Question Bank

Strategic Management

1. What is business strategy?

2. What is strategic management?

3. What is corporate strategy?

4. What is core- competency?

5. Define joint venture?

6. What is conglomerate diversification?

7. What are barriers to Entry?

8. What is Horizontal Expansion?

9. Define corporate governance

10. What is backward integration?

11. Distinguish between programs and procedures.

12. What is Adaptive mode?

13. Describe the Social Responsibility of business.

14. What is strategic Business unit?

15. Define Tactics.

16. What is industry Analysis?

17. What is environment scanning?

18. What is societal Environment?

20. Define Policy?

21. What is strategy formulation?

22. What is a Mission?

23. What are objectives?

24. What are the Responsibilities of the Board of Directors?

25. What is SWOT analysis? Explain in detail.

26. Discuss Strategic choice in detail.

27. What is Value –Chain?

28. Differentiate between economics of scope and economics of scale?

29. What is Economics of Scale?

30. What is customer switching cost?

31. What is Bargaining power of buyers?

32. What is bargaining power of suppliers?

33. What is Diversification?

34. What is Economics of Scope?

35. What do you mean by stakeholder?

36. Give any two examples of Conglomerate Diversification.

37. Explain the Porter‘s Five Forces Model to analyze competitive forces in an industry
environment.

38. What is Corporate Social Responsibility?

39. What are the 3 forms of diversification? State the means and mode of diversification

40. What is PEST analysis?

41. What are Grand Strategies? Explain the various retrenchment strategies a firm may follow.

42. What is strategic intent?

43. What is value chain approach to strategy?

44. Explain Michael Porter‘s five forces model along with three generic strategies.

45. What are the possible strengths of an organization identified as part of the SWOT analysis?

47. Explain Merger and Acquisition with example.

48. Explain the concept of BCG Matrix and GE Business Screen.

50. Explain the steps involved in Strategic Planning Process.

1. What is business strategy?

Ans. A business strategy is the combination of all the decisions taken and actions performed by
the business to accomplish business goals and to secure a competitive position in the market.

It is the backbone of the business as it is the roadmap which leads to the desired goals. Any
fault in this roadmap can result in the business getting lost in the crowd of overwhelming
competitors.

Importance of Business Strategy

A business objective without a strategy is just a dream. It is no less than a gamble if you enter
into the market without a well-planned strategy.
With the increase in the competition, the importance of business strategy is becoming apparent
and there’s a huge increase in the types of business strategies used by the businesses. Here are
five reasons why a strategy is necessary for your business.
 Planning: Business strategy is a part of a business plan. While the business plan sets the
goals and objectives, the strategy gives you a way to fulfil those goals. It is a plan to
reach where you intend to.
 Strengths and Weaknesses: Most of the times, you get to know about your real
strengths and weaknesses while formulating a strategy. Moreover, it also helps you
capitalise on what you’re good at and use that to overshadow your weaknesses (or
eliminate them).
 Efficiency and Effectiveness: When every step is planned, every resource is allocated,
and everyone knows what is to be done, business activities become more efficient and
effective automatically.
 Competitive Advantage: A business strategy focuses on capitalising on the strengths of
the business and using it as a competitive advantage to position the brand in a unique
way. This gives an identity to business and makes it unique in the eyes of the customer.
 Control: It also decides the path to be followed and interim goals to be achieved. This
makes it easy to control the activities and see if they are going as planned.
2. What is strategic management?

Ans. Strategic management is an on-going process that evaluates and controls the business and
the industries in which the company is involved; assesses its competitors and sets goals and
strategies to meet all existing and potential competitors; and then reassesses each strategy
annually or quarterly [i.e., regularly] to determine how it has been implemented and whether it
has succeeded or needs replacement by a new strategy to meet changed circumstances, new
technology, new competitors, a new economic environment, or a new social, financial, or
political environment.
Benefits of strategic management

Strategic management offers many benefits to companies that use it, including:

 Competitive advantage: Strategic management gives businesses an advantage over

competitors because its proactive nature means your company will always be aware of the
changing market.

 Achieving goals: Strategic management helps keep goals achievable by using a clear and
dynamic process for formulating steps and implementation.

 Sustainable growth: Strategic management has been shown to lead to more efficient

organizational performance, which leads to manageable growth.

 Cohesive organization: Strategic management necessitates communication and goal

implementation company-wide. An organization that is working in unison towards a goal
is more likely to achieve that goal.

 Increased managerial awareness: Strategic management means looking toward the

company's future. If managers do this consistently, they will be more aware of industry
trends and challenges. By implementing strategic planning and thinking, they will be
better prepared to face future challenge.

3. What is corporate strategy?

Ans. Corporate strategy is a unique plan or framework that is long-term in nature, designed
with an objective to gain a competitive advantage over other market participants while
delivering both on customer/client and stakeholder promises (i.e. shareholder value).

Corporate Strategy takes a portfolio approach to strategic decision making by looking across all
of a firm’s businesses to determine how to create the most value.  In order to develop a
corporate strategy, firms must look at how the various business they own fit together, how they
impact each other, and how the parent company is structured, in order to optimize human
capital, processes, and governance.  Corporate Strategy builds on top of business strategy,
which is concerned with the strategic decision making for an individual business.

The Main Components of Corporate Strategy are:

 Visioning
 Objective Setting
 Allocation of Resources
 Strategic Trade-offs (Prioritization)

Visioning involves setting the high-level direction of the organization - namely the vision,
mission, and potentially corporate values.
Objective Setting involves developing the visioning aspects created and turning them into a
series of high-level (sometimes still rather abstract) objectives for the company, typically
spanning 3-5 years in length.

Allocation of Resources refers to decisions which concern the most efficient allocation of

human and capital resources in the context of stated goals and aims. 

Strategic Trade-Offs are at the core of corporate strategic planning. It's not always possible to
take advantage of all feasible opportunities. In addition, business decisions almost always entail
a degree of risk. Corporate-level decisions need to take these factors into account in arriving at
the optimal strategic mix.

4. What is core-competency?

Ans. Core Competency implies a pool of exceptional skills, strategies, moves or technology,
that demarcates between a leader and an average player, in the industry. It is the vital source of
competitive advantage, for a firm over its competitors, which leads to distinctive capabilities or
excellence.

Typically, a core competency refers to a company's set of skills or experience in some activity,
rather than physical or financial assets. An organizational core competency is an organization's
strategic strength. Honda's strategic strength, for example, lies in its engine and propulsion
systems.

5. Define joint venture?

Ans. A joint venture (JV) is a commercial enterprise in which two or more organizations
combine their resources to gain a tactical and strategic edge in the market. Companies often
enter into a joint venture to pursue specific projects. The JV may be a new project with similar
products or services or it may involve creating an entirely new firm with different core business
activities. For example, Maruti Ltd. of India and Suzuki Ltd. of Japan come together to set up
Maruti Suzuki India Ltd.

Objectives of Joint Venture

 To enter foreign market and even new or emerging market.

 To reduce the risk factor for heavy investment.
 To make optimum utilisation of resources.
 To gain economies of scale.
 To achieve synergy.

Characteristics of a Joint Venture

1. Creates Synergy

A joint venture is entered between two or more parties to extract the qualities of each other. One
company may possess a special characteristic which another company might lack with. Similarly,
the other company has some advantage which another company cannot achieve. These two
companies can enter into a joint venture to generate synergies between them for a greater good.
These companies can work on economies of large scale to give cost advantage.

2. Risk and Rewards can be Shared

In a typical joint venture agreement between two or more organization, may be of the same
country or different countries, there are many diversifications in culture, technology, geographical
advantage and disadvantage, target audience and many more factors to overcome. So the risks and
rewards pertaining to the activity for which the joint venture is agreed upon can be shared between
the parties as decided and entered into the legal agreement.

3. No Separate Laws

As for joint venture, there is no separate governing body which regulates the activities of the joint
venture. Once they are into a corporate structure, then the Ministry of Corporate Affairs in
association with Registrar of Companies keep a check on companies. Apart from that, there is no
separate law for governing joint ventures.

Advantages of Joint Venture

1. Economies of Scale

Joint Venture helps the organizations to scale up with their limited capacity. The strength of one
organization can be utilized by the other. This gives the competitive advantage to both the
organizations to generate economies of scalability.

2. Access to New Markets and Distribution Networks

When one organization enters into joint venture with another organization, it opens a vast market
which has a potential to grow and develop. For example, when an organization of United States of
America enters into a joint venture with another organization based at India, then the company of
United States has an advantage of accessing vast Indian markets with various variants of paying
capacity and diversification of choice.

At the same time, the Indian company has the advantage to access the markets of the United States
which is geographically scattered and has good paying capacity where the quality of the product is
not compromised. Unique Indian products have big markets across the globe.

3. Innovation

Joint ventures give an added advantage to upgrading the products and services with respect to
technology. Marketing can be done with various innovative platforms and technological up
gradation helps in making good products at efficient cost. International companies can come up
with new ideas and technology to reduce cost and provide better quality products.
4. Low Cost of Production

When two or more companies join hands together, the main motive is to provide the products at a
most efficient price. And this can be done when the cost of production can be reduced or cost of
services can be managed. A genuine joint venture aims at this only to provide best products and
services to its consumers.

5. Brand Name

A separate brand name can be created for the Joint Venture. This helps in giving a distinctive look
and recognition to the brand. When two parties enter into a joint venture, then goodwill of one
company which is already established in the market can be utilized by another organization for
gaining a competitive advantage over other players in the market.

For example, a big brand of Europe enters into a joint venture with an Indian company will give a
synergic advantage as the brand is already established across the globe.

6. Access to Technology

Technology is an attractive reason for organizations to enter into a joint venture. Advanced
technology with one organization to produce superior quality of products saves a lot of time,
energy, and resources. Without the further investment of huge amount again to create a technology
which is already in existence, the access to same technology can be done only when companies
enter into joint venture and give a competitive advantage.

6. What is conglomerate diversification?

Ans. Conglomerate diversification is growth strategy that involves adding new products or
services that are significantly different from the organization's present products or services.
Conglomerate diversification occurs when the firm diversifies into an area(s) totally unrelated
to the organization current business. For example, Tata Group started as hotel industry, and it
diversified its business into a conglomerate. Currently, the Tata Group conglomerate comprises
more than 100 companies in various categories like consumer products, information systems,
telecommunication, engineering, automobiles, steel, and chemicals.

7. What are barriers to Entry?

Ans. Barriers to entry are the obstacles or hindrances that make it difficult for new companies
to enter a given market. These may include technology challenges, government
regulations, patents, start-up costs, or education and licensing requirements. Barriers to entry
benefit existing firms because they protect their market share and ability to generate revenues
and profits. For example, an existing company serving to millions of customers might have an
advantage of economies of scale and as a result, marks its product at a really low price. This
competitive advantage might pose a real barrier to entry for a startup which can’t afford to sell
at such a low price.

Sources of Barriers to Entry

Barriers to entry come from seven sources:

 Economies of scale: the decline in the cost of operations due to higher production
volume
 Product differentiation: the brand strength of the product as a result of effective
communication of its benefits to the target market
 Capital requirements: financial resources required for operating the business
 Switching costs: one-time costs the buyer must incur for making the switch to a different
product
 Access to distribution channels: does one business control all of them, or are they
open?
 Cost disadvantages independent of scale: when a company has advantages that cannot
be replicated by the competition, such as proprietary technology
 Government policy: controls the government has placed on the market, such as licensing
requirements
8. What is Horizontal Expansion?

Ans. Horizontal integration is the acquisition of a business operating at the same level of
the value chain in the same industry. It is a competitive strategy that can create economies of
scale, increase market power over distributors and suppliers, increase product
differentiation and help businesses expand their market or enter new markets. By merging
two businesses, they may be able to produce more revenue than they would have been able
to do independently.

9. Define corporate governance

Ans. Corporate governance is the system of rules, practices, and processes by which a firm is
directed and controlled. Corporate governance essentially involves balancing the interests of a
company's many stakeholders, such as shareholders, senior management executives, customers,
suppliers, financiers, the government, and the community. It is actually conducted by the board
of Directors and the concerned committees for the company’s stakeholder’s benefit. The
corporate governance framework also depends on the legal, regulatory, institutional and ethical
environment of the community.

Benefits of Corporate Governance

1. Good corporate governance ensures corporate success and economic growth.

2. Strong corporate governance maintains investors’ confidence, as a result of which,

company can raise capital efficiently and effectively.

3. It lowers the capital cost.

 4. There is a positive impact on the share price.

5. It provides proper inducement to the owners as well as managers to achieve objectives

that are in interests of the shareholders and the organization.

6. Good corporate governance also minimizes wastages, corruption, risks and

mismanagement.

7. It helps in brand formation and development.

8. It ensures organization in managed in a manner that fits the best interests of all.

10. What is backward integration?

Ans. Backward integration is a process in which a company acquires or merges with other
businesses that supply raw materials needed in the production of its finished product.
Businesses pursue backward integration with the expectation that the process will result in cost
savings, increased revenues, and improved efficiency in the production process. Companies also
use backward integration as a way of gaining competitive advantage and creating barriers to
entry to new industry entrants. For example, a tomato ketchup manufacturer purchasing a
tomato farm rather than buying tomatoes from the farmers.

11. Distinguish between programs and procedures.

Ans. A program is a document explaining a goal; who is responsible for achieving the goal, any
legal or binding requirements, and what the result will be. Programs might be tied to legal
regulations. They explain the overall system to both the employees and the outside governing
agency about what is done to address a topic. A program will outline how outside agencies or
other departments/people interface with your company. Programs state the goal and then point
to policy and procedure documents used to address the goal. If the program were responding to
a law, the text of the law should be included in the program document. A program does not
cover the small details. The program simply outlines who does what and why. An example
might be a Heat Illness Program.

While a procedure describes the process of getting the work done or achieving a goal.
Procedures are described in training materials, such as guides, handbooks, checklists, on-the-job
training memos, etc. Procedures are normally instructions to employees describing exactly how
to implement policies or programs by stating precise steps that need to be followed. A heat
illness policy states that a manager must provide shade for employees, and a procedure would
state exactly how that shade is provided.

12. What is Adaptive mode?

Ans. The adaptive mode is defined as a state in which short-term strategies work hand-in-hand
with long-term strategic decisions. It is a mode that is likely to be adopted when a company
needs to respond to a problem or adapt to changing circumstances in the marketplace. This
mode is characterized by reactive solutions to existing problems. This mode of decision making
results in a fragmented strategy with incremental improvement.

13. Describe the Social Responsibility of business.

Ans. Social responsibility can be said to be the obligation on the part of business enterprises to
protect and promote society’s welfare. The activities of businesses should be organized in such
a way that the society is benefited and not affected.
Business enterprises exist to satisfy needs of the society. It is the society that provides them the
inputs and serves as the market for their produce. In other words, all business enterprises are
dependent on the society. Therefore, they should ensure that they keep the interest of the society
as their most important consideration in all their decisions and actions. The basic requisites
expected in this regard are trust, honesty, integrity, transparency and compliance with the laws
of the land. The concept of social responsibility has been in practice in India for over several
decades.
Need for Social Responsibility of Businesses
Businesses need to be socially responsible because of the following reasons:
1. Rationale for existence: The rationale for the existence of any business is satisfying
consumer needs in a profitable manner. Consumers are part of the society and any business that
needs to survive in the long run must respond and provide for society’s needs.
2. Symbiotic relationship: The society provides the inputs and serves as the market for the
output of business. Business rewards the inputs provided by the society in the form of interest,
rent, wages etc., and earns profits by selling the output to the society. Business and society
enjoy a symbiotic relationship. Business has to protect and promote society’s welfare if it
wishes to survive and prosper. A prosperous society is a necessary condition for profitable
business.
3. Availability of resources: Modern businesses have huge amount of resources at their
disposal. The profits earned by some of the multinational companies are more than the national
income of certain countries. With such large resources, businesses are in a better position to
further society’s interests.
4. Reputation: Businesses spend huge amount of resources in brand building and strengthening
their image. A socially responsible company enjoys a good reputation in the society. It results in
increased sales, profitability, attraction of talent and sustained growth.
5. Society’s expectations: Society’s expectations from business firms have undergone a sea
change over the years. In the early days, businesses were viewed only as provider of goods and
services. But today, society expects business to be a responsible citizen and contribute towards
social welfare.
6. To ensure business growth: A healthy and prosperous society enjoys higher purchasing
power. The higher purchasing power translates into higher demand for products and services.
This increased demand translates to higher sales and profit growth for businesses.
7. To avoid government regulation: If businesses are exploitative and do not take society’s
interests into account, the government has to step in. It would lay down restrictive rules and
regulations. Such restrictive rules would hinder freedom and growth of businesses. In order to
avoid government regulation, businesses have to be socially responsive.
8. To solve problems created: Problems such as environmental pollution, contamination of
water resources, depletion of the ozone layer have been caused by businesses. These have
resulted in poor health of the community and placed a question mark on the survival of human
species. Therefore, businesses should take measures to solve the problems which have been
their creation. They need to ensure that their activities do not lead to such problems in the
future.
14. What is strategic Business unit?

Ans. Strategic Business Unit (SBU) implies an independently managed division of a large
company, having its own vision, mission and objectives, whose planning is done separately
from other businesses of the company. The vision, mission and objectives of the division are
both distinct from the parent enterprise and elemental to the long-term performance of the
enterprise.

Following are the needs of SBUs:

1) To ensure that each product or product line of the hundreds offered by the company would
receive the same attention as if it were developed, produced and marketed by an independent
company.
2) To provide assurance that a product will not get lost among other products (usually those
with larger sales & profits) in a large company.
3) SBU's makes the organization in organized form. The first principle of time management is
to get organized. Similarly, one of the first things an owner got to do is to see his organization
clearly.
4) To ensure that a certain product or product line is promoted and handled as though it were an
independent business.
5) Dividing products into SBU's helps you stay in touch of the market separately for each and
every product. Thus a marketing manager/sales manager may be assigned one product at a time
and will be responsible for that product itself. Thereby he may give valuable contribution in
maintaining the STP of a product in the target market.
6) SBUs propagates the correct decision making. The decisions can be at the micro level
(managing STP, strategies) or it can be at the macro level
7) By micro managing each and every product and dividing it into SBU's, an owner can obtain a
holistic view of the organization. This view is also used in preparing the financial statements as
well as to keep tabs on the investments and returns for the organization from each SBU. Thus
the overall profitability of the firm can be decided.
15. Define Tactics.

Ans. Tactics are micro-strategies that take advantage of business situations as they develop.
They are quick, actionable plans that support an organization's overall strategy. Tactics are an
essential type of planning that every business uses to achieve its goals.

16. What is industry Analysis?

Ans. Industry analysis is a market assessment tool used by businesses and analysts to
understand the competitive dynamics of an industry. It helps them get a sense of what is
happening in an industry, e.g., demand-supply statistics, degree of competition within the
industry, state of competition of the industry with other emerging industries, future prospects of
the industry taking into account technological changes, credit system within the industry, and
the influence of external factors on the industry.

Industry analysis, for an entrepreneur or a company, is a method that helps to understand a

company’s position relative to other participants in the industry. It helps them to identify both
the opportunities and threats coming their way and gives them a strong idea of the present and
future scenario of the industry. 

17. What is environment scanning?

Ans. Environmental scanning refers to the collection and utilization of information regarding
events, relationships, and trends in an organization's industry, and the use of the acquired
knowledge in shaping the organization's future strategies and objectives. Environmental
scanning requires people in an organization to search for opportunities, important lessons,
trends, and weaknesses or threats outside of their organization which can affect the success of
the company. Identifying these variables enables the organization to develop strategies to either
exploit or counter the effects of these external industry forces. The basic purpose of
environmental scanning is to help management determine the future direction of the
organization.

18. What is societal Environment?

Ans. The social environment refers to the immediate physical and social setting in which people
live or in which something happens or develops. The social environment consists of the sum
total of a society's beliefs, customs, practices and behaviours. It is, to a large extent, an artificial
construct that can be contrasted with the natural environment in which we live. It includes the
culture that the individual was educated or lives in, and the people and institutions with whom
they interact. The interaction may be in person or through communication media, even
anonymous or one-way, and may not imply equality of social status. Therefore, the social
environment is a broader concept than that of social class or social circle.

19. Explain Porter‘s five forces model.

20. Define Policy?

Ans. The term policy is derived from the Greek word “Politicia” relating to policy that is citizen
and Latin work “politis” meaning polished, that is to say clear. A policy is a set of principles
and related guidelines that a company establishes to define its long-term goals, direct and limit
the scope of its actions in pursuit of long-term goals, and to protect its interests. Policies are
designed to guide the behaviour of managers in relation to the pursuit and achievement of
strategies and objectives.

21. What is strategy formulation?

Ans. Strategy Formulation is an analytical process of selection of the best suitable course of
action to meet the organizational objectives and vision. It is one of the steps of the strategic
management process. The strategic plan allows an organization to examine its resources,
provides a financial plan and establishes the most appropriate action plan for increasing profits.
For example, snacks maker Haldirams has established its brand in the food segment with a
range of ready-to-eat food items from ethnic India.

22. What is a Mission?

Ans. A mission statement defines what line of business a company is in, and why it exists or
what purpose it serves. Every company should have a precise statement of purpose that gets
people excited about what the company does and motivates them to become part of the
organization. A mission statement should also define the company’s corporate strategy and is
generally a couple of sentences in length. For example, mission statement of Google is to
organize the world’s information & make it universally accessible and useful.

23. What are objectives?

Ans. Objectives define strategies or implementation steps to attain the identified goals.
Objectives are specific, measurable, and have a defined completion date. They are more specific
and outline the “who, what, when, where, and how” of reaching the goals. Plans and actions
based on clear objectives are more likely to succeed in meeting the community’s needs.

24. What are the Responsibilities of the Board of Directors?

Ans. The six points below outline the major responsibilities of the board of directors:
1)  Recruit, supervise, retain, evaluate and compensate the manager: Recruiting,
supervising, retaining, evaluating and compensating the CEO or general manager are probably
the most important functions of the board of directors.
2)  Provide direction for the organization: The board has a strategic function in providing the
vision, mission and goals of the organization. These are often determined in combination with
the CEO or general manager of the business.
3)  Establish a policy based governance system: The board has the responsibility of
developing a governance system for the business. The articles of governance provide a
framework but the board develops a series of policies. This refers to the board as a group and
focuses on defining the rules of the group and how it will function. In a sense, it’s no different
than a club. The rules that the board establishes for the company should be policy based.
4)  Govern the organization and the relationship with the CEO: Another responsibility of
the board is to develop a governance system. The governance system involves how the board
interacts with the general manager or CEO. Periodically the board interacts with the CEO
during meetings of the board of directors.
5)  Fiduciary duty to protect the organization’s assets and member’s investment: The
board has a fiduciary responsibility to represent and protect the member’s/investor’s interest in
the company. So the board has to make sure the assets of the company are kept in good order.
6)  Monitor and control function: The board of directors has a monitoring and control
function.  The board is in charge of the auditing process and hires the auditor. It is in charge of
making sure the audit is done in a timely manner each year.

25. What is SWOT analysis? Explain in detail.

Ans. A SWOT Analysis is one of the most commonly used tools to assess the internal and
external environments of a company and is part of a company’s strategic planning process. In
addition, a SWOT analysis can be done for a product, place, industry, or person. A SWOT
analysis helps with both strategic planning and decision-making, as it introduces opportunities
to the company as a forward-looking bridge to generating strategic alternatives. SWOT is an
acronym for Strengths, Weaknesses, Opportunities, and Threats.
 A SWOT analysis is divided into two main categories: internal factors and external factors.

Internal factors:

Internal factors are the strengths and weaknesses of the company. Strengths are the

characteristics that give the business its competitive advantage, while weaknesses are
characteristics that a company needs to overcome in order to improve its performance.

External factors:

External factors are the opportunities and threats to the company. Opportunities are elements

that the company sees in the external environment that it could pursue in the future to generate
value. Threats are elements in the external environment that could prevent the company from
achieving its goal or its mission or creating value.

26. Discuss Strategic choice in detail.

Ans. Strategic Choice involves a whole process through which a decision is taken to choose a
particular option from various alternatives. There can be various methods through which the
final choice can be selected upon. Managers and decision makers keep both the external and
internal environment in mind before narrowing it down to one.

Some of the strategic choices make up a part of bigger strategic policies of the company. Hence,
important emphasis is given to them and decision makers follows due diligence before coming
up with a final strategic choice. At times, majority shareholder uses his influence for the final
strategic choice benefiting his agendas.

In nutshell, we can summarize that, it’s a combination of intent, analysis and options available.

Factors Affecting Strategic Choice

 Environmental constraints.
 Attitude of management towards risk.
 Restrictions related to time such as time pressure and decision timing.
 Reaction of competitors.
 Restrictions related to information.
 Values and preferences.
 Past strategies impact.
 Relationship between management power and internal organization.

Following example best describe the Strategic Choice:

Suppose a company has a dilemma in front of it of whether or not to invest in a new inorganic
growth process. There are multiple options available for overtaking purpose. Now the process
involved would be observing pros and cons of the companies being overtaken. Then after short
listing few of them considered the business, their advantages, and their value addition to parent
company.

After having the list of few, now the final narrowing down to a single company would be a
strategic choice on the factors mentioned above. Many stakes would be considered considering
both internal and external situations.

27. What is Value –Chain?

Ans. A value chain is a business model that describes the full range of activities needed to
create a product or service. For companies that produce goods, a value chain comprises the
steps that involve bringing a product from conception to distribution, and everything in between
—such as procuring raw materials, manufacturing functions, and marketing activities.

A company conducts a value-chain analysis by evaluating the detailed procedures involved in

each step of its business. The purpose of a value-chain analysis is to increase production
efficiency so that a company can deliver maximum value for the least possible cost.

28. Differentiate between economics of scope and economics of scale?

Ans.

Basis for
Economies of scale Economies of scope
comparison

Meaning Economies of scale refers to Economies of scope means savings in

savings in the cost due to cost due to the production of two or more
increase in output produced. distinct products, using same operations.

Reduction in The average cost of producing The average cost of producing multiple
one product. products.

Cost Due to volume Due to variety

advantage

Relatively old concept and is Comparatively new concept and is

Concept
used everywhere. recently being used by businesses.

Involves Product standardization Product diversification

Use of Large amount of resources Common resources

Strategy Standardization of product. Diversification of products.

 Basis for
Economies of scale Economies of scope
comparison

behind

Example Production of one type of Production of multiple food items by

smartphones in huge quantities. using the same resources.

29. What is Economics of Scale?

Ans. Economies of scale refer to the cost advantage experienced by a firm when it increases its
level of output. The advantage arises due to the inverse relationship between per-unit fixed cost
and the quantity produced. The greater the quantity of output produced, the lower the per-
unit fixed cost.

Economies of scale also result in a fall in average variable costs (average non-fixed costs) with
an increase in output. This is brought about by operational efficiencies and synergies as a result
of an increase in the scale of production.

30. What is customer switching cost?

Ans. Switching costs are costs that a consumer incurs from switching brands, products,
services, or suppliers. Switching cost is also known as switching barrier. Although most
prevalent switching costs are monetary in nature, there are also psychological, effort-based, and
time-based switching costs.

31. What is Bargaining power of buyers?

Ans. The Bargaining Power of Buyers, one of the forces in Porter’s Five Forces Industry
Analysis framework, refers to the pressure that customers/consumers can put on businesses to
get them to provide higher quality products, better customer service, and/or lower prices.

It is important to keep in mind that the bargaining power of buyers analysis is conducted from
the perspective of the seller (the company). The bargaining power of buyers would refer to
customers/consumers who use the products/services of the company.

32. What is bargaining power of suppliers?

Ans. The Bargaining Power of Suppliers, one of the forces in Porter’s Five Forces Industry
Analysis Framework, is the mirror image of the bargaining power of buyers and refers to the
pressure that suppliers can put on companies by raising their prices, lowering their quality, or
reducing the availability of their products. This framework is a standard part of business
strategy.
The bargaining power of the supplier in an industry affects the competitive
environment and profit potential of the buyers. The buyers are the companies and the suppliers
are those who supply the companies.

33. What is Diversification?

Ans. Diversification is a technique of allocating portfolio resources or capital to a mix of

different investments. The ultimate goal of diversification is to reduce the volatility of the
portfolio by offsetting losses in one asset class with gains in another asset class. A phrase
commonly associated with diversification: “Do not put all your eggs in one basket.” Having
“eggs” in multiple baskets mitigates risk, as if one basket breaks, not all eggs are lost.

34. What is Economics of Scope?

Ans. Economies of scope is an economic concept that refers to the decrease in the total cost of
production when a range of products are produced together rather than separately.  Economies
of scope occur when producing a wider variety of goods or services in tandem is more cost
effective for a firm than producing less of a variety, or producing each good independently.

For example, McDonalds achieve cost efficiency from producing both French fries and
hamburgers. The cost of production is reduced because french fries and hamburgers share
inputs such as food storage, labour, and other production factors.

35. What do you mean by stakeholder?

Ans. A stakeholder is any individual, group, or party that has an interest in an organization and
the outcomes of its actions. Common examples of stakeholders include employees,
customers, shareholders, suppliers, communities, and governments. Different stakeholders have
different interests, and companies often face trade-offs in trying to please all of them. An
entity's stakeholders can be both internal or external to the organization.
Internal stakeholders are people whose interest in a company comes through a direct
relationship, such as employment, ownership etc. External stakeholders are those who do not
work directly with a company but are affected somehow by the actions and outcomes of the
business such as suppliers, creditors etc.
36. Give any two examples of Conglomerate Diversification.

Ans. Here are two notable examples of successful diversification:

 1) The Tata Group conglomerate comprises more than 100 companies in various categories like
consumer products, information systems, telecommunication, engineering, automobiles, steel,
and chemicals.

2) Walt Disney Company successfully diversified from its core animation business to theme
parks, cruise lines, resorts, TV broadcasting, live entertainment and more.
37. Explain the Porter’s Five Forces Model to analyze competitive forces in an industry
environment.

Ans. Porter's Five Forces Model Analysis was developed by Michael E Porter of Harvard
Business School in 1979, with an aim to use the model as a framework for the assessment and
evaluation of the competitive strength and position of a business organization. This model
identifies five essential factors that regulate the comparative pull in an industry or sector: rivalry
among existing competitors in the industry, threat of new entrants, bargaining power of
suppliers, bargaining power of buyers and threat of substitutes.

Porter's five forces are:

1. Rivalry among Existing Competitors in the Industry

The first of the five forces refers to the number of competitors and their ability to undercut a
company. The larger the number of competitors, along with the number of equivalent products
and services they offer, the lesser the power of a company. Suppliers and buyers seek out a
company's competition if they are able to offer a better deal or lower prices. Conversely, when
competitive rivalry is low, a company has greater power to charge higher prices and set the
terms of deals to achieve higher sales and profits.

2. Threat of New Entrants

A company's power is also affected by the force of new entrants into its market. The less time
and money it costs for a competitor to enter a company's market and be an effective competitor,
the more an established company's position could be significantly weakened. An industry with
strong barriers to entry is ideal for existing companies within that industry since the company
would be able to charge higher prices and negotiate better terms.

3. Bargaining Power of Suppliers

The next factor in the five forces model addresses how easily suppliers can drive up the cost of
inputs. It is affected by the number of suppliers of key inputs of a good or service, how unique
these inputs are, and how much it would cost a company to switch to another supplier. The
fewer suppliers to an industry, the more a company would depend on a supplier. As a result, the
supplier has more power and can drive up input costs and push for other advantages in trade. On
the other hand, when there are many suppliers or low switching costs between rival suppliers, a
company can keep its input costs lower and enhance its profits.

4. Bargaining Power of Buyers

The ability that customers have to drive prices lower or their level of power is one of the five
forces. It is affected by how many buyers or customers a company has, how significant each
customer is, and how much it would cost a company to find new customers or markets for its
output. A smaller and more powerful client base means that each customer has more power to
negotiate for lower prices and better deals. A company that has many, smaller, independent
customers will have an easier time charging higher prices to increase profitability.
5. Threat of Substitutes

The last of the five forces focuses on substitutes. Substitute goods or services that can be used
in place of a company's products or services pose a threat. Companies that produce goods or
services for which there are no close substitutes will have more power to increase prices and
lock in favorable terms. When close substitutes are available, customers will have the option to
forgo buying a company's product, and a company's power can be weakened.

38. What is Corporate Social Responsibility?

Ans. Corporate social responsibility (CSR) is a self-regulating business model that helps a
company be socially accountable—to itself, its stakeholders, and the public. By practicing
corporate social responsibility, also called corporate citizenship, companies can be conscious of
the kind of impact they are having on all aspects of society, including economic, social, and
environmental. For example, BMW holds its pride in being one of the most socially responsible
companies in its industry because of their balance between a good business model and helping
social causes.

39. What are the 3 forms of diversification? State the means and mode of diversification

Ans. Diversification is a technique of allocating portfolio resources or capital to a mix of

different investments. The ultimate goal of diversification is to reduce the volatility of the
portfolio by offsetting losses in one asset class with gains in another asset class. A phrase
commonly associated with diversification: “Do not put all your eggs in one basket.” Having
“eggs” in multiple baskets mitigates risk, as if one basket breaks, not all eggs are lost.

The three forms of diversification are:

1. Concentric diversification

Concentric diversification involves adding similar products or services to the existing business.
For example, when a computer company that primarily produces desktop computers starts
manufacturing laptops, it is pursuing a concentric diversification strategy.

2. Horizontal diversification

Horizontal diversification involves providing new and unrelated products or services to existing
consumers. For example, a notebook manufacturer that enters the pen market is pursuing a
horizontal diversification strategy.

3. Conglomerate diversification

Conglomerate diversification involves adding new products or services that are significantly
unrelated and with no technological or commercial similarities. For example, if a computer
company decides to produce notebooks, the company is pursuing a conglomerate diversification
strategy.
Of the three types of diversification techniques, conglomerate diversification is the riskiest
strategy. Conglomerate diversification requires the company to enter a new market and sell
products or services to a new consumer base. A company incurs higher research
and development costs and advertising costs. Additionally, the probability of failure is much
greater in a conglomerate diversification strategy.

40. What is PEST analysis?

Ans. PEST Analysis is a strategic framework used to evaluate the external environment for a
business by breaking down opportunities and threats into Political, Economic, Social,
and Technological factors. PEST analysis can be an effective framework to use in Corporate
Strategy Planning, useful in identifying the pros and cons of a Business Strategy.

Moreover, it also helps to the extent to which change is useful for the company and also guides
the direction for the change. In addition, it also helps to avoid activities and actions that will be
harmful for the company in future, including projects and strategies.

Political Factors

When looking at political factors, you are looking at how government policy and actions may
affect the economy, as well as the specific industry the business operates in.

These include the following:

 Tax Policy

 Labor Law

 Environmental Law

 Trade Restrictions

 Tariffs

Economic Factors

Economic Factors take into account the various aspects of the economy, and how the outlook on
each area could impact your business. These economic indicators are usually measured and
reported by Central Banks and other Government Agencies.

 Economic Growth rates

 Interest Rates

 Exchange Rates

 Inflation
Social Factors

PEST analysis also takes into consideration social factors, which are related to the cultural and
demographic trends of society. Social norms and pressures are key to determining a society’s
consumerist behavior.

Factors to be considered include the following:

 Cultural Aspects

 Health Consciousness

 Population Growth Rates

 Age Distribution

 Career Attitudes

Technological Factors

Technological Factors are linked to innovation in the industry, as well as innovation within the
overall economy. Not being up to date on the latest trends of a particular industry can be
extremely harmful to operations.

Technological Factors include the following:

 R&D Activity

 Automation

 Technological Incentives

 The rate of change in technology

41. What are Grand Strategies? Explain the various retrenchment strategies a firm may
follow.

Ans. The Grand Strategies are the corporate level strategies designed to identify the firm’s
choice with respect to the direction it follows to accomplish its set objectives. Simply, it
involves the decision of choosing the long term plans from the set of available alternatives. The
Grand Strategies are also called as Master Strategies or Corporate Strategies.

Retrenchment strategy is a corporate level strategy that aims to reduce the size or diversity of
organizational operations. At times, it also becomes a means to ensure an organization’s
financial stability. This is done by reducing the expenditure. A retrenchment strategy is a design
to fortify an organization’s basic distinctive competence.

There are three types of Retrenchment Strategies:

1) Turnaround

The term ‘turnaround’ refers to the measures which reverse the negative trends in the
performance indicators of the company. It refers to the management measures which turn a sick
company back to a healthy one or those measures which reverse the deteriorating trends of
performance indicators such as falling market share, falling sales, decreasing profitability,
increase in costs, worsening debt equity ratio, getting negative cash flow, severe working
capital problems etc. The strategies adopted to come out of crisis vary from case to case and
from company to company.

2) Divestiture:

In divestitures, the company who has acquired assets and divisions will make an examination to
determine whether the assets or divisions fit into overall corporate strategy in value
maximization. If it does not serve the purpose, such assets or divisions are hived-off.

Selling a division or part of an organization is called ‘divestiture’. It is often used to raise

capital for further strategic acquisitions or investments. It is also used rid business units that are
unprofitable.

3) Liquidation:

A business may go into decline when losses are made over several years. The losses are setoff
against past profits retained in the business (reserves), but clearly the situation cannot continue
for very long. In such case liquidation may be imminent.

In case of technological obsolescence, lack of market for the company’s products, financial
losses, cash shortages, lack of managerial skills, the owners may decide to liquidate the
business to stop further aggravation of losses. With a strategic motive also, a business unit may
be liquidated. This strategic option is exercised in a situation where the firm finds the business
as unattractive to revive the firm.

42. What is strategic intent?

Ans. Strategic Intent can be understood as the philosophical base of the strategic management
process. It implies the purpose, which an organization endeavour of achieving. It is a statement,
that provides a perspective of the means, which will lead the organization, reach the vision in
the long run. Strategic intent gives an idea of what the organization desires to attain in future. It
indicates the long-term market position, which the organization desires to create or occupy and
the opportunity for exploring new possibilities.

43. What is value chain approach to strategy?

Ans. Value chain analysis is a process of dividing various activities of the business in primary
and support activities and analyzing them, keeping in mind, their contribution towards value
creation to the final product. And to do so, inputs consumed by the activity and outputs
generated are studied, so as to decrease costs and increase differentiation.
 Value Chain Analysis is grouped into primary or line activities, and support activities discussed
as under:

1. Primary Activities: The functions which are directly concerned with the conversion of
input into output and distribution activities are called primary activities. It includes:

o Inbound Logistics: It includes a range of activities like receiving, storing,

distributing, etc. which make available goods and services for operational processes. Some of
those activities are material handling, transportation, stock control, etc.

o Operations: The activity of transforming input raw material to final product ready
for sale, is termed as operation. Machining, assembling, packaging are the activities covered
under operations.

o Outbound Logistics: As the name suggests, the activities that help in collecting,
storage and delivering the product to the customer is outbound logistics.

o Marketing and Sales: All the activities like advertising, promotion, sales,
marketing research, public relations, etc. performed to make the customer aware of the product
or service and create demand for it, comes under marketing.

o Service: Service means service provided to the customer so as to improve or

maintain the value of the product. It includes financing service, after-sales service and so on.

2. Support Activities: Those activities which assist primary activities in accomplishment,

are support activities. These are:

o Procurement: This activity serves the organization, by supplying all the necessary
inputs like material, machinery or other consumable items, that required by the organization for
performing primary activities.

o Technology Development: At present, technology development requires heavy

investment, which takes years for research and development. However, its benefits can be
enjoyed for several years and by a multitude of users in the organization.

o Human Resource Management: It is the most common plus important activity

which excel all primary activities of the organization. It encompasses overseeing the selection,
retention, promotion, transfer, appraisal and dismissal of staff.

o Infrastructure: This is the management system, which provides, its services to the
whole organization and includes planning, finance, information management, quality control,
legal, government affairs, etc.

In the fast paced world, the main focus of the organization is customer satisfaction, and value
chain analysis is the technique that helps to attain that level. Under this, each business activity is
considered as essential, which contributes value and is constantly analyzed, to increase value as
regards the cost incurred.

44. Explain Michael Porter’s five forces model along with three generic strategies.

Ans. Porter's Five Forces Model Analysis was developed by Michael E Porter of Harvard
Business School in 1979, with an aim to use the model as a framework for the assessment and
evaluation of the competitive strength and position of a business organization.

 
1. Cost Leadership

In cost leadership, a firm sets out to become the low cost producer in its industry. The sources
of cost advantage are varied and depend on the structure of the industry. They may include the
pursuit of economies of scale, proprietary technology, preferential access to raw materials and
other factors. A low cost producer must find and exploit all sources of cost advantage. if a firm
can achieve and sustain overall cost leadership, then it will be an above average performer in its
industry, provided it can command prices at or near the industry average.

2. Differentiation

In a differentiation strategy a firm seeks to be unique in its industry along some dimensions that
are widely valued by buyers. It selects one or more attributes that many buyers in an industry
perceive as important, and uniquely positions itself to meet those needs. It is rewarded for its
uniqueness with a premium price.

3. Focus

The generic strategy of focus rests on the choice of a narrow competitive scope within an
industry. The focuser selects a segment or group of segments in the industry and tailors its
strategy to serving them to the exclusion of others.

The focus strategy has two variants:

(a) In cost focus a firm seeks a cost advantage in its target segment, while in (b) differentiation
focus a firm seeks differentiation in its target segment. Both variants of the focus strategy rest
on differences between a focuser's target segment and other segments in the industry. The target
segments must either have buyers with unusual needs or else the production and delivery
system that best serves the target segment must differ from that of other industry segments. Cost
focus exploits differences in cost behaviour in some segments, while differentiation focus
exploits the special needs of buyers in certain segments.

45. What are the possible strengths of an organization identified as part of the SWOT
analysis?

Ans. Strengths are things that your organization does particularly well, or in a way that
distinguishes you from your competitors. Think about the advantages your organization has
over other organizations. These might be the motivation of your staff, access to certain
materials, or a strong set of manufacturing processes.

46. What is conglomerate diversification?

47. Explain Merger and Acquisition with example.

Ans. Mergers and acquisitions (M&A) refer to transactions between two companies combining
in some form. Although mergers and acquisitions (M&A) are used interchangeably, they come
with different legal meanings. Differentiating the two terms, Mergers is the combination of two
companies to form one, while Acquisitions is one company taken over by the other. M&A is
one of the major aspects of corporate finance world. The reasoning behind M&A generally
given is that two separate companies together create more value compared to being on an
individual stand. With the objective of wealth maximization, companies keep evaluating
different opportunities through the route of merger or acquisition. M&A is a growth strategy
corporations often use to quickly increase its size, service area, talent pool, customer base, and
resources in one fell swoop. The process is costly, however, so the businesses need to be sure
the advantage to be gained is substantial.

Mergers & Acquisitions can take place:

• by purchasing assets
• by purchasing common shares
• by exchange of shares for assets
• by exchanging shares for shares
Some of the most famous and successful examples of M&A deals that have occurred over the last
few decades include Google’s acquisition of Android, Disney’s acquisition of Pixar and Marvel, and
the merger between Exxon and Mobile (a great example of a successful horizontal merger).
48. Explain the concept of BCG Matrix and GE Business Screen.

Ans. The Boston Consulting Group Matrix (BCG Matrix), also referred to as the product
portfolio matrix, is a business planning tool used to evaluate the strategic position of a
firm’s brand portfolio. The BCG Matrix is one of the most popular portfolio analysis methods.
It classifies a firm’s product and/or services into a two-by-two matrix. Each quadrant is
classified as low or high performance, depending on the relative market share and market
growth rate.

 There are four quadrants in the BCG Matrix:

1. Question marks: Products with high market growth but a low market share.
2. Stars: Products with high market growth and a high market share.
3. Dogs: Products with low market growth and a low market share.
4. Cash cows: Products with low market growth but a high market share.

Question Marks

Products in the question marks quadrant are in a market that is growing quickly but where the
product(s) have a low market share. Question marks are the most managerially intensive
products and require extensive investment and resources to increase their market share.
Investments in question marks are typically funded by cash flows from the cash cow quadrant.

In the best-case scenario, a firm would ideally want to turn question marks into stars (as
indicated by A). If question marks do not succeed in becoming a market leader, they end up
becoming dogs when market growth declines.

Dogs

Products in the dogs quadrant are in a market that is growing slowly and where the product(s)
have a low market share. Products in the dogs quadrant are typically able to sustain themselves
and provide cash flows, but the products will never reach the stars quadrant. Firms typically
phase out products in the dogs quadrant (as indicated by B) unless the products are
complementary to existing products or are used for a competitive purpose.
Stars

Products in the star quadrant are in a market that is growing quickly and one where the
product(s) have a high market share. Products in the stars quadrant are market-leading products
and require significant investment to retain their market position, boost growth, and maintain
a competitive advantage.

Stars consume a significant amount of cash but also generate large cash flows. As the market
matures and the products remain successful, stars will migrate to become cash cows. Stars are a
company’s prized possession and are top-of-mind in a firm’s product portfolio.

Cash Cows

Products in the cash cows quadrant are in a market that is growing slowly and where the
product(s) have a high market share. Products in the cash cows quadrant are thought of as
products that are leaders in the marketplace. The products already have a significant amount of
investments in them and do not require significant further investments to maintain their
position.

Cash flows generated by cash cows are high and are generally used to finance stars and question
marks. Products in the cash cows quadrant are “milked” and firms invest as little cash as
possible while reaping the profits generated from the products.

GE-McKinsey nine-box matrix is a framework that evaluates business portfolio, provides

further strategic implications and helps to prioritize the investment needed for each business
unit (BU). The General Electric Business Screen was originally developed to help marketing
managers overcome the problems that are commonly associated with the Boston Matrix (BCG),
such as the problems with the lack of credible business information, the fact that BCG deals
primarily with commodities not brands or Strategic Business Units (SBU’s), and that cashflow
if often a more reliable indicator of position as opposed to market growth/share.
The nine cells are grouped into three zones:
Grow/Invest:
Units that land in this section of the grid generally have high market share and promise high
returns in the future so should be invested in.
Hold/Selective:
Units that land in this section of the grid can be ambiguous and should only be invested in if
there is money left over after investing in the profitable units.
Harvest/Divest:
Poor performing units in an unattractive industry end up in this section of the grid. This should
only be invested in if they can make more money than is put into them. Otherwise they should
be liquidated.
49. Describe the forces for driving industry competitions as per Michael E. Porter model.

50. Explain the steps involved in Strategic Planning Process.

Ans. The strategic planning process requires considerable thought and planning on the part of a
company’s upper-level management. Before settling on a plan of action and then determining
how to strategically implement it, executives may consider many possible options. In the end, a
company’s management will, hopefully, settle on a strategy that is most likely to produce
positive results (usually defined as improving the company’s bottom line) and that can be
executed in a cost-efficient manner with a high likelihood of success, while avoiding undue
financial risk.

The development and execution of strategic planning are typically viewed as consisting of
being performed in three critical steps:

 1. Strategy Formulation

In the process of formulating a strategy, a company will first assess its current situation by
performing an internal and external audit. The purpose of this is to help identify the
organization’s strengths and weaknesses, as well as opportunities and threats (SWOT Analysis).
As a result of the analysis, managers decide on which plans or markets they should focus on or
abandon, how to best allocate the company’s resources, and whether to take actions such as
expanding operations through a joint venture or merger.

Business strategies have long-term effects on organizational success. Only upper management
executives are usually authorized to assign the resources necessary for their implementation.

 2. Strategy Implementation

After a strategy is formulated, the company needs to establish specific targets or goals related to
putting the strategy into action, and allocate resources for the strategy’s execution. The success
of the implementation stage is often determined by how good a job upper management does in
regard to clearly communicating the chosen strategy throughout the company and getting all of
its employees to “buy into” the desire to put the strategy into action.

Effective strategy implementation involves developing a solid structure, or framework, for

implementing the strategy, maximizing the utilization of relevant resources, and redirecting
marketing efforts in line with the strategy’s goals and objectives.

 3. Strategy Evaluation

Any savvy business person knows that success today does not guarantee success tomorrow. As
such, it is important for managers to evaluate the performance of a chosen strategy after the
implementation phase. Strategy evaluation involves three crucial activities: reviewing the
internal and external factors affecting the implementation of the strategy, measuring
performance, and taking corrective steps to make the strategy more effective. For example, after
implementing a strategy to improve customer service, a company may discover that it needs to
adopt a new customer relationship management (CRM) software program in order to attain the
desired improvements in customer relations.

All three steps in strategic planning occur within three hierarchical levels: upper management,
middle management, and operational levels. Thus, it is imperative to foster communication and
interaction among employees and managers at all levels, so as to help the firm to operate as a
more functional and effective team.