im unit v modern concepts unit v

UNIT V MODERN CONCEPTS

Management by Objectives (MBO), Management by Exception

(MBE), Strategic Management - Planning for Future direction –

SWOT Analysis – Evolving development strategies, Information

Technology in Management – Decisions support system –

Management Games – Business Process Re-engineering (BPR) –

Enterprises Resource Planning (ERP) – Supply Chain Management

(SCM) – Activity Based Management (ABM) – Global Perspective -

Principles and Steps – Advantages and disadvantages.

CONTENTS:

• Definition of MBO

• Objectives

• Types of objectives

• Steps in setting up of MBO

• Advantages

• Disadvantages

Definition

• MBO is peter ducker's concept.

• MBO is defined as a comprehensive managerial system that

integrated many key managerial activities in a systematic

manner and consciously directed towards all levels of

hierarchy for effective and efficient achievement of

organizational & individual objectives.

Overview:

Management by Objectives (MBO) is a strategy wherein the management

sets specific goals for the employees to accomplish within a fixed time period.

Regular feedback is taken on the work progress in the aforesaid time period.

MBO operationalizes the process of consolidating objective centric work

atmosphere in the organization. It also facilitates performance management of

individual employees.

Management by objectives is a dynamic system which seeks to integrate the

company’s need to clarify and achieve its profit and growth goals with the

manager’s need to contribute and develop himself. It is a demanding and

rewarding style of managing a business.

MBO PROCESS CYCLE:

First, companies need to set corporate objectives.

Some goals are then set for the employees to meet those

objectives.

The employee performance is then measured through the

performance cycle and evaluated at the end.

Finally, the employee is rewarded for his or her

performance and the cycle is repeated.

DEFINITION & CONCEPT:

Many approaches have been utilized to integrate individual and group goals with overall goals of an enterprise.

MBO is a process whereby the superior and subordinates of an enterprise jointly, a.Identify its common goals,

b.Define each individuals major areas of responsibility in terms of results expected of him and

c.Use these measures as guides for operating the unit (or enterprise) and assessing the contribution of each of its members.

The goals are jointly established by the manager and his subordinates and agreed upon in advance.

At the end of the pre-decided time period, the subordinates performance is reviewed in relation into present goals. Both superior and the subordinates participate in this review/evaluation.

If, after evaluation, it is found that there is some discrepancy between the work planned (to be done) and the work accomplished, steps are suggested to overcome the problems or to make necessary adjustments in the original plan.

To conclude, MBO implies managing by properly identifying the objectives of an organization.

Objectives may be

a.Short term

Example : Expediting the works lagging behind the schedule

a.Long term

Example : Planning for diversification

b.Specific

Example : Decision of pricing policies

c.General

Example : Objective of increment of productivity

Types:

1.Broad objectives:

It is also known as corporate objectives

It is a wordy statement of the standing the company wishes to achieve.

2.Major objectives:

It set the tactical areas into which company wishes to move

It may include Market shares, product plans and plans to expand the

customer population.

3.Lesser objectives:

These are targets, budgets and departmental objectives, including those

governing the performance standards of managers and other members of

the staff.

STEPS IN SETTING UP MBO:

Performance appraisal system (PAS): PAS helps the management to

fix targets in identified key responsibly area (KRA) or key performance

areas.

Steps in PAS:

Fixing of KRA based on role and need (by appraiser to appraisee)

1.Goal setting by appraiser based on organizational goals

2.Agreements on KRAs and goal setting (between appraiser to appraise)

3.Recording of performance by appraise.

4.Mid team review

5.Employee performance appraisal by task accomplishment .

6.Rating of performance and communicating the same to employee.

7. Appeal, if any,

8.Final rating of employee for the current year

9.Rating is given in varies scale such as very poor, poor, good, very bad,

superior, excellent.

USES OF MBO

For identification of training needs of employees based on their rating

For identifying people for promotions, incentives, foreign training or

any special / additional responsibility.

Benefits of MBO to Organization

Improvement of managing process by effective control.

Classification of organizational roles and structures

Encouragement of personel commitment

Development of effective controls at all levels

ADVANTAGES OF MBO:

It keeps company objectives/targets constantly in view

It coordinates the efforts of various departments of an organization

It provides motivation for people because they work on objectives decided with

their consent

It forces management to think ahead in respect of its short term and long term

goals

It helps an enterprise to focus on the areas where it is vital that management

should be effective and isolate the problems preventing the progress towards

company objectives

It leads to better understanding between superiors and the subordinates.

LIMITATIONS:

Management working by objectives may follow too rigid a

pattern in thinking and action

There is always need for flexibility in management thinking

and the provisions of written objectives should not be allowed

to affect it adversely.

Contents:

•Definition

•Characteristics

•Disadvantages

•Remedies

Definition:

It is a concept which states that routine decisions and decision

making process should be handled by lower level managers only.

They have to report exceptionally important cases only to their

higher managers.

The principal aim of this concept is to free managers from

ordinary and insignificant matters that adds as a hurdle.

An organizational system in which managers

intervene only when employees fail to meet

performance standards or when plans or budgets

go awry. Managers compare results with plans and

take action when serious differences occur.

Characteristics of MBE:

It is a major time saver

It is a career development process

It motivates / encourages the subordinates

It helps managers to evaluate their subordinates on the job

It avoids delay

Disadvantages of MBE:

Sometimes, poor decision making by subordinates leads to heavy loss

Subordinates may fail miserably problem solving due to their inexperience Potential problems sometimes may not come to the manager’s attention

Management relations may some time suffer

Remedy :

Clarify the level of authority Make sure the lower level managers are comfortable in decision making and problem solving by proper training

Have constant review

Summary:

MBO

– concept

-Characteristics

-Objectives

-Advantages and disadvantages

MBE

-Definition

-Characteristics

-Disadvantages

-Remedies

Thank you




SWOT Analysis – Evolving development strategies, information

technology in management – Decisions support system –

Management Games – Business Process Re-engineering(BPR) –



Principles and Steps – Advantages and disadvantages

•

Strategies in product and service area

• What is our company business?

• Who are our customers?

• What do our customers want?

• How much they buy? At what price?

• What is our competitive advantage?

• What is our present technology? Weather it will last?

• Whether we have to go for buy a make?

• What is our profit expected in coming years?

Strategic management It can be seen as a set of managerial decisions and actions that

determine the long term performances of a firm

It includes analysis of both Internal environment (within the

firm) and external environment (competitions and others)

Formulation of strategies

Implementation

Evolution &control

Strategic planning

• Just like organizational planning is a process of deciding on the

objectives of the organization, changes in these objectives,

resources used or to be used, to manage resources based on

the analysis (Input analysis , Organizational analysis , Industry

analysis , Environmental analysis (based on vision), etc.

Components of strategic planning

• Product market scope• Growth• Competitive advantage • Team output scope

Types of strategies 1. Corporate strategy: A corporate strategy

provides overall direction to the firm as it is based on analysis of industry as a whole business strategy.

2. Business strategy: Business strategy followed at business unit or production unit level.

3. Functional strategy: Functional strategy refers to an approach in functional area to growth and basic survival.

Few development strategies in Marketing area

• Where are our customers?• Why do they buy our product?• How to sell best?• What is our best pricing strategy?










•

A scan of the internal and external environment is an important

part of the strategic planning process.

Environmental factors which are internal to the firm usually can be classified

as strengths (S) or weaknesses (W),

and those are external to the firm can be classified as opportunities (O) or

threats (T).

Such an analysis of the strategic environment is referred to as a SWOT

analysis.

The SWOT analysis provides information that is helpful in matching the firm's

resources and capabilities to the competitive environment in which it

operates.

As such, it is instrumental in strategy formulation and selection.

SWOT Analysis

The following diagram shows how a SWOT analysis

fits into an environmental scan:

Strengths

• A firm's strengths are its resources and capabilities that can

be used as a basis for developing a competitive advantage.

• Examples of such strengths include:

• Patents, strong brand names, good reputation among

customers, cost advantages from proprietary, know-how,

exclusive access to high grade natural resources, favorable

access to distribution networks

Weaknesses

• The absence of certain strengths may be viewed as a weakness.

For example, each of the following may be considered weaknesses:

• Lack of patent protection

• A weak brand name

• Poor reputation among customers

• High cost structure

• Lack of access to the best natural resources

• Lack of access to key distribution channels

• In some cases, a weakness may be the flip side of a strength.

• Take the case in which a firm has a large amount of manufacturing capacity. While this

capacity may be considered a strength that competitors do not share, it also may be a

considered a weakness if the large investment in manufacturing capacity prevents the

firm from reacting quickly to changes in the strategic environment.

Opportunities

• The external environmental analysis may reveal certain

new opportunities for profit and growth. Some examples

of such opportunities include:

• An unfulfilled customer need arrival of new technologies,

Removal of regulations in international trade barriers.

Threats• Changes in the external environmental also

may present threats to the firm. Some examples of such threats include:• Shifts in consumer tastes away from the firm's

products, emergence of substitute products, new regulations increased trade barriers, etc.

• The SWOT Matrix

• A firm should not necessarily pursue the more lucrative opportunities.

Rather, it may have a better chance at developing a competitive

advantage by identifying a fit between the firm's strengths and upcoming

opportunities. In some cases, the firm can overcome a weakness in order

to prepare itself to pursue a compelling opportunity.

• To develop strategies that take into account the SWOT profile, a matrix of

these factors can be constructed. The SWOT matrix (also known as a

TOWS Matrix) is shown below:

SWOT matrix (also known as a TOWS Matrix

• S-O strategies pursue opportunities that are a good fit to the company's strengths.

• W-O strategies overcome weaknesses to pursue opportunities.

• S-T strategies identify ways that the firm can use its strengths to reduce its vulnerability to external threats.

• W-T strategies establish a defensive plan to prevent the firm's weaknesses from making it highly susceptible to external threats.

SWOT matrix (also known as a TOWS Matrix)

Star ?

Cash cows Weak

Thank you




SWOT Analysis – Evolving development strategies, Information

Technology in Management – Decisions support system –




Principles and Steps – Advantages and disadvantages.

•

IT in ManagementData once processed becomes information and processed information becomes knowledge.Process means to make it more usable.

Characteristics of IT in management

• Use of IT is most prevalent in management today

• It helps managers to communicate, to control, to create a knowledge society, to make easy access to information at low cost, for wide spread ease of using global e-commerce and online trading, digital auction, etc.

Management and Use of ITManagement Domain Use of IT and PC

Planning Scenario PlanningDSS and MISConsumer Access to Product & ServiceInformation on JV (Joint venture)Merger and Amalgamation

Organizing OutsourcingOnline organizingLesser supervisionManufacturing process improvementInternet and Intranet

Staffing Helps in knowledge workers upward mobilityConsultancy workOutsourcing man powerTraining and Educating people

Leading IT gives power to knowledge workers, consumersLower communication costHelps team work

Controlling Ease of controlTimely deduction and deviationWorldwide sellingPromoting partnershipControlled intranetFinancial control made easy byElectronic spreadsheets

Use of IT at different levels : Supervisory level (Junior management grade) :

Very wide spread use, high programmable, very often repetitive

Middle level managers:

Very widely used for administration, co-ordination, information

system, controlling subordinates

Top level managers:

It can be used for formulating strategies, polices, information and

knowledge and apply of decision models

Challenges of IT• Resistance to computerization (use of graphics, uses friendly software, etc.,)

• Speech recognition devices (Use voice or speech instead of keyboard)

• Networking (using LAN, WAN, at a which are cost effective)

• Telecommuting - working with computers at home instead of office.

• It helps in mobilizing more time of reason and avoids cost and delay in

transportation

• Other networks (Intranet, Internet, Groupware it is teleconferencing by

three or more people of time)

• IT in management is a welcome feature. However, the information security

(using firewalls, etc.,) should always be taken care of and has to be

embedded into each IT application.





technology in management – Decisions Support System –





•

MANAGEMENTINFORMATION SYSTEM (MIS)

MANAGEMENT INFORMATION SYSTEM

• A system of obtaining, abstracting, storing and analysing

data to produce effective information for use in planning,

controlling and decision making process.

• MIS is used for decision making in the functional areas of

business. it has brought accuracy and speed to the

management.

CHARACTERISTICS OF GOOD MIS Information must be clear and conciseness The information should be relevant to the

business organisation It must be simple and easy to understand Helps in the process of decision-making and

corrective actions MIS should help in solving the complicated

problems effectively

NEED FOR MIS

1.INTERNAL FACTORS : RESOURCES PLANNING AND CONTROL

INFORMATION OPERATIONAL INFORMATION PRODUCTION FUNCTION MARKETING FUNCTION

EXTERNAL FACTORS

I. POLITICAL AND GOVERNMENT II. ECONOMIC CONDITION III. TECHNOLOGY IV. COMPUTER HARDWARE V. SOFTWARE VI. DATA VII.PEOPLE

IMPLEMENTATION OF MIS

INPUT DATA INFORMATION ‘S STORES AND RETRIEVALS

ANALYSIS

OUTPUT DECISION MAKING ACTIONS

ROLE OF MIS a) MIS increases knowledge of manager and he

can function effectively.

b) MIS provides decision-making process.

c) MIS provides successful achievement of the organisation objectives.

INFORMATION APPROPRIATE DECISIONS

EFFECTIVE MANAGEMENT PERFORMANCE

ACHIEVEMENT OF ORGANISATION

ROLE OF MIS SL.NO MAJOR

SUBSYSTEMAPPLICATION

1 MARKETING SALES PLANNING , SALES ANALYSIS , SALES FORECASTING

2 MANUFACTURING PRODUCTION PLANNING , COST CONTROL ANALYSIS

3 LOGISTICS PLANNING AND CONTROL

4 FINANCE AND ACCOUNTING

COST ANALYSIS , PLANNING , INCOME MEASUREMENT

5 TOP MANAGEMENT STRATEGIC PLANNING , POLICY , RESOURCE ALLOCATION

APPLICATION OF MISTO PROVIDE : Planning and control Sales forecasting Effective managerial activities Long term plans Government policy and regulation Allocate resources To find out new opportunities Help management decision about quality, quantity

and market price, etc

MANAGEMENT AND MIS

OPERTIONAL CONTROL

• It provides detailed information and accurate on a daily and weekly basis

• A market manager must know of past and present sales, record , consumers behaviour, advertising budjet

• It provide him timely and detailed information obtained from daily operations

MIDDLE MANAGEMENT

• Middle level managers such as department heads are concerned with the current anf future performance

• Information about marketing level problems with customer reduction in sales, quantity of product.

• They required information from within and outside organisation

TOP LEVEL STRATEGIC PLANNING

• MIS must provide information to top management for strategic planning and control

External source of informationEconomic condition

Technological conditions

Government policy

Actions of competitors

MISINTERTNAL SOURCE OF INFORMATION Sales volume Financial analysis Human resources Product quality , customers satisfaction

The top managers receive overall financial analysis and summarised comparisons of departmental performance.

Decision Support Systems

• Decision support systems (DSS)– Offer potential to assist in solving both semi-

structured and unstructured problems

Characteristics of a DSS

• Handles large amounts of data from different sources

• Provides report and presentation flexibility• Offers both textual and graphical orientation.• Supports drill down analysis• Performs complex, sophisticated analysis and

comparisons using advanced software packages• Supports optimization, satisfying, and heuristic

approaches

Characteristics of a DSS

• Performs different types of analyses– “What-if” analysis

• Makes hypothetical changes to problem and observes impact on the results

– Simulation• Duplicates features of a real system

– Goal-seeking analysis• Determines problem data required for a given result

Integration of MIS and DSS• In many organizations they are integrated

through a common database• Separation of DSS transactions in the database

from MIS transactions may be important for performance reasons

Characteristics MIS DSS

1) Focus

2) Emphasis

3) Access

4) Reliance

5) Understanding

MIS focuses on structured

and routine decisions

Data storage and general

efficiency

Indirect access to

managers & direct access

to technical people.

MIS defends on a

computer expert

MIS managers need not

understand the full nature

of data &decisions

Focuses on semi-structured

tasks also and requires

managerial judgment

Emphasis on data manipulation

Also emphasis on general

effectiveness.

Direct data and access by

strategies managers only

Depends on managers own

judgment

DSS managers know the

decision environment in a

better way

THANK YOU










•

Management or Business Games

Business Games are method of instructions in

which organizational people are made to realize,

understand their present potential and available

scope in them for further improvement.

Characteristics of BG• All BG orient the mind towards winning which is also necessary in business

atmosphere

• The confidence level of people increases due to this practice

• Any failure in BG increases the fighting sprit, it also increase the cognitive

knowledge of learning

• It augments the theory “fear of failure is more harmful than the failure

itself.”

• Decision making process is enhanced

• Teaming and synergy is also enhanced both as a team member and team

leader.

Business GamesObjectives:

• To provide managers with increased awareness of their

own behavior.

• How others perceive them

• Increased understanding of group process

• Sensitivity training actually aims for increased empathy

improved listing skills, greater openness, increased

tolerance levels and increased conflict resolution skills.

Disadvantages

• It is termed by people as crude method• The weakest individual of the group faces the

strongest brunt of all others.










•

BUSINESS PROCESS REENGINEERING (BPR)

BPR refers to analysis and redesign of workflows and

processes within and between organisations.

BPR is defined as the fundamental rethinking and radical

redesign (New platform, new methods, new strategy, new

philosophy, etc) of business related process to achieve

dramatic improvements in performance in terms of cost,

time, quality, output quantity and responsiveness to

customers.

BUSINESS PROCESS REENGINEERING (BPR)

Present

Captive approach

Ineffective systems

Inflexibility

Low consumer focus

Lack of innovation

High overheads

Longer lead time

Bureaucratic paralysis

Future

Flexible approach

Lean

competitive

effective

customer focused

profitable

innovative

creative

WHO WILL Do REENGINEER process?

• Leaders • Process incharge people• Reengineering team• Streaming committee

STEPS IN BUSINESS PROCESS REENGINEERING

• Determining a process vision • Define the process to be reengineered• Understanding and measuring the existing

process• Identify the Information technology average

level• Designing the prototype (approximation)• Implementing BPR• Review, feedback and modify

Adv of BPR

• Improvement of organization as a whole better process improvement

• Uses IT and other technologies for drastic improvements










•

Enterprises Resource Planning (ERP)

ERP is defined as the process of system integration through network that is capable of planning all the resource of the enterprise to achieve specified goals. ERP integrates all the departments and functions of organizations from supplies to end users, depts. like HR, finance, Marketing, QC, etc.

ENTERPRISE RESOURCE PLANNING

Enterprise Resource Planning systems (ERPs) integrate all

data and processes of an organization into a unified system.

A typical ERP system will use multiple components of

computer hardware and software to achieve the integration.

A key ingredient of most ERP systems is the use of a unified

database to store data for various system modules.

WHAT IS ERP ?

ERP systems are large computer systems that integrate application

programs in accounting (i.e., accounts receivable), sales (i.e., order

booking), manufacturing (i.e., product shipping) and the other functions in

the firm.

This integration is accomplished through a database shared by all the

application programs.

The first software that was designed to assist the manufacturing process happens to be the MRP (Material Resource Planning) in the year 1975.

This was followed by another advanced version namely MRP2 which is the acronym for Manufacturing Resource Planning.

None of them yielded benefit of ERP.

ERP HISTORY IN DEPTH

These Software's were helpful in manufacturing processes

only.

Their benefits do not extend to other sectors.

The MRP solutions did not render the expected results due to

exorbitant costs and practical work problems.

MRP systems required huge pool of technical expertise in

terms of manpower and machines.

DRAWBACKS OF MRP SYSTEMS

Complete integration of systems across the departments in a company as

well as across the enterprise as a whole.

Only solution for better project management.

Better customer service.

Automatic introduction of latest technologies.

Expertise database.

WHY ERP?

Material Shortages

Productivity Enhancements

Customer Service

Cash Management

Inventory problems

Quality Problems

PROBLEMS TACKLED BY ERP SYSTEMS

Check whether all functional aspects of business are duly covered.

Check whether all the business functions and processes are fully

integrated.

Check whether all the latest IT trends have been covered.

Check whether the vendor has customizing and implementing

capabilities.

ERP SELECTION

Ease of use.

Readymade solutions for most of the problems.

Integration of all functions already established.

Dependency on human resources eliminated.

Easy enterprise wide information sharing.

Suppliers and customers can be online communication.

Automatic adaptation to new technologies.

Knowledge transfer between industries guarantees innovation.

ADVANTAGES OF ERP PACKAGES

Why ERP Is Required

• It is very essential is this competitive world to perform better, to increase market share, thereby increase efficiency.

• ERP helps organizations to be cost effective by re-engineering the present business process.

• It utilities information technology and communication and uses them for organizational effectiveness.

Business modeling for ERP:

• It consists of process mapping of business process and subprocess.

• Diagrammatic representation of business process indicating the sequence, flow, interconnection, path of all subsystem to the main sysytem.

• Making a cost effective ERP model by planning in line business objectives.

ERP features• Role of consultants is very important here.• ERP is managed by the strategy of bringing

people together by making available information to everybody for effective DM.

• It is time bound.• ERP success depends on functionality,

technology, cost to ERP package (whether customized or not).

Steps in ERP• Identification of ERP needs (quick info flow, effective,

eliminating paper work and networking)• Evaluate the present business situation understanding

the present info system, present procedures and methods , present process & technology.

• Decisions regarding desired situations (by benchmarking resource utilization).

• Re-engineer the present business process(reduction of cycle time downtime, reducing no. of decision points and stream lining information to flow at all levels)

• Evolution of various ER package (cost vise, local or global presence, R& D investments, cost of implementing, ease of implementation, etc).

Steps in ERP

• Finalisation of ERP Package• Finalize the consultant• Implement ERP in a phased manner followed

by post implementation support.

ERP Domains

• Materials Management• Banking Financial services• SCM• HR

ERP operating softwareAGILE (HR), People Soft (HR), Oracle (finance)










•

Supply Chain Management (SCM) System It is an extension of distribution logistics and was earlier referred to as physical distribution management.It is primarily an integration of material management, manufacturing and physical distribution by network using information technology.SCM is often interpreted as network of production, distribution and marketing.

Four major drivers of SCM

1. Transportation 2. inventory 3. Facilities and 4. Information

SCM s also seen as a trade off between efficiency and responsiveness.

• SCM facilities management of high quality inventory most efficiently and

effectively (from manufacturing point to sale point)

• It is embedded with policies, procedures and organizational structures

(manufacturing organizations spend nearly 54 % of money on raw materials,

components of maintenance.)

• SCM success depends on effective integration of various aspects such as

speed, service, volume, scale, cost, operating environment, customization,

common polling, etc.

Key areas of SCM • Ways and means of minimizing uncertainty • Reduction of Lead time• Improving flexibility &process Quality• Minimize variety to maximize economic of

sales• Proper demand management • Taking care of product differentiation • Improving the major drivers

Eg of SCM:

• Just in time: JIT is maintaining adequate inventory and not keeping stocks more than the requirement.

• Hindustan Petroleum Corporation improved their profits by improving supply chain, optimizing procurement process, lower freight charges, etc.

Definition

• A supply chain is a network of facilities and

distribution options that performs the functions

of procurement of materials, transformation of

these materials into intermediate and finished

products, and the distribution of these finished

products to customers.

112










•

Activity base Management (ABM):

ABC is activity based costing. It is the basic form of ABM.

A type of functional accounting being adopted by leading

companies like HP, GE and Union Carbide.

Traditional financial accounting identified cost according

to the category of expenses such as salary, supply

charges, raw material cost, fixed and variable cost.

But ABC determines cost according to what is payable for

different tasks employees perform.

• Cost associated activities such as sales order processing,

expediting customer orders, resolving delivery problems, re-

tooling of machines, cost of advertising, publicity, etc are

separately calculated.

• ABC provides decision makes a much more accurate breakdown

of the cost data and the time taken for each item.

• Such as analysis can help mangers to understand the

significance levels of activities within a process and help them

to reduce cost.

Activity base Management (ABM):

Characteristics of ABMABM based on ABC is adopted• where there is increase in overhead levels• where increasing in labour cost • Eg. Of overhead charges : Salaries for

employees, electricity and maintenance, taxes and other duties to be paid to government., rent for premises, etc.,

Steps in ABC

• Costing of each activity is taken up• Identity cost driver for each of the activity• Establish cost driver rate• Apply required rate to the products

Advantages of ABC• It supports cost control measures• It produces products with better cost for

managers to make proper decisions

Global Perspective of Management

Global perspective consists of

1) International management or Oversees management:

International or oversees business takes place between a

parent country and host countries

2) Global or trans-national corporations: Views the world as

one market irrespective of place of functioning

3) MNC (Multi-national corporations): MNC’s have their

head quarters in one country but operate in many countries

Eg: Ford of USA operates in INDIA, UK etc.

Types of International Business:

The various types are• Exports• Licensing • Management contracts • JV (joint venture)• Strategic alliances • Subsidiaries

Transformation of International Business

1. Ethnocentric:

It is an approach found in international firms where nationals

from the parent country dominate the organization at home

and abroad.

In terms of decision-making, the subsidiaries have very little

autonomy, and control resides in head office.

This ethnocentric attitude stems from the belief that the

parent-country nationals are best suited to run the business,

irrespective of the local circumstances.

EG: Earth movers.

Polycentric :

These are foreign subsidiaries staffed by local people who have

great managerial freedom Eg: Hyundai motors

It is an approach found in international firms where host-country

nationals manage the subsidiaries.

Decision-making is given to the subsidiaries, although head office in

the parent country controls the overall business strategy.

From this perspective, host-country nationals are considered

important because they can bring local knowledge and

understanding to the day-to-day operations of the subsidiary

businesses.

3. Geocentric: Geocentric management involves a global view of the

organization's international operations. Here the entire organization is viewed as inter dependent

system operating in many countries. The top level managers are either from local countries or other

nations. However, a two way communication is a must (between head

quarters & other locations Eg: Philips, Asea Brown Boveri (ABB)

The best managers, regardless of their nationality or location, are selected for the assignments that fit their skills and abilities, the various units are connected by a coordinated plan that allows for local needs and actions in the context of overall organizational performance.

Adv of global management• Money can be easily raised throughout the world by its

operations at different locations Eg: Hyundai

• It utilities the business opportunities available in many

countries

• Cost effective products can be made (by using low cost labor)

• Large MNC & can receive managers and personals from a world

wide manager’s bank.

THANK YOU

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