Solved Paper-Business Policy & Strategy2014, BBA 302

Jagannath International Management School

Vasant Kunj, New Delhi - 110070
(Affiliated to Guru Gobind Singh Indraprastha University, Delhi)
NAAC Accredited and ISO 9001:2008 Quality Certified
SOLVED END TERM EXAMINATION
SIXTH SEMESTER BBA Mav-June 2014
Paper Code: BBA302
Subject: Business Policy &Strategy
Time: 3 Hours Maximum Marks :
75

Note: Attempt any fiue questions. All questipns carry 15 marks each.

Q.l Distinguish between vision and mission statements. What are their importance in the
strategic management process? Give examples of a few vision and mission statements.

Answer: The starting point for the formulation of any strategy is establishing the Vision &
Mission statements of a Company.

Vision Statements and Mission Statements are the inspiring words chosen by successful
leaders to clearly and concisely convey the direction of the organization. By crafting a clear
mission statement and vision statement, you can powerfully communicate your intentions
and motivate your team or organization to realize an attractive and inspiring common vision
of the future. These statements create a sense of direction and opportunity. They both are an
essential part of the strategy-making process.

"Mission Statements" and "Vision Statements" do two distinctly different jobs.

• A Mission statement tells you the fundamental purpose of the organization. It defines

the customer and the critical processes. It informs you of the desired level of
performance.

• A Vision statement outlines what the organization wants to be, or how it wants the
world in which it operates to be. It concentrates on the future. It is a source of
inspiration. It provides clear decision-making criteria.

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Importance of Vision & Mission statements in the strategic management process

• An organization's vision is all about what is possible, all about that potential.
• The mission is what it takes to make that vision come true.
• Great benefits can be achieved if an organization
– Systematically revisits its vision and mission statement
– Treats them as living documents
– Considers them to be an integral part of the firm’s culture.
• Mission equals the action; vision is the ultimate result of the action.
• Vision statement describes how the future will look if the organization achieves its
mission.
• Mission is the path to achieve that vision.
• That's why businesses need both mission statements and vision statements, the first to
inform the public and the latter to inspire themselves.
• Mission Statement will turn your vision into practice.

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Examples of a few vision and mission statements:

Mission Statement Examples

1. P& G- “We provide branded products and services of superior quality and value
that improve the lives of the world’s consumers. As a result, consumers reward
us with industry leadership in sales, profit, and value creation, allowing our
people, our shareholders, and the communities in which we live and work to
prosper.”
2. IOC- “Maintaining national leadership in oil refining, marketing and pipeline
transportation”.
3. Haldiram’s- Review , Recreate and Rediscover the trend of Healthy Eating and
Innovate and Invent fresh new methods to Nourish and Delight everyone we
serve.

Vision statement examples

1. General Motors’ vision is to be the world leader in transportation products

and related services.
2. Tata Motors Limited, India's largest automobile company, vision is to be
"best in the manner in which we operate, best in the products we deliver, and
best in our value system and ethics."

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Q2. Explain structural analysis of competitive environment by taking an industry of your

choice as an example.
Answer: Structural Analysis of Competitive Environment or Porter’s 5 Forces model is
one of the approaches to the Environmental scanning process.

• The Porter’s 5 forces model of industry analysis is a structured approach to

examine the competitive environment of an organisation.

• This historic model (suggested by Michael Porter of Harvard University in 1979)

has made an immense contribution for understanding the competitive environment
in an industry. This is a critical ingredient of a successful strategy.

• According to this approach, the COMPETITIVE FORCES are the most important
environmental influences as these are the most immediate external influences which
firms can overcome directly by their own actions & is thus CONTROLLABLE to
some extent.

• The Porter’s model suggests that the COMPETITIVE ADVANTAGE enhances &
ensures long term profit potential for most organizations.

• If such a structural analysis of the competitive environment in an industry is

made, the firm is in a better position to identify its S, W, O &T.

• This model thus gives a more holistic & broader overview of the competitive
environment in an industry.

Porter identified 5 basic competitive forces which determine the intensity & state
of competition in an industry:

• Degree of competitive rivalry

• Threat of new entrants

• Threat of substitutes

• Bargaining power of suppliers

• Bargaining power of customers

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• “The stronger each of these 5 forces, the firms become unable to raise prices & it
drives down the overall profitability.” Hence the stronger these 5 forces, the more
unattractive the industry becomes.

We can analyze any industry by using the Porter’s model.

Example: the athletic shoe industry.

a)Rivalry is high among existing competing firms(Nike, Adidas, Puma, etc are strong
competitors worldwide. Also Adidas acquired Reebok in 2006 to compete with Nike for the
No.1 position)

b) Threat of new entrants is low (as the industry has reached maturity, sales growth rate has
slowed)

c) Threat of substitutes is low (as other shoes don’t provide support for sports activities)

d) Bargaining power of suppliers is medium but rising (the suppliers from Asian countries
like China, India are coming up)

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e) Bargaining power of buyers is medium but increasing (athletic shoes r dropping in

popularity as other shoes categories gain)

Based on the above, we can say that the athletic shoes industry appears to be growing in its
level of competitive intensity, meaning profit margins will be falling for the industry as
a whole & it is becoming less profitable. On the other hand, Pharmaceutical industry is
becoming more profitable as compared to it as it produces differentiated products with price
insensitive consumers.

Q.3 Identify and explain recent economic, social, political and technological trends that
significantly affects Indian banks.

Answer: The recent environmental trends that significantly affect Indian banks are:

Political trends: These refer to government policy in areas like the degree of intervention in
the economy, monopolies legislation, Environmental protection laws, Taxation policy,
Foreign trade regulations, Govt stability, etc.

• What goods and services does a government want to provide?

• To what extent does it believe in subsidising firms?

• What are its priorities in terms of business support?

Political decisions can impact on many vital areas for business such as the education of the
workforce, the health of the nation and the quality of the infrastructure of the economy such
as the road and rail system.

Economic factors: It includes all the macro level factors related to the means of production
& distribution of wealth. It includes factors like:

– Economic stage/eco. growth of the country

– Economic system(capitalist or socialist or mixed economy)

– Inflation rates

– Interest rates

– Exchange rates

– Economic policies(industrial policy, monetary, fiscal policy)

– Economic planning(5yr plans, annual budgets, etc)

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– Business cycles

– National Income trends & its distribution

– Money supply

– Savings & investments rate

– Stock market,

– Unemployment

– LPG

– Disinvestments

– Rate & growth of Gross domestic product, GNP, Per capita Income ,etc.

– Value of imports & exports

– Infrastructural factors like financial institutions, banks, modes of

transportation, communication, etc.

Social factors. Changes in social trends can impact on the demand for a firm's products and
the availability and willingness of individuals to work.

Imp Socio-Cultural factors are:

• Population demographics

• Income distribution

• Social mobility

• Lifestyle changes

• Attitude to work & leisure

• Consumerism

• Levels of education,etc.

• In the Japan, for example, the population has been ageing. This has increased the
costs for firms who are committed to pension payments for their employees because
their staff are living longer. It also means some firms have started to recruit older
employees to tap into this growing labour pool. The ageing population also has impact
on demand: for example, demand for sheltered accommodation and medicines has
increased whereas demand for toys is falling.

Tecnological factors: These r factors related to d knowledge applied & materials,

machines used in prodn of G&S . These imp factors are:

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1. Sources & cost of technology acquisition(external/foreign technical

collaborations/technology transfer ), Eg: Maruti Udyog collaborated with Suzuki of
Japan; Swaraj Vehicles & Mazda of Japan in collaboration for manufacturing Swaraj
Mazda commercial vehicles; collaboration of Kinetic & Honda motor Co )

2. Rapid changes in technological devt/R& D/new Inventions & Innovations/ NPD like
MP3 Players, LED’s &hi definition TV’s, computer games, etc are all new markets
created by technological advancements.

3. The amount of Govt spending on research

Technology defines the biz of d orgns & hence strategists cannot afford to ignore the
technological env. in the hypercompetition env.

Eg: rising petrol prices have forced car Companies to make Car engines which have fuel
efficiency & save fuel consumption like in Ford Fiesta & VW Polo or diesel variants.

Eg: technological advancements in the IT Industry has enabled corporates to develop IT tools
like Database marketing, Micro marketing, ERP,etc. (ERP is an integrated software
solution to streamline & integrate operational processes & information flows within the Co.)
(Micro marketing means tailoring products and programs or services to the needs and wants
of individuals and groups, eg: insurance policies & complexion make-up)

Q.4 How to do Strategic Advantage Analysis? Choosing any industry of your choice do
Strategic advantage profile to illustrate the strengths and weaknesses of the Company in each
functional area.

Answer: Strategic advantage analysis: It is the process by which strategists/managers

examine a firm’s resources & capabilities in the various functional areas to determine
where all the firm has STRENGTHS & WEAKNESSES so that it can exploit the
opportunities & meet the threats in the environment.

• Strategic advantage analysis/functional analysis, also known as the Factors of

common concern of organisational capability lists the factors & attributes which
are of common concern to managers in firms operating in a competitive
environment that act as capabilities in various functional areas.

Capability factors in 6 functional areas are:

1. Financial capability

2. Marketing capability

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3. Operations capability

4. Personnel capability

5. R& D capability

6. General management capability

Strategic advantage profile(SAP)

• The internal functional areas are recorded in Strategic Advantages Profile (SAP).
• SAP is used to report & evaluate the important internal strategic advantage factors.

Preparing SAP
• It is a summary statement that shows CORPORATE CAPABILITIES (Strengths and
weakness) of an organization in key, critical areas that can affect future operations of
the firm.
• There are generally five critical functional areas in most of the organizations. These
areas are Production/Operation, Finance/Accounting, Marketing, H R, Corporate
Planning, and R & D. Then the relative strength and weakness in different functional
areas is identified
• Just like in ETOP, positive, neutral, and negative signs are denoted and a brief
description is written in SAP profile.
• Each functional area is very broad having many components inside. Thus, a SAP
helps to identify resource gaps & Invest in upgrading weaknesses.
• Eg: if the firm’s strength lies in its technically qualified personnel, every attempt must
b made to see that its production facilities are not outdated creating a gap.

Below is an illustration of a SAP drawn from a hypothetical Company in the bicycle

industry:

1. Financial capability: High cost of capital; reserves and surplus position

unsatisfactory.
2. Marketing capability: fierce competition in industry; company’s position secure at
present.
3. Operations capability: plant & machinery in excellent condition;captive sources for
parts and components available.
4. Personnel capability: Quality of managers and workers comparable with that in the
competitors Companies.
5. Information capability: Computerised MIS in the process of development,
traditional functions such as payroll and accounting computerised.
6. General Management capability: High quality & experienced top management,
generally adopts a proactive stance with regard to decision making.

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The above SAP clearly shows the strengths and weaknesses in different
functional areas.

Q.5 Explain the concept of value-chain analysis. How can this be used to evolve a strategy
for a firm? Illustrate.

Answer: Value chain Analysis or Value-Chain Approach to Internal Analysis

• Various competencies & resources of an organization can be integrated into a

sequential chain of activities which an organization performs to meet customer
demands.

• Since each of these activities create value when they are performed, the chain of
organizational activities is called a Value Chain.

• The value chain analysis was described by Michael Porter in 1985.

• Michael Porter’s representation of the value chain distinguishes between primary

activities (those involved with the transformation of inputs and interface with the
customer) and support activities.

• Porter’s value chain identifies a few broadly defined activities which are undertaken
by the firm.

Products pass through the PRIMARY & SUPPORT activities of the value chain in a
sequential order, and at each activity the product gains some value, so all these are also
called value-creating activities.

• Primary activities are those concerned with the physical creation and delivery of the
firm’s product/service, its marketing & after sales service/support.

• Support activities are those which support the primary activities or help to improve
the effectiveness of primary activities.

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• This fig. shows the value chain in an organization in terms of PRIMARY &
SUPPORT ACTIVITIES and the value/margin these activities are expected to create.
Primary & support activities may appear to be two separate blocks, but in reality they are all
interconnected.

The various value adding activities are:

1. The "primary activities" include: inbound logistics, operations (production), outbound
logistics, marketing and sales (demand), and services (maintenance).
2. The "support activities" include: firm infrastructure, human resource management,
technology development (R&D), and procurement.

This model can be used to evolve a strategy for a firm as it helps to identify the
organizational strengths and weaknesses of a Company. This model helps organization
identify those areas where they are adding value to the customer(strength areas) and those
areas where they need attention to add values because value chain is all about how you do
something extra for your customers which your competitors can’t or don’t.

Q.6 Explain the BCG Model. What are its limitations? Is there a better approach to BCG
Model? Explain.

Answer:

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“BCG matrix (or growth-share matrix) is a corporate planning tool, which is used to

portray firm’s brand portfolio or SBUs on a quadrant along relative market share axis
(horizontal axis) and speed of market growth (vertical axis) axis.”
This model is a Graphical representation based on
– Relative market share
– Industry growth rates
These two variables are each on dimension of low to high that leads to creation of Four cells
– Stars ( high growth /high market share)
– Question marks ( high growth /low market share)
– Cash Cow ( Low growth / high market share )
– Dogs ( low growth/ low market share)

Advantages of the matrix:

 Easy to perform;
 Helps to understand the strategic positions of business portfolio;
 It’s a good starting point for further more thorough analysis.

Growth-share analysis has been heavily criticized for its oversimplification and lack of useful
application. Following are the main limitations of the analysis:
 Business can only be classified to four quadrants. It can be confusing to classify an SBU
that falls right in the middle.
 It does not define what ‘market’ is. Businesses can be classified as cash cows, while
they are actually dogs, or vice versa.
 Does not include other external factors that may change the situation completely.
 Market share and industry growth are not the only factors of profitability. Besides, high
market share does not necessarily mean high profits.
 It denies that synergies between different units exist. Dogs can be as important as cash
cows to businesses if it helps to achieve competitive advantage for the rest of the
company.
Yes, there is a better approach to BCG model. It is known as the DPM or Directional
Policy Matrix.
The Directional Policy Matrix
The Shell Directional Policy Matrix is another refinement upon the BCG Matrix. Along the
horizontal axis are prospects for sector profitability, and along the vertical axis is a company's
competitive capability. The location of a Strategic Business Unit (SBU) in any cell of the
matrix implies different strategic decisions. However decisions often span options and in
practice the zones are an irregular shape and do not tend to be accommodated by box shapes.
Instead they blend into each other. This tool employs two variables:

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 The Business Position (i.e. measures the competitive position and market performance
of the company)
 The Business Sector Prospects (i.e. is the sector in a growing or declining sector)
 DPM also helps companies determine the future commitment levels to particular
divisions.
Each of the zones is described as follows:

Leader - major resources are focused upon the SBU.

Try harder - could be vulnerable over a longer period of time, but fine for now.
Double or quit - gamble on potential major SBU's for the future.
Growth - grow the market by focusing just enough resources here.
Custodial - just like a cash cow, milk it and do not commit any more resources.
Cash Generator - Even more like a cash cow, milk here for expansion elsewhere.
Phased withdrawal - move cash to SBU's with greater potential.
Divest - liquidate or move these assets on a fast as you can.

The Directional Policy Matrix is a tool that was developed to provide a different perspective
from the BCG matrix. The Table below summarizes the measures used in each tool.

 Measures Used in BCG Matrix vs Directional Policy Matrrix

   
                  The BCG Matrix The Directional Policy Matrix
Measures Used Relative Market Share Competitive Position
Measures Used Market Growth Rate Business Position

Q.7 Briefly discuss the major strategy options available to a firm. Explain them in brief with
examples.

Answer: Major strategy options available to a firm, also known as GRAND STRATEGIES
or GENERIC OR BASIC STRATEGIES/MASTER STRATEGIES are as follows:

1. Stability strategy
2. Growth/Expansion strategy(where substantial growth is aimed at)
3. Retrenchment/DIVESTMENT strategy
4. Combination/Mixed strategy

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1. STABILITY STRATEGY: The nomenclature “STABILITY STRATEGY” often

creates confusion among managers. It does not mean “static/do-nothing strategy”. It
is also called “STABLE GROWTH STRATEGY” or “growth with stability” i.e. when
a firm looks at a moderate improvement/steady growth in its performance by
marginally changing its businesses in terms of its customer groups or customer
functions, etc.In STABILITY STRATEGY, the Companies do not change their basic
business definition & do not go beyond what they are doing currently i.e. not much
change in its customer groups, customer functions or alternative technologies.The
basic approach in STABILITY STRATEGY is to maintain present course with steady
growth. Thus, STABILITY STRATEGY is to be used:

 where Co’s do not wish to go beyond what they are presently doing i.e. the
Co. will continue in the similar business with the similar objectives;

 they serve the same markets with the present products i.e. no major change in
the product line, markets or customer functions;

 They are using the existing technology.

 Eg: Paper manufacturing Companies for which the basic technology has not
changed for almost a century.

 Eg: the steel industry, cement industry & coal industry in India have
overcapacity. Thus, Co’s like SAIL, ACC Ltd. &Coal India are adopting the
stability strategy. Such Co’s cannot go for expansion, instead they concentrate
on improving their present operational efficiency.

 Eg: Cigarette & alcoholic beverages Companies are subject to regulatory

restrictions & there is strict control over expansion of these industries. So,
Co’s like ITC have thus gone for growth & diversification in other businesses
like hospitality, agribusiness, etc.

 Eg: Co’s in public sector like BHEL, BPCL, IOC, STC, MMTC, etc. are
forced to adopt stability strategy b’cauz of Govt’s policy of curtailing
budgetary support for any expansion programme & unwilling to take risks,
slowness to change.

2. Growth/Expansion strategy: Growth or Expansion may be defined as a

distinct/EXPONENTIAL increase/growth in sales revenue or profit or market share
that is higher than what it has achieved in the immediate past.

 The EXPANSION STRATEGY thus alters the Company’s present

“business definition” & are more risky than a stability strategy.

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 Eg: Microsoft, once a supplier of operating systems, expanded into

application and networking software, information services, entertainment
systems, and video games consoles(XBOX 360).

 Companies like NOKIA have completely transformed their businesses.

Nokia, once a supplier of paper and rubber goods, emerged as the world’s
biggest manufacturer of mobile phones during the mid-1990s.(GROWTH BY
ADDING NEW PRODUCTS TO THE EXISTING PRODUCT LINE)

 Eg: Tata Steel’s acquisition of Corus is consistent with Tata Steel’s stated
objective of growth & globalization.(EXPANSION OF BUSINESS
THROUGH ACQUISITIONS).

3. Retrenchment strategy: Retrenchment is a corporate-level strategy that seeks to

reduce the size or diversity of an organization's operations. Retrenchment is also a
reduction of expenditures in order to become financially stable. 

 Retrenchment is a pullback or a withdrawal from offering some current

products. Thus, Retrenchment strategy is used to reverse organizational

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decline & put the firm back on a more appropriate path to successfully achieve
its strategic goals.

 Retrenchment = the organization goes through a period of forced decline

by either shrinking current business units or selling off or liquidating
entire businesses.
Retrenchment involves:
a. Stabilizing operations
b. Replenish & revitalize organizational resources & capabilities
Eg: Citigroup(Parent Co.) divested one of its business “Citi Capital” & sold it to GE Capital Fleet
Services.

Eg: Voltas(Parent Co.) divested its refrigerators business & sold it to Electrolux.

Eg. Tatas divested Lakme & sold it to HUL.

4. Mixed Strategy: also known as the combination strategy. Corporate planning is aimed at
achieving two or more goals (such as consolidation, growth, stability) simultaneously. A
combination strategy is a resource used by corporations or businesses to further their
identified business goals at the same time. Usually, businesses pursue goals like growth,
consolidation or other interests that include stability, with the aim of improving their overall
performance. Some strategies that may be combined include differentiation, cost and the
system by which a company focuses on an identified market niche. All of these strategies are
geared toward increasing or improving the competitive advantage of a business.

One of the components of combination strategy is the differentiation strategy. This

strategy involves a targeted effort by a business to make its product or service to be perceived
as unique and innovative in a market that is full of similar products or services. Companies
use various methods to confer this feeling or perception of uniqueness upon their own brand
of a product, which already exists in different forms. Such methods include unique
packaging, mystery ingredients, or clever promotions. The uniqueness of the product or
service is the differentiating factor.

Q.8 Write short notes on any two of the following:

a) Long-Range planning
b) ETOP
c) Core Competencies
d)PIMS Model

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a) Long-range planning: the phase of long-range planning occurred in the IInd Phase of the
evolution of strategic management i.e. between 1930’s & 1940’s, there was the Phase of
Long-Range Planning

Due to the increasing environmental changes in 1930’s & 40’s in the US, long-range
planning replaced ad-hoc policy making. Thus, there was shift of emphasis to the integration
of functional areas in a rapidly changing environment. Managers attempted to propose 5 yr
plans to put long-term planning in place, gathering of available environmental data (in
addition to internal information).

b) ETOP

• It stands for Environmental Threat and Opportunity Profile & was suggested by
Glueck.

• ETOP is a commonly used profile related to external business environment.

• Every organisation must know threat and opportunity before they enter in the
business. If an organization is able to analyse its threats and opportunities, it can enjoy
favourable results.

• Environmental scanning cannot b complete without DIAGNOSIS of the results of the

analysis.

• Effective DIAGNOSIS of the environment actually involves assessment/detailed

analysis of the O & T’s identified in the process of E.A. This means sorting out the
more important information from the less important one as the information collected
is very voluminous & diverse.

• The ETOP Profile is a useful device for assessing the environmental information &
determining the relative significance of Opportunities & threats.

• ETOP is a summarised depiction of dividing the environment into diff factors /sectors
& then analyzing the impact of each sector on the organisation’s future .i.e. WHERE
THE ENV OPPORTUNITIES & THREATS LIE.

• This helps to draw attention of the top mgt on the most critical factors in each sector
& their potential impact on d strategy of the firm as a whole . In ETOP Profile, each
env variable is recorded on the left side & their +ve/-ve /neutral indicators including
their statement is recorded in the right side.

c) Core Competence:

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The Strategic competitive advantage is built around a firm’s capabilities or core

competencies that are a firm’s area of expertise that give it a differentiation & advantage over
its competitors i.e. a firm’s USP.

A few egs. of distinctive competencies can be:

1. For an electronic equipment manufacturer like Havell’s, key areas of expertise could
be in the design of the electronic components and circuits.

2. Core competency of INFOSYS is in the overall simplicity and utility of the software
program for users or alternatively in the high quality of software code writing they
have achieved.

3. For an online retailer like Flipkart, its core competency lies in implementing
reliable and efficient delivery infrastructure systems & its ability to design and
deliver an efficient "customer interface" that personalises online shopping.

4. For a Company like Dell that have such a strong position in the personal
computer market, Core competencies that are difficult for the competition to imitate
are Online customisation of each computer built, Minimisation of working capital in
the production process & High manufacturing and distribution quality - reliable
products at competitive prices

5. For a Company like Honda Motor Company, creation of a superior product quality
of 2 wheelers & automobiles, which is more fuel efficient than its competitor products
is a distinctive competency. Its strategy has been built around its expertise in the
development and manufacture of superior engines.

d) PIMS Model: Profit Impact of Market Strategy(PIMS) Model of portfolio analysis

This model was developed by GE and later refined by Strategic planning Institute . It
analyses data provided by member companies to discover general laws which determine the
business strategy in different competitive environments with different results. It Uses
regression analysis instead of judgement factors. This helps to develops industry
characteristic , business average profitability to compare it with the performance of the
concerned company
Nine strategic variables are used in assessment. They are:
• Investment Intensity
• Productivity
• Market position
• Market Growth
• Quality of products
• Innovation
• Vertical Integration
• Cost Push
• Current Strategic Efforts
Profitability is linked to market share therefore the company should try to get the
biggest market share possible The cost curve must be lowered as volumes build . costs

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and prices should be held down to reduce attractiveness of the market and to keep
entry barriers high .
The main function of PIMS is to highlight the relationship between a business's key strategic
decisions and its results. Analyzed correctly, the data can help managers gain a better
understanding of their business environment, identify critical factors in improving the
position of their company, and develop strategies that will enable them to create a sustainable
advantage. PIMS principles are taught in business schools, and the data are widely used in
academic research. As a result, PIMS has influenced business strategy in companies around
the world.

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