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MS-11   June, 2009

MS-11 : STRATEGIC MANAGEMENT

1. a) What do you understand by a mission statement' ? Give two examples of

organizations having a well-formulated 'mission statement'.

(b) Suppose an organization does not have a well stated mission statement. Explain how will the firm be affected ? What is your opinion on the characteristics of Good Mission Statement ?

2. Take the example of Telecom industry and critically evaluate the impact of Porter's Five Forces that drive competition in that industry.

3. How does an organization expand by applying an 'integration strategy' ? Discuss keeping in mind the vertical and horizontal integration. Give Suitable examples.

4 a)   Discuss how 'corporate culture influences the behaviour of the employees in the organisation. Illustrate with the help of examples.

(b) How manager as a header taking Corporate Culture into account handles people

effectively ? Explain.

5. Write short notes on any two of the following :

a) Balanced Score Card

b) Leadership in Indian context

c) Differentiation Strategy

d) Ansoff's product-market expansion grid

6. Read and analyze the case nnd finswer the questions given at the end.

Dell Computers aims to stretch its way of business In an interview with the Financial Times in November 2003, Kevin Rollins, the CEO of Dell Computers, explained how he was putting his job on the line by leading a major strategic change in the company.

The US company famous for selling PCs is planning a big push into consumer electronics. If things go according to plan, Michael Dell could eventually become the Henry Ford of the information age

For a maker of desktop personal computers who founded his company, famously, in a University of Taxas dormitory 20 years ago, this may sound unlikely. But the ambitions of Dell Inc are boundless and thanks to a simple business idea that has proved highly adaptable, and a fearsome relentlessness... Consumer electronics

are about to proaide what could well be the biggest test of the Dell way of doing business. Until now, the company has sold mainly to corporate customers : only a fifth of its sales in the US are to consumers, and much less than that elsewhere.

...Dell's simple but effective idea has been to sell standardised electronic products direct to customers, usually over the internet. That removes most of the research and development that is normally required, while also cutting out retailers and other middlemen. Armed with the information it gets from taking orders directly from customers. Dell has gained two other powerful advantages. One is the ability to build products to match orders as they come in, slashing its inventory costs. The second is a highly efficient marketing machine that can adapt its message based on real-time results as orders arrive.' With its lower costs, Dell sets out to undermine profits in the markets it enters and destroy the margins that sustain its more entrenched competitors.

'Our goal is to shrink the profit pool and take the biggest slice,' says Mr Rollins. Consumer electronics companies, often with gross profit margins of more than 30 per cent, make an obvious target for this ruthless approach. 'Our gross marigins are in the L8-19 per cent range : we don't need 40 per cent' he says. A former partner from Bain (management consultants), the Dell president applies the cool analystics and familiar jargon of the strategy consultant to this relentless expansion : search out the markets with the biggest 'profit pools' to be plundered; pick ones with close

'adjacencies' to those DeIl already serves to reduce the risk of wandering into unknown territory; and apply its .'core competences' to conquering new ground. As

a textbook case of applying a proven and repeatable formula, Dell takes some beating. It used the formula to move from selling PCs to businesses to selling them to consumers. Next it followed its businesses customers into servers, then into storage hardware. Now it wants to follow consumers into other areas of electronics as well. Lt has started with products closely linked to the PC. Such as MP3 digital music players and l-7-inch flat-panel television sets that resemble computer monitors. According to Dell’s rivals, success in the PC business in the US has disguised the fact that the company has found it harder to break into other products and new geogaphic regions.

'Dell's success is backward-looking' , claims Jeff Clarke, head of global operations at Hewlett-Packard. According to Steve Milunovich, technology strategist at Merrill Lynch, not all markets are as susceptible to all aspects of the Dell approach as the PC business. Yet he adds that the company has shown great discipline in attacking only those areas where its strengths still give it a clear economic and operational advantage.

   Even most of the company's competitors concede that the shift in consumer electronics from analogue to digital technology plays to Dell's strengths. It is already the biggest purchaser of Iiquid crystal display screens and computer hard-drives, for instance, putting it in a strong position as these components come to play a bigger role in television sets and other household items.

When you combine monitors and LCD televisions, we will blow away the consumer electronics grys,'says Mike George, chief marketing officer. More importantly, Dell also benefits from the standardisation that brings down the cost of components and removes the advantage once enjoyed by companies that invest in their own technology. As more of a product's functions come to reside in standardized components such as microprocessors and hard drives, the differentiation that comes from making new versions declines The contrast with others is stark. Sony chief Nobuyuki ldei, for instance, told the FT that the Japanese company was putting a growing emphasis on proprietary components to differentiate its products. In the past four years, 70 per cent of Sony's investment has been in

silicon chips. While the digitisation of consumer electronics may have played to Dell's core strengths, though, there are at least three things about the market that are likely to test its business model. One is the fact that it will rely, at least for now/ on manufacturing by other companies,

reducing its ability to drive down costs. Also, the consumer electronics business is based on comrnon products that are not configured individually for different customers : according to Mr Clarke, that removes one main advantages of Dell's build-to-order model, the ability to customise products for each buyer. Using outside manufacturers is also likely to mean the company 'will not be able to operate on inventory that is as thin as it is in PCs,' says Charlie Kim, a consultant at Bain. Company executives suggest that once manufacturing volumes reach a high enough level, Dell is likely to start production itself. Also, while the cost advantages may be less in 'back-end' activities such as production and sourcing, the real opportunity for Dell in consumer electronics lies in the 'front-end' marketing and sales area, says Mr. Milunovich. 'There's a big chunk of money to be taken out of distribution' he says.

Whether Dell can take advantage of this opportunity with its direct sales system will be the second big challenge. Retail stores suit consumer products best because they bring an instant mass market and let users test the look and feel of products, says Mr Clarke. That is particularly important for products such as television sets, which buyers want to see, or handheld devices, which they want to pick up, say rivals.

   Dell executives retort that similar doubts were once expressed about its efforts to sell PCs online, and that its early sales of personal digital assistants suggest that consumers familiar with the quality and style of the company's PCs are willing to buy other items online too. The third test will be whether the Dell brand and marketing approach can be adapted to suit the new market. High name-recognition helps, but will get Dell only part of the way. 'Everyone knows who Dell is-but it's still a PC-focused brantd,' says Mr Kim at Bain. For a company that still relies heavily on selling to corporate customers this will pose a big challenge. 'I,we're very humbled by the fact that there are virtually no other companies that are both consumer and enterprise brands,' says Mr. George. He adds, though, that the basic attributes of the Dell brand-with its connotations of a certain level of value, quality and service-should extend across both types of market. Overcoming obstacles such as these will stretch the Dell model in ways that it has never been stretched before.

Questions

(a) why were the issues facing Dell Computers described as strategic ?

(b) Identify examples of issues that fit each of the different levels of strategy ?