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International Business Strategy

This book is a part of the course by Jaipur National University, Jaipur.This book contains the course content for International Business Strategy.

JNU, JaipurFirst Edition 2013

The content in the book is copyright of JNU. All rights reserved.No part of the content may in any form or by any electronic, mechanical, photocopying, recording, or any other means be reproduced, stored in a retrieval system or be broadcast or transmitted without the prior permission of the publisher.

JNU makes reasonable endeavours to ensure content is current and accurate. JNU reserves the right to alter the content whenever the need arises, and to vary it at any time without prior notice.

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Index

ContentI. ...................................................................... II

List of FiguresII. ....................................................... VII

List of TablesIII. .......................................................VIII

AbbreviationsIV. ........................................................IX

Case StudyV. ............................................................. 100

BibliographyVI. ........................................................ 103

Self Assessment AnswersVII. ................................... 106

Book at a Glance

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Contents

Chapter I ....................................................................................................................................................... 1Introduction to Business Strategy .............................................................................................................. 1Aim ................................................................................................................................................................ 1Objectives ...................................................................................................................................................... 1Learning outcome .......................................................................................................................................... 11.1 Introduction .............................................................................................................................................. 2 1.1.1 Features of Strategy ................................................................................................................. 21.2 Strategy at Different Levels of Business.................................................................................................. 2 1.2.1 Corporate Strategy ................................................................................................................... 2 1.2.2 Business Unit Strategy ............................................................................................................. 2 1.2.3 Operational Strategy ................................................................................................................ 21.3 Nature of Business Policy ........................................................................................................................ 3 1.3.1 Types of Policies ...................................................................................................................... 3 1.3.2 Features of Business Policy ..................................................................................................... 3 1.3.3 Difference Between Policy and Strategy ................................................................................. 41.4 Objectives of Business ............................................................................................................................. 41.5 Classification of Objective of Business ................................................................................................... 5 1.5.1 Economic Objectives ............................................................................................................... 5 1.5.2 Social Objectives ..................................................................................................................... 6 1.5.3 Human Objectives .................................................................................................................... 7 1.5.4 National Objectives .................................................................................................................. 7 1.5.5 Global Objectives .................................................................................................................... 8Summary ..................................................................................................................................................... 10References ................................................................................................................................................... 10Recommended Reading ............................................................................................................................. 10Self Assessment ............................................................................................................................................11

Chapter II ................................................................................................................................................... 13Strategic Management ............................................................................................................................... 13Aim .............................................................................................................................................................. 13Objectives .................................................................................................................................................... 13Learning outcome ........................................................................................................................................ 132.1 Introduction ............................................................................................................................................ 142.2 Need For Strategic Management ........................................................................................................... 14 2.2.1 Due to Change ....................................................................................................................... 14 2.2.2 Provides Guidelines ............................................................................................................... 14 2.2.3 Better Performance ................................................................................................................ 14 2.2.4 Improved Allocation of Resources ........................................................................................ 14 2.2.5 Competitive Advantage .......................................................................................................... 14 2.2.6 Provides Holistic Approach ................................................................................................... 14 2.2.7 Improved Integration ............................................................................................................. 14 2.2.8 Systematise Business Decisions ............................................................................................ 152.3 Strategic Management Process .............................................................................................................. 15 2.3.1 Environmental Scanning ........................................................................................................ 15 2.3.2 Strategy Formulation ............................................................................................................. 15 2.3.3 Strategy Implementation ........................................................................................................ 16 2.3.4 Evaluation and Control .......................................................................................................... 172.4 Benefits of Strategic Management ......................................................................................................... 17 2.4.1 Proactive Approach ................................................................................................................ 17 2.4.2 Facilitates Better Delegation .................................................................................................. 17 2.4.3 Exploiting Opportunities ........................................................................................................ 17 2.4.4 Assists in Realistic and Effective Plans ................................................................................. 18 2.4.5 To Gain Competitive Advantage ............................................................................................ 18

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2.4.6 Minimises Weaknesses .......................................................................................................... 18 2.4.7 Promotes Employees’ Participation ....................................................................................... 18 2.4.8 Boost Profits .......................................................................................................................... 18 2.4.9 Systematic Approach for Management Decision ................................................................... 18 2.4.10 Empowerment of Employees ............................................................................................... 182.5 Limitations of Strategic Management .................................................................................................... 192.6 Strategies and their Role in Strategic Management ............................................................................... 192.7 Role of Strategy in Strategic Management ............................................................................................ 19 2.7.1 Deliberate Attempt to Counteract Actions of Opponents ...................................................... 19 2.7.2 Emergence of Tactful Decision .............................................................................................. 19 2.7.3 Creates System Approach ...................................................................................................... 20 2.7.4 Helps in Formulating General Policies .................................................................................. 20 2.7.5 Provides Integrated Approach ................................................................................................ 20 2.7.6 Minimises Risk ...................................................................................................................... 20 2.7.7 Optimum Use of Organisational Resources ........................................................................... 20 2.7.8 Continues Review .................................................................................................................. 202.8 Reasons behind Failure of Strategic Management ................................................................................. 20Summary ..................................................................................................................................................... 22References ................................................................................................................................................... 22Recommended Reading ............................................................................................................................. 23Self Assessment ........................................................................................................................................... 24

Chapter III .................................................................................................................................................. 26Corporate Strategy .................................................................................................................................... 26Aim .............................................................................................................................................................. 26Objectives .................................................................................................................................................... 26Learning outcome ........................................................................................................................................ 263.1 Introduction ............................................................................................................................................ 273.2 Nature and Scope of Corporate Management ........................................................................................ 27 3.2.1 Scope of Corporate Management .......................................................................................... 273.3 Corporate Planning ................................................................................................................................ 27 3.3.1 Essentials of Corporate Planning ........................................................................................... 28 3.3.2 Steps of Corporate Planning Process ..................................................................................... 28 3.3.3 Benefits of Corporate Planning .............................................................................................. 28 3.3.4 Reasons Attributed to the Failure of Corporate Planning ...................................................... 28 3.3.5 Prerequisites for Success in Corporate Planning ................................................................... 283.4 Need for Corporate Management ........................................................................................................... 283.5 Components of Corporate Strategy ........................................................................................................ 29 3.5.1 Objectives .............................................................................................................................. 29 3.5.2 Vector ..................................................................................................................................... 29 3.5.3 Competitive Advantage .......................................................................................................... 29 3.5.4 Synergy .................................................................................................................................. 293.6 Functions of Corporate Strategy ............................................................................................................ 303.7 Kinds of Corporate Strategy .................................................................................................................. 30 3.7.1 Stability Strategy .................................................................................................................... 30 3.7.2 Expansion Strategy ................................................................................................................ 30 3.7.3 Retrenchment Strategy ........................................................................................................... 30 3.7.4 Combination Strategies .......................................................................................................... 303.8 Significance of Corporate Strategy ........................................................................................................ 313.9 Limitations of Corporate Strategy ......................................................................................................... 313.10 Concept and Meaning of Corporate Policy .......................................................................................... 313.11 Features of Corporate Policy ................................................................................................................ 323.12 Scope of Corporate Policy ................................................................................................................... 323.13 Classification of Corporate Policies .................................................................................................... 33 3.13.1 Classification on the Basis of Scope .................................................................................... 33

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3.13.2 Classification on the Basis of Expression ............................................................................ 33 3.13.3 Classification on the Basis of Level .................................................................................... 33 3.13.4 Classification on the Basis of Origin ................................................................................... 33 3.13.5 Classification on the Basis of Functional Areas .................................................................. 34 3.13.6 Classification of Policies on the Basis of Nature of Management ...................................... 343.14 Importance of Corporate Policy ........................................................................................................... 34Summary ..................................................................................................................................................... 35References ................................................................................................................................................... 35Recommended Reading ............................................................................................................................. 35Self Assessment ........................................................................................................................................... 36

Chapter IV .................................................................................................................................................. 38Top Management ........................................................................................................................................ 38Aim .............................................................................................................................................................. 38Objectives .................................................................................................................................................... 38Learning outcome ........................................................................................................................................ 384.1 Introduction ............................................................................................................................................ 394.2 Management Levels ............................................................................................................................... 39 4.2.1 Top Level Managers .............................................................................................................. 39 4.2.2 Middle Level Managers ......................................................................................................... 39 4.2.3 First Level Managers ............................................................................................................. 404.3 Board of Directors .................................................................................................................................. 40 4.3.1 Duties of Board of Directors .................................................................................................. 404.4 Sub Committee....................................................................................................................................... 404.5 Chief Responsibilities and Skills of Top Management .......................................................................... 41 4.5.1 Planning ................................................................................................................................. 41 4.5.2 Organising .............................................................................................................................. 41 4.5.3 Controlling ............................................................................................................................. 414.6 Chief Executive Officer (CEO).............................................................................................................. 41 4.6.1 Responsibilities ...................................................................................................................... 42Summary ..................................................................................................................................................... 43References ................................................................................................................................................... 43Recommended Reading ............................................................................................................................. 43Self Assessment ........................................................................................................................................... 44

Chapter V .................................................................................................................................................... 46Strategic Planning ...................................................................................................................................... 46Aim .............................................................................................................................................................. 46Objectives .................................................................................................................................................... 46Learning outcome ........................................................................................................................................ 465.1 Introduction ............................................................................................................................................ 475.2 Strategic Planning .................................................................................................................................. 47 5.2.1 Methodologies ....................................................................................................................... 475.3 Strategic Planning Process ..................................................................................................................... 47 5.3.1 Organisation Mission and Purposes ....................................................................................... 48 5.3.2 Vision ..................................................................................................................................... 48 5.3.3 Importance of Mission Statement .......................................................................................... 49 5.3.4 Benefits of Vision .................................................................................................................. 49 5.3.5 Developing a Mission Statement ........................................................................................... 50 5.3.6 Developing a Vision Statement .............................................................................................. 50 5.3.7 Setting Organisational Goals and Objectives ........................................................................ 505.4 SWOT Analysis ..................................................................................................................................... 51 5.4.1 Internal and External Factors ................................................................................................. 52 5.4.2 Avoiding Errors ...................................................................................................................... 525.5 The SWOT Matrix ................................................................................................................................. 54

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5.5.1 Formulating Strategic Alternatives ........................................................................................ 55 5.5.2 Selecting The Best Strategy ................................................................................................... 56 5.5.3 Preparing an Operational Plan ............................................................................................... 57 5.5.4 Resource Allocation ............................................................................................................... 58 5.5.5 Co-ordinating Internal Factors ............................................................................................... 58 5.5.6 Integrating Strategy and Operational Plan ............................................................................. 58Summary ..................................................................................................................................................... 60References ................................................................................................................................................... 61Recommended Reading ............................................................................................................................. 61Self Assessment ........................................................................................................................................... 62

Chapter VI .................................................................................................................................................. 64Implementation of Strategy ...................................................................................................................... 64Aim .............................................................................................................................................................. 64Objectives .................................................................................................................................................... 64Learning outcome ........................................................................................................................................ 646.1 Activating Strategy ................................................................................................................................. 656.2 Strategy Formulation vs. Strategy Implementation ............................................................................... 656.3 Aspects of Strategy Implementation ...................................................................................................... 666.4 Steps in Implementation of a Strategy ................................................................................................... 666.5 Project Management .............................................................................................................................. 686.6 Formulation of a Company .................................................................................................................... 69 6.6.1 Licensing Procedures ............................................................................................................. 69 6.6.2 SEBI Requirements ................................................................................................................ 69 6.6.3 Foreign Collaboration ............................................................................................................ 69 6.6.4 FEMA Requirements ............................................................................................................. 69 6.6.5 MRTP Requirements .............................................................................................................. 69 6.6.6 Business Incentives ................................................................................................................ 70 6.6.7 Import and Export Requirements ........................................................................................... 70 6.6.8 Labour Legislation ................................................................................................................. 70 6.6.9 Patenting Requirements ......................................................................................................... 70 6.6.10 Resources Allocation ........................................................................................................... 71 6.6.11 Importance of Organisational Structure ............................................................................... 71 6.6.12 Structural Considerations ..................................................................................................... 726.7 Other Important Strategies ..................................................................................................................... 736.8 BCG Matrix ........................................................................................................................................... 73 6.8.1 Market Growth ....................................................................................................................... 74 6.8.2 The Growth Share Model and Cash Position ......................................................................... 74 6.8.3 Uses and Benefits of the BCG Matrix ................................................................................... 75 6.8.4 Limitations of the BCG Matrix .............................................................................................. 756.9 G. E. Multi Factorial Analysis ............................................................................................................... 756.10 Factors Affecting Market Attractiveness.............................................................................................. 766.11 PEST Analysis ...................................................................................................................................... 76Summary ..................................................................................................................................................... 78References ................................................................................................................................................... 79Recommended Reading ............................................................................................................................. 79Self Assessment ........................................................................................................................................... 80

Chapter VII ................................................................................................................................................ 82Social Responsibility .................................................................................................................................. 82Aim .............................................................................................................................................................. 82Objectives .................................................................................................................................................... 82Learning outcome ........................................................................................................................................ 827.1 Introduction ............................................................................................................................................ 837.2 Characteristics of Social Responsibility ................................................................................................ 83

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7.3 Components and Areas of Social Responsibility ................................................................................... 83 7.3.1 Towards Owners of Enterprise ............................................................................................... 83 7.3.2 Towards Workers ................................................................................................................... 83 7.3.3 Towards Consumers ............................................................................................................... 84 7.3.4 Towards the Society ............................................................................................................... 84 7.3.5 Toward the Government ........................................................................................................ 84 7.3.6 Toward the Weaker Section of Society .................................................................................. 84 7.3.7 Towards the Economic Policy of State .................................................................................. 847.4 Arguments Against Social Responsibility of Business .......................................................................... 857.5 Importance of Business Ethics ............................................................................................................... 857.6 Social Responsibility for Economic Growth ......................................................................................... 857.7 Outcomes of Social Responsibility ........................................................................................................ 867.8 Social Audit ............................................................................................................................................ 867.9 Need for Social Audit ............................................................................................................................. 867.10 Types of Social Audit ........................................................................................................................... 86 7.10.1 Social Process Audit ........................................................................................................... 86 7.10.2 Financial Statements Format Social Audit ........................................................................... 86 7.10.3 Macro-Micro Social Indicator Audit .................................................................................... 87 7.10.4 Social Performance Audit .................................................................................................... 87 7.10.5 Partial Social Audit .............................................................................................................. 877.11 Uses of Social Auditing ........................................................................................................................ 87Summary ..................................................................................................................................................... 88References ................................................................................................................................................... 88Recommended Reading ............................................................................................................................. 88Self Assessment ........................................................................................................................................... 89

Chapter VIII ............................................................................................................................................... 91Strategy of International Business ........................................................................................................... 91Aim .............................................................................................................................................................. 91Objectives .................................................................................................................................................... 91Learning outcome ........................................................................................................................................ 918.1 Strategy and the Firm ............................................................................................................................. 928.2 Value Creation ........................................................................................................................................ 928.3 Strategic Positioning .............................................................................................................................. 938.4 The Firm as a Value Chain ..................................................................................................................... 93 8.4.1 Primary Activities ................................................................................................................. 93 8.4.2 Support Activities ................................................................................................................. 938.5 The Implementation of Strategy ............................................................................................................ 948.6 Global Expansion and Profits ................................................................................................................ 958.7 Leveraging Products and Competencies ............................................................................................... 958.8 Location Economies ............................................................................................................................... 968.9 Leveraging Subsidiary Skills ................................................................................................................. 96Summary .................................................................................................................................................... 97References ................................................................................................................................................... 97Recommended Reading ............................................................................................................................. 97Self Assessment .......................................................................................................................................... 98

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List of Figures

Fig. 2.1 Process of strategic management .................................................................................................... 21Fig. 4.1 Board of directors ........................................................................................................................... 42Fig. 6.1 BCG matrix..................................................................................................................................... 73Fig. 6.2 PEST analysis ................................................................................................................................. 76Fig. 8.1 Strategy and the firm ...................................................................................................................... 92Fig. 8.2 Value creation ................................................................................................................................. 92Fig. 8.3 The firm as a value chain ................................................................................................................ 93Fig. 8.4 Organisational architecture ............................................................................................................. 94Fig. 8.5 Strategic fit ..................................................................................................................................... 95

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List of Tables

Table 1.1 Difference between policy and strategy ......................................................................................... 4Table 5.1 Strengths and weaknesses of SWOT analysis .............................................................................. 52Table 5.2 Opportunities and threats of SWOT analysis ............................................................................... 53Table 6.1 Business attractiveness and business strengths ............................................................................ 76

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Abbreviations

BCG - Boston Consulting Group Approach BG - General Electric Approach CEO - Chief Executive Officer CFO - Chief Financial Officer CICA - Capital Issues Control ActCIO - Chief Information Officer COO - Chief Operation Officer DSS - Decision Support System FEMA - Foreign Exchange Management Act IDRA - Industries Development and Regulation ActMIS - Management Information System MRTP - Monopolies and Restrictive Trade Practices PEST - Political Economical Social TechnologicalSWOT - Strengths, Weaknesses, Opportunities and Threats

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Chapter I

Introduction to Business Strategy

Aim

The aim of this chapter is to:

introduce the students to the business strategy•

expose them to the nature of business•

introduce them with the objective of business •

Objectives

The objectives of this chapter are to:

state the meaning of objective of business•

help them understand what business strategy is•

expose them to various nature of business •

Learning outcome

At the end of this chapter, the students will be able to:

explain the nature of various objectives of business and their significance•

state the meaning of business strategy•

explain business strategy in detail•


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1.1 IntroductionStrategy is the direction and scope of an organisation in the long term, which achieves advantage for the • organisation through its configuration of resources within a challenging environment, to meet the need of markets and to fulfil stakeholders’ expectations.In other words strategy is about:•

The direction where the business is trying to get into in the long term. �The market in which a business should compete in and the scope of the activities that are to be involved. �The advantage as to how can the businesses performs better than the competition in the market. �The resources like skills, assets, finance, relationships, technical competence, and facilities required in order �to be able to compete with other businesses in the market.The environmental factors that affect the businesses’ ability to compete. �The values and expectations of the stakeholders who have the power in and around the business. �

Strategy is a management’s game plan for strengthening the performance of the enterprise. It states how to conduct business to achieve the desired goals.

1.1.1 Features of Strategy

Strategy is significant because it is not possible to foresee the future. Without a perfect foresight, the firms must • be ready to deal with the uncertain events which constitute the business environment.Strategy deals with long term developments rather than routine operations i.e., it deals with probability of • innovations or new products, new methods of productions, or new markets to be developed in future.Strategy is created to take into account the probable behaviour of customers and competitors. Strategies dealing • with employees will predict the employee behaviour.

1.2 Strategy at Different Levels of BusinessStrategies exist at several levels in any organisation, ranging from the overall business through to individual working in it.

1.2.1 Corporate Strategy

It is concerned with the overall purpose and scope of the business to meet stakeholders’ expectations. • This is a crucial level since it is highly influenced by investors in the business and acts to guide strategic decision-• making throughout the business. Corporate strategy often stated explicitly in a ‘mission statement’.•

1.2.2 Business Unit Strategy

It is concerned more with how a business competes successfully in a particular market. • It concerns strategic decision about choice of products, meeting needs of customers, gaining advantage over • competitors, exploiting or creating new opportunities etc.

1.2.3 Operational Strategy

It is concerned with how each part of the business is organised to deliver the corporate and business-unit level • strategic direction. Operational strategy therefore focuses on issues of resources, processes, people, etc. •

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1.3 Nature of Business PolicyBusiness policy defines the scope or spheres within which decisions can be taken by the subordinates in an • organisation. It permits the lower level management to deal with the problems and issues without consulting top level • management every time for decisions. Business policies are the guidelines developed by an organisation to govern its actions. • They define the limits within which decisions must be made. • Business policy also deals with acquisition of resources with which organisational goals can be achieved. • Business policy is the study of the goals and responsibilities of top level management, the significant issues • affecting organisational success and the decisions affecting organisation in the long-run.Some useful definitions of Business Policy are as follows,•

A business policy is an implied overall guide setting up boundaries that supply the general limit and direction �in which managerial action will take place.A business policy is one, which focuses attention on the strategic allocation of scarce resources. Conceptually �speaking, strategy is the direction of such resource allocation while planning is the limit of allocation.A business policy represents the best thinking of the company management as to how the objectives may �be achieved in the prevailing economic and social conditions.A business policy is the study of the nature and process of choice about the future of independent enterprises �by those responsible for decisions and their implementations.The purpose of a business policy is to enable the management to relate properly the organisation’s work to �its environment. Business policies are guides to action or channels to thinking.

1.3.1 Types of PoliciesThere are many types of policies. Some of these are as follows:

Marketing policyThe basic attitudes underlying a company’s marketing activity is called marketing policy.

Financial/Economic policyEconomic policy refers to the actions that government takes in the economic field. It covers the systems for setting interest rates and government budget as well as the labour market, national ownership, and many other areas of government interventions into the economy.

Personnel policyIs a set of rules or guidelines that defines the way in which an organisation deals with matters relating to staff, or a particular rule or guideline relating to a particular issue affecting staff.

1.3.2 Features of Business PolicyAn effective business policy must have following features.

SpecificPolicy should be specific/definite in nature. If it is uncertain, then the implementation will become difficult.

ClearPolicy must be unambiguous. It should avoid use of jargons and connotations. There should be no misunderstanding in following the policy.

Reliable/UniformPolicy must be uniform enough so that it can be efficiently followed by the subordinates.


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AppropriatePolicy should be appropriate to the present organisational goal.

SimpleA policy should be simple and easily understood by all in the organisation.

Inclusive/ ComprehensiveIn order to have a wide scope, a policy must be comprehensive.

FlexiblePolicy should be flexible in operation/application. This does not imply that a policy should be altered always, but it should be wide in scope so as to ensure that the line managers use them in repetitive/routine scenarios.

StablePolicy should be stable else it will lead to indecisiveness and uncertainty in minds of those who look into it for guidance.

1.3.3 Difference Between Policy and Strategy

Policy Strategy

Policy is a blueprint of the organisational activity a. which is repetitive/routine in nature.

Strategy is concerned with those a. organisational decisions which have not been dealt/faced before in same form.

Policy formulation is the responsibility of top b. level management.

Strategy formulation is basically done by b. middle level management.

Policy deals with routine/daily activities essential c. for effective and efficient running of an organisation.

c. Strategy deals with strategic decisions.

Policy is concerned with both thought and d. actions. d. Strategy is concerned mostly with actions.

A policy is what is, or what is not done.e. e. A strategy is the methodology used to achieve a target as prescribed by a policy.

Table 1.1 Difference between policy and strategy

1.4 Objectives of BusinessAn objective of business means the purpose for which the business is established. • It is generally believed that the main objective of business is to make profit and avoid loss. • Business objective is something which a business organisation wants to achieve or accomplish over a specified • period of time.These may be to earn profit for its growth and development, to provide goods to its customers, to protect the • environment, etc.

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1.5 Classification of Objective of BusinessIt is generally believed that a business has a single objective, which is, to make profit. But it cannot be the only • objective of business. While pursuing the objective of earning profit, business units do keep the interest of their owners in view. • However, any business unit cannot ignore the interests of its employees, customers, the community, as well as the interests of society as a whole. For instance, no business can prosper in the long run unless fair wages are paid to the employees and customer • satisfaction is given due importance. Business objectives also need to be aimed at contributing to national goals and aspirations as well as towards • international well-being. Thus, the objectives of business can be classified as,

Economic Objectives �Social Objectives �Human Objectives �National Objectives �Global Objectives �

1.5.1 Economic ObjectivesEconomic objectives of business refer to the objective of earning profit and also other objectives that are necessary to be pursued to achieve the profit objective, which includes creation of customers, regulating innovations and best possible use of available resources.

Profit earningProfit is the lifeblood of business, without which no business can survive in a competitive market. In fact profit • making is the primary objective for which a business unit is brought into existence. Profits must be earned to ensure the survival of business, its growth and expansion over time. • Profits help businessmen not only to earn their living but also to expand their business activities by reinvesting • a part of the profits. In order to achieve this primary objective, certain other objectives are also necessary to be pursued by business, • which are as follows,

a. Creation of customers A business unit cannot survive unless there are customers to buy the products and services. • Again a businessman can earn profits only when he provides quality goods and services at a reasonable price. • For this it needs to attract more customers for its existing as well as new products. • This is achieved with the help of various marketing activities.•

b. Regular innovations

Innovation means changes, which bring about improvement in products, process of production and distribution • of goods. Business units, through innovations, are able to reduce cost by adopting better methods of production and also • increase their sales by attracting more customers because of improved products. Reduction in cost and increase in sales gives core profit to the businessman.•

c. Best possible use of resources To run any business one must have sufficient capital and funds. • The amount of capital may be used to buy machinery, raw material, employ men and have cash to meet day to • day expenses.


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Thus, business activities require various resources like manpower, materials, money and machines. • The availability of these resources is usually limited. • Thus, every business should try to make best possible use of these resources. • This objective can be achieved by employing efficient workers, making full use of machines and minimising • wastage of raw materials.

1.5.2 Social Objectives

Social objectives are those objectives of business, which are desired to be achieved for the benefit of the • society. Since business operates in a society by utilising its scarce resources, the society expects something in return • for its welfare. No activity of the business should be aimed at giving any kind of trouble to the society. • If business activities lead to socially harmful effects, there is bound to be public reaction against the business • sooner or later. Social objectives of business include production and supply of quality goods and services, adoption of fair trade • practices and contribution to the general welfare of society and provision of welfare amenities.

Production and supply of quality goods and servicesSince business utilises various resources of the society, the society expects to get quality goods and services • from the business. The objective of business should be to produce better quality goods and supply them at the right time and at a • right price. It is not desirable on the part of the businessman to supply adulterated or inferior goods which cause injuries • to the customers. They should charge the price according to the quality of the goods and services provided to the society. • Again, the customers also expect timely supply of all their requirements. So it is important for every business • to supply those goods and services on a regular basis.

Adoption of fair trade practicesIn every society, activities such as hoarding, black-marketing and over-charging are considered undesirable. • Besides, misleading advertisements often give a false impression about the quality of products. • Such advertisements deceive the customers and the businessmen use them for the sake of making large profits. • This is an unfair trade practice. The business unit must not create artificial scarcity of essential goods or raise prices for the sake of earning • more profits. All these activities earn a bad name and sometimes make the businessmen liable for penalty and even • imprisonment under the law. Therefore, the objective of business should be to adopt fair trade practices for the welfare of the consumers as • well as the society.

Contribution to the general welfare of the societyBusiness units should work for the general welfare and upliftment of the society. • This is possible through running of schools and colleges for better education, opening of vocational training • centres to train people to earn their livelihood, establishing hospitals for medical facilities and providing recreational facilities for the general public like parks, sport complexes, etc.

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1.5.3 Human Objectives

Human objectives refer to the objectives aimed at the well-being as well as fulfilment of expectations of employees • as also of people who are disabled, handicapped and deprived of proper education and training. The human objectives of business may thus include economic well-being of the employees, social and • psychological satisfaction of employees and development of human resources.

Economic well being of the employeesIn business, employees must be provided with fair remuneration and incentives for performance, benefits of • provident fund, pension and other amenities like medical facilities, housing facilities, etc. By this they feel more satisfied at work and contribute more for the business.•

Social and psychological satisfaction of employeesIt is the duty of business units to provide social and psychological satisfaction to their employees. • This is possible by making the job interesting, challenging, putting the right person in the right job reducing • the monotony of work. Opportunities for promotion and advancement in career should also be provided to the employees. • Further, grievances of employees should be given prompt attention and their suggestions should be considered • seriously when decisions are made. If employees are happy and satisfied they can put their best efforts in work. •

Development of human resourcesEmployees as human beings always want to grow. • Their growth requires proper training as well as development. • Business can prosper if the people employed can improve their skills and develop their abilities and competencies • in course of time. Thus, it is important that business should arrange training and development programmes for its employees.•

Well-being of socially and economically backward people

Business units being inseparable parts of society should help backwards classes and also people those are • physically and mentally challenged.This can be done by arranging vocational training programmes which may improve the earning capacity of • backward people in the community.While recruiting the staff, preference should be given to physically and mentally challenge persons by the • business.

1.5.4 National Objectives

Being an important part of the country, every business must have the objective of fulfilling national goals and • aspirations. The goal of the country may be to provide employment opportunity to its citizens, earn revenue for its exchequer, • become self-sufficient in production of goods and services, promote social justice, etc. Business activities should be conducted keeping these goals of the country in mind, which may be called national • objectives of business. The following are the national objectives of business.•


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Creation of employmentOne of the important national objectives of business is to create opportunities for gainful employment of • people. This can be achieved by establishing new business units, expanding markets, widening distribution channels, • etc.

Promotion of social justiceAs a responsible citizen, a businessman is expected to provide equal opportunities to all persons whom he deals • with. He is also expected to provide equal opportunities to all the employees to work and progress. • Towards this objective special attention must be paid to weaker and backward sections of the society. •

Production according to national priorityBusiness units should produce and supply goods in accordance with the priorities laid down in the plans and • policies of the Government. One of the national objectives of business in our country should be to increase the production and supply of • essential goods at reasonable prices.

Contribution to the revenue of the countryThe business owners should pay their taxes and dues honestly and regularly. • This will increase the revenue of the government, which can be used for the development of the nation. •

Self-sufficient and export promotionTo help the country to become self-reliant, business units have the added responsibility of restricting import • of goods. Besides, every business units should aim at increasing exports and adding to the foreign exchange reserves of • the country.

1.5.5 Global Objectives

Earlier India had a very restricted business relationship with other nations. There was a very rigid policy for • import and export of goods and services. But now-a-days, due to liberal economic and import/export policy, restrictions on foreign investments have • been largely abolished and duties on imported goods have been substantially reduced. This change has brought about increased competition in the market. • Today because of globalisation the entire world has become a big market. • Goods produced in one country are readily available in other countries, so, to face the competition in the global • market every business has certain objectives in mind, which may be called the global objectives.

Raise general standard of livingGrowth of business activities across national borders makes available quality goods at reasonable prices all • over the world. The people of one country get to use similar types of goods that people in other countries are using. This improves • the standard of living of people.

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Reduce disparities among nationsBusiness should help to reduce disparities among the rich and poor nations of the world by expanding its • operations. By capital investment in developing as well as underdeveloped countries it can foster their industrial and • economic growth.

Make available globally competitive goods and servicesBusiness should produce goods and services which are globally competitive and have huge demand in foreign • markets. This will improve the image of the exporting country and also earn more foreign exchange for the country.•


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SummaryStrategy is the direction and scope of an organisation over the long term, which achieves advantage for the • organisation through its configuration of resources within a challenging environment, to meet the need of markets and to fulfil stakeholder expectations.It is a management’s game plan for strengthening the performance of the enterprise.• Strategy is significant because it is not possible to foresee the future.• Strategy deals with long term developments rather than routine operations.• Business policy defines the scope or spheres within which decisions can be taken by the subordinates in an • organisation. Business policies are the guidelines developed by an organisation to govern its actions. • A business policy is an implied overall guide setting up boundaries that supply the general limit and direction • in which managerial action will take place.Marketing, Financial and Personnel are three types of policies.• An objective of business means the purpose for which the business is established. • Economic objectives of business refer to the objective of earning profit and also other objectives that are necessary • to be pursued to achieve the profit objective, which includes creation of customers, regulating innovations and best possible use of available resources.Social objectives are those objectives of business, which are desired to be achieved for the benefit of the • society. Human objectives refer to the objectives aimed at the well-being as well as fulfilment of expectations of employees • as also of people who are disabled, handicapped and deprived of proper education and training.

ReferencesReddy, P. N., 2007. • Strategic Management, 2nd ed., Himalaya Publishing House.Aaker, D. A., 2001. • Developing Business Strategies, 6th ed., Wiley Publishers.Drucker, P., Introduction to Business Strategy, [Pdf] Available at: < http://220.227.161.86/20076ipcc_paper7B_• vol1_cp2.pdf> [Accessed 8 November 2012]Tapper, C., I• ntroduction to Business Strategies, [Pdf] Available at: < http://www.student.mbt.unsw.edu.au/Guides/LGSupp_IntroBT_FINAL.pdf> [Accessed 8 November 2012].Colley, J., • Introduction to Business Strategies, [Video Online] Available at: < https://www.youtube.com/watch?v=eAJqw_AKFjA> [Accessed 8 November 2012].Krysonski, D., • Introduction to Business Strategies, [Video Online] Available at: < https://www.youtube.com/watch?v=rJ2tmqRkiCM&feature=related> [Accessed 8 November 2012]

Recommended ReadingGhosh, P. K., 1996. • Business Policy Strategic Planning and Management, 2nd ed., Sultan Chand & Sons.Litman, J., 2008. • Driven: Business Strategy, Human Actions and the Creation of Wealth. 1st ed., Strategy & Execution, LLC.Finlay, P. N., 2000. • Strategic Management: An Introduction to Business and Corporate Level Strategy, illustrated, Financial Times Prentice Hall

•

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Self AssessmentWhich of the following statements is false?1.

Strategy is about the direction where the business is trying to get to in the long term.a. Strategy is about the market in which a business should compete in and the scope of the activities that are b. to be involved.Strategy is about the environmental factors that affect the businesses’ ability to compete.c. Strategy is about the direction where the business is trying to get to in the short term.d.

Strategy is a/an ____________ game plan for strengthening the performance of the enterprise.2. financiala. organisation’sb. management’sc. CEO’sd.

Without a ___________, management has no roadmap to guide them.3. strategya. planb. businessc. enterprised.

Strategy deals with ___________ developments rather than routine operations.4. long terma. short termb. periodicc. yearlyd.

What is concerned with the overall purpose and scope of the business to meet stakeholder expectations?5. Business unit strategya. Corporate strategyb. Operational strategyc. Business policyd.

Which of the following statements is true?6. Operational strategy is concerned more with how a business competes successfully in a particular market.a. Business policy is concerned more with how a business competes successfully in a particular market.b. Business unit strategy is concerned more with how a business competes successfully in a particular c. market.Corporate strategy is concerned more with how a business competes successfully in a particular market.d.

What focuses on issues of resources, processes and people?7. Operational strategya. Business strategyb. Corporate strategyc. Business policyd.


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Which of the following statements is true?8. Business strategy defines the scope or spheres within which decisions can be taken by the subordinates in a. an organisation. Corporate policies are the guidelines developed by an organisation to govern its actions. b. Business policy defines the scope or spheres within which decisions can be taken by the subordinates in an c. organisation. Business policies are the guidelines developed by CEO of the organisation to govern its actions. d.

What is the basic attitude underlying a company’s marketing activity known as?9. Business policya. Financial policyb. Economic objectivec. Marketing policy.d.

Which of the following statements is false?10. Social objectives are those objectives of business, which are desired to be achieved for the benefit of the a. society. Economic objectives of business refer to the objective of earning profit and also other objectives that are b. necessary to be pursued to achieve the profit objective, which includes creation of customers, regulation innovations and best possible use of available resources.Global objectives refer to the objectives aimed at the well-being as well as fulfilment of expectations c. of employees as also of people who are disabled, handicapped and deprived of proper education and training.Human objectives refer to the objectives aimed at the well-being as well as fulfilment of expectations d. of employees as also of people who are disabled, handicapped and deprived of proper education and training.

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Chapter II

Strategic Management

Aim


introduce the students to strategic management•

introduce them to strategic formulation•

explain the need of strategic management •

Objectives


expose the students to the benefits and limitations of strategic management•

help them understand strategic management in detail•

expose them to the strategic formulation •

Learning outcome


define strategic management•

explain the benefits and limitations of strategic management in detail•

describe strategic formulation in detail•


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2.1 IntroductionStrategic management is the process of specifying an organisation’s objective, developing policies and plans to • achieve these objectives, and allocating resources so as to implement the plans. It is the highest level of managerial activity, usually performed by the company’s Chief Executive Officer (CEO) • and executive team. It provides overall direction to the whole enterprise. • An organisation’s strategy must be appropriate for its resources, circumstances and objectives. • The process involves matching companies’ strategy advantages to the business environment. • One objective of an overall corporate is to put the organisation into a position to carry out its mission effectively • and efficiently. A good corporate strategy should integrate an organisation’s goals, policies and action sequences into a cohesive • whole.

2.2 Need For Strategic ManagementA company’s strategy provides a central purpose and direction to the activities of organisation. Company must employ strategies to accomplish its basic objectives. These strategies must be clearly communicated to the people working in the organisation. Need for strategic management is felt for the following reasons.

2.2.1 Due to ChangeOrganisation exists within external environment. Changes will keep happening in the external environment. Changes make planning difficult. Strategic management helps the top executives to forecast changes well in advance and to take advantage of the opportunities and reduce the risk.

2.2.2 Provides GuidelinesStrategic decision is the basis for the formulation of sub strategies. Operational strategies are formulated based on the strategic decisions. Strategic decision provides a framework within which all supporting decisions should be formulated.

2.2.3 Better PerformanceBetter performance is always related to formulation of better strategies and policies. Therefore, it is true that business which plan strategically have a higher probability of success than those which do not. 2.2.4 Improved Allocation of ResourcesStrategic management helps in better resource allocation of an organisation. Strategic management matches activities with the available resources. Reallocation of resources will take place whenever there is a change in the strategy due to change in the environment in which the organisation operates. 2.2.5 Competitive AdvantageStrategic management aims at gaining a sustainable competitive edge for the firm. Strategic management includes the nature and extent of competition and exploits available opportunities. This certainly helps the organisation to gain competitive edge over the competitors.

2.2.6 Provides Holistic ApproachStrategic management helps managers to understand the organisation completely. This helps managers to have holistic approach towards business problems.

2.2.7 Improved IntegrationStrategic management provides an integrated approach to the decision making process which provides a framework for decision making. Strategic management formulates decision to cover all functional areas and different activities intended to accomplish organisational goals.

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2.2.8 Systematise Business DecisionsStrategic management exercises systematic and disciplined approach towards policy making. It relates to the enterprise as a whole. Thus, strategic planning is a forward-looking exercise which determines the future directions of the enterprise with special reference to its product-market, profitability, size, rate of innovation and external institutions.

2.3 Strategic Management ProcessStrategic management decision involves four basic elements:

environmental scanning• strategy formulation• strategy implementation• evaluation and control•

2.3.1 Environmental Scanning

It is the monitoring, evaluating and disseminating of information from the external and internal environment to • the key people within the organisation. Purpose of it is to identify strategic factors.Strategic factors here refer to those external and internal elements that will determine the future of the • organisation.The simplest way to conduct environmental scanning is through SWOT (Strength, Weakness, Opportunities • and Threats) analysis.Opportunities and threats are the elements of external environment over which organisation does not have any • control.Strength and weaknesse are the variables of the internal environment. These include available resources, culture, • organisational structure etc.Based on the opportunities, organisation can use its available core competencies to gain competitive advantage • over its competitors.Proper blend of organisational resources certainly help the organisation to exploit the opportunities and minimise • the weaknesses.

2.3.2 Strategy Formulation

Development of long term plans for the effective management of environmental opportunities and threats, in • the light of corporate strengths and weakness is called strategy formulation.Strategy formulation includes defining corporate mission, specifying objectives, developing strategies and • setting policy guidelines.

MissionAn organisation’s mission is the purpose or reason for the organisation’s existence.• It tells what the company is providing to society - service or a product.• Mission statement clearly specifies the purpose of the organisation.• Mission statement describes what the organisation is now and what it would like to become.• Therefore, mission of business provides a statement to insiders and outsiders of what the company stands for.•

ObjectivesObjectives are formulated to accomplish organisation mission.• Objectives can be defined as “the long term results that an organisation seeks to achieve in pursuing its basic • mission”.


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Objectives should not be static, they should be dynamic. That is, changes in the environment or the changes in • the organisational strengths and weakness may call for modification to objectives.Objectives are operational definitions of the organisation’s goals.• They provide measurable parameters for evaluating the performance of the organisation.•

Importance of objectivesObjectives indicate the purpose and aims and thereby the social justification for the existence of an • organisation.Objectives provide directions for the functioning of an organisation.• Objectives help an organisation to adjust itself to the existing environment.• Objectives help in attaining employee’s co-ordination and thereby reduce conflicts.• By making clear what the result should be, objectives provide the basis for control and assessment of organisational • performance.Objectives help decentralisation by assigning decision making to lower level personnel.•

Features of good objectivesObjectives should be understandable – Objectives should not be weak and ambiguous. They should be expressed • clearly. Also, this should be made clearly known to the people who work for their accomplishment.Objectives should be related to the time frame – Objectives must specify the time frame within which the stated • objectives must be achieved.Objectives should be specific – Objectives should state what exactly the company is trying to achieve within • a specified time.Participation – To the possible extent, formulation of objectives should involve in the participation of important • people responsible for the accomplishment of the objectives. The sense of participation will provide morale, motivation and a moral responsibility for the achievement of the objectives.Objectives must be realistic – Objectives should be reasonable and realistic in the sense that they should be • achievable taking the existing environment into consideration.Consistency – Objectives should be mutually consistent throughout the organisation. If objectives are set • concentrating on one area disregarding other areas, it will lead to problems. Therefore, different objectives of various functional areas should correlate with each other and they must be mutually supportive to accomplish the overall objectives.Measurability – Objectives should be capable of being measured. To measure the performance of an objective • it should be clearly defined either in quantitative or qualitative terms.Flexibility – Objectives should not be very rigid. It must provide scope for flexibility. Changes in the environment • or changes in organisation strengths and weaknesses may call for modifications to the objectives.Ranking – An organisation with multiple objectives should assign relative priorities and indicate the time frame • within which these objectives must be attained.

Strategic intentA strategic intent is a company’s vision of what it wants to achieve in the long term. • It must convey a significant stretch for a company, a sense of direction, discovery, and opportunity that can be • communicated as worthwhile to all employees. It should not focus so much on today’s problems, which are normally dealt with by company visions and missions, • but rather on tomorrow’s opportunities.

2.3.3 Strategy ImplementationStrategy implementation is the process by which strategy and policies are put into action through the development programs, budgets and procedures.

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ProgramsA program is a statement of activities or steps needed to accomplish a single used plan. It takes the action oriented strategy. It may involve restructuring the organisational change in the internal culture etc.

BudgetsA budget is a statement of organisation’s programs in numeric terms. Budgets are expressed in financial terms. Budget lists the detailed cost of each program. There may be different budgets like capital expenditure budget, sales budget, cash budget, etc.

ProceduresProcedures are a system of sequential steps that describe in detail how a particular task is to be done. They are stated in detail to avoid confusion and duplication. Procedures define step by step execution of different activities. Hence, procedures can be defined as “a series of related steps expressed in chronological order to achieve a specific purpose”.

2.3.4 Evaluation and Control

Performance is the end result of activities. It includes the actual outcomes of strategic management process.• The performance of strategic management is justified in terms of its ability to improve an organisation’s • performance, typically measured in terms of profits and return on investment (ROI).For evaluation and control to be effective, managers must obtain clear, prompt and unbiased information • from the people below them in organisational hierarchy. Using this information, managers compare the actual performance with the expected ones.Evaluation and control is the process in which corporate activities and performance results are monitored with an • intention of comparing actual performance with desired performance. Managers at all levels use the information collected to take corrective action.The evaluation and control function complete the strategic management model. Based on performance result, • management may need to make adjustments in its strategy formulation, implementation or both.

2.4 Benefits of Strategic ManagementFollowing are some of the benefits of strategic management:2.4.1 Proactive Approach

Strategic management helps an organisation to be proactive rather than reactive.• Strategic management evaluates opportunities and threats outside the organisation and prepare the organisation • to face the future well in advance.Strategic management helps in formulating machine and make objectives clear.•

2.4.2 Facilitates Better Delegation

Strategic management helps in better delegation and co-ordination.• Executives working at the lower levels can formulate their respective functions and operational strategies within • the board framework of the organisational strategy.

2.4.3 Exploiting Opportunities

Strategic management helps a company to adopt suitable strategies for exploiting opportunities and fight • threats.It will also help the company to drop those businesses which are not successful or which do not meet their • objectives.


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2.4.4 Assists in Realistic and Effective Plans

Strategic management will help the company to have constant watch on the environment to identify changes • and to modify the strategy when required.Based on these modifications executives are allowed to formulate their policies to suit the modified corporate • strategy. This leads to formulations of realistic and effective plans.

2.4.5 To Gain Competitive Advantage

Strategic management enables a company to meet competitions more effectively.• Careful understanding of changes in the external environment including completion helps the policy makers to • frame policies to explore and exploit opportunities for the organisational benefit.Quick adaptation to the changing environment helps the company to gain competitive edge over competitors•

2.4.6 Minimises Weaknesses

Every organisation will have both strengths and weaknesses.• Prudent strategy maker converts these weaknesses into strength reinforcing appropriate strategies.• Earlier identification of weakness helps an organisation to reduce it through proper measures.•

2.4.7 Promotes Employees’ Participation

Top level management formulates overall objective and develops corporate strategy based on the objectives to • be accomplished.Operational functional policies are formulated by the executives working at the bottom line. This in turn helps • in employee participation to a greater extent.

2.4.8 Boost Profits

Number of research studies has suggested that a well designed strategic management can boost profits.• Strategic management helps in identifying, evaluating and adopting best course of action from out of the • alternatives available. This careful selection helps the company to go for improved action which would really improve the profitability of the organisation.

2.4.9 Systematic Approach for Management Decision

Well designed strategic management adopts system approach to problem solving.• It concentrates on all functional areas of the organisation.• It establishes co-ordination and integration between these functional areas.• Strategic management designs appropriate authority and responsibility for each functional area. This leads to • systematic allocation of organisational resources based on priority and urgency.

2.4.10 Empowerment of Employees

Strategic management helps the organisation to achieve commitment from all the members of the • organisation.This commitment helps managers and employees to become more creative and innovative. This process results • in employee empowerment which in turn increases organisational effectiveness.

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2.5 Limitations of Strategic ManagementStrategic management is not free from limitations. Strategic management has many advantages. Many firms fail despite adopting strategic management and many firms which do not have strategic management are successful. In short, strategic management by itself does not ensure success. Following are the limitations of strategic management:

Strategic management decisions are based on certain assumptions. If these assumptions are not valid, the plans • based on them would not be realistic.Strategic management is a means to achieve organisational mission or objectives. If mission or objectives are • unrealistic, strategy formulated based on these objectives will also turn out to be unrealistic.Sometimes it argues that strategic management makes an organisation over-ambitious. This over-ambitiousness • leads to organisational failure.Strategic management uses SWOT analysis as a powerful tool for making suitable strategies. If this SWOT • analysis is not right, strategy formulated to address the opportunities and kill threats is a failure.Strategic management decisions are based on environmental factors. Company do not have any control over • external environment. Sudden changes call for alteration of strategies formulated earlier. Frequent changes in strategy reduce confidence of employees.Success of strategic management is dependent not only on the strategy formulation but also on affective • implementation. If implementation is not effective, even an excellent strategy would not produce excellent result. Many strategies fall at implementation phase.It is also argued that strategic management is a costly exercise. An elaborate exercise is needed to identify • opportunities, understand weaknesses and threats. This also calls for analysis and implementation of best course of alternative.Strategic planning is a complex and difficult task. It requires people with vision, commitment and expertise. • For the proper implementation, appropriate system must also exist.As mentioned earlier, strategic management provides for flexibility. It means that strategies will be reviewed • and modified based on the change in the environment. People may resist adopting these changes frequently.

2.6 Strategies and their Role in Strategic ManagementStrategy is determination of basic long-term goals and objectives of an enterprise and the adoption of courses • of action and the allocation of resources for carrying out these goals. The success of strategy mainly depends on the skill, experience and analytical observations of the executive • who is supposed to create and implement it.Executive in charge of strategy must know the principles of management, effect of business cycles and internal • working condition. In addition, (s)he must also know government policy and existing competition. • The executive cannot ignore human aspects in organisation. • Corporate strategy can be made successful if all these factors are incorporated in it.•

2.7 Role of Strategy in Strategic ManagementFollowing are some roles of strategy in strategic management:2.7.1 Deliberate Attempt to Counteract Actions of OpponentsStrategies are deliberate attempts made by the management to win over its competitors. Strategies are formulated after carefully evaluating external environment including competition. External opportunities and threats are effectively addressed using internal strengths and resources.

2.7.2 Emergence of Tactful DecisionStrategies are determined sufficiently in advance having considered company’s policies and objectives so that tactful decisions and actions can be taken to accomplish them. Strategies help an organisation to prepare them in advance to face possible future happenings. Strategies help an organisation to prepare them in advance to face possible future happenings.


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2.7.3 Creates System ApproachStrategy is formulated on the basis of system approach. System approach is the overall planning of corporate enterprise concerned with configuring and directing the resource-conversion process. In this system, the interest and purpose of the total enterprise is given importance over departmental claims in determining objectives, priorities and resource allocation.

2.7.4 Helps in Formulating General PoliciesStrategy of an organisation is the basis for the formulation of all other policies. In order to translate strategic plans into action operating plans are formulated. Strategy gives framework within which other plans can be formulated.

2.7.5 Provides Integrated ApproachCorporate strategy takes into consideration all functional areas needed to accomplish basic objectives of the organisation. Therefore, it provides a mechanism for the interrelated parts to be co-ordinated. It supplies an integrated framework within which each of the functional plans and divisional are integrated and all are tied together into overall plans of the organisation.

2.7.6 Minimises RiskStrategies act as powerful tool in the hands of top management. They reduce business risk and insecurity that are expected on account of complexity of business operations and other social and political contingencies.

2.7.7 Optimum Use of Organisational ResourcesStrategy helps in structuring the company’s human resources for maximum potential performance. The plan lists specific decisions pertaining to structuring of authority and responsibility relationships, workflows, information flows and flow of other resources.

2.7.8 Continues ReviewStrategy formulation is a continuous dynamic process. Strategy is reviewed and modified or reframed to suit the changed environment. Strategies should be modified and implemented at right time to extract available opportunities to the maximum.

2.8 Reasons behind Failure of Strategic ManagementStrategy is concerned with future course of action and the future being uncertain due to various reasons, definite • strategy cannot be determined. It is likely to be erroneous if adopted. Hence, it leads to failure of strategic management.Business cycles, government rules, competitors’ role, etc, make strategy planners weak and force them to change • strategy very often. Frequent changes indicate poor planning and then the management loses faith in strategy programme. Risk involved in the implementation of a strategy is more since strategy involves long-range planning which is • subject to greater degree of uncertainty. As a result of it, strategy is likely to be erroneous.Success of strategy depends on the joint efforts and co-operation of people in the organisation and in practice, • it is seldom expected and therefore, there are more unforeseen impediments in the successful implementation of the strategy.Conflicts between manager’s goals and the company goals may be an additional impediment. Because of • such conflict, the manager is likely to use his/her own strategy which may defeat the overall strategy of the company.Management is generally reluctant either to drop or modify the predetermined strategy for achieving the benefits • of market opportunities. Management, therefore, depends on short-term benefits, which could have been a change in the established strategy.To communicate, a strategy requires as much trouble and time as to conceive it.• Under changing circumstance• s, strategy becomes obsolete unless it is suitably modified.

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Process of Strategic Management

Analyzing current

situation

Situation analysis

External/Internal Analysis Strategic Intent

Management Issues

Competitive Strategy

Functional Issues

Organization Issues

Corporate Business

Strategy Formulation

Evaluation & Control

Strategy Implementation

Evaluating changing strategies

Deciding on strategies

Putting strategies in Action

Feedback

Fig. 2.1 Process of strategic management


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SummaryStrategic management is the process of specifying an organisation’s objective, developing policies and plans to • achieve these objectives, and allocating resources so as to implement the plans.Strategic management helps the top executives to forecast changes well in advance and to take advantage of • the opportunities and reduce the risk.It provides an integrated approach to the decision making process which provides a framework for decision • making.Strategy formulation includes defining corporate mission, specifying objectives, developing strategies and • setting policy guidelines.An organisation’s mission is the purpose or reason for the organisation’s existence. • Objectives can be defined as “the long term results that an organisation seeks to achieve in pursuing its basic • mission”. Objectives help decentralisation by assigning decision making to lower level personnel.• A strategic intent is a company’s vision of what it wants to achieve in the long term.• A budget is a statement of organisation’s programs in numeric terms. Budgets are expressed in financial • terms.Procedures are a system of sequential steps that describes in detail how a particular task is to be done.• The performance of strategic management is justified in terms of its ability to improve an organisation’s • performance, typically measured in terms of profits and return on investment (ROI). Top level management formulates overall objective and develops corporate strategy based on the objectives to • be accomplished.Strategic management designs appropriate authority and responsibility for each functional area.• Success of strategic management is dependent not only on the strategy formulation but also on affective • implementation.Executive in charge of strategy must know the principles of management, effect of business cycles and internal • working condition.Risk involved in the implementation of a strategy is more since strategy involves long-range planning which is • subject to greater degree of uncertainty.Success of strategy depends on the joint efforts and co-operation of people in the organisation and in practice, • it is seldom expected and therefore, there are more unforeseen impediments in the successful implementation of the strategy.

ReferencesHunger, J. D., 2006. • Essentials of Strategic Management, 4th ed., Prentice Hall. Harrison, J. S., 2009. • Foundation in Strategic Management, 5th ed., South-Western College Pub.Wells, D. L., • Strategic Management, [Pdf] Available at :< http://govinfo.library.unt.edu/npr/initiati/mfr/managebk.pdf> [Accessed 8 November 2012]Wheelen, T, L. & Hunger, D., • Strategic Management, [Pdf] Available at: < http://www.hrfolks.com/articles/strategic%20hrm/essentials%20of%20strategic%20management.pdf> [Accessed 8 November 2012].Militello, J.,• Strategic Management, [Video Online] Available at: < https://www.youtube.com/watch?v=tL0OK1nFXiY&feature=related> [Accessed 8 November 2012].Taylor, A., • Strategic Management, [Video Online] Available at: < https://www.youtube.com/watch?v=HIO8tqxhunc&feature=related> [Accessed 8 November 2012]

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Recommended ReadingHoskisson, R. E., 2006. • Strategic Management Concepts, 7th ed., South-Western College Pub. Greer, C. R., 2000. • Strategic Human Resource Management: A General Managerial Approach, 2nd ed., Prentice Hall. Thompson, J. L., 1997. • Strategic Management: Awareness and Change, 2nd ed., International Thompson Business Press.


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A company’s strategy provides a central purpose and direction to the activities of organisation.a. Strategic management including the nature and extent of competition and exploits available opportunities.b. Strategic management exercises systematic and disciplined approach towards policy making.c. Strategic formulation exercises systematic and disciplined approach towards policy making.d.

What are expresses in financial terms?2. Budgetsa. Profitsb. Losesc. Strategiesd.

Strategic management helps the _________ to forecast changes well in advance and to take advantage of the 3. opportunities and reduce the risk.

middle level managementa. first line managementb. top executivesc. CEOd.

Which of the following statements is false?4. The simplest way to conduct environmental scanning is through SWOT analysis.a. Opportunities and threats are the elements of external environment over which organisation does not have b. any control.Strength and weaknesses are the variables of the external environment.c. Strength and weaknesses are the variables of the internal environment.d.

_______ statement clearly specifies the purpose of the organisation.5. Strategica. Missionb. Visionc. Managementd.

________ are operational definitions of the organisation’s goals.6. Strategic statementa. Strategic intentb. Objectivesc. Mission statementd.

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Which of the following is true?7. Strategic statement should not focus so much on today’s problems, which are normally dealt with by company a. visions and missions, but rather on tomorrow’s opportunities.Strategic panning should not focus so much on today’s problems, which are normally dealt with by company b. visions and missions, but rather on tomorrow’s opportunities.Strategic intent should focus so much on today’s problems, which are normally dealt with by company c. visions and missions, but rather on tomorrow’s opportunities.Strategic intent should not focus so much on today’s problems, which are normally dealt with by company d. visions and missions, but rather on tomorrow’s opportunities.

What involve restructuring the organisation change in the internal culture?8. Programsa. Proceduresb. Budgetsc. Profitsd.

_________ helps a company to adopt suitable strategies for exploiting opportunities and fight threats.9. Strategic formulationa. Strategic planningb. Strategic managementc. Strategic intentd.

_________ is a continuous dynamic process.10. Strategic planninga. Strategy formulationb. Strategic managementc. Strategic intentd.


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Chapter III

Corporate Strategy

Aim


introduce students to corporate strategy•

introduce them to the nature and scope of corporate management•

explain significance and limitations of corporate strategy •

Objectives


make the students understand various kinds of corporate strategies•

expose them to the concept of corporate policy and its features•

explain the steps in formulation of policy•

Learning outcome

At the end of this chapter, students will be able to:

identify factors leading to the need for corporate management•

discuss various types of corporate policy•

explain corporate strategy in detail •

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3.1 IntroductionCorporate management is a broad phenomenon and covers a wide spectrum of activities. It is the direction an organisation takes with the objective of achieving business success in the long term. Recent approaches have focused on the need for companies to adapt to and anticipate changes in the business environment, i.e., a flexible strategy. The development of a corporate strategy involves establishing the purpose and scope of the organisation’s activities and the nature of the business it is in, taking the environment in which it operates, its position in the marketplace, and the competition it faces into consideration; mostly analysed through a SWOT analysis.

3.2 Nature and Scope of Corporate ManagementCorporate strategy is related mostly to external environment.• Corporate strategy is formulated at the higher level of management. At operational level, operational strategies • are also formulated.It requires systems and norms for its efficient adoption in any organisation.• It is concerned with a unified direction and efficient allocation of organisational resources.• It encompasses the entire management process.• It is concerned with the choice of alternatives, determination of future course of action, mobilisation of resources • and deployment of resources for attainment of goals.It is both short term and long term.• It is related to all levels of management. Strategic issues, however, are related to top management.• It is concerned with coping uncertain future with active intervention.• It is based on various types of plan namely, strategic plan, functional plan, operating plan, organisational plan, • etc.It is all pervasive and integrated. •

3.2.1 Scope of Corporate ManagementThe term corporate management is an extension of the term corporate planning and also includes implementation and control aspects. More specifically, the scope of corporate management is spread over different areas. They are as follows:

Role of top management in corporate governance.• Code of conduct including audit committee, governance committee, etc.• Competitive scenario for dynamic and global markets. • Market structures and network externalities.• Strategic enablers like IT, R&D, knowledge and innovations, etc.• Corporate social responsibility including ethics, values and social audit.• Philanthropy as a strategic choice.•

3.3 Corporate PlanningCorporate planning is a comprehensive planning process which involves continued formulation of objectives • and the guidance of affairs towards their attainment. It is undertaken by top management for the company as a whole on a continuous basis. • According to Hussey “Corporate long range planning is not a technique, it is a complete way of running a • business. Corporate planning is a way of keeping the company’s eye open”.The object of corporate planning is to identify new areas of investments and marketing.• The purpose of corporate planning process is to formulate the organisation’s mission. Objectives, goals, policies, • programme strategies and major action plans to achieve its objectives.


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3.3.1 Essentials of Corporate Planning

Corporate planning deals with the future of current decisions.• The process of corporate planning integrates strategic planning with short range operational plans.• A few authorities use comprehensive corporate planning, strategic planning, long range planning, formal planning, • corporate planning, etc, as synonymous to each other.Corporate planning is viewed as an organisational process resulting in developing strategic intent and action • plans to achieve the objectives.

3.3.2 Steps of Corporate Planning Process

formulation of strategic intent• environmental appraisal• general of strategic alternatives• evaluation of alternatives• decisions in terms of strategy, policies and programmes•

3.3.3 Benefits of Corporate Planning

It ensures a rational allocation of resources and improves co-ordination between various units or divisions.• With corporate planning, significant improvement in performance is reflected.• A formal planning system can help the management in responding to a dynamic environment and in managing • a strategically complex organisation with limited resources.With corporate planning, a sense of making a systematic and critical review of business is developed.• This develops a visionary approach. A habit of forward thinking is encouraged in forward planning.•

3.3.4 Reasons Attributed to the Failure of Corporate Planning

Failure to keep the corporate planning system simple.• Failure to develop awareness about corporate planning process in the organisation.• A low status is given to a planner by the Chief Executive.• Failure to modify the corporate planning system with the charging conditions in the company.• Planner has only a part time interest in planning.• Insufficient time is provided in the corporate planning process.•

3.3.5 Prerequisites for Success in Corporate Planning

The chief executive must be totally committed and involved in the corporate planning process.• Participation of those executives who would be responsible for implementation must be ensured.• The process of corporate planning should be introduced on continuous basis to cope with ever changing • environmental factors.The executives must understand that the real purpose of corporate planning is to provide direction to the • organisation.

3.4 Need for Corporate ManagementScarcity of resources• Fast technological changes• Changing human values• Multiplicity of stake holders•

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Growing competition• Liberalisation, privatisation and globalisation• Growing scale of business operations• Faster and quicker modes of transportation and communication• Professionalism in management•

3.5 Components of Corporate StrategyThe major components of corporate strategy are purpose and objectives, vector, competitive advantage, synergy, personal values and aspirations and social obligations.

3.5.1 Objectives

Corporate objectives should be stated in such a way that they may provide a clear idea about the scope the • enterprise’s business. Objectives give direction for which action plan is formulated. • Objectives are open-ended attributes denoting a future state. • Objectives translate the purpose into goals. • An objective should be•

With a timeframe �Attainable �Challenging �Understandable �Measurable and controllable �

For having clarity in objectives, the business domain is defined specifically in terms of a product class, technology, • customer group, market need or some other combination.

3.5.2 Vector

Vector gives directions within an industry and across industry boundaries which the firm proposes to pursue. • If an organisation has the objective to maximum sales, the series of decisions will be to enhance salesman’s • commission, release nationwide advertisement, introduce total quality management and introduce new product range. Vector signifies that a series of decisions are taken in the same direction to accomplish the objectives.•

3.5.3 Competitive Advantage

Corporate strategy is relative in nature. • In the formulation of corporate strategy, the management should isolate unique features of the organisation. • The steps to be taken must be competitively superior. • While making plans, competitors may be ignored. However when we formulate corporate strategies, we cannot • ignore competitors. If an organisation does not look at competitive advantage, it cannot survive in a dynamic environment. • This aspect builds internal strength of the organisation and enhances the quality of corporate strategy.•

3.5.4 Synergy

Synergy means measurement of the firm’s capability to take advantage of a new product market move. • If decisions are made in the same directions to accomplish the objectives there will be synergic impacts. • The corporate strategy will give the synergy benefit.•


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3.6 Functions of Corporate StrategyIt provides a dual approach to problem solving. Firstly, it exploits the most effective means to overcome • difficulties and face competition. Secondly, it assists in the deployment of scarce resources among critical activities.It focuses attention upon changes in the organisational set up, administration of organisational process affecting • behaviour and the development of effective leadership.It offers a technique to manage changes. The management is totally prepared to anticipate, respond and influenced • to look at changes. It also offers a different way of thinking.It furnishes the management with a perspective whereby, the latter gives equal importance to present and future • opportunities.It provides the management with a mechanism to cope with highly complex environment characterised by • diversity of cultural, social, political and competitive forces.

3.7 Kinds of Corporate StrategyThere are four grand strategic alternatives. They are stability, expansion, retrenchment and any combination of these three. These strategic alternatives are also called grand strategies.

3.7.1 Stability StrategyIt is adopted by an organisation when it attempts to improve functional performance. They are further classified as follows:

No change strategy• Profit strategy• Pause/Proceed with caution strategy•

3.7.2 Expansion StrategyIt is followed when an organisation aims at high growth. They operate through:

concentration• integration• diversification• co-operation• internationalisation•

3.7.3 Retrenchment StrategyIt is followed when an organisation aims at a contraction of its activities. It is done through turnaround, divestment and liquidation in either of the following modes:

Compulsory winding up• Voluntary winding up• Winding up under supervision of the court•

3.7.4 Combination StrategiesThey are followed when an organisation adopts a combination of stability, expansion and retrenchment either at the same time in different businesses or at different times in the same business.

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3.8 Significance of Corporate StrategyCorporate strategy rationalises allocation of scarce resources.• Corporate strategy motivates employee’s examples to shape their work in the context of shared corporate • goals.Strategy assists management to meet unanticipated future changes.• Organisational effectiveness is ensured through implementing and evaluating the strategy.• Corporate strategy is a powerful tool for the management to deal with the future which is uncertain and hazy • in all respects.Corporate strategy improves the capability of management in coping with the volatile external environmental • forces.Corporate strategy encourages the management to choose the best course of action to realise the objectives.• Strategy planning system provides an objective basis for measuring performance.•

3.9 Limitations of Corporate StrategyThe process of strategy formulation is not an easy task. The process of forming corporate strategy is complex, • cumbersome and complicated.Corporate strategies are useful for long range problems. They are not effective to overcome current • exigencies.The corporate strategy formulation process calls for considerable time, money and effort. Developing appropriate • corporate strategy is not a simple and economical proposition. For financially weak companies, cost becomes a great hindrance.As future is uncertain and cannot be predicted accurately, the strategic planning system based on hazy and • uncertain estimates is not exact.Implementation of corporate strategy is influenced by organisational factors, behavioural factors and motivational • factors. The gap between formulation and implementation of corporate strategy does not give desired results to the organisation.

3.10 Concept and Meaning of Corporate PolicyCorporate policy is the guide post to decision making. • It helps in the managerial thinking process and thus leads to the efficient and effective attainment of the objectives • of any organisation. Corporate policy clarifies the intention of management in dealing with various problems faced. • It gives managers a transparent guideline to make appropriate decisions. • Corporate policy helps the manager to identify the solution to the problems. • It provides the framework in which the decisions are to be taken. •

Following are the distinct views regarding policies categorised in three board groups:The first category holds the opinion that policy and strategy are synonymous.• The second group of experts view that corporate policy is the process of implementing strategy.• The third view considers corporate policy to be decisions regarding the future of an organisation.•


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3.11 Features of Corporate PolicyGeneral statement of principles – Policies are general statement of principles followed by corporate for the • attainment of organisational objectives. These principles provide a guide to action for the executives at different levels.Long term perspective – Corporate policies have a long life and are formulated with a long term perspective. • They provide stability to the organisation.Achievement of objectives – Corporate policy is aimed at the fulfilment of organisational objectives. They • provide a framework for action and thus help the executives to work towards the set goals.Qualitative, conditional and general statement – Corporate policy statements are qualitative in nature. They are • conditional and defined in general manner. These statements use words as to maintain, to follow, to provide, etc. They can be specific at times but most of the times, a corporate policy tends to be general.Guide for repetitive operations – Corporate policies are formulated to act as a guide for repetitive day to day • operations. They are best as a guide for the activities that occur frequently or repeatedly.Hierarchy – Corporate policies have a hierarchy, i.e. for each set of objectives at each level of management • there is a set of policies. The top management determines the basic overall policy, then the divisional and / or departmental policies are determined by the middle level management and lower level policies are more specific and have a shorter time horizon than policies at higher levels.Decision making process – Corporate policy is a decision making process. In formulating corporate policy one • has to make choices and the choice is influenced by the interests and attitudes of managers engaged in making the policies.Mutual application – Corporate policies are meant for mutual application by subordinates. They are made for • some specific situation and have to be applied by the members of the organisation.Unified structure – Corporate policies tend to provide predetermined issues and thus avoid repeated analysis. • They provide a unified structure to other types of plans and help managers in delegating authority and having control over the activities.Positive declaration – Corporate policy is a positive declaration and a command to its followers. It acts as a • motivator for the people following it and thus they work towards the attainment of the objectives effectively. The corporate policy lays down the values which dominate organisation’s actions.

3.12 Scope of Corporate PolicyCorporate policies are statements of guidelines for corporate thinking and action. They lay down the approach before the management to deal with the challenges in the environment. They cover the following broad areas that affect the decisions of the organisation.

Corporate policy consists of a variety of subject that affects various interest groups in the organisation and • outside it.Corporate policy is concerned with the various functional areas like production, human resources, marketing • and finance.We can understand corporate policy areas in two broad categories namely, major and minor policies. • The overall objectives, procedures and control are covered in major policies. These policies are concerned with • each and every aspect of the organisation, its structure, its financial status, its production stature, its human resources and all those issues which require attention like mergers, research, expansion, etc. Basically, the top management is involved in the framing of such major policies. Further, the operations and activities are also carried out by executives so that the organisational objectives are met.The minor policies are concerned with each segment of the organisation with emphasis on details and procedures. • These policies are part of the major policies. The operational control can be made possible only if the minor policies are implemented efficiently. The minor policies are concerned with the day to day operations and are decided at the departmental levels. The minor policies may cover relations with dealers, discount rates, terms of credit, etc. Thus, corporate policies cover wide range subjects ranging from operational level policies to the top level policies.

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3.13 Classification of Corporate Policies Below given is the classification of corporate policies:

3.13.1 Classification on the Basis of ScopeOn the basis of scope of an organisation, policies are classified as follows:

Basic policies – These are framed by the top management and spell out the basic approach of a company to its • activities and its environment.General policies – These are framed by the middle management level and are more specific. They apply to large • segments of the organisation.Specific policies – These are framed by the foremen and supervisors and are very specific in nature. They are • applicable to routine activities.

3.13.2 Classification on the Basis of ExpressionOn the basis of expression, corporate policies can either be expressed or implied.

Expressed policies – The policies which are expressed in clear words either orally or in writing are the expressed • policies. These are most suitable for small organisations.Implied policies – The policies which are understood by the employees, code of conduct or behaviour and are • not expressed orally or through written statements are known as implied policies. They flow from philosophy, values and traditions of the organisation.

3.13.3 Classification on the Basis of LevelDifferent policies are formed at different levels of management. They are as follows:

Top management policies – These are framed by the top management and it is only responsible for them. The • policies are derived from top management planning and top management planning and top management sees that they are put into effect and judge the results.Middle level management policies – These are laid down by the middle level managers and deal with the • organisational activities like selection of executives, employee training, deciding processes, methods, techniques, etc.Lower level management – Those people who have direct control over the working force comprise the lower • level management. These people set up policies with respect to the accomplishment of tasks of sub divisions of the organisations.

3.13.4 Classification on the Basis of OriginOn the basis of origin, policies are classified as follows:

Original policies – These policies are formed from the company objectives. These are formed by the top • management and the top management is responsible for guiding and directing them and the subordinates are responsible in the attainment of organisation objectives.Appealed policies – These are also called “suggested policies” because they are made by taking into account • the suggestions of subordinates or people who implement these policies.Imposed policies – External forces sometimes force the company to accept certain policies forcibly. These • policies are called imposed policies. The external forces could include government rules and suggestions, arguments with trade unions etc.Derivative policies – These policies are operational in nature and are derived from company’s major policies. • They are made as guidelines to perform day to day operations.


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3.13.5 Classification on the Basis of Functional AreasIn an organisation, various functional areas are seen. The policies are classified according to functional areas, i.e. production policies, marketing and sales policies, financial policies and personnel policies.

Production policies – These policies are concerned with production of a product, type of technology, equipment, • selection of plant layout, location and size, manufacturing cost, inventory control, quality control, etc.Marketing & sales policies – The policies which relate to policies in market analysis, business law, salesmanship • and advertising are concerned with total process of marketing mix and product mix. These include decisions with respect to customers, channels of distribution, dealers, sales control, promotion, etc.Financial policies – The success of business depends upon these policies. These consist of policies with respect • to capital structure, methods of raising funds, the utilisation of funds, credit policy, dividend decisions, profit policy, costing and accounting policy, etc.Personnel policies – Employees are very important for the organisation and the personnel policies are concerned • with issues like recruitment, selection, training and development, promotion and transfer, wages and incentives, etc.

3.13.6 Classification of Policies on the Basis of Nature of ManagementThe main functions of an organisation consist of planning, organising, actuating and controlling. The policies may therefore be classified as planning policies, organising policy, actuating policy and controlling policy.

Planning policies – These policies are concerned with the determination of ways to attain the objectives of the • organisation. Such policies decide corporate objectives, alternative courses of action, comparison of alternatives, establishment of budgets, schedules, procedures, etc.Organising policies - These policies are concerned with allocation of activities to members of the group so that • through their collective efforts, objectives could be achieved. These are those policies which provide issues like organisation structures, authority, responsibility, delegation, centralisation and various relationships.Actuating policies – The actuating policies include providing leadership, integrating tasks and communication and • organisation environment. These policies are concerned with organising the employees of the organisation.Controlling policies – Controlling is the process by which the performance is compared with the set objectives. • These policies provide for establishment of standards, pointing out deviations, ascertaining causes for deviation and taking corrective actions.

3.14 Importance of Corporate PolicyPolicies are needed to carry out the business activities in a smooth manner.• They provide clear cut courses for attainment of business objectives.• If a proper explicit policy has been formulated, many of the details could be conveniently handled by the • subordinates and management would not unnecessarily waste its time and energy in doing them.Policies provide a guide and framework for decision making.• Policies encourage delegation of the power of decision making.• Good policies provide a direction in which all management activities are focused.• Policies provide stability to the action of the members of the firm.• Policies deter the subordinates to rethink on the day to day issues and thus avoid repetitive analysis of issues.• Policies facilitate evaluation of performance by acting as a standard.• They enhance employees’ enthusiasm and loyalty for the organisation.• They help solving the problems for optimum utilisation of scarce recourses.• The sound policies help building good public image of the business.• Policies provide the firm with clear objectives with which the managers can decide the future course of • action.They act as tool for co-ordination and control.•

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SummaryCorporate management is a broad phenomenon and covers a wide spectrum of activities.• Corporate strategy is formulated at the higher level of management. At operational level, operational strategies • are also formulated.Corporate planning is a comprehensive planning process which involves continued formulation of objectives • and the guidance of affairs towards their attainment. The process of corporate planning integrates strategic planning with short range operational plans.• A formal planning system can help the management in responding to a dynamic environment and in managing • a strategically complex organisation with limited resources.The chief executive must be totally committed and involved in the corporate planning process.• The process of corporate planning should be introduced on continuous basis to cope with ever changing • environmental factors.Objectives are open-ended attributes denoting a future state. • Vector gives the directions within an industry and across industry boundaries which the firm proposes to • pursue. Synergy means measurement of the firm’s capability to take advantage of a new product market move. • Corporate strategy improves the capability of management in coping with the volatile external environmental • forces.The corporate strategy formulation process calls for considerable time, money and effort.• Corporate policy helps the manager to identify the solution to the problems. • Corporate policy consists of a variety of subject that affects various interest groups in the organisation and • outside it.Corporate policy areas have two broad categories namely, major and minor policies.• Good policies provide a direction in which all management activities are focused.• Policies provide a guide and framework for decision making.•

ReferencesLynch, R., 2007. • Corporate Strategy, 4th ed., Pearson Education India.Dransfield, R., 2001. • Corporate Strategy, illustrated, Heinemann.Rumelt, R. P., • Corporate Strategy, [Pdf] Available at: < http://www.anderson.ucla.edu/faculty/dick.rumelt/Docs/Commentary/CorpStrategy2.pdf> [Accessed 8 November 2012].Gallagher, S., • Corporate Strategy, [Pdf] Available at :< http://educ.jmu.edu/~gallagsr/WDFPD-Corporate.pdf> [Accessed 8 November 2012].Rumelt, R., • Corporate Strategy, [Video Online] Available at: < https://www.youtube.com/watch?v=43kZDnyDXOc> [Accessed 8 November 2012]Kiechel, W., • Corporate Strategy , [Video Online] Available at: < https://www.youtube.com/watch?v=DQVf7984YDA> [Accessed 8 November 2012]

Recommended ReadingThompson, J. L., 2001. • Understand Corporate Strategy, illustrated, Cengage Learning.Furrer, O., 2010. • Corporate Level Strategy: Theory and Applications, illustrated, Taylor & Francis Publishers.Colley, J. L., Doyle, J. L. & Hardie, R. D., 2004. • Corporate Strategy, illustrated, McGraw-Hill


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Corporate strategy is related mostly to external environment.a. Corporate strategy is formulated at the higher level of management.b. Corporate management is a broad phenomenon and covers a wide spectrum of activities.c. Corporate planning is a broad phenomenon and covers a wide spectrum of activities.d.

Which is a comprehensive planning process which involves continued formulation of objectives and the guidance 2. of affairs towards their attainment?

Corporate planninga. Corporate policyb. Corporate strategyc. Strategy planningd.

The _________ must be totally committed and involved in the corporate planning process.3. managersa. middle level managersb. chief executivec. first line managersd.

_________ signifies that a series of decisions are taken in the same direction to accomplish the objectives.4. Synergya. Vectorb. Policyc. Strategyd.

What means measurement of the firm’s capability to take advantage of a new product market move?5. Synergya. Policyb. Vectorc. Objectived.

Which of the following statements is false?6. Corporate strategy motivates employee’s examples to shape their work in the context of shared corporate a. goals.Strategy assists management to meet unanticipated future changes.b. Organisational effectiveness is ensured through implementing and evaluating the strategy.c. Corporate objective motivates employee’s examples to shape their work in the context of shared corporate d. goals.

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Which of the following statements is false?7. Implementation of corporate planning is influenced by organisational factors, behavioural factors and a. motivational factors. The gap between formulation and implementation of corporate strategy does not give desired results to the b. organisation.Corporate strategy is formulated at the higher level of management. c. At operational level, operational strategies cannot be formulated.d.

_________ is concerned with the various functional areas like production, human resources, marketing and 8. finance.

Corporate objectivea. Corporate policyb. Corporate strategyc. Strategic planningd.

Which policies are framed by the top management and spell out the basic approach of a company to its activities 9. and its environment?

General policiesa. Basic policiesb. Specific policiesc. Expressed policiesd.

The policies which are understood by the employees, code of conduct or behaviour and are not expressed orally 10. or through written statements are known as _________.

expressed policiesa. general policiesb. implied policiesc. basic policiesd.


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Chapter IV

Top Management

Aim


introduce students to various management levels•

expose them to top management•

explicate the importance to CEO •

Objectives


introduce the ranks of management•

explain the responsibilities of the management levels separately•

enlist skills and responsibilities of an CEO •

Learning outcome


explain various levels/ranks of management•

define top management•

describe top management roles •

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4.1 IntroductionHighest ranking executives with titles such as chairman, chief executive officer, managing director, president, executive directors, executive vice-presidents, etc, are responsible for the growth of the entire enterprise. Top management translates the policy formulated by the board of directors into goals, objectives and strategies and projects a shared vision of the future. It makes decisions that affect everyone in the organisation, and is held entirely responsible for the success or failure of the enterprise.

4.2 Management LevelsManagers are organisational members who are responsible for the work performance of other organisational • members. Managers have formal authority to use organisational resources and to make decisions. • In organisations, there are typically three levels of management, namely, top level, middle level, and first • level. These three main levels of managers form a hierarchy, in which they are ranked in order of importance. • In most organisations, the number of managers at each level is such that the hierarchy resembles a pyramid; • with many more first level managers, fewer middle level managers and the fewest managers at the top level. There are a number of changes that are occurring in many organisations that are changing the management • hierarchies in them, such as the increasing use of terms, the prevalence of outsourcing and the flattening of organisational structures.

4.2.1 Top Level Managers

Top level managers or top managers are also senior management or executives. • These individuals are at the top one or two levels in an organisation and hold titles such as Chief Executive • Officers (CEO), Chief Financial Officer (CFO), Chief Operation Officer (COO), Chief Information Officer (CIO), Chairperson of the Board, President, Vice President, Corporate head.Often, a set of these managers will constitute the top management team, which is composed of the CEO, the • COO and other department heads. Top level managers make decisions affecting the entirety of the firm. • Top managers do not direct the day-to-day activities of the firm; rather, they set goals for the organisation and • direct the company to achieve them. Top managers are ultimately responsible for the performance of the organisation, in terms of the growth of the • organisation.Top managers in most organisations have a great deal of managerial experience and have moved up through • the ranks of management within the company or in another firm. An exception to this is a top manager who is also an entrepreneur; such an individual may start a small company • and manage it until it grows enough to support several levels of management.

4.2.2 Middle Level Managers

Middle level managers are those in the levels below top level managers. Middle managers’ job titles include • General Manager, Plant Manager, Regional Manager and Divisional Manager.Middle level managers are responsible for carrying out the goals set by top management. They do so by setting • goals for their departments and other business units.Middle level managers can motivate and assist first line managers to achieve objectives.• Middle managers may also communicate upward, by offering suggestions and feedback to top managers.• Because middle managers are more involved in the day-to-day workings of a company, they may provide • valuable information to top managers to help improve the organisations bottom line.


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4.2.3 First Level Managers

First level managers are also called first-line managers or supervisors. • These managers have job titles such as: Office Manager, Shift Supervisor, Department Manager, Foreperson, • Crew Leader, Store Manager.First line managers are responsible for the daily management of line workers, the employees who actually • produce the product or offer the service. There are first-line managers in every work unit the organisation. • Although first-level managers typically do not set goals for the organisation, they have a very strong influence • on the company.These are the managers that most employees interact with on a daily basis, and if the managers perform poorly, • employees may also perform poorly, may lack motivation, or may leave the company.

4.3 Board of DirectorsA board of directors is a body of elected or appointed members who jointly oversee the activities of a company • or organisation. The body sometimes has a different name, such as board of trustees, board of governors, board of managers, • or executive board. It is often simply referred to as ‘the board’. • A board’s activities are determined by the powers, duties and responsibilities delegated to it conferred on it by • an authority outside itself. These matters are typically detailed in the organisation’s bylaws. • The bylaws commonly also specify the number of members of the board, how they are to be chosen, and when • they are to meet. In an organisation with voting members, the board acts on behalf of, and is subordinate to, the organisation’s • full assembly, which usually chooses the members of the board. In a stock corporation, the board is elected by the stockholders and is the highest authority in the management • of the corporation. In a non-stock corporation with no general voting membership, e.g. a university, the board is the supreme • governing body of the institution.

4.3.1 Duties of Board of Directors

Governing the organisation by establishing broad policies and objectives.• Selecting, appointing, supporting and reviewing the performance of the chief executive.• Ensuring the availability of adequate financial resources.• Approving annual budgets.• Accounting to the stakeholders for the organisation’s performance.• Setting their salaries and compensation.•

4.4 Sub CommitteeA subcommittee is a subordinate committee cocsists of members who belong to a larger committee. Subcommittees • are a critical part of committee organisation, as they allow committees to focus on several issues without needing to involve all of the members, and they create more flexibility within the committee structure.There are two main types subcommittees: • standing and working. A standing subcommittee is one which is always in existence, covering specific issues which pertain to the • committee in general. One special type of standing subcommittee, the executive subcommittee, can make executive decisions on behalf of the larger group.

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A working committee is tasked with dealing with a specific and often temporary issue.• Members of a subcommittee are usually chosen or elected by other members of the committee, and they are • selected on the basis of experience, qualification and willingness to serve. The subcommittee usually agrees to meet together at set intervals, taking care not to overlap with regular • committee meetings and the members may be tasked with making periodic reports to the general committee on their progress and concerns. Subcommittee meetings may also be closed to the public for privacy reasons, particularly when open committee • meetings cannot be held in closed sessions for legal reasons and committee members want a chance to meet officially without public oversight.Serving on a subcommittee can require some diplomatic skills. Members of a subcommittee must keep the spirit • of the larger group in mind, and since they may end up speaking on behalf of other members of the committee, they have to be careful to ensure that their statements and positions are worded appropriately.In the case of an executive standing subcommittee, members must also consider issues like budgeting, which • can become critical when making executive decisions.

4.5 Chief Responsibilities and Skills of Top ManagementChief responsibilities and skills of top management are discussed below

4.5.1 Planning

Objectives are the goals that management wants to achieve and planning is the process to accomplish these • objectives. It is a road map of improvement. • Planning should be realistic based and framework within which a new strategy will be implemented. • But it is evident that mostly top management considers planning as the starting point only not as the integral • part of managing necessary tasks. Top management assigns the planning process to planning department yet it plays a vital role in recognising the • hidden opportunities and clear understanding of goals, market and completion.

4.5.2 Organising

Organising is the act of arranging certain elements following some rules. • The entire role of organising is to achieve the overall completion of organisation’s objectives. • It is obligatory to organise all kind of resources including men, material, money and machine to make the optimum • use in achieving certain specialisation. This specialisation can be achieved through employing different tasks to specify people who are specialists in that area. Top management’s ability to organise all resources well helps in expanding business.•

4.5.3 Controlling

Controlling is one of the foremost managerial functions like planning and organising but it is continuous, and • can be entrenched at any of hierarchy. It is very important for the top management to check the errors, and then take the corrective action so that deviation • from standards should be visualised clearly and declared purposes will be attained in a preferred mode.

4.6 Chief Executive Officer (CEO)A chief executive officer is also known as a managing director or chief executive. • The executive officer is the highest ranking corporate officer or administrator in charge of total management • of an organisation. An individual appointed as a CEO of a corporation, company, organisation, or agency reports to the board of • directors.


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4.6.1 Responsibilities

The responsibility of the chief executive officer is to align the company, internally and externally, with strategic • vision. The core duty of a CEO is to facilitate business outside the company while guiding employees and other executive • officers towards a central objective.The size and sector of the company will dictate the secondary responsibilities.• A CEO must have a balance of internal and external initiative to build a sustainable company.• For corporations, the chief executive officer primarily coordinates external initiatives at a high level. As there • are many other c-level executives (e.g. marketing, information, technical, financial, etc) seldom do corporate CEOs have low-level functions.For emerging entrepreneurs, their acting position as a CEO is much different than that on the corporate level. • As often other c-level executives are not incorporated in small operations, it is the duty of the CEO to assume those positions.

Chairman

Chief Executive

Officer

Chief Financial

Officer

Board of

Directors

President

Fig. 4.1 Board of directors

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SummaryHighest ranking executives with titles such as chairman, chief executive officer, managing director, president, • executive directors, executive vice-presidents, etc, are responsible for the growth of the entire enterprise.Managers are organisational members who are responsible for the work performance of other organisational • members. In organisations, there are typically three levels of management, namely, top level, middle level, and first • level. Top level managers or top managers are also senior management or executives. • Top level managers make decisions affecting the entire firm. • Middle level managers are those in the levels below top level managers. Middle managers’ job titles include • General Manager, Plant Manager, Regional Manager and Divisional Manager.First level managers are also called first-line managers or supervisors. • First line managers are responsible for the daily management of line workers, the employees who actually • produce the product or offer the service. A board of directors is a body of elected or appointed members who jointly oversee the activities of a company • or organisation. A subcommittee is a subordinate committee consists of members who belong to a larger committee. Subcommittees • are a critical part of committee organisation, as they allow committees to focus on several issues without needing to involve all of the members, and they create more flexibility within the committee structure.Planning should be realistic based and framework within which a new strategy will be implemented. • Organising is the act of arranging certain elements following some rules. • Controlling is one of the foremost managerial functions like planning and organising but it is continuous, and • can be entrenched at any of hierarchy. The executive officer is the highest ranking corporate officer or administrator in charge of total management • of an organisation.

ReferencesBrickmann, J., 2007. • Competence of Top Management Teams and Success of New Technology – Based firms, illustrated, Springer.Carpenter, M.A., 2011. T• he Handbook of Research on Top Management Teams, illustrated, Edward Elgar Publishing.Katzenbach, J. R.,• Top Management, [Pdf] Available at: < http://schneede.se/assets/files/Top_Management_Team_Myth.pdf> [Accessed 8 November 2012]Ghoshal, S. & Barlett, C. A., • Top Management, [Pdf] Available at: < http://www.korealabor.ac.kr/upload/board_data/Changing%20the%20role%20of%20top%20management.pdf> [Accessed 8 November 2012]Williams, S., • Top Management, [Video Online] Available at: < https://www.youtube.com/watch?v=8ubRzzirRKs> [Accessed 8 November 2012]Snezhil, G., • Top Management, [Video Online] Available at: < https://www.youtube.com/watch?v=lnaOz1TWENQ&feature=related> [Accessed 8 November 2012]

Recommended ReadingFinkelstein, S., Hambrick, D. C. & Cannella, A. A., 2009. • Strategic Leadership: Theory and Research on Executives, Top Management Teams and Boards, 3rd ed., Oxford University Press.Krug, J. A., 2009. • Mergers and Acquisitions: Turmoil in Top Management teams, illustrated, Business expert Press.Steiner, G. A., 1969. • Top Management Planning, 1st ed., Macmillan Publisher.


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Managers are organisational members who are responsible for the work performance of other organisational a. members.Board of directors has formal authority to use organisational resources and to make decisions.b. In most organisations, the number of managers at each level is such that the hierarchy resembles a c. pyramid.Managers have formal authority to use organisational resources and to make decisions.d.

___________ make decisions affecting the entirety of the firm.2. Top level managersa. Middle level managersb. First line managersc. Executive officersd.

Which of the following statements is true?3. First line managers do not direct the day-to-day activities of the firm; rather, they set goals for the organisation a. and direct the company to achieve them.Middle level managers do not direct the day-to-day activities of the firm; rather, they set goals for the b. organisation and direct the company to achieve them.Top managers do not direct the day-to-day activities of the firm; rather, they set goals for the organisation c. and direct the company to achieve them.Managers do not direct the day-to-day activities of the firm; rather, they set goals for the organisation and d. direct the company to achieve them.

Who is responsible for carrying out the goals set by top management?4. Executivesa. First line managersb. Officersc. Middle level managersd.

Who are also called first-line managers or supervisors?5. First level managersa. Middle level managersb. Top level managersc. Managersd.

There are ___________ in every work unit the organisation.6. managersa. middle level managers b. first level managersc. top level managersd.

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A __________ is a body of elected or appointed members who jointly oversee the activities of a company or 7. organisation.

sub committeea. working committeeb. standing committeec. board of directorsd.

In a non-stock corporation with no general voting membership, e.g. a university, who is the supreme governing 8. body of the institution?

The committeea. The sub committeeb. The boardc. The standing committeed.

A ___________ is a subordinate committee consists of members who belong to a larger committee.9. committeea. sub committeeb. boardc. standing committeed.

Which of the following statements is false?10. A working committee is tasked with dealing with a specific and often temporary issue.a. A working subcommittee is one which is always in existence, covering specific issues which pertain to the b. committee in general.Members of a subcommittee are usually chosen or elected by other members of the committee, and they are c. selected on the basis of experience, qualification and willingness to serve.A standing subcommittee is one which is always in existence, covering specific issues which pertain to the d. committee in general.


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Chapter V

Strategic Planning

Aim


introduce the students to the strategic planning essential for running a business •

expose them to SWOT analysis•

introduce them to strategic planning process•

.

Objectives


make the students understand the use and importance of SWOT matrix •

explain them the use of SWOT analysis •

elucidate how to formulate alternatives•

Learning outcome


describe strategic planning •

explain strategic planning and it properties in detail•

describe SWOT analysis •

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5.1 IntroductionStrategic planning consists of a set of decisions which leads to the development of an effective strategy. This • includes matching of external threats and opportunities with strategic advantage factors. Strategic planning also develops possible alternative strategies and evaluates pros and cons of various alternatives • so as to choose the most appropriate alternative.Strategic planning can be defined as “the continuous process of making present entrepreneurial decisions • systematically and with the greatest knowledge of their futurity; organising systematically the efforts needed to carry out these decisions; and measuring the results of these decisions against the expectations through organised systemic feedback”.Strategic planning is a well organised effort aiming at fulfilling business objectives in a systematic manner. •

5.2 Strategic PlanningStrategic planning is a systematic and disciplined exercise to formulate strategy. • It is more comprehensive as it concentrates on the whole organisation. • Strategic planning is a forward-looking exercise which determines the future posture of the enterprise. • Strategic plans help enhancing and sustaining the organisational competitive advantage based on external and • internal variables. It is through this plan an organisation can accomplish its stated goals using available resources.• Strategic planning is an organisation’s process of defining its strategy or direction, and making decisions on • allocating its resources to pursue this strategy, including its capital and people.

5.2.1 MethodologiesThere are many approaches to strategic planning but typically a three step process may be used:

Situation – Evaluate the current situation and how it came about.• Target – Define goals and/or objectives (sometimes called ideal state).• Path – Map a possible route to the goals/objectives.•

Alternative approach is called Draw-See-ThinkDraw – What is the ideal image or the desired end state?• See – What is today’s situation? What is the gap from ideal and why?• Think – What specific actions must be taken to close the gap between today’s situation and the ideal state?• Plan – What resources are required to execute the activities?•

An alternative to the Draw-See-Think approach is called See-Think-DrawSee – What is today’s situation?• Think – Define goals/objectives.• Draw – Map a route to achieving the goals/objectives.•

5.3 Strategic Planning ProcessFormulation of a strategy needs complete analysis of the situation. While discussing the need for strategic • formulation, it is said that business environment provides required information. The environment includes:•

the economy �technology �society �law and political situation �


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available resources �consumers �

Information from these associated factors will help the organisation to prepare a workable strategy to handle • a critical situation. Strategic plan is a long range plan of action in which plan and strategy are integrated.• Four managerial activities are involved in strategic planning process. These are:•

environmental adaptation �resource allocation �internal co-ordination �organisational awareness �

These four activities together help formulating a workable strategy. However, the following broad outline is • given in strategy formulation which takes into account these four managerial activities. The outline includes the following steps in strategic planning.

organisational mission and purpose �setting organisational goals and objectives �SWOT analysis �formulation of strategic alternatives �selecting the best strategy �preparing an operational plan �resource allocation �co-ordinating internal factors �integrating strategy and operation plan �implementing the strategic plan �evaluation �redesign the strategy if necessary �

5.3.1 Organisation Mission and Purposes

Mission statement – Tells the current position of the organisation. It informs you about the desired level of • performance needed for the organisation.Vision statement – Outlines what a company wants to be. It concentrates on the future. It is a source of inspiration. • It provides clear decision-making criteria and process.Values – Main values protected by the organisation during the progression, reflecting the organisation’s culture • and priorities.

5.3.2 Vision

Corporate vision is a short, concise and inspiring statement of what the organisation intends to become and to • achieve at some point in the future and is often stated in competitive terms. Vision refers to the category of intensions that are broad, all-inclusive and forward-thinking.• Vision is the image that a business must have about its goals before it sets out to reach them.• It describes aspirations for the future, without specifying the means that will be used to achieve those goals.• The corporate success depends on the vision articulated by the chief executive or the top management.• For a vision to have any impact of the employees of an organisation, it has to be conveyed in a dramatic and • enduring way.The most effective visions are those that inspire, usually asking employees for the best, the most or the • greatest.

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5.3.3 Importance of Mission Statement

A mission statement is an organisation’s vision translated into written form. It makes the leader’s view of the • direction and purpose of the organisation concrete. For many corporate leaders it is a vital element in any attempt to motivate employees and to give them a sense • of priorities.A mission statement should be a short and concise statement of goals and priorities. In turn, goals are specific • objectives that relate to specific time periods and are stated in terms of facts.The primary goal of any business is to increase stakeholders’ value. The most important stakeholders are • shareholders who own the business, employees who work for the business and clients or customers who purchase products and/or services from the business.Many people may mistake vision statement for mission statement. • The vision describes a future and the mission describes why it will be achieved. • A mission statement defines the purpose or broader goal for being in existence or in the business. It serves as • an ongoing guide without time frame. The mission can remain the same for decades if crafted well. Vision is more specific in terms of objective and future and future state. Vision is related to some form of • achievement if successful.Features of an effective vision statement may include following points:•

clarity and lack of ambiguity �paint a vivid and clear picture, not ambiguous �describing a bright future �memorable and engaging expression �realistic aspirations, achievable �alignment with organisational values and culture �time bound if it talks of achieving any goal or objective �

In order to become really effective, an organisational vision statement must acclimatise into the organisation’s • culture.Leaders have the responsibility of communicating the vision regularly, creating narratives that illustrate the • vision, acting the vision, and encouraging the vision, creating short-term objectives compatible with the vision, and encouraging others to craft their own personal vision compatible with the organisation’s overall vision.

5.3.4 Benefits of VisionThe purpose and outcomes of vision may seem vague and superfluous. The long term benefits are substantial. However vision:

Breaks you out of boundary thinking.• Provides continuity and avoids the stutter effect of planning.• Indentifies direction and purpose.• Alerts stakeholders to needed change.• Promotes interest and commitment.• Promotes laser-like focus.• Encourages openness to unique and creative solutions.• Encourages and builds confidence.• Builds loyalty through involvement.• Results in efficiency and productivity.•


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5.3.5 Developing a Mission Statement

The mission statement describes the overall purpose of the organisation.• If the organisation elects to develop a vision statement, the question why the image of the vision exists and its • purpose should be raised before the mission statement is developed.When wording the mission statement, consider the organisation’s products, services, markets, values and concern • for public images, and maybe priorities of activities for survival.Consider any changes that may be needed in working of the mission statement because of any new suggested • strategies during a recent strategic planning process.Ensure that wording of the mission is to the extent that management and employees can infer some order of • priorities in how products and services are delivered.When refining the mission, a useful exercise is to add or delete a word from the mission to realise the change • in scope of the mission statement and assess how concise is its wording.

5.3.6 Developing a Vision Statement

The vision statement includes vibrant description of the organisation as it effectively carries out its • operations.Developing the vision can be the most enjoyable part of planning, but the part where time easily slips away.• Note that, originally, the vision was a compelling description of the state and function of the organisation once • it had implemented the strategic plan, i.e. a very attractive image toward which the organisation was attracted and guided by the strategic plan.Recently the vision has become more of a motivational tool, too often including highly idealistic phrasing and • activities which the organisation cannot realistically aspire

5.3.7 Setting Organisational Goals and Objectives

The major outcome of strategic road-mapping and strategic planning, after gathering all necessary information, • is the setting of goals for the organisation based on its vision and mission statement. A goal is a long-range aim for a specific period. • It must be specific and realistic. • Long-range goals set through strategic planning are translated into activities that will ensure reaching the goal • through operational planning.Setting objectives involves a continuous process of research and decision-making.• Strategic planning takes place at the highest levels; other managers are involved with operational planning. • The first step in operational planning is defining objectives – the result expected by the end of the budget • cycle.The objectives must be :•

focused on a result, not on activity �consistent �specific �measurable �related to time �attainable �

Perhaps the very important step in strategy formation is setting objectives and goals. These objectives and goals • are guided by mission and purpose. Factors that influenced the settings of objectives are as follows:

resources of the organisation �past objectives �environmental factors �

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thinking and value system of the top management �internal power system in the organisation �

These objectives are considered while forming the objectives. • The objectives and goals must neither be too rigid nor too flexible. • At various levels of an organisation, nature of goals and objectives may take different forms.• At the bottom level, the objective of manager or any other workers will be narrow and is confined to only his/• her task of production or sales or whatever task one performs.Once the objectives are set, they need not remain for ever. They may change:•

when the objectives do not agree with actual achievement �the desires and aspirations of the top management may cause change in objectives at a later stage of �organisationwhen the top management changes goal orientations �when an organisation faces crisis, the objectives change �the life cycle of the product or services can also influence the organisation to change the objectives �when expansion and diversification take place, or when a collaboration is made, the goals and objectives �change

In the initial stages objectives may be informal and they will be formalised and priorities are given when the • organisation grows.These objectives help the organisation to take further step in strategy formulation by conducting SWOT • analysis.

5.4 SWOT AnalysisThis is a very vital activity in strategy planning. • SWOT analysis is concerned with scanning the environment both internal and external in terms of SWOT i.e. • strengths, weaknesses, opportunities and threats.The organisation should know its strengths and weaknesses and also the threats and opportunities it has.• SWOT analysis helps the firm to formulate a workable strategy.• Strengths are positively used for smooth implementation of the plan.• When threats are analysed, solutions are found to overcome such threats from the competitors.• Weaknesses are identified and strategy will be worked out to convert weakness into strength.• Opportunities are visualised and seized for the good of the organisation. With this analysis, entire business • environment of the firm will be scanned which will help formulating successful strategies.However, SWOT analysis gives a clear picture to formulate sound strategy, and it calls for matching capabilities • and opportunities.SWOT analysis helps the strategic planner to ascertain what the organisation is capable of doing in the light of • its strengths, and what is ought to be done in the context of the external environment in which it operates.SWOT analysis is a strategic planning tool used to evaluate the strengths, weaknesses, opportunities and threats • involved in a project or in a business venture.It involves specifying the objective of the business venture or project and indentifying the internal and external • factors that are favourable and unfavourable to achieving that objective.If SWOT analysis does not start with defining a desired end state or objective, it runs the risk of being useless. • A SWOT analysis may be incorporated into the strategic planning model.If a clear objective has been identified, SWOT analysis can be used to help in the pursuit of that objective. In • this case, SWOTs are:

Strengths – Attributes of the organisation that are helpful to achieve the objective. �


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Weaknesses – Attributes of the organisation that are harmful to achieve the objective. �Opportunities – External conditions that are helpful to achieve the objective. �Threats – External conditions that are harmful to achieve the objective. �

Identification of SWOTs is essential because subsequent steps in the process of planning for achievement of • the selected objective are to be derived from the SWOTs.

5.4.1 Internal and External Factors

The aim of any SWOT analysis is to identify the key interval and external factors that are important to achieve • the objective. SWOT analysis groups key pieces of information into two main categories:•

Internal factors – The strengths and weaknesses internal to the organisation. �External factors – The opportunities and threats presented by the external environment. �

The internal factors may be viewed as strengths or weaknesses depending upon their impact on the organisation’s • objectives.What may represent strengths with respect to one objective may be weaknesses for another objective.• The factors may include personnel, finance and manufacturing capabilities and so on.• The external factors may include macroeconomics matters, technological change, legislation and socio-cultural • changes, as well as changes in the marketplace or competitive position. The results are often presented in the form of a matrix.•

5.4.2 Avoiding Errors

Conducting a SWOT analysis before defining and agreeing upon an objective. SWOTs should not exist in the • abstract. They can exist only with reference to an objective. If the desired end state is not openly defined and agreed upon, the participation may have different end states in mind and the results will be ineffective.Opportunities external to the company are often confused with strengths internal to the company. They should • be kept separate.SWOTs are sometimes confused with possible strategies. SWOTs are descriptions of conditions, while possible • strategies define actions. This error is made especially with reference to opportunity analysis. To avoid this error, it may be useful to think of opportunities as auspicious conditions.

Use of SWOT analysisThe usefulness of SWOT analysis is not limited to profit-seeking organisations. SWOT analysis may be used in any decision-making situation when a desired end-state has been defined. SWOT analysis may also be used in pre-crisis planning and preventive crisis management.

Strengths and weaknesses

Resources: financial, intellectual, location•

Cost advantages from proprietary know-how•

Exclusive access to high grade natural resources•

Favourable access to distribution network•

Table 5.1 Strengths and weaknesses of SWOT analysis

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Opportunities and threats

Takeovers•

Market trends•

Economic condition•

Mergers•

Joint ventures•

Strategic alliances•

Expectations of stakeholders•

Technology•

Public expectations•

Competitors and competitive actions•

Bad PR•

Criticism•

Global markets•

Environmental conditions•

Table 5.2 Opportunities and threats of SWOT analysis

Corporate PlanningSet objectives – Defining what the organisation is intending to do.• Internal appraisals of the organisations SWOT - This needs to include an assessment of the present situation as • well as a portfolio of products/services and an analysis of the product/service life cycle.Analysis of existing strategies – This should determine relevance from the results of an internal/external appraisal. • This may include gap analysis which will look at environmental factors.Strategic issues defined – Key factors in the development of a corporate plan which needs to be addressed by • the organisation.Develop new/revised strategies – Revised analysis of strategic issues may mean the objectives need to • change.Establish critical success factors – The achievement of objectives and strategy implementation.• Preparation of operational, resource, projects plan for strategy implementation.• Monitoring results – Mapping against plans, taking corrective action which may mean amending objectives/• strategies.Environmental scanning•

Human ResourcesIn SWOT, strengths and weaknesses are internal factors.

Strength could be:• a new, innovative product or services �quality processes and procedures �patents �strong brand names �good reputation among customers �


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cost advantages from proprietary know-how �exclusive access to high grade natural resources �favourable access to distribution networks �

Weakness could be: • lack of marketing expertise �undifferentiated products or services �poor quality goods or services �damaged reputation �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 SWOT, opportunities and threats are external factors.Opportunities could be:•

developing market such as the internet �mergers, joint ventures or strategic alliances �moving into new market segments that offer improved profits �a new international market �a market vacated by an ineffective competitor �an unfulfilled customer need �arrival of new technologies �loosening of regulations �removal of international trade barriers �

A threat could be:• a new competitor in your home market �price wars with competitors �a competitor has a new, innovative product or service �competitors have superior access to channels of distribution �taxation is introduced on your product or services �shifts in consumer tastes away from the organisation’s products �emergence of substitute products �new regulations �increased trade barriers �

5.5 The SWOT MatrixAn organisation 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 organisation’s strengths and upcoming opportunities. In some cases, the organisation 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 is also known as TOWS matrix.

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Strengths Weaknesses

Opportunities S-O strategies W-O strategies

Threats S-T strategies W-T strategies

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 company can use its strengths to reduce its vulnerability to external �threats.W-T strategies – establish a defensive plan to prevent the company’s weaknesses from making it highly �susceptible to external threats.

Simple rules for successful SWOT analysis are as follows:• Be realistic about the strengths and weaknesses of the organisation when conducting SWOT analysis. �SWOT analysis should distinguish between where the organisation is today, and where it could be in the �future.SWOT should always be specific. Avoid grey areas. �Always apply SWOT in relation to competition i.e. better than or worse than the competition. �Keep your SWOT short and simple. Avoid complexity and over analysis. �SWOT is subjective. �

SWOT analysis is an important tool for auditing the overall strategic position of a business and its • environment.

5.5.1 Formulating Strategic Alternatives

An adoptable strategic plan can be developed only when alternative strategies are prepared.• Reasonable number of strategic alternatives matching the opportunity profile and the environmental threats in • the context of strategic advantages are to be designed. And then the best strategy amongst the alternatives is to be selected.While formulating alternatives strategies, company mission, purpose, objectives and goals and environmental • forces have to be considered.The strategies should also know the business conducted by the organisation, what type of business should it be • over coming years, whether the same business should be continued or diversified, what technology should be adopted, know the type of market the organisation has, the consumers of the organisation etc.Considering these factors strategic alternatives have to be evolved and the type strategy has to be decided.• Five types of strategies are identified.•

Functional strategyThese strategies are related to functional areas like marketing, finance, production, human resource management, accounting, etc.

Stability and contingency strategiesSticking to the same product or services substantially for a long period.• It is a defensive strategy.• There may not be progress but reduces risk.• Contingency strategy refers to the strategy which will be adopted when the firm faces unforeseen • circumstances.The management may foresee and anticipate contingency situations which may arise during a given period.•


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Major and minor strategiesStrategies relating to major objectives like product-strategy, change of business definition, change of mission • and purpose and market strategies.Low growth or forced growth strategies are minor strategies.• In the period of depression existing activities are monitored, fine-tuned for minor defeats and the operations • move on a low key to save investment, but still they will be effective and managed for maximum cash flows.Defensive strategies are designed to meet contingency and it is called minor strategy.• Much of the business which leads to dangerous situations will be withdrawn and limited operations are done • and kept under absolute control.They focus on limited special opportunity.•

Strategy in tune with policyCompanies adopt strategies within the framework of their policies, programmes, purpose, mission, etc.• Policies of the corporate enterprises provide the direction in which the strategies are to be formulated.• Strategies formulated in accordance with the policy will have a common language which communicates the • policies to the lower level of management; convince the managers about the relevance of mission, vision and purpose of the enterprise to implement the strategy and to obtain strategic commitment from all concerned.Strategies formulated in accordance with policies should be consistent with overall strategies implemented for • various purposes, like meeting competition in the market, create a favourable image for the enterprise in the market, to tackle extreme competition situation etc.

Turn-around strategiesTurn-around means changing the whole scenario for the good of the organisation.• In this situation every activity will be restructured for achieving positive results. This will put the company on • a proper track.The organisations which have turned to loses will be brought back to its successful path, by adopting certain • strategies. This is called turn-around strategy.There are different types of strategies in this category.•

Strategies adopted for sick units to turn them into viable units. �Fire fighting strategy is adopted to infuse new spirit or vigour into the corporate culture or morale or to �improve the image of the company.Restoration strategy is one that is adopted to restore the original position. In times of contingency, the �organisations drift from original activities and resort to operations which are approved by the market. After sometime, they feel that they have to get back to the original activity and they adopt strategy to restore the position. This is called restoration strategies.Consolidation strategy which is adopted to consolidate a strategy after conducting periodical performance �appraisal of that particular strategy.

5.5.2 Selecting The Best Strategy

After developing the alternatives, selection of a best alternative is the formidable task of the strategies.• While selecting strategy of the alternatives, strategist must look into the possibilities of gaining in the process • of implementation of strategy, at least possible cost.He should give an insight into the problem and find out, which alternative strategy suits well to the problem.• Therefore, selecting a best strategy involves,•

Cost effectiveness �Assessing gains from the proposed strategy �Difficulties that may creep in when implemented �How smoothly the strategy manoeuvres the tough situation etc.? �

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The points to be considered for strategic choice are:• Strategy should be clearly identified and be explicit in practice or words �Strategy should be capable of exploiting environmental opportunities �It should sustain threats of environment �It should be consistent with corporate competence and resources. �The risk involved in the strategy should be sustained by the company �It should provide stimulus to the effort and commitment of the organisation and people �Strategy should generate early response from the market and concerned people. �

Any strategic choice which considers these factors will be able to project itself to effective operations and • identify priority areas for operation.Choosing a strategy is a very tough job. It is not a subtle activity. •

5.5.3 Preparing an Operational Plan

Operational plan is one which provides the details as to how the strategic plan should be implemented. This • plan converts strategy formulations into actions and decisions. Strategic plan is an overall plan prepared in a wider perspective giving a guideline to overcome several critical • situations that may be faced by the organisation.Organisational plan focuses on current operations.• This is a part of long term strategy of the corporate enterprise. However, strategic planning and operational • planning should go hand in hand. There should be harmonious relationship between the two.Operational plans are the plans formulated by managers at all levels.• In well-managed organisations there will be direct relationship between strategic planning and operational • plan.The distinguishing features of strategic plan and operational plan are as follows:•

The strategic plan will have a focus on growth, development and competitive situation of the organisation, �whereas the operational plan will have its focus on operating problems and survival.Time strategic plan is a long-range plan. But operational plan is a short-range plan. �Strategic plan concentrates on constant growth, future profit and comparative strategy. Whereas operational �plan works for operation success, current profit and short term success.The strategic plan is adaptive, whereas the operational plan is a contingency plan, real time plan and a �shorter one.As far as strategy is concerned strategy plan is a stable and a major one. Operational plan adopts contingency �strategy and a minor one.Strategic planning works for getting reward in the form of potentiality development and constant good �corporate citizenship. Operational plan seeks reward in the form of efficiency, profitability and good corporate image.Management level: strategy planning is prepared by top executives whereas operational planning is prepared �by operational managers like middle level and lower-level managers.Decisions are analysed in strategic management. But in operational plan it is immediate and intuitive. �As far as scope is concerned strategic planning concentrates on future opportunities and operational plan �works on current business.Strategic planning is dynamic and flexible, whereas operational plan is static and functional. �

Operational plan is prepared and implemented within the framework of strategic plan.• At the operational level two types of plans are adopted namely, Single-use plan and standard plan.• Single-use plans are operated once and not repeated. It is a specific plan used only once.• Standard plans are used for repeat operation and guided by procedures and rules.•


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5.5.4 Resource Allocation

Resources refer to both monetary and non-monetary resources.• When strategies are designed, money, technology and other infrastructure are required for development and • implementation.Scarce resources have to be allocated according to the priorities and needs.• While making resource allocation the type of strategy will be considered.• Major and fast-growth strategies need more resources.• A major growth oriented strategy requires more funds for implementation. It also demands more of non-monetary • resources.The management cannot overlook the resource demand of this strategy because it is a strategy which brings • more profit and contributes for the growth of market share.In case of minor strategies, the resources requirement will be less. Therefore, strategy classification is made.• There are strategic business units which have a high share of low-growth market. These organisations bring in • more cash but need little resources for operation.The operations are of routine type and do not require growth. But still they are essential products and bring • resources to the organisation.There are also business units with low share of high growth market. In such cases, the management has to spend • money to adopt strategic plan.The business units with share of a low growth market need no allocation of resources as they will be contemplating • to close down the activities.Therefore, resources allocation is a difficult task in strategy formulation. The type of strategy decides the size • of resources required for developing a strategy.

5.5.5 Co-ordinating Internal Factors

The success of strategy depends upon how it works with the people inside the organisation.• People concerned in the organisation should understand the strategy and work for its success.• Every activity of the strategy should effectively take place. So that there will not be any disturbing element • which thwarts the strategy.Co-ordination at every level of activity will help the strategy to be successfully implemented.• Work flow should be smooth and effective. There should not be obstacle in the flow work.• Every employee and every operation should be properly linked and co-ordinated. This facilitates smoothen • implementation of strategy.Co-ordination of various functional areas is also needed.• Marketing department should work in the close co-operation with production and finance.• Inter-departmental co-ordination is very essential.• Managers at each level in each functional area co-ordinate their work with each other.• A well organised organisational structure helps in effectively co-ordinating the various activities and • strategies.Operational plans can be very well integrated for the success of strategic planning.•

5.5.6 Integrating Strategy and Operational Plan

Both strategy and operation plans are prepared within the framework of objectives.• Objectives are the directive principles to formulate strategy and prepare operating plans. Strategic and operational • plans although work independently, harmony must be achieved between them.Every activity should have objective orientation.•

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To attain harmony between strategy and operational plan certain operations are to be integrated.• Operational plan should have compatibility with overall strategy of the firm. Therefore, strategies are to be • closely linked to operational plans for their success.Operational plans have current and temporary objectives and to be performed according to the tasks. Strategic • plan is a long-range plan formulated mostly to achieve the objectives of the organisation. Therefore, these two plans are to be integrated for the success of the organisation.Harmonious integration of both generates a genuine emotional consensus among the managers as to what they • want to do and how they want to go about achieving success.In the process of integration, continued examination of goals should take place.• Continuous discussions relating to strategy and operations at all levels should be done until they are mutually • understood and accepted by the key members of the management and then transmitted to the entire organisation continuously so that organisation’s objectives and strategies are imbibed in operational plans. This is the real integration.When once the integration takes place, execution of the strategy and operational plan becomes easy.• After integrating these two, the controls are to be adopted and implemented.•


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SummaryStrategic planning consists of a set of decisions which leads to the development of an effective strategy.• Strategic planning can be defined as “the continuous process of making present entrepreneurial decisions • systematically and with the greatest knowledge of their futurity; organising systematically the efforts needed to carry out these decisions; and measuring the results of these decisions against the expectations through organised systemic feedback”.Strategic planning is a systematic and disciplined exercise to formulate strategy.• Strategic planning is an organisation’s process of defining its strategy or direction, and making decisions on • allocating its resources to pursue this strategy, including its capital and people.Formulation of a strategy needs complete analysis of the situation.• Strategic plan is a long range plan of action in which plan and strategy are integrated.• Mission statement tells the current position of the organisation. It informs you about the desired level of • performance needed for the organisation.Vision statement outlines what a company wants to be. It concentrates on the future. It is a source of inspiration. • It provides clear decision-making criteria and process.Values main values protected by the organisation during the progression, reflecting the organisation’s culture • and priorities.Corporate vision is a short, concise and inspiring statement of what the organisation intends to become and to • achieve at some point in the future and is often stated in competitive terms. Vision is the image that a business must have about its goals before it sets out to reach them.• A mission statement is an organisation’s vision translated into written form. It makes the leader’s view of the • direction and purpose of the organisation concrete. A mission statement defines the purpose or broader goal for being in existence or in the business. It serves as • an ongoing guide without time frame.Vision is more specific in terms of objective and future and future state. Vision is related to some form of • achievement if successful.When wording the mission statement, consider the organisation’s products, services, markets, values and concern • for public images, and maybe priorities of activities for survival.When refining the mission, a useful exercise is to add or delete a word from the mission to realise the change • in scope of the mission statement and assess how concise is its wording.Strategic planning takes place at the highest levels; other managers are involved with operational planning. • SWOT analysis is a very vital activity in strategy planning.• SWOT analysis is a strategic planning tool used to evaluate the strengths, weaknesses, opportunities and threats • involved in a project or in a business venture.Conducting a SWOT analysis before defining and agreeing upon an objective. SWOTs should not exist in the • abstract. They can exist only with reference to an objective. If the desired end state is not openly defined and agreed upon, the participation may have different end states in mind and the results will be ineffective.The strategies should also know the business conducted by the organisation, what type of business should it be • over coming years, whether the same business should be continued or diversified, what technology should be adopted, know the type of market the organisation has, the consumers of the organisation etc. Strategies formulated in accordance with the policy will have a common language which communicates the • policies to the lower level of management; convince the managers about the relevance of mission, vision and purpose of the enterprise to implement the strategy and to obtain strategic commitment from all concerned.Strategies formulated in accordance with policies should be consistent with overall strategies implemented for • various purposes, like meeting competition in the market, create a favourable image for the enterprise in the market, to tackle extreme competition situation etc.

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The business units with share of a low growth market need no allocation of resources as they will be contemplating • to close down the activities.Every employee and every operation should be properly linked and co-ordinated. This facilitates smooth • implementation of strategy. Continuous discussions relating to strategy and operations at all levels should be done until they are mutually • understood and accepted by the key members of the management and then transmitted to the entire organisation continuously so that organisation’s objectives and strategies are imbibed in operational plans. This is the real integration.

ReferencesMamoria, A., 2001. B• usiness Planning and Policy, 2nd ed, Himalaya Publishing House.Steiner, G.A., 2010. • Strategic Planning, 2nd ed, Free Press. Shapiro, J., • Strategic Planning, [Pdf] Available at :< http://www.civicus.org/new/media/Strategic%20Planning.pdf> [Accessed 8 November 2012].McKay, E. G.,• Strategic Planning, [Pdf] Available at :< http://siteresources.worldbank.org/INTAFRREGTOPTEIA/Resources/mosaica_10_steps.pdf> [Accessed 8 November 2012].McCarthy, J. R., • Strategic Planning, [Video Online] Available at :< https://www.youtube.com/watch?v=RNjYsYMQ3pI> [Accessed 8 November 2012].Olsen, E.,• Strategic Planning, [Video Online] Available at :< https://www.youtube.com/watch?v=mLJ34L5UW4E> [Accessed 8 November 2012].

Recommended ReadingSmith, R. D., 2004. • Strategic Planning, 2nd ed., RoutledgeAbell, D. F., 1980. • Defining the Business: The Starting Point of Strategic Planning, 3rd ed., Prentice Hall. Simerson, B. K., 2011. • Strategic Planning: A Practical Guide of Strategy Formulation and Execution, illustrated, ABC-CLIO Publishers


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Self AssessmentWhich of the following is false?1.

Strategic planning is a forward-looking exercise which determines the future posture of the enterprise. a. Strategic plans helps in enhancing and sustaining the organisational competitive advantage based on external b. and internal variables. Strategic planning is a well organised effort aiming at fulfilling business objectives in a systematic c. manner. Strategic management is a well organised effort aiming at fulfilling business objectives in a systematic d. manner.

__________ is a long range plan of action in which plan and strategy are integrated.2. Strategic managementa. Strategic planb. Business strategyc. Business policyd.

_________ tells the current position of the organisation. It informs you about the desired level of performance 3. needed for the organisation.

Mission statementa. Value statementb. Vision statementc. Business statementsd.

Which of the following is true?4. Corporate mission is a short, concise and inspiring statement of what the organisation intends to become a. and to achieve at some point in the future and is often stated in competitive terms. Corporate value is a short, concise and inspiring statement of what the organisation intends to become and b. to achieve at some point in the future and is often stated in competitive terms. Corporate vision is a short, concise and inspiring statement of what the organisation intends to become and c. to achieve at some point in the future and is often stated in competitive terms. Corporate strategy is a short, concise and inspiring statement of what the organisation intends to become d. and to achieve at some point in the future and is often stated in competitive terms.

Which of the following statements is false?5. The most effective visions are those that inspire, usually asking employees for the best, the most or the a. greatest.A mission statement should be a short and concise statement of goals and priorities.b. Vision is more specific in terms of objective and future and future state.c. Value is more specific in terms of objective and future and future state.d.

What describes the overall purpose of the organisation?6. Mission statementa. Value statementb. Vision statementc. Business statementsd.

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What helps the firm to formulate a workable strategy?7. Strategic planninga. Strategic managementb. SWOT analysisc. Mission statementd.

_________ is a strategic planning tool used to evaluate the strengths, weaknesses, opportunities and threats 8. involved in a project or in a business venture.

Strategic planninga. SWOT analysisb. Mission statementc. Strategic managementd.

_________ of the corporate enterprises provide the direction in which the strategies are to be formulated.9. Policiesa. Strategiesb. Planningc. Corporate planningd.

Which of the following statements is false?10. Every employee and every operation should be properly linked and co-ordinated. This facilitates smooth a. implementation of strategy. While selecting strategy of the alternatives, strategist must not look into the possibilities of gaining in the b. process of implementation of strategy, at least possible cost. SWOT analysis is a very vital activity in strategy planning. c. Vision is the image that a business must have about its goals before it sets out to reach them. d.


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Chapter VI

Implementation of Strategy

Aim


introduce the students to strategy implementation •

introduce them to BCG matrix•

expose them to various aspects of implementation•

Objectives

The objectives of this chapter are:

make them understand the issues in strategy implementation •

expose them to resource allocation •

make them learn and understand BCG matrix•

Learning outcome


explain strategy implementation in detail •

describe BCG matrix •

enlist the issues and aspects of strategy implementation •

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6.1 Activating StrategyAfter designing strategies to be adopted in plans and finalising them, the top management should take necessary • steps for implementing the designed strategy. The best policies and plans do not produce results until they are translated into action. • Many strategies fail to produce desired results because of the failure of the proper implementation of the selected • strategy. The management should have the ‘will’ to adopt itself to changes. • All the designed policies and strategies should be effectively communicated in measurable lower levels. • Necessary resources, both monetary and non-monetary, are to be provided to the concerned departments for • implementations.

6.2 Strategy Formulation vs. Strategy ImplementationStrategy formulation and implementation are intertwined. They are not separate activities. • Business organisation is not static. It constantly interacts with the external environment and its own internal • environmental changes. According to the situation, organisation should modify the existing strategy or formulate new competitive • strategy and implement them at the right time and in the right direction.Strategy formulation is concerned with the development of long-term plans for effective management of • environmental opportunities and threats, in the light of the organisational strengths and weaknesses. It defines corporate mission, specify achievable objects, developing strategies and formulating policies.• Strategy implementation is the process by which strategies and policies are out to action through the development • of programs, budgets and procedures.Implementation requires changes in the culture, structure and management system to the entire organisation.• Strategy formulation is the thinking process implementation is the doing process. • Primary function of an organisation is to formulate workable and competitive strategy for the overall growth • of the organisation, after considering both internal and external factors. Strategy implementation is the secondary function of the organisation. This is based on the strategy • formulated.Implementation is an administration task which ensures that the strategy formulated is executed in the right • direction to achieve objectives stated at the strategy formulation stage.Necessary adjustments may have to be made to execute the strategy.• Success of an organisation is dependent on how the strategy is implemented rather than how the policy is • formulated.Implementation of strategy requires arrangement and allocation of resources. While implementing strategy, • organisation may either adopt forward linking approach or backward linking approach.

Forward linking – Under this approach, organisation conducts internal and external analysis. Analysis may �need the organisation to modify strategies, organisation structure, modification of behavior, etc. this helps the organisation to decide what changes are needed to be made in the future while implementing the new strategies.Backward linking – Instead of modifying the existing facilities entirely, organisation can think of concentrating �on the existing one and making an additional effort to explain opportunities and comfort threat. This advocates organisation to go for incremental changes instead of changing right from the root. Organisation can adopt these changes that can be implemented using the present resources with an additional effort.


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6.3 Aspects of Strategy ImplementationStrategy implementation includes the following:

Strategies• Policies• Procedures• Programs• Rules• Methods• Budgets•

6.4 Steps in Implementation of a StrategyResource allocationThe organisation should provide both monetary and non-monetary resources.

Fixing key tasks and prioritiesThe top management, when finalises the operational plan should incorporate in each operational plan the task to be performed by the manager and the work to be carried out according to priority.

Assigning the tasks As per the operational plan, the tasks have to be assigned to concerned managers and their work force for successful implementation.

Authority delegationFor the smooth running of each strategic operational plan, the concerned managers and the key workforce like • managers, have to be delegated with certain authority and power. This is required for smooth execution of the plans. It will be still good, if they are properly defined in the operational plan itself. • This will facilitate the workforce to work uninterruptedly within the framework of company objectives.•

Formulating methodsThe co-ordination between various operations within the same task is very essential for smooth discharging of • the task. Every operation should be cohesive and work flow from one operation to another should be smooth. • There should not be back tracking. • The task should be completed within the time period. • The co-ordination takes place through the scientific operational methods to be formulated. • Each operation should have uninterrupted system, methods and procedure.•

Policies, goals, MIS and feedbackAfter designing the methods and procedure for implementing the strategic plan, what task the concerned manager • has to perform, what goal he has to achieve, etc. have to be informed to him for successful methods to provide necessary information to the manager for successful implementation of the plan.The manager has to be supported by proper data to perform his/her task. • The management has to develop management information system including feedback methods to provide • necessary information to the manager and to get a feed back about the operations.Each manager assigned with the task of implementing a strategic task should get relevant information to take • decisions.

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There is a necessity of decision support system. The quality of decision depends on understanding the • circumstances surrounding an issue and knowing the available alternatives and states of nature.Management Information System (MIS) reduces risk and uncertainty in decision-making.• Arrangements has to be made to provide relevant and just required information which converts raw data into • information that strategist can actually use. This is what Decision Support System (DSS) does.DSS shapes the information to management needs which is provided by MIS.• MIS should be a two way system. This means that while top management provides information to the strategist, • another system should provide feedback to the top management regarding operations.Thus, feedback should be the part of MIS which helps in completing the circuit of operation i.e. assigning the task • by the top management, performance of the task and feedback to the top about results of the task performed.

Rewards and incentivesStrategies also include the rewards and incentives as a part of the operational plan. • Those who succeed in successfully implementing the strategic plan should get the reward. • This is a motivational factor. To motivate the people at work, certain incentives and rewards are to be • instituted. It should be a part of the strategic plan and should be awarded when particular tasks are fully performed. This • reinforces the behavior of workers to new systems.

Training the trainers

Another important aspect of strategic implementation is that the trainers and the workforce should be updates • and maintained through workshops, seminars, inbuilt continuing training programmes.This is another vital aspect to be looked after, while implementing the strategic plan.• Thus, managerial talents are developed and managers are educated in values and styles of the organisation.•

ImplementationAfter undergoing all the steps discussed earlier, the plan will be systematically implemented.• Every operation will be monitored.• Results are analysed and compared with the strategies formulated for the success of the operation.• It is not sure that strategies and plans do match with the actual results• There will be little difference between the actual and planned programmes. This has to be closely observed and • the deviations have to be informed to the top management through a sound feedback system.There should be an inbuilt evaluation system, incorporated in the strategy implementation.•

Restructuring the strategyOn analysing the operations, the manager notices the changes in result, if any, compared to original operational • plan, reports to the top management regarding such deviations. The management then takes a decision to restructure the policies and strategies to make the operational plan • perfect and achieve the desired result. In this process action is taken for removing the defects in the strategy formulation noticed at the time of implementation, changing the workplace who implements the strategy, re-allocation of resources, etc. are to be carefully done.

Issues in strategy implementationSuccessful implementation of a strategy depends on how efficient the organisation is in allocating resources, • designing suitable structure, formulating functional strategies, etc.It should be noted that the objectives give rise to issues; issues lead to plans and plans result in different projects and • programmes. It may include modernisation of existing facilities or installation or new or additional plants, etc.


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Important issues relating to strategy implementation are as follows:• Project implementation �Procedure implementation �Resource allocation �Structural implementation �Functional implementation �Behavioral implementation �

6.5 Project ManagementProject implementation involves decision regarding the project to be undertaken in future and to see that they are properly executed. Following are the different phases pertaining to project implementation:

Conceptual stageEnvironmental scanning reveals various potential opportunities to the organisation. These opportunities are to • be categorised into various projects.The organisation may not be in a good position to take up all these activities simultaneously. Therefore, assigning • priorities to these projects is vital in project implementation.Priority helps organisation to choose an appropriate alternative for further development.•

AnalysingstageAfter a project is identified, detailed analysis has to be made regarding possibility and feasibility.• Examination of technical, financial, marketing, ecological, economical and legal aspects are to be made.• Project feasibility report has to be prepared to decide whether the project can be taken up or not for further • action.

Planning stage

Once it is decided that the project idea is feasible and workable, the organisation should begin planning and • organising the project.Plan should mention in detail about the infrastructure, finance, manpower, etc. needed for the accomplishment • of the proposed project.

Implementation stageActivities needed to accomplish the project are put to action at this stage.• Test trials are undertaken to ensure that the project is ready for the final take-off.•

Launching stage

Implementation stage ensures that the project is ready for the operation.• At the launching stage, project is handed over for the actual execution to those involved in its operation.•

Procedure implementationProcedure is a regularity framework within which the management is supposed to implement its plans, projects and policies as per government approval. Therefore, procedure is an inevitable and integral part of project planning. Following are the important procedures connected with a project implementation:

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6.6 Formulation of a CompanyFormulation brings a company into existence.• Registration is an essential part of company formulation.• Company should obtain certification of incorporation from Registrar of Companies.•

6.6.1 Licensing Procedures

Licensing procedure indicates the permission to be obtained from the government. Industries Development and • Regulation Act, 1951 (IDRA) provides licensing system for the industries.According to the Act, industries are divided into three categories.• Industries which are under the direct control of the government are included under the first category.• Second category includes those industries promoted by government and supported by private sector.• All industries under private sector are covered under third category. Secretary of Industrial Approval scrutinises • the application for license and issue a license only if the stipulated conditions are complied with.

6.6.2 SEBI Requirements

SEBI Act was passed in the year 1992 to replace Capital Issues Control Act, 1956 (CICA).• SEBI has three objectives, which are as follows:•

protection of the interests of investors in securities �to develop security market �to regulate securities market �

SEBI issues guidelines from time to time to supervise matters under its control.• These guidelines influence those companies to collect their required funds from the capital market.•

6.6.3 Foreign Collaboration

Foreign collaboration, in a way, is a partnership between home and foreign industrialist for the establishment • of joint venture in the home country.It is an agreement under which industrially leading country provides machinery, technical assistance, financial • assistance, etc.Expansion and diversification may need sophisticated equipment technology, huge amount of capital investment • and know-how.Foreign collaboration certainly needs government approval.• Government allows foreign investment and collaboration selectively.•

6.6.4 FEMA Requirements

Foreign Exchange Management Act (FEMA) was introduced in the year 2000 to replace FERA.• Several rules are formulated to facilitate foreign exchange by increasing Indian exports.• The objective of exchange control is to regulate the demand for foreign exchange within the limits set by the • available supply.

6.6.5 MRTP Requirements

Monopolies and Restrictive Trade Practices (MRTP) Act, 1969 aims at preventing monopolistic, unfair, restrictive • trade practices and concentration of economic power in the hands of big industrialists.The Act aims at curbing price discrimination, selling goods below cost to beat completion, restricting a dealer • to sell products in selected areas, restricting a dealer to sell company’s product only, etc.


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While formulating strategies, company must be careful enough to see whether the decisions taken lead unfair • or restrictive trade practices.

6.6.6 Business Incentives

The central and state governments offer incentives for the promotion of industries in the country. • Strategies cannot ignore such incentives while formulating strategies.• Some of the incentives offered by the government are infrastructural incentives, promotional incentives, small-• scale industries, incentives, backward area incentives, etc.

6.6.7 Import and Export Requirements

Common tendency of modern business unit is to go global. This necessitates modernisation, diversification or • expansion strategies.If an organisation is engaged in international trade, import and export activities become a regular • phenomenon.Import may involve import of capital goods, raw materials, etc.• There may be restrictions on such imports.• In the same manner, government may restrict export of certain scarce products from the country. Therefore, it • is essential that the strategy makers understand the prevailing export and import requirement while formulating relevant strategies.

6.6.8 Labour Legislation

Labour constitutes a vital resource for a company.• Government formulates policies to safeguard the interests of the labour. These legislative rules certainly influence • strategy formulation.There are several laws related to labour working in different industries. Therefore, strategists must be aware of • the labour legalisation applicable to his/her industry and company.

6.6.9 Patenting Requirements

Organisation will always be on the look out of continuous development and innovations. They wish to patent • their products and ideas.There are formulations to be followed while patenting their products or ideas. Strategies must know the procedure • and practice involved in getting patent right to the organisation.It has been a proven fact that the organisation with a string patent right can gain competitive advantage more • quickly than its competitors.

a. Environmental requirementsWhile formulating strategies, one cannot ignore environmental issues.• Organisation has got certain responsibilities towards the society in which it operates.• It is expected from the organisation that they must not conduct such business activities which are detrimental • to the interest of the society.

b. Consumer protection requirementsCustomers are the central focus of any activity of an organisation.• Organisation must remember that satisfied customers bring repeated sales to the organisation. Therefore, it is • essential to protect the interest of the customers.Organisation is expected not to indulge in unethical and unfair acts to influence customers to buy its products. • Therefore, policy makers must make sure that the policy decisions are not harmful for the interest of its customers.

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6.6.10 Resources Allocation

To accomplish stated objectives, organisation requires various resources like physical, financial and human • resources.Organisation must utilise scarce resources for the maximum benefit of the organisation. Therefore, resource • allocation is the process of investment decision based on cost benefit theory.Resource allocation process is continuous and complex.• Success of the project largely depends on the timely availability of resources.• Strategists should prioritise activities for the optimum utilisation of available resources.• It is advised to take co-operation of departmental and operational heads at the time of resources allocation to • avoid conflict later.Basically, three important resources are identified for the success of the organisation namely, men, material • and money.Of all resources, money plays a vital role.• Proper arrangement of this resource enables the organisation to acquire all the short-term funds.• Identification of proper sources of supple is also crucial.• Based on the requirement suitable source must be identified.• To the extent possible, organisation must use internal financial resources created by way of retained earning.• There are three different approaches adopted for resource allocation mentioned as follows:•

Tip-down approach �Bottom-up approach �Mixed approach �

Under top-down approach, discretion regarding resource allocation lies with the top management. They start • allocating available resources from top level to the lowest level of operation. In such allocation, some operation departments may or may not receive expected amount of resources. If any of the operational areas suffer, the whole strategic process gets affected.Under bottom-up approach, allocation of resource starts from the operating departments. It is due to the fact • that the success of the organisation is based on the performance of these operational areas. Flow of allocation of resource allocation more viable and flexible.Under the mixed approach, allocation is made with mutual consent between different levels of management. • This approach makes resource allocation more viable and flexible.

6.6.11 Importance of Organisational Structure

It determines the nature of work to be done by different people in the organisation.• It establishes relationship between various activities in the organisation.• It establishes an effective communication system in the organisation.• It ensures proper delegation of authority and responsibility.• It ensures smooth functioning of the organisation.• It ensures co-ordination among workers.• It helps in effective use of human resource of the organisation.• It encourages creativity.• It helps in measuring performance of people in the organisation.•


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6.6.12 Structural Considerations

Organisation structure is not a mere graphical representation of activities and people responsible for various • activities. It covers various activities like:

identification of different activities needed to accomplish the strategy under consideration �group the activities based on the skill required �establish proper authority and responsibility �establish effective information system and administration of the same �designing and administration of motivation �designing and administration of appraisal system �

For the success of structure of an organisation, following principles are to be borne in mind:• Principle of activity – Structure must be formulated to suit the basic objective of the organisation. The �structure should not contradict the basic objective.Principle of span of control – Span of control refers to the number of persons an individual can effectively �control. Span of control is based on several factors like ability, the nature of job, etc. these factors must be carefully considered before deciding the structure.Principle of exception – Only exceptional matters should be referred to the executives and the routine matters �should be decided by the subordinates themselves.Principle of specialisation – Fundamental division of activities should take place and tasks must be assigned �to an individual based on his/her specialisation.The scalar principle – In order to make management effective, there must be clear line of authority from �top to bottom.The principle of unity of command – According to this, each subordinate should have only one supervisor �and dual subordination should be avoided.Principle of delegation – Organisation structure should provide for delegation of authority at every level. �Principle of responsibility – According to this principle superiors are not allowed to avoid responsibility �by delegating responsibilities to their subordinates. Superiors are held responsible for the acts of their subordinates.Principle of flexibility – The organisation structure must be flexible so that it can be adaptable to the changing �circumstances. If the structure is rigid, modification is not possible and expansion becomes difficult.Principle of simplicity – Organisation structure must be simple both in its expressions and constitution. It �should have minimum number of levels. People must be in a position to understand the system clearly. Principle of continuity – An organisation has got perpetual existence. So long the organisation exists, �organisation structure exists. Structure must be dynamic and should be adoptive to the changing circumstances.Principle of unity of direction – The group acting towards the same objective must have one plan and �direction. If different plans are given to different people in the group, co-ordination cannot be achieved.Principle of efficiency – Structure must facilitate effective functioning of the organisation with minimum �cost and effort.Principle of balance – Human, technical and financial factors must be properly balanced towards the �accomplishment of the objectives.

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6.7 Other Important StrategiesProduct life trategy

All products and services have certain life cycles. The life cycle refers to the period from the product’s first • launch into the market until its withdrawal.The life cycle is split up into different phases. During this period significant changes are made in the way that • the product is behaving in the market.Since an increase in profits is the major goal of a company that introduces a product into a market, the product’s • life cycle management is very important. Some companies use strategic planning and others follow the basic rules of the different life cycle phase that • are analysed later.The understanding of a product’s life cycle can help a company to understand and realise when it is time to • introduce and withdraw a product from a market, its position in the market compared to competitors, and the product’s success or failure.

6.8 BCG MatrixThe BCG matrix method is the most well-known portfolio management tool. • The BCG method is based on the product life cycle theory that can be used to determine what priorities should • be given in the product portfolio of a business unit.Companies that are large enough to be organised into strategic business units, face the challenge of allocating • resources among those units.To ensure long-term value creation, a company should have a portfolio of products that contains both high • growth products in need of cash inputs and low growth products that generate a lot of cash.There are two dimensions, market share and market growth.•

Relative Market Share

High Low

Mar

ket G

row

th R

ate High ?

Low

Fig. 6.1 BCG matrix

The basic purpose of using matrix is that the higher the market share a product has, the higher the growth rate • and the faster the market for that product grows.The BCG growth share displays the various business units on a graph of the market growth rate vs. market • share relative to competitors.


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6.8.1 Market Growth

Executives develop and organise the company’s strategic infrastructure, the corporate configuration that produces • the company’s distinctive or core competencies and provide the resources necessary to satisfy customer wants. This often means dividing the business into functional units and determining which core competencies to develop.The idea is to provide the products, services and talents necessary to satisfy customer needs and create customer • value.One of the tools used in analysing market scenario and strategic decisions concerning product mix is the portfolio • analysis.Portfolio techniques help marketing managers evaluate alternative strategies and allocate resources across a • number of business and markets.There are two major portfolio analysis that are used in marketing planning. They are as follows:•

The Boston Consulting Group Approach (BCG) �The General Electric Approach (BG) �

6.8.2 The Growth Share Model and Cash Position

The theory behind the growth-share model makes specific assumptions about market growth rate and relative • market share.Market growth rate is assumed to indicate market maturity.• High market growth indicated emerging markets with a promising future, low market growth indicates mature • markets with limited future potential and negative growth indicates declining markets.Relative market share are considered strong competitors, and business with low relative market share are • considered weak competitors.The theory behind the growth-share model also assumes that an organisation must generate cash flows from • business with a strong competitive position in mature markets and invest these funds in business with high future potential.Stars are highly desirable business because they have a high market growth rate and high relative market share. • But because they are in high competitive industries, they require large investments to sustain their position, and they consequently produce low profit.Dogs are low market share, low growth business that drain capital and produce little or zero profit. The organisation • should consider liquidating or divesting such business.Cash cows are dominant business in low growth industries that require little investment to maintain their market • share and consequently produce substantial profits. Because they are no longer growing, these businesses should be ‘milked’ for funds to invest in stars and question marks.Question marks are business in industries that are doing well, but where the specific business unit is not doing • as good as the industry. They are called question marks because they are an unknown for management.In general the theory suggests that, given the proper investment in product development, plant capacity, and • marketing, the business can gain market share and become stars, but without proper investment the business eventually go into decline and become dogs.The level of proper investment for each business, however, is industry and business specific, and the growth • share model is not helpful at that level of decision making.

Cash CowA business unit that has a large market share in a mature, slow growing industry. Cash cows require little investment and generate cash that can be used to invest in other business units. Keep investments low, while keeping profits high. Profits and cash generation should be higher because of low growth. (high market share, low growth)

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StarA business unit that has a large market share in a fast growing industry. Stars may generate cash, but because the market is growing rapidly they require investment to maintain their lead. If successful, a star will become a cash cow when its industry matures. Invest further in these- they incur high costs, but they are market leaders and should also generate lots of cash. (high market share, high growth)

Question Mark (or Problem Child)A business unit that has a small market share in a high growth market. These business units require resources to grow market share, but whether they will succeed and become stars in unknown. These have poor cash inflow, but have high demands and low returns due to low market share. Efforts should be made to change market share. If this is not possible, this will likely turn into a dog as growth slows down. (low market share, but high growth)

DogA business unit that has a small market share in a mature industry. A dog may not require substantial cash, but it ties up capital that could better be deployed elsewhere. Unless a dog has some other strategic purpose, it should be liquidated if there is little prospect for it to gain share. Avoid and reduce the number of dogs. (low market share, low growth)

6.8.3 Uses and Benefits of the BCG Matrix

BCG model is helpful for managers to evaluate balance in the firm’s current portfolio of Stars, Cash Cow, • Question Marks and Dogs.BCG method is applicable to large companies that seek volume and experience efforts.• The model is simple and easy to understand.• It provides a base for management to decide and prepare for future actions.•

6.8.4 Limitations of the BCG Matrix

It neglects the effects of synergy between business units.• High market share is not the only success factor.• Market growth is not the only indicator for attractiveness of a market.• Sometimes Dogs can earn even more cash as Cash Cows.• The problems of getting data on the market share and market growth.• There is no clear definition of what constitutes a ‘market’.• A high market share does not necessarily lead to profitability all the time.• The model uses only two dimensions – market share and growth rate. This may temp management to emphasise • a particular product, or to divest prematurely.A business with low market share can be profitable too.• The model neglects small competitors that have fast growing market shares.•

6.9 G. E. Multi Factorial AnalysisThe GE matrix is a technique used in brand marketing and product management to help a company decide what • products to add to its product portfolio, and which market opportunities are worthy of continued investment.The business portfolio is the collection of businesses and products that make up the company.• The optimal business portfolio is one that fits perfectly to the company’s strengths and helps to exploit the most • attractive industries or markets.The best business portfolio is one that fits the company’s strengths and helps exploit the most attractive • opportunities.


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6.10 Factors Affecting Market Attractiveness

Market Attractiveness Business Strengths

Market size• Market share•

Market growth• Customer & Market knowledge•

Market profitability• Customer satisfaction•

Competitive pressure• Cost efficiency•

Government regulations• Technology•

Environmental factors• Product quality•

Prices levels• Financial strength•

Social factors• Promotional activities•

Overall risk of returns in the industry• Brand image•

Opportunity to differentiate products and services• Distribution channels•

R&D• Managerial skill •

Material supplies• Segmentation•

Table 6.1 Business attractiveness and business strengths

6.11 PEST AnalysisThe acronym PEST is used to describe a framework for the analysis of the macro-environmental factors. A PEST analysis fits into an overall environmental scan. PEST analysis helps scanning the external macro environment in which the firm operates.

Tech

nolo

gica

l for

ces

Political forces

Social forces

Economic forces

Your business

Fig. 6.2 PEST analysis

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Political factorsPolitical factor includes government regulations and legal issues and define both formal and informal rules under which the firm must operate.Economic factorsEconomic factors affect the purchasing power of potential customers and the firm’s cost of capital. Social factorsSocial factors include the demographic and cultural aspects of the external micro-environment. These factors affect customer needs and the size of potential markets. Technological factors

Technological factors can lower barriers to entry. Reduce minimum efficient production levels, and influence • outsourcing decisions.The PEST analysis is a useful tool for understanding market growth or decline, and as such the position, potential • and direction for a business.A PEST analysis is a business measurement tool.• PEST is an acronym for political, economical, social and technological factors, which are used to assess the • market for a business or organisational unit.PEST analysis is similar to SWOT analysis, it is simple, quick and uses four key perspectives.• As PEST factors are essentially external, completing a PEST analysis is helpful prior to completing a SWOT • analysis.


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SummaryAfter designing strategies to be adopted in plans and finalising them, the top management should take necessary • steps for implementing the designed strategy. Necessary resources, both monetary and non-monetary, are to be provided to the concerned departments for • implementations. Strategy formulation and implementation are intertwined. They are not separate activities. • Strategy formulation is concerned with the development of long-term plans for effective management of • environmental opportunities and threats, in the light of the organisational strengths and weaknesses. Strategy implementation is the process by which strategies and policies are out to action through the development • of programs, budgets and procedures.For the smooth running of each strategic operational plan, the concerned managers and the key workforce like • managers, have to be delegated with certain authority and power. This is required for smooth execution of the plans. The co-ordination between various operations within the same task is very essential for smooth discharging of • the task. There is a necessity of decision support system. The quality of decision depends on understanding the • circumstances surrounding an issue and knowing the available alternatives and states of nature.Management Information System (MIS) reduces risk and uncertainty in decision-making.• There will be little difference between the actual and planned programmes. This has to be closely observed and • the deviations have to be informed to the top management through a sound feedback system.Successful implementation of a strategy depends on how efficient the organisation is in allocating resources, • designing suitable structure, formulating functional strategies, etc.Environmental scanning reveals various potential opportunities to the organisation. These opportunities are to • be categorised into various projects. Implementation stage ensures that the project is ready for the operation.• Licensing procedure indicates the permission to be obtained from the government. Industries Development and • Regulation Act, 1951 (IDRA) provides licensing system for the industries.SEBI issues guidelines from time to time to supervise matters under its control.• Foreign collaboration, in a way, is a partnership between home and foreign industrialist for the establishment • of joint venture in the home country.The objective of exchange control is to regulate the demand for foreign exchange within the limits set by the • available supply.Government formulates policies to safeguard the interests of the labour. These legislative rules certainly influence • strategy formulation.Customers are the central focus of any activity of an organisation.• Strategists should prioritise activities for the optimum utilisation of available resources.• Organisation structure is not a mere graphical representation of activities and people responsible for various • activities. All products and services have certain life cycles. The life cycle refers to the period from the product’s first launch into the market until its withdrawal.The BCG method is based on the product life cycle theory that can be used to determine what priorities should • be given in the product portfolio of a business unit.Market growth rate is assumed to indicate market maturity.• Stars are highly desirable business because they have a high market growth rate and high relative market • share.Dogs are low market share, low growth business that drain capital and produce little or zero profit.•

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Cash cows are dominant business in low growth industries that require little investment to maintain their market • share and consequently produce substantial profits.Question marks are business in industries that are doing well, but where the specific business unit is not doing • as good as the industry.BCG model is helpful for managers to evaluate balance in the firm’s current portfolio of Stars, Cash Cow, • Question Marks and Dogs.The GE matrix is a technique used in brand marketing and product management to help a company decides what • products to add to its product portfolio, and which market opportunities are worthy of continued investment.The acronym PEST is used to describe a framework for the analysis of the macro-environmental factors.• Technological factors can lower barriers to entry. Reduce minimum efficient production levels, and influence • outsourcing decisions.

ReferencesAaker, D. A., 2001. • Developing Business Strategies, 6th ed, Wiley. Robinson, R. B. & Pearce, J., 2007. • Strategic Management: Formulation, Implementation, and Control, 10th ed, McGraw-Hill.Elliott, G., Chase, M., Geupel, G. & Cohen, E., • Implementation of Strategy, [Pdf] Available at :< http://www.prbo.org/cms/docs/consplans/ACSGUIDEweb.pdf> [Accessed 8 November 2012].Gurowitz, E. M., • Implementation of Strategy, [Pdf] Available at :< http://www.gurowitz.com/articles/Strategy.pdf> [Accessed 8 November 2012].Berg, R., • Implementation of Strategy, [Video Online] Available at :< https://www.youtube.com/watch?v=LkesApAMSQk&noredirect=1> [Accessed 8 November 2012].Simmerman, S. & Speculand, R., • Implementation of Strategy, [Video Online] Available at :< https://www.youtube.com/watch?v=_9tlN2hL95U> [Accessed 8 November 2012].

Recommended ReadingFlood, P. C., Dromgoole, T., Carroll, S. & Gorman, L., 2000. • Managing Strategy Implementation, 2nd ed, Wiley.Bryson, J. M. & Alston, F. K., 2004. • Creating and Implementing Your Strategic Plan: A workbook for Public and Nonprofit Organization, 2nd ed, John Wiley & Sons.Bullen, C. V., LeFave, R. & Selig, G. J., 2010. • Implementing Strategic Sourcing: A Manager’s guide, 3rd ed, Van Haren Publishing.


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Self Assessment___________ and implementation are intertwined.1.

Strategy formulationa. Strategic managementb. Strategic planningc. Strategic implementationd.

Which of the following statis false?2. Business organisation is not static. It constantly interacts with the external environment and its own internal a. environmental changes. Strategy implementation is concerned with the development of long-term plans for effective management b. of environmental opportunities and threats, in the light of the organisational strengths and weaknesses. Strategy formulation is concerned with the development of long-term plans for effective management of c. environmental opportunities and threats, in the light of the organisational strengths and weaknesses. Strategy implementation is the process by which strategies and policies are out to action through the d. development of programs, budgets and procedures.

What is the secondary function of the organisation, based on the strategy formulated?3. Strategy formulationa. Strategic management b. Strategic planning c. Strategy implementationd.

What reduces risk and uncertainty in decision-making?4. Management Information System (MIS)a. Decision Support System (DSS)b. Industries Development and Regulation Act(IDRA)c. Capital Issues Control Act, 1956 (CICA)d.

_______ shapes the information to management needs which is provided by MIS.5. MISa. IDRAb. DSSc. CICAd.

Which of the following statements is false?6. Successful implementation of a strategy depends on how efficient the organisation is in allocating resources, a. designing suitable structure, formulating functional strategies, etc.Environmental scanning does not reveal potential opportunities to the organisation. b. Priority helps organisation to choose an appropriate alternative for further development.c. Environmental scanning reveals various potential opportunities to the organisation. These opportunities are d. to be categorised into various projects.

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Which of the following statements is true?7. SEBI requirement indicates the permission to be obtained from the government.a. Foreign collaboration indicates the permission to be obtained from the government.b. Licensing procedure indicates the permission to be obtained from the government.c. Business incentives indicate the permission to be obtained from the government.d.

_________, in a way, is a partnership between home and foreign industrialist for the establishment of joint 8. venture in the home country.

Foreign collaborationa. Business incentivesb. Licensing procedurec. SEBI requirementd.

What must be formulated to suit the basic objective of the organisation?9. Principle of span of control a. Principle of activity structureb. Principle of specialisationc. Principle of exceptiond.

In ____________, human, technical and financial factors must be properly balanced towards the accomplishment 10. of the objectives.

principle of efficiency a. principle of unity of direction b. principle of continuity c. principle of balanced.


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Chapter VII

Social Responsibility

Aim


introduce the students to the social responsibility •

expose them to various responsibilities of an organisation towards society •

explain the concept of social audit •

Objectives

The objectives of this chapter are:

explain what social responsibilities are•

explain them how social responsibilities are necessary for the economic growth•

elucidate the importance if business ethicst•

Learning outcome

At the end of this chapter, you will be able to:

understand social responsibility in detail •

describe social audit •

enlist the components of social responsibility•

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7.1 IntroductionThe social responsibility of a business refers to such decisions and activities of a business firm which provide • for the welfare of the society as a whole along with the earning of profit for the firm. The business firm functions and acts in such a way that it will accomplish social gains along with the traditional • economic gains in which the business firm is interested.The concept of social responsibility is based on the idea that a business functions in the society and uses the • physical and human resources of the society for its operations and hence it is under the obligation to serve the society. The concept of social responsibility is also based on the idea that anything good done by a business firm for the • society is good for the business itself in the long run.

7.2 Characteristics of Social ResponsibilityThe concept of social responsibility of a business applies to all business organisations both in private and public • sectors which have been established for earning profits.Social responsibility of a business is continuous process as business is a regular and an on-going activity.• The concept of social responsibility of business lays emphasis on the all-round development of all the sectors • of the business.The concept of social responsibility of business is the basis of the success of business. Today, the business cannot • survive without the active support of the society.

7.3 Components and Areas of Social ResponsibilityDescribed below are the components of social responsibility:

7.3.1 Towards Owners of EnterpriseThe responsibilities of business enterprises towards their owners are:

Payment of a fair rate of dividend regularly.• Maximisation of the net present value of the business through effective management.• Ensuring full participation of owners in the management of the affairs of the enterprise.• Supplying of accurate and comprehensive reports giving full information on the working of the company.• Disclosing of financial information and clarifying doubts, if any.• Accessibility of chairman and directors to the owners for getting information relating to the company.•

7.3.2 Towards WorkersSome of the responsibilities of a business enterprise towards its workers are:

Security of job with fair wages, bonus, profit-sharing, etc.• Fair promotional practices.• Equal opportunity for growth and development within the organisation.• Facilities for training and opportunity to the workers for improving their skill.• Encouraging participative management in the company.• Providing employee welfare and social security and better working facilities.• Protecting workers from occupational hazards.• Encouraging the development of good trade union leadership.• Change in the attitude of management towards workers and realise the fact that the management is the management • of men and not machines.


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7.3.3 Towards ConsumersThe responsibilities of business enterprise towards consumers of its products are:

Ensuring availability of products in the right quantity, at the right place and at the right time.• Supplying products of high quality.• Charging reasonable prices for its products.• Using correct measures.• Providing good after sales services.• Avoiding restrictive trade practices and other undesirable methods to exploit the consumers.• Encouraging the formation of associations of consumers and consumers’ advisory councils and maintaining • close links with them.Developing appropriate products and services for satisfying the needs of the consumers.• Taking such measures which would promote consumer satisfaction and welfare.•

7.3.4 Towards the SocietyThe obligations of a business to the society are:

Optimising the use of resources.• Producing goods and services efficiently and contributing to the economic well-being of the society.• Providing public amenities and avoiding the conditions of slum and congestion.• Maintaining environmental ecology and adopting anti-pollution measures.• Participating in social welfare programmes, such as adopting villages for their all-round development, providing • for medical facilities, sanctioning educational scholarships to deserving student, constructing shelters at the bus stops, contributing to funds meant for the benefits of the society, etc.Ensuring that the gains of improved production of the enterprises are shared by all the constituents of the society • namely, management, shareholders, workers and consumers.

7.3.5 Toward the GovernmentThe obligations of business enterprise to the government are:

Strictly observing the provisions of the various laws and enactments.• Paying taxes and other dues to the government regularly and honestly.• Extending full support to the government in its efforts to solve national problems such as unemployment, food, • inflation, regional imbalance in economic development, etc.

7.3.6 Toward the Weaker Section of SocietyThe obligations of business enterprise to the weaker section of the society are:

Helping the weaker sections by providing them opportunity for growth.• Encouraging voluntary organisations and agencies engaged in improvement of the weaker section.•

7.3.7 Towards the Economic Policy of StateThe obligations of a business enterprise towards the economic policy of State are:

Encouraging development of small business, import substitution and self-reliance and dispersal of economic • activity.Producing goods to meet the needs of the various sections of society.• Helping the government in its efforts to hold the price lines.•

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7.4 Arguments Against Social Responsibility of BusinessSocial responsibility is an additional responsibility. Business enterprise has economic responsibility of maximising • profits to serve the interests of the owners, employees and creditors. Assumptions of two responsibilities simultaneously are certainly not in the best interest of the business.The concept of social responsibility is quite vague. What welfare activities are regarded as activities undertaken • in discharging their social responsibilities are not specifically mentioned.Business units have already rendered great services to the society by providing goods at lower prices.• Business concern is not accountable for the poor welfare service rendered by it.• The social welfare is the responsibility of the Government and not that of business concerns.• Business concern should justify its basic objective of economic performance. It is not concerned with any other • obligations including social responsibility.

7.5 Importance of Business EthicsThey determine business objectives.• They contribute to better management decisions.• They compel business units to meet basic human needs.• They increase goodwill of the enterprise. The business unit which is ethical in its activities will be respected • by the society.They act as tool for evaluating the business practices of a concern.•

7.6 Social Responsibility for Economic GrowthOrganisations draw inputs from the society in which it operates. These inputs are converted into products or • services which serve the society the most. Organisations must not concentrate only on the principle of profit maximisation.• Consideration of economic growth of the society is vital.• Organisations must utilise available opportunities in the environment for the economic development of the • society.Undertaking new ventures, organisation can bring in more revenue into the organisation. This also leads to • generation of new employment opportunities to the people of the society.Employment opportunities increase standard of living of the people.• Following are the ways in which social responsibility helps developing economy:•

Optimum utilisation of resources – Resources are limited in nature. By following social responsibilities, �an organisation is expected to use resources in a justified way. Resources are to be used for the productions of those goods and services which are not detrimental to the interest of the society. Organisation is not expected to produce unnecessary and unwanted goods. Production of such goods not only reduces national resources, but also encourages people to spend on unnecessary consumption.Producing goods and services efficiently and contributing to the economic well-being of society – �Organisations are expected to produce goods without wastage. Organisations are expected to practice business process reengineering. This helps the organisation to identify new and improved ways of doing improvement in the product. Product safety is also taken care of. All these factors contribute to the economic well-being of the society.Providing public amenities and avoiding the conditions of slums and congestion – Organisations are �expected to protect the surrounding environment. It cannot handover this responsibility to the government. If healthy environment exists, the organisation takes initiative to avoid slums and congestion and pollution of surroundings.Maintain environmental ecology and adopting anti-pollution measures. �Helping the weaker section of the society by providing them an opportunity for growth. �Encouraging development of small business, import substitution and self-reliance and dispersal of economic �activity.


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7.7 Outcomes of Social ResponsibilityTheir environment concerns may enable them to charge premium prices and gain brand loyalty.• Their trustworthiness may help them generate enduring relationships with suppliers and distributors.• They can attract outstanding employees who prefer to work for a responsible job.• They are more likely to be welcomed into foreign country.• They can utilise the goodwill to take advantage of government support when needed.• They can get capital more easily from the investors.•

7.8 Social AuditEvery organisation obtains critical inputs from the environment and converts them into products and services • to be used by the society at large. Hence, it should not be money making machine alone; it has to take care of society interest in all its operations. It is not, therefore, supposed to pollute the environment, discriminate in employment, make money through illegal • means, resort to misleading advertising, offer products of dubious quality, etc. whenever an organisation tries to exploit customers through immoral ways, society of large comes out with certain checks and balances. The customers may protest violently, seek justice through courts and press the government to put an end to • such unlawful operations.

7.9 Need for Social AuditBusiness may postpone investments in social areas, while trying to maximise profits, and expect others to take • the initiative. This way, it is hoped, the organisation would be able to price its products much cheaper and get ahead of competition. The general public, government and social activists, such organisations may not pursue socially responsible • actions in the longer interest of society.Business is a part of society. It receives various inputs from society, obtains benefits from the government and services • only when both these external agencies welcome its products positively. While converting the crucial resources into useful products, it must, therefore, behave responsible without using its power in any unfavorable way.

7.10 Types of Social AuditFollowing are the types of social audit:

7.10.1 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. Corporate executives in this vase try to examine what they are doing and how they are doing it. The method involves four steps:

Find circumstances leading to the commencement of the social audit programme.• List goals of the social programme.• State how the organisation is going to meet such goals.• Quantitatively evaluate what is actually done as against what has been planned.•

7.10.2 Financial Statements Format Social AuditIn this type, the financial statements show conventional financial information plus information regarding social activities. The balance sheet should show a list of social assets on one side and social commitments, liabilities and equity on the other side. The income statement should reveal social benefits, social costs and the net social income provided by the company operations to the staff, community, general public and clients.

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7.10.3 Macro-Micro Social Indicator AuditThis type of audit requires evaluation of a company’s 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 performance of the company in those areas measured by macro social indicators.

7.10.4 Social Performance AuditIn 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.

7.10.5 Partial Social AuditIn this case, the company undertakes to measure a specific aspect of its social performance because it considers that aspect to be very important or because its social efforts for the time being are confined to that area only.

7.11 Uses of Social AuditingTo monitor the social and ethical impact and performance of the organisation.• To provide a basis for shaping management strategy in a socially responsible and accountable way, and to inform • marketing and other strategies.To facilitate organisational learning about how to improve social performance.• To facilitate the strategic management of institutions.• To inform the community, public, other organisations and institutions in the allocations of their resources (time • and money), this refers to issues of accountability, ethics and marketing.


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SummaryThe social responsibility of a business refers to such decisions and activities of a business firm which provide • for the welfare of the society as a whole along with the earning of profit for the firm. The concept of social responsibility of business applies to all business organisations both in private and public • sectors which have been established for earning profits.The responsibility of business enterprises towards their owners is payment of a fair rate of dividend regularly.• Social responsibility is an additional responsibility. Business enterprise has economic responsibility of maximising • profits to serve the interests of the owners, employees and creditors.Business units have already rendered great services to the society by providing goods at lower prices.• Business concern should justify its basic objective of economic performance. It is not concerned with any other • obligations including social responsibility.Organisations must utilise available opportunities in the environment for the economic development of the • society.Every organisation obtains critical inputs from the environment and converts them into products and services • to be used by the society at large.Business may postpone investments in social areas, while trying to maximum profits, and expect others to take • the initiative. This way, it is hoped, the organisation would be able to price its products much cheaper and get ahead of competition. 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 performance of the company in those areas measured by macro social indicators.

ReferencesKotler, P. & Lee, N., 2008. • Corporate Social Responsibility: Doing the most good for your company and your cause, 1st ed, John Wiley & Sons.Chandler, D. & Werther, W. B., • Strategic Corporate Social Responsibility: Stakeholders in a Global Environment, 2nd ed, SAGE.Crowther, D. & Aras, G., • Social Responsibility, [Pdf] Available at :< http://www.mdos.si/Files/defining-corporate-social-responsibility.pdf> [Accessed 8 November 2012]Friedman, M., • Social Responsibility, [Pdf] Available at :< http://www.umich.edu/~thecore/doc/Friedman.pdf> [Accessed 8 November 2012]Edu, L., • Social Responsibility, [Video Online] Available at :< https://www.youtube.com/watch?v=qOzRCoKSJwg> [Accessed 8 November 2012]Chatterji,R., • Social Responsibility, [Video Online] Available at :< https://www.youtube.com/watch?v=iXsaYR1Izqw> [Accessed 8 November 2012]

Recommended ReadingUrip, S., 2010. • CSR Strategies: Corporate Social Responsibility for a Competitive Edge in Emerging Markets, illustrated, John Wiley & Sons.Bacher, C., 2007. • Corporate Social Responsibility, 2nd ed., GRIN Verlag.Crowther, D., 2004. • Perspectives on Corporate Social Responsibility, illustrated, Ashgate Publishing Ltd

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The business firm functions and acts in such a way that it will accomplish social gains along with the a. traditional economic gains in which the business firm is interested.The concept of social responsibility is based on the idea that a business functions in the society and uses b. the physical and human resources of the society for its operations and hence it is under the obligation to serve the society. The concept of social responsibility is also based on the idea that anything good done by a business firm for c. the society is good for the business itself in the long run.The concept of social welfare is also based on the idea that anything good done by a business firm for the d. society is good for the business itself in the long run.

The concept of ___________ of business applies to all business organisations both in private and public sectors 2. which have been established for earning profits.

business strategya. social responsibilityb. strategic planningc. strategic formulationd.

The responsibility of business enterprises towards their _________ is ensuring full participation of owners in 3. the management of the affairs of the enterprise.

workers a. society b. ownersc. consumersd.

Developing appropriate products and services for satisfying the needs of the consumers, towards who is this 4. responsibility of the business enterprise?

Workers a. Society b. Ownersc. Consumersd.

Which of the following statements is false?5. Business concern is accountable for the poor welfare service rendered by it.a. The social welfare is the responsibility of the Government and not that of business concerns.b. Business concern should justify its basic objective of economic performance. It is not concerned with any c. other obligations including social responsibility.Business concern is not accountable for the poor welfare service rendered by it.d.

Which of the following statements is true? 6. Organisations draw outputs from the society in which it operates. These outputs are converted into products a. or services which serve the society. Organisations must not concentrate only on the principle of profit maximisation.b. Organisations draw inputs from the society in which it operates. These inputs are converted into products c. or services which do not serve the society. Organisations must concentrate only on the principle of profit maximisation.d.


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Which type of audit tries to measure the effectiveness of those activities of the organisation which are largely 7. taken up to meet certain social objectives?

Financial statements format social audit a. Macro-micro social indicator audit b. Social process auditc. Social performance auditd.

_________ type of audit requires evaluation of a company’s performance in terms of social measures against 8. macro social measures.

Financial statements format social audit a. Macro-micro social indicator audit b. Social process auditc. Social performance auditd.

Which of the following statements is true?9. Organisations must utilise available opportunities in the environment for the economic development of the a. society.Organisations must concentrate only on the principle of profit maximisation.b. Organisations must not utilise available opportunities in the environment for the economic development of c. the society.Organisations must not concentrate only on the principle of profit minimisation.d.

_______ is not accountable for the poor welfare service rendered by it.10. Business concern a. Business strategyb. Strategic planningc. Strategic implementationd.

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Chapter VIII

Strategy of International Business

Aim


define strategy•

elucidate strategic positioning •

explain the concept of value creation•

Objectives


classify value creation •

enlist primary activities of value chain•

elucidate support activities of value chain•

Learning outcome

At the end of this chapter, you will be able to:

understand global expansion and profits•

identify leveraging products and competencies•

understand leveraging subsidiary skills•


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8.1 Strategy and the FirmStrategy can be defined as the actions that managers must take to attain the goals of the firm. For most firms, the preeminent goal is to maximise the value of the firm for its owners. Profitability can be defined as the rate of return that the firm makes on its invested capital (ROIC), which is calculated by dividing the net profits of the firm by total invested capital. Profit growth is measured by the percentage increase in net profits over time.

Enterprise Valuation

Profit Growth

Profitability

Reduce Costs

Add Value and Raise Prices

Sell More in Existing Markets

Enter New Markets

Fig. 8.1 Strategy and the firm(Source: Hill, W. L. c., 2011.Global Business Today, 7th ed., Tata McGraw-Hill)

8.2 Value CreationThe way to increase the profitability of a firm is to create more value. The amount of value a firm creates is measured by the difference between its costs of production and the value that consumers perceive in its products.

Michael Porter states that there are two basic strategies for creating value and attaining a competitive advantage in an industry. Low-cost strategy suggests that a firm has high profits when it creates more value for its customers and does so at a lower cost. Differentiation strategy focuses primarily on increasing the attractiveness of a product.

V= Value of product to an average consumer

P=Price per unit

C=Cost of production per unit

V-P= Consumer surplus per unit

P-C= Profit per unit sold

V-C= Value created per unit

VP

C

V-P

P-CV-C

C

Fig. 8.2 Value creation(Source: Hill, W. L. c., 2011.Global Business Today, 7th ed., Tata McGraw-Hill)

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8.3 Strategic PositioningIt is important for a firm to be explicit about its choice of strategic emphasis with regard to value creation. Management must decide where the company wants to be positioned with regard to value and cost.

A central tenet of the basic strategy paradigm is: To maximise its profitability, a firm must do three thingsPick a position on the efficiency frontier that is viable in the sense that there is enough demand to support that • choiceConfigure internal operations so that they support that position• Make sure that the firm has the right organisation structure in place to execute its strategy•

8.4 The Firm as a Value ChainFirms are essentially value chains composed of a series of distinct value creation activities, including production, marketing, materials management, R&D, human resources, information systems, and the firm infrastructure.

Value creation activities can be categorised as

8.4.1 Primary Activities It involves creating the product, marketing and delivering the product to buyers, and providing support and after-sale service to the buyers of the product. This includes

Research & development• Production• Marketing & sales• Service•

8.4.2 Support Activities It provides the inputs that allow the primary activities of production and marketing to occur. This includes:

Materials management or logistics• Human resource• Information systems• Company infrastructure•

Support activities

Company infrastructure

Information systems Logistics Human resources

R & D ProductionMarketing

and sales

Customer services

Primary activities

Fig. 8.3 The firm as a value chain(Source: Hill, W. L. c., 2011.Global Business Today, 7th ed., Tata McGraw-Hill)


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8.5 The Implementation of StrategyOrganisation architecture –This includes the following

The totality of a firm’s organisation• Formal organisational structure• Control systems and incentives• Organisational culture, processes, and people •

Structure

People

Culture

ProcessesIncentives

& Control

Fig. 8.4 Organisational architecture(Source: Hill, W. L. c., 2011.Global Business Today, 7th ed., Tata McGraw-Hill)

Controls - The metrics used to measure the performance of subunits and make judgments about how well the • subunits are runIncentives -The devices used to reward appropriate managerial behaviour • Processes - The manner in which decisions are made and work is performed• Organisational culture - The norms and value systems that are shared among the employees.• People - employees and the strategy used to recruit, compensate, and retain those individuals So, to attain superior • performance and earn a high return on capital, a firm’s strategy must make sense given market conditionsThe operations of the firm must support the firm’s strategy• The organisational architecture of the firm must match the firm’s operations and strategy if market conditions • shift, so must the firm’s strategy, operations, and organisation

Organisational structure - This includes the followingThe formal division of the organisation into subunits• The location of decision-making responsibilities within that structure• The establishment of integrating mechanisms to coordinate the activities of subunits including cross functional • teams and or pan-regional committees.

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So, to attain superior performance and earn a high return on capital, a firm’s strategy must make sense given market conditions. The operations of the firm must support the firm’s strategy. The organisational architecture of the firm must match the firm’s operations and strategy if market conditions shift, so must the firm’s strategy, operations, and organisation.

Operations strategy

Organisation architecture

Strategy

Supports

Supports

Supp

orts

Market conditions

Fits

Fig. 8.5 Strategic fit(Source: Hill, W. L. c., 2011.Global Business Today, 7th ed., Tata McGraw-Hill)

8.6 Global Expansion and ProfitsFirms that operate internationally can

Expand the market for their domestic product offerings by selling those products in international markets• Realise location economies by dispersing individual value creation activities to locations around the globe where • they can be performed most efficiently and effectivelyRealise greater cost economies from experience effects by serving an expanded global market from a central • location, thereby reducing the costs of value creationEarn a greater return by leveraging any valuable skills developed in foreign operations and transferring them • to other entities within the firm’s global network of operations

8.7 Leveraging Products and Competencies To increase growth, a firm can sell products or services developed at home in foreign markets.Success depends on the type of goods and services, and the firm’s core competencies (skills within the firm that competitors cannot easily match or imitate)

Core competencies are to:enable the firm to reduce the costs of value creation• create perceived value so that premium pricing is possible•


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8.8 Location EconomiesFirms should locate value creation activities where economic, political, and cultural conditions are most conducive to the performance of that activity.

Firms that successfully do this can realise location economies - the economies that arise from performing a value • creation activity in the optimal location for that activity, wherever in the world that might be.Locating value creation activities in optimal locations•

can lower the costs of value creation �can enable a firm to differentiate its product offering from those of competitors �

Multinationals that take advantage of location economies create a global web of value creation activities• Under this strategy, different stages of the value chain are dispersed to those locations around the globe where • perceived value is maximised or where the costs of value creation are minimised

introducing transportation costs and trade barriers complicates this picture �political risks must be assessed when making location decisions �

8.9 Leveraging Subsidiary SkillsTo help increase firm value, managers should

Recognise that valuable skills can be developed anywhere within the firm’s global network (not just at the • corporate centre)Use incentive systems to encourage local employees to acquire new skills• Develop a process to identify when new skills have been created • Act as facilitators to transfer valuable skills within the firm •

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Summary Strategy can be defined as the actions that managers must take to attain the goals of the firm.• Profitability can be defined as the rate of return that the firm makes on its invested capital (ROIC), which is • calculated by dividing the net profits of the firm by total invested capital. Profit growth is measured by the percentage increase in net profits over time.The amount of value a firm creates is measured by the difference between its costs of production and the value • that consumers perceive in its products.Low-cost strategy suggests that a firm has high profits when it creates more value for its customers and does • so at a lower cost.Firms are essentially value chains composed of a series of distinct value creation activities, including production, • marketing, materials management, R&D, human resources, information systems, and the firm infrastructure.Firms should locate value creation activities where economic, political, and cultural conditions are most conducive • to the performance of that activity.

ReferencesInternational Business• , [Online] Available at: <http://www.scribd.com/doc/10522928/The-Strategy-of-International-Business-Chapter-12> [Accessed 7 November 2012].The Strategy of International Business• , [Online] Available at: <http://www.slideshare.net/Alistercrowe/the-strategy-of-international-business-4078510> [Accessed 7 November 2012].John, R. & Gillies, G. L., 1996. Global Business Strategy, Cengage Learning EMEA.• Aswathappa, A., 2005. • International Business, 2nd ed., Tata McGraw-Hill Education.International Business Lecture 1 : Part 1 of 2• , [Video Online] Available at: <http://www.youtube.com/watch?v=pQ6gG1ex1-w> [Accessed 8 November 2012].International Business Development• , [Video Online] Available at: <http://www.youtube.com/watch?v=rlOe-jQ_iQQ> [Accessed 8 November 2012].

Recommended ReadingKelly, P., 2009. • International Business and Management, International Thomson Business Press.Sinha, P. K. & Sinha, S., 2008. • International Business Management, Excel Books.Murthy, R. V., 2009. • International Business Management, Authors Press.


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Self Assessment ___________ can be defined as the actions that managers must take to attain the goals of the firm.1.

Strategya. Schemeb. Methodc. Pland.

____________ can be defined as the rate of return that the firm makes on its invested capital (ROIC), which is 2. calculated by dividing the net profits of the firm by total invested capital.

Productivitya. Profitabilityb. Qualityc. Valued.

Which of the following is measured by the percentage increase in net profits over time?3. Value chaina. Low-cost strategyb. Profit growthc. High-cost strategyd.

Which of the following statements is true?4. The quality of value a firm creates is measured by the difference between its costs of production and the a. value that consumers perceive in its products.The quality of value a firm creates is measured by the difference between its quality of production and the b. value that consumers perceive in its products.The quality of value a firm creates is measured by the difference between its quality of production and the c. value chain.The amount of value a firm creates is measured by the difference between its costs of production and the d. value that consumers perceive in its products.

_______________ suggests that a firm has high profits when it creates more value for its customers and does 5. so at a lower cost.

Low-cost strategya. Low-value strategyb. High-cost strategyc. High-quality strategyd.

Firms are essentially value chains composed of a series of distinct value creation activities, including which 6. one of the following?

Engineeringa. R&Db. Information technologyc. Logisticsd.

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Firms should locate _______________ activities where economic, political, and cultural conditions are most 7. conducive to the performance of that activity

value chaina. quality creationb. value creationc. quality strategyd.

Which of the following involves creating the product, marketing and delivering the product to buyers, and 8. providing support and after-sale service to the buyers of the product?

Support activitiesa. Current activitiesb. Secondary activitiesc. Primary activities d.

Which of the following provides the inputs that allow the primary activities of production and marketing to 9. occur?

Support activitiesa. Current activitiesb. Secondary activitiesc. Primary activitiesd.

Organisation architecture includes which of the following?10. Information technologya. Formal organisational structureb. Process flowc. System strategy d.


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Case Study I

Trouble at Tiffany in Japan

The internationally renowned jewellry company, Tiffany had been facing problems in their second largest market, Japan, since 2002. After performing commendably even during the times of deep economic recession in Japan, Tiffany’s sales in Japan was slipping since the last couple of years, while other jewellry retailers were flourishing.

The case explores the probable reasons for Tiffany not performing as per their expectation. Tiffany’s core customers had remained the affluent class, but to attract younger and less affluent customers, it also introduced and promoted less expensive products which had tarnished its elite image. Their retailing strategy of opening majority stores in department stores through which traffic of their target customers was decreasing, had backfired. Tiffany’s principal strategy in Japan had been to focus on their expensive bridal jewellry especially traditional engagement rings. With changes in the Japanese traditions, preferences of Japanese consumers and with the aging of the Japanese population their strategy has turned questionable. Managing the fluctuation in the Yen-Dollar exchange rate, also became a matter of concern.

QuestionsWhat is the ranking of Tiffany in Japanese market?1. AnswerTiffany is the second largest market in Japan.

Which customer class was Tiffany targeting at?2. AnswerTiffany was targeting at affluent class customer.

Why was Tiffany not performing well in the market? Provide a suggestion to your answer.3. AnswerTiffany was targeting only at the affluent class people, their retailing strategy of opening majority stores in department stores through which traffic of their target customers was decreasing, had backfired.Tiffany should concentrate more on younger and less affluent class people to perform well in the market.

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Case Study II

India’s Branded Vada Pav Chain Jumbo King’s Ambitious Plans

Jumbo King, a branded Vada Pav fast food chain which started its business in the Indian city, Mumbai in 2001 with a capital of INR200,000 decided to expand its business across the other Indian States. The company’s business model was inspired by McDonalds and Subway and hoped to stimulate customers’ taste buds with its INR8 ($0.16) Vada Pavs in line with 15 cent McBurgers. Most of the company’s outlets were situated near the railway stations and busy places where a constant stream of commuters as potential customers was assured. Jumbo King’s business focused on delivering good service, quality, cleanliness and value. But, presence of the multinational food chains, roadside vendors and Udipi restaurant etc., proved to be a challenge for Jumbo King to attract customers. It remained to be seen whether Jumbo King would be able to deliver McDonald’s and Subway’s experience in the long run.

QuestionsWho were the competitors for Jumbo King?1. Provide an emergence and growth strategy of Jumbo King.2. What are the oppurtunities and challenges for Jumbo King?3.


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Case Study III

MindTree Consulting: Designing and Delivering its Mission and Vision

MindTree Consulting is an international IT consulting company with revenues of about $103 million in 2006, an increase of over 85% from the previous year’s revenue of $55 million. Besides, MindTree had several laurels to its credit. It was the world’s youngest company to be assessed at Level 5 in both CMMI and P-CMM. The company was ranked among the top five Great Places to Work in 2004 in a study conducted by Grow Talent Company and Business world and rated as one of the Best Employers in India in 2004 by Hewitt Associates.

When MindTree was established in 1999, the founders had set a clear Mission and Visions keeping in mind a timeframe of 2005. The company had almost reached the vision parameters. It went on to set bigger Vision targets for the future. However, there were questions raised whether a mid-sized IT firm like MindTree can battle the big players like Wipro, Infosys, Satyam and TCS. At the same time, it was also important how the company would keep its core values and culture which formed the foundation of the company from getting diluted as the company grew bigger in size. With hurdles to cross, would MindTree achieve its vision for the future?

QuestionDevelop a mission and vision statement for MindTree?1. Explain how a mid sized IT firm can achieve its vision in a short span of time?2. What are the challenges faced by MindTree?3.

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Bibliography

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Kiechel, W., • Corporate Strategy, [Video Online] Available at: < https://www.youtube.com/watch?v= DQVf7984YDA> [Accessed 8 November 2012].Kotler, P. & Lee, N., 2008. • Corporate Social Responsibility: Doing the most good for your company and your cause, 1st ed., John Wiley & Sons.Krysonski, D., • Introduction to Business Strategies, [Video Online] Available at: < https://www.youtube.com/watch?v=rJ2tmqRkiCM&feature=related> [Accessed 8 November 2012].Lynch, R., 2007. • Corporate Strategy, 4th ed., Pearson Education India.Mamoria, A., 2001.• Business Planning and Policy, 2nd ed., Himalaya Publishing House.McCarthy, J. R., • Strategic Planning, [Video Online] Available at :< https://www.youtube.com/watch?v=RNjYsYMQ3pI> [Accessed 8 November 2012].McKay, E.G., • Strategic Planning, [Pdf] Available at :< http://siteresources.worldbank.org/INTAFRREGTOPTEIA/Resources/mosaica_10_steps.pdf> [Accessed 8 November 2012].Militello, J., • Strategic Management, [Video Online] Available at: < https://www.youtube.com/watch?v=tL0OK1nFXiY&feature=related> [Accessed 8 November 2012].Olsen, E., • Strategic Planning, [Video Online] Available at :< https://www.youtube.com/watch?v=mLJ34L5UW4E> [Accessed 8 November 2012].Reddy, P. N., 2007. • Strategic Management, 2nd ed., Himalaya Publishing House.Robinson, R. B. & Pearce, J., 2007. • Strategic Management: Formulation, Implementation, and Control, 10th ed., McGraw-Hill.Rumelt, R. P., • Corporate Strategy, [Pdf] Available at: < http://www.anderson.ucla.edu/faculty/dick.rumelt/Docs/Commentary/CorpStrategy2.pdf> [Accessed 8 November 2012].Rumelt, R., • Corporate Strategy, [Video Online] Available at: < https://www.youtube.com/watch?v=43kZDnyDXOc> [Accessed 8 November 2012]Shapiro, J., • Strategic Planning, [Pdf] Available at :< http://www.civicus.org/new/media/Strategic%20Planning.pdf> [Accessed 8 November 2012].Simmerman, S. & Speculand, R., • Implementation of Strategy, [Video Online] Available at :< https://www.youtube.com/watch?v=_9tlN2hL95U> [Accessed 8 November 2012].Snezhil, G., • Top Management, [Video Online] Available at: < https://www.youtube.com/watch?v=lnaOz1TWENQ&feature=related> [Accessed 8 November 2012].Steiner, G. A., 2010.• Strategic Planning, 2nd ed., Free Press. 400 pages.Tapper, C., • Introduction to Business Strategies, [Pdf] Available at: < http://www.student.mbt.unsw.edu.au/Guides/LGSupp_IntroBT_FINAL.pdf> [Accessed 8 November 2012].Taylor, A., • Strategic Management, [Video Online] Available at: < https://www.youtube.com/watch?v=HIO8tqxhunc&feature=related> [Accessed 8 November 2012]. The Strategy of International Business• , [Online] Available at: <http://www.slideshare.net/Alistercrowe/the-strategy-of-international-business-4078510> [Accessed 7 November 2012].Wells, D. L., • Strategic Management, [Pdf] Available at :< http://govinfo.library.unt.edu/npr/initiati/mfr/managebk.pdf> [Accessed 8 November 2012]Wheelen, T, L. & Hunger, D., • Strategic Management, [Pdf] Available at: < http://www.hrfolks.com/articles/strategic%20hrm/essentials%20of%20strategic%20management.pdf> [Accessed 8 November 2012].Williams, S., • Top Management, [Video Online] Available at: < https://www.youtube.com/watch?v=8ubRzzirRKs> [Accessed 8 November 2012]

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Recommended ReadingAbell, D. F., 1980.• Defining the Business: The Starting Point of Strategic Planning, 3rd ed., Prentice Hall. Bacher, C., 2007. • Corporate Social Responsibility, 2nd ed., GRIN Verlag.Bryson, J. M. & Alston, F. K., 2004. • Creating and Implementing Your Strategic Plan: A workbook for Public and Nonprofit Organization, 2nd ed., John Wiley & Sons.Bullen, C. V., LeFave, R. & Selig, G. J., 2010. • Implementing Strategic Sourcing: A Manager’s guide, 3rd ed., Van Haren Publishing.Colley, J. L., Doyle, J. L. & Hardie, R. D., 2004. • Corporate Strategy, illustrated, McGraw-Hill. Crowther, D., 2004. • Perspectives on Corporate Social Responsibility, illustrated, Ashgate Publishing Ltd.Finkelstein, S., Hambrick, D. C. & Cannella, A. A., 2009. • Strategic Leadership: Theory and Research on Executives, Top Management Teams and Boards, 3rd ed., Oxford University Press.Finlay, P.N., 2000. • Strategic Management: An Introduction to Business and Corporate Level Strategy, illustrated, Financial Times Prentice Hall.Flood, P.C., Dromgoole, T., Carroll, S. & Gorman, L., 2000. • Managing Strategy Implementation, 2nd ed., Wiley.Furrer, O., 2010. • Corporate Level Strategy: Theory and Applications, illustrated, Taylor & Francis Publishers.Ghosh, P. K., 1996. • Business Policy Strategic Planning and Management, 2nd ed., Sultan Chand & Sons.Greer, C. R., 2000. • Strategic Human Resource Management: A General Managerial Approach, 2nd ed., Prentice Hall. Hoskisson, R. E., 2006. • Strategic Management Concepts, 7th ed., South-Western College Pub. Kelly, P., 2009. • International Business and Management, International Thomson Business Press.Krug, J. A., 2009. • Mergers and Acquisitions: Turmoil in Top Management teams, illustrated, Business expert Press.Litman, J., 2008. • Driven: Business Strategy, Human Actions and the Creation of Wealth. 1st ed., Strategy & Execution, LLC.Murthy, R. V., 2009. • International Business Management, Authors Press.Simerson, B. K., 2011. • Strategic Planning: A Practical Guide of Strategy Formulation and Execution, illustrated, ABC-CLIO Publishers.Sinha, P. K. & Sinha, S., 2008. • International Business Management, Excel Books.Smith, R. D., 2004. • Strategic Planning, 2nd ed., RoutledgeSteiner, G. A., 1969. • Top Management Planning, 1st ed., Macmillan Publishers.Thompson, J. L., 1997. • Strategic Management: Awareness and Change, 2nd ed., International Thompson Business Press. Thompson, J. L., 2001. • Understand Corporate Strategy, illustrated, Cengage Learning.Urip, S., 2010. • CSR Strategies: Corporate Social Responsibility for a Competitive Edge in Emerging Markets, illustrated, John Wiley & Sons.


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Self Assessment Answers

Chapter Id1. c2. a3. a4. b5. c6. a7. b8. d9. c10.

Chapter IId1. a2. c3. c4. b5. c6. d7. a8. c9. b10.

Chapter IIId1. a2. c3. b4. a5. d6. c7. b8. b9. c10.

Chapter IVb1. a2. c3. d4. a5. c6. d7. c8. b9. b10.

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Chapter Vd1. b2. a3. c4. d5. a6. c7. b8. a9. b10.

Chapter VIa1. b2. d3. a4. c5. b6. c7. a8. b9. d10.

Chapter VIId1. b2. c3. a4. a5. b6. c7. b8. a9. a10.

Chapter VIIIa1. b2. c3. d4. a5. b6. c7. d8. a9. b10.

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