Strategic Management Question and Answer by RK

7/27/2019 Strategic Management Question and Answer by RK

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Part-1

1) What is industry analysis? Why it is done?

(a) Industry analysis

Definition

A marketassessmenttool designed toprovide abusiness with an idea of the

complexity of a particularindustry. Industry analysis involves reviewing the

economic, political and market factors that influence the way the industry

develops. Major factors can include the power wielded by suppliers and

buyers, the condition of competitors, and the likelihood of new market

entrants.

It may include an analysis of the industry life cycle, the history of the

industry, an in-depth ratio analysis of the industries financial performance, a

review of how differing trends such as seasonal fluctuations.

Porter's five forces include - three forces from 'horizontal' competition:

threat of substitute products, the threat of established rivals, and the threat of

new entrants; and two forces from 'vertical' competition: the bargainingpowerof suppliers and the bargaining power of customers.

Why it is done (Industry analysis)?

Industry analysis is important because it allows business owners to estimate

how much profit they can generate from business operations. Business

owners rarely enter industries at the plateau stage or those which have begun

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an economic decline. Industries under these conditions do not usually

generate enough profits for new business ventures. Business owners also

assess the number of competitors currently selling consumer goods or

services in their industry. High levels of competition often create lower than

desired profits.

Conducting a very detailed and intense industry analysis can provide

business owners with specific knowledge regarding the economic

marketplace. Business owners may discover a market niche not currently

being met by other companies. Business owners can also conduct consumer

surveys to learn about new goods or services that could have high demand in

the marketplace. This information can provide new business owners with a

significant benefit over existing companies in a business.

Ability to attract new customers

Ability to retain existing customersAbility to attract and retain good employees

Successful advertising campaigns

Managing your service or product

Managing your human resources

Managing your cash flow

Managing your revenue growth and your profit

Utilization of operating capacity

Strong distribution channels

Low cost production structure

Location to customers (if close, time to deliver to market will be relatively

fast and shipping costs will be low)

Sustainability of the business

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(2) What is business strategy? What is Strategy? Why it is done?

Benefit of strategic management?

What is business strategy?

The definition of business strategy is a long term plan of action designed to

achieve a particular goal or set ofgoals or objectives.

A typical business strategy is developed in three steps: analysis, integration

and implementation. Effective strategies are the key to our ability to

succeed.

The definition of business strategy includes corporate planning which

focuses on the overall purpose of the business. In some cases this may bedefined by the companys mission statement. This aspect of business

strategy targets where the business wants to be in the long-term.

What is Strategy?

Strategy, in short, bridges the gap between where we are and where we

want to be.

A method or plan chosen to bring about a desired future, such as

achievement of a goal orsolution to aproblem.

"The framework which guides those choices that determine the nature anddirection of an organization."

Why it is done (Strategy)?

Strategy is Significant because it is not possible to foresee the future.

Without a perfect foresight, the firms must be ready to deal with the

uncertain events which constitute the business environment.

Strategy deals with long term developments rather than routine operations,

i.e. it deals with probability of innovations or new products, new methods ofproductions, or new markets to be developed in future. Strategies dealing

with employees will predict the employee behavior. Strategy is a well

defined roadmap of an organization. It defines the overall mission, vision

and direction of an organization. The objective of a strategy is to maximize

an organizations strengths and to minimize the strengths of the competitors.

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Benefit of strategic management?

Strategic management includes strategic planning, implementation and

review/control of the strategy of an organization. All most all the modern

organizations engage in strategic management to ensure that they achieve

the desired level of performance. There are many benefits that an

organization can obtain by engaging in strategic management and they can

be described as follows:

1) Sets the strategic direction to the firm-

Strategic management process clearly defines what is the desired level of

performance (mission/goals/objectives) and it sets the direction so that

everyone in the organization knows where they are heading towards.

2) Focus on critical factors of the organization-

Strategic management identifies the critical factors that are strategically

important to the organization.

3) Understanding the changing environment-

Strategic management predicts the future changes that can take place and

take necessary steps to manage change with contingency planning and

change management strategies.

4) Obtaining sustainable competitive advantage-

This is the most important and the most critical benefit of strategic planning.

5) Lead to better performance-

The successful strategic management should ensure that the company

performs very well and generates profits for its owners.

6) Ensure the long term survival in the market place-

It makes use of opportunities and minimizes threat to make sure that

company can survive in the market by outperforming its rivals.

7) Simplifies complex scenarios and develop suitable strategies-

In contrast firm with strategic management makes the business complexities

simple, predict future dynamics and take proactive steps to minimize threats

and make use of opportunities.

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Financial Benefits:

1. Improvement in sales.

2. Improvement in profitability.

3. Improvement in productivity.

Non-Financial Benefits:

1. Improved understanding of competitors strategies.

2. Enhanced awareness of threats.

3. Reduced resistance to change.

4. Enhanced problem-prevention capabilities.

(3) Mention briefly, the external and internal stakeholder and their

impact in an organizational strategy?

Stakeholder is a person who has something to gain or lose through the

outcomes of a planning process, programmed or project.

Internal stakeholders are people who are already committed to serving

your organization as board members, staff, volunteers, and/or donors.

External stakeholders are people who are impacted by your work asclients/constituents, community partners, and others. It is important to get

the perspectives of both groups.

The external and internal stakeholder

internal external

___ Board members

___ Former board members

___ Staff members___ Former staff members

___ Volunteers

___ Former Volunteers

___ Donors

___ Other

Competitors

Industry trade groups

Clients Community partners

Customers

Suppliers

Quality assessors

Media

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Others

Impact of stakeholder an organizational strategy?

Impact and importance is always in relation to the objectives that are

seeking to achieve.

ImpactSimply refers to how powerful a stakeholder is in terms of influencing

direction of the project and outcomes.

Simply refers to those stakeholders whose problems, needs and interests

are priority for an organization.

Here are some examples of types of direct impact:

Legal hierarchy (command control of budgets)

Authority of leadership (charismatic, political)

Control of strategic resources (suppliers of services or other inputs)

Possession of specialist knowledge

Negotiation position (strength in relation to other stakeholders).Indirect impact may also be achieved through:

Social, economic or political in status

Varying degrees of organization and consensus in groups

Ability to influence the control of strategic resources significant to the

project

Informal influence through links with other groups

Other stakeholders in assessing their importance to the project issues.

Appointing external stakeholders can be more economical for a

company than developing its own specialists and spending animportant part of the budget in training them.

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(4) Develop- Vision, Mission, and goal of your org. or your University.

Eastern University

Vision

The vision of Eastern University is to become a leading University in

South Asia in its chosen fields of higher education.

Mission

Its mission is to be a "Center of Excellence" by setting a new standard of

quality teaching and quality education in Bangladesh, keeping in view

the challenges of the 21st century.

Goal

its goal is to produce future leaders with knowledge and skills essential

for leadership in country's private and public sector enterprises in the

increasingly competitive and globalize environment.

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(5) Mention the presence or level of management, who take strategic

decision for an organization?

Level of management

Top Level Management:

The major functions of top level management is planning and organizing.

The top management determines the mission and sets the goals for the

organization. Its primary function is long-range planning. Top management

is accountable for the overall management of the organization. It is consists

of higher level managers like board of directors, chief Executive Officer

(CEO), Chief Financial Officer (CFO), Chief Operational Officer (COO),

Chief Information Officer (CIO), Chairperson of the Board, President, Vice

president, Corporate head etc.

Middle Level management:

The middle level management implements the top management goals.

Monitors and controls the operating performance. Train, motivate and

develop the supervisory level. Also coordinate the functions of various

departments. It is consists of middle level managers like sales manager,

General Manager, Plant manager, Regional manager, and Divisional

manager.

Lower level or supervisory management:

Supervisors are managers whose major functions emphasize directing andcontrolling the work of employees in order to achieve the team goals. They

are the only level of management managing non-managers. Thus, most of

the supervisors time is allocated to the functions of directing and

controlling. It is consists of workers, employees etc. They maintain

discipline and good human relations among the workers.

Who take strategic decision for an organization?

Strategic decisions, which affect the long-term direction of the entirecompany, are typically made by top managers. like board of directors, chief

Executive Officer (CEO), Chief Financial Officer (CFO), Chief Operational

Officer (COO), Chief Information Officer (CIO), Chairperson of the Board,

President, Vice president, Corporate head etc.

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(6) What do you meant by production and marketing efficiency of an

organization from the view point of strategic management?

Production efficiency:

What Does Production Efficiency Mean?

The ability to produce a good using the fewest resources possible. Efficient

production is achieved when a product is created at its lowest average total

cost.

Organization Production efficiency reflects by-

Economies of scale

Lower unit costs due to large scale production volumes.

Learning effectsCost reductions due to learning by doing.

Flexible manufacturing technology (lean production)

Reduced setup times

Increased machine utilization

Improved quality control

Lower inventory levels

Mass customization

Low cost and product customization

Flexible machine cells

Increased variety of operations

Marketing efficiency:

Marketing is at the heart of every enterprise. It's the process of efficiently

finding, attracting, and retaining profitable customers - the lifeblood of all

businesses, whether they're self-funded, venture-backed or publicly held.

Marketing strategy:

Product designProduct marketing deals with the first of the "7P"'s ofmarketing, which are

Product, Pricing, Place, and Promotion, Packaging, Positioning & People.

Advertising

Advertising is a form ofcommunication

Promotion

Promotion is one of the four elements ofmarketing mix.

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Pricing

Price is the only revenue generating element amongst the four Ps, the rest

being cost centers. A low price can be a viable substitute for product quality,

effective promotions, or an energetic selling effort by distributors

Distribution

Distribution is also a very important component of Logistics & Supply chain

management. Distribution in supply chain management refers to the

distribution of a good from one business to another.

(7) What is meant by material management and JIT efficiency of an

organization from the view point of strategic management?

Material management:

Getting materials into and through the production process and out through

the distribution system to the end user. M. MGT-

To gain economy in purchasing

To satisfy the demand during period of replenishment

To carry reserve stock to avoid stock out

To stabilize fluctuations in consumption

To provide reasonable level of client services

Containing the costs Instilling efficiency in all activities

Just-In-Time (JIT):

Reduce inventory holding costs by having materials arrive JIT to enter the

production process.

Characteristic: (Have in Cost A/c Sheet)

JIT risk: There are no buffer stocks for non delivery or unanticipatedincreases in demand.

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(8) What is meant by Business level strategy? Why it is important for an

organization?

Business level strategy:

What is it?

Action, firms use to gain a competitive advantage by exploiting core

competencies in specific product markets.

Types of Business-Level Strategy

Cost Leadership

1. Relatively standardized products

2. Features acceptable to many customers3. Lowest competitive price

Differentiation

1. Provides product that are different

2. Command premium price

3. High customer service

4. Superior quality

5. Prestige or exclusivity

6. Rapid innovation

Focused

1. Isolating a particular buyer group

2. Isolating a unique segment of a product line

3. Concentrating on a particular geographic market

4. Finding their niche

Integrated Cost Leadership/Differentiation

1. Some differentiated features (but less than a true differentiated firm)

2. Relatively low cost (but not as low as the cost leaders price)

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Why it is important for an organization?

1. Business level strategy building efficient scale facilities

2. Tightly controlling production costs and overhead

3. Minimizing costs of sales, R&D and service

4. Building efficient manufacturing facilities

5. Monitoring costs of activities provided by outsiders

6. Simplifying production processes

7. Developing new systems and processes

8. Shaping perceptions through advertising

9. Quality focus

10. Capability in R&D

11. Maximize human resource contributions through low turnover and

high motivation

12. Adapt quickly to environmental changes13. Learn new skills and technologies more quickly

14. Effectively leverage its core competencies while competing against its

rivals

Part-2

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Q-1: What are the different of various causes of corporate decline?

Briefly discus each with suitable example.

Externally, threats that the organization has failed to respond to or opportunities

that it has failed to exploit may have led to present difficulties. There are somepossible reasons for or causes of corporate decline.

External environmental causes of corporate decline:

1. Political and legal causes:Changes in the law can affect organizations in many ways. A tightening of health

and safety legislation may increase costs. Premises failing to meet the higher

standards could be closed down. Particularly damaging might be the imposition of

a complete ban on the organizations product. For example, Tobacco companies

are at present faced with the prospect of a ban on advertising, if not on their

products.

2. Economic causes:A downturn in the economy can lead to corporate failures across a number of

industry sectors. Those worst affected will be suppliers of goods with a high

income-elasticity of demand. House-builders and related industries (such as homefurnishings) are good examples. Suppliers of basic necessities will be less badly

hit. The recent economic crisis in East Asia led to many cases of corporate decline

in the Asia-Pacific region.

3. Socio-cultural causes:Demographic changes can have an adverse impact on demand. Falling birth rates

could indicate problems ahead for producers and sellers of baby products and,

later, toys. Emigrating populations can reduce demand on a local basis. Culturally,

changes in tastes and fashions can have a damaging effect on organizations that

fail to anticipate the changes.

4. Technological causes:New technology can lead to the emergence of substitutes. The cinema industry

went into decline in the early 1980s as a result of video. Traditional methods of

delivering services have been turned upside down by rapid developments ininformation technology. This erosion of entry barriers to industries such as

banking and insurance through easier access to distribution channels (the Internet

rather than a high street presence) and much lower start-up costs has created

threats to the established players which, if they do not respond to them, could lead

to decline.

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Porters Five Forces Model causes of corporate decline:

1. Economies of scale: Consolidation within the industry, through acquisitions

and mergers, can leave smaller organizations failing to benefit from the economies

of scale enjoyed by the new, larger competitors.

2. Bargaining power of customers: Consolidation within the customers industrycan leave a reduced number of larger customers with increased bargaining power

and the ability to drive down margins.

3. Existing Rival: In a mature market the degree of rivalry may intensify, leading

to price wars and advertising wars. Both of these may lead to reduced margins.

4. The bargaining power of suppliers: The bargaining power of suppliers may

increase, again leading to a squeezing of margins. This may occur when the

organization becomes dependent on a single or reduced number of suppliers.

Internal causes of causes decline

The potential for some of these internal issues to lead to corporate decline will

now be considered like marketing; objectives; organization structure; financial

resources; personnel resources; Systems and procedures and others.

MarketingA lack of attention to the marketing mix, or four Ps as it is often referred to

might include:

Product limited new product development or research, leading to an ageing

portfolio.

Promotion a lack of marketing spend, leading to deterioration in brand profiles.Price leading to price wars.

Place (distribution) use of inappropriate channels, meaning that the target

audience does not have access to products at the right time in the right place.

Production activities:Low productivity rates affected by low staff morale, a refusal to train workers and

an inability to attract or select good workers are all likely to contribute to

uncompetitive product costs.

Research and development:Having already mentioned the BCG Matrix and the need for a balanced portfolio,

the importance of research and development will be clear. In pharmaceuticals,

applied research may be important, with huge expenditures each year. Failure to

invest in this key factor for success may well be a reason for decline.

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Q-2: Define Strategic Alliance & Different characteristics of good

partner.

Strategic Alliances:Strategic Alliance is an agreement for cooperation among two or more

independent firms to work together toward common objectives. A Strategic

Alliance is a relationship between two or more parties to pursue a set of agreed

upon goals or to meet a critical business need while remaining independent

organizations. This form of cooperation lies between mergers & acquisitions and

organic growth.

Partners may provide the strategic alliance with resources such as products,

distribution channels, manufacturing capability, project funding, capital

equipment, knowledge, expertise, or intellectual property.

There are four types of strategic alliances: joint venture, equity strategic alliance,

non-equity strategic alliance, and global strategic alliances.

Joint venture: is a strategic alliance in which two or more firms create a

legally independent company to share some of their resources and

capabilities to develop a competitive advantage.

Equity strategic alliance: is an alliance in which two or more firms owndifferent percentages of the company they have formed by combining some

of their resources and capabilities to create a competitive advantage.

Non-equity strategic alliance: is an alliance in which two or more firmsdevelop a contractual-relationship to share some of their unique resources

and capabilities to create a competitive advantage.

Global Strategic Alliances: working partnerships between companies(often more than two) across national boundaries and increasingly across

industries, sometimes formed between company and a foreign government,

or among companies and governments.

Characteristics of ideal/good business partners:

When the character of a man is not clear to you, look at his friends.Japanese Proverb

1.The partner must share the core values of the business or organization:

These are the values which determine how the organization interacts,

communicates and operates to reach it goals and objectives. This just goes to show

how important it is for me to probe and ask whether my prospective team mates

core values are aligned to ensure that we are all on the same page and headed for

the same goal.

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2.The partner should not need to be managed:

When building my core team I need to find those individuals who are confident in

their own abilities. If we are the more experienced partner then most definitely I

will provide some guidance along the way. Make sure I select those individuals

who have shown a capacity to operate on their own and have been successful atdoing so.

3.The passion to become the best at what they do:

When filling a key role for project management lead for the team we selected an

individual who had shown great potential during his university days and had great

passion for his line of work. It worked out really well and the team flourished.

4.Understand the difference between a job and holding a responsibility:

This tip has helped me greatly in making some key decisions in recruiting

partners. Make sure when you are getting a partner who understands the biggerpicture and is in line with it.

5.Would you hire the partner if it were a hiring decision?This question allows me to look at the person from a different angle. When

thinking about asking him/her to become a partner with me in a project it puts

things into perspective. I am begin to look at the individual impartially and can

reach a more informed decision.

6. Does the partner have a regard for rules, regulations and personal

boundaries?When I meet a person make sure I get a sense of what his point of view regarding

regulations and boundaries are even though everything else may look to be in

place.

7.Professes a commitment to goals:

When evaluating prospective partners look at their past history and whether they

were committed to the last projects they were on. Ask them about some of the big

decisions they have had to make. Lastly if I am planning to take him/her on as a

partner make them commit to particular goals and objectives and use them as

benchmarks when performance will be appraised.

8.Honesty:

This is probably the most critical yet most intangible quality to immediately

identify. A person who has a high level of honesty will be one which will I can

rely on and grow a successful business with. To be a good of judge of this

characteristic however will take time and experience.

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Some others Characteristics are -

9. The partners understand shared goals.

10. The individual partners' own goals are met within an effective partnership.

11. In sustained partnerships, the partners respect each other's values, goals, and

organizational cultures.12. In sustained partnerships, leadership becomes shared.

13. Partners within effective partnerships assume a shared sense of ownership inthe collaborative program.

14. Effective partnerships are creative.

15. The organization and structure of sustainable partnerships must be flexible.

16. Effective partnerships engage multiple community sectors.

17. Partnerships are best sustained when there is support at all a level of partner

organizations.18. Effective partnerships invest in the professional development of their

personnel.19. Effective partnerships attract sustained funding.

20. Good partnerships require determination and staying power.

By running through this checklist I have been able to select business partners with

a lot more subjectivity. I hope this list helps out anyone who is looking to start up

a new business.

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Q-3: What are the Difference, Advantage & Disadvantage of

centralization & decentralization, Discus it.

Centralization places the responsibility for decision-making at higher levels,concentrating both authority and power at the top management. It minimizes the

role of the individual employee which is centralizing.Decentralization places decision authority in the hands of the individuals and

teams who are closest to a problem or who manage a process.

Difference of centralization & decentralization:Terms "centralized" and "decentralized" are important management concept.

Often, they are used to refer to the distribution of authority and decision makingwith in an organization.

The differencebetween a centralized and a decentralized system of organization is

that-

1. Decision making and authority:

In a centralized structure all the decision making and authority are focused on the

top tier of management. These few people are the ones that read out company

policy and make all the crucial decisions. A decentralized system, on the other

hand, delegates authority throughout the organization and to all levels of

management.

2. Control:

Top-tier management enjoys far-reaching control in a centralized organization,

while control is limited in decentralized organizations, due to delegation of

authority to lower ranks.

3. Businesses Size:

Centralized systems are more effective in small businesses, while decentralization

is preferable in larger organizations that handle multiple operations.

4. Morale and motivation levels:Morale and motivation levels in a decentralized organization are always higher

than in a centralized one.

Most organizations have found a way to strike a balance between the two;

strategic and tactical decisions are made by top-level management, while

operational decision-making is passed down to the lower ranks.

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Advantages of centralization:

Advantages of centralization include an organizations ability to be able to keep

a tight grip on all aspects of the business. In a smaller business where

centralization is possible, there is less chance that employees will be unaware of

what is expected and what the common goals are because there is such a tight grip

on all aspects of the organization from management. Policies and objectives are

clear, giving employees a fair idea of what the organization expects from them.

Topmost management is usually comprised of experts who are likely to make the

best and speediest decisions, due to the limited number of people making them. It

bypasses potential conflicts, and the time it takes to solve them.

Unbiased allocation of work: Being fair and just in assigning a particular

amount of work, not only between different units but also between

responsible individual employees will increase momentum within the

Company. Standardization of work: By implementing centralization, one of the

outcomes would result in equality of behavior that guarantees unvaryingjudgment and standardized progression.

Area of specialization: There is an immediate advantage if a leader who

handles a particular area is an expert in the same field. This will ease the

work distribution process within the other levels of the team.

Replication of work: Centralized training and standardization of work

leave no scope for replication of tasks or actions. This eliminates additionalexpenditure on excessive labor for duplication of work.

Flexibility: In a crisis or an emergency, standardization of work takes justone step to revise all the activities at once. This guarantees a greater degree

of flexibility in an organization than a Company with no centralized

training.

Lower organizational and transaction costs.

Concentration of HR management skills.

Rapid dissemination of knowledge.

Well connected within a centralized organization.

Consistent processes and practices.

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Disadvantages of Centralization:

Centralized structures are becoming rare because of their many disadvantages.

Risk is great if the top of the organization becomes incapable of leading the

organization (death, illness, or massive organizational size causing a weak span of

control). Employees also will feel less motivated to perform for the organization

as they will not have an avenue for sharing their ideas on how to improve the

organization. This system invests a great deal of responsibility in relatively few

people, and is less effective as a solution to big problems.

Centralization is a comparatively older system of management.

This system invests a great deal of responsibility in relatively few people,and is less effective as a solution to big problems.

Administrative system: A centralized administrative system gives way to

inequity through the establishment of too much regulations or strictagreement to official norms which is surplus and that hinders decision-

making and delays work.

Autocracy: This causes psychological unwillingness and the employee

sees no growth or motivation within the corporation and hence results in

him being disloyal towards the Company.

Low availability to work across time zones

Could be dismissive of regional needs, cultural sensitivities, accepted

approaches to hiring & firing.

Could be limiting when dealing across cultures/languages (especially globalorg)

The system of centralization, thus, cannot be easily upheld. There is a thin line

between every norm and its outcome that is adapted in this concept.

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Advantage of Decentralization:

An advantage of decentralization is that there tends to be faster decision making

and an ability to adapt to the demographic area of production. It also means that

lower level managers have the opportunity to gain valuable experience and

develop more fully because there is more room to grow.

Morale and motivation levels in a decentralized organization are always higher

than in a centralized one.

Decentralized organizations are becoming more popular as the ability for

organizations to decentralize increases.

Decentralization allows organizations to take advantage of division of labor by

sharing decision-making across the organization.

It also empowers employees and allows them to improve their performance by

being able to act to improve lacking or inefficient areas immediately without

approval from the top of the organization.

Another advantage of decentralization is allowing for the managers of business

areas to actually use their first hand knowledge and experience to improve their

areas.

Top management is free to concentrate on higher-level problem-solving, company

strategy, higher-level decision-making and coordinating activities.

Decentralization allows top management to be free of the day-to-day "non-

important" details of running a company.

Top management can focus on important financial decisions, recruiting, training

and maintaining a productive workforce, and positioning the company to be a

force within its industry.

Decentralization provides lower-level managers with crucial experience in making

decisions. Without this experience, they would not be prepared to act decisively

when they are promoted into higher-level positions.

These so-called lower-level decisions could center on who in a certain department

is on what project team or which workers work which shifts. These decisions are

important but not as crucial as developing a criteria for the hiring and dismissal ofemployees.

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Disadvantage of decentralization:

This system can also be risky if the dependent staff does not have the skills

required for expert decision-making.

Lower-level managers may make decisions without fully understanding the effectsthose decisions could have on the organization as a whole. While top-level

managers have less information about local operations than lower-level managers,

they normally have more information about the company's philosophy and should

have a better grasp of company strategy. Lower-level managers are not always in a

position to know the impact of their decisions as top-level managers do.

Lower-level managers may have objectives and goals that differ from those of the

organization. Some lower-level managers may be more interested in increasing the

sizes of their departments than in increasing the profits of the company. Top-level

managers must have their eyes on the dollar and its impact on the company. Manylower-level managers don't have to concern themselves with finances like their

top-level brethren.

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Q-4: Define the Strategic Control & its effect on Organization. Mention

different importance of strategic control over organization with suitable

example.

Strategic control:It is the process by which managers monitor the ongoing activities of an

organization and its members to evaluate whether activities are being performed

efficiently and effectively and to take corrective action to improve performance if

they are not

The selection of an organizational strategy and matching structure

for the organization.

Creation of control systems to monitor and evaluate strategic

performance of the organization.

An example of strategic control is concerned with monitoring progress towards

strategic goals. To explain the principles consider a simple temperature controlsystem. This system comprises a room heater combined with a thermostat to

monitor and control room temperature. If the temperatures fall below a set level,

the heater heat the room, if it goes above a set level the heater is turned off.

Ensuring that this heater control activity itself works is an example of a

management control system.

Strategic Control Methods are -

Integrates Quantitative & Qualitative Measures Uses Financial and Non-financial information

Customer (External) focus

Rewards based upon relative contributions to organization success Encourages desired organizational behavior

Controls are an integral part of any organization's business policies and

procedures. Protecting its resources against waste, fraud, and inefficiency.

Controls are basically good business practices. Its effects organization by

1. Ensuring accuracy and reliability in accounting and operating data

2. Securing compliance with the policies of the organization

3. Evaluating the level of performance in all organizational units of the

organization

4. It optimizes Organizational performance.

5. Ensures competitive advantage

6. Keeps the organization on track

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7. It helps anticipate events that might occur in future

8. Allows the organization to respond to new opportunities that may present it.

9. Organizational control is important because it determines the quality of goods &

services

10. Can make continuous improvements to quality over time and this give them a

competitive advantage

The importance of strategic control are-

Achieving operational efficiency.

Maintaining focus on quality.

Fostering innovation.

Insuring responsiveness to customers.

Checking performance against Expectations.

Achieving Strategic efficiency.

Maintaining focus on Targets & Objectives.

Checking on activities ex. Schedules.

Fostering right direction.

Matching costs, revenues and cash flows against Projections.

Insuring responsiveness to Deviations.

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Q-5: Write short note on Disadvantage of Centralization, Disadvantage

of multidivisional structure, Problem with Tall hierarchy, Problem with

Horizontal hierarchy, Span of Control, Vertical & Horizontal

differentiation.

Disadvantages of centralization:

Centralized structures are becoming rare because of their many disadvantages.Risk is great if the top of the organization becomes incapable of leading the

organization (death, illness, or massive organizational size causing a weak span of

control). Employees also will feel less motivated to perform for the organization

as they will not have an avenue for sharing their ideas on how to improve the

organization. This system invests a great deal of responsibility in relatively few

people, and is less effective as a solution to big problems.

Centralization is a comparatively older system of management.

This system invests a great deal of responsibility in relatively few people,

and is less effective as a solution to big problems.

Administrative system: A centralized administrative system gives way toinequity through the establishment of too much regulations or strict

agreement to official norms which is surplus and that hinders decision-

making and delays work.

Autocracy: This causes psychological unwillingness and the employeesees no growth or motivation within the corporation and hence results in

him being disloyal towards the Company.

Low availability to work across time zones

Could be dismissive of regional needs, cultural sensitivities, acceptedapproaches to hiring & firing.

Could be limiting when dealing across cultures/languages (especially global

org)

The system of centralization, thus, cannot be easily upheld. There is a thin linebetween every norm and its outcome that is adapted in this concept.

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Disadvantages of Multidivisional Structures:

Like all other forms of organizational structure, problems can also arise with a

multidivisional structure that may need to be addressed:

1. Duplication of Activities:One disadvantage of using multi-divisional structures is the duplication of

activities. Corporate employees may duplicate the activities or efforts of divisional

employees. For example, a beverage company may decentralize functions like

marketing and finance. In other words, some marketing and finance mangers will

work in the corporate office. Others will be assigned to regional offices. Marketing

managers in the corporate office may implement certain promotional or

advertising strategies that the regions are already using. Similarly, finance

managers in both the corporate and regional office may be studying the company's

profit and losses in a certain areas. The best way to avoid the duplication of

activities is proper communication between the corporate and regional offices.

2. Less Flexibility:

A multi-divisional structure can also minimize the flexibility in a company. For

example, the corporate office may want sales reps to push certain products in their

markets. However, divisional sales managers may feel their reps should focus on

other products, based on customers' demands and needs. Consequently, the

corporate office losses flexibility in which products their divisions are focusing.

3. Competition among Divisions:

Multi-divisional organizational structures can cause competition among divisions.Many managers and sales reps earn bonuses or profit sharing based on their

divisional performance. Divisions start operating like separate companies. Some

may even stop cooperating with other divisions at the expense of the company.

4. Costly:

Multi-divisional structures can be costly. Companies need to employ more

managers and employees when using this type of organizational structure.

Consequently, labor expenses can be higher. Additionally, companies use more

financial resources for distribution, printing and other expenditures when

employing a multi-divisional structure.

There are some certain natural disadvantages to using a multi-divisionalstructure. The disadvantages are mainly related to the roles and responsibilities of

various managers and their employees.

1. Managing the corporate-divisional relationship:

Finding the balance between centralization and decentralization.

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2. Coordination problems between divisions:

Divisions start competing for resources and coordination problems arise between

divisions.

3. Transfer pricing:Problems between divisions often revolve around the transfer price, i.e., the price

at which one division sells a product or information about innovations to another

division

4. Bureaucratic costs:

Multidivisional structures are very expensive to operate

5. Communication problems:

Tall hierarchies tend to have communication problems, particularly the distortion

of information.

(Advantages of a Multidivisional Structure:

Increased organizational effectiveness: clear division of labor between

corporate and divisional managers generally increases organizational

effectiveness

Increased control: extra control provided by the corporate office can

encourage the stronger pursuit of internal organizational efficiency by

divisional managers

Profitable growth: when each division is its own profit center, individual

profitability can be clearly evaluated Internal labor market: the most able divisional managers are promoted

(from within)to become corporate managers)

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Problem with Tall Organizational Structure:

Large, complex organizations often require a taller hierarchy. In its simplest form,

a tall structure results in one long chain of command similar to the military. As an

organization grows, the number of management levels increases and the structuregrows taller. In a tall structure, managers form many ranks and each has a small

area of control.

Vertical companies are dependent on a strong leader at the top. Weak upper

management means that each successive hierarchical structure will get frustrated

by poor decision making by the superior. In addition, tall companies lack thetransparency of a horizontal company because each layer muddles information

more and more.

Principle of minimum chain of command:

Maintaining a hierarchy with the least number of levels of authority needed to

achieve a strategy.

Sources of bureaucratic costs:

Tall structures provide clear, distinct layers with obvious lines of responsibility

and control and a clear promotion structure. Challenges begin when a structuregets too tall. Communication begins to take too long to travel through all the

levels. These communication problems hamper decision-making and hinderprogress. The advantages of tall structures lie in clarity and managerial control.

The narrow span of control allows for close supervision of employees.

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Problem with Horizontal Organizational Structure:

Horizontal companies are much harder to implement than vertical companies,

especially as the business grows, because the business must advance a culture of

teamwork. Employees may be less sure about their roles and responsibilities

within the company, and project managers can be frustrated by their lack of

authority.

Horizontal structures have fewer management levels, with each level controlling a

broad area or group. Horizontal organizations focus on empowering employees

rather than adhering to the chain of command. By encouraging autonomy and self-

direction, horizontal structures attempt to tap into employees creative talents and

to solve problems by collaboration.

Horizontal structures are flexible and better able to adapt to changes. Faster

communication makes for quicker decisions, but managers may end up with aheavier workload. Instead of the military style of tall structures, horizontal

organizations lean toward a more democratic style. The heavy managerial

workload and large number of employees reporting to each boss sometimes results

in confusion over roles. Bosses must be team leaders who generate ideas and help

others make decisions. When too many people report to a single manager, his job

becomes impossible. Employees often worry that others manipulate the system

behind their backs by reporting to the boss; in a horizontal organization, that

means more employees distrusting higher levels of authority.

Span of control:

Span of Control means the number of subordinates that can be managed

efficiently and effectively by a superior in an organization. It suggests how the

relations are designed between a superior and a subordinate in an organization.

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A span of control is the number of people who report to one manager in a

hierarchy. The more people under the control of one manager - the wider the span

of control. Less means a narrower span of control.

Span of control is of two types:

1. Narrow span of control: Narrow Span of control means a single manager orsupervisor oversees few subordinates. This gives rise to a tall organizational

structure.

2. Wide span of control: Wide span of control means a single manager or

supervisor oversees a large number of subordinates. This gives rise to a horizontal

organizational structure.

The advantages of a narrow span of control are:

A narrow span of control allows a manager to communicate quickly with

the employees under them and control them more easily Feedback of ideas from the workers will be more effective

It requires a higher level of management skill to control a greater number of

employees, so there is less management skill required.

The advantages of wide span of control are:

There are less layers of management to pass a message through, so the

message reaches more employees faster

It costs less money to run a wider span of control because a business doesnot need to employ as many managers

An ideal span of control according to modern authors is around 15 to 20

subordinates per manager, while according to the traditional authors the ideal

number is around 6 subordinates per manager. In reality, the ideal span of control

depends upon various factors, such as:

1. Nature of an organization

2. Nature of job

3. Skills and competencies of manager

4. Employees skills and abilities

5. The kind of interaction that takes happens between superiors andsubordinates, etc

Vertical and Horizontal Differentiation:

Vertical Differentiation:

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Vertical differentiation is the comparing of many products in a single market and

ordering them from lowest to highest, according to their perceived quality. In other

words, it is saying one product is better than another based on your own opinion.

Vertically differentiated products unambiguously differ in quality

Just as consumers' evaluation may differ, it may be the same. Consider the same

example, but we are now concerned with fuel efficiency. Holding all else constant,

it is often without dispute that consumers would always prefer a more fuel

efficient car, or be at worse indifferent. Then all consumers will always prefer the

company that manufactures fuel efficient cars. This then generates vertical

differentiation.

Horizontal Differentiation:

Horizontal Differentiation Focus is on division and grouping of tasks to meet

business objectives.

Simple structures are:

Characteristic of small entrepreneurial companies.

Entrepreneur takes on most managerial roles.

No formal organization arrangements.

Horizontal differentiation is low.

An important source of horizontal differentiation is geographical location. This is

when consumers' evaluation of different goods are different such that for a good x

with two characteristics, for one consumer may weight the first characteristic

heavier than the second, while the other associates the weights the other wayaround. We call this type of difference in evaluation that generates differentiation

among as horizontal differentiation.

Horizontally differentiated products vary in certain product characteristics to

appeal to distinct consumer groups.

Strategic Management Question and Answer by RK

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