MS-11

Management Programme

ASSIGNMENT FIRST SEMESTER 2010

MS-11: Strategic Management

School of Management Studies INDIRA GANDHI NATIONAL OPEN UNIVERSITY MAIDAN GARHI, NEW DELHI-110 068

ASSIGNMENT

Course Code Course Title Assignment No. Coverage

: : : :

MS-11 Strategic Management 11/TMA/SEM-I/2010 All Blocks

Note: Please attempt all the questions and send it to the Coordinator of the study center you are attached with
Q1. Select a company of your choice. Recollect the current events and identify the important macro environmental factors which had an impact on the company. Try to study the opportunities and the threats posed to the company due to the macro environmental factors. Ans: Bharti Airtel is one of Asia's leading providers of telecommunication services with presence in all the 22 licensed jurisdictions (also known as Telecom Circles) in India, and in Sri Lanka. The Company served an aggregate of 96.6 mn customers as of March 31, 2009; of whom 93.9 mn subscribe to GSM services and 2.7 mn use Telemedia Services either for voice and/or broadband access delivered through DSL. The Company also offers an integrated suite of telecom solutions to enterprise customers, in addition to providing long distance connectivity both nationally and internationally. The Company also deploys, owns and manages passive infrastructure pertaining to telecom operations under its subsidiary Bharti Infratel Limited. Bharti Infratel owns 42% of Indus Towers Limited. Bharti Infratel and Indus Towers are the two top providers of passive infrastructure services in India. The telecommunication industry is growing at a neck break speed with leading players lapping up mobile subscribers by millions. The countrys telecommunication market is the 4th largest in the world in terms of wireless subscribers and 5th largest in terms of total telecom subscribers (Source: Bharti Airtel presentation). After growing its wireless (GSM and CDMA) subscriber base at a CAGR of over 122% during the period January 2004 to January 2007, the country is expected to take the number to 500 m telecom subscribers by the end of March 2010. It will be aided in achieving this by the availability of cheaper handsets, focus of regulatory measures to take telephony to rural markets, lower tariffs and general buoyancy in the economy. During the financial year 2008-09, the Company achieved various accomplishments and became the largest integrated telecom company in India based on total telecom subscribers. Some of the key highlights include the following: * First operator in India to cross the total customer base of 96 mn. * Highest net addition of 31.93 mn of total customers in a year.

* Full year consolidated gross revenue of Rs 374 bn and consolidated EBITDA of Rs 153 bn. * Full year consolidated net profit of Rs 79 bn. * Year on Year (Y-o-Y) growth of total customer base by 50% resulted in 38% increase in revenues and 23% increase in net profit. * Mobile Network is present in 5060 census towns and 414,906 non-census towns and villages in India, thus covering approximately 81% of the country's population. * Focus on rural penetration and customer affordability has led to mobile tariffs of 1.2 cents/minute, one of the lowest in the world. * Expanded its international footprint by launching mobile operations in Sri Lanka on a state-of-the-art 3.5G network. * Made its television debut by launching Airtel Digital TV, its Direct-toHome (DTH) satellite TV service. * Debuted Triple Play service with Airtel digital TV interactive - its Internet Protocol Television Service in NCR under a unified brand 'Airtel'.

Q2.

What do you understand by SWOT analysis? Explain how it is important for the organizations in taking strategic decisions. Illustrate your answer with the help of an example.

Ans: SWOT Analysis is a strategic planning method used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a project or in a business venture. It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective. The technique is credited to Albert Humphrey, who led a convention at Stanford University in the 1960s and 1970s using data from Fortune 500 companies. A SWOT analysis must first start with defining a desired end state or objective. A SWOT analysis may be incorporated into the strategic planning model. Strategic Planning, including SWOT and SCAN analysis, has been the subject of much research. Strengths: attributes of the person or company those are helpful to achieving the objective.

Weaknesses: attributes of the person or company those are harmful to achieving the objective. Opportunities: external conditions that is helpful to achieving the objective. Threats: external conditions which could do damage to the objective. Identification of SWOTs is essential because subsequent steps in the process of planning for achievement of the selected objective may be derived from the SWOTs. First, the decision makers have to determine whether the objective is attainable, given the SWOTs. If the objective is NOT attainable a different objective must be selected and the process repeated. The SWOT analysis is often used in academia to highlight and identify strengths, weaknesses, opportunities and threats. It is particularly helpful in identifying areas for development. SWOT analysis may limit the strategies considered in the evaluation. J. Scott Armstrong notes that "people who use SWOT might conclude that they have done an adequate job of planning and ignore such sensible things as defining the firm's objectives or calculating ROI for alternate strategies." The aim of any SWOT analysis is to identify the key internal and external factors that are important to achieving the objective. These come from within the company's unique value chain. SWOT analysis groups key pieces of information into two main categories:

Internal factors The strengths and weaknesses internal to the organization. External factors The opportunities and threats presented by the external environment to the organization. - Use a PEST or PESTLE analysis to help identify factors The internal factors may be viewed as strengths or weaknesses depending upon their impact on the organization's objectives. What may represent strengths with respect to one objective may be weaknesses for another objective. The factors may include all of the 4P's; as well as personnel, finance, manufacturing capabilities, and so on. The external factors may include macroeconomic matters, technological change, legislation, and socio-cultural changes, as well as changes in the marketplace or competitive position. The results are often presented in the form of a matrix. SWOT Analysis of Tata Motors Limited:

The company began in 1945 and has produced more than 4 million vehicles. Tata Motors Limited is the largest car producer in India. It manufactures commercial and passenger vehicles, and employs in excess of 23,000 people. Strengths: The internationalisation strategy so far has been to keep local managers in new acquisitions, and to only transplant a couple of senior managers from India into the new market. The company has a strategy in place for the next stage of its expansion. Not only is it focusing upon new products and acquisitions, but it also has a programme of intensive management development in place in order to establish its leaders for tomorrow. The company has had a successful alliance with Italian mass producer Fiat since 2006. This has enhanced the product portfolio for Tata and Fiat in terms of production and knowledge exchange. Weaknesses: The company's passenger car products are based upon 3rd and 4th generation platforms, which put Tata Motors Limited at a disadvantage with competing car manufacturers. Despite buying the Jaguar and Land Rover brands (see opportunities below); Tata has not got a foothold in the luxury car segment in its domestic, Indian market. Opportunities: In the summer of 2008 Tata Motor's announced that it had successfully purchased the Land Rover and Jaguar brands from Ford Motors for UK 2.3 million. Two of the World's luxury car brand have been added to its portfolio of brands, and will undoubtedly off the company the chance to market vehicles in the luxury segments. Nano is the cheapest car in the World - retailing at little more than a motorbike. Whilst the World is getting ready for greener alternatives to gas-guzzlers, is the Nano the answer in terms of concept or brand? Incidentally, the new Land Rover and Jaguar models will cost up to 85 times more than a standard Nano. Threats: Other competing car manufacturers have been in the passenger car business for 40, 50 or more years. Sustainability and environmentalism could mean extra costs for this low-cost producer. This could impact its underpinning competitive advantage.

Q3.

Briefly discuss the role of organizations mission, goals and objectives in strategic control. Explain with the help of an example.

Ans: Strategic planning is an organization's process of defining its strategy, or direction, and making decisions on allocating its resources to pursue this strategy, including its capital and people. Various business analysis techniques can be used in strategic planning, including SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats ), PEST analysis (Political, Economic, Social, and Technological), STEER analysis (Socio-cultural, Technological, Economic, Ecological, and Regulatory factors), and EPISTEL (Environment, Political, Informatic, Social, Technological, Economic and Legal). Strategic planning is the formal consideration of an organization's future course. All strategic planning deals with at least one of three key questions: 1. "What do we do?" 2. "For whom do we do it?" 3. "How do we excel?" In business strategic planning, the third question is better phrased "How can we beat or avoid competition. In many organizations, this is viewed as a process for determining where an organization is going over the next year or more -typically 3 to 5 years, although some extend their vision to 20 years. In order to determine where it is going, the organization needs to know exactly where it stands, then determine where it wants to go and how it will get there. The resulting document is called the "strategic plan." It is also true that strategic planning may be a tool for effectively plotting the direction of a company; however, strategic planning itself cannot foretell exactly how the market will evolve and what issues will surface in the coming days in order to plan your organizational strategy. Therefore, strategic innovation and tinkering with the 'strategic plan' have to be a cornerstone strategy for an organization to survive the turbulent business climate. An advantage of having a statement is that it creates value for those who get exposed to the statement, and those prospects are managers, employees and sometimes even customers. Statements create a sense of direction and opportunity. They both are an essential part of the strategy-making process. Many people mistake vision statement for mission statement, and sometimes one is simply used as a longer term version of the other. The Vision should describe why it is important to achieve the Mission. A Vision statement defines the purpose or broader goal for being in existence or in the business and can remain the same for decades if crafted well. A Mission statement is more specific to what the enterprise can achieve it. Vision should describe what will be achieved in the wider sphere if the organization and others are successful in achieving their individual missions. A mission statement can resemble a vision statement in a few companies, but that can be a grave mistake. It can confuse people. The mission statement can galvanize the people to achieve defined objectives, even if they are stretch objectives, provided it can be elucidated in SMART (Specific, Measurable, Achievable, Relevant and Time-bound) terms. A mission statement

provides a path to realize the vision in line with its values. These statements have a direct bearing on the bottom line and success of the organization. Features of an effective vision statement include:

Clarity and lack of ambiguity Vivid and clear picture Description of a bright future Memorable and engaging wording Realistic aspirations Alignment with organizational values and culture

To become really effective, an organizational vision statement must (the theory states) become assimilated into the organization's culture. Leaders have the responsibility of communicating the vision regularly, creating narratives that illustrate the vision, and acting as role-models by embodying the vision, creating short-term objectives compatible with the vision, and encouraging others to craft their own personal vision compatible with the organization's overall vision. In addition, mission statements need to be subjected to an internal assessment and an external assessment. The internal assessment should focus on how members inside the organization interpret their mission statement. The external assessment which includes all of the businesses stakeholders is valuable since it offers a different perspective. These discrepancies between these two assessments can give insight on the organization's mission statement effectiveness

Q4.

Take a recent example of a merger and try to analyze the aspects, which led to the merger. Ans: The Boards of Directors of Reliance Industries Limited (RIL) and Reliance Petroleum Limited (RPL) unanimously approved RPLs merger with RIL. The exchange ratio recommended by both boards is 1 (one) share of RIL for every 16 (sixteen) shares of RPL. RIL will issue 6.92 crore new shares, thereby increasing its equity capital to Rs 1,643 crore. Merger Benefits and Synergies: The merger will unlock significant operational and financial synergies that exist between RIL and RPL. It creates a platform for value-enhancing growth and reinforces RILs position as an integrated global energy company. The merger will enhance value for shareholders of both companies. The merger is EPS accretive for RIL. Through this merger, RIL consolidates a worldclass, complex refinery with minimal residual project risk, while complementing RILs product range. There will be further gains from reduced operating costs arising from synergies of a combined operation. The merger is expected to reduce the earnings volatility for RPL shareholders and allows them to participate in the full energy value chain of RIL. The proposed merger fits in perfectly with the style perfected by the Reliance group in the last three decades and it is a feeling of dj vu for those following the company and its fortunes. The Reliance Industries we now know is an amalgam of several companies that were floated for executing specific projects and then merged with the parent. Thus, you had Reliance Petrochemicals Ltd., Reliance Polyethylene Ltd. and Reliance Polypropylene Ltd., all of which were floated to execute specific petrochemical projects in Hazira in the late 1980s and early 1990s but later merged with Reliance Industries. The original Reliance Petroleum, which made its IPO in 1993, was merged with Reliance Industries in 2002. And now comes the merger of the re-born Reliance Petroleum with RIL. The classic strategy of the group has been to execute and commission large, capital-intensive projects on the balance-sheet of new companies and, once the project is implemented or operations stabilize, merge them with RIL. The advantage in this is that RIL is protected from the risks of project execution while its balance-sheet is insulated from taking on large equity or debt burden.

Q5.

Explain the concept of turnaround management? Illustrate your answer with examples.

Ans: Turnaround Management The present business scenario is one wherein constant change is the name of the game. For any firm to survive in any industry, there has to be constant monitoring and improvement of its systems and operations. When a firm faces severe cash crisis or a consistent downtrend in its operating profits or net worth, it is on its way to becoming insolvent. The slide cannot be prevented unless appropriate actions, both internal and external, are initiated to change the future prospects. This process of bringing about a revival in the firms fortunes is what is termed as Turnaround Management. There are 3 phases in any Turnaround Management: 1 The diagnosis of the impending trouble or the danger signals 2. Choosing appropriate Turnaround Strategy 3 Implementation of the change process and its monitoring Here I am giving the example of 2 successful turnaround management which lead to a great success of these organizations. The case of Hindustan Machine Tools: HMT was formed to manufacture machine tools with a foreign collaborator. After nearly a decade of operation, it decided to diversify into Watch industry. The effect of this diversification was felt only after 57 years when the main business of HMT crashed and the company started incurring losses. The watch division came to the rescue and it generated cash profits to keep the company going. The case of Bharat Heavy Electricals Limited The company was started with the objective of producing power generating equipments and virtually enjoyed monopoly. But as the years went by because of the inability of the State Electricity Boards and private sector to set up new power plants, its capacity utilization fell down tremendously. To offset this depression, BHEL ventured into Telecommunications, Metropolitan Transportation and Defense production. Due to this timely diversification, BHEL is now one of the rare profit making PSUs.