STRATEGIC MANAGEMENT
SECTION A
1. “A mission describes what the organization is now; a vision statement describes what the organization would like to become.” Differentiate between corporate mission and strategic vision by taking corporate illustrations.
2. Explain the concept of Porter’s generic strategies. Discuss cost leadership strategy, differentiation strategy and focus strategy with examples.
3. Discuss basic model of strategic management. Explain four basic elements:
- Environmental scanning
- Strategy formulation
- Strategy implementation
- Evaluation and Control
4. How are the following prepared?
- Strategic advantages profile (SAP).
- Environmental threat opportunity profile (ETOP). Take the case of a bicycle company for discussion.
5. What is value-chain analysis? Consider the components of the value chain. Do any provide the potential to generate competitive advantage?
SECTION B
1. Discuss the nature and scope of corporate management and its role in non-business organisation, giving examples.
2. Discuss Vertical and Horizontal Integrations with examples.
3. The Balanced scorecard is a management system (not only measurement system) that enables organizations to clarify their vision strategy and translate them into action. It provides a clear prescription to as to what companies should measure in order to balance the financial perspective. Following the Balanced Scorecard approach helps:
- Balance financial and non-financial measures
- Balance short and long-term measures
- Balance performance drivers (leading indicators) with outcome measures (lagging indicators)
- Lead to strategic focus and organizational alignment.
Discuss the above statement.
SECTION B
Read the following case carefully and answer the questions that follow:
ASIAN PAINTS (INDIA) LIMITED
The siege is over, and the time has come for the leader to sally forth into greener pastures. Even as the paints industry is emerging from the shadow of recession, the Rs. 560 crore Asian Paints (India) Limited (APIL) is mixing new shades to emerge with winning colours.
Says managing director Atul Choksey: "With proper planning and a comprehensive approach to issues, we intend to keep pace with the growth of the industry".
APIL is actually targeting a growth rate that is higher than the 9 to 10 per cent that the industry has been averaging recently. In the year to March 1994, the company notched up a gross sales turnover of Rs. 559.96 crore (net sales: Rs. 401.96 crore), a growth of 10.8 per cent over the previous year. Net profit also registered a healthy growth of 31.5 percent to Rs. 25.61 crore. The results have tidied up the company's balance sheet, which had begun to look a bit ragged.
APIL's approach is multipronged: expansion of its product range and introduction of value added, niche products in the industrial paints area; line extensions of existing products to target lower income market segments both in rural and urban areas; expansions of production capacity and continuous modernisation to keep pace with the growing demand; and diversification in to the unrelated but synergistic area of ceramics.
All these strategies are part of what the company's top management terms "harnessing our full potential", or the challenges that lie ahead. They are also aimed at retaining leadership in a recession-free industry over the next few years.
APIL is the leader in the entire industry, comprising both organised as well as unorganised players, with a market share of about 19 per cent. The company is confident of the fact that its share of industry sales is twice as much as that of its nearest competitor, Goodlass Nerolac. APIL also dwarfs the others in size, its net sales nearly twice that of Goodlass Nerolac, well over twice that of third-placed Berger Paints, and nearly four times that of fourth-placed Jenson and Nicholson (see Exhibit-I).
It is only wary of the expanding unorganised sector which seems to be eating up the share of firms in the organised sector. Nevertheless, given the multiplicity of shades it is capable of, APIL reckons it can look forward to a compound growth in its market share.
Exhibit I
How They Compare
(Figures in Rs. crore for 1993 - 94)
|
Company |
Net sale |
Net Profit |
Net Profit/Sales |
|
Asian Paints |
401.96 |
25.62 |
6.36 |
|
Goodlass Nerolac |
205.88 |
8.05 |
3.91 |
|
Berger Paints |
174.95 |
3.24 |
1.85 |
|
Jenson & Nicholson |
110.33 |
1.97 |
1.72 |
|
Garware Paints* |
106 |
2.57 |
2.33 |
|
Shalimar Paints** |
102.59 |
1.60 |
1.56 |
|
Bombay Paints** |
37.81 |
0.03 |
0.08 |
* 18 months to September 1993
**12 months to March 1993
But though the good times are back, the company is not content to sit back and relax. The last three years, during which the paints industry went through a trough, saw APIL taking a beating (though it remained the market leader all through), with its paints division showing a negative growth of 3.5 per cent in terms of volume.
With the rupee having been progressively devalued during the years 1989-92, and with high rates of inflation also rampant over this period, excise duties and other levies too exerted upward pressure on paint prices, and this served to depress demand. An additional complication, reinforcing this trend, was created by the difference in the selling prices of paints made by the organised and unorganised sectors.
The first signs of recovery came with the Union Budget of 1993 which cut excise and custom duties, Excise duties were reduced to 30 per cent and customs duties were cut from 85 to 65 per cent- This provided a respite to the industry by facilitating a rolling back of prices, and it began to grow at about 2 per cent a year. In spite of intermittent social disturbances in 1993, the industry gradually responded and so did the demand for its products. Simultaneously, the automobile industry, which is a major user industry for paints, also began to emerge from the two-year recession.
A gradual revival of the industry brought along a new threat for the seven major players from the organised segment. Uneven prices during the recession years had the unorganised competitors grabbing at a significant chunk of the market.
Budget concessions brought relief to the organised sector, but its constituents also found themselves having to compete with an unorganised sector that had grown to become a significant threat, even as the prospect of competition from imports began to worry the organised sector.
APIL'S largest new venture will be a diversification into ceramics, though the project is still at the planning stage. The decision to enter a new field is fuelled by the management's perception that the ceramics industry has tremendous potential for growth.
Even though the company has no experience in the production and technology aspects of ceramic tiles manufacture, it has opted for ceramics because the marketing will involve utilisation of its existing distribution network for paints. The rationale is that since paints and ceramics are both building materials, APIL'S existing customer base (which can serve as a ready-made market) will be targeted for its ceramics products.
"With our extensive distribution network and stocking points, we can reach even the remote markets. So marketing ceramics is not likely to be a problem," says Choksey. The plan is to penetrate the market as quickly as possible, and grab a substantial chunk of industry sales. The company will initially start with ceramic tiles, but there is no plan to restrict itself to any specific market segment.
The project involves a Rs. 70 crore initial investment in the first phase, which involves installation of a capacity of 23,000 tonnes per year. This will be followed in a couple of years by the second phase, which will see an increase in the capacity to 50,000 tonnes.
The new project is scheduled for completion by the end of 1996, and it will, in all probability, be located in Gujarat. This is because any location in that state will have the advantage of proximity to the raw material supplying areas in Gujarat and Rajasthan. APIL is currently negotiating with foreign collaborators for the technology, which will have to be imported. The technology will also have to be adapted to Indian conditions.
While putting a few eggs in a new basket to ensure that fluctuating fortunes in the paint industry do not have the effect of hurting the company's bottomline yet again, APIL is not ignoring its bread-and-butter business - that of paints. Over the past year, a variety of new brands have been added to its product range. The company has made an attempt to extend its marketing and distribution beyond the country's major towns, to which its activities were hitherto confined.
'Utsav', an economically priced brand, was launched last year and is targeted at small households with limited budgets. This project concentrated mainly on consumers in Tamil Nadu, Maharashtra and Gujarat, thus widening the accessibility of its products to all consumer levels.
General Manager Mr. P.M. Murthy says that "the degree of penetration concentrates on how economical it is to do business." He says that though this new product has performed favourably, it has not contributed much to the profits of the year. "Of course, it promises to be a very good and attractive segment for future business," he adds, when asked about its future growth and profit potential.
Other new products also include powder paints to be used for both auto and non-auto appliances. There are other products like wood finishings (Touch-wood) that takes care of refinishings on furniture.
To strengthen its industrial product base, APIL has collaborated with PPG industries, an American firm, and thus enjoys the use of cathode electro deposition primer (CED). The company has concluded a tie-up with Nippon Paints for original equipment paint products and with Sigma Coatings of Holland for corrosion coatings. The technology that has been brought home as a result of these ventures is modified at the company's plant at Bhandup, so as to make it suitable for the Indian climate.
With a better product range on offer now, APIL is just waiting for a greater awareness of industrial paint applications to develop in the Indian market; the presumption is that the demand for this particular product is still latent. For its decorative paints, the company has gone in for differential pricing to encourage all segments of the market.
The company is intent on a continuous modernisation and upgradation of its technology and its assets, so as to keep in tune with the changing requirements of the marketplace. In addition, it is also working on plans to increase production capacity owr the next few years.
Besides the activity on the domestic front, APIL is increasing its overseas presence as well. One of the few Indian companies with overseas subsidiaries in the South-Pacific region, APIL is now setting up a new subsidiary in Australia. Its existing ventures abroad too have reported healthy results: Asian Paints (South Pacific) has registered a 12 per cent growth, Asian Paints (Tonga) grew at a rate of five per cent, Asian Paints (Solomon Islands) at over 10 per cent and Asian Paints (Nepal) at over 18 per cent.
With a new subsidiary at Vanuatu (New Hebrides) and a joint venture unit in Townsville (Australia), APIL has established at least a foothold in the international markets.
When asked about the threats facing the company, Choksey chuckles and says he prefers to call them challenges. "We need to meet the demands of this growing organisation- of our workforce, our technology and our assets. A major point to be tackled is to be able to meet the growing demand for our product and to create a greater awareness for our newer products," he says.
Over the first few months of the current financial year, sales volume has been growing at a rate of 14 per cent, well above the industry average. With the recession firmly behind it and government levies no longer inflating its prices, the paint industry seem to be on an uptrend. But the APIL management has its work cut out for it : it will not merely have to gear up to meet the burgeoning demand, but will also have to work hard at retaining and then increasing its market share.
Questions:
(a) What corporate goal has the company adopted for the next few years and with what strategies does the company propose to realise the above goal?
(b) What threats is the company facing or/and might face in future? What has it done and/or what could it further do to safeguard itself from threat(s)?
(c) Evaluate the new strategies of Asian Paints (India) Limited, particularly its proposed foray into ceramics.
(d) What action plans has the company proposed to strengthen its product base?
(e) Classify all the strategic plans or proposed strategic actions of the company for achieving growth against suitable headings, e.g., Diversification, Joint Ventures, etc.,
NOTE: Rs.1 crore = Rs. 100 Lakh = Rs. 10 million.
For simplicity Rs. 50 = I US$
Rs. 1 crore = 0.2 million US$
Assignment C
Question 1
It is generally agreed that the role of strategy is to:
a) Make best use of resources
b) Achieve competitive advantage
c) Make profits for the organization
d) Make the best products and services
Question 2
According to Porter (1996) in his article ‘what is strategy?’ strategy is about being:
a) Different
b) Better
c) Bigger
d) Open minded
Question 3
An organization's external environment consists of the general or macro environment and:
a) The internal environment
b) The competitive environment
c) The specific environment
d) The micro-environment
Question 4
Alfred Chandler believed that:
a) Strategy should be developed first and the organization tailored to meet the requirements of the strategy
b) Set the strategy according to the organization's strengths and weaknesses
c) Strategy should be allowed to develop incrementally
d) Strategy should be allowed to evolve over time
Question 5
The key activities in the strategic management process are:
a) Analysis, formulation, review
b) Analysis, implementation, review
c) Analysis, formulation, implementation
d) Formulation, analysis, implementation
Question 6
Strategy analysis is also referred to as:
a) SWOT analysis
b) Strategy diagnosis
c) Rational analysis
d) Situation analysis
Question 7
Strategy formulation takes place at two levels. These are:
a) Conscious and sub-conscious
b) Implicit and explicit
c) Corporate and business
d) Business and operational
Question 8
The goals of an organization derive from its:
a) Strategy
b) Purpose
c) Objectives
d) Mission
Question 9
The statement of an organization's aspirations can be found in the organization's:
a) Mission statement
b) Strategic objectives
c) Actions
d) Vision statement
Question 10
Decisions regarding which industries to compete in are the concern of:
a) Business level strategy
b) Corporate level strategy
c) Mergers and acquisitions
d) Functional level strategy
Question 11
Competitive strategy is also known as:
a) Competitive positioning
b) Corporate level strategy
c) Industry strategy
d) Business level strategy
Question 12
In the SWOT analysis, the 'strengths' and 'weaknesses' part refers to:
a) What the organization does internally in relation to competitors
b) The potential level of profits in the industry
c) The quality of the products and services in relation to competitors
d) The potential level of sales in the market
Question 13
A method for imagining alternative, possible futures is known as:
a) Scenario imagining
b) Scenario composition
c) Scenario planning
d) Scenario envisioning
Question 14
The general environment is also referred to as the:
a) Micro-environment
b) Macro-environment
c) Competitive environment
d) External environment
Question 15
The general environment can be broken down using a PEST analysis. Conventionally the PEST analysis consists of:
a) Political, economic, scientific, technological
b) Political, environmental, social, technological
c) Political, economic, social, technical
d) Political, economic, social, technological
Question 16
Competitive rivalry will be high if:
a) The industry is fragmented
b) There are a few strong players in the industry
c) There is a high degree of differentiation
d) The industry is in its infancy
Question 17
A substitute product or service is:
a) A competitor's product or service
b) An alternative way of meeting the same need
c) A new entrant into the industry
d) A less attractive way of meeting the same need
Question 18
Buyer power is high if:
a) Differentiation is low
b) Switching costs are low
c) They have little information
d) The buyer requires a high quality product for their own production
Question 19
In Porter's Five Forces, the 'threat of new entrants' relates to:
a) Barriers to entry
b) Substitutes
c) Switching costs
d) Buyer power
Question 20
The value chain is subdivided into two main headings. These are primary activities and:
a) Peripheral activities
b) Support activities
c) Secondary activities
d) Outsourced activities
Question 21
The decision regarding whether to do manufacturing within the organization or to sub-contract it to someone else is popularly known as:
a) An 'in or out' decision
b) A 'make or buy' decision
c) A 'do-it-yourself' decision
d) A 'vertical-integration' decision
Question 22
WH-Smith the stationer and bookseller has a store on most high streets in the UK. In terms of the SWOT analysis, this could be considered a:
a) Strength
b) Weakness
c) Strength and a weakness
d) Neither strength nor a weakness
Question 23
A market is defined by:
a) Demand conditions and customers
b) Demand conditions and suppliers
c) Supply conditions and production technology
d) Supply conditions and customers
Question 24
Porter's generic strategies are:
a) Low price, differentiation, focus
b) Cost leadership, differentiation, cost focus, focus differentiation
c) Price leadership, differentiation, focus
d) Low cost, differentiation, focus differentiation
Question 25
According to Porter, if an organization does not follow either a cost reduction strategy or a differentiation strategy they are:
a) Hybrid
b) Stuck in the middle
c) Typical
d) No frills
Question 25
In Porter's Generic Strategies model, a focus strategy involves:
a) Selling a limited range of products
b) Selling to a narrow customer segment
c) Selling to one region only
d) Selling simple products that are cheap to produce
Question 26
A differentiation strategy offers:
a) A broad segment something unique
b) A narrow segment something unique
c) A broad segment something more expensive
d) A narrow segment something more expensive
Question 27
Kim and Mauborgne (2005) argue that organizations should try to capture uncontested market space. These uncontested markets are known as:
a) Blue skies
b) Blue oceans
c) White skies
d) Fresh snows
Question 28
In Ansoff's matrix, 'product development' involves going in the direction of:
a) Present products to present markets
b) Present products to new markets
c) New products to present markets
d) New products to new markets
Question 29
Horizontal integration is where:
a) A firm takes over a supplier
b) A firm takes over a distributor
c) A firm takes over a competitor
d) A firm takes over a manufacturer
Question 30
………………reduces uncertainty
a) Negotiating
b) Planning
c) Organizing
d) Leading
Question 31
………………are those plans that are extended beyond three years
a) Short-term plans
b) Long-term plans
c) Specific plan
d) Strategic plan
Question 32
Value Chain is an effective tool for..................................
a) External Analysis
b) Internal Analysis
c) Self analysis
d) Systematic analysis
Question 33
The preparation of ETOP involves:
a) Dividing environment into sectors, sub factors, analyze impact of each sector & sub factor on organization, description of impact of each sub factor into a statement which is positive, neutral or negative.
b) Description of impact of each sub factor into a statement which is positive, neutral or negative. , dividing environment into sectors, sub factors, analyze impact of each sector & sub factor on organization
Question 34
Make or buy decision is related with ________strategy
a) Vertical (forward) integration
b) Vertical (backward) integration
c) Horizontal integration
c) Diversification
Question 35
Strategic management is mainly the responsibility of
a) Top Management
b) Senior Management
c) General Management
c) Middle Management
Question 36
A hardware manufacture enters into software is an example of ________integration
a) Vertical (forward) integration
b) Vertical (backward) integration
c) Horizontal integration
c) Diversification
Question 37
True/False
Question: Scheduling is a part of strategic management.
Correct Answer
a) False
b) True
Question 38
Factors to be considered in political- legal environmental scanning are
a) govt. policies, stability, philosophy of govt. , legal system, implementation, infrastructure , import-export
b) govt. policies, stability, philosophy of govt. , legal system, implementation, infrastructure
Question 39
True/False
Micro environment is the internal environment of a company.
Correct Answer
a) False
b) True
Question 40
Perspective which does not belong to four Balanced Scorecard perspectives is:
a) The Business Process Perspective
b) The Customer Perspective
c) The Learning & Growth Perspective
d) The Business Reengineering Perspective
University: AMITY Year: 2015