business policy and strategic management 120
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DR.SHANTHI LATHA/ASST. PROFESSOR/DEPT. OF MBA/SATHYABAMA UNIVERSITY
BUSINESS POLICY AND STRATEGIC MANAGEMENT
UNIT – I
INTRODUCTION
Business policy deals with the top level decision making thus in this subject one
has to study both the aspects of business and policy making both of which are variousserious, extensive and are usually handled by the top level of the organization.
BUSINESS
Business is considered as
• an enterprise,
• providing goods and services
• community needs and
• are willing to pay the taxes, rent, etc.
Besides these, it should be a
• part of the society,
• works for a certain return (profit)
• and a clear motive (profit, service etc)
OBJECTIVES OF BUSINESS:
Every business that is started / or continues to exist is based on certain objectives.They explain the reason for existence of the business
Some of the major reasons or objectives for establishing or continuing a business
are listed below;1. earnings a livelihood
2. earning profit
3. accumulating wealth4. earning social approval5. prestige
6. service motive
7. getting recognition in your own inner circles or business circles8. to protect family wealth and interests of business élan
9. achieving power- economic and political power
10. to exploit an opportunity available in the business environment11. to invest surplus funds
12. to try out a new technology
13. to become a market leader
14. to finish off competition15. to be engaged in a meaningful activity or an activity of one’s own liking
16. to achieve self expression, esteem or actualization
17. to become a member of certain class of society18. philanthropic activities or objectives like providing education, developing an area
or providing medical care, etc
19. to provide / uphold or prove a country’s prestige while doing business in a foreigncountry.
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DR.SHANTHI LATHA/ASST. PROFESSOR/DEPT. OF MBA/SATHYABAMA UNIVERSITY
These are some of the objectives listed by WHEELER as objectives for
starting / continuing a business.
POLICY
Usually or generally policy goes on only for a particular period of time. Thus,
policy can be defined as“focusing attention on the allocation of crucial and scarce resources”
Prof. Radgen
STRATEGY
Strategy has been defined by several people in several ways. However, a strategy is
called thus when it is used as long as it works. But some of the other well known
definitions are
“A unified, comprehensive and integrated planning designed approach toassure that the objectives of the organization are achieved”
Prof. Glueck
Another common definition which is used comprehensively for both policy andstrategy is
“The pattern of an organization response to its internal and externalenvironment over a period of time”
Another definition is
“The determination of basic long term goals and objectives of an enterpriseand the adoption of the course of action and the allocation of resources
necessary for carrying out these goals. There are three major ideas
identified:
i) determination of long term objectivesii) adopting a suitable course of action
iii) allocation of sufficient resources”
Prof. Chandler
Yet another definition says
“Developing and communicating the company’s unique problem, making
Trade-off’s (let go off the loss) and forging fit (taking up activities that fit)among the other organizational activities. This involves
i) planning a course of action
ii) finding a common pattern
iii) relating the activities within the organization to each other specializationareas or departments
iv) find the resources required for each department and allocate accordingly
v) connected to each strategic position to eliminate problems when they arise”
Prof. Micheal Poster
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DR.SHANTHI LATHA/ASST. PROFESSOR/DEPT. OF MBA/SATHYABAMA UNIVERSITY
NATURE AND SCOPE OF BUSINESS POLICY:
The nature and scope of business policy is as follows;
1. Proactive and not reactive:
In other works this helps in taking the right decision before any problem
arises, rather than searching for a cure after the problem has caused trouble.
For this purpose, opportunities are to be properly scanned and thendecisions are to be taken. This helps the organization to excel
2. it is the idea or view of top management about the organization and the competitors
3. broad perspective and narrow or comprehensive perspective:
The company should know i.e., the top level should have an idea if the
company is ready to widen its market or restrict itself to selected
companies. Like recruiting people with any degree (broad) or people with a
technical degree (narrow).
4. long range impact:
Any event which influences the market for a long period will affect the
business. Hence organizations are supposed to think long range.
5. huge resources and large segments:Every organization involves the use of huge resources (money, people, etc)
and large segments or departments. Thus, scope is large and diverse.
6. Multi-disciplinary approach:
All disciplines of employees are employed so that even if any problem
arises, the organization can overcome by using the skills of employees inother departments
7. legal and ethical standards:
The organization established should meet the legal and ethical standards set
up or established by the organisation, society and government.
8. clear action and clear direction
The organisation should be forcussed in whatever it does and whatever path
it is following. It should not change direction (business/policies) often
9. within the principles of management:
The policies formulated should remain within the principles formulated by
the organisation and should not cross over.
10. relevant to the objectives:
The actions of the organisation should be suitable to the established
objectives of the organisation.
11. stable yet dynamic:
The organisation should be stable in growth, profits earned, etc, but
dynamic in meeting challenges and organizational threats.
SIGNIFICANCE OF THE SUBJECT:
This subject has a certain significance they are broadly classified into three, they
are;
1. knowledge uses:
a) Knowledge of concepts, i.e., what concept to use and when to use.
b) Knowledge about the business environment
c) Real life knowledge about practical (happening) aspects of business
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DR.SHANTHI LATHA/ASST. PROFESSOR/DEPT. OF MBA/SATHYABAMA UNIVERSITY
d) Knowledge about standards and methods of evaluations ( of whatever is
happening in the organisation and outside and how standards are set,
modified and work evaluated)e) Build up business literature: all relevant, important happenings and related
information about what is taking place in the organisation and outside, will
help future plans, policies and decisions.2. skill uses:
a) Analytical skills: for developing the organisation and its standards.
b) Empirical skills: for testing any concept which is to be introduced newlyinto the organisation, the organisation should be capable of testing from
positive and negative angles.
c) Decision making skills: to make the right decision, at the right time to help
increase profit and improve the organisation.d) Intuitive skills: every business owner should have an idea to guess what
may happen in the future and take suitable actions or develop policies in
advance
e) Communication skills: so as to help inform others and gather data fromothers, for overall organizational development.
3. attitude uses:a) Develop wholesome approach rather than narrow approach; this will
involve the entire business than taking or giving importance to any one part
of the organisation. Thus, a whole some approach covering he entireorganisation is always better than a narrow approach.
b) Creative and innovative approach: organizations should be creative, i.e.,
adopt new approaches to get better profits or make new product or they can
also be innovative by altering the existing products slightly suit the existingmarkets, increase the market share or organisation image.
c) Flexibility and dynamism: the organisation should be flexible to suit and
change or modify itself to the changing environmental conditions. It shouldhave dynamism to adopt new technology or changes as per new technology
or changes as per organisation need and requirement
d) Intuition: the people at the top level in the organisation should be capableto foresee the future of the organisation based on very limited data available
at present.
HISTORY AND EVOLUTION OF THE SUBJECT
1911 saw the introduction of strategic management as a subject in
HARVARD BUSINESS SCHOOL. After 1930 too it was yet to gain acceptanceamong other business schools.
In between 1920 and 1940 efforts were being taken to make this subject
organized and systematic to make it suitable to academic purpose.In the period of 1940 and 1960 there was rapid industrialization and forced
organizations and businesses to define the scope and interest of the subject with
respect to the society. This became even more easy and possible as in 1959; there
were tow sponsored studies by Ford and Carnegic Foundations. These foundations
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DR.SHANTHI LATHA/ASST. PROFESSOR/DEPT. OF MBA/SATHYABAMA UNIVERSITY
gave reports that there is need for the subject to be included in the curriculum of
business studies.
1960 onwards it was accepted as a duty of the top management to initiateand practice strategies for their survival and growth. Thus, it became a compulsory
subject in all business schools across the world.
MISSION
Mission of any organisation identifies with
“the scope of operations of an organisation. It gives the reason for theexistence of an organisation and clearly an organisation with a mission finds it
easier to succeed than an organisation without one”.
Thus, mission of any organisation is to see the scope of an organisation or the boundary of
an organization, or the limit to which the organisation can expand or reach.
EXAMPLE: IOCL (INDIAN OIL COPORATION LIMITED) has its mission statement
as thus:
“Maintaining national leadership in oil refining, marketing and pipeline transportation”.
VISION
These are long term goal projections as to what one is to be. What is intended to do
over a long period.
Vision of any organisation can be defined as;“the goals that are the broadest, most general and all inclusive. The most
effective visions are those that appeal to the emotions of the employees and the
aspirations of the organiation’s management”.
Thus, they reveal what the organisation should be like in the future.
EXAMPLE: IOCL vision states that
“Indian Oil aims to achieve international standards of excellence in all aspects of energy and diversified businesses with focus on customer delight through quality
products and services”.
CURRENT VISION OF WIPRO as given by Azin Premji in Economic Times
dated June 13, 2003 is as follows.
“BUSINESS LEADERSHIP: Among the top 10 IT companies (services)
globally and the No.1 IT company in India”.“CUSTOMER LEADERSHIP: To be No.1 choice of customers through
innovative solutions and by 6σ (six sigma) processes”.
“PEOPLE LEADERSHIP: Among the top 10 most preferred employersglobally, by creating an environment of empowerment, intellectual challenge and
wealth sharing”.
“BRAND LEADERSHIP: WIRPO to be among the five most admired brands in India”.
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CHARACTERISTICS OF MISSION AND VISION STATEMENT
The following are the chief or important characteristics of mission and vision statements.They are;
1. It should be feasible.
2. It should be precise.3. It should be clear.
4. It should be motivating.
5. It should be distinctive.6. It should indicate the major components of strategy.
7. It should indicate how objectives are to be accomplished.
GOALS
Goals denote what an organisation hopes to accomplish in future period of time.
They represent a future state or an outcome of the effort put in now (both financial and
non-financial issues, qualitative) to achieve objectives.
OBJECTIVES
“the ends that state specifically what the goals should achieve. They are strong(concrete) and specifc, in contrast (comparative) to goals which can be generalized
(qualitative)”.
EXAMPLE: IOCL’s objectives are to focus on cost, quality, customer care, value addition
and risk management.
ROLE OF OBJECTIVES:The following are the role of objectives;
1. Objectives define the organisation relationship with its environment.
2. Objectives help an organisation to pursue its vision and mission.3. Objectives provide the basis for strategic decision making.
4. Objectives provide the standards for performance appraisal.
CHARACTERISTICS OF OBJECTIVES
The objectives have certain characteristics, they are;
Understandable (clarity).
Concrete and specific (specificity)
Related to a time frame (periodicity)
Measurable and controllable (verifiability)
Challenging and good (quality) Correlate with other objectives (multi publicity)
Set within constraints (reality)
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FORMULATION OF OBJECTIVES
The objectives of any organisation are formulated based on certain factors. They
are;
Forces in the business environment
Realities of enterprises resources and internal power relationship
The value (ethics) system of top executives Awareness of management (top level)
CHANGE OF OBJECTIVES
Objectives of an organisation can be changed when;
There is a change in the state of the organisation.
Change in the organizations’ aspirations i.e., goals, vision, mission, etc
Change in the management team.
Demand for change in the objectives by the interest groups in the organisation like
management, shareholders, stakeholders, financial institutions, etc
Change in the internal or external business environment.
Crisis/ emergencies situation of the organisation.
TYPES OF OBJECTIVES
The different types of objectives are
Economic objectives: financial aspects, fiscal and other objectives
Social objectives: objectives, which are societally suitable and acceptable
Survival objectives: objectives established or taken up by companies to survive, or
exist in the business
Growth objectives: established by firms or organizations to grow and develop.
Long term objectives: objectives established for a period of more than an year
Short term objectives: objectives that are established for a period of less than ayear.
Higher level objectives: the objectives that are established for the strategic level or
top level of the organisation
Lower level objectives: the objectives that are established for lower level of theorganisation or the middle level
General objectives: objectives which cover the overall aspect of the business
Specific objectives: objectives that are specific with clear instructions for any business are termed thus
Comprehensive objectives: a concise, brief list of objectives covering all areas of
the organisation
Functional objectives: a set of objectives specifically developed for eachfunctional area in the organisation like HR, R&D, finance, Quality Control,
Marketing, and Production and so on.
CLASSIFICATION OF POLICIES
Similar to objectives policies are also classified. They are as follows;
According to level of formation
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Functional area policies
According to expression
According to nature of origin
According to scope of organisation
According to the nature of managerial functions
Situational or contingency policies
I. ACCORDING TO LEVEL OF FORMULATION
a) Top Management policies:These are usually developed by the MD, VC, and GM. They are
usually about investments, diversification, acquisitions, available capital,
HR requirement, R & D requirements, problems with promotion, transfer,and achieving organizational goals, etc
b) Middle level Management policies:
These are developed after talks between middle and upper levelexecutives. They usually are about employee selection for a specific job,
installation (fixing) new equipments, resources and their selection, decidingwages and salaries, and developing incentive plans, getting finance to solve
problems, etc
c) Lower Level Management policies:
These are developed by the people who are usually supervisors.
They are directly related in achieved. They are in-charge of providing tools,raw materials, training, quality, discipline, improving the morale of
employees, motivating them and reducing absenteeism, etc
d) Operational Level Management policies:
This is usually written down rules and policies in manuals and work
books which the operational level employees are supposed to follow.
II. ACCORDING TO FUNCTIONAL AREA
a) Production Policies:
These involve policies regarding product line, type of product,
selection of technology, process, equipment, tools, location of plant, layout, budget, maintenance, inventory control, quality, cost control, labour
relations, etc.
b) Marketing and sales policies:
These are related to market analysis, trend, demand forecasting, total
concept of product mix and market mix. Spotting present and potential
market, the size and nature of customers, competitors, distribution of
products, promotion and pricing, selection, training and developing salesforce, division of market area, establishing sales volume and sales budgets,
etc.
c) Financial Policies:
These are required for prosperity and long survival. They include
capital requirement such as working, short, medium, and long term,
methods of fund raising, utilization of funds, profit policy, accounting
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policy, allocation policy, finished goods inventory policy, provision for bad
debts, etc
d) Personnel Policies:
These are concerned with recruitments, selection, utilization of human resources. Sources of HR, training, promotion, transfer, wages,
incentives, benefits, services, etc.
III. ACCORDING TO EXPRESSION:
a) Expressed Policies:
These policies are stated in clear words, either orally or in writing.
i) Oral policies:
These are word of mouth policies adopted usually, when
organizations are small and face to face communication is desired.
Direct communication with better understanding is desired, for
flexibility. However, it suffers from drawbacks like improper interpretation, easily forgotten when issued less frequently etc.
ii) Written Policies:
These are put in black and white and stated clearly, for the personnel
to understand. Therefore, it is clear, complete, precise, contain legal
terms use simple language and be warm to all those who read. Itshould be convenient and handy for reference and application
wherever and whenever necessary. However, they too have
disadvantages, as they are at times problem creating if not properly
framed.
b) Implied Policies:
These can be understood from the behaviour of executives, they are not
stated or written, they may be included in the philosophy of the business, socialvalues and even traditions. Best suitable are dress codes, prohibition of smoking
or drinking in working areas. Employing people of certain community, race,
gender, etc can only be an implied policy, but written policies like above cancause legal problems.
IV. ACCORDING TO NATURE OF ORIGIN:
a) Originated Policies:
These policies are derived from the company objectives, which are
determined by the top management. Subordinate are supposed to readily accept
such policies.
b) Appealed Policies:
These are also known as “suggested policies”, since these are based on
the suggestions of employees, subordinate or consultant. They are moreeffective as they involve employees and the top management.
c) Imposed Policies:
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These are not accepted willingly, but are rather forced by external forces
like government, trade unions, legal acts, society, etc. they have to be followed
whether they like it or not.
d) Derivate Policies:These are derived from the basic or major policies and are operational.
They are guidelines in day-to-day operations and are usually developed by the
respective departments or sections.
V. ACCORDING TO THE SCOPE OF ORGANISATION:
a) Basic Policies:
They form the basis of the organization and are developed by topmanagement. They give idea about the company, its activities, its environment,
and their influence over other policies, which is very important to the
organization.
b) General Policies:They are usually developed by the middle level management. Such
policies are very specific and apply to large segments of the organizations.
c) Specific or departmental Policies:
It is developed by a specific department, for managing its routine
activities i.e., day-to-day activities of the department.
VI. ACCORDING TO THE NATURE OF MANAGERIAL FUNCTIONS:
a) Planning Policies:
These are connected with the path of action, which leads to companyactivities, and achieving organizational goals. They include;
Establishing corporate objectives.
Collecting and classifying information
Developing alternate course of action
Comparison of objectives against feasibility, consequence etc
Optimum (minimum use of resources) course of action
Establishing standards, rules, policies, procedures, programs,
budgets, etc
b) Organizing Policies:
These policies include
Establishing and maintaining a clear and precise organizational
structure
Determining the role of each level of management Deciding authority, responsibility, degree of centralization,
decentralization
Line and staff relationship and their communication
c) Directional Policies:
They are also called ‘actuating’ policies, they involve
Providing effective leadership
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DR.SHANTHI LATHA/ASST. PROFESSOR/DEPT. OF MBA/SATHYABAMA UNIVERSITY
Assisting people in achieving their objectives and organizational
goals.
Integrating people to suitable tasks
Effective communication with all members of the organization.
Proper organizational climate for employee development and
motivationd) Controlling Policies:
These are established to measure results. They involve measuring
actual results against standards or pre-established results. They involve
Continuous observation of performance
Measurement of results
Finding deviation and taking corrective action
Best mode of control
Comparison of actual with standards
Finding causes for deviations, pin-pointing deviations which aresignificant
Implementing corrective action when there is deviation
VII. SITUATIONAL AND CONTINGENCY POLICIES:
They involve the following types of policies;
a) Normal Policies:
These policies provide guidelines to the employees in routine day-
to-day conduct of business and its smooth functioning.
b) Contingency Policies:
These policies are made to meet unexpected moments or situations
like
Sudden floods, earth quakes, fire, famine, market slump
Change in business cycles, war, labour strike, political problems,and social sensitivity.
Situational beyond the control of business unit like economic policy,
fiscal policy changes, monetary policy, trade or industrial policy being unfavourable.
Competitors’ strategies in production, R & D, innovations, quality
improvement, new techniques of production.Most companies which are farsighted prepare contingency policies well in
advance, to help them to meet the situations whenever they arise.
EFFECTIVE BUSINESS POLICY:
The following are the characteristics of an effective business policy
1. It should be related to the original objectives.2. Simple and easy to understand
3. let it be in black and white
4. policies should be stable but not rigid5. policies should be comprehensive
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DR.SHANTHI LATHA/ASST. PROFESSOR/DEPT. OF MBA/SATHYABAMA UNIVERSITY
6. they should be complementary to one another
7. they should be supplementary to overall corporate practices
8. they should be consistent with public policy9. fair, first and reasonable
10. ethical
11. planned development should be possible12. maintenance of individuality
PROCEDURE OF POLICY MAKING
Policy can be defined as follows;“Business policy is an implied overall guide, setting up boundaries, that
supply the general limits and direction in which management action will
take place”
Prof. George Terry
Besides a business policy
“is nothing more than a well developed statement of individuals and goals”
Prof. Peter and Wotrube
STEPS IN POLICY MAKING
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IDENTIFY THE SITUATION
DEVELOPMENT OF POLICY
DISSEMINATION
EXPLANATION OF THE POLICY
ACCEPTANCE OF THE POLICY
FEED BACK
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TYPES OF POLICIES
The well known scientist Sir Alfred came up with the following types of policies inmodern organization. They are as follows;
financial policies
accounting policies operational policies
foreman’s policies
production policies
marketing policies
sales policies
promotion policies
product policies
personnel policies
research policies
top management policies
upper- middle management policies
costing policies
CHIEF FEATURES OF POLICY
The following are the important features of any policy
policies are general statements for the attainment of objectives
policies have hierarchy
policies limit the area within which the decision is to be taken
policies in general are meant for mutual application by subordinates
they pre decide issues and avoid repetition
it should be applied in all functional areas and at all levels it should provide the clearest guidelines to avoid confusion
PURPOSE OF POLICY
The purposes of policy essentials or effect are;
clarify objectives
have a planning guide
help subordinate in decision making
facilitate overall coordination and control
set up yard sticks for measuring the accomplishment of policies both qualitatively
and quantitatively build up employee loyalty and enthusiasm
ensure consistency and uniformity in decisions and so on
MAKING OF EFFECTIVE BUSINESS POLICY
Any business policy is considered effective if it has the following features
it should be related to the original objectives
simple and easy to understand
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DR.SHANTHI LATHA/ASST. PROFESSOR/DEPT. OF MBA/SATHYABAMA UNIVERSITY
let every policy be written
policies should be stable but not rigid
policies should be comprehensive
policies should be complementary to one another
supplementary to overall corporate practices
consistent with public policy fair, just and reasonable
planned development
maintenance of individuality
STRATEGY AND ITS PURPOSE
Strategy has its purpose. Strategy is defined as;“Strategy is the grand design or an overall plan which organizations choose
in order to mover or react towards a set of objectives by using its resources. The
strategy includes;
a) awareness of mission, purpose and objectives b) unpredictability and uncertainty of events
c) takes into account the probable behaviour of other in general and
rivals in particular” and so on.
DIFFERENCE BETWEEN POLICY AND STRATEGY
The following are the differences between policy and strategy; some of them aregiven below;
CONCEPT POLICY STRATEGY
Definition Statements or paths to reach a
goal
Pattern of action to achieve
goals
Orientation Thought oriented Action oriented
Power Delegated to be implemented bysubordinates
Everyone is empowered by astrategy
Long-run identity Merely guidelines Means to an end
Concern Generally only about fulfillingobjectives
Uncertainty is in competitivesituations, risks etc
Line of action Overall guide that governs and
controls action
Used to mobilize available
resources in the best interest of the company
PROGRAM AND ITS EFFECTIVENESS
Program has the following definitions
“It is a single use comprehensive plan laying down the principle steps for accomplishing (completing) a specific job or objective in a specific time”.
Thus, it outlines by whom, when and where
New product development programs, management programs, training, sales
programs, etc
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EFFECTIVE PROGRAMS
An effective program has the following steps:
it is divided into several steps for achieving objectives
it establishes relationship between several steps to ensure a smooth flow of the
sequence of operations. It decides responsibility and accountability
It determines the resources needed
It fixes the time limit by assigning a time for each program, etc
DIFFERENCE BETWEEN POLICIES AND PROGRAMS
The differences between policies and programs are given below;
CONCEPT POLICY PROGRAM
Definition Broad and comprehensiveguidelines about the future
direction of the company
Detailed step by step course of action
Time period Long range plan of action Short and stable
Type Broad in direction and has to
be followed
Simple and complex activities
taken up to carry out the given
policy
Basics It is the foundation for
programs
It exists due to policies
PROCEDURES ITS IMPORTANCE
Procedures can be definite in several ways;“A series of functions or steps taken up to accomplish a specific task”
It can also be defined as
“It is a precise means of making a step by step guide of action that operates withina policy frame work”.
IMPORTANCE OF PROCEDURES
The importances of procedures are given bellows;
It reduces directing work
It indicates the steps to be taken and the required time and the order for performingcertain activities
It facilities training
It reduces the problem of trail and error techniques
Work operation gets simplified through a well planned steps
Better results at lower costs
The true limit in performance helps in effective control over operations
STEPS IN EFFECTIVE PROCEDURE
The following are the steps in effective procedures;
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List out the detailed and essential steps and then taken up performance
Establish accountability and responsibility then standardize the procedure
All the phases are to be linked with control so that performance can be reviewed
They should be stable and not rigid
Develop fruitful decisions in policies by taking into consideration, time, cost andenvironment
Any changes to be made should be taken up well in advance and should be written
down to help easy understanding
These procedures should be understood, accepted and known to everyone involved
with them.
DIFFERENCE BETWEEN POLICIES AND PROCEDURES
The following are the differences between policies and procedures;
CONCEPT POLICY PROCEDURE
Definition Guide for thought and action Guide for action and involves themethod of doing a task
Basis Foundation for procedures They follow policies
Responsibility Top management Middle and lower levels
Stability Stable Changes in the short-run
Emphasis General approach Step-by-step approach
Scope andflexibility Broad and comprehensive Rigid with no freedom
Application Long range plans Short range plans
Goal orientation Directly related Indirectly related
Work
methodology
Does not provide a method for
doing work
A standard method for work
exists
STANDARDS AND ITS TYPES
Standard is defined as
“A norm or oriented against which performance is compared and evaluated.They are an integral part of the control function in management”.
ESTABLISHING STANDARDS
Standards are established based on
Past experience
Guess and estimates
Scientific methods
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TYPES OF STANDARDS
The different types of standards are established
a) Based on Performance:
i) service – provide is good or badii) conduct – behaviour of the employees
b) Quantitative standards:
i) Time – determines the costsii) Cost – determines overall cost and price
c) Qualitative standards:
i) Charts – quality charts to maintain quality standards
ii) Statistical quality control – to reduce quality problems
TACTICS AND ITS APPLICATION
Definitions of the tactics is as given below
“The detailed program prepared by the management for the effectiveimplementation of strategies devised”.
Thus, while strategies are master documents and are broad in nature, tactics are minute.
APPLICATION OF TACTICS
The application of tactics is listed below;
To meet competition effectively – Wheel was introduced when Nirma came up.
Continuous efforts to curb aggressive firms – Surf to prevent Ariel Excel.
To retain competitive position – Colgate has introduced several different types of variants to meet everyone need
To consolidate gains – BPL withdrew certain products to consolidate on the
existing range of products For retreating into certain specific areas – Godrej soaps.
DIFFERENCE BETWEEN STRATEGY AND TACTICS
The following are the differences between strategy and tactics as suggested by
Steiner, niner and gray;
CONCEPT STRATEGY TACTICS
Level of
conduct
Top level Lower level
Regularity Situational, so may or may not becontinuous Periodic with fixed time schedule
Value Weighed with subjective value Less subjective in nature
Alternatives Larger in number Fewer in number
Uncertainty Greater as there are greater risks Less risk due to well known and
limited alternative
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Nature of
problems
Unstructured Structural and often repetitive
Informative
needs
Large, futuristic and as accurate as
possible
Internal data, greater use of
historical information
Time horizon Longer in most of the times Short and uniform in all areas
Reference Original source Within the persuit of strategy
Details Broad with few details Many details
Evaluation Difficult and takes many years Easy results are clear and quick
with specifications
Point-of-view Corporate point of view Functional
Importance Higher Lower
DIFFERENCE BETWEEN POLICY AND TACTICS
The following are the differences between policy and tactics;
CONCEPT POLICY TACTICS
Definitions Broad guide lines Micro level actions and activities
Concern Thinking, intellectual oriented Operations, action oriented
Range Long range planning Short range for immediate
problems
Scope Wide and broad Narrow and specific
Guidelines For entire business and external
environment
For best utilization of available
resources within the organization
Implementation
and delegation
Delegation of authority based on
the size of the firm
Junior executives are given
specific and clear responsibilities
Orientation Mission oriented Goal and target oriented
Position Primary Derived
Estimation Future availability of resources Current mobilization and
utilization of resources
Role Guidance for the future course of
action
To solve existing problems
Stability Stable and not rigid Dynamic as they are formulated tsuit the requirements of each
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separate problem
RULES AND ITS CHARACTERISTICS
Rules are usually defined as
“A principles to which an action or a procedure conforms (adopts) or isintended to conform”.It is also defined as,
“A standard or a norm to be followed in the conduct of a business in a particular
situation. It guides action and gives no discretion on its applicability”.
DIFFERENCE BETWEEN POLICIES AND RULES
The following are the difference between policies and rules;
CONCEPT POLICY RULES
Concern Thought and action paths Action only
Nature Broad instructions, directionsand guidelines
Specific with do’s and don’ts
Deviation Allowed as it is broad in nature Not permitted and often leads to penalty
STRATEGY MANAGEMENT PROCESS
The following flow chart shows the strategic management process;
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BUSINESS POLICIES IN VARIOUS ECONOMIC SYSTEMS
Even though formulation of business policy is the same in all economies, the
factors which influence the formation of a policy vary among different systems of politicsor economics. The differences are as follows;
CONCEPT CAPITALISTIC SOCIALISTIC MIXED
Market Largely privatized Mostly public or government owned
Both survive
Consumer
awareness
Greater Less Greater
Rules and
regulations
Few More More
Liberalizationthrust
More Less or more Moderate to more
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DETERMINATION OF MISSION AND VISION
ESTABLISHMENT OF OBJECTIVES
SWOT ANALYSIS
CONSIDERATION OF STRATEGIC ALTERNATIVES
CHOICE OF STRATEGY
IMPLEMENTATION OF STRATEGY
EVALUTATION AND CONTROL
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Investment Greater with foreign
direct investment (FDI)
Not open to FDI Greater FDI is
allowed
Market
structure
Unprotected Protected totally Not protected
(unless there is norule for
privatization)Competition Intense Less to nil Intense
Product
availability
Large Limited Large
Quality Best Marginal Marginal to best
Price Variable Regulated by thegovernment
Variable withregulation
Employment High Total Semi
Inflation Moderate Low High to moderate
CORE COMPETENCIES
These are identified as the special qualities possessed by an organization that make
them to withstand the pressure of competition in the market place. They are also called as
unique resources, core capabilities, invisible assets, embedded knowledge and so on. A fewof the competencies listed are;
Superior product quality in particular attribute
Example: fuel efficient bikes – TVS
Creation of a market niche by supplying highly specialized products to a particular segment
Example: tanishq range of watches – Benz
Differential advantage based on superior R & D skills of an organization not
possessed by its competitors.
Example: Himalaya Drugs, Pfizer
An organization’s access to a low cost financial source like equity share holders not
available to its competitors.
Example: reliance, tata chemincals, birla, kirloskars’, BHEL, etcThese are some of the crucial factors which were considered mainly responsible for
setting up this approach.
Example: C.K.Prahlad and Gary Hamel for the purpose of testing the competencyof any core aspect, suggested there simple tests. Both happen to be gurus of core
competence.
It should be able to provide potential accesss to a wide variety of markets.
It should make a significant contribution to the perceived benefits of the customer
in the end product.
It should be difficult for the competitor to imitate.
Example: Sony for miniaturization
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Honda – Engines
Canon – photocopiers and printers
Philips – Optical mediaL & T – project planning, execution and management
KEY RESULT AREASPeter F. Drucker gave a list of a Key Result Areas (KPA) in organizations, but
under the specifications that they may vary from business to business and hence may not
be suitable to all business environments. They are as follows:
Market standing - TVS
Innovation - TVS, Nutrine, Nokia, etc
Productivity - Hero cycles
Physical and financial resources - Reliance Industries
Profitability - Lakme
Managerial performance andDevelopment - WIPRO
Worker performance and attitude - BHEL Public Responsibility - TATA
EXAMPLES FOR MISSION, VISION AND OBJECTIVES
Classic examples of Mission and Vision statements are given below. Along side the
corporate objectives may also be given. The specification is provided alongside in parentheses (brackets)
EICHER CONSULTANCY: (MISSION)
To make India an economic power in the lifetime, about 10 to 15 years, of its
founding senior managers.
HCL: (MISSION)
To be a world class competitor.
MARICO INDUSTRIES: (MISSION)
The three P’s of Marico: People, Products and Profits.
RANBAXY LABORATORIES: (MISSION)
To become a research based international pharmaceuticals company.
UNIT TRUST OF INDIA: (MISSION)
To keep the common man in sharper focus; to encourage savings and investment
habits among them.
BAJAJ AUTO: (MISSION)
To provide value for money, for years.
INDIA TODAY: (MISSION)
We aim at bring the complete news magazine.
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ASIAN PAINTS: (MISSION)
Leadership through excellence in paints.
CANARA BANK: (MISSION)
To be the most competitive and progressive institution in the banking industry.
CADBURY SCHWEPPS: (VISION)
Superior shareholder value and a Cadbury in every pocket.
TATA STEEL: (VISION)
Tate Steel enters the new millennium with the confidence of a learning, knowledge
based and happy organization. We will establish ourselves as a supplier of choice by
delighting our customers with our service and products. In the coming decade, we will become the most cost competitive steel plant and so serve the community and the nation.
INDIAN OIL CORPORATION: (VISION)
Indian Oil aims to achieve international standards of excellence in all aspects of energy and diversified business with focus on customers delight through quality products
and services.
INDIAN OIL CORPORATION: (MISSION)
Maintaining national leadership in oil refining, marketing and pipe linetransportation.
INDIAN OIL CORPORATION: (OBJECTIVES AND STRATEGIES)
Objectives: Focusing on quality, customers care, value addition, and risk management
Corporate Strategies: Expansion and diversification and integration through strategic
alliances and joint ventures.
Business Strategies: Harnessing new business opportunities in petrochemicals, power andlube marketing.
Functional Strategies: Focusing on R & D, training and consultancy, exploration and
production, LNG and fuel management in India and abroad.
MICROSOFT CORPORATION: (VISION) 1999
To empower people through great software anytime, anywhere and on any device,
including the PC and an incredibly rich variety of digital devices accessing the power of the internet.
WARNER – LAMBERT (PHARMA CO. IN USA): (VISION)
To be the best and achieve it by nurturing imagination and prize creativity. We
move fast to build competitive advantage. We use global reach to harvest ideas from all
sources. We are willing to take well thought out risks and reward visionary action, even if results fall short of expectations. We recognize that excellence begins with focusing our
resources on our most important opportunities and challenges.
BHARATH HEAVY ELECTRICALS LTD: (MISSION)
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To achieve and maintain a leading position as suppliers of quality equipment,
systems and services to serve the national and international markets in the field of energy.
The ears of interest would be the conversion, transmission, utilization and conservation of energy for applications in the power, industrial and transportation fields. To strive for
technological excellence and market leadership in these areas.
INDIAN ALUMINIUM COMPANY LTD (INDAL): (MISSION)
INDAL will be the most innovative, diversified aluminum company in India. To
achieve this, INDAL will be a customer-oriented enterprise committed to excellence andcost effectiveness in this chosen aluminum business. Significant resources will be devoted
to diversifying into high-tech and market-oriented business with superior growth and profit
potential consistent with national goals, INDAL will progressively increase exports. In the
nineties INDAL will achieved 14% and aim to achieve better returns on equity in themillennium.
GENERAL ELECTRIC CORPORATION: (MISSION)
We are in the energy business.
CARRIER AIRCON: (MISSION)
We are in the business of supplying systems components and services to a
worldwide non-residential air-conditioning market. Air conditioning is defined as heating,
cooling, cleaning, humidity control and air movement.
KODAK INDIA: (Business definitions)
We are in the business of providing quality photographic system appealing to the
customer who desire instant photography.
BHARATH HEAVY ELECTRICALS LTD: (Business definitions)
Suppliers of equipment, systems and services in the field of energy, for customers
interested in conversion, transmission, utilization and conservation of energy in the power sector as well as in the industrial and transportation fields, with technological excellence
and market leadership.
ASSOCIATED CEMENT COMPANIES (ACC): (CORPORATE OBJECTIVES)
To strive continually to maintain the leadership of the cement industry by
modernization, expansion and the establishment of a wide and efficient marketing network.
To achieve a fair and reasonable return on the capital employed by promoting productivity throughout the company.
To ensure a steady growth of business by strengthening the company’s position in
the cement sector and also by diversifying into other areas consistent with the overallcorporate objectives.
To maintain the high quality of the company’s products and services, and ensure
supply of these products and services at fair prices.To promote and maintain fair and harmonious industrial relations, and an
environment for the effective involvement, welfare and development of staff at all levels.
To promote research and development efforts in the areas of product development,
energy and fuel conservation, to innovate and optimize productivity.
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To discharge its obligations to society, specifically in the areas of integrated rural
development schemes and safe guarding of the environmental and natural ecological
balance.
BHEL VISION 2001
A world class, innovative, competitive and profitable engineering enterprise providing total business solutions mission.
To be the leading engineering enterprise providing quality products, systems and
services in the fields of energy, transportation, industry infrastructure and other potentialareas.
VOLTAS: (MISSION)
Profit, growth and excellence
INTEL: (Policy Objective)
Cannibalize your product line with better products before competitor does it to you.
GODREJ SOAPS: (VISION)
Operate in existing and new businesses which profitability capitalizes on theGodrej Brand and our corporate image of reliability and integrity. Our objective is to
delight our customers both in India and abroad. We shall achieve these objectives through
continuous improvement in quality, cost and customer services.
RALLIS INDIA: (MISSION)
To provide the farmer with a package of inputs and services for optimum utilization
of balanced primary plant nutrients, micro nutrients, plant protection chemicals, water,seeds, post harvest services, and to develop a genuine partnership with the farmer.
JINDAL GROUP: (MISSION)
To become globally competitive player with a burning desire to become the number
1 in the steel industry.
HEWLETT PACKARD INDIA: (MISSION)
To be the leading manufacturer and supplier of measurement and computing
solutions whilst achieving the higher levels of customer satisfaction, quality, and businessethics and contributing to India’s technological, economic and social needs.
NOCIL (PESTICIDES & CHEMICALS): (MISSION)
Intend to be a world class innovative, customer oriented chemical company with
sound business values and ethics, having enduring commitment to safety and environment
standards.
ARVIND MILLS: (VISION)
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To achieve global dominance in select businesses built around its core
competencies through continuous product and technical innovations and customer-
orientation with a focus on cost effectiveness.
JOHNSON AND JOHNSON: (MISSION)
We believe our first responsibility is to the doctors, nurses and patients, to mothersand all others who use our products and services. We are also responsible to the
communities in which we live and work and to the world community as well.
GENERAL MOTORS: (MISSION)
The fundamental purpose of general motors is to provide products and services of
such quality that our customers will receive superior value, our employees and business
partners will share in our success, and our stock holders will receive a sustained superior return on their investment.
METRO GOLDWYN MAYOR (MGM): (MISSION)
We provide entertainment, not just movies.
AVON: (MISSION)
We are in the beauty business
AT & T (CURRENT): (MISSION)
We are into communication, not just telephones
HALLMARK: (MISSION)
Bring quality to social expression, when you care enough to send the very best.
APPLE INC: (MISSION)
We are design, develop, produce, market and service micro processor based personal computers in the United States and foreign countries.
MICROSOFT CORPORATION: (VISION)
A computer on every desk and in every home using great software as an
empowering tool.
INTEL INC: (VISION)
Getting to a billion connected computers worldwide, millions of server and trillions
of dollars of economic.
INTEL INC: (MISSION)
Core mission is being the building block supplier to the internet economy and
spurring efforts to make the internet more useful. Being connected is now at the centre of peoples computing experience. We are helping to expand the capabilities of the PC
platform and the internet.
OTIS ELEVATORS: (MISSION)
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To provide any customer a means of moving people and things up, down and
sideways over short distance with high reliability than any similar enterprise in the world.
AMERICAN RED CROSS: (MISSION)
To improve the quality of human life; to enhance self reliance and concern for
others; and to help avoid, prepare for and cope with emergencies.
RITZ CARLTON HOTELS: (MISSION)
The Ritz Carlton Hotels is a place where the genuine care and comfort of our guestsis our highest mission.
We pledge to provide the finest personal service and facilities for our guests who
will always enjoy a warm relaxed yet redefined ambience.
The Ritz Carlton experience enlivens the sense, instills well-being, and fulfills eventhe unexpressed wishes and needs of our guests.
DOMINO PIZZA: (STRATEGIC OBJECTIVES)
To safely deliver a hot, quality pizza in 30 minutes or less at a fair price and areasonable profits.
FORD MOTOR COMPANY: (Strategic objectives)
To satisfy our customers by providing quality cars and trucks, developing new
products, reducing the time it takes to bring new vehicles to markets improving theefficiency of all our plants and processes and building on our team work with employees,
unions, dealers and suppliers.
AT & T: (early mission)
To give a telephone to every American
(Next revision)
“Connecting people anytime, anywhere”.
UNILEVER: (MISSION)
To make cleanliness common place, to lessen work for women, to foster health, and
to contribute to personal attractiveness that life may be more enjoyable for the people who
use our products.
MERCK: (MISSION)
To preserve and improve human life
MCKINSEY & CO: (MISSION)
To help business corporations and governments to be more successful.
CADBURY INDIA: (MISSION)
To attain leadership position in the confectionery market and achieve a strong
national presence in the food drinks sector.
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TATA CONSULTANCY SERVICES: (MISSION)
To be India’s most successful and most respected IT company.
RELIANCE INDUSTRIES: (MISSION)
To become a major player in the global chemicals business and simultaneously
grow in other growth industries like infrastructure.
ROLE OF CEO IN STRATEGY FORMULATION
The several roles played by a CEO in an organization are short listed below. Thefollowing are a few of the several roles. The CEO;
Is the creator of the organisation’s policies and strategy
Is the administrator of the organization
Is the figure head
Is the spokes person of the organization, to both the internal and the
external environment
Is the moulder of the organisation’s culture and philosophy
An organization is said to be an extension/reflection of the CEO Sets the pace of the organization
Sets the standard operating practices
Is the disseminator of all information including policies
Is the coordinator, negotiator and conflict handler
Is the motivator
It the resource allocator
Is the innovator and trouble shooter
Is a visionary and path finder
Is the leader
UNIT – II
BUSINESS AND SOCIETY
BUSINESS AS A SUBSYSTEM
“Business came into existence to fulfill the requirements of the society and of the
many subsystems the society is made of business is one of the many subsystems thesociety is made of in other words. The other subsystems are;
Economic subsystems
Legal subsystem
Demographic subsystem
Government subsystem
Technology subsystem
Market forces
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Culture and traditions”.
Prof. Steiner
This is the definition that a management Guru has given;
Thus, a small change in one system leads to changes of varying proportions in the other
systems.
Business in given greater importance among these subsystems because;
It is always in the public eye and hence is more visible to everyone
It is financially viable because it can create or damage the wealth of the
society
It can be a contribution to the society in both positive and negative ways
There is every need for the company or the business firm to stick to social
value
All these subsystems though interlinked pull away from each other in different
directions due to different interests; there skill is a certain amount of equilibriummaintained. Thus, any small change in one system triggers a major change overall.
CORPORATE SOCIAL RESPONSIBILITY
The most talked about aspect of today’s organization is the social side of it.
Social responsibility has been defined differently by several managementgurus’, two such definitions are given below
“Social responsibility is to understand public consensus to recognize it and to
cooperate and achieve this is some way to commensurate with its power”.
Prof.Steiner
Another definition is
“The personal obligation of the people as they act in their own interests to assurethat the rights and legitimate interests of others are not suppressed”.
Prof.Koontz & O’Donnell
NECESSITY OF SOCIAL RESPONSIBILITY
The need or necessity of social responsibility is because;
Business and society mutually influence each other
The basic resources for any business functions is the same as that of the society
The end product of the company also goes to the society
It is the highest or the largest power both financially and politically and hence there
may be a misuse. Business, cultural and social factors are useful for maintaining and improving the
health of the society.
AREAS OF SOCIAL RESPONSIBILITY:
The following are the clearly demarketed areas in which an organization can
practice social responsibility. They are;
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Towards the owners and shareholders by fair dividends, efficient business,
and by avoiding malpractices
Towards employees – job satisfaction, providing good quality of worklife, benefits, succession planning
Towards customers - fair prices, safety and quality of the product need to
be maintained Towards the society and government – payment of taxes, employment
without discrimination, observation of law and order, pollution and
ecobalancing
Towards competitors or inter business – fair competition, effective
collaboration, sharing of scarce resources.
IMPLEMENTING SOCIAL RESPONSIBILITY:
Now, it is almost mandatory for all organizations to practice social responsibility.
The implementation is given below:
Include social responsibility as a part of your mission (or) vision statement.
Social responsibility projects should be attached to all senior managers asadditional responsibilities
Do some survey on what the community needs
Give financial assistance in these areas.
Have separate departments to identify separate aspects of social
responsibility, such as sports, community development, family welfare,education, etc
Try and join or assist government sponsored programs
SOCIAL AUDIT
The founding father of social audit stated or defined social audit as;
“This is an approach for monitoring, appraising and measuring the social performance of a business”.
Prof. Kreps
Kreps along with Goven identified 8 areas where social audit is considered
important;
Price:
It should not affect the customer or the competitors, verification if the price
affects the society
Advertising:Audit on the advertising if it affects the competition
Wages:
No discrimination and equitable wages
R & D:
The effluents (wastage) should not pollute or affect people outside i.e., the
society
Public Relations:
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With the customers, business compatiates, etc
Human relations:
With people of the society
Community relations:
With the community which is directly in the viscinity of the organization.
Employment stabilization:By providing fixed and continuous employment opportunities.
Thus, social audit can be broadly defined asThe purpose of helping to breakdown the broad term of social responsibility into
identifiable component and to develop scales that can measure these components.
Some of the other factors identified include:
Transparency in business
Providing information
Environmental factors
Charitable activities, etc”
Prof. Sethi
OBJECTIVES OF SOCIAL AUDIT
The following are the objectives of social audit
Identifying areas of social responsibility
Develop scales for measuring performance
Actual measurement process
To measure the impact of social responsibility activities on the business and on thesociety
NEED FOR SOCIAL AUDIT
The need usually arises in four categories
Community development and involvement
Social performance directed to the well being of employees
Physical resources and environmental contribution
Production and service contribution
In India, the Sacher committee was established in 1978 to look into the aspects of social
audit and its uses.
SPECIAL FEATURES OF SOCIAL AUDIT
Some of the important features or aspects of social audit are;
• It is a delicate and difficult job• The audit team must comprise of experts from all functional areas to facilitate
better auditing
• It should include financial and non-financial assets, qualitative and quantitativeaspects
• The audit team besides having the right orientation and expertise should also havecorrect ideas.
• Social and economic performance should be given equal importance
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• It should be positive and encouraging and also give a definite future direction, but
should not be critical in its assessment.
APPROACHES TO SOCIAL AUDIT
The following are some of the approaches to social audit
• Inventory Approach:Listing all the social activities carried out to know the extent of
involvement. It is an exhaustive list of all the social activities taken up the
company in which it also is actively involved
• Cost or balance sheet approach:
This is also called financial outlay or budget approach. It aims at finding the
amount of money spent on the project. The allotted amount that is spenttowards these projects over a period of time by the company.
• Program management approach:
It is an inventory of the activities that a company intends to have done or
not.
• Cost benefit method:Benefits and costs are proportioned and the outcome is assessed bothtangibly and intangibly.
BENEFITS OF SOCIAL AUDITING:
The benefits of social auditing are very simple and clear;
♦ Awareness on social responsiveness increases
♦ Generate data to identify the social responsibility targets
♦ Comparison of data of several social responsibility projects is possible
♦ It guarantees information which can be used to improve public relations
♦ The overall improvement in the conduct of business and business practices
which help the business in future.
BUSINESS ETHICS (OR) HONESTY IN BUSINESS
Business and ethics they say don’t go hand in hand. However, the movement of
consumerism and the growing awareness among both the public, and the customer have
made business houses understand the need to be honest about their products and about the practices too. Thereby, the concept of ethics in business came up;
In general ethics in business is defined as;
“A business or a businessman’s integrity so far as his conduct or behaviour
in all fields of business as well as towards the society”.
This when formally defined by a few economists or strategists is put forth as;
“A law which is generally concerned only with the minimum regulationnecessary for public order while ethics examines both the individual and the
social good in all dimensions”.
Prof.Garrett
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President Woodrow Wilson of the US suggested four golden principles for the practices
of business ethics. They are principles of;
Transparency:
Everything should be known to all within the business and outside.
Equivalent Price:
All the produce should have similar pricing. Conscience:
Every business person should listen to his/her inner voice and act
accordingly.
Spirit of free services:
One should be willing to serve the humanity for the spirit or interest of
service.
IMPROVEMENT OF ETHICS IN BUSINESS INSTITUTIONS
Ethics in any business institution can be improved with the following few
guidelines;
Reward and punish openly:
Those who have practiced ethics or were unethical respectively
Setting standards or norms in organizations on ethics:
By clear demarcation on what is ethical and what is unethical
Have role models in the top management:
To observe and imbibe (the junior level)
Differentiate between corruption and unethical practices
Remember that corruption is just more than money
‘Success at any cost’ is a big mistake.
Aim reasonably in everything, be it targets, work loads, profits or growth.
UNIT – III
BUSINESS AND ENVIRONMENT
BUSINESS ENVIRONMENT
Business is dynamic in nature, it is affected and it affects the society. Thus, the
business environment is vital to study before, during and after establishing a business.
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CLASSIFICATION OF BUSINESS ENVIRONMENT
Business Environment is broadly classified as;
INTERNAL ENVIRONMENT
EXTERNAL ENVIRONMENT
Internal Environment can be controlled, while the External Environment cannot be
controlled. Similarly, internal environment does not influence external environment. Butexternal environment thoroughly influences the external environment. This is
schematically represented below;
These five forces are;1. threat for new entrants
2. threat for substitutes
3. bargaining power of buyer
4. bargaining power of supplier 5. industry competitor rivalry
These five forces are further subdivided as follows;
THREAT FOR/FROM NEW ENTRANTSThe list of factors under this are
economics of scale
Brand Identity
Capital Requirement
Proprietary Product differences
Switching costs
Access to distribution
Proprietary learning curve
Access to necessary inputs
Low cost product design
Government policy
Expected competition
THREAT OF SUBSTITUTES
This threat is determined by
Relative performance of substitutes
Switching (changing costs)
Buyers’ chances to substitute
BARGAINING POWER OF BUYERS
The bargaining power of buyer constitute of
Buyer concentration
Buyer volume
Switching costs
Buyer information
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Buyer profits
Substitute products
Pull – through
Price sensitivity
Price/ total purchase
Product difference Brand loyalty
Ability to integrate backward
Impact of quality / performance
Decision makers’ incentive
BARGAINING POWER OF SUPPLIERS
The sources of bargaining power of suppliers are
Switching costs
Differentiation of inputs
Supplier concentration
Prencence of substitute inputs
Importance of volume to suppliers
Impact of inputs on cost or differentiation
Threat of forward / backward integration
Cost relative to total purchase in industry
INDUSTRY COMPETITORS’ RIVALRY
The factors affecting rivalry are;
Industry growth
Concentration and balance
Fixed costs / value added
Intermitted over capacity
Product differences
Brand loyalty
Switching costs
Information complexity’
Diversity of competitors
Corporate stakes
Exit barriers
EXTERNAL (MACRO) ENVIRONMENT
While these above listed factors a part of the micro environment, the macro
environment constitutes of;
Socio-cultural environment
Economic environment
Technical environment
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Political – legal environment
International (world) environment
Natural environment
All these play a crucial role, as these aspects of the environment, are uncontrollable.
Thus, understanding them in detail we have;
SOCIO – CULTURAL ENVIRONMENT
The cultural habits, values of the society, influence the society and culture,individuals and thus the business, since individuals buy or are the consumers of business.
EXAMPLE: McDonalds’ shifting to Vegetarian, chicken and mutton Burgers in
place of Beef and Hamburgers.
ECONOMIC ENVIRONMENT
The GNP, per capita income, growth rate, inflation and all these play a veryimportant role. Besides the economic cycle of the country like boom, recession, depression
or recovery. This will decide the companies to enter into the market, diversify, expand, etc.EXAMPLE: Growth rate decides investment in securities, Gold, etc., so, Gulf i.e.,
Middle Eastern and south eastern countries invest more in these.
TECHOLOGICAL ENVIRONMENT
The progress of technology in the country and the utilization of such technology inthe industry also affects markets.
EXAMPLE: up gradation of Hardware, software; use of equipment with do not
harm environment.
POLITICAL ENVIRONMENT
The political situation i.e., stable/unstable government, the political philosophy of the party in power. The type of government, the policies that is adopting etc play vital role.
The laws, acts and the legal machinery and establishment and enforcement of law too play
a very vital role, even the relations with other countries is crucial
EXAMPLE: the EXIM policy, Trade policy, Regional Associations, EconomicPolicy, Budget Customs, Duties, etc
INTERNAL OR MICRO ENVIRONMENT IN DETAIL
Earlier the Five forces influencing Internal or Micro environment were given, thediscussion now in detail; these five forces are;
I) THREAT FOR / FROM NEW ENTRANTS
Now understanding the factors a little more in detail we have;
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a) ECONOMICS OF SCALE
Most of the existing organization are already when functioning well, would have
achieved or will be on the verge of achieving the break even or even attaining economicsof scale. Then, these new organizations or entrants will take a long time to gestate (come to
original or living state) in the mean while, the existing organizations van either crush it or
swallow it. There by eliminating new entrantsHowever, the existing organizations do face problems when new entrants into the
market. They need not take up R & D, but they can imitate the existing products and
manufacture them at a lesser price. There by these new entrants not only enter the marketwith a lesser price product, but also sell more number of products. By these volume based
sales, they achieve higher profits (sales maximization) and thus slowly either lead the
market in any one segment or become 2nd or 3rd in the market leadership. By these two
methods a new entrants faces threat in terms of economics of scale.
b) BRAND IDENTITY
Good brands which are well established and are deeply marked into the brains of
the people, they cannot be easily removed from their brains, thus, the new entrants face
threat. But that is one reason why duplicate can create a problem.c) CAPITAL REQUIREMENT
The new entrants being small need only small amount of capital the plus point being that they need not invest in R & D or heavy infrastructure. However, being new
entrants, the finance will be tight, and financiers do not lend or loan money in large sums
unless the brand name is trusted. Thus, new entrants face trouble in meeting financedemands.
d) PROPRIETORY PRODUCT DIFFERENCE
Patented products cannot be imitated and thus, there need to be difference. These
differences can be problems which are solved by the new products. These small differencesmake up for the big profits. However, unless these small differences exist the new products
cannot survive. These small differences are the major threats the existing products.
e) SWITCHING COSTS
Each time technology is changed or products are modified there are additional costs
added. This is a major problem with the existing products, as they need to keep changing
their technology or modifying products to beat the imitators and competitors. Besides, theyneed to bring
f) ACCESS TO DISTRIBUTION
New entrants penetrate deep as they have greater access to all customers in a
segment, i.e., they try to reach as many as possible. Others i.e., the existing playershowever reach only through the existing outlets only. There by they need to spend
additional amount to reach the customers directly, so there is an additional requirements of
sales force. Therefore this expenditure arises each time there is a new entrant. This isanother threat.
g) PROPRIETARY LEARNING CURVE
The new entrants due to products aimed at the gaps will be able to reach the marketat greater speed, so will imitations. The real researched or developed products take longer
duration to reach. Yet though this is a drawback, it is an advantage to the existing firms
because their research and learning is at their disposal.
h) ACCESS TO NECESSARY INPUTS
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The availability of necessary inputs is an important factor that determines the
position in the market. An existing firm can acquire a source of input or a holder of input
may start a firm. Either way there is an advantage to the new entrant or the existing firm.
i) LOW COST PRODUCT DESIGN
Due to continuous research a firm may get a product design of low cost or an
imitator without R & D can enter the market at low cost, better still, they may fill the gapwith a better suited customer accepted design.
j) GOVERNMENT POLICY
The government may decide on open competition and more number of players may be asked to enter into the market. Further, the government may fix the price too without
identifying imitator and original, thereby leading to further problems, of competition
among rivals.
k) EXPECTED COMPETITION
There is an amount of competition that every organization expects, both the
established and the unestablished. While established need to worry only about a few, the
new entrants take the entire market as competition, thus, battling becomes difficult.
II) THREAT OF SUBSTITUTES
Now trying to understand the list of factors in detail, we have;
a) RELATIVE PERFORMANCE OF SUBSTITUTES
Any organization and product faces competition and rivalry. However, thecompetition is greater from rivals or competitors who perform well, as they become
substitute to the products. But products which perform not upto mark won’t trouble the
competition.
b) SWITCHING (CHANGING) COSTS
When customers or consumers change or switch from one brand to another or from
one company’s product to another they face or problem of bringing those customers’ back
and keeping them loyal to their product or brand, this is an expensive job, so it involves lotof costs and thus arises switching costs or changing costs.
c) BUYERS’ CHANCES TO SUSTITUTE
When the customer has a choice, then there are chances for substitution. However,if a certain product has that unique attribute or special feature due to which or by which
they are distinguished, preferred, liked, and purchased, then there will be very little chance
of substitution. Thus, unless an equally similar product with all the specialty, but with an
additional attribute comes up, the chances of substituting remain slim, weak or little.
III) BARGAINING POWE OF BUYER
The following are the factors that come under this, now understanding them indetail, we have
a) BUYER CONCENTRATION
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The lesser the buyers, then greater in chance to bargain by them, since there are
very few buyers, they can withdraw from buying the product and soon the manufacturer
will be at loss. However, certain factors influence this aspect. They include;
Number of companies manufacturing the product
The extent of utility of the product
Durability of the product Availability of foreign buyers
Alternate uses of the product
Storage details and so onIf few manufacturers and large number of buyers exist in the market, then it becomes the
other way around and the company’s can manipulate the buyers and charge higher and
make greater profits. b) BUYER VOLUME
The volume of purchase also determines the capacity of the buyer to bargain. In
other words, the larger the volume of purchases, the greater is their capacity to bargain andthese influences the internal revenues or finance of the organization.
c) SWITCHING COSTS
A dissatisfied buyer or a more lucrative manufacturer, who is willing to sell his product at a lesser cost, will definitely take the buyer away. Thus, a manufacturer has to
bring the customer (in this case the buyer) back, need to may be sell for lesser price, offer
credit, discounts etc to regain them back. Each time a modification is made themanufacturer needs to take this up, so as to retain the customer and prevent them from
switching.
d) BUYER INFORMATION
The buyers have access to some important information like the cost, availability,
future increase or decline in price, government involvement, etc. these trigger a change in purchase pattern or bargaining patterns of buyers. Thereby either helping or hindering themanufacturers.
e) BUYER PROFITS
The amount of profit that a buyer makes is crucial for the buyer and the
manufacturer. The buyer tries to maximize his profits, and the manufacturer wants to
maximize his own profits. Thus, there is a keen battle between the two. The manufacturersoffer greater benefits, discounts and price cuts for bulk purchase and thereby prompting the
buyers to buy in bulk. However, the buyers want all the benefits that are offered for the
amount or number of products that they buy or are willing to buy. Thus, since buyers are
vital for the organization, many a time they wield to the buyers tactics.
IV) SUBSTITUTE PRODUCTS
The type of products being made influence others to copy, because they are going
well in the market. Thus, if the product does well, then naturally several other products
which are imitations or similar crop up. They have some variations and may click, due tosuperior packaging, cheaper price and so on. Then they become a threat.
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a) PULL THROUGH
Many products have highly successful marketing companies backing and usually
are pulled through to success. So, there instead of going through early hiccups and slowlyand steady pick up and reaching the top, end up getting a kick start and reach the top fast.
Buyers especially know the value of brand.
b) PRICE SENSITIVITYIt is normal for consumers to be sensitive to pricing. Hence, the products which
have similar quality or attributes compete only with price.
c) PRICE / TOTAL PURCHASE
Many times, it is not the cost of a single purchase or the price of a single product
that is purchased, but the cost or sum total of all the purchases made in that brand, which
matters. This is the reason why organizations go for tag on sales or discounted sales to
improve the sale of their products as buyers may buy a product here, but will purchase anadditional attachment to it from another. This is what makes the differences.
d) PRODUCT DIFFERENCES
Minor changes also make large change in purchase. In other words, small product
changes or modification usually bring about large changes in purchase pattern of buyers.Thus, every organization has to watch out on the changes made by competitors
e) ABILITY TO INTEGRATE BACKWARD
Many buyers in other words, retailers and wholesalers after a period of time, start
selling products in their own brand name. This becomes flexible when these middlemen
have access to an economical source or they have their own manufacturing unit, on whichthey can depend upon. Thus, they make greater profits by overcoming the problem of
giving percentage returns or commission to middlemen. Thus is called as backward
integration.
f) IMPACT OF QUALITY / PERFORMANCE
Quality and / or performance play a major role in the purchase of any product.
Thus, any product which has either quality or performance or both is a definite click with
the market or with the buyers and hence succeed. Yet there are a segment of buyers for whom quality is not important I all cases, then it doesn’t matter as performance too will be
less. But then these products will be priced low too. However, if a high priced product
which is said to be of good brand name or quality doesn’t perform as expected, then it becomes a definite failure, as it wouldn’t be accepted among the buyers.
g) DECISION MARKERS’ INCENTIVES
The benefit obtained by the decision maker also plays a key role in the purchase
process. A customer may benefit from lesser price, or discount offer, tag on free purchaseetc. but a retailer may benefit from free advertisements, better merchandise or free display,
return or replacement of spoilt goods, greater handling of stock of by the company itself.
These are indirect incentives given along with direct incentives of commission. These helpin deciding
Thus, these factors in combination constitute the bargaining power of buyers.
V) BARGAINING POWER OF SUPPLIERS
The various sources of bargaining power of suppliers include the following factors
in detail;
a) SWITCHING COSTS
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A dissatisfied supplier or more lucrative manufacturers, who are willing to sell his
product at a lesser cost, will definitely take the buyer away. Thus, a manufacturer has to
bring the customer (in this case the supplier) suitable to his need, need to may be buy for lesser price, offer credit, discounts etc., to regain them back. Each time a modification is
made the manufacturer needs to take this up, so as to retain the customer and prevent from
switching in case of supplier. In other words the suppliers have to be given the bestotherwise, they end u p giving their supplies to others i.e., other manufacturers.
b) DIFFERENTIATION OF INPUTS:
The inputs given to the manufacturer for making a product not only vary from batch to batch but also from supplier to supplier. Thus, this differentiation in the inputs
brings differences in the output also. Therefore, suppliers who give homogeneous input
over a period of time or those who give quality input are accepted. Thus, suppliers who are
able to provide similar quality input over a period of time have better bargaining power than the other suppliers over the manufacturer. These suppliers get better payment, credit
and other facilities from the customer or manufacturer.
c) SUPPLIER CONCENTRATION:
The greater the suppliers the less is the chance for a supplier to bargain with themanufacturer. Thus, fewer suppliers have greater chance of bargaining, as they can become
an oligopolistic market and then develop a fixed pattern of supply and price. This then provides a chance to bargain with manufacturers. Thus, suppliers never permit new
entrants into the business. If they dare to then they either try to buyout their share or reduce
the price so much that the new entrant will fail to reach that low price that they can’t losetheir business or get loss. So, they leave the business. Thus, the supplier leads again.
d) PRESENCE OF SUBSTITUTE INPUTS:
When there are alternative inputs then naturally the bargaining power of suppliers
goes down. Thus, substitute inputs are always threats to suppliers. However, suppliers dotry to over come these by trying to provide the manufacturers with
Bulk purchase discounts
Quality assurance
Out time delivery of supplies
Replacement with supplies are not upto the mark, etc
Besides this the substitute product should also be
A close substitutes
Should have same or more attributes
Should be affordable
Should have good quality
Must be easily available
Must be available in plenty
Processing the input into output should not be difficult, etc
When the substitute products have these qualities then the substitute is equally successful
in the market. Thus, they become a threat to manufacturers’ suppliers.
e) IMPORTANCE OF VOLUME TO SUPPLIERS:
The suppliers should understand or realize the importance of volume ie., bulk
orders. In other words bulk or voluminous orders bring about a lot of chance to negotiate,in terms of price-offs, discounts, credit terms, exchange risk taking and so on. This is vital
for penetrating business.
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f) IMPACT OF INPUTS ON COST OR DIFFERENTIATION:
Inputs or raw materials makes up 70% of the total cost of the product. Hence any
change ie., reduction or increase in the cost of the input directly affects the cost and priceof the product. Every manufacturer thus knows not to tamper with price due to the reasons
that buyers will not be interested. However, the manufacturer should negotiate well so that
the suppliers will not increase the price of the input, there by upsetting the entire cycle.Similarly, differentiation in inputs may change the product quality wise or in any other
sense. But until the customers are convinced that the input or product has quality, (even
when the supplier has increased the price) the products price should not be increased.Suppliers noting that the product is being sold well, try to increase the cost of the
input, so that they make profits. All these have to be monitored.
g) THREAT OF FORWARD OR BACKWARD INTEGRATION:
The supplier just with his experience, reach or financial worthiness may plan tointegrate forward and manufacture the product himself. This will then cause problem to
manufacturers. Since, suppliers has raw materials available at lesser cost than
manufacturer, their products can be sold in the market at cheaper prices.
The other threat is if the supplier goes into backward integration and takes over asource of raw material. Then it has greater chances to bargain because, it can provide large
volumes of raw material, may start to competitors, and so. On, all these act as threats fromthe suppliers.
h) COST RELATIVE TO TOTAL PURCHASE IN THE INDUSTRY:
The comparison in the cost with respect to the total amount purchased in the wholeindustry is to be taken up. If the product is purchased by many manufacturers and the
amount of money involved in the purchase of material in the overall industry is more. Then
the product is considered vital and suppliers start negotiating the price of the inputs. Thus,
fluctuating markets.
VI) INDUSTRY COMPETITORS’ RIVALRY:
The major factors affecting this are listed as;
Industry growth
Concentration and balance
Fixed costs / value added
Intermittent over capacity
Product differences
They are discussed in detail below;
a) INDUSTRY GROWTH:
The industry growth ie., faster the industry grows, greater will be the number of
competitors, as new entrants swarm the industry. In other words, the growth of an industrymakes more people to invest, start associated companies, and also seek employment. This
triggers a great competition as more and more the brand name, greater will be theinvestments. Thus, each company, big or small is a competitor or rival.
b) CONCENTRATION AND BALANCE:
The number of competitors in an industry is termed concentration. That is, the
number of alternative products or services available for one need. Balance is that sensitivesituation where there is enough demand and supply or may be a slight difference in the
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demand and supply. If there is vast difference then the balance collapses. Similarly, he
competitors’ should be able to provide what the customer wants, and also, at time more
that what the customer expects. Then the customers’ balance too is retained.
c) FIXED COSTS OR VALUE ADDED COSTS:
Every competitor provides a set of solutions or a gamut of services. What a
customers requires besides these is the availability of value added services and their costs.The value added services can be;
Free maintenance for the first year
Free insurance for the first year
Transportation to the premises free of cost
Replacement when required
24 hour helpline
easy availability of genuine spare parts and so on
d) INTERMITTANT OVER CAPACITY:
The competitors should be in a position to take up over production capacity,suddenly when there is a spurt in demand. If this is not possible by a company, then the
competitors will take over that sudden spurt and the company tends to lose valuablecustomers.
e) PRODUCT DIFFERENCES:
Without differentiation, products cease to exist in the market. Thus, differentiation
is the reason behind successful brand. Every product must compete on some unique selling
proposition which is the platform by or on which a product is identified and holds value inthe eye of the customers. Thus, in any industry rival products should be in a position to
differentiate itself.
EXTERNAL ENVIRONMENT FACTORS AFFECTING BUSINESS POLICY
The factors constituting the external environment may be divided into two interrelated
sub-categories. Viz., remote environment and remote environment and
operating environment
REMOTE ENVIRONMENT:
Remote environment consist of forces that originate beyond the generate
approachable environment ie., the environment which cannot be handled. They constitute
of;
political
economics
social
technological and
industry factors
POLITICAL
Stable political conditions influence the environment in which the company’s
operated. This helps in identifying with the predictability of business activities.
Political instability or unrest, threats to law and orders, change in the ruling partyideology etc influence business considerably.
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Categorically listing the factors which influence business environment on the outside and
the sub factors under them we have some of the factors in the political environment which
influence business are;
political instability
threat to law and order
ideology of the ruling party interest in local business groups
insurgency in border party
dissent within ruling party
international power associations
foreign economics associations and their impact
strength or power of the party in opposition
trade agreements with trade unions
coalition government, etc
SOCIAL FACTORS:
Some of the social factors influencing the business and the business policy are;
population density
inter-state migration
rural – urban mobility
growth of educational opportunities
change in life style
marriageable age of men and women
values and attitudes of people towards life, family, spending
size of the family
women’s participation in the work force
consumer behaviour
changes in the tastes and preferences of consumers
corporate social responsibility of company’s
TECHNOLOGICAL FACTORS:
The several technologies based or technological conditions which influences the
following factors;
♦ advice on diffusion of technology than invention
♦ social and economic factors influencing technology adoption
♦ availability of proper infrastructure facilities
♦ availing chances of collaboration. Current product conditions, and the extent towhich the people using them are advanced in using these products
♦ of the market is not developed, then it is not suitable to have a highly technical
market.
ECONOMIC ENVIRONMENT:
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Anticipating the changes in the economic environment might have a bearing on the
progress of trade and industry in future needs information processing with respect to the
following aspects;
♣ The existing state of economy and the stage of the business cycle (boom,
depression, recession or recovery)
♣ The rate of growth of GNP and the per capita income at current and constant prices♣ Rates of saving and investments
♣ Volume of imports and exports of different items
♣ Balance of payments and changes in foreign exchange reserves
♣ Fluctuations in currency exchange
♣ Percentage of interest of loans taken
♣ Agricultural and industrial production trends
♣ Changes in the distribution of income and wealth
♣ Expansion of transport and communication facilities
♣ Planned outlay in the private and public sectors, and priorities of development laiddown in the five year plans
♣ Government budgetary, allocation, economic and fiscal policy provision
♣ Money in supply
♣ Rate of inflation
♣ Internal and external public debt etc
LEGAL OR REGULATORY CONDITIONS:Legal or regulatory conditions and government policies too invariably affect the
business and its policies. There are several such laws that govern Indian business houses.
They include;
♣ The government should set right market failures. Which cause in equities and
imbalances in the economy
♣ The government should ensure allocation of resources for proper economicdevelopment
♣ Industrial licensing
♣ Import restrictions
♣ Differential taxation
♣ Exemptions
♣ Remissions
♣ Foreign exchange control including control over the flow of cash, technology,
foreign collaboration and joint ventures under FERA act
♣ Capital issues control Act, 1956
♣
Control over expansion of existing capacity♣ Creation of excess capacity MRTP act
♣ Approval for Foreign Direct Investment (FDI)
♣ Securities Exchange Board of India (SEBI) for investor protection
NATURAL ENVIORNMENT
Natural environment affects businesses which are either dependent on it or areindirectly influenced. This factor plays a crucial role in several businesses.
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EXAMPLE: insufficient monsoon affects agro based industries lack of power, industries
using water suffer. Floods, snow, fog, earthequakes, volcanoes, etc are to be taken care
before establishing i.e., the climate of the area needs to be forecasted or judged by earlier records before going in for setting up business. That is the reason factories are not set up in
earthquake belts, regions often flooded and are near to volcanoes.
SCANNING THE ENVIRONMENT
Environment scanning constitutes of internal and external appraisal;
INTERNAL APPRAISAL: is also called SWOT analysis. At times it is calledETOP analysis (ENVIRONMENT AND OPPORTUNITY PROFILE)
EXTERNAL APPRAISAL: is also called as STEP analysis or PEST analysiswhere S-stands for Social, T- Technical, E- Economic and P- Political.
These are the two techniques which are used for scanning the environment, both
internal and external. SWOT analysis is discussed in detail at the end of this unit, along
with Key Success Factors (KSF).
ENVIRONMENTAL SCANNING:
Environmental scanning processors the several methods by which the informationcan be gained are a plenty. A few are listed below;
♦ inputs from industrial espionages
♦ forecasts given by economic survey or the finance ministry, Govt. of India
♦ census reports
♦ reserve Bank of India Reports
♦ ICICI portfolio studies
♦ Survey of Indian Industry (annual)
♦ Annual survey of agriculture
♦ Indian Trade journals
♦ Planning commission reports
♦ Business dailies like economic times
♦ Financial express, business standards
♦ Bombay stock exchange directory
INTERNATIONAL BUSINESS INFORMATION:
International business information is obtained from;
♣ United Nation Publication
• World Economic Survey
• Statistical year book • International Financial Statistics
• Economic survey of Asia and the Far East
• Commodity Trade Statistics
• Overseas Business Report
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SOURCES OF DATA AND TECHNIQUES
The sources of data and techniques for analysis business environment are listed
as follows;
I. GOVERNMENT OF INDIA PUBLICATIONS
a. Economic survey by ministry of finance b. Guidelines to industries
c. Five year plans
d. Planning commission reportse. Census reports
f. RBI reports
g. IDBI portfolio studies
h. ICICI portfolio studiesi. Indian trade journal
j. NSE directory
II. JOURNALS / WEEKLIES / DAILIESa. Business world
b. Business todayc. Business India
d. Economic times
e. Capitalf. Commerce
g. Foreign trade published by IIFT, New Delhi
h. CII reports
III. INTERNATIONAL PUBLICATIONS
a. All publications of United Nations like
i. World Economic Surveyii. Statistical Year Book
iii. International Financial Statistics
iv. Economic – Survey of Asia and Far Eastv. Economic survey of Latin America
vi. Economic bulletins of Europe, Latin, America and Africa
b. Exchange Journal NASDAQ, Export Promotion Council
c. WTO Reports
IV. PRIVATE PUBLICATIONS
a. ORG – MARG survey b. Auto – industry survey
c. SEWA survey
d. Others
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ENVIRONMENT FORECASTING TECHNIQUES
The basic environment forecasting techniques are
Single – variable extrapolation
Scholastic modeling
Multivariate analysis
Expert opinion techniques General forecasts
Mapping
Decision trees
Delphi technique
Demand and sales forecasting techniques
Trend analysis etc
Thus, internal organizational appraisal constitutes of SWOT analysis and key
success factors. While external organizational appraisal constitutes of STEP analysisThus, the study of business environment is in itself for the sustainance of the
company. The CEO plays a vital role in this situation. His roles are given clearly
below;
STATISTICAL FORECASTING TECHNIQUES:
The overall performance is based on statistics forecasts. They are;
♣ Single variable extrapolation
♣ Dynamic models
♣ Mapping
♣ Multivariate interaction analysis
♣ Structured expert opinion
♣ Unstructured expert opinion♣ Structured inexpert opinion
♣ Unstructured inexpert opinion
TYPES OF FORECASTS:
These techniques of forecasting are use to find or determine;
♣ Economic forecasts
♣ Social forecasts
♣ Political forecasts and
♣ Technological forecasts
ECONOMIC FORECASTS:
Economic forecasts can be made using general statistical techniques like trendanalysis, econometric models, judgmental models etc. Here they try to determine the
overall revenue and expenditure connected or related forecasts and estimates.
SOCIAL FORECASTS:
Social forecasts are very complex tasks. Trend analysis using time series, scenario
development, and judgmental approaches are the most popular techniques in social
forecasting in areas such as demographic trends, housing, health and nutrition, householdincome and expenditure patterns, government policy on social issues.
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POLITICAL FORECASTS:
Political forecasts such as domestic political conditions and political developmentsacross the borders including foreign international relations constitute important aspects of
political forecasting. It takes into account such criteria as social development,
technological advancement, natural resource endowment, level of domestic peace or calm(within the country) and type of political system in forecasting political conditions. The
political factors depend on the unique hypothesis ie., assumption that “if development in
respect of any of the criteria, moves faster than in other criteria, than there is tension andviolence”.
TECHNOLOGICAL FORECASTS:
Technological forecasts have been done mostly using judgmental models, scenario
development, brain storming and Delphi method. These methods have proven to be usefulin forecasting technology.
SCENARIO GENERATION:
The next most suitable techniques is use of scenario, in other words scenario
generation. This has been proven to be quite useful in interpreting the oft changing business environment. The first or primary reason for scenario generation is to reduce the
risk and also the boundaries to decision making. This along with probability estimates andother qualitative and quantitative data, helps in generating a similar situation (simulates a
similar situation) so that the ideas and strategies can be tested.
These are a few techniques by which the external environment can be forecastedand found besides the ETOP/SWOT/PEST/SLEPT analysis.
INTERNAL ENVIRONMENT ANALYSIS:
The environmental analysis outside the company after being taken up. The nextlogical step is to find out the situation that exists internally.
NEED FOR INTERNAL ANALYSIS:
The need to have an internal analysis arises due to several reasons;
♣ All enterprises are not equally strong in their functional attributes
♣ Competitive advantage varies from company to company
♣ To assess the strengths or capabilities of the current organization vis –a – vis (when
compared to the current market)
♣ The nature and magnitude of the skills and resources available compared to therequirement.
♣ Potential sources for supply of resources and skill need to be assessed and
monitored
♣ It helps (aids) in establishing a link between the resources and the strategicadvantages (capability) of the organization.
For the above purpose every organization under take a strategic advantage analysis.
STRATEGIC ADVANTAGE ANALYSIS:
Strategic advantage analysis is also termed as factors of common concern analysis
or search for factors of common concern. In this search the strategists examine firms’resources and capabilities in the key financial areas to determine where the firm has
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significant strengths (and weaknesses) so that they can be either expoited or met. The main
reasons being;
♣ Following a course of action different from those of rival firms
♣ Developing a strategy which will provide different and better outcomes than those
of its competitors
♣ Making it different for other firms to duplicate the strategy or enter the area of opportunity if the strategy works
Usually every organizations internal resource succeed if, they have a common concern
among strategists. These common concerns have been listed under five essentialcategories, but have been further sub divided. They are;
MAJOR CATEGORIES ATTRIBUTES / FACTORS
Organization organization form and structureTop Management interest and skills
Standard operating procedure (SOP)
The control systemsThe planning systems
Personnel Employee attitudeTechnical skills
Experience Number if employees
Marketing Sales force
Knowledge of the customers’ needsProduct quality
Breadth of the product line
ReputationCustomer service
Technical production facilities
Production techniquesProduct development
Basic research
Finance Financial size
Price earning ratioGrowth pattern
SWOT ANALYSIS FOR ORGANISATIONS
What are you looking for?
STRENGHTS
Potential resource strengths and competitive capabilities;
A powerful strategy supported by competitive valuable skills and expertise in key
areas. A strong financial condition; ample financial resource to grow the business
Strong brand name, image / company reputation
A widely recognized market leader and an attractive customer base
Ability to take advantage of economics of scale and / or learning and experience
curve effects
Proprietary technology / superior technological skills / important patents
Superior intellectual capital relative to key rivals
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Cost advantages
Strong advertising promotion
Product innovation skills
Proven skills in improving production processes
Sophisticated use of e-commerce technologies and processes
Superior skills in supply chain management Reputation for good customer service
Better product quality relative to rivals
Wide geographic coverage and / or strong global distribution capability
Alliances / joint ventures with other firms that provide access to valuable
technology, competencies and / or attractive geographic markets
WEAKNESSES
Potential resources weaknesses and competitive deficiencies:
No clear strategic direction
Obsolete facilities
A weak balance sheet burden with too much debt
Higher overall unit cost relative to key competitors
Missing some key skills or competencies / lack of management depth / a deficiency
of intellectual capital relative to leading rivals
Profitability is low as plagued with internal operating problems
Falling behind rivals in putting e-commerce capabilities and strategies in place
Too narrow a product line relative to rivals
Weak brand image or reputation
Weaker dealer network than key rivals and / or lack of adequate global distribution
capability
Short on financial resources to fund promising strategic initiatives
Subpar e-commerce systems and capabilities relative to rivals
Lots of under utilized plant capacity
Behind on product quality and / or R & D and / or technological know how
Not attracting new customers as rapidly as rivals due to ‘ho-hum’ product
attributes.
OPPORTUNITIES
Potential company opportunities
Serving additional customer groups or expanding into new geographic markets or
product segments Expanding the company’s product line to meet a broader range of customers needs
Utilizing existing company skills or technological know how to enter new product
line or new businesses
Using the internet and e-commerce technologies to dramatically cut costs and / or
to pursue new sales growth opportunities
Integrating forward or backward
Falling trade barriers in attractive foreign markets
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Openings to take market share away from rivals
Ability to grow rapidly because of sharply rising demand in one or more market
segments
Acquisition of rival firms or companies with attractive technological expertise
Alliances or joint ventures that expand the firms market coverage or boost its
competitive capability Openings to exploit emerging new technologies
Market openings to extend the company’s brand name or reputation to new
geographic areas
THREATS
Potential external threats to company’s well being;
Likely entry of potent new competitors
Loss of sales to substitute products
Mounting competition from new internet start up. Companies pursuing e-commerce strategies
Increasing intensity of competition among industry rivals – may cause squeeze on
profit margins
Technological changes or product innovations that undermine demand for the firms
product
Slow downs in market growth
Adverse shifts in foreign exchange rates and trade policies of foreign governments
Costly new regulatory requirement
Growing bargaining power of customers or suppliers
A shift in buyer needs and tastes, away from the industry’s product
Adverse demographic changes that threaten to curtail demand for the firm’s
product Vulnerability to industry driving forces
KEY SUCCESS FACTORS (KSF)
KSF’s are those things that most affect industry members ability to prosper in themarket place – the particular strategy elements, product attributes, resources,
competencies, competitive capabilities, and business outcomes that spell the differences
between profit and loss and ultimately, between competitive success or failure.They are categorized as follows;
TECHNOLOGY RELATED;
Scientific research expertise
Technical capability to make innovative improvement in production processes Product innovation capability
Expertise in a given technology
Capability to use the internet for all kinds of e-commerce activities
MANUFACTURING RELATED
Low cost production efficiency
Quality of manufacture
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High utilization of fixed costs
Low cost plant location
Access to adequate supplies of skilled labour
High labour productivity
Low cost product design and engineering
Ability to manufacture or assemble products that are customized to buyer specifications.
DISTRIBUTION RELATED
A strong network of whole sale distributors/dealers ( or electronic distribution
capacity via internet)
Gaining ample space on retailer shelves
Having company owned retail outlets
Low distribution costs
Accurate filling of customer orders
Short delivery times
MARKETING RELATED
Fast, accurate technical assistance
Courteous customer services
Accurate filling of buyer orders (back orders, mistakes)
Breadth of product line and product selection
Merchandising skills
Attractive styling and packaging
Customer guarantee and warrantees
Clear and clever advertising
SKILL RELATED
Superior workforce talent
Quality control know-how
Design expertise
Expertise in a particular technology
An ability to develop innovative products and product improvements
An ability to quickly develop newly developed products past R & D into market.
ORGANISATIONAL CAPABILITY
Superior information systems
Ability to respond quickly to shifting market conditions
Superior ability to employ the internet and other aspects of electronic commerce toconduct business
Managerial experience
MISCELLANEOUS TYPES
Favorable image or reputation
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Overall low cost
Convenient locations
Pleasant courteous employees in all customers contact positions
Access to financial capital
Patent protection
SWOT (INTERNAL)Thereby based on these attributes, the assessment of the strengths and weakness of
a firm thus, centres around an analysis of the following factors under the functional
groups of;
♣ Marketing / Distribution
♣ Finance and Accounting
♣ Production, Manufacturing, Engineering
♣ Personnel and Labour Relations
♣ Research and Development
♣ Corporate resources / Management Now understanding these functions in detail, we have;
MARKETING ANALYSIS:
The marketing function is considered to be a key area not just because its performance will result in the success or failure of business activities. Besides, it also
provides a vital communication link between the organization and the external
environment. The elements under this are
♣ Existence of a sizable market share and competition position
♣ Existence of a wide range and variety of design and qualities and sizes in the
product line
♣ The phase of the life cycle are the main products
♣ Effectiveness of the pricing strategy
♣ The effectiveness of sales force♣ Effectiveness of distribution channels in terms of market coverage
♣ Target market – mass consumption or selective
♣ Creation of brand image by the advertising policy
♣ Existence of separate market research unit and its effectiveness
♣ Efficiency or effectiveness of packaging and similar services
♣ Consistency of marketing policy with competition, consumer preferences,technological change and other environmental factors.
FINANCIAL AND ACCOUNTING ANALYSIS:
The financial and accounting resources help in indicating the extent to which a firm
can make commitment to implement a strategy. Besides, this they also plan the acquisitionand utilization of funds, control over finances to the concerned top officials. The finance
and accounting departments are also involved in;
♣ Availability of long term funds
♣ Whether funds can be procured consistently when in need
♣ Capital structure planning
♣ Cost of capital in comparison with the industry and competing firms
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♣ Consistent dividend policy
♣ Consistent profit retention policies with shareholders’ expectations’
♣ Efficiency in financial planning and budgeting procedures
♣ Efficient accounting systems for cost accounting, budget accounting, profit
planning and auditing
♣ Information about tax advantages, concessions through tax planning etc.
PRODUCTION AND OPERATIONS ANAYLSIS:The production and operations departments contribute a great deal to a firm’s
profitability through efficient use of capital and human resources. The production and
operations management is closely related to the marketing and distribution departments.
The assessment of capabilities of the departments can be done by the following;
♣ Comparative cost of operation among competing firms
♣ Efficiency of cost control
♣ Adequate production capacity to meet current and future demand
♣ Full capacity utilization
♣ If no, capacity not or under utilized
♣ Adequate production facilities, which are modern and well maintained
♣ Facilities when compared with competitors
♣ Relative cost of raw material and components
♣ Adequate availability of the above
♣ Congenial location of the plat facilities from strategic point of view
♣ Existence of effective purchasing and inventory control systems
♣ Efficient procedures relating to design, scheduling, testing, tooling and qualitycontrol
♣ Efficiency and effectiveness of management information and production control
systems
R & D DEPARTMENT ANAYLSIS:
The success and growth of an enterprise depends on the R & D department and the
work they do. The development of new product, innovations in product design and processes which are a part of R & D functions play a very vital role in the future of an
organization. An R & D department may be involved in basic research, new product or
process research, improvement research, cost reduction research, and raw materialadaptation research. By these the company should gain competitive advantage. The
capabilities of any R & D department can be assessed by;
♣ Adequacy of R & D facilities like laboratories, equipment, material and so on
♣ Consistency of facilities with the latest scientific advancement♣ Efficiency in maintaining facilities that are being used
♣ Efficiency in utilizing the facilities
♣ Amount of R & D expenditure
♣ Basis for the outlay of R & D expenditure
♣ Meeting recurring expenses
♣ Results of the R & D efforts for the past five years
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♣ Marketability of the efforts
♣ Profitability of those efforts
♣ Organizing and managing such efforts
♣ Comparison between technical personnel of the company with competitors
♣ Conductive ness of work environment for creativity and innovation
♣ Managers’ disposition towards change and innovation♣ Mix of basic, long term R & D projects and applied short term projects
HUMAN RESOURCES ANALYSIS:
Human resources capability and the organization are closely related. Together they
yield corporate resources. The organizational environment and the associated managerial
and technical quality of other employees can be easily identified from the following
elements;
♣ Healthy organizational climate
♣ Consistency in employee performance record
♣ Effective implementation of company policies with respect to staffing, promotion,training and development, compensation and benefits and so on.
♣ Are these policies comparative with the competitive firms?
♣ The best way the organization can describe its managerial talent (delegative, participative, communicative or autocratic)
♣ Degree of unionization of employees of the organization
♣ Union and organization relationship
♣ Image of the company to provide a source of prided and loyalty to the employees
OVERALL MANAGEMENT FUNCTION:
The overall performance of the organization function and their ability to engage
people to attain results and goals to attain objectives is clearly identified. This helps in
analyzing the extent to which an organization is assessing and responding to organizationalchanges and also changes in the environment. This helps in identifying the competency of
the managers and the organizations.
♣ Their mentality in dealing with internal or external problems
♣ Their propensity to take risks
♣ Their values and norm and personal goals
♣ Their critical success factors and behaviour
♣ The position of power of the manager in the firm
♣ His / her ambition to use or drive using the power
♣ Talents / personality
♣ Problem solving skills
♣ Leadership style / skills
♣ Knowledge about the environment in which the firm operates
♣ Personal work capacity and
♣ Work habits
While the above set deals with managers, the following set identifies with the
organizational climate, culture and competence. They are;
♣ Organisations’ attitude and interest towards change for the better
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♣ Willingness to take risks
♣ Perspective towards problems
♣ Action oriented
♣ Interested in improving organizational behaviour
♣ factors that trigger (start) change
♣ organization perception to critical success factors♣ proper distribution of power among groups with different culture
♣ stability of the power structure
♣ organizational competence in solving problem (skills to solve)
♣ the problem – solving process in itself (whether it is centralized or decentralized)
♣ the management process is it creative, anticipatory or backward in ideology
♣ the updation of information systems to scan the environment
♣ flexibility and adaptability of organization structure
♣ managerial rewards and incentives (growth based, performance based, creativity
based)
♣ job description or definition – narrow or open, encouraging initiative or venture♣ extent of availability of technical devices to aid decision making
♣ the capacity of the management to handle different volumes of work
VALUE CHAIN APPROACH:
Michael Porter devised the value – chain approach to assessment of internalresources across distinct functional areas. This approach consists of identifying the series
of activities which are undertaken by the firm and are strategically relevant for meeting
customer demand and it tries to identify in which respect the firm is better than itscompetitors.
Thus, the internal factors of key (vital) importance are linked with the chain of
value by systematically identifying the activities as potential source of strength andweaknesses. There are two broad categories of value activities; namely,
♣ primary activities and
♣ support activitiesThe support activities are those which provide inputs or infrastructure for primary activities
to be performed. The support activities and primary activities are classified based on
technological and strategic distinctness:
♣ procurement of raw materials
♣ technology development
♣ human resources management
♣ firm infrastructureThe primary activities are;
♣ inbound (incoming) logistics
♣ operations
♣ outbound (outgoing) logistics
♣ marketing and sales
♣ Service. The generic value chain can be seen below;
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KEY FACTORS EVALUATION:
The evaluation of key factors and value activities against attainable goals or
standards determine which factors or activities are having potential strengths or which have
potential weakness.Any factor is considered to have strengths if it has a competitive advantage over
competitive firms. The list of factors is;♣ past performance and capabilities
♣ evolution of product / market
♣ comparison with competitors
♣ success factors in the industry (internal to the value activities)
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FIRM INFRASTRUCTURE
HUMAN RESOURCE MANAGEMENT
TECHNOLOGY DEVELOPMENT
PROCUREMENT
Inbound Operations Outbound Marketing & Service
Logistics logistics Sales
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STRATEGIC ADVANTAGE PROFILE (SAP)
A profile of strategic advantages is a summary statement which provides an
overview of the advantages and disadvantages in key areas likely to affect futureoperations o f the firm. This profile gives a detailed analysis of the position and negative
aspects of each functional area. The other relevant data useful for critical areas may go as a
supplement to this profile. Based on the strategic advantage profile (SAP) a strategiccapability grid can be drawn which gives an idea about the position where the company
lies and the strategy that they need to adopt.
Thus, any internal analysis or strategic advantage profile is aimed at
♣ intensifying functional differentiation
♣ avoid head – on competition
♣ aggressive initiative
♣ maximize user benefit
♣ identifying core competency
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Numerous
Environmental Opportunities
Cell 3: Cell 1:
Turn around Aggressive
Strategy growth orientedStrategy
Critical Substantial
Internal Internal
Weaknesses Strengths
Cell 4: Cell 2:
Diversification Defensive
Strategy Strategy
Major Environmental Threats
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GAP ANALYSIS
Gap analysis aims at identifying the achieved level of goals in comparison with the
set or stated goals. In other words GAP analysis aims at finding the difference betweenstandards set and goals achieved. These achieved goals can be depend or below the set
standards. But whether one have over achieved or underachieved the reasons behind are to
be analyzed. The reasons are then used to reset these standards.The set standards may not be achieved due to troubles in the organization, which
come suddenly, like strike, lockout, government order or accidents like fire, flood and so
on. They may also be not achieved due to changes in the external environment likedynamic changes in the market, product ban in the market, consumer related issues,
withdrawal of product from the market due to hazard in use and the standards may be set
too high.
The set standards may be achievable because or may be achieved in excess due toseveral reasons like understating of objectives, underestimating the strengths of the
employees, downplaying the competence of the organization, overestimating market
hurdles and so on, besides the standards may be set too low too.
Invariably a GAP analysis plays a vital role in identifying our set standards vis – a – vis (as against) our achieved standards.
EXPERIENCE CURVE EFFECT:
The experience curve theory is based on the relationships between the total cost per
unit and the number of unit produced (experience). The characteristic pattern of theexperience curve is the value added net production costs decline 25 to 30 percent each time
the total accumulated experience has been doubled. In other words, as the experience
(number of units produced) doubles, the production costs decrease by 25 to 30%. Same is
the case with labour costs.This theory is based on the hypothesis (assumption) that when an individual
performs (does) a task repeatedly, they tend to get better (improve), thereby reducing the
mistakes and increasing the production in the same limited period of time.Associates of BCG worked on the experience curve theory and propounded that if
the vertical axis is used as an index of the cost per unit, and the horizontal axis is used to
plot the number of units or cumulative experience, then the resulting slope of theexperience curve will be used to analyze relative costs at various levels of production.
Based on this curve the BCG associates came to a conclusion that, the cost of most
value added items declines quite a lot each time the experience doubles.
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The experience curve effect is derived (got) by dividing the accumulated costs by the
accumulated product outputs. The factors influencing these include economies of scale, thelearning curve, critical masses of knowledge and specialization. In short, the more
experience a company has in producing a product, the lower is its unit costs.
The following factors produce the experience curve effect;
♣ Labour efficiency
♣ New processes and improved methods
♣ Product redesign♣ Product standardization
♣ Scale effect and
♣ Substitution in the product
The factors in the experience curve model are said to include; cost, volume andmarket share. The greater the volume, the lower the cost, and larger the market share,
the larger the production volume.
EXPANSION AN UNMIXED BLESSING:
From the experience of executives, who have been on the look out and used
opportunities for growth, have attained success, which happens to be the main objective of
both individuals and the company.All organization prefer growth to no growth or zero growth. However, no
organization can grow continuously (exponentially) for a long period. This may not be possible because there are external environmental pressures which suppress the growth.
First the company itself is not bound to have limits (as a part of the strategy).
Growth strategy is one of the most difficult to manage strategies. Among the several
reasons cited the first reason has been stated above. Several serious problems will remainhidden till the growth rate stops or a decline is experienced. Usually after a period of time,
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Cost
per
unit
No. of units (or) cumulative exp.
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as the rate of growth accelerates, there is a decline in profitability. The relation between
size and profitability also declines after a period. The second set of limits arising due to
environmental limitations include scarcity of resources, decline in target market population, compulsive environment protection laws, government regulations, public
attitudes, and side effects of technological advancement.
Companies which actually show an increase in the number of employees, productsand scales do not always improve their profits. Companies that expand quickly often lose
sight and end up unable to focus on the strength that brought success in the first place.
Many times the basic investments money itself becomes difficult to get back.Expansion often creates confusion and many companies get active in areas which
are not suitable for them. Thus, in the long run, both the old and the new businesses will
require large amounts of capital to survive, an the new business will yield losses more than
profits.Thus, small scale operations and changes are better, as their force either
constructive or destructive is very little or limited. Even if human error occurs it is easier to
correct in small scale than large scale.
Between these extremes, lies the third option. This option is that of sustainedgrowth or sustainable growth.
This strategy aims at a growth pattern that keeps a firm increase in output and productive capacity in line with increase in its external environment. This strategy implies
that ‘increase or decrease in the systems’ productive capacity with commensurate
(equivalent) increase or decrease in its external environments’ carrying capacities. Thus,many firms are opting for this strategy to attain achievable and retainable growth or
success.
INTERNATIONAL ENVIRONMENT
This too plays a crucial role as we are concerned with international trade, laws,
regulations which will help industries to market their products world wide. Besides the
active competition of international (MNC) companies functioning within the country andoutside need to be monitored for successful marketing of products.
Some of the major factors influencing the international Business Environment are
listed below;
FACTORS INFLUENCING POLICY FORMATION IN THE INTERNATIONAL
ENVIRONMENT:
There are several factors in the international environment which cause an impact onthe business policy formulation. They are;
♣ monetary and fiscal policies
♣
international demand and supply pattern♣ liberalization and globalization programs
♣ exchange rate and revaluation policies
♣ devaluation and revaluation of currencies
♣ EXIM policies
♣ Technologies advancement and obsolescence
♣ International bench marking of the country’s product quality
♣ Country’s productivity level Vs International level
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♣ Declaration of war
♣ Relative economic strength
♣ GATT and other tariff agreement
♣ Economic and financial policies of various countries
♣ Balance of trade consideration
♣ International terrorism♣ Protectionist policies
♣ Dumping practices
♣ Law and order problems
♣ Comparative culture and traditions
♣ Patent laws and intellectual property rights
♣ Trade zones and military zones
♣ Different rules and regulations in the legal system
♣ Political relationship
♣ Different labour conventions
♣ Infrastructure facilities♣ Different practices and documentations
♣ Speed schemes like export processing zones, encouragement to 100% EO units
♣ Free port, port of call etc
♣ Tax rebates and subsidies
♣ Socials security schemes
♣ Currency blocks like EURO, NATO, SAARC, etc
♣ Most favoured nation or non-favoured nation states
♣ Availability of international credit
♣ Credit rating schemes
♣ International corruption♣ Foreign institutional investment
♣ Economic sanctions
Thus, these factors need to be given due importance before strategy formulation.
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UNIT – IV
FORMULATION OF STRATEGY
ROLE OF CEO IN STARTEGY FORMULATION1. He / She is the creator of the organisation’s policies and strategy
2. He / She is the administrator of the organization
3. He / She is the figurehead4. He / She is the spokesperson of the organization, to both the internal and
external environment
5. He / She is the moulder of the organisation’s culture and philosophy.
6. an organization is said to be an extension /reflection of the CEO7. he / she sets the direction and pace of the organization
8. he / she sets the standard operating practices (SOP)
9. he / she is the disseminator of all information including policies
10. he / she is the coordinator, negotiator and conflict handler 11. he / she is the motivator
12. he / she is the resource allocator 13. he / she is the innovator and troubleshooter
14. he / she is a visionary and pathfinder
15. he /she is the leader
APPROACHES TO STRATEGY FORMULATION:
The possible approaches to strategy formulation are many, the traditional approach
designed by Frank Gilmore in 1971 comprised of;
♣ A size up of the situation of the company as a whole. This is done generally on the
basis of size-ups of the functional department (HR, finance, production, etc)♣ Determination of objective and
♣ Development of a program, which covers the various activities of the company, and
then directs these activities in a single direction to achieve the objectives.
This process was applicable to short term problems, sudden problems and as alternativestrategy has to be adopted soon, to meet the existing situation.
The new modern approach has evolved with emphasis on reappraisal of the existing
strategy in the light of changing external conditions, constant survey of the environment toidentify and make use of long term opportunities, developing alternative strategy if
necessary.
Any strategy at any time is reappraisal from time to time in the light of internal
operating results, economic trends, competitors’ actions, and technological development.Based on the SWOT then the management proceeds. The usual procedure is followed for
developing a strategy. The procedure discussed in earlier units page number has
been arrived through a rational, normative idea. However, there are several other approaches to strategy formulation. They are;
♣ Intuition or intuitive approach
♣ Disjointed incrementalism
♣ Entrepreneurial approach
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♣ ‘inside out’ planning
♣ key factor approach
♣ integrated approach
♣ defensive and creative approach and
♣ strategic postured
Now, taking up each of these approaches in detail, we have;
INTUITION OR INTUITIVE APPROACH:
This method is also called “Brain Child” approach. In other words the strategy that
evolves in the mind of the chief executives is implemented. This is done without ever
being explicitly (clearly) stated and without any formal (official) procedure.
However, strategists have clearly stated that this approach is good when combinedwith personal judgment. There are several examples of successful intuitive leaders;
Example: Alfred Sloan of General Motors, Henry Ford, JRD Tata, GD Birla, GM modi,
TT Krishnamachary are a few industrialists who are often remembered for their imagination, drive and vision, which led their companies to prosperity.
The very nature of this strategy development or formation is because, strategic planning is essentially irregular. Problems, opportunities and bright ideas do not ariseaccording to some set time table; they have to be dealt with whenever they happen to be
perceived. However, any mathematical (analytical) model introduced should be based on
the nature of problem being analysed. However, since such mathematical problems are rare
or non existent (suitability based) there is very little help.Yet one needs to understand a systematic approach is quite likely to dampen the
essential element of creativity.
DISJOINED INCREMENTALISM:
This method is also called ‘muddling through’. In other words the management acts
only when forced to. then the management considers a few convenient alternative
involving small or non-problematic changes in the organization. These decisions areusually remedial or problem-solving in nature. Therefore, it doesn’t help further future
development.
The strategist in this particular situation instead of thinking for the future, or trying
to understand how the current strategy will cause problems for the organization in thefuture, just implements the new strategy. The implementation is taken up considering only
the current state of all functional areas and how they will differ from now once, the
strategies are implemented. Strategist believe that this approach is not really possible, sinceit is very difficult for an individual to cope with complex problems, lack of information,
cost analysis, time constraint and difficulty in stating achievable goals
ENTREPRENEURIAL APPROACH:
This approach is related with the role of the manager as an entrepreneur. Theentrepreneurial manager is a systematic risk maker and a risk taker looking for opportunity
and also who tries to find an opportunity.Entrepreneurship is essentially the acceptance of change as an opportunity and the
acceptance of the leadership in change as the unique task of the entrepreneur.
Thus the role of the entrepreneur is opportunity focused and not problem focused.
In short there is no specific written role on how a function has to be taken up or how to perform.
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STRATEGIC POSTURES:
A study of strategic postures adopted by firms in different industries revealed four types of approaches;
♣ Firms penetrating a narrow product market segment and holding on to it with
intensive planning, centralized control, zealous cost efficient production, andlimited concern for external conditions. These firms approach strategy making as
‘defenders’ of the posture.
♣ Firms which may be called ‘prospectors’ – having broad-based planning,comprehensive environmental scanning, decentralized control and seeking new
product market postures on the basis of unutilized resources.
♣ Firms which choose to be analysers in the sense of sometimes being defenders of their posture (position) and sometimes adopting the role of prospectors.
♣ Firms which are incapable of effecting a realignment of known environmental
changes and strategies and thus reflect an unstable strategic posture. These firms
called ‘reactors’ must sooner or later, adopt any of the other three approaches, or
else face extinction.
GRAND STRATEGIES
The grand strategies of business are broadly classified into three. They are
I. STABILITY STRATEGIES
II. GROWTH STRATEGIESIII. RETRENCHMENT STRATEGIES
These three strategies are further classified into several more; Now systematically, we shall proceed with one strategy after another;
I) STABILITY STRATEGY:This strategy is also called as ‘NO – GO’ strategy. Organizations which are
operating in a reasonably certain and predictable environment usually adopt this strategy.
These organizations attempt at incremental or step by step improvements in its functional
performance. Mostly these strategies are taken up by small or medium sized firms, or for short run, when such firms are satisfied with the current performance.
They are basically classified into three;
♣ No – change strategy
♣ Pause or proceed with caution strategy
♣ Profit strategies
Now, taking up these strategies one after another first we have;
a) NO CHANGE STRATEGY:This stability strategy is a conscious decision to do nothing new (ie) to continue
with the present business. This even though appears to be very unbusiness like is actually avery wise business decision. The following may be the reasons why this strategy is chosen;
♣ It may not be profitable to change the strategy in the current business strategy
♣ There are no significant opportunities or threats in the environment
♣ There are also no major strengths and weaknesses within the organizations.
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Several small and medium scale firms offering products to a niche market or to a familiar
market follow this strategy. This strategy will be successful till a major crisis or threat
comes up in the environment.
b) PAUSE OR PROCEED WITH CAUTION STRATEGY:
This strategy is often employed by firms to test the ground before moving aheadwith a full – fledged grand strategy. Even firms which have been into expansion for a long
time and wish to take rest before the next phase, use this strategy. There are several reasons
for choosing this strategy.They are;
♣ Companies need to know where they are and what they want to do in the future,
and if it would be successful.
♣ Internal organization gets to know the idea and will be able to change suitably or
accept strategic change will
♣ Structural changes needed to adapt to the new strategies can be made using thesestrategies.
♣ When major strategic changes are to be made, a firm has to be ready to move faster has to wait till the appropriate time arrives.
♣ Waiting for the right environment to implement a new strategy or to launch a new
product.
c) PROFIT STRATEGY:
♣ This strategy tries to maintain the profitability level when there is a sudden threat,
which may not exist for a long time.
♣ When companies face the threat of being totally removed from the market, asituation arises to test the company’s ‘strategy development authorities’
♣ If the company assumes that the problems are short lived or that they will be
eliminated with the passage of time, it will adapt / adopt this strategy.♣ In other words, a firm tries to maintain its profitability by artificial methods and
adapting / adopting a profit strategy. A few methods are;
i. Reducing investments, cutting costs, raising prices, increasing productivityor any other such measure to overcome the crisis and maintain the same
level of profitability.
ii. External factors such as economic recession, government attitude, industrydownturn, competitive pressures and so on are very bad.
If the company assumes that these problems are short term in nature and try to maintain
profitability by selling away some unused assets, moving from the city premises to sub
urban, leasing away non – core business, outsourcing company facilities and expertise to
other companies etc.
CHARACTERTISTICS AND SCOPE OF STBILITY STRATEGY:
The following are the characteristics and scope of stability strategy is as follows;
♣ A firm opting for stability strategy stays with the same business, same product –
market position and function, maintaining same level of effort as at present.
♣ The effort is to enhance the firms efficiencies in an incremental way, through better
deployment and utilization of resources.
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♣ The idea of the firm is that the desired income and profits would be available in the
future. Through such incremental functional efficiencies.
♣ Naturally, the growth objective of firms employing this strategy will be quitemodest.
♣ Or only that company’s with modest (simple, humble) growth objectives will take
up this strategy.♣ Stability strategy does not include or involves a redefinition of the business of the
corporation
♣ It is basically a safety – oriented status – quo oriented strategy
♣ It does not warrant much of fresh investment
♣ The risk is also less
♣ It is a fairly frequently employed strategy
♣ With the stability strategy, the firm has the benefit of concentrating its resources
and attention on the existing business’s / products and markets.
♣ But the strategy does not permit the renewal process of bringing in freshinvestments and new products and markets for the firm.
II) GROWTH STRATEGIES:
These strategies are also called expansion strategies. There are several growth
strategies which will be classified, and later discussed in detail in the following notes.
♣ Growth or expansion strategy is the opposite of stability strategy. While in stabilitystrategy rewards are limited, in expansion strategy the rewards are high. However,
the risks too are similarly high in expansion strategies.
♣ Thus, one can safely say that in stability strategy the rewards and risks are low.
While in expansion strategy the rewards and risks are high.
♣ This strategy is the most frequently employed generic strategy
♣ Expansion strategy is the true growth strategy. A firm with a mammoth growthambition can meet its objective only through the expansion strategy.
♣ Expansion strategy involves a redefinition of the business of the corporation.
♣ The process of renewal of the firm through fresh investments and new business /
product / markets is facilitated or possible only be expansion strategy.
♣ Expansion strategy offers several permutations and combinations for growth
♣ A firm opting for the expansion strategy can generate many alternatives within the
strategy by altering (changing) its proposition (plans) regarding products, marketsand functions and pick the one that suits its most.
♣ Expansion strategy holds within its fold two major strategy routes;
i. Intensification
ii. Diversification♣ Both the them are growth strategies, the difference lies in the way in which the firm
actually per sues the growth.
♣ With intensification strategy, the firm pursues growth by working with its current
businesses.
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♣ Intensification in turn has three alternatives;
i. Market penetration strategyii. Market development strategy
iii. Product development strategy
♣ Diversification strategy involves expansion into new business that are outside the
current business markets.♣ There are three types of diversification;
a. Vertically integrated Diversification
b. Concentrated diversificationc. Conglomerate diversification
♣ Vertically integrated diversification involves going into new businesses, which are
related to the current ones.
♣ It has two components
a. Forward Integration
b. Backward Integration
♣ The firm remains vertically within the given product – process sequence. The
intermediaries in the chain become new business.♣ in concentric diversification too the new products are connected to the firms
existing process / technology. But the new products are not vertically linked to the
existing ones. They are not intermediaries. They serve new functions in new
markets. A new business is taken up (span off) from the existing facilities.
♣ In conglomerate diversification too, a new business is added to the forms portfolio(list of businesses). But it is disjoined (separated) from the existing business. In
process technology functions, there is no connection between the new business and
the existing ones. Thus, it is an unrelated diversification.
♣ Thus, broadly, expansion strategies can be identified as expansion through
A. Concentration
B. IntegrationC. Diversification
D. Cooperation and
E. Internationalization
CONDITIONS FOR ADOPTING EXPANSION STRATEGY:
The following may be the conditions, circumstances for firms to adopt this genericstrategy.
♣ When the corporate ambitions and objectives are high and keeps rising, ie. When
the firm desires continuous and big growth in assets, income and profits, expansion
becomes the choice as stability will not suit them.
♣ When enormous new opportunities are coming up in the environment and the firm
is ready and willing to expand, its business opportunities / chances. Then this
strategy is taken up.
♣ Forfighting competition in a growing business, firms find expansion through
intensification the most suitable route. The very size of the company creates
superiority in the competition.
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♣ When a firm which is a leader or an aggressive contender in its industry and
decides to protect its position, it has to constantly resort to expansion throughintensification. This is because if it stops expanding then the company may stop
being the leader.
♣ To overcome the vulnerability of a single business position or the limitations
arising out of PLC of existing business. When they show signs of maturity, or saturation or leveling off, it means , they want to expand (and most probably
diversify)
♣ In other words when a firm needs flexibility in business portfolio it turns toexpansion through diversification as it facilitates such flexibility
♣ This is a method adopted by firms to minimize their risks by spreading it over other
business
♣ Expansion strategy is chosen by firms when the industries are highly unstable. In
this case substantial (great, considerable) growth is necessary to cushion or reduce
shocks that might arise in such industries.
♣ Diversification would be especially useful to firm that are eager to achieve rapid
and big growth. This is quite natural since diversification involves exploitation of new opportunities emerging in business, which are outside the existing fields of the
firm.
♣ When the environment especially the regulatory scenario blocks the growth of the
firm in its existing business, it turns to diversification for meeting its growth needs.
♣ When the firm has an advantage for synergy and for successful tapping of certainadditional opportunities it opts for intensification / diversification.
♣ By using this competitive advantages in obtained in terms of cost of differentiation.
Often economies of scale result (happen, occur) due to such actions (due tosynergy). This result in a cost advantage for the firm.
A) CONCENTRATION STRATEGY
♣ In concentration strategy, a firm directs its resources to the profitable growth of a
single product in a single market and with a single technology.
♣ Concentration has the lowest risk and it only requires more amount of the sameresources
♣ However, companies practicing this strategy have a steady growth and profitability,
but they achieve it very slowly. They also have reduced and narrow range of
investment options.
♣ Due to the reason that they have very narrow level of competition, they suffer from
performance variations, resulting from industrial trends
♣
By concentrating on one product, one market and with one technology, a companycan gain competitive advantage over other competitors.
♣ This competitive advantage can be in production skills, marketing know-how
customer sensitivity or reputation in the market place.
♣ The business can also attempts to capture larger market share, by increasing the
usage of the product among the existing customers or by attracting customers of
competitors. It can also create interest among non-users of the product.
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Developing product versions to appeal to other segments
Entering other channels of distributions and
Advertising in other media
II. PRODUCT DEVELOPMENT
♣ This strategy involves substantial (great or large) modifications of existing products♣ Also creation of new but related items, that can be marketed to current customers
through established channels
♣ This strategy is often adopted either to prolong the life cycle of current products or to take advantage of favourable reputation or band name.
♣ The idea is to attract satisfied customers to new products as a result of their positive
or good experience with the company’s initial offerings.
♣ Thus, the strategy involves;
Developing new products for present markets
Developing new products for new markets
SPECIFIC OPTIONS UNDER PRODUCT DEVELOPMENT
The specific options under product development are as follows;
♣ Developing new product features
♣ Adapt (to other ideas, development)
♣ Modify (change colour, motion, sound. Odour, form and shape)
♣ Magnify (stronger, longer, thicker, extra value)
♣ Substitute (other ingredients, process, power)
♣ Rearrange (other patterns, layout, sequencing components)
♣ Reverse (inside out)
♣ Combine (blend, alloy, assortment, assemble, combine units, purpose, appeals,
ideas)♣ Developing quality variations
♣ Developing additional models and sizes (product proliferation)
B) INTEGRATION STRATEGY
The essence of integration strategy is as follows;
♣ Integration basically means combining related activities to the current activity of the firm
♣ So, a company may move up or down the value chain to concentrate more closely
on the customers groups and the needs of that group which they are serving
♣ A firm that expands using integration strategy commits itself to its adjacent business as well
♣ Integration is an expansion strategy which results in the widening the scope of the
business definition of a firm
♣ Integration also means a set of diversification strategy as it involves doing
something different from what the firm has been doing presently
CONDITIONS SUITING INTEGRATION STRATEGY
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The conditions under which the firms are motivated to adopt integration strategies;
♣ When the cost of a product used in production is evaluated and make or buydecision has to be taken up
♣ Selling of finished goods against selling through a retailer and the cost associated
with it
♣ Forms usually operate on two dimensions New products
New functions
♣ New products can be made through related or unrelated technology
♣ New functions can range from the firm being its own customer to having an
entirely new products
♣ Based on these dimensions, it is possible to have four types of integration strategies
♣ Integration strategies are broadly classified into two;
Vertical integration
Horizontal integration
FEATURES UNDER VERTICAL INTEGRATION
Features under vertical integration;
♣ When an organization starts making new products that serve its own needs, vertical
integration takes place
♣ Thus, any new activity under taken with the purpose of either supplying inputs(such as raw materials) or serving as a customer for output (such as marketing of
the firms’ products) can be called vertical integrations.
♣ Vertical integration can be classified as;
Backward integration
Forward integration
♣ Backward integration means going back to the source of raw materials♣ Forward integration means the organization moves nearer to the ultimate customer,
even taking up distribution directly
♣ Usually, companies integrate completely but at times due to lack of resources, or uncertainty in the strategy adopted companies opt for partial integration.
♣ Two such partial vertical integration strategies are;
Taper integration
Quasi integration
♣ Taper integration strategies require firms to manufacture a part of their own
requirements and to buy the remaining part
♣ Quasi integration strategy following firms purchase most of their requirement fromother firms in which they have an ownership stake.
Example: Maruthi Udyog Ltd, AV Birla Group etc
♣ Setting or using ancillary industrial units and outsourcing through sub contracts aredifferent forms of quasi integration
♣ Firms can create their own supply sources by providing these ancillary units with
manufacturing requirements such as
Design and blue prints
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Internal or External
Related or Unrelated
Horizontal or Vertical
Active or Passive dimensions either
Singly or Jointly
The following types of diversification strategies are;
♣ Concentric diversification
Market related
Technology related
Marketing and technology related and
♣ Conglomerate diversification
REASONS FROR ADOPTING DIVERSIFICATION:
There are several reasons for adopting diversification strategy. They may be
Minimizing risk by spreading it over several businesses
For capitalizing on organizational strengths and minimizing weakness
When existing business is blocked due to environmental and regulatory factors
reducing chances of growth
Scope for higher profitability
Availability for existing synergies and emerging opportunities
Revising mission statement
CONCENTRIC DIVERSIFICATION
Concentric diversification when taken up by an organization can be defined as
“Organizations taking up an actively in such a manner that is related to the existing business are said to be diversifying concentrically. Thus the changes in the firm can bea combination of customer groups, functions or alternative technologies”
a) MARKET RELATED CONCENTRIC DIVERSIFICATION
When a new product is offered to the same target market
When a similar product is offered with the help of unrelated technology or
alternative technology
Then it is called market related concentric diversification
Example: Medicar Shampoo new Medikar Hairoil
b) TECHNOLOGY RELATED CONCENTRIC DIVERSIFICATION Same product is offered with new technology
New type of product is offered with the help of related technologyExample: Solar Cookers, Water Heaters, Vehicles. Lighting systems, etc
c) MARKETING AND TECHNOLOGY RELATED CONCENTRIC
DIVERSIFICATION:
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A similar type of product / service is provided with the help of related technology
to the same market.
The existing product and technology are extended into new markets.Example: Rural telephony
CONGLOMERATE DIVERSIFICATION
When an organization adopts a strategy which requires taking up activities whichare unrelated to the existing business definition, it is called Conglomerate Diversification.
This diversification can be in terms of customer groups or functions and
technology.
CONDITIONS FOR SUCCESS IN DIVERSIFICATION
♣ Diversification requires meticulous preparation
♣ As it is a resource intensive strategy; diversification can succeed only when it is
backed up by adequate resources
♣ Managers handling diversification should be very competent
♣ All proposals must be screened and pre tested
♣ The industry chosen must be attractive or it should be suitable for being madeattractive
♣ By entering into the industry, the company should gain profits and should not losewhat it already has
CRUCIAL TESTS FOR SUCCESS IN DIVERSIFICATION
There are three crucial tests which indicate the success of a diversification strategy.
They are;
♣ Attractive test
♣ Cost of entry test
♣ Better off test
The attractive test involves in determining if the industry in which or into which
diversification is taking place is attractive or not (suitable – unsuitable). It is done by the
following factors;
♣ Industry growth rate
♣ Industry potential
♣ Industry profitability
♣ Competitive structure of the industry
♣ Likely future or pattern of the industry
♣ Technology related issues and
♣ Other environmental factors
The cost of entry test:
♣ Economics of scale in production
♣ Marketing
♣ R & D
♣ Level of product differentiation
♣ Brand domination
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♣ Channels of distribution
♣ Loss of favourable locations
Better – off test should satisfactorily answer the following EIGHT questions;
♣ Does the diversification add to the corporate fit?
♣ Does it strain the corporate balance?♣ Is the diversification built around the existing business of the firm?
♣ Is the firm moving into totally unrelated areas?
♣ Where does the balance of advantage lie?
♣ It is advantageous to develop concentrically?
♣ What organizational competence needs to be developed for managing a diversifiedfirm? And
♣ List advantageous to diversify into unrelated areas?
D) MANAGING THROUGH COOPERATION
EXPANSION STRATEGIES
Corporate strategies take into account the possibility of mutual cooperation with thecompetitors. This helps in expanding the market potential.
The term cooperation expresses the idea of simultaneous competition and
cooperation among rival firms for mutual benefit.
Cooperative strategies can be of the following types;a) Mergers
b) Acquisitions
c) Joint Venturesd) Strategic alliances
DEFINITION:
The following are the nearest definitions of the cooperative strategies listed.
MERGER:
It denotes the fusion of two or more firms into one company or organization.
ACQUISITION:
This is also termed take over. It is a transaction through which on firm buys up a part or whole of the assets of another company by paying compensation.
JOINT VENTURE:
Two or more firms join together to share the stake and float the business
STRATEGIC ALLIANCES:
Two or more firms arrive at an agreement on certain issues of mutual interest but
however no new firm is created, only working agreement are taken up.
MERGER There are several reasons for the taking up of mergers; they are as given below;
PURPOSE FOR MERGER
♣ Procurement of suppliers:
Protect source of raw materials
Obtain discounts and savings
Transportation costs are reduced
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Standardizing raw materials
♣ Revamping production facilities:
To achieve economies of scale
Better utilization of plant and resources
Standardize product specifications
Improving quality Introducing better technology
♣ Market expansion and strategy:
Eliminate competition
To obtain new market outlets
For diversification or substitution for the present products
Reducing advertising costs
Strategic control of patents and copyrights
♣ Financial strengths:
Improve cash resources
Dispose outdated assets Enhance borrowing capacity
Avail tax benefits
To improve EPS
♣ General gains:
Improve the company image
Attract superior managerial talent offer better satisfaction to consumers
For developing a company’s own mobile
TYPES OF MERGERS:
There are basically four types of mergers
♣ Vertical Merger
♣ Horizontal Merger
♣ Concentric Merger
♣ Conglomerate Merger
♣ Demerger
VERTICAL MERGER:
It is a combination of two or more organizations not necessary in the same
business.
They create complementary either in terms of supply of materials or marketing of
goods / servicesExample: Godrej and Procter and Gamble merged their distribution network for better
distribution of their products.
HORIZONTAL MERGER:
It take s place when there is a combination of two or more organizations in the
same business. Organizations are engaged in certain aspects of production or marketingaspects.
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Example: BrookBond merged with Lipton India Ltd
CONCENTRIC MERGER:
This takes place when there is a combination of two or more organizations related
to each other in terms of customer focus or technologies used.
Example: Dr.Reddy labs combining with centre for Cellular and Molecular Biophysics(CCMB) for testing drugs and pharmaceuticals
Ranbaxy merging with Elility for better R & D facilities in Pharmaceutical sector.
CONGLOMERATE MERGER:
This take place when there is a combination of two or more organizations unrelated
to each other come together to provide benefits to a group of customers.
Example: The RPG group previously established in the two wheeler industry shifted its prospects into a totally unrelated field of Music by first merging with Music India Ltd and
the with HMV
They have now ventured into the retail business
DEMERGER:
♣ Mergers carried out in the reverse are called demergers or spin – off. In other wordswhen an existing business unit of the firm is detached from the main business unit
then it is called demerger.
♣ Demerger involves spinning off (separating) an unrelated business in a diversifiedcompany into a unit which stands separate
♣ It involves free distribution of the company’s shares to the existing shareholders of
the original companyExample: Aptech was demerged from Apple Industries Ltd
MOTIVES BEHIND MERGERS:They are basically of two types;
♣ Defensive / Passive
♣ Offensive / Active
DEFENSIVE MERGER MOTIVES:
This can be further sub-divided into;
Survival requirement motives
Protection motives
The reasons behind survival requirement motives are;
i. Prevention form deterioration of capital structure which results in lossesii. Technological obsolescence
iii. Loss of raw materials can be reducediv. Prevention of market loss to superior products
The reasons behind protection motive can be;i. Protection form market infringement
ii. Lower cost position of a competitor
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iii. Product innovation by others
iv. An unwanted take over
OFFENSIVE MERGER MOTIVE:
This can be further diversified into;
Diversification motive Gains motive
Diversification motive might arise due to;
i. Counter any problems arising due to cyclical changesii. To counter seasonal problems
iii. International operations
iv. Multiple strategic plansGains motive can be taken up due to;
i. Market position
ii. Technological edge
iii. Financial strength
iv. Managerial talents
ASPECTS LOOKED INTO BEFORE MERGERS:
The following are the aspects that need to be considered before mergers;
♣ Financial consideration:
How much is the company worth?
How does the acquire pay for it?
♣ Legal consideration:
Will the government approve the merger?
What are the tax laws?
What legal considerations may prompt take over attempt?
♣ Human resource consideration:
Are the executives of the acquiring company threatening the target
company?
Are the executives of the target company fearing that they will have to leave
the firm?
POST MERGER SUCCESS FORMULA:
The following strategies create better chances of success in the post merger phase;also called the post merger success formula;
♣ Focusing on limiting the financial risk. This can be done by;
Maintaining price disciplines
Pricing ahead of inflation
Reducing the response time to price changes and
Pricing to value
♣ Emphasize on cost discipline to maintain margin
♣ Emphasize financial control over balance sheet items
♣ Emphasize on product discipline by
Exploiting winning products and getting rid of losses
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Redesigning products
Raising the hurdle required for margins on new product entry
♣ Stay close to respective markets by
Building the strength of core product lines
Avoiding excessive diversification
Finding specialized niches for opportunity
SEVEN DEADLY SINS OF MERGERS:
The seven sins which cause the failures of mergers are as given below;
♣ Paying too must when merging
♣ Assuming that a boom market will not crash
♣ Leaping before looking
♣ Straying too far away form the field in which they currently specialize
♣ Swallowing (merging) a company that is too big
♣ Marrying (merging) two diverse corporate culture
♣
Counting that the key employees will stay forever
TAKEOVER STRATEGIES:
Take over and acquisitions are use interchangeably. This strategy has been adopted
by several Indian companies in the post liberalization scenario.
REASONS FOR TAKE OVER (ADVANTAGES)
The reasons for takeover or taking over of a company;
♣ For presence over large geographical area
♣ To avoid long gestation period
(the period taken for the company to function from the time of starting or initiation
to completion)♣ To attain increased growth rate
♣ To achieve a sudden increase in resources
♣ To improve market prices of shares
♣ For investing surplus funds
♣ To acquire trained man power
♣ To fill in the gaps in the existing product line
♣ To have access to another company’s markets
♣ To benefit from tax advantages
♣ For distributing risks
♣
To take a chance to turnaround a sick unit♣ Benefits of economies of scale
Procedure for takeover:
The following is the procedure for take over;
♣ Spell out the objective clearly
♣ Indicate how the objective would be achieved
♣ Assess managerial quality
♣ Check the compatibility of business styles of both the firms
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♣ Anticipate and solve problems early
♣ Treat people with dignity and concern
TYPES OF TAKEOVERS:
There are basically two types of takeovers;
♣ Friendly Takeovers♣ Hostile Takeovers
Friendly Takeovers have negotiations done through intermediaries who bring theconcerns of both the company the result or complete a takeover
Hostile Takeovers are those which are resisted or expected to be opposed by the
existing management or professionals.
DISADVANTAGES OF TAKE OVERS:
The following are the disadvantages of takeovers;
♣ Professionalism is replaced by money power ♣ They are detrimental (bad) to the nations economy
♣ Interests of minority shareholders is not protected
♣ Stress and strain are created in the company’s that are taking over and also among
those facing takeover
TEN COMMANDMENTS FOR ACQUIRING A FIRM:
The following are the Ten Commandments for acquiring a firm, they are;
1. pin point merger objectives (especially financial ones)
2. specify the gains to the stock holders of both the company’s (the company that is
being acquired and the company that has been acquired)3. convince that the acquired company can be made competent
4. do not expect perfection but certify all important resources
5. involve everybody in the merger program
6. clearly define / redefine the business you are in7. take up an in depth SWOT and KSP of both the companies
8. create a climate of mutual trust by trusting problems can be solved
9. do not threaten the management and the employees that are to be acquired10. make people your number one consideration in structuring (developing) your
merger plan
JOINT VENTURE STRATEGIES:Merger can take place in two ways;
♣ absorption
♣ consolidation
♣ Absorption takes place in mergers and acquisitions among companies
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♣ Consolidation takes place when two or more companies combine to form a new
company
♣ Joint ventures are a special case of consolidation where two or more companiesform a temporary partnership for a specified purpose
CONDITIONS FOR JOINT VENTURES:Joint Ventures (JV) are useful under four conditions;
♣ When an activity is uneconomical for an organization to do alone
♣ When the risk of business has to be shared and is therefore reduced when there are participating firms
♣ When the distinctive competence of two or more organizations can be brought
together
♣ When setting up an organization requires surmounting or overcoming hurdles such
as import quotas, tariffs, nationalistic and political interests and cultural barriers.
TYPES OF JOINT VENTURES:From the Indian point of view the following types of Joint Ventures are possible;
♣ Between two firms in one industry
♣ Between two firms across different industries
♣ Between an Indian firm and a foreign company in India
♣ Between an Indian firm and a foreign company in foreign
♣ Between an Indian firm and foreign firm in a 3rd country
STRATEGIC ISSUES IN JOINT VENTURE:
The following are the strategic issues in JV;
♣ They offer advantages of achieving objectives mutually by participating firms
♣ Eliminating, controlling or reducing competition
♣ An increase in the market share can be achieved
♣ Diversification strategies may be adopted by the participating teams
♣ If technology is a critical factor, then JV’s in foreign companies can be feasible
♣ Legal and regulatory hurdles which can arise in external expansion can be
overcome when a JV is established in a third country
♣ Besides the environmental threats in one country, can be overcome by utilizing
opportunities in another company
ADVANTAGES OF JOINT VENTURESThere are several advantages of joint ventures;
♣ Risk minimization
♣ Reduction in investment by an individual company
♣ Access to foreign technology
♣ Broad based equity participation
♣ Access to government and political support
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♣ Entering new fields of business
♣ Synergistic advantages
DISADVANTAGES OF JOINT VENTURES
♣ Problems in equity participation
♣ Foreign exchange regulations♣ Lack of proper coordination among participating firms
♣ Cultural and behavioral differences
♣ Possibility of conflict among partners
STRATEGIC ALLIANCES
They can be defined as,Cooperation between two or more independent firms involving shared control and
continuing contribution by all partners for mutual benefit.
Example: TVS & Suzuki, Mahindra & Ford, BPL & SANYO, Taj Hotels & BritishAirways, Airlndia & Oberoi
TYPES OF STRATEGIC ALLIANCES
The types of strategic alliances are as follows;
♣ Pro competitive alliances
♣ Non competitive alliances
♣ Competitive alliances
♣ Pre competitive alliances
PRO COMPETITIVE ALLIANCES: (Low interaction and low conflict)
They are usually inter industry with vertical value chain relationships, such as
between suppliers and manufacturers
NON COMPETITIVE ALLIANCES: (High interaction and low conflict)These are intra industry partnerships between non – competitive firms
COMPETITIVE ALLIANCES: (High interaction and high conflict)
These firms entering into partnership are rival firms
PRE COMPETITIVE ALLIANCES: (Low interaction and high conflict)
Two firms from different and often unrelated industries are brought together to
work on well defined activities.
REASONS FOR ENTERING STRATEGIC ALLIANCES:
There may be several reasons for entering into strategic alliances; a few are listed
below;
♣ Entering new markets which may be difficult to enter on its own
♣ Reducing manufacturing costs and achieving economies of scale
♣ Developing and diffusing technology by getting the best technical expertise
MANAGING STRATEGIC ALLIANCES
The following are the four principles to manage alliances successfully;
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♣ Clearly define a strategy and assign responsibility
♣ Build up relationships between the partners
♣ Blend the cultures of the partners
♣ Provide a chance for an exit strategy
EXPANSION THROUGH INTERNATIONALIZATIONThe expansion strategy of a company beyond the boundaries of a nation is termed
as internationalization.
MOTIVES BEHIND INTERNATIONALIZATION
The national characteristics which are the reason behind internationalization are as
follows;
♣ FACTOR CONDITIONS: such as raw materials, labour, are cheap or in plenty, thenthat place is chosen for establishing units
♣ DEMAND CONDITIONS: Low, and high fluctuations, high quality requirement and
so on, influence the prospects of internationalization
♣ RELATED AND SUPPORT industries existence of such industries will help in
expanding to new countries♣ FIRMS STRATEGY – if the firms vision is to expand to off shore areas too
♣ THE COMPANY STRUCTURE- too at time causes this, if a part of the production
unit is off shore due to specific reasons
♣ RIVALRY OF COMPETING FIRMS – also causes companies to expand off-shore,
in search of new markets which have either no competitors, new market have fewcompetitors, or create fresh markets.
ENTRY MODES FOR INTERNATIONALISATION
The entry modes for internationalization are three in nature. They are;
♣ Export entry mode
♣ Contractual entry mode
♣ Investment entry mode
Discussing a little in detail, we have;
EXPORT ENTRY MODE:
This mode can be both direct and indirect. Any organization, which exports directly
to the company or customer is in the internationalization mode. Similarly manyorganizations use channelized export (indirect) mode. Where in the export order and
material are sent to an organization, which in turn sells it the customer. This occurs due to
government sanction or for secrecy
♣
Example: In India all edible oils, Spices and movies etc come through indirectmode NDDB, Spices Board, and NFDC are the channel agents, they also are the
mode for export.
♣ Machinery, software etc are usually purchased and sold directly in the exportmarket.
CONTRACTUAL ENTRY MODE:
Organizations can enter into contract with their off-shore partners. There areusually three types of off-shore partnering, they are;
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♣ Licensing
♣ Franchising and
♣ Contracts
LICENSING:
It is a system where the organization plans to give the acceptance for another organization on an off-shore land to do their job (given the key material and also the blue
prints). In other words the off-shore organization is more like an assembling unit and
doesn’t manufacture by its own rule (the R & D, and related decisions). The local companyis supposed to pay, royalty for using the trade mark, logo, brand name etc. the exporting
company doesn’t pay a single dime. But gives the use of copyright and patenting.
However, when considered important R & D is taken up by the licensee also.
FRANCHISEE:
On the other hand is an exclusive retailer or marketer of the organizations servicesor products. The franchisee (an independent business person) abides by the marketing plan
of the original company. They also pay royalty to use the brand and know-how. At times afranchisee is also a licensee with a clause to manufacture too. Thus, franchisees are
licensee and franchisee or they are only franchisees.Example: Licensee and franchisee Pizza hut, Coke etc. Franchisee DHL, standard-
chartered, Citibank
CONTRACTS:
Manufactures can be either a franchisee or a licensee for a special period of time,
which is also termed the contract period, which is clearly specified in the writtendocuments called contract. This contract also specifies the terms and conditions of the
contract or the arrangement (agreement) during the period of the contract.
INVESTMENT ENTRY MODE:
The types of investment entry mode in internationalization are;
♣ Joint Venture
♣ Foreign Direct Investment
♣ Subsidiaries
JOINT VENTURE
Strategy where in an organization joins another counterpart off-shore to invest in
mutually beneficial venture which provide greater profits. Also , to get synergistic results.
Example: Suzuki motors with Maruthi and TVS. Electrolux with Kelvinator
FOREIGN DIRECT INVESTMENT:
In this form of internationalization, the partnering organization only invests into thefinancial part of the firm. This investment can be in the initial investment of the firm
(capital) or it can be made for the working capital, expansion capital, capital for R & D etc
Example: Hyundai, HM with GM, etc
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SUBSIDIARIES
These are branches or ancillary units of the main organization existing off-shore.
They also can be sister concern which offer allied services to the consumers along with theoriginal brands. So, a subsidiary provides services suitable to the customers of that area
along with the original ones.
Example: HLL for Unilever, Kwalitywalls for Walls etc
TYPES OF INTERNATIONAL STRATEGIES
Based on the response given by local customers (local responsiveness) to
international products. Besides this, the cost pressures, which arises due to distribution, R & D services etc, which are to be provided, the international strategies are classified into
four:
Pressures for High Local Responsiveness Low
CostPressures
Low
Understanding the key features of these four strategies, we have;
GLOBAL STRATEGY
The features of global strategy are;
♣ Stick to a few products
♣ Concentrate on production standards
♣ Provide the same products through out the world
TRANSNATIONAL STRATEGY
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STRATEGY
TRANSNATIONAL
STRATEGY
INTERNATIONAL
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The features of this strategy are;
♣ Flows of expertise are better
♣ Creativity to reduce costs and maintain local responsiveness
INTERNATIONAL STRATEGY:
The features of this strategy include♣ Creation of value by transferring products and services
♣ Offer standardized products with little (or) no differentiation worldwide
♣ Keep a tight control over the overseas operations
MULTI DOMESTIC STRATEGY
The features of this strategy include
♣ Try to match the products and services offered in the local market to the ones
offered in the international market
♣ Customize products and services to the local conditionsExample: Lux, Colgate, etc
MERITS OF INTERNATIONAL STRATEGIES
Firms opting for International strategies will have following merits;
♣ Lower costs
♣ Increased sales and higher profits
♣ Ample opportunities
♣ Economies of scale
♣ Use of extra operational capacity and
♣
Above average returns
DEMERITS OF INTERNATIONAL STRATEGIES
The following are the demerits when a firm opts for international strategy;
♣ Greater (or) higher costs if failure occurs
♣ Uncertainty in economic and political environment
♣ Difficulty in managing cultural diversities
♣ Cost of co-ordination is high
♣ Communication and distribution are difficult and
♣ Trade barriers
HARVESTING STRATEGYIt is one of the internal growth strategies. It is also called as Profit Sub-Strategy. It
is usually taken up by large organizations for specific businesses (product (or) marketdivision) when generations of cash flow are important (or) are the prime concern. This is
taken up to ensure stability in the organization.
The circumstances promoting such a strategy may be one (or) more of thefollowing;
♣ Declining product market of a unit
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♣ Nature of expansion required being too costly
♣ Small percentage contribution of the business unit to the total scale of the
organization
♣ Funds available having better use
♣ Maximizing the return on investment when it is the right time, and
♣ To quit the product – market before it is too late
FORCED STABILITY STRATEGY
This is considered desirable when external and internal conditions are not
favourable for growth. The usually created problems are pertaining to resource constraints.
They are as follows;
♣ Tight conditions in capital and money markets
♣ Normally accessible sources of finance can no longer to tapped
♣ The drying of loan able revolving funds of development banks
♣ Changes in income distribution in the economy, and
♣ Competition due to liberalization of imports
INTENSIVE GROWTH STRATEGY
The strategy has the following features;
♣ Internal growth consists of
Increasing sales revenue
Increase of profits
Increase in the market share of the existing product line or services
♣ It involves the concentration of resources in a high – growth (or) market segmentand is widely used in the industry
♣ If the product is not in the maturity stage of the life – cycle, this is an attractive
strategy
♣ It is often limited to firms with a small market share irrespective of whether the product is in the high growth stage (or) maturity stage of the life cycle
There are several ways to achieve it:
♣ Increasing the volume of scales of existing products in unexplored sectors of the
economy
♣ Increasing sales by encouraging new uses of the existing product in the samemarket
♣ Increasing primary demand for the product at the same price and with the existing
organizational set up
♣ Increasing the sales volume by introducing minor modifications in the product and
entering new product segments
♣ Increasing sales in new geographic areas with in the country (or) in markets abroad
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♣ Increasing sales volume on the basis of new pricing policy, offering economy
packs, exchanging old goods for new at discounted rates, discriminatory pricing inrural and urban areas
RETRENCHMENT STRATEGIES
♣ This grand strategies is followed when an organization substantially reduces thescope of its activities
♣ This is done through an attempt to find out the problem areas and diagnose the
causes of the problem
♣ Steps are to be taken to solve the problems
There are different kinds of retrenchment strategies, they are;
♣ Turnaround strategy
♣ Disinvestment / Divestment / Divestiture
♣ Liquidation strategy
SITUATIONS WHEN RETRENCHMENT STRATEGY CAN BE ADOPTED:
The prospects of industries and markets are threatened by various external and
internal developments.
The external development can be;
♣ Adverse government policies
♣ Demand saturation for the product
♣ Emergence of substitute products
♣ Changing customer needs and preferences
The internal or company specific developments are;
♣ Power management
♣ Wrong strategies
♣ Poor quality of functional management
SYMPTOMS OF DECLINE
Symptoms of decline are reflected in
♣ Diminishing profitability♣ Dwindling cash flow
♣ Falling sales
♣ Shrinking market share or land
♣ Increasing debt
RECOVERY SITUATION
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All downfall or decline situations are not hopeless. There are chances of recovery.
There are basically four recovery situations;
♣ Realistically non recoverable situations
♣ Temporary recovery situation
♣ Sustained recovery situation
♣ Sustained survival situation
REALISTICALLY NON RECOVERABLE SITUATIONS
This situation arises when;
♣ The company is no longer competitive
♣ The potential for improvement is low
♣ There is a cost disadvantage
♣ The demand for the basic products or service is in decline
In this case the company has very little chance of survival.
TEMPORARY RECOVERY SITUATION
This situation arises when in a company;
♣ There could be initial successful retrenchment but no turnaround
♣ Repositioning of the products is possible
♣ New forms of competitive advantage have to be found
♣ Cost reduction and revenue generation is possible
SUSTAINED RECOVERY SITUATION
A genuine and successful turnaround is possible in these cases;
♣ It is usually because of new product development and / or market repositioning
♣ However, the industry must still be attractive enough
♣ Possibly, the decline was caused by more of internal reasons than external reasons
SUSTAINED SURVIVAL SITUATION
In these cases turnaround is achievable. The industry in this case may be in the
process of slow decline.
♣ A company in this case can go for divestment or turnaround
♣ This is possible only if the company sees a niche market in the industry
♣ The company can by itself have a niche and thus seize the chances of surviving and
then becoming the leader later on
PATH CHOSEN
♣ If the organization chosen to focus on ways and means to reverse the process of
decline, it adopts the turnaround strategy♣ If it cuts off loss making units, divisions or strategic business units, similarly
reduces its product line or the functions performed, then it can adopt a divestment
strategy
♣ If none of these actions work, then it may choose to abandon the activities totally
resulting in a liquidation strategy
DANGER SIGNS BEFORE TURNAROUND
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An organization which faces one or more of the problems referred below, is termed
as a sick company
♣ Persistent negative cash flow
♣ Declining market share
♣ Deterioration in physical facilities
♣ Over manning, high turnover of employees and low morale♣ Uncompetitive products or services
♣ Mismangement
MAJOR APPROACHES FOR TURNAROUND STRATEGIES
The major approaches include;
♣ Reducing costs
♣ Increasing revenue
♣ Reducing assets
♣ Reorganizing products and / or markets
REDUCING COSTS:
This can be achieved by;
♣ Cutting down the number of employees by lay – offs
♣ Reducing less crucial maintenance work
♣ Trimming allowances to executives
♣ Using less expensive stationary
♣ Leasing equipment and machinery than purchasing it
INCREASING REVENUE
This can be done by;
♣ Better investment of cash and current assets♣ Tighter inventory control
♣ Better collection of receivable
♣ Use of more effective advertising, sales promotion etc
♣ Generating and increasing the sales and profit without increasing expenditure
REDUCING ASSETS:
This can be any one or many of the following;
♣ Selling unutilized land
♣ Selling away equipment no longer needed
♣ Selling away prior purchased equipment which was bought for expansion plans, butdue to known or unknown reasons, the expansion didn’t take place
REORGANISING PRODUCTS AND / OR MARKETS: can be taken up in thefollowing way;
♣ Change in the pace of production
♣ Dropping some products or markets
♣ Dropping pans of vertical integration
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♣ Divestment is a part of the rehabilitation or restructuring plan that is adopted when
a turnaround has been attempted but has proved to be successful
♣ The reason for disinvestment is taken up, can also be because a turnaround strategycannot be used.
REASONS FOR DIVESTMENTThe reasons for divestment may be;
♣ A business that had been acquired proves to be a mismatch and cannot be
integrated within the company
♣ Continuous negative cash flows from a particular business creates financial
problems for the whole company
♣ Severity of competition and the inability of a firm to cope with it may cause it todivest
♣ Investing the required technological up gradation, essential for the survival of
business is not possible here
♣ Better alternative may be available for investment, so selling away unprofitable
businesses will create chances for investment♣ Due to legal provision
♣ It may also be a part of a merger plan or exchange plan with another company
APPROACHES TO DIVESTMENT
There are two approaches basically;
♣ A part of the company is divested by separating it from the main company andspinning it off (functioning) as a financially and managerially independent
company. The parent company may or may not retain partial ownership right
Example: Timex division being separated from Titan Division
♣ The next option is to sell it out right
Example: TOMCO (Tate Oil Mills Company) was sold outright to HLL
Lakme was sold outright to HLL by Tata’s
Thus, it is not just failures that are disinvested careful thinking and planning give
raise to ideas of disinvesting unprofitable lines of business and divesting the resourcesto better investment option. Or companies may try to concentrate in a core sector where
there are larger or greater chances of expansion or market leadership, due to better edge
over competitors (core competency) and so on.
LIQUIDATION STRATEGIES
An extreme form of retrenchment strategy is the liquidation strategy. It involves
closing down a firm and selling its assets
Liquidation: (Undesirable or Difficult)
Liquidation is undesirable or difficult because;
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♣ It is considered as a lost resort because it leads to serious consequences such as
unemployment of worker, termination of opportunities, where a firm could persueany future activities and the stigma (feeling) of failure
♣ Political, legal and social problems arise buyers for a company is difficult to find.
There is usually inadequate compensation as the assets are considered unusable or
scrap
LEGAL ASPECTS OF LIQUIDATION
Under the Companies Act 1956 in India, liquidation is termed as ‘winding up’.Liquidation or winding up according to the act may be done in three ways.
♣ Compulsory winding up under an order of the court
♣ Voluntary winding up
♣ Voluntary winding up under the supervision of the court
COMBINATION STRATEGY
Companies adopt more than one grand strategy at times, then they are said to
persue combination strategies.The combination strategies (usually stability, expansion and at times retrenchment)
are adopted by any organization in three ways;
♣ Simultaneous adoption – two or more strategies are taken up at the same time
♣ Sequential adoption – adopting one strategy after another
♣ Simultaneous and sequential adoptionExample: The TATA’s after disinvesting in TOMCO, Lakme, used the amount
obtained in the development of R & D infrastructure in TATA motors for developing
LCV’s like INDICA. Also this amount was partially invested in establishing textileretailing of readymade apparels WESTSIDE
END GAME STRATEGIESSuccessful end game strategies are
♣ Internal expansion
♣ Internal stability
♣ Internal retrenchment
♣ External stability
♣ External retrenchmentThe possible strategy variations are;
Internal like: - reducing costs and assets
Dropping products, markets and / or functionsExternal like: - Liquidation
Divestment and bankruptcies
Related like: - Elimination of related products markets or functionsUn related Like: - Elimination of unrelated products, markets or functions
Horizontal like: - elimination complementary products or markets
Vertical like: - reducing functions
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These in short are end game strategies
Thus, this clearly gives a picture of the various strategies adopted by industries in
day – to – day functioning of organizations.
UNIT – V
EVALUATION / CHOICE OF STRATEGY
STRATEGY IMPLEMENTAION
DEFINITION
“Strategy Implementation is the process by which strategies and policies are put
into action through the development of programs, budgets and procedure” – MICHEAL
“The sum total of the activities and choices required for the execution of a strategic
plan”
Once the strategy is formulated, they are implemented on the basis of the following
six steps, namely;
♣ Structure
♣ Policies and directions
♣ Resources commitment
♣ Leadership
♣ Motivation
♣ Power and politics
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1 , 1 – impoverished Manager
1 , 9 – country club Manager
5 , 5 – Middle of the Road Manager 9 , 1 – task Manager
9 ,9 – Team Manager
MOTIVATION
Proper motivation can be achieved by using the proper care like coercive power,
rewarding power. Thus, properly motivating people to go ahead. Here one should mentionthe Mckinsey’s 7s frame work as all those elements together form a structure and together
work motivated, a loss of one S will result in the loss of entire structure.
Diagram
POWER AND POLITICS
The upliftment and also the downfall can be caused due to power. Thus, proper care
has to be taken exercised while using power whereas the politics is the undue influence
exercised for the good (or) lead for an individual (or) the occurrence of an event away from
the path (or) course of actionWhen these steps are properly taken care, then strategy implementation becomes
easy and also it becomes easy to achieve our goals
MANAGEMENT BY OBJECTIVES (MBO)
MBO or management by objectives is defined as;
“a technique need for improving the performance of management. It shapesa clearly structured, generally applicable implementation methodology out of the
various new concept and theories of management”.
It is also called as “result management” or “management by results”.
STEPS IN MBO OR PROCESS OF MBO
The following are the steps in MBO;
Setting objectives
Developing action plan
Conducting periodic review
Appraising annual performance
PRECAUTIONS FOR MBO PROCESS:
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ADVANTAGES
The advantages of MBO are as follows;
Provides a basis for planning
It provides meaning and direction to people
Better coordination is possible
It constitutes standards and so it is a controlling measure
It is a motivating device
It shows the path to the management to think ahead
It makes individual know what is expected to them
It makes individual more aware of the organsiational goals
It makes evaluation process more equitable by focusing on specificaccomplishment. It also lets subordinates know their objectives will
DISADVANTAGES
The limitations of MBO are as follows; Not all accomplishments can be quantified
This may cause tension and resentment
It is difficult for the superiors to help instead of judging the subordinate
Not all people are capable of participating and
Awareness of MBO is very limited among personnel, especially about its merits.
MANAGEMENT BY EXCEPTION (MBE)
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OBJECTIVE ACHIEVEMENT
YES NO
DO WE REVISE GOAL STANDARDS
OR TARGET WHAT IS THE REASON?
YES NO NEED OF SKILLOTHER REASON
RESULTS ARESATISFCTORYBY HOW MUCH IMPROVE IMPROVE
HOW? HOW?HOW? HOW?
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Management by Exception or MBE is a system of identification and
communication that signals to the manager when his attention is needed. This involves the
use of MBE particularly in the controlling aspect. Thus, it can be stated that MBE is acontrolling technique
PROCESS OF MBEThe basic steps in the process of MBE are
Measurement
Projection
Selection
Observation
Comparison
Decision-making
Now, understanding each of these steps in detail. We have,
Measurement:
By assigning values to past and present performances, exceptional areas can beidentified.
Projection:
All the values that are meaningful to the organizational objectives are to be
extended (projected) to see further or future requirements (whether they can be achieved or
not)
Selection:
this involves criteria and method which the management will use to follow the
progress path towards organizational objectives.
Observation:
Current performances are observed and measured so that managers are aware of the
current state of affairs in the organization.Comparison:
It involves the evaluation of the actual performance against planned performance,
identifying the exceptions that require attention and reporting the variations to the
management.
Decision-Making:
This involves prescribing the action that must be taken in order to bring
performance back into control or to adjust expectations to reflect changing conditionswithin and outside the organization or to exploit the opportunity.
DIFFERENCE BETWEEN MBE AND OTHER PRACTICES
The difference between MBE and other practices is as follows; Superiors’ attention is drawn only in the case of exceptional difference between
planned performance and actual performance.
When there is no such large or exceptional differences, the decisions are taken bysubordinate manager
All exceptional work should go through the entire process till normally isestablished.
ADVANTAGES
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The following are the advantages of MBE
Executives are left with more time to tackle bigger and tougher issues as the detailsof small problems are left to the subordinates
There is better utilization of managerial talent across the organization as, even the
subordinates get to implement their own decisions and solve problems in their own
way, however small they may be It increases the span of management and delegation of authority is improved
It provides greater opportunities and thus increases confidence and motivation
It uses the latest knowledge on trends, history and business data
It forces every manager to be thorough and precise and also upto date with all
relevant information.
It helps to identify problems before they become big
It also prevents last minute rush and panic
Qualitative and quantitative yardsticks can be established judging the situations and
people
Increased chances of better performance appraisal and hence improves motivation
Communication is improved between different segments of an organization
Better organizational cohesiveness for the achievement of objectives
The focus on results causes it to identify any problem in any part of the
organization
LIMITATION
The limitations on MBE are as follows;
Newly established organisations’ and organizations with a dynamic environment
(fast changing) cannot adapt this technique easily
Establishing standards i.e., both qualitative and quantitative takes a lot of time and
involves a lot of effort and precision (accuracy) Proper (situation) and knowledgeable subordinates need to be found, which is a
difficult process
Subordinate act out of over confidence and think they can handle bigger problems
too. Thus, often tougher problem go unreported and by the time it comes to thesuperior, it is many times too late to set things right.
Keeping track of all the latest trends is often tedious (tough) and at times
inaccessible (unreachable) to all subordinates
Too much of precision and accuracy leads to magnifying even the slightest change
in trend and creating problems for the organization and the executive
Superseding (over looking) superiors in the vital communication process is possible
Training subordinates to be almost at the level of superiors, but still retaining themat the lower level, often leads to demotivation and stress among individuals.
Too much of focus on result leads to lack of quality in the process.
MCKINSEY’S 7S (6S) FRAME WORK:
Peters and Watermann, the two organizational scientists came forward with the
Mckinsey 7S frame work to give an idea about the inter – relations that exists in the
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organizations among the staff or workers and the management. They evaluated and
categorized 22 components into 7 distinguishing or distinguished categories. They are;
1. structure2. strategy
3. system
4. styles5. skills
6. staff and
7. shared values
Now understanding these categories in detail, we have;
STRUCTURE:
The attributes of the organization which can be expressed through an organizationchart such as span of control, line of command, communication network, authority,
responsibility, centralization, decentralization etc come under this.
STRATEGY:
Actions that an organization plans or undertakes in response to a particular situationor in anticipation of any future development in the external environment are termed
strategy.Example: an increase in the demand (future) if expected results in extra production. This in
term means greater intake of raw materials (inventory policy) adjustments and reallocation
of personnel (production policy) to the production department. These may lead tovacancies resulting in new recruitment (personnel policy). All this would require additional
financial resources (financial policy) and to bet back the investment, the product should be
thoroughly marketed (sales and marketing policy).
SYSTEMS:
Procedures and process regularly followed by an organization, so as to improve its
efficiency and eliminate wastage.
STAFF:
The kinds of specialties / professions that are required and represented in an
organization. Because specialized staff handle specialized jobs.
Example: engineers in production, accounting and financial experts for income and profitcalculations, MBA’s for administration etc.
SKILLS:
Distinctive attributes and capabilities of the organization and its people in
comparison with its competitors.Example: Highly expertise technical staff, greater creativity among employees etc.
STYLE:
Patterns of behaviour and managerial styles of senior manager’s which influence all
the employees positively.
SHARED VALUES:
Spiritual or philosophical principles and concepts that an organization is able to
instill in its members.
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The first three components i.e., the systems, structure and strategy do not change or
vary regularly. They are adapted according to the changes in the organizations’
environment and thus are termed HARDWARE.The remaining three in other words, staffs, styles and skills, need to be altered on a
regular basis to help in effective and efficient functioning of the organization. That is the
reason why the overall skills of the staff are repetitively altered through training. The stylesare modified by giving additional responsibilities and thus the entire staff can be improved
by job enlargement, enrichment or rotation. Hence as these components are very malleable,
they put together are termed SOFTWARE.The key binding factor between these two is the core ideology, mission, vision or
the core values for which the organization has been established and exists.
This frame work is the idea of an ideal organization.
STRATEGY EVALUATION TOOLS AND TECHNIQUES:
The strategies made by the company’s or chosen by the organizations have be
evaluated. There is a need to assess if the strategy chosen is correct or not. It is for the
purpose that the following tools or techniques are use. They are;♣ Boston Consultancy Group Matrix (BCG Matrix)
♣ General Electric Company Matrix (GEC Matrix)
♣ HOFER’S product / Market Evolution Matrix
♣ Directional Policy Matrix
♣ Strategic Position and Action Evolution (SPACE) strategy Matrix
♣ Corporate Parenting Analysis (or) Parenting Fit Matrix
♣ TOWS Matrix
♣ ARTHUR D’LITTLE company Matrix Now understanding each of these matrices in detail we have;
BOSTON CONSULTANCY GROUP (BCG) MATRIX:
The Boston Consultancy Group which actively involves in developing strategies
for organizations, based on their products, market share in relation with the market growthrate come up with the concept of the BCG Matrix:-
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Diagram
The relative market share refers to the organization’s (strategic Business Unit or
SBU) market share in relation to the largest competitors in the segment. It serves as a
measure of the company’s’ strength in the relative market segment.The market growth rate indicates the annual growth rate of the market in which the
business operates.
QUESTION MARKS:
♣ These are the products of an organization or SBU’s which are surviving in a
high growth market but have relatively low market share.
♣ A lot of cash is required to maintain them as functioning products / SBU’s
♣ It also requires a lot of person plant, equipment and time.
♣ The organization has to think hard whether to keep it or remove it becausemaintenance involves lot of cash.
♣ If they are successful, they increase the company’s image and thus bring out
cash later.
♣ Every company is thus advised to invest in one or two question marks.
STARS:♣ If a question mark is successful, then it is termed as a star
♣ It is a market leader in a high growth market.
♣ However, it need not necessarily produce positive cash flow for the organization
♣ The organization has to spend large amounts of money to keep up the fight againstcompetition.
Example: Rin soap during its introductory period Ujala liquid blue …..
CASH COWS:
♣ When the market’s annual growth rate slows down, then a star becomes cash cow
♣ They have large market share
♣ They earn a lot of cash for the company
♣ There is no need to expand the organization as the market is slow
♣ Economies of scale are practiced as it is a leader
♣ They bring high profit margins
♣ This money can be used to develop future SBUs or Products
DOGS:
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♣ Weak products in weak markets are termed dogs, same in the case of SBUs
♣ They have low profits and so may even bring losses
♣ For sentimental reasons, they are continued in production
♣ Unless a term around take place they can be let off.
The general tendencies of the market are to build on the question marks as they may in the
future become stars. The cash cows are to be milked for the maximum profits possible.Harvesting i.e., R & D, investment, to eliminate wastage, wear and tear are taken up for be
earned. Lastly, the products or SBU’s which are functioning bad under question marks and
dogs need to be divested or let off.
GENERAL ELECTRIC COMPANY MATRIX:
The GEC Matrix identifies the business strengths and find out or give solutionabout how to proceed.
BUSINESS STRENGHTS
MARKET
ATTRACT
IVENESS
PRODUCT
POSITION:
♣ Invest to grow at maximum digestible speed
♣ Concentrate effort on maintaining strength
Example: Colgate
INVEST TO BUILD:
♣ Challenges for leadership
♣ Build selectively on strengths
♣ Reinforce vulnerable areasExample: Chick Shampoo
BUILD SELECTIVELY: I
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STRONG MEDIUM WEAK
HIGHPROTECTPOSITION
INVEST TOBUILD
BUILDSELECTIVELY
MEDIUMBUILD
SELECTIVELY
SELECTIVITY
/ MANAGEFOR
EARNINGS
LIMITED
EXPANSION
(OR)HARVEST
THRUST
LOWPROTECT AND
REFOCUSMANAGE FOR
EARNINGSDIVEST
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♣ Specialize around limited strengths
♣ Seek ways to overcome weakness
♣ Withdraw if indications sustainable growth are lacking
Example: Tide Washing Powder
BUILD SELECTIVELY: II♣ Invest heavily in most attractive segments
♣ Build up ability to counter act competition
♣ Emphasize profitability by arising productivityExample: Ariel washing powder, Whirlpool home appliances.
SELECTIVELY MANAGE FOR EARNINGS:
♣ Protect existing programs / products
♣ Concentrate investments in segments where
♣ Profitability is good and risks are relatively low.
Example: Pepsodent G
LIMITED EXPANSION (OR) THRUST FOR HARVEST:
♣ Look for ways to expand without high risk or
♣ Minimize investment and rationalize operations
Example: Aircel (RPG wings)
PROTECT AND REFOCUS:
♣ Manage current earnings
♣ Concentrate on attractive segments
♣ Defend strengthsExample: Pizza hut, Basking Robbins
MANAGE FOR EARNINGS:
♣ Protect position in most profitable segments
♣ Upgrade product line’
♣ Minimize investmentExample: Fair and Lovely, Dettol
DIVEST:
♣ Sell at a time that will maximize cash value
♣ Cut fixed costs and avoid investment till the asset can be disposed off or turnaround
Example: Chandrika
HOFER’S PRODUCT / MARKET EVOLUTION MATRIX:
The following is the grid or matrix for Hofer’s product / market evolution, where inA, B, C, D and E are assumed to be different products or businesses.
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DIAGRAM
Hofer and Schnnedel proposed a 15 cell matrix, similar to the 9 cell GEC matrix.This matrix considers the stages of development of the product or market the competitive
position of these different products / business of a company’s corporate portfolio or list.
♣ Business A is a high potential one and thus deserves lot of investment to expand
♣ Business B has to expand cautiously as it may have to drop off heavy loads whenentering the next stage. So, during investment if proper care is taken then
unnecessary investment can be stopped, saved or reduced.
♣ Business C is a losing business and thus has to be discarded or shaken out.
♣ Business D is an old business which is well established and generates a lot of cash
which can be diverted to A and B
♣ Business E is a potential loses which is declining and can be considered for
disinvestments
This matrix thus, portrays a corporate portfolio with high level of accuracy andcompleteness.
DIRECTIONAL POLICY MATRIX:
This policy matrix was developed by shell chemicals UK, using the two parameters
of ‘Business Sector prospects’ and ‘company’s competitive activities’.
Factors affecting business sector prospects as unattractive average or attractive,such as
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♣ Market growth
♣ Market quality
♣ Market supply and so on
BUSINESS SECTOR PROSPECTS
COMPANY’S COMPETITIVE ABILITIES
These are combined with the organisations’ strengths and weakness to evaluate therisk to the organiations and its products based on the environmental threats and the
probability of their occurrence.
STRATEGIC POSITION AND ACTION EVALUATION (SPACE) STRATEGY
MATRIX:
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UNATTRACTIVE AVERAGE ATTRACTIVE
WEAK DISINVESTMENT IMITATION /
PHASEDWITHDRAWN
PHASED
WITHDRAWAL/CASH GENERATION
AVERAG
E
PHASED
WITHDRAWAL /
MERGER
MAINTENANCE
OF POSITION /
MARKET
PENETRATION
EXPANSION /
PRODUCT
DIFFERENTIATION
STRONG DIVERSIFICATION/
CASH GENERATION
GROWTH /
MARKETSEGMENTATION
MARKET
LEADERSHIP /INNOVATION
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This approach considers the company’s strategic position in relation with the
strategic position of the industry.
Diagram
The company’s strategic position is determined on the basis of the financialstrength (ROI, leverage, liquidity, etc) and competitive advantage (market share, product
quality, etc). The industry’s strategic position is based on industry strength (growth and
profit potential etc) and environment stability (technological changes, competitive pressures etc)
When these two positions are combined four strategies are evolved. They are;
Aggressive - divestment, liquidation and vertical integrationDefensive - divestment, liquidation and retrenchment
Conservative - stability, conglomerate diversification
Concentric - concentric merger, conglomerate merger and turnaround
CORPORATE PARENTING ANALYSIS: PARENT FIT MATRIX
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This matrix analyses the aspects of a new venture. Compbell, Goold and Alexander
suggested that the manner in which the centre manage and nurtures the individual business
is known as corporate planning. The total corporation is viewed in terms of resources andcapabilities, which can be used to build individual business as well as create synergies
across these businesses. (Especially and only diversified business)
diagram
Besides, this matrix views the organization in totality as a diversified corporation
and focuses on the value added or created from this relationship between the parent (main
company) and its children (other business)Thus, this matrix mainly addresses what businesses should a diversified corporation
own and why?
What organizational structure, management process and philosophy will faster
superior performance from the individual business unit?The following five different strategic positions results, with its own rules for
corporate strategy and critical success factor.
HEARTLAND BUSINESSES:
The parent company plays a good role of knowing the critical success factors of the
child business and thus, there are opportunities for the parent to make improvement.
EDGE – OF – HEARTLAND BUSINESS:
In this some characteristics are known by the parent company and they fit well into
the parent company, but a few do not. Thus, these are a need for understanding betweenthe parent and the child. Expansion strategies are suitable provided if the parent has the
necessary confidence to devote a large investment of both time and money to these
businesses.
BALLAST BUSINESS:
These fit well with the parent company, but have very few opportunities for improvement by the parent. These are business which have been established long time
back and are still surviving. They contribute (or give) a lot to the business, but may also
drag the parent. A is the parent cannot do anything it is better to retrench these at the right
time if the opportunity cost is higher than the expected future cash flows.
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ALIEN TERRITORY BUSINESS:
They have very little opportunity as they are misfits between the characteristics of the parents and the business and critical success factors. These are a result of misguided
diversification in the past. Retrenchment strategy is the best under the circumstances.
VALUE TRAP BUSINESS:
These have good parenting opportunities but are a misfit with the understanding of
the other units of the parent. These are the business which have very good growth but donot suit the parent’s core competencies. They should be avoided, retrenched or left to
function separately.
TOWS MATRIX:
This theory was proposed by Heinz Weihrich. This is an important strategy
formulation matching tool. The TOWS matrix alternative strategies are listed below;
Diagram
W – T STRATEGY:
The W – T or the mini – mini strategy seeks to minimize the weakness and threats.They can be even overcome. In some cases an unprofitable business that cannot be revived
may be given up.
W – O STRATEGY:
The W – O or mini – maxi strategy aims at mini – missing the weaknesses and
maximizing the opportunities. The solutions are to given thrust to R & D and to develop
technology. Measures to reduce the time lag and this is to be in a better position to exploitthe opportunities. Maximize on the growing demand.
S – T STRATEGY:
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The S – T or maxi – mini strategy attempts to use the organizations’ strategy to deal
with environmental threats.
S – O STRATEGY:
This maxi – maxi strategy, which is the most desirable and advantageous strategy,
seeks to mass up a firm’s strengths to exploit the opportunities.
ARTHUR D’LITTLES COMPANY MATRIX:
DOMINANT
STRONG
FAVOURABLE
TENABLE
WEAK
EMBRYONIC GROWTH MATURITY DECLINE
This matrix identifies the product life cycle (PLC) with the business positions. This
uses the link of whether or not to continue in the business of manufacturing a product, if the product in itself is on the decline then, there is no need to further proceed in the
business in its self. i.e., manufacturing of the product.
Based on the above criterion, the four stages of PLC can be plotted against the 5stages of business strengths to get four strategies. They are;
♣ Build (increase investment, and time)
♣ Hold (expand, improve R & D)
♣ Harvest (encash as mush as possible)
♣ Unacceptable (Sell off it ROI is difficult)These in brief are the commonly used strategy evaluation tools or techniques.
GENERIC COMPETITIVE STRATEGIES:
These strategies are also called Michael Posters’ Generic strategies. They are thetypes of competitive advantage being pursued against the target market.
Diagram
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The different types of strategies are
♣ Overall cost leadership strategy
♣ Broad differentiation strategy
♣ Best cost provider strategy
♣ Focused low cost strategy
♣ Focused differentiation strategy Now, understanding these strategies in detail we have;
LOW COST PROVIDER STRATEGY:
This is also called cost leadership strategy. The overall low cost leadership strategyis the appeal (favour) to a large and varied (different) customers based on being the overall
low cost provider of a product or services.
BROAD DIFFFERENTIATION STRATEGY:Seeking to differentiate (separate) the company’s product, offering in such a way
which is different from the competitors that will be appealing (liked) by a wide variety of
customers.
FOCUSSED LOW – COST STRATEGY:
Concentrating on a narrow buyer segment (niche) and overcoming competition by
serving these members at lower cost than rival companies.
FOCUSSED DIFFERENTIATION STRATEGY:
Concentrating on a narrow buyer segment (niche) and overcoming the rivals by
offering these consumers certain specific product attributes (quality, cost, range,availability, guarantees, service, etc) that meet their, tastes and requirement better than
rivals’ product
BEST COST PROVIDER STRATEGY:
Giving customers more value for their money by incorporating good – to – excellent product attributes at a lower cost than competitors. The target is to have the
lowest (best) costs and prices compared to competitors who are offering products withcomparatively costlier or higher attributes.
Each of these strategies is unique to compete and operate.
Thus, we can define strategic implementation clearly now.
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DR.SHANTHI LATHA/ASST. PROFESSOR/DEPT. OF MBA/SATHYABAMA UNIVERSITY
RELATIONSHIP OF IMPLEMENTATION TO THE PRODUCT LIFE CYCLE
Functionalfocus
R & D Production Marketing Physicaldistribution
Precommercialization
Coordinationof R & D
and other functions
Reliabilitytests release
blueprints
Productiondesign process
planning purchasingdepartment
lines up
vendors and
subcontractors
Testmarketing
detailedmarketing plan
Planshipping
schedules,mixedcarloads
rent
warehouse
space,trucks
Introduction Engineering:
debugging in
R & D
production,and field
Technical
corrections
(engineering
changes)
Subcontracting
centralize pilot
plants; test
various processes;
developstandards
Induce trial:
fill pipeline:
sales agents
or commissioned
salespeople; publicity
Plan a
logistics
system
Growth Production Start
successor product
Centralize
production phase out
subcontractors
expeditevendors
output; long
runs
Channel
commitment brand
emphasis
salaried salesforce, reduce
price if
necessary
Expedite
deliveriesshift to
owned
facilities
Maturity Marketing
and logistic
Develop
minor variants
reduce costs
through
valueanalysis
originate
major adaptations
to start newcycle
Many short
runsdecentralize
import parts,
low – priced
modelsroutinization
cost reduction
Short-run
promotionssalaried sales
people
cooperative
advertisingforward
integration
routinemarketing
research: panels, audits
Reduce
costs andraise
customer
service
levelcontrol
finished
goodsinventory
Decline Finance Withdraw
al l R & D
from initialversion
Revert to
subcontracting
simplify production
line careful
inventory
Revert to
commission
basis;withdraw
most
promotional
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DR.SHANTHI LATHA/ASST. PROFESSOR/DEPT. OF MBA/SATHYABAMA UNIVERSITY
control; buy
foreign or competitive
goods; stock
spare parts
support raise
price selectivedistribution
careful phase-
out,
consideringentire channel
Personnel Finance Management
accounting
other customer co
Pre
commercialization
Recruit for
new activities
negotiateoperational
changes withunions
Life – cycle
plan for cash
flows profits,
investmentssubsidiaries
Payout
planning; full
costs/revenuesdetermine
optimumlengths of life-cycle
stages through
present-value
method
Final legal
clearances
(regulatoryhurdles,
patents)appoint life-cycle
coordinator
Panels and
other test
respondents
N
op
is sim
Introduction Staff and
train middlemanagement
stock options
for executives
Accounting
deficit; highnet cash
outflow
authorize
large production
facilities
Help develop
productionand
distribution
standards
prepare salesaids, sales
management portfolio
Innovators
and someearly
adopters
(m
diof
ex
in
Growth Add suitable
personnel for plants many
grievances
heavyovertime
Very high
profits; netcash outflow
still rising
sell equities
Short – term
analyses based on
return per
scarceresource
Early
adopters andearly
majority
(o
feim
pr
Maturity Transfers,
advancementsincentives for
efficiency
safety; and soon
suggestions
system
Declining
profit rate but
increasing
net cashflow
Analyze
differentialcost/revenue
spearhead
costreduction,
value analysis
and efficiencydrives
Pressure for
resale pricemaintenance
price cuts
bring pricewars;
possible
pricecollusion
Early
adopters,early and
late
majority,some
laggards;
firstdiscontinued
(m
cofir
ye
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DR.SHANTHI LATHA/ASST. PROFESSOR/DEPT. OF MBA/SATHYABAMA UNIVERSITY
by late
majority
Decline Find new
slotsencourage
earlyretirement
Administer
system;retrenchmen
t sellunneededequipment
export the
machinery
Analyse
escapablecosts pinpoint
remainingoutlays
Accurate
salesforecast
veryimportant
Mainly
laggards
(o
afsta
fe
POLICIES – CHANGES – AND – IMPLEMENTATION
Changes in the strategic direction do no occur automatically. Operational plans and
tactics must be established to make a strategy work
DEVELOPMENT OF PLANS AND POLICIES
Creating plans and policies leads to conditions where sub ordinate managers willknow what they are supposed to do and willingly implement the decision
Managers create plans and policies to make the strategy work. Policies provide the
means for carrying out plans and strategic decisions. The amount of planning and policy-
making in the formal sense will vary with the size and complexity of the firm. The processes involved in establishing plans and policies are quite similar to those influencing
strategy formation and choice. Plans and policies should be flexible to help repeated work
and inflexible to stop any problems arising after the first attempt. So, criteria for judgingthe adequacy of plans and policies developed would include the following;
♣ Do they reflect present (or) desired company practices and behaviour?♣ Are they practical, given existing or expected situation?
♣ Do they exist in areas critical to the firm’s success?
♣ Are they consistent with one another and do they reflect the timing needed to
accomplish goals?
♣ As such the plans and policies will:
♣ Specify more precisely how the strategic choice will come to be – what is to be
done, who is to do it, how it is to be done and when it should be finished?
♣ Establish a follow – up mechanism to make sure the strategic choice, plans and
policy decision will take place
♣ Lead to new strength which can be used for strategy in the future
FINANCIAL AND ACCOUNTING POLICIES AND PLANS
Financial and accounting plans and policies are closely related to the resources
allocation process. These are set to provide guidelines in advances about the followingissues;
♣ Where the capital will come from?
♣ How the capital will, may or may not be used?
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DR.SHANTHI LATHA/ASST. PROFESSOR/DEPT. OF MBA/SATHYABAMA UNIVERSITY
♣ How the recurring needs will be met?
♣ How to handle inventories?
♣ Which accounts to capitalize?
♣ What tax approaches to use? And
♣ How to treat expenses and costs?
These policies can make a huge difference in the firm’s appearance of success (or) failure
Basically the main areas of focus are capital, lease (or) buy decisions, risk and useof assets.
Hence, some of the crucial financial questions needing implementation include;
♣ Where will we get additional funds to expand, either internally or externally?
♣ If external expansion is desired, how and where will it be accomplished?
♣ What will the strategy do to our cash flow?
♣ What accounting systems and policies do we use? (LIFO or FIFO)
♣ What capital structure policies do us persue? No debt or a heavily leveragedstructure
♣ How much should we pay out in dividends?
♣ How much cash and how many other assets do we keep on hand?
♣ Should we hedge our foreign currency exchange risk?
It is crucial that the financial plans and policies are such that the funds needed are availableat the right time and at lower cost.
MARKETING PLANS AND POLICIES
If marketing plans and policies don’t rest with the corporate strategy, and if
marketing plans don’t fit carefully with other functional policies, the objectives of the
company will not be met. The major areas are products and markets, distribution and promotion, price and packaging.
Some of the critical marketing plans and policy questions include;
♣ Specifically, which product or services will be focused on, present one or newones?
♣ Which channels will be used to market these products or services? Will we use
exclusive dealership? Or multiple channels?
♣ How ill we promote these products or services? Is it our policy to use large
amounts of TV advertising or no advertising?
♣ Heavy personal selling expenses or none? Price competition or non – price
competition♣ Do we have adequate sales force?
PRODUCTION – OPERATIONS MANAGEMENT (POM) POLICIES AND PLANS
POM is another area needing implementation plans and policies, the areas include;
capacity & utilization, location of facilities. Processes, equipment, and maintenance and
sourcing.Critical questions in this area include;
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DR.SHANTHI LATHA/ASST. PROFESSOR/DEPT. OF MBA/SATHYABAMA UNIVERSITY
♣ Can we handle the business with our present facilities and number of shifts? Must
we add equipment, facilities and shifts? Where? Are lay off’s is needed? Should wesub contract?
♣ What is the firms inventory safety level? How many suppliers do we need for
purchases of major supplies?
♣ What level of productivity and costs should the firm seeks?♣ How much emphasis should there be on quality control and maintenance?
♣ How far ahead should we schedule production?
♣ How is the management of production and operations integrated with our strategy?
♣ Should we locate facilities in foreign countries or exit countries where facilities are
at risk?
RESEARCH AND DEVELOPMENT PLANS AND POLICIES
R & D function which takes care of production, operations and marketing. The
crucial areas are;
♣ Products and processes
♣ Basic and applied research
♣ Offensive or defensive strategies and
♣ Allocating R & D resources
The crucial implementation questions include;
♣ Will we emphasize product (or) process improvement?
♣ Should we encourage basic research (or) focus on commercial
development?
♣ Are we going to be the leaders (or) followers?
♣ How much will we spend on R & D?
♣ Which technology should we persue, and when should we persue it?♣ How can we manage the transition from one technology to another?
♣ How do we prepare the firm for technological change?
But care needs to be taken while R & D policies are finalized.
PERSONNEL, LEGAL AND PUBLIC RELATIONS POLICIES AND PLANS:
Besides the four major line functions, major staff functions need the functional
policy implementation too. The major areas are
♣ Personnel
♣ Legal issues and
♣ Public relations
The crucial implementation questions for personnel include;
♣ Will we have an adequate work force?
♣ How much hiring and retraining are necessary?
♣ What types of individuals do we need to recruit? College graduates?
Members of minority groups?
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DR.SHANTHI LATHA/ASST. PROFESSOR/DEPT. OF MBA/SATHYABAMA UNIVERSITY
♣ How should we recruit – through advertising (or) personal contact? What
methods of selection should we use – informal interviews or verysophisticated testing?
♣ What standards and methods are used for promotion? (Internal Promotion,
Basis for seniority)
♣ What will our payment policies, Incentives plans, benefits, labour relations, policies etc?
♣ Is executive compensation tied to strategic objectives?
The basic questions for the legal staff include:
♣ Are the policies and plans in other areas legal?
♣ What are the implementations of testing the law?
Finally, the public relations policies deal with the presentation of the corporate image andinvolvement in community activities
Theses are the major areas to be noted and identified while implementing plans and
policies in the different strategies in the strategic choice.