mb0052-slm-unit-14

Strategic Management and Business Policy Unit 14

Sikkim Manipal University Page No. 375

Unit 14 Implementation:Functional and Operational

Structure14.1 Introduction14.2 Caselet

Objectives14.3 Production Policies and Plans14.4 Marketing Policies and Plans14.5 Financial Policies and Plans14.6 HR Policies and Functions14.7 MIS/IT Policies and Plans14.8 Alternative Business Strategies and Functional14.9 Processes or Methods

14.10 Productivity and Efficiency14.11 Pace or Speed of Action14.12 People Factor14.13 Case Study14.14 Summary14.15 Glossary14.16 Terminal Questions14.17 Answers14.18 References

14.1 Introduction

In the last unit, we had analysed the role of structures and systems in strategyimplementation. In this unit, we shall discuss the roles of functions and operationsin the implementation of strategy. It is necessary for an organization to have theright structures and systems; but, real implementation of strategy takes placethrough major functional areas of manufacturing, marketing, finance, etc. Ineach of these functional areas, operational implementation is equally important.Functional implementation and operational implementation are complementaryto each other. One can even say that operational implementation is an extensionof functional implementation (Figure 14.1).



Figure 14.1 Strategy Implementation: Functional and Operational

We will discuss the issues related to functional implementation andoperational implementation in this unit. These include defining functional strategy;understanding the role of the functional policies and plans in implementing thestrategy; identifying major factors involved in formulating policies and plans indifferent functional areas; integrating various functional policies and plans; and,analysing all important aspects of operational implementation.A. Functional ImplementationFunctional implementation takes place through functional policies, plans andstrategies. Functional strategy relates to a particular functional area and followsfrom business strategy of an organizationeither a corporate-level strategy ora business unit-level strategy (in SBU structure in Figure 12.7, we have showndifferent functions).

We had introduced the concepts of policy, plan, strategy and tactics inUnit 1, and explained the difference between them. The analysis of functionalimplementation will be carried out in terms of policies, plans and strategies indifferent functional areas. In any organization, five major functional areas are:production, marketing, finance, HRM and MIS/IT. Some consider R&D also asan important functional area, but we shall confine ourselves to the four traditionalfunctional areas: production, marketing, finance, HRM and the emergent areaof MIS/IT. For strategy implementation, these functional areas have to haveproper horizontal fit among themselves, i.e., play interdependent roles(Figure 14.2).



Figure 14.2 Interdependent Functional Areas

14.2 Caselet

The failure of Big Bite, a much hyped product launched by Parle is anexample of how wrong balancing in a products marketing mix can lead tomarketing failure. In 198788, Parle Exports (then makers of Thumps Up,Limca, Gold Spot) made a high profile launch of Big Bite, a kind of burgera bun with vegetables, or chicken or mutton filling topped with differentsauces. The launch was preceded by several campaigns in Mumbai withtantalizing punchlines. Mumbaiites responded overwhelmingly, and, in thefirst month of the launch, 90 per cent of the target customers had tried BigBite. But, thereafter, the sales declined, and, in less than six months, it wasreduced to 10 per cent. Big Bite was a big failure, and Parle had to withdrawthe product. Follow-up research showed that Big Bite did not live up tocustomer expectations. Customers found it dry compared to its nearestrival Rolls and perceived it to be like any other burger. Their expectationswere raised by the Big Bite ads, but, the product failed to rise to thoselevels. This was a case of product-promotion mismatch, and the case showsthat wrong balance in the marketing mix can lead to marketing failure.Source: A Nag, Strategic Marketing, 2nd ed. (New Delhi: Macmillan India, 2008), 171



ObjectivesAfter studying this unit, you should be able to:

Analyse functional implementation functional policies, plans andstrategies

Identify the linkage between alternative business strategies and functionalpolicies and plans

Identify and analyse major issues in operational implementation of strategy Discuss the important role of people factor in implementation

14.3 Production Policies and Plans

Production processes typically constitute more than 70 per cent of a companystotal assets1, and, therefore, have high stakes in terms of roles and activities instrategy formulation and implementation. Production policies, capabilities andlimitations can significantly affect strategic planning and implementation andthe attainment of organizational objectives. Production, in the core, relates tomanufacturing, i.e., decisions regarding plant size, plant location or layout,product design, choice of equipment, spares and accessories, technology level/technological innovation, inventory control, quality control, cost control,packaging, use of standards, capacity utilization, etc.

But, production as a function, in a broader sense, also includes procurementof raw materials and inputs, R&D and any other operations (logistics) related tothe production process. Some, therefore, prefer to call this function production/operations. Again, production, as a function, is not confined to manufacturing-related activities/operations only. It also extends to production of services, retailing,etc. Both manufacturing and service organizations have to formulate policiesregarding capacity, technology, purchasing, etc. Similarly, retailers have toformulate policies and prepare plans for buying and sellingmay be, buy in bulk,repackage and sell in smaller packs. There have to be policies and plans forbulking also.

14.3.1 Choice of Production Process

If a company decides to manufacture the product, it has to consider some majorpolicy issues in relation to the production process. Four major issues to beconsidered are:



Size and location of plants Choice of technology Process/job specialization Mechanization of operations

For all large companies and multinationals, a basic policy decision with respectto size and location of plants pertains to two alternatives: large size plant withsingle centralized location or small size plants in multiple locations. Both thealternatives have advantages and disadvantages. An obvious advantage of alarge size plant is economies of scale as enjoyed by many companies in steel,cement, fertilizers, etc.

Choice of technology is a very important factor in the production process.This assumes special significance today because of increased globalcompetition, faster communication network and high rate of technologicalobsolescence. Like product life cycle, there is also technology life cycle. Thereare four phases in the technology life cycle: embryonic, growth, maturity anddecline.

In some industries (products), there is a single or highly standardizedtechnology, and technological change is very slow. Paper is a very good example.Others are edible oil, cotton textiles, woollen textiles, etc. But for majority of theindustries or products, regular technological upgradation is necessary, consumerelectronics being one of the best examples. For choice of technology, companieshave three options: first, in-house development

Technology governs, to a large extent, the production process and alsojob specialization. In technologically sophisticated processes, i.e., with high focuson standardization, job specialization or division of labour becomes imperative.This, in fact, is a distinct characteristic of all large-scale manufacturing activities.Job specialization also produces the experience effect (discussed in Unit 6)which helps to increase productivity and efficiency.

Related to process or job specialization is mechanization and automationof operations. Mechanization and automation are labour saving methods.Automatic spinning and weaving in textile mills, packaging of products, loadingand unloading of cargo, computerization of banking and insurance operationsare good examples of increased mechanization and automation but, at the sametime, these cause displacement of labour. Technological advances drivemechanization and automation. Displacement of labour, on the other hand, facesresistance from workers unions and also creates employment problem. Every



big company, therefore, needs to formulate a policy on mechanization whichcan balance technology advances and labour relations.

14.3.2 Quality Policy/ManagementQuality of a product is closely linked to the production process, operationalefficiency and the quality control system. But, above all, quality depends on thequality policy of a company. In a highly competitive market, quality of productsand services determine, to a large extent, success and failure of the companies.This is particularly applicable to industrial products and consumer durables. Infact, the major developments in quality policy and quality movement pertain toindustrial products (both intermediates and finished products) and consumerdurable categories like automobiles.

The quality movement was initiated in the US. During the post-World WarII period, the concept of total quality control (TQC) was developed in the US byArmand Feigenbaum. The term, TQC, was defined as a system of integratingthe quality development, maintenance, improvement efforts of various groupsin an organization to enable production, marketing and service at the mosteconomical level with full customer satisfaction.2

In the early 1960s, Japan introduced Quality Circle (QC) for qualitymanagement. A quality circle, as a tool, aims at defining, analysing and solvingquality related problems in a company through a team approach. Seven to tenworkers from interrelated functional or work area form a quality circle. Membersof the team are given necessary training in all quality-related matters so thatthey can develop an effective approach to quality management. In India, manycompanies, including BEL, BHEL, SKF, Godrej and Mahindra & Mahindra (JeepDivision) have attempted quality control through QCs. Many other countrieshave introduced their own quality controls and standards.

International Organization for Standardization (ISO) has taken the lead ininternationalization of quality. ISO has published a series (ISO 9000 series) ofquality system and standards. ISO standards have now become internationalquality benchmarks for all countries. All these have led to the development ofTotal Quality Management (TQM) as a tool for integrated quality control. Manyprogressive companies are now striving for Six Sigma quality standards(discussed later in Unit 16) a benchmark set by GE.14.3.3 Inventory Policy/ManagementFor most of the companies, whether in consumer goods or industrial products,the planning process is:



Planned salesplanned productionplanned procurementAny divergence between the planned and actual sales, and, therefore,

between the planned and actual production is matched by inventory build-up asshown in the equation:

Sales = Opening stock + Production Closing stockIdeal position is: Opening stock = Closing stock = 0 except for some

operating stock.So coordination or balancing of procurement, production and sales is

leveraged by inventory control and management. But, it is not only inventorymanagement of finished goods as shown above, but also of raw materials andinputs. So, a companys inventory policy should relate to both raw materials andfinished goods. Both have direct implications in terms of carrying cost. Everycompany, therefore, has to have an inventory policy for determination of optimuminventory levels.

One of the latest or more successful approaches or methods is the just-in-time (JIT) inventory system. First introduced by Toyota Motors in Japan, JITmodel has been adopted by many companies in electronics and automobiles.In the JIT system, storage of material,. i.e., inventory level is almost zero. Rawmaterials/inputs are supplied/procured just-in-time so that the pipeline does notbecome dry, production continues and sales do not suffer. To make the JITsystem effective or successful, many vendors have set up production facilitieseither in the product manufacturing site or in close proximity. The objective, andthe crux of the JIT system, is to minimize the lead time for supply of raw materialsand inputs.

Activity 1Choose any two companies one in the public sector and the other in theprivate sector and make a comparative analysis of the production policies,plans and strategies.

Self-Assessment Questions

1. The_________is as a tool introduced in Japan, that aims at defining,analysing and solving quality related problems in a company through ateam approach.

2. During the post-World War II period, the concept of total quality control(TQC) was developed in the US by ________.



3. In some industries (products), there is a single or highly standardizedtechnology, and technological change is very slow. Which of these is agood example of this?

(a) Paper(b) Electronics(c) Food processing(d) Garments

4. In the just-in-time (JIT) inventory system the, storage of material, i.e.,inventory level is

(a) Very high(b) Very low(c) Always changing(d) almost zero

14.4 Marketing Policies and Plans

Marketing is the most vital function in an organization because it establishesthe link between the company and the market or the customers. It is the functionwhich generates turnover (through sales) or revenue and earns profit for thecompany. So, the marketing function fulfils the most important objective of acompany. In the implementation of most corporate strategies, marketing has adefinite role to play. Marketing policies and plans are, therefore, of greatsignificance in implementing business plans and strategies of a company.Marketing policies and plans are expressed though the four Ps: product, price,promotion and place (distribution). Each of these Ps has a number of elementsassociated with it. These are shown in Table 14.1.

Table 14.1 Four Ps of Marketing and their Elements

Product Price Promotion Place Quality List price Advertising Customer location Brand MRP Sales promotion Outlet location Features Discounts Personal selling Channels Packaging Trade margin Test selling Warehousing Warranties Commission Publicity Stocks Services Instalment Communications Delivery

Credit terms



Marketing policies and plans have to be understood and analysed in termsof the four Ps and their elements as shown in the table. Many marketingstrategists call this marketing mix analysis. But there is a difference; marketingmix is not just the four Ps. Marketing mix is the way the four Ps or some of thePs (depending on the product category) are combined or blended to optimizemarket offerings to increase sales and market share.

In this section, the main issues in marketing policies and plans will beanalysed in terms of

(a) Product and product mix(b) Pricing decision(c) Product promotion(d) Place (distribution)(e) Marketing mix

14.4.1 Product and Product Mix

Product design, product manufacturing (except services) and productdevelopment are primarily the task or concerns of the production function/department (along with R&D). But, market or customer analysis is done by themarketing people; they may know better than production the nature of marketdemand, performance or acceptability of different products made by the company.Market reaction or feedback on a product is conveyed to the productiondepartment by the marketing group. Therefore, in every organization, marketingand production functions work in tandem in all matters relating to productplanning, product making and product modification or adaptation.

Formulation of product policies and plans by a company should be basedon answers to certain key questions:

Which products should the company market? Which products contribute faster to sales and market share? Which products contribute most to profitability? Which products make an optimal product mix? How do a companys products compare with those of competitors? How frequently should the company change the product?

Let us start with product mix. To have a product mix is a common policy orstrategy of most companies. The basic objective of the product mix is to balancethe product portfolio. This implies or includes two more objectives; first, to



optimize market offerings, (i.e., to cater to as large a cross section of marketsegments as possible) and, second, to effectively match competitors productsand brands. To achieve optimality of product mix, companies have to continuouslyreview their existing product lines and market developments. Such reviewpursues resource allocation to different products (existing and proposed);examines whether the rate of new product development is satisfactory; and,ascertains whether, or, to what extent, each product contributes to sales growth,market share and profitability. Different products generally contribute differentlyto sales, market share and profit. Drucker has mentioned that a typical portfoliomay consist of six different product types:

(a) Tomorrows breadwinners, i.e., new products or todays breadwinnersmodified.

(b) Todays breadwinners, i.e., the innovations of yesterday.(c) Yesterdays breadwinners, i.e., products with high volume, but,

fragmented into specials, small orders and the likes.(d) Products capable of becoming breadwinners or net contributors if

major changes/improvements are made.(e) The also ransthe high hopes of yesterday, which, although did

not perform well, have not become outright failures.(f) The failures of today.3

14.4.2 Pricing Decisions4

Traditionally, two limits to pricing or price policy are set by an economic or costof production factor and the other by the market factor. A company would notnormally sell its product(s) at a price less than the unit (average) cost ofproduction, and, a customer would not pay a price more than the perceivedvalue of the product. These two would set the limits to pricing of the product unit cost would set the lower limit and customers perceived value the upperlimit. The pricing policy of a company is mostly guided by these two limits; and,in most market situations, the actual price would be settled between the two.

Given these two limits, the pricing policy of a company would depend onthe pricing objectives. The objective of pricing is not always to maximize profit,although this should be the ideal objective. Many companies have other overridingobjectives dictated by organizational objectives and their positions in the marketvis-a-vis competitors. There can be short-term objectives and long-term objectives,and there can be a dichotomy between the two. Various pricing objectives followedby companies, including the more common ones, are given below:



(a) Maximizing growth of sales(b) Maximizing short-term profitability(c) Achieving product-quality leadership(d) Maximizing long-term profitability(e) Skimming the market(f) Creating entry barriers for competitors

(g) Dumping the product and(h) Organizational survival

14.4.3 Product Promotion

There are many ways to promote a product and most companies use a mix ofdifferent promotional tools. Policy-makers and strategists should take intoaccount the major factors which determine the choice of a particular promotionmix. These are:

A. Nature of the market, i.e., market size, number of products/brands in themarket, intensity of competition, etc.

B. Product awareness and buyer readiness, i.e., buyers awareness of variousproducts and their readiness to buy particular products/brands.

C. Product life cycle, i.e., introduction stage, maturity stage, etc.in theintroduction stage, advertising and publicity are more important while inthe maturity stage, sales promotion and personal selling are more effective.

D. Overall marketing strategy, i.e., whether the company likes to push theproduct (through marketing and distribution network) or create a pull(strong consumer demand). In the push strategy, focus is on personalselling and trade promotion; in the pull strategy, the emphasis is onadvertising and consumer promotion. For many companies, overallpromotional policy or strategy can be a combination of push and pull.Given these factors, companies use a variety of promotional tools today.

These include promotion letters, catalogues, point of purchase (retail stores)displays, customer service programmes, sales demonstrations, contests, freesamples, discounts, coupons, free offers, extras, price-offs, etc.

Point-of-purchase (POP) promotion through displays in retail outlets isone of the most widely used promotional tools today. Innovative displays havebecome a prerequisite for product/brand success. With limited space availablein retail stores, products/brands compete with one another for consumer attention



and shelf space. In todays high intensity marketing, the retailers are virtuallyflooded with POP promotions from various manufactures. More and morecompanies are going for innovative displays to give their products/brands morevisibility in shelves. When Nestl had introduced Maggi noodles in 1983, theyhad used a unique dispenserthe wire mesh bag. It had not only helped inproduct/brand identification and focus, but, also helped the retailer. Thedispenser, hung from the ceiling helped the retailers save shelf space. Cadburytoo came up with a dispenser. Customized racks are also being used bycompanies for display. Companies like Procter and Gamble, Nestl, HindustanUnilever, Lakme and Tips and Toes make yearly bookings for display space invarious stores.

14.4.4 Place (Distribution)Place or distribution is the process by which goods and services are deliveredto the customers. In industrial products and consumer goods (not for services),an important matter of policy for a company is to decide whether it should sellits products directly to consumers or through intermediaries or middlemen, i.e.,channels. There can be zero channel or there can be multiple channels.

Given the alternative channels, a company has to evaluate these anddetermine which channel suits its strategy implementation. Determination ofsuitability or unsuitability of a channel is based on three criteria: economic,control and adaptability. The economic criteria relate to distribution cost. Relativecosts of distribution through different channel alternatives have to be consideredfor viability. Since the intermediaries or channel members are independent, amanufacturer has to take into account the controllability factor of these channels.A preferred channel is one which offers more controllability. Finally, adaptabilityof a channel is important. A channel should provide for flexibility so that changescan be introduced when situations demand. Inflexibility or rigidity may affectoperational efficiency of a channel.

In all multiple channels, channel management is a major task of a company.Channel management involves two issues: managing channel conflict andmotivating channel members. Channel conflicts can be vertical (channelmembers at one level in conflict with members at higher or lower level), horizontal(conflicts between members at same channel level) or multichannel (channelsget in conflict with the company). Three different types of conflicts require differenttypes of channel management approaches. Also, it is not enough for a companyto resolve or reduce channel conflict; it is necessary to keep the channel membersmotivated. Motivation can be achieved through both financial (higher margins,



bonuses, extended credit limits, etc., and non-financial (contests, recognition ofbetter performance, paid holidays, etc.,) methods. Companies like Philips, BajajElectrical and Parle Exports are known to publicly acknowledge and rewardhigh performance of selected dealers. Reliance, Videocon, etc., sponsor holidaysfor their high-performing dealers to foreign destinations.

14.4.5 Marketing MixThe genesis of the marketing mix is: if one manages to achieve the right productat a right price with the right promotion and in the right place, the marketingprogramme would be effective or successful. Therefore, assembling andmanaging the marketing mix (including all the elements shown in Table 14.1) isa basic marketing task and blending the marketing mix into a winning combinationis a matter of strategy. The inter-connected marketing mix system is shown inFigure 14.3. Marketing success and failure depend, to a large extent, on thechoice and balance of the marketing mix.

Figure. 14.3 The Inter-connected Marketing Mix System

The case of Big Bite cite in the caselet above is an example of how wrongbalancing in the marketing mix can lead to marketing failure.




5. Marketing policies and plans are expressed though the four Ps: product,price, promotion and participation. (True/False)

6. The pricing policy of a company is mostly guided by the two limits unitcost and customers perceived value. (True/False)

7. Which of these is not an element of a promotional mix?(a) Advertising(b) Sales promotion(c) Personal selling(d) Production

8. Promotion through displays in retail outlets is as a promotional tool isknown as

(a) Point-of-purchase (POP)(b) Demonstrations(c) customer service programmes(d) discounts

14.5 Financial Policies and Plans

Next to production and marketing policies and plans, financial policies and plansare most vital for strategy implementation of a company. Some may even argue,and rightly so, that all the three are equally important or vital. Implementation ofevery strategy has financial implications in terms of cost or investment. Financialpolicies and plans relate to three important factors:

(a) Sourcing of funds(b) Allocation of funds or investment decisions(c) Management and control of funds

14.5.1 Sourcing of FundsPolicies and plans related to sourcing of funds deal with financing mix or capitalmix decisions. Policies have to be formulated and decisions taken on majorfinancing factors or issues: capital structure, capital issues, capital procurementpattern, working capital borrowings, reserves and surplus or retained earnings



as sources for funding, relationship with lenders, banks, financial institutions,etc. These policies and decisions are vital because of two reasons: first, thesedetermine how and how much financial resources will be made available forimplementation of different strategies; and, second, each of the sources orchoices has certain cost associated with it.

Various sources of funds can be broadly divided into two categories: shortterm and long term. The other way to classify sources is as internal or external(Table 14.2).

Table 14.2 Sources of Funds: Internal, External, Short term, Long term

Source Short term Long term

Internal Nil Retained earingsExternal Short-term loans Share capital

Banks Equity shares Financial institutions Preference shares

Public deposits Debentures Leased assets Fixed deposit Trade credits Longterm loans Customers advances

Given the various sources of funds, a major policy decision for a companyis to secure the optimal financing mix, i.e., the right combination of internal andexternal, and short-term and long-term sources of funds. Such combination ormix is governed by a number of factors. The major factors are mentioned below.

(a) Nature of business(b) Purpose of financing (c) Cost of financing(d) Financial leverage(e) Control or interference in management(f) Organizational ability

Because of these various factors, different companies adopt differentpolicies for financing mix commensurate with their business conditions. IngersollRand, for example, adopted a policy of blending internal and external sourcesfor financing its strategies for expansion and growth. Almost 70 per cent of thecompanys post-tax profit was reinvested to reduce its dependence on externalsources (borrowed funds). This enabled the company to keep its interest costs



low. Reliance Industries gives a different kind of example. It has successfullyused its capabilities to source funds at lower cost. To achieve this, it has used amix of external long-term sources fully convertible debentures, partlyconvertible debentures, and global depositing receipts (GDRs). The companyhas used these sources to finance its expansion plans without putting muchpressure on equity. The companys debt-equity ratio is maintained around 1:1which is very favourable for a rapidly growing company as against a generalprivate sector norm of 2:1.

14.5.2 Allocation of Funds or Investment Decisions

All strategy implementations, except retrenchment strategy, involve allocationand deployment of funds or investment decisions. As sound corporate practice,uses or allocation of funds should be kept in view while formulating policies onsourcing of funds. Policies and plans related to allocation or utilization of fundsessentially relate to asset mix decisions, i.e., regulating investments in fixedassets and holding of current assets. Fixed assets are long term in nature, havecertain life and depreciate; current assets are short term in nature and areeither held as cash or expected to be converted into cash during the accountingperiod.

Fixed investment or investment in fixed assets and investments in currentassets or working capital are meant for different business or corporate purpose;but, both forms of investment are used simultaneously and, in certaincombinations, with a common objective of strategy or project implementation.For example, in manufacturing, a company requires both fixed capital andworking capital to fulfil the same objectiveto produce or make a product asper strategy requirements.

Working capital requirements depend on various factors, like productionor sales, raw material/input procurement pattern, inventory norms, seasonalfluctuations in demand/sales, etc. For formulating its working capital policy, acompany should take into account these and related factors. The fundamentalguiding principle for working capital policy formulation and implementation isthe endeavour to maintain working capital at a level which enables efficientbusiness operation and, at the same time, minimize the cost of working capital.This requires three major steps or actions:

(a) Inventory management(b) Credit/ debit policy(c) Cash balance




9. All strategy implementations, except retrenchment strategy, involveallocation and deployment of funds or investment decisions. (True/False)

10. Fixed assets are long term in nature. (True/False)

14.6 HR Policies and Functions

Human resource function in an organization may not appear as significant asproduction, marketing and finance, but, its role is becoming increasinglyimportant. Strategic importance of HR function/activity received widespreadattention in the 1990s, and, its role is encompassing newer dimensions. The jobof the HR manager is changing rapidly as companies are downsizing andreorganizing or restructuring and his/her strategic responsibilities are assuminggreater significance. Also, HR policies and functions essentially deal with peoplewho are at the core of all the functions and are considered the most preciousresource of an organization. HR policies are, therefore, very sensitive in termsof application because these affect employees more directly than other functionalarea policies. HR policies and functions should concentrate on four major factorsor areas:

(a) Development of human resource(b) Retaining personnel(c) Incentive system(d) Job mobility/Succession planning

Management of human resource (HRM) and development of human resource(HRD) are both important. HRM helps in retaining personnel by keeping themhappy and motivated. HRD prepares personnel/managers for performing thepresent jobs better and for newer tasks and responsibilities which help in jobmobility and succession planning. HRD, therefore, plays a more vital role. Inpractice, however, HRM and HRD play complementary roles. These two togethergovern HR policies and plans.

Human resource development is a continuous process. HR developmenttakes place through counselling, postings, promotions and training. Training isthe most important. In most companies concerned with HR development,elaborate and systematic training programmes are planned depending ondevelopment requirement of managers at different levels. In planning and



designing training programmes, two factors are important: first, assessment oftraining needs, and, second, partly following from the first one, training methodsand intensity of training.

Training needs are usually different for different managers. Therefore,many tailor-made programmes or modules are necessary. There are two majormethods of training: on-the-job and off-the-job. To determine the methods ormodes of training and frequency, and, because HRD is a continuous process,many companies have their own training cells and, also centres. HindustanUnilever, Larsen & Toubro, RCF, Tata steel, SAIL and BHEL, are among them.


11. There are two major methods of training: _______ and __________.12. Human resource development is a _______process.

14.7 MIS/IT Policies and Plans

MIS/IT is a new economy function which is increasingly playing a significantrole in planning, strategy formulation and implementation. We had brieflydiscussed MIS in the previous unit under systems. It provides vital connectivitybetween the organization and the environment, and, also among variousfunctional and operational areas within the organization. Earlier, MIS wasconsidered a peripheral functionsetting up of information system was purelya matter of option or choice. But, today, it has become an essential requirement.It has been observed that the strategic management process is more efficientin companies which have an effective MIS. Many companies are adopting anew approach to MISa system which blends the technical knowledge of ITexperts with thoughts and vision of senior/top management.

An effective management information system should consist of fiveinterrelated steps or stages to increase its utility and comprehensiveness:

(a) Collection and retention of information(b) Processing and storage of information(c) Database management(d) Synthesis of information, retrieval and usage(e) Transmission and dissemination of information



Companies are developing MIS policies and plans for its extensiveapplication to increase productivity in different functional areas, efficiency inoperation and to improve networking for better connectivity. Hindustan Unileverlaunched a pilot project to widen its area network by connecting its distributorsand important retailers. The purpose was market research and intelligence tosource information from the market about customers, competitors and variouschannel members. The company has also set up a sales force automationsystem with wireless connectivity through which salespersons in the field cancollect useful retail data and send the same to the MIS centre for further analysisand policy formulation. Reliance Fire and General Insurance Company, asubsidiary of Reliance Industries, is using MIS/IT to improve efficiency inoperationcomplete networking of area offices, service centres and insuranceagents for instant service to the customers. Glaxo India, Corporation Bank andRPG Enterprises have used MIS/IT in different ways.


13. MIS provides vital connectivity between the organization and theenvironment, and, also among various functional and operational areaswithin the organization. (True/False)

14. MIS is a peripheral function in most companies today. (True/False)

14.8 Alternative Business Strategies and Functional

Policies and PlansWe have analysed various dimensions and developments in major functionalareas of production, marketing, finance, HR and MIS/IT in relation to corporatestrategy. For effective implementation, different business strategies requiredifferent functional policies and plans. So, functional policies and plans shouldbe flexible, adaptable and strategy-driven. Expansion or diversification strategiesrequire one set of functional plans; stability strategies need different kind offunctional plans; restructuring or downsizing or retrenchment require still differentplans; combination strategies would generally require a blending of some ofthese functional plans. This is illustrated in Table 14.3.



Table 14.3 Alternative Strategies and Functional PlansStrategy Production Marketing Financial Plan HR Plan Back-up Action Expansion/ Expand/ Extend and Increase debt- Hire additional Evaluate market Diversification install plant improve product; equity ratio; production, share and capacity to this is more Review dividend R&D and review financial support new critical than policy for cash sales position products margin flow needs/ workers/ after generation managers two years Stability/ Defer new Push high Strengthen Invest in training Continue for Incremental investments in margin products/ the balance programmes to few years growth plant and brands sheet and improve mana- unless equipment maintain steady gement skills market trend dividends shows high opportunity for growth. Restructuring/ Identify plants Identify products Eliminate or Reduce and/or Sell plants and Retrenchment to be closed on for divestment reduce dividends redeploy reduce the basis of those with and manage personnel on personnel in capacity low sales and/ cash flows the basis of one year; cut utilization and or margin skills and dividends obsolescence experience

Source: Adapted from L R Jauch, R Gupta and W F Glueck, Business Policy andStrategic Management (New Delhi: Frank Bros. & Co., 2004), 387 (Exhibit 10.2).

For each of the major strategies and the functional plans mentioned inthe table, a set of policies has to be laid down relating to a particular area ofbusiness. The policies will ensure that the plans are implemented as intendedand that different functional plans work towards achievement of the sameobjectives. The example in Table 14.3 is an illustration of only one group ofstrategies, functional plans and required policy support.

Plans and policies have to be developed by companies for all the keyfunctional decisions pertaining to each particular business strategy.B. Operational ImplementationWe have distinguished between functions and operations earlier in the unit.Operations are more implementational; they give support to functional policiesand plans. Distribution is a function; transportation involved in distribution isoperation. Operational implementation, therefore, becomes as vital, if not more,as functional implementation. And, the scope of operational implementation isvery wide because it is part of every function or functional implementation.Operational implementation, or its effectiveness, depends on four majorinterrelated factors. Some call them 4-Ps: processes, productivity, pace andpeople (Figure 14.4).



Figure 14.4 4-ps: Processes, Productivity, Pace and People


15. Functional policies and plans should be________, adaptable and strategy-driven.

16. Operational implementation, or its effectiveness, depends on four majorinterrelated factors, which are called the.

14.9 Processes or Methods

Processes are methods or courses of action in sequential steps for carrying outtasks for achieving certain organizational objectives. All the functional areas ofproduction, marketing, finance, HR, and MIS/IT operate on the basis ofestablished processes. Processes, however, evolve and change over time, andthese affect operational implementation of corporate strategies. Many processeshave been developed by strategy analysts, consultants and companies whichhave affected strategy implementation in different ways. Major processes whichhave influenced strategic management in a significant manner are: value chainanalysis, supply chain management, enterprise resource planning (ERP),benchmarking, business process re-engineering (BPR) and outsourcing or BPO.

We had discussed value chain analysis, at length, in Unit 6. Value chainanalysis, as a process, links a set of value-creating activities in a company. Theseinclude both primary activities (inbound logistics, production, outbound logistics,marketing/sales and services) in an organization and, also, support activities (R&D,HR, MIS, general administration, etc.). Relative effectiveness of individual value-creating activities, particularly the primary activities, has direct impact on operationalimplementation, and, therefore, on overall strategy implementation.



Supply chain management (SCM) is one of the developments, whichemerged from value chain analysis. SCM is a process in business logistics. Itlends logistical support to the activity-based value chain. Supply chain, as aprocess, manages the entire movement of raw material/inputs and finished goodsfrom procurement to the market. Each of the steps or stages in SCM is criticalfor the company on the one hand, and stakeholders like vendors, transporters,channel members and customers on the other. Process improvements in SCMbenefit all the parties concerned and operational implementation of strategiesalso improves.

Enterprise resource planning (ERP) provides vital connectivity within anorganization. ERP systems, through appropriate software, seek to integrate theentire business operations of a company including manufacturing, marketingfinance, HR, logistics, warehousing, etc., to harmonize operations and reducecost. Many large organizations use the ERP process to increase operationalefficiency. HPCL, among others, has installed an adapted ERP system to optimizecommunication or linkages among various functional departments/activities ofthe company.


17. The process called _______ links a set of value-creating activities in acompany.

18. ______systems, through appropriate software, seek to integrate the entirebusiness operations of a company including manufacturing, marketingfinance, HR, logistics, warehousing, etc.

14.10 Productivity and Efficiency

Productivity and efficiency contribute to the operational effectiveness of variousfunctions. Productivity measures or innovations to increase productivity have,however, primarily taken place in the field of manufacturing. Development oflinear and non-linear programming techniques aimed at optimizing productionis subject to certain resource allocations or constraints. Japanese companieshad popularized quality and productivity technique during the 1980s. There wasvirtual explosion of such techniques during the 1990s. Many of these were eitherinitiated by Japanese companies or prompted by their competitive superiority inmanufacturing methods over the US and European companies. Six such majortechniques/methods are: just-in-time manufacturing, cycle time reduction, mass



customization, flexible manufacturing system, optimized production technologyand total productive maintenance.

Just-in-time (JIT) manufacturing is a productivity-cum-efficiency techniquewith two primary objectives: cost reduction and inventory minimization. In tryingto achieve these two objectives, JIT, in effect, becomes a more comprehensiveapproach including simplification of product designs,

streamlining process flows, meticulous time planning, etc. Cycle timereduction helps or complements JIT. Cycle time reduction, as the name indicates,seeks to minimize the time taken for each step or work in the assembly line orthe manufacturing process. Mass customization of products is a developmentwhich has struck a middle course between the two traditional classifications ofmass market and niche market. Mass customization is a landmark evolution inproduction and productivity combining the characteristics and benefits of a massproduct and niche product. We had discussed mass customization in Unit 8.Flexible manufacturing process or system almost follows from the masscustomization approach; or, rather, it is a necessity to ensure mass customizationof products and, at the same time, keep costs under control. Optimized productiontechnology is a computer-aided system for planning and integrating production,materials management and resource utilization to maximize output and controlinventory. Total productive maintenance is an improvement over the traditionalreactive maintenance system and focusses on a total system of managingproductivity through organization-wide autonomous maintenance by everybodyconcerned rather than a single department.


19. _________manufacturing is a productivity-cum-efficiency technique withtwo primary objectives: cost reduction and inventory minimization.

20. ________ seeks to minimize the time taken for each step or work in theassembly line or the manufacturing process.

14.11 Pace or Speed of Action

Given the processes or methods and productivity, pace or speed of action orimplementation becomes a vital factor in operational effectiveness. Pace orspeed is essentially concerned with timing or time management ofimplementation. For example, in value chain analysis, speed can be adifferentiating factor in performing different activities in the chain faster than the



competitors to lead to competitive advantage. The same is true of timing orspeed of action in other processes or methods like supply chain management,benchmarking, outsourcing, etc. Strategy analysts have suggested a numberof techniques for better planning and management of time to increase efficacyof operations. Three such techniques are: time study, network analysis andactivity charting and time-based management.

Time study is one of the oldest methods of time management. In timestudy, the emphasis is on analysing and sequencing critical stages in productionto identify bottlenecks and wastages, and eliminate or minimize them to build amore efficient and fast process. Network analysis and activity charts are animprovement over time study methods. Charting and networking of activitiesare done to construct a critical path to optimize time and resource allocation,and consequently, saving costs. Time-based management approach developedduring the 1980s and 1990s highlights the role of time as a strategic weapon.For example, first movers in products/markets enjoy a definite competitiveadvantage over late-movers or parallel innovators or initiators in launching andimplementation.


21. Time study is one of the latest methods of time management. (True/False)22. _________and ________of activities are done to construct a critical path

to optimize time and resource allocation, and consequently, saving costs.

14.12 People Factor

Finally, people in an organization become a major factor, or rather, the ultimatefactor, for the success in operational implementation of strategy. Be it processor method, productivity or time management, people are a common factor.People signify three categories of human resource who matter most for strategyimplementation: workers on the shop floor, operating staff and managers. Eachof these categories of people makes a difference in operational effectiveness.Some of the important factors to be considered for optimizing peoples role inimplementation are: strategic selection and recruitment, training anddevelopment and performance management.

Strategic selection and recruitment is the first step in manpower planningand, should be properly aligned with strategies. As selection of right people for



right positions leads to enhancement of productivity, recruitment of wrong peoplecan significantly affect performance. After selection and posting, skill levels ofpeople need to be continually developed and updated through appropriatetraining and development methods. Training and development have to be jobbased and operation based. The third important factor, which supplementsselection and development, is performance management of the employees.Productivity comes through performance, and, therefore, many companies useperformance appraisal and monitoring to improve employee efficiency inoperation. The three factorsselection, development and performancemanagement should be read in conjunction with the four important factorsdevelopment of human resource, retaining personnel, incentive system and jobmobility/succession planningmentioned before under HR policies and plans.In fact, the people factor in operations should be viewed as a role extension ofhuman resource from HR policies and plans.

We have analysed above many processes, methods, techniques andpractices in different organizational areas for increasing operational effectivenessof strategy implementation. Managers/management often are not clear aboutwhich are the right methods and techniques, and, in their search for quick results,sometimes make indiscriminate choices or fall for the latest techniques withoutassessing their applicability or appropriateness to particular operationalsituations. Companies should guard against such pitfalls. Even carefully chosenprocesses and techniques may not always be sufficient to ensure successfulstrategy implementation. Porter feels that operational effectiveness is necessary,but is not a sufficient condition for success of strategy. By operationaleffectiveness, he means, performing similar activities better than rivals performthem. It refers to any number of practices that allows a company to better utilizeits inputs.5

Activity 2Suppose that you are the strategy head in an organization. How would youdesign the operational implementation plan for your company? Discuss inthe form of a project.


23. People signify three categories of human resource who matter most forstrategy implementation: workers on the shop floor, operating staff andmanagers. (True/False)



24. Productivity comes through performance, and, therefore, many companiesuse performance appraisal and monitoring to improve employee efficiencyin operation. (True/False)

14.13 Case Study

Microsoft: Marketing/Operating Strategy to Sustain Leadership*Market leaders usually adopt defensive strategies mostly counteroffensiveto maintain their leadership positions, and challengers (No. 2)employ offensive strategiesfrontal or flank attacksto challenge ordisplace the leader. But, Microsoft, the market leader in computer software,primarily adopts an offensive or aggressive, or, in the minimum, pre-emptivestrategies to sustain its leadership

Microsoft tried to dissuade IBM and Gateway from promoting or usingMicrosofts competitors products on their PCs. IBM and Gateway resistedthe move. In retaliation, Microsoft forced them to pay higher prices forinstalling MS Windows operating system on their PCs than any other PCmakers.Microsoft urged Intel not to export its newly developed NSP software becauseMicrosoft felt that NSP becomes an intrusion into its operating systemplatform. Microsoft also pressurized PC makers not to install Intels NSPsoftware on their PCs.Microsoft adopted an aggressive posture against Netscape also. Microsoftwanted to enter into a special alliance with Netscape. The alliance wouldallow Microsoft to incorporate Netscapes Navigator browsers functionalityinto Windows. When Netscape declined the proposal, Microsoft withheld



information about its Windows 95 code till it released the new operatingsystem and its own new version of Internet Explorer.During 1999, US district judge, Jackson, delivered a judgement (in US vsMicrosoft) that Microsoft had repeatedly used high-handed tactics topressurize customers, crush competitors and throttle competiton. JudgeJackson cited many examples to support his conclusion/judgement.But, Microsoft continues to use its marketing/operating muscle to sustainits dominance. During 2001, the company curtailed its support for Java inits release of the new Windows XP operating system because Java isfavoured by Microsofts old rival Sun Microsystems. Microsoft is alsopressurizing PC makers to follow/oblige it in different ways.* Based on A A Thomson, A J Strickland, and J E Gamble, Crafting and ExecutingStrategy (New Delhi: Tata McGraw Hill, 2005), 211 (Illustration capsule 8.2).

14.14 Summary

Let us recapitulate the important concepts discussed in this unit: In any organization, actual implementation of strategy takes place through

major functional areas of manufacturing, marketing, finance, HR and MIS/IT. In each of these functional areas, operational implementation is equallyimportant. Functional implementation and operational implementation are,in practice, complementary to each other.

Marketing is the most vital function in an organization because itestablishes the link between the company and the market or the customers.

In marketing policies and plans, pricing is the most critical element. Pricingpolicies and methods are based on the fundamentals of cost, demandand competition.

Implementation of every strategy has financial implications in terms ofcost or investment. Financial policies and plans are, therefore, as importantor vital as production and marketing policies.

HR function in an organization may not appear as significant as production,marketing and finance, but, its role is becoming increasingly important.

MIS/IT is a new economy function which is playing a very significant rolein planning, strategy formulation and implementation.

For effective implementation, different business strategies require differentfunctional policies and plans.



14.15 Glossary

Current assets: Assets that are short term in nature and are either heldas cash or expected to be converted into cash during the accountingperiod

Fixed assets: Assets that are long term in nature, have certain life anddepreciate

Functional strategy: Strategy that relates to a particular functional areaand follows from business strategy of an organization

Marketing mix: The way the four Ps or some of the Ps (depending onthe product category) are combined or blended to optimize market offeringsto increase sales and market share.

14.16 Terminal Questions

1. Discuss functional policies and plans in the area of production includingthe major issues involved.

2. Anaylse marketing policies and plans with respect to strategyimplementation in terms of 4-Ps and marketing mix application.

3. What are the major factors which govern financial policies and plans ofan organization? Analyze them.

4. Discuss the role of MIS/IT as a new economy function in planning, strategyformulation and implementation.

5. What are the major processes, methods or techniques which affectoperational implementation of strategy? Discuss briefly.

6. Discuss the vital role of people factor in implementation. Analyse in termsof major HR initiatives required to optimize peoples role in strategyimplementation.

14.17 Answers

Answers to Self-Assessment Questions

1. quality circle2. Armand Feigenbaum



3. (a) Paper4. (d) almost zero5. False6. True7. (d) Production8. (a) Point-of-purchase (POP)9. True

10. False11. On-the-job, off-the-job12. continuous13. True14. False15. flexible16. 4Ps17. value chain analysis18. ERP19. Just-in-time (JIT)20. Cycle time reduction21. False22. Charting, networking23. True24. True

Answers to Terminal Questions

1. If a company decides to manufacture the product, it has to consider somemajor policy issues in relation to the production process. Refer to Section14.3 for further details.

2. Marketing is the most vital function in an organization because itestablishes the link between the company and the market or the customers.Refer to Section 14.4 for further details.



3. Next to production and marketing policies and plans, financial policiesand plans are most vital for strategy implementation of a company. Referto Section 14.5 for further details.

4. MIS/IT is a new economy function which is increasingly playing asignificant role in planning, strategy formulation and implementation. Referto Section 14.7 for further details.

5. Processes are methods or courses of action in sequential steps for carryingout tasks for achieving certain organizational objectives. Refer to Section14.9, 14.10, 14.11, 14.12 for further details.

6. People in an organization become a major factor, or rather, the ultimatefactor, for the success in operational implementation of strategy. Refer toSection 14.7 for further details.

4.18 References

1. David, F R. 2003.Strategic Management: Concepts and Cases. 9th ed.Pearson Education.

2. Ghosh, P K. 2003. Strategic Planning and Management. 10th ed. NewDelhi: Sultan Chand & Sons.

3. Jauch, L R, R Gupta, and W F Glueck. 2004. Business Policy and StrategicManagement. 6th ed. New Delhi: Frank Bros. & Co.

4. Miller, A. 2002. Strategic Management. New York: McGraw Hill.5. Nag, A. 2008. Strategic Marketing. 2nd ed. New Delhi: Macmillan India.6. Pearce II, J A, and R B Robinson Jr. 2005. Strategic Management:

Formulation, Implementation and Control. 9th ed. New Delhi: Tata McGraw-Hill.

Endnotes1 F R David, Strategic Management: Concepts and Cases, (Pearson Education, 2003),262 P K Ghosh, Strategic Planning and Management (2003), 416.3 P Drucker, Managing for Business Effectviness, Harvard Business Review (May-June,

1963), 59.4 This section is primarily based on A Nag, Marketing Successfully: A Professional

Perspective (New Delhi: Macmillan India, 2001), Chapter 8.5 M Porter, What is strategy? Harvard Business Review (NovemberDecember, 1996),

62.

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