mb0036 strategic management 1st

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Q.1 Explain how strategies are formulated and implemented. (10 marks)

Strategy Formulation and Implementation

It is the crux of the strategic management process. Strategy refers to the course of

action desired to achieve the objectives of the enterprise. Formulation, togetherwith its implementation, constitutes an integral part of the management activity.Managers use strategies for different purposes such as to overcome competition, to

increase sales, to increase production, to motivate the employees to provide theirbest, and so on. Implementation of a strategy is a crucial task as the formulation ofit. There may be a lot of resistance during the implementation process. It isnecessary for the manager to be very tactful to involve the members of his group inthe formulation of strategy to facilitate the implementation process.

Stages in Strategy Formulation and Implementation

a. Identification of mission and objectives

b. Environment scanningc. Generic strategy alternativesd. Strategy variationse. Strategic choicef. Allocation of resources and formulation of organisational structureg. Formulation of plans, policies, programmes and administrationh. Evaluation and control

Generic Strategy Alternatives

They refer to the strategy alternatives in broader terms. After the nature of the

business of the firm is defined, the next task is to focus on the type of strategic

alternative, in general, the firm should pursue. The strategist seeks to identify theright alternative through questions such as:

1. Should we get out of this business entirely?

2. Should we try to expand?

There are four strategy alternatives available to a firm or business:

a. To expandb. To wind up or retrenchc. To stabilize, andd. To continue its operations pertaining to its products, markets or functions.

a) Expansion strategycan be adopted in the case of highly competitive and volatileindustries, particularly, if they are in the introduction stage of product / service life

cycle.

b) Stability strategyis a better choice when the firm is doing well, the environment

is relatively less volatile, and the product / service has reached the stability ormaturity stage of the life cycle.

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c) Retrenchment strategyis the obvious choice when the firm is not doing well interms of sales and revenue and finds greater returns elsewhere, or the product /service is in the finishing stage of the product life cycle.

d) Combination strategy is not a new strategy as it combines the other strategies.However, it is to be noted that it is better to evolve individual strategies and

combine them rather than trying to evolve a complex combination strategy whichcould be cumbersome with loss of precious business time. It is best-suited to

multiple SBU firms in times of economic transition and also when changes occur inthe product / service life cycle. If a firm realises that some of its main product lines

have outlived their lives, it may not be profitable to continue investment in thesame product or SBU. The firm may choose to withdraw its resources from this area(or SBU) (Retrenchment strategy) and follow an Expansion strategy in a newproduct area. Combination strategy is best suited when the firm finds that itsproduct-wise performance is uneven, or all or most of its products differ in theirfuture potential.

Sometimes, a combination of a few or all of these strategies may be necessary. Anychange must be contemplated considering what is to be done (Business definition)

and the speed (Pace) with which it is to be done. Each of these alternatives has tobe evaluated on its merits.

A strategy is a means to an end. If an organisation wants to perform better in thelong run, it has to select an appropriate strategy and pursue it vigorously. In this

process, it might face certain hardships. Also, it has to make necessary changes inits strategy. A change in strategy should not be construed as a sign of failure.

Strategic Alliances

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Strategic alliances constitute another viable alternative. Companies can developalliances with the members of the strategic group and perform more effectively.These alliances may take any of the following forms:

a) Product and/or service alliance: Two or more companies may get together tosynergise their operations, seeking alliance for their products and/or services. The

product or service alliance may take any of the following forms:

A manufacturing company may grant license to another company to produce its

products. The necessary market and product support, including technical know-how,is provided as part of the alliance. Coca-cola initially provided such support toThums Up.

Two companies may jointly market their products which are complementary innature. Chocolate companies more often tie up with toy companies. TV Channelstie-up with Cricket boards to telecast entire series of cricket matches live.

Two companies, who come together in such an alliance, may produce a new product

altogether. Sony Music created a retail corner for itself in the ice-cream parlours ofBaskin-Robbins.

b) Promotional alliance: Two or more companies may come together to promotetheir products and services. A company may agree to carry out a promotioncampaign during a given period for the products and/or services of anothercompany. The Cricket Board may permit Cokes products to be displayed during thecricket matches for a period of one year.

c) Logistic alliance: Here the focus is on developing or extending logistics support.One company extends logistics support for another companys products and

services. For example, the outlets of Pizza Hut, Kolkata entered into a logistic

alliance with TDK Logistics Ltd., Hyderabad, to outsource the requirements of theseoutlets from more than 30 vendors all over India for instance, meat and eggsfrom Hyderabad etc.

d) Pricing collaborations: Companies may join together for special pricingcollaborations. It is customary to find that hardware and software companies ininformation technology sector offer each other price discounts. Companies shouldbe very careful in selecting strategic partners. The strategy should be to select such

a partner who has complementary strengths and who can offset the presentweaknesses. The acid test of an alliance is greater sales at lesser cost. It is a

common practice to develop organisational structures or modify them, if necessary,to support the alliances and make them successful.

Considering Strategy Variations

There can be a number of variations of the generic strategy alternatives. Forinstance, if the strategy is to expand, then the alternatives are internal expansion orexternal expansion.

Internal expansion can be achieved through any of the following approaches:

Penetrate existing markets Add new markets Add new products, and so on

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Similarly, external expansion can be achieved through mergers or acquisitions. Inmost IT Companies, subsidiaries are created to develop at the earliest upstreamcapabilities in the IT value-chain. Once these subsidiaries gain the requiredcapabilities in terms of consultancy, system integration, product design andapplication, development and maintenance, and others, they are merged into amajor player. Merger has thus been one of the strategies to benchmark thecompany in terms of performance globally.

If the strategy is to attain stability, then the alternatives could be internal stabilityor external stability. In some cases, both may be required. External stability can be

attained by maintaining market share.

Internal stability of a firm can be achieved through:

a. Seeking production and marketing efficiencies, andb. Redefining the existing organisational structure.

Strategy variations can attain the following forms:

Internal or external

Related or unrelated Horizontal or vertical Active or passive

Each of these variations has different strategic alternatives considering the majorgoals of the organisation. For instance, internal strategy variation may beexpansion, stability, retrenchment, or combinations. If expansion is decided upon,

the alternatives could be to penetrate existing markets, add new products, or addnew markets, and so on. Strategy variation is a global phenomenon. When the firm

finds that it is not possible to fill a gap in the market with the existing strategy, it

considers a change in the focus of the strategy. An example would be howmultinationals Indianised their global strategies to woo their customers in Indianmarkets.

Selection of the Best Alternative

The best alternative is one that can improve overall performance. Its selection

depends upon:

Particular configuration of objectives

Environmental threat and opportunity profile Strategic advantage profile

The generic strategy itself

If a company has a higher growth as its objective, it is better to expand from a baseof proven or time-tested competence (e.g. cost leadership or market leadership)and organise the departments to provide new opportunities while taking moderate

risks.

Every company must tailor an appropriate strategy for achieving its goals. The most

generic types to initiate strategic thinking, as suggested by Michael Porter, are ( a )Overall cost leadership, ( b ) Differentiation and ( c ) Focus.

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a) Overall cost leadership The company is said to achieve OCL when it offers itsproducts or services at the lowest price ( due to its lowest cost ) amongcompetitors, thus maintaining the largest market share. Companies which pursuethis strategy have to sharply focus on cost-effective strategies in all the areaspertaining to engineering, purchases, manufacturing and physical distribution. Anybreakdown could cost the company very badly. A standby arrangement is vital.Mergers and take-overs reflect the common route for companies to optimise their

resources and costs. HLL emerged stronger with the acquisition of Brook Bond.

b) Differentiation The company should be capable of demonstrating a superior

performance through its products and services. This should benefit a large numberof customers in saving their resources in terms of time and money. Hero Hondacould design its motorcycle differently to offer higher mileage. This resulted insavings to the user. The strategy is to differentiate the products and servicessharply through quality in a market dumped with stocks. A photocopying companycan demonstrate its excellence by minimising defects per thousand prints. Constantadaptation to changing technology and large-scale initiatives in R&D would providea shot in the arm for the company. INFOSYS and WIPRO are some examples which

have made a niche in the software industry through differentiation.

c) Focus The company may concentrate on a narrow market segment and obtain

full market information about it. It may pursue either overall cost leadership ordifferentiation strategy within that target segment. Such companies which pursuethe same strategy to the same target market, are called a strategic group ofcompanies. If they relentlessly pursue their strategies, they are bound to succeed,leading to benchmarking of strategies. The danger here is that others can copy inthe name of benchmarks. This can be avoided by performing similar activities in an

innovative and swift way, which the competitors cannot catch up with. There arecertain issues which cannot be copied in the short run.

Strategic Choice

It involves the decision to select from among alternatives, the best strategy whicheffectively contributes to the business objectives. The spade work before making astrategic choice consists of:

Identifying the few viable alternative courses of action.

Considering the parameters for selection of best alternative.

Evaluating each alternative on its own merits and in relation to other alternatives.

Making the final choice.

Keeping the next best alternative as stand by ( to take care of contingencies )

The following are the questions in terms of which environmental and internal

conditions are analysed:

What are the main business objectives?

Does the selected strategy contribute to these objectives?

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What is the business definition is it product-based, market-based or function-based?

Will it be achieved in the future?

These questions help us to examine the performance gap between the expected and

the ideal outcomes in relation to the alternatives under consideration. If the gap isnarrow or negligible, the stability strategy is the best strategy, since it focuses on doing in the best way what we can do . Most international airlines lease out

operations such as reservation, maintenance, ground halting work, and others toprofessional agencies to improve their overall performance in general and increasethe pace of its own activities in particular. The focus will be on betterimplementation initiating certain pace changes internally. If the gap is large andsignificant, the probable alternatives are either to expand or to withdraw fromunrelated areas. Mergers, acquisitions, disinvestments are some of the measuresthat initiate changes in the pace of growth.

The decision-maker considers different choices closest to the present strategy. In

the process, he identifies the most preferred strategy. Some of the parameters thathelp him in this process are:

Is it politically acceptable or not?

What is the degree of risk involved?

To what extent is the enterprise dependent on external factors?

Such an evaluation leads to the choice of an appropriate strategy, and at this point,

it appears to the decision-maker that the gap between the expected and the idealoutcomes is closed. Relying excessively on one corporate plan with one or two

variations, more often, may not be adequate. Hence, it is desirable to keep acontingency plan ready as standby.

Allocation of Resources and Development of Organisational Structure

The process of strategy implementation calls for an integrated set of choices and

activities. These include allocating resources, organising, assigning appropriateauthority to the key managers, setting policies and developing procedures.

It is necessary to establish an operative system to reinforce, control and evaluate astrategy.

A good strategy with effective implementation has a higher probability of success.There source allocation decisions, such as, which department is sanctioned howmuch of money and resources, in the name of the budget, and so on set theoperative strategy of the firm.

Budgets are formulated after a series of negotiations across different levels in theorganisation. Budgets may be of different types: corporate budgets, capital

budgets, departmental budgets, sales budgets, expense budgets, and others.

An effective co-ordination and efficient division of labour requires an appropriateorganisational structure. The best structure is one, which fits into the organisational

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environment. Also its internal characteristics should give rise to an effectivestrategy.

Appropriate changes in the organisation structure may be initiated to ensurestrategic implementation of the proposed strategy. Effective strategic managementpractices suggest that organisation structure should also change if the strategy

changes or if the organisation experiences any bottlenecks in this regard

Q.2 Mr. Nandankumar wants to start a business of his own. He is seeking

advice from a consultancy firm on how to go about it. If you were anemployee of this consultancy firm, how would you guide him in preparing abusiness plan that would suit Nandankumars business? (10 marks)

Creating Nandakumars Business Plan

It is also important to establish a timeline for completing the plan. A business plancan be completed by one staff member working full time in as little as a week,

although a thorough market analysis will add several days at least. A committee will

probably need much more time. Combinations of staff, volunteers, consultants anda board committee may lengthen or shorten the process depending on skill level,available time, experience with planning and research, and the groups facilitationneeds. Now that you have decided who will put together your business plan andhave set a timeline for its completion, you are ready to begin assembling theelements of the plan. Your business plan should contain the following sections:

Executive summary Company and product description Market description

Operations Management and ownership

Financial information and timeline Risks and their mitigation

A solid business plan will clearly explain the business concept, describe the marketfor your product or service, attract investment, and establish operating goals andguidelines.

Executive Summary

In this section of your business plan, provide a description of your company, theindustry you will be competing in, and the product or service you plan to offer.

Sell your concept! The executive summary may be the first and only section of yourbusiness plan that most of your audience will read. Tell the audience why thebusiness is a great idea. Some readers will look at this section to determine whetheror not they want to learn more about a business. Other readers will look to theexecutive summary as a sample of the quality and professionalism of the overallplan. The executive summary should be no more than one to three pages long and

should answer the following questions:

Who are you? (describe your organization) What are you planning? (describe the service or product) Why are you planning it? (discuss the demand and market for the service or

product)

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How will you operate your business? When will you be in operation? (overview of timeline) What is your expected net profit? (discuss your projected sales and costs)

Although the executive summary is the first part of your business plan, you shouldwrite it after you have written the other sections of the plan in order to include the

most important points of each section.

Company and Product Description

In describing your company be sure to include what type of business you areplanning (homeownership development, wholesale, retail, manufacturing

or service) and the legal structure (corporation or partnership). You should discusswhy you are creating this new venture, referencing the goals you set at thebeginning of the business planning process. Also include a description of your non-profit organization, the role it has played in developing this new venture and the on-

going role, if any, it will play in operations. Give the reader a brief overview of the

industry, describing historic and current growth trends.

Whenever possible, provide documentation or references supporting your trendanalysis such as articles from business-oriented newspapers and magazines,research journals or other publications. Include these references in the attachmentsof your business plan.

Product or Service

After describing your company and its industry context, describe the products or

services you plan to provide. Focus on what distinguishes your product or servicefrom the rest of the market. Discuss what will attract consumers to your product or

service. Provide as much detail as necessary to inform the reader about theparticular characteristics of your product that distinguish it from its competition many nonprofits, for example, expect to produce higher-quality housing thanotherwise exists in the area. Mention any distinctive elements in the manufacture ofthe product, such as being hand-made by a particular people from a specific area.If you are providing a service, explain the steps you will take to provide a servicethat is better than your competition.

Price

Provide a realistic estimate of the price for your product or service, and discuss therationale behind that price. An unrealistic price estimate may undermine the

credibility of your plan and raise concerns that your product or service may not beof sufficient quality or that you will not be able to maintain profitability in the longrun. Describe where this price positions you in the marketplace: at the high end,low end or in the middle of the existing range of prices for a similar product orservice.

In other sections of the plan you will discuss the target market for your product or

service and also provide additional details on how the price of your product fits intothe overall financial projections for the enterprise.

Place

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Describe the location where you will produce or distribute your product or provideyour service. Discuss the advantages of the location, such as its accessibility,surrounding amenities and other characteristics that may enhance your business.

Depending on your anticipated customer base, accessibility to your location viapublic transportation could affect the marketability of your product or service.

Customers

In this section of your business plan, you will describe the customer base or market

for your product or service. In addition to providing a detailed description of yourcustomer base, you will also need to describe your competition (other localdevelopers or nearby businesses providing a similar service to your potentialcustomer base).

Who will purchase your product or use your service? How large is your customerbase? Define the characteristics of your target market in terms of its:

Demographics Measures of age, gender, race, religion and family size.

Geography Measures based on location.

Socioeconomic Status Measures based on individual or household annualincome.

Provide statistical data to describe the size of your target market. Sources for thisinformation may include recent data from the Bureau of Statistics, state or local

census data, or information gathered by your organization, such as membershiplists, neighborhood surveys and group or individual interviews. Be sure to list the

sources for your data, as this will further validate your market assumptions. Include

any relevant information regarding the growth potential for your target market ifyour business is expected to rely on growth. Cite any research forecastingpopulation increases in your target market or other trends and factors that mayincrease the demand for your product or service.

Competition

Discuss how people identified in your target market currently meet their need foryour product or service. What other businesses exist in your area that are similar to

your proposed venture? For example, for a housing business, what are the localmarkets for purchase and rental? How much are people currently paying for similarproducts or services? Briefly describe what differentiates your proposed venture

from these existing businesses and discuss why you are entering this market.

Sales Projections

Present an estimate of how many people you expect will purchase your product or

service. Your estimate should be based on the size of your market, thecharacteristics of your customers and the share of the market you will gain over

your competition. Project how many units you will sell at a specified price overseveral years. The initial year should be broken down in monthly or quarterlyincrements. Account for initial presentation and market penetration of your productand any seasonal variations in sales, if appropriate.

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Market Description

In this section, you will describe how you plan to operate the business. You willpresent information on how you plan to create your product or provide your service,describe the staff required to operate and manage the business, discuss theequipment and materials necessary, and define the site or facility requirements, if

any. A key component of the operation of your business will be your sales andmarketing strategy, so you must describe how you will inform your target market

about your product or service and how you will convince customers to purchase it.

Production Description

Describe the steps for creating your product, from the raw material or initial stageto the finished product, packaged and ready for distribution and sale. If you plan toprovide a service, describe the process of service deliver (such as the initialinterview, for instance, if you are offering consulting services), assessment,research and design, and final presentation. Provide a description of any sub-contractors or external services you plan to use in the production process. The

reader of the plan may be unfamiliar with the industry, so avoid using industryjargon to describe the production process.

Staffing

Describe the staff required to operate your business: discuss how many people youwill need; describe the tasks they will carry out; and the skills they will need.Prepare a chart outlining the salaries and benefits you will provide to yourworkforce. Provide information on how you will recruit staff and provide initial andongoing training of employees.

Equipment and Materials

To manufacture your product or provide your service, what type of equipment willyou need? Describe any machinery and vehicles necessary in the production,packaging and distribution of your product, including any office equipment such ascomputers, copiers, furniture, fixtures and telephone systems. Also discuss thetypes of materials you will use in the production process and describe the sourceand cost of those materials.

Facility

Describe the type of facility in which you will house your business. Indicate theamount of building space you will need for production and administration. Also

discuss any building features required for the production process such as highceilings, specialized ventilation and heating systems, sanitized laboratory space orvehicular accessibility. If you have already identified a location and a facility thatmeets your requirements, describe its features. Even if you are planning to providea service instead of manufacturing a product, you need to demonstrate that you willhave adequate space for administrative functions and other activities related to the

service you plan to provide.

Market Description

Describe your strategy for locating your target market, informing or educatingcustomers about your product or service and convincing them to purchase it.

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Provide details on the methods you will use to advertise your product, such as printmedia (advertisements in newspapers, magazines or trade journals), electronicmedia (television, radio and the Internet), direct mail, telemarketing, individualsales agents or representatives, or other approaches. Discuss the products orservices features you plan to emphasize to gain the attention of your targetmarket. Also detail how you will distribute and sell your product or service. Will youuse sales agents or existing retail outlets, or directly distribute your product through

a delivery service such as United Parcel Service, Federal Express or independenttrucking company?

Operations

In this section of your business plan, describe the senior managers responsible foroverseeing the start-up and operation of your business, their background and theirresponsibilities in the business. Be sure to highlight your management teamsexperience in managing the production, marketing and administration of similarbusinesses or within the selected industry and attach the resumes of each member

to the plan. Be sure to provide a complete job description of any vacancies in yourmanagement team. Describe the responsibilities, the skills, the background required

and the steps you plan to take to fill that key position.

Ownership

What is its relationship to your existing organization? Who is on the board ofdirectors / board of advisors of the new business and what are their backgroundsand areas of expertise? Potential investors or lenders will be interested in theownership stake of the board of directors and also in what portion of the companys

equity is available. Success is often due to ones contacts, so fully describe yourbusiness relationships with attorneys, accountants and advertising or public

relations agencies, and any industry-specific services such as suppliers and

distributors.

Management and Ownership

In this section you will describe the financial feasibility of your planned venture andprovide several financial reports and statements to document why your business willbe a viable enterprise and a sound investment. At a minimum, you should provide a

brief descriptive narrative for each of the following financial statements and includea copy in the attachments to your plan:

Start-up budget

Cash flow projection

Income statement

Balance sheet

In preparing these statements, you may want to seek the advice of a certified publicaccountant (CPA).

Start-up Budget

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Describe the initial expenses you will incur to get your business up and running.Some items you might include in your start-up budget research and product designand development expenses, legal incorporation and licensing expenses, facilitypurchase or rental, equipment and vehicle purchase or rental, and initial material orsupply purchase. You can use Worksheet B as a sample format for preparing yourstart-up budget.

Cash Flow Projection

This statement presents a month-to-month schedule of the estimated cash inflowsand outflows of your business for the first year. This schedule should indicate howmuch money your business will have or need and when you will need it. You shoulddescribe your sources of income and capital, detailing your projected sales revenueand indicating your own or investor equity contribution, lenders, investors and othersources of capital. Itemize your projected expenses, distinguishing between the costof goods sold (materials, supplies, production labor), overhead expenses (rent,utilities, insurance, maintenance, interest, insurance, administrative costs and

salaries, legal and accounting services, marketing, taxes, fees and other ongoingoperating expenses) and capital expenditures (land and buildings, equipment,

furniture, vehicles, and building repair or renovation expenses). In preparing thisstatement, account for a gradual increase in sales from initial product introduction

and any expected seasonal fluctuations in revenue projections.

Income Statement

Prepare a multiyear (three- to five year) statement of projected revenue,expenses, capital expenditures and cost of goods sold. If you make assumptions

about the growth of your business, provide supporting documentation such asgrowth patterns of similar companies or studies that forecast an industry-wide

growth rate. This statement should indicate to the reader the potential of your

business to generate cash and its profitability over time. For an existing business,also submit an income statement for at least three prior consecutive years. Lendersmay look at this statement to determine whether your business can support theadditional debt you are requesting.

Balance Sheet

A start-up business probably will not have any assets or liabilities at the time youare drafting the business plan. Provide a copy of the balance sheet of the businesss

sponsoring organization or individual. Describe in your narrative any assets that willbe allocated to the start-up of the business.

Financial Information and Start up Timeline

Capital Requirements

Describe the amount and type of financing you are seeking for your business. Areyou looking for debt from a lender or equity from an investor? Refer to your start up

budget and cash flow statement presented earlier. Discuss how and when you willdraw on these funds and how they will affect the bottom line. Also describe any

commitments or investments that you may have already secured.

If you are seeking investors, such as venture capitalists, describe what they willreceive in return for their capital. What is the repayment period and the expected

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return on investment? Also discuss the nature of their ownership share and how itmay change with future investments. Equity investors are looking for rates of returnhigher than rates offered by banks or other business lenders. The level of risk inyour business and industry will help to determine the actual market rate, as will theavailability of equity dollars. Check with other businesses (although not directcompetitors) to see what return on investment their investors demanded. Beprepared to negotiate. And make sure you research the investment market

carefully; several socially minded investment pools exist and more are indevelopment. or lenders, describe the type of financing you are seeking:

Seed Capital Short-term financing to cover start-up costs.

Fixed Asset Financing Longer-term financing for property, buildingimprovements, equipment or vehicles. The asset being purchased is usually pledgedas security for the loan.

Working Capital Short-term financing to cover operating expenses and tobridge gaps in cash flow.

Initial Start-up Timeline

Provide a timeline of tasks and events necessary to get your business operational.Be sure to describe the current stage you are in and what steps you have taken todate. Include deadlines for task completion. Set realistic deadlines according to yourcapacity to complete these tasks. The following is a list of some of the steps youmay wish to include:

Filing legal incorporation documents

Identifying and securing suitable space

Designing and developing the product

Obtaining required licenses or permits

Securing necessary financing

Leasing or purchasing equipment

Hiring key staff

Hiring and training of production or support staff

Purchasing materials and production supplies

Beginning marketing activities

Opening

Although it is impossible to know exactly what will go wrong in starting and runningyour business, thinking about different challenges will strengthen your plan.Potential problems could include:

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Insufficient public subsidy available to new home owners or residents

The competition drops its prices

Not enough customers

Production costs exceed estimates

Difficulty in finding qualified employees

Environmental or governmental changes such as tax increases, additionalregulations or population changes

For each potential problem, discuss its likelihood and describe possible solutions oractions you might undertake to mitigate the problem.

Risks and their Mitigation

Although it is impossible to know exactly what will go wrong in starting and running

your business, thinking about different challenges will strengthen your plan.

After you have completed all of the elements of your business plan, you shouldfocus its presentation. A well-organized plan will assist you in communicating themost important elements of your business plan to the reader, and a persuasive planwill help you to convince the reader to invest in your business.

Executive Summary

As mentioned earlier, this section should be written last. However, if you have

already written the executive summary, review it to make sure it embodies thefollowing characteristics. Because it is the first and possibly the only section of theplan that many readers may see, the executive summary should provide anoverview of the plan and entice the reader to read the whole plan or to agree tomeet with you. The executive summary should be no more than three pages andshould briefly describe the most important elements of the plan. Review theExecutive Summary section of this manual for more tips on this critical introduction

to your business.

Q.3. a. What is the purpose of business continuity plan? (5 marks)

Purpose of Business Continuity Plan

Recent world events have challenged us to prepare to manage previouslyunthinkable situations that may threaten an organizations future. This new

challenge goes beyond the mere emergency response plan or disaster managementactivities that we previously employed. Organizations now must engage in a

comprehensive process best described generically as Business Continuity. It is nolonger enough to draft a response plan that anticipates naturally, accidentally, or

intentionally caused disaster or emergency scenarios.

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Todays threats require the creation of an on-going, interactive process that servesto assure the continuation of an organizations core activities before, during, andmost importantly, after a major crisis event.

In the simplest of terms, it is good business for a company to secure its assets.CEOs and shareholders must be prepared to budget for and secure the necessary

resources to make this happen. It is necessary that an appropriate administrativestructure be put in place to effectively deal with crisis management. This will ensure

that all concerned understand who makes decisions, how the decisions areimplemented, and what the roles and responsibilities of participants are. Personnel

used for crisis management should be assigned to perform these roles as part oftheir normal duties and not be expected to perform them on a voluntary basis.Regardless of the organization for profit, not for profit, faith-based, non-governmental its leadership has a duty to stakeholders to plan for its survival. Thevast majority of the national critical infrastructure is owned and operated by privatesector organizations, and it is largely for these organizations that this guideline isintended. ASIS, the worlds largest organization of security professionals, recognizesthese facts and believes the BC Guideline offers the reader a user-friendly method

to enhance infrastructure protection.

Q.3.b. Give a short note on mitigation strategies. (5 marks)

Mitigation Strategies

Devise Mitigation Strategies

Cost effective mitigation strategies should be employed to prevent or lessen theimpact of potential crises. For example, securing equipment to walls or desks with

strapping can mitigate damage from an earthquake; sprinkler systems can lessenthe risk of a fire; a strong records management and technology disaster recovery

program can mitigate the loss of key documents and data.

Resources Needed for Mitigation

The various resources that would contribute to the mitigation process should beidentified. These resources, including essential personnel and their roles andresponsibilities, facilities, technology, and equipment should be documented in theplan and become part of business as usual.

Monitoring Systems and Resources

Systems and resources should be monitored continually as part of mitigation

strategies. Such monitoring can be likened to simple inventory management.

The resources that will support the organization to mitigate the crisis should also bemonitored continually to ensure that they will be available and able to perform asplanned during the crisis. Examples of such systems and resources include, but are

not limited to:

Emergency equipment

Fire alarms and suppression systems Local resources and vendors Alternate worksites

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Maps and floor plans updated/changed due to construction and internalmoves

System backups and offsite storage.

Q.4. Distinguish between financial investor and strategic investor. (10

marks)

Financial Investor vs. Strategic Investor

In the not so distant past, there was little difference between financial and strategicinvestors. Investors of all colors sought to safeguard their investment by takingover as many management functions as they could. Additionally, investments weresmall and shareholders few. A firm resembled a household and the number ofpeople involved in ownership and in management was correspondingly limited.People invested in industries they were acquainted with first hand.

As markets grew, the scales of industrial production (and of service provision)expanded. A single investor (or a small group of investors) could no longeraccommodate the needs even of a single firm. As knowledge increased andspecialization ensued it was no longer feasible or possible to micro-manage a firmone invested in. Actually, separate businesses of money making and businessmanagement emerged. An investor was expected to excel in obtaining high yieldson his capital not in industrial management or in marketing. A manager wasexpected to manage, not to be capable of personally tackling the various andvarying tasks of the business that he managed.

Thus, two classes of investors emerged. One type supplied firms with capital. Theother type supplied them with know-how, technology, management skills,

marketing techniques, intellectual property, clientele and a vision, a sense ofdirection.

In many cases, the strategic investor also provided the necessary funding. But,more and more, a separation was maintained. Venture capital and risk capitalfunds, for instance, are purely financial investors. So are, to a growing extent,investment banks and other financial institutions.

The financial investor represents the past. Its money is the result of past right andwrong decisions. Its orientation is short term: an "exit strategy" is sought as soon

as feasible. For exit strategy read quick profits. The financial investor is always onthe lookout, searching for willing buyers for his stake. The stock exchange is a

popular exit strategy. The financial investor has little interest in the companysmanagement. Optimally, his money buys for him not only a good product and agood market, but also a good management. But his interpretation of the rolls andfunctions of "good management" are very different to that offered by the strategicinvestor. The financial investor is satisfied with a management team whichmaximizes value. The price of his shares is the most important indication of

success. This is "bottom line" short termism which also characterizes operators inthe capital markets. Invested in so many ventures and companies, the financial

investor has no interest, nor the resources to get seriously involved in any one ofthem. Micro-management is left to others but, in many cases, so is macro-management. The financial investor participates in quarterly or annual generalshareholders meetings. This is the extent of its involvement.

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The strategic investor, on the other hand, represents the real long termaccumulator of value. Paradoxically, it is the strategic investor that has the greaterinfluence on the value of the companys shares. The quality of management, therate of the introduction of new products, the success or failure of marketingstrategies, the level of customer satisfaction, the education of the workforce alldepend on the strategic investor. That there is a strong relationship between thequality and decisions of the strategic investor and the share price is small wonder.

The strategic investor represents a discounted future in the same manner thatshares do. Indeed, gradually, the balance between financial investors and strategic

investors is shifting in favour of the latter. People understand that money isabundant and what is in short supply is good management. Given the ability to

create a brand, to generate profits, to issue new products and to acquire new clients money is abundant.

These are the functions normally reserved to financial investors:

Financial Management

The financial investor is expected to take over the financial management of the firmand to directly appoint the senior management and, especially, the management

echelons, which directly deal with the finances of the firm.

1. To regulate, supervise and implement a timely, full and accurate set ofaccounting books of the firm reflecting all its activities in a manner commensuratewith the relevant legislation and regulation in the territories of operations of the firmand with internal guidelines set from time to time by the Board of Directors of thefirm. This is usually achieved both during a Due Diligence process and later, as

financial management is implemented.

2. To implement continuous financial audit and control systems to monitor the

performance of the firm, its flow of funds, the adherence to the budget, theexpenditures, the income, the cost of sales and other budgetary items.

3. To timely, regularly and duly prepare and present to the Board of Directorsfinancial statements and reports as required by all pertinent laws and regulations inthe territories of the operations of the firm and as deemed necessary and demandedfrom time to time by the Board of Directors of the Firm.

4. To comply with all reporting, accounting and audit requirements imposed by thecapital markets or regulatory bodies of capital markets in which the securities of the

firm are traded or are about to be traded or otherwise listed.

5. To prepare and present for the approval of the Board of Directors an annualbudget, other budgets, financial plans, business plans, feasibility studies,investment memoranda and all other financial and business documents as may berequired from time to time by the Board of Directors of the Firm.

6. To alert the Board of Directors and to warn it regarding any irregularity, lack of

compliance, lack of adherence, lacunas and problems whether actual or potentialconcerning the financial systems, the financial operations, the financing plans, the

accounting, the audits, the budgets and any other matter of a financial nature orwhich could or does have a financial implication.

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7. To collaborate and coordinate the activities of outside suppliers of financialservices hired or contracted by the firm, including accountants, auditors, financialconsultants, underwriters and brokers, the banking system and other financialvenues.

8. To maintain a working relationship and to develop additional relationships with

banks, financial institutions and capital markets with the aim of securing the fundsnecessary for the operations of the firm, the attainment of its development plans

and its investments.

9. To fully computerize all the above activities in a combined hardware-software andcommunications system which will integrate into the systems of other members ofthe group of companies.

10. Otherwise, to initiate and engage in all manner of activities, whether financial orof other nature, conducive to the financial health, the growth prospects and thefulfillment of investment plans of the firm to the best of his ability and with theappropriate dedication of the time and efforts required.

Collection and Credit Assessment

1. To construct and implement credit risk assessment tools, questionnaires,quantitative methods, data gathering methods and venues in order toproperly evaluate and predict the credit risk rating of a client, distributor, orsupplier.

2. To constantly monitor and analyse the payment morale, regularity, non-payment and non-performance events, etc. in order to determine thechanges in the credit risk rating of said factors.

3. To analyse receivables and collectibles on a regular and timely basis.4. To improve the collection methods in order to reduce the amounts of arrears

and overdue payments, or the average period of such arrears and overduepayments.5. To collaborate with legal institutions, law enforcement agencies and private

collection firms in assuring the timely flow and payment of all due payments,arrears and overdue payments and other collectibles.

6. To coordinate an educational campaign to ensure the voluntary collaborationof the clients, distributors and other debtors in the timely and orderlypayment of their dues.

The strategic investor is, usually, put in charge of the following:

Project Planning and Project Management

The strategic investor is uniquely positioned to plan the technical side of the projectand to implement it. He is, therefore, put in charge of:

The selection of infrastructure, equipment, raw materials, industrialprocesses, etc.

Negotiations and agreements with providers and suppliers Minimizing the costs of infrastructure by deploying proprietary components

and planning The provision of corporate guarantees and letters of comfort to suppliers The planning and erecting of the various sites, structures, buildings,

premises, factories, etc.

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The planning and implementation of line connections, computer networkconnections, protocols, solving issues of compatibility (hardware andsoftware, etc.)

Project planning, implementation and supervision

Marketing and Sales

1. The presentation to the Board an annual plan of sales and marketing including:market penetration targets, profiles of potential social and economic categories of

clients, sales promotion methods, advertising campaigns, image, public relationsand other media campaigns. The strategic investor also implements these plans orsupervises their implementation.

2. The strategic investor is usually possessed of a brandname recognized in manycountries. It is the market leaders in certain territories. It has been providing goodsand services to users for a long period of time, reliably. This is an important asset,which, if properly used, can attract users. The enhancement of the brand name, itsrecognition and market awareness, market penetration, co-branding, collaboration

with other suppliers are all the responsibilities of the strategic investor.

3. The dissemination of the product as a preferred choice among vendors,distributors, individual users and businesses in the territory.

4. Special events, sponsorships, collaboration with businesses.

5. The planning and implementation of incentive systems (e.g., points, vouchers).

6. The strategic investor usually organizes a distribution and dealership network, a

franchising network, or a sales network (retail chains) including: training, pricing,pecuniary and quality supervision, network control, inventory and accounting

controls, advertising, local marketing and sales promotion and other networkmanagement functions.

7. The strategic investor is also in charge of "vision thinking": new methods ofoperation, new marketing ploys, new market niches, predicting the future trendsand market needs, market analyses and research, etc.

The strategic investor typically brings to the firm valuable experience in marketing

and sales. It has numerous off the shelf marketing plans and drawer salespromotion campaigns. It developed software and personnel capable of analysing

any market into effective niches and of creating the right media (image and PR),advertising and sales promotion drives best-suited for it. It has built large

databases with multi-year profiles of the purchasing patterns and demographic datarelated to thousands of clients in many countries. It owns libraries of material,images, sounds, paper clippings, articles, PR and image materials, and proprietarytrademarks and brand names. Above all, it accumulated years of marketing andsales promotion ideas which crystallized into a new conception of the business.

Technology

1. The planning and implementation of new technological systems up to their fullyoperational phase. The strategic partners engineers are available to plan,implement and supervise all the stages of the technological side of the business.

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2. The planning and implementation of a fully operative computer system(hardware, software, communication, intranet) to deal with all the aspects of thestructure and the operation of the firm. The strategic investor puts at the disposal ofthe firm proprietary software developed by it and specifically tailored to the needsof companies operating in the firms market.

3. The encouragement of the development of in-house, proprietary, technologicalsolutions to the needs of the firm, its clients and suppliers.

4. The planning and the execution of an integration program with new technologiesin the field, in collaboration with other suppliers or market technological leaders.

Education and Training

The strategic investor is responsible to train all the personnel in the firm: operators,customer services, distributors, vendors, sales personnel. The training is conductedat its sole expense and includes tours of its facilities abroad.

The entrepreneurs who sought to introduce the two types of investors, in the firstplace are usually left with the following functions:

Administration and Control

1. To structure the firm in an optimal manner, most conducive to the conduct of itsbusiness and to present the new structure for the Boards approval within 30days from the date of the GMs appointment.

2. To run the day to day business of the firm.3. To oversee the personnel of the firm and to resolve all the personnel issues.

4. To secure the unobstructed flow of relevant information and the protection ofconfidential organization.

5. To represent the firm in its contacts, representations and negotiations with otherfirms, authorities, or persons.

This is why entrepreneurs find it very hard to cohabitate with investors of any kind.Entrepreneurs are excellent at identifying the needs of the market and atintroducing technological or service solutions to satisfy such needs. But the verypersonality traits which qualify them to become entrepreneurs also hinder the

future development of their firms. Only the introduction of outside investors canresolve the dilemma. Outside investors are not emotionally involved. They may be

less visionary but also more experienced.

They are more interested in business results than in dreams. And being well

acquainted with entrepreneurs they insist on having unmitigated control of thebusiness, for fear of losing all their money. These things antagonize theentrepreneurs. They feel that they are losing their creation to cold-hearted, meanspirited, corporate predators. They rebel and prefer to remain small or even to closeshop than to give up their cherished freedoms. This is where nine out of ten

entrepreneurs fail in knowing when to let go.

Q. 5 Give a note on enforcement of intellectual property rights. (10 marks)

Enforcement of Intellectual Property Rights

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Intellectual property rights are of limited value unless they are effectively enforced.Without enforcement, there are no real deterrents for infringers or

remedies for those whose rights are infringed. The legal authorities do have somerole in enforcing intellectual property rights, but this is often limited, and forinfringement of rights such as patents, plant breeders rights and trade secrets, you

would normally have to take action yourself to take the infringing party to court.The same practical commercial considerations that apply to obtaining and managing

IP rights also apply to enforcement in some cases, the possibility of taking courtaction could act to encourage the infringing party to take out a licence to use your

technology. This would save you the expense and the uncertainty of a protractedcourt case, and could provide you with a good financial return.

The procedures for enforcement of IP rights differ widely between countries,because they have much more to do with the general legal system than otheraspects of IP rights, such as examination and grant of rights by a patent office. TheTRIPS Agreement has established some general principles for IP enforcement which

are reflected in the laws of many countries, so this discussion will focus on theTRIPS provisions to give an overall picture of how enforcement operates.

One basic distinction in enforcement lies between more those IP infringementswhich tend to be infringed widely, potentially by many different people and on alarge commercial scale, and general IP rights. In the first category are piratedcopyright works and counterfeit trade mark goods.

TRIPS, for instance, specifies that the government or legal authorities need to havea more active role in dealing with these infringements than, say, for patents and

plant breeders rights. So the state often has an active role in tracking down andprosecuting those who infringe copyright and trademark rights on a commercial

scale, whereas for patents it is normally up to the patent holder or licensee to take

an infringer to court.

Enforcement Measures Required by TRIPS

The TRIPS Agreement differs from earlier international intellectual property treatiesin several ways; this includes having specific provisions for effective enforcement ofIP rights in national laws. The main enforcement provisions in TRIPS include:

The general obligations under the TRIPS Agreement, which relate to the provisionof fair enforcement procedures.

Civil remedies, including injunctions, damages and provisional measures.

Criminal procedures, which are compulsory for intentional trade mark andcopyright piracy on a commercial scale and optional for other kinds of intellectualproperty, such as patents.

Special border enforcement measures to stop counterfeit trade mark and piratedcopyright material coming into a country, border enforcement measures are

optional for other kinds of intellectual property, such as patents.

General Enforcement Obligations under Trips

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The TRIPS Agreement provides for a range of general obligations in relation to theenforcement of intellectual property rights. The purpose of these obligations is toensure that the enforcement measures are effective, and that certain basicprinciples of due process are met, so that enforcement is fair and balanced, anddoes not impede legitimate trade.

Remedies must be timely and deter further infringements

TRIPS requires that enforcement procedures permit effective action against any

infringement of intellectual property rights, and that the remedies available areexpeditious in order to prevent infringements. A legal system that enables timelyinitiation and execution of legal processes is particularly important for effectiveenforcement of intellectual property rights because the information that intellectualproperty protects is often easy to copy and spread quickly. The remedies availablemust also be severe enough to deter further infringements. These procedures mustbe applied in a way that avoids the creation of barriers to legitimate trade and toprovide for safeguards against their abuse.

Enforcement procedures must be fair.

TRIPS provides that enforcement procedures must be fair and equitable, and maynot be unnecessarily complicated or costly, or entail unreasonable time-limits ordelays. Decisions in enforcement cases must be based on the merits of a case.Decisions should preferably be in writing and reasoned, and be made available tothe parties without undue delay. Decisions on the merits of a case must be basedonly on evidence in respect of which the parties were offered the opportunity to beheard.

Parties to a proceeding must have an avenue of appeal, unless the case wascriminal in nature and the accused was acquitted. TRIPS does not require a special

judicial system for the enforcement of intellectual property rights distinct from thenormal court system. Finally, TRIPS creates no obligations with respect to thedistribution of resources as between enforcement of intellectual property rights andthe enforcement of law in general.

Example enforcing a patented invention for making house paint.

For example, imagine that you own a patent for house paint that dries very quickly.

It took you 8 years to develop the process and cost you thousands of dollars topatent your invention in Australia, the US and Indonesia. Just as you started to

distribute the paint yourself in Australia you found out that your paint is being soldcheaply to the painting trade in Sydney by a company trading as Cheap Paints. You

also suspect that Cheap Paints are exporting tins of infringing paint overseas.Obviously you need to take legal action against Cheap Paints to enforce your rights,otherwise, there would be no market left for you to get any financial return on yourinvention. The kinds of remedies you could take against Cheap Paints are set out inthis unit.

Q. 6. Give a note on complex systems behaviour and creativity. (10 marks)

A Complex System is a system that has more than one possible future. In other

words, it is free enough to take more than a single pre-determined path into thefuture, and therefore cannot be purely mechanical. Clearly, we are all complex

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systems by this definition, and so are the organizations, communities, economicsectors, regional economies, ecologies and global systems to which we belong andinteract with. Indeed, mechanical systems really only exist as abstractions in ourminds, and the systems we inhabit and try to manage are not mechanical. Yet allour science and our way of thinking about problems is based on the assumption thata company or organization comprises a set of functional components withconnecting flows of goods and information. In this view, better management is often

seen as simply running the machine faster or more efficiently.

But that was when life was simple and the product or service to be produced and

delivered only needed to be made at a competitive cost with adequate quality.Today, we must constantly create new products and services, with additional andnovel attributes, and this creative, adaptive capacity will be more important to oursurvival than our level of efficiency, particularly if, as Complex Systems thinkingsuggests, efficiency reduces creativity.

Traditionally, decision making and strategy have been based on a rational set of

assumptions such as:

We know our options.

We know and can evaluate the (single) outcome of implementing each ofthem.

We can ignore effects that we do not know. The environment in the future after the decision is known. There was a situation before our decision, and that there will be a situation

after our decision, and that we can therefore examine the differencesbetween them.

Such reflections are typical of a cost/benefit analysis, for example, by which the

outcomes of different possible decisions are compared. Yet, in a world of rapid

change and uncertainty, the assumptions relied upon by this kind of reasonablebehaviour are simply not true. In reality, we do not necessarily know all our options,the path the system may take, the possible dimensions that might be affected byresulting changes, or how circumstances may have changed in the mean time. Inshort, our view of our organisation as a machine, sitting in a fixed or at any ratepredictable environment, is totally inadequate. We must instead turn to new ideas we must harness the ideas arising from Complex Systems.

Complex Systems Behaviour

In studying Complex Systems, initially in physics and chemistry, it became clear

that the key properties of open systems, where flows of matter, energy and

information can occur across their boundaries, were that they could undergospontaneous transformations of structure and functionality. Instead of a fixedmechanical system, this showed how systems came into being, and evolved overtime, changing structurally, gaining, and sometimes shedding, complexity andqualities.

The study of Complex Systems therefore revealed a co-evolutionary process of asystem and its environment in which successive change and adaptation each

involved two separate steps:

Discovering what to do (exploration and evaluation). Doing what has been decided (implementation).

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And these two steps are radically different in nature.

In Complex Systems, the first step is taken by the non-average underlyingelements within the system, while the second the emergence of a transformed,functioning system concerns new, effective average behaviour of the elements.The successful co-evolution of a system with its environment therefore occurs

through the dynamic interplay of the average and non-average behaviours within it.Successive instabilities occur each time that existing structure and organisation fail

to withstand the impact of some new circumstance or behaviour. When this occurs,the system re-structures and becomes a different system, subjected in its turn to

the disturbances from its own non-average individuals and situations. It is thisdialogue between successive systems and their own inner richness that providesthe capacity for continuous adaptation and change.

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