Corporate Social Responsibility - Academic, Journal references ''Done by the Blogger''

Introduction Corporate Social Responsibility (CSR) is a concern and an ever growing factor in the expectations of stakeholders. CSR is a fundamental addition to stakeholder’s criteria for judging organizations and evaluating organizations’ brand and reputation management (Lewis 2003). The purpose of this essay is to discuss the research essay question that “CSR is a marketing strategy and it has nothing to do with ethics”. This paper discusses the issues of advantages and disadvantages of CSR, how CSR conducted by organizations is related to stakeholders and shareholders and empirical evidences to show whether there is a relationship between CSR and performance. It will further discuss marketing strategy with ethics and the problems of lagging in CSR. Define CSR CSR has been defined in the literature as voluntary corporate actions designed to improve social conditions (Mackey, Mackey & Barney 2007). The Carroll’s four-part definition of CSR focuses on the types of social responsibilities it might be argued that business has. It attempts to place economic and legal expectations of business in context by relating them to more socially-oriented concerns. The four parts of CSR are economic responsibilities, legal responsibilities, ethical responsibilities and philanthropic responsibilities, being economic responsible is to make profit, maximize sales and provide investors with sufficient and attractive returns on their investment, being legal responsible is to obey all laws and adhere to all regulations, being ethical responsible is to avoid questionable practices and do what is right, fast and just, being philanthropic responsible is to be a good corporate citizen and make corporate contributions (Carroll & Buchloltz 2006). Within the stakeholder perspective, the success of an organization depends on its ability to balance the conflicting demands of its various stakeholders. Freeman (1984, p.46) defines ‘stakeholder as any group or individual who can affect or is affected by the achievement of the organization's objectives’. The concept of stakeholder group includes not only equity investors and creditors, but also employees, customers, suppliers, analysts, business contacts, the government and the public (Dellaportas et al. 2005). Shareholder can also be viewed as a stakeholder group (Mallin 2007). Shareholders are the most important stakeholders and without shareholders, an organization can not be set up. Advantages and disadvantages of CSR There are three advantages that an organization can benefits from CSR. Firstly, one of the most widespread arguments of business is the long term profitability. There is a win-win perspective on the relationship between CSR and long term profitability. It can be seemed that the more an organization benefits from CSR, the more it would integrate CSR as a strategic decision making (Ven 2008). In addition, CSR has benefited organizations from direct or indirect economic efficiencies. One of the benefits is that employees tend to choose to work for ethical organizations (Smith 2003). Secondly, CSR can improve public image and reputation by effective communication to stakeholders which in terms of increase market opportunities. The idea of public image is closely associated with long term self-interest. Each individual organization seeks to enhance public image so that it may gain more customers, better employees, and other benefits (Davis 1973). In fact, CSR has become such an integral component of an organization’s reputation that the debate over CSR has started to move beyond whether an organization should make CSR commitments to protect reputation (Smith 2003). Nowadays, managers are increasingly being encouraged to integrate CSR into their business vision and brand management (Lewis 2003). Consequently, CSR is one of the fastest growing and least understood areas of reputation management (Fombrun et al. 2000). Last but not least, CSR can build customer loyalty based on distinctive ethical values in order to gain more market shares. Studies also show there is a growing desire of customers to buy based on other value-based criteria, such environmental friendly products because consumers are demanding more than product from their favorite brands (Smith 2003). An organization which has a good reputation, environmentally and socially responsible will also gain trust among its customers and attain loyalty. Although conducting CSR has the three main advantages, there are three disadvantages of putting CSR into practice. Firstly, the most widespread argument against CSR is the cost to implement CSR and the consideration of profit maximization (Davis 1973). Friedman argued that the social responsibility of business is to increase its profits and that increasing shareholder value is the only thing that matters (Dubria, Dalglish & Miller 2006). The reason is that a manager is the agent of shareholders and all of his decisions should maximize profits. Secondly, CSR places individual organization at a competitive disadvantage, if they take action that costs money when others do not (Dubria, Dalglish & Miller 2006). There is a potential for organizations to increase costs for training of how to conduct CSR, stakeholder focus group session and CSR reporting. In addition, an organization might be placing it in a dangerous position in terms of global competition. The increase in the cost of products caused by social considerations, the organization might necessary raise the prices of products which make them less competitive in the global market (Carroll & Buchloltz 2006). Last but not least, an additional reason against assuming social responsibility goals is that many businessmen may lack the perceptions and skills to do CSR. It is said that their outlook is primarily economic, and their skills are the same (Davis 1973). In addition, they might have implementing difficulties such as human resources and lack of time. Theoretical foundation shareholder versus stakeholder Shareholders are interested to have potential for capital gains, higher dividends and profit maximization of organizations. However, stakeholders are vital to the survival and success of business. Stakeholder theory explains that there is more just a relationship between an agent who has fiduciary responsibility to principle, there are also third parties to whom the corporation owes morally significant non-fiduciary obligations. The duties exist because, like shareholders, these other stakeholders also make investments in enterprises: employees invest their time and intellectual capital, and customers invest their trust (Graces, Waddock & Kelly 2001). There is a concern for the macro-level outcome of business decisions in ways that goes beyond the agent’s argument that a manager’s duty is solely to serve the employer loyally by contributing to profit maximization. Now, it is suggested that stewardship of society’s resources to more broadly serve society. Business was said to have stewardship responsibilities not just to shareholders but also to stakeholders (Lantos 2001). In the long term, both shareholders and stakeholders benefit from CSR to have long term profitability due to the brand image, reputation, sales and customer loyalty. However, there is a reverse side of consideration in the short term such as one year, the more money spent for stakeholders such as higher bonus to employees and charity, the less the money left to pay dividends for shareholders. Although, stakeholder theory assumes that in order for corporate entities in a society to survive and prosper over a period of time; those entities must have good relationships with its critical stakeholders (Idowu & Papasolomou 2007). As a result of different interests between shareholders and stakeholders, CSR should be a balancing act: business must balance economic performance, ethical performance, and social performance, and the balance must be achieved among various stakeholders (Lantos 2001). CSR is a marketing strategy and it is related to ethic Ethics is the discipline that examines one’s moral standards or the moral standards of a society. Business ethics is a specialized of moral right and wrong that concentrates on moral standards as they apply to business institutions, organizations and behavior (Velasquez 2006). Marketing strategy which is defined as the combination of product, price, distribution and promotion most suited to a particular group of customers (Neal, Quester, & Hawkins 2007). Marketing strategy in CSR is believed to create value not only for stakeholders of the organization, but also for an organization itself (Ven 2008). The marketing strategy for CSR is also called Cause Related Marketing (CRM) which is a strategy that aims to communicate a company’s striving for corporate social responsibility and to improve brand image (Baghi, Rubaltelli & Tedeschi 2007). Most organizations choose what to conduct on CSR of the Socially Responsible Investment (SRI) to select suitable investment. The SRI involves considering the ethical, social, and environmental performances of companies selected for investment as well as their financial performance (Mallin 2007) Although, organizations benefit themselves from CRM and SRI as a marketing strategy, stakeholders are also benefited by those activities. Personally, CSR is a marketing strategy and it is also related to ethics because organizations conduct ethical and social performance through CSR. This marketing strategy of social concern matches with the Carroll’s four components of CSR, organizations conducts CSR to be economic responsible to make profit, maximize sales and provide investors with adequate and attractive returns on their investment, be legal responsible to abide all laws and regulations, be ethical responsible to follow standards of acceptable behavior judged by stakeholders (Carroll & Buchloltz 2006). As a result, CSR creates win-win situation in which both corporation and one or more stakeholder groups are benefited. For an organization to success, it must conduct CSR as a marketing strategy with ethics for the long term profitability. Empirical evidences of cost and better performance Every social action is accompanied by costs of one kind or another. Money paid for CSR could have been paid to shareholders as dividends. Business can not always afford to be so generous, but executing CSR practices do not necessarily rule out making a reasonable profit (Handy 2002). There are three academic literature has found some support for the premise that CSR makes financial sense. Firstly, drawing from the influence of CSR on loyalty in the social identity theory, the results show that CSR initiatives are linked to stronger loyalty because consumers have a more positive organization evaluation (Marin, Ruiz & Rubio 2008). From the surveys reviewed, a substantial number of consumers express a willingness to pay more for products and services associated with acceptable environmental and labour conditions of production. When price and quality of CSR and non-CSR products are the same, consumers choose to purchase CSR products increase (Fliess, Dubreuil & Agatiello 2007). Secondly, Margolis and Walsh (2001) found that nearly 100 studies examined the relationship between corporate social performance (CSP) and corporate financial performance (CFP) over the last 30 years. Most studies point to a positive relationship between CSP and CFP. Not surprisingly, it is generally inferred that CSR does produce financial dividends for organizations. Last but not least, most of studies have compared the performance of portfolios of firms with high CSR to benchmark portfolios such as the S&P 500. The Domini 400 Social Index, which has met certain standards of social and environmental excellence, has outperformed the benchmark S&P 500 firms over the entire period; the Domini 400 has increased an annual rate of 12.09%. However, S&P 500 has raised an annual rate of 11.45% (Lougee & Wallace 2008). As a result, CSR as a marketing strategy can benefit organizations to have better performance. Lagging in CSR There is a need for organizations to conduct CSR because organizations and stakeholders take joint responsibility for creating and sustaining an ethical business context. However, some organizations face serious challenges as a result of lagging behind CSR. Organizations and stakeholders are not able to work together to create regimes of responsibility that limit moral failures and promote ethical behavior. This is because stakeholders provide a powerful reorientation about business ethics (Goodstein & Wicks 2007). Furthermore, an organization that is lagging behind CSR may be in threat of losing its investors and shareholders. The evidence from a survey done by Hill & Knowlton showed that nearly three quarters of people now consider CSR issues when making their investment decisions, 12% of whom would purchase CSR shares even if it led to a lower return on investment (Editorial Staff 2001). In the view of results of lagging behind CSR, CSR practices are essential for organizations to be more ethical and avoid social problems. Conclusion Indeed, organizations can benefit from CSR as stated like, long term profitability, enhanced brand image and reputation and increased sales and customer loyalty. These three advantages are powerful and useful to attract shareholders and stakeholders to invest and purchase the products from those organizations. However, the disadvantages of cost of implementation and the consideration of profit maximization, competitive disadvantage and lack of social skills places threat in an organization. Although an organization has the risk of conducting CSR, organizations often engage in CSR precisely and wisely. Shareholders and stakeholders have different interests but both of them can benefit CSR in the long term perspective this is because CSR can be considered as marketing strategy and it is related to ethics. In addition, evidences have showed that CSR enhanced better performance. Organizations also need to conduct CSR in order to avoid serious challenges as corporate social irresponsibility may occur. References Book Carroll, B & Buchloltz, A, K 2006, Business and Society: Ethics and Stakeholder Management, 6th edn, Thomson Dellaportas, S, Gibson, K, Alagiah, R, Hutchinson M, Leaug P, & Homrigh, D, B 2005, Ethics, governance &accountability, John Wiley & Sons Australia, Australia Dubria A, J, Dalglish, C, & Miller, P 2006,’Leadership: 2nd Asia-pacific edition’, John Wiley & Sons Australia, Australia Freeman, R.E 1984,’Strategic Management: A Stakeholder Approach’, Pitman Publishing, Boston, MA. Joshua D. Margolis and James P. Walsh 2001, People and Profits, Lawrence Erlbaum, New Jersey Mallin, C, H 2007, Corporate governance, 2nd edn, Oxford university press, Oxford. Neal, C, Quester, P & Hawkins, D 2007, Consumer Behavior: Implications for Marketing Strategy , 5th edn, McGraw Hill Irwin, Australia. Velasquez, G, M 2006, Business and ethics: concepts and cases, Person Education Inc, New Jersey. Journals Baghi, I, Rubaltelli, E & Tedeschi M 2007,’A Strategy to Communicate Corporate Social Responsibility: Cause Related Marketing and its Dark Side’, Corporate Social Responsibility and Environmental Management, vol. 16, issue, 1, pp. 15-26. Davis, K 1973, ‘The Case for and Against Business Assumption of Social Responsibilities’, Academy of Management Journal, Jun, vol. 16, issue 2, pp. 312-322 Editorial, Staff 2001,’Comapany fail social investors ’, Investor Relations Business, vol. 6, issue, 16, pp.1-2 Fombrun , C, J, Gardberg, N, A, & Barnett , M, L, 2000,’Opportunity platforms and safety nets:Corporate citizenship and reputational risk ’ , Business and Society Review, vol. 105, issue, 1, pp. 85-106. Fliess, B, Lee, H, J, Dubreuil, O, L &Agatiello, O 2007, ‘CSR and trade: informating consumers about social and environment conditions of globalised production’, OECD Papers, vol. 7, issue, 1, pp. 1-69 Goodstein, J, D & Wicks, A, C 2007,’ Corporate and stakeholder responsibility: making business ethics a two-way conversation’, Business Ethics Quarterly, vol. 17, issue, 3, pp. 375-398 Graces, S, P, Waddock, S & Kelly, M 2001, ‘How do you measure corporate citizenship?’ Business ethics, vol. 15, no. 2, pp. 17 Handy, C 2002, ‘What's a Business For?’ Harvard Business Review, vol. 80, issue, 12, pp. 49-56. Idowu, S, O & Papasolomou, I 2007, ‘Are the corporate social responsibility matters based on good intentions or false pretences? An empirical study of the motivations behind the issuing of CSR reports by UK companies’, Corporate Governance, vol. 7, issue, 2, pp. 136-147 Lantos, G, P 2001, ‘The boundaries of strategic corporate social responsibility’, Journal of consumer marketing, vol. 18, issue, 7, pp. 595-632 Lewis, S 2003, ‘Reputation and corporate responsibility’, Journal of Communication Management, vol. 7, issue, 4, pp. 356-364. Lougee, B & Wallace, J 2008,’ The Corporate Social Responsibility (CSR) Trend’, Journal of Applied Corporate Finance, vol. 20, issue, 1, pp. 96-108. Mackey A, Mackey T, B, Barney J, B 2007, ‘Corporate social responsibility and firm performance: investor preferences and corporate strategies’. Academy of Management Review, vol. 32, issue, 3, pp. 817-835. Marin, L, Ruiz, S & Rubio A 2008,’ The Role of Identity Salience in the Effects of Corporate Social Responsibility on Consumer Behavior’, Journal of Business Ethics, vol. 84, pp. 65-78. Smith, C. N 2003, ‘Corporate social responsibility: Whether or how? ’, California Management Review, vol. 45, issue, 4, pp. 52-76. Ven, B, V, D 2008, ‘An Ethical Framework for the Marketing of Corporate Social Responsibility’, Journal of Business Ethics, December, vol. 82, pp. 339-352.

Academic Strategic management essay Mcdonalds Singapore ''Done by the Blogger''

Introduction With the recent economic downturn following on an extended period of merger activity and diversification, the topic of divestment or exit from a business is receiving attention. Some authors argued it becomes an expected and regular strategic decision made in response to unfavorable market circumstances (Porter 1976). This essay first analyzes how the general environment, Political/Legal, Economic, Socio-cultural, Technological with the selected contemporary issues of fiscal and monetary policy, global financial crisis, recession, economic stimulus, aging population and declining birth rate impact on fast food industry. Then, it covers the industry environment analysis with Porter’s five forces in relation of its strategic group to determine whether this industry is attractive or unattractive. Finally, it discusses whether Singapore McDonald’s has sustainable advantages by analyzing internal environment with resources, capabilities, core competences and value chain. The general environment analysis The political/legal segment There are three main points that has a huge impact on fast food industry due to the government. Firstly, in the Singapore fiscal policy, corporate tax will be 17% in 2010 (Ministry of Finance 2009). This change may attract foreign investors to invest in fast food industry in Singapore. In addition, Singaporean may set up a new fast food restaurants due to the low cooperate tax rate. Secondly, the government increased the Goods and Services Tax (GST) from 5% to 7% in 2007 (MTI 2007). This definitely affects the fast food industry as most fast food restaurants bear the GST themselves. Finally, The Singapore Government has been increasing more programs and activities to promote support healthy living and eating campaigns (The National Bureau of Asian Research 2008). This may make people to consume less fast food because fast food is concerned as junk food. The economic segment Singapore is now in a simultaneous recession due to the Global Financial crisis. Ministry of Trade and Industry (2009) stated that Singapore’s GDP growth is likely to be -5.0 to -2.0 per cent in 2009. The forecast for inflation is also revised downwards to -1.0 to 0 per cent. As monetary policy, government controls its currency rate and ensure low inflation rate for sustained economic growth. Because of recession, people are spending less and less during economic downturn and most companies are tightening their budgets. There is a high possibility that existing companies are not expanding because they are more concerned on their cash flow (MTI 2009). However, there is a decrease of shop properties and rentals. The Prices of shop properties and rentals of shop properties decreased by 4.8% and 0.6% respectively in the fourth Quarter 2008 (URA 2009). The decrease of price of shop properties and rentals affects the fast food industry of whether they are able to cover their fixed costs. Furthermore, government will provide a 15% rental rebate and Stimulate bank lending to enhance business cashflow and competitiveness (Ministry of Finance 2009). The socio-cultural segment Singapore is facing aging population and the average annual growth rates are very high, 1.58% in 2006, and 1.73% in 2007 (Cheang 2007). In addition, the number of persons aged below 15 years decreased to 671,300 in 2008, from 712,000 in 1998 which reflects the declining trend of birth rate in past fertility (Singapore department of statistics 2008). It will probably harder for fast food employers to hire young workers as the fast food industry is to employ young people at service points (Emberton 2006). The social trends is also changing, there is an increase trend towards consumption of more processed food and the use of Western style fast food restaurants (Agriculture and Agri-food Canada 2008). The technological segment Since drive-thru service represents a huge portion of corporate sales for many chains, the focus is primarily on the use of technology to assemble orders, collect payment, and deliver food to drivers (CACM staff 2006). Because of technology advance, some fast food restaurants have shift to use E-commerce to deliver food. Industry environment analysis The nature and degree of competition in an industry hinge on five forces: the threat of new entrants, bargaining power of suppliers, bargaining power of customers, the threat of substitute products or services, and the jockeying among current contestants. The collective strength of these forces determines the ultimate profit potential of a firm (Porter 1979). A strategic group is not simply a more narrow definition of an industry. The industry remains while firms are allowed to be heterogeneous in their behavior by offering a different product line or vertically integrating to a different degree (Tremblay 1985). McDonald's, MOS Burger and Burger King are in the same strategic group because they emphasis similar strategic dimensions such as product quality, pricing policies, distribution channels and customer service. Threat of new entrants The economy of scale deters entry by forcing the aspirant either to come in on a large scale or to accept a cost disadvantage (Porter 1979). New small-scale entrants face cost disadvantage and there is a high difficulty for them to compete the strategic group because the existing firms have developed economic of scale through producing, purchasing and marketing. In addition, the existing fast food restaurants have spent on a great deal of money on effective advertising campaigns to differentiate themselves and create high fences around their businesses. As a result, new entrants must allocate resources to overcome exist customer loyalty. However, new entrants do not need a lot of capital for fixed facilities and inventories for start-up costs. Furthermore, the rental and design for new fast food restaurants are inexpensive. Switching costs are fixed costs buyers face in changing suppliers (Porter 1979). There is a very low switching cost if a customer buys from substitute food. In addition, the cost or retrain employees and psychic cost of ending a relationship are very low. Power of suppliers Suppliers can exert bargaining power on participants in an industry by raising prices or reducing the quality of purchased goods and services (Porter 1979). There are three points indicate that the suppliers do not have much bargaining power over fast food restaurants. Firstly, the supplier group is big where there are many companies who provide raw materials for fast food restaurants. Hence, customers can force down prices, demand higher quality or more service. Secondly, products are not unique, differentiated and very important to fast food outlet’s marketplace success. This is because the raw materials of making burgers, drinks and fries are almost the same. Finally, suppliers do not create high switching costs. One of the reasons is that consumers can buy the raw materials from any supermarket or wet market. Power of buyers Buyers want to buy products at the lowest possible price (Hanson et al. 2008). The fast food industry characterized by many consumers who do not purchase large volumes and they are unable to bargain prices as fast food restaurants use fixed prices. Furthermore, Fast food products are standard, undifferentiated and buyers can always find alternative suppliers. In addition, buyers pose a credible threat that buyers can make food themselves. As a result, buyers tend to be more price sensitive. Threat of product substitutes By placing a ceiling on prices it can charge, substitute products or services limit the potential of an industry. Substitutes can limit profits of existing firms (Porter 1979). The substitute products present a strong treat to fast food industry because consumers face low switching costs and substitute products’ prices are lower. In addition, quality and performance capabilities are equal or greater than the fast food products such as burgers, hot dogs and drinks provided by supermarkets. Intensity of rivalry among competitors Rivalry among existing competitors takes the familiar form of jockeying for position (Porter 1979). There are 3 factors shows that the fast food industry has high intense rivalry among competitors. Firstly, competitors are numerous and roughly equal in size and power. As a result, fast food restaurants use tactics such as price competition and promotion in Singapore. Secondly, products and service are lacks of differentiation and switching costs. Fast food products and capabilities are homogeneous and there are many substitute products threaten their profits. Finally, exit barriers are high for large firms and franchisees. As a fast food franchise, the fast food restaurants needs to continue operate thought the return of invested capital is low. The reason is that the company has singed a contract with a franchiser. Industry attractiveness The profitability of all the firms competing in the industry will be a product of the influences of the five forces (Gartner 1985). An attractive industry with a high average return on investment will be difficult to enter because entry barriers are high, suppliers and buyers have only modest bargaining power, substitute products or services are few, and the rivalry among competitors is stable (Porter 1998). An unattractive industry like fast food industry has low barriers to entry, suppliers and buyers have low bargaining power, threat of substitute products are high and excessive rivalry caused by a large group of competitors, low differentiation and switching costs. Hence, there is low profit potential for fast food industry. Competitor analysis Selznick (1957) first introduced distinctive competence that a firm is capable of performing better than its competitors (Amis and Slack 1999). In the competitor analysis, as the fast food industry is competitive and unattractive, existing restaurants must hold advantages over their competitors to perform well in order to gain more market share. The Internal Environment Resources, Capabilities and Core competence McDonald’s resources are its service and distribution to develop its competitive advantage. McDonald’s physical resources are its ability to look for the best locations within the marketplace to provide our customers with convenience (McDonald’s 2009). McDonald’s equipments are very efficient and they are seeking the most efficient equipment to process fast food. They use of Point of Sale (POS) system and Kitchen to Video System (KVS) effectively to make food at same time and maintain quality. McDonald’s franchisees have the reputational resources as McDonald’s Cooperation is the ninth most valuable brand in the world (Businessweek 2008). Another intangible resource is human resources, the average McDonald's restaurant manager spends more than four years in training (McDonald’s 2009). McDonald’s has the capability for delivering consistent products and service effectively by its distribution channel. Furthermore, Singapore McDonald’s franchisees are benefits from McDonald’s Corporation as the company has excelled in implementing classical marketing techniques, the successful advertising and point-of-sale campaigns (Walters and Rainbird 2004). Core competencies are the collective learning in the organization, communication, involvement, and a deep commitment to working across organization boundaries (Prahalad and Hamel 1990). Resource combine capability is a firm’s core competence. The core competencies of McDonald’s are fast service, consistence and quality food. Although McDonald’s have the core competencies, the capabilities must meet the four criteria of valuable capabilities, rare capabilities, costly-to-imitate capabilities and non-substitutable capabilities in order to be sustainable competitive (Hanson et al. 2008). McDonald’s valuable capabilities to deliver consistent products and service effectively and the use of marketing champions helps them to exploit more opportunities. However, it has possessed by many competitors. In addition, the two capabilities are not costly-to-imitate capabilities, in fact, competitors are using the same tactics such POS and KVS to produce food effectively. Competitors also have effective marketing campaigns to gain market share. The capabilities are substitutable, competitors are easy to find substitute and try to imitate the McDonald’s strategy. Value Chain A company builds up value in its product by incurring costs for a series of functional requirements: the primary activities of inbound logistics, operations, outbound logistics, marketing, and service; and a series of support activities (Porter 1985). For the franchisee, McDonald’s Corporation program offers support for most of the major business functions, including planning, human resources, operations, and marketing (ICIC 2007). Franchisees have the effective inbound logistic, operations and outbound logistic system, this can be seen form the assembly line, each person has specific task and the use of POS and KVS which develop the capability to have real-time transition of orders. In marketing, sales and services, profitable franchisees have the strong network of selling and marketing McDonald’s products to enhance their competitive advantage. Firm infrastructure and human resource management, continuous two-way communications between McDonald’s and franchisees is a top priority. In addition, the McDonald’s Corporation provides Strong network of owner-operators who share information on best-practices, extensive training program for owner-operators and assistance with financing (ICIC 2007). Franchisees are able to create values through the activities of inbound logistics, operations, outbound logistics and service. The advertising and promotional campaigns are created and outsourced by McDonald’s Corporation which is more capable to create values for franchisees. Conclusion Although the Singapore is facing recession with the threats of aging population, decline of birth rate and increase of GST, fast food restaurants are probably able to survive due to decrease of rental, corporate taxes, Economic stimulus and increase trends toward fast food products. However, existing firms need to distinctive their core competences in order to survive though people may not enter due to unattractiveness of this industry. McDonald’s need to adjust itself to the changing of environment though, McDonald’s has its core competencies and the support activities and primary activities are able to create values and increase profits currently. As a result, continues innovation is crucial to its success. Reference Book Hanson, D, Dowling, P, Hitt, M. A, Ireland, R. D & Hoskisson, R. E 2008,’ strategic management: competitive and globalization’ Thomson, Australia. Porter, M, E 1985, Competitive Advantage, Free Press, New York, NY. Porter, M, E 1998 'on competition’, Harvard Business School Press. Journal article Amis, J & Slack, T 1999 ‘Sport sponsorship as distinctive competence’, European Journal of Marketing, vol. 33 No. 3/4, pp. 250-272. CACM Staff 2006, ‘FAST(ER) FOOD TO GO’, Communications of the ACM, April, vol. 49, issue 4, po.9-10. Cheang, W, K 2007, ‘Time series modelling of the Singapore population data’, Proceedings in Applied Mathematics and Mechanics, Dec, vol. 7, issue 1. Emberton, F 2006, ‘McLibrary? Should we learn anything from the fast food industry?’, Incite, Dec, vol. 27, issue 12, pp. 16-17. Gartner W, B 1985, ‘Competitive Strategy / Competitive Advantage’, Academy of Management, Oct, vol. 10, issue 4, pp. 873-875. Porter, M, E 1976,’ Please Note Location of Nearest Exit: Exit Barriers and Planning’,California Management Review, Winter, vol. 19, issue 2, pp21-33 Porter, M, E 1979 ‘How competitive forces shape strategy’, Harvard Business Review, Mar/Apr, vol. 57, issue 2, pp. 137-145. Prahalad, C, K & Hamel, G 1990, ‘The Core Competence of the Corporation’, Harvard Business Review, May/Jun, vol. 68, issue 3, pp. 79-91. Tremblay, V, J 1985 ‘Strategic groups and the demand for beer’, Journal of Industrial Economics, Dec, vol. 34, issue 2, pp.183-193. Walters, D & Rainbird, M 2004, ‘The demand chain as an integral component of the value chain’, Journal of Consumer Marketing, vol 21, no 7, pp. 465-475 Internet Agriculture and Agri-food Canada 2008, Singapore's Markets for Functional Foods, Nutraceuticals and Organic Foods 2008 to 2012, viewed 11 February 2009 Businessweek2008, ‘Best Global Brands 2008’, viewed 10 Feb 2009, McDonald’s 2009, McDonald’s, viewed 11 February 2009, . Ministry of Finance 2009, Budget Speech 2009, viewed 11 February 2009, . Ministry of Trade and Industry 2007, Macroeconomic policies, viewed 11 Feb 2009 . Ministry of Trade and Industry 2009, MTI Revises Forecasts for 2009 GDP Growth’ . Singapore department of statistics 2008, population trends 2008, viewed 11 February 2009, The Initiative for a Competitive Inner City (ICIC) 2007, ICIC, U.S.A, viewed 17 Feb . The National Bureau of Asian Research 2008, Obesity Prevention and Control Efforts in Singapore, viewed 10 Feb 2009, . Urban Redevelopment Authority 2009, viewed 11 February 2009, .

Straegic management questions and answers

Q1: Discuss, using examples, the resources view of the firm.

ANS:

The Resource-Based Model of above-average returns assumes that:
* Each organisation is a collection of unique resources and capabilities.
* The strategy the firm chooses should allow it to use its resources and capabilities to gain a competitive advantages in an attractive industry to earn above-average returns.
1. Identify the firm's resources by studying the strengths and weaknesses compared with those of the competitors.
* Resources are inputs into a firm's product process, such as capital equipment, skills of individual employees, patents, finances and talented managers.
* In general, a firm's resources are classified into three categories: physical, human and organisation capital.
* They have a greater likelihood of being a source of competitive advantage when they are formed into a capability.
2. Determine the firm's capabilities which allows the firm to do better than its competitors.
* Capability is the capacity for a set of resources to perform a task or an activity in an integrative manner.
* Capability should not be so simple that it is highly imitable or so complex that it defies internal steering and control.
3. Determine the potential of the firm's resources and capabilities in term of a competitive advantage.
* Core competencies are resources and capabilities that serve as a source of competitive advantage for a firm over its rival.
* The potential is realised when resources and capabilities are valuable, rare, costly to imitate and non-substitutable.
4. Locate an attractive industry.
* An attractive industry is an industry with opportunities that can be exploited by the firm's resources and capabilities.
5. Select a strategy that best allows the firm to ultilise its resources and capabilities relative to opportunities in the external environment.
* Strategy formulation and implementation are strategic actions taken to earn above-average returns.
The five steps above will result in earning above-average returns.

EXAMPLE:
After the merger of StarHub and Singapore Cable Vision (SCV) in year 2002, this gave the firm the resources and capabilities to launch its unique hubbing packages as its major competitive edge.


Q2: Discuss, using examples, the Industrial Organisation view of the firm.

ANS:

The Industrial Organisation (I/O) Model of above-average returns specifies that the industry in which a firm competes has a stronger influence on the performance than the choices manager make inside their organisations.

The determinants of a firm's performance are economies of scale, barriers to market entry, diversification, product differentiation and degree of concentration of firms in the industry.

The I/O Model assumes that:
* The external environment imposes pressures and constraints that determine strategies leading to above-average returns.
* Most firms competing in an industry control similar strategically relevant resources and pursue similar strategies.
* Resources used to implement strategies are highly mobile across firms.
* Organisational decision-makers are assumed to be rational and committed to acting in the firm's best interests such as profit maximising.
1. Study the external environment such as general environment, industry environment and competitor environment.

2. Locate an industry with high potential for above-average returns.

An attractive industry is an industry whose structural characteristics suggest above-average returns.

3. Identify and formulate the strategy called for by the attractive industry to earn above average returns.

4. Develop or acquire assets and skills needed to implement the strategy.

5. Use the firm's strengths to implement the strategy.

Strategy implementation is the selections of strategic actions linked with effective implementation of a chosen strategy.

The above five steps will result in earning of above-average returns.

EXAMPLE:
As the market of telecommunication industry in Singaporeis saturated, SingTel adopted the acquisition strategy to acquire Optus in order to expand into the Australian market.


Q3: Discuss, using examples, the following two forces in the industry environment: power of suppliers and power of buyers.

ANS:

The industry environment is the set of factors that directly influences a firm and its competitive actions and competitive response.

The five forces that influence the industry environment are:
* Threat of new entrants
* Bargaining power of suppliers
* Bargaining power of buyers
* Threat of product substitutes
* Intensity of rivalry among competitors
The interactions among these five factors determine an industry's attractiveness and profit potential. The greater a firm's capacity to favourably influence its industry environment, the likelihood that the firm will earn above-average returns.

In this case, the bargaining power of suppliers and the bargaining power of buyers will be discussed.

Bargaining power of suppliers:

Increasing prices and reducing the quality of their products are potential means used by suppliers to exert power over firms competing within the an industry.

Supplier power increases when:
* Suppliers are large and few in number
* Satisfactory substitute products are not available
* Industry firms are not a significant customer for the supplier
* Suppliers' goods are critical to buyers' marketplace success
* Suppliers' products create high switching costs
* Suppliers pose a threat to integrate forward into buyers' industry
EXAMPLE:
In the pharmaceutical industry, supplier such as Pfizer is large and few in number. Satisfactory substitute products are not available as Pfizer is the only company that supplies its patented product - Viagra. Thus, the industry firms are not a significant customer for Pfizer. As a monopoly, Pfizer's Viagra are critical to buyers' marketplace access and it creates a high switching costs for buyers. In addition, Pfizer pose a threat to integrate forward into buyers' industry by providing highly differentiated products. As a result, Pfizer has a higher bargaining power as a supplier.

Bargaining power of buyers:

Buyers want to buy products at the lowest possible price. In order to reduce their costs, buyers bargain for higher quality, greater levels of services and lower prices.

Buyer power increases when:
* Buyers are large and few in number
* Buyers purchase large portion of an industry's total output
* Buyers' purchase are a significant portion of a supplier's annual revenues
* Buyers can switch to another product without incurring high switching costs
* Buyers pose a threat to integrate backward into sellers' industry
EXAMPLE:
Buyers such as NTUC Fairprices and Watsons are large and few in number in their respective industries. They purchase large portion of an industry's total output which are a significant portion of the suppliers' annual revenues. As the stores of both NTUC Fairprices and Watsons carry a variety of merchandise lines and brands, they can easily switch to another product without incurring high switching costs. In addition, both of the companies pose a threat to integrate backward into the sellers' industry by launching their private label brands. Thus as buyers, their bargaining power will be high.

Q4: Describe, using examples, the impact of barriers to entry on firms in the industry environment.

ANS:

The industry environment is the set of factors that directly influences a firm and its competitive actions and competitive response.

The five forces that influence the industry environment are:
* Threat of new entrants
* Bargaining power of suppliers
* Bargaining power of buyers
* Threat of product substitutes
* Intensity of rivalry among competitors
The interactions among these five factors determine an industry's attractiveness and profit potential. The greater a firm's capacity to favourably influence its industry environment, the likelihood that the firm will earn above-average returns.

In this case, the barriers to entry under threats of new entrants will be discussed.

Barriers to entry:

Barriers to entry makes it difficult for new firms to enter the industry and place them at a competitive disadvantage. High barriers of entry increase the returns for existing firms in the industry and may allow some of them to dominate the industry.

Below are the kinds of potentially significant entry barriers:
* Economies of scale - The incremental improvements in efficiency through experience as a firm increases in size.
EXAMPLE:
As the quantity of the Toyota's car produced during a given period increases, the cost of manufacturing each unit declines. Increasing of economies of scale enhances the firm's flexibility and Toyota's cars are now made affordable when the firm reduce its price to capture a greater share of the market. Hence, as economies of scale increases, the barriers to entry will be higher.
* Product Differentiation - Customers valuing a product's uniqueness tend to become loyal to both the product and the company producing it.
EXAMPLE:
The effective advertising campaigns for The Body Shop let the consumers aware of its core value of Against Animal Testing. This creates an uniqueness to its products and establishes a group of loyal customers for the firm. Hence, as the product differentiation is higher, the barriers to entry will be more tedious.
* Capital Requirement - Competing in a new industry requires a firm to have resources to invest.
EXAMPLE:
In order to compete in the banking industry with big players such as Citibank and HSBC, it requires the firms to have substantial resources and capital to invest in the physical facilities, inventories, marketing activities and other critical business functions. Hence, high capital requirement creates higher barriers to entry.
* Switching costs - This is a one-time costs customers incur when they buy from a different supplier.
EXAMPLE:
When a StarHub customer switches the mobile service provider to SingTel, he will lose his Hubbering benefits of getting discounts off his broadband (MaxOnline) and pay TV (Cable TV) services. Hence when the switch costs are high, the barriers of entry will be high.
* Access to distribution channels - Once a relationship with its distributors has been developed, a firm will nurture it to create switching costs for the distributors.
EXAMPLE:
In a grocery store where the shelf space is limited, F&N provides fridge and give cooperative allowances to the store owner to sell its can drinks. Hence, if the access to distribution channels is low, the barriers to entry will be high.
* Cost disadvantage independent of scale - Established competitors have cost advantages that new entrants cannot duplicate.
EXAMPLE:
ST Aerospace gains its cost advantages such as government subsidies, proprietary technology and favourable access to raw material to supply aircrafts to the Air Force in Singapore. Hence, the cost advantage independent of scale will create high barriers to entry.
* Government policy - Through licensing and permit requirements, local government can control entry into an industry.
EXAMPLE:
MediaCorp is a monopoly in free-to-air TV in Singapore. The government restricts entry into the TV broadcasting industry so as to ensure that quality service is provided. Hence, the higher in the control of government policy, the barriers to entry will be tedious.
* Expected retaliation - Firms seeking to enter an industry will need to anticipate the reactions of the firms in the industry.
EXAMPLE:
Petrona, the largest petroleum company in Malaysia, anticipate its difficulties in entering the Singaporepetroleum industry as major local players such as Shell and Esso are expected to retaliate vigorously. Hence, the higher the expected retaliation, the higher the barriers to entry.


Q5: Discuss, using examples, the characteristics of core competencies.

ANS:

Core competencies are capabilities that serve as a source of competitive advantage for a firm over its rival.

It emerge over time through an organisational process of accumulating and learning how to deploy different resources and capabilities.

A capability becomes a core competency only when it is:
* Valuable - help a film neutralise threats and exploit opportunities
* Non-substitutable - no strategic equivalent
* Rare - are not possessed by many others
* Costly to imitate - historical: a unique and a valuable organisational culture or brand name ; ambiguous cause: the cause and uses of a competence are unclear ; social complexity: interpersonal relationships, trust and friendship among managers, suppliers and customers
EXAMPLE:
The world's largest research-based pharmaceutical company - Pfizer's Viagra is valuable as it helps Pfizer to neutralise threats and exploit opportunities. The product is non-substitutable with no strategic equivalent and is not possessed by many others due to its patent rights. Pfizer goes court to prevent competitors from imitating Viagra. Thus, make it costly to imitate.

Q6: Discuss the factors that influence the likelihood of attack and response in the model of Competitive Dynamics. Using examples to support your answer.

ANS:

Competitive dynamics is the series of actions and responses taken by all firms competing within a market.

1. Likelihood of attack:

In addition to market commonality, resource similarity and the drivers of awareness, motivation and ability, other factors affect the likelihood a competitor will use strategic actions and tactical actions to attack its competitors.

a. First mover incentive
* A first mover is a firm that takes an initial competitive action in order to build or defend its competitive advantages or to improve its market position.
* First movers allocate funds for product innovation and development, aggressive advertising and advanced research and development.
* First movers can gain (1) the loyalty of customers who may become committed to the goods or services of the firm that first made them available and (2) market share that can be difficult for competitors to take during future competitive rivalry.
EXAMPLE:
In the telecommunication industry, StarHub is the first mover to introduce free incoming calls and per second billing to the market.

b. Second mover
* Second mover responds to the first mover's competitive action, typically through imitation or a move designed to counter the effects of actions.
* Second mover carefully studies the customers reactions to product innovations and tries to find any mistakes that the first mover made so that it can avoid them and the problems they created.
* Second mover also have time to develop processes and technologies that are more efficient than those used by the first mover. Great efficiencies could result in lower costs for the second mover.
EXAMPLE:
OSIM launched the first slim belt, OSIM uZap into the market. Following, OTO the second mover launched a similar product known as Trimex.

c. Late mover
* Late mover is a firm that responds to a competitive action a significant amount of time after the first mover's action and second mover's response.
* Late mover's competitive action allows it to earn only a average returns and delays its understanding of how to create value for customers.
EXAMPLE:
Late mover - MobileOne (M1) launched its broadband service into the market in August 2008, which is several years later than the first mover - SingTel and second mover - StarHub.

d. Organisational size
* An organisation's size affects the likelihood that it will take competitive actions as well as the types of actions it will take and their timing.
* Small firms are more likely than large companies to launch competitive actions and tend to do it more quickly.
* Large firms are likely to imitate more competitive actions along with more strategic actions during a given period.
EXAMPLE:
NTUC Fairprice, a large supermarket retailer commonly have more resources to launch a larger number of total competitive actions as compared to a small family-owned provision shop business in the neighbourhood estate.

e. Quality
* Quality exists when the firm's goods or services meet or exceed customers' expectations.
* Product quality dimensions include performance, features, flexibility, durability, conformance, serviceability, aesthetics, perceived quality.
* Service quality dimensions include timeliness, courtesy, consistency, convenience, completeness and accuracy.
EXAMPLE:
Product: Canon vs Konica Minolta
Service: Singapore Airline vs Malaysia Airline

2. Likelihood of response:

A firm is likely to respond to a competitor's action when:
1. the action leads to better use of the competitor's capabilities to gain or produce stronger competitive advantages or an improvement in its market position.
2. the action damages the firm's ability to use its capabilities to create or maintain an advantage.
3. the firm's market position becomes less defensible.
a. Type of competitive action
* Strategic actions receive strategic responses
EXAMPLE:
Burger King launched Big King to counter McDonald's Big Mac.
* Tactical response are taken to counter the effect of tactical actions.
EXAMPLE:
Selling Ramly Burger at lower price in the night market is a tactical response.

b. Actor's reputation
* An actor is the firm taking an action or a response while reputation is 'the positive or negative attribute ascribed by one rival to another based on past competitive behaviour'.
* Actions by market leaders with strong positive reputation often are imitated and gain a rapid response from their competitors.
* Actions by firms with reputation for risk-taking and unpredictability are less likely to gain a response from competitors.
EXAMPLE:
Emirates (second mover) launched Airbus A380 to attack Singapore Airline (first mover) by providing better facilities and lower air fares.

c. Market dependence
* Market dependence is the extent to which a firm's revenues or profits are derived from a particular market.
* Firms can predict that competitors with high market dependence are likely to respond strongly to attacks threatening their market position.
EXAMPLE:
In the movie industry, cinemas like GoldenVillage, Eng Wah, Shaw and Cathay face threats to piracy.


Q7: Identify and discuss the key characteristics and assumptions of an unrelated diversification strategy.

ANS:

Unrelated Diversification:
* Highly diversified firms that have no relationships between businesses are classified as unrelated diversification.
* With unrelated diversification strategy, firms cannot transfer core competencies and capabilities to different portfolios. They gain competitive advantage through financial economies.
* Value is created through two types of financial economies - (1) efficient internal capital allocations and (2) business restructuring.
1. Efficient internal capital allocation:
* Development of a portfolio of businesses with different risk profiles thereby reducing the business risk for the total corporation.
* Corporate office distribute capital to business divisions to create value for the overall company. It may have access to more detailed and accurate information than the external capital market.
* Internal information which does not have to be revealed may be a source of competitive advantage.
* The corporate office can make corrections and changes by adjusting managerial incentives or recommendation strategic changes in a division.
* Thus, capital can be allocated according to more specific criteria than in an external market.
2. Restructuring of Assets:
* Buying, restructuring and selling businesses in the external market with the intent of increasing the total value of the firm.
* Under-performing divisions are often sold and the remaining divisions are placed under the discipline of rigorous financial controls.
* Creating financial economies through the purchase of other companies and restructuring their assets requires an understanding of significant trade-offs.
* Success usually calls for a focus on mature, low-technology businesses.

Q8: Identify and discuss the key characteristics of a related diversification strategy.

ANS:

Related Diversification:
* When more than 30% of a firm's sales volume is outside its dominant business and its businesses are related, it is classified as related diversification.
* The reasons for related diversification strategy is to gain (1) economies of scope and (2) market power.
1. Economies of Scope:
* With related diversification firms build upon their resources and capabilities to create value and seeks to exploit economies of scope between business units.
* Economies of scope are cost savings attributed to transferring the capabilities and competencies developed in one business to a new business.
* Value is created from economies of scope through (a) operational relatedness and (b) corporate relatedness.
a. Operational Relatedness: Sharing Activities
* Sharing activities requires strategic control over business units.
* It is risky because ties between the business units create links between outcomes.
* Primary and support activities can be shared efficiently.
b. Corporate Relatedness: Transferring Core Competencies
* Corporate core competencies are complex sets of resources and capabilities that link different businesses, primarily through managerial and technological knowledge, experience and expertise.
* Intangible resources are the foundation of corporate core competencies.
* Transferring intangible resources requires appropriate coordination mechanisms to gain economies of scope.
* Corporate relatedness eliminates resources duplication by spreading corporate competencies across business units, which may then lead to a competitive advantage.
2. Market Power
* Market power exists when a firm is able to sell its products above the existing competitive level or reduce the costs if its primary and support activities below the competitive level, or both.
* Two corporate approaches to gaining market power are (a) multi-point competition and (2) vertical integration.
a. Multi-pointCompetition
* Two or more diversified firms competing in the same products areas or geographic markets.
* Multi-point competition will not create potential gains when there is excessive competitive activity. Mutual forbearance is said to occur when firms create value by engaging in less competitive rivalry.
b. Vertical Integration
* Exists when a firm produces its own inputs (backward integration) or owns its source of distribution of outputs (forward integration).
* A firm pursuing vertical integration usually is motivated to strengthen its position in its core business by gaining market power over competitors.

Q9: What is agency theory? How does an agency relationship affect control in a business?

ANS:

An agency relationship exists when one or more persons (principal or principals) hire another person or persons (agent or agents) as decision-making specialists to perform a service.

Problems of agency relationships:
* Principal and agent have different interests, and the separation of ownership and control provides potential for divergent interests to surface.
* Shareholders lack direct control of large publicly traded corporations.
* Problems also arise when the agent makes decisions resulting in the pursuit of goals that conflict with those of the principal.
* The principal establishes governance and control mechanisms. It remains difficult or expensive for the principal to verify that the agent has behaved appropriately.
* The agent sometimes exercises managerial opportunism.
* Managerial opportunism prevents the maximisation of shareholder wealth.

Q10: Resources, Incentives and Managerial Motives act as catalyst for diversification. Discuss, using examples, two of these.

*** give up!!!!!!

Q11: Identify the five main corporate governance mechanisms. Discuss, using examples, two of these mechanisms as they relate to strategy implementation.

ANS:

The five main corporate governance mechanisms are:
1. Ownership concentration
2. Board of Directors (BOD)
3. Executive Compensation
4. Market for Corporate Control
5. Managerial Defence Tactics
In this case, two of the mechanisms above should be discussed.

Board of Directors
* Board of Directors is a group of elected individuals whose primary responsibility is to act in the owners' interested by formally monitoring and controlling the corporation's top-level executives.
* The board has the power to direct the affairs of the organisation, punish and reward managers and protect the rights and interests of shareholders.
* There are three classifications of the board members - insiders which is made up of the firm's CEO and other top-level managers, related outsiders who are individuals not involved with the firm's day-to-day operations but have a relationship with the firm and lastly the outsiders which consists of individuals who are independent of the firm's day-to-day operations and other relationships.
* To enhance the effectiveness of the boards and directors, it is important to:
1. have a more diversity in the backgrounds of boards members
2. stronger internal management and accounting control systems
3. more formal processes to evaluate the board's performance
4. more collaborative working and open debate
5. appointing a reasonable numbers of outsiders
6. ensuring directors have an ownership stake through share holdings
EXAMPLE:
The board of StarHub comprises 13 directors of which 12 of them are non-executive and independent of the management. The executive director, Mr Steven Terrell Clontz is the CEO. There is a strong independent element in the board as there are six non-executive independent directors which is within the meaning of the code. There is a clear separation of roles and responsibilities between the Chairman and CEO which enables the company to maintain an effective balance of power, authority and responsibility with the company, and to ensure accountability and board independence.

The board is supported by key board committees to provide independent oversight of management. The board committees are the Audit Committee (AC), the Executive Resource and Compensation Committee (ERCC), the Nominating Committee (NC) and Strategy Committee (SC).

The AC assists the board in fulfilling its fiduciary responsibilities relating to internal controls, financial and accounting matters and reporting practices of the Group. The ERCC oversees the remuneration policies for directors and key executives and the leadership development of the Group. The NC reviews and assesses the nominations for the appointment, re-appointment or re-election of directors. The SC support and advise the management and board in the formulation and review of the Group's strategies for achieving growth in shareholder value.

The board comprises business leaders with broad and diverse experience (both domestically and internationally) and professionals with financial, banking, accounting, regulatory, industry and management expertise. Each director brings to the board valuable insights and objective perspectives that enable balanced and well-considered decisions to be made, and a robust exchange of ideas and views to help shape strategic directions.

Executive Compensation
* Executive compensation is a governance mechanism that seeks to align the interests of managers and owners through salaries, bonuses and long-term incentive compensation such as stock awards and options.
* The use of longer term pay helps firms cope with or avoid potential agency problems by linking managerial wealth to the wealth of common shareholders. Because of this, the stock market generally reacts positively to the introduction of a long-range incentive plan for top executives.
* Long-term incentives will allow the proper implementation of strategy to ensure that top executives will act in the shareholders' best interests.
EXAMPLE:
In StarHub, the compensation of the CEO and the senior management consist of a base salary, allowances, performance-related bonus, benefits in-kind and share awards. Non-executive directors' remuneration consists of directors' fees based on the approved Directors' Fee policy and share awards.

Q12: Compare and contrast two of the multi-divisional structure options for diversified companies.

ANS:

There are three variations of the multi-divisional structure:
1. Cooperative form - a structure in which horizontal integration is used to bring about interdivisional cooperative.
2. Strategic Business Unit (SBU) form - consists of three levels - corporate headquarters, SBUs, SBU divisions.
3. Competitive form - offers complete independence among the firm's divisions.
Compare & contrast:

1. Strategy used
Cooperative form: related constrained strategy
SBU form: related-linked strategy
Competitive form: unrelated diversification strategy

2. Centralisation of operations
Cooperative form: centralised at corporate office
SBU form: partially centralised (in SBUs)
Competitive form: decentralised to divisions

3. Use of integration mechanisms
Cooperative form: extensive
SBU form: moderate
Competitive form: non-existent

4. Divisional performance appraisals
Cooperative form: emphasise subjective (strategic) criteria
SBU form: use a mixture of subjective (strategic) and objective (financial) criteria
Competitive form: emphasise objective (financial) criteria

5. Divisional incentive compensation
Cooperative form: linked to overall performance
SBU form: mixed linkage to corporate, SBU and divisional performance
Competitive form: linked to divisional performance


Q13: Identify the three factors that affect Managerial Discretion. Discuss the role two of these factors play.

ANS:

The three factors that affect Managerial Discretion are:
1. External environment - such as the industry structure, the rate of market growth in the firm's primary industry and the degree to which products can be differentiated
2. Characteristic of the organisation - including its size, age, resources and culture
3. Characteristics of the manager - including commitment to the firm and its strategic outcomes, tolerance for ambiguity, skills in working with different people and aspiration levels.
* Manager's decisions are greatly depend on whether the organisation is large or small, earlier stage or later stage of the firm's life cycle and culture of the organisation (clan, adaptability, mission or bureaucratic). Different strategy matches different characteristic of the organisation.
* Different manager's characteristics are different. If the manager has leadership qualities, the decision made by him would create value for the film. However, if the skills could not create value for the firm, the firm may remain stagnate and lose its competitive advantage.
* Because strategic leaders' decisions are intended to help the firm gain a competitive advantage, how managers exercise the discretion when determining appropriate strategic actions is critical to the firm's success.

Q14: How do to management teams contribute to the strategic performance of an organisation? How does heterogeneity or homogeneity potentially impact on this performance?

ANS:

Top Management Team:
* The top management team is composed of the key managers who are responsible for selecting and implementing the firm's strategies.
* To guard against CEO over-confidence and poor strategic decisions, firms often use the top management team to consider strategic opportunities and problems and to make strategic decisions.
* The quality of the strategic decisions made by a top management team affects the firm's ability to innovate and engage in effective strategic change.
Heterogeneous Top Management Team:
* A heterogeneous top management team is composed of individuals with different functional backgrounds, experience and education.
* It promotes debate, which often leads to better strategic decisions, producing higher firm performance. (disadvantage of homogenous)
* The more heterogeneous and larger the top management team is, the more difficult it is for the team to effectively implement strategies. Comprehensive and long-term strategic plans can be inhabited by communication difficulties among top executives who have different backgrounds and different cognitive skills. (advantage of homogenous)
* To resolve this issue, communication among diverse top management team members can be faciliated through electronic communications, sometime reducing the barriers before face-to-face meetings.

Q15: There are two approaches to corporate venturing. Discuss these using examples to illustrate your answer.

ANS:

The two approaches to corporate venturing are:
* 1. Autonomous strategic behaviour is a bottom-up process in which product champions pursue new ideas, often through a political process, by means of which they develop and coordinate the commercialisation of a new good or service until it achieves success in the marketplace.
EXAMPLE:
Intel's transformation from Dynamic Random Access Memory (DRAM) to Microprocessor Unit (MPU) maker, which was achieved not by a top management decision but by the middle management.

* 2. Induced strategic behaviour is a top-down process whereby the firm's current strategy and structure foster product innovations that are associated closely with that strategy and structure.
EXAMPLE:
Johnson & Johnson's top management uses its profit planning system interactively to focus attention on strategic uncertainties related to the development and protection of new products and markets. They re-estimate the predicted effects of competitive tactics and new product roll-outs on their profit plans for the current and following years.


Q16: Describe, using examples, how innovation impacts on competitive advantage.

ANS:

Innovation
* Innovation is the process of creating a commercial product from an invention.
* It is a mean by which the entrepreneur either creates new wealth-producing resources or endows existing resources with enhanced potential for creating wealth.
* Innovation will also be important in renewing your products' life cycle and allows the firm to carve on more opportunities than other competitors.
* In reality, innovations are particularly linked to investors' confidence, thereby increasing the price of the firm's stock. Furthermore, innovation may be required to maintain or achieve competitive parity, much less a competitive advantage in many global markets. There must also be enough financial slack to support the pursuit of entrepreneurial opportunities.
EXAMPLE:
In the case of Apple's consistent release of newer and upgraded series of the Ipod products, this helps the firm to remain its leadership position in the industry.