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PESIT Bangalore South Campus Hosur road, 1km before Electronic City, Bengaluru -100

Department of MBA

MBA II SEMESTER

INTERNAL ASSESSMENT TEST – 1 Date : 01/03/2017 Max Marks : 40 marks Subject & Code : Strategic Management (16MBA25) Section : Core Name of faculty : Ravi Urs Time : 8:30 – 10:00 AM

Note: Answer all questions

1(a) Differentiate between vision and mission.

Vision Mission

A company’s vision is the top management's

views and conclusions about the company's

direction and the product-customer-market-

technology focus

A company's mission is defined by the buyer

needs it seeks to satisfy, the customer groups

and market segments it is endeavoring to

serve, and the resources and technologies

that it is deploying in trying to please its

customers

It is about providing a panoramic view of

"where we are going" and a convincing

rationale for why this makes good business

sense for the company

It deals with a company's present business

scope and purpose – “who we are, what we

do, and why we are here”

E.g. Nike’s vision - To be the number one

athletic company in the world

E.g. Nike’s mission - To bring inspiration and

innovation to every athlete in the World

(2marks)

(b) Explain the balanced score card approach.

The Balanced Scorecard approach is used for measuring company

performance by setting both financial and strategic objectives and tracking

their achievement.

(6marks)

USN

PESIT Bangalore South Campus Hosur road, 1km before Electronic City, Bengaluru -100

Department of MBA

MBA II SEMESTER

It provide a clear prescriptions to what companies should measure in order

to "balance" the financial perspective with customer goals and operational

performance goals in implementation and control of strategic plans

It enables companies to clarify their strategies, translate them into action and

provide meaningful feedback

It provides feedback around both the internal business processes and

external outcomes in order to continuously improve strategic performance

and results

There are four perspectives which help in measuring the company’s performance:

1. The learning and growth perspective

How well are we continuously improving and creating value?

The scorecard insists on measures related to innovation and organizational

learning.

To gauge performance on this dimension the measures can be

Technological leadership

Product development cycle times

Operational process improvement, etc.

2. The business process perspective

What are our core competencies and areas of operational excellence?

Internal business processes and their effective execution as measured by

productivity, cycle time, quality measures, downtime, various cost measures

among others provide input

3. The customer perspective

How satisfied are our customers?

A customer satisfaction perspective typically adds measures related to defect

levels, on-time delivery, warranty support, product development, etc.

4. The financial perspective

How are we doing for our shareholders?

A financial perspective typically uses measures like cash flow, return on equity,

sales and income growth.

USN

PESIT Bangalore South Campus Hosur road, 1km before Electronic City, Bengaluru -100

Department of MBA

MBA II SEMESTER

(c)

Describe in detail the strategic management process.

The stages of Strategic Management Process are as follows:

1. The Strategic Planner has to define what is needed to be accomplished, which helps in

defining the objectives, strategies and policies of the organization (Wipro has been one

of the top three software companies and it wants to be among the top three)

2. The results of the current performance of the organization are documented ( Wipro

documents its financial performance)

3. The Board of Directors and the top management will have to review the current

(8marks)

USN

PESIT Bangalore South Campus Hosur road, 1km before Electronic City, Bengaluru -100

Department of MBA

MBA II SEMESTER

performance of the organization (Wipro analyzed that its growth is slower than

competitors during its strategy of having two CEOs).

4. After the review, the organization will have to scan the internal environment for

strengths and weaknesses and the external environment for opportunities and threats

(Wipro realized that it was not present in the fast growing sectors like finance, banking

and heath. It also realized that two CEOs strategy had failed)

5. The internal and external scan helps in selecting the strategic factors (Two CEO strategy,

verticals, quality of customers).

6. These selected factors have to be reviewed and redefined in relation to the mission and

objectives (Wipro’s objective was to perform better than rivals).

7. The review will generate a set of alternative strategies (Wipro also needed to increase

the number of customers giving more than $100 million annually, Two CEO policy needs

to be changed, focus on high growth vertical).

8. The best strategic alternative is selected and implemented through program budgets

and procedures (Wipro moved to having a single CEO, new verticals like Health Care

were added, focus on Telecom vertical reduced).

a) Monitoring, evaluation and review of the implementation can provide a feedback on the

changes in the implementation required.

USN

PESIT Bangalore South Campus Hosur road, 1km before Electronic City, Bengaluru -100

Department of MBA

MBA II SEMESTER

2(a) What is PEST analysis?

PEST stands for Political, Economical, Social and Technological analysis.

Political Analysis

It entails knowing the type of political stability that exists in a particular market. A

stable political environment would be suitable for doing business. There should be

continuity in business policies for a conducive business environment.

Economic Analysis

The overall economy of the market affects the business sentiment. People would be

willing to buy only when the economy is looking healthy. Business investments will

happen only when there is confidence that there would be demand for their

products.

Social Analysis

(2marks)

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PESIT Bangalore South Campus Hosur road, 1km before Electronic City, Bengaluru -100

Department of MBA

MBA II SEMESTER

It is about the culture that exists in the market. It defines the lifestyle of the people.

It is very important to businesses to know the culture as it decides the type of

products and services that would be in demand in the particular market.

Technological Analysis

Technology is very important as they bring about a drastic change in the way

products are manufactured and consumed. Consumers would be adopting the

technology for their convenience, hence it becomes imperative for businesses to

monitor and quickly adopt for the technical changes.

(b) Explain the four levels of strategic management with examples.

a. Corporate Strategy

It is the kind of initiatives that the company uses to:

Establish business positions in different industries

o E.g. GE, HUL

Decide approaches to boost the combined performance of set of

businesses

o E.g. ITC

Means of capturing cross-business synergies and turn them to

competitive advantage

o E.g. Entering into FMCG and food industries from ITC

The decision of Pepsi to concentrate on health drinks

Decision of Airtel to enter South African market

Senior executives and key business unit heads have the responsibility of devising

corporate strategy

Major strategic decisions are usually reviewed and approved by the company's

Board of Directors

b. Business Strategy

It concerns the actions and approaches crafted to produce successful

performance in one specific line of business

E.g. The strategy of food division of ITC to focus on snacks (Bingo chips),

confectionary (Sunfeast biscuits), grains (Aashirwad atta), Ready-to-eat

(Yippee noodles)

(6marks)

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PESIT Bangalore South Campus Hosur road, 1km before Electronic City, Bengaluru -100

Department of MBA

MBA II SEMESTER

It is the responsibility of the manager in charge of the business

The key focus is on

Crafting responses to changing market circumstances

Initiating actions to strengthening market position

Build competitive advantage and capabilities

o E.g. The competitive advantage and capabilities for ITC foods lies

in leveraging e-choupals for sourcing raw materials and using

strong distribution network developed for tobacco business

The business head also has the responsibility of:

Seeing that lower-level strategies are well conceived, consistent with

each other and adequately matched to the overall business strategy

Getting major business level strategic moves approved by corporate level

officers (sometimes board) and keeping them informed of market

developments and emerging strategic issues

Ensuring the business level objectives conform to corporate-level

objectives and strategy themes

c. Functional Strategy

It concerns the actions, approaches and practices to be employed in managing

particular functions or business processes or key initiatives within a business

E.g. Strategy of Sunfeast biscuits to focus on mid-market and premium

segments and less on glucose biscuits

To introduce multigrain attas

They add specifics to the how’s of business level strategies

They also aim at establishing a business unit's competencies and capabilities in

performing strategy-critical activities

The responsibility for functional-area strategies is normally delegated to the

heads of the respective functions

d. Operational Strategy

It concerns the strategic initiatives and approaches for managing key operating

units (plants, distribution centers, geographic units) and specific operating

activities with strategic significance (advertising campaign)

E.g. ITC Foods - To create the right differentiation through crazy ads for

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PESIT Bangalore South Campus Hosur road, 1km before Electronic City, Bengaluru -100

Department of MBA

MBA II SEMESTER

Bingo, through giving facts for atta, and feature differentiation for

Sunfeast

They add further detail and completeness to functional area strategies and to the

overall business strategy

The lead responsibility is given to the frontline manager and should be approved

by the higher-ranking managers

(c)

Explain Porter’s Five Force Model.

According to Porter’s model the state of competition in an industry is a composite of

competitive pressures operating in five areas of the over all market.

1. Competitive pressures associated with the market maneuvering and

jockeying for buyer patronage that goes on among rival sellers in the

industry

2. Competitive pressures associated with the threat of new entrants into

the market

3. Competitive pressures coming from the attempts of companies in

other industries to win buyers over to their own substitute products

(8marks)

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PESIT Bangalore South Campus Hosur road, 1km before Electronic City, Bengaluru -100

Department of MBA

MBA II SEMESTER

4. Competitive pressures stemming from supplier bargaining power and

supplier-seller collaboration

5. Competitive pressures stemming from buyer bargaining power and

seller-buyer collaboration

The rivalry among competing sellers

It is the strongest of all the competitive forces.

A market is a battlefield where it is expected that rival sellers will

employ whatever resources they have to improve their market

positions and performance.

When one firm makes a strategic move that produces good results, its

rivals often respond with offensive or defensive countermoves,

shifting their strategic emphasis from one combination of product

attributes, marketing tactics and competitive capabilities to another

USN

PESIT Bangalore South Campus Hosur road, 1km before Electronic City, Bengaluru -100

Department of MBA

MBA II SEMESTER

Rivalry among competing sellers intensifies the more frequently and

more aggressively that industry members undertake fresh actions to

boost their market standing and performance against the rivals

Rivalry is usually stronger in slow-growing markets and weaker in fast

growing markets

Rivalry intensifies as the number of competitors increases and as

competitors become more equal in size and capability

Rivalry is usually weaker in industries comprised of so many rivals that

the impact of any one company's actions is spread thinly across all

industry members; likewise, it is often weak when there are fewer

than five competitors

Rivalry increases as the products of rival sellers become more

standardized

Rivalry increases as it becomes less costly for buyers to switch brands

Rivalry is more intense when industry conditions tempt competitors

to use price cuts or other competitive weapons to boost unit volume

A powerful, successful competitive strategy employed by one

company greatly intensifies the competitive pressures on its rivals to

develop effective strategic responses or be relegated to also-ran

status

The potential entry of new competitors

One of the important factors that affect the strength of the

competitive threat of a potential entry in a particular industry is the

number of candidates who enter and resources at their disposal

The strongest competitive pressures associated with potential entry is

often from the existing industry members entering market segments

or geographies where currently they do not have a market share.

They possess the resources, competencies and competitive

capabilities to overcome the challenges of entering a new market

segment or geography

The second factor that affect the likely candidates is the entry barriers

Some of the entry barriers are:

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PESIT Bangalore South Campus Hosur road, 1km before Electronic City, Bengaluru -100

Department of MBA

MBA II SEMESTER

o The presence of sizable economics of scale in production or

other areas of operation

o Cost and resource disadvantages not to size. Like learning

curve, patents, partnerships, cheap raw materials, proprietary

technology, low fixed cost

o Brand preference and customer loyalty

o Capital requirements

o Access to distribution channels

o Regulatory policies

o Tariffs and international trade restrictions

Substitute products

There is competitive pressure when products from other industries are

looked upon as substitute products by the customers

Competitive pressure from substitutes are weaker when:

o Good substitutes are not readily available or don't exist

o Substitutes are higher priced relative to the performance they deliver

o End users have high costs in switching to substitutes

Competitive pressure from substitutes are stronger when:

o Good substitutes are readily available

o Substitutes are attractively priced

o Substitutes have comparable or better performance features

o End users have low costs in switching to substitutes

o End users grow more comfortable with using substitutes

Competitive pressures stemming from supplier bargaining power and supplier -

seller collaboration

When major suppliers determine terms and conditions of supply in an

industry then they exert competitive pressure on rival sellers

Supplier bargaining power is stronger when:

o Industry members incur high costs in switching their purchases

to alternative suppliers

o Needed inputs are in short supply

o A supplier has a differentiated input that enhances the quality

USN

PESIT Bangalore South Campus Hosur road, 1km before Electronic City, Bengaluru -100

Department of MBA

MBA II SEMESTER

or performance of sellers products or is a valuable or critical

part of sellers' production process

o There are only a few suppliers of a particular input

o Some suppliers threaten to integrate forward into the business

of industry members and perhaps become a powerful rival

Supplier bargaining power is weaker when:

o The item being supplied is a commodity that is readily

available from many suppliers at the going market price

o Seller switching costs to alternative suppliers are low

o Good substitute inputs exist or new ones emerge

o There is a surge in the availability of supplies

o Industry members account for a big fraction of suppliers' total

sales and continued high volume purchase are important to

the well-being of suppliers

o Industry members are a threat to integrate backward into the

business of suppliers and to self-manufacture their own

requirements

o Seller collaboration or partnering with selected suppliers

provides attractive win-win opportunities

Competitive pressures stemming from buyer bargaining power and seller-buyer

collaboration

1) Large retailers have considerable negotiating leverage in purchasing

products from manufactures because of manufacturer's need for

broad retail exposure and the most appealing shelf locations

2) The buyers have a bargaining power in the following circumstances:

o If buyers' cost of switching to competing brands or substitutes

is relatively low.

o If the number of buyers is small or if a customer is particularly

important to seller.

o If buyer demand is weak and sellers are scrambling to secure

additional sales of their products

o If buyers are well informed about sellers' products, prices and

costs.

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PESIT Bangalore South Campus Hosur road, 1km before Electronic City, Bengaluru -100

Department of MBA

MBA II SEMESTER

o If buyers pose a credible threat of integrating backward into

the business of sellers.

o If buyers have discretion in whether and when they purchase

the product

3 Case Study

(a)

(b)

(c)

JetBlue, founded in 1999, followed other domestic airlines approach of offering low-cost travel. But it sought to distinguish itself by its services, such as in-flight entertainment, TV on every seat, satellite radio, use of new aircrafts and leather seats instead of cloth seats. However, no meals were provided during flights. Other strategies included use of more fuel-efficient and less maintenance cost Airbus, initially less routes, Point-to-point flight, use of secondary airports which did not handle too much traffic, reduction in the turnaround time by efficient ground staff, use of electronic ticketing, paperless cockpit and use of e-manuals by crew, customer-oriented approach, picking the right people and creating fun. 2000-04 saw rapid growth and 18 consecutive quarters of profit. Expansion continued with increase in network by adding 6 more destinations and more spending on providing quality services. It won 2002 Air Transport World Market Development Award and also won best airline award in 2002. Operating revenue continued to increase in 2005 and 2006 but airline suffered losses. It suffered loss of US$ 42 million. Losses suffered were due to rapid increase in fuel price, political situation and war, heavy Interest expense and repayment of debt. By end 2006 JetBlue slowed down growth by delaying deliveries of aircrafts, eliminating low profit routes and cutoff destinations from 75 to 47. Cutting of destinations was done to preserve cash & remain stable. JetBlue came under strong criticism due to delay of flights in February 2007. Questions: Give a suitable vision statement to JetBlue. Students have to give suitable vision statement. Give a suitable mission statement for JetBlue. Students have to give suitable mission statement. What new strategies can JetBlue create to overcome its current problems? Work on improving image of airline as superior customer service provider Offer pre flight and during flight free snacks and optional lunch / dinner on payment Create simple to use reservation system Booking agents should be allowed work from home Pre assigned seating and ticketless travel to be made possible Establish Customer Advisory Council to focus on customer needs Provide additional space of leg room All passengers to be provided with comfort kit for a healthy sleep

(1mark)

(1mark)

(3marks)

USN

PESIT Bangalore South Campus Hosur road, 1km before Electronic City, Bengaluru -100

Department of MBA

MBA II SEMESTER

(d)

Make single class travel for all passengers Double the loyalty points for true blue members Mention the macro variables which caused the losses for JetBlue. Increase in fuel price - Political/legal variable Political situation and war - Political variable Heavy Interest expense and repayment of debt – Economic variable Need to preserve cash - Economic variable

(3marks)