MARKING SCHEME

BUS 1331 STRATEGIC MANAGEMENT VALLEY ROAD

JAN MAR 2015 EXAM

QUESTION ONE
a. Define strategic management (2mks)
Strategic management is a set of managerial decisions and actions that determines the long run
performance of a corporation and it includes environmental scanning (both external and
internal), strategy formulation (long-term planning) strategy implementation and evaluation
and control.
The game plan management has for positioning the company in its chosen market arena,
competing successfully, pleasing customers and achieving good business performance targets.
b. Give and explain five reasons why an organization should have a clear vision and mission.
(10mks)

Achieve clarity of purpose among all managers and employees.

Provide a basis for all other strategic planning activities, including the internal and external
assessment, establishing objectives, developing strategies, choosing among alternative
strategies, devising policies, establishing organizational structure, allocating resources, and
evaluating performance.
Provide direction.
Provide a focal point for all stakeholders of the firm.
Resolve divergent views among managers.
Promote a sense of shared expectations among all managers and employees.
Project a sense of worth and intent to all stakeholders.
Project an organized, motivated organization worthy of support.
Achieve higher organizational performance.
Achieve synergy among all managers and employees.
a. Discuss the significance of external analysis to a firm (8mks)

Increases managerial awareness of environmental changes

Increases the understanding of the context in which industries and markets function
Increases the understanding of multinational settings
Improves resource allocation decisions
Facilitates risk management
Helps in focusing attention on the primary influences on strategic change
Acts as an early warning system

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QUESTION TWO
a. Write short notes on the following;
i. Cost leadership strategy (5mks)
Aims to achieve competitive advantage by providing a product or service at a cost that
is less than that of the rivals
The firm through this strategy earns higher profit than its rivals by charging a product at
market prices
Through this strategy a firm is able to get into new markets
Most successful in the price sensitive areas
It creates barriers of entry to the industry
For the strategy to succeed an organization should reduce its unit costs, use cheaper
materials, increase productivity and achieve economies of scale.
ii. Differentiation strategy (5mks)
Used when an organization wants to distinguish its products from those of its rivals
It is based on providing unique products and services which are different from those from
the competitors
Providing customers with products and services that are perceived higher in value than
those offered by rivals.
Improving the buyers satisfaction through improved customer service
Increasing customer perceived value of the product
The organization offers superior aftersales service and superior packaging.
Through this strategy the organization is able to create a strong brand.
Through this strategy the organization is able to charge higher prices
Can be applied where the customers are not price sensitive but are looking for value
Above average profits are earned
This strategy creates a barrier to new businesses wishing to enter the industry
iii. Problem children (5mks)
These are the new products with the potential for success
Heavy net cash users
Need cash from other businesses
Todays question marks are likely to be tomorrows stars
These businesses need investment and growth strategies

iv. Forward integration (5mks)

Forward integration involves gaining ownership or increased control over distributors or
retailers. Increasing numbers of manufacturers (suppliers) today are pursuing a forward
integration strategy by establishing Web sites to directly sell products to consumers.
Forward integration is an effective strategy;
When an organizations present distributors are especially expensive, or unreliable, or
incapable of meeting the firms distribution needs.

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 When the availability of quality distributors is so limited as to offer a competitive advantage
to those firms that integrate forward.
When an organization competes in an industry that is growing and is expected to continue to
grow markedly
When an organization has both the capital and human resources needed to manage the new
business of distributing its own products.
When the advantages of stable production are particularly high
When present distributors or retailers have high profit margins; this situation suggests that a
company profitably could distribute its own products and price them more competitively by
integrating forward.

QUESTION THREE
b. Discuss the strategic decision making process (16mks)
Evaluate current performance results
Review corporate governance. This is performance of the firms board of directors and top
management.
Scan and assess the external environment
Scan and assess the internal corporate environment
Analyze strategic (SWOT) factors
Generate, evaluate and select the best alternative strategy
This should be guided by the analysis on step number 5
Implement selected strategies
This should be done through programs, budgets and procedures.
Evaluate Implemented strategies. This should be done through feedback systems and the
control of activities to ensure their minimum deviation from plans
c. Highlight and explain two reasons why some firms do not do strategic planning (4mks)

Lack of knowledge or experience in strategic planningNo training in strategic planning.

Poor reward structuresWhen an organization assumes success, it often fails to reward
success. When failure occurs, then the firm may punish.
FirefightingAn organization can be so deeply embroiled in resolving crises and firefighting
that it reserves no time for planning.
Waste of timeSome firms see planning as a waste of time because no marketable product is
produced. Time spent on planning is an investment.
Too expensiveSome organizations see planning as too expensive in terms of time and
money.
LazinessPeople may not want to put forth the effort needed to formulate a plan.
Content with successParticularly if a firm is successful, individuals may feel there is no need
to plan because things are fine as they stand. Success today does not guarantee success
tomorrow.

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 Fear of failureBy not taking action, there is little risk of failure unless a problem is urgent
and pressing. Whenever something worthwhile is attempted, there is some risk of failure.
OverconfidenceAs managers amass experience, they may rely less on formalized planning.
Being overconfident or overestimating experience can bring demise.
Prior bad experiencePeople may have had a previous bad experience with planning, that is,
cases in which plans have been long, cumbersome, impractical, or inflexible.
Self-interestWhen someone has achieved status, privilege, or self-esteem through
effectively using an old system, he or she often sees a new plan as a threat.
Fear of the unknownPeople may be uncertain of their abilities to learn new skills, of their
aptitude with new systems, or of their ability to take on new roles.
Honest difference of opinionPeople may sincerely believe the plan is wrong.
SuspicionEmployees may not trust management.

QUESTION FOUR
One of the challenges of strategic management in the 21st century is deciding whether
strategies should be visible or hidden from stakeholders. As a Manager with XYZ company
explain three reasons;
i. Why you would involve stakeholders in strategic planning (6mks)
Managers, employees, and other stakeholders can readily contribute to the process. They often
have excellent ideas. Secrecy would forgo many excellent ideas.
Investors, creditors, and other stakeholders have greater basis for supporting a firm when they
know what the firm is doing and where the firm is going.
Visibility promotes democracy, whereas secrecy promotes autocracy. Domestic firms and most
foreign firms prefer democracy over autocracy as a management style.
Participation and openness enhance understanding, commitment, and communication within
the firm.
ii. Why you would not involve stakeholders in strategic planning (6mks)
Free dissemination of a firms strategies may easily translate into competitive intelligence for
rival firms who could exploit the firm given that information.
Secrecy limits criticism, second guessing, and hindsight.
Participants in a visible strategy process become more attractive to rival firms who may lure
them away.
Secrecy limits rival firms from imitating or duplicating the firms strategies and undermining
the firm.
d. Explain the responsibilities of the Board of directors in corporate governance (8mks)
To set corporate strategy, overall direction, vision and mission
Hiring and firing the CEO and top management
Controlling, monitoring or supervising the top management
Reviewing and approving the use for resources
Caring for shareholders interests

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QUESTION FIVE
a. Explain five actions required in the strategy implementation process (10mks).

Altering sales territories

Adding new departments
Closing facilities
Hiring new employees
Changing an organizations pricing strategy
Developing financial budgets
Developing new employee benefits
Establishing cost-control procedures
Changing advertising strategies
Building new facilities
Training new employees,

b. Discuss five symptoms of an ineffective organizational structure (10mks)

Too many levels of management
Too many meetings attended by too many people
Too much attention being directed toward solving interdepartmental conflicts
Too large a span of control
Too many unachieved objectives
Declining corporate or business performance
Losing ground to rival firms
Revenue and/or earnings divided by number of employees and/or number of managers is low
compared to rival firms

QUESTION SIX
a. Discuss Rumelts Criteria for Evaluating Strategies (8mks)
Consistency
A strategy should not present inconsistent goals and policies. Organizational conflict and
interdepartmental bickering are often symptoms of managerial disorder, but these problems may
also be a sign of strategic inconsistency.
Symptoms of inconsistent strategies include
If managerial problems continue despite changes in personnel which are issue based rather than
people-based, then strategies may be inconsistent.
If success for one organizational department means, or is interpreted to mean, failure for another
department, then strategies may be inconsistent.
If policy problems and issues continue to be brought to the top for resolution
Consonance
Consonance refers to the need for strategists to examine sets of trends, as well as individual trends,
in evaluating strategies. A strategy must represent an adaptive response to the external
environment and to the critical changes occurring within it. One difficulty in matching a firms

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key internal and external factors in the formulation of strategy is that most trends are the result of
interactions among other trends.
Feasibility
A strategy must neither overtax available resources nor create unsolvable sub problems. The final
broad test of strategy is its feasibility; that is, can the strategy be attempted within the physical,
human, and financial resources of the enterprise? The financial resources of a business are the
easiest to quantify and are normally the first limitation against which strategy is evaluated. In
evaluating a strategy, it is important to examine whether an organization has demonstrated in the
past that it possesses the abilities, competencies, skills, and talents needed to carry out a given
strategy.
Advantage
A strategy must provide for the creation and/or maintenance of a competitive advantage in a
selected area of activity. Competitive advantages normally are the result of superiority in one of
three the following i.e resources, skills, or position.
b. Explain Six reasons why it is becoming increasingly difficult for managers in
organizations to evaluate their strategic plans (12mks)

Unstable Domestic and world economies

Short product life and product development cycles
Fast technological advancement and change
Many competitors both local and foreign which are also very strong,
Many unregulated industries.
A dramatic increase in the environments complexity
The increasing difficulty of predicting the future with accuracy
The increasing number of variables
The rapid rate of obsolescence of even the best plans
The increase in the number of both domestic and world events affecting organizations
The decreasing time span for which planning can be done with any degree of certainty