7/30/2019 MK0052

1/10

1) Explain the corporate strategy in different types of organization ?

Answer:

A well-formulated strategy is vital for growth and development of any

organizationwhether it is a small business, a big private enterprise, a public

sector company, a multinational corporation or a non-profit organization. But,the nature and focus of corporate strategy in these different types of organizations

will be different, primarily because of the nature of their operations and

organizational objectives and priorities. Small businesses, for example, generally operate in asingle market or a

limited number of markets with a single product or a limited range of products.

The nature and scope of operations are likely to be less of a strategic issue

than in larger organizations. Not much of strategic planning may also be requiredor involved; and, the company may be content with making and selling existing

product(s) and generating some profit. In many cases, the founder or the owner

himself forms the senior/top management and his (her) wisdom gives direction

to the company.In large businesses or companieswhether in the private sector, public

sector or multinationalsthe situation is entirely different. Both the internal and

the external environment and the organizational objectives and priorities aredifferent. For all large private sector enterprises, there is a clear growth

perspective, because the stakeholders want the companies to grow, increase

market share and generate more revenue and profit. For all such companies,both strategic planning and strategic management play dominant roles.

Multinationals have a greater focus on growth and development, and also

diversification in terms of both products and markets. This is necessary to remain

internationally competitive and sustain their global presence. For example,

multinational companies like General Motors, Honda and Toyota may have todecide about the most strategic locations or configurations of plants for

manufacturing the cars. They are already operating multi location (country)strategies, and, in such companies, roles of strategic planning and management

become more critical in optimizing manufacturing facilities, resource allocation

and control.

In public sector companies, objectives and priorities can be quite differentfrom those in the private sector. Generation of employment and maximizing

output may be more important objectives than maximizing profit. Stability rather

than growth may be the priority many times. Accountability system is also very

different in public sector from that in private sector. There is also greater focus

on corporate social responsibility. The corporate planning system andmanagement have to take into account all these factors and evolve more

balancing strategies.In non-profit organizations, the focus on social responsibilities is even

greater than in the public sector. In these organizations, ideology and underlying

values are of central strategic significance. Many of these organizations havemultiple service objectives, and the beneficiaries of service are not necessarily

7/30/2019 MK0052

2/10

the contributors to revenue or resource. All these make strategic planning and management in

these organizations quite different from all other organizations.

The evaluation criteria also become different.Johnson and Scholes (2005) have given a good and detailed exposition

of strategic management in various types of organizations mentioned above.

2) What is the role consultants play in the strategic planning and management process of

a company? Is it an essential role?

Answer:

The strategic management process consists of four distinct steps or stages:

(a) Defining organizational mission, objectives or goals(b) Formulation of strategy/strategic plan

(c) Implementation of strategies

(d) Strategy evaluation and control

For understanding these four stages, a company has to consider a numberof other factors like organizational competence and resources, the environment,various strategy alternatives available, strategy selection criteria, etc. All theseare internal parts of SMP. The strategic management process may best beillustrated in the form of a model. We can call this the strategic managementmodel.

There are different approaches to the strategic management process (some

call these modes of strategy making). These approaches lay varying emphasison different elements of the strategic management process, primarily because

of differences in the nature and forms of organizations.Approaches to strategy making or the strategic management process

have been differently enunciated by different authors and strategy analysts.

Mintzberg (1973) has classified various approaches into three modes. He callsthese the three modes of the strategy-making process.

These are:

Entrepreneurial mode Adaptive mode

Planning mode

Steiner and others (1982) have classified various approaches into fiveforms or categories. These are: Formal-structured approach

Entrepreneurial-opportunistic approach

Intuitive-anticipatory approach Incremental approach

Adaptive approach

Three modes of Mintzberg and five approaches of Steiner and others

7/30/2019 MK0052

3/10

have some commonness or similarities in terms of the content. Therefore, the

two sets of approaches can be regrouped into more coherent forms for the

purpose of analysis. For example, Mintzbergs planning mode resembles theformal-structured approach of Steiner and others, incremental and adaptive

approaches have common features (adaptive is common in both).

Entrepreneurial-opportunistic approach is essentially based on opportunities,

intuition and anticipation. Therefore, entrepreneurial-opportunistic and intuitiveanticipatory

approaches of Steiner and others can be analysed together. So,the two sets of approaches may be restated in the forms of three basicapproaches:

1. Entrepreneurial-opportunistic2. Formal-structured and

3. Adaptive

3) What is strategic audit? Explain its relevance to corporate strategy and corporate governance.

Answer :

With increasing pressure on boards from external stakeholders to be more

active, many directors are seeking more practical ways to conduct strategic

overview of company management without getting directly involved in it.

Donaldson (1995) has suggested strategic audit as a new tool for systematicreview of strategy by board members without directly involving themselves with

management of companies.

Strategic audit is a formal strategic-review process, which imposes its own

discipline on both the board and the management very much like the financial

audit process8. But, it is different from management audit, which is undertakenin many companies by the senior/top management on the progress and outcome

of important corporate activities. To understand strategic audit in the correct

7/30/2019 MK0052

4/10

perspective, one needs to analyse this in terms of its various elements.

The analysis so far has focused on different aspects or characteristics of corporate

strategy and corporate governance, the way they are differentiated and, also,areas of complementarities and some possible conflicts between the two.

The starting point of both are the same, i.e., achievement of organizational

objectives. But, it is also here that some difference begins between the two andalso is the source of some possible conflict. The most important objective ofcorporate governance is to protect the interests of the stockholders whose

primary concern is maximization of return on investment or short-term profitability.

The objective of corporate strategy is more to focus on long-term growth andprofitability, which gives sustenance to the company. This, however, is a common

organizational conflict in many companies, i.e., matching or balancing the shortterm

and long-term goals of the organization.

Balancing the stockholder interests and stakeholder expectations is anotherissue. This also relates to strategygovernance relationship. Stakeholders include, in addition to

stockholders, a number of other interest groupsboth internal and

external. Employees/managers are important internal stakeholders; creditors andcustomers are vital external stakeholders, who strongly influence the course or

direction of a company. To serve the interests of all major stakeholders, good

corporate governance is not enough; effective corporate strategy is required in

important functional areas of manufacturing, finance and marketing to deal withcompetition, market and business development.

In corporate governance, there is a growing emphasis on inclusiveness

or inclusive governance, i.e., focusing on the society, community andenvironmental development. The strategic management processes of companies

are also trying to find ways to strike a balance between corporate social

responsibility (CSR) and profitability (discussed in Unit 4), realizing that, ideally,

both should coexist for optimal/proper organizational growth. This is one areawhere both corporate strategy and governance are showing a common focus.

Companies like Bajaj Auto, Tata Motors and Nirma are good examples.

This is possible if the board and the CEO work in close unison. In fact,this implies another vital aspect of strategygovernance balancing, i.e., board

CEO relationship. The board represents the owners; the CEO represents the

management. Therefore, there can be a conflict or, at least, sensitivity betweenthe two. But, in many companies, managers (CEO) and directors (board) realize/

agree that the board should only be a watchdog without undermining the

managements ability to run the business. The board should also decide how to

distance itself from the CEO in the course of normal management of businessand, at the same time, maintain a positive and constructive relationship. This

means striking a balance between management, the strategy and the

governance of a company.

This can be illustrated by the boardCEO relationship in General Motors.This relationship is based on certain guidelines jointly evolved and not issued

by the board. The boards basic responsibility is to ensure that the company is

managed properly, in order to sustain the business and also serve the interestof the owners. In other words, it acts as a monitor of management. The CEO

7/30/2019 MK0052

5/10

gives annually a management development report to the board. The

management realizes that a strong board (highly experienced professionals/

experts) can be a source of strength to the management and, also helpful inbuilding and sustaining competitive advantage of the company.

All this implies that, for effectiveness and success, the

3) What is corporate social responsibility (CSR)?Which are the issues involved in analysis of CSR ?Answer:

As mentioned above, external stakeholders of an organization are too many

and varied and many of them represent different sections or social groups. Thisimplies that organizations should be socially responsible; that is, in addition to

the interests of the shareholders, businesses or companies should also serve

the society. This is corporate social responsibility (CSR). Corporate social

responsibility can be defined as the alignment of business operations with socialvalues.

The conflict between internal and external stakeholders can go much

further than mentioned so far. Some feel that this is the most problematic issuein deciding company responsibility. External stakeholders argue that internal

stakeholders demand be made secondary to the greater need of the society;

that is, greater good of the external stakeholders. Many of them feel that issueslike pollution, waste disposals, environmental safety and conservation of natural

resources should be the overriding considerations for formulation of policy and

strategic decision making. Internal stakeholders, on the other hand, think that

the competing or social claims of external stakeholders should be balanced insuch a way that it protects the company mission, objectives and profitability.

The debate continues. Many feel that corporate

social policy should be articulated during strategy formulation, administered

during strategy implementation and reaffirmed or changed during strategyevaluation.7

Strong exponents of CSR also talk of social policy for companies. They

feel that social responsibilities of companies should be clearly enunciated anddeclared as social policy. Social policies may directly affect a companys products

and services, technology, markets, customers and self-image. According to these

thinkers, an organizations social policy should be integrated into all management activities including the mission statement and objectives.

Worldwide, companies are trying to integrate corporate social responsibility into

their business operations and strategies. Microsoft, Coca-Cola, McDonalds,

FedEx, IBM and Johnson & Johnson are some of the leading companies. InIndia also, many companies are integrating CSR into their business practices

and making significant contributions to society. Companies like Infosys, Wipro,

Hero Honda, ITC, Dr. Reddys, Godrej, Mahindra & Mahindra and Tata Steelare the foremost among them. Some of these companies have also established

foundations to cater to the needs of society.

7/30/2019 MK0052

6/10

At the global level, CSR initiatives of companies are observed with interest.

The Wall Street Journalhas rated top 15 companies in terms of their social

responsibility.8 These companies are1. Johnson & Johnson

2. Coca-Cola

3. Wal-Mart

4) Distinguish between core competence,distintivecompetence,strategic compentence andthreshold competence.Use examples.

Answer : Core Competence

Core competence of a company is one of its special or unique internalcompetence. Core competence is not just a single strength or skill or capabilityof a company; it is interwoven resources, technology and skill or synergyculminating into a special or core competence. Core competence gives acompany a clear competitive advantage over its competitors. Sony has a corecompetence in miniaturization; Xeroxs core competence is in photocopying;Canons core competence lies in optics, imaging and laser control; Hondascore competence is in engines (for cars and motorcycles); 3Ms core competence is in sticky tape technology; JVCs in video tape technology; ITCs in tobacco and cigarettes and Godrejs in locks and storewels.Hamel and Prahalad, two of the greatest exponents of core competence,

argue in The Core Competence of the Corporation (HBR, 1990) that the centralbuilding block of the corporate strategy is core competence. Hamel and Prahaladdefined core competence as the combination of individual technologies andproduction skills that underlie a companys product lines. According to them,Sonys core competence in manufacturing allows the company to makeeverything from the Sony walkman to video cameras to notebook computer.Canons core competence in optics, imaging and microprocessor controls haveenabled it to enter markets as seemingly diverse as copiers, laser printers,cameras and image scanners.

7/30/2019 MK0052

7/10

To achieve core competence, a particular competence level of a companyshould satisfy three criteria:(a) It should relate to an activity or process that inherently underlies the valuein the product or service as perceived by the customer. This is importantbecause 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 issignificantly better than those of competitors. Benchmarking is a goodway and is generally recommended for undertaking performance standardand also for differentiating between good and bad performance. (We willbe discussing benchmarking in Unit 11).(c) It should be robust, i.e., difficult for competitors to imitate. In a fast changingworld, many advantages gained in different ways (like a superior productfeature, a new marketing campaign or an innovative price policy/strategy)are not robust and are likely to be short lived. Core competence is notabout such incremental changes or improvements, but, about the wholeprocess through which continuous change and improvement take place

which lead to or sustain clearly differentiated advantage.16.3.2 Distinctive CompetenceCore competence may not be enough, because it focuses predominantly onthe product or process and technology, or, as Hamel and Prahalad put it; Thecombination of individual technologies and production skills. There are twoproblems with this. First, strong and aggressive competitors may develop, eitherthrough parallel innovations or imitations, similar products or processes whichare highly competitive. This is what Japanese companies have done in thefields of electronics and automobiles, and now South Korea is doing to Japaneseelectronics; IBMs core computer technology is also facing the same problem.Second, to secure competitive advantage, only product, process or technologyor technological innovation may not be enough; this has to be amply supported

by special capabilities in the related vital areas like resource or financialmanagement, cost management, marketing, logistics, etc.Hamel and Prahalad themselves have said later (1994):We have to look at the organization as a portfolio of competencies, ofunderlying strengths, and, not just a portfolio and business unit .... Wemust also identify those core competencies that would allow us to createnew products; and we must ask ourselves what we can leverage as wemove into the future, and what we can do that other companies mightfind difficult.2

Distinctive competences may provide an answer to some of these points.Distinctive competence is based on the assumption that there are differentalternative ways to secure competitive advantage and not only special technicaland production expertise as emphasized by core competence.

Distinctive competence includes core competence as one of thealternatives. But, there are other alternatives that are also based onorganizational capabilities. So, distinctive competence is more broad based.Thompson and Strickland (1992) have defined distinctive competence as:Distinctive competence is the unique capability that helps an organizationin capitalizing upon a particular opportunity; the competitive edge it maygive a firm in the marketplace.3

So, the focus in distinctive competence is on exploiting a market

7/30/2019 MK0052

8/10

opportunity. And, depending on the market or competitive situation, one or someof the alternative competences may work ; for example, product or processsuperiority (core competence), product differentiation (situational or adaptability),cost effectiveness or cost efficiency to support a price strategy, special capabilityin marketing or distribution, etc. Under given circumstances, one of these, or acombination of some of these, will produce a distinctive competence which

would be appropriate or best suited to exploit the opportunity and produce desiredresults.Since resources are limited, identification of distinctive competence mayalso help efficient allocation of resources. Reliance Industries, for example, hasdeveloped its distinctive competence in conceiving, implementing and managinglarge scale projects and mobilizing requisite resources for that. They do notthink in terms of core competence. Mukesh Ambani, Chairman and MD, hasdescribed it like this:We do not believe in core competence; we believe in building competence around people and processes to create value.4

6.3.3 Strategic CompetenceStrategic competence coexists with, or supports, core competence and distinctive

competence. Strategic competence is the competence level required toformulate, implement and produce results with a particular strategy, for example,to outwit competitors. Hindustan Unilever did this. In the mid- and the late 80s,they used their strategic competence to out manoeuvre Nirma (which waslaunched very aggressively) and re-establish their leadership in the detergentmarket. Strategic competence may also involve combination or convergence ofdifferent capabilities as in the case of Hindustan Unilever.6.3.4 Threshold CompetenceThreshold competence is the competence level required just for survival in themany of itscompetitors. Threshold competence may be adopted by No. 5 orNo. 6 player in the market or those struggling to survive. Companies withthreshold competence can, over time, graduate to a higher level of competence.

But, continued threshold competence can also lead to closure of business.Multi-product or multi-SBU companies may often possess a portfolio ofcompetences. In some product or business, they may have core competence,but, not in all. ITCs core competence is in tobacco and cigarettes, but, theyhave distinctive competence in hospitality business and agri-business. HindustanUnilever has distinctive competence and strategic competence in manybusinesses. But, they had been surviving with threshold competence in vanaspatibusiness (Dalda) for some time, and finally, they exited from that business. .

7/30/2019 MK0052

9/10

5) What is global industry? Explain with example, international strategy, multi-domestic

strategy, global strategy and transnational strategy?

Answer: In global industry, the strategic position of companies in different countries or

national market are governed by their overall global positions. For example, IBMs

strategic position in competing for computer sales in France and Germany has

improved significantly because of technology and marketing skills developed in other

countries, and worldwide manufacturing system which well coordinated.to be called a

global industry, an industrys economics and competitors in different national market

should be considered jointly rather than individually.

Example:

International Srategy:

International strategy can be adopted for thise products and services which are not

available in some countries and can be transferred from other countries. These are

standered products with little or no differentiation. International strategies are not very

common or popular. Some examples are: Kellogs , Indian software, and Indian

handicrafts.

Multi-Domestic Strategy

Multidomestic strategy is almost apposite of international strategy. Multidomestic

strategy involves high degree of local responsiveness or local content. Productd are

highly customized to suit local requirements or conditions. Beause of high

customization, cost pressure is less; cost effectiveness may be also difficult to achieve

because lack of scale economics. Example: Asian Paints, Indian garments.

7/30/2019 MK0052

10/10

Global Strategy:

As defined in business term is an organizations strategic guid to globalization. A global

strategy may be appropriate in industries where firms are faced with strong pressures

for cost reduction but with weak pressures for local responsiveness. Therefore it allowsthese firms to sell a standardized product worldwide. Fixed cost are substantial.

Transnational strategy:

Transnational strategy is the most difficult strategy to follows because this is based on

combination of two apparently contradictory factors, i.e., cost effectiveness and local

adaptation. Example: Caterpillar, McDonalds, Coca-Cola, Pepsi and Dominos Pizza.