the management of a business Nov [8] What is meant by a Global Company? Explain briefly different strategic approaches for Globalisation by a Company. (4 6 = 10 marks) In simple economic terms globalization refers to the process of integration of world into one huge market. At the company level globalization means two things: (a) the company commits itself heavily with several manufacturing locations around the world and offers products in several diversified industries and (b) it also means ability to compete in domestic markets with foreign competitors. A company which goes global is also called a Multinational Company (MNC). The global company views the world as one market minimizes the importance of national boundaries. A global company has three attributes: (i) It is conglomerate of multiple units located in different parts of the globe but all linked with common ownership. (ii) Multiple units draw a common pool of resources such as money, credit, patents, trade name, etc. (iii) The units respond to common strategy. Strategic approaches: International economic dynamics accompanied by geographical changes have changed the paradigm of global business. A firm/company which wishes to go global will be guided by the following four types of strategies: (i) Multi-domestic strategy: A multi-domestic strategy focuses on competition within each country in which the firm operates. This Strategy is adopted when a company tries to achieve a high level of local responsiveness by matching their products and services offerings to national conditions prevailing in the countries they operate in. The organization attempts to extensively customize their products and services according to the local conditions of different countries. (ii) Global Strategy: A global strategy assumes more standardization of products across country boundaries. Under this strategy, the company tries to focus on a low cost structure by leveraging their expertise in providing certain products and services and concentrating the production of these standard products and services and controller by the home offers.

7 [Chapter 1] Nature and Scope of Strategic Management Q&A-5.19 (iii) Transnational Strategy: Many large multinational firms particularly those with many diverse products, may use a multi-domestic strategy with some product lines and a global strategy with others. A transational strategy seeks to combine aspects of both multi-domestic and global strategies. Thus there is emphasies on both local responsiveness and global integration and coordination. Although the transnational strategy is difficult to implement, environmental trends are causing multinational firms to consider the needs for both global efficiencies and local responsiveness. When a firm adopts one or more of the above strategies, the firm would have to take decisions on the manner in which it would commence international operations. The decision as to how to enter a foreign market can have a significant impact on the results. Expansion into foreign markets can be achieved through following options: (i) Exporting (ii) Licensing/Franching (iii) Joint Venture (iv) Foreign Direct/Investment Dec [1] (a) In the context of strategic management, discuss, with reasons in brief, any five of the following statements: (i) Napoleon used to say, It is all in the execution. (ii) There is often a fight to finish in the modern business world. Individual units and companies either die (fold up) or get eaten up (acquired, etc.); while in animal world, once a contestant accepts defeat, he is left to lick his wounds alone. (iii) Strategic management is a term broader than strategy itself. (iv) There are no foreign lands. It is the traveller only who is foreign. (v) A company faced with decline in fortunes has only one option of adopting liquidation strategy. (vi) Bench marking is the break-in-process of measuring products, services and practices against the competitors and companies recognised as industry leaders. (2 marks each) (a) (i) The statement is correct in the context of strategic management, execution or implemention is really important, strategies, by themselves, do not lead to action. It is implementation that translate intents into action. In other words, one can have a great plan, but unless it s implemented properly, it won t lead to the desired result. Thus, in order to achieve the desired objectives, execution is everything.

8 Q&A-5.20 Solved Scanner CS Prof. Prog. M-III Paper 5 (ii) Firms competent not merely because they have to survive, but because they wish to acquire good things such as money, wealth, and power which are well beyond that what they need for survival and provisioning. (iii) The statement is correct, strategic management is the art and science of formulating, implementing and evaluating cross-function decisions that will enable an organization to achieve its objectives. Strategy is defined as a long term course of action through which an organization relates itself the environment so as to achieve its objectives whereas strategic management combines the activities of the various functional area of against the competitors and those companies recognized as industry leaders. It is based on the concept that it makes no benefit to reinvest something that someone else is already using. It involves open learning how others do something better than one s own company so that one not only can intimate, but perhaps even improve on their current technique Dec [2] (a) Knowledge is currently considered as the most important strategic resource. As a Company Secretary, suggest a systematic approach to your company for implementing knowledge management programme. (10 marks) Knowledge is currently considered as the most important strategic resource, and the ability to create and apply knowledge has been a key in establishing a relatively sustainable competitive advantage. It has been naturally assumed that the enterprises that have better knowledge of their customers, products, technologies, markets and links between them, and that can apply suck knowledge, can achieve better results. Such an opinion further develops a resource - based approach to the enterprise and pushes it towards the knowledge approach which perceives an enterprise as a tool for creating, integrating, storing, sharing and application of knowledge. The following knowledge of management programme is suggested for implementation: 1. Define knowledge management strategy: Knowledge management strategy is defined in advance so that a systematic approach is followed. It requires the active involvement of top management so that its commitment and support are ensured. Knowledge management strategy contains the following: (i) What to share: Different aspects of technical know - how, managerial know - how, competitive intelligence, operational processes, etc. can be shared. (ii) Why to share: Knowledge for the sake of knowledge has no relevance rather it must be used for organizational betterment. Knowledge management strategy should specify the way in which the organization will be benefited through practicing knowledge management.

9 [Chapter 1] Nature and Scope of Strategic Management Q&A-5.21 (iii) How to share: In this stage the decision about mechanism of knowledge sharing is made. These may be different channels for sharing knowledges such as personal face - to - face contact, deputing personnel to the sharing parties, computer networks - internally and externally, etc depending on the nature of parties, and the channel chosen. (iv) Whom to share: There are different types of people and organizations with whom knowledge can be shared. They are internal employees at various levels, customers and suppliers, shareholders and financiers, research organizations, collaborators etc. 2. Organising knowledge Management Programme: For this, a knowledge management centre should be established. Besides this, the business should undertake the following step to implement. The knowledge management programme: (i) Providing Budget for sharing knowledge: Knowledge management programme involves cost in the form of outlay on physical facilities, information technology, personnel involved, etc. therefore, a budget should be prepared in advance for launching the knowledge management programme; (ii) Communicating the value of sharing knowledge: Before the knowledge is shared among various constituents, it is essential that they are informed about the value of knowledge sharing, how it will be useful to them and to the organization and what processes can be adopted for knowledge sharing; (iii) Choosing Technology for Sharing Knowledge: Knowledge can be shared by using a channel which is provided by the technology chosen for this purpose. (iv) Selecting methods of sharing knowledge: Knowledge in an organization can be shared in the following forms i.e., (a) Serial Transfer; (b) Near Transfer; (c) Far Transfer; (d) Strategic Transfer; and (e) Expert transfer; (v) Measuring of performance: When knowledge sharing methods are put into practice, their impact should be measured continuously to ascertain whether they are effective in knowledge sharing. 3. Reinforcement for knowledge management: Reinforcement for knowledge management is necessary to make it a part of organizational processes and practices. It increases the strength of a new behaviour and tends to induce repetition of that behaviour. Reinforcement should be provided so long as knowledge sharing does not get imbibed into personnel. In order to provide reinforcement for knowledge management, the business has to:

10 Q&A-5.22 Solved Scanner CS Prof. Prog. M-III Paper 5 (a) (b) Introduce New Incentives: Incentives are those objects that are perceived by people as being important to satisfy their needs, which may be in financial or non-financial forms. Provide Support Knowledge Sharing: The business should provide support to employees for sharing knowledge. This facilitates knowledge sharing and employees feel that top management pays attention on them also June [1] (a) Explain the various phases of strategic management process. (8 marks) Answer : Strategic Management Process Strategic management process can be described as a set of managerial decisions and actions which determine the long run direction and performance of the organization. Various phases of strategic management process are as follows: 1. Setting organisational mission and objectives. 2. Environmental analysis. 3. Organisational assessment. 4. Identification of strategic alternative. 5. Choice of appropriate strategy. 6. Implementation of strategy. 7. Performance evaluation and control June [3] (c) Discuss in detail the reasons that prompt the companies for doing business globally. (5 marks) Answer : Reasons for doing business globally. The reasons are as follows: (1) Market saturation (2) Foreign competition (3) Trade deficit (4) New markets (5) Saving in costs (6) Business adversities (7) Utilise full capacity (8) Avail product technology, raw materials etc. (9) Developing and Testing new products.

11 [Chapter 1] Nature and Scope of Strategic Management Q&A Dec [1] (b) Define the following terms: (ii) Knowledge management (2 marks) Knowledge management: Knowledge management is a process which helps the enterprises to identify, select, arrange, extend and transfer important information and specialised knowledge. Repeatedly Asked Questions No. Question Frequency 1 Distinguish between Corporate level strategy and business level strategy Dec [3] (i), 11 - Dec [1] (iv) 2 Times