Master of Business Administration-MBA Semester 4

MB0052 – Strategic Management and Business Policy

Assignment Set- 1

Q.1 What similarities and differences do you find in BCG business portfolio

matrix, Ansoff growth matrix and GE growth pyramid. (10 marks)

Ans. The BCG matrix is a portfolio management tool used in product life cycle. BCG

matrix is often used to highlight the products which get more funding and attention within the company. During a product’s life cycle, it is categorized into one of four

types for the purpose of funding decisions. Figure below depicts the BCG matrix.

Figure BCG Growth Share Matrix

Question Marks (high growth, low market share) are new products with potential success, but they need a lot of cash for development. If such a product gains enough

market shares to become a market leader, which is categorized under Stars, the organization takes money from more mature products and spends it on Question

Marks.

Stars (high growth, high market share) are products at the peak of their product life cycle and they are in a growing market. When their market rate grows, they become

Cash Cows.

Cash Cows (low growth, high market share) are typically products that bring in far more money than is needed to maintain their market share. In this declining stage of

their life cycle, these products are milked for cash that can be invested in new Question Marks.

Dogs (low growth, low market share) are products that have low market share and do

not have the potential to bring in much cash. According to BCG matrix, Dogs have to be sold off or be managed carefully for the small amount of cash they guarantee.

The key to success is assumed to be the market share. Firms with the highest market share tend to have a cost leadership position based on economies of scale among other

things. If a company is able to apply the experience curve to its advantage, it should able to produce and sell new products at low price, enough to garner early market

share leadership.

Limitations of BCG matrix: — The use of highs and lows to form four categories is too simple

— The correlation between market share and profitability is questionable. Low share business can also be profitable.

— Product lines or business are considered only in relation to one competitor: the market leader. Small competitors with fast growing shares are ignored.

— Growth rate is the only aspect of industry attractiveness — Market share is the only aspect of overall competitive position

Igor Ansoff growth matrix

The Ansoff Growth matrix is a tool that helps organizations to decide about their

product and market growth strategy. Growth matrix suggests that an organization’s attempts to grow depend on whether it markets new or existing products in new or

existing markets. Ansoff’s matrix suggests strategic choices to achieve the objectives. Figure depicts Ansoff growth matrix.

Figure Ansoff Growth Matrix

Market penetration – Market penetration is a strategy where the business focuses on

selling existing products into existing markets. This increases the revenue of the organization.

Market development – Market development is a growth strategy where the business

seeks to sell its existing products into new markets. This means that the product is the same, but it is marketed to a new audience.

Product development – Product development is a growth strategy where a business

aims to introduce new products into existing markets. This strategy may need the

development of new competencies and requires the business to revise products to appeal to existing markets.

Diversification – Diversification is the growth strategy where a business markets new

products in new markets. This is an intrinsically riskier strategy because the business is moving into markets in which it has little or no experience.

For a business to adopt a diversification strategy, it should have a clear idea about what it expects to gain from the strategy and an honest assessment of the risks.

McKinsey/GE growth pyramid

The McKinsey/GE matrix is a tool that performs a business portfolio analysis on the

Strategic Business units in an organization. It is more sophisticated than BCG matrix in the following three aspects:

— Industry (market) attractiveness – Industry attractiveness replaces market

growth. It includes market growth, industry profitability, size and pricing practices,

among other possible opportunities and threats.

— Competitive strength – Competitive strength replaces market share. It includes

market share as well as technological positions, profitability, size, among other

possible strengths and weaknesses.

— McKinsey/GE growth pyramid matrix works with 3*3 grids while BCG matrix is

2*2 matrixes.

External factors that determine market attractiveness are the following:

— Market size

— Market growth

— Market profitability

— Pricing trends

— Competitive intensity/rivalry

— Overall risk of returns in the industry

— Opportunity to differentiate products and services

— Segmentation

— Distribution structure (e.g., retail, direct, wholesale)

Internal factors that affect competitive strength are the following:

— Strength of assets and competencies

— Relative brand strength

— Market share

— Customer loyalty

— Relative cost position (cost structure compared to competitors)

— Distribution strength

— Record of technological or other innovation

— Access to financial and other investment resources

Figure McKinsey/GE Growth Pyramid

Q.2 Discuss the investment strategies applicable for businesses and methods to

rectify faulty investment strategies.

Ans. An investment strategy is a key component of every conceivable business type,

and it's critical to ensuring the success of the business. Entire college programs have been designed specifically to teach business investment strategies, but a few key tips

can help lay groundwork for effective investing.

1. Use Income to Eliminate Debt

o While the pay-down of outstanding debt may not seem like business investment on the surface, debt elimination can equate to a financial

return that outpaces even the best investments. If a business has outstanding debt financed at a given interest rate, paying off that debt

guarantees an instant return of that percentage. Because business debt often reaches into double digit interest rates, paying off this debt can

provide an instant, guaranteed return that is significantly higher than usual returns on other investments.

Reinvest Funds to Nurture the Business

o Perhaps one of the most common ways businesses invest their funds

involves purchasing additional equipment, remodeling customer-facing environments or opening additional locations. By reinvesting profits

back into the business for expansion or improvement, the business stands to gain additional profits as a result of the expansion. As an

added bonus, a guaranteed return on the investment will come in the form of tax not assessed on the reinvested funds.

Invest in Other Businesses

o Some businesses find success in investing their profits in other

noncompeting businesses. These investments may be made as traditional cash investments, as loans or by purchasing securities issued

to business start-ups. Investing in other businesses can be an especially wise move for companies in shaky industries, as spreading investments

into other types of operations can help diversify a business's holdings and reduce the risk of a complete business loss.

Or

— Use of income to eliminate debt — Reinvestment of funds to nurture the business

— Investment in other businesses

Investment is defined as the commitment of money or capital (e.g. purchasing assets, keeping funds in a bank account etc) to generate future returns. A proper

understanding of the investment strategies and a thorough analysis of the options helps an investor to create a portfolio that maximises returns and minimises exposure

to risks.

Following are the ways to invest successfully: — Leave a margin of safety – Always leave a margin of safety in your investments to

protect your portfolio. The following are the two ways to incorporate the above principle in your investment selection process.

° Be conservative in your valuation assumptions

° Only buy assets dealing at substantial discounts to your conservative estimate. — Invest in business which you understand – Invest in a business in which you have a

thorough understanding of the customers, products/services etc. — Make assumptions – Make assumptions about your future performance by

recognising your own limitations. Never purchase the stock until you understand the industrial economy and able to forecast the future of the company with certainty.

— Measure your success – Evaluate your performance by the underlying measures in business.

— Have a clear disposition towards price – The more you pay for an asset in relation to its earnings, the lesser is your return value. So have a clear outlook towards the

price. — Allocate capital by opportunity cost – Allocate investments/assets to the choice

which has been opted as the best among several mutually exclusive choices.

Internal methods to rectify faulty investment strategies

In this section we will explain the methods to rectify faulty investment strategies. Some of the methods are as follows:

— Internal transformation — Corporate restructuring and reorganization

— Financial restructuring — Divestment strategy

— Expansion strategy — Diversification strategy

— Vertical and horizontal integration strategy — Building core competencies and critical success factors

Frequent assessment report assists in detecting the problems associated with faulty investment strategies in an organization.

Internal transformation

Internal transformation takes place in an organization to sustain constant growth,

survival and maintain profitability. It includes corporate restructuring, downsizing of employees etc. The following are the reasons for internal transformation of a

company:

— Pressure on owner to decrease costs — Overstaffing

— Large and complicated company structure — Low flexibility of staff

— Financial instability

The main objective of a company which adopts internal transformation is to increase efficiency by reaching the standards in the global market. This is achieved by holding

high quality level of productivity.

The essential components of a successful business transformation are as follows:

— Achievement ° A new level of sustainably high performance emerges

° Extraordinary and unexpected results appear throughout — Improved synergy

° Collaboration naturally occurs across all levels ° Creativity and innovation flourishes

— Aliveness ° Employees flourish as they openly express their passion, commitment and creativity

towards work. ° Growth and development occurs both personally and professionally

— Shared future ° The entire organization unites to accomplish the future and live consistently with

core values We will now discuss the two internal transformation processes in the following

section. — Corporate restructuring and re-organization

— Layoffs and employee termination

Q.3. a. Distinguish policy, procedure and programmes with examples.

b. Give a short note on synergy.

Ans. Differences between policy, procedure, process and programmes

In the previous topic we discussed the definition and meaning of policy, procedure, process and programmes. Now we will analyze how each concept is different from the

other.

1. Policy is

general in nature and

identifies the company

rules. 2. Policy

explains the reason for

existence of an

organization. 3. Policy shows

how rules are enforced and

describes its consequences.

4. It defines an outcome or a

goal. 5. They are

described by using simple

sentences. 6. Policies are

guidelines for managerial

actions. 7. It is a planned

way to handle certain issues

in the organization.

8. It is framed by the top level

management. 9. Policies are a

part of the strategies of

the organization.

Procedure

identifies the specific actions and

explains when an action needs to be

taken. It describes

emergency procedures which

include warnings and cautions.

It is systematic way of handling routine

actions. Procedure defines

the means to achieve the goals.

Procedures are written in an

outline format. It is generally

detailed and rigid. It is a part of

tactical tools.

Process is a set of

activities conducted by people to achieve

organizational goals. Process defines the

method in which the work is done.

It is a long term rule that drives an

organization.

Programme is a

concrete scheme of

activities designed to

accomplish a specific

objective. It provides step

by step approach to the

activities taken to achieve the

goals. Programming

helps in developing an

economical way of doing things

in a systematic manner.

Ans. b. Synergy is the energy or force created by the working together of various parts or processes. Synergy in business is the benefit derived from combining two or

more elements (or businesses) so that the performance of the combination is higher than that of the sum of the individual elements (or businesses).

Organizations strive to achieve positive synergy or strategic fit by combining multiple

products, business lines, or markets. One way to achieve positive synergy is by acquiring related products, so that sales representatives can sell numerous products

during one sales call. Rather than having two representatives make two sales calls to a potential customer, one sales representative can offer the broader mix of products.

Mergers and acquisitions are corporate-level strategies designed to achieve positive

synergy. The 2004 acquisition of AT&T Wireless by Cingular was an effort to create customer benefits and growth prospects that neither company could have achieved on

its own—offering better coverage, improved quality and reliability, and a wide array of innovative services for consumers.

Negative synergy is also possible at the corporate level. Downsizing and the

divestiture of businesses is in part the result of negative synergy. For instance, Kimberly-Clark Corporation set out to sharpen its emphasis on consumer and health

care products by divesting its tiny interests in business paper and pulp production. According to the company, the removal of the pulp mill will enhance operational

flexibility and eliminate distraction on periphery units, thus allowing the corporation to concentrate on a single, core business activity.

The intended result of many business decisions is positive synergy. Managers expect

that combining employees into teams or broadening the firm's product or market mix will result in a higher level of performance. However, the mere combination of people

or business elements does not necessarily lead to better outcomes, and the resulting lack of harmony or coordination can lead to negative synergy.

Q.4. Select any established Indian company and analyse the different types of

strategies taken up by the company over the last few years.

Ans. Cadbury plc, formerly known as Cadbury-Schweppes plc, before it demerged from its Americas Beverages manufacturing business in 2008 (Peston, 2008), is the

world’s leading confectionery manufacturer and distributor. Cadbury plc “operates in over 60 countries, works with over 35,000 direct and indirect suppliers and employs

around 50,000 people” (Cadbury India Ltd., 2008). Cadbury stresses the importance that it places on quality. Apart from its mission

statement, it also references the slogan, “Cadbury means quality” as an integral part of its business’s activities (Superbrands, 2008).

Lastly, Cadbury also aims to put “A Cadbury in every pocket” (Karvy Research, n.d.)

by targeting current consumers and encouraging them to make impulse purchases and by maintaining a superior marketing mix (Karvy Research, n.d.).

Cadbury India Ltd, as the Indian subsidiary of this confectionery giant, also utilizes

the same mission and vision statements of its parent firm when operating in the Indian market, albeit with different business strategies and approaches. Since Cadbury’s

activities vary from country to country, this report will simply examine the activities of Cadbury India Ltd in the Indian market, one of the fastest growing confectioneries

markets in the world (Financial Express, 2008). Products offered by Cadbury India Ltd. Cadbury plc manufactures and sells three different kinds of confectionery:

chocolate, candy and chewing gum (Cadbury India Ltd., 2008), but in the Indian market, its product line is split up into the chocolate confectionery, milk food drinks,

candy and gums categories (Cadbury India Ltd., 2008).

This report will examine two different products offered to the Indian market by Cadbury India: Cadbury Dairy Milk (chocolate category) and Cadbury Bournvita

(milk drinks category).

(a) Cadbury Dairy Milk

(i) Pricing

Cadbury India enjoys controlling 70% of the confectionery market in India, of which 30% is directly due to the success of its Dairy Milk product, which averages sales of

around 1 million bars per day (Cadbury Dairy Milk, 2008; Marketing Communications, 2008). Cadbury Dairy Milk bars are Cadbury India’s cash cow in

the country’s 4000 tonne, Rs. 6.50 billion (around 1.6 billion CAD) chocolate market (Gupta, 2003), as such, has been designated its flagship brand (Cadbury India Ltd.,

2008; Chatterjee, 2000).

Part of Cadbury Dairy Milk’s success lies in its shared history with India’s identity (it was first sold in 1948, one year after the country was made independent from the

British Empire) (Cadbury Dairy Milk, 2008) but also in the fact that it is priced relatively cheaply (Chatterjee, 2006) and is relatively affordable by the Indian masses.

Even its smallest Dairy Milk bar, the 13 gram version, is priced at Rs. 5 (about 0.13 CAD), affordable by many middle-class Indians as an occasional treat, but not

affordable for those who buy from the less-then-3-rupee (Rs. 3) segment of the market (Chatterjee, 2006). Its history of operating in the country and its average level pricing

of chocolate bars, has made the Cadbury dairy Milk bar synonymous with high quality, affordable pure milk chocolate for many Indian customers (Cadbury Dairy

Milk, 2008).

(ii) Consumer segments served and advertising/promotional strategies used

Cadbury India Ltd continuously markets Dairy Milk as a relatively inexpensive treat, towards market segments divided by age, income, technological knowledge and

health-consciousness.

In the 1990’s, the company stated promoting the chocolate for “the kid in everyone”, in an attempt to appeal to adults as well as children (Cadbury Dairy Milk, 2008).

In order to appeal to potential lower-income customers in the villages of India, further marketing in the form of the “Real taste of life” campaign (Cadbury Dairy Milk,

2008) attempted to absorb these customers into its market share. By using opinion leaders from Bollywood and using extensive advertising in newspapers, television,

magazines and massive billboards across the country, Cadbury managed to capture the attention of the nation and cement its market share superiority in India (Cadbury

Dairy Milk, 2008; Marketing Communications, 2008).

Nowadays, Cadbury’s is trying to tap into the potential market of younger generation Internet users by offering contests and hosting competitions online, the most notable

being its “Pappu Pass Ho Gaya” (Pappu Passed!) joint venture operation with Reliance India Mobile, a branch of India’s largest network service provider, which

allowed students across the country to check their examination grades online and celebrate with Cadbury’s Dairy Milk if they did well (Cadbury Dairy Milk, 2008).

Furthermore, Cadbury India continuously develops new versions of its Dairy Milk brand in order to keep its adult and children consumers satisfied and interested.

Variations include the Fruit & Nut and Crackle & Roast Almond variations (Cadbury Dairy Milk, 2008) which are meant for snacking, as well as the Cadbury Dairy Milk

Desserts, “to cater to the urge for ‘something sweet’ after meals” (Cadbury Dairy Milk, 2008). The Cadbury Bournville Dark Chocolate bar, similar to the Dairy Milk

bar, targets the health-conscious market segment of the chocolate market, who wish to enjoy the taste of dark chocolate but also its health benefits (Financial Express, 2008).

Lastly, Cadbury Dairy Milk Wowie, with Disney characters embossed on each chocolate square (Cadbury Dairy Milk, 2008) clearly targets the child segment of its

market. Cadbury’s market segmentation is quite effective because it allows them to target all three major market segments: children, adults and technologically-savvy

consumers, but it does not serve those segments of the market that have been divided by income levels. Although Dairy Milk is affordable to the upper and middle-income

consumers who view it as a mid-priced item (Kochhar, 2007), lower income consumers who buy from the less-than-3-rupee range of chocolate cannot afford to

buy Cadbury Dairy Milk regularly. Cadbury will need to address the needs of this market segment in order to boost its sales of Dairy Milk.

Indian consumers seem to be satisfied with Cadbury Dairy Milk as its marketing

promotes it as an occasional indulgence, despite popular opinion that it is a relatively expensive luxury product (Cadbury India Ltd. Analysts Meet, 1999). This restrained

marketing has allowed the chocolate to slowly become a measure of quality for many Indians, as Cadbury Dairy Milk is their “Gold Standard” for chocolate, where the

“pure taste of Cadbury Dairy Milk defines the chocolate taste for the Indian consumer” (Cadbury India Ltd., 2008). In fact, Cadbury Dairy Milk was voted one of

the India’s most trusted brands in a poll conducted in 2005 (Cadbury Dairy Milk, 2008).

(iii) Product Positioning

Cadbury India Ltd’s main sources of competition come from Amul, India’s own dairy company and Nestle India, Nestle’s subsidiary in India. As seen in Appendix B,

Cadbury India controls around 70% (Cadbury India Ltd., 2008) of the chocolate market, whereas Amul controls around 2% (Dobhal, n.d.) and Nestle India around

27% (Nestle to expand, 2008).

As mentioned earlier, Cadbury’s main strength comes from it ability to market Dairy Milk products “through altering the theme and functionality of the product as the time

demands” (Cadbury India Ltd Analysts Meet, 1999). Although this has allowed it to control more of the market than its closest competitors, the reasons for its success

may also lie in the fact that many Indians still view its chocolates as luxury products (Cadbury India Ltd Analysts Meet, 1999) and not as household goods. This

contradicts Cadbury’s assertion that its leadership is maintained by a “superior marketing mix” (Karvy Research, n.d.). Cadbury India may have misinterpreted the

popularity of Dairy Milk as a sign that the Indian public has accepted it as a household product. In fact, the booming economy and the increasing affluence of the

burgeoning middle class (Basu, 2004) has promoted the use of status symbols, where the regular consumption of so-called luxury chocolates such as Cadbury Dairy Milk is

viewed as fashionable (Kochhar, 2007). Despite Amul’s longer history in India, its chocolates are viewed as being local and not luxurious, justifying a lower price tag

(Chansarkar et al., 2006). Cadbury India must maintain its current marketing strategy but slowly start to promote Dairy Milk as a household good so that consumers spend

their rising disposable incomes on it and boost its sales (Rai, 2006).

Amul’s origins as a community welfare program in Gujarat, one of India’s most industrialized states, to becoming a national enterprise (Amul, 2008) spanned the

decades during which newly-independent India forged its identity, thus becoming an integral part of India’s identity and giving its marketing strategy a new source of

authority. Cadbury simply cannot match this kind of national endorsement, so by at least promoting the fact that it has been operating in India for almost as long as Amul,

it can try to be “Indian” too. This, in combination with the longest running advertising campaign that Amul is famous for gives it a brand awareness boost.

Moreover, Amul’s reputation for credibility, safety and consumer satisfaction was

only reinforced when Cadbury India’s Chinese-made products were found to be contaminated with worms and melamine (Sinn and Karimi, 2008). The “Gold

Standard” (Cadbury Dairy Milk, 2008) was no longer gold, nor was it a standard anymore, as people’s confidence in its safety was shattered. In order to position its

products as safe and affordable treats once again, Cadbury India should make attempts to be even more sensitive to consumer demands. Customer satisfaction must

be given the utmost importance, even if the company has to run at a loss for a few months, as this will eventually allow it to negate some of the extensive damage that

this negative publicity has to the firm’s reputation. The new extra-layer packaging of

chocolate that is now being used in the manufacture of Dairy Milk is a good first step to take in reclaiming some of the public’s trust (Vivek, 2004).

Lastly, Amul’s innovative ideas will be the bane of Cadbury. Their release of diabetic

friendly chocolate and chocolates catering to different ethnic flavours (Janve and Dogra, 2007) as well as chocolates for festive seasons allow them to rapidly sway

consumers over to their products. This accounts for their soaring annual market growth rates of 18% annually (Indian Express, 1999).

In comparison to Nestle India however, Cadbury India’s longer track history gives it a

competitive edge. Cadbury has more of a brand recognition power than Nestle has, and it uses this extensively to promote Cadbury Dairy Milk all over the country.

Nestle still has to break into the Indian market; one way to do this would be to follow Amul’s lead and develop and market products that meet specific ethnic needs, such as

chocolates for Diwali and Rakshabandan (two different Indian festivals) (Kochhar, 2007) , concepts that Cadbury India has yet to explore.

Cadbury India must counter this threat that Nestle and Amul pose, namely, the

production of chocolates specifically for the festive seasons of India. By doing so, Cadbury will be able to position its chocolates as chocolate specifically designed for

India, endearing it to the consumers and boosting its sales.

(a) Cadbury Bournvita

(i) Pricing

Cadbury Bournvita was first sold on the Indian markets in 1948, soon after Cadbury India Ltd (then known as Cadbury-Fry) was incorporated (Cadbury Bournvita, 2008).

As a result of being one of the first products offered on the Indian market by Cadbury, combined with successful marketing strategies and promotional offers, Cadbury

Bournvita enjoys a 17% market share of the malt-based food drink market (Cadbury Bournvita, 2008). India alone accounts for 22% of the world’s malt-food milk drink

retail sales (BeverageDaily, 2004), but unlike Cadbury Dairy Milk, Cadbury Bournvita does not control a large share of India’s malt-based food drinks market.

Bournvita is largely sold in 500 gram bottles for around Rs. 95 (2.35 CAD) a piece

despite other sizes being available, and is perceived to be quite expensive (Hawa, 2002). However, due to its long history with India, and the fact that it is used a staple

source of nourishment by Indian mothers for their children, Bournvita’s still remains popular (Hawa, 2002).

(ii) Consumer segments served and advertising/promotional strategies used

Cadbury markets its Bournvita product in diverse market segments. Bournvita has

been marketed mainly towards children, but also finds followers amongst elderly people, pregnant women and athletes (Hawa, 2002; Cadbury Bournvita, 2008).

Continuous brand re-invention, a “rich brand heritage” and complete overhauls in packaging, product design, promotion and distribution have allowed Cadbury

Bournvita to maintain its 17% market share over the years in India’s 220,000 tonne malt-food market (Cadbury Bournvita, 2008; BeverageDaily, 2004).

Over the years, Cadbury has marketed Bournvita in order to appeal to the change in perceptions and tastes of its consumers. It focused on the “Good

Upbringing, Goodness that grows with you” campaign to promote Bournvita as an essential health drink for children (Cadbury Bournvita, 2008). This campaign was

conducted mainly on the radio, the primary medium of communication for many Indians at the time (Ranjan, 2007). This campaign was followed by the massively

successful “Brought up right, Bournvita bright” television, newspaper and magazine campaign (Cadbury Bournvita, 2008) to reach out to more children and promote the

link between intelligence and Bournvita, a concept that appealed to many children. In order to cement their consumer base and ensure brand loyalty, in the 1990s, Bournvita

challenged the public by promising complete physical and mental development for its consumers (Cadbury Bournvita, 2008), where the subsequent television marketing

campaign secured Cadbury Bournvita’s place in the Indian market. The most recent marketing campaign undertaken by Cadbury Bournvita is the one specially designed

to harness consumers’ uncertainty about the challenges of the new millennium. The “Real Achievers who have grown up on Bournvita” campaign focused on preparing

consumers with the health, vitality and nutrition necessary for facing the challenges of the new millennium (Cadbury Bournvita, 2008) and allowed Cadbury Bournvita to

keep “pace with the evolving mindsets of the new age consumers” (Cadbury Bournvita, 2008). This marketing campaign was broadcast on television and

published in newspapers in an effort to recruit contestants (Kapoor, 2007).

The release of new versions of the original Bournvita such as Bournvita 5-Star, combining the flavour of the original chocolate Bournvita with the flavor of Cadbury

5-Star (Cadbury Bournvita, 2008), one of its caramel chocolates helps maintain consumer interest. The new product is being aimed at the segment of children who

want nutrition but also taste (Cadbury Bournvita, 2008).

By also sponsoring the Indian Olympic team to the Moscow Olympics of 1980 (Cadbury Bournvita, 2008), Cadbury Bournvita has managed to appeal to an athletic

market segment as well. Recently, by supporting sports competitions and sponsoring athletes across the country, Cadbury Bournvita has managed to promote itself as a

sports drink for athletes (Kapoor, 2007).

Furthermore, one of the most famous Indian examples of Cadbury Bournvita’s ingenious marketing is its sponsorship of the Bournvita Quiz Contest. The Bournvita

Quiz Contest is the longest running quiz show in India, having first been aired in 1972. The Contest spans 7 countries, has involved more than 4000 schools and more

than 1 million students, making it one of the most popular high school contests (Cadbury Bournvita, 2008), as well as one of Cadbury’s most successful marketing

ventures till date.

However, despite Cadbury Bournvita’s history of serving consumers in the Indian market, and amidst allegations of declining quality and taste of the Bournvita brand

(Hawa, 2002), many customers still feel that Bournvita does not have the appeal that other brands, such as Horlicks do (refer to Appendix C) and thus the market is slowly

switiching over to white malt-based food drinks such as Horlicks (Karvy Research, n.d.; Cadbury India Ltd Analysts Meet, 1999).

(iii) Product Positioning The malt-based food drinks market in India is divided into brown drinks and white

drinks categories (Cadbury India Ltd Analysts Meet, 1999; Karvy Research, n.d.), with white drinks being popular in the southern and eastern parts of the country, and

the brown drinks being popular in the northern and western parts of the country (Karvy Research, n.d.).

Cadbury Bournvita’s major source of competition comes from GlaxoSmithKline’s Horlicks and Heinz Food’s Complan. As seen in Appendix C, Horlicks is the market

leader with a 44% market share (Chatterjee, 2006), followed by Cadbury Bournvita with its 17% market share (Chatterjee, 2006) and then Complan with its 13% market

share (Samajdar, 2006). As mentioned earlier, the malt-drinks market is split up into the white and brown

drinks categories. The white drinks category is mainly led by Horlicks whereas the brown drinks category is led by Bournvita (Karvy Research, n.d.). Lately, more

consumers have started switching over to consuming white drinks than brown drinks, thereby giving Horlicks a larger market share than Bournvita (Karvy Research, n.d.).

When competing with Horlicks, Cadbury Bournvita’s current marketing strategy is simply not enough. Given than Horlicks has been operating in the Indian market for

longer than Cadbury (Horlicks, 2008), this larger market share may be explained by more consumer familiarity with Horlicks than with Bournvita, however, Horlicks’

extensive marketing campaigns may also have played a part. Horlicks has always marketed itself as a “Great Family Nourisher” with products such

as Mother’s Horlicks designed for different members of the family (Horlicks, 2008), which makes it more appealing to a wider section of the market, with products

designed for different members of the family, such as Mother’s Horlicks (Horlicks, 2008), than Bournvita’s mainly child-oriented approach. Thus, even elderly and

convalescent consumers can consume the product without feeling conscious of consuming a child-only product. Even the Bournvita Quiz Contest, effectively

Bournvita’s longest running marketing campaign, mainly attracts more child consumers to its product (Radakrishnan, 2002), and thus cannot compete with

Horlicks’ wider appeal. Thus, the solution lies in Cadbury India marketing Bournvita as an adult drink as well. Only then will it be able to compete effectively with

Horlicks. Meanwhile, Complan’s market share of 13% (Samajdar, 2006), is less than

Bournvita’s. Although both products are targeted at children, Complan has marketed itself as a “perfect nutritional supplement” (Complan, n.d.) rather than as a healthy

drink for children, which is Bournvita’s approach. Since the words ‘nutritional supplement’ connote a need for extra nourishment, this may possibly work against

Complan as many families may feel that their child receives enough nourishment and does not require more. Although Cadbury Bournvita currently has a larger market

share of the two, it must continue to market itself as a child-friendly drink, and not as a nutritional supplement, in order to maintain its superiority.

Delivering Cadbury products to customers

India’s 300 billion USD retail market is growing at a rate of 30% per annum (Rai,

2006). In a country where half a billion people are under the age of 25, disposable incomes are on the rise and the economy is growing at a rate of 8% annually (Rai,

2006), selling treats such as Cadbury Dairy Milk bars and Cadbury Bournvita powder will generate massive returns. However, in order to be able to sell these products to

customers, proper distribution channels must be identified. The Indian retail sector is

composed of 97% “family-run, street corner stores” (Rai, 2006) and the remaining 3% consisting of malls and shopping complexes.

Therefore, Cadbury India Ltd. produces its products in factories spread geographically across India, but also sells its products through a chain of over 300,000 retailers

spread across India (Cadbury India Ltd Analysts Meet, 1999). The efforts of these retailers are augmented by the support of 1900 distributor locations and 27 depots

(Cadbury India Ltd Analysts Meet, 1999). Furthermore, of a total of 3600 locations that sell Cadbury products, almost 3100 locations are directly supplied by Cadbury

India Ltd distributors at least thrice a month (Cadbury India Ltd Analysts Meet, 1999).

These distribution networks give Cadbury India its competitive edge in India’s massive consumer market.

SWOT Analysis of Cadbury India Ltd. Cadbury India Ltd’s objective of putting a “Cadbury in every pocket” (Karvy

Research, n.d.) can only be done if the company markets its Cadbury Dairy Milk as a household good and its Bournvita as a family-friendly drink. Until then, its Cadbury

Dairy Milk success will only be short-term in nature and Bournvita will not be able to reverse the trend towards the consumption of white malted drinks (Cadbury India Ltd

Analysts Meet, 1999) and compete with Horlicks. As seen in Appendix D, if Cadbury Dairy Milk can be marketed extensively enough to break the ‘luxury’ perception that

consumers have of it currently (Cadbury India Ltd Analysts Meet, 1999), it can benefit from inelastic demand as a household product, thus generating a constant

stream of revenue and cementing the Dairy Milk brand as a cash cow product. This objective can be accomplished by simply building on the good reputation and trust

that it has earned, and by listening to the needs of its consumers. Bournvita meanwhile needs to be extensively marketed in order to reduce the damaging effect

that Horlicks’ family-friendly marketing mix is having on its market share. Furthermore, the key threat that can affect Cadbury India Ltd’s success in India is

Amul’s innovative marketing strategy. As a result of its witty marketing strategies, length of time serving India and its ability to develop and market products specifically

tailored for Indian consumers, Amul’s yearly growth rate of 18% may slowly start to eat away at Cadbury’s success (Indian Express, 1999).

Conclusion Cadbury India Ltd’s position in India is relatively strong. In order to maintain its lead

in such a large market, it must learn to address the specific needs of its consumers and continue to maintain their goodwill, while also analyzing its competitors’ marketing

strategies. By doing so, it will be able to isolate the benefits and drawbacks of its competitors’ marketing mix and use those to its own advantage.

Cadbury must also appreciate the advantages of a positive reputation and always stress consumer satisfaction. One key aspect of this lies in maintaining the safety of

its products so that the name of Cadbury is always synonymous with high quality safe products. Repeats of the recent melamine and worms issues cannot be allowed to

happen as once consumer confidence in its brand name is shattered, Cadbury India’s brand recognition aspect will immediately work against it by highlighting the link

between its name and contaminated food products. This will cripple sales and reverse the fruits of 70 years of hard work in the country, leaving the path open for more

efficient local companies like Amul to learn from Cadbury India’s mistakes and take over its market share.

Future Strategy In the branded impulse market, the share of chocolate in 6.6% and Cadbury’s share in the impulse segment is 4.8% factor like changing attitude, higher

disposable income, a large youth population, and low penetration of chocolate (22% of urban population) point towards a big opportunity of increasing the share of

chocolate in the branded impulse among the costly alternative in the branded impulse market.

It appears that company is likely to play the value game to expand the market encouraged by the recent success of its low priced ‘value for many packs’.

Various measures are undertaken in all areas of operation to create value for the future.

New channel of marketing such as gifting and child connectivity and low end value for money product for expanding the consumer base have been identified.

In terms of manufacturing management focus is on optimizing manufacturing efficiencies and creating a world class manufacturing location for CDM and Éclairs.

The company is today the second best manufacturing location of Cadbury’s Schweppes in the world.

Efficient sourcing of key raw material i.e. coca through forward purchase of imports, higher local consumption by entering long term contract with farmer and undertaking

efforts in expanding local coca area development. The initiatives in the terms of development a long term domestic coca a sourcing base would field maximum gains

when commodity prices start moving up. • Use of it to improve logistic and distribution competitiveness

• Utilizing mass media to create and maintain brands. • Expand the consumer base. The company has added 8 million new consumer in the

current year and how has consumer base of 60 million although the growth in absolute numbers is lower than targeted, the company has been able to increase the width of its

consumer base through launch of low priced products. • Improving distribution quality by addressing issues of product stability by

installation of visi coolers at several outlets. This would be really effective in maintaining consumption in summer, when sales usually dip due to the fact that the

heat effects product quality and thereby consumption.

• The above are some steps being taken internally to improve future operation and profitability. At the same time the management is also aware of external changes

taking place in the competitive environment and is taking steps to remain competitive in the future environment of free imports, lower barrier to trade and the advent of all

global players in to the country. The management is not unduly concerned about the huge deluge of imported chocolate brands in the market place.

It is of the view that size of this imported premium market is small to threaten its own volumes or sales in fact, the company looks at the tree important as an opportunity,

where it could optimally use the global Cadbury Schweppes portfolio. The company would be able to not only provide greater variety, but it would also be more cost

effective to test market new product as well as improve speed of response to change in consumer preference through imports. The only concerns that the company has in

this regard is the current high level of duties, which limit the opportunity to launch value for money products.

Q. 5 Why do you think it is necessary for organizations to have vision and

mission statements and also core competencies? Support your answer with

relevant examples. (10 marks)

Ans. Vision and Mission statements

A well-articulated strategic intent guides the development of goals and helps in inspiring the employees to achieve targets. It also facilitates in utilising the intent to

allocate resources and in encouraging team participation. It comprises of the vision and mission statements.

Vision statement A vision statement defines the purpose and principles of an organization in terms of

the values of the organization. It is a concise and motivating statement that guides the employees to select the procedures to attain the goals. Vision statement is the

framework of strategic planning. A vision statement describes the future ambition of an organization. A vision is the ability to view what the organization wants to be in

future. It is prepared for the organization and its employees. It should be implanted in the organization being collectively shared by everyone in the organization. It conveys

an effective business plan. It integrates an understanding about the nature and aspirations of the organization and develops this conception to lead the organization

towards a better objective. It must synchronise with the organization’s principles. The ambition should be rational and achievable.

Example - Wal-Mart’s vision is to become worldwide leader in retailing.

Vision statement of L&T L&T employees shall be innovative and the empowered team will constantly create

values and attain global benchmarks. L&T shall promote a culture of trust and continuous learning. It shall meet the

expectations of employees, stakeholders and society. (i) Cadbury’s Vision Statement Our objective is to deliver superior shareholder

returns by realizing our vision to the be the world’s biggest and best confectionery company. We are currently the biggest, and we have an enduring commitment to

become the undisputed best. At the heart of our plan is our performance scorecard, delivered through our priorities, sustainability commitments and culture

Cadbury plans to “deliver superior shareholder returns” (Cadbury plc, 2008) by measuring its financial progress in the areas of growth, efficiency, capabilities and

sustainability from 2008 to 2011 (Cadbury plc, 2008).

Mission statement

A mission statement is the extensive definition of the mission of an organization. It is a concise description of the existence and fundamental purpose of an organization. It

describes the present potentials and activities of the organization. It conveys the purpose of the organization to its employees and the public. It is vital for the

development and growth of the organization. Mission statement is the responsibility by which an organization aims to serve its

stakeholders. It gives a framework on the operations of the organization within which the strategies are devised. It describes the present capabilities, the stakeholders and

the reason for existence of an organization. The statement distinguishes an organization from its other competitors by explaining its scope of activities,

technologies, its products and services used to achieve the goals and objectives. It should be practical and achievable. It should be clear and precise so that the actions

can be taken based on it. It should be unique and different to leave an impact on everyone. It should be credible so that the stakeholders accept it.

Example -Wal-Mart’s mission is to provide ordinary customers the chance to buy the same thing as rich people.

Mission statement of IBM

“At IBM, we strive to be the forerunner in inventing, developing and manufacturing most advanced information technologies, including computer systems, software,

storage systems and microelectronics.” The distinction between mission statement and vision statement is that the mission

statement focuses on the present position of the organization and the vision statement focuses on the future of the organization.

(ii) Cadbury’s Mission Statement Cadbury’s mission statement outlines its overall business objective and its

commitment to its customers. Our core purpose “Working together to create brands people love” captures

the spirit of what we are trying to achieve as a business. We collaborate and work as teams to convert products into brands.

Core competencies are those skills that are critical for a business to achieve competitive advantage. These skills enable a business to deliver essential customer

benefit like the selection of a product or service by a customer. Core competency is the key strength of business because it comprises the essential skills. These are the

central areas of expertise of the company where maximum value is added to its services or products. Example – Infosys has a core competency in information

technology. It is a unique skill or technology that establishes a distinct customer value. As the

organization progresses and adapts to the new environment, the core competencies also adjust to the change. They are not rigid but flexible to advancing time. The

organization makes the maximum utilization of the competencies and correlates them to new opportunities in the market. Resources and capabilities are the building blocks

on which an organization builds and executes a value-added strategy. The strategy is devised in a manner that an organization can receive reasonable profit and attain

strategic competitiveness. Core Competencies are not fixed. They change in response to the transformation in

the environment of the company. They are adaptable and advance over time. As an organization progresses and adapts to new circumstances, the core competencies also

adapt to the transformation.

Q. 6. What is SBU? Explain its features, functions and roles. Mention some of the

successful SBU of MNC’s.

Incomplete

Ans. Strategic Business Unit or SBU is understood as a business unit within the

overall corporate identity which is distinguishable from other business because it serves a defined external market where management can conduct strategic planning in

relation to products and markets. The unique small business unit benefits that a firm aggressively promotes in a consistent manner. When companies become really large,

they are best thought of as being composed of a number of businesses (or SBUs).Strategic Business Unit (SBU) is necessary when corporation starts to provide

different products and hence, need to follow different strategies.SBUs are also known as strategy centers, Independent Business Unit or even Strategic Planning Centers.

Strategic Business Unit (SBUs) is necessary when corporation starts to provide different products and hence, need to follow different strategies. To ease its operation,

corporate set different groups of product/product line regarding the strategy to follow (in terms of competition, prices, substitutability, style/ quality, and impact of product

withdrawal). These strategic groups are called Strategic Business Units (SBUs). Each Business Unit must meet the following criteria:

1. Have a unique business mission, independent from other SBUs. 2. Have clearly definable set of competitors.

3. Is able to carry out integrative planning relatively independently of other SBUs.

Should have a Manager authorized and responsible for its operation.

Master of Business Administration-MBA Semester 4 MB0052 – Strategic Management and Business Policy

Assignment Set- 2

Q.1 Explain with respect to policies – steps in framing business policy and stages

of policy cycle. Will these help in decision making?

Ans. Policy formulation is the process of designing the policy. The major function of designing the policy relies upon the managers. Policy framing is one of the phases of

strategic planning in the organization. It is based on the underlying objectives of the organization. Framing and monitoring the policy is one of the critical tasks in the

organization. The process of framing policies consists of the following steps:

— Definition of purpose – The first step towards framing policies includes the process of identifying the objectives and the philosophy of the organization. The

purpose is to select the guidelines for measuring the performance based on the organization’s strengths and weaknesses, its available resources and the personnel.

The basic concept of the business activities is defined in this phase. Example – The perception of the garment company is to develop the finest cloth at

less cost. Adding to such a conceptual view, the company must define the purpose in

terms of guidelines needed for measuring the performance and obtaining the desired targets.

— Preparation of strategic intelligence – This step involves analysing the internal environment of the organization. The strategic intelligence is the process of detailed

description of what the company is and assessing its sphere of operations. The prediction of the future happenings including the opportunities and risks must be

known because it lays heavy impact on the company’s position in the market. — Policy alternatives – Alternating policies must be identified and analysed once the

objectives of the organization are defined. The managers recognise the problems faced by the organization and discover the alternative policies. This step is the central

phase of framing a policy. A list of policy alternatives is generated by considering the probabilities of the problems faced by the organization.

Example – Inventory systems in Das n Das Company The Das n Das Company invested on control systems to avoid taking decisions on the

routine matter regarding the orders, timings of production, etc. In such a situation, many factors are considered by the top level management to increase the production

rate and the size of orders. Hence meetings are held to discuss the implementation of the policy that suits the best.

The top level management introduced an alternative to the inventory control policy that consisted of determination and evaluation of various conflicting factors. The

policy is adopted to represent a balance between the internal factors like employees, resources and the production.

— Policy analysis – This step involves analysing the alternative policies and examining its contribution towards the objectives of the organization. An alternative

policy is based on the consequences to be faced by the organization. The elements of policy analysis process include evaluating the consequences of various alternatives

and their effects on the objectives of the organization. — Strategic choice – It is the process of selecting the policies that is best suited for

the organization. This is done by the top level management. The policies act as guidelines to fulfill the organization’s purpose. Establishing the specific policies

represents the strategic commitment towards achieving the objective of organization. — Policy review – Policy review is the process to evaluate whether the framed policy

is matching the organizational performance. A periodical review of policies is necessary to maintain the policies up to date.

This section explained the various steps involved in framing business policies. The next section defines policy cycle and describes the stages of policy cycle.

Policy cycle is the process of analysing, planning, designing, and implementing the policies in the organization. Every organization typically has high and low level

policies. The high level policies govern the entire company in all circumstances. They mainly deal with the organization’s needs. It forms a standard and does not lend

procedures. The low level policies deal with a set of specific circumstances. It helps in creating procedures to govern the organization in specific situations.

These policies are necessary to govern the organization. Hence it must be reviewed and reshaped as the objectives of the organization changes. The policy cycle is

necessary to implement this process. Stages of policy cycle

The policy cycle consists of the following stages: Setting the policy agenda

Policy agenda is the process of describing the sequence of business activities in the organization and planning the measures to frame a policy. A list of factors is

considered which includes processes, resources, revenue etc. The top level management organises committee meetings to discuss these factors and make a

detailed planning for framing a policy. Writing policy

It is the process of drafting the policy for the organization. The policy is drafted based on the various factors discussed in the meetings. A separate team under framing

business policies is responsible for writing policies. The policy statements must be clear, concise and easily implemented in the organization. The policies are created in

such a way that it does not lead to controversies. The drafted policies adhere to the organizations objectives.

Implementation of policy The implementation process is necessary to effectively communicate the drafted

policies. This phase makes the policy visible to the employees in the organization. An environment of compliance is achieved between the organization norms and the

employees only if the employees are aware of policies in the organization. Generally, employees view the policies as restrictions. Hence, implementing the policies

systematically reduces the negative perception of the employees. Policy implementation tasks are:

— Policy legitimating – The proposed policy must obtain authenticity from the team implementing the policy.

— Constituency structure – The policy must be marketed in such a way that it promotes the relationship between the beneficiaries.

— Resource allocation – The resources that are supporting the implementation of policy must be acquired or reallocated depending on the implementation of the

strategy. — Organizational design and modification – The existing organization must be re-

engineered or modified according to the new policy. — Resource mobilization – The resources in the organization must be redirected to

provide the capacity to conduct action as per the implemented policy. Enforcing policy

Enforcing policy is the process of applying the drafted policies in situations that are in compliance between the organization and the employees. The top level management

has the clear responsibility for enforcing the policies. If the employees are found exploiting the policies then the organization has powers to impose penalties to the

employees. Hence enforcing policies develops responses to the problems faced in the organization without hampering the organization’s success.

Reviewing the policy Reviewing the policies is the process of checking whether the policies are matching

the business activities in the organization. This phase includes re-examining the existing policies. All the policies must be reviewed on daily basis. If any errors are

found that are not compatible to the organization’s views then it is reverted to the policy drafting team to re-draft. Reviewing policies ensures that they reflect the

business realities of the moment. Updating policy

If any changes are made in the process of the business activities then the existing policies also must be changed. The review team holds the responsibilities of updating

policies. If the policies are not updated then the organization experiences issues with various factors in the organization.

enever any business policy is framed, it has to be observed by the decision makers as feasible and beneficial for the organization’s growth and success. Just because a

policy is in place, it doesn’t mean that it will help business decisions. Therefore, business policies have to be framed after a careful scrutiny and then decided whether

such policies are needed or not. Once policies are in place and implemented, it should further help in functional and

operational decisions without causing any ambiguities or delays in procedures. Policies should act as guiding light to lead the organization and business strategies in

the right path. A change in policy or amendments done to existing policies should also be considered

in decision making before implementing them. Further, it should not cause any major disruptions in the internal environment.

Policy making decisions together with strategic decisions must provide clarity, flexibility and assistance to other business decisions.

Interdependence between policy and strategy Business policies and business strategies requires compatibility. A policy should not

hinder strategic decisions and in the same way, a strategy should not restrict policy decisions. Both have to be complementary to each other.

Q.2 Assess the challenges involved in Strategic Management in the near future.

Ans. Strategic management includes strategic planning, implementation and review/control of the strategy of an organization. All most all the modern

organizations engage in strategic management to ensure that they achieve the desired level of performance. But in the modern business context strategic management faces

many challenges such as: Orientation for globalization-

Every aspect of the business is getting globalised and business organizations step in to global operations with MNC and other foreign business operations methods. Due to

the globlised operations of the business world there are new orientations such as international human resource management (IHRM) and international finance

are emerging. Company’s strategic management process has to be updated to cope up with these new orientations.

Emerging e-commerce and internet culture- With the wide expansion of world wide wed (www) and the technology businesses

have moved on to e-commerce where they conduct business electronic means such as online purchasing/selling and online advertising. Strategic management process of the

business should be able to accommodate e-commerce motives into the business process.

Cut throat competition-

With the globalization, e-commerce and other changes in the business environment,

todays business world has become hyper competitive where the organization can no longer survive without executing proper competitive strategy. Strategic management

process should generate competitive intelligence and predict the next moves of the competitors and build the competitive strategy to win the battle with competitors.

Diversification-

With the rapid changing business environment and increased uncertainty the business

risk has increased drastically. To diversify the business risk companies now engage in diversified operations where they focus on more than one business area/industry

rather than specializing in one area. The strategic management should be able to identify diversified business opportunities and manage them well.

Active pressure groups-

In the modern world there are active pressure groups operating such as environmental

activism and consumer protectionism. Strategic management should identify these external pressure groups and hear about their concerns.

Motive for Corporate Social Responsibility (CSR) and ethics-

The modern business organizations have engage in CSR and ethics to keep up their

corporate reputation and be competitive in the environment. Strategic management should look into possible CSR activities and implement those to be in line with

expectations of the society.

Q.3 Four years back, Pure Ltd. was a newly started company. It deals in

designer fabrics. Its top management comprises mainly of young talented

persons. They would to know to make the company follow ethical codes and

practice CSR as the company moves ahead. They are also interested in meeting

its business obligations. Could you suggest to the management on how to go

about it?

Ans. Ethics and corporate social responsibility are essential factors which influences

business undertakings and its functional operations. Business ethics are referred as moral rules and regulations governing the business world to guide in making effective

corporate decisions. Corporate Social Responsibility (CSR) means operating a business that meets or

exceeds the ethical, legal, commercial and public expectations. CSR focuses in maintaining the effective business features in an organization.

Corporate Social Responsibility (CSR) is the continuing obligation of a business to

behave ethically and contribute to the economic development of the organization. It improves the quality of life of the organization. The meaning of CSR has two folds.

On one hand, it exhibits the ethical behaviour that an organization exhibit towards its internal and external stakeholders. And on the other hand, it denotes the responsibility

of an organization towards the environment and society in which it operates. Thus CSR makes a significant contribution towards sustainability and competitiveness of

the organization. CSR is effective in number of areas such as human rights, safety at work, consumer

protection, climate protection, caring for the environment, sustainable management of natural resources, and such other issues. CSR also provides health and safety

measures, preserves employee rights and discourages discrimination at workplace. CSR activities include commitment to product quality, fair pricing policies, providing

correct information to the consumers, resorting to legal assistance in case of unresolved business problems, so on.

Example – TATA implemented social welfare provisions for its employees since 1945

Business obligations are the ties which bind an organization to pay or to do something

agreeable by the laws and customs of the country in which the obligation is made. Obligations in terms of business are the duties of an organization towards the

upliftment of the people and the country. Organizations also have to essentially take care of the interests of its stakeholders and employees. A portion of the business

profits may be retained back so as to cycle the funds within the business.

There are various obligations of a business. Following are some of the business obligations in terms of social, ethical, moral and environmental way:

Social business obligations The sense of principles and morality regarding social and community issues may be

referred to as the social obligations. Business is about the relationships with people and community. But in the current

world, businesses follow limited obligation towards social issues. Social responsibility is demonstrated by the determination of the organization to treat

customers, employees and investors fairly and honestly. There are several social issues that affect the current business workplace, but ethical standards play an

important role in business decision making in an organization. Factors which enhance social business obligations are as follows:

— Implementing punishable act towards corruption or any illegal act in an organization

— The employer-employee relationships must be stable. — Although an organization might succeed, but it must respect ethical values, people

and community. — The quality and loyalty of company’s workforce must not change

— The higher officials must possess the following qualities like honesty, responsibility, consistency, dignity etc.

Example – The reasons for the death of employees who inhale fumes from chemical spill in a factory is the negligence of social obligation that failed to provide safety and

security for its employees. Moral business obligations

Moral obligation is a responsibility of balancing various needs of an individual by accurate understanding of the right or wrong actions using the acquired knowledge by

an organization. Moral responsibility is based on the relationships among friends, neighbours, co-workers and family members. The vital components of moral

responsibility are deeply rooted in the structure of every society and are a part of social life.

Wars, gang violence, toxic waste spills, corporate fraud, manufacture of unsafe and defective products, failure of legislative bodies, financial waste by governmental

agenciesc are the outcomes of poor moral obligations of an organization. Collective moral responsibility of a business deals with appropriate arrangements of

the widespread harm and misconduct by different groups. Example – The emergence of HIV infection and AIDS has refocused the interest of

moral obligations in preventing the transmission of such communicable disease by the medical institutes of the nation.

Ethical business obligations In the time of rapid technological and social change, a business organization must

help their employees to develop a new understanding of ethical values. Many ethical conflicts have arisen around the business world in the past. An organization has

certain responsibility towards reducing unethical issues. Example – Worldwide inequality of income can result in unethical practices such as the child labour;

monopoly suppliers can exploit the consumers, etc. Building ethical obligations in an organization is highly significant for a business. A

company owes an ethical obligation to the individuals and groups who are responsible for the success of the company. There are four groups of people who are generally

responsible for the success of a business. It includes employees, customers, community and shareholders.

Ethical obligations in an organization include the following ethical duties with different values, assumptions and social constructions of the employment relationship.

Example – Infosys has developed its corporate social responsibility by establishing social rehabilitation and rural upliftment programme, educational system upliftment

programme, etc. The company could fulfill its CSR due to its ethical obligations.

Q.4. What is BCP? Discuss its importance and influence on strategic

management. How contingency planning is related to BCP?

Ans. Business continuity plan (BCP) is a process followed by an organization to survive in an event that causes disruption to normal business processes. BCP not only

includes major disasters (e.g. loss of a building due to natural calamities, fire accident etc) but also routine interruption (e.g. hard disk crash due to virus, major power

interruption etc).In such cases BCP ensures that critical operations continue to be available.

document containing the recovery timeline methodology, test-validated

documentation, procedures, and action instructions developed specifically for use in restoring organization operations in the event of a declared disaster. To be effective,

most Business Continuity Plans also require testing, skilled personnel, access to vital records, and alternate recovery resources including facilities”.

BCP is a collection of procedures which is developed, recorded and maintained in readiness for use in the event of an emergency or disaster.

Every organization is at risk due to natural disasters like flooding, hurricanes or earthquakes, or any common causes of systems disasters. Sometimes it can also be

due to human interference like hacking or virus attack. Business Continuity Planning is important to the continued success of an organization. They are critical for the

continuous operations in all types of businesses. Every company needs a detailed contingency plan that ensures continuous business operations in case of any

unforeseen, difficult or catastrophic event occurs. Recently most of the organizations rely on technology to do business and give more importance to IT and communication

services. They become highly vulnerable to loss of information and service a result of catastrophe.

BCP is very important due to the following reasons: — Advanced planning

— Threats

Advanced planning

Many companies have realised that it is not sufficient to implement a generic BCP. For an efficient response, with respect to continuous operations, it must adopt to

specific risks and catastrophic situations which could range from major building loss to local system failure.

Organizations must plan for the recovery of critical business functions, using priorities and timescales that were obtained from assessed risks and accompanying

data. BCP must cover the requirements of IT, data and voice communications as well as of essential personnel and offsite locations. In today’s scenario, it is no longer

sufficient for an organization to recover its technology and communications infrastructure but it must also have accessible people and accommodations in which

they can work. Threats

Natural disasters are not the only threats to a business operation. Corporate espionage organised crime, hacking, whacking packet sniffing etc are some of the man-made

disasters. Hackers could destabilise an organization’s entire operation. To respond to this threat, it is important to use results generated from risk analysis and management

activity to undertake focused, organization-specific security testing, including vulnerability assessment and penetration testing of the network infrastructure.

Where an event causes a company to close down its entire network, it is critical to ensure that employees and other users still get access to their data and applications as

quickly and securely as possible. To accomplish this, companies can organise various information management solutions by implementing network management

procedures. In spite of giving attention to Business Continuity Planning following recent terrorist

activities, organizations are still failing to put strategic contingency plans in place. Gartner, an analyst firm estimates that only 35% of the organizations have a

comprehensive disaster recovery plan in place and fewer than 10% have crisis management, contingency, business recovery and business resumption plans. This is

an alarming statistic. Example for corporate espionage and organised crime – An employee of Ellery

Systems Inc. resigned and took the computer software codes with him. The codes had a potential market value of billion dollars. As they didn’t implement BCP, Ellery

systems went out of business and its employees lost their jobs. Millions of dollars invested and many years of hard work were lost.

Contingency planning is a planning strategy that deals with uncertainty by identifying

specific responses to possible future conditions. Contingency planning realises that future is impossible to predict, so it is best to have a variety of flexible and responsive

solutions available. It is an alternative course of action that can be implemented in the event when a primary approach fails to function as it should. Contingency plans allow

the businesses and other entities to quickly adapt to the changing circumstances. 8.8.1 Concepts

Contingency plans are developed by identifying possible failure in the usual flow of operations and strategies. Contingency plans should overcome these failures and

continue with the functions of the organization. Organizations create contingency plans to achieve the objectives that are listed below:

— Day to day operations of the organization continue without a great deal of interruption or interference.

— Backup plan is capable of remaining functional as long as it takes to restore primary plan.

— Emergency plan minimizes inconvenience to customers, allowing the organization to continue providing good and services.

8.8.2 Implementation Contingency plans can be practically applied to any level of organization as a part of

planning process. It involves the following steps: — Identify the objectives and targets

— Identify various strategies that help to achieve objectives and targets. — Evaluate the costs and benefits of each strategy, and rank them according to cost-

effectiveness or benefit/cost ratios. The ranking can take other significant factors into account such as implementation and other additional benefits.

— Implement the required strategies to achieve the targets. It generally starts with the most cost effective and easy to implement strategies, and working down the list to

more costly and difficult strategies. — After they are implemented, assess the programs and strategies with regard to

various performance measures, to ensure that they are effective. — Evaluate overall results with regard to targets to decide if the additional strategies

should be implemented. Contingency plans can be practically applied to any level of organization as a part of

planning process. It involves the following steps: — Identify the objectives and targets

— Identify various strategies that help to achieve objectives and targets. — Evaluate the costs and benefits of each strategy, and rank them according to cost-

effectiveness or benefit/cost ratios. The ranking can take other significant factors into account such as implementation and other additional benefits.

— Implement the required strategies to achieve the targets. It generally starts with the most cost effective and easy to implement strategies, and working down the list to

more costly and difficult strategies. — After they are implemented, assess the programs and strategies with regard to

various performance measures, to ensure that they are effective. — Evaluate overall results with regard to targets to decide if the additional strategies

should be implemented.

Q. 5 Mention any 5 successful strategic alliances and discuss the key aspects

concerned with it. What kinds of problems were faced by companies that were

involved in these strategic alliances? (10 marks)

Ans. Joint venture Joint venture is the most powerful business concept that has the ability to pool two or

more organizations in one project to achieve a common goal. In a joint venture, both the organizations invest on the resources like money, time and skills to achieve the

objectives. Joint venture has been the hallmark for most successful organizations in the world. An individual partner in joint venture may offer time and services whereas

the other focuses on investments. This pools the resources among the organizations and helps each other in achieving the objectives. An agreement is formed between the

two parties and the nature of agreement is truly beneficial with huge rewards such that the profits are shared by both the organizations.

Merger is the process of combining two or more organizations to form a single

organization and achieve greater efficiencies of scale and productivity. The main reason to involve into mergers is to join with other company and reap the rewards

obtained by the combined strengths of two organizations. A smart organization’s merger helps to enter into new markets, acquire more customers, and excel among the

competitors in the market. The participating organization can help the active partner in acquiring products, distribution channel, technical knowledge, infrastructure to

drive into new levels of success.

Collaborations and co-branding Collaboration is the process of cooperative agreement of two or more organizations

which may or may not have previous relationship of working together to achieve a common goal. It is the beginning to pool resources like knowledge, experience and

sharing skills of team members to effectively contribute to the development of a product rather working on narrow tasks as an individual team member in support to

the development. Such collaborations are the foundation for concepts like concurrent engineering or integrated product development.

Collaboration is a win-win methodology. It means that both the organizations insist upon each other to gain equal profits with no negative attitude of acquiring each

other’s possessions.

Effective collaboration can be obtained by the following actions: The organizations must get involve in the process from the beginning and avail the

necessary resources for collaboration. — The work culture in the organization must encourage teamwork, cooperation and

collaboration. — There must be effective team work and cooperation among the employees of both

the organizations to achieve the goal. — Systematic approach of product development process must be based on sharing of

information, technology etc. Co-branding involves the process of combining two or more brands into a single

product or service. It is becoming a positive way to associate different brands and develop a strong brand in the market. It creates synergy among the various brands. An

organised co-branding strategy leads the co brand partners to a win-win situation and helps in realising large demands in the market.

The co-branding agreement includes the important aspects such as rights, obligations, and restrictions that are abiding to both the organizations. It also includes important

provisions and the needs must be carefully drafted to provide clear guidelines to the involved organizations. The organizations form co-branding to accomplish many

goals which include expansion of customers, obtain financial benefits, respond to the needs of customers, strengthening its competitive position, introducing new product

with strong image and to gain operational benefits. It is more frequently used in the field of fashion and apparels. It can also be used for

promoting campaigns, using cartoons on T-shirts, logos, distributing through branded retailer etc.

Example – The sportswear giant Nike formed co-branding agreements with Philips consumer electronic products. The Philips electronic products will contain Nike’s

logos and it is mainly marketed in United States since the market share of Philips is not much impressive. The newly introduced digital audio player and portable CD

players of Philips will be unveiled with the Nike logo to enhance profits in the market share in United States.

Technological partnering It is the process of associating the technologies of two different companies to achieve

a common goal. The two organizations work as co-owners in business and share the profits and losses. The technologies of individual organizations are shared to achieve

desired outcome. The required resources like knowledge, machinery, and expertise are collaborated between the organizations.

Example – The software giant, Infosys Technologies Ltd. has entered into partnership with US based NVIDIA, GPU inventor and the world’s visual technologies giant. The

purpose of this partnering is to develop NVIDIA CUDA (Compute Unified Device Architecture). This technology is viewed as the next big revolution in the field of

technology in lending high performance in computing. The software helps the developers of various applications to tap into the previously uncultivated power of the

GPU. This will enable certain applications to achieve high performance. The capacity of CUDA is expected to multiply fifty times the performance of existing computing

and reduce the run time to advance the user enterprise. Contractual agreements

It is the process of agreement with specific terms between two or more organizations which guarantee in performing a specific task in return for a valuable benefit. The

contractual agreement is the heart of business dealings. It is the most significant areas of legal concern and involves variations in certain situations and complexities.

The organizations require analysing fundamental factors before involving in contractual agreements.

The elements to be analysed are: — It is necessary to identify the type of offer being laid by the organization to make

an agreement. — The acceptance of the information involved in offer which results in meeting the

market needs. — The organizations are required to recognise the strong commitment towards the

contractual agreement. — Systematic scheduling of the process involved in manufacturing product without

any hindrances to both the organizations. — Discover the terms and conditions for manufacturing the product and the guarantee

of the organizations in fulfilling it. The contract agreement includes several documents such as letters, orders, offers and

counteroffers. There are various types of contractual agreements. They are:

— Conditional – It is based on occurrence of an event. — Joint and several – The organizations promise to perform together but still they

possess individual responsibilities. — Implied – The judicial court will determine the contract between the organizations

based on circumstances. The parties will be able to buy all manufactured products, enter into a contract to supply other’s requirements, or renewal of the existing

contract.

Problems Involved in Strategic Alliances There are numerous problems related to strategic alliances. Some of them are:

— One of the organizations suffers benefits due to incoherent goals — Lack of trust between the organizations lead to poor performance in achieving the

desired goal — The existence of conflicts between the organizations’ due to internal issues like

personnel and resources causes problem to the strategic alliance — Lack of commitment between the organizations leads to termination of the alliance

contract — Many organizations experience the risk of sharing too much knowledge with the

partner organization to become a competitor — Reduces the possibility of future opportunities of getting into agreement with

partner’s competitors

Q. 6 Give a note on strategic evaluation and strategic control.

Ans. The core aim of strategic management succeeds only if it generates a positive outcome. Strategic evaluation and control consists of data and reports about the

performance of the organization. Improper analysis, planning or implementation of the strategies will result in negative performance of the organization. The top

management needs to be updated about the performance to take corrective actions for controlling the undesired performance.

All strategies are subject to constant modifications as the internal and external factors influencing a strategy change constantly. It is essential for the strategist to constantly

evaluate the performance of the strategies on a timely basis. Strategic evaluation and control ensures that the organization is implementing the relevant strategy to reach its

objectives. It compares the current performance with the desired results and if necessary, provides feedback to the management to take corrective measures.

Strategic evaluation consists of performance and activity reports. If performance results are beyond the tolerance range, new implementation procedures are

introduced. One of the obstacles to effective strategic control is the difficulty in developing appropriate measures for important activities. Strategic control stimulates

the strategic managers to investigate the use of strategic planning and implementation. After the evaluation, the manager will have knowledge about the cause of the problem

and the corrective actions. The strategic-evaluation process with constantly updated corrective actions results in

significant and long-lasting consequences. Strategy evaluation is vital to an organization’s well-being as timely evaluations can alert the management about

potential problems before the situation becomes critical. Successful strategists combine patience with a willingness to take corrective actions promptly, when

necessary.

Strategic control is established to focus on the resources used in the performance

(input), activities that generate the performance (behaviour) and the result of actual performance (output). Strategic control involves tracking the strategy as it is being

planned, implemented and take necessary actions when it indicates any negative performance.

Control is taking measures that synchronize outcomes as closely as possible

with plans

Traditionally, has been almost completely based on financial performance

Hence, top internal accounting officer became the “In Charge” official for organization control policies and procedures

What do we call the chief accounting officer of an organization?

Answer: The Controller o Financial Information was primary source

o Rewarded Efficiency o Encouraged Dysfunctional Behavior