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STRATEGIC MANAGEMENT

Strategic Management can be defined as “the art and science of

formulating, implementing and evaluating cross-functional decisions

that enable an organization to achieve its objective”.

Stages of Strategic management:

The strategic management process consists of three stages:

Strategy Formulation (strategy planning)

Strategy Implementations

Strategy Evaluation

Strategic Formulation:

Strategic formulation means a strategy formulate to execute the business

activities. Strategy formulation includes developing:-

Vision and Mission (The target of the business)

Strength and weakness (Strong points of business and also weaknesses)

Opportunities and threats (These are related with external environment for

the business).

Strategy formulation is also concerned with setting long term goals

and objectives, generating alternative strategies to achieve that long

term goals and choosing particular strategy to pursue.

The considerations for the best strategy formulation should be as follows:

Allocation of resources

Business to enter or retain

Business to divest or liquidate

Joint ventures or mergers

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Whether to expand or not

Moving into foreign markets

Trying to avoid take over

Strategy Implementation

Strategy implementation requires a firm to establish annual

objectives, devise policies, motivating employees and allocate resources

so that formulated strategies can be executed. Strategy implementation

includes developing strategy supportive culture, creating an effective

organizational structure, redirecting marketing efforts, preparing

budgets, developing and utilizing information system and linking

employee compensation to organizational performance.

Strategy implementation is often called the action stage of strategic

management. Implementing means mobilizing employees and managers

in order to put formulated strategies into action. It is often considered to

be most difficult stage of strategic management. It requires personal

discipline, commitment and sacrifice. Strategy formulated but not

implemented serve no useful purpose.

Strategy evaluation:

Strategy evaluation is the final stage in the strategic management

process. Management desperately needs to know when particular

strategies are not working well; strategy evaluation is the primary means

for obtaining this information. All strategies are subject to future

modification because external and internal forces are constantly

changing.

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Nature of Strategic Management

The strategic-management process does not end when the firm

decides what strategy or strategies to pursue.

There must be a translation of strategic thought into strategic action.

This translation is much easier if managers and employees of the firm

understand the business, feel a part of the company, and through

involvement in strategy-formulation activities have become committed

to helping the organization succeed.

Without understanding and commitment, strategy-implementation

efforts face major problems. Implementing strategy affects an

organization from top to bottom; it impacts all the functional and

divisional areas of a business. It is beyond the purpose and scope of this

text to examine all the business administration concepts and tools

important in strategy implementation.

Even the most technically perfect strategic plan will serve little purpose

if it is not implemented. Many organizations tend to spend an inordinate

amount of time, money, and effort on developing the strategic plan,

treating the means and circumstances under which it will be

implemented as afterthoughts! Change comes through implementation

and evaluation, not through the plan. A technically imperfect plan that is

implemented well will achieve more than the perfect plan that never gets

off the paper on which it is typed.

Key Terms in Strategic Management

There are eight basic key terms in studying strategic management,

Strategists

Mission statements

External opportunities and threats

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Internal strengths and weaknesses

Long-term objectives

Strategies

Annual objectives

Policies

Strategists

Strategists are individuals who are most responsible for the success

or failure of an organization. Strategists are Individuals who form

strategies. Strategists have various job titles, such as chief executive

officer, president, and owner, chair of the board, executive director,

chancellor, dean, or entrepreneur. Strategists help an organization

gather, analyze, and organize information.

Vision Statements

Many organizations today develop a "vision statement" which answers

the question, what do we want to become? Developing a vision

statement is often considered the first step in strategic planning,

preceding even development of a mission statement. Many vision

statements are a single sentence, for example the vision statement of

Stokes Eye Clinic in Florence, South Carolina, is "Our vision is to take

care of your vision.

Mission Statements

Mission statements are "enduring statements of purpose that

distinguish one business from other similar firms.

A mission statement identifies the scope of a firm's operations in

product and market terms. It addresses the basic question that faces all

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strategists: What is our business? A clear mission statement describes

the values and priorities of an organization.

External Opportunities and Threats

External opportunities and external threats refer to economic, social,

cultural, demographic, environmental, political, legal, governmental,

technological, and competitive trends and events that could significantly

benefit or harm an organization in the future. Opportunities and threats

are largely beyond the control of a single organization, thus the term

external.

Internal Strengths and Weaknesses/Internal assessments

Internal strengths and internal weaknesses are an organization's

controllable activities that are performed especially well or poorly. They

arise in the management, marketing, finance/accounting,

production/operations, research and development, and computer

information systems activities of a business. Identifying and evaluating

organizational strengths and weaknesses in the functional areas of a

business is an essential strategic-management activity. Organizations

strive to pursue strategies that capitalize on internal strengths and

improve on internal weaknesses.

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The Strategic-Management Model:

A Comprehensive Strategic-Management Model

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Benefits of Strategic management

Following are the major benefits of Strategic management:

Proactive in shaping firm’s future

Initiate and influence actions

Formulate better strategies (Systematic, logical, rational approach)

Financial benefits:

Improved productivity

Improved sales

Improved profitability

Non-Financial benefits:

Increased employee productivity

Improved understanding of competitors’ strategies

Greater awareness of external threats

Understanding of performance reward relationships

Better problem-avoidance

COMPREHENSIVE STRATEGIC MODEL

Mission statement:

An enduring statement of purpose

Distinguishes one firm from another in the same business

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declaration of a firm’s reason for existence

Mission Statements reveal what an organization wants to be and

whom it wants to serve and how? Mission Statements are essential for

effectively establishing objectives and formulating strategies.

Characteristics of good Mission Statements:

Broad in scope

Generate range of feasible strategic alternatives

Not excessively specific

Reconcile interests among diverse stakeholders

Finely balanced between specificity & generality

Arouse positive feelings and emotions

Motivate readers to action

Generate the impression that firm is successful, has direction, and is

worthy of time, support, and investment

Provide criteria for selecting strategies

Basis for generating & screening strategic options

Are dynamic in orientation

A mission statement should answer are given here.

Customer: Who are the firm’s customers?

Products or services: What are the firm’s major products or services?

Markets: Geographically, where does the firm compete?

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Technology: Is the firm technologically current?

Concern for survival, growth, and profitability: Is the firm

committed to growth and financial soundness?

Philosophy: What are the basic beliefs, values, aspirations, and ethical

priorities of the firm?

Self-concept: What is the firm’s distinctive competence or major

competitive advantage?

Concern for public image: Is the firm responsive to social, community,

and environmental concerns?

Concern for employees: Are employees a valuable asset of the firm?

VISION STATEMENT:

“Vision is the art of seeing things invisible”

A vision statement is sometimes called a picture of your company in the future

but it’s so much more than that. Your vision statement is your

inspiration, the framework for all your strategic planning.

A lucid and clear vision lays down a foundation on which a sound

mission statement can be built.

Many organizations develop both a mission statement and a vision

statement. Whereas the mission statement answers the question, what is

our business? The vision statement answers the question, what do we

want to become? Many organizations have both a mission and vision

statement.

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The Process of Developing a Mission Statement

A clear mission is needed before alternative strategies can be formulated

and implemented.

Mission is important to have as broad a range of participation as

possible among managers in developing the mission.

As indicated in the strategic-management model, a clear mission

statement is needed before alternative strategies can be formulated and

implemented. It is important to involve as many managers as possible in

the process of developing a mission statement, because through

involvement, people become committed to an organization.

A widely used approach to developing a mission statement is first to

select several articles about mission statements and ask all managers to

read these as background information. Then ask managers themselves to

prepare a mission statement for the organization. A facilitator, or

committee of top managers, then should merge these statements into a

single document and distribute this draft mission statement to all

managers. A request for modifications, additions, and deletions is

needed next, along with a meeting to revise the document. To the extent

that all managers have input into and support the final mission statement

document, organizations can more easily obtain managers' support for

other strategy formulation, implementation, and evaluation activities.

Thus the process of developing a mission statement represents a great

opportunity for strategists to obtain needed support from all managers in

the firm.

Importance of Vision and Mission Statements

Unanimity of purpose within the organization

Basis for allocating resources

Establish organizational climate

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Focal point for direction

Translate objectives into work structure

Cost, time and performance parameters assessed and controlled

Most companies are now getting used to the idea of using mission

statements.

EXTERNAL ASSESSMENT

External Strategic Management Audit Is also called:

Environmental scanning

Industry analysis

An external audit focuses on identifying and evaluating trends and

events beyond the control of a single firm, such as increased foreign

competition, population shifts to the Sunbelt, an aging society,

information technology, and the computer revolution. An external audit

reveals key opportunities and threats confronting an organization so that

managers can formulate strategies to take advantage of the opportunities

and avoid or reduce the impact of threats.

Key External Forces

External forces can be divided into five broad categories:

Economic forces;

Social, cultural, demographic, and environmental forces;

Political, governmental, and legal forces;

Technological forces; and

Competitive forces.

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Relationships among these forces and an organization are depicted in

Figure External trends and events significantly affect all products,

services, markets, and organizations in the world.

The Nature of an External Audit

The purpose of an external audit is to develop a finite list of

opportunities that could benefit a firm and threats that should be

avoided. As the term finite suggests, the external audit is not aimed at

developing an exhaustive list of every possible factor that could

influence the business; rather, it is aimed at identifying key variables

that offer actionable responses. Firms should be able to respond either

offensively or defensively to the factors by formulating strategies that

take advantage of external opportunities or that minimize the impact of

potential threats.

The Process of Performing an External Audit

The process of performing an external audit must involve as many

managers and employees as possible. To perform an external audit, a

company first must gather competitive intelligence and information

about social, cultural, demographic, environmental, economic, political,

legal, governmental, and technological trends. Individuals can be asked

to monitor various sources of information such as key magazines, trade

journals, and newspapers. These persons can submit periodic scanning

reports to a committee of managers charged with performing the

external audit. This approach provides a continuous stream of timely

strategic information and involves many individuals in the external-audit

process. The Internet provides another source for gathering strategic

information, as do corporate, university, and public libraries. Suppliers,

distributors, salespersons, customers, and competitors represent other

sources of vital information.

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Once information is gathered, it should be assimilated and evaluated.

A meeting or series of meetings of managers is needed to collectively

identify the most important opportunities and threats facing the firm.

These key external factors should be listed on flip charts or a

blackboard. A prioritized list of these factors could be obtained by

requesting all managers to rank the factors identified, from 1 for the

most important opportunity/threat to 20 for the least important

opportunity/threat. These key external factors can vary over time and by

industry. Relationships with suppliers or distributors are often a critical

success factor.

INDUSTRY ANALYSIS

The EFE Matrix and five-force model can help strategists evaluate

the market and industry, but these tools must be accompanied by good

intuitive judgment. Multinational firms especially need a systematic and

effective external-audit system because external forces among foreign

countries vary so greatly.

Industry Analysis: The External Factor Evaluation (EFE) Matrix

An External Factor Evaluation (EFE) Matrix allows strategists to

summarize and evaluate economic, social, cultural, demographic,

environmental, political, governmental, legal, technological, and

competitive information. The EFE matrix consists of five steps process,

Five-Step process:

• List key external factors (10-20)

Opportunities & threats

• Assign weight to each (0 to 1.0)

Sum of all weights = 1.0

• Assign 1-4 rating to each factor.

• Multiply each factor’s weight by its rating

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• Produces a weighted score

• Sum the weighted scores for each

• Highest possible weighted score for the organization is 4.0; the lowest, 1.0.

Average = 2.5

The Competitive Profile Matrix (CPM)

The Competitive Profile Matrix (CPM) identifies a firm's major

competitors and their particular strengths and weaknesses in relation to a

sample firm's strategic position.

The weights and total weighted scores in both a CPM and EFE have

the same meaning. However, the factors in a CPM include both internal

and external issues; therefore, the ratings refer to strengths and

weaknesses, where 4 5 major strength, 3 5 minor strength, 2 5 minor

weakness, and 1 5 major weakness.

There are some important differences between the EFE and CPM. First

of all, the critical success factors in a CPM are broader; they do not

include specific or factual data and even may focus on internal issues.

The critical success factors in a CPM also are not grouped into

opportunities and threats as they are in an EFE.

In a CPM the ratings and total weighted scores for rival firms can be

compared to the sample firm. This comparative analysis provides

important internal strategic information.

IFE MATRIX

The Internal Factor Evaluation (IFE) Matrix

A summary step in conducting an internal strategic-management audit

is to construct an Internal Factor Evaluation (IFE) Matrix. This strategy-

formulation tool summarizes and evaluates the major strengths and

weaknesses in the functional areas of a business, and it also provides a

basis for identifying and evaluating relationships among those areas.

Intuitive judgments are required in developing an IFE Matrix, so the

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appearance of a scientific approach should not be interpreted to mean

this is an all-powerful technique.

An IFE Matrix can be developed in five steps:

1. List key internal factors as identified in the internal-audit process. Use total

of from ten to twenty internal factors, including both strengths and

weaknesses. List strengths first and then weaknesses.

Be as specific as possible, using percentages, ratios, and comparative numbers.

2. Assign a weight that ranges from 0.0 (not important) to 1.0 (all-important) to

each factor. The weight assigned to a given factor indicates the relative

importance of the factor to being successful in the firm's industry.

Regardless of whether a key factor is an internal strength or weakness,

factors considered to have the greatest effect on organizational

performance should be assigned the highest weights. The sum of all

weights must equal 1.0.

3. Assign a 1-to-4 rating to each factor to indicate whether that factor

represents a major weakness (rating = 1), a minor weakness (rating = 2),

a minor strength (rating = 3), or a major strength (rating = 4). Note that

strengths must receive a 4 or 3 rating and weaknesses must receive a 1

or 2 rating. Ratings are, thus, company based, whereas the weights in

Step 2 are industry based.

4. Multiply each factor's weight by its rating to determine a weighted score for

each variable.

5. Sum the weighted scores for each variable to determine the total weighted

score for the Organization.

Regardless of how many factors are included in an IFE Matrix, the total

weighted score can range from a low of 1.0 to a high of 4.0, with the

average score being 2.5. Total weighted scores well below 2.5

characterize organizations that are weak internally, whereas scores

significantly above 2.5 indicate a strong internal position. Like the EFE

Matrix, an IFE Matrix should include from 10 to 20 key factors. The

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number of factors has no effect upon the range of total weighted scores

because the weights always sum to 1.0.

The Nature of an Internal Audit

Basis for objectives & strategies:

Internal strengths/weaknesses

External opportunities/threats

Clear statement of mission

Functional business areas:

Vary by organization

Divisions have differing strengths and weaknesses

Distinctive Competencies:

A firm’s strengths that cannot be easily matched or imitated by

competitors.

Building competitive advantage involves taking advantage of distinctive

competencies.

Strategies designed in part to improve on a firm’s weaknesses and turn

to strengths.

Internal Audit is Parallels process of external audit. It gathers & assimilates

information from:

Management

Marketing

Finance/accounting

Production/operations

Research & development

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Management information systems

The Process of Performing an Internal Audit

The process of performing an internal audit closely parallels the process of

performing an external audit.

Representative Managers and employees from throughout the firm

need to be involved in determining a firm's strengths and weaknesses.

The internal audit requires gathering and assimilating information about

the firm's management, marketing, finance/accounting,

production/operations, research and development (R&D), and computer

information systems operations.

Functions of Management

Planning >>>>>>>>>>>Strategy Formulation

Organizing >>>>>>>>>>Strategy Implementation

Motivating >>>>>>>>>>Strategy Implementation

Staffing >>>>>>>>>>>>>Strategy Implementation

Controlling>>>>>>>>>>>>>Strategy Evaluation

Functions of Management

Marketing:

Marketing can be described as the process of defining, anticipating, creating,

and fulfilling customers' needs and wants for products and services.

There are seven basic functions of marketing:

1. Customer analysis,

2. Selling products/services,

3. Product and service planning,

4. Pricing,

5. Distribution,

6. Marketing research, and

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7. Opportunity analysis.

Understanding these functions helps strategists identify and evaluate marketing

strengths and weaknesses.

INTERNAL ASSESSMENT (FINANCE/ACCOUNTING)

Finance/Accounting Functions

Determining financial strengths and weaknesses key to strategy

formulation

Investment decision (Capital budgeting)

Financing decision

Dividend decision

Production/Operations

The production/operations function of a business consists of all

those activities that transform inputs into goods and services.

Production/operations management deals with inputs, transformations,

and outputs that vary across industries and markets. A manufacturing

operation transforms or converts production/operations management

comprises five functions or decision areas: process, capacity, inventory,

workforce, and quality inputs such as raw materials, labor, capital,

machines, and facilities into finished goods and services.

Research and Development

The fifth major area of internal operations that should be examined

for specific strengths and weaknesses is research and development

(R&D). Many firms today conduct no R&D, and yet many other

companies depend on successful R&D activities for survival. Firms

pursuing a product development strategy especially need to have a

strong R&D orientation.

The purpose of research and development are as follows:

Development of new products before competition

Improving product quality

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Improving manufacturing processes to reduce costs.

Management information systems:

MIS is a general name for the academic discipline covering the

application of information technology to business problems. In business,

information systems support business processes and operations,

decision-making, and competitive strategies.

TYPES OF STRATEGIES:

INTEGRATION STRATEGIES:

Forward Integration: Gaining ownership or increased control over

distributors or retailers.

Backward Integration: Seeking ownership or increased control of a

firm's suppliers.

Horizontal Integration: Seeking ownership or increased control over

competitors.

INTENSIVE STRATEGIES:

Market Penetration:

Seeking increased market share for present products or services in

present markets through greater marketing efforts.

Market Development: Introducing present products or services into

new geographic area.

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Product Development: Seeking increased sales by improving present

products or services or developing new ones.

DIVERSIFICATION STRATEGIES:

Concentric Diversification: Adding new, but related, products or

services.

Conglomerate Diversification: Adding new, unrelated products or

services.

Horizontal Diversification: Adding new, unrelated products or services

for present customers.

Joint Venture: Two or more sponsoring firms forming a separate

organization for cooperative purposes.

Retrenchment: Regrouping through cost and asset reduction to reverse

declining sales and profit.

Divestiture: Selling a division or part of an organization.

Liquidation: Selling all of a company's assets, in parts, for their

tangible worth.

STRATEGY-FORMULATION FRAMEWORK

Important strategy-formulation techniques can be integrated into a

three-stage decision-making framework, as shown below. The tools

presented in this framework are applicable to all sizes and types of

organizations and can help strategists identify, evaluate, and select

strategies.

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Stage-1 (Formulation Framework)

1. External factor evaluation

2. Competitive matrix profile

3. Internal factor evaluation

Stage-2 (Matching stage)

1. TWOS Matrix (Threats-Opportunities-Weaknesses-Strengths)

2. SPACE Matrix (Strategic Position and Action Evaluation)

3. BCG Matrix (Boston Consulting Group)

4. IE Matrix (Internal and external)

5. GS Matrix (Grand Strategy)

Stage-3 (Decision stage)

1. QSPM (Quantitative Strategic Planning Matrix)

The Nature of Strategy Implementation

It is possible to turn strategies and plans into individual actions,

necessary to produce a great business performance. But it's not easy.

Many companies repeatedly fail to truly motivate their people to work

with enthusiasm, all together, towards the corporate aims. Most

companies and organizations know their businesses, and the strategies

required for success. However many corporations - especially large ones

- struggle to translate the theory into action plans that will enable the

strategy to be successfully implemented and sustained.

Strategy formulation and implementation can be contrasted in the following

ways:

Strategy formulation is positioning forces before the action.

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Strategy implementation is managing forces during the action.

Strategy formulation focuses on effectiveness.

Strategy implementation focuses on efficiency.

Strategy formulation is primarily an intellectual process.

Strategy implementation is primarily an operational process.

Strategy formulation requires good intuitive and analytical skills.

Strategy implementation requires special motivation and leadership

skills.

Strategy formulation requires coordination among a few individuals.

Strategy implementation requires coordination among many persons.

Annual Objectives

1) Corporate level

These are objectives that concern the business or organization as a whole

Examples of “corporate objectives might include:

• We aim for a return on investment of at least 15%

• We aim to achieve an operating profit of over £10 million on sales of at least

£100 million

• We aim to increase earnings per share by at least 10% every year for the

foreseeable future

2) Functional level

E.g. specific objectives for marketing activities

Examples of functional marketing objectives” might include:

• We aim to build customer database of at least 250,000 households within the

next 12 months

• We aim to achieve a market share of 10%

• We aim to achieve 75% customer awareness of our brand in our target

markets

Both corporate and functional objectives need to conform to the commonly

used SMART criteria.

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The SMART criteria

Specific - the objective should state exactly what is to be achieved.

Measurable - an objective should be capable of measurement – so that

it is possible to determine whether (or how far) it has been achieved

Achievable - the objective should be realistic given the circumstances in

which it is set and the resources available to the business.

Relevant - objectives should be relevant to the people responsible for

achieving them.

Time Bound - objectives should be set with a time-frame in mind.

These deadlines also need to be realistic.

Establishing annual objectives is a decentralized activity that

directly involves all managers in an organization. Active participation in

establishing annual objectives can lead to acceptance and commitment.

Annual objectives are essential for strategy implementation because

they,

1) Represent the basis for allocating resources

2) Is a primary mechanism for evaluating managers?

3) Is the major instrument for monitoring progress toward achieving long-

term objectives?

4) Establish organizational, divisional, and departmental priorities.

Annual objectives should be measurable, consistent, reasonable,

challenging, clear, communicated throughout the organization,

characterized by an appropriate time dimension, and accompanied by

commensurate rewards and sanctions. Annual objectives should be

compatible with employees' and managers' values and should be

supported by clearly stated policies. Clear annual objectives do not

guarantee successful strategy implementation but they do increase the

likelihood that personal and organizational aims can be accomplished.

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RESOURCE ALLOCATION

In strategic planning, a resource-allocation decision is a plan for

using available resources, especially human resources especially in the

near term, to achieve goals for the future. It is the process of allocating

resources among the various projects or business units.

The plan has two parts: Firstly, there is the basic allocation decision

and secondly there are contingency mechanisms. The basic allocation

decision is the choice of which items to fund in the plan, and what level.

All organizations have at least four types of resources that can be used to

achieve desired objectives: financial resources, physical resources,

human resources, and technological resources.

Conflict

Conflict is a state of opposition, disagreement or incompatibility

between two or more people or groups of people, which is sometimes

characterized by physical violence.

Types and Modes of Conflict

A conceptual conflict can escalate into a verbal exchange and/or result

in fighting.

Conflict can exist at a variety of levels of analysis.

• intrapersonal conflict (though this usually just gets delegated out to

psychology)

• interpersonal conflict

• group conflict

• organizational conflict

• community conflict

• intra-state conflict (for example: civil wars, election campaigns)

• international conflict

Organizational Structure

Functional Structure

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The organization is structured according to functional areas instead

of product lines. The functional structure groups specialize in similar

skills in separate units. This structure is best used when creating

specific, uniform products. A functional structure is well suited to

organizations which have a single or dominant core product because

each subunit becomes extremely adept at performing its particular

portion of the process. They are economically efficient, but lack

flexibility. Communication between functional areas can be difficult.

Divisional Structure

Divisional structure is formed when an organization is split up into

a number of self-contained business units, each of which operates as a

profit centre. Such a division may occur on the basis of product or

market or a combination of the two with each unit tending to operate

along functional or product lines, but with certain key function (e.g.

finance, personnel, corporate planning) provided centrally, usually at

company headquarters.

The Strategic Business Unit (SBU) Structure

Strategic Business Unit or SBU is understood as a business unit

within the overall corporate identity which is distinguishable from other

business because it serves a defined external market where management

can conduct strategic planning in relation to products and markets.

When companies become really large, they are best thought of as being

composed of a number of businesses (or SBUs).The SBU structure

group’s similar divisions into strategic business units and delegate’s

authority and responsibility for each unit to a senior executive who

reports directly to the chief executive officer. This change in structure

can facilitate strategy implementation by improving coordination

between similar divisions and channeling accountability to distinct

business units.

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The Matrix Structure

A matrix structure is the most complex of all designs because it

depends upon both vertical and horizontal flows of authority and

communication (hence, the term matrix). In contrast, functional and

divisional structures depend primarily on vertical flows of authority and

communication. A matrix structure can result in higher overhead

because it creates more management positions. Other characteristics of a

matrix structure that contribute to overall complexity include dual lines

of budget authority (a violation of the

unity-of-command principle), dual sources of reward and punishment,

shared authority, dual reporting channels, and a need for an extensive

and effective communication system.

Restructuring—also called downsizing, rightsizing, or delivering—involves

reducing the size of the firm in terms of number of employees, number

of divisions or units, and number of hierarchical levels in the firm's

organizational structure. This reduction in size is intended to improve

both efficiency and effectiveness. Restructuring is concerned primarily

with shareholder well-being rather than employee well-being.

In contrast, reengineering is concerned more with employee and

customer well-being than shareholder well-being. Reengineering—also

called process management, process innovation, or process redesign—

involves reconfiguring or redesigning work, jobs, and processes for the

purpose of improving cost, quality, service, and speed. Reengineering

does not usually affect the organizational structure or chart, nor does it

imply job loss or employee layoffs.

Managing Resistance to Change

Resistance to change can be considered the single greatest threat to

successful strategy implementation.

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Resistance in the form of sabotaging production machines,

absenteeism, filing unfounded grievances, and an unwillingness to

cooperate regularly occurs in organizations. People often resist strategy

implementation because they do not understand what is happening or

why changes are taking place. In that case, employees may simply need

accurate information. Successful strategy implementation hinges upon

managers' ability to develop an organizational climate conducive to

change. Change must be viewed as an opportunity rather than as a threat

by managers and employees.

Resistance to change can emerge at any stage or level of the strategy-

implementation process.

Managing the Natural Environment

All business functions are affected by natural environment

considerations or striving to make a profit.

However, both employees and consumers are especially resentful of

firms that take from more than they give to the natural environment;

likewise, people today are especially appreciative of firms that conduct

operations in a way that mends rather than harms the environment.

The ecological challenge facing all organizations requires managers

to formulate strategies that preserve and conserve natural resources and

control pollution. Special natural environmental issues include ozone

depletion, global warming, depletion of rain forests, destruction of

animal habitats, protecting endangered species, developing

biodegradable products and packages, waste management, clean air,

clean water, erosion, destruction of natural resources, and pollution

control.

Creating a Strategy-Supportive Culture

Strategists should strive to preserve, emphasize, and build upon

aspects of an existing culture that support proposed new strategies.

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Aspects of an existing culture that are antagonistic to a proposed

strategy should be identified and changed. Substantial research indicates

that new strategies are often market-driven and dictated by competitive

forces. For this reason, changing a firm's culture to fit a new strategy is

usually more effective than changing a strategy to fit an existing culture.

Numerous techniques are available to alter an organization's culture,

including recruitment, training, transfer and promotion, restructure of an

organization's design, role modeling, and positive reinforcement.

Production/Operations Concerns When Implementing Strategies

Strategy in action means implementation requires complete

transparent process. Production/ operations department that mainly

concern with the achievement of organization goals and targets.

Production processes typically constitute more than 70 percent of a

firm's total assets. Production department plays a crucial role for

implementing organization strategy. Production-concerned decisions on

plant location, plant size, product design, choice of equipment, size of

inventory, inventory control, quality control, cost control, use of

standards, shipping and packaging, and technological innovation, job

specialization, employee training, equipment and resource utilization.

Human Resource Concerns When Implementing Strategies

The other important concern while implementing the strategy is

human resource. Human resource is the backbone of any organization

without efficient human resource organization cannot perform well and

fail to achieve the organizational strategy.

The human resource department must develop performance

incentives that clearly link performance and pay to strategies. The

process of empowering managers and employees through involvement

in strategic management activities yields the greatest benefits when all

organizational members understand clearly how they will benefit

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personally if the firm does well. Linking company and personal benefits

is a major new strategic responsibility of human resource managers.

Market segmentation

Market segmentation is the process in marketing of grouping a

market (i.e. customers) into smaller subgroups. This is not something

that is arbitrarily imposed on society: it is derived from the recognition

that the total market is often made up of submarkets (called 'segments').

These segments are homogeneous within (i.e. people in the segment are

similar to each other in their attitudes about certain variables).

Because of this intra-group similarity, they are likely to respond

somewhat similarly to a given marketing strategy

The requirements for successful segmentation are:

• Homogeneity within the segment

• Heterogeneity between segments

• Segments are measurable and identifiable

• Segments are accessible and actionable

• Segment is large enough to be profitable

Bases for Segmentation in Consumer Markets

Consumer markets can be segmented on the following customer characteristics.

• Geographic

• Demographic

• Psychographic

• Behavioralistic

Market segmentation Link with strategy implementation

Market segmentation is widely used in implementing strategies,

especially for small and specialized firms.

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Market segmentation can be defined as the subdividing of a market

into distinct subsets of customers according to needs and buying habits.

Market segmentation is an important variable in strategy

implementation for at least three major reasons.

First, strategies such as market development, product development,

market penetration, and diversification require increased sales through

new markets and products. To implement these strategies successfully,

new or improved market-segmentation approaches are required. Second,

market segmentation allows a firm to operate with limited resources

because mass production, mass distribution, and mass advertising are

not required. Market segmentation can enable a small firm to compete

successfully with a large firm by maximizing per-unit profits and per-

segment sales. Finally, market segmentation decisions directly affect

marketing mix variables: product, place, promotion, and price.

FINANCE/ACCOUNTING ISSUES

Like marketing and human resource concern while implementing

strategy the other important issue is accounting and finance. Some

examples of decisions that may require finance/accounting policies are:

1) To raise the amount of capital by issuing shares or obtaining a debt from

external parties.

2) To enhance the inventory turnover level

3) To make or buy fixed assets.

4) To extend the time of accounts receivable.

5) To establish a certain percentage discount on accounts within a specified

period of time.

6) To determine the amount of cash that should be kept on hand

7) To determine an appropriate dividend payout ratio.

8) To use LIFO, FIFO

Research and Development (R&D) Issues

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Research and development (R&D) management can plays part in strategy

implementation.

“New products and improvement of existing products that allow for effective

strategy implementation”

OR

“New products and improvement of existing products that allow for effective

strategy implementation”

R&D employees and managers perform tasks that include

1) Transferring complex technology,

2) Adjusting processes to local raw materials,

3) Adapting processes to local markets,

4) Altering products to particular tastes and specifications

STRATEGY REVIEW, EVALUATION AND CONTROL

Strategy Evaluation

Organizations are most vulnerable when they are at the peak of their

success.

R.T. Lenz

“Strategy evaluation alerts management to potential or actual problems in a

timely fashion.”

– It is Complex and sensitive undertaking

– Overemphasis can be costly and counterproductive

Systematic Review, Evaluation & Control

1. Strategies become obsolete

2. Internal environments are dynamic

3. External environments are dynamic

Purpose of strategy evaluation

• Strategy evaluation is vital to the organization’s well-being

• Alert management to potential or actual problems in a timely fashion

• Erroneous strategic decisions can have severe negative impact on

organizations

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Basic Activities –

1. Examining the underlying bases of a firms’ strategy

2. Comparing expected to actual results

3. Corrective actions to ensure performance conforms to plans

In many organizations, evaluation is an appraisal of performance –

• Have assets increased?

• Increase in profitability?

• Increase in sales?

• Increase in productivity?

• Profit margins, ROI and EPS ratios increased

The process of evaluating Strategies

1) Strategy evaluation is necessary for all sizes and kinds of organization.

Strategy evaluation should initiate managerial questioning of

expectations and assumptions should trigger a review of objectives and

values and should stimulate creativity in generating alternative and

formulating criteria of evaluation

2) Evaluating strategies on continuous rather than a periodic basis allows

benchmark of progress to established and o\more effectively monitored

3) Managers and employees of the firm should be continually aware of

progress being made towards achieving the firm’s objectives. As a

critical success factors change, organization members should be

involved in determining appropriate corrective action.

A Strategy-Evaluation Framework

Strategy evaluation activities in terms of key questions that should

be addressed, alternative answers to those questions, and appropriate

actions for an organization to take. Notice that corrective actions are

almost always needed except when

1) external and internal factors have not significantly changed and

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2) The firm is progressing satisfactorily toward achieving stated objectives.

REVIEWING BASES OF STRATEGY

Reviewing the underlying bases of an organization's strategy could be

approached by developing a revised EFE Matrix and IFE Matrix. A revised IFE

Matrix should focus on changes in the organization's management, marketing,

finance/accounting, production/operations, R&D, and computer information

systems strengths and weaknesses. A revised EFE Matrix should indicate how

effective a firm's strategies have been in response to key opportunities and

threats. This analysis could also address such questions as the following:

1) How have competitors reacted to our strategies?

2) How have competitors' strategies changed?

3) Have major competitors' strengths and weaknesses changed?

4) Why are competitors making certain strategic changes?

5) Why are some competitors' strategies more successful than others?

6) How satisfied are our competitors with their present market positions

and profitability?

7) How far can our major competitors be pushed before retaliating?

8) How could we more effectively cooperate with our competitors?

Measuring Organizational Performance

Another important strategy-evaluation activity is measuring

organizational performance. This activity includes comparing expected

results to actual results, investigating deviations from plans, evaluating

individual performance, and examining progress being made toward

meeting stated objectives. Both long-term and annual objectives are

commonly used in this process. Criteria for evaluating strategies should

be measurable and easily verifiable. Criteria that predict results may be

more important than those that reveal what already has happened.

Taking Corrective Actions

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The final strategy-evaluation activity, taking corrective actions,

requires making changes to reposition a firm competitively for the

future. Examples of changes that may be needed are altering an

organization's structure, replacing one or more key individuals, selling a

division, or revising a business mission. Other changes could include

establishing or revising objectives, devising new policies, issuing stock

to raise capital, adding additional salespersons, allocating resources

differently, or developing new performance incentives. Taking

corrective actions does not necessarily mean that existing strategies will

be abandoned or even that new strategies must be formulated.

CHAPTER 2: INTRODUCTION

KAPCO is the largest Independent Power Producer (IPP) having

the largest Combined Cycle Power Plant in Pakistan with total capacity KAPCO LTD

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of 1600 MW.  The plant is located in Kot Addu; district Muzaffargarh

on 180 acres of land. A further 200 acres are covered by the residential

colony which comprises of over 900 houses, a ten bed hospital, staff and

officer’s recreational facilities, two shopping centers, a bachelor hostel,

three guest houses, two schools with over 1,400 students and three

mosques.

KAPCO is the first industrial privatization in Pakistan and came

into being on 27th of June 1996 under an agreement between the

Government of Pakistan, National Power – the UK’s largest power

company (Now called “International Power”) and the Water And Power

Development Authority (WAPDA). 

The company has the solid background of profits and efficiency

catering to the 7 % energy requirements of the country with a share of

29 % in the total power generation of IPPs in Pakistan. In theory the

tariff structure of every IPP is such that its shareholders are guaranteed a

fixed return, assuming they meet certain conditions set in Power

Purchase Agreement (PPA) with WAPDA. KAPCO has a three way

relation with WAPDA. All at the same time, WAPDA is its customer,

lender as well as shareholder.

Initial Public Offering (IPO):

Privatization Commission of Pakistan has offered 20 % shares to

Resident / Non-resident Pakistani Investors and the transferred KAPCO

employees. Initially 88.025 million shares have been offered to general

public at Rs. 30 per share.

Who constitute Kot Addu Power Company?

There are two main shareholders of KAPCO.

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International Power plc, U.K is a leading independent electricity

generating company with facilities in operation (10990 MW net) and

under construction (610 MW net) in countries such as UAE, USA, UK,

Australia, Czech Republic, Portugal, Turkey, Malaysia, Pakistan and

Thailand.

International Power has 15% management shares. Remaining 20%

sale in stock exchange

WAPDA, the Water and Power Development Authority, was created

in 1958 as a Semi-Autonomous Body for the purpose of accelerated and

unified development of water & power resources. WAPDA is one the

largest organization in Pakistan with regard to infrastructure, assets and

human resources.

WAPDA holds 64 % shares as well as it is the only customer for

getting the electricity produced by KAPCO.

Description of the Plant KAPCO is a combined cycle power plant with 10 gas turbines and 5

steam turbines. It is the most modern and economical combined cycle

power plant in Pakistan. KAPCO plant with a capacity of 1600 MW is a

multi fuel fired power plant running on Gas, HSD and Low Sulphur

Furnace Oil (LSFO) simultaneously to avoid interruption in production

and also to reduce cost of generation. It is also the only major power

plant in the country with the ability to self start in case of a country wide

blackout.

The gas turbines have low installation cost, easy and speedy

erection and high loading rate as compared to conventional steam

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turbines. At gas turbine exhaust, substantial amount of heat energy is

available in the form of hot exhaust gases, which leave the turbine at

about 550 °C. This wasteful energy is used to generate steam in

conduction type boiler commonly known as HEAT RECOVERY

STEAM GENERATOR. High pressure steam so generated is then used

to run the steam turbine which thus produces power without any fuel.

This raises the plant efficiency to nearly 49 % against the 28 % of the

conventional gas turbine. Generally a combined cycle power plant

comprises of two gas turbines and one steam turbine. For reliability of

machines, each gas turbine is provided with exhaust gases control

dampers. These dampers lead the hot gases into the boiler or to the

atmosphere as per operation mode of the plant. With this provision, the

gas turbine can be run in simple cycle mode if the associated steam

turbine is under maintenance or unavailable due to some other reason.

Agreements between WAPDA & KAPCO

WAPDA entered into an agreement with KAPCO for the purchase of the power

for next 25 years from this plant. The tariff covered two kinds of

payments viz. capacity and energy payment. The capacity payment is

made on the available capacity of the plant and is mainly used by the

company to meet the fixed expenses and 756 million dollar debt liability

that it inherited from WAPDA. The energy payment is done on the

actual dispatch from the plant. It covers the fuel cost and there is hardly

and saving from this part.

The agreement allows 36 complex days for the scheduled outages

and 500 complex hours for the unscheduled / forced outages. In case the

accumulated outage period over the year exceeds the agreed allowance,

the company is liable to pay the liquidated damages at a rate of 1.6 times

of what it gets as capacity payment.

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The first year of the business went very well. WAPDA was

prompt in making payments, but it did not lost very long. WAPDA as

well as Govt. of Pakistan were in financial crises because of corruption

and in efficiencies. Ultimately WAPDA engaged KAPCO and National

Power in a complicated legal battle over the tariff issue by filing

petitions in the high court. The court finally passed an interim order in

October 1998 that restricts KAPCO to receive Rs. 1.98 per KWh of

electricity. The objective behind this legal wrangling was to pressurize

KAPCO / National Power to agree and out of court settlement for

deduction of tariff. With the incoming of present Govt. the matters have

been solved to fair extent.

Performance History

The project has performed well thought the period ever since it has been

privatized i.e. June 1996. The contribution of block 3 in overall

generation of the complex has been much beyond the satisfactory levels.

CHAPTER 3: STRTAEGY FORMULATION

Strategies are developed to run the organization effectively and efficiently.

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In KAPCO, strategies are developed by mutual consent of WAPDA, which has

65% of shares in KAPCO, and International Power UK which owns 20 % of

shares in KAPCO. Remaining 15% of shares are sold to the general public, as

KPACO is listed on all the three Stock Exchanges of Pakistan, and London

Stock Exchange, and NY stock exchange.

For the purpose of running the organization and planning and developing

strategies, four Directors are appointed by WAPDA, and two by International

Power UK, and remaining one is elected by General Share Holders. These

seven members of BOD then elect a CEO by voting.

Strategy Making and Approval Process in KAPCO:

When BOD formulate any strategy with mutual consent of CEO, then CEO

present that particular strategy to the top management of both the parent

companies WAPDA and International Power Inc UK. If they approve then

these strategies are forwarded to middle level managers for implementation.

MISSION AND VISION STATEMENTS OF KAPCO:

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A firm’s mission statement answers several fundamental questions. An

understanding of the firm’s mission helps managers enter ideas and design new

products and services. If its mission is too broadly defined, the firm could enter

areas in which it has no experience. If the mission is to narrowly defined, the

firms could miss growth opportunities. This should also include the aspects like

environment and core competencies. The management should be able to

identify and deal with environmental changes when formulating mission

statements.

Application at KAPCO

The organization does not have any formal MISSION or VISION statement

ever since its privatization. The employees in the organization just know that

they have to work and produce electricity / power with minimum possible

expenditure.

In the process of the organization development an in formal Mission Statement

has been devised which is kept forth for achieving the organizational goals.

The proposed Mission Statement is as under:

“KAPCO is an independent power producers that provides electricity for

WAPDA distribution network. It will continue to contribute in the developing

economy of Pakistan by maintaining its capacity and maximizing

availabilities.”

KAPCO has also developed its Mission and Vision statements

Mission Statements:

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To be a responsible corporate citizen

To maximize shareholders' return

To provide reliable and economical power for our customer

To excel in all aspects relating to safety, quality and environment

To excel in all aspects relating to safety, quality and environment

Vision Statement:

To be a leading power generation company, driven to exceed our shareholders'

expectations and meet our customer’s requirements.

An External Audit:

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Nature of External Audit:

The purpose of an external audit is to develop a finite list of opportunities that

could benefit a firm and threats that should be avoided.

Main Opportunity for KAPCO is that threats is an increasing demand of

electricity in Pakistan, so KAPCO has availed that opportunity in agreement,

International Power UK is increasing the plant capacity from 1690MW to

2100MW.but KAPCO has availed an extra opportunity that international Power

UK will now increase the plant capacity to 2700 MW.

External Assessment has been done by developing the External Factory

Evaluation Matrix (EFE Matrix).

External Factor Evaluation Matrix (EFE) For KAPCO

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Key External Factors Weight Rating W.Score

Opportunities All expansion programs are free of tax till 10 years 0.1 4 0.4 Increasing electricity demand 0.09 3 0.27 No fuel problem for company 0.08 2 0.16 Gain high profit on one time investment 0.1 3 0.3 Competitive energy cost 0.08 3 0.24 Direct sales to WAPDA 0.1 3 0.3 Threats Oil supply disturbs due to nonpayment by WAPDA 0.05 3 0.15 company is bound to supply electricity to WAPDA only 0.12 2 0.24I Improper security conditions in Pakistan 0.1 3 0.3 Several other energy projects coming in Pakistan 0.1 4 0.4 Govt. support for Rental power (political issues) 0.08 3 0.24

Total 1.0

3.0

Conclusion

KAPCO overall weighted score is 3.0, which shows that it is working well.

Their strategies are good and they are responding to the available opportunities

and threats in well manners.

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INTERNAL AUDIT:

Internal Audit is done by the organizations for identifying and evaluating a firm

strengths and weaknesses in the functional area of the business, including

management, marketing, finance/accounting, production/operations, R & D and

MIS.

Nature of Internal Audit:

All the organizations have strengths and weaknesses in the functional area of

the business. No enterprise is equally strong or weak in all areas.

It is being done by developing an Internal Factor Evaluation Matrix (IFE

Matrix).

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INTERNAL FACTOR EVALUATION MATRIX OF KAPCO:

Key Internal factor

Strengths Weight RatingWeighted Score

Hardworking , cooperative & trained staff 0.09 4 0.36 Best Packages offered for employees 0.09 4 0.36 ISO 9001,14001,18001 under umbrella of IMS through SGS 0.07 3 0.21 All Manual procedure has been computerized 0.08 3 0.24 Health and safety Department 0.08 3 0.24 Largest power production plant in south Asia 0.1 4 0.4 It has the biggest store in Pakistan 0.09 3 0.27 Weaknesses WAPDA is only buyer 0.12 3 0.36 After 2006 It is paying high taxes 0.1 3 0.3 No expansion since last ten years 0.1 2 0.2 Fear of inquires by GOVT. is always there (political issues) as 0.08 2 0.16 new GOVT. has changed some points of power purchase agreement.

Total 1

3.06

Conclusion

KAPCO overall weighted score is 3.0, which shows that it is working well.

Their strategies are good and they are responding to the available opportunities

and threats in well manners.

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STRATEGY ANALYSIS AND CHOICES

A COMPREHENSIVE STRATEGY-FORMULATION FRAMEWORK

This framework has the following three stages.

1. The Input stage

2. The Matching stage

3. The Decision stage

Each of the stage has some matrixes.

The Input Stage:

1. External Factor Evaluation (EFE) Matrix

2. Internal Factor Evaluation(IFE) Matrix

The Matching Stage:

1. SWOT Matrix

2. IE Matrix

The Decision Stage:

1. Quantitative Strategic Planning Matrix(QSPM)

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STRENGTHS-WEAKNESSES-OPPURTUNITIES-THREATS (SWOT)

MATRIX:

Strengths Weaknesses

1. Hardworking & trained staff 1. paying higher taxes2.Turnover ratio is very low 2.Wapda is only buyer

3.Manual procedure has been3.No expansion since ten years

computerized 4.Govt interference4. It has the biggest store in Pakistan5.iso 9001,14001 18001 certified

Opportunities SO Strategy WO strategy

1.Increasing demand of1.Company can increase capacity of

1.KAPCO can charge WAPDA

electricity plant higher prices in short term

2.No fuel problem2.KAPCO can store cheaper fuel for

3.Can Gain high profit on future usage low investment4.Compatitive energy cost5.Direct sales to Wapda

Threats ST Strategy WT strategy

1.Bound to supply electricity to wapda only

1.KAPCO can charge low prices as compare to rental power which are so costly

1.KAPCO will stop expansion programs if Govt. supports

2.security conditions is some security problems3.other power projects coming4.Govt. support for rental power

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Quantitative Strategic planning matrix (QSPM) Strategic Alternatives 1 2 Increase capacity of plant Low Prices as compare to rental power plant

Key Factors Weight A.S T.A.S A.s T.A.SOpportunities 1. All expansion programs are free of tax 0.1 3 0.3 2 0.2 till 10 years 2. Increasing electricity demand 0.09 4 0.36 2 0.18 3.No fuel problem for company 0.08 4 0.32 2 0.16 4.Gain high profit on one time investment 0.1 5.Competitive energy cost 0.08 3 0.24 4 0.326.Direct sales to WAPDA 0.1Threats 1.Oil supply disturbs due to nonpayment 0.05 2 0.10 3 0.15by WAPDA 2.company is bound to supply electricity to 0.12 WAPDA only3.Improper security conditions in Pakistan 0.1 3 0.3 2 0.2 4 Several other energy projects coming 0.1 3 0.3 3 0.3 in Pakistan 5. Govt. support for Rental power 0.08 3 0.24 2 0.16 (political issues)Total 1

Strengths 1.Hardworking , cooperative & trained staff 0.09 4 0.36 1 0.09 2. Best Packages offered for employees 0.09 3 0.27 3.ISO 9001,14001,18001 under umbrella of 0.07 3 0.21 IMS through SGS 4.All Manual procedure has been 0.08 3 0.24 2 0.16computerized 5.Health and safety Department 0.08 6.Largest power production plant in south Asia 0.1 3 0.3 2 0.2 7.It has the biggest store in Pakistan 0.09 4 0.36 3 0.27Weaknesses 1.WAPDA is only buyer 0.12 4 1 0.12 2.After 2006 It is paying high taxes 0.1 1 3 0.3 3.No expansion since last ten years 0.1 4.Fear of inquires by GOVT. is always 0.08 3 0.24 1 0.08 there (political issues) as new GOVT. has changed some points of power Purchase agreement.Total 1 3.66 3.37

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Chapter 4

Strategy Implementation

1. Annual Objectives of KAPCO:

The project has been completed to achieve the following objectives:

To reduce mass scale load shedding.

To firm up Hydrel Power Generation during water shortage

period.

To facilitate operation and maintenance of other power stations.

To cover emergencies and power shortages with quick generation

of power supply from this power station which is the salient

feature of gas turbines?

2. Policies of KAPCO:

KAPCO is managed through a suite of agreements signed between it and its

customer (WAPDA), Government of Pakistan, and fuel suppliers. These

include:

Power Purchase Agreement ("PPA")

The PPA is between WAPDA and KAPCO. Inter alia, the PPA determines

the tariff structure and principles of operating the Power Plant. The PPA

includes an implicit return built into the tariff provided. KAPCO maintains

its available capacity at the contractual level identified in the PPA. KAPCO

has robust and effective engineering, financial, procurement and HR

strategies in place to ensure that contractual capacity levels are maintained.

Over the last two years, dependable capacity levels have been significantly

above the contracted levels.

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Gas Supply Agreement ("GSA")

The GSA is between Sui Northern Gas Pipelines Limited ("SNGPL") and

KAPCO. Inter alia, the GSA guarantees a certain quantity of gas deliveries

during off peak months from SNGPL.

Oil Supply Agreement ("OSA")

The OSA is between KAPCO and Pakistan State Oil Company Limited

("PSO"). PSO is the largest oil marketing company in Pakistan and is engaged

in the nationwide storage, distribution and marketing of various petroleum, oil

and lubricant products. Inter alia, the OSA covers the supply to KAPCO of

fuel, diesel, oil, greases, lubricants and additives for the requirement of the

Power Plant.

3) Resource allocation:

Existing PARCO facility for transportation of HSD from Karachi to

Mehmood Kot, which is about 35 km from Kot Addu. From Mehmood

Kot, a 10 inches diameter pipeline has been to laid this power station

and HSD pumping was commissioned in June 1989. (Later on it has

been switched over to furnace oil since 2nd Feb. 1991.).

Sweet underground water

Future load center of North West areas

possible use of gas from nearby Dhodak Field

Near to Kot Addu junction Railway Station

To provide job opportunity to the Location

General uplift and development of area.

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4) Restructuring and Reengineering

KAPCO had done the downsizing in 2002 in transport, civil and security

department due to some frauds and low performance of workers there.

KAPCO has also installed the machinery for purification of wastage

water and its all operations are environment friendly.

5) Production & Operation concern in implementing strategies

Production and operation functions are the back bone of every

organization. KAPCO is a power generation organization and a little

mistake in its production and operation function will lead the organization

to a big loss, therefore it needs full concentration, and this concentration is

gained by employees only when all their basic needs are fulfilling. KAPCO

has made such strategies that benefits al the workers and organization itself.

6) Human Resource Management Concern in Implementing Strategies

Human resource is a greatest asset of any organization. Each organization

either a manufacturing or service oriented does its best for the proper

arrangement of its employees. These are the employees who are the distinction

between organizations. These are the pillars of success in services or

manufacturing organization.

People are needed to manage people. There must be in charge to direct and

guide people in the organizations. So, human resource management is the art of

managing people in the organization. For this purpose almost every

organization has separate department which is called human resource

department or personnel department.

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In KAPCO this department was named as ADMIN in earlier as in WAPDA. In

2004 a new department “Human resource & corporate services” formed. This

department has the following sections;

1. Operations

2. Organizational development

3. Corporate services

4. Security

1. Operations

The human resources (ops) section is performing all day to day activities

of KAPCO regarding human resource. This section is performing

following functions.

New recruitment and selection

Orientation and training

Promotion and benefits

Apprentices and Internship

Updating personal information

Maintain record of leave, loan, EPF,EOBI, etc

Dealing with trade unions

2. New recruitments

HR operation deals with the recruitment of all kinds of employment including,

regular employment, apprentices, Graduate Trainee engineers and wages

employees.

A) Requisition of new employee

Sectional head not below the rank Grade M-2 sends employee’ s requisition

form to HR Manager through Head of Department/General manager after

obtaining approval from competent authority (chief executive officer).

B) Advertisement

The vacant position is advertised internally through notice board or externally

through national newspapers. HR Manager with the help of the concerned

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sectional head finalizes the contents and format of advertisement outlining the

following important points;

Clear name of position

Grade

Job description

Qualification

Experience, age limit

Last date of submission of applications.

HR Manager advertises the post after receipt of the approved requisition.

C) Scrutiny of applications

The applications are short listed on the basis of following;

lack of appropriate qualification, lack of experience, age, any other reason.

New recruitments of trainee engineers carried out during my first week of

internship.

d) Selection procedure

I saw recruitment procedure closely. The following procedure was carried out.

Test

Presentation

Group discussion

Interview

E) Post interview process

Immediately following the final interview, each panel member -independently

ranked the candidates before any discussion takes place amongst them. Then

the HR section representatives collate the rankings and after mutual discussion,

the panel arrive at a consensus on their recommendation for appointment on the

prescribe number of posts and 10 % reserve candidates. The KAPCO sends the

feedback to the unselected candidates and mentioned the reasons of their

failure.

F) Orientation

The orientation is introduction of new employees to the organization and their

work. The new employees are given information of

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Organizational structure

Policies and rules applicable in the company

Attendance and leave procedure

General discussion about the company

The time of orientation is not more than two hours in KAPCO. But in case of

trainee the orientation was not covering all the elements as mentioned above.

They were not aware of policies and rules even after orientation.

2) Employee’s provident fund (E.p.f)

The record of employee’s provident fund is also maintained by this section.

The employee can contribute up to 10 % of his basic salary. Employees can

take loan from this fund but maximum installment for repayment is 48

and also interest is charged on the outstanding loan. He can also take an

option of permanent withdrawal once in his service time.

3) Company loan

Employees apply here for company loan. They can take loan for the following

purposes;

Purchase of house

Purchase of plot of land

Repaying house building loan

Purchase of conveyance

Marriage of self and children

Their 50 % of provident fund is retained as security. The employee also gives

the guarantee of another employee of KAPCO.

4) Medical facilities, leaves & allowances

The HR Ops maintains the current information of employees. They update their

record. For medical facility they provide record of dependents of employees.

The record of employees leaves is also updated here e.g. annual leaves, frozen

leaves, study leaves etc. The allowances are also calculated on basic salary by

this section. Gross salary of employer is calculated here.

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5) Training

The HR Ops Is also responsible for the training of staff.

6) Pension

Different organizations are providing the facility of pension to its employees

which are paid to the employee at the time of his retirement. It is totally

employer’s contribution and no deduction is made from the salary of the

employee.

In KAPCO the pension is calculated as per company policy which varies from

year to year. The employees are able to get this facility after the 25 year of

service. In case of death of the employee his family can get pension amount but

the employee must have completed 10 year of service. The pension is paid 50

percent in lump sum at the time of retirement of the employee and balance is

commutated.

Organizational development

This section was formed on 2006. They perform the following functions

1) Training of officers

2) Performance appraisal of officers

1) Training of officers

For this purpose a training need assessment is carried out. There are two types

of training

In- house training

External training

In-house training

This is carried out for operations, Maintenance and safety. The last t raining

was conducted by a company NAVITUS. This was a in house training for the

purpose of safety.

External training

In this the employees are sent to different training institutions. The engineers

were sent to LUMS for management training for one year.

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Evaluation of training

The evaluation of training is done through tests, discussion or exams during or

at the end of training program. At the end of training an assessment panel may

check improvement of trainees through interviews.

Performance appraisal

Performance refers to the degree of accomplishment of the tasks that make up

an employee’s job. Whereas performance appraisal refers to the evaluation and

communication to an employee how he or she is performing the job and

establishing a plan for the improvement.

Performance appraisal method at KAPCO

The KAPCO is using the management by objective method for the

performance appraisal of the employees. This process is still limited up to the

officers but in future there is plan for the same type of system for staff. The

targets are set and performance is measured on quarterly basis and on the final

analysis of one year the employees are awarded with cash bonuses. They are

according to their performance which meets the targets or work more than

these targets.

I5 % of annual basic pay who meets expectancy

30% of annual basic pay who works more than expectancy

35% of annual basic pay for those who works is exceptional.

Corporate Services

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The concept of corporate services in human resources department is

new for us. The human resources department of KAOCO is also providing

many corporate services to its employees. This section consists of four

employees who are responsible to answer the GM HR and CS.

The corporate services section is providing the different functions for the

employees of the KAPCO. These functions are

Hospitality services

It includes the stay arrangements of guests, meal arrangements and

maintenance of the residential areas.

Transportation services

Requisition handling, vehicle insurance and claim, officer’s cars insurance,

vehicle maintenance and driver’s professional training.

Administrative services

It includes the availability of furniture and fixture, offices allocation and

setting, Canteen services and printing and stationary.

Traveling and hotel arrangements

International and domestic traveling, hotel arrangements etc are the main parts

of this function.

Social action programmed

This function includes the services to arrangements of the medical camps,

infrastructure improvements in schools and hospitals of the local community. It

also includes the general welfare projects.

Fair price shop

It includes the requisition for the purchase of items and inventory and quality

management at the shop and also sale of the items as per defined quota for the

employees.

Functions and celebration

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The preparation of the budget for upcoming functions, support to the

organizing committee and providing them the transportation and medical

facilities is also the function of this section.

7) Finance/ Accounting concern in strategy Implementation:

Finance Manger is supervising the all activities of this department. Financial

Controller is responsible for accounting procedure and Tax & treasurer is

responsible about the matters of taxation, and investment. Very first and an

important function of finance department is recording the business transactions

on vouchers. This is also called process of vouching. This is made for internal

record keeping. Auditors specifically audit vouchers. Wrong vouching will lead

to error in the system and ultimately create problems.

From vouchers information is recorded in daybook and cashbook. As each

voucher along with its invoice, PO and other necessary documents are kept in

the record room so daybook is one that can give information about parties DR

and name of account CR along with amount.

In order to see accounts in condense form ledger is used. From daybook all the

entries are posted in ledger. Ledger represents DR or CR balance of each party.

So from ledger we can see amount that is to be paid to a party or the amount

that is to be received and the balance at the end of the month.

After this all the DR balances and CR balances of all the parties are posted in

trial balance. The trial balance must be equal at both sides. Otherwise there is

any error in recording the transactions.

Now trial balance becomes the source of profit and loss and balance sheet.

This department also designs the accounting policies. All the work in this

department is being take place on accrual basis.

The department prepares trial balance at the end of every three months and

Profit and loss accounts and balance sheet are prepared at the end of year. The

financial year ends on june30 of each year. The financial statements are

presented to shareholders.

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Exact Software:

KAPCO is using accounting software named as EXACT. This software helps

in preparing the final annual statements.

The Finance department of KAPCO is responsible for the entire accounting

process of the organization and for an efficient handling of the accounts. The

accounts department mainly performs the following functions:

Short term investment

The finance department of KAPCO is responsible for investment of

funds in different companies but with the approval of the finance manager. The

short term investment of KAOPCO in different companies is with the name of

placements. The company has TFC of following companies

Engro pvt ltd

Bank al-habib

Jahangir Siddqui bank

PMCL

Defense saving certificate

The interest on DSC is recorded as accruals and it is received on maturity with

the principal.

Payments to suppliers

The finance department makes the payments to all suppliers regarding their

sales to the company. The engineers send the inspection report with invoice

and goods received note to the purchase department, which sends these

documents to the finance department for payment. If the delivery is late and no

information is given than the finance department is charge .5percent for late

delivery. The payments are recorded in purchase ledger invoice.

Petty cash book

For the payments which are less than 10000 the company has maintained the

petty cash book. For getting amount from petty cash the individual has to fill a

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form which is approved by finance manager. Than the payment will be made to

the individual and entry will be

Name of the employee Dr

Cash Cr

After the person submits the invoice of the purchase than the entry will be

Name of the expense Dr

Name of the employee Cr

Sale invoice recording

There are different companies which are using the residences and electricity,

gas, house rent facilities of the KAPCO. So it the responsibility of the cash

dealing officer to issue sale invoices to these different firms. The issue entry

will be

Name of the company Dr

Name of the income Cr

Fair price shop dealings

The quotas of different employees are set for their purchasing

From fair price shop and it is totally on cards which issued to each employee.

The deductions are made on monthly basis from the salaries of the employees.

When purchases are made for the fair price shop the entry will be

Fair price shop DR

Name of the contractor Cr

Purchases

There are two types of purchases which are handling by the finance department

of the KAPCO. It may be

Stock item

Direct charge expense

In case of stock item the entry will be

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Stock Dr

Bills Payable Cr

In case of direct charge expense

Expense by name Dr

Account payable Cr

Financial Analysis

Financial analysis involves the use of various financial statements.

These statements do several things. First the balance sheet summarizes the

assets, liabilities, and owner equity of business at a moment of time. Next the

income statement summarizes the revenues and expenses of the firm over a

particular of time.

To see the financial positions of any company for short term and long term

investment and for giving loan the analysis of different ratio is very necessary

for a finance manager. Financial ratio is an index that relates two accounting

numbers and is obtained by dividing one number by the other.

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STRATEGIES IN ACTION

OPERATIONAL STRATEGY

Corporate Strategy

Whatever the type of firm, top management’s responsibility is to plan the

organization’s long-term future. Corporate strategy defines the business (es)

that the company will pursue, new opportunities and threats in the

environment. Also addressed is business strategy, or how a firm can

differentiate itself from the competitors. Choices could include producing

standardized products versus customized products or competing on the basis of

cost advantage versus responsive delivery. Corporate strategy provides an

overall direction that serves as the framework for carrying out all the

organization’s functions.

Strategic Choices

Corporate strategy defines the direction of the organization over the long term

and determines the goals that must be achieved for the firm to be successful.

Management sets corporate strategy by making three strategic choices:

determining the firm’s mission, monitoring and adjusting to changes in the

environment, and identifying and developing the firm’s core competencies.

Application at KAPCO

Before the privatization the organization was working under WAPDA like a

typical Govt. Organization and had no formal corporate strategy. However,

after privatization in June 1996, the organization is working on the subject and

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a draft corporate strategy has been finalized. The strategy is being kept secret at

the moment and no further details are available.

CORE COMPETENCIES AND COMPETITIVE PRIORITIES

Core Competencies

Core competencies are organizational unique resources and strengths which

management considers formulating strategy. These core competencies include:

1. Workforce

2. Facilities

3. Market and financial know how

4. System and technology

Competitive Priorities

A firm gains an advantage with its operating system by outperforming

competitors in terms of one or more of these capabilities. There are eight

possible competitive priorities for operations, which fall into four groups.

Cost

1. Low cost operations

Quality

1. High performance design

2. Consistent quality

Time

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1. Fast delivery

2. On time delivery

3. Development speed

Flexibility

1. Customization

2. Volume flexibility

A firm may organize itself into one or more operating systems, each designed

to support a particular set of competitive priorities for a particular set of

products or services.

Application at KAPCO

Core competencies

Work force

A work force of approximately 612 employees is working in the organization

in 4 technical shifts and 1 general shift as following:

Technical shifts 3 x shifts work 8 hourly daily on rotational basis

1 x shifts remains at rest

General Shift for 8 hours on daily basis (from 0800 to 1600 hrs)

Market and Financial know how

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There is no marketing department nor are there any competitors. The

organization does not carry out any marketing function. However, a

commercial and financial department exists. For the billing purpose formal

financial procedures are adopted.

System Technology

In the recent past the organization has installed new technology plant for power

production. There are combinations of hybrid technology plants i.e. Gas and

Furnace Oil combination, Gas and High Speed Diesel combination and Steam

Operated Turbines. The company is also shifting their information system on

the modern lines gradually. And company also installed multi fuel system

turbines which can run on every type of fuel.

Competitive Priorities

Cost

All efforts at every level are directed to reduce the production cost. This is

being achieved by the very extensive use of Gas Turbine plant i.e. block

3.called CCR 3

Quality

High performance quality in the organization is referred as efficient use of

plant i.e. with minimum cost maximum output.

Time The aspect is of utmost importance. Priorities like Fast Delivery and On

Time Delivery are applicable as the company is producing required amount of

voltage at prescribed timing with complete accuracy.

Flexibility

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There is no concept of flexibility, which is being implemented. The company is

rather tied up with the strict schedules of using various plants.

Strategy Based On Flows

These are five fundamental manufacturing and service strategies based on

flows are:

1. Make-to-Stock Strategy

2. Standardized service strategy

3. Assemble-to-order strategy

4. Make-to-order strategy

5. Customized service strategy

Application at KAPCO

No concept of strategy based on flows is being followed / observed in the

organization. However, all production is being done on the orders / demand

received from WAPDA. One may say that make to order strategy is being

follows for production of electricity.

DECISION MAKING IN OPERATIONS

Operations managers make many choices as they deal with various decision

areas. Although the basic steps include:

1. Recognize and clearly defined the problem.

2. Collect the information needed to analyze possible alternatives.

3. Choose and implement the most feasible alternative.

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Sometimes hard thinking in a quiet room is sufficient. At other times reliance

on more formal procedures is needed. Various methods used are break-even,

preference matrix, decision theory and decision tray.

Application at KAPCO

None of the above method is being implemented by the company for estimating

demand. The demand is received directly from WAPDA (The only customer of

the company) and company produces power / electricity accordingly. If there is

any problem in fulfill demand and supply targets given by wapda then

management refers it to concern department and that department work on it as

a team not depend on individuals.

WORKFORCE MANAGEMENT

Team

Employee involvement, also called worker participation or labor-management

joint-ness, is a key tactic for improving competitiveness. One way to achieve

employee involvement is by the use of teams, which are small groups of people

who have a common purpose, set their own performance goals and approaches,

and hold themselves accountable for success. Teams differ from their more

typical “working group” because:

The members have a common commitment to an overarching purpose

that all believe in and that transcends individual priorities.

The leadership roles are shared rather than held by a single, strong

leader.

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Performance is judged not only by individual contributions, but also by

collective “work products” that reflect the joint efforts of all the

members.

Open-ended discussion, rather than a managerially defined agenda, is

prized at meetings.

The members of the team do real work together, rather than delegating

to subordinates.

Employee Empowerment

The three approaches to teamwork most often used are problem solving teams,

special purpose teams, and self-managing teams. All three use some amount of

employee empowerment, which moves responsibility for decision farther down

the organizational chart – to the level of the employee actually doing the job.

Application at KAPCO

Generally the concept of problem solving team or special purpose team exist in

the organization culture. This is more evident when major overhauls of the

plants are done. Individuals are not made responsible in different teams (each

selected from respective shift) for specific jobs but the concerned employees

work as a team.

TRAINING

In a global marketplace, firms face changing market conditions brought on by

new competitors and changing customer preferences. Firms must rely on their

employees to anticipate possible problems, develop new products and services,

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and increase productivity to remain competitive. The emphasis on efficient

process requires the employees have a broader base of skills so that they can

take on greater variety of assignments and communicate with employees in

other areas. Firms engage in a variety of training programs, including the

following:

Global training

Administrative training

Technical training

Application at KAPCO

Although the company does not have any competitors yet the company faces a

great a cost of electricity demand from WAPDA. To this demand a highly

skilled personal; (especially Engineers) are required. As the project kept on

developing in phases i.e. from 1984 (1st phase) to 1992 (last phase), To improve

the skill and update the technical knowhow of the working staff for the new

machinery, a training program was launched right from the beginning of the

project. As a result of this a number of station engineers received foreign

training in different fields. Entire program of training to different categories of

staff was out in five Phases.

Phase I

As per contract agreement 7 engineers were trained in Germany and 9 in Italy.

The training was conducted at the training center / factories of the machine

manufacturers. Besides the above one month’s local training was also imparted

to the staff at site.

Phase II

Under this phase 30 engineers received training in the field of operation and

maintenance of plant. The training was arranged in France.

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A local training was also arranged at site for the staff where operation and

maintenance of the gas turbines unit 5-8 was taught for a month.

Phase-III

For the combined cycle plant unit forty engineers were trained in Germany.

Locally the operation and maintenance staff for these units was trained at site

by the foreign expertise for a period of 24 weeks.

Phase-IV

For operation and maintenance of steam turbine units 11&12, twenty engineers

received foreign training in the relevant field. Training was imparted at France.

In addition to the foreign training, a local training was also impacted by foreign

experts to the operation and maintenance staff. A batch of 20 officials attended

the course.

Phase-V

15 engineers were sent to Germany under this phase. The participants of this

course received training in the field of Electrical, Mechanical and I&C

maintenance of power plant.

A multi field training course, covering a span of 13 weeks was arranged at the

plant for local training of staff. About 50 persons availed this training to get

acquaintance with the new machinery.

In 1996 after KAPCO is privatized, organization has made it must for every

employee(management and Technical Staff) to get training of 15 days inside

plant, and that training is given by NOVARTAS and SEIMENS and

Management training is given by LUMS institute.

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Capacity

Capacity is the maximum rate of output for a facility. The facility can be a

workstation or an entire organization. The operations manager must provide the

capacity to meet current and future demand; otherwise, the organization will

miss opportunities for growth and profits. Capacity plans are made at two

levels. Long-term capacity plans. These plans cover at least two years into the

future. Whereas, short-term capacity plans focus on work-force size, overtime

budgets, inventories, and other types of decisions.

Capacity Planning

Capacity planning is central to the long-term success of an organization. Too

much capacity can be as agonizing as too little. When choosing a capacity

strategy, managers have to consider questions such as the following. How

much of a cushion is needed to handle variable, uncertain demand? Should we

expand capacity before the demand is there or wait until demand is more

certain?

Measures of Capacity

No single capacity measure is applicable to all types of situations. Output

measures are the usual choice for line flow processes. Input measures are the

usual choice for flexible flow processes.

Peak Capacity

The maximum output that a process or facility can achieve under ideal

conditions is called peak capacity. Peak capacity can be sustained for only a

short time, such as a few hours in a day or a few days in a month. A firm

reaches it by using marginal methods of production, such as excessive

overtime, extra shifts, temporarily reduced maintenance activities, overstaffing,

and subcontracting.

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Effective Capacity

The maximum output that a process or firm can economically sustain under

normal conditions are its effective capacity. In some organizations, effective

capacity implies a one-shift operation; in others it implies a three-shift

operation.

Steps Determining Capacity Cushions

Businesses find large cushions appropriate when demand varies.

Large cushions also are necessary when future demand is uncertain.

Another type of demand uncertainty.

Supply uncertainty also favors large capacity cushions.

Small cushions have other advantages; they reveal inefficiencies that may be

masked by capacity excesses-problems with absenteeism, for example, or

unreliable suppliers. Once managers and workers have identified such

problems, they often can find ways to correct them.

Application at KAPCO

Power Generation

Peak Capacity

Peak capacity of the project is 1690 MW which is achieved through combined

cycle power plants.

Effective Capacity

Effective capacity of the plant is 1690 MW at any instance during the entire

year.

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According to the contract the company is bound to provide same

amount of power i.e. 1690 MW (equal to effective capacity for the next

25 years to WAPDA) and international power co uk increase it up to

2100 MW till 2012.

Although the demand for power supply is received from WAPDA is any

instance during the year. However as a process 95 days before the

commencement of the next year, average ten at demand is received in

giga watts / hrs from WAPDA. Basing on this forecast capacity

planning by the company is done.

Chapter 5 STRATEGY EVALUATION

Strategy Evaluation Framework:

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THE PROCESS OF STRATEGY EVALUATION

The Process of Strategy evaluation at KAPCO is done in following steps.

1. Identifying the Problems

2. Measuring actual performance with standards

3. Taking corrective actions

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1. Identifying the Problems:

Concerned Officers of each department prepare report about the

performance and working of all the employees and send daily report to

the head of the department. In every shift working at KAPCO, There is a

reporter who reports the performance of each employee and send it to

the reporting manager, The employees also mention any problem related

to their working in this report, the reporting manager then compile all

these reports in a single report and send it to higher management with

the suggestions for solving the related problem.

2. Measuring actual performance with standards:

The higher management then after analyzing that report compare the

actual performance of the workers quantitatively & qualitatively with

the standards set by the BOD at KAPCO.

3. Taking corrective actions

If the performance is not according to the standards then it means that

their implemented strategies are not working well, they need to take

some corrective actions by doing modification in that strategy or by

implementing a new strategy.

Minor problems at departmental level are solved by the concerned

departmental manager with his/team while some major or serious

problems are handled by top management.

In 2004, the KAPCO has done downsizing in some department on the

bases of their weak performance.

DIFFERENCES IN THEORY AND PRACTICAL APPLICATION OF

STRATEGIES

After studying the practical application of strategic management, we

have identified the following differences between theory and practical

application at KAPCO.

1. Management style is different from that we have studied in book.

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2. Decision making is mostly done at top level but departmental managers

also have the authority to modify & change the ways to achieve the

targets.

3. Top level management whenever implements a strategy. They always

consult with employees and take their opinion on strategies that are

going to be implementing in future.

4. The Mission statement that KAPCO is following is prepared by mutual

concern of KAPCO and International Power UK, employees were not

considered in making the Statement.

5. The contracts with other company are made by procurement department

and procurement department doesn’t consult with other departments.

6. KAPCO has made the strategies for its 25 years joint venture with

WAPDA. But their annual and short term objectives can change.

7. KAPCO cant make the policies for itself, all its policies are made by

WAPDA, so their joint venture has no role in making the policies and he

reason for that is, WAPDA has four members in the Board of Directors

of KAPCO.

8. There is no marketing department in KAPCO because it doesn’t need it,

it has only one buyer i.e. WAPDA.

9. Sometime it happens in KAPCO, that when a particular strategy is

made, The labor union are not agree with it, so the management of

KAPCO then review that strategy, and some deals with them that could

benefit both the union and the organization.

RECOMMENDATIONS

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1. The decision making should be decentralized up to some extent not

depend upon teamwork, individual must have some authority to

take decisions.

2. KAPCO must consider its employees and workers concern while

preparing the mission and vision statements.

3. The procurement department should consult with other relevant

department when they do contract with other companies.

4. KAPCO should get the authority from WAPDA for making their

own policies up to some extent, and they should also concern their

internal employees for making policies.

5. The top management of KAPCO should also concern the opinion

of the technical staff while making and implementing the

strategies, because KAPCO is an engineering related firm and the

top level management don’t have deep knowledge related to the

machinery and it’s working.

QUESTIONAIRE

1. How you develop your mission and vision?

2. What is importance of mission and vision in front of your organization?

3. What sort of technique KAPCO is using for external audit?

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4. How you perform your external audit

5. What are the factors in your opinion which affect your organization?

6. Are you using competitive intelligence?

7. Are you using management information system?

8. What are KAPCO’s long term objectives?

9. For the purpose of achieving long term objectives, is your organization

is using intensive strategies like (market penetration, market

development and market development)?

10. What is the KAPCO’s procedure to implement strategies?

11. What your organizations do for achieving long-term objectives?

12. What are human recourse concerns while implementing strategies?

13. What are marketing concerns while implementing strategies?

14. On which basis you evaluate the performance of your organization?

15. How you remove the weakness, if any found in the evaluation process?

16. What sort of tools/techniques you used for evaluation process?

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