Assignment MB0052

7/28/2019 Assignment MB0052

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Q.1 Explain the corporate strategy in different types of organization.

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A well-formulated strategy is vital for growth and development of any organizationwhether it isa 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 differenttypes of organizations will be different, primarily because of the nature of their operations andorganizational objectives and priorities.

Small businesses, for example, generally operate in a single market or a limited number ofmarkets with a single product or a limited range of products. The nature and scope of operationsare likely to be less of a strategic issue than in larger organizations. Not much of strategicplanning may also be required or involved; and, the company may be content with making andselling existing product(s) and generating some profit. In many cases, the founder or the ownerhimself forms the senior/top management and his (her) wisdom gives directionto 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 environmentand the organizational objectives and priorities are different. For all large private sectorenterprises, there is a clear growth perspective, because the stakeholders want the companiesto 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 interms of both products and markets. This is necessary to remain internationally competitive andsustain their global presence.

In public sector companies, objectives and priorities can be quite different from those in theprivate 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 isalso 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 thepublic sector. In these organizations, ideology and underlying values are of central strategicsignificance. Many of these organizations have multiple service objectives, and the beneficiariesof service are not necessarily the contributors to revenue or resource. All these make strategicplanning and management in these organizations quite different from all other organizations.

Q.2 What is the role consultants play in the strategic planning and managementprocess of a company? Is it an essential role?

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Management consultants can play very useful roles in the strategic planning process of acompany. Consultants render services in different functional areas of management including thestrategic planning and management process. In companies with no separate planning divisionor unit, consultants can fill that gap. They can undertake planning and strategy exercises as andwhen the company management feels the need for such exercises or consultancies. Even incompanies with a corporate planning division/unit, consultants may provide specialized inputs or

insights into identified management or strategy areas. Top strategic consultants like McKinsey &

Company use or develop latest tools, techniques or models to work out solutions to specificstrategic management problems or issuesbe it productivity, cost efficiency, restructuring, long-term growth or diversification. Consultants bring with them diversified skills (most of theconsulting companies are multidisciplinary) and experience from various companies which maynot be available internally in a single company. This is the reason why even large multinationalcompanies hire consultants for achieving their goals or objectives.

There are many international consultants who are in demand in different countries. There arealso national consultants. Leading international consultants, in addition to McKinsey &Company, are Boston Consulting Group (BCG), Arthur D Little and Accenture (formerly

Anderson Consulting). Prominent Indian consulting companies are A F Ferguson, TataConsultancy Services (TCS) and ABC Consultants.

Consultants, sometimes have a difficult or delicate role to play. In many companies, a situationdevelops when the chief executive or the top management needs to bank upon the support ofan external agency like a consultant to push through a strategic change in the organizationalstructure or management system of the company. It may be for growth and development ordownsizing. In both cases, many companies face internal resistance to change. The resistanceis more if it is downsizing even when it is required for turning around a company. This happensparticularly in public sector companies where implementing change is always difficult.

Consultants are engaged to support or substantiate the companys point of view (in the form of

their recommendations) so that change is more easily acceptable to the internal stakeholders ofthe company. Consultants role may become delicate and, sometimes, tricky in such cases,

and they should carefully weigh the ethical implication of their participation.

Q.3 What is strategic audit? Explain its relevance to corporate strategy andcorporate governance.

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It is a new tool for systematic review of strategy by board members without directly involvingthemselves with management of companies. Strategic audit is a formal strategic-reviewprocess, which imposes its own discipline on both the board and the management very muchlike 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 importantcorporate activities.


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To understand strategic audit in the correct perspective, one needs to analyse this in terms of itsvarious elements. Donaldson has specified five elements of strategic audit. These are:

Establishing criteria for performance

Database design and maintenance

Strategic audit committee

Relationship with the CEO

Alert to duty (by board members)

The performance criteria should be simple, well-understood and well accepted measures offinancial performance. A number of measures of financial performance are available. Onecommon measure, used by many companies, is return on investment (ROI). The ROI can beanalysed like this: profit per unit of sales (profit margin); sales per unit of capital employed(asset turnover); and, capital employed per unit of equity invested (leverage). If these threeratios are multiplied together, the resultant ratio will give profit per unit of equity.

To calculate different performance ratios and monitor performance criteria, a properdatabase is

essential. This involves both database design and maintenance. This has to be a regular and anongoing process. Data on financial performance can sometimes be sensitive to the managers/employees of a company. It is, therefore, suggested that financial and related data design,maintenance and analyses should be entrusted to the auditors of the company or outsideconsultants.

For effective strategic audit, a strategic audit committee should be constituted. Outsidedirectors should select three of their own members to form the committee. This will impartregularity and more commitment to the strategic audit process. The committee would decide onthe frequency of their meeting, periodicity of interaction with the CEO or top management of thecompany and, also when they should make presentation to or hold discussion with the fullboard.

A sensitive issue is the strategic audit committees relationship with the CEO. The strategicaudit committee needs to create and maintain an atmosphere of mutuality. It is also true thatregular strategic process involving the CEO reduces chances of unpleasant or confrontingsituations. In fact, ideally, the functioning of the strategic audit committee should be seen as alow-key operation, positive in approach, designed to lend support and credibility to companyleadership and management.

The strategic audit committee and also the board should always be alert and vigilant to ensurethat there are no slippages. Business cycles indicate that period of success may be followed bya period of slump. The strategic audit committee and the board should be alert enough to getsignals so that they can act in time.

Corporate Strategy and Corporate Governance:

Need for more Integrative RelationshipStrategic audit can be a powerful tool for monitoring the strategic process of a company andalso strike a good balance between corporate strategy and corporate governance.


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The analysis so far has focused on different aspects or characteristics of corporate strategy andcorporate governance, the way they are differentiated and, also, areas of complementarities andsome 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 beginsbetween the two and also is the source of some possible conflict. The most important objective

of corporate governance is to protect the interests of the stockholders whose primary concern ismaximization of return on investment or short-term profitability.

The objective of corporate strategy is more to focus on long-term growth and profitability, whichgives sustenance to the company. This, however, is a common organizational conflict in manycompanies, i.e., matching or balancing the shortterm and long-term goals of the organization.

Balancing the stockholder interests and stakeholder expectations is another issue. This alsorelates to strategygovernance relationship. Stakeholders include, in addition to stockholders, anumber of other interest groupsboth internal and external. Employees/managers areimportant internal stakeholders; creditors and customers are vital external stakeholders, whostrongly 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 requiredin important functional areas of manufacturing, finance and marketing to deal withcompetition, market and business development. In corporate governance, there is a growingemphasis on inclusiveness or inclusive governance, i.e., focusing on the society, communityand environmental development. The strategic management processes of companiesare also trying to find ways to strike a balance between corporate social responsibility (CSR)and profitability realizing that, ideally, both should coexist for optimal/proper organizationalgrowth. This is one area where both corporate strategy and governance are showing a commonfocus.

This is possible if the board and the CEO work in close unison. In fact, this implies another vitalaspect 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 between the two. But, in many companies, managers (CEO) and directors (board)realize/ agree that the board should only be a watchdog without undermining themanagements ability to run the business. The board should also decide how to distance itselffrom the CEO in the course of normal management of business and, at the same time, maintaina 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 isbased on certain guidelines jointly evolved and not issued by the board. The boards basicresponsibility is to ensure that the company is managed properly, in order to sustain thebusiness and also serve the interest of the owners. In other words, it acts as a monitor of

management. The CEO gives annually a management development report to the board. Themanagement realizes that a strong board (highly experienced professionals/ experts) can be asource of strength to the management and, also helpful in building and sustaining competitiveadvantage of the company. All this implies that, for effectiveness and success, the managedcorporation and the governed corporation should be as closely aligned as possible. In otherwords, a company should be as much a managed company as a governed company. This isthe optimal way to serve both the stockholders and the interest of the larger group ofstakeholders.


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Q.4 What is Corporate Social Responsibility(CSR) ? Which are the issues involved inanalysis of CSR? Name three companies with high CSR rating.

A.4In addition to the interests of the shareholders, businesses or companies should also servethe society. This is corporate social responsibility (CSR). Corporate social responsibility can bedefined as the alignment of business operations with social values.

The conflict between internal and external stakeholders can go much further than mentioned sofar. External stakeholders argue that internal stakeholders demand be made secondary to thegreater need of the society; that is, greater good of the external stakeholders. Many of them feelthat issues ike pollution, waste disposals, environmental safety and conservation of naturalresources should be the overriding considerations for formulation of policy and strategicdecision making. Internal stakeholders, on the other hand, think that the competing or socialclaims of external stakeholders should be balanced in such a way that it protects the companymission, objectives and profitability.

Strong exponents of CSR also talk of social policy for companies. They feel that socialresponsibilities of companies should be clearly enunciated and declared as social policy. Socialpolicies may directly affect a companys products and services, technology, markets, customersand self-image. According to these thinkers, an organizations social policy should be integratedinto all management activities including the mission statement and objectives. Many feel thatcorporate social policy should be articulated during strategy formulation, administered duringstrategy implementation and reaffirmed or changed during strategy evaluation.

The 3 companies with high rating CSR are:1. Johnson & Johnson2. Coca-Cola

3. Wal-Mart

Q.5 Distinguish between core competence, distinctive competence, strategic

competence and threshold competence. Use examples.

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Four major types or levels of competence may be distinguished:

1. Core competence2. Distinctive competence3. Strategic competence4. Threshold competence

Core CompetenceCore 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 synergy


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culminating into a special or core competence. Core competence gives acompany a clear competitive advantage over its competitors.

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 value in the product or

service as perceived by the customer. This is important because managers often take aninternal 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 betterthan those of competitors. Benchmarking is a good way and is generally recommendedfor undertaking performance standard and also for differentiating between good and badperformance.

(c) It should be robust, i.e., difficult for competitors to imitate. In a fast changing world, manyadvantages gained in different ways (like a superior product feature, a new marketingcampaign or an innovative price policy/strategy) are not robust and are likely to be shortlived.

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 sustainclearly differentiated advantage.

For example, Sony has a core competence in miniaturization; Xeroxs core competence is inphotocopying;Canons core competence lies in optics, imaging and laser control; Hondas core competence isin engines (for cars and motorcycles); 3Ms core competence is in sticky tape technology; JVCsin video tape technology; ITCs in tobacco and cigarettes and Godrejs in locks and storewels.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.

Distinctive CompetenceCore competence may not be enough, because it focuses predominantly on the product orprocess and technology. There are two problems with this.

First, strong and aggressive competitors may develop, either through parallel innovations orimitations, similar products or processes which are highly competitive. This is what Japanesecompanies have done in the fields of electronics and automobiles, and now South Korea isdoing to Japanese electronics; IBMs core computer technology is also facing the sameproblem.

Second, to secure competitive advantage, only product, process or technology or technological

innovation may not be enough; this has to be amply supported by special capabilities in therelated vital areas like resource or financial management, cost management, marketing,logistics, etc.

Distinctive competences may provide an answer to some of these points. Distinctivecompetence is based on the assumption that there are different alternative ways to securecompetitive advantage and not only special technical and production expertise as emphasizedby core competence.


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Distinctive competence includes core competence as one of the alternatives. But, there areother alternatives that are also based on organizational capabilities. So, the focus in distinctivecompetence is on exploiting a market opportunity. And, depending on the market or competitivesituation, one or some of the alternative competences may work ; for example, product orprocess superiority (core competence), product differentiation (situational or adaptability),cost effectiveness or cost efficiency to support a price strategy, special capability in marketing or

distribution, etc. Under given circumstances, one of these, or a combination of some of these,will produce a distinctive competence which would be appropriate or best suited to exploit theopportunity and produce desired results.Since resources are limited, identification of distinctive competence may also help efficientallocation of resources.

For example, Reliance Industries, hasdeveloped its distinctive competence in conceiving, implementing and managing large scaleprojects and mobilizing requisite resources for that. They do not think in terms of corecompetence. Mukesh Ambani, Chairman and MD, has described it like this:

Strategic Competence

Strategic competence coexists with, or supports, core competence and distinctive competence.Strategic competence is the competence level required to formulate, implement and produceresults 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 was launched veryaggressively) and re-establish their leadership in the detergent market. Strategic competencemay also involve combination or convergence of different capabilities as in the case ofHindustan Unilever.

Threshold CompetenceThreshold competence is the competence level required just for survival in the market orbusiness. The competence level of a company may be weaker than many of its competitors.

Threshold competence may be adopted by No. 5 or No. 6 player in the market or thosestruggling to survive.Companies with threshold competence can, over time, graduate to a higher level ofcompetence. But, continued threshold competence can also lead to closure of business.Multi-product or multi-SBU companies may often possess a portfolio of competences. In someproduct or business, they may have core competence, but, not in all.For example, ITCs core competence is in tobacco and cigarettes, but, they have distinctivecompetence in hospitality business and agri-business. Hindustan Unilever has distinctivecompetence and strategic competence in many businesses. But, they had been surviving withthreshold competence in vanaspati business (Dalda) for some time, and finally, they exited fromthat business.

Q.6 What is global industry? Explain with examples, international strategy, multi-

domestic strategy, global strategy and transnational strategy.

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Global industryIn global industry, the strategic position of companies in different countries or national marketsare governed by their overall global positions. To be called a global industry, an industryseconomics and competitors in different national markets should be considered jointly ratherthan individually.Distinction should be made between an international industry and a global industry. An industry

in a country may be international if it comprises a number of multinational companies. But,industries with multinational competitors are not necessarily global industries. To be a globalindustry, an industry should have multi-locational manufacturing facilities, and, competeworldwide to secure global synergy or competitive advantage.

International strategy can be adopted for those products and services which are not availablein some countries and can be transferred from other countries. These are standard productswith little or no differentiation. International strategies are not very common or popular.Some examples are:Kelloggs, Indian software, and Indian handicrafts.

Multidomestic strategy is almost opposite of international strategy. Multidomestic strategyinvolves high degree of local responsiveness or local content. Products are highly customized to

suit local requirements or conditions. Because of high customization, cost pressure is less; costeffectiveness may be also difficult to achieve because of lack of scale economies.Examples : Asian Paints (paints in general), Indian garments.

Global strategy suits companies which make highly standardized sophisticated products, and,are in a position to reap benefits of economies of scale and experience effects. These alsoinclude high technology products which have universal applicability and hardly require any localadaptation.Examples are: Intel, Motorola, Microsoft, Texas Instruments. Global retail chains like Walmartand Marks & Spencer also come under this category.

Transnational strategy is the most difficult strategy to follow because this is based on a

combination of two apparently contradictory factors, i.e., cost effectiveness and local adaptation.But, this may be a true global strategy because, in global business, there is always a pricepressure or cost pressure; and, also the need to make the product as close to a particularcountrys expectation as possible to maximize value offerings. Many companies are adoptingthis approach to become successful.Some good examples are : Caterpillar (taking on Komatsu and Hitachi), McDonalds, Coca-Cola, Pepsi and Dominos Pizza. Many multinational FMCG companies like Unilever andProcter & Gamble follow transnational strategies through their fully owned subsidiaries indifferent countries.

Assignment MB0052

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