1 Illustrate the Strategic Management Model (SMP)

Explain the levels in SMP

Answer: The strategic management process consists of four distinct steps or stages:
 Defining organizational mission, objectives or goals
 Formulation of strategy/strategic plan
 Implementation of strategies
 Strategy evaluation and control

For understanding these four stages, a company has to consider a number of other factors like
organizational competence and resources, the environment, various strategy alternatives available,
strategy selection criteria, etc. All these are internal parts of SMP. The strategic management
process may best be illustrated in the form of a model. We can call this the strategic management
model. Relationships among the major components of the strategic management process are shown
in the model.

Companies may or may not follow the strategic management process as rigidly as shown in the
model. Generally, application of SMP is more formal and model driven in large, well-structured
organizations with many divisions, products, markets, different priorities for investmhent, etc.
Smaller businesses or companies tend to be less formal. In other words, formality in SMP refers to
the extent to which participants in SMP, their responsibilities, authority and roles/ duties are
clearly specified.

2 “Business need to be planned not only for today but also for future. This implies the
continuity and the need for sustainability” Enumerate
Answer: Businesses need to be planned not only for today, but also for tomorrow, that is, for the
future. This implies business continuity and the need for sustainability. Sustainability requires
understanding and analyzing the environment. Besides business fluctuations or business cycles,
business interruptions occur because of natural disasters like floods, earthquakes, cyclones, etc. To
safeguard against such threats or disasters, planning for business continuity is essential.

What is Business Continuity Planning?

Business continuity planning means proactively working out a means or method of preventing or
mitigating the consequences of a disaster—natural or manmade (sabotage or terrorism) – and
managing it to limit to the level or degree that a business unit can afford.

Need or Importance of Business Continuity Planning (BCP)

As indicated in the definition, businesses today can be exposed to different types of threats –
natural or man-made. Major threats are:
• Natural disasters such as floods or earthquakes or accidents
• Man-made threats like sabotage or terrorism
• Financial crisis or disaster can be partly man-made and partly due to environmental factors.
BCP prepares companies to prevent or respond to such situations so that the damages or losses are
minimized and the business or company survives. Thus, BCP plays a critical role in a business—its
survival and sustainability.

Business Impact Analysis

Business impact analysis is the process of identifying major functions in an organization which have
impacts of different degrees on the business of the organization. The analysis is usually done for
each major function to determine its criticality for the business. This is done through impact
questions. Relevant impact questions are:
• How important is the function in terms of business policy of the company?
• What is the role or criticality of the function in the business strategy of the company?
• How much the rest of the functions would be affected by absence of the function – the
operational impact?
• How much may be the revenue loss for the company in the absence of the function —the
financial impact?
• How long can the function be in operative without causing any major impact or losses?
• Whether the absence or in operation of the function affects market or industry ranking of
the company – loss of competitiveness?
• Is the function critical for relationships with customers – loss of customer confidence or
satisfaction?
• Can the absence of the function lead to loss of future sales or revenue – future growth
problem?

Strategies for Business Continuity Planning

Because of the possibility of different kinds of impacts, and depending on the nature of damage or
disaster, appropriate strategies should be developed and used to deal with particular situations.
Five different strategies should be developed for five different situations/actions. These are:
1. Prevention
2. Response
3. Resumption
4. Recovery
5. Restoration
Developing a Business Continuity Plan and Implementation
Plans and strategies work together. A plan is also essential for implementation of a strategy or
strategies. A separate plan can be made for each of the five strategies, i.e., prevention, response,
resumption, recovery and restoration or an integrated plan can be prepared incorporating or
dealing with all the strategies. In either case, a plan would have four important aspects or elements.
These are:
(a) Objective: What exactly is to be done or achieved
(b) Assumptions: These indicate availability of back-up services, trained team to handle
operations, vendors, etc.
(c) Team: The BCP team entrusted with the project — their sub-teams roles and
responsibilities should be specified
(d) Scope and limitations: The role of the BCP team should be clearly defined. Any limitations
in their functioning, including resources, are to be mentioned

Implementation
Implementation of business continuity plans are mostly technology driven. Implementation
involves development and testing of IT system or solution. The software and/or hardware elements
are built into the systems. Implementation of the mechanical and physical processes of
restoration/recovery also take place simultaneously. In fact, technology and other systems have to
be harmonized for proper implementation of a business continuity plan. During continuity planning
and implementation, care should also be takes to ensure that the organization’s business process
does not come to a complete halt when there is a disruption of the normal process flow.

Technology versus Business

Business continuity planning and implementation predominantly involve technology—IT and
software systems. But, it must not be forgotten that technology is used for protection or restoration
of business, and, therefore, focus on business has to be simultaneous. Also, operational aspects of
BCP involves technology, but, technology is not all or sufficient. Other knowledge areas or activities
are equally important. These include risk management, crisis management, impact analysis, cost
benefit analysis, storage management, network management, recovery planning, coordination and
communication. This implies that business continuity planning teams should be cross-functional or
multi disciplinary so that all required knowledge inputs or expertise are available.

3 Explain the following:

(a) Core competence
(b) Value chain analysis

Answer: Core competence

Core competence of a company is one of its special or unique internal competence. Core
competence is not just a single strength or skill or capability of a company; it is ‘interwoven
resources, technology and skill’ or synergy culminating into a special or core competence. Core
competence gives a company a clear competitive advantage over its competitors. Sony has a core
competence in miniaturization; Xerox’s core competence is in photocopying; Canon’s core
competence lies in optics, imaging and laser control; Honda’s core competence is in engines (for
cars and motorcycles); 3M’s core competence is in sticky tape technology; JVC’s in video tape
technology; ITC’s in tobacco and cigarettes and Godrej’s in locks and storewels.

To achieve core competence, a particular competence level of a company should satisfy three
criteria:
 (a) It should relate to an activity or process that inherently underlies the value in the product
or service as perceived by the customer. This is important because managers often take an
internal view of value and either miss or deliberately overlook the customer perspective.
(b) It should lead to a level of performance in a product or process which is significantly better
than those of competitors. Benchmarking is a good way and is generally recommended for
undertaking performance standard and also for differentiating between good and bad
performance.
(c) It should be robust, i.e., difficult for competitors to imitate. In a fast changing world, many
advantages gained in different ways are not robust and are likely to be short lived. Core
competence is not about such incremental changes or improvements, but, about the whole
process through which continuous change and improvement take place which lead to or
sustain clearly differentiated advantage.

b) Value chain analysis

Various competences and resources of an organization can be integrated into a chain of activities
which an organization performs to meet customer demand. Since each of these activities is
expected to create value when it is performed, the chain can appropriately be called a value chain.
Michael Porter introduced the concept of value chain analysis. Now, it has become common for
professional companies to do this analysis. Value chain analysis helps in understanding how value
is created in organizations through various activities. These activities can be divided into two broad
categories: primary activities and support activities. Primary activities are directly concerned with
the creation or delivery of a product or service or customer value.

Primary activities can be divided into five major areas:

 Inbound logistics: These are activities concerned with receiving, storing and distributing
raw materials and inputs to the production or service division. Inbound logistics also
include materials handling, stock control, transportation of inputs, etc.
 Operations: These are activities involved in transforming various inputs into final product
or service. Operations also include machinery, packaging, assembly, testing, etc.
 Outbound logistics: These include collecting, storing and distributing or delivering final
products to customers. For tangible products, this would include warehousing, materials
handling, transportation, etc. In the case of service, these may be more concerned with
arrangements for bringing customers close to the service location.
 Marketing and sales: These comprise activities such as advertising, sales promotion,
selling, sales force management, pricing, channel selection, channel management, etc.
Marketing & sales provide the most important link between the company and the customer.
 Service: These include activities which maintain or enhance value of a product or service
such as installation, repair, training, supply of spares and prompt after-sales service, etc.

Support activities can be divided into four categories :

 Procurement: This relates to the processes for acquiring or purchasing various resource
inputs like raw materials, intermediate inputs, equipment, machinery, etc. Procurement
primarily supports inbound logistics and operations.
 Technology development: Technology is involved in all value creations. Key technologies
are concerned directly with the product, or with processes. Technology development is
fundamental to the innovative capacity of an organization.
 Human resource management: This provides support to all primary activities in the value
chain. More specifically, HRM is concerned with recruiting, managing, training and
developing people within the organization.
  Infrastructure: This is the organizational system including finance, MIS, general
management, strategic planning, etc. Infrastructure also comprises organizational
structures, values and culture. Infrastructure, directly or indirectly, supports all primary
activities.

4 Write a brief note on Turnaround strategy.

Answer: Corporate turnaround may be defined as organizational recovery from business decline or
crisis. Business decline for a company means continuous fall in turnover or revenue, eroding profit,
or accrual or accumulation of losses. So, business or organizational decline, like business
performance, is understood in relative terms, that is, compared with the past. But, some strategy
analysts describe business decline in terms of current comparisons also; for example, relative to
industry rates or averages or even relative to economic growth of the country. Corporate crisis
means deepening or perpetuation of a decline. Turnaround strategies are usually required for crisis
situations. If organizational decline is not continuous or severe, corporate restructuring can provide
the solutions. That is why turnaround strategy may be said to be an extension of restructuring
strategy. When restructuring is very comprehensive and leads to corporate recovery, it almost
becomes a turnaround strategy as mentioned above in the case of Voltas.

Corporate or business decline manifests itself in many forms or symptoms, including profitability.
These symptoms are actually different performance criteria of companies. Major symptoms or
criteria or situations which signal towards the need for a turnaround strategy are:
• Steadily declining market share;
• Continuous negative cash flow;
• Negative profit or accumulating losses;
• Accumulation of debt;
• Falling share price in a steady market;
• Mismanagement and low morale.

With some or all these symptoms becoming clearly visible for a company, a turnaround or recovery
becomes highly imperative. But, the situation should be carefully reviewed to assess the extent of
recovery possible before undertaking any such programmes. Given a strategy, in some situations,
recovery may be more or less successful than in others. Slatter (1984) contends that there are four
recovery situations in terms of feasibility or success. These situations are:

Realistically non-recoverable situation is one in which chances of survival are very little,
because the company is not competitive, the potential for improvement is low, clear cost
disadvantage exists and demand for the company’s product is in decline stage. In such a situation,
divestment or liquidation may be a better option.

Temporary recovery situation exists when there can be initial successful recovery, but, sustained
turnaround is not possible. This can happen because repositioning of the product is possible. Some
cost reduction programmes may be successful, and revenue generation is also possible at least for
some time.

Sustained survival situation means that recovery is possible but potential for future growth does
not exist. This may happen primarily because the industry is in a declining phase (say, black and
white TV, audio cassettes, VCR). A company in such an industry or situation can either go for
divestment or turnaround if it foresees or can create a niche in the industry and if the growth
prospects can be created.

Sustained recovery situation is one in which successful turnaround is possible for sustained
growth. In such cases, business decline might have been caused by internal organizational factors
or external or environmental conditions which the company is able to deal with effectively.
Inherently, the company is strong in terms of competence.

5 What is Stability Strategy?

Explain the BCG (Boston Consulting Group) Portfolio Model

Answer: Stability strategy is most commonly used by organizations. But, the nomenclature,
‘stability strategy’ often creates confusion among managers, planners and strategists. Stability does
not mean ‘static’. Most organizations, which follow stability strategy, look for growth and do not
remain stable or static for a long period of time. Therefore, some prefer to call it ‘stable growth
strategy’. In an effective stability strategy, companies will concentrate their resources where the
company presently has or can rapidly develop a meaningful competitive advantage in the
narrowest possible product market scope consistent with the firm’s resources and market
requirements. As the definition indicates, stability strategy implies that an organization will
continue in the same or similar business as it currently pursues with the same or similar objectives
and resource base. Three distinctive features of a stability strategy are:
1. No major change takes place in the product, market, service or functions;
2. Focus is on developing and maintaining competitive advantage consistent with present
resources and market requirements;
3. The strategy thrust is not only on maintenance of the present level of performance, but also
on ensuring that the rate of improvement achieved in the past is sustained.

BCG Portfolio Model

The Boston Consulting Group (BCG) model is a growth-market share matrix, depicting a company’s
competitiveness (cash flow generation or profitability) in terms of market growth rate, and, its
relative market share. The model is also known as a portfolio matrix because, on the basis of the
BCG matrix, a company can determine its optimal product portfolio on the basis of cash flow or
profitability analysis of each of its products or product groups in terms of two dimensions, i.e.,
market growth and market share. The BCG model is based on the assumption that relative market
share is a good indicator of profitability of a product or product group.

The BCG model was originally conceived and developed in the early 1970s for analysis of
performance or cash flow generation of strategic business unit (SBU) of a company. A strategic
business unit is a division or a product/product group unit which operates as a separate profit
centre that has its own set of market and competitors and its own business strategies. The company
or the corporate unit consists of related businesses and/or products grouped into SBUs which are
homogenous enough to manage and control most factors which affect their performance. Resources
are allocated to the SBUs in relation to their contributions to the corporate objectives, growth and
profitability.

The original BCG formulation had used ‘cash use’ for growth rate3 and ‘cash generation’ for market
share. Four performance situations of product groups of SBUs were identified as four quadrants in
the matrix, namely, ‘stars’, ‘cash cows’, ‘question marks’ and ‘dogs’.
Stars are high market share products or SBUs operating in high-growth markets. The model
predicts that stars will have very strong need to support their growth. But, because they are in a
strong competitive position—they are, in fact, the highest-share competitors—it is assumed that
they will produce high margin and generate large amounts of cash. Therefore, they will be both
users and generators of large cash flows. On balance, they should generally be self supporting with
respect to their cash needs.

The BCG Matrix: Stars, Cash Cows, Questions Marks, Dogs

Cash cows are high-share products or SBUs operating in a low-growth market. Because of their
market position, their cash generation should be high, but, because the market is assumed to be
mature, their cash investment needs to be small. And these products or businesses should be a
source of substantial amounts of cash which can be channelled to other areas or businesses.

Question marks/problem children are low-share businesses in high-growth markets. They are
assumed to have cash needs because they need to finance growth. But, they generate little cash. If a
question mark’s/problem child’s market share cannot be changed, it will continue to absorb cash. If,
however, market share can be adequately improved, a question mark/problem child can be
converted into a star. Usually, such a strategy will require heavy investment in the short run.
Improved position should enable it to generate cash, become a star and ultimately a cash cow.

Dogs are low-share businesses in low-growth markets. Because of their low share, it is assumed
that their progress is low and, therefore, their profits will also be low or non-existent. Since growth
is low, expansion of share is assumed to be very costly. Dogs are cash users and probably even ‘cash
traps’— products or businesses that perpetually absorb cash.

6 Define the term ‘Strategic alliance’.

Enumerate its characteristics and objectives

Answer: Strategic alliance may be defined as cooperation between two or more organizations with
a common objective, shared control and contributions (in terms of resources, skills and
capabilities) by the partners for mutual benefit.
Characteristics of strategic alliance
(a) Two or more organizations join together to pursue a defined objective or goal during a
specified period, but, remain organizationally independent entities;
(b) The organizations pool their resources and investments and also share risks for their
mutual (and not individual) interest/benefit;
(c) The alliance partners contribute, on a continuing basis, in one or more strategic areas like
technology, process, product, design, etc;
(d) The relationship among the partners is reciprocal with partners sharing specific individual
strengths or capabilities to render power to the alliance;
(e) The partners jointly exercise control over the performance or progress of the arrangement
with regard to the defined goal or objective and share the benefits or results collectively.

Objectives of strategic alliance

(a) Development of a new product: In pharmaceutical industry, new product development
takes place on a continuous basis & in this, many strategic alliances are formed between
pharmaceutical companies and research laboratories & institutions for R&D.
(b) Development of a new technology: Development of technology is a longterm process, and,
also, many times, involves considerable cost. Collaboration leverages the resources and
technical expertise of two or more companies.
(c) Reducing manufacturing cost: Co-production, common in pharmaceutical industry, is a
good form of strategic alliance to reduce manufacturing cost through economies of scale.
(d) Entering new markets: This is often the objective in international business. Many foreign
companies enter into strategic alliances with some local companies (host country) to enter
into and establish themselves in that country.
(e) Marketing and Sales: This is common in both national and international business. Many
manufacturers in India have marketing and sales arrangements with companies like MMTC
and Tata Exports for both domestic and international marketing.
(f) Distribution: In pharmaceutical and other industries where distribution represents high
fixed cost, potential competitors swap their products for distribution in the respective
markets where they have well-established distribution systems.