STRATEGIC MANAGEMENT AND POLICY MAKING

Submitted in partial fulfillment of the requirements for the award of the

Degree of Master of Commerce of Christ University during the year 2015-17

By
3 MCOM B

Under the guidance of

Dr. Shaeril Michael Almeida

Department of Commerce
Christ University
Bangalore- 560029

1
Table of Content

Unit Topic Page No.

1 Introduction to Strategic 3-15
Management

2 Strategy Formulation 16-53

3 Environment and Strategy 54-102

Management

4 Strategic Business Units 103-150

5 Strategic Implementation 151-180

6 Strategy Evaluation and 181-206

Control
7 Organisational Development 207-234
Changes

8 Emerging Issues in Strategic 235-264

Management

2
 UNIT-1

INTRODUCTION TO STRATEGIC MANAGEMENT

Overview of Strategic Management

Nature & Scope
Defining Strategy
Concept of Strategic Management
Characteristics of Strategic Management
Approaches to Strategic Decision making
Elements in Strategic Management Process

3
OVERVIEW OF STRATEGIC MANAGEMENT

Strategy is a highly complex concept and attempts to define the purpose or

mission, policies, objectives or goals, strengths and weaknesses, opportunities and threats, key
decisions, capabilities or competence, planning and scheduling, implementation and sustainable
competitive advantage. Strategic management is the set of managerial decision and action that
determines the long run performance of a corporation. It includes:

Environmental scanning
Strategy formulation
Strategy implementation
Evaluation and control

It emphasizes the monitoring and evaluating of external opportunities and threats in lights of
corporations strengths and weaknesses. Strategic Management is defined as the dynamic process
of formulation, implication and control of strategies to realize the organizations strategic content.

FIVE INGREDIENTS OF STRATEGY:

Vision
Value creation
Planning and administration
Global awareness
Leveraging technology

STRATEGY:

Strategy is originated from the Greek word STRATEGOUS which means THE ART OF THE
GENERAL THE ART OF WAR, that is the role of the general in a war.

IMPORTANCE OF STRATEGIC MANAGEMENT:

To shape the future of business

Effective strategic idea

4
 Managers and employers are innovative and creative
It decentralizes the management
It helps in increasing the productivity
To make discipline
To make control

DEFINITION & MEANING:

According to Peter F Dracker,Strategic planning is the continuous process of making present

entrepreneurial (risk-taking) decisions systematically and with the greatest knowledge of their
futurity; organizing systematically the efforts needed to carry out these decisions; and measuring
the results of these decisions against the expectations through organized, systematic feedback.

In his analysis, Dracker covers several of key factors first identified by Sun Tzu. Agreeing with
Sun Tzu, he says that it starts with the mission of the organization. After that, strategy must
consider the climate, what is changing. He describes decision-making as a time machine which
synchronizes into the present a great number of divergent time spans. His focus on decision-
making is about the warrior as an active element. In describing the specific methods of strategy,
he even touches on Sun Tzu's idea of analysis being an act of relative comparison.

HISTORY:

Strategic management discipline originated in 1950s and 60s among the numerous early
contributors. The most influential were Peter Dracker, AlfredChandler and Bruce Henderson. Peter
Dracker was management theorist and has authored dozens of management books. He addressed
fundamental strategic question in his 1954 book The Practice of Management Writing, that the
first responsibility of the top management is to ask business questions that is to be carefully studied
and answered. He wrote that the answer was determined by the customers. He recommended 8
areas of selecting objective:

1. Market standing
2. Innovation
3. Productivity

5
 4. Physical and financial resources
5. Work performance and attitude
6. Profitability
7. Manager performance and development
8. Public responsibility

MEANING OF STRATEGIC MANAGEMENT:

Strategic management involves the formulation and implementation of major goals and initiatives
taken by a companys top management on behalf of owners and an assessment of the internal and
external environment.

It is also known as the 3rd golden rule of corporate governance. Strategic management is all about
identification and description of strategies that managers can carry so as to achieve better
performance and a competitive advantage for the organization. It is a continuous process that
evaluates and controls the business and industries in which organization is involved.

CONCEPT OF STRATEGIC MANAGEMENT:

Goal setting-The core of strategic management process is the creation of goals, mission statement,
values and objectives. It is also through goal setting that managers make strategic decision such as
how to meet sales target and higher revenue generation.

Analysis- Analysis of an organization strengths and weakness is a key concept of strategic

management. Other than internal analysis, an organization also undertakes external analysis of
factors such as emerging technology and new competition. Through internal and external analysis
the organization creates goals and objectives that will turn weakness to strengths.

Strategy Formulation- It is a concept that develops specific actions that will enable an
organization to meet its goals. It helps in using the information from analyses prioritizing and
making decisions on how to address key issues facing organization.

Strategic Implementation- Strategic implementation is putting the actual strategy into practice to
meet organization goals. Organizations implement strategies through creating budgets, programs
and policies to meet financial management and organizational goals.

6
Strategic Monitoring- Final concept is monitoring of the strategy after implementation. Through
this it is able to understand when and how to adjust the plan to adapt to changing trends.

ADVANTAGES OF STRATEGIC MANAGEMENT:

Strategic management takes into account the future and anticipates for it.
It reduces frustration because it has been planned in such a way that it follows a procedure.
Strategic management adds to the reputation of the organization because of consistency
that results from organization success.
It looks at the threats present in the external environment and thus company can either work
to get rid of them or else neutralizes the threats such a way they become opportunity.

CHARACTERISTICS OF STRATEGIC MANAGEMENT:

Uncertain: Strategic management deals with future-oriented, non-routine situation. They create
uncertainty. Managers are unaware about the consequences of their decisions.
Complex: Uncertainty brings complexity for strategic management. Managers face environment
which is difficult to comprehend. External and internal environment should be analyzed.
Organization wide: Strategic management has organization wide implication. It is not operation
specific. It is a systems approach. It involves strategic choice.
Fundamental: Strategic management is fundamental for improving the long-term performance of
the organization.
Long-term implication: Strategic management is not concerned with day-to-day operation. It has
long-term implications. It deals with vision, mission and objective.
Implication: Strategic management ensures that strategy is put into action; implementation is done
through action plans.

BENEFITS OF STRATEGIC MANAGEMENT:

In recent years, virtually all firms have realized the importance of strategic management. However,
it is the key difference between those who succeed and those who fail. There are still firms who
do not engage in strategic planning or where the planner does not receive the support from
management. These firms ought to realize the benefits of strategic management and ensure the
long term success in market place.

7
BENEFITS:

Financial Benefits- Strategies help to increase the revenue. Example: Marketing firms.

Non-Financial Benefits- Strategies helps to improvise social services. Example: NGOs.

It allows for identification, prioritization and exploration of opportunities.

It provides framework for improved coordination and controlled activity.
Minimises the effects of adverse conditions and change.
It allows more effective allocation of time and resource to identify opportunities.
It creates framework for internal communication among personnel.
It provides basic clarification of individual responsibility.
It encourages forward thinking and favourable attitude towards change.
Organisation or business using strategic management concept have high performance.
Firms with systematic planning benefits internally and externally.
It helps in discipline and formality to management of business.

RESULTS OF NO STRATEGIC PLANNING:

Poor rewards structures
Fire fighting
Waste of time
Too expensive
Laziness
Content with success
Fear of failure
Over confidence
Prior bad experience
Self interest
Fear of unknown
Honesty difference of opinion
Suspicion

8
PITFALLS OF STRATEGIC MANAGEMENT AND STRATEGIC PLANNING:

Strategic planning may be used to gain control over decision and recourses.
Strategic planning may be done only to satisfy regulatory requirement.
Failing to communicate the strategic plan to employees who continue to work in the dark.
Top managers may take many intuitive decisions that conflict with formal planning.
Top managers may not actively support strategic planning.
Failing to involve key employees in all phases of planning.
Becoming so engrossed in current problem that insufficient or no planning is done.

APPROACES OF STRATEGIC DECISION MAKING:

There are two approaches under strategic decision making namely:

Optimizing approach
Satisfying approach

OPTIMIZING APPROACH:

This approach aims in optimizing desires to create the best possible strategy that integrates a set
of realistic actions that address all of the diagnosed issues. This approach formulates specific
criteria to be used to reach a decision, and then applies the criteria systematically to evaluate
options that lead to best decisions. This approach is consistent with management frames and
emphasizes on hard evidence and rationality. This approach can be used towards mission critical
issues and might seek to optimize in respect of some domains of activity. This approach is rigorous
and theoretically preferable. This approach imposes high cost of effort, money and elapsed time.

SATISFYING APPROACH:

This approach has lower expectations and accepts pragmatic and good enough solutions. This
approach responds to issues sequentially rather than as a set. The satisfying approach screens the
identified options against fewer criteria, some of which it may introduce or modify. If the option
meets the satisfying criteria the decision is effectively taken, if not the next option is introduced
and the decision process is recycled. This sequential comparative evaluation is done till good
choice emerges. This approach tries to accommodate the contested interests of senior executives

9
and other influential stakeholder. This approach is cost efficient and quicker than the other
approach.

APPROACHES TO STRATEGY FORMULATION:

There are two approaches under strategy formulation:

Traditional approach
Modern approach

TRADITIONAL APPROACH:

The traditional approach evolved during World War II and lasted till the mid 1950s. The steps
involved in the traditional approach are as follows:

1. Analyze the situation based on the functional departments.

2. Set corporate objective
3. Plan of action within the parameters of corporate
4. Developing a suitable organizational structure to carry out the plans.

This approach was found inadequate to handle the strategic problems faced by the corporate. This
is because, the planning of activities in traditional approach were from an operational perspective
with its focus on the internal aspects of the business.

MODERN APPROACH:

This approach evolved in the mid 1950s. This enabled the management to evolve product market
strategy to deal with long term problems faced in the organization. This approach is more rational
and systematic. This approach emphasizes on the appraisal of external and internal environment
and tries to match the opportunities and threats with the strengths and weakness of the organization.
Thus, this approach focuses on the organizations long term relationship to its external
environment.

APPROACHES TO STABILITY STRATEGY:

10
There are four approaches under stability strategy namely:

1. Incremental growth approach

2. Harvesting approach
3. Pause approach
4. Sustainable approach

INCREMENTAL GROWTH APPROACH:

This approach is suitable to firms that concentrate on only one product or service. It grows slowly
but will surely have an increasing market. It will have market penetration by steadily adding new
products or services and carefully expands its market.

Example: Horlicks diversified its products to Womens Horlicks, Junior Horlicks, etc.

HARVESTING APPROACH:

This approach is suitable for firms whose main objective is to generate cash. They use a number
of plays to earn profits and generate fund. Some of them include reducing cost of production and
not reducing the price of the product. These products are milked rather than nourished or defended.

Example: Lifebuoy soap- they yielded large profit by careful management.

PAUSE APPROACH:

This approach is adopted when a firm needs a breathing spell. This situation arises when the
product has grown so fast that it must stabilize for a while or it will become inefficient. The trust
of this approach is on achieving economies of overheads.

Example: Patanjali products started with just 20 products and now have grown up to 80 products
within a time span of 5 years.

SUSTAINABLE APPROACH:

This approach suits a firm which doesnt have required resources to pursue its increased growth
for a longer period of time. At times, the environmental change prohibits its continuation.

11
LEVEL OF STRATEGY:

There are three levels of strategy

Corporate Level strategy

Business Level strategy
Functional Level strategy

Corporate level strategy:

The first level of strategy is concerned with determining the corporate strategy. This level covers
action dealing with the objectives of the firm, acquisition and allocation of resources and
coordination of strategies of various SBUs for optimal performance. At the top of this hierarchy
is the corporate level, it comprises primarily of a board of directors and the chief executives and
administrative officers. The nature of strategic decisions tends to be value-oriented, conceptual
and less concrete than decisions at the business and functional level. The attitude at the corporate
level can be reflected on the concerns of the stakeholders and society at large.

Business level strategy:

Business level strategy is applicable in those organizations, which have different businesses and
each business is treated as a strategic business unit. This level consists of business and corporate
manager. These managers must translate the statement of direction and intent generated at the
corporate level into concrete objectives and strategies for individual business divisions. It
determines how the firm will compete in the selected product market area. This segment is the
piece of the total market that the firm can claim and defend because of its competitive advantage.

Functional level strategy:

In this level the decisions of the functional level is to implement the overall strategy formulated at
the corporate and business levels. They involve action oriented operational issues and are relatively
short range and low risk. It incurs the modest cost because of the dependency on raw materials.
Functional levels are concrete and quantifiable. They receive critical attention and analysis even
though their comparative profit potential is low.

12
So in a nutshell

Corporate level strategy: The strategy for multi-business company which determines the overall
scope of the business in terms of markets and products. It covers all the business and functional
strategies of the firm.

Business level strategy: Concerned with creating a competitive advantage in each of the strategic
business units of the firm.

Functional level strategy: Concerned with functional areas of the firm such as operations,
marketing, financial, human resources and research and development.

STRATEGIC MANAGEMENT PROCESS:

Step 1: Establish the vision, mission and goals of the organization.

This step involves the clarification of what the company is and who they do business for. At the
very basic level, it defines what product, service or good is going to be offered. The vision of the
company refers to the future of its existence and serves the purpose to inspire and motivate
members to work hard to achieve this vision. Establishing these 3 things helps the company to
zone in on the ultimate goal so they know where to focus their energies.

Step 2: Analyze opportunities & threats:

This step is to analyze outside resources and competition. Through market research and studying
the industry and any regulation requirements, the organization will be better able to anticipate the
needs of its client. Studying competitors can help companies realize potential things that they
should avoid doing or certain strategies that they can adopt that has worked for the other company.

Step 3: Analyze the internal strengths and potential weaknesses of the organization:

This step is meant for companies to see where they can improve within the confines of the business
itself. Pinpointing any weak links or potential problems can save the company a lot of time and
money if they can fix the issue before it becomes a bigger one. This includes an audit of every

13
department and can be accomplished by performance reviews of employees and an audit of all
assets and resources the company has.

Step 4: Analyzing strengths, weakness, opportunities and threats (SWOT) and begin forming
the strategy:

This step consists of analyzing the information that was discovered in steps 2 & 3 in a side-by-side
comparison. The strengths and weaknesses of the internal resources plus knowing the existing
opportunities and threats that exist outside of the company help to identify the main issues an
organization needs to deal with when forming their strategy.

Step 5: Implementing the strategy:

In order to get a strategic plan to work effectively, it must be implemented and executed properly.
Some of the ways that strategies tend to fail are because of miscommunication among different
levels of the organization and losing clarity of the tasks at hand. Strategic tasks should be defined
and the abilities of the organization should be determined. There should be a timetable/agenda
created that outlines the implementation as well as a plan. There are many different types of
strategies but some of the main ones to note are: corporate strategy, business strategy, low-cost
strategy, differentiation strategy and functional strategies.

Step 6: Strategic Follow up:

After the strategy has been implemented, there needs to be a way to make sure that it is working.
A control system should be put in place so that managers can evaluate the process. They need to
be able to identify whats working and what isnt. The faster problems can be identified, the faster
they can be resolved and improved.

ELEMENTS IN STRATEGIC MANAGEMENT PROCESS:

Environment scanning- It refers to process of collecting, scrutinizing and providing information

for strategic purpose. It helps in analyzing internal and external factors influencing and
organization.

14
Strategy formulation- It is the process of deciding best course of action for accomplishing
organization objectives and hence achieving organization purpose.

Strategy implementation- Putting chosen strategy into action includes organization structure,
development decision making process.

Strategy Evaluate -Final step for strategic management process is measuring performance, taking
remedial or corrective action. Evaluation makes sure that the organization strategy as well as
implementation meets organization objectives.

15
 UNIT 2

STRATEGY FORMULATION

16
Introduction:

Strategy formulation refers to the process of choosing the most appropriate course of action for
the realization of organizational goals and objectives and thereby achieving the organizational
vision. The process of strategy formulation basically involves six main steps. Though these steps
do not follow a rigid chronological order, however they are very rational and can be easily followed
in this order.

1. Setting Organizations objectives - The key component of any strategy statement is to set the
long-term objectives of the organization. It is known that strategy is generally a medium for
realization of organizational objectives. Objectives stress the state of being there whereas
Strategy stresses upon the process of reaching there. Strategy includes both the fixation of
objectives as well the medium to be used to realize those objectives. Thus, strategy is a wider
term which believes in the manner of deployment of resources so as to achieve the objectives.

While fixing the organizational objectives, it is essential that the factors which influence the
selection of objectives must be analyzed before the selection of objectives. Once the objectives
and the factors influencing strategic decisions have been determined, it is easy to take strategic
decisions.

2. Evaluating the Organizational Environment - The next step is to evaluatethe general

economic and industrial environment in which the organization operates. This includes a
review of the organizations competitive position. It is essential to conduct a qualitative and
quantitative review of an organizations existing product line. The purpose of such a review is
to make sure that the factors important for competitive success in the market can be discovered
so that the management can identify their own strengths and weaknesses as well as their
competitors strengths and weaknesses.

After identifying its strengths and weaknesses, an organization must keep a track of competitors
moves and actions so as to discover probable opportunities of threats to its market or supply
sources.

3. Setting Quantitative Targets - In this step, an organization must practically fix the
quantitative target values for some of the organizational objectives. The idea behind this is to

17
 compare with long term customers, so as to evaluate the contribution that might be made by
various product zones or operating departments.

4. Aiming in context with the divisional plans - In this step, the contributions made by each
department or division or product category within the organization is identified and
accordingly strategic planning is done for each sub-unit. This requires a careful analysis of
macroeconomic trends.

5. Performance Analysis - Performance analysis includes discovering and analyzing the gap
between the planned or desired performance. A critical evaluation of the organizations past
performance, present condition and the desired future conditions must be done by the
organization. This critical evaluation identifies the degree of gap that persists between the
actual reality and the long-term aspirations of the organization. An attempt is made by the
organization to estimate its probable future condition if the current trends persist.

6. Choice of Strategy - This is the ultimate step in Strategy Formulation. The best course of
action is actually chosen after considering organizational goals, organizational strengths,
potential and limitations as well as the external opportunities.

Need for Strategy

Strategy is the direction and scope of an organization over the long term, which achieves
advantage in a changing environment through its configuration of resources and competences
with the aim of fulfilling stockholder expectationsJohnson et al (2008).

Without a strategy an existing business can drift away from its customers and become
uncompetitive within its environment and eventually stops making profit, this is known as
Strategic Drift. Therefore, having a strategy is a way to remain competitive or a way of forcing a
strategic change when an organization has drifted away from its environment and is starting to fail.

Most small businesses have a strategy in the form of a business plan; this is usually a standard
document generated to convince either an advisor or a bank they have a good idea and have thought
about it. The UK governments (Business Link 2010) business advice recommends at least some

18
SWOT analysis and financial forecasting within its business plan template. This type of strategic
business plan is then used to secure funding from the stakeholders.

Strategy has a military history, going back at least to 600 B.C. with The Art of War by Sun Tzu,
and as such has been mostly concerned with competitiveness. How to win a battle with your
competitors has been the main stay of strategic literature for many year, with positioning of
products (Strategic choice) aim to make the business better than the competition.

More recently, strategic tools are being used in the creation of vision and mission statements; to
be communicated to the stakeholders. These have a number of uses: Firstly, to help sell the idea
of the company to its investors to secure resources for expansion. Secondly, the move to culture
based management; where the organization rely on its culture to inform the employees choices,
enabling them to make the correct decisions at all levels without strict supervision.

There are arguably three ways to create a strategy:

1. Entrepreneurial

This method is very much the gut feeling by either an individual or small group, who decides
on the direction of an organization. Strategy tools are mostly used for validating the gut feeling
of the Entrepreneur and to communicate this to the stakeholders.

2. Emergent Orientated

The strategy becomes the obvious choice and emerges from day to day activities and from
what has succeeded in the past. Again strategy tools if they are used will be to validate and
communicate the strategy. As opportunities are spotted they are seized, maybe using some
SWOT analysis or financial planning to underpin these obvious strategic moves.

3. Intended Strategy

19
 Intended strategy consists of strategies which are deliberately created through some process
for example a number of leaders within an organization, who use their combined creativeness
and strategic tools to generate new strategies for the organization. Using the tools to generate
the strategy and validate and communicate it. As such this approach looks at the organizations
capabilities, at the environment the organization sits in and creates and validates a strategic
position. This type of strategy tends to be a once yearly task that is done at a strategy
conference with maybe quarterly updates

There are a plethora of tools and theories available for the strategist to use to help direct them
in choosing what should be the direction of the organization.

SWOT analysis

SWOT analysis (alternatively SWOT matrix) is an acronym for strengths, weaknesses,

opportunities, and threatsand is a structured planning method that evaluates those four elements
of a project or business venture. A SWOT analysis can be carried out for a company, product,
place, industry, or person. It involves specifying the objective of the business venture or project
and identifying the internal and external factors that are favorable and unfavorable to achieve that
objective. Some authors credit SWOT to Albert Humphrey, who led a convention at the Stanford
Research Institute (now SRI International) in the 1960s and 1970s using data from Fortune 500
companies. However, Humphrey himself does not claim the creation of SWOT, and the origins
remain obscure.

The degree to which the internal environment of the firm matches with the external
environment is expressed by the concept of strategic fit.

Strengths: characteristics of the business or project that give it an advantage over

others
Weaknesses: characteristics that place the business or project at a disadvantage
relative to others
Opportunities: elements that the business or project could exploit to its advantage
Threats: elements in the environment that could cause trouble for the business or
project

20
Identification of SWOTs is important because they can inform later steps in planning to achieve
the objective. First, decision makers should consider whether the objective is attainable, given the
SWOTs. If the objective is not attainable, they must select a different objective and repeat the
process.

Users of SWOT analysis must ask and answer questions that generate meaningful information for
each category (strengths, weaknesses, opportunities, and threats) to make the analysis useful and
find their competitive advantage.

BCG Matrix

Boston Consulting Group (BCG) Matrix is a four celled matrix (a 2 * 2 matrix) developed by
BCG, USA. It is the most renowned corporate portfolio analysis tool. It provides a graphic
representation for an organization to examine different businesses in its portfolio on the basis of
their related market share and industry growth rates. It is a two dimensional analysis on
management of SBUs (Strategic Business Units). In other words, it is a comparative analysis of
business potential and the evaluation of environment.

According to this matrix, business could be classified as high or low according to their industry
growth rate and relative market share.

Relative Market Share = SBU Sales this year leading competitors sales this year.
Market Growth Rate = Industry sales this year - Industry Sales last year.

The analysis requires that both measures be calculated for each SBU. The dimension of business
strength, relative market share, will measure comparative advantage indicated by market
dominance. The key theory underlying this is existence of an experience curve and that market
share is achieved due to overall cost leadership.

BCG matrix has four cells, with the horizontal axis representing relative market share and the
vertical axis denoting market growth rate. The mid-point of relative market share is set at 1.0. If
all the SBUs are in same industry, the average growth rate of the industry is used. While if all the

21
SBUs are located in different industries, then the mid-point is set at the growth rate for the
economy.

Resources are allocated to the business units according to their situation on the grid. The four cells
of this matrix have been called as stars, cash cows, question marks and dogs. Each of these cells
represents a particular type of business.

10 x 1x 0.1 x

Figure: BCG Matrix

1. Stars- Stars represent business units having large market share in a fast growing industry.
They may generate cash but because of fast growing market, stars require huge investments
to maintain their lead. Net cash flow is usually modest. SBUs located in this cell are
attractive as they are located in a robust industry and these business units are highly
competitive in the industry. If successful, a star will become a cash cow when the industry
matures.
2. Cash Cows- Cash Cows represents business units having a large market share in a mature,
slow growing industry. Cash cows require little investment and generate cash that can be
utilized for investment in other business units. These SBUs are the corporations key
source of cash, and are specifically the core business. They are the base of an organization.
These businesses usually follow stability strategies. When cash cows lose their appeal and
move towards deterioration, then a retrenchment policy may be pursued.

22
 3. Question Marks-Question marks represent business units having low relative market
share and located in a high growth industry. They require huge amount of cash to maintain
or gain market share. They require attention to determine if the venture can be viable.
Question marks are generally new goods and services which have a good commercial
prospective. There is no specific strategy which can be adopted. If the firm thinks it has
dominant market share, then it can adopt expansion strategy, else retrenchment strategy
can be adopted. Most businesses start as question marks as the company tries to enter a
high growth market in which there is already a market-share. If ignored, then question
marks may become dogs, while if huge investment is made and then they have potential of
becoming stars.
4. Dogs- Dogs represent businesses having weak market shares in low-growth markets. They
neither generate cash nor require huge amount of cash. Due to low market share, these
business units face cost disadvantages. Generally, retrenchment strategies are adopted
because these firms can gain market share only at the expense of competitors/rival firms.
These business firms have weak market share because of high costs, poor quality,
ineffective marketing, etc. Unless a dog has some other strategic aim, it should be
liquidated if there is fewer prospects for it to gain market share. Number of dogs should be
avoided and minimized in an organization.

Limitations of BCG Matrix

The BCG Matrix produces a framework for allocating resources among different business units
and makes it possible to compare many business units at a glance. But BCG Matrix is not free
from limitations, such as-

1. BCG matrix classifies businesses as low and high, but generally businesses can be medium
also. Thus, the true nature of business may not be reflected.
2. Market is not clearly defined in this model.
3. High market share does not always leads to high profits. There are high costs also involved
with high market share.
4. Growth rate and relative market share are not the only indicators of profitability. This
model ignores and overlooks other indicators of profitability.

23
 5. At times, dogs may help other businesses in gaining competitive advantage. They can earn
even more than cash cows sometimes.
6. This four-celled approach is considered as to be too simplistic.

CORPORATE VISION

A vision statement provides strategic direction and describes what the owner or founder wants
the company to achieve in the future.
A vision statement is sometimes called a picture of your company in the future but its so much
more than that. Your vision statement is your inspiration, the framework for all your strategic
planning.
A vision statement is a company's road map, indicating both what the company wants to
become and guiding transformational initiatives by setting a defined direction for the
company's growth.

Tips:-Project five to 10 years in the future

Dream big, and focus on success
Use the present tense
Use clear, concise language
Paint a graphic mental picture of the business you want

The characteristics of a "good" vision statement are

concise: able to be easily remembered and repeated

clear: defines a prime goal
future-oriented: describes where the company is going rather than the current state
stable: offers a long-term perspective and is unlikely to be impacted by market or
technology changes
challenging: not something that can be easily met and discarded
abstract: general enough to encompass all of the organization's interests and strategic
direction
inspiring: motivates employees and is something that employees view as desirable

24
How to write a vision statement

To begin first identifying core values of the organization when drafting vision statement.
Then, ask yourself, "What do we do right now that aligns with these values? Where we are
not aligned with these values? How can we stay aligned with these values as we grow over
the next five years, 10 years?" Those questions address your current situation and help
identify the bigger-picture vision.
Next, ask yourself what problems your company hopes to solve in the next few years. What
does your company hope to achieve? Who is your target customer base, and what do you
want to do for them?
Based on your responses to these questions, ask yourself what success will look like if you
accomplish those things, this answer should shape your vision statement.

CORPORATE MISSION

A mission statement is a statement which is used as a way of communicating the purpose

of the organization.
The mission statement should guide the actions of the organization, spell out its overall
goal, provide a path, and guide decision making. It provides the framework or context
within which the company's strategies are formulated.

Advantages of a mission statement

Provides direction: Mission statements are a great way to direct a business into the right
path, it plays a part in helping the business make better decisions which can be beneficial
to them.
Clear purpose: Having a clear purpose can remove any potential ambiguities that can
surround the existence of a business.
A mission statement can help to play as a motivational tool within an organization, it can
allow employees to all work towards one common goal that benefits both the organization
and themselves

25
A good mission statement answers questions about your business;
What are the opportunities or needs that the company addresses?
What is the business of the organization? How are these needs being addressed?
What level of service is provided?
What principles or beliefs guide the organization?

The sole purpose of a mission statement is to serve as your company's goal/agenda; it outlines
clearly what the goal of the company is. Some generic examples of mission statements would be
to provide the best service possible within the banking sector for our customers'. The reason why
business makes use of mission statements is to make it to clear what they look to achieve as an
organization not only to themselves and their employees but to the customers and other people
who are a part of the business.

Examples:

Nike: "To bring inspiration and innovation to every athlete in the world.
Amazon: "To be the most customer-centric company in the world, where people can find
and discover anything they want to buy online."

Difference between vision & mission

Mission Vision

26
 A mission statement describes an A vision statement provides strategic direction
organization's purpose and answers and describes what the owner or founder wants
the questions "What business are we the company to achieve in the future.
in?" and "What is our business for?"

A mission is actionable. A vision is aspiration.

Mission statement talks about the Vision statement talks about the very long term
organizations present leading to the future
future

Mission statement may change Vision statement should remain intact

Helps the employees to team act and It gives direction about how employees are
guides them in what they should do expected to behave and inspire them to give
their best

CORPORATE OBJECTIVES

Vision and mission are long term and therefore lack the detail for day to day decisions
Organizational objectives are short-term and medium-term goals that
an organization seeks to accomplish.
Corporate Objectives are the outcomes and measureable goals set by a group of people in
common. Corporate objectives are fundamental to performance enhancing strategic
planning

Levels of Strategy

27
 I. Corporate Level Strategy: They are basically decisions related to:

Allocating resources among the different businesses of the firm.

Transferring resources from one set of business to others and

Managing and nurturing a portfolio of business.

How and when and what resources to be use, its allocation for the purpose of achieving
organizations objectives.
Corporate Strategies help to exercise the choice of direction that org. adapts. These
decisions are taken so that overall corporate objectives are achieved.

Different corporate level strategies:

Expansion strategies

Stability strategy

Retrenchment strategy

Combination strategy

Diversification strategy

Expansion strategy-

This strategy is used by the organization when it aims to expand its business in terms of customer
group or customer function. It is adopted when an org aims at high growth by broadening the scope
of operation. It helps them to capture market and lead to more control.

Examples- chocolate manufacturer, printing firm (by expanding production in terms of

customer groups)

Stability strategy-

28
The organisation attempts at improvement in their existing operation do not go beyond what they
are. This strategy is less risky and involves less change as the organization continues to exist in
same market with present product, in terms of customer function or customer group.

Example-packaged tea company-special services to institutional buyer, to encourage bulk

buying.

Copier machine company- provide better after sales service to existing customer, thus
increasing company image to increase their sale of accessories.

Retrenchment strategy- partial or full withdrawal

Organization aims at contraction of its activities through a substantial reduction or elimination of

scope of its business units, in terms of customer function or customer group.

Example- a Pharmaceutical firm- pulls out from retail selling to concentrate on

institutional selling, in order on focus more on marketing.
corporate hospital-focus on specialty treatment

Combination Strategy-

Combination Strategy is one when an organisation adopts a mixture of stability, expansion and
retrenchment strategies, either at same time in different business or at different time in one
business.

Example- Dulax paint company-offering decorative paints to provide wide variety to its
customer (stability). Expand its product rang to include industrial and automotive paints
(expansion). Simultaneously, close down division which undertakes large scale painting
contract job (retrenchment)

Diversification strategy-

29
When a new products are made for new markets by an organisation it is called diversification
strategy.

Types- related and unrelated diversification

Concentric or Related diversification-enables organisation to diversify from its original business

as well as keep it close terms of relatedness.

Example- Larsen & Toubro co.- largest pvt. sec. co, in engineering and construction industry in
India. Its major part revenue- engineering and construction and minor business- electrical and
electronics, IT.

Conglomerate or Unrelated diversification- Taking up activities which are unrelated to existing

business, either in terms of their respective customer groups or customer function.

Offering new product manufactured through an unfamiliar technology for a new set of customers,
involves considerable risk

Example- Aditya Birla Group, ITC groups

II. Business level Strategy

They are courses of action adopted by an organisation for each of its business separately.

To serve identified customer groups and provide value to customer by satisfaction of their
needs.

The dynamic factors that determine the choice of the competitive strategy are two, namely-
Industry structure and positioning of a firm in Industry.

Industry Structure-

It is determined by five competitive forces.

o Threat of new entrants

o Threat of substitute products or services

o Bargaining power of suppliers

30
 o Bargaining power of buyer

o Rivalry among existing competitors

Positioning of firm in Industry

It is designed to gain a sustainable competitive advantage, which arises from the skillful
use. and is based on two variable:

The competitive advantage and the competitive scope.

Competitive Advantage-

It can arise due to two factors: low cost and differentiation.

Low-cost is based on the competence of an organisation to design, produce and market a

comparable product, more efficiently than its competitors.

Differentiation is the competence of firm to provide unique and superior value to the buyer
in terms of product quality, special features.

Competitive Scope

Defined as the breadth of an organizations target within its industry.

Organization target is meant the range of products, distribution channels, types of buyers,
geographical area served, that have differing needs and that requires different sets of
competencies and strategies to satisfy the needs of customers.

Tactics for Business Strategies

Timing Tactics

When to make a business strategy move is often as important as what move to make. It is
here that timing of the application of business strategy becomes important.

Example- Flipkart, umbrella manufacturing company.

31
 First Movers and late Movers

The first company to manufacture and sell a new product or services is called the first
mover organisation.

Each industry has its first movers, second-movers and late movers

They can establish position as market leader. They can establish business models and gain
valuable experience.

Example of Parle- Bisleri has high comparative of Kinley and Aquafina, since it was the
first mover in manufacturing package mineral water.

Market Location Tactics

This aspect deals with the issue of where to complete. By this, it is meant that target market
the organisation aims at in applying its business strategies.

Market location could be classified according to the role that organisation play in the target
market and the type of business they adopt to play.

Example-Flipkart, umbrella.

III .Functional level strategy

It is the process of determining policies and procedure for different function of an enterprise like
marketing, finance, production.
These are developed by functional managers

Functional strategies are primarily concerned with:

Efficiently utilizing specialists within the functional area.
Integrating activities within the functional area (e.g., coordinating advertising, promotion, and
marketing research in marketing; or purchasing, inventory control, and shipping in
production/operations).

32
 Assuring that functional strategies mesh with business-level strategies and the overall corporate-
level strategy.
The success of functional strategy is highly affected by the time factor. For example advertising
of a new product is launched 60 days prior to shipment of the first product. Functional strategies
have a shorter time span than business-level or corporate level strategies

Marketing strategies

These strategies involve analysis, development and implementation of activities

Marketing strategy involves
A. Product and service strategy
B. Pricing strategy
C. Place/distribution strategy
D. Promotion strategy
Place / Channel of Distribution Strategies
This strategy depends upon whether the company wants to sell directly or outsource its distribution
function E.g.:- BSNL
Promotion Strategies
This strategy includes advertising, personal selling and sales promotion. E.g.:- Apple and HP.
Product and service strategy

A product strategy is the foundation of a product lifecycle, and its execution plan for further
development. e.g.:- Samsung and Oppo.

Pricing strategy

A pricing strategy takes into account segments, ability to pay, market conditions, competitor
actions, trade margins and input costs etc. It is targeted at the defined customers and against
competitors. e.g.:- hotel rooms

Financial strategy

Finance is a fundamental resource for starting and conducting of a business it is centered on

acquiring capital, reducing cost capital etc.

33
Financial strategyhelps in making complex investment decision like

- Capital budgeting

- Financing and dividend decisions

- Capital restructuring etc.

Capital budgeting

Capital can be equity capital and loan capital / debt capital. Equity capital provides security and
free from paying interest and financial risk. Debt capital although requires the payment of fixed
interest regularly, it provides huge surplus during business boom.

Dividend strategy

This is to decide the amount of profits to be distributed to the shareholders after retaining certain
amount of profits as a surplus.

Capital structure strategy

Capital structure is a mix of equity capital, preference capital, retained earnings and debt capital

Human resource strategy

1. HRM is managing the functions of employing , developing, compensating and utilizing

human resources

2. This results in development of human and industrial relations which would shape the future
policies and practices of human resource management

3. This is with a view to contribute proportionately to the organizational, individual and social
goals

STRATEGY FORMULATION PROCESS

Following are the strategy formulation process

34
 Defining the company mission

Assessing the external environment

Industry analysis

Evaluating the multinational environment

Environmental forecasting

The company profile : Internal analysis of the firm

Formulating long-term objectives and grand strategies

Strategic analysis and choice

1. Defining the company mission

Company mission is defined as the fundamental, unique purpose that sets a business apart from
other firms of its type and identifies the scope of its operation in product and market terms

Example Nike: "To bring inspiration and innovation to every athlete in the world."

2. Assessing the External Environment

The purpose is to develop a finite list of opportunities that could benefit a firm and threats that
should be avoided. The external environment such as technology, economic policy, social culture

3. Industry analysis

Industry analysis is a tool that facilitates a company's understanding of its position relative to other
companies that produce similar products or services. Understanding the forces at work in the
overall industry is an important component of effective strategic planning.

Example- Automobile industries: Bajaj and Suzuki, Airline industry: kingfisher.

4. Evaluating the multinational environment

35
Managers need to recognize that different types of industry based competition exist and that these
differences are linked to an understanding of the strategic planning options available to a
multinational corporation.

Example-TCS and Wipro

5. Environmental forecasting

Environmental forecasting starts with identification of factors external to the firm that might
provide critical opportunities or pose threats in the future.

Both quantitative and qualitative techniques are used to measure the impact on the industry

Example- Changes in polices and implementation pollution control in the industry

6. Company profile: internal analysis

A company profile is the determination of a firms strategic competencies and weaknesses. This
is accomplished by identifying and then evaluating strategic internal factors. Internal analysis is
difficult & challenging. Internal analysis must identify the strategically important strength &
weaknesses on which a firm should ultimately base its strategy; this will be accomplished by
identifying & then evaluating strategic internal factors. . What are strategic internal factors?
Strategic internal factors are firms basic capabilities, limitations & characteristics. Like
marketing, cash flow, technology, production/operation, organizational structure etc. We cant
consider all the factors in potential strengths or weaknesses. To develop strategy managers would
need to identify the few factors on which successes will most likely depend. Reliance on different
internal factors will vary by industry, product life cycle & the firms current position & so on. The
managers are looking for those internal capabilities that appear most critical for success in a
particular competitive area.

For example, strategic factors for firms in oil industry will be different from those of firms in
construction or hospitality industries.

How should strategist evaluate key internal factors & value activities as strength or
weaknesses?

36
There are 4 perspectives to evaluate key internal factors as strength and weaknesses.

1) Comparison with firms past performance.

Strategist uses the historical experience of the firm as a basis for evaluating internal factors.
Managers are most familiar with their firm, its internal capabilities & problems. Historical
experience can provide a relevant evaluation framework.
Example: LG they focus in their mass products, the LG India sale grew 15% in 2015 after
3 years of flat sale.
2) Stages in product/ market evolution
The requirements for success in product/market segments evolve a change over time. As a
result strategist can use these changing patterns associated with different stages in product
/market evolution as a framework for identifying & evaluating the firms strength &
weaknesses. The strength is necessary for success change in growth stage. Rapid growth
brings new competitors into market.
Example: IBM entered in the pc market in the growth stage & was able to become the
market leader with a strategy based on key strength in brand awareness
3) Comparison with competitors
A major focus on determining a firms strength & weakness is comparison with existing
competitors. Firms in the same industry often have different marketing skills, financial
resources, brand image & so on. In choosing strategy a manager should compare the
companys key internal capabilities with those of its rivals, there by isolating key strength
or weaknesses.
Example: Pepsi & coco cola, they are major rivals. If one will reduce its price by 5%, other
will also reduce.
4) Success factors in industry
It is the final step of internal analysis. Industry analysis involves identifying factors
associated with successful participation in a given industry.
Example: when India opened its automotive sector in mid 1980s the countrys largest
maker of scooter are Bajaj. But Honda emerge the market on the strength of its superior
technology, quality & brand.

37
7. Formulating long term objectives & grand strategies

These are two principle components of any strategic choice. The objectives are needed so that the
companys direction & progress are not determined by random forces. The objectives are valuable
only if strategies can be implemented making achievement of objectives realistic.

Objectives indicate what strategic manager wants? Strategies indicate what type of action will be
taking? But do not define what ends will be perused on constraints in refining the strategic plan.

Long term objectives are defined as a statement of results a business seeks to achieve over a period
of time, typically 5 years. To achieve long term prosperity strategic planner establishes long term
objectives in 7 areas:

Profitability: The ability of any business to operate i the long run depends on attaining an
acceptable level of profit.

Productivity: companies that can improve input- output relationship normally increase
profitability.

Competitive position: corporate success is achieved by dominance in the market place.

Employee development: employee has great role in organisations.

Employee relation: companies actively seek good employee relation; the strategic manager is
taking productive steps in anticipation of employee needs & expectations.

Technological leadership: Business must decide whether to lead or follow in the market place.

Public responsibility: every business has to recognize the responsibility to consumer & society at
large.

Grand strategies are the decisions or choices of long term plans from available alternatives. They
are also called master or business strategy. This directs the organization towards achievement of
overall long term objectives. It is step by step process for developing a business strategy with a
performance management & measurement system for the business.

38
There are some principle grand strategies that serve as the basis for achieving major long term
objectives of a business.

I. Concentration
The firm directs its resource to the profitable growth of a single product in a market. E.g.
MTR foods are producing spice masala only.
II. Market development
Introducing present product in new geographical area or finding new market segments for
present products. E.g. after years of speculation in 2007 the I phone created a market in
US.
III. Product development
This involves investing heavily in research & development in order to create new &
innovative product offerings. E.g. food manufactures invest heavily in research into
healthier foods that can be marketed to public.
IV. Horizontal integration
The acquisition of one or more similar business at the same stage of production
V. Vertical integration
Acquisition of businesses that either supplies the firm with inputs
(Raw material) or serve as a customer for the firms output.
VI. Turn around
When a firm is experiencing profit declare or other serious problem. It is an attempt to
change the firms strategy in the hopes of reversing its fortunes. E.g. print newspaper might
make the switch to online publication in order to adapt to the changing market.
VII. Liquidation
It is the last resort. When there are no interested buyers, there is no choice but to liquidate
the firm. It involves selling of all its assets.

Types of Strategies

Its a combination of 13 actions which are divided into 4 strategies:-Integration strategy, intensive
strategy, diversification and defensive.

39
I. Integration strategy

This strategy include forward, horizontal and vertical

Its all about firm gaining control over distributors, suppliers, and competitors.

a) Forward integration

Its all about gaining ownership or increased control over distributors or retailers.This mainly
happens when companies merge with/purchase an organization involved in distribution of
products.

Example:-Boeing:-It has adopted FI by engaging in negotiation with American Delta to purchase

Boeing jets exclusively. It helps in better pricing of new jets and saves maintenance and training
costs.

b) Backward Integration
This strategy is applied when suppliers are unreliable and too costly. It focuses on firms
suppliers.
Example- Starbucks. It has various suppliers and inputs such as coffee beans to make
coffee/customized mugs to sell in stores. It backwardly integrated when it bought a coffee farm
in China. So it became its own supplier, so they had no problem in shortage of supply of coffee
beans.
c) Horizontal Integration
It refers to strategy seeking ownership or control over the competitors. It is used as a growth
strategy. Horizontal Integration is done through mergers and acquisitions among competitors
by enhancing transfer of resources and competencies.
Example:-Wal-Mart. They started setting up their locations in various parts of the country.
They had stores set up with features like: warehouses, manufacturing plants close by, workers
who lived in that area. They bought other stores changed their names or changed it to Wal-
Mart.

II. Intensive Strategy

40
It includes market penetration, market development and product development. These are the
strategies that require intensive effort to improve firms competitive position among existing
products.

a) Market Penetration
It seeks to increase market share of present product/services through great market efforts.
It includes adding sales persons, increasing advertising expenditure, couponing etc.
Example: - Coca Cola used market penetration on an annual basis by creating an
association with Christmas, which has helped to boost the sales.
b) Market development
Market development involves introducing products and services in new geographical area
or new audiences.
Example: - Coca Cola introduced Zero coke among males with low sugar and calories
which replaced diet coke which was considered to be a female drink.

c) Product Development.
This strategy seeks increased sales or improving or modifying present products or services.
It requires large research and development expenditures.
Example: - Coca Cola introduces Cherry Coke in 1985, its first extension beyond it original
recipe.

III.DIVERSIFICATION STRATEGY
Diversification strategies are used to expand firms' operations by adding markets, products,
services, or stages of production to the existing business. The purpose of diversification is to allow
the company to enter lines of business that are different from current operations. When the new
venture is strategically related to the existing lines of business, it is called concentric
diversification. Conglomerate diversification occurs when there is no common thread of strategic
fit or relationship between the new and old lines of business; the new and old businesses are
unrelated.
Diversification is a form of growth strategy. Growth strategies involve a significant increase in
performance objectives (usually sales or market share) beyond past levels of performance. Many

41
organizations pursue one or more types of growth strategies. One of the primary reasons is the
view held by many investors and executives that "bigger is better." Growth in sales is often used
as a measure of performance. Even if profits remain stable or decline, an increase in sales satisfies
many people. The assumption is often made that if sales increase, profits will eventually follow.

ADVANTAGES

Large size or large market share can lead to economies of scale. Marketing or production
synergies may result from more efficient use of sales calls, reduced travel time, reduced
changeover time, and longer production runs.
Learning and experience curve effects may produce lower costs as the firm gains
experience in producing and distributing its product or service. Experience and large size
may also lead to improved layout, gains in labor efficiency, redesign of products or
production processes, or larger and more qualified staff departments (e.g., marketing
research or research and development).
Lower average unit costs may result from a firm's ability to spread administrative expenses
and other overhead costs over a larger unit volume. The more capital intensive a business
is, the more important its ability to spread costs across a large volume becomes.

TYPES OF DIVERSIFICATION STRATEGY

Concentric diversification

42
Concentric diversification occurs when a firm adds related products or markets. The goal of such
diversification is to achieve strategic fit. Strategic fit allows an organization to achieve synergy.
Synergy may be achieved by combining firms with complementary marketing, financial,
operating, or management efforts. Breweries have been able to achieve marketing synergy through
national advertising and distribution. By combining a number of regional breweries into a national
network, beer producers have been able to produce and sell more beer than had independent
regional breweries.

Financial synergy may be obtained by combining a firm with strong financial resources but limited
growth opportunities with a company having great market potential but weak financial resources.
For example, debt-ridden companies may seek to acquire firms that are relatively debt-free to
increase the lever-aged firm's borrowing capacity. Similarly, firms sometimes attempt to stabilize
earnings by diversifying into businesses with different seasonal or cyclical sales patterns.

Strategic fit in operations could result in synergy by the combination of operating units to improve
overall efficiency. Combining two units so that duplicate equipment or research and development
are eliminated would improve overall efficiency. Quantity discounts through combined ordering
would be another possible way to achieve operating synergy. Yet another way to improve
efficiency is to diversify into an area that can use by-products from existing operations. For
example, breweries have been able to convert grain, a by-product of the fermentation process, into
feed for livestock.

Management synergy can be achieved when management experience and expertise is applied to
different situations. Perhaps a manager's experience in working with unions in one company could
be applied to labor management problems in another company. Caution must be exercised,
however, in assuming that management experience is universally transferable. Situations that
appear similar may require significantly different management strategies. Personality clashes and
other situational differences may make management synergy difficult to achieve. Although
managerial skills and experience can be transferred, individual managers may not be able to make
the transfer effectively.

43
 Conglomerate diversification

Conglomerate diversification occurs when a firm diversifies into areas that are unrelated to its
current line of business. Synergy may result through the application of management expertise or
financial resources, but the primary purpose of conglomerate diversification is improved
profitability of the acquiring firm. Little, if any, concern is given to achieving marketing or
production synergy with conglomerate diversification.

One of the most common reasons for pursuing a conglomerate growth strategy is that opportunities
in a firm's current line of business are limited. Finding an attractive investment opportunity
requires the firm to consider alternatives in other types of business. Philip Morris's acquisition of
Miller Brewing was a conglomerate move. Products, markets, and production technologies of the
brewery were quite different from those required to produce cigarette.

Stability Strategy

Definition: The Stability Strategy is adopted when the organization attempts to maintain its current
position and focuses only on the incremental improvement by merely changing one or more of its
business operations in the perspective of customer groups, customer functions and technology
alternatives, either individually or collectively.

Generally, the stability strategy is adopted by the firms that are risk averse, usually the small scale
businesses or if the market conditions are not favorable, and the firm is satisfied with its
performance, then it will not make any significant changes in its business operations. Also, the
firms, which are slow and reluctant to change finds the stability strategy safe and do not look for
any other options.

Stability Strategies could be of three types:

a) No-Change Strategy
b) Profit Strategy
c) Pause/Proceed with Caution Strategy

44
To have a better understanding of Stability Strategy go through the following examples in the
context of customer groups, customer functions and technology alternatives.

1. The publication house offers special services to the educational institutions apart from its
consumer sale through the market intermediaries, with the intention to facilitate a bulk
buying.
2. The electronics company provides better after-sales services to its customers to make the
customer happy and improve its product image.
3. The biscuit manufacturing company improves its existing technology to have the efficient
productivity.

a) No-Change Strategy

Definition: The No-Change Strategy, as the name itself suggests, is the stability strategy followed
when an organization aims at maintaining the present business definition. Simply, the decision of
not doing anything new and continuing with the existing business operations and the practices
referred to as a no-change strategy.

When the environment seems to be stable, i.e. no threats from the competitors, no economic
disturbances, no change in the strengths and weaknesses, a firm may decide to continue with its
present position. Therefore, by analyzing both the internal and external environments, a firm may
decide to continue with its present strategy.

b) Profit Strategy

Definition: The Profit Strategy is followed when an organization aims to maintain the profit by
whatever means possible. Due to lower profitability, the firm may cut costs, reduce investments,
raise prices, increase productivity or adopt any methods to overcome the temporary difficulties.

The profit strategy focuses on capitalizing the situation when the obsolete technology or the old
technology is to be replaced with the new one. Here no new investment is made; the same
technology is followed, at least partially with new technological domains.

c) Pause/Proceed with Caution Strategy

45
Definition: The Pause/Proceed with Caution Strategy is well understood by the name itself, is a
stability strategy followed when an organization wait and look at the market conditions before
launching the full-fledged grand strategy. Also, the firm that has intensely followed the expansion
strategy would wait till the time the new strategies seeps down the organizational levels and look
at the changes in the organizational structure before taking the next step.

The pause/proceed with caution strategy is often followed by the manufacturing companies who
study the market conditions thoroughly and then launch their new products into the market. It is
more prevalent in the army attacks; wherein the reconnaissance party moves ahead to examine the
situation before the troops, who comes in full strength to ultimately, attack the enemies.

IV.Retrenchment Strategy

Definition: The Retrenchment Strategy is adopted when an organization aims at reducing its one
or more business operations with the view to cut expenses and reach to a more stable financial
position.

In other words, the strategy followed, when a firm decides to eliminate its activities through a
considerable reduction in its business operations, in the perspective of customer groups, customer
functions and technology alternatives, either individually or collectively is called as Retrenchment
Strategy.

The firm can either restructure its business operations or discontinue it, so as to revitalize its
financial position.

EXAMPLE: The book publication house may pull out of the customer sales through market
intermediaries and may focus on the direct institutional sales. This may be done to slash the sales
force and increase the marketing efficiency.

There are three types of Retrenchment Strategies:

Turnaround
Divestment
Liquidation

46
Turnaround Strategy

Definition: The Turnaround Strategy is a retrenchment strategy followed by an organization

when it feels that the decision made earlier is wrong and needs to be undone before it damages the
profitability of the company. Simply, turnaround strategy is backing out or retreating from the
decision wrongly made earlier and transforming from a loss making company to a profit making
company.

Now the question arises, when the firm should adopt the turnaround strategy? Following are certain
indicators which make it mandatory for a firm to adopt this strategy for its survival. These are:

Continuous losses
Poor management
Wrong corporate strategies
Persistent negative cash flows
High employee attrition rate
Poor quality of functional management
Declining market share
Uncompetitive products and services

Also, the need for a turnaround strategy arises because of the changes in the external environment
Viz, change in the government policies, saturated demand for the product, a threat from the
substitute products, changes in the tastes and preferences of the customers, etc.

Example: Dell is the best example of a turnaround strategy. In 2006. Dell announced the cost-
cutting measures and to do so; it started selling its products directly, but unfortunately, it suffered
huge losses. Then in 2007, Dell withdrew its direct selling strategy and started selling its computers
through the retail outlets and today it is the second largest computer retailer in the world.

Divestment Strategy

47
Definition: The Divestment Strategy is another form of retrenchment that includes the
downsizing of the scope of the business. The firm is said to have followed the divestment strategy,
when it sells or liquidates a portion of a business or one or more of its strategic business units or a
major division, with the objective to revive its financial position.

The divestment is the opposite of investment; wherein the firm sells the portion of the business to
realize cash and pay off its debt. Also, the firms follow the divestment strategy to shut down its
less profitable division and allocate its resources to a more profitable one.

An organization adopts the divestment strategy only when the turnaround strategy proved to be
unsatisfactory or was ignored by the firm. Following are the indicators that mandate the firm to
adopt this strategy:

Continuous negative cash flows from a particular division

Unable to meet the competition
Huge divisional losses
Difficulty in integrating the business within the company
Better alternatives of investment
Lack of integration between the divisions
Lack of technological up gradations due to non-affordability
Market share is too small
Legal pressures

Example: Tata Communications is the best example of divestment strategy. It has started the
process of selling its data center business to reduce its debt burden.

Liquidation Strategy

Definition: The Liquidation Strategy is the most unpleasant strategy adopted by the organization
that includes selling off its assets and the final closure or winding up of the business operations.

48
It is the most crucial and the last resort to retrenchment since it involves serious consequences such
as a sense of failure, loss of future opportunities, spoiled market image, loss of employment for
employees, etc.

The firm adopting the liquidation strategy may find it difficult to sell its assets because of the non-
availability of buyers and also may not get adequate compensation for most of its assets. The
following are the indicators that necessitate a firm to follow this strategy:

Failure of corporate strategy

Continuous losses
Obsolete technology
Outdated products/processes
Business becoming unprofitable
Poor management
Lack of integration between the divisions

Generally, small sized firms, proprietorship firms and the partnership firms follow the liquidation
strategy more often than a company. The liquidation strategy is unpleasant, but closing a venture
that is in losses is an optimum decision rather than continuing with its operations and suffering
heaps of losses.

SMARTER MODEL

It was stated in Peter Druckers management by objective.

S- SPECIFIC

We should have a specific goal than a general goal.

The goals should be clear.
Goals should be specific. It must tell exactly what is expected, why it is important,
where it is going.

M- MEASURABLE

49
 Concentrates on the criteria that is used to measure progress towards attainment of
goal.
If the goal is not measurable it is not possible to know whether the team is making
progress.
It helps the team to stay on track by reaching its target dates and experience the
achievement.

A- ACHIEVABLE

It focuses on the importance of goal that whether it is achievable or not.

Goals should neither be out of reach nor below standard performance, if then would
the goal be meaningless.
The theory states that it helps goal setters to identify the overlooked opportunity to
bring them closer to the achievement of goal.

R- RELEVANT

Focuses on choosing goal that matter

For a goal to achieve you need support like resources, champion voice. Someone
to knock down, but if your goal is irrelevant no one will support.
Relevant goals drive the team and department forward.

T- TIME SPECIFIC

It stresses importance on gaining the goals with a specified time at a target date.
A commitment to a deadline helps to complete the goal on or before time.
It prevents goals to be overtaken by day-to-day crisis.

E- EVALUATE

This focuses on evaluating how your goal is progressing.

It is conducted through entire process, even after goal is met.
It is similar to create a progress report.

50
R- REVISE

It brings everything back in full circle.

More stress on adapting to the environment and challenges that arise.
Help in changing your goals, depending on result of your evaluation step.

Guidelines for crafting successful business

1. Give priority to that strategy which will maintain competitive position in the long run.
Example: TATA MOTORS
Tata motors is the only company which produces vehicles for defence, though it faces
tough competition from Mahindra and Mahindra and Ashok Leyland since the strategy of
the company is very strong and competitive enough which help it in leading.

2. Adapt the changes according to the market condition (PEST)

Example: BAJAJ
The company used to produce the Bajaj scooter in olden days but according to the market
condition the company started manufacturing the Bajaj bikes and Scoottys.

3. Focus on competitors weakness rather than its strengths.

Example: Maggie and ITC (Yippee)

4. No conflicts should arise related to any service or product quality when company comes
up with any new strategy.

5. Company should keep its product at low cost.

6. If the company had planned any new strategy, it should implemented.

7. If company want to capture more market share than it should use its resources and
employees efficiently.

51
 Example: Hyundai and Maruthi Company manufacture cars for middle income group of
people. But Chevrolet started manufacturing cars for low, middle and high income groups
of peoples which help the company in capturing more market share.

PESTLE Analysis

Introduction

A PESTEL analysis is a framework or tool used by marketers to analyse and monitor the macro-
environmental (external marketing environment) factors that have an impact on an organisation.
The result of which is used to identify threats and weaknesses which is used in a SWOT analysis.

PESTEL stands for:

P Political
E Economic
S Social
T Technological
E Environmental
L Legal

Political Factors
These are all about how and to what degree a government intervenes in the economy. This can
include government policy, political stability or instability in overseas markets, foreign trade
policy, tax policy, labour law, environmental law, trade restrictions and so on.
It is clear from the list above that political factors often have an impact on organisations and how
they do business. Organisations need to be able to respond to the current and anticipated future
legislation, and adjust their marketing policy accordingly.

Economic Factors: Economic factors have a significant impact on how an organisation does
business and also how profitable they are. Factors include economic growth, interest rates,
exchange rates, inflation, disposable income of consumers and businesses and so on.

52
These factors can be further broken down into macro-economic and micro-economic factors.

Social Factors: Also known as socio-cultural factors are the areas that involve the shared belief
and attitudes of the population. These factors include population growth, age distribution, health
consciousness, and career attitudes and so on. These factors are of particular interest as they have
a direct effect on how marketers understand customers and what drives them.

Technological Factors: We all know how fast the technological landscape changes and how this
impacts the way we market our products. Technological factors affect marketing and the
management thereof in three distinct ways:
New ways of producing goods and services
New ways of distributing goods and services
New ways of communicating with target markets

Environmental Factors: These factors have only really come to the forefront in the last fifteen
years or so. They have become important due to the increasing scarcity of raw materials, pollution
targets, doing business as an ethical and sustainable company, carbon footprint targets set by
governments (this is a good example were one factor could be classes as political and
environmental at the same time). These are just some of the issues marketers are facing within this
factor. More and more consumers are demanding that the products they buy are sourced ethically
and if possible from a sustainable source.

Legal Factors: Legal factors include - health and safety, equal opportunities, advertising
standards, consumer rights and laws, product labelling and product safety. It is clear that
companies need to know what is and what is not legal in order to trade successfully. If an
organization trades globally this becomes a very tricky area to get right as each country has its own
set of rules and regulations.

53
 Unit 3

Environment of Strategic Management

After clearly defining the organizations purpose, in the form of vision and mission statements,
management needs to address the question Where is the company now? This involves assessing
the organizations environment.

The environment in which a company operates consists of two parts:

54
 Internal Environment- It consists of the structure, culture, resources, skills, etc. within
the organization.
External Environment- It consists of the totality of all factors that affect a firm from
outside its organizational boundaries. It is the aggregate of all conditions, events and
influences that surround and affect it.

ENVIRONMENTAL ANALYSIS

Meaning

Environmental analysis is a strategic tool. It is a process to identify all the external and internal
elements, which can affect the organizations performance. The analysis entails assessing the level
of threat or opportunity the factors might present.
Features

1. Holistic Exercise- Environmental analysis is a holistic exercise in the sense that it must
comprise a total view of the environment rather than a piecemeal view of the trends. It is a
process of looking at the forest rather than the trees.
2. Continuous Activity- The analysis of the environment must be a continuous process rather
than a one shot deal. Strategies must keep on tracking shifts in the overall pattern of trends
and carry out detailed studies to keep a close watch on major trends.
3. Exploratory process- Environmental analysis is an exploratory process. A large part of
the process seeks to explore the unknown terrain and the dimensions of possible future.
The emphasis must be on speculating systematically about alternative outcomes, assessing
probabilities, questioning assumptions and drawing rational conclusions.

Importance of Environmental Analysis

1. To detect key trends and events in the environment

2. To develop forecasts and scenarios
3. To get information on the competitive environment

55
 4. To avoid strategic surprise and to ensure long term health
5. To identify opportunities and threats
6. To set appropriate objectives
7. To analyze and evaluate strategic alternatives
8. To formulate winning strategies responsive to competitive forces
9. To develop sustainable competitive advantage
10. To work out networks and cooperative ventures

Benefits of Environmental Analysis

1. Identification of Strength
2. Identification of weakness
3. Identification of opportunities
4. Identification of threats
5. Survival and growth
6. To plan long term business strategy
7. Aids decision making

EXTERNAL ENVIRONMENT

The external environment of an organization are those factors outside the company that affect the
company's ability to function. Some external elements can be manipulated by company marketing,
while others require the organization to make adjustments.

The main problem for business managers is to be able to respond early to change in the external
environment, and this depends on how soon any change is identified. Some external environmental
factors such as economic conditions are reported daily in the media and managers have a wealth
of information on which to develop strategic plans. However, some external factors may be
difficult to identify, particularly of the pace of change is very slow or is hidden from view.

Micro and Macro Environment Factors

56
There are two kinds of external environments: micro and macro. These environments factors are
beyond the control of marketers but they still influence the decisions made when creating a
strategic marketing strategy.

Micro Environment Factors

The suppliers: Suppliers can control the success of the business when they hold the power.
The supplier holds the power when they are the only or the largest supplier of their goods;
the buyer is not vital to the suppliers business; the suppliers product is a core part of the
buyers finished product and/or business.

The resellers: If the product the organization produces is taken to market by 3rdparty
resellers or market intermediaries such as retailers, wholesalers, etc. then the marketing
success is impacted by those 3rd party resellers. For example, if a retail seller is a reputable
name then this reputation can be leveraged in the marketing of the product.

The customers: Who the customers are (B2B or B2C, local or international, etc.) and their
reasons for buying the product will play a large role in how you approach the marketing of
your products and services to them.

The competition: Those who sell same or similar products and services as your
organization are your market competition, and the way they sell needs to be taken into
account. How does their price and product differentiation impact you? How can you
leverage this to reap better results and get ahead of them?

The general public: Your organization has a duty to satisfy the public. Any actions of your
company must be considered from the angle of the general public and how they are
affected. The public have the power to help you reach your goals; just as they can also
prevent you from achieving them.

Macro Environment Factors

57
 Demographic forces: Different market segments are typically impacted by common
demographic forces, including country/region; age; ethnicity; education level; household
lifestyle; cultural characteristics and movements.

Economic factors: The economic environment can impact both the organisations
production and the consumers decision making process.

Natural/physical forces: The Earths renewal of its natural resources such as forests,
agricultural products, marine products, etc. must be taken into account. There are also the
natural non-renewable resources such as oil, coal, minerals, etc that may also impact the
organizations production.

Technological factors: The skills and knowledge applied to the production, and the
technology and materials needed for production of products and services can also impact
the smooth running of the business and must be considered.

Political and legal forces: Sound organizational decisions should always take into account
political and/or legal developments relating to the organization and its markets.

Social and cultural forces: The impact the products and services your organisations brings
to market have on society must be considered. Any elements of the production process or
any products/services that are harmful to society should be eliminated to show your
organization is taking social responsibility. A recent example of this is the environment
and how many sectors are being forced to review their products and services in order to
become more environmentally friendly.

INTERNAL BUSINESS ENVIRONMENT

Introduction to Business Environment

58
The formula for business success requires two elements - the individual and the environment.
Remove either value and success becomes impossible. Business environment consist of all those
factors that have a bearing on the business. The term business environment implies those external
forces, factors and institutions that are beyond the control of individual business organizations and
their management and affect the business enterprise. It implies all external forces within which a
business enterprise operates. Business environment influence the functioning of the business
system.

Thus, business environment may be defined as all those conditions and forces which are external
to the business and are beyond the individual business unit, but it operates within it. These forces
are customer, creditors, competitors, government, socio-cultural organizations, political parties
national and international organizations etc. some of those forces affect the business directly which
some others have indirect effect on the business.

INTERNAL ENVIRONMENT
The internal environment is the environment that has a direct impact on the business. Here there
are some internal factors which are generally controllable because the company has control over
these factors. It can alter or modify such factors as its personnel, physical facilities, and
organization and functional means, like marketing, to suit the environment. The important internal
factors which have a bearing on the strategy and other decisions of internal organization are
discussed below.

These factors are as follows: (1) Value System, (2) Mission and Objectives, (3) Organization
Structure, (4) Corporate Culture and Style of Functioning of Top Management, (5) Quality of
Human Resources, (6) Labour Unions, and (7) Physical Resources and Technological Capabilities.

Factor 1- Value System:

The value system of an organization means the ethical beliefs that guide the organization in
achieving its mission and objective. The value system of a business organization also determines
Figure 1-Wikipedia

59
its behavior towards its employees, customers and society at large. The value system of the
promoters of a business firm has an important bearing on the choice of business and the adoption
of business policies and practices. Due to its value system a business firm may refuse to produce
or distribute liquor for it may think morally wrong to promote the consumption of liquor. The
value system of a business organization makes an important contribution to its success and its
prestige in the world of business.

For example:

Johnson & Johnson promulgated its famed one-page Credo in the year 1943, which articulates the
companys first responsibility to the doctors, nurses and patients, to mothers and fathers and all
others who use our products and services, as well as to the men and women who work with us
throughout the world, the communities in which we live and work and to the world community
as well, and our stockholders. The prevalence of ethics-related language today appears, though,
to do more than set corporate expectations for employee behavior; it is, effectively, a part of a
companys license to operate in a more complex regulatory and legal environment.

Factor 2- Mission and Objectives:

The objective of all firms is assumed to be maximization of long-run profits. But mission is
different from this narrow objective of profit maximization. Mission is defined as the overall
purpose or reason for its existence which guides and influences its business decision and economic
activities.

The-choice of a business domain, direction of its development, choice of a business strategy and
policies are all guided by the overall mission of the company.

For example:

Apple

Vision

Man is the creator of change in this world. As such he should be above systems and structures,
and not subordinate to them.

60
Mission

We believe that we're on the face of the Earth to make great products, and that's not changing.
We're constantly focusing on innovating. We believe in the simple, not the complex. We believe
that we need to own and control the primary technologies behind the products we make, and
participate only in markets where we can make a significant contribution.

We believe in saying no to thousands of projects so that we can really focus on the few that are
truly important and meaningful to us. We believe in deep collaboration and cross-pollination of
our groups, which allow us to innovate in a way that others cannot.

We don't settle for anything less than excellence in every group in the company, and we have the
self-honesty to admit when we're wrong and the courage to change.

Factor 3- Organization Structure:

Organization structure means such things as composition of board of directors, the number of
independent directors, the extent of professional management and share -holding pattern. The
nature of organizational structure has a significant influence over decision making process in an
organization. An efficient working of a business organization requires that its organization
structure should be conducive to quick decision making. Delays in decision making can cost a
good deal to a business firm.

Defining the organizational structure of any company, which includes the different roles, how they
interact and how things get accomplished, is crucial to success. The best staff, products and
marketing cannot benefit a business if the company is not organized in such a way to capitalize on
these strengths. Poor organizational structure can kill off companies that otherwise deserve to be
successful and profitable.

For example:

During his 18 months with P&G as CEO, Durk Jager he created a six-year restructuring effort
called "Organization 2005". He saw a need for a change in the organizational structure.

61
Figure 2-Fortune 500

He lost his position after 17 months, however; in the years to come, his structure proved successful
in areas of product development and employee culture (IBS Center for Management Research,
2003).

Jager failed to include his employees, especially middle management who are the mouth pieces of
executive management. He failed to influence and persuade them. How would he have done this?
Again, the answer is simple. Communication. When management has a new idea, new challenge,
or new issue, it is imperative employees know about it. Sure, they don't have to know every single
detail, but they should be gathered and told about the idea. Motivated to be a part of it. Included
for feedback-even if that feedback is not used-it makes them feel like a part of the plan. Without
this: you're just changing the work life they've lived for years. There is no reason for them to get
on board without knowing how it will positively impact their second lives at work, and how their
participation is paramount to success.

62
Factor 4- Corporate Culture and Style of Functioning of Top Management:

Corporate culture and style of functioning of top managers is important factor for determining the
internal environment of a company. Corporate culture is generally considered as either closed and
threatening or open and participatory.

In a closed and threatening type of corporate culture the business decisions are taken by top-level
managers, while middle level and work-level managers have no say in business decision making.
There is lack of trust and confidence in subordinate officials of the company and secrecy pervades
throughout in the organization. As a result, among lower level managers and workers there is no
sense of belongingness to the company.

On the contrary, in an open and participatory culture, business decisions are taken at lower levels
of management, and top management has a high degree of trust and confidence in the subordinates.
Free communication between the top level management and lower-level managers is the rule in
this open and participatory type of corporate culture. In this open and participatory system the
participation of workers in managerial tasks is encouraged.

For example:

Southwest Airlines of USA.

The CEO of Southwest Airlines didnt stayed awake at night thinking about the fuel price or the
bottom lines, but rather he stayed awake at night thinking about the very corporate culture of the
company.

What keeps me awake at night are the intangibles. Its the intangibles that are the hardest thing
for a competitor to imitate, so my biggest fear is that we lose the culture, the spirit. If we ever do
lose that, we will have lost our most important asset.

Herb Kelleher

63
Factor 5- Quality of Human Resources:

Quality of employees (i.e. human resources) of a firm is an important factor of internal

environment of a firm. The success of a business organization depends to a great extent on the
skills, capabilities, attitudes and commitment of its employees. Employees differ with regard to
these characteristics.

It is difficult for the top management to deal directly with all the employees of the business firm.
Therefore, for efficient management of human resources, employees are divided into different
groups. The manager may pay little attention to the technical details of the job done by a group
and encourage group cooperation in the interests of a company. Due to the importance of human
resources for the success of a company these days there is a special course for managers how to
select and manage efficiently human resources of a company.

For example:

The Worlds 30 Most Innovative Corporate Human Resources Departments.

From Fortune to Mashable to Glassdoor, Google is consistently ranked as the best company to
work for in the world. What truly makes Google a great place to work is the people. The company
is more than just an Internet juggernaut, its Mountain View, California headquarters offer a seven-
acre sports complex, three wellness centers, indoor roller hockey rinks, horseshoe pits, and over
100,000 hours of subsidized massages doled out each year. Googles philosophy is that with the
right tools, you can attract the best talent, and develop happier and more productive employees.
With these HR efforts, Googles leadership is recognized worldwide.

Factor 6- Labour Unions:

Labour unions are other factor determining internal environment of a firm. Unions collectively
bargain with top managers regarding wages, working conditions of different categories of
employees. Smooth working of a business organisation requires that there should be good relations
between management and labour union.

64
Each side must implement the terms of agreement reached. Sometimes, a business organization
requires restructuring and modernization. In this regard, the terms and conditions reached with the
labour union must be implemented in both letter and spirit of cooperation of workers is to be
ensured for the reconstruction and modernization of business.

For example:

Most of the companies in America has very strong labour unions and their activity today centers
on collective bargaining over wages, benefits, and working conditions for their membership, and
on representing their members in disputes with management over violations of contract provisions
and all these factors causes lots of disturbances and results in loss of hundreds and millions of
dollars.

Factor 7- Physical Resources and Technological Capabilities:

Physical resources such as plant and equipment, and technological capabilities of a firm determine
its competitive strength which is an important factor determining its efficiency and unit cost of
production. R and D capabilities of a company determine its ability to introduce innovations which
enhance productivity of workers.

It is however important to note that rapid technological progress, especially unprecedented growth
of information technology in recent years has increased the relative importance of intellectual
capital and human resources as compared to physical resources of a company.

For example:

Dr. Reddys lab is one of the top pharmaceuticals company in India as well as in the global market
mainly because of their strong research and development wings.

65
RESOURCE BASED VIEW (RBV)

The Resource-Based View (RBV)is a model that sees resources as key to superior firm
performance. If a resource exhibits VRIO attributes, the resource enables the firm to gain and
sustain competitive advantage.

Meaning of Resource Based View-RBV is an approach to achieving competitive advantage that

emerged in 1980s and 1990s, after the major works published by Wernerfelt, B. (The Resource-
Based View of the Firm), Prahalad and Hamel (The Core Competence of The Corporation),
Barney, J. (Firm resources and sustained competitive advantage) and others. The supporters of
this view argue that organizations should look inside the company to find the sources of
competitive advantage instead of looking at competitive environment for it.

The following model explains RBV and emphasizes the key points of it.

Figure 3-Wikipedia

66
According to RBV proponents, it is much more feasible to exploit external opportunities using
existing resources in a new way rather than trying to acquire new skills for each different
opportunity. In RBV model, resources are given the major role in helping companies to achieve
higher organizational performance. There are two types of resources: tangible and intangible.

Tangible assets are physical things. Land, buildings, machinery, equipment and capital all these
assets are tangible. Physical resources can easily be bought in the market so they confer little
advantage to the companies in the long run because rivals can soon acquire the identical assets.

Intangible assets are everything else that has no physical presence but can still be owned by the
company. Brand reputation, trademarks, intellectual property are all intangible assets. Unlike
physical resources, brand reputation is built over a long time and is something that other companies
cannot buy from the market. Intangible resources usually stay within a company and are the main
source of sustainable competitive advantage.

The two critical assumptions of RBV are that resources must also be heterogeneous and immobile.

Heterogeneous. The first assumption is that skills, capabilities and other resources that
organizations possess differ from one company to another. If organizations would have the same
amount and mix of resources, they could not employ different strategies to outcompete each other.
What one company would do, the other could simply follow and no competitive advantage could
be achieved. This is the scenario of perfect competition, yet real world markets are far from
perfectly competitive and some companies, which are exposed to the same external and
competitive forces (same external conditions), are able to implement different strategies and
outperform each other. Therefore, RBV assumes that companies achieve competitive advantage
by using their different bundles of resources.

The competition between Apple Inc. and Samsung Electronics is a good example of how two
companies that operate in the same industry and thus, are exposed to the same external forces, can
achieve different organizational performance due to the difference in resources. Apple competes
with Samsung in tablets and smartphones markets, where Apple sells its products at much higher
prices and, as a result, reaps higher profit margins. Why Samsung does not follow the same

67
strategy? Simply because Samsung does not have the same brand reputation or is capable to design
user-friendly products like Apple does. (Heterogeneous resources)

Immobile. The second assumption of RBV is that resources are not mobile and do not move from
company to company, at least in short-run. Due to this immobility, companies cannot replicate
rivals resources and implement the same strategies. Intangible resources, such as brand equity,
processes, knowledge or intellectual property are usually immobile.

VRIO framework

Although, having heterogeneous and immobile resources is critical in achieving competitive

advantage, it is not enough alone if the firm wants to sustain it. Barney (1991) has identified VRIN
framework that examines if resources are valuable, rare, costly to imitate and non-substitutable.
The resources and capabilities that answer yes to all the questions are the sustained competitive
advantages. The framework was later improved from VRIN to VRIO by adding the following
question: Is a company organized to exploit these resources?

VRIO framework adopted from Rothaermels (2013) Strategic Manageme

Question of Value. Resources are valuable if they help organizations to increase the value offered
to the customers. This is done by increasing differentiation or/and decreasing the costs of the
production. The resources that cannot meet this condition, lead to competitive disadvantage.

Question of Rarity. Resources that can only be acquired by one or few companies are considered
rare. When more than few companies have the same resource or capability, it results in competitive
parity.

Question of Imitability. A company that has valuable and rare resource can achieve at least
temporary competitive advantage. However, the resource must also be costly to imitate or to
substitute for a rival, if a company wants to achieve sustained competitive advantage.

Question of Organization. The resources itself do not confer any advantage for a company if its
not organized to capture the value from them. Only the firm that is capable to exploit the valuable,
Figure 4-Wikipedia

68
rare and imitable resources can achieve sustained competitive advantage.

SWOT IN DETAIL

STRENGTHS

Strengths are positive characteristics of the company or project etc. that gives it an advantage over
the others. Something like a skill or that makes you better than the rest. What you are good at now,
at present. Things that are good now, maintain them, build on them and use them as leverage.
Strengths can be good financial resources, good reputation, good relations, strong market
leadership, experience, strong production base, abundance of manpower etc. When a firm works
on their strengths, they can achieve their goals more effectively and efficiently. Example- Bisleri
has a very strong name when compared to the other brands like Kinley or Bailey water bottles.
This is strength for them.

WEAKNESS

Weakness is a negative characteristic of a company or a project etc. that places the business at a
disadvantage relative to the other businesses. What could you do better? Things that are bad now,
remedy them, change or stop them. Weaknesses can be inadequate infrastructure, less employees
in a huge firm, lack of new updated technology, lack of skills, poor marketing skills, weak focus
on process innovation etc. Its a deficiency in the firm. You need to work on your weaknesses in
order to become a successful firm. Example- Nokia. Nokia which once used to be a market leader
in the mobile industry, lacked new technology; it lacked new innovative products etc. while the
other mobile companies were coming up with latest technology and new and new models of
mobile. This became a weakness for them.

NOTE: One companys strength can be another companys weakness.

OPPORTUNITIES

69
Opportunity is something that is positive or favorable in a firms environment. These are elements
that a business/project can exploit to its advantage. Things that are good for future, prioritize them,
capture them, build on them and optimize them. Opportunities can be new products, new
technologies, identifying previously overlooked market segment, opportunity to expand business
overseas, exports to other foreign countries etc. Example- Maggi & Yippee noodles. Maggis
weakness (downfall due to lead content) became an opportunity for Top Ramen and Yippee
noodles to boost their sales.

NOTE: Someones weakness can become an opportunity for the competitors.

THREATS

Threat is something that is negative or unfavorable in a firms environment. These are elements
that cause trouble for a business or a project. Things that are bad for the future put in plans to
manage them or counter them. Threats can be competition from other similar firms, slow market
growth, sudden change in economy or technology, unstable political and legal systems, old
technology that makes your product or service obsolete etc. Example- Safal & Star Bazar. Safal
has threat from big stores like Star Bazar.

NOTE: Though threats are negative and opportunities are positive, we can turn a threat into an
opportunity. For example, new technology may displace one of the products but it also provides
an opportunity for a new product development or entry of new innovative ideas for the upcoming
product.

STEPS INVOLVED IN SWOT ANALYSIS:

STEP 1- INFORMATION COLLECTION

First list all the strengths that exist now. Then list all the weaknesses that exist now. Be realistic,
avoid modesty. You can conduct one on one interview, or get a group together to brainstorm etc.
You will first want to prepare questions that relate to a specific company or a product that you are
analyzing.

STEP 2- WHAT MIGHT BE

70
List all the opportunities that exist in the future. They are potential future strengths. Then list all
the threats in the future. They are potential future weaknesses.

STEP 3- PLAN OF ACTION

The last step is to review your SWOT matrix with a view to create an action plan to address each
of the four areas.

MERITS & DEMERITS OF SWOT

MERITS

Simplicity- SWOT matrix is a simple easy tool that helps understand the strengths,
weaknesses, opportunities and threats of a company/product/service or an individual.
Flexibility-SWOT is very flexible, it does not confine only to one particular area. SWOT
can be done on a company, a product, a service or even on an individual. Its not done only
on a company.
Lower costs-Since you are just forming a group or as an individual you are doing the
SWOT analysis, no such tools or resources are required to conduct this kind of analysis.
Collaboration- A SWOT helps two or more companies to collaborate or merge in order to
do the business, with the help of SWOTs available.

DEMERITS

Lacks structure- As its too simple and no statistical tools are used in doing the analysis,
this SWOT analysis lacks a proper structure of how things actually need to be done.
Can be too shallow- As you are just listing the strengths, weaknesses, opportunities and
threats, its too shallow and not in depth.
Inadequate/inaccurate data if the data is collected by one person- SWOT is best done with
a group and not alone by an individual. This is because one individual may have different
perspectives when compared to the others.

71
REASONS WHY COMPANIES ARE NOT SUCCESSFUL

There are many reasons why businesses fail. Failure can be rooted in bad management, misguided
leadership, strategic failings, market changes or just bad luck or often a combination of these.
When problems seem hard, quitting seems to be the easiest way out. We all have had set backs in
life, failing does not mean we are failures. Similarly, most firms at some point or the other do fail.
That does not mean they have completely failed. It simply means they have failed to succeed in
whatever they are doing at some point or the other. Various reasons why companies are not
successful could be as follows:

1) POOR PLANNING

The most important document that any business has is its business plan. Where you are today
and where you plan to be in the future. Which documents are needed, what you intend to
achieve during the next 12 months and how you plan to do it. It also involves the marketing
and financial plan of your business. This plan needs to be communicated to everyone in the
business to ensure everyone is working for the same goal. You need to have a proper plan,
proper and clear vision etc. Example- Most of the start-ups fail due to poor planning.

2) LACK OF FUNDS

Funds are basically the life blood of any business, without which a business cannot survive.
Even the most profitable firms can find themselves going out of business because their cash is
tied up in unpaid invoices. Example- Petite Palate.

3) LACK OF INNOVATION

The failure to introduce new innovative ideas/methods/products etc. in the firm is known as
lack of innovation. When a company lacks new ideas, devices or methods it leads to lack of
innovation. One of the reasons companies fail is because they lack innovation in their process
or products while the others come up with new and innovative ideas/products etc. Example-
Xerox.

4) POOR FINANCIAL MANAGEMENT

72
The planning, directing, monitoring, organizing and controlling of the monetary resources of
an organisation is known as financial management. When a company lacks in managing the
same, it is known to have a poor financial management which in turn leads to losses and a
negative net worth. It leads to excessive debt and poor cash flow management systems. A better
financial risk management may mitigate the problem. Example- Kingfisher Airlines.

5) FAILURE TO ADOPT TO LATEST TECHNOLOGY

Latest technology doesnt always mean inventing new technology. It can also mean
adopting/adapting to the new technology that comes in the market. When a company fails to
adapt/adopt to the latest technology, they tend to fail to succeed. While the others go way ahead
in their business. Due to this failure of technology, many companies have missed the boat and
couldnt bring critical new communication technologies into their organisations. Example-
Kodak.

6) UNETHICAL PRACTICES

Only those companies that follow ethical practices will alone survive in the future. Those who
dont will sooner or later face the downfall. Ethical practices help a business survive in the
long run. You may take a shortcut now to make more profits, but sooner or later you will fail
as you have adopted an unethical way to increase your profits. This is why some companies
are not successful. Example- Satyam.

7) MERGER MISTAKES

You merge with another company hoping you could make more profits or get a strong brand
name. But when the merger doesnt turn out to be in your favor, it leads to one of the reasons
why the company couldnt be successful. Example- eBay and Skype

8) POOR LEADERSHIP

A poor leader is one who lacks in some kind of leadership skills, ability or training, qualities
etc. He is someone who doesnt know how to lead the business when the business is undergoing
some kind of hardship. Its because of him and the leadership abilities that he lacks that may
result in the companys failure. Example- Dell

73
 9) POOR CUSTOMER SERVICE

Its a big challenge to keep everyone happy when you are the largest company. In customer
service, it only takes one negative incident to lose a client for life. Poor customer service could
be like failing to greet a customer, hanging up on a customer, avoiding eye contact, being rude,
complaining about the company to the customers etc. Negative experiences leave a bad taste
in the customers mouths for a long time and as long as they have any alternative they will
avoid that particular company. Example- Wal-Mart.

10) WRONG TIMING

Implementing a new product or a new strategy etc. at the wrong time could lead to failure of
the product or strategy. Competitors have already come with have that strategy before you, so
right timing is very important. They should come with such new products or strategies before
the competitors came up with it or shouldnt have done it at all. Example- Jabong and Snapdeal
entered the market after Flipkart. This was an example of entering the market at the wrong
time.

GAP ANALYSIS

A gap analysis is a method of assessing the differences in performance between a Business'

Information Systems or software applications to determine whether business requirements are
being met and, if not, what steps should be taken to ensure they are met successfully.

Gap refers to the space between "where we are" (the present state) and "where we want to be" (the
target state). A gap analysis may also be referred to as a needs analysis, needs assessment or need-
gap analysis.

A gap analysis reports are often used by project managers and process improvement teams. Small
businesses, in particular, can also benefit from performing gap analyses when they're in the process
of figuring out how to allocate resources. In software development, gap analysis tools can
document which services and/or functions have been accidentally left out, which have been

74
deliberately eliminated, and which still need to be developed. In compliance, a gap analysis can
compare what is required by certain regulations to what is currently being done to abide by them.

Steps to conduct a gap analysis

The first step in conducting a gap analysis is to establish specific target objectives by looking at
the company's mission statement, strategic goals and improvement objectives. The next step is to
analyze current business processes by collecting relevant data on performance levels and how
resources are presently allocated to these processes. This data can be collected from a variety of
sources depending on what's being analyzed, such as by looking at documentation, conducting
interviews, brainstorming and observing project activities.

Lastly, after a company compares its target goals against its current state, it can then draw up a
comprehensive plan that outlines specific steps to take to fill the gap between its current and future
states, and reach its target objectives.

Gap analysis model consists of:

While a gap analysis can be either concrete or conceptual, gap analysis templates often have in
common the following fundamental components:

Identifying the current and future state:

Current State: A gap analysis model starts off with a column that might be labelled "Current
State," which lists the processes and characteristics an organization seeks to improve, using factual
and specific terms. Areas of focus can be broad, targeting the entire business; the focus instead
may be narrow, concentrating on a specific business process, depending on the company's outlined
target objectives. The analysis of these focus areas can be either quantitative, such as looking at
the number of customer calls answered within a certain time period; or qualitative, such as
examining the state of diversity in the workplace.

Future State: The gap analysis report should also include a column labelled "Future State," which
outlines the target condition the company wants to achieve. Like the current state, this section can
be drafted in concrete, quantifiable terms, such as aiming to increase the number of fielded

75
customer calls by a certain percentage within a specific time period; or in general terms, such as
working toward a more inclusive office culture.

Describing the gap:

Gap description: This column should first identify whether a gap exists between a company's
current and future state. If so, the gap description should then outline what constitutes the gap and
the factors that contribute to it. This column lists those reasons in objective, clear and specific
terms. Like the state descriptions, these components can either be quantifiable, such as a lack of
workplace diversity programs; or qualitative, such as the difference between the number of
currently fielded calls and the target number of fielded calls.

Bridging the gap:

Next steps and proposals: This final column of a gap analysis report should list all the possible
solutions that can be implemented to fill the gap between the current and future states. These
objectives must be specific, directly speak to the factors listed in the gap description above, and
be put in active and compelling terms. Some examples of next steps include hiring a certain number
of additional employees to field customer calls; instituting a call volume reporting system to
guarantee that there are enough employees to field calls; and launching specific office diversity
programs and resources.

Gap analysis tools and examples:

There are a variety of gap analysis tools on the market, and the particular tool a company uses
depends on its specific set of target objectives. The following are some common gap analysis
methods:

McKinsey 7S Framework: This gap analysis tool, named after consulting firm McKinsey & Co.,
is used to determine specific aspects of a company that are meeting expectations. An analyst using
the 7S model examines the characteristics of business through the lens of seven people-centric
groupings: strategy, structure, systems, staff, style, skills and shared values. The analyst fills in the

76
current and future state for each category, which would then highlight where the gaps exist. The
company can then implement a targeted solution to bridge that gap.

In a nut shell:

Gap analysis consists of -

(1) Listing of characteristic factors (such as attributes, competencies, performance levels) of the
present situation ("what is") to;

(2) Listing factors needed to achieve future objectives ("what should be"), and then;

(3) Highlighting the gaps that exist and need to be filled. Gap analysis forces a company to reflect
on who it is and ask who they want to be in the future.

VIRO

The tool was originally developed by Barney, J. B. (1991) in his work Firm Resources and
Sustained Competitive Advantage, where the author identified four attributes that firms resources
must possess in order to become a source of sustained competitive advantage. According to him,
the resources must be valuable, rare, imperfectly imitable and non-substitutable. His original
framework was called VRIN. In 1995, in his later work Looking Inside for Competitive
Advantage Barney has introduced VRIO framework, which was the improvement of VRIN
model. VRIO analysis stands for four questions that ask if a resource is: valuable, Rare and Costly
to imitateand is a firm organized to capture the value of the resources. A resource or capability that
meets all four requirements

Valuable

The first question of the framework asks if a resource adds value by enabling a firm to exploit
opportunities or defend against threats. If the answer is yes, then a resource is considered valuable.
Resources are also valuable if they help organizations to increase the perceived customer value.
This is done by increasing differentiation or/and decreasing the price of the product. The resources
that cannot meet this condition, lead to competitive disadvantage. It is important to continually
review the value of the resources because constantly changing internal or external conditions can
make them less valuable or useless at all.

77
Rare

Resources that can only be acquired by one or very few companies are considered rare. Rare and
valuable resources grant temporary competitive advantage. On the other hand, the situation when
more than few companies have the same resource or uses the capability in the similar way, leads
to competitive parity. This is because firms can use identical resources to implement the same
strategies and no organization can achieve superior performance.

Even though competitive parity is not the desired position, a firm should not neglect the resources
that are valuable but common. Losing valuable resources and capabilities would hurt an
organization because they are essential for staying in the market.

Costly to Imitate

A resource is costly to imitate if other organizations that doesnt have it cant imitate, buy or
substitute it at a reasonable price. Imitation can occur in two ways: by directly imitating
(duplicating) the resource or providing the comparable product/service (substituting).

A firm that has valuable, rare and costly to imitate resources can (but not necessarily will) achieve
sustained competitive advantage. Barney has identified three reasons why resources can be hard
to imitate:

Historical conditions. Resources that were developed due to historical events or over a long
period usually are costly to imitate.

Causal ambiguity. Companies cant identify the particular resources that are the cause of
competitive advantage.

Social Complexity. The resources and capabilities that are based on companys culture or
interpersonal relationships.

Organized to Capture Value

The resources itself do not confer any advantage for a company if its not organized to capture the
value from them. A firm must organize its management systems, processes, policies,
organizational structure and culture to be able to fully realize the potential of its valuable, rare and

78
costly to imitate resources and capabilities. Only then the companies can achieve sustained
competitive advantage.

INDUSTRY ANALYSIS

Industry and Firm

An Industry can be defined as a group of firms offering products and services that are close
substitutes for each other i.e. they satisfy the same basic customer needs.
A Firm is a business organisation that sells goods or services to make profit.
A Firm is a part of the industry.

Figure 5-Google

Industry Analysis

The basic purpose of industry analysis is to assess the strengths and weaknesses of a firm relative
to its competitors in the industry. It tries to highlight the structural realities of particular industry
and the extent of competition within that industry. Through industry analysis, an organisation can
find whether the chosen field is attractive or not and assess its own position in the industry.

The following aspects are covered under this analysis:

1. Industry Features- Industries differ significantly. So, analyzing a companys industry

begins with identifying the industrys dominant economic features and forming a picture of
the industry landscape. An industrys dominant economic feature include such factors as:
Overall size
Market growth rate
Geographic boundaries of the market

79
 Number and size of competitors
Pace of technological change
Product innovation, etc.

2. Industry Boundaries- All the firms in the industry are not similar to one another. Firms
within the same industry could differ across various parameters, such as:
Breadth of market
Product/service quality
Geographic distribution
Level of vertical integration
Profit motives
Suppose a firm competes in the microcomputer industry. Where do the boundaries of the
industry begin and end?

3. Industry Structure- Industry structure consists of four elements:

a) Concentration- It means the extent to which industry sales are dominated by only a
few firms. In a highly concentrated industry i.e. an industry whose sales are
dominated by a handful of firms, the intensity of competition declines overtime.
High concentration serves as a barrier to entry into an industry, because it enables
the firms to hold large market shares to achieve significant economies of scale
b) Economies of scale- This is an important determinant of competition in an industry.
Firms that enjoy economies of scale can charge lower prices than their competitors,
because of their savings in per unit cost of production. They also can create barriers
to entry by reducing their prices temporarily or permanently to deter new firms from
entering the industry
c) Product differentiation- Real perceived differentiation often intensifies competition
among exiting firms.
d) Barriers to entry- Barriers to entry are the obstacles that a firm must overcome to
enter an industry and the competition from new entrants depends mostly on entry
barriers.

80
4. Industry Attractiveness- Industry attractiveness is dependent on the following factors:
i. Profit potential
ii. Growth prospects
iii. Competition
iv. Industry Barriers, etc.
As a general proposition, if an industrys profit prospects are above average the
industry can be considered attractive; if its profit prospects are below average, it is
considered unattractive.

5. Industry Performance- This requires an examination of data relating to:

i. Production
ii. Sales
iii. Profitability
iv. Technological advancements, etc.

6. Industry Practices- Industry practices refer to what a majority of players in the industry
do with respect to products, pricing, promotion, distribution, etc.

7. Industrys Future Prospects- The future outlook of an industry can be anticipated based
on such factors as:
i. Innovation in products and services
ii. Trends in consumer preferences
iii. Emerging changes in regulatory mechanisms
iv. Product lifecycle of the industry
v. Rate of growth, etc.
8. Industry Environment- Based on their environment, industries are basically of two types:
a) Fragmented Industries- A fragmented industry consists of a large number of small
or medium sized companies, none of which is in a position to determine in a position
to determine industry price. Many fragmented industries are characterized by low
entry barriers and commodity type products that are hard to differentiate.

81
 b) Consolidated Industries- A consolidated industry is dominated by a small number
of large companies (an oligopoly) or in extreme cases, by just one company (a
monopoly). These companies are in a position to determine industry prices. In
consolidated industries, one companys competitive actions or moves directly affect
the market share of its rivals and thus their profitability. When one company cuts
prices, the competitors also cut prices. Rivalry increases as companies attempt to
undercut each others prices or offer customers more value in their products, pushing
industry profits down in the process.

Industry Life Cycle Analysis

Figure 6-Google images

1. Embryonic Stage
Investment and capital needs are highest as the industry has just started. Returns
are low and uncertain.
Companies are first movers and fast followers who have to generate capital
internally or attract outside capital usually from venture capitalists
Technology is yet unproven and not standardized

82
 Demand is being established, customers lack information and are hesitant to try out
new products or services
Business models are unproven; business uncertainty is high and managerial
decisions involve high risks.
2. Growth Stage
Investment and capital needs decrease but gradually. Returns are high.
Technology gains a firm footing and standardization increases
Demand is established, customers gain information and learn to differentiate
between the product offerings.
Business models take shape and business is on more secure footing and managerial
decisions involve moderate risks.
Market share of incumbent companies increases; new basis for market
segmentation emerge
3. Maturity Stage
Investment and capital decrease significantly. Returns are lower and stabilized.
Technology developments are few and standardization is high
Demand is stable, customers are well aware of the options available and have learnt
to choose and differentiate.
Business models are well established.
Market shares of companies are steady and jealously guarded.
Industry gets consolidated and is dominated by a small number of large companies.

4. Decline Stage
Investment and capital practically cease. Returns decline.
Technology developments becomes superfluous.
Demand shrinks and it becomes difficult to attract new customers.
Products tend to become commodities and lose their brand power
Market shares reduce in size as industry demand shrinks
Industry faces movement of firms through retrenchment strategies.

83
PORTERS FIVE FORCE MODEL

Introduction

1. It was developed by Michael E. Porter

2. It talks about the 5 forces that shape competition in an Industry
3. Used to study the level of competition in an Industry
4. It takes into consideration the firms operating environment

Porters Five Forces

1. Threat of New Entrants

2. Bargaining Power of Suppliers
3. Bargaining Power of Customers
4. Threat of Substitutes
5. Industry Rivalry

1. THREAT OF NEW ENTRANTS

If there are new entrants in a particular industry, this would be a threat to an existing firm.
This would mean that there is more competition in an industry and the company will find it
difficult to retain customers and to have a competitive edge over the competitors. This would
also hinder the profits of the company as there would be increased price wars. The following
factors determine the degree of threat from a new entrant:

Entry Barriers
If entry barriers such as high fixed costs and strict government policies in an industry
is high, then it would be difficult for a new player to enter into the market and would
benefit the existing firms.

Economies of Scale

84
 If an industry provides economies of scale then it would seem attractive to many to
enter this market. This means that if mass production reduces costs per unit, then it is
favorable.

Low Switching Costs

If the switching costs are low, then it is a threat. This means that if there is minimal or
no cost for a consumer to shift from an existing brand to a new brand, this would
threaten the existing brands. Switching costs would include installation charges,
purchase of other supplementary materials, etc.

Product Differentiation
If the products or services of the new entrants are highly differentiated then it would
pose as a threat to existing companies. Likewise, if the products and services of the
existing company is highly differentiated then it would not be threatened by the new
entrants.

2. BARGAINING POWER OF SUPPLIERS

(Also called market inputs)

If the bargaining power of suppliers is good, this would be bad for a firm. This means that if
the supplier can bargain well, he would refuse to reduce his prices and therefore the costs of
the company would increase (since suppliers provide Raw Materials). This would reduce the
profit margins. This is also why it is known as market inputs as suppliers provide inputs i.e.
raw materials to produce goods and services. The following factors would affect the degree
by which suppliers affect Businesses.

Supplier Competition
If there is increased competition between suppliers means they would try to provide
the best materials at the best prices. This would be beneficial for the firm.

Strength of Distribution Channel

85
 If the distribution channel of a supplier is good, then he would command a higher price.
This would negatively affect the firm in terms of finances.

Supplier Concentration to Firm Concentration Ratio

If the no. of suppliers in an industry in low, and the no. of firms in the industry is
relatively higher, this would mean that suppliers would command higher prices as they
would have a kind of monopoly in the market. This would again increase costs for the
firm.

Employee Solidarity
If there are strong labour unions and high demands of employees, this would be bad for
the firm. It would increase costs and probably reduce the working hours.

3. BARGAINING POWER OF CUSTOMERS

(Called as market outputs)

If the Bargaining power of customers is good, this would be bad for the firm. This means
that customers refuse to buy products of a particular quality or of a particular price. The
firm would then be compelled to spend more on quality or reduce the price, both reducing
the profit margins of the firm. The following factors determine the degree by which the
bargaining power of customers would affect the firm:

Large Volumes
If there is a large number of customers that do not buy the firms products, this would force
the company to reduce prices. However, if the volumes of the products are very high
compared to the no. of people who do not buy the product, the firm would be unaffected
and would not reduce its prices.

Price Sensitivity
If the customers are highly price sensitive, it would affect the firm. This means that if the
competitor reduces the prices of products and this results in a switch to competitors

86
 products, this would negatively affect the firm. However, if the competitor increases its
price and this leads to an increase in sales of the firm, this is good for the firm.

Wide Variety of Product

If the firm provides many variants of its products depending on the needs of the customer,
this would make the customers more loyal benefiting the firm.

If there is a wide range of variants of a product with respect to features and price existing
in a market, this would make customers less and less loyal to the firms products. This is
because they have many other options from various brands.

Low Switching Costs (previously explained)

4. THREAT OF SUBSTITUTES
Presence of substitute products provides a wider range of options to the customer.
However, it limits the profits of the firm during normal times. During a boost in the
economy, it reduces the bonanza amount a firm could have earned. Substitutes reduce
the chance of a firm to tend towards a monopolistic competition.

Following factors affect the firm:

Buyers propensity to substitute

If the buyers propensity to substitute is high, this is bad for the firm. This means that
the buyers are easily likely to switch from the firms product to a substitute product
(given any change in the market or products).

Switching Costs

High product differentiation:

87
 High product differentiation of the firm would reduce the degree of threat a firm would
face from substitutes

Ease of Substitution:
Ease of Substitution means that the firms product differentiation is low and that it can
easily be substituted

Availability of a close substitute would pose as a threat to the firm

5. INDUSTRY RIVALRY

Intensity of Competition of an Industry affects the performance of the firm

The following factors affect the competition

Industry Growth is Slow

If industry growth is slow, the intensity of competition would also be low

Lack of Product Differentiation

If product differentiation is high for the firm, this would reduce the intensity of
competition

Perishable Product
Products which do not have a long shelf life face a threat from products that last longer,

High Exit Barriers

If the exit barriers such as high fixed costs are present, this would discourage firms
from leaving the industry, thus maintaining competition.

88
SIX SIGMA

Introduction

Six Sigma is a set of techniques and tools used for process improvement

Six Sigma was developed at Motorola by Engineer Bill Smith. It was primarily developed to
improve the manufacturing process. Eventually, it was applied to various fields such as Medicine,
Marketing, Services, etc.

Definition

Six Sigma is a disciplined, data-driven approach and methodology for eliminating defects in any
process from manufacturing to transactional and from product to service

SIX SIGMA AIMS TO:

Identify and remove the causes of defects.

Six Sigma helps reduce the number of defects in any given process. This can be done once
defects are identified. Post this, removal or reduction of these defects is done.

Minimize variability in processes

This mean that a uniformity is aimed for in every single process/product/service. It aims
for standardization.

3.4 defects per million opportunities

If there are 3.4 defected soaps out of 10, 00,000 soaps produced, six sigma is said to have
been achieved.

Achieve virtually error free business performance.

If there are 3.4 defects in every 10, 00,000 this means that the defect/error is only
0.0000034% which is as good as zero or as good as saying there are no defects at all.

89
Sigma - degree of variability there is within a group of items. The more variation there is, larger
is the standard deviation. Therefore a lesser variability is more desirable as it would indicate more
uniformity or less errors.

FEATURES OF SIX SIGMA

A clear focus on achieving measurable and quantifiable financial returns from any six
sigma project

An increased emphasis on strong and passionate Management leadership and support

A clear commitment to making decisions on the basis of verifiable data and statistical
methods, rather than assumptions and guesswork

SIX SIGMA IS:

1. Data and fact driven

2. Focuses on customer as it aims to provide error free products and services
3. Requires focus on process, management and improvement
4. Requires teamwork and proactive management

SIX SIGMA HELPS A COMPANY TO:

1. Generate sustained success

This means that the standards must be maintained after achieving six sigma

2. Set performance goal for customers

Aim to do well in order to serve customers better

3. Achieve an Accelerated rate of Improvement

90
 Constant attempts to improve and have increasing growth

4. Promote learning
Learn from mistakes and work on them. Adapt to change

5. Execute Strategic Change

Have a well framed plan or strategy to make changes and improvements

METHODOLOGIES OF SIX SIGMA

1. DMAIC

Define, Measure, Analyze, Improve, Control

For Existing processes that are falling below specifications

Incremental Improvements (small improvements)

2. DMADV

Define, Measure, Analyze, Design, Verify

Used to develop new processes or products of 6 quality levels

Can be employed to a current process if it requires more than just incremental

improvements

TOOLS USED

Analysis of Variance -ANOVA

Regression Analysis

91
 Correlation

Scatter Diagram

Chi-squared test

Cause and effect (Fishbone Diagram)

Taguchi Methods

And various other tools.

ANALYSING RESOURCES, CAPABILITIES, AND CORE COMPETENCIES:

COMPETITIVE ADVANTAGE

Resources:

Core defining resources

These are the resources that define/reflect on what the firm is producing or in other
words the resources which define the core activity of the firm.

Accumulation of resources
These resources define what the firm can do now and what, with some adjustment, in
the future it might be able to do.

Transformation
Enterprises have to renew themselves if they are to survive, to make such a
transformation requires a set of resources appropriate to the new situation; it may be
difficult to put together these resources. There is a major risk of failure in so doing.

Resource based approach

For the above three reasons poses an impossible task to identify an advantageous
position for the firm without comparing its existing resources with those needed for
positioning.

92
 An alternative to the positioning approach is first to define the resources available to
the enterprise and then consider what these resources allow the enterprise to do this
is known as the resource-based model. Resources offer both opportunity and constraint.

Resource audit:
Resource audit helps the company to keep track of its resources such as both tangible
and intangible resources in such a manner that it can easily combine its available
resources to create new capabilities.

Capabilities:

Definition: The combination of the resources.

Example: Charles Schwab and online
Figure 7-broking
Adapted from Bowman and Faulkner, 1996

In the above example, the company utilizes its existing resources and also its intangibles
and creates a new entity called Schwab online and becomes one of the market leaders.

How Do We Attain Capabilities?

93
 1. Recombining resources as new capabilities:
Recombining the resources which the company has at its disposal so as to create a new capability
with each and every possible combination of its resources.

2. The more general a capability, easy to adapt to new environment. More specific, more
difficult to change them.
If the capability is confined/constructed for a specific purpose, then it is difficult for the company
to derive more possible capabilities out of the resources allocated to that specific function. In the
case of a general capability, the company can utilize the resources allocated towards that capability
to obtain more number of combinations of its resources and henceforth leading to generation of
more number of capabilities.

3. Leveraging existing resources:

Achieving clear and specific strategic objectives by concentrating on interlinked
appropriate capabilities.
Accumulating any other resources needed. This is first done internally in
recognising the existing resources so as to reduce the cost of its acquisition
externally.
By putting together potentially complementary resources.
By conserving existing resources, redirecting them towards new capabilities which
help the company in deriving competitive advantage.

Core competency:

A core competency is a strategic capability, that is, a capability which has strategic value. A
company/firm can have many capabilities but it is not advisable for a company to have more
competencies because it might lead to hampering its competitive advantage.

94
The term core refers to the role of the competency in strategy and indicates that the competency
is central to that strategy.

The five point check to identify a capability as core competency:

Superiority
The firm's capability must be greater than the other firm's capability in that industry.
Inimitability
Though the capability might not be unique, it must be either very expensive to imitate
or the other firm must spend a long period of time in achieving it.
Durability
The competency may be of transitory uniqueness, in which case the competitive
advantage is only short lived and of little value. The presence of durability makes
advantage sustainable and above normal profit a real possibility.
Appropriability
o Can the enterprise take full advantage of the value created by the competency, or do
others also benefit? Does the competency have any characteristics of a public good so
that it is a common good, which others can share? Even if it is not a common good,
can other stakeholder groups capture some part of the benefit? If the asset could be
acquired in the market, would the operation of a competitive market compete away any
rent and the seller rather than the buyer gain from the value created.
o If there is a genuine core competency, the answer to all these questions is no. There is
no common good aspect and the market is imperfect, who is able to earn the rent from
a particular asset or competency? The assumption is that all the gains are made by the
enterprise.
Substitutability
No other company, through its own strategies and capabilities, should not be able to
substitute the competency of the firm.

Competitive advantage:
Meaning:

95
 The advantage that a firm/ organization/ company has over its rival in achieving the same
target.

3Cs:
Cause: Caused from its own core competencies.
Characteristic: Is to serve the ultimate target in a better manner.
Consequence: Achieving above normal profits and being a market leader and being ahead of the
competitors.

Need for Competitive Advantage

Aim of these strategies for developing competitive advantage is to maximize the economic value
added not just by the enterprise but in the whole chain of value adding activities.

Methods for attaining competitive advantage

There are two generic methods.
Cost leadership
Product differentiation.

In the above image 6, 7 & 8 are left because of its infeasibility and impracticality.

96
1, 2 Shows both the cost leadership and focused cost leadership whereas 4, 5 states about the
product differentiation and focused product differentiation and 3 is nothing but the hybrid (mix of
both the cost leadership and product differentiation).

Competitive advantage and market structures.

Acquire/merge with competitors.
Drive other enterprises out of business.
Persuade the consumers to buy its products.
Persuade the government to change the rules in favour of the company.
Note: These strategies are effective only in imperfect market conditions and not in perfect
competitive market conditions as because in perfect competition no single firm nor a single
customer can influence neither the supply nor demand which in turn influences the price.

Cost Leadership:

Essentials:
Need to know the cost structure of the competitors. And this is a closely guarded secret.
Done in two ways
Reverse engineering: where the company tries the backward process of engineering
to figure out the cost structure.
Causal ambiguity: where the competitor never knows how the other company is
maintaining its costs so low.
A choice of new technique/technology defining the cost parameters: This happens when
there is a new area that is being explored and there is no previous cost experience in that
area, then the amount spent will define a new parameters for cost.
Usage of knowledge and skill of the individuals in their own domain and motivating them
to keep the costs low.
Examples: Haier, Southwest Airlines.

97
Cost drivers:
Driving the costs downhill.

Seven activities have been recognized as cost drivers.

Out of the seven, four are attained through experience. They are:
Economies of scale/scope.
Economies of learning.
Improved production techniques.
Improved product design.

The other three are as follows:

Reducing input costs:
Location
Ownership
Bargaining strength
Cooperation.
Increased capacity utilization: effective utilization of the capacity of its resources.
Squeezing till the last droplet.
Reducing slack/surplus resources (mainly idle in nature and which incurs more cost) which
help in reducing the company's fixed costs.

Pricing strategy:
Aggressive v/s Tame.

Active v/s Passive.

98
A firm should never play with its prices, if at all it happens to be more varying, it might lose its
customers. In here, aggressive means where the firm's pricing will drive the other firm out of the
business the firm takes the lead on pricing. The firm which adopts or follows the pricing strategy
of the other firm is called as 'tame'.
Active means where the firm is frequently changing its price and the passive is just the
opposite of the active strategy.
It is more advisable for a firm to follow either B or C as the other two are extremes and
poses a big threat of failure in the future.

Product Differentiation.

The key strategic problem in product differentiation is...

How do I persuade the consumer that I have a superior product????
The process of distinguishing a product or offering from others, to make it more attractive to a
particular target market vis-a-vis competitors' products as well as a firm's own product offerings

The product is differentiated on the lines of a slight variation in the homogenous products and at
the same time a product is differentiated in consumers' perspective.

Why do we need to differentiate a product?

As a part of attaining competitive advantage it is better to use this strategy when the firm cannot
use cost leadership as it might prove too risky for a newly formed company.
Though the company is also producing a same product, it is and it must differentiate its product
from others so as to stay in the race.

Basis of differentiation:
Attributes of the product or service

99
 Relationship between the firm and its customers
Linkages between/within firms

Differentiation factors:
Product
Service offered
Logo
Channel of distribution
Personnel
Demographic Features
Age, gender, geographical area, income, education, political factors etc.

100
 UNIT 4

STATEGIC BUSINESS UNITS

101
Definition

A strategic business unit is a grouping of business units based on some important strategic elements
common to each: a closely related strategic mission, a common need to compete globally, and
ability to accomplish integrated strategic planning, common key success factors, and
technologically related growth opportunities.

Organizational growth may ultimately require that related product lines be grouped into division
and that the division themselves then be grouped into strategic business units (SBU). Strategic
business units are absolutely essential for multi product organizations. These business units are
basically known as profit centers. They are focused towards a set of products and are responsible
for each and every decision / strategy to be taken for that particular set of products. Many
companies feel that a functional organizational structure is not an efficient way to organize
activities so they have re-engineered according to processes or strategic business units(SBUs). An
SBU is a semi-autonomous unit that is usually responsible for its own budgeting, new product
decisions, hiring decisions, and price setting. An SBU is a profit center which focuses on a product
offering and a market segment. SBUs typically have a discrete marketing plan, analysis of
competition, and marketing campaign, even though they may be part of a larger business entity.
An SBU may be a business unit within a larger corporation or it may be a business unto itself.
Corporations may be composed of multiple SBUs, each of which is responsible for its own
profitability. General Electric is an example of a company with this sort of business organization.
SBUs are able to affect most factors which influence their performance. Managed as separate
businesses, they are responsible to a parent corporation. Companies today often use the word
segmentation or division when referring to SBUs or an aggregation of SBUs that share such
commonalities.

Strategic business units can be best explained with an example.

Example of Strategic business units The best example of strategic business unit would be to take
organizations like HUL, P&G or LG in focus. These organizations are characterized by multiple
categories and multiple product lines. For example, HUL may have a line of products in the

102
shampoo category; Similarly LG might have a line of products in the television category. Thus to
track the investments against return, they may classify the category as a different SBU itself.

Features

i. Empowerment of the SBU Manager Several times the empowerment of SBU managers
is crucial for the success of the SBU / products. This is mainly because this manager is the
one who is actually in touch with the market and knows the best strategies which can be
used for optimum returns. Thus several times, the SBU manager might need a higher
investment for his products. At such times the manager should be supported from the
organization. Only this confidence will help the manager in the progress of the SBU.
ii. Degree of Sharing of one SBU with Another This point is directly connected to the
first one. What if one SBU needs some budget but the same is not offered because the
budget is being shared by 2 other SBUs and as it is the budget is short. Thus the first SBU
does not get the independence to implement some important strategies. Similarly there
might be other restrictions applied to one SBU as it is using some resources which are
shared by another SBU. This might not always be negative. Of one SBU gains more profit
than usual, this revenue might also become useful for the other SBU thereby promoting
growth of both of them. This is where sharing actually plays a positive role.
iii. Changes in the Market An SBU absolutely needs to be flexible because it needs to adapt
to any major changes in the market. For example if an LCD manager knows that LEDs
are more in demand now, he needs to communicate to the top management that he would
also like a range of LED products to make the SBU even more profitable. Thus by adding
LED to its portfolio, the SBU can immediately become double profitable. Thus by
adjusting to change on SBU levels, the organization as a whole can become profitable.

4.3 The Purpose of SBU

103
 i. To decentralize initiative to smaller units within the corporation so SBUs can pursue their
own distinct strategy

ii. To allow large corporations to vary their business strategies according to the different needs
of external markets

iii. To encourage accountability each SBU can be held responsible for the success or failure
of its own strategy.

Importance

i. SBUs Make You Organized The first principle of time management is to get organized.
Similarly, one of the first things you got to do is to see your organization clearly. And that
can happen only if you are organized. If one of your marketing managers is handling 34
different products, then definitely he is going to get confused with operating all of them.
The strategies might be hazy; there will be no time for creativity or innovation and all the
time will be spent in just handling the existing work rather than expansion. Thus the first
thing SBUs do is they help you get organized.
ii. Micro Manage Naturally once you are organized, you can micro manage things. Just
take an example of large companies like HUL and P&G (the best examples of multi product
organizations). They have at least 30 different products at all times. Each of them requires
separate manpower, strategies, expenses and returns. Thus this needs micro managing of
the highest aspect. With SBUs another factor which is very important is focus. Micro
managing helps you focus on each and every product separately.
iii. STP (Segmentation, Target and Positioning) The success of a product depends on its
segmentation targeting and positioning. Each of these processes requires being
continuously in touch with the market, receiving feedback, identifying your target market,
targeting them and then positioning accordingly. Thus these are humongous tasks if you
have to do them for each and every product and if you are handling more than 5 products
at any time. Therefore dividing products into SBUs helps you stay in touch of the market
separately for each and every product. Thus a marketing manager / sales manager may be

104
 assigned one product at a time and will be responsible for that product itself. Thereby he
may give valuable contribution in maintaining the STP of a product in the target market.
iv. Investments The best reference for investments in SBUs can be the BCG matrix. In the
BCG matrix, the SBUs are divided as per their market share and the market growth rate.
Thus depending on the BCG matrix, the type of investments which each product needs can
be decided. This is possible only if each product is treated as a completely different SBU.
This SBU may be a composition of one category of product (such as shampoo) or in case
of larger organizations it may even be one single type of product (such as LED or LCD
televisions)
v. Decision Making The better performing businesses are supposed to handle the load of
any newly starting business or any business which is undergoing a slump. However, if one
of this revenue generating SBUs gets hit, how would you manage the cash crunch? Well
these are decisions which need to be made and for them you need to have the figures for
each type of product / SBU. Thus SBUs also propagate the correct decision making. These
decisions can be at the micro level (as explained above managing STP, strategies) or they
can be at the macro level (investments from the corporate fund, whether to continue
investing?).
vi. Profitability By micro managing each and every product and dividing it into SBUs, we
can obtain a holistic view of the organization. This view is also used in preparing the
financial statements as well as to keep tabs on the investments and returns for the
organization from each SBU. Thus the overall profitability of the firm can be decided.

Thus these 6 reasons along with several others show us the importance of both Micro managing
as well as macro managing a multi product organization. Overall success of the organization is
possible only if it knows how to run its product portfolio and this is exactly where SBUs come in
play

Advantages

105
There are several advantages of strategic business units in an organization.

i. Responsibility One of the first roles of strategic business units is to assign responsibility
and more importantly outsource responsibility to others. With this, the top management
has an overview of work being done in each individual unit and they do not have to get
involved in day to day activities for these strategic business units.
ii. Accountability When handling multiple brands or products, it is easier if there are
separate business units which are accountable for the success or failure of the business or
product. By making these business units accountable, the company can directly take a call
when hard decisions are to be taken.
iii. Accountancy Profit and loss and balance sheets will look prettier and more manageable
if the statements are prepared separately for separate strategic business units. This makes
the accountancy more transparent and at the same time, when companies have to make
investment decision than this accountancy will come in use for the company.
iv. Strategy Companies like Nestle have 4 different strategic units. One SBU like Maggie
deals in Food products, other deals in Dairy products like Nestle milkmaid, the third SBU
deals in Chocolate products like Kitkat so on and so forth. Thus, in the above example, it
is very simple to change strategy for each business unit because the strategy for each is
independent of the other.
v. Independence The managers of the strategic business units get more independence to
manage their own unit which gives them the opportunity to be more creative and innovative
and empowers them for making decisions. The best thing that can happen for SBUs are
fast decision making which is possible only when these SBUs are given independence to
work by themselves.
vi. Funds allocation The last but not the least advantage of strategic business units are that
funds allocation becomes simpler for the parent company. Depending on the performance
of the SBU, funds allocation can be done on priority.

Operational Strategy

106
A plan of action implemented by a firm that describes how they will employ their resources in the
production of a product or service. An operational strategy is a necessary element for a business
and supports the firm's corporate strategy.

i. Balanced Scorecard Basics

The balanced scorecard is a strategic planning and management system that is used extensively in
business and industry, government, and nonprofit organizations worldwide to align business
activities to the vision and strategy of the organization, improve internal and external
communications, and monitor organization performance against strategic goals. It was originated
by Drs. Robert Kaplan (Harvard Business School) and David Norton as a performance
measurement framework that added strategic non-financial performance measures to traditional
financial metrics to give managers and executives a more 'balanced' view of organizational
performance. While the phrase balanced scorecard was coined in the early 1990s, the roots of the
this type of approach are deep, and include the pioneering work of General Electric on performance
measurement reporting in the 1950s and the work of French process engineers in the early part of
the 20th century. Gartner Group suggests that over 50% of large US firms have adopted the BSC.
More than half of major companies in the US, Europe and Asia are using balanced scorecard
approaches, with use growing in those areas as well as in the Middle East and Africa. A recent
global study by Bain & Co listed balanced scorecard fifth on its top ten most widely used
management tools around the world, a list that includes closely-related strategic planning at
number one. Balanced scorecard has also been selected by the editors of Harvard Business Review
as one of the most influential business ideas of the past 75 years.

The balanced scorecard has evolved from its early use as a simple performance measurement
framework to a full strategic planning and management system. The new balanced scorecard
transforms an organizations strategic plan from an attractive but passive document into the
"marching orders" for the organization on a daily basis. It provides a framework that not only
provides performance measurements, but helps planners identify what should be done and
measured. It enables executives to truly execute their strategies.
This new approach to strategic management was first detailed in a series of articles and books by
Drs. Kaplan and Norton. Recognizing some of the weaknesses and vagueness of previous
management approaches, the balanced scorecard approach provides a clear prescription as to what
107
companies should measure in order to 'balance' the financial perspective. The balanced scorecard
is a management system (not only a measurement system) that enables organizations to clarify
their vision and strategy and translate them into action. It provides feedback around both the
internal business processes and external outcomes in order to continuously improve strategic
performance and results. When fully deployed, the balanced scorecard transforms strategic
planning from an academic exercise into the nerve center of an enterprise.

Kaplan and Norton describe the innovation of the balanced scorecard as follows:
The balanced scorecard retains traditional financial measures. But financial measures tell the story
of past events, an adequate story for industrial age companies for which investments in long-term
capabilities and customer relationships were not critical for success. These financial measures are
inadequate, however, for guiding and evaluating the journey that information age companies must
make to create future value through investment in customers, suppliers, employees, processes,
technology, and innovations.

ii. Perspectives

The balanced scorecard suggests that we view the organization from four perspectives, and to
develop metrics, collect data and analyze it relative to each of these perspectives:

The Learning & Growth Perspective

This perspective includes employee training and corporate cultural attitudes related to both
individual and corporate self-improvement. In a knowledge-worker organization, people -- the
only repository of knowledge -- are the main resource. In the current climate of rapid technological
change, it is becoming necessary for knowledge workers to be in a continuous learning mode.
Metrics can be put into place to guide managers in focusing training funds where they can help the
most. In any case, learning and growth constitute the essential foundation for success of any
knowledge-worker organization. Kaplan and Norton emphasize that 'learning' is more than
'training'; it also includes things like mentors and tutors within the organization, as well as that
ease of communication among workers that allows them to readily get help on a problem when it
is needed. It also includes technological tools; what the Baldrige criteria call "high performance
work systems."

108
 The Business Process Perspective

This perspective refers to internal business processes. Metrics based on this perspective allow the
managers to know how well their business is running, and whether its products and services
conform to customer requirements (the mission). These metrics have to be carefully designed by
those who know these processes most intimately; with our unique missions these are not something
that can be developed by outside consultants.

The Customer Perspective

Recent management philosophy has shown an increasing realization of the importance of customer
focus and customer satisfaction in any business. These are leading indicators: if customers are not
satisfied, they will eventually find other suppliers that will meet their needs. Poor performance
from this perspective is thus a leading indicator of future decline, even though the current financial
picture may look good. In developing metrics for satisfaction, customers should be analyzed in
terms of kinds of customers and the kinds of processes for which we are providing a product or
service to those customer groups.

The Financial Perspective

Kaplan and Norton do not disregard the traditional need for financial data. Timely and accurate
funding data will always be a priority, and managers will do whatever necessary to provide it. In
fact, often there is more than enough handling and processing of financial data. With the
implementation of a corporate database, it is hoped that more of the processing can be centralized
and automated. But the point is that the current emphasis on financials leads to the "unbalanced"
situation with regard to other perspectives. There is perhaps a need to include additional financial-
related data, such as risk assessment and cost-benefit data, in this category.

Role of Operations Strategy

i. To Ensure Quality

109
 ii. To Implement Speedy Production
iii. To Ensure Dependable Products
iv. To Make Processes Flexible
v. To Reduce Costs

Competitive Advantage and Operations Strategy

i. Through Low Costs
ii. Through Differentiation
iii. Through Flexibility And Variety
iv. Through Short Lead Time
v. Through Innovation
vi. Through Superior Services

Technology strategy
Technology refers to the body of scientific knowledge used in the production of goods and
services.

Technology comprises equipment, processes, and people that are used to produce products. A
companys technological capabilities and the way it uses technology to serve customers will
increasingly decide whether a company will succeed or not.

Technology strategy

A technology strategy is a set of decisions related to the use and development of technology
intended to confer advantage to the firm. It is a part of more comprehensive competitive strategy
of the firm.

Choice of technology affects the following:

Scale of operations

Location

Level of personnel skills and training

Scheduling

Tooling

Maintenance

110
 Safety

Example: Sholes and Glidden typewriter

Benefits of Technology Strategy

First, having a technology strategy helps to guarantee compatibility between products and
their complements.

Example: Google search for Google.

Second, having a technology strategy gives a proper direction to the optimum use of
technology.

Third, the emergence of a technology strategy can help to reduce production costs. Once a
technology strategy emerges, products based on that strategy design can be mass-produced,
enabiling manufactures to realize substantial economies of scale and lower their cost
structures.

Fourth, the emergence of technology strategy can help to reduce risks associated with
supplying complementary products and thus increasethe supply for those complements.

Process of Establishing a Technology strategy

Understand the nature of the product

Asses the kind of technology to be used and its requirements

Understand and compare cost verses benefit of the technology

Ease of availability of technology

Select the best possible technology

Scheduling ,usage and maintenance requirement

Implementation of technology strategy

Ways of Implementing a successful Technology Strategy

1) Ensure a supply of complements

111
It is important for the company to make sure that, in addition to the product itself,

There is an adequate supply of complements. Companies normally take two steps to

Ensure an adequate supply complements

1) They may diversify into the production of complements and seed the market with

Sufficient supply to help jump-start demand for their format.

2) Companies may create incentives or make it easy for independent companies to

Produce complements.

Example: Reynolds pens and refills

2)Leverage killer applications

Killer applications are applications or uses of a new technology or product that are so compelling
that they are persuade customers to adopt the new format technology in droves, thereby killing
demand for competing formats. Killer applications often help to jump -start demand for the new
strategy.

Example:the killer applications that induced customer to sign up to online services such as AOL
(American online ltd) in the 1990s were e-mail, chat rooms, and the ability to browse the web.

3)Cooperate with competitors

Companies have been close to simultaneously introducing competing and incompatible

technological strategy a number of times.

Example:Sony- Philips compact disc

4) License the format

Another strategy often adopted is to license the format to other enterprise so that they can produce
products based on It.the Company that pioneered the format gains from the licensing fees that flow
back to it and from the enlarged supply of the product, which can stimulate demand and help
accelerate market adoption.

Example:Sholes and gllidens typewriter

112
Technological Paradigm Shifts
Paradigm shift

A paradigm shift is a major change in how some process is accomplished

Technological paradigm shifts

Technological paradigm shifts occur when new technologies come along that revolutionize the
structure of the industry, dramatically alter the nature of competition, and require companies to
adopt new strategies to survive

Example: Lazer jet printer

Limitations of technology strategy

Time consuming technology strategy is more time consuming because it requires more
time to adopt new technology strategy and for its implementation.

Lack of Expertise-its very important for every oragnisation to have employees who has
knowledge about technology. Lack of expertise will result in poor implementation of
technology strategy.

Technology strategizing is comparatively more expensive than formulating other

strategies.

Sudden paradigm shifts-technology paradigm shift is one of the main problems faced by
every organization .The companies should be the position to adopt new technology to
survive in the market for long run.

Financial Strategy
Financial strategy examines the financial implications of corporate and business level strategic
options and identifies the best financial course of action. It can also provide competitive advantage
through a lower cost of funds and flexible ability to raise capital to support a business strategy. It
usually attempts to maximize the financial value of the firm. A financial strategy enables your
organization to assess your financial needs and the sources of support required to meet your
objectives and fulfill the organizational mission, whilst also planning for continued growth to

113
enable stability. A financing strategy is integral to an organizations strategic plan. It sets out how
the organization plans to finance its overall operations to meet its objectives now and in the future.

Components of a Financial Strategy

When making a financial strategy, financial managers need to include the following basic
elements. More elements could be added, depending on the size and industry of the project.

i. Startup Cost: For new business ventures and those started by existing companies. It
includes new fabricating equipment costs, new packaging costs, marketing plan etc.
ii. Competitive Analysis: analysis on how the competition will affect your revenues.
iii. Ongoing Costs: It includes labor, materials, equipment maintenance and shipping and
facilities costs.
iv. Revenue Forecast: It is conducted over the length of the project, to determine how much
will be available to pay the ongoing cost and if the project will be profitable.

Financial Management Strategies

There are mainly two types of financial management strategies and are as:

1. Strategy for Capital Acquisition

It is concerned with formulating strategy for capital structure, procurement of working capital,
working capital borrowings etc. It addresses various questions such as:

i. Can we grow by relying on only internal cash flows?

ii. Do stock sales dilute ownership control?
iii. Does a large debt ratio cripple future growth?
iv. Does strong leverage boost earnings per share?
v. Does high debt deter takeover attempts?

There are mainly two types of financing for capital acquisition and are as follows:

Equity Financing: It is way of raising capital by selling company stock to investors and in return
they receive ownership interest in the company. For example, issue of equity shares.

Debt Financing: It is a way of raising finance by borrowing money and not giving up ownership.
It is raised through selling bonds, debentures, bills etc. to individuals and institutions.

114
 2. Strategy for Resource Allocation

The resource allocation is concerned with how to allocate the scarce resources available in the
business effectively to achieve the desired goals of the organistaion. It is concerned with allocating
the surplus cash available in the organization. Some companies reinvest the profit available in the
business while others distribute it as dividends to shareholders. Usually fast growing companies
reinvest the profit and others that do not face rapid growth declare consistent dividends to
shareholders. Also, the companies use stock splits and reverse stock splits to maintain high stock
prices.

Strategic Financial Decisions

The following are the strategic financial decisions:

1. Investment decisions

For a financial manager in an organization this will be mainly regarding the selection of assets
which funds from the firm will be invested in. These assets will be acquired if they are proven to
be strategically sound and assets are classified into 2 classifications:

Long Term Assets - Capital budgeting investment decisions

Financial managers in this field must select assets or investment proposals which provides a
beneficial course of action, that will most likely come in the future and over the lifetime of the
project. This is one of the most crucial financial decisions for a firm. When decision regarding
fixed assets is taken it is also called capital budgeting decision.

i. Short Term Assets-Short investment decisions are important for short term survival of the
organization; thus prerequisite for long term success; mainly concerning the management
of current assets thats held on the companys balance sheet.

Factors Affecting Investment/Capital Budgeting Decisions

115
 i. Cash Flow of the Project: Whenever a company is investing huge funds in an
investment proposal it expects some regular amount of cash flow to meet day to day
requirement. The amount of cash flow an investment proposal will be able to generate
must be assessed properly before investing in the proposal.
ii. Return on Investment: The most important criteria to decide the investment proposal
is rate of return it will be able to bring back for the company in the form of income for,
e.g., if project A is bringing 10% return and project is bringing 15% return then we
should prefer project.
iii. Risk Involved: With every investment proposal, there is some degree of risk is also
involved. The company must try to calculate the risk involved in every proposal and
should prefer the investment proposal with moderate degree of risk only.
iv. Investment Criteria: Along with return, risk, cash flow there are various other criteria
which help in selecting an investment proposal such as availability of labor,
technologies, input, machinery, etc. The finance manager must compare all the
available alternatives very carefully and then only decide where to invest the most
scarce resources of the firm, i.e., finance. Investment decisions are considered very
important decisions because of following reasons:
They are long term decisions and therefore are irreversible; means once taken cannot be
changed.Involve huge amount of funds. Affect the future earning capacity of the company.

Importance or Scope of Capital Budgeting Decision

Capital budgeting decisions can turn the fortune of a company. The capital budgeting decisions
are considered very important because of the following reasons:

i. Long Term Growth

The capital budgeting decisions affect the long term growth of the company. As funds invested in
long term assets bring return in future and future prospects and growth of the company depends
upon these decisions only.

ii. Large Amount of Funds Involved

116
Investment in long term projects or buying of fixed assets involves huge amount of funds and if
wrong proposal is selected it may result in wastage of huge amount of funds that is why capital
budgeting decisions are taken after considering various factors and planning.

iii. Risk Involved

The fixed capital decisions involve huge funds and also big risk because the return comes in long
run and company has to bear the risk for a long period of time till the returns start coming.

iv. Irreversible Decision

Capital budgeting decisions cannot be reversed or changed overnight. As these decisions involve
huge funds and heavy cost and going back or reversing the decision may result in heavy loss and
wastage of funds. So these decisions must be taken after careful planning and evaluation of all the
effects of that decision because adverse consequences may be very heavy.

2. Financing Decision

For a financial manager, they have to decide the financing mix, capital structure or leverage of a
firm. The second important decision which finance manager has to take is deciding source of
finance. A company can raise finance from various sources such as by issue of shares, debentures
or by taking loan and advances. Deciding how much to raise from which source is concern of
financing decision. Mainly sources of finance can be divided into two categories:
i. Owners fund.
ii. Borrowed fund.

Share capital and retained earnings constitute owners fund and debentures, loans, bonds, etc.
constitute borrowed fund. The main concern of finance manager is to decide how much to raise
from owners fund and how much to raise from borrowed fund.While taking this decision the
finance manager compares the advantages and disadvantages of different sources of finance. The
borrowed funds have to be paid back and involve some degree of risk whereas in owners fund
there is no fix commitment of repayment and there is no risk involved. But finance manager prefers
a mix of both types. Under financing decision finance manager fixes a ratio of owner fund and
borrowed fund in the capital structure of the company.

117
Factors Affecting Financing Decisions
While taking financing decisions the finance manager keeps in mind the following factors:

i. Cost: The cost of raising finance from various sources is different and finance managers
always prefer the source with minimum cost.
ii. Risk: More risk is associated with borrowed fund as compared to owners fund securities.
Finance manager compares the risk with the cost involved and prefers securities with
moderate risk factor.

iii. Cash Flow Position: The cash flow position of the company also helps in selecting the
securities. With smooth and steady cash flow companies can easily afford borrowed fund
securities but when companies have shortage of cash flow, then they must go for owners
fund securities only.
iv. Control Considerations: If existing shareholders want to retain the complete control of
business then they prefer borrowed fund securities to raise further fund. On the other hand
if they do not mind to lose the control then they may go for owners fund securities.
v. Floatation Cost: It refers to cost involved in issue of securities such as brokers
commission, underwriters fees, expenses on prospectus, etc. Firm prefers securities which
involve least floatation cost.
vi. Fixed Operating Cost:If a company is having high fixed operating cost then they must
prefer owners fund because due to high fixed operational cost, the company may not be
able to pay interest on debt securities which can cause serious troubles for company.
vii. State of Capital Market: The conditions in capital market also help in deciding the type
of securities to be raised. During boom period it is easy to sell equity shares as people are
ready to take risk whereas during depression period there is more demand for debt
securities in capital market.
3. Dividend decisions

This decision is concerned with distribution of surplus funds.Financial managers have two
alternatives in dealing with the profit of the firm, they are:

i. Distribute to the shareholder in the form of dividends

ii. Retain in the business itself

118
The profit of the firm is distributed among various parties such as creditors, employees, debenture
holders, shareholders, etc. Payment of interest to creditors, debenture holders, etc. is a fixed
liability of the company, so what company or finance manager has to decide is what to do with the
residual or left over profit of the company. The surplus profit is either distributed to equity
shareholders in the form of dividend or kept aside in the form of retained earnings. The ratio as
which this is distributed is called the dividend-payout ratio.
Under dividend decision the finance manager decides how much to be distributed in the form of
dividend and how much to keep aside as retained earnings. To take this decision finance manager
keeps in mind the growth plans and investment opportunities. If more investment opportunities are
available and company has growth plans then more is kept aside as retained earnings and less is
given in the form of dividend, but if company wants to satisfy its shareholders and has less growth
plans, then more is given in the form of dividend and less is kept aside as retained earnings. This
decision is also called residual decision because it is concerned with distribution of residual or left
over income. Generally new and upcoming companies keep aside more of retain earning and
distribute fewer dividends whereas established companies prefer to give more dividend and keep
aside less profit.

Factors Affecting Dividend Decision

The finance manager analyses following factors before dividing the net earnings between dividend
and retained earnings:

i. Earning
Dividends are paid out of current and previous years earnings. If there are more earnings then
company declares high rate of dividend whereas during low earning period the rate of dividend is
also low.

ii. Stability of Earnings

Companies having stable or smooth earnings prefer to give high rate of dividend whereas
companies with unstable earnings prefer to give low rate of earnings.

119
 iii. Cash Flow Position
Paying dividend means outflow of cash. Companies declare high rate of dividend only when they
have surplus cash. In situation of shortage of cash companies declare no or very low dividend.

iv. Growth Opportunities

If a company has a number of investment plans then it should reinvest the earnings of the company.
As to invest in investment projects, company has two options: one to raise additional capital or
invest its retained earnings. The retained earnings are cheaper source as they do not involve
floatation cost and any legal formalities. If companies have no investment or growth plans then it
would be better to distribute more in the form of dividend. Generally mature companies declare
more dividends whereas growing companies keep aside more retained earnings.

v. Stability of Dividend
Some companies follow a stable dividend policy as it has better impact on shareholder and
improves the reputation of company in the share market. The stable dividend policy satisfies the
investor. Even big companies and financial institutions prefer to invest in a company with regular
and stable dividend policy.

vi. Preference of Shareholders

Another important factor affecting dividend policy is expectation and preference of shareholders
as their expectations cannot be ignored by the company. Generally it is observed that retired
shareholders expect regular and stable amount of dividend whereas young shareholders prefer
capital gain by reinvesting the income of the company. They are ready to sacrifice present day
income of dividend for future gain which they will get with growth and expansion of the company.
Secondly poor and middle class investors also prefer regular and stable amount of dividend
whereas wealthy and rich class prefers capital gains.So if a company is having large number of
retired and middle class shareholders then it will declare more dividend and keep aside less in the
form of retained earnings whereas if company is having large number of young and wealthy
shareholders then it will prefer to keep aside more in the form of retained earnings and declare low
rate of dividend.

vii. Taxation Policy

120
The rate of dividend also depends upon the taxation policy of government. Under present taxation
system dividend income is tax free income for shareholders whereas company has to pay tax on
dividend given to shareholders. If tax rate is higher, then company prefers to pay less in the form
of dividend whereas if tax rate is low then company may declare higher dividend.

viii. Access to Capital Market Consideration

Whenever company requires more capital it can either arrange it by issue of shares or debentures
in the stock market or by using its retained earnings. Rising of funds from the capital market
depends upon the reputation of the company. If capital market can easily be accessed or
approached and there is enough demand for securities of the company then company can give more
dividends and raise capital by approaching capital market, but if it is difficult for company to
approach and access capital market then companies declare low rate of dividend and use reserves
or retained earnings for reinvestment.

ix. Legal Restrictions

Companies Act has given certain provisions regarding the payment of dividends that can be paid
only out of current year profit or past year profit after providing depreciation fund. In case
company is not earning profit then it cannot declare dividend.

Apart from the Companies Act there are certain internal provisions of the company that is whether
the company has enough flow of cash to pay dividend. The payment of dividend should not affect
the liquidity of the company.

x. Contractual Constraints
When companies take long term loan then financier may put some restrictions or constraints on
distribution of dividend and companies have to abide by these constraints.

xi. Stock Market Reaction

The declaration of dividend has impact on stock market as increase in dividend is taken as good
news in the stock market and prices of security rise. A decrease in dividend may have negative
impact on the share price in the stock market.

There are three types of stable dividend policies which a company may follow:

121
(i) Constant dividend per share:In this case, the company decides a fixed rate of dividend and
declares the same rate every year, e.g., 10% dividend on investment.
(ii) Constant payout ratio:Under this system the company fixes up a fixed percentage of dividends
on profit and not on investment, e.g., 10% on profit so dividend keeps on changing with change in
profit rate.
(iii) Constant dividend per share and extra dividend:Under this scheme a fixed rate of dividend on
investment is given and if profit or earnings increase then some extra dividend in the form of bonus
or interim dividend is also given

4. Liquidity/ Working capital Decisions

The role of a financial manager often includes making sure the firm is liquid the firm is able to
finance itself in the short run, without running out of cash. They also have to make the firms
decision in investing into current assets: which can generally be defined as the assets which can
be converted into cash within one accounting year, which includes cash, short term securities
debtors, etc.The main indicator to be used here is the net working capital: which is the difference
between current assets and current liabilities. Being able to be positive and negative, indicating the
companys current financial position and the health of the balance sheet.

This can be further split into:

i. Receivables management

It includes investment in receivables that is the volume of credit sales, and collection period. Credit
policy includes credit standards, credit terms and collection efforts.

ii. Inventory management

It consists of stocks of manufactured products and the material that makes up the product, which
includes raw materials, work-in-process, finished goods, stores and spares (supplies). For a retail
business, for example, this will be a major component of their current assets.

iii. Cash management

It is concerned with the management of cash flow in and out of the firm, within the firm, and cash
balances held by the firm at a point of time by financing deficit or investing surplus cash.

122
BUDGET:

MEANING:The budget process is the key tool or tactic to be used to deliver operational strategy.
But more, it is a tool to establish and review operational strategies.

The word budgeting may be used in many contexts. For example, there is a budgeting of sales or
output, costs, profits, resources, cash and capital expenditure. The reasons for budgeting,
forecasting or anticipating figures are many, the most obvious being as a means of measuring
performance and thus controlling a business.

Before anyone budgets or asks others to budget, it is most important that the reasons for, and
objectives of, the budgeting exercise are known and set down in writing.

Reasons often given for budgeting are:

To control;
To plan resources;
To plan cash;
To achieve a goal;
To manage the business;
To achieve the business objectives;
To fulfil the business objectives;
To fulfil the businesss strategic plan;

All of the above are valid reasons for budgeting, and those which individuals consider to be most
important will relate their perceived purpose of budgeting and the level within the organization at
which the budget is to be used. An operating budget is compiled for, and used for, many purposes,
but unless its prime use is based on clearly stated objectives, the budgeting exercise will not deliver
the strategic results.

BUDGET STAGES:

123
The stages of the budget process are:

Have objectives.
Arrange strategy and tactics.
Prepare the detailed plan
Implement the budget.
Monitor the budget and actual figures
Take action
Feedback/review objectives

1. Have objectives: overall objectives will come from the corporate plan or equivalent, which
assumes the question why be in business? has been answered. There must be much consideration
of budget objectives and the strategy and tactics required to achieve them during the detailed work
required in assembling and determining the corporate plan.

2. Arrange strategy and tactics: The word strategy is used for here, in the mundane sense of
considering the actions to be taken, the order in which they are undertaken and the facilities
required to achieve the budget objectives. The arranging of day to day strategy and tactics required
to deliver the strategy must be considered during preparation of the detailed corporate plan and
regularly reviewed.

3. Prepare the detailed plan: This is the stage where the budget is prepared- the figures are
assembled to indicate the outcome and to monitor the businesss activities over the following
periods.

4. Implement the budget: Implementation will mean different things to different organizations,
from sending of a brief memo or holding a formal budget implementation meeting through entering
into a budget contact with staff. Budget implementation an often a weak area in that there is
really no implementation the budget process will just happen.

5. Monitor the budget and actual figures: Budgets exists to help the business achieve its objectives.
Any deviation from budget indicates that there may be problems and thus action should be taken
to bring the business back into the desired operational position.

124
6. Feedback/review objectives: A business should not change its course or overall objectives just
because the budget is not being achieved. However, if there is consistent deviation from the budget,
there is reason to question the budget and the underlying objectives of the business function in
operation.

Budgeting Techniques

A budget is basically a plan of action for the forthcoming business period and budget planning
should involve the whole organization. The ability to budget effectively is crucial both in terms of
performance and profitability as without having an awareness of costs it is all too easy to spiral
down into losses over a period of time.

There are three main budgeting techniques:

What is increamatal?

The incremental approach to budgeting combines the costs identified from the previous accounting
period with percentage additions. These percentage additions are utilised to cover two key areas
which include cost increases as a result of inflation or higher purchases costs and predictions
associated with increases in costs and income as a result of business volume predictions.

A key limitation of the incremental budgeting system is the manner in which percentages are added
in a blanket fashion resulting in the likelihood of higher overall costs in the long-term. This may
then also result in a business having to increase its sale prices to a level that is no longer
competitive.

What is Zero-Based Budgeting?

The clue is is in the title here as the zero-based budgeting system requires budgeting to commence
with the assumption that every cost has a zero base. Next, each item relating to expenditure is
worked through and decisions are made as to whether the purchase is completely essential. Then

125
different purchasing options associated with the specific item are explored as a means of ensuring
the item is obtained as cost-effectively as possible.

One of the main limitations of the zero-budgeting system is that it can take an awful lot of time to
work through each individual cost in this manner. However, it is fair to add that utilising this
approach will then provide an extremely useful database containing valuable, time-saving
information for the years to come.

What is Flexed Budgeting?

As with zero-based budgeting, the flexed budgeting system gives its name away in the title as it
involves flexing the normal budget. The benefits of flexed budgeting are that it is likely to be
considerably more accurate as the budget is adapted to suit various external changes. Within this
approach manager are able to provide key information resulting in an achievable budget,
pessimistic budget and optimistic budget.

Through undertaking the process of flexed budgeting, managers are better able to make important
decision relating to risk and expenditure, having gained a wider perspective on best and worst
outcomes.

As highlighted above, there are three main categories associated with budgeting which include
incremental, zero-based and flexed budgeting. Each of these approaches has various strengths and
limitations with the latter approach being able to provide more accurate information.

START-UP BUSINESS STRATEGY:

I strongly suggest that would-be entrepreneurs do a business plan. As a result of completing the
plan you will be much better prepared and know whether or not your business idea is feasible. Try
the following article for a short-cut. However, I caution you on following a short-cut unless you
have substantial experience or knowledge about your area. Proceed with caution without a business
plan!

How is your business unique, and why will your goods or services appeal to customers? What are
the primary differences between your company and your competitors? What are the driving factors
to choose your business over another?

126
In other words, what is the underlying reason a customer would do business with your company?

1) DEFINE YOUR BUSINESS AND VISION

Defining your vision is important. It will become the driving force of your business. Here are
questions that will help you clarify your vision:

Who is the customer?

What business are you in?
What do you sell (product/service)?
What is your plan for growth?
What is your primary competitive advantage?

2) WRITE DOWN YOUR GOALS

Create a list of goals with a brief description of action items. If your business is a start up, you will
want to put more effort into your short-term goals. Often a new business concept must go through
a period of research and development before the outcome can be accurately predicted for longer
time frames.

Create two sets of goals:

1. Short term: range from six to 12 months.

2. Long term: can be two to five years.

Explain, as specifically as possible, what you want to achieve. Start with your personal goals. Then
list your business goals. Answer these questions:

As the owner of this business, what do you want to achieve?

How large or small do you want this business to be?
Do you want to include family in your business?
Staff: do you desire to provide employment, or perhaps, you have a strong opinion on not
wanting to manage people.
Is there some cause that you want the business to address?
Describe the quality, quantity and/or service and customer satisfaction levels.
127
 How would you describe your primary competitive advantage?
How do you see the business making a difference in the lives of your customers?

3) UNDERSTAND YOUR CUSTOMER

It is not realistic to expect you can meet the needs of everyone, no business can. Choose your target
market carefully. Overlook this area, and I guarantee you will be disappointed with the
performance of your business. Get this right and you will be more than pleased with the results.

Needs: what unmet needs do your prospective customers have? How does your business
meet those needs? It is usually something the customer does not have or a need that is not
currently being met. Identify those unmet needs.
Wants: think of this as your customers desire or wish. It can also be a deficiency.
Problems: remember people buy things to solve a specific problem. What problems does
your product or service solve?
Perceptions: what are the negative and positive perceptions that customers have about you,
your profession and its products or services? Identify both the negative and positive
consequences. You will be able to use what you learn when you start marketing and
promoting your business.

4) LEARN FROM YOUR COMPETITION

You can learn a lot about your business and customers by looking at how your competitors do
business. Here are some questions to help you learn from your competition and focus on your
customer:

What do you know about your target market?

What competitors do you have?
How are competitors approaching the market?
What are the competitors weaknesses and strengths?
How can you improve upon the competitions approach?
What are the lifestyles, demographics and psychographics of your ideal customer?

5) FINANCIAL MATTERS

128
How will you make money? What is your break-even point? How much profit potential does your
business have? Take the time to invest in preparing financial projections.

These projections should take into account the collection period for your accounts receivables
(outstanding customer accounts) as well as the payment terms for your suppliers. For example,
you may pay your bills in 30 days, but have to wait 45-60 days to get paid from your customers.

A cash flow projection will show you how much working capital you will need during those gaps
in your cash position.

I recommend thinking about these six key areas:

1. Startup Investment
2. Assumptions
3. Running Monthly Overhead
4. Streamlined Sales Forecast
5. Cumulative Cash
6. Break-even

6) Identify Your Marketing Strategy

There are four steps to creating a marketing strategy for your business:

1. Identify All Target Markets: define WHO is your ideal customer or target market. Most
companies experience 80% of their business from 20% of their customers. It makes sense
then to direct your time and energy toward those customers who are most important.
2. Qualify the Best Target Markets: the purpose of this step is to further qualify and
determine which customer profile meets the best odds of success. The strategy is to position
your business at the same level as the majority of the buyers you are targeting. It is critical
to figure out who your best customers are and how to best position your company in the
marketplace.
3. Identify Tools, Strategies and Methods: a market you cannot access is a market you
cannot serve. Marketing is the process of finding, communicating and educating your

129
 primary market about your products and services. Choose a combination of tools and
strategies, that when combined, increase your odds of success.
4. Test Marketing Strategy and Tools: the assumptions we do not verify are typically the
ones that have the potential to create business problems. Take the time to test all business
assumptions, especially when you are making major expenditures.

MARKETING STRATEGIES

Marketing strategy includes all basic, short-term, and long-term activities in the field of marketing.
Strategic marketing can help a business become more innovative and better penetrate a
market. Companies use strategic marketing to identify customer needs to achieve customer
satisfaction, improve company performance and increase profit. The ultimate goal of any
marketing strategy is to help to grow a business and increase its brand awareness and cementing
trust with current clients. It also involves developing awareness of the brand - the company, what
the company does and why the product is uniquely qualified.

In order for a marketing strategy to be successful, it must be multi-faceted, realistic and

implemented consistently over time. There arent a lot of short cuts here it takes time and
patience.

PHASES OF MARKETING STRATEGY

1. Planning Phase
2. Implementation phase
3. Evaluation and Control phase

1. PLANNING PHASE: Before one can identify the needs of its potential customers, one has to take
a look at their resources and capabilities, which may include funding, time and human resources.
Beyond that, one should to take into account the type of competition in the market, and how
technological, political, social and economic happenings may impact what consumers want and
ones ability to deliver. Once there is a clear understanding of the working of the environment, one
can examine unfulfilled needs and wants among one customers.

130
 The planning phase is the most important as it analyzes internal strengths and weaknesses, external
competition, changes in technology, industry culture shifts and provides an overall picture of the
state of the organization.

This phase has three key components that will provide a clear diagram of what it is doing.

A. SWOT Analysis Defines the strengths, weaknesses, opportunities and threats of the business
and reveal the companys position in respect to the market. To maximize the strengths and
minimize weaknesses an organization must perform the following:
Analyze competitors
Research companys current and prospective customers
Assess company
Identifying trends in the companys industry

B. MARKETING PROGRAM Once the needs of the customers have been determined, and the
decisions have been made about which products will satisfy those needs, a marketing program or
mix must be developed. This marketing program is the how aspect of the planning phase and
needed for each element of the marketing mix. It involves :
1. Set marketing and product goals:
Once the customers needs are understood, goals can be set to meet them, thus increasing the
chances of success with new products. Find out points of difference: like the companys unique
selling point, each product should also have a certain set of traits or characteristics that makes it
superior to the competitive substitute. For example, the product could be longer lasting, more
accessible, more reliable or very user-friendly so the buyers will choose it over the competition
each time.
2. Position the product:
Market so that in peoples minds the product is the go to for their problem. Through emotional
and mental marketing customers will associate your brand with their solution and eliminate choice.
For example, many mothers use Pampers, when referring to diapers, as this brand has been
positioned as the go to in baby diapering needs.
3. Select target markets:

131
 Based on the research and their commonalities, that way needs and goals are both met. Look into
Market-Product focus and Goal Setting Once the questions of where the company stands and
what it wants to achieve are answered, the next step in the planning process is determining where
the resources will be allocated, and how to turn plans into focused action. To do this, customers
should be divided into segments to determine what specific marketing technique will reach each
targeted group and what each group needs. Measurable goals should be set to get the needed
products to the various groups, thus fulfilling the marketing objectives. For example, if customers
are divided into groups of common needs its easier to market them and provide what they have
proven to need at the time. And as well, if customers are grouped by their common response to
marketing, then the cooperation will know the right decisions to make to reach that specific market
segment.

C. MARKETING MIX

a. Price: focuses on the list price, price allowances (reductions), discounts, payment periods, and
credit contracts.Pricing is one of the most important elements of the marketing mix, as it is the
only element of the marketing mix, which generates a turnover for the organization.
Pricing should take the following factors into account:
Fixed and variable costs
Competition
Company objectives
Proposed positioning strategies
Target group and willingness to pay

TYPES OF PRICING STRATEGIES:

A. Penetration Pricing: The organization sets a low price. Once market share has been
captured the firm may well then increase their price.
B. Skimming Pricing: The organization sets an initial high price and then slowly lowers the
price to make the product available to a wider market.
C. Competition Pricing: The organization would set a price in comparison with competitors.

132
 D. Product Line Pricing: Pricing different products within the same product range at different
price points.
E. Bundle Pricing: The organization bundles a group of products at a reduced price. Common
methods are buy one and get one free promotion.
F. Premium Pricing: The price is set high to indicate that the product is exclusive.
G. Psychological Pricing: The seller here will consider the psychology of price and the
positioning of price within the market place.

b. PROMOTION: This element of the program focuses on direct marketing, advertising, public
relations and sales promotions that create brand awareness.
Advertising: Communication through mass media, the firm will usually pay for this
type of communication.
Public Relation: Developing a positive relationship between the organization, media
and the public.
Promotion: Promotions designed to create a short term increase in sales.
Internet Marketing: Placing adverts on internet pages through programmes such as
Google's AdWords.
Social Media: Firms place daily messages on social media such as Facebook and
Twitter to keep customers interested in their organization.
Sponsorship: An organization or event is paid to use the firms branding and logos.
Sponsorship is commonly used in sporting events.
Personal Selling: Sales interaction between the firm's representative and a consumer
on a one to one basis.
Direct Mail: This involves sending marketing to a named individual or organization.
Firms often buy lists of names, e-mails and postal addresses for this purpose.

c. PRODUCT: This element focuses on the features, packaging, branding and warranty of the
product.
A companys portfolio of products makes up its product mix. It has the following elements:

133
 Design: The basic decision here to identify how strong the design will be in the entire
product mix. Will it be a supplement to the features or will the features be designed around
a unique design.
Quality: The quality of the proud needs is kept with the other elements of the marketing
mix. A high price can be charged if the product has superior quality.
Features: What will be the final features of the product? Will they add to the perceived and
actual benefits of the product
Branding: A brand can have the power to generate instant sales as well cement confidence
in the products quality and reliability.
d. Place (Distribution): the final P in the marketing mix should focus on distribution channels,
outlets and transportation to get the product to the customer when they need it. In the marketing
mix, the process of moving products from the producer to the intended user is called place.
Types of Distribution Channels
Direct
Indirect
Dual distribution
Reverse channel
e. People All companies are reliant on the people who run them from front line Sales staff to
the Managing Director. Having the right people is essential because they are as much a part of
your business offering as the products/services you are offering.

f. Processes The delivery of your service is usually done with the customer present so how the
service is delivered is once again part of what the consumer is paying for.

g. Physical Evidence Almost all services include some physical elements even if the bulk of
what the consumer is paying for is intangible. For example a hair salon would provide their
client with a completed hairdo and an insurance company would give their customers some
form of printed material. Even if the material is not physically printed (in the case of PDFs)
they are still receiving a physical product by this definition.

134
2. IMPLEMENTATION PHASE

The implementation phase is the action portion of the process. If the firm cannot carry out the plan
that was determined in the early stages, then the hours spent planning were wasted. However, if
the planning was adequately and competently structured, then the program can be put into effect
through a sales forecast and a budget, using the following four components.

Obtaining Resources sums of cash to develop and market new products.

Designing marketing organization there should be put in place a marketing hierarchy to properly
see the plans to fruition.
Developing planning schedules time needs to be allocated to specific tasks so they can be
accomplished.
Executing the marketing plan effectively executing the marketing plan will take attention to
detail, and focus on the strategy and tactics defined in your marketing plan.

3. EVALUATION OR CONTROL PHASE

The evaluation phase is the checking phase. This process involves ensuring that the results of the
program are in line with the goals set. The marketing team, especially the manager will need to
observe any deviations in the plan and quickly correct negative deviations to get back on course;
for example fluctuations of the dollar creates a lesser need for the product than in the past, then
the production of said product should be repurposed for a new more desired item. And they should
exploit the positive divergences as well, for example if sales are better than predicted for certain
products then there could be more resources allocated to greater production or distribution of the
same item.

A few ways to evaluate the effectiveness of your marketing strategy include paying attention to:

Strategy versus tactic strategy defines goals and tactic defines actions to achieve goals.
Measurable versus vague have milestones that define when youve achieved your goals.
Actionable versus Contingent According to Inc.com: A strategic goal should be achievable
through the tactics that support it, rather than dependent upon uncontrollable outside forces.
Marketing strategy should be backed by a business plan with tactical moves to accomplish goals,
or it is useless.

135
 Human Resource Strategy

DEFINITION OF STRATEGIC HUMAN RESOURCE MANAGEMENT

SHRM involves the development of a consistent, aligned collection of practises, programs and
policies to facilitate the achievement of the organisations strategic objectives.

The specific processes and approaches will vary from organisation to organisation but the key
concept is consistent.

All HR programs and policies are integrated within a larger framework facilitating in general the
organisations mission and its objectives

IMPORTANCE OF STRATEGIC HUMAN RESOURCE MANAGEMENT

SHRM encourages managers to be proactive which means to think ahead.

Attainment of organization objectives through human capital.

It enhances individual performance by development of commitment at all levels.

It enables development of need based personnel policy/HR policy as a prerequisite for

optimum use of human resources.

Developing supportive work culture in order to encourage creativity, team work, TQM as
well as innovation and a sense of belonging.

Creation of flexible environment because in flexible environment employees can easily

adapt to changing competitive environment.

PROCESS OF STRATEGIC HUMAN RESOURCE MANAGEMENT

1. Scanning the Environment:

The process begins with the scanning of the environment, i.e. both the external and internal factors
of the organization. The external environment encompasses the political, legal, technological,
economic, social and cultural forces that have a great impact on the functioning of the business.

136
 The internal factors include the organizational culture, hierarchy, business processes, SWOT
analysis, industrial relations, etc. that play a crucial role in performing the business operations.

The role of the HR department is to collect all the information about the immediate competitors
their strategies, vision, mission, strengths, and weaknesses. This can be done through the resumes
being sent by the candidates working with the other rivalry firm. Through these, HR professionals
can identify the workforce, work culture, skills of the staff, compensation levels, reasons for exit
and other relevant information about the competing firm.

2. Identify Sources of Competitive Advantage:

The next step in the strategic human resource management process is to identify the parameters of
competitive advantage that could stem from diverse sources as product quality, price, customer
service, brand positioning, delivery, etc.

The HR department can help in gaining the competitive advantage by conducting the efficient
training programmes designed to enrich the skills of the staff.

3. Identify HRM Strategies:

There are major four strategies undertaken by an organization to enrich the employees
capabilities:

a) Learning as Socialization: This strategy includes the techniques as training courses, coaching
sessions, education programmes to ensure that the employees abide by the rules, value and beliefs
of an organization and are able to meet the performance targets.

b) Devolved Informal Learning: This strategy helps in making the employees aware of the
learning opportunities and the career development.

c) Engineering: This strategy focuses on creating and developing communities of practice and
social networks within and outside the organization.

137
 d) Empowered Informal Learning: Through this strategy, the HR department focuses on
developing the learning environment such as knowledge about the new processes, designing of
new work areas and the provision of shared spaces.

4. Implementing HR Strategies:

Once the strategy has been decided the next step is to put it into the action. The HR strategy can
be implemented by considering the HR policies, plans, actions and practices.

5. Monitor and Evaluation:

The final step in the strategic human resource management process is to compare the performance
of the HR strategy against the pre-established standards.

At this stage, certain activities are performed to evaluate the outcomes of the strategic decision:
establishing the performance targets and tolerance levels, analysing the deviations, executing the
modifications.

Thus, to have an effective HR strategy the firm follow these steps systematically and ensures that
the purpose for which it is designed is fulfilled.

EXAMPLE: STRATEGIC HRM IN ESSAR STEEL LTD.

The Essar group is one of Indias leading business conglomerates, with an asset base of over US
$4 billion. The group is committed to the development of core structure and infrastructure business
in India and abroad. It is actively involved in five principal areas of business i.e. steel, shipping,
oil and gas, power and communications.

The organisation implemented the following strategies:

Right sizing human resources.

Web based customer relationship management.

Introduction of open house.

138
 Regular training with a target of 7 Mondays per year.

Training programme on areas of concern.

ROLES ASSUMED BY HR

Strategic partner - become a partner with senior and line managers in strategy
execution.
This is the first role which involves becoming a partner in strategy execution. Here, HR is
held responsible for the organisational architecture or structure. HR would then conduct an
organisational audit to help the managers identify those components that need to be
changed to facilitate strategy execution. After which methods should be identified for
renovating the parts of the organisational structure that require change. Also, clear
priorities would be set to ensure delivery of results. These activities require HR executives
to acquire new skills and capabilities to allow HR to add value for the executive team with
confidence.

Change agent - an agent of continuous transformation to shape processes and culture.

The pace of change experienced by organisations today can be dizzying. As a change agent,
HR must be able to build the organisations capacity to embrace and capitalize on new
situations ensuring that change initiatives are defined, developed and delivered in a timely
manner. HR also needs to help the organisation plan for and overcome any resistance to
change that pose as a threat for the organisations culture.

Administrative expert be an expert in the way that work is organised and executed.
For decades, HR professionals have fulfilled an administrative function within their
organisations. In the administrative expert role, these individuals would shed their image
of rulemaking police while ensuring that the required routine work still gets done
effectively and efficiently.

139
 Employee champion become a champion for employees thereby boosting
contribution
An organisation cannot thrive unless its employees are committed to and fully engaged in
the organisation and their jobs. In this role, HR professionals are held accountable for
ensuring that employees are fully engaged in and committed to the organisation. It involves
acting as an advocate for employees, representing them and being their voice with senior
management, particularly on decisions the impact them directly.

STRATEGIC HUMAN RESOURCE MANAGEMENT STRATEGIES

COST LEADERSHP
It describes how companies get ahead by lowering their operation costs beneath those of
others in the same business. This means they try to find ways to reduce costs in their
company so that they can offer a product at a lower price than their competitors. Because
so many customers want to pay a lower price for goods and services, these companies can
gain a wide audience and become the cost leader in the industry.

Attempts to increase efficiency, cut costs and pass the savings to consumers.
Assumes that price elasticity of demand for its product is high.
Assumes that customers are price sensitive.
It is short term.
Performance is measured based on results.

EXAMPLE- PAYLESS
Payless is another prime example. Their slogan 'Why pay more when you can Payless?'
grabs consumer's attention. Why should we as customers pay more money for a good or
service when we could get it for a cheaper price somewhere else? While Payless offers
lower priced goods, they still offer quality name brand shoes. Payless is able to over low
prices because they only have a few employees in the store at one time (customers serve
themselves) and by stocking only those goods that the target population demands.

140
 PRODUCT DIFFRENTIATION
Product differentiation is a marketing process that showcases the differences between
products. Differentiation looks to make a product more attractive by contrasting its unique
qualities with other competing products. Successful product differentiation creates
a competitive advantage for the product's seller, as customers

Focuses on product differentiation.

Allows the organisation to charge a premium price over its competitors.
Helps in gaining customer loyalty.
Requires creativity and innovation.
Performance is measured on long term basis.
Offers incentives and compensation for creativity.

EXAMPLE- APPLE

Once known only for their its not IBM computers, Apple has grown into a major electronics
company that offers everything from personal electronics to televisions. Offering innovative
products and creating a network of services that work together, Apple has developed some of the
worlds most daring technology. Through their business model of innovation and design, they have
branded their company as the forerunner in marketing, service and sales.

Apple has a multi-faceted differentiation strategy. They are innovators who constantly push the
limits of products and services, a strategy that is hugely successful. In addition, they are relentless
in the pursuit of excellent customer service. Finally, they capitalize on the brand itself, which has
become a part of the culture through their advertising campaigns and product placement.

FOCUS STRATEGY
It is one of the 3 generic strategies that can provide a competitive advantage according to
Michael Porter.

141
 Achieving focus means that a firm sets out to be best in a segment or group of segments.
There are two variants of this strategy: cost focus and differentiation focus.

Attempts to satisfy one segment of the market.

Employing people from target market so that they can empathize with the customers.
Focused cost leadership:
Focused cost leadership is the first of two focus strategies. A focused cost leadership
strategy requires competing based on price to target a narrow market. A firm that follows
this strategy does not necessarily charge the lowest prices in the industry. Instead, it charges
low prices relative to other firms that compete within the target market. Redbox, for
example, uses vending machines placed outside grocery stores and other retail outlets to
rent DVDs of movies for $1. There are ways to view movies even cheaper, such as through
the flat-fee streaming video subscriptions offered by Netflix. But among firms that rent
actual DVDs, Redbox offers unparalleled levels of low price and high convenience.
Focused product differentiation:
Focused differentiation is the second of two focus strategies. A focused differentiation
strategy requires offering unique features that fulfill the demands of a narrow market. As
with a focused low-cost strategy, narrow markets are defined in different ways in different
settings. Some firms using a focused differentiation strategy concentrate their efforts on a
particular sales channel, such as selling over the Internet only. Others target particular
demographic groups. The dedication of Mercedes-Benz to cutting-edge technology,
styling, and safety innovations has made the firms vehicles prized by those who are rich
enough to afford them. This appeal has existing for many decades.

BARRIERS TO STRATEGIC HUMAN RESOURCE MANAGEMENT

Nothing is free from obstacles. SHRM also suffers from some barriers. These barriers are
related to mentality, strategy and outcomes

142
 Short term mentality: Short-term mentality and focus on current performance of SFIRM
is the first barrier. Every manager act, long-term focus, because organization has been
established with long-terms objectives/focus.

Strategic inability: Very often SHRM does not think strategically and he cannot think it
too due in capability. This type of inability may be arisen for many reasons as lack of
technical knowledge, insufficient training and the like.

Lack of appreciation: Sometimes top managers do not recognize the activities of strategic
human resource management. So SHR manager does not get interest to do any innovative
venture. A few appreciations may get them a substantial mental boost up.

Failure understand role: General managerial roles may not be fully understood by be
managers. This failure be due to lack of knowledge about specialty of degree of
responsibility. This failure may create distance between these managers.

Difficulty in quantifying outcomes: Many outcomes may not be quantified. But

SHRM tries to enjoy the contribution. This is not always possible. Participation, work
etc. type function cannot be quantified because of their intangibility.

Wrong perception on human assets: Investment in human assets may be regarded as high
risk than that of technology and information. Though these technologies are run by the
human resources. This wrong perception may inhibit the progress.

Resistance: SHR Managers may be resisted because of the incentives for change that
might arise. The change implementer demand some incentives for efforts to execute the
changed program. If these incentives are not given reasonably, they may create barriers
SHRM.

OVERCOMING BARRIERS TO STRATEGIC HUMAN RESOURCE

MANAGEMENT

143
 The better you understand your organization and the barriers that exist to strategic planning
the better off you'll be to address them. Although the barriers and the methods of addressing
them are numerous, following are a few ideas that might help.

Provide Leadership
The drive to conduct strategic planning must be supported by the organization's leadership.
This sends a strong signal of the level of importance of the process, which often improves
the level of acceptance.

Communicate
If there is uncertainty in the organization over strategic planning, communicate what you
are going to do, why you are doing it, how people will be involved in the process, and the
expected timelines. As well, it is important to commit to provide updates on a regular basis
of how the process is going and what has been achieved. In the absence of information,
people will make it up themselves. This communication process can take a variety of forms
including meetings, newsletters, town hall forums, etc.

Manage The Change Process

Development of the strategy is only the first step in the whole process. It is equally
important to manage the change process for the implementation of your strategy. Effective
change management will not eliminate all the concerns, but it will help keep them to a
tolerable level and allow the organization to continue without significant loss of
productivity.

Reward Supportive Behaviour

It's not enough to focus on the barriers to strategic planning. You should also reward
behaviours that support strategic planning. For example, in hearing about the start of a

144
 strategic planning process, a unit head meets with her staff to discuss ideas on how they
can backfill positions so as to allow as many staff as possible to participate in the planning
process.

No Time is Ever Perfect

No matter when you undertake strategic planning, there will always be other initiatives
going on or information that isn't available. Although strategic planning is often positioned
as though you are starting with a blank canvas, the reality is that you are not. As long as
you can devote the time to strategy without the wheels falling off - get on with it. In the
long term, your organization will be far better off getting on with the planning and
associated changes that come of it than constantly putting it off for that elusive perfect
time.

RETRENCHMENT STRATEGY

CEAT Tires, an Italian originated company was taken over by the R.P. Goenka group in India in
1982. Since then, they are operating under huge losses where in 2008, they reported that their profit
to sales ratio was really bad due to high costs. In 2009, the top management initiated Project XL
to reduce their costs by at least rupees 50 crores and work towards gaining a sustainable
competitive edge. Thus, according to the project plan, they reduced scrap, negotiate hard on rents
and commissions and involved themselves in rigorous planning and execution. In one year, their
market share increased to 76% and has reduced their non-profitable operations to 9%. Today they
sell more than 95, 000 tires a day and is the third largest tire manufacturing company in
India(Srivastava & Verma, 2012).

This example has showed the importance of retrenchment strategy that has to be applied at the
right time to revive and restart a company. Retrenchment strategy is a strategy used by the firm
with a desirability or necessity of reducing its product or service line so as to avoid negative cash
flows from those activities.

When are retrenchment strategies used?

145
 When the firm is not doing well
The environment seems threatening
Firms strengths can be utilized else where
During the times of economic recessions
When a business unit is following their corporate generic strategy.

Types of retrenchment strategy:

There are three types of retrenchment strategies applied by the companies:

Turnaround strategy
Divestment strategy
Liquidation strategy

TURNAROUND STRATEGY:

It is an attempt to improve the efficiency of the operations during a decline in an organisations

wellbeing. This strategy says to the world that, even though things are bad, we have not given up.

Various reasons to employ turnaround strategy are:

When the company is in the verge of bankruptcy

Intense competition is being faced and company is losing its market share
The company wants a change in its brand image as its old brand is the reason for incurring
losses
When organisation is incurring continuous losses.

DIVESTMENT STRATEGY:

This strategy involves in selling off a major part of the business like a product line or a business
unit. This strategy is used when turnaround strategy does not succeed or when a business unit is
draining profit from other units. It can also be used when a business unit is having a different
capital need than the organisation.

LIQUIDATION STRATEGY:

146
This is the last resort accepted by the company where it ceases to exist. Liquidation can be done
either by selling off the assets or by shutting down the entire operation. It is used when every other
strategy implemented, fails.

147
UNIT 5:

STRATEGIC IMPLEMENTATION

148
INTRODUCTION:

Strategic Implementation is one of the important steps in the process of strategic management.
Implementation of strategy is more important than choosing the strategy. It is very essential for
the strategy chosen to put into action in order to achieve the objectives of the organization. A good
strategy can be successful only if it is effectively implemented.

According to Steiner and Miner, the implementation of policies and strategies is concerned with
the design and management of systems to achieve the best integration of people, structures,
processes, and resources, in reaching organizational purposes.

NATUREOFSTRATEGYIMPLEMENTATION

The greatest strategy will not succeed if the strategy is not implemented.

Successful strategy formulation does not guarantee successful strategy implementation.

Less than 10% of strategies formulated are successfully implemented.

FORMULATION VS IMPLEMENTATION

Formulation focuses on effectiveness and Implementation focuses on efficiency.

149
 Formulation is basically an intellectual process and Implementation is basically an
operational process.
Formulation requires good intuitive and analytical skills and Implementation requires
special motivation and leadership skills.
Formulation requires co-ordination among few individuals and integration requires co-
ordination among all individuals.

ELEMENTS OF STRATEGIC IMPLEMENTATION

Implementation of Strategy involves a number of interrelated decisions, choices, and a broad range
of decisions. It requires the commitment and co-operation among all the members of the
organization. So there are two inter related terms which are involved in the process. They are:

1. Differentiation: The differentiation or organizing task is related to the segmentation and

dividing the whole strategic plan into small components. The goals are divided into sub
units so that the activities are carried out by all departments and divisions of the
organization. Each department and division is assigned with their particular tasks, activities
and roles so that they can understand their roles clearly and works towards it. The resources
allocated to various departments are based on the segmentation of the strategic plan.
2. Integration: Integration is the task system in which all the functions and programs of the
organization which have been diversified are integrated. It is basically integrating all the
sub goals in conformity with the strategic goal of the organization. Integration is generally
required at three levels in the organization. They are:

At the functional level of each business unit

At the business or product level, coordinating the various business units or SBUs
At corporate level where all the major business plans must be integrated with the
total system strategy

150
STEPS FOR SUCCESSFUL STRATEGIC IMPLEMENTATION

It is very essential for the organization to successfully implement the strategy. The following are
the steps for implementing the strategy:

1. Align your Initiatives: The main reason for the failure of strategies is after creating a strategy
they use the old way of implementing it. A new strategy must be implemented by using the
new activities. The activity must be reviewed against its relevance to new strategy. A strategic
value measurement tool is created for existing and new initiatives. The initiatives must be
analyzed against their strategic value and impact on the organization, in this way you can
highlight the priorities.
2. Align budgets and performance: The budgets in the organization must be allocated and
managed in accordance to the requirement for the initiatives. Organizational performance
should be closely aligned to strategies. The performance measures should be placed against
the strategic goals against the organization. The organization must ensure that the employees
are aware of their role and influence on the strategy delivery and performance.
3. Structure follows strategy: The effective implementation of strategy requires a suitable
organizational structure. The organizational structure should allow the strategy to cascade
across the organization so that it is implemented effectively and efficiently. The
implementation generally fails when a strategy is implemented in an organizational structure
which does not accept change.
4. Engaging staff: The organization after formulating the strategy it is very essential to engage
the staff during the implementation. The implementation can only be successful with the co-
operation and co-ordination of all its members. The management should prepare the employees
to accept the change and overcome the hurdles during the process. It has to include all the
influential employees during the process of implementation. The contributions of the
employees helps the organization to even critically evaluate the strategy. The strategy must be
communicated to all the members of the organization. The management must make sure that
everyone had understood the strategy. The vision, mission and goals must be communicated
effectively. The employees must be given clarity as to what are they supposed to do and how
are they supposed to do. All the members of the organization must understand what they have
to perform.

151
5. Monitor and Adapt: a strategy after implemented it should be monitored on a continuous basis.
If there are any flaws in implementation they can be rectified. The strategy meetings must be
held regularly and the reviews must be done. The strategies formulated must also be flexible
so that they can respond to the changes.

ISSUES OF STRATEGIC IMPLEMENTATION

The failure of implementation of strategies are due to so many issues. Sometimes the strategies
implemented are not successful due to the problems which arise during the process. These are the
following issues:

1. MARKETING ISSUES: There are various variables in marketing which result in the success
and failure of implementation of strategy. Market segmentation and Product position are two
essential variables in regard to marketing.

Market segmentation: It is widely used in implementing strategies, especially for small and
specialized firms. It is a marketing strategy which divides the whole market into various sub-
segments of customers based on their needs, interests, preferences and the buying habits. The
different types of market segmentation are:

Geographic segmentation: The market is divided on the basis of geographic criteria. The
marketer cannot have the similar strategies for people living in different areas.

Demographic segmentation: The market is divided on the basis of age, gender, income, marital
status and occupation. The needs of the individuals would differ based on their age, gender,
occupation etc. The needs of an officer will be different from a need of student. So, it is difficult
to implement a same marketing strategy for all sectors of people.

Psychographic segmentation:The basis of the segmentation is the lifestyle of the individuals.

The individuals attitude, interests, social class, value help the marketers to classify them into
small groups. The car manufacturing company manufactures different cars based on the social
class of the people. The marketing strategy used for marketing an

152
 Behaviouralistic segmentation: The market is divided into segments based on the customer
loyalty. The marketers classify them into smaller groups in which each group comprising of
individuals who are loyal towards a particular brand.

Market segmentation is very essential for market development, product development, market
penetration and diversification of strategies. To implement all these strategies successfully there
must new or improved market segments. It also allows the organization to work with the limited
resources and it enables the small firm to complete work successfully. Segmentation is very
essential for matching supply and demand as it is one of the biggest problem in customer service.
It helps you to know regarding any fluctuation in demand of the products and helps the marketer
to predict.

Product Positioning:Schematic representations that reflect how products/services are

compared to competitors on dimensions most important to success in the industry. After the
segmenting of markets the firms can target particular groups according to their taste,
preferences and needs. A lot of research is done. The mistake here is that firms assume they
know everything about the customer needs but in reality the customer views are different. But
due to research the firms are trying to fill the gap between what customers want and what they
produce. One of the issues of product positioning is that the firm implements strategy based
on a segment of customer and the product is not needed by that particular group of customers.

2. FINANCE /ACCOUNTING ISSUES: During the implementation of strategies it is very

essential to have adequate funds in order to implement it successfully. So, inadequacy of
capital is one of the major issues for implementing the strategies. The organization to run
smoothly it requires a continuous cash flow. If the flow of cash flow is unstable the operations
of the organization cannot be performed smoothly. Preparation of financial budget is the other
issue relating to finance. Financial budgeting is a method for specifying what must be done to
complete strategy implementation successfully. The budget programs should be in a way that
they are not so expensive or cumbersome. Over budgeting and under budgeting always cause
problem to the organization.

153
3. RESEARCH AND DEVELOPMENT ISSUES: Research and development personnel play
an integral part in strategy implementation. The generally develop new products or improve
the old products which will help in effective strategic implementation. For strategies such are
product development, market penetration and concentric diversification they require new
products or improve products. So these strategies are implemented successfully only when
Research and Development team develop new products. The constraints of research and
development are the technological improvements. They affect the consumer and the industrial
products and services which shorten the product life cycle. The availability of resources is one
of the major constraints for the researchers to develop products. The researchers do not even
get enough support from the organization sometimes.

4. COMPUTER INFORMATION SYSTEM (CIS) ISSUES:Having an effective Computer

information system (CIS) may be the most important factor in differentiating successful from
unsuccessful firms. The organizations do not use the same marketing strategy for a long span
but they use the same computer information system which questions their existence. One of
the major issues is hacking. The threat from hackers is increasing. The hack the organization
system and get all the confidential information regarding their future plans, strategies
implemented policies of the organization etc. It has become a burden to the organization as it
is expensive to hire professionals to protect the system.

5. MANAGEMENT ISSUES:The management has to face so many challenges daily. In some

situations during the implementation of new strategies the employees are resistant. They do
not want to adapt the changes in the organization due to the fear of losing the job etc. If the
management does not have enough resources to implement the strategies it becomes an issue.
Whenever the organization desires to restructure it faces problems as the employees are not
ready for it. Restructuring is the process in which changes take place in every level of the
organization. Reengineering is also the other issue for the management. It is the process of re-
inventing the way the organization conducts its business.

6. OTHER ISSUES: The organization faces so many unexpected problems while implementing
the strategies. The problems are the unexpected moves by the competitors and the unexpected

154
 responses of the customers. Unclear roles and responsibilities is the other issue where the
management does not explain employees what they are expecting from them. The actions
required to execute a particular plan are not clearly defined. The responsibilities which are
assigned are unclear. Sometimes conflicts arise within an organization and even
misunderstanding occurs. The conflicts can be among the department due to ineffective
coordination. The information gap between the top management and the lower level
management also create some issues.

RESOURCE ALLOCATION

It is a central management activity that allows for strategy execution. In organization that do not
use a strategic management approach to decision making, resource allocation is often based on
political or personal factors. Strategic management enables resources to be allocated according to
priorities established by annual objectives.

All organization has at least 4 types of resources than can be used to achieve desired objectives;
financial resources, physical resources, human resources and technological resources. Allocating
resources to particular divisions and departments does not mean that strategies will be successfully
implemented. A number of factors commonly prohibit effective resource allocation, including an
overprotection of resources, too great an organizational politics, vague strategy targets, a
reluctance to take risks, and a lack of sufficient knowledge.

The real value of any resource allocation program lies in the resulting accomplishment of an
organizations objectives. Effective resource allocation does not guarantee successful strategy
implementation because programs, personnel, controls and commitment must breathe life into
resources provided. Strategic management itself is sometimes referred to as a resource allocation
process.

BUDGET

A budget is generally a list of all planned expenses and revenue. It is a plan for saving and
spending. In other terms, a budget is an organizational plan stated in monetary terms. Budgeting

155
is the means through which resources are allocated to various organizational units. The purpose of
budgeting is to:

Provide a forecast of revenues and expenditure i.e., constructs a model of how our business
might perform financially speaking if certain strategies, events and plans are carried out.
Enable the actual financial operation of the business to be measured against the forecast.

TYPES OF BUDGET

1. Capital Budgeting
It is planning process used to determine whether a firms long term investments such as new
machinery, replacement machinery, new plants, new products, and research development
projects are worth pursuing. It is a budget for major capital or investment expenditures. Many
formal methods are used in capital budgeting, including techniques such as ARR, NPV,
profitability index, IRR etc. this method is useful at the stage of considering the various
alternatives for project proposals.

2. Performance budgeting
It uses statements of mission, goals, and objectives to explain why the money is being spent.
It is a way to allocate resources to achieve specific objectives based on program goals and
measured results. It is a budget format that relates the input of resources and output of services
for each organizational unit individually. With this measurements are useful evaluating past
performance and for planning future activities.

3. Revenue budgeting

It consists of revenue receipts of government and the expenditure met from these revenues.
This budget provides important information for the daily management of financial resources
and key feedback as to whether the strategy is effective. For evaluative purpose, the revenue
budget may be derived from revenue forecasts which is arrived by planning process, or it may
be linked to past revenue patterns. It acts as a tool for control of strategy implementation. This
budget provides an early warning system about the effectiveness of the firms strategy. If the

156
 deviation is considerably below or above the expectations, this budgetary tool initiates
managerial action to reevaluate and possibly adjust the firms operational or strategic posture.

4. Zero based budgeting

It is a method of budgeting in which all expenses must be justified for each new period. It starts
from a zero base and every function within an organization is analyzed for its needs and costs.
Budgets are then built around what is needed for the upcoming period, regardless of whether
the budget is higher or lower than the previous one. It requires the budget request be justified
in complete detail by each divisions manager starting from the zero-base. The zero- base is
indifferent to whether the total budget is increasing or decreasing. It also refers to the
identification of a task and then funding resources to complete the task independent of current
resourcing.

5. Expenditure budgeting
Budgets based on the costs of goods and services already received and paid for. An expenditure
budget for each functional unit and for sub functional activities can guide and control unit
execution of strategy, for increasing the profit performance.

6. Fixed budget
These budgets are prepared for a given level of activity. The budget is prepared before the
beginning of the financial year. The changes in expenditure arising out of the anticipated
changes will not be adjusted in the budget. It is designed to remain unchanged irrespective of
the level of activity actually attained.

7. Flexible budget
It consists of a series of budgets for different level of activity. It varies with the level of
activity attained. Flexible budget is prepared after taking into consideration unforeseen
changes in the conditions of the business.

PROCESS OF STRATEGIC BUDGETING

Step 1:

157
The top management initiates the budgeting process by communicating the objectives of the firm
and announcing assumptions, taking into consideration the economic and competitive conditions
for the period. The demand of the product must be determined before budgets and plans for
resources inputs are made, the sale forecast is a key factor for internal planning. The sales forecast
is the basis for production planning, materials planning, capital planning, cash flow analysis
personnel planning, and sales promotion planning.

On the basis of forecasted sales, an organization is able to project production requirements,

establish what materials need to be purchased, determine the number of personnel to be recruited,
estimate the level and timing of required financial resources, and decide upon the operating
expenses such as for advertising and sales promotion to obtain the profit level.

Step 2:

In large firms the budget departments communicates information and offers advice to the units
preparing the budgets. This units prepares the forms and procedures for developing budget. It helps
those who preparing budgets with technical problems and in the actual preparation. Budget
specialists at the division level, trains these persons and coordinates their work.

Step 3:

Each unit prepares a preliminary budget for the next period. With the help of the unit which begins
to prepare the budget with the help of previous periods budgets and performance against this
budget. Next the unit states how the next period will differ from the current period. So, the next
years budget that the unit proposes is based on the past budget plus or minus expected changes.
The unit must specify what resources it will need to accomplish the strategy.

Step 4:

The preliminary budgets developed in third step are reviewed and approved. The departments
analyses and reviews each units past performance and determines projections for future
conditions. After comparing the budgets of various units, the budget department submits them to
top management along with any recommendations for approval of adjustment. Top management
examines the budgets and approves them if they are consistent with past performance, expected
revenues and the firms strategy.

158
Step 5:

At this stage summary of the budgets are usually prepared. With the projected receipts and
expenses are put together, and subsidiary budgets are developed such as operating budget, financial
budget, the capital budget and expenses budgets. The operating budgets specifies materials, labor,
overhead, and other costs.

PROBLEMS IN STRATEGIC BUDGETING PROCESS

The issues which need the attention of strategist in allocation are as follows:

Its focus is mainly on allocation of funds. It does not take care of the problem of allocating other
types of resources, like personnel, which must be considered along with the formation of operating
plans.

The allocation process is kept secret so the chances of internal conflict will increase.
The unit managers spend a great deal of time trying to find out the relative allocations and
overestimate the difference in favor of competing units with a corresponding lack of
interest in achieving the strategic objective.
Unit managers may submit overestimate demands for funds and underestimate the earnings
to guard against the possibilities of downward adjustment of allocations thereby subverting
the decision process.
The actual allocation of funds to any unit has a major effect on the work environment of
the unit and the career of the manager concerned.
The units which are assigned strategies by virtue of being dogs or cash cows in the portfolio
planning approach are bound to have a demoralizing effect in the process.
The budget process should ensure resources allocation in accordance with the strategic
changes desired by the organization.
The budgeting process may set pattern for operative strategy but important is the shifts in
strategic direction should be communicated to the lower levels of management for the
budgetary allocation should acceptable by them.
The strategic changes may create a change in the structural arrangement of unit and
divisions involving the creation of new units and divisions. Those units may be at

159
 disadvantages. If the managers concerned are not aware of the changes in the budgetary
procedures.

ORGANISATION STRUCTURE AND MATCHING STRUCTURE WITH STRATEGY

Organization is a group of people with a particular purpose, such as a business or government

department.

According to Henry Mintzberg, the ways in which labor is divided into distinct tasks and co-
ordination is achieved among these tasks

Organization structure: How activities such as task allocation, co-ordination and supervision are
directed towards the achievement of organizational aims. It is also considered as a viewing glass
or perspectives through which individuals see their organization and its environment.

Organization structure and strategy:Companies build structure for their organization based on
their strategies. Simple strategies require simple structure whereas growth strategy requires
flexible structure.

TYPES OF ORGANIZATIONAL STRUCTURE:-

1. Tall organization structure: It is applied for large and complex organization structure. It
often requires a tall hierarchy. As an organization grows the number of management levels
increases and the structure grows taller. In a tall structure, managers form many ranks and
each has a small area of control. In simplest form, a tall structure results in one long chain
of command.
2. Flat organization structure: It has fewer management levels with each level controlling a
broad area or group. It focuses on empowering employees rather than adhering to the chain
of command. It encourages autonomy and self-direction flat structure attempt to tap with
employees creative talents and to solve problems by collaboration. It helps in taking quick
decision, reduces the administration cost.
3. Virtual organization structure: It is not physically existing but made of software. It can be
thought of a way in which an organization uses information and communication
technologies or replace some aspects of the organization. People who are virtually
organized primarily interact by electronic means. Problems can be solved without even

160
 bringing people together or face-to-face. Ex: Customers help desks link customers and
consultants together via telephone or the internet.
4. Boundary less organization structure: This concept was invented by General Electrics. It is
a contemporary approach in organizational design. It is an organization not defined by or
limited to the horizontal, vertical or external boundaries imposed by a pre-defined
structure. It behaves more like an organization encouraging better integration among
employees and closer partnership with stake holders. It is highly flexible and responsive
and draws on talent wherever it is found.

Features of organizational structure:

It helps in determining the manner up to which the roles, power and responsibilities can be
delegated.
The feature of organization strategy depends on the objectives and strategies.
It acts as a perspective through which individuals can see their organization and
environment.

Importance of organizational structure:

The organizational structure has its impact on the effectiveness and efficiency of the
organization.
It reduces redundant actions.
Organizational structure promotes team work.
It helps in improving communication.
It contributes to success or failure of the organizing.

Purpose of organizing:

1. It helps dividing the work which has to be done in specific jobs and departments.
2. It helps in assigning tasks and responsibilities associated with individual jobs.
3. It helps in coordinating between various organizational tasks.
4. It helps in establishing relationship between individuals, groups and departments.
5. It helps in establishing formal lines of authority.
6. It helps in allocating organizational resources.

161
 7. It clusters the job into units.

Components of organization structure:

1. Chain of command: The continuous level of authority that extends from upper level of
authority to lower level and clarifies who reports to whom.
2. Authority: It is the managerial right to tell people what to do and what do they expect
from them.
3. Responsibility: It is the obligation or expectation to perform.
4. Unity of command: It is an employee having a single boss and should report only to
him.
5. Delegation: Delegation is the assignment of responsibility or authority to another
person (normally from a manager to a subordinate) to carry out specific activities. It
is one of the core concepts of management leadership. However, the person who
delegated the work remains accountable for the outcome of the delegated work.

Types of structural changes needed to implement new strategies:

Functional:Functional structure groups tasks & activities by business function, such as

production/operations, accounting/finance, R&D, MIS. A university may structure its
activities by major functions that include academic affairs, student service, maintenance,
athletics & accounting.

Divisional by geographic area: As a small organization grows, it has more difficulty

managing different products or services in different markets. The divisional structure can
be organized into four ways. This divisional structure is appropriate for organizations
whose strategies to be fit for the particular needs & characteristics of customers in different
geographic area. This type of structure can be most appropriate for organizations that have
similar branched facilities located in widely dispersed areas Example: McDonalds

Divisional by product: This type of structure is most appropriate for implementing

strategies when specific products or services need special emphasis. This structure is
widely used when an organization offers few products or services. Microsoft recently

162
 reorganized the whole corporation into three large divisions by product. New divisions
are:-Platform products & services, Business, Entertainment & devices

Divisional by customer: This type of structure is appropriate for organizations to cater the
requirements of clearly defined customer groups. Example: Book publishing companies
often organize their activities around customer groups such as: - Universities, Colleges,
Secondary schools.

Divisional process: This type of structure is appropriate when activities are organized
according to the way work is actually performed. This structure is similar to a functional
structure. Example: In Textile Mills activities are divided according to their process.
Cutting, dying, printing each process (division) would be responsible for generating profits.

Strategic business unit (SBU) structure:A separate operating division of a company with
some degree of autonomy referred to as a (Strategic Business Unit) structure. When the
number, size and diversity of divisions in an organization increase, controlling and
evaluating divisional operations becomes difficult for strategists.

Matrix: An organizational structure that facilitate the horizontal flow of skills and
information as well as vertical flow of authority and communication. It helps in
management of large projects & product development process.

MATCHING STRUCTURE WITH STRATEGY:

An organizations strategy is its plan for the whole business that sets out how the organization will
use its major resources.An organizations structure is the way the pieces of the organization fit
together internally.For the organization to achieve or deliver its plans the strategy and the structure
must be woven together.Change in strategy leads to change in structure.

Reasons for changing structure:-

1. Structure dilates how policies and objectives will be established.

2. Structure dilates how resources will be allocated.
3. Growth of organization leads to changes in structure.

163
4. Structure can shape choices of strategies.

LEADERSHIP STYLES

The driving force of any organization is the leadership. Leadership and management have many
definitions. A good leader encourages his team to be creative and allows out-of-the-box thinking
to find solutions to problems. He lays great stress on values, beliefs and ethics.

1. Situational Leadership:

A situational leader is a person who would understand the current work related issues and
take the best possible measures to solve the problem. In this form of leadership style, a
manager should show the ability to switch between strategies and select an appropriate
style that suits the given current situation.

2. Transformational Leadership:

Whether you are the owner of the business or a manager of a team, you should be able set
attainable goals and nurture your team by fostering positive behaviors and thereby sharing

164
 the vision of the organization. Leaders with this style of leadership recognize that the
employees are the strength of the organization and thus encourage innovative and creative
thinking among them. A transformational leader shares their vision with the employees,
thereby motivating them to leverage the business growth.

3. Transactional Leadership:

Transactional leadership style inclines towards the management than the employees. This
type of leadership is based on rewards and punishments. Here the employees are rewarded
for their good work and punished for discrepancies. Transactional leaders are bend towards
the policies and procedure to get the work done and they are autocratic in decision making.
For a business to succeed, the manager should possess a right combination of transactional
and transformational leadership style.

4. Empowering leadership:

The current world scenario is seeing a paradigm shift in leadership styles and one such
style is empowering leadership. In empowering/super leadership the leader aims at creating
effective self-leaders who will eventually be capable of leading their team. The
combination of various strategic leadership styles is the secret behind the success stories
of various small/medium businesses.

5. Laissez-faire leadership, also known as delegative leadership, is a type of leadership

style in which leaders are hands-off and allow group members to make the decisions.
Researchers have found that this is generally the leadership style that leads to the lowest
productivity among group members.

Characteristics of Laissez-Faire Leadership

Laissez-faire leadership is characterized by:

Very little guidance from leaders

Complete freedom for followers to make decisions
Leaders provide the tools and resources needed
Group members are expected to solve problems on their own

165
 Power is handed over to followers, yet leaders still take responsibility for the groups
decisions and actions

6. Autocratic Leadership Style: Autocratic leadership, also known as authoritarian

leadership, is a leadership stylecharacterized by individual control over all decisions and
little input from group members. Autocratic leaders typically make choices based on their
ideas and judgments and rarely accept advice from followers. Autocratic leadership
involves absolute, authoritarian control over a group.
7. Bureaucratic leadership is leadership based upon fixed official duties under a hierarchy
of authority, applying a system of rules for management and decision-making. This style
of leadership can be advantageous in highly regulated lines of business, and it can be an
efficient management style in companies that don't require much creativity or innovation
from employees.

BEHAVIORAL ISSUES

1. Influence Tactics: The organizational leaders have to successfully implement the strategies
and achieve the objectives. Therefore the leader has to change the behavior of superiors,
peers or subordinates. For this they must develop and communicate the vision of the
future and motivate organizational members to move into that direction.
2. Power: it is the potential ability to influence the behavior of others. Leaders often use
their power to influence others and implement strategy. Formal authority that comes
through leaders position in the organization (He cannot use the power to influence
customers and government officials) the leaders have to exercise something more than that
of the formal authority (Expertise, charisma, reward power, information power, legitimate
power, coercive power).

3. Empowerment as a way of Influencing Behavior: The top executives have to empower

lower level employees. Training, self-managed work groups eliminating whole levels of
management in organization and aggressive use of automation are some of the ways to
empower people at various places.
4. Political Implications of Power: Organization politics is defined as those set of activities
engaged in by people in order to acquire, enhance and employ power and other resources

166
 to achieve preferred outcomes in organizational setting characterized by
uncertainties. Organization must try to manage political behavior while implementing
strategies. They should;
1. Define job duties clearly.
2. Design job properly.
3. Demonstrate proper behaviors.
4. Promote understanding.
5. Allocate resources judiciously.
5. Values and Culture: Value is something that has worth and importance to an individual.
People should have shared values. This value keeps everyone from the top management
down to factory persons on the factory floor pulling in the same direction.
6. Ethics and Strategy: Ethics are contemporary standards and a principle or conducts that
govern the action and behavior of individuals within the organization. In order that the
business system functions successfully the organization has to avoid certain unethical
practices and the organization has to bind by legal laws and government rules and
regulations.

CORPORATE CULTURE AND VALUES

According to Fred David, Organizational culture is a pattern of behavior that has been developed
by an organization as it learns to cope with its problem of external adaption and internal integration
and thus need to be taught to its new members so that they inhibit the correct way to perceive think
and feel.

Every organization has its own unique and different culture. Organizational culture is a set of
values and belief that the members of an organization share in common. It is often said to be similar
to the individual personality. Like personality influence the behavior of an individual, shared
assumption and belief influences the opinions and action within firm.

The elements of company culture contain values and beliefs:

Values: Values are basic assumption about what is right, good and desirable. For example, self-
respect honesty and obedience etc. Values are generally being stated in organizations mission,

167
objectives and strategies. They are vague in nature, for example customer satisfaction or service
to the community.

Belief:Belief is specific assumptions about the world and how it actually works. They are generally
derived from personal experience and can be reinforce by it. For example most of the organization
does not take over or purchase the company or firm who was in unethical practice as it may affect
the goodwill of the company.

Strength of the Culture:

Organizational strength of the culture is determined by the thickness; extend of sharing and clarity
of ordering. Thick culture with many layers of shared assumption and values have stronger
influence on the behavior of individual and vice versa. The extent of sharing talks how widely the
shared assumption has been shared. More widely shared culture has greater impact on behavior as
more people are guided by it. A member of a clearly ordered culture is sure of which values to
prevail in which situations. So a strong culture depicts thicker, more widely shared and more
clearly ordered and has a greater influent on the behavior.

Fit between Strategy and Culture:

There is no best corporate culture as such, an optimum culture is one that best support the mission
and strategy of the company, like organizational structure and leadership, culture should also be
match with the strategy in order for effective implementation of strategy. If strategies are
capitalized on capital strength like strong work ethic or highly ethical belief, the management can
easily implement changes. Before implementation, it is necessary to assess the strategy and culture
match. It include considering the certain questions:

- Whether the new strategy is compatible with the existing culture? If not
- Can the culture be modify to make it more compatible? If not
- Is management able to make major organizational changes? If not
- Is management still committed to implement? If not
- Formulate a new other strategy and manage cultural change.

Creating StrategySupportive Culture:

168
The strategies are meant to implement, once it is established is very difficult to change. It is the
responsibility of strategist to build one which is compatible with organizational existing culture; if
it is not compatible it is better to change the culture that hinders effective execution of strategy.
Research states that new strategies which are often market driven and dedicated by competitive
force is usually more effective. Thus changing a firm culture is appropriate to fit a new strategy
rather than changing a strategy to fit an existing culture.

Changing a Culture: Aligning culture with strategy is one of the toughest tasks of management as
the deeply held values and shared assumption are deeply anchored and takes certain period of time
to root out unwanted behavior and implant behavior that are more strategy oriented. Changing of
problem cultures involves steps like

- Identifying the culture that is strategy supportive and those that are not
- Define desired behavior and key features of new culture
- Communicate the existing culture problem and importance of new behavior
- Follow action to modify the culture

Managing Culture Change: Once the culture is modified as per the requirement, top management
plays very important role in tackling the major cultural changes by clearly communicating with
the employee about the importance of changed culture for strategy implementation, visibly
praising and rewarding those who display new culture norms, recruiting and hiring those who have
the desired culture values or displays same culture values and revising organization policies
&procedure that support strategies

POWER AND SOCIAL RESPONSIBILITY STRATEGY

Power Strategy

A basic human need maybe satisfied through power and influence. According to Alfred Adler
human behavior can be explained in terms of human need for competence and control over ones
environment. The environment involves other people, therefore this need can be fulfilled through
influencing, manipulating, and controlling these people.

Power is the ability to influence others.

169
 Strategist require power in order to implement strategies, because knowledge provides power and
avoids domination and manipulation by others since strategist should influence and not get
influenced by others. Knowing about power concepts helps the strategist in the influence process,
clearly a vital part of the job. It is also important that strategists be able to influence superiors and
even persons outside organization.

Example: Narendra Modi tried to influence and manipulate people to vote for him so that he can
be a leader and control the country.

Individuals power springs from five sources which they called power bases. The degree to which
managers and others within an organization depend upon each of these bases makes the
organization culture.

Classification of Power

Types of Power

Expert power Coercive power Legitimate power Referent power Reward power

1. Expert Power:Expert power is influence ability based upon the perception by others that the
strategist has special competence, knowledge or expertise regarding whatever matter an
influence attempt concerns. It is the perception of the subordinates that one possesses superior
skills and knowledge. Example: If a financial analysis holds a specialization in that area
everybody has to listen to him. However, to keep this status and power experts need to continue
learning and improving their skills and knowledge.

170
2. Reward Power:It is the power arising from the perception by others that the strategist can
produce positive outcomes for them and that the rewards they receive are upon their conformity
with the strategists desires. This power is exercised by giving rewards and recognition.
3. Coercive power: It is the influence ability based upon the perception that the strategist will
mediate negative outcomes for those who do not behave as desired. The strategist who
emphasizes reward and coercive power simply assume that others seek their own interests,
they have a perception that they can control the positive and negative outcomes for others.
However, reward power is more successful in motivating others for desired outcomes.
4. Legitimate power:This kind of power is based on a belief that strategist has a legitimate right
to control or influence the behavior of others. The assignment of titles of supremacy typically
enhances the legitimate power base. Legitimate power is not based on upon the rational serving
of self-interest, but on the concept of oughtness. Example: a CEO exercises a legitimate power
over the organization.
5. Referent Power:It is the influence ability which derives from a liking for or a desire to be like
the power holder. This power extends to include charisma, personality etc. The strategist who
depends upon referent power will tend to emphasize friendships, positive mental attitudes, and
other attributes which cause other to emulate or like the strategist. The referent power base is
largely derived from emotional attachment to the strategist.

Coalitions

The temporary formation of persons, groups for some common action. In organization it means
bringing together people, departments. The management pyramid, with each level of mangers
reporting to a smaller number of more powerful managers until the top division heads and vice-
presidents report to an all-powerful chief executive. It is an alliance of persons within an
organization which is not prescribed by the formal organizational structure.

SOCIAL RESPONSIBILITY STRATEGY

The notion of social responsibility as it applies to business concerns, a companys duty to operate
by means that avoid harm to stakeholders and the environment and further to consider the overall
benefit of the society in its decisions and actions.

171
The essence of socially responsible business behavior is that a company should strive to balance
the benefits of strategic actions to benefit shareholders against any possible adverse impacts on
other stakeholders to positively mitigate any harmful effects on the environment that its actions
and business may have.

A companys menu for crafting its social responsibility strategy includes:

Efforts to employ strategy and strategy and observe ethical principles in operating the
business.
Making charitable contributions, donating money and the time of company personnel to
community service endeavors, supporting various worthy organizational causes, and
reaching out to make a difference in the lives of the disadvantaged.
Actions to protect or enhance the environment and, in particular, to minimize or eliminate
any adverse impact on the environment stemming from the companys own business
activities.
Actions to create a work environment that enhances the quality of life for employees and
makes the company a great place to work.
Actions to build a workforce that is diverse with respect to gender, race, national origin,
and perhaps other aspects that different people bring to workplace.

LINKING STRATEGY AND SOCIAL RESPONSIBILITY

A companys social responsibility strategy is defined by the specific combination of socially

beneficial activities it opts to support with its contributions of time, money and owner resources.

It is logical for management to match the companys social responsibility strategy to its core
values, business mission, and overall strategy. Theres plenty of room for every company to make
its own statements about what charitable contributions to make, what kinds of community service
projects to emphasize, what environmental actions to support, how to make the company a good
place to work; where and how workforce diversity fits into the picture, and what else it will do to
support worthy causes and projects that benefit society.

172
At Starbucks, the commitment to social responsibility is linked to the companys strategy and
operating practices via tagline Giving back to our communities is the way we do business top
management makes the theme come alive via the companys extensive community building
activities, efforts to protect the welfare of coffee growers and their families, a variety of recycling
and environmental conservation practices, and the financial support it provides to charities and the
disadvantaged through the Starbucks foundation.

It is common for companies engaged in natural resource attraction, electric power extraction,
forestry and paper products, motor vehicles, and chemicals production to place more emphasis on
addressing environmental concerns than say, software and electronic firms or apparel
manufacturers. Companies whose business success is heavily dependent on high employee morale
or attracting and retaining the best and brightest employees are somewhat more prone to stress the
well-being of their employees and foster a positive, high energy work place environment that
elicits the dedication and enthusiastic commitment of employees.

Example Ernest and young one of the four largest global accounting firms stresses its people first
work force diversity strategy that is all about respecting differences, fostering individuality,
promoting inclusiveness so that its 105000 employees in 140 countries can feel valued, engaged,
and empowered in developing creative ways to serve the firms clients.

Every companys version of being socially responsible is unique.

Business Benefits of Being Socially Responsible

Whatever the merits of the moral case for socially responsible business behavior, it has long being
recognized that it is in the enlightened self-interest of companies to be good citizens and devote
some of their energies and resources to the betterment of such stake holders as employees, the
communities in which it operates, and society in general. There are several reason why the exercise
of social responsibility is good business:

1. It generates internal benefits:Companies with deservedly good reputations for contributing

time and money to the betterment of society are better able to attract and retain employees
compared to companies with tarnished reputations. Some employees just feel better about
working for a company committed to improving society.

173
 Economic benefits include lower cost for staff recruitment and training. Starbucks is said to
enjoy much lower rates of employee turnover because of its full benefit package for both part-
time and full time employees. Management efforts to make Starbucks a great place to work,
and companys social responsible practices. Making a company a great place to work pays
dividends in the form of higher worker productivity, more creativity and energy on the part of
the workers and greater employee commitment to the companys business mission or vision or
success in the market place.
2. It reduces the risk of reputation damaging incidence and can lead to increased buyer
patronage:Firms may well be penalized by employees, consumers and shareholders for actions
that are not considered socially responsible. When a major oil company suffered damage to its
reputation on environmental and social grounds, the CEO repeatedly said that the most
negative impact the company suffered and the one that made him fear for the future of the
company was that the bright young graduates were no longer attracted to work for the
company. Consumer, environmental and human rights activist groups are quick to criticize
businesses whose behavior they consider to be out of line, and they are adept at getting their
message into the media and on to the internet.
3. It is in the best interest of the shareholders:Well-conceived social responsibility strategies work
to the advantage of shareholders in several ways. Socially responsible business behaviors
helps avoid or prevent legal and regulatory actions that could prove costly ad burdensome,
increasing number of mutual funds and pension benefit managers are restricting their stock
purchases to companies that meet socially responsible criteria.

Conclusion

In some companies that take social responsibility seriously can improve their business reputations
and operational efficiency while also reducing their risk exposure and encouraging loyalty and
innovation. Companies that take special pain to protect the environment beyond what is required
by law, are active in community affairs, and are generous supporters of charitable causes and
projects that benefit society are more likely to be seen as good investments and as good companies
to work for or do business with.

ETHICS BUILDING A CAPABLE ORGANIZATION

Ethics
174
Ethics involves concepts of right and wrong, fair and unfair, moral and immoral. Most people and
most societies consider lying, cheating, stealing and harming others to be unethical, immoral and
socially unacceptable. The issue here is how do notions of right and wrong, fair and unfair, moral
and immoral, ethical and unethical translate into judging management decisions and the strategies
and actions of companies in the market place.

What do we mean by business ethics???

Business ethics is the application of the general ethical principles and standards to business
behavior. It does not really involve a special set of ethical standards applicable only to business
situations. A business should not make its own rules about what is right and what is wrong. If
being ethical entails not harming others, then recalling a defective or unsafe product is ethically
necessary and failing to undertake such a recall or correct the problem in future shipments of the
product is likewise unethical.

The three categories of management morality:

Three categories of managers stand out with regard to ethical and moral principles in business
affairs:

The moral manager: Moral managers are dedicated to high standards of ethical behavior
both in their own actions and in their expectations of how the companys business is to be
conducted. They see themselves as stewards of ethical behavior and believe it is important
to exercise ethical leadership.
The immoral manager: immoral managers are actively opposed to ethical behavior in
business and willfully ignore ethical principles in their decision making. They view legal
standards as barriers that must be overcome. Prone to pursuing their own self-interest,
immoral managers are living examples of capitalistic greed, caring only about their own or
their organizations gains and success.
The amoral manager: This manager lies between the moral managers and the immoral
managers. They dont know whether to go ethical or unethical. According to the situation
they act as a moral manager or immoral manager. Most of the managers comes under this
category.

175
Drivers of Unethical strategies and business behavior?

Obsessive pursuit of personal gain, wealth and selfish interests: the people who work for
their own self-interests and gains will move away from the track of ethics. In order to
maximize their wealth they will choose unethical ways.
Heavy pressures on company managers to meet their targets: In order to meet the annual
and quarterly expectations of the analysts the company should perform well. In order to
meet the expected levels of analysts the company might be going in an unethical way. If
the company is not performing well the investors will move on to other companies. So the
set target should be achieved by the company within the stipulated time.
Company cultures that put the bottom line ahead of ethical behavior: when the company
offers an unethical work climate, the workers have a company approved license to ignore
whats right and engage in unethical practices.

Business ethics in the global community

Concept of Ethical Universalism: According to the school of ethical universalismsame

standards of what is right and what is wrong are universal and transcend most cultures,
societies, and religions. Universal agreement on basic moral standards allows a
multinational company to develop a code of ethics that is applied evenly across its
worldwide operations.
Concept of Ethical Relativism: According to the school of ethical relativism what is ethical
or unethical must be judged in light of local moral standards and can vary from one country
to another. Companies a code of conduct based upon the principle of ethical relativism
assume that local morality is an adequate guide for ethical behavior.
Integrative Social Contracts Theory: According to the integrative social contracts theory,
the ethical standards a company should try to uphold are governed by both
A limited number of universal ethical principles that put ethical boundaries on actions and
behavior in all situations.

176
UNIT- 6

STRATEGY EVALUATION AND CONTROL.

177
Definition

Strategy evaluation must make it as easy as possible for managers to revise their plans and reach
quick agreement on the changes.
By Dale McConkey
That is how strategic options can be evaluated and subsequently monitored and controlled by
organizations in order to achieve their desired goals.

MEANING

The process of monitoring corporate activities and performance results so that actual performance
can be compared with desired performance.

NEED FOR STRATEGY EVALUATION:

Wrong postulation in planning:

Planning refers to the blue print of future actions. so planning is the vital process to be done
effectively.
Laxities on the part of managers
It is intended to be something nut managers perceive as something else. it creates a problem in
future.
To develop right reward system
It is a motivational factor which encourages all employees to do their job effectively.
Formulation of new strategies
Once all the strategies are achieved new new strategies should be formulated to adjust the
uncertain changes.
Modifying the present strategies
Future is uncertain so in order to overcome the deviations all policies should be modified.
Integration of individual tasks
All the work accomplished by each individual will be integrated in order to achieve the goals of
organization.
Keeping check on validity of strategic choice
Validity of all strategy plays a crucial role in an organization. If strategy is good all objective can
be reached effectively.
Taking supporting decisions
In order to have proper process the organization should consult all decisions from various groups
of employees.

Types of evaluation criteria:

Suitability: would it work?

Acceptability: can it be made to work?
Feasibility: will they work?

178
Is the strategy suitable?

Suitability of strategy can be assessed in two stages:

Establishing the logic for the strategic option in its own context.
Determining the merits of an option in relation to others available.

Determinants of suitability:

Life cycle analysis:

It is a matrix of industry life stages and competition position. Industry life cycle includes all four
stages .they includes: start up stage, growth stage, maturity stage, decline stage. Competition
position includes dominant, strong, favorable, tenable, and weak. All these forces help to determine
the suitability of a strategic option.

Positioning:
Positioning refers to the competitive posture the firm takes in the market place and it is critical in
determining the suitability of the strategy. Degree of competition level, the level of risk etc.

Value chain analysis:

Analysis and control of value chain particularly in terms of value creation and cost of value
creation it is very important when assessing the strategic capability of an organization. The linkage
between value activities is just as vital as the competence in the separate activities in order to create
synergy.

Portfolio analysis:
Evaluating specific options for the future can be done by using the portfolio matrix and
long term rationale of business department can be highlighted. It can be used to determine how
to create sufficient cash cows in order to nurture stars which generally requires an investment
of funds.

Business profile:
Business profile requires analysis of those factors associated with this business. Like market share,
risk level, profitability, high capacity utilization, competition etc.

IS STRATEGY ACCEPTABLE

Acceptability of strategies can be assessed in three broad ways:

1. Analyzing return:
There are a number of different approaches to the analysis of return such as

179
 A. Profitability analysis:

Return on capital employed:

It measures how efficiency a company can generate profits from its capital
employed by comparing net operating profit to capital employed.it also helps to know the return
for the amount invested.

Formula:

ROCE= Net operating profit

capital employed

Capital employed= Total assets-current liabilities

Pay back per

Pay back period is a financial or capital budgeting ratio that calculates the number of days
required for an investment to produce cashflows equal to the original investment cost.

Formula: PBP= Initial investment

Annual cash flow

Discounted cash flow:

Discounted cash flow analysis is a process of calculating the present value of an investments
future cash flows in order to arrive at a current fair value estimate for the investment.

Formula:

DCF= CF1 +CF2 + - - - - - - - CFn

(1+r) 1 (1+r) 2 (1+r)n
It can serve as a reality check to the fair value prices found in brokerss report.
It helps us to think through the factors that affect a company sales growth and the profit margin.
It also consider discount rate, which depends on a risk- free interest rate and companies cost of
capital and the risk in its stock.

180
 B. Cost-benefit Analysis:

It is used to evaluate the total anticipated cost of a project compared to the total expected benefits
in order to determine whether proposed implementation is worthwhile or not.

There are 3 steps to calculate

Potential costs incurred for implementing a proposed action must be identified. It includes
monetary cost and non-monetary cost.

Monetary cost are the cost incurred for the implementation and the operation of the project. Ex-
Start-up fees, licenses, training, travelling etc
Non-monetary cost are the cost which includes market saturation and potential risk cost.
Anticipated benefits should be associated.
It includes monetary benefits and non-monetary benefits.

Monetary benefits are the benefits experienced after implementation of the project.

Ex-Direct profit from sale of products, contribution from investors.

Non-monetary benefits are the benefits which are likely to experience.

Ex- Greater customer satisfaction.

Subtract (costs-benefits) to know whether it is positive or negative.

Total cost >Total benefit = project is not worth

Total cost >Total benefit = Revaluate the costs and benefits identified

Total cost <Total benefit = Accept

C. Shareholders value analysis (SVA):

It is one of the several nontraditional metrics being used in todays business. It determines the
calculation of the value of a company made by looking at the returns it gives to its shareholders.

Calculation:

= Net operating profit after tax-cost of capital (based on weighted average cost of capital)

181
Shareholders value analysis takes a long-term financial view on which to base strategic decisions.

It forces the organization to focus on the future and its customers.

2. Analysing Risk:

The risk which the organisation faces in pursuing a particular strategy is an important
criterion to determine the acceptability of a strategy. Some of the ways in which the risk can be
assessed as part of an evaluation of specific options are:

A. Financial ratio projections:

The projection of how key financial ratios would change if a specific option were
adopted, can provide useful insights into risk.The level of financial risk created by funding a
proposed strategy from longterm loans can be tested by examining the likelihood of the company
reaching the break-even point and the consequences of falling short that volume go business while
interest on loans continues to be paid.

Four types of financial ratio projections

Profitability Ratio:
It is the ability of the business to generate profit from its revenue and is indicated in the
financial projections by the profit margin ratio.

PMR= Net Income/Revenue.

Profit margin ratio increases the profits also increases.

Efficiency Ratio:
It is used to indicate the ability of the business to perform efficiently and utilise its assets
to generate revenue. Indicated as Asset turnover Ratio.

ATR= Revenue/Assets.
Increase in Assets turnover ratio increases the efficiency in generating revenue.

Leverage Ratio:
It is the ration of how much business owes i.e debt compared to how much the owners
have invested i.e equity. Indicated as debt equity ratio.

182
 DER= Debt/Equity.

Liquidity Ratio:
Whether the business can utilise its current asset to pay its current liabilities as and when
they fall due. Indicated as current ratio.

Current Ratio=Current ratio/Current liabilities.

B. Sensitivity Analysis:
It is an analysis that finds out how sensitive an output is to any change in an input while
keeping other inputs constant.
The technique allows each of the important assumptions underlying a particular strategy to
be questioned and changed.

C. Simulation modeling:
It is a strategic simulation model that attempts to encompass all the factors considered by the
separate analyses into on quantitative simulation model of the company and its environment.

3. Analyzing stakeholders reactions:

Assessing the likely reactions of stakeholders to new strategies ,and the ability to manage
these reactions are again important tools to determine the acceptability of a strategy. For example
a new strategy might require a substantial issue of new shares, which could be unacceptable to
powerful groups of a shareholders ,since it dilutes their voting power.

Acceptability depends on
Understanding the likely reaction of stakeholders
Ability to manage stakeholders reactions

FEASIBILITY:

183
 Strategy feasibility is concerned with the availability of the sources and competencies to drive
strategic option.

1. FUND FLOW ANALYSIS: Fund flow statement is a statement prepared to analyze the
reasons for changes in the financial position of a company in two balance sheet. It shows the
inflow and outflow of funds. It helps to know changes in the working capital. It is long-term
analysis it is a very useful tool in the hands of management for judging the financial and
operating performance of the company. It helps to know whether company has managed funds
properly.

2. BREAK EVEN ANALYSIS: It includes CVP relationship to assess financial feasibility. It

indentifies BEP were revenue equals to cost. This cost includes variable cost and fixed cost. The
profit is known when sales exceed Break even point.

fixed cost = selling price per unit variable cost per unit

It is a simple and widely used technique which is helpful in exploring some key aspects of
feasibility.

3. RESOURCE DEPLOYMENT ANALYSIS: In order to carry out a wider assessment

of the resources and competencies of the organisation in relation to specific strategies, the
requirement of number of alternative future strategies should be laid out ,indicating the key
resources and competencies for each strategy.

CRITERIA FOR EVALUATING STATEGY

CHANGING THE STRATEGY FORMULATION

Strategy formulation is a continuous process, an ongoing system. It is a continuous monitoring and

evaluation of present strategy and begins with the identification and description of that strategy.
The framework of resources, environment, objectives, values and social responsibility is used to
determine whether the changes needed in the present strategy are minor adjustments or major
changes that in necessitate a new strategy.

Why change?

184
Change may be suggested for a variety of reasons such as, the results are less impressive than
might have been expected, there are internal changes in the organization in its deployable
resources; the size of the organization has changed substantially or there are dramatic changes in
the environment. There are many changes that occur more slowly and in many cases change in
prompted by a combination of factors such as: increased competition, change in consumer
behavior and changes in the market structure. These may necessitate new company strategies.

What about the current strategy?

All though analysis may show the viability of the present strategy, a different strategy may be
required in some circumstances to seize a new opportunity created by change in a firms
environment.

How to balance the factor?

During all phases of strategy formulation and implementation the need for balance should be
constantly remembered. In the process of changing the strategy or introducing a new one, firms
may well look at the external situation for opportunities but should not neglect the internal aspect
of strategy. All realities of the present and the past must be included in the development of a
balanced and appropriate strategy.

Strategy must be continuously evaluated. Strategy can neither be formulated nor adjusted to the
changing circumstances without a process of strategy evaluation. Strategy evaluation forms an
essential step in the process of guiding an enterprise.

Each and every business strategy is unique

For example, one of the paper manufacturer might rely on its vast timber holdings to weather any
storm while, another might place primary reliance on modern machinery and an extensive
distribution system. Neither is wrong nor right in any absolute sense. Both may be right or wrong
for the firms question. Strategy evaluation must then rest on a type of situational logic.

RUMLETS CRITERIA OF EVALUATION

185
Many business have trouble in evaluating business strategies since most evaluation methods are
complex and confusing. Rumlets evaluation aims at simplifying this process by using 4 criteria.

1. Consistency: - Strategy should not present any inconsistent goals and policies. Following
guidelines are set in order to determine the inconsistent goals and policies.
If the managerial problems continue despite changes in personnel and if they tend
to be issue based rather than people based then the strategy may be inconsistent.
If success for one organizational department means, or is interpreted to mean,
failure for another department, the basic objective structure is inconsistent.
If, despite attempts to delegate authority, operating problems continue to be brought
to the top for the resolution of policy issues, the basic strategy is probably
inconsistent.
2. Consonance: -Strategy must represent an adaptive response to the external environment
and to the critical changes occurring in it. It focuses on the organization ability to match
and at the same time adopt to its environment while competing with other organization.

3. Feasibility: - The final broad test of strategy is its feasibility. Can the strategy be attempted
within the physical, human, and financial resources available? The financial resources of a
business are the easiest to quantify and are normally the first limitation against which
strategy is tested. It is sometimes forgotten, however, that innovative approaches to
financing expansion can both stretch the ultimate limitations and provide a competitive
advantage, even if it is only temporary. Devices such as captive finance subsidiaries, sale-
leaseback arrangements, and tying plant mortgages to long-term contracts have all been
used effectively to help win key positions in suddenly expanding industries
4. Advantage: - A strategy must provide for the creation and maintenance of competitive
advantage in a selected area of activity. Competitive advantage are normally results of
superiority in one of the three areas 1) resources, 2) skills, 3) position. The idea that the
positioning of ones resources can enhance their combined effectiveness is familiar to
military theorist, chess players and diplomats. Position can also play a crucial role in
organizations strategy. The test of competitive advantage is to see whether the strategy
will allow the organization to capture the value it creates. Competitive strategy is the art of

186
 creating and exploiting those advantages that are most telling, enduring and difficult to
imitate.

Strategy evaluation framework

Reviewing the underlying bases of an organizations strategy could be approached by

developing a revised EFE matrix and IFE matrix.

Internal factor evaluation matrix should focus on change in the organization management,
marketing, financing/accounting, production/operations, research and development and
company information system strengths and opportunities.

External factor matrix should indicate how effective a firms strategy have been in response to
key opportunities and threats.

Numerous external and internal factors can prohibit firms from achieving long term and annual
objectives. Externally, actions by competitors, change in demand, changes in technology,
economic changes, demographic shifts, and governmental actions may prohibit objectives
from being accomplished. Internally, ineffective strategies may have been chosen or
implementation activities may have been poor. Objectives may have been too optimistic. Thus,
failure to achieve objectives may not be the result of unsatisfactory work by managers and
employees. All organizational members need to know this to encourage their support for
strategy evaluation activities.

CHARACTERISTICS OF AN EFFECTIVE EVALUATION SYSTEM

1. Strategy evaluation activities must be economical: - Too much information can just be as bad as
too little information, and too many controls can do more harm than good.

2. Strategy evaluation activities must be meaningful: - They should specifically relate to firms
objectives. They should provide managers with useful information about tasks over which they
have control and influence.
3. Strategy evaluation activities should provide timely information: - on occasion and in some areas,
managers may need information daily. For example, when a firm has diversified by acquiring
another firm, evaluative information may be needed frequently.

187
 4. Strategy evaluation must be designed to provide a true picture of what is happening. For example,
in a severe economic downturn, productivity and profitability ratios may drop alarmingly, while
employees and managers are actually working harder. Strategy evaluations should portray this
type of situation fairly. Information derived from the strategy evaluation process should facilitate
action should be directed to those individuals who need to take actions based on it.

5. Strategy evaluation process should not dominate decisions: - It should foster mutual
understanding trust, and common sense! No department should fail to cooperate with another in
evaluating strategies.

6. Strategy evaluation should be simple, not too cumbersome, and not too restrictive. Complex
strategy evaluation systems often confuse people and accomplish little.

USING COMPUTERS TO EVALUATE STRATEGIES

The usefulness of computers in facilitating strategy evaluation cannot be overestimated. When

properly designed, installed, and operated, a computer network can efficiently acquire information
promptly and accurately. Computers can allow diverse strategy evaluation reports to be generated
for different levels and type of managers.

For example, strategists will want reports concerned with whether the mission, objectives and
strategies of the enterprise are being achieved. Middle managers could require strategy
implementation information, such as whether construction of a new facility is on schedule or
products development is proceeding as expected. Lower level managers could need evaluation
reports that focus on operational concerns such as absenteeism and turnover rates, productivity
rates, and the number and nature of grievances. Computers are being used more and more to
integrate reports and enhance strategy evaluation at all levels in organizations.

STRATEGIC CONTROL

In simple terms, to control is to exercise influence. It is one of the important functions of

management. Controls are established in an organisation in order to ensure that what is planned is
translated into results, to keep a watch on proper use of resources to safeguard the assets and so

188
on. It involves monitoring the activity and measuring the results against pre-established standards,
analysing and correcting the deviations as necessary and maintaining the system.

A strategy is formulated based on several assumptions relating to environmental and

organizational factors and these factors are dynamic and eventful in nature. There is always a
considerable gap between the time a strategy is formulated and implemented. As time elapses there
is a possibility that the assumptions based on which the strategy was framed do not remain valid
or, at least, no longer so valid. Hence, there is need to establish strategic controls to guide the
organization through these events and direct the organization in response to the changes taking
place.

According to Schendel and Hofer, strategic control focuses on two questions, whether

The strategy is being implemented as planned

The results produced by the strategy are those intended

Therefore, strategic control is a process of evaluating the strategy as it is being formulated and
implemented. The basic theme of strategic control is to continually assess the changing
environment to uncover events that may significantly affect the course of an organizations
strategy. It is perpetual than periodical.

Mr. G. Schreyogg and Mr. H. Steinmann in their article titled, Strategic Control: A new
perspective published in the Academy of Management, vol 12, have identified four types of
strategic controls and this classification is widely accepted. Accordingly, the four types of strategic
controls are-

PREMISE CONTROL
IMPLEMENTATION CONTROL
STRATEGIC SURVEILLANCE
SPECIAL ALERT CONTROL

A. PREMISE CONTROL

Premises are assumptions or predictions. Premise control is designed to check systematically and
continuously whether the premises on which the strategy is based are still valid. If a vital premise

189
is no longer valid, the strategy may have to be changed. It is necessary to identify the key
assumptions and keep a track of any change in them so as to assess their impact on strategy and its
implementation. It serves the purpose of continually testing the assumptions to find out whether
they are still valid and take corrective action at the right time. Premise control responsibility can
be assigned to the corporate planning staff. The sooner the invalid premise can be recognised and
rejected, the better are the chances that an acceptable shift in the strategy can be devised. Premise
control involves monitoring of two factors-

a. Environmental factors: some of the factors include interest rates, technology, regulatory,
inflation etc. These factors have a considerable influence over the firms strategy since it is based
on certain key assumptions about them.
b. Industry factors: competitors, suppliers, product substitutes and barriers to entry are a few
industry factors about which strategic assumptions are made. The performance of the firms in a
given industry is affected by the industry factors.

B. IMPLEMENTATION CONTROL

Strategy implementation takes place as a series of steps, programs and investments which requires
allocation of resources. If, at any time, it is felt that the commitment of resources would not benefit
the organization as envisaged, they have to be revised. Thus, implementation control is aimed at
evaluating whether these programs and investments are actually guiding the organization towards
its predetermined objective or not. Implementation control is designed to assess whether the
overall strategy needs to be changed in light of the current available results, due to implementation
carried out so far. It is nothing but rethinking or strategic rethinking to avoid wastes of all kind.

Ex. Maruti Suzuki introducing maruti 800

C.STRATEGIC SURVEILLANCE

Premise control and implementation controls are more focused in nature. On the other hand,
strategic surveillance is a generalised control designed to monitor a broad range of events both
inside and outside the company that are likely to threaten the course of a firms strategy. It can be
done through a broad based, general monitoring on the basis of selected information sources to

190
uncover that are likely to affect the strategy of an organization. Strategic surveillance provides an
on-going broad based vigilance in all daily operations that may uncover information relevant to
the firms strategy.

Ex. Xerox; Avon(The California perfume company)

D.SPECIAL ALERT CONTROL

It is a thorough, and often rapid, reconsideration of the firms strategy because of a sudden or
unexpected event. It is based on a trigger mechanism and should result in an immediate and intense
reassessment of the firms strategy and its current strategic situation. It can be exercised by
formulating contingency strategies and by assigning the responsibility of handling unforeseen
events to crisis management teams. Examples of such events can be the sudden fall of a
government at the central or state level, world war, natural catastrophe, industrial disaster, etc.

Ex. American express

OPERATIONAL CONTROL

Operational control regulates day to day outputs relative to schedules, specifications and costs.
Strategic controls by which top management monitors and guides the basic direction of the
company should be supplemented by a control system at the operational level of strategy
implementation. An operational control system comprises all the operational groups and promotes
operational efficiency. It provides post action evaluation and control over a short time periods-
usually a month to one year. Such controls extend to every level of business activity. It is aimed at
the allocation and the use of organizational resources through an evaluation of the performance of
organisational units.It is more to do with action or performance and aimed at the performance of
the organization as a whole.

The operational control system involves the following steps-

Establishing criteria and standards

Measuring and comparing the performance
Performance gap analysis
Taking corrective measures

191
Types of operational control are-

1. BUDGETING: A budget is statement of planned or estimated expenditure or receipts in respect of

a specific purpose or function over a specific period of time. Budgets themselves do not control
anything but they set standards against which the performance can be compared. There are
different types of budgets which can be prepared in respect of all important activities.

2. SCHEDULING: It is done to allocate limited resources and to sequence interdependent activities.

Scheduling helps to make the optimum use of facilities. It also helps to carry out operations with
minimum inventory and to adhere to delivery schedules.
3. FOCUSING ON KEY SUCCESS FACTORS: the firm focuses on key success factors i.e., critical factors
which contribute to its success such as productivity, quality, employee morale and market share.

Product quality a. Performance data versus specification

b. Percentage of product returns

c. Number of customer complaints

Customer servicea. Delivery cycle in days

b. Percentage of orders shipped complete
c. Field service delays

. Employee moralea. Trends in employee attitude survey

b. Absenteeism versus plan
c. Employee turnover trends

STRATEGIC CONTROL V/S OPERATIONAL CONTROL

BASIS STRATEGIC CONTROL OPERATIONAL CONTROL

1. Basic question Are we moving in right How are we performing?
direction?

192
 2. Aim Provocative, continuous Allocation and use of
questioning of basis direction organisational resources
of strategy
3. Main concern Steering the future direction Action control
of the organisation
4. Focus External environment Internal organisation
5. Time Horizon Long term Short term

6. Main techniques Environmental scanning, Budgets, scheduling

information gathering,
questioning and review
7. Exercise of control Exclusively by top Mainly by executive and
management with lower level middle level management on
support the direction of top
management.

Process of Control/Evaluation:

The process of control for strategy implementation or evaluation is made up of four basic steps

Setting performance standard

Actual performance
Variance analysis
Corrective action

Setting performance standard:

The back drop and objectives of strategy plans are to set the performance standards. This phase
is used for comparing the actual and planned one, and taking corrective actions. In this stage the
strategist are facing with three basic questions in setting performance standards which are: how
standards are to be set? What standards are to be set? And in what terms? The answer for these
three questions are:

1) the key managerial tasks derived from the strategic requirements are to be analysed for
finding the key area of performances for each key area can be set.

193
 2) the type of the standard can be determined by high marking the special requirements for the
performance of the key tasks.

3) performance indicators or parameters are the one which express the special requirements.

The special requirement of having a strategy is to increase the market share. To meet these there
are two indicators which are increase in sales revenue and improving the efficiency of sales force.
The three grand or generic strategies are stability, expansion and retrenchment.

The performance indicators can be of two types:

Quantitative parameters
Qualitative parameters

1. Quantitative parameters:

This parameterare expressed in numerical form. The results are quantified. Such expressions may
be pecuniary and non-pecuniary. The ratios used to measure the highlights of financial health,
productivity, profitability, liquidity, operational efficiency and so on. There are two ways of using
quantitative criteria. One is to compare the present performance with past and one is to compare
the results with industry average.

Examples are fortune 500, business today 500 etc.

2. Qualitative parameters:

These parameters are as important as quantitative. These parameters are subjective and non-
quantifiable which are essential to have subjective evaluation. These parameters are capabilities,
competencies, risk bearing, strategic clarity, flexibility and workability. The mostly used
parameters are consistency, appropriateness and workability which helps In finding out the above
parameters.

Measuring the performance:

The evaluation process operates at performance level as and when action takes
place. The performance standards are a bench mark with which the actual performance is
compared. Measurement of performance is done through accounting, reporting and
communication system. The other significant aspects of measurement relate to the difficulties
turning and periodicity in actual evaluation.

Difficulties relates to standard sets. They should be neither too high nor too low. If they are
too low everybody can achieve it and if it is too high, very few will achieve it. Hence the
standards must be set carefully.

194
 Another dimension is time of evaluation. If too much delay is there for evaluation, it loses its
value, if its too early evaluation is not serving the purpose. The appropriate time for
evaluation is a critical point. In project evaluation, critical points are set as per time of the
schedule.
Another aspect is that of the time interval of evaluation. Most of the performance reports are
annual and says accounts, budget and other information. The plus or minus or nil or zero
evaluation is decided comparing by actual performance with standard performance.

Variance analysis:

This analysis is to point out the variance of actual performance from the standard or budgeted or
expected. These variations may be positive or negative or matching. It is said to positive when the
actual performance is higher than the standards. It is negative when the actual performance is
lower than the standard performance. It is said to be matching when the actual performance is
equal to the standard performance.

The main idea behind variance analysis is to find out the extent of deviation and the causes for
the same so to hold responsible the persons in charge of costs or profits. For presenting the
variance analysis to board members, only selected measurements are picked up is the areas of
finance, marketing, production and personnel. These are presented in a statement in very clear
terms.

Taking corrective actions:

The corrective actions are taken in regard to performance, standards or parameters and strategies
plans objectives.

Correcting the performance calls for further details as to the organisational structure and system
plus behavioural implementation. Generally, performance is the result of numerous factors such
as distortion in resource allocation, laxities in structure and system, the quality of leadership,
motivation approaches. In case the performance is showing red, then it is green signal for
changing structure and systems on hand and leadership style including approaches to motivation.

The standards are changed only after a long gap. There standards may be at unit level or industry
level. It is easier to change unit level standards then industry level as it is micro and macro level
screening.

The discussions on strategy review and evaluation will be almost incomplete if we do not touch
the area of the techniques of strategic evaluation and control on one hand and the role of
supporting system of structure of any organisation.

195
STRATEGIC EVLUATION AND CONTROL

PURPOSE OF STRATEGIC CONTROL

TO HELP TOP MANAGEMENT TO ACHIEVE STRATEGIC GOALS AS PLANNED

SWOT ANALYSIS

TO KNOW THE VISION AND MISSION AND OBJECTIVE OF THE

ORGANISATION

GUIDELINES FOR PROPER CONTORL

CONTROL SHOLUD BE TIMELY- controls should be timely, so that corrective action

can be taken before it is too late. Controls that monitor or measure the factor influencing
performance should be stressed so that advance notice of problem is given.

LONG TERM AND SHORT TERM CONTROL SHOULD BE USED long term and
short term controls should be used and if only short term measures are emphasized, a short
term managerial orientation is likely

CONTROLS SHOULD MONITOR ONLY MEANINGFUL ACTIVITES AND

RESULTS- if co-operation between divisions is important to corporate performance ,
some form of qualitative or quantitative measures should be established to monitor co-
operation

CONTROL SHOULD AIM TO PINPOINTING EXCEPTION- only those activities are results

EFFECTIVE AND CONTROL

CONTROL SYSTEM AND METHODS MUST BE ECONOMICAL- control may be

exercised with the minimum information .superfluous information will cause confusion in
the performance of the function or carrying the work in the department.

196
 CONTROL SYSTEMS AND METHODS MUST BE MEANINGFUL- control are
intended to achieve organizations objective efficiently .they must be related to key
objective of the organization. The management should have continuous access to the
progress information from different departments to ascertain that there exists no gap
between planning and performance.

CONTROL SYSTEM AND REPORTS NEED TO BE SIMPLE

CONTROL SYSTEM FACILITATES ACTION

CONTROL SYSTEM AND METHODS MUST PROVIDE TIMELY INFORMATION

That fall outside a predetermined tolerance range should call for action.

Definition of Management Information System

Management Information System can be defined as a formal method of collecting timely

information in a presentable form. in order to facilitate effective decision making and
implementation, in order to carry out organizational operations for the purpose of achieving the
organizational goal. A management information system is a system design to provide selected
decision orientation information needed by management plan, control and evaluate the activities
of the corporation. It is designed within the frame work that emphasizes profit, planning,
performance planning and control at all levels. It complements the ultimate integration of required
business information sub system both financial with in the company.

Advantages of Management Information System

1. Management information system helps the managers to make planning and control decision.

2. Facilitated planning- management information system improves the quality of plants by

providing relevant information for sound decision making due to increase in size and complexity
of organization managers have lost personal contact with the scenes of operations.

3. Minimize information overload- management information system changes the larger amount of
data into summarized form and thereby avoids the confusion which may arise when manager are
flooded with detailed facts.

4. Bring coordination-management information system facilities integration of specialized

activities by keeping each department aware of the problem and requirement of their department.
it connect all decision centers in the organization.

197
5. Make control easier-it serves as a link between managerial planning and control. It improves
the ability of management to evaluate and improve performance. The use of computers has
increased the data processing and storage capability and reduces the cost.

6. Management information system assembles, processes.stores, retrie, evaluate, and disseminate

the information.

7. It insure that appropriate data is collected from the various sources, processed, and sent further
to all the needy destinations.

8. Management information system helps in strategic planning, management control, operational

control and transaction processing.

9. It helps the clerical personnel in the transaction processing and answer their queries on the data
pertaining to the transaction the status of a particular record and reference on a variety of
documents.

Objectives of Management Information System

1. Management information system main objective is to attain the transaction processing of data
of an organization effectively. Transaction processing is applied in conversion and analysis of raw
data.

2. Management information system is the management of marketing, fianc, production, and the
personnel becomes better trained which result in his efficiency.

3. Management information system is in making the forecasting and long term prospective
planning more effective.

4. It tries to create a structured database in knowledge base for all the people in the organization

Models/ Types of Management Information Systems

1. Accounting management information systems - All levels of accounting managers share all
accounting reports.

2.Financial management information systems - It provide financial information to all financial

managers within an organization include the chief financial officer. The chief financial officer.
The chief financial officer analyzes historical and current financial activity.

3. Manufacturing management information systems - More than any functional area great advance
in technology have impacted operations, as a result manufacturing operations have changed. For
instance, inventories are provided just in time so that great amounts of money are not spent for

198
warehousing huge inventories in some instance raw material are even proceeds on rail load cars
waiting to be sent directly to the factory thus there is no need for warehousing.

4. Marketing management information system - A marketing management information

system support managerial activity in the area of product development, distribution, pricing
decision, promotional effectiveness and sales forecasting more than any other functional area.

5. Human resource management information system - It concern with activity related workers,
managers and other individual employed by an organization because the personnel function relates
to all other areas in business the human resourcemanagement information system playa a valuable
role in ensuring organization system include work-force analysis and planning, hiring, training,
and job assignment.

6. Structure of management information system - The management information system has been
described in terms of support for decision making management activity and organization functions.

7. Conceptual structure - The conceptual structure of a management information system is defined

as a federation of functional subsystem each of which is divided into four major information
processing components transaction processing, operational control information system support,
managerial control information system, managerial control information system and strategic
planning information system which has some unique data files which are used by only that sub
system.

8. Physical structure - The physical structure of an management information system would be

identical to the conceptual structure of all applications consisting of completely separate programs
used by only one function but this is frequently not the case substantial information can be achieved
from

Limitation

1. Aggression - The people may hit back at the system and may even sabotage it by using
equipment incorrectly by putting incomplete information into the system or buy actual destruction
of hardware or software.

2. Projection - It is a psychological mechanism of blaming difficulties on someone or something

else. When employees blame the management information system for problems caused by human
error or other factors unrelated to the system, projection is taking place.

3. Avoidance - It occurs when individuals defend themselves by withdrawing from or avoiding a

frustrating situation. Managers may avoid the system by ignoring its output, in favour of their own
information sources.

STRATEGIC EVLUATION AND CONTROL

PURPOSE OF STRATEGIC CONTROL

199
 TO HELP TOP MANAGEMENT TO ACHIEVE STRATEGIC GOALS AS PLANNED

SWOT ANALYSIS

TO KNOW THE VISION AND MISSION AND OBJECTIVE OF THE

ORGANISATION

GUIDELINES FOR PROPER CONTORL

CONTROL SHOLUD BE TIMELY- controls should be timely, so that corrective action

can be taken before it is too late. Controls that monitor or measure the factor influencing
performance should be stressed so that advance notice of problem is given.

LONG TERM AND SHORT TERM CONTROL SHOULD BE USED long term and
short term controls should be used and if only short term measures are emphasized, a short
term managerial orientation is likely

CONTROLS SHOULD MONITOR ONLY MEANINGFUL ACTIVITES AND

RESULTS- if co-operation between divisions is important to corporate performance ,
some form of qualitative or quantitative measures should be established to monitor co-
operation

CONTROL SHOULD AIM TO PINPOINTING EXCEPTION- only those activities are

results that fall outside a predetermined tolerance range should call for action.

EFFECTIVE AND CONTROL

200
 CONTROL SYSTEM AND METHODS MUST BE ECONOMICAL- control may be
exercised with the minimum information .superfluous information will cause confusion in
the performance of the function or carrying the work in the department.

CONTROL SYSTEMS AND METHODS MUST BE MEANINGFUL- control are

intended to achieve organizations objective efficiently .they must be related to key
objective of the organization. The management should have continuous access to the
progress information from different departments to ascertain that there exists no gap
between planning and performance.

CONTROL SYSTEM AND REPORTS NEED TO BE SIMPLE

CONTROL SYSTEM FACILITATES ACTION

CONTROL SYSTEM AND METHODS MUST PROVIDE TIMELY INFORMATION

201
 UNIT-7:

Organizational Development and Change

202
MEANING OF ORGANIZATIONAL STRUCTURE
An organizational structure is defined as how the activities such as task allocation, coordination
and supervision are directed towards the achievement of organizational aims. It is also considered
as the perspective through which individuals see their organization and its environment.

Depending upon the objectives of an organization, the structures can be designed. The structure of
an organization will determine the modes in which it operates and performs. Organizational
structure allows the expressed allocation of responsibilities for different functions and processes
to different entities such as the branch, department, workgroup and individual. Organizational
structure affects organizational action in two big ways:

First, it provides the foundation on which standard operating procedures and routines rest.
Second, it determines which individuals get to participate in which decision making
processes, and thus to what extent their views shape the organizations actions.

EVOLUTION OF ORGANIZATIONAL STRUCTURE

The evolution of organizational structures can be traced back to the ancient times, when hunters
went out in groups. There was a certain order in how they carried out their hunting tasks. Though
it was unknown to them, there was coordination and an organizational structure present.

It was during the 1900s, when the concept of mass production started to take root, thinkers and
industry leaders at the time looked into ways to increase productivity while maintaining efficiency
throughout the production process. Henry Fayol of France likened the process to resemble that of
a machine-well oiled, it will operate smoothly and yield better results. The oil, in this case would
be a structure that will keep operations going smoothly. Fayol introduced concepts like chain of
command, specialization of task, and separation of jobs, power and authority.

203
IMPORTANCE OF ORGANIZATIONAL STRUCTURE

An organizational structure lends organizational identity to the members. Members will

feel that they are part of something solid or a cohesive unit. It displays the working
relationships that are in effect in the flow of work within the organization, so they will
know exactly where they are supposed to be or what their roles are. In effect, this also
clears up issues regarding responsibilities and accountabilities.
An organizational structure provides clear guidelines. Essentially, it sets out the scope of
acceptable behavior of members within an organization. Members refer to the structure to
get an idea how things work, or what rules should prevail in certain situations. This ensures
an improvement of the operational efficiency of the members and the company or
organization.
An organizational structure aids in decision-making. After all, it is considered as an
operations manual of guidebook. Decisions can be made more easily if they have
something solid- the structure- to base on.
An organizational structure facilitates the growth of the organization. For the precise
reason that it serves as the guide for the company, it provides direction on how certain
matters or issues must be resolved.
ELEMENTS OF ORGANIZATIONAL STRUCTURE

1. Work specialization: It is otherwise also referred to as division of labor. It is described

as the degree to which activities in the organization are subdivided into separate jobs. The
essence of work specialization is that rather than an entire job being done by one individual,
it is broken down into a number of steps, with each step being completed by a separate
individual. Individuals hence specialize in doing part of an activity rather than an entire
activity.
Example: Ford motors; Henry ford became rich and famous by building automobiles on an
assembly line. Every ford worker was assigned a specific, repetitive task. By breaking jobs
up into small standardized tasks, which could be performed over and over again, Ford was
able to produce cars at the rate of one every 10 seconds, while using employees who had
relatively limited skills.

204
 2. Departmentalization: Once an organization has divided jobs up through work
specialization, then it needs to group these jobs together so that common tasks can be
coordinated. The basis by which jobs are grouped together is called departmentalization. It
can be in terms of functions, geography, product and process.

3. Chain of command: The unbroken line of authority that extends from the top of the
organization to the lowest echelon and clarifies who reports to whom. It includes 2
complementary concepts i.e., authority and unity of command.
Authority: The rights inherent in a managerial position to give orders and to expect
the orders to be obeyed.
Unity of command: the idea that a subordinate should have only one superior to
whom he or she is directly responsible.

4. Span of control: The number of subordinates a manager can efficiently and effectively
direct. This is important in an organization because it determines the number of levels and
managers an organization has. All things equal, the wider or larger the span, the more
efficient the organization.

5. Centralization: The degree to which decision making is concentrated at a single point

in the organization. The concept includes only formal authority- that is, the rights inherent
in ones position. If the top management makes the organizations key decisions with little
or no input from lower level personnel, then the organization is centralized.

6. Decentralization: The actions can be taken more quickly to solve problems, more
people provide input into decisions, and employees are less likely to feel alienated from
those who make the decisions that affect their work lives. E.g. big retailers like sears and
JC Penney have given their store managers considerably more discretion in choosing what
merchandise to stock.

7. Formalization: It refers to the degree to which jobs within the organization are
standardized. If a job is highly formalized, then the job incumbent has a minimum amount
of discretion over what is to be done, when it is to be done, and how it is to be done. There
are explicit job descriptions, lots of organizational rules, and clearly defined procedures
covering work processes in organizations in which there is high formalization. Where this
function is low, job behaviors are relatively non programmed and employees have a great
deal of freedom to exercise discretion in their work.

TYPES OF ORGANIZATIONAL STRUCTURES

205
 Simple structure/Entrepreneurial structure
Bureaucracy
Matrix structure
Functional structure
Divisional structure
Network structure
Team structure
Boundary less structure

1. SIMPLE STRUCTURE
It revolves around the founder of the firm. It is a centralized structure in which the founder or
entrepreneur takes all the major decisions. The founder possesses some technical expertise or
specific knowledge that is the basis for the organizations existence. It is mostly practiced in small
businesses. It has a low degree of departmentalization, wide spans of control, little formalization.
It usually has two or three vertical levels, loose body of employees and one individual in whom
the decision making authority is centralized. It is flexible, inexpensive to maintain and
accountability is clear. The disadvantages are that it is difficult to manage and make decisions as
organization grows bigger. It is risky also as everything depends on one person. E.g. Jack
Goldmens store where Jack Gold who is the owner and manager of the store employs five full-
time salespeople, a cashier and extra personnel for weekends and holidays.

2. BUREAUCRACY
It is characterized by highly routine operating tasks achieved through specialization, very
formalized rules and regulations, tasks that are grouped into functional departments, centralized
authority, narrow spans of control and decision making that follows the chain of command. The
key concept that underlies all bureaucracies is standardization i.e. standardized work processes for
coordination and control. E.g. U.S Postal services relies on standardized work processes for
coordination and control. Postal workers follow formalized rules and regulations in performing
their routine operating tasks.

3. MATRIX STRUCTURE
It involves dual chain of command. Individuals are expected to report to two managers: their own
functional manager and a project manager. It is an attempt to increase organizational flexibility to
meet the needs of rapidly changing environment. In theory, this structure increases speed of
decision making, facilitate innovation and enhance responsiveness to the external environment. In
reality, it can be complex and difficult to implement effectively. The major disadvantage of this

206
 structure is that it creates role incompatibility and role ambiguity as well as role overload. Members
in a matrix structure have a dual assignment- to their functional department and to their product
groups. E.g. a professor of accounting who is teaching an undergraduate course may report to the
director of undergraduate programs as well as to the chairperson of the accounting department.

4. FUNCTIONAL STRUCTURE
It is appropriate for an organization which produces one or a few related products or services.
Tasks are grouped together according to the functional specialisms such as finance, marketing, and
R&D. A manager will be responsible for a department which comprises these functions. This
structure promotes efficiency through the specialized division of labour. There is high degree of
centralization with each functional manger reporting to the CEO and board of directors. It also has
certain disadvantages like each functional manager focuses only on his department at the expense
of organizational goals. As the organization grows and its range of products expands, coordination
between functions becomes more difficult.

Chief executive officer

personnel
production

marketing finance

5. DIVISIONAL STRUCTURE
As organizations grow and diversify into producing different products for different markets a
more effective and efficient structure is required. This structure comprises individual business
units that include their own functional specialisms and have direct responsibility for their own
performance. It can be in terms of product, market and geographic areas. E.g. organizations that
have adopted a divisional structure by product include DuPont, general motors and Procter and
Gamble. A structure based on market occurs when an organization is concerned to meet the needs
of different customer groups. E.g. HSBC and Barclays bank are organized according to the markets
they serve, corporate customers, small business customers and retail customers. A geographic
structure occurs when the divisions are categorized according to geographic location.

6. NETWORK STRUCTURE

207
 It involves a configuration of outsourced activities that are controlled by a central hub. This is
useful in responding to fast moving and unpredictable environments such as the fashion industry.
The major advantage of this network structure is the flexibility that it provides to organizations
enabling them to respond quickly to the changes in the marketplace. E.g Organizations like Nike
and Benetton both outsource manufacturing activities to specialist firms, while retaining tight
control at the center over the distinctive capabilities. It is also known as virtual organizational
structure.

7. TEAM ORGANIZATIONAL STRUCTURE

When management uses teams as its central coordination device, then it is a horizontal
organization or a team structure. The primary characteristics of the team structure are that it breaks
down departmental barriers and decentralizes decision making to the level of the work team. E.g.
Whole Foods Market, the largest natural foods grocer in the United States, is structured entirely
around teams. Every one of whole foods store is an autonomous profit center composed of an
average of 10 self-managed teams, each with a designated team leader. It provides them with
greater flexibility. Companies like Motorola have also made extensive use of self-managed teams.

8. BOUNDARYLESS ORGANIZATION
An organization that seeks to eliminate the chain of command, have limitless spans of control, and
replace departments with empowered teams. General electrics former chairman, Jack Welch
coined the term at first. This structure heavily relies on information technology and so it is also
referred to as technology based organization or T-form. E.g. Hewlett Packard has adopted this
particular structure. When fully operational, the boundary less organization breaks down barriers
to external constituencies like suppliers, customers, regulators and barriers created by geography.
An example of Coca Cola Company can also be seen. Coca cola sees itself as a global corporation
and not as a US or Atlanta company.

NEED FOR ORGANIZATION CHANGE

It is a process in which an organization optimizes performance as it works toward becoming its
ideal state.

Why does an organization need organizational change (Jones, 2004) from a passive perspective,
organizational change occurs as a reaction to an ever-changing environment or as a response to a
current crisis situation? On the other hand, a more proactive viewpoint is that it is triggered by a
progressive manager. Furthermore, organizational change is especially evident when the
organization has just undergone a transfer of executive power (Haveman, Russo & Meyer, 2001).

There are a number of reasons which require a need for change following are a few of: -

208
1. Crisis: Obviously September 11 is the most dramatic example of a crisis which caused
countless organizations, and even industries such as airlines and travel, to change. The
recent financial crisis obviously created many changes in the financial services industry as
organizations attempted to survive.
2. Performance Gaps: The organization's goals and objectives are not being met or other
organizational needs are not being satisfied. Changes are required to close these gaps.
3. New Technology: Identification of new technology and more efficient and economical
methods to perform work.
4. Identification of Opportunities: Opportunities are identified in the market place that the
organization needs to pursue in order to increase its competitiveness.
5. Reaction to Internal & External Pressure: Management and employees, `particularly
those in organized unions often exert pressure for change. External pressures come from
many areas, including customers, competition, changing government regulations,
shareholders, financial markets, and other factors in the organization's external
environment.
6. Mergers & Acquisitions: Mergers and acquisitions create change in a number of areas
often negatively impacting employees when two organizations are merged and employees
in duel functions are made redundant.
7. Change for the Sake of Change: Often a times an organization will appoint a new CEO,
in order to prove to the board he is doing something, he will make changes just for their
own sake.
8. Sounds Good: other reason organizations may institute certain changes is that other
organizations are doing so (such as the old quality circles and re-engineering fads). It
sounds good, so the organization tries it.
9. Planned Abandonment: Changes as a result of abandoning declining products, markets,
or subsidiaries and allocating resources to innovation and new opportunities.
10. Mission, Vision, & Strategy: Organizations should continually ask themselves, "What is
our business and what should it be?" Answers to these questions can lead to changes in the
organization's mission (the purpose of its business), its vision for the future (what the
organization should look like), and its competitive strategy.

209
 11. Technology: Organizations can change their technology (for example the way they
produce whatever they sell) in order to increase efficiency and lower cost
12. Human: Behavioral Changes: Training can be provided to managers and employees to
provide new knowledge and skills, or people can be replaced or downsized. As result of
the recent financial crisis, many organizations downsized creating massive unemployment
that continues to this day.
13. Task-Job Design: The way work is performed in the organization can be changed with
new procedures and methods for performing work.
14. Organizational Structure: Organizations can change the way they are structured in order
to be more responsive to their external environment. Again to be more responsive to the
marketplace, this also includes where decisions should be made in the organization
(centralized or decentralized).
15. Organizational Culture: Entities can attempt to change their culture, including
management and leadership styles, values and beliefs. Of all the things organizations can
change, this is by far the most difficult to undertake.
It is important to note that changes in one of these elements will usually have an impact on another
element. As an example, changing technology may require changes in the human-behavioral area
(new knowledge and skills on how to use the technology).

CORPORATE STRATEGIC ALTERNATIVES

1. Growth strategy
Many top managers equate growth with their own personal effectiveness. In other words
growth of their business indicates their effectiveness as managers. The most frequent
increase indicating a growth strategy is to raise the market share and or sales objectives
upward significantly. Some of the reasons why organizations pursue growth strategy are:
Many top executives have stock options as part of their compensations package. They
know that if growth of the business leads to growth in the price of their organizations
stocks, then they will benefit directly through an increase in their own net worth.
These are certain intangible advantages of growth like increased prestige of the
organization, satisfaction to employees, and social benefits.
Growing companies have a high level of prestige in the corporate world.
The growing organizations have always been preferred by investors of various types. These
strategies can be divided into: Internal and External

210
 i. Internal:
An internal growth strategy is one primarily designed to achieve growth in sales, assets,
profits or a combination of all. A corporation can grow internally by expanding its
operations both globally and domestically.
Some of the internal strategies adopted by companies are:

a) Concentration:
In this strategy it concentrates on a single product or service entails in increasing sales,
profits, or market share faster than it has increased in the past. This concentric expansion
can be done through:

1. Market penetration
2. Market development
3. Product development

b) Diversification strategy:
This strategy is a process of entry into a business which is new to an organization either
market-wise, technology-wise or both. Diversification is a quite old strategy.

Patterns of diversification:

There are different types of diversification, they are:

1. Concentric diversification
2. Conglomerate diversification
3. Vertical integration
4. Horizontal integration
Concentric diversification: It is done by adding a new business that is related with the old
business in same form. It can also take place by adding new products or services that are similar
to the organizations present product or services. But to consider this strategy as concentric
diversification the product or service that are added must lie within the organization know-how
and experience in technology, product line, distribution channels or customers base. This can take
place either Market-wise (firm diversifies in a business which can use same marketing and
distribution facilities) or Technology-wise (use similar technology for the new products) or both
(using similar marketing and technological facilities for providing new products).

211
Conglomerate diversification: Conglomerate is a combination of two or more products that
are not closely related by technology or market factors for example, a textile firm diversifying into
cement. In choosing a conglomerate diversification strategy, an organization should proceed with
caution and not diversify merely to be diversified. Conglomerate diversification brings with it
bigness and the difficult management problems associated with bigness and the difficult
management problems associated with bigness. Most frequently this is achieved throughmergers
and joint ventures. Some of the important reasons for adopting this strategy are;

-Supporting some strategic business units with the cash flows from other strategic business units
during a period of development or temporary difficulties.

-Taking the advantage of unusually attractive growth opportunities.

-Increasing the price of an organizations stock.

-Distributing the risk by serving several different markets

-Gaining better access to capital market and better stability or growth in earnings

-Encouraging growth for its own sake or to satisfy the values and ambition of management or the
owners.

-Using the profits of one strategic business units to cover expenses in another strategic business
units without paying taxes on the profits from the first strategic business units.

Vertical integration: This is a combination of technologically disntinct production,

distribution, and other economic processes but limits within a single organization. It is a growth
strategy that involves extending an organizations present business in two possible directions; they
are forward integration and backward integration.

Forward integration: The organization moving into distributing its own products or services.
It develops outlets for the use/sale of its products.

Backward integration: The organization moves into supplying of products or services of the
products or services used in producing it present products or services.

Horizontal integration: This is a growth strategy in which an organization buys one of its
competitors. Horizontal and concentric diversifications are similar strategies in that the new
product or services added to the organization under both the approaches are closely related to the
organizations present product or services. However, under concentric diversification new
products or services are added either through internal development or by the acquisition of an
organization that is producing a product or services that is closely related to, but not directly
competitive with, the acquiring organizations product or services. On the other hand, under

212
horizontal diversification new products or services are added by the purchase of a competitive
organization.

ii. External
An external growth strategy is one designed for the same purposes as internal growth but
involves also acquiring market share, international recognition, and acquiring strengths to
compete more effectively and eliminate its competitors through mergers, acquisitions, and
strategic alliances.

a) MERGERS AND ACQUISITION:

Merger and Acquisition (M&A) are two terms that are jointly uttered, whenever we hear
them. But, Are they both one? The answer is no, Merger means to combine while
Acquisition means to acquire. In business terminology, Merger is a type of
Amalgamation where two entities combine to form a new entity. But, if we talk about
Acquisition, it is similar to a takeover, in which one company acquires another company.
The important differences between Merger and Acquisition are as under:

Basis for
Merger Acquisition
Comparison
The merger means the fusion of
When one entity purchases the
two or more than two
Meaning business of another entity, it is
companies voluntarily to form a
known as Acquisition.
new company.

Formation of a
Yes No
new company

The mutual decision of the Friendly or hostile decision of

Nature of
companies going through acquiring and acquired
Decision
mergers. companies.

Minimum
number of
companies
involved

213
 To decrease competition and
Purpose For Instantaneous growth
increase operational efficiency.

The size of the acquiring

Generally, the size of merging
Size of Business company will be more than the
companies is more or less same.
size of acquired company.

Legal
More Less
Formalities

Merger refers to the mutual consolidation of two or more entities to form a new enterprise with a
new name. In a merger, multiple companies of similar size agree to integrate their operations into
a single entity, in which there is shared ownership, control, and profit. It is a type of amalgamation.
For example M Ltd. and N Ltd. Joined together to form a new company P Ltd.

The reasons for adopting the merger by many companies is that to unite the resources, strength &
weakness of the merging companies along with removing trade barriers, lessening competition and
to gain synergy. The shareholders of the old companies become shareholders of the new company.
The types of Merger are as under:

There are five common types of mergers:

Conglomerate merger
Horizontal merger
Market extension merger
Vertical merger and
Product extension merger
The term chosen to describe the merger depends on the economic function, purpose of the business
transaction and relationship between the merging companies.

a) Conglomerate
A merger between firms that are involved in totally unrelated business activities. There are two
types of conglomerate mergers: pure and mixed. Pure conglomerate mergers involve firms with
nothing in common, while mixed conglomerate mergers involve firms that are looking for product
extensions or market extensions.

Example: A leading manufacturer of athletic shoes, merges with a soft drink firm. The resulting
company is faced with the same competition in each of its two markets after the merger as the

214
individual firms were before the merger. One example of a conglomerate merger was the merger
between the Walt Disney Company and the American Broadcasting Company.

b) Horizontal Merger

A merger occurring between companies in the same industry. Horizontal merger is a business
consolidation that occurs between firms who operate in the same space, often as competitors
offering the same good or service. Horizontal mergers are common in industries with fewer firms,
as competition tends to be higher and the synergies and potential gains in market share are much
greater for merging firms in such an industry.

Example: A merger between Coca-Cola and the Pepsi beverage division, for example, would be
horizontal in nature. The goal of a horizontal merger is to create a new, larger organization with
more market share. Because the merging companies' business operations may be very similar,
there may be opportunities to join certain operations, such as manufacturing, and reduce costs.

c) Market Extension Mergers

A market extension merger takes place between two companies that deal in the same products but
in separate markets. The main purpose of the market extension merger is to make sure that the
merging companies can get access to a bigger market and that ensures a bigger client base.

Example: A very good example of market extension merger is the acquisition of Eagle Bancshares
Inc. by the RBC Centura. Eagle Bancshares is headquartered at Atlanta, Georgia and has 283
workers. It has almost 90,000 accounts and looks after assets worth US $1.1 billion. Eagle
Bancshares also holds the Tucker Federal Bank, which is one of the ten biggest banks in the
metropolitan Atlanta region as far as deposit market share is concerned. One of the major benefits
of this acquisition is that this acquisition enables the RBC to go ahead with its growth operations
in the North American market. With the help of this acquisition RBC has got a chance to deal in
the financial market of Atlanta, which is among the leading upcoming financial markets in the
USA. This move would allow RBC to diversify its base of operations.

d)Product Extension Mergers

A product extension merger takes place between two business organizations that deal in products
that are related to each other and operate in the same market. The product extension merger allows
the merging companies to group together their products and get access to a bigger set of consumers.
This ensures that they earn higher profits.

Example: The acquisition of Mobilink Telecom Inc. by Broadcom is a proper example of product
extension merger. Broadcom deals in the manufacturing Bluetooth personal area network
hardware systems and chips for IEEE 802.11b wireless LAN. Mobilink Telecom Inc. deals in the
manufacturing of product designs meant for handsets that are equipped with the Global System for
Mobile Communications technology. It is also in the process of being certified to produce wireless

215
networking chips that have high speed and General Packet Radio Service technology. It is expected
that the products of Mobilink Telecom Inc. would be complementing the wireless products of
Broadcom.

e) Vertical Merger

A merger between two companies producing different goods or services for one specific finished
product. A vertical merger occurs when two or more firms, operating at different levels within an
industry's supply chain, merge operations. Most often the logic behind the merger is to increase
synergies created by merging firms that would be more efficient operating as one.

Example: A vertical merger joins two companies that may not compete with each other, but exist
in the same supply chain. An automobile company joining with a parts supplier would be an
example of a vertical merger. Such a deal would allow the automobile division to obtain better
pricing on parts and have better control over the manufacturing process. The parts division, in turn,
would be guaranteed a steady stream of business. Synergy, the idea that the value and performance
of two companies combined will be greater than the sum of the separate individual parts is one of
the reasons companys merger.

JOINT VENTURES:
A joint venture (JV) is a formal arrangement between two or more firms to create a new business
for the purpose of carrying out some kind of mutually beneficial activity, often related to business
expansion, especially new product and/or market development. Occasionally two or more firms
lack a necessary component for success in particular environment. The solution to this is the setting
up of JV which are commercial companies created and operated for the benefit of the co-owners.
A JV is the most popular type of contractual alliance among firms; other types include formal
long-term contracts, informal alliances, and acquisitions. JVs may take the form of a corporation,
limited liability company (LLC), partnership, or other structure. Entering into a joint venture
generally does not result in the creation of a new business entity such as a corporation. A joint
venture is not a separate legal entity. Most joint ventures are usually dictated by a contract
agreement. The parties in the contract agreement are called the co-ventures. Liability in a joint
venture is much different than in a more formal business structure such as a corporation.

Example: In 2006, Siemens AG of Germany and Nokia Corp of Finland formed a joint venture
called Nokia Siemens Networks U.S. It is headquartered in Espoo, Greater Helsinki, Finland. The
formation of this joint venture was prompted by the mergers in the industry like that of Alcatel
with Lucent. Its need also arose due to the rising tendency in the low-cost Chinese manufacturers
like Huawei Technologies Co. Ltd. The joint venture was formally announced on June 19, 2006,
and it was officially launched in February, 2007 in Barcelona at the 3GSM World Congress. The
company started operating fully on April 1, 2007 and has continuously operated since then in 150
countries. In 2011, the company was rated by measure of revenues as the fourth largest

216
manufacturer of telecom equipment. In this respect, it is next only to Ericsson, Huawei, and Alcatel
Lucent.

Benefits of Joint Venture

Joint ventures can offer an array of benefits to partner firms through access to new and/or greater
resources including markets, distribution networks, capacity, staff, purchasing,
technology/intellectual property, and finance. Often, one firm supplies a key resource such as
technology, while the other firms might provide other assets.

1. Access to markets: JVs can facilitate increased access to customers. One JV partner might,
for example, enable the partner to sell other goods/services to their existing customers.
International JVs involve partners from different countries, and are frequently pursued to
provide access to foreign markets.
2. Foreign Markets: A common use of JVs is to partner up with a local business to enter a
foreign market. A company that wants to expand its distribution network to new countries
can usefully enter into a JV agreement to supply products to a local business, thus
benefiting from an already existing distribution network.
3. Distribution networks: Similarly, JV partners may be willing to share access to
distribution networks. If one partner was previously a supplier to the other, then there may
be opportunities to strengthen supplier relationships.
4. Capacity: JV partners may take advantage of increased capacity in terms of production,
as well as other economies of scale and scope.
5. Staff: JVs may share staff, enabling both firms to benefit from complementary, specialized
staff. Staff may also transfer innovative management practices across firms.
6. Purchasing: As a result of their increased resource requirements, JV partners may be able
to collectively benefit from better conditions (for example, price, quality, or timing) when
purchasing.
7. Technology/intellectual property: As with other resources, JV partners may share
technology. A JV may also enable increased research, and the development of new
innovative technologies.

217
 8. Finance: In a joint venture, firms also pool their financial resources, potentially
eliminating the need to borrow funds or seek outside investors

Demerits of a Joint Venture

1. There are, however, a number of risks related to joint ventures that can result in loss of
control, lower profits, conflict with partners, and transferability of key assets.
2. Communication: The firms may not communicate their objectives clearly, resulting in
misunderstanding. These communication issues can be exacerbated by geographic and
cultural distance among partner firms, and by the use of language such as us versus them.
3. Strategy: The firms may have divergent strategies for the joint venture, and fail to reach
a set of mutually agreeable objectives regarding business and exit strategies. Risks can also
emerge from a lack of agreed processes regarding governance, accountability, decision-
making, HR, and conflict resolution.
4. Imbalanced resources: The firms may bring imbalanced resources to the table, a source
of great conflict. Another source of conflict may be that the JV disproportionately allocates
resources among the firms. For example, one firm may find that its technology is being
appropriated by another firm.
5. Combination of two Giants: There is always difficulty in combining two giants and trying
to determine which has the greater strength and which benefits most from the venture.
6. Culture: The JV partner firms may have distinct corporate cultures and management
styles, resulting in poor integration and cooperation.

Types of Joint Ventures

Joint Venture Agreements

A JV agreement regulates and sets out obligations and duties of the parties. It is usually concluded
through a collaboration, or a teaming agreement. With this kind of agreement, the businesses
remain separate legal entities but act together to share strengths, minimize risks, and increase
competitive advantages in the marketplace. Whilst competitive advantage can be gained through
a JV agreement that competition will be regulated.

218
Joint Venture Entity

A JV entity is created through the process of incorporation essentially creating a company. Once
the company is incorporated the persons involved in the JV become shareholders of the new entity.
The entity then conducts the business of the joint venture, concludes contracts and is liable if things
go wrong. It is therefore a separate legal entity.

The creation of such a JV involves:

Registering a new company

Drafting a new MOI, and
Drafting a shareholders agreement.
The MOI and the shareholders agreement regulates the relationship between the joint
venture shareholders.
There is some flexibility as to the content of these documents but the whole process is regulated
by the respective countries rules and regulations. This type of JV is a considerable financial
commitment and is therefore more appropriate for JVs that intend to do business together for a
considerable period of time.

STRATEGIC ALLIANCE

Strategic alliance is another form of combining the efforts of two or more organizations to develop
competitive advantage. In strategic alliance two or more partners joint hands together for certain
specified objectives, generally for certain specified period. When these objectives are achieved
partners terminate their alliance. A strategic alliance differs from joint venture in two ways:

First- In Joint ventures all partners bring their equity to establish Joint venture while in strategic
alliance there is no contribution of equity from any partner.

Second- Joint ventures has a distinct identity and continues for long time while a strategic alliance
is of temporary nature and called off when its purpose is over, it works on the principles of virtual
organization.

Stability Growth Strategy:

The organization that pursues a stable growth strategy concentrates only on one product or service.
It is a low risk strategy and is quite effective for successful organizations in an industry that is

219
growing and in an environment that is not volatile. This strategy is commonly adopted by most of
the organization.

Some of the reasons for the use of stable growth strategy are as follows:

-Because, Organization may not wish to take the risks of greatly modifying its present strategy.

-It becomes a threat to people who employ previously learned skills when new skills are required

-Changes in strategy require changes in allocation of resources.

ENDGAME STRATEGY
Endgame strategies are used by organizations in an environment of declining product demand.
This condition can develop in a strategic business unit of an organization or with a product line or
a separate brand. At this level the firms operating costs are reduces to a bottom level. Re-
investment in business is held to a bare minimum. Capital expenditures for new equipment are put
on hold or given low financial priority. Efforts are made to stretch the life of existing equipments
and make do with present facilities as long as possible, promotional expenses may be cut gradually,
quality reduced is not so visible ways, non-essential customers services availed and like.

Basically three strategic options exist for an organization in a developing industry. An organization
using a leadership strategy tries to achieve the above average profitability by becoming one of the
few companies remaining in the industry. The niche strategy attempts to identity a segment at the
declining industry that will either maintain stable demand or decline slowly and that has favorable
industry characters. Under harvest strategy management cuts maintenance, and reduces advertising
and research in order to cut cost and improve cash flow. Organizations following a harvest strategy
ultimately sell or liquidate the business.

RETRENCHMENT STRATEGY
Retrenchment revolves around cutting sales. Retrenchment is a reduction in expenditure in order
to become financial stable. It is a pullback or a withdrawal from offering some current products or
serving some market. It is often a strategy employed prior to as a part of a turnaround strategy. In
other words, Retrenchment is a corporate level strategy that seeks to reduce the size and varsity of
organizations operations.

There are three types of retrenchment strategy

a) Turnaround
b) Divestment
c) Liquidation

220
TURNAROUND
Retrenchment may be done either internally or externally. For internal retrenchment to take place,
emphasis is laid on improving internal efficiency, known as turnaround strategy. There are certain
conditions or indicators which point out that a turnaround is needed if the organisation has to
survive.

These danger signs are:

i. Persistent negative cash flows

ii. Negative profits
iii. Declining market share
iv. Deterioration of the physical facilities
v. Over manning, high turnover of employees and low morale.
vi. Uncompetitive products or services
vii. Mismanagement

Types of Turnaround Strategies

There are six types of turnaround strategies. Four of these relate to the content of the turnaround
and two relate to the change process required for implementing turnaround. There are series of
turnaround strategies:

1. Pursuing cost efficiencies

2. Undertaking asset retrenchment

3. Focusing on core activities

4. Building for the future

1. Analysis of the products

2. Market
3. Production processes
4. Competition
5. Market segment positioning
6. Clear thinking about market place and production logic

221
 7. Implementation of plans by target setting, feedback and remedial action
Ten elements to contribute to turnaround are:

i. Change in top management

ii. Initial credibility- building action
iii. Neutralizing external pressures
iv. Initial control
v. Identifying quick payoff activities
vi. Quick cost reduction
vii. Revenue generation
viii. Asset liquidation for generating cash
ix. Mobilization of the organization
x. Better internal coordination
Dells turnaround strategy
Dells new retail business and supply chain approach. Dell is taking steps to turnaround its business
and recovering from losses and decline in its profit margins. Dell had first announced cost-cutting
measures as early as May last year. In 2007, Dell changed its direct-sales model to offer computers
in retail outlets, after losing the title of top PC maker to Hewlett-Packard Co (HP). Dell is now
beginning to supply similar products to retailers like Wal-Mart, but as a smaller percentage of its
business. Dell is currently the second largest computer retailer in the world behind HP.

Dells well-established direct-sales model allowed buyers to custom-build and purchase computers
online or by phone. Customers could choose custom PCs (almost 500,000 configuration options
or combinations that were assembled) direct from its factory. On the other hand, competitor HP
also sold configure-to-order models but also supplied fixed-configuration PCs direct to retail.

Dells new retail business is not profitable as of now. So Dell aims to make its retail computer
business cost-effective by aligning (reducing) manufacturing costs (cost of goods sold) with its
competitors. But this will be challenging since Dell does not have the same volume in retail
globally (as competitors), and therefore a smaller fixed base to spread costs. Secondly, Dells
supply chain had not exactly been designed for mass distribution. HP uses a diversified supply
chain unlike Dells one supply chain approach.

The return of Michael Dell and the Turnaround Plan. Michael Dell, the founder of Dell returned
as the CEO in January 2007, and the company has a turnaround plan which it promises will yield
$3 billion in annual savings over the next three or four years. Dells plans include depending more
on resellers and contract manufacturers to cut costs and boost sales of which the consumer personal
computer business is expected to contribute more than the current 15 percent of total revenue. (At
222
HP, consumer sales of PCs and printers account for about one-third of revenue. Industry-wide sales
of consumer PCs are growing at about twice the rate of PCs for businesses.) Contract
manufacturers who manage large volumes of orders for big PC makers like HP will be given more
work. But apart from concentrating on designing and manufacturing to cut costs, supply chain and
logistics (distributing PCs for retailers) are key focus areas as scale is less of an issue. The cost-
cutting exercise would also include restructuring of its logistics network and outsourcing more of
its manufacturing operations. Dell also announced its intentions to install a logistics hub in Dubai
to cater to the emerging market regions and also into the east African regions. Developed
economies like the US (though the biggest) are the slow in growth. Last year, the EMEA region
made up less than 25 per cent of its total revenues (70 per cent growth) and is estimated to be $61
billion in 2008.

Dells Turnaround Plan:

Cutting costs: Cutting costs is very important because competitors like HP use the money
from profitable printers operations and take more market risk with designing innovative
products. Moreover, the prices of computers keep going down. One can buy a Dell laptop
now for less than $500.
Moving away from computers internally and outsourcing more of its manufacturing
operations: Dell has manufacturing facilities in Texas, North Carolina, Tennessee, and in
Malaysia, Penang, China and Poland. Its manufacturing operation in Austin, Texas will
shut down. Also HP, IBM and Sun Microsystems already have long-standing partnerships
with outside manufacturing partners. These partners offer customers bundles of computer
hardware, software and services. Dell on the other hand is relatively a new player in this
field and has traditionally depended on its own businesses to design and make computers.
Moving into indirect sales channels like computer resellers and retailers.
Introducing more products: New product introduction is vital since major PC
manufacturers realistically only make money in the first three months (or six in some
cases) of a new product.
Analysts predict that it will take Dell one more year for its PCs to be as cost-effective as
its competitors and stage a recovery.

223
DIVESTMENT
Divestment is also called divestiture or cutback. Divestment strategy involves the sale or
liquidation of a portion of business, or a major division, profit center or SBU. Divestment is usually
a restructuring plan and is adopted when a turnaround has been attempted but has proved to be
unsuccessful or it was ignored. A divestment strategy may be adopted due to the following reasons:

A business that had been acquired proves to be a mismatch and cannot be integrated within
the company.
Persistent negative cash flows from a particular business create financial problems for the
whole company.
Inability of the firm to face competition.
Technological up gradation is required if the business is to survive which company cannot
afford.
A better alternative may be available for investment
Divestment by one firm may be a part of merger plan executed with another firm, where
mutual exchange of unprofitable divisions may take place.
Divestment may be done because by selling one part of the business the company may be
in a position to survive.
Hence Persistent negative cash flows from a particular business create financial problems
for the whole company, creating a need for the divestment of that business.
For Example

o Tata group is a highly diversified entity with a range of business under its fold. They
identified their non-core business for divestment. Tata Oil Manufacturing Company
(TOMCO) was divested and sold to Hindustan Levers as soap and detergent was not
considered a core business for the Tatas.
o Vodafone was acquired by hutch is a good example of divestment strategy.
o Split of Hero Honda.

224
TYPES OF DIVESTMENTS

Spin off
Equity carve out
Direct sale of assets
Spin offs : are non-cash & tax free transactions, when a parent company distributes shares of its
subsidiary to its shareholders, then the subsidiary become a standalone company whose shares can
be traded on a stock exchange. Spin offs are most common among the companies that consists of
two separate business that have different growth risk profits.

Equity carve outs: when a parent company sells a certain percentage of equity in its subsidiary
to the public through the stock market. These are tax free transactions that involves exchange of
cash for shares. Because the parent company typically retains the controlling stake in the
subsidiary. It is common among companies that need to finance growth opportunities for one of
their subsidiaries.

Direct sale of assets:A direct sale of assets, including the entire subsidiaries, is another popular
form of divestment. In this case, a parent company sells assets, such as real estate, equipment or
the entire subsidiary, to another party. The sale of assets typically involves cash and may trigger
tax consequences for a parent company if assets are sold at a gain.

HOW DISINVESTMENT IS DIFFERENT FROM DIVESTMENT

The term disinvestment is defined as the shrinkage of capital investment which is caused by the
failure of a firm to maintain or replace its capital assets which are being used up or by the sale of
the capital goods by the firm, such as the equipment owned by it. Disinvestment also means the
withdrawal of capital from a country or a corporation.

Divestment, also known as divestiture, occurs when an organization liquidates or sells part of its
assets or an entire division without the intent of reinvesting in it. The divestiture typically occurs
so that the organization can use the assets to improve another division. A disinvestment can occur
with the sale of capital goods or closure of a division.

LIQUIDATION STRATEGIES

225
Liquidation strategy means closing down the entire firm and selling its assets. It is considered the
most extreme and the last resort because it leads to serious consequences such as loss of
employment for employees, termination of opportunities where a firm could pursue any future
activities, and the stigma of failure. The main aim is to recoup as much money as possible before
the closure takes place.

Generally, it is seen that small-scale units, proprietorship firms, and partnership, liquidate
frequently but companies rarely liquidate. The company management, government, banks and
financial institutions, trade unions, suppliers and creditors, and other agencies do not generally
prefer liquidation.

Liquidation strategy may be unpleasant as a strategic alternative but when a dead business is
worth more than alive, it is a good proposition. For instance, the real estate owned by a firm may
fetch it more money than the actual returns of doing business.

Liquidation strategy may be difficult as buyers for the business may be difficult to find. Moreover,
the firm cannot expect adequate compensation as most assets, being unusable, are considered as
scrap.

Reasons for Liquidation include:

Business becoming unprofitable

Obsolescence of product/process
High competition
Industry overcapacity
Failure of strategy

THE PSYCHOLOGICAL IMPLICATIONS OF LIQUIDATION:

The prospects of liquidation create a bad impact on the companys reputation.

For many executives who are closely associated firms, liquidation may be a traumatic
experience.
Legal aspects of liquidation under the Companies Act, 1956, liquidation is termed as
winding up. The Act defines winding up of a company as the process whereby its life is
ended and its property administered for the benefit of its creditors and members. The Act
provides for a liquidator who takes control of the company, collect its assets, pay its debts
and finally distribute any surplus among the members according to their rights.

226
For Example:

Alpic finance a non-banking finance corporation was ordered to be liquidated by Bombay

high court when it defaulted on its outstanding payment to its investors.
Punjab wireless system (pun wire) was put under liquidation under the order of the Punjab
and Haryana high court on a private petition owing to the companys inability to discharge
its debt and liabilities.
BPL Net Com Ltd.
General Motors

GRAND STRATEGIES
Grand strategies often called Master or Business strategies provide basic direction for strategic
actions. They are the basis of coordinated and sustained efforts directed toward achieving long
term objectives. Grand strategies indicate the time period over which long range objectives are to
be achieved. Thus, a grand strategy can be defined as a comprehensive general approach that
guides a firms major actions. Business managers can use tools and techniques such as Grand
Strategy Selection Matrix

or Grand Strategy Cluster to design means that will be used to achieve long term objectives.

The Grand Strategy Cluster Model shown below is a technique based on the idea that the situation
of a business is defined in terms of the growth rate of the general market and the firms competitive
position in that market. When these factors are considered simultaneously, a business can be
broadly categorized in one of the four quadrants

a) Strong competitive position in a rapidly growing market

b) Weak position in a rapidly growing market
c) Weak position in a slow growth market
d) Strong position in a slow growth market

Each of these quadrants suggest a set of promising possibilities for the selection of a grand strategy.

227
The model for Grand Strategy Selection Matrix is shown below. Two variables are of concern in
the selection process. The principal purpose of the grand strategy and the choice of an internal or
external emphasis for growth or profitability.

Strategies adopted in the first and fourth quadrant are external strategies. Strategies in the first
quadrant are adopted to overcome the weakness of the firm and the fourth quadrant to maximize
their strengths. Similarly, strategies adopted in the second and third quadrant are internal strategies.
Strategies in the second quadrant are adopted to overcome the weakness of the firm and the third
quadrant to maximize their strengths.

228
 UNIT 8

EMERGING ISSUES IN STRATEGIC MANAGEMENT

ISSUES IN STRATEGIC MANAGEMENT:-

229
What is a Strategic Issue?
A Strategic Issue is, first of all, an issue - an unresolved question needing a decision or waiting for
some clarifying future event. Secondly, it is strategic and has major impact on the course and
direction of the business. It probably relates directly to one or more of the fundamental Three
Strategic Questions:

What are we going to sell?

To whom are we going to sell it?
How will we beat or avoid our competition?

How Should You Identify Strategic Issues?

Below are a couple of simple, but effective, techniques that help identify potential Strategic Issues:

Fully explain the concept of Strategic Issues before starting the review of information and
challenge your team to think about the strategic implications of the information.
Strongly urge each team member to highlight on the information worksheet, key
information that suggests a Strategic Issue and capture their thoughts on a pad of paper
throughout the review.

SOME ISSUES IN STRATEGY PLANNING THAT NEED TO AVOID OR USE WITH

CAUTION:-

Data: finding data is a real challenge because there is available statistics are far below
those available in developing countries. Most companies try to keep any financial
information and consider them secrets. It is not possible to know the demand in last year of
a certain product or service. People are not used to market research and they dont want to
talk to the marketing people
Employees: most employees and managers are not aware about the value of strategic
planning and they may consider it waste of time and something that is applicable in
developed countries.

230
 Owners: Many owners of successful companies believe they dont need to do strategic
planning and they do not know that their success will go one day when there are more
competitors or there are changes in the market.
Managers selection: Most companys managers in developing countries are experts in
the technical process of the organization but they are not well educated in management and
thus they want to focus on what they know and neglect what they do not know.
Accordingly, strategic management does not fall in their area of interest.
Qualitative Analysis: Strategic planning needs a lot of forecasting and qualitative analysis
besides the quantitative analysis. Many technical managers are not used to neither the
qualitative analysis nor the forecasting.
I am the manager: The strategy shows a guide for decisions, so, an employee may,
sometimes, tell the senior manager that his decision is against the company strategy. Thus
the manager avoid having a strategy to keep his freedom to decide whatever he likes.
Analysis versus Intuition: Most people do not think that a manager should do
analysis or have done for him they think that some people are talented to take the right
decision without doing many calculations or having subordinates make a study for them.
Implementation: To get every manager follow the same strategy is not an easy task.
Investors: Having a clear strategic plan and clear goals for the future (other than increasing
sales of the current products) does not affect the stock price because most of the investors
do not care about those issues.
Security: Most managers feel that everything is a secret and obviously they think that no
one else should know the strategy and thus no one else should make a study for our strategic
plan and there is no strategy.

Example 1 - The big product elephant

231
Organizational situation: A manufacturing business has two main product lines, one with sales
revenue of $6m, and the other with sales of $12m. Both make about 20 per cent contribution to
overheads and profit. The larger $12m product is made under a licensing arrangement with an
international firm.

Strategic Planning Issues: The plant facilities used to make the larger volume product are
designed to make only this product and are not easily reconfigured for other work. The license is
renewable on an annual basis following a review by both parties to the arrangement. The firm
offering the license is showing an increasing tendency to shift work to lowest cost producers.

Why the issue is a strategic issue: The risk of losing a contribution to profits of about 20%
definitely marks out this dependence of a large customer as a strategic planning issue. The
difficulty of redeploying the assets involved simply adds to the significance of this as a strategic
elephant.

Example 2 - Having to go on a capital diet

Type of organizational situation: A British subsidiary of a US conglomerate has been producing

five products for many years. The time has come to upgrade the production plant, and to ensure
the company keeps up with the market's increasing demands for quicker service, lower
maintenance costs and higher quality, will require the expenditure of 50m over the next five years.

Strategic Planning Issues: Company's parent has told them they may spend only 21m.

Why the issue is a strategic issue: A judgment would need to be made whether the available
capital could be used in way that would enable improved production fast enough to keep up with
the changes in the market. These risks would make this matter an item on the short list of strategic
planning issues.

SOME ISSUES IN STRATEGY FORMUALTION THAT NEED TO AVOID OR USE

WITH CAUTION:-

232
 Strategy is formulated on assumptions The environment may have changed at some
point of time during implementation. The assumptions too would need periodic revisits.

Vision, value statementsand trust They are emphasized during formulation of the
strategy but during implementation they may be forgotten. An End justifies the means
approach results in a compromise of values and eroding trust and shared values. The
answer lies in transparency and communication and admitting mistakes.

Hubris(or overconfidence) in leaders It is where the leaders and organizational

members believe their brand is more powerful than the competitors leading to complacency
in implementation. Forecasts are based on what may happen in future often based on
optimistic estimates of uncertainties. As such one must be realistic.

Organizational trap It is an excessive focus on efficiency with no flexibility to adapt to

changes. A no mistake-syndrome prevails. No questioning or challenging the current
strategy.

The status quo bias Known as risk aversion, it is the entrepreneurial spirit that helps
overcome hitches. This has to be built into the culture by encouragement.

Strategy before people Strategy is not aligned to organizational culture will meet with
resistance and opposition. Meaningful communication is the key.

Strategy and structure not being in sync- E.g., a diversification strategy may have a
better fit with a divisional structure.

Effective leadership Failure occurs due to weak empowerment and lack of perseverance.
Focus on knowing rather than doing. Things get worse before they get better so inspiring
the team with the vision and mission is important.

233
 High emotional intelligence in leaders This will banish negative emotions from
breeding in the workplace. What are needed are positive energy and a calm mind to deal
with the fluid situation.

The sunk cost effect A familiar problem with investments is called the sunk-cost effect,
otherwise known as throwing good money after bad. When large projects overrun their
schedules and budgets, the original economic case no longer holds, but companies still
keep investing to complete them rather than change.

CURRENT ISSUES IN STRATEGIC IMPLEMENTATION:-

Insufficient partner buy-in:

In conducting strategic planning, firm leaders and partners involved in the process
develop a strong understanding of the business imperative behind the chosen strategy and
the need for change in order to achieve partner goals. However, partners removed from the
process may struggle to identify with the goals and strategies outlined by firm leaders.
These partners may not see a need for change, and without understanding the background
and rationale for the chosen strategy, these partners may never buy-in to strategic plan and,
as a result, will passively or actively interfere with the implementation process.

Insufficient leadership attention:

Too often, law firm leaders view the strategy development process as a linear or finite
initiative. After undergoing a resource intensive strategic planning process, the firm's
Managing Partner and Executive Committee members may find themselves jumping back
into billable work or immersing themselves in other firm matters, mistakenly believing that
writing the plan was the majority of the work involved. Within weeks of finalizing the
plan, strategies start to collect dust, partners lose interest, and eventually, months pass with
little or no reference to the plan or real action from firm leaders to move forward with
implementation.

234
 Ineffective leadership: Leading strategy implementation requires a balancing act - the
ability to work closely with partners in order to build cohesion and support for the firm's
strategy, while maintaining the objectivity required in order to make difficult decisions.
Strategy implementation frequently fails due to weak leadership, evidenced by firm leaders
unable or unwilling to carry out the difficult decisions agreed upon in the plan. To
compound the problem, partners within the firm often fail to hold leaders accountable for
driving implementation, which ultimately leads to a loss of both the firm's investment in
the strategy development process as well as the opportunities associated with establishing
differentiation in the market and gaining a competitive advantage.
Weak or inappropriate strategy: During the course of strategic planning, the lack of a
realistic and honest assessment of the firm will lead to the development of a weak,
inappropriate or potentially unachievable strategy. A weak strategy may also result from
overly aspirational or unrealistic firm leaders or partners who adopt an ill-fitting strategy
with respect to the firm's current position or market competition. Without a viable strategy,
firms struggle to take actions to effectively implement the plan identified.
Resistance to change: The difficulty of driving significant change in an industry rooted
in autonomy and individual lawyer behaviours is not to be underestimated. More often than
not, executing on strategy requires adopting a change in approach and new ways of doing
things. In the context of law firms, this translates to convincing members of the firm, and
in particular partners, that change is needed and that the chosen approach is the right one.

CURRENT ISSUES IN STRATEGY EVALUATION AND CONTROL:-

Corrective Action: It is not uncommon for organizations to change their strategic

plans during evaluation. This is corrective action. Yet sometimes the organization

235
 must undertake corrective action which completely overhauls the entire strategic
plan. This means that people evaluating the strategy have to lower the standards or
benchmarks of the strategy. Lowering the standards has the implication of
reformulating the strategic plan, its goals and objectives. This requires more
resources and time.
Lack of Cooperation: Strategy evaluation, like strategy implementation, requires the
cooperation and participation of management and personnel. Unfortunately strategy
evaluation, being the final stage of strategy management, is often overlooked. One of
the reasons that management and staff may not take strategy evaluation seriously is
because they perceive it as time consuming. Strategists thus face the challenge of
emphasizing the importance of evaluation to determine if the organization has met
its strategic goals.
Measurement: One of the tasks in strategy evaluation is measuring the results of
strategy implementation. Maintaining objectivity in assessing and measuring the
results of strategic plans is a major challenge. Although strategists use evaluation
tools such as financial statements, questionnaires and interviews, some concepts
such as manager opinions or contributions are difficult to measure. If the right tools
for measuring are available, then the process of strategic evaluation becomes simpler.
Lack of appropriate measuring tools slows down strategic evaluation.
Reporting: Strategy evaluations have some similarity with audit reports, which can
deliver bad news sometimes. Strategists face the challenge of presenting an honest
report of the progress of the strategic plan. As in methods of measuring results,
objectivity is also a challenge during the reporting of these results. Inevitably not all
personnel or stakeholders will agree with the findings of the strategy report.
Strategists therefore face the task of presenting a fair report and one which does not
trigger organizational conflict.

METHODOLOGIES FOR RESOLVING STRATEGIC ISSUES:

Following are several useful approaches for Strategic Issue resolution:

236
 Start the discussion with basics like definition of terms. This permits the team to start off
on the same foot and begins to define some of the scope of the issue before getting into the
heat of the discussion.
Ask the question what is at issue? or why is this an issue? In other words, define the
problem. An issue is often half resolved once a good definition is developed.
Drive the discussion until either a decision has been reached or the additional steps needed
to make a later decision have been defined. A sense of future direction must be captured -
either in the form of a decision or a path to resolution.
Define alternative solutions and record those on which there seems to be consensus.
Sometimes it is beneficial to let the discussion run to the tactical level because the team
may generate material that could be useful later as a possible Strategic Objective.
Explore and evaluate, at least implicitly, the upside potential, the downside risk, the
resource consumption and the probabilities of success for the alternatives and select the
best direction. Seek to shortcut the process for time efficiency by identifying key factors
that dominate all others.

SOCIAL AUDIT

Social Audit means different thiyngs to different people. To some it means revealing a companys
social performance in broad day light, to others it is an internal assessment of how well a company
has discharged its social obligations and to some others it is a systematic and comprehensive
evaluation of an organizations social performance as distinguished from its economic
performance. Social performance here signifies organizational efforts enriching the general
welfare of the whole community and the whole society.

MEANING: A social audit is a way of measuring, understanding, reporting and ultimately

improving an organizations social and ethical performance. It values the voice of stakeholders,
including marginalized/poor groups whose voices are rarely heard. It is also known as Peoples
Audit or Public Audit.

A social audit helps to narrow gaps between vision/goal and reality, between efficiency and
effectiveness. Social auditing is taken up for the purpose of enhancing local governance,
particularly for strengthening accountability and transparency in local bodies.

237
The concept of Social Audit has been linked to Corporate Social Responsibility (CSR). CSR
is essentially a concept, whereby companies integrate social and environmental concerns in their
business operations and in their interaction with their stakeholders on a voluntary basis.

For Example,

-McDonalds outlets take care of its surroundings by maintaining cleanliness and hygiene.

-In India, Infosys has created an NGO to work for development of society.

DEFINITION

Social audit is an on-going process by which the potential beneficiaries and other stakeholders of
an activity or project are involved from the planning to the monitoring and evaluation of that
activity or project.

Mondy,Sharplin, Premeaux : A Social Audit is a systematic assessment of a companys activities

in terms of their social impact.

OBJECTIVES OF A SOCIAL AUDIT

Assessing the physical and financial gaps between needs and resources available for social
aims and objectives.
Creating awareness among beneficiaries and providers of local social and private services.
Increasing efficacy and effectiveness of local development programmes.
Scrutiny of various policy decisions, keeping in view stakeholder interests and priorities,
particularly of rural poor.
Estimation of the opportunity cost for stakeholders of not getting timely access to public
services.

OUTCOMES OF SOCIAL RESPONSIBILITY INVOLMENT:

POSITIVE OUTCOME:
Enhanced corporate reputation and goodwill

238
 Strengthening of the social system in which the corporate function
Strengthening of the economic system in which the corporate function
Greater job satisfaction among all employees
Avoidance of government regulation
Greater job satisfaction among executives
Increased short/ long term profitability
Maintaining customers
Increased chances of survival of the firm

NEGATIVE OUTCOMES:
Conflicts of economic or financial and social goals
Weakening of the social system in which the corporate functions
Weakening of the economic system in which the corporate functions
Decreased productivity among all employees
Increased government regulation
Increased prices for consumer
Dissatisfaction of shareholders

NEED FOR SOCIAL AUDIT

1.Business may postpone investments in social areas, while trying to maximize profits and expect
others to take the initiative.

2. The general public, government and social activists, such firms may not pursue socially
responsible actions in the larger interest of society.

3. Society expects businesses to share the fruits of progress and growth. A healthy business cannot
exist in a sick, impoverished society.

4. Socially active and responsible organizations may not be at the receiving end whenever there is
an outcry against issues because of the goodwill and positive image generated over the years. If

239
the corporation functions effectively, it has to be accountable to the public at large and the private
property should be used for common good.

5. While converting the crucial resources into useful products, it must therefore, behave
responsibly without using its power in any unfavorable way.

APPROACHES TO SOCIAL AUDIT

1. The Inventory Approach: Under this method, a complete stocktaking of all the social activities
of the corporation is undertaken.

2. The Cost Outlay Approach: In this approach the amount spent on each activity is studied
individually.

3. The Programme Management Approach: In this approach,. in addition to the above approaches,
a statement is made as to whether or not the company met the objectives for each activity.

4. The Cost Benefit Approach: Under this approach the benefit of each and every expenditure i.e.
the real worth is ascertained and indicated.

TYPES OF SOCIAL AUDIT

i. Social Process Audit

It tries to measure the effectiveness of those activities of the organisation which are largely
taken up to meet certain social objectives. The method involves four steps:
Find circumstances leading to the starting of the social audit programme
List goals of the social programme.
See how the organisation is going to meet such goals
Quantitatively evaluate what is actually done as against what has been planned.

ii. Financial Statement Format Social Audit

In this type, the financial statements show conventional financial information plus
information regarding social activities. A management consultancy firm, proposed the
balance sheet should show a list of social assets on one side and social commitments,

240
 liabilities and equity on the other side. The income statements should reveal social benefits,
social cost and the net social income provided by the company operations to the staff,
community, general public and clients.
This approach has been criticised by Linowes on account of creating confusion
and complicating issues further. He felt that at times, positive social actions undertaken by
a corporation even when required under law could be shown through footnotes to the
general format called SEOs. On negative side it is not always easy to estimate monetary
value of some of the social benefits and costs. Though costa can be measured they may not
actually represent social benefits and costs. The measurement of benefits is much more
difficult because of lack of objective quantification of the outcome of social audit.

iii. Macro-Micro Social Indicator Audit

This type of audit requires evaluation of a companys performance in terms of social
measures against macro social measures. The macro social factors include the social goals
expected by society in terms of health, safety, education, housing, accidents, pollution
control measures etc. The micro social indicators are measures of the company in those
areas measured by macro social indicators.

iv. Social Performance Audit

In developed countries, several interest groups including church groups, universities,
mutual funds, consumer activists regularly measure, evaluate and rank socially responsible
companies on the basis of their social performance. Regular opinion polls are carried out
to find companies that initiate social efforts in a proactive manner and earn the goodwill of
the general public.

v. Partial Social Audit

In this case, the company undertakes to measure a specific aspect of its social performance
(e.g.: environment, energy, human resources etc.) because it considers that aspect to be
very important or because its social efforts for the time being are confined to that area only.

241
 Environmental audit: in developed countries people protest violently
whether companies try to pollute environment as a result most manufacturing
units there have realised the importance of green behaviour. They not only
comply with regulation but also proactively explore opportunities to recycle
wastes into useful products.
Energy audit:- most of the company realised the importance of conserving
energy. There have been hectic effort to identify alternatives source of
energy, conserve existing sources consumed and preserved.

V1 Comprehensive Audit

It tries to measure, verify and evaluate the total performance of the organization including
its social responsibility activities. It focuses mainly on management systems rather than on
the actions or events which are not so important. It aims at evaluating the quality of
processes and the information on which organizational decisions are taken.

ADVANTAGES OF SOCIAL AUDIT

Encourages responsible business practices

Encourages community participation and local democracy
Benefits disadvantaged groups
Promotes ethical decision making and sharing responsibilities
Develops human resources and social capital

CORPORATE TRANSPERANCY

INTRODUCTION:-

242
Corporate transparency describes the extent to which a corporation's actions are observable by
outsiders. This is a consequence of regulation, local norms, and the set of information, privacy,
and business policies concerning corporate decision making and operations openness to
employees, stakeholders, shareholders and the general public. (THE ECONOMIST ONLINE,
2010)

TYPES OF CORPORATE TRANSPARENCY:-

Internal Transparency Internal Transparency measures how open a company is with its
employees.
External Transparency External Transparency measures how open a company is with its
customers, partners, shareholders and the general public.

LEVELS OF CORPORATE TRANSPARENCY:-

Payroll Transparency Payroll information have a huge competitive advantage for

companies. It can transform the workplace. It attracts job seekers and helps in retaining
employees. For starters, sharing payroll related information during the recruitment process
ensures that employers and applicants are on the same page when it comes to salary. As
for employees, making payroll transparent enforces equal pay. The employees will be
aware about the salary formula used in the organisation.
Goal Transparency It ensures employees commitment to the aims of the organisation.
When employees know where their company is going and how its going to get there can
better align their individual work goals with those of the company and contribute to overall
success. In short, it gives employees a clear cut purpose. Employees who understand the
role they play in company success or failure can better serve their clients and customers.
Financial Transparency It is crucial to an organisations stakeholders. Sharing of financial
information by a company to the general public is a great way to gain trust and loyalty. The
sense of trust between a company and its stakeholders is the key to growth and future
success. For starters, being financially transparent can attract more investors as it gives
interested investors and shareholders proof of future potential. Additionally, being open
and honest about a companys financial situation with employees can help employees see
the results of their work efforts.

243
ADVANTAGES OF CORPORATE TRANSPARENCY:-

Respect: A transparent business gains confidence from public and gives respect for
employees and customers alike. It gives a clear picture about the business operations to the
outsiders.
Positive Public Perception: Few companies tend to be transparent only after there is a scam
or scandal. They do so to give explanations to their actions, behaviours and defend
themselves publicly.
Staff Involvement: The organisation must be transparent in its actions. In case the staff
members do not understand the actions of the organisation, they may spread rumours. The
staff members will be anxious about their job security. Staff loyalty can be gained by
maintaining an honest communication with staffs. Staff must be involved in strategic plans
of a company. This increases the job satisfaction and morale of staffs.
Customer Service: A transparent business organisation can improve customer service.
When an organisation is honest and transparent it will attract more customers and gives a
chance to gain their confidence of the customers.
Image Management: Being open and transparent helps in managing public perception of
the company. If a crisis arises, the company will have established media connections that
you can call on to connections that can call on to disseminate information. This position to
release information in a time frame and fashion that are most advantageous to the company,
allows the company to manage even the most challenging situations.
Increased Revenue: An organisation which is transparent will earn more revenue.
Problem Solving: Transparency will not only reveal problems but also gives an opportunity
to solve those problems.
The Bottom Line: The Company must provide detailed information about the profits and
how it is spending its resources in its financial reports. By doing so, the company will gain
the trust of its investors. Transparency makes analysis easier and lowers an investors risk
while investing.

DISADVANTAGES OF CORPORATE TRANSPARENCY:-

244
 Full transparency is often associated with breaches to established rights such as privacy,
confidentiality, security and safety. Internet-based tools can transform our corporations into fully-
naked organisations almost instantly. With the click of a mouse, there will be no secrets between
your company and any manifestation of society, terrorists and competitors included.

Companies around the world are learning that customers and governments are not interested in
more information, more numbers, more reports or more sophisticated press briefings.

Companies struggle between two extremes. On the one hand, full disclosure about the features of
products and services; on the other a minimum compliance with national legislation. Both of these
represent a serious threat to both corporations and stakeholders. A balance between both is
required. But achieving that requires managers to construct a well thought out information strategy
that takes account of quite a long list of economic, social and ethical issues.

STRATEGIC MANAGEMENT IN NGO

INTRODUCTION:-

Traditionally, studies in strategic management have dealt with profit making business
organizations engaged in manufacturing and/or service. They neglected the non-profit
organizations. All organizations formulate the MOST i.e. Mission, Objectives, Strategies and
Tactics. In fact, they analyse their environment internal and external, formulate strategies analyse
and select appropriate strategies implement the strategies and evaluate and control the strategies.
However, there are distinct differences between profit and non-profit organizations.

NGOS are not for profit organizations, voluntary association of people, may work at local,
regional, national and international level. They are the catalysts of society and work as an agent of
social change to bridge the gap between people and government ensuring peoples participation in
development for implementation of programmes and projects. They are committed to addressing
social needs and improving the human condition.

WHAT IS AN NGO?

A non-governmental organization (NGO) is a legally constituted organization created

by natural or legal persons.

245
 Operates independently from any government and a term usually used by government to
refer to entities that have no government status.
In the cases in which NGOs are funded totally or partially by governments, the NGO
maintains its non-governmental status by excluding government representatives from
membership in the organization.

HOW TO START THE NGO IN INDIA

So many people want to quit their high profile jobs and turn to social work! If you are one of them,
you should know that setting up an organization, such as an NGO in India is no easy task. But if
youre determined, theres help at hand.
NGOs are organizations that usually work towards the promotion of certain causes or the welfare
of a target population. Since they function in the non-profit realm, their objectives and modus
operandi are often ambiguous compared to for-profit organizations. In order to achieve their
objectives, NGOs need to follow a meticulous approach right from the stage of conceptualization.
Besides, there are rules and regulations laid down by the Government of India. Here is a brief step-
by-step guide for starting your own NGO in India.

To start a NGO, you need follow following steps:-

1. Lay down the issues that your NGO wants to address, and identify the mission and vision.

2. Before registering the organization, you need to have a governing body in place that will
be responsible for all activities and decisions of the organization. The governing body will
be involved in all matters of strategic relevance, including strategic planning, financial
management, human resources and networking.

3. Every NGO in India is legally required to document a trust deed/ Memorandum of

Understanding/Bylaws that contain the name and address of the NGO, mission and
objectives, details of governing body members, human resource and staffing information,
rules and regulations, administrative laws and procedures.

246
 4. In India, you may register an NGO under any of the following Acts:

Indian Trusts Act: A Charitable Trust is not legally obliged to obtain

registration; unless the Trust wants to claim income tax exemptions or is
based in a state that is governed by the Public Trusts Act, such as
Maharashtra.
Societies Registration Act: A society can be formed by a group of seven or
more people. Its formation is more complicated than that of a trust, but it also
affords more flexibility in terms of regulations.
Companies Act: An association that is formed for the promotion of art,
science, commerce, religion or charity can be registered as a company but its
members cannot be paid a dividend. All profits should be utilized for
furthering the objectives of the company.

5. Raise funds through internal sources (membership fees, sales, subscription charges,
donations, etc.) or grants-in-aid from the Government, private organizations or foreign
sources. Inflow of foreign funds is governed by the Foreign Contribution Regulation Act
(FCRA) 1976. Many NGOs are eligible for tax exemptions - be sure to check your
eligibility status and file your application if the exemption applies to you.

6. Besides meeting the above mandatory requirements, you need to build a wide professional
network with other NGOs, government agencies, media and the corporate sector. Like most
other organizations, an NGO thrives primarily on the strength of partnerships.

CATEGORIS OF NGO

Non-government organizations can be basically classified into two groups profit organizations,
and non-profit organizations.

Differences between profit and non-profit/private organizations

247
 Basis Profit organization Non-profit/private
organization
Ownership Private Private
Funding Sales revenue Membership fee,
contributions
Types Single proprietorship, Floated by members
partnership, corporation
Activities Production and marketing Educational, charitable,
social
Main objective Profit maximization Service maximization

TYPES OF NON-PROFIT ORGANIZATIONS

1. Private educational institutions like universities, college and schools.

2. Charities.
3. Social service organizations.
4. Health service organizations
5. Foundations.
6. Cultural organizations.
7. Religious organizations.

IMPORTANCE OF SOURCES OF REVENUE

The sources of revenue are one of the important factors which differentiate the profit organizations
and non-profit organizations. The profit organizations mainly depend on revenue of sales of goods
and services. Their sources of income are the customer who buys and uses the product and services.

The non-profit organizations depend on membership dues, assessments, donations, funding from
sponsor agencies. Thus revenue of these organizations comes from a variety of sources.

POPULAR STRATEGIES OF NON-PROFIT ORGANIZATIONS

248
The general objectives of non-profit organization are to satisfy an ultimate need of a segment of a
general public. The organization expands its activities, if the revenue is more than the cost and
vice versa. The three popular strategies are

1. Strategic Piggy Backing: The terms strategic piggybacking is coined by Nielson. These
terms refers to the development of new activity for the non-profit organization for the
purpose of generating funds needed to make up the deficits in the budget. The new activity
may be somewhat related to the existing activities even, indirectly. Top management in
new save cash cows to fund is current cash hungry stars, question marks and stars, in an
inverted use of portfolio analysis.
2. Inter-organization Linkage: A major strategy often employed by non-profit organization
to increase their ability to serve efficiently or to acquire is developing cooperatives ties
with other organization. Non-profit hospitals increasingly use this strategy as a way to
cope up with raising costs or declining revenue. Through the cooperation with other
hospitals, service can be purchased and provided more efficiently if done alone.
3. Linkage with a profit organization: The strategy of developing a linkage with profit
making organization is an effectives one as it solves the problem of shortage of fund,
marketing of services and management of non-profit organization. This strategy is more
popular in education institutions in India. Educational institution, particularly business
schools adapt this strategy. They get funds, manpower like guest lectures, employment for
their graduates etc. this strategy solves the problem of funds throughout the life time of
the non-profit organization.

STRATEGY EVALUATION AND CONTROL

Strategy evaluation and control is rather very difficult as the objective and goals are
unclear. However, the strategies of non-profit organizations may be evaluated in one
aspect. This approach to evaluation in the absence of quantifiable objectives is being cost-
aware and concentrating upon making the operation efficient i.e. to achieve the same
output with less-input. However, if the organization does not have objective/goals, the
importance of a budget-based organization determined by the size of its staff and the size
of its budget.

249
MEASURES TO CONTROL THE CONSTRAINTS

The non-profit organisation can deal with the complication arising from the constraints to
some extent through the following measures.
1. Select a dynamic and forceful leader: The leader should be selected based on values to
be used in decision-making, enough power to make important choices, be influenced to
make the others to accept his/her decisions. The leader can formulate appropriate mission,
objectives and goals and raise to approach that decisions are pushed from top to the down.
Therefore, the lower level managers should adapt the approaches of play it safe await the
guidance etc.
2. Develop a mystique: The non-profit organisation can be integrated towards efficient goal
accomplishment by developing a mystique that dominated the enterprise and attracts the
likely sponsors. The shared value about the important mission by the employees and
sponsors can serve to motivate unusually thing performance and client satisfaction. Once
established, the mystiques set the character and values to decision makers and others are
expected to follow.
3. Generate rules and regulations: The non-profit organization suffers from the absence of
objectives and goals and concentrating on the sponsors rather than clients. Hence, the top
management should formulate rules and regulation so that the
employees will pay enough attention towards the clients.
4. Appointment of a strong board: appointment of a strong board of trustees will help the
organisation in funds rising, formulation of mission and objectives. Then the employees
can concentrate on the clients. The board can concentrate on strategic issues as well as on
the operational issues like hiring, directing and developing the budget.

MODERN CONCEPT IN STRATEGIC MANAGEMENT

INNOVATION

Innovation is the process of creating and implementing new idea or ideas. To be called an
innovation, an idea must be replicable at an economical cost and must satisfy a specific need.
Innovation involves deliberate application of information, imagination and initiative in deriving

250
greater or different values from resources, and includes all processes by which new ideas are
generated and converted into useful products.

In business, innovation often results when ideas are applied by the company in order to further
satisfy the needs and expectations of the customers.

Example of innovation: iPod, Mp3 players were there in the market for several years before the
iPod. Apple iPod bought a change in the music business model through its aesthetic design, elegant
ergonomics and ease of use.

IMPORTANCE OF INNOVATION

In a rapidly changing and turbulent world, strategy innovation is essential for wealth creation and
for the survival of the business in the long run. Studies have confirmed that all businesses want to
be more innovative. One survey identified that almost 90 per cent of businesses believe that
innovation is a priority for them. In the current day economic scenario, innovativeness has become
a major factor in influencing strategic planning.

Planned and measured combination of ideas, objects and people leads to innovation resulting in
new business ideas and technological revolutions. In order to be termed valuable innovations, new
products and services need to be strong enough to progress through rigorous commercialization
processes and into the marketplace.

TYPES OF INNOVATION

Four main types of innovation:

1) Process Innovation

2) Technical Innovation

3) Administrative Innovation

4)Strategy innovation

1) Process innovation

251
Process innovation is achieved through the creation of a new means of producing, selling, and/or
distributing an existing product or service. Process innovation increase bottom-line profitability,
reduce costs, raise productivity and increase employee job satisfaction.

Some examples include:

- Online Banking

- E-commerce

2) Technical innovation

Technical innovation is simply the creation of a new product or service. Technical innovation is
also known as product innovation.

Some examples include:

- A new line of automobiles

- Android phones

3) Administrative innovation

Administrative innovation is the creation of a new organization design which better supports the
creation, production and delivery of services or products.

Example:

- Virtual Teams

4) Strategy innovation

Strategy innovation is about challenging existing industry methods of creating customer

value in order to meet newly emerging customer needs, add additional value and create new
markets and new customer groups for the sponsoring company.

Example:

252
Strategy innovation, in case of a focus strategy, refer to innovations that better meet the specific
needs of the targeted segment.

INNOVATION IN STRATEGIC MANAGEMENT

Innovation becomes strategic when it is fully integrated into the fabric of the organizational
planning and management process and also when it is an intentional, repeatable process that creates
a significant difference in the value delivered to consumers, customers, partners and the
corporation.

Organizations typically have several strategic themes or focus areas, such as: Operational
Excellence, Sustainability, or Strategic Partnering. Innovation can be a strategic theme, as well.

Strategic Innovation is a multi-functional approach that brings together all the creative assets,
capabilities and disciplines of the organization to work together on producing breakthrough ideas
and driving new business growth. It is done in order to achieve sustained competitive advantage
and transformational growth.

In simple terms strategic innovation implies a connection between innovation and strategy, such
that strategic innovation realizes corporate strategy.

STRATEGIC INNOVATION IN COST-LEADERSHIP STRATEGY

Cost leadership means producing a product at a lower relative price than competition, while
meeting basic customer needs.

Examples of cost-leadership include Southwest Airlines. Southwest Airlines has a lower relative
cost per seat miles. This is the result of innovations focusing on cost-leadership. Thus, cost-
leadership innovation means finding ways to reduce costs, without sacrificing customer value.

Strategic innovation in differentiation strategy

Differentiation means producing a unique product meeting a unique set of needs sold at a higher
relative price. Examples of successful differentiation include Apples iPad.

253
Strategic innovation, in the case of differentiation, means finding ways to optimize a specific set
of differentiators that are most relevant to a specific set of needs. Thus, when Apple is developing
new ways to increase user-friendliness, then they are pursuing strategic innovation.

Strategic innovation in focus strategy

A focus strategy selects a segment or group of segments in the industry and tailors its strategy to
serving them to the exclusion of others.

Example: Nintendo launched the Wii, a video-game system targeting women, adults and the
elderly, rather than the more traditional gamers. Nintendo lured these new clients into video games
by creating a new playing experience. Focus innovations include a new joystick, new games
focused on movements rather than pushing buttons and new benefits bringing exercise and
improved health. Thus, strategic innovation, in the case of a focus strategy, would mean
innovations that are particularly relevant to the specific segment of customers the company is
targeting refer to innovations that better meet the specific needs of the targeted segment.

A strategic innovation does one of the three things:

improve differentiation
reduce costs
tailor to segment specific needs

254
THE END

255