USN:
PES INSTITUTE OF TECHNOLOGY – BANGALORE SOUTH CAMPUS
Hosur Road (1Km before Electronic City), Bangalore -560100
INTERNAL TEST # 3
Answer key for Strategic Management – 12MBA31
Course: MBA Semester III
Faculty: Ravi urs
Date: 10/11/2014
Time Allowed: 90 Minutes
Max. Marks: 50 (Fifty Marks)
Time: 8.30 AM – 10 AM
Note: Answer all the Questions.
1 (a) Distinguish between concentric diversification and conglomerate diversification.
Concentric diversification
Conglomerate diversification
It involves acquisition of firms which
are related to acquiring firm in
technology, markets or products
It involves acquisition of firms which
represent promising investment
opportunity
Main objective is to create synergy
between the acquired and the
acquiring firms
Main objective is profit maximization
for the acquiring firm
It should help increase the strengths
and reduce the weaknesses of the
acquiring firm
It should help in reducing the cyclical
sales effect and balance the portfolio
of the acquiring firm
(b) What are the advantages of outsourcing?
a) An outsourced activity can be performed more cheaply by outside
specialists.
b) An outsourced activity can be performed better by outside
specialists
c) An activity which is not critical to the firm's ability to achieve
sustainable competitive advantage and won't effect its core
competence can be outsourced
d) It reduces the company's risk exposure to changing technology
and/or changing buyer preferences.
e) It streamlines company operations in ways that cut the time it takes
to get newly developed products into the marketplace, lower internal
coordination cost, or improve organizational flexibility.
f) It allows a company to concentrate on strengthening and leveraging
(3 marks)
(7 marks)
its core competencies
g) Outside suppliers tend to be more responsive to requests from their
major customers than internal company groups are to requests from
another internal group.
The advantages of performing an activity in-house and avoiding disadvantages
can be captured by forging long-term cooperative partnerships with key suppliers
and tapping into the expertise they have developed painstakingly over the years.
(c) Explain the GE 9 cell matrix. How it can be used in practice.
General Electric with the assistance of McKinsey and Company developed
this matrix.
This matrix includes 9 cells based on long-term industry attractiveness (on
Y-axis) and business strength/competitive position (on X-axis).
The industry attractiveness includes
a) Market growth rate
b) Market size
c) Market profitability
d) Pricing trends
e) Competitive intensity / rivalry
f) Overall risk of returns in the industry
g) Entry barriers
h) Opportunity to differentiate products and services
i) Demand variability
j) Segmentation
k) Distribution structure
l) Technology development
Business strength and competitive position includes
a) Market share
b) Strength of assets and competencies
(10 marks)
c) Relative brand strength (marketing)
d) Market share growth
e) Customer loyalty
f) Relative cost position (cost structure compared with competitors)
g) Relative profit margins (compared to competitors)
h) Distribution strength and production capacity
i) Record of technological or other innovation
j) Quality
k) Access to financial and other investment resources
l) Management strength
Plotting the Information:
a) Select factors to rate the industry for each product line or business
unit. Determine the value of each factor on a scale of 1 (very
unattractive) to 5 (very attractive), and multiplying that value by a
weighting factor.
Industry attractiveness
= factor value1 x factor weighting1
+
factor value2 x factor weighting2
+
factor valueN x factor weighting
.
.
.
b) Select the key factors needed for success in each of the product
line or business unit. Determine the value of each key factor in the
criteria on a scale of 1 (very unattractive) to 5 (very attractive), and
multiplying that value by a weighting factor.
Business strengths/competitive position = key factor value1 x
factor weighting1
+
key factor value2 x factor weighting2
+
key factor valueN x factor weighting
.
.
.
c) Plot each product line's or business unit's current position on a
matrix.
d) The individual product lines or business units is identified by a letter
and plotted as circles on the GE Business Screen.
e) The area of each circle is in proportion to the size of the industry in
terms of sales. The pie slice within the circles depict the market
share of each product line or business unit.
f) Plot the firm's future portfolio assuming that present corporate and
business strategies remain unchanged. This is shown as an arrow
which starts from the circle representing the current position and the
tip of the arrow will be the tentative center of the future circle.
Strategic Implications

Resource allocation recommendations can be made to grow, hold,
or harvest a strategic business unit based on its position on the
matrix as follows:
a) Grow strong business units in:
Attractive industries
Average business units in attractive industries
Strong business units in average industries.
b) Hold average business units in:
Average industries
Strong businesses in weak industries
Weak business in attractive industries.
c) Harvest weak business units in:
Unattractive industries
Average business units in unattractive industries
Weak business units in average industries.
2 (a) What are the three components of building a capable organization?
a. Structure - the basic way in which the firm's different activities are
organized
(3 marks)
b. Leadership - the need for direction and building a team to execute the
strategy
c. Culture - the shared values that create the norms of individual behavior
(b) What is organizational culture? Why is it important in the execution of strategy?
Organizational culture is a set of important beliefs and values members of
an organization share in common. It is intangible, yet ever-present theme
that provides meaning, direction and the basis for action. It influences the
opinions of members. Beliefs and values are shared through internalization
among the organization's individual members.
It is important for execution of the strategy for the following reasons:
a) Execution of the strategy demands that people in the organization
work as a team and share common values, which is possible only
through culture
(7 marks)
b) Sharing among employees is required for execution which can be
cultivated through proper culture
c) Excellence needed for executing strategy is possible through culture
d) Culture has a major role to play in creating and retaining customer
loyalty thus helping the strategy when it is related to customers
e) Commitment from the employees is needed for executing strategy
which is possible through culture
f) Strategies that require changing the business model cannot be
done without changing the culture
g) Strategy to gain competitive advantage through a series of
inimitable activities is only possible through creating the right culture
h) Flexibility needed for execution of strategy can be managed only
through right culture
(c) Explain different types of strategic controls.
The four basic types of strategic control are:
1. Premise control
2. Strategic surveillance
3. Special alert control
4. Implementation control
1. Premise control
Premises are assumptions or predictions.
Premise control is designed to check systematically and
continuously whether the premises on which the strategy is
based are still valid.
If a vital premise is no longer valid, the strategy may have to be
changed.
The sooner an invalid premise can be recognized and rejected,
the better are the chances that an acceptable shift in the
strategy can be devised.
It would not be possible to the manager to monitor all the
(10 marks)
premises as it would be very costly and time consuming.
Managers must select premises whose change
I.
Is likely
II.
Would have a major impact on the firm and its strategy
Planning premises are primarily concerned with environmental
and industry factors.
Environmental factors
Some of the factors are inflation, technology, interest rates,
regulation, etc.
Environmental factors exercise considerable influence over the
success of a firm's strategy as strategies usually are based on
key premises about them.
Industry factors
The performance of the firms in a given industry is affected by
industry factors.
Competitors, suppliers, product substitutes, and barriers to entry
are a few of the industry factors about which strategic
assumptions are made.
2. Strategic Surveillance
Premise controls are focused controls; strategic surveillance are
unfocused.
Strategic surveillance is designed to monitor a broad range of
events inside and outside the firm that are likely to affect the
course of its strategy.
The basic idea behind strategic surveillance is that important yet
unanticipated information may be uncovered by a general
monitoring of multiple information sources.
Strategic surveillance must be kept as unfocused as possible.
Trade magazines, The Wall Street Journal, trade conferences,
intended and unintended observations are all subjects of
strategic surveillance.
Strategic surveillance provides an ongoing broad-based
vigilance in all daily operations that may uncover information
relevant to the firm's strategy.
3. Special Alert Control
A special alert control is the thorough, and often rapid,
reconsiderations of the firm's strategy because of a sudden,
unexpected event.
Such events should trigger an immediate and intense
reassessment of the firm’s strategy and its current strategic
situation.
Crisis teams and contingency plans can handle the firm’s initial
response to unforeseen events that may have an immediate
effect on its strategy.
4. Implementation control
Strategy implementation takes place as a series of steps,
programs, and moves that occur over an extended time.
Managers implement strategy by converting broad plans into
concrete incremental actions and results of specific units and
individuals.
Implementation control is the type of strategic control that must
be exercised as those events unfold.
Implementation control is designed to assess whether the overall
strategy should be changed in light of the results associated with
the incremental actions that implement the overall strategy.
There are two basic types of implementation control:
I.
Monitoring strategic thrusts
II.
Milestone reviews
Monitoring strategic thrusts or projects
As a means of implementing broad strategies, many small
projects are undertaken which represent what needs to be
done if the overall strategy is to be accomplished.
These strategic thrusts provide managers with information
that helps them determine whether the overall strategy is
progressing as planned or needs to be adjusted.
One of the approaches to monitor strategic thrusts is to agree
early in the planning process which thrusts or which phases
of thrusts are critical factors in the success of the strategy.
Managers responsible for these implementation controls will
single them out from other activities and observe them
frequently.
Another approach is to use stop/go assessments that are
linked to a series of meaningful thresholds (time, cost,
research and development, success) associated with
particular thrusts or projects.
Milestone reviews
Milestones like critical events, allocation of a major resource
or passage of a certain time can be used to monitor
progress.
The milestone reviews usually involves a full scale
assessment of the strategy and of the advisability of
continuing or refocusing the firm's direction.
Implementation control is also enabled through operational
control system like budgets, schedules and key success
factors.
They provide post-action evaluation and control over short
periods.
3
Case Study - (Compulsory)
Electronics was once Sony’s star business, but Sony’s electronics business was a huge money-loser in
2003-04, pushing the company’s stock price down about 65 percent. Once the clear leader in top-quality
TVs, in 2005 Sony lagged miserably behind Samsung, Panasonic, and Sharp in popular flat-panel LCD and
plasma TVs, where sales were growing fastest. Apple’s iPOD players had stolen the limelight in the
handheld music market, where Sony’s Walkman had long ruled.
In the fall of 2005, Sony management announced a turnaround strategy. Howard Stringer, a dual American
and British citizen was named Sony’s CEO in early 2005 and was the first foreigner ever to head Sony,
unveiled a plan centered on cutting 10,000 jobs (about 6 percent of Sony’s workforce) closing 11 of Sony’s
65 manufacturing plants, and shrinking or eliminating 15 unprofitable electronics operations by March 2008
(the unprofitable operations were not identified). These initiatives were projected to reduce costs by $1.8
billion. In addition to the cost cuts, Sony said it would focus on growing its sales of “champion products” like
the next-generation Sony PlayStation 3 video games console, a newly introduced line of Bravia LCD TVs,
and Walkman MP3 music players.
Questions:
1. Analyze the new strategy of Sony.
1. They plan to cut cost by eliminating 10,000 jobs (about 6 percent of their workforce)
2. They plan to close 11 of Sony’s 65 manufacturing plants
3. They want to shrink or eliminate 15 unprofitable electronics operations by March 2008,
though the unprofitable operations have not identified
4. This would lead to reduction of costs by $1.8 billion
5. They want to classify some products as "champion products" and focus on them
6. They are products in which Sony has competitive advantage
These products are next-generation Sony PlayStation 3 video games console, a newly
(5 marks)
(5 marks)
introduced line of Bravia LCD TVs and Walkman MP3 music players
2. Propose alternative strategy to make the company profitable again.
Students to propose their own strategy.