CA-IPCC COURSE MATERIAL

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2 CA-IPCC COURSE MATERIAL Quality Education beyond your imagination... BOOK NO. A10 FAST TRACK MATERIAL IN STRATEGIC MANAGEMENT_35e Score at least 20 marks with this material Cell: / 26 Visit Mail: mastermindsinfo@ymail.com Facebook Page: Masterminds For CA Youtube Channel: Masterminds For CA Page 1

3 Index for Fast Track Material in Strategic Management Chapter Name Pages Part A Flow charts 4 36 Part B Definitions Part C Differences Part D True or False Statements

4 CA - IPCC COURSE MATERIAL Quality Education beyond your imagination... PART A FLOWCHARTS Cell: / 26 Visit Mail: mastermindsinfo@ymail.com Facebook Page: Masterminds For CA Youtube Channel: Masterminds For CA Page 3

5 / BUSINESS ENVIRONMENT 1. Define the term business. What are its objectives? Business Definition Entity view Company or corporation, created & managed by people Work view State of being busy, i.e., one s regular occupation or profession Process view Any activity consisting of purchasing, processing, manufacturing, selling & / or marketing of products or services Objectives of a Business Survival Stability Growth Efficiency Profitability Others (in the more long-run) It is the basic objective of every business It depends on several factors such as, nature of ownership, competence of management, etc. Here a firm aims to achieve smooth work flow Cautious, conservative, least expensive & less risky objective Here there will be an increase in the asset base, manpower employment, etc. More risky objective It is an operational objective It is all about designing & achieving suitable input-output ratios of funds, resources, facilities & efforts It is overall measure of performance & is the main objective of business Technical dynamism Self-reliance Competitive Strength Customer service & Product Quality Employee satisfaction & welfare Contribution to societal welfare, etc. 2. Explain the different types of Interactions or Exchanges between Business and Environment Exchange of Information Exchange of Resources Exchange of Influence & Power Inflow Outflow Inflow Outflow Inflow Outflow Businesses analyse the variables in the environment and generate important information for planning, decision making & control purposes. Information may be about economic conditions, market conditions, technical developments, social & demographic factors, etc. Business transmits information to several external agencies either voluntarily, inadvertently or legally Business receives inputs like men, money, materials, methods, machinery from the environment Business supplies the necessary goods and services to the environment Environment (Government, competitors, customers, suppliers, investors, etc.) exercises significant collective power & influence over planning & decision-making of businesses In some aspects, businesses can influence the environment in their favour Copyrights Reserved To, Guntur IPCC 35e S.M._Flowcharts_Business Environment 4

6 No.1 for CA/CMA & MEC/CEC 3. Can a business function in an isolated manner? Can a business function in an isolated manner? No, because Business depends on environment for various inputs such as men, money, materials, machinery etc. Business depends on environment for disposing of their outputs in a mutually beneficial manner Inputs = Resources Men Money Materials Methods Machinery Business operates as a sub-system of the environment Processing Transformation of Inputs to Outputs Environmental Factors Outputs Products Services 4. What are the Characteristics of Business Environment? Characteristics of Business Environment Pervasiveness A business enterprise can t operate in vaccum It has to interact with the environment continuously for survival Complexity Various environment factors, events, conditions etc. will interact with each other continuously, to create entirely new sets of complex influences Multi-faceted The shape & character of the environment depends on the perception of the observer Dynamism Business environment is everchanging in nature Significant Impact Environment has a far reaching impact on business The growth & probability of a firm depends majorly on the environment 5. What are the basic goals of Environmental Analysis? Basic goals of Environmental Analysis To understand the current & potential changes: Every business should be aware of its existing environment To generate inputs for strategic decision making: The information collected should be relevant, timely & useful for strategic decision making To facilitate & foster strategic thinking Environment analysis will be a rich source of ideas and understanding of the context within which a firm operates Copyrights Reserved To, Guntur IPCC 35e S.M._Flowcharts_Business Environment 5

7 / Explain the elements of Micro Environment? Elements of Micro Environment Competitors Organization itself Suppliers - Refer to other business entities that compete for resources as well as markets - Competition may be direct or indirect - Major aspects to be considered include, no. of competitors, nature of products/product vacancies, their long term objectives their present strategies etc. - Also known as self-analysis or internal analysis - Owners, governing body & employees are the three major factors to be considered here - Provide inputs like raw materials, components, equipment s, services etc. - Firms must select an option between own production vs. outsourcing for needed inputs - Aspects to be considered here include, availability of raw materials, no. of suppliers, cost structure, quality, bargaining power of suppliers etc. Elements of Micro Environment Market/Industry Intermediaries Customers - Should study the latest trends, developments & key success factors of the industry - Important issues to be considered here include actual & potential size of the industry, attractiveness & cost structure of the market, Price sensitivity, existing distribution system of the market etc. - Wholesalers, retailers & dealers establish an important link between organization & its environment - Aspects to be considered are availability of intermediaries, their costpush effect, their direct dealings with customers - The aim of any business is to create & retain customers - Aspects to be considered are: Potential customers, their expected benefits & utilities, buying patterns & changes in their tastes, preferences & expectations Copyrights Reserved To, Guntur IPCC 35e S.M._Flowcharts_Business Environment 6

8 No.1 for CA/CMA & MEC/CEC 8. Explain the elements of Macro Environment? Socio-Cultural - Refers to a combination of factors like social traditions, values & beliefs, level & standards of literacy & education, ethical standards & state of society, extent of social stratification, conflicts & cohesiveness among them, etc. - Important socio-cultural factors to be studied include social concerns, social attitudes & values, family structure, role of women, & educational levels Elements of Macro Environment Population or Demographic Economic Legal-Political - Demographics denote population characteristics such as race, age, income, educational attainment, asset ownership, home ownership, employment status, location, etc. - Factors to be considered under demographic study include, population size, geographic distribution of population, ethnic mix and income distribution - Refers to the nature & direction of economy in which a company competes - Key economic factors to be studied include, Rates (interest rates, text rates, exchange rates etc.), GDP aspects, customer related such as income differences, disposable income etc., external trade, and other general factors - Includes factors such as general state of political development, extent of political interference in business, political stability, ideology & practices of the ruling party, specific laws that business have to follow, government policies, etc. Technological Global - Technology & business are highly interrelated & interdependent - Factors to be considered here are pull effect of technological change, Role of R&D in a country s budget, technologies used by other companies, sources of technology, critically of technology etc. - Globalization is the process of integration of the world into one huge market. - Factors to be considered here include, potential positive & negative impact of significant international events and differences between cultural & institutional attributes of individual global markets. 9. What is a Multi- National Company? Meaning: Is the one which operates in more than one country Features of Multi National Company Is a conglomerate of multiple units located in different parts of the globe Multiple units receive resources from a common pool. Follows common strategy in all countries - Views the world as a single market - Raises capital & markets its products wherever it can do the job best Copyrights Reserved To, Guntur IPCC 35e S.M._Flowcharts_Business Environment 7

9 / What are the different Methods of entering into foreign markets? Exporting Marketing of domestically produced goods in a foreign country. Most of the cost incurred here are marketing expenses Licensing It permits a company in the target country to use the property of the licensor. Can provide high ROI, since this method does not require additional investment. Joint Venture There will be several benefits such as ease of market entry, risk/reward sharing, technology sharing, joint product development, access to distribution channels etc. Direct investment Is the ownership of facilities in the target country. Involves the transfer of resources including capital, technology etc. Provides a high degree of control over the operations of the foreign market. 11. What are the different Strategic Approaches for Globalization? STRATEGIC APPROACH OPERATIONS PRODUCTS/ SERVICES Multi- domestic Decentralized Customized Global Centralised Standardised Transnational Centralised Customised 12. What are the different Strategic Responses to the Environment? Different Strategic Responses Conservative Approach They are simple goal maintaining units. Very passive in their behavior. Least bothered about the changes in the external environment Cautious Approach Such firm takes an intelligent interest, to adapt with the changing external environment. They prepare specific strategies for survival, stability & strength. Confident Approach Highly dynamic firms and try to shape part of external environment on reciprocal basis. Their feedback systems are highly dynamic & try to convert threats into opportunities. 13. Is competition bad for organizations? No, competition is good for organizations because Competition exists in any business environment & is inevitable. Competition brings best out of the business enterprises in their quest for survival & growth. Competition acts as stimulator for growth of companies as it leads to newer products, processes, better quality & improved customer service. Copyrights Reserved To, Guntur IPCC 35e S.M._Flowcharts_Business Environment 8

10 No.1 for CA/CMA & MEC/CEC 14. Explain Michael Porter s 5 Forces Model of Competition Analysis? Meaning Is a powerful & most widely used tool for systematically diagnosing the principal competitive pressures in a market. The five forces together determine an industry attractiveness/profitability. Steps to determine competition in an industry Identify the specific competitive pressures associated with each of the five forces. Evaluate how strong the pressures from each of the five forces are: fierce, strong, moderate or normal Determine whether the collective strength of the 5 competitive forces is conducive to earning attractive profits or not. 15. Explain the Five Forces of Michael Porter s Model of Competition Analysis. Threat of New Entrants - New Entrants provide competition in the form of More capacity New product version/range Lower prices & cheaper substitutes The 5 forces of Porter s Model Suppliers Bargaining Power - Determines the cost of raw materials & other inputs & therefore, industry attractiveness and profitability. Rival Sellers - Influence prices as well as the cost of competing in the industry, in production facilities, product development, advertising, sales force, etc. Buyers Bargaining Power - Influence product prices, & cost & investments of the producers in an industry. Threat of Substitutes - Are a latent/indirect source of competition - They can significantly affect the competitive character of an industry if they are available at affordable prices with good quality. Copyrights Reserved To, Guntur IPCC 35e S.M._Flowcharts_Business Environment 9

11 / STRATEGIC MANAGEMENT PROCESS 1. Explain Business Policy as a Discipline Organized Presents rational & analytical aspects of strategic management Business Policy as a Discipline Is the study of Functions & responsibilities of senior management Crucial problems that affect the success Long term decisions Frame work Provides a frame work for understanding strategic decision making 2. What are the various Strategic Levels in an organization? Corporate Level CEO, senior executives, Board of Directors, & corporate staff Corporate office / Head office Business Level Divisional managers, incharge of separate areas of activity & their staff Functional Level Operational managers e.g. finance, production, marketing, R&D, personnel, etc. Division P Business Functions Division Q Business Functions Division R Business Functions 3. Write short note on Corporate Level Management Corporate level Management CEO, senior executives, BODs & corporate staff They occupy the apex of decision making, with the CEO as the principal general manager Oversee the development of strategies for the whole organization Define vision & mission statements, set objectives, determine what business the company should begin, allocate resources to various businesses, formulate & implement strategies and provide leadership for the organisation 4. Write short note on Business Level Managers Business level managers Are the heads of concerned divisions or business of a company Prepare specific strategies for individual business keeping in mind the general statements of intent & direction of corporate level management Design & implement robust strategies that will contribute towards the maximization of long-run profitability Copyrights Reserved To, Guntur IPCC 35e S.M._Flowcharts_Business Environment 10

12 No.1 for CA/CMA & MEC/CEC 5. What are the activities performed by Functional Managers? Functional Managers Are responsible for specific business functions e.g. HR, marketing, purchasing, customer service that constitute a company or one of its divisions Formulate those strategies that help to fulfill the strategic objectives set by business level & corporate level managers Can provide very valuable information based on which business-level & corporate level managers can formulate realistic & achievable strategies 6. What is Strategic Management? What are its Objectives? State the Process of SM. Strategic Management The managerial process of forming a strategic vision & mission, setting objectives, crafting a strategy, implementing the strategy & making necessary corrective adjustments Objectives of SM To achieve competitive advantage over rivals in the industry To guide the company through all changes in the environment Strategic Management Process Defining Vision & Mission Setting objectives Crating a strategy Implementing the strategy Evaluating performance (Strategy control) 7. Explain the Framework of Strategic Management Strategic Management Process Stage 1 Situational Analysis - Involves conducting a situational analysis of the firm - Also known as SWOT analysis Stage 2 Goal Setting - Involves defining vision & mission statements and - Setting objectives Stage 3 Analysis of alternatives - Analyzing each and every alternative strategy keeping in mind the company s longterm goals Stage 4 Decision Making - Involves selection of the best alternative strategy in line with the SWOT analysis of the company Stage 5 Implementation & Control - Implementing chosen strategy efficiently & effectively and taking the corrective action if the performance is not satisfactory Copyrights Reserved To, Guntur IPCC 35e S.M._Flowcharts_Business Environment 11

13 / Explain the benefits or importance of Strategic Management Importance or Benefits of Strategic Management 1. Provides a frame work for all major decisions in business. E.g. decisions related to products & markets, manufacturing facilities etc. 2. Acts as the pathfinder to various business opportunities & also as a defence mechanism to avoid costly mistakes. 3. Enables the firm to build up certain competitive advantages & core competencies 4. Tries to prepare the firm to face the future and even shape the future in its favour. 5. Enables a firm to influence the environmental forces in its favour. 9. What are the broad phases of Strategic Management Process? Laying down the Firm s Vision, Mission and Objectives Strategy Formulation SWOT Analysis a) Environmental Scanning b) Organizational Appraisal Identification and Evaluation of Strategic Alternatives Decision Making, i.e. Choice of Strategy Strategy Implementation Feedback Loop Implementation of Strategy Design of Organizational Structure Definition of Organizational Systems & Procedures Resource Allocation Decisions Management of Behavioral Issues Strategy Control Evaluation of Strategy a) Process of Evaluation b) Criteria for Evaluation c) Techniques of Evaluation Copyrights Reserved To, Guntur IPCC 35e S.M._Flowcharts_Business Environment 12

14 No.1 for CA/CMA & MEC/CEC 10. What are the Features or Dimensions of Strategic Decision Making? Features/Dimensions of Strategic Decisions Strategic decisions should taken by top level management only because they are risky and their implementation requires lot of coordination Implementation of strategic decisions requires an organization to spend huge amount of its financial resources Strategic decisions involve predicting future environmental conditions and adjusting to them Strategic decisions affect different sections of an organization with varying degrees The results of strategic decisions can be expected only in the long-run Strategic decisions are all about orienting an organisation s internal environment to the changes of external environment 11. What is Strategic Vision? What are its Elements? STRATEGIC VISION Roadmap of a company s future Provides specifics about technology & customer focus, the geographic & productsmarkets to be pursued The capabilities the company plans to develop Elements of Strategic Vision Through vision statement, a firm will clarify its aspirants Serves as a reference point in setting objectives and in designing strategies Good visions are clear, inspiring & motivating Helps employees of an organization to understand in what direction they should move 12. How to develop Strategic Vision? Is an exercise in intelligent entrepreneur ship How to develop strategic vision Highly challenging task, as the entrepreneur needs to think creatively about how to prepare the company for the future Vision should clearly & crisply illuminate the direction of the organisation Vision must create enthusiasm & engage employees of the organisation IPCC 35e S.M._Flowcharts_Business Environment 13

15 / What is Mission? Bring out its features MEANING:- An enduring statement of purpose that distinguish an organisation from other similar organisations. Features Helps to define performance standards An expression of growth ambition of the firm Satisfies the firm s presence & existence Vision comes alive through mission Is a firm s guiding principle & common purpose Inspires employees to work more productively Serves as a PR tool 14. What are the guidelines in the formulation of Mission Statement? Mission statement should give special identity to the organisation Guidelines in the formulation of mission statement The company s goals, its target customers, technologies, & its present activities should be considered while preparing mission Mission should be highly personalized/or unique to the firm Avoid the term profit making in mission Mission can contain the elements of long-term strategy Mission statement should be precise, clear, feasible, distinctive & motivating Mission statement must serve as justification for the presence & existence of the firm 15. State the Characteristics of Objectives? Characteristics of Objectives Specific Measurable Achievable Realistic Time bound Challenging Measurable of controllable Relate to a time frame Concrete & specific Understandable Facilitate the achievement of vision & mission Should define an organisation s relationship with the environment Should be set within constraints IPCC 35e S.M._Flowcharts_Business Environment 14

16 No.1 for CA/CMA & MEC/CEC 3. STRATEGIC ANALYSIS 1. What are the Elements to be considered in Strategic Analysis? Elements to be considered in Strategic Situational Analysis Product - Utility, life, need satisfying ability, cost, price etc. of the product should be analysed - Whether the company s product is core or secondary product should be determined Competition Main competitors their expects moves, their competitive advantages etc. should be reviewed Distribution The company should find out the best way of distributing its products to the customers. Direct vs. Indirect distribution Environment Both internal & external environment factors should be analysed thoroughly SWOT The company must know its strengths, weaknesses, opportunities and Threats 2. Write short notes on Strategic Group Mapping Meaning: Is one of the analytical tools, for evaluating the market positions of competitors in an industry, by comparing the market positions of each firm separately or for grouping them into like positions. Procedure Step 1 Identify the competitive characteristics that differentiate firms in the industry Step 2 Plot the firms on a 2- variable map, using pairs of differentiating characteristics Step 3 Classify the firms that follow the same strategy into one strategic group Step 4 Determine the position of each strategic group, making it proportional to the size of the group s respective share of the total industry sales revenue 3. What are the Characteristics of a Strategic Group? Strategic Group A strategic group consists of rival firms with similar competitive approaches & positions in the market Product Lines Product Attributes Areas of similarity among competitors in a strategic group Price/Quality Range Distribution/Marketing Channels Technical Approaches Services and Technical assistance to buyers IPCC 35e S.M._Flowcharts_Business Environment 15

17 / What are the Key Success Factors for competitive success? Key Success Factors Are the elements that significantly affect the ability of a firm to prosper in an industry Competitive capabilities Core Competencies Internal & External Resources Product Attributes & Strengths Strategic elements in production, marketing etc 5. What are the possible decisions based on Industry Attractiveness/ Unattractiveness? Strengthen the longterm competitive position Invest Cautiously Look for ways to protect long-term competitiveness & profitability Expand Sales Efforts Invest in additional facilities & equipment as needed Decisions if the Industry is Attractive Decisions if the Industry is Unattractive Acquire smaller firms if the price is right Diversification into more attractive business Business to look outside the industry for attractive diversification opportunities 6. What do you mean by SWOT ANALYSIS? SWOT Analysis Strength Weakness Opportunity Threat An inherent capability of the firm to gain strategic advantage over competitors An inherent limitation or constraint of the firm which creates strategic disadvantage to it A favorable condition in the firm s environment which enables it to strengthen its position An unfavourable condition in the firm s environment which causes a risk for, or damage to the firm s position 7. Explain the Significance of SWOT Analysis Significance of SWOT Analysis Provides a logical Framework that helps in the Generation of alternative strategies & the selection of best strategy Helps in identification of strategy (strategies) that match with the company s resources & capabilities of the external environment Helps in analyzing an Organisation s performance Helps in comparing external opportunities, and threats with internal strengths and weaknesses Copyrights Reserved To, Guntur IPCC 35e S.M._Flowcharts_Business Environment 16

18 No.1 for CA/CMA & MEC/CEC 8. Write short notes on TOWS Matrix Opportunities (O) SO (MAX-MAX) STRATEGY Strengths (S) - To capitalize or build upon existing or emerging opportunities based on available strengths WO (MIN-MAX) STRATEGY Weaknesses (W) - To overcome organizational weaknesses if existing - To exploit/utilize emerging opportunities Threats(T) ST (MAX-MIN) STRATEGY - To minimize existing or emerging threats WT (MIN-MIN) STRATEGY - To minimize or overcome weaknesses - To cope with existing or emerging threats as far as possible 9. Bring out the Advantages of Portfolio Analysis Portfolio Analysis: A set of techniques that facilitate in taking strategic decisions with regard to individual products or business in a firm s portfolio Advantages Helps a multi-product or multi-business firm to channelise its resources to the businesses that have great potential Helps in developing growth strategies (Stability, Expansion, Retirement, Combination) by a firm 10. Explain BCG Growth- Share Matrix Market Growth Rate High Low Relative Market Share High Low Stars Wild cats or Question Marks - Can generate their own internal cash flows - They generate cash & have low costs - Sometimes they need additional investments - They are established, successful & need - They represent best opportunities for less investment expansion - They are the financial base for the company Cash Cows Dogs - They need heavy investments but have low - They may generate enough cash, but do potential to generate cash not have much future - They should be deal with very carefully, - They should be minimized through otherwise they may become cash traps divestment or liquidation Build (Stars) To build market share, even by foregoing short-term earnings. Harvest Cash Cows To increase short term cash flows. Hold (Question Marks) To preserve market share Divest (Dogs) To sell or liquidate the business. 11. Explain the Growth Strategies under Ansoff s Product- Market Growth Matrix Markets Existing New Products Existing Market Penetration - To sell existing products in the existing market - Can be achieved through increasing market share, increasing product usage, increasing the frequency of usage, increasing the quantity used or finding new applications for current users. Market Development - To sell existing products in the new market - Can be achieved through new geographical markets, new product dimensions/packaging, new distribution channels, different pricing policies, creating new market segments New Product Development - To sell new products in the existing market - Can be achieved by product refinement or developing a new generation product - Requires greater spending on technology Diversification - To sell new products in new markets - Involves starting up business outside the company s present products & markets - Risky strategy IPCC 35e S.M._Flowcharts_Business Environment 17

19 / STRATEGIC FORMULATION 1. What is Corporate Strategy? Bring out its features. (Or) Outline the need for Corporate Strategy Corporate Strategy: It consists of competitive moves & business approaches to produce/achieve successful performance. Features of Corporate Strategy Ensures that the firm aligns with the environment Helps in achieving balance between the objectives & performance Helps in creation & maintenance of competitive advantage Helps in taking decisions effectively Will have enterprise wide effect Helps in shaping a good future for the firm Helps in achieving growth in business It is both proactive & reactive 2. Strategy of a company is partly Pro-active and partly Re-active. Explain A Company s Strategy is a mix of Pro-active measures i.e. careful planning and deliberate management Reactive Measures i.e. adapting or responding to environmental charges To take charge of external opportunities, To strengthen the firm s market position and performance To manage unforeseen development & changes, To adjust adapt and to avoid unanticipated threats. 3. Explain the Balanced Score Card Approach in setting Objectives Balanced Score Card Approach Is a set of financial & non- financial measures which provides a view of a firm s overall performance Financial Perspective Measures the returns that the organization delivers to its shareholders Customer Perspective How do our customers perceive us? Are they happy with our Products & services? Innovation Perspective Are we able to innovate? Are we able to learn new things continuously? Internal Perspective What is our performance in our key internal processes? Copyrights Reserved To, Guntur IPCC 35e S.M._Flowcharts_Business Environment 18

20 No.1 for CA/CMA & MEC/CEC 4. Write short notes on Michael Porter s Generic Strategies Michael Porter s Generic/Business Level Strategies Cost Leadership Strategy Differentiation Strategy Focus Strategy Meaning Producing standardized products at low cost per unit & charging a low price, targeting price sensitive buyers Meaning Producing unique products & charging a premium price, targeting consumers who are relatively price insensitive Meaning Producing products that fulfill the needs of a narrow market or niche that consists of consumers whose needs & preferences are different Situations Existence of many price sensitive buyers Few ways for differentiation Large no. of buyers with significant bargaining power Situations Facilities to attract the best scientists & creative people Strong coordination b/w R&D and marketing functions Possibility of creating customer loyalty Situations Consumers have distinctive preferences Rival firms are not attempting to specialize in the same segment Medium & large firms who have either cost or differentiation advantage Procedure High efficiency Low overheads Effective budgetary control Wide spans of control Limited perquisites Reduction of waste & inefficiency etc. Advantages Low production cost Under pricing competitors Gain in market share & sales in a short span Disadvantages Competitors can copy this strategy Technological breakthroughs will make the strategy ineffective Buyers may switch to differentiated products in future Procedure Superior Quality Spare parts availability Engineering Design Superior product performance More useful life Ease of use etc. Advantages Can charge premium prices Sustaining competitive advantage Increase in no. of units sold Increase in brand loyalty Improved Service Less maintenance Greater convenience or more features Disadvantages Competitors can copy this strategy Will be ineffective if standardized products are enough to satisfy customers. Procedure/requirements Select the market That is of sufficient size Has good growth potential Is not critical to the success of other major competitors Advantages Less competition More reputation Increased customer loyalty Disadvantages Competitors can copy this strategy Consumers may switch to products desired by the market as a whole IPCC 35e S.M._Flowcharts_Business Environment 19

21 / What are Grand Strategies/ Directional Strategies (or) Master Strategies? What are the broad categories of Corporate Strategies? CORPORATE LEVEL STRATEGIES Stability Expansion Retrenchment Combination Intensification Diversification Turn around Divestment Liquidation - Market Penetration - Market development - Product development Related diversification Unrelated diversification Vertical Integration Horizontal Integration Concentric Diversificatio n Conglomerate Diversification Forward Integration Backward Integration Stability and Expansion Strategies Stability Strategy Involves staying with existing businesses, products & markets and aiming for incremental growth Expansion Strategy Involves entering into new businesses, products & markets and aiming for significant growth rate Features 1. The endeavor here is to increase efficiency through better deployment &utilization of resources 2. Modest growth objective 3. Less risky strategy 4. Resources will be spent in the existing businesses/products & markets 5. It does not warrant fresh investments 6. No redefinition of businesses Features 1. Efficiency can be achieved by altering the propositions in a no. of ways 2. High growth objective 3. Highly risky strategy 4. Resources will be spent in entirely new businesses/products & markets 5. It requires fresh investments 6. Involves a redefinition of business of the firm Reasons for adopting stability strategy Reasons for adopting expansion strategy 1. Less risky strategy & involves less changes 2. When the environment faced is also relatively stable 3. Expansion may be perceived as being threatening 4. Consolidation is required through stabilising after a period of rapid expansion 1. Expansion may be imperative when environment demands increase in pace of activity 2. Strategists feel more satisfied through expansion 3. Can obtain control over the market 4. Economics of scale & experience curve benefits can be achieved IPCC 35e S.M._Flowcharts_Business Environment 20

22 No.1 for CA/CMA & MEC/CEC 6. Explain the concept of Expansion through Mergers and Acquisitions Concepts of Expansion through Mergers & Acquisitions Is an attractive method as it saves the time, risks & skilled involved in analyzing internal growth opportunities, exploiting them & building up the necessary resource growth Reasons for adopting To meet/satisfy the basic business urge to grow in business To achieve synergy benefit between the parent & acquired enterprises through factors like physical facilities, technical & managerial skills, distribution channels, R&D etc. Retrenchment Strategy and reasons for adopting it Retrenchment Strategy Is followed when an organisation wants to substantially reduce the scope of its activity through either turn around, divestment or liquidation Approach Retrenchment of some of the activities in a given business or dropping the business through liquidation Reasons for adopting 1. Obsolescence of product/process. 2. High Competition. 3. Industry Overcapacity. 4. Continuous losses & unviability. 5. Unmanageable threats. 6. Failure of strategy etc. Ways of Retrenchment Reducing capital & revenue expenditure Reduction in inventory levels, production volumes, manpower & dividend rates Withdrawal of some products/product versions, winding up some branch offices Disposal of manufacturing facilities & product divisions Retirement either from production or marketing stage Offering itself for take-over to another enterprise Seeking liquidation or winding up Types of Retrenchment Turnaround Divestment Liquidation (Internal Retrenchment) External Retrenchment Copyrights Reserved To, Guntur IPCC 35e S.M._Flowcharts_Business Environment 21

23 / How will a firm implement Turnaround Strategy Turnaround Strategy Is the one which is formulated by putting emphasis on improving internal efficiency so as to bring out internal retrenchment Indicators/Danger Signals Negative cash flows profits Action Plan Mismanagement Declining market value Deterioration in Physical Facilities Over manning, High Turnover of Employees Uncompetitive products or services Analysis of the company s products, market, production processes, etc. Clear understanding of the market place & production logic Implementation of plans by target setting, feedback & remedial action Elements of turnaround Changes in the top management Initial credibility building actions Neutralizing external pressures Better Internal Co-ordination Identifying Quick-payoff Activities Asset Liquidation for generating cash Creating scope for Revenue Generation Focus on Quick Cost Reductions 8. What is Divestment Strategy? Explain why is it adopted Divestment Strategy Involves the sale of portion of business, or a major division, profit center or SBU Reasons for adopting it When the acquired business is a mismatch Continuous losses from a particular business Severe/Intense competition Lack of technological up gradation Availability of a better alternative for investment IPCC 35e S.M._Flowcharts_Business Environment 22

24 No.1 for CA/CMA & MEC/CEC 9. Write short notes on Liquidation Strategy Liquidation Involves closing down a firm & selling of all its assets & paying of its liabilities Effects of Liquidation Problems Loss of employment Termination of opportunities Stigma of failure Buyers may be difficult to find Firm cannot get adequate compensation for its Distress sale & through away prices 10. What are the reasons for adopting Combination Strategy Combination Strategy Involves following all stability, expansion, retrenchment strategies in business by a firm Reasons Large organizations that face complex environment Diversified companies which are present in several businesses also need to follow combination strategy 11. What is meant by Functional Strategies? In terms of level where will you put them? Are functional strategies really important for business Functional Strategies Strategies which are formulated in the individual functional departments such as marketing, finance, production, R&D, Importance Make corporate levels plans feasible & implementable Act as important basis for controlling functional activities Will reduce the decision making time of functional managers Help in bringing harmony & coordination Similar situations can be handled in a consistent manner by functional managers Copyrights Reserved To, Guntur IPCC 35e S.M._Flowcharts_Business Environment 23

25 / Write short notes on Production Strategy Formulation Production Strategy Is concerned with 3 important areas Production System Strategy Is concerned with capacity, location, layout, product/service design, work system, degree of automation, extent of vertical integration etc Operational planning & Control Strategy Is concerned with aggregate production planning, materials supply, inventory, cost control, quality management, maintenance of plant & equipment etc Research & Development Is concerned with Product vs. process R&D Basic vs. applied research Leader cs. Follower in R&D Robotic vs. manual processes In house R&D vs. outsourcing etc. 3 Major Approaches Leader Approach - Marketing technologically innovative products first in the market - Aggressive towards R&D Follower Approach - Innovatively imitating successful product, avoiding the risks & costs of start-up Low-cost Producer Approach - Mass producing products similar to but less expensive than products recently introduced 13. What is Supply Chain Management? What are the requirements for the successful implementation of Supply Chain Management System? Explain Supply Chain Management Refers to the linkages between suppliers, manufacturers & customers. It consists of all those activities like movement & storage of raw materials, work-in-process inventory, & finished goods from point-of-origin to point-of-consumption Activities/steps in the implementation of supply chain management Product Development Both company & its customers must work together in the product development process Procurement Manufacturing Physical Distribution Suppliers must be involved in planning the manufacturing process Should be done on the basis of JIT & minimum lot sizes. It should be adoptive to accommodate customization & changes in customers tastes & preferences Should ensure the availability of products at the right place & at the right time at each level Outsourcing Customer Service Performance Measurement Focus on those activities where the company has a competency & outsource remaining activities Should develop relations with customers & satisfy them through interfaces with company s production & distribution operations Performance should be measured in different parameters such as costs, customer service, productivity & quality IPCC 35e S.M._Flowcharts_Business Environment 24

26 No.1 for CA/CMA & MEC/CEC 5. STRATEGY IMPLEMENTATION & CONTROL 1. Outline the activity of Implementing and Executing the Strategy Activities in implementing & executing the strategy Building Internal Developing & strengthening strategy-supportive competencies & capabilities of employees Reward structure Internal operating systems Revising incentives & rewards so as to motivate employees to pursue objectives energetically Installation of the necessary systems so as to carry out strategic tasks, roles & activities smoothly Work climate & culture Using internal leadership & corporate culture & climate, conductive to successful strategy implementation & execution 2. Relationship between Efficiency & Effectiveness Operations Management Strategic Management Effective Ineffective Succeed & thrive Die slowly - The best position Efficient - Companies in this cell will die slowly due to lack of - Companies that came under this cell strategic direction are well placed & flourish Survive Die Quickly Inefficient - A firm in this cell can survive since it - A firm in this cell will to be in worst place and will die has a strategic direction very quickly 3. Participative Process is a Pre-requisite for Effective Strategy Implementation. Comment Responsibility Shift Involving divisional & functional mangers in strategy formulation & strategists involving in strategy implementation Training Providing training for managers & employees to improve their skills & make them world class performances Focus on Competitors While implementing the strategy, focus must be on the best competitor firm Participative process: A prerequisite for effective strategy implementation (various aspects) Participation Managers & employees throughout the firm should participate actively in strategy implementation activities Commitment Strategists genuine personal commitment is necessary Communication The rationale for objectives & strategies should be communicated throughout the firm IPCC 35e S.M._Flowcharts_Business Environment 25

27 / Write short notes on Simple Organisational Structure Simple organization structure: Owner- Manager takes all decisions & monitors all activities directly. Employees merely serve as implementers of decisions taken by him Features Advantages Disadvantages - No employee specialization - Few rules & little formalization - Unsophisticated inf. Systems - Suitable for firms operating in single business - Suitable for both costleadership & differentiation strategies - More scope for innovation - More structural flexibility - Quick decision making - Not suitable for larger firms - Cannot manage complicated information processing requirements - More pressure on ownermanager 5. State the Characteristics of Functional Structure Functional organization structure Entire work to be done is divided into major functional departments. It has two levels: Corporate level (CEO & corporate heads) & Functional level (functional managers) Advantages - Promotes employee specialisation - Efficient work distribution - More time for corporate level management for taking strategic decisions - Better supervision - Better coordination - Maximum utilization of technical skills of employees - No repetition of tasks Disadvantages - No accountability in employees - No career development opportunities for employees - Low employee morale - Poor delegation of authority - Not suitable when the no. of products/markets of the company increases - Functional departments may develop narrow perspective 6. Write short notes on SBU Structure SBU Structure Groups similar divisions into SBUs & delegates complete authority & responsibility for each unit to a head senior executive. This is the case of a highly decentralised structure. 3levels: Corporate level, SBU level (under the control of SBU heads), Divisional level (similar divisions under each SBU) Advantages Demerits - Synergy benefits due to grouping of similar divisions into an SBU - SBUs can react quickly to environmental changes - Better coordination, harmony & orderliness in operations - Less control problems - Very costly structure - Inconsistency of goals of SBUs & corporate level - Difficult to define the roles of different managers IPCC 35e S.M._Flowcharts_Business Environment 26

28 No.1 for CA/CMA & MEC/CEC 7. Write short notes on Matrix Structure Matrix organization structure Is a combination of vertical & horizontal flows of authority &communication. Employees will have 2 superiors: Functional manager (vertical flow) & project manager (horizontal flow) Advantages Disadvantages - Useful for specialized industries like construction etc. - Project objectives will be clear - Several channels of communication - Easy to shut down a project - Possibility of generating new ideas - Efficient use of personnel, equipment & facilities - Costly structure - Complex/complicated structure - Violates the principles of Unity of command - Chaos & confusion due to dual reporting channels - Conflicts between managers due to sharing of authority - Delay in decision-making 8. How are the Business Activities classified for VCA Purpose Value chain analysis Consists of analysing a series of activities under taken by a firm, which are strategically important for meeting customer demand & in respect of which the firm may have an edge over its competitors 5. Primary Activities 4. Support Activities Inbound Logistics Concerned with receiving, storing, & internally distributing the inputs to the product/service being manufactured Operations Conversion of inputs into final product/service Outbound Logistics Collecting, storing & distributing the final product to customers Marketing & Sales Are the means through which consumers/users are made aware of the product/service Procurement Procuring various inputs to primary activities Technology development Know-how, procedures & technological inputs Human Resource Management Selection, promotion & placement, appraisal, rewards, labour relations etc. Infrastructure General Management, Planning, finance, accounting, legal government affairs & quality management Services Are those activities, which enhance or maintain the value of a product/service Copyrights Reserved To, Guntur IPCC 35e S.M._Flowcharts_Business Environment 27

29 / Write short notes on Core Competencies Scarcity Test (primary test) Leverage Test Does it provide access to a wide variety of markets? 5 Identification Tests Durability Test It should be long-lasting Core Competence Is the one which is competitively unique, specific to a firm which can t be imitated by competitors Value Enhancement Test It should increase the customer value Imitability Test It cannot be imitated/copied by competitors 10. What are the Steps to initiate Strategic Change? 1. Recognise the need for change Identify the need for change by way of conducting internal & external environmental analysis Steps to initiate Strategic Change 3. Institutionalize change Making the change permanent in the organization through regular monitoring & review 2. Create a shared vision to manage change Convincing employees to accept the change at all levels Copyrights Reserved To, Guntur IPCC 35e S.M._Flowcharts_Business Environment 28

30 No.1 for CA/CMA & MEC/CEC 11. Explain Kurt Lewin s Change Process Unfreezing - Change should not come as a surprise to employees - Prepare employees mentally ready for change through announcements, meetings, etc. Change - Execute the intended change - Methods such as compliance, identification & internalization should be followed in convincing employees to accept the change Refreeze - Ensure that the change becomes permanent in the organization through regular monitoring & review 12. What do you mean by Corporate Culture? Values & business principles of the management Corporate Culture Refers to a company s values, beliefs, business philosophy & principles, traditions, work climate, internal work environment etc. Manifestation Ethical standards & official policies Company s way of dealing with its stakeholders Traditions of the company Supervisory practices Employees attitudes & behaviour Peer pressures, organisation s politics etc. Copyrights Reserved To, Guntur IPCC 35e S.M._Flowcharts_Business Environment 29

31 / Outline the Process of Changing a Problem Culture Diagnose the company s present culture to know the problem areas Talk openly & forthrightly with the concerned employees about the need for cultural change Follow up with visible & aggressive actions to modify the culture Changing Problem Culture of an Organisation Steps Revising policies & procedures to drive cultural change Make changes in incentive system Recruit & hire new managers & employees who have the desired cultural values Communicate the basis of cultural change & benefits to all employees Get the support of supervisors & union leaders to get the support of lower level employees & workers 14. What is Strategic Control? Explain the different types of Strategic Control 1. Premise control Systematic & continuous monitoring of the environment. Involves the analysis of both micro & macro environmental focus Strategic Control The process of evaluating the strategy as it is formulated & implemented to take corrective actions if the performance is not satisfactory Types 2. Strategic Surveillance Is unfocussed & involves casual environmental browing& relying majorly on secondary sources of data 3. Special Alert Control Responding only to sudden emergencies in the environment by forming crisis management teams in the company 4. Implementation Control Is directed towards assessing the changes in the overall strategy in the light of changing circumstances IPCC 35e S.M._Flowcharts_Business Environment 30