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BUSINESS POLICY AND STRATEGIC ANALYSISPaper code:
2.31/5.91/3.31
Unit-IBusiness policy as a field of study; nature and objectives
of business policy; strategic management process-vision, mission,
establishment of organisational direction, corporate strategy,
strategic activation.
Qu. 1 Is there any distinction between business policy and
Strategic Management? Discuss the comprehensive model of strategic
management process.
Ans A distinction between policy and strategic management is
made on following basis :(a) Guidelines Vs Direction : Policy is a
guide line to the thinking and action of those whose finally take
decision. While the strategic concerns with the direction in which
human and physical resources are deployed and applied in order to
maximize the chances of achieving organizational objectives in the
face of environmental variables.(b) Directions and Rules for taking
Decisions ; Ausff makes differences between policy and strategy by
arguing that policy is contingent decision whereas strategy is a
rule for taking decisions. A contingent event is repetitive but at
the time of its stipulated occurrence cannot be specified. It is
not worthwhile to decide every time what to do when such
contingencies arises. It is better to decide in advance what will
be done in such contingent events. (c) Delegation Vs
Implementations : Another distinction between policy and strategy
is made on basis of delegation and implementation. Since the policy
provides guidelines for decision, it can be delegated downwards in
the organisation. In fact, the policy id prescribed for the people
what they are expected to do in certain cases. Thus its
implementation is through subordinate managers. Strategy can not be
delegated downwards since it may require last minute executive
decision.Comprehensive model of Strategic Management : The process
of strategic management is depicted through model, which consist of
different phases, each having a number of elements. Our purpose in
giving a working model, devoid of complexity observed in the
comprehensive model is to assist you in remembering and recalling
it with ease. Various elements in strategic management process are
as under:(a) The Hierarchy Of Strategic Intent : It lays foundation
for the strategic management of any organisation. In this
hierarchy, the vision business definition, mission and objectives
are established. The strategic intent makes clear what an
organisation stand for. The element of vision in hierarchy of
strategic serves the purpose of stating what an organisation wishes
to achieve in the long run. The objectives of an organisation state
what is to be achieved in a given time period. These objectives
serve as yardsticks and benchmark for measuring oranisational
performance(b) Environmental and Organisational appraisal: It helps
to find out the opportunities and threats operating in the
environment and the strength and weaknesses of an organisation in
order to create a match between them. In such a manner
opportunities could be availed of and the impact of threats
neturalised to capitalize on the organisation strength and minimise
the weaknesses.(c) Strategic Alternatives and Choice: These are
required for evolving alternative strategies out of many possible
options and choosing the most appropriate strategy or strategies in
the light of environmental opportunities, threats, corporate
strength and weaknesses. Strategies are chosen at corporate and
business level.(d) Strategic Plan : For implementation of a
strategy, the strategic plan is put into action through six sub
process such as: (i) Project Implementation: It deals with setting
up the organisation. (ii) Procedural Implementation: It deals with
different aspects of regulatory framework within
which Indian organisations have to operate.(iii) Resources
Allocation: It relates to the procurement and commitment of
resources for implementation.
(iv) Structural Implementation: It deals with the designing of
appropriate organizational structures and systems and reorganizing
to match the structure to the needs of the strategy.
(v) Behavioral: It is considered as the leadership style for
implementation strategies and other issues like corporate culture,
politics and use of power impersonal values, business ethics and
social responsibilities.
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(vi) Functional and Operational: This aspect relates to the
policies to be formulated in different functional areas. The
operational aspect deals with the productivity, process, people and
ace of implementing the strategies. (e) Strategic Evaluation : It
appraises the implementation of strategies and measures
organizational
performance. The feedback from strategic management evaluation
is meant to exercise strategic control over the strategic
management process.
Qu. 2 Why do firms have objectives? Elaborate how mission and
objectives are formulated?
Ans. Objectives : The objectives of a business firm are as
under:(a) Business Concepts: The learners of business policies have
to understand the various concepts involved. Many of these
concepts, like strategy, policies, plans and programmes are
encountered in the functional are courses too. It is imperative to
understand these concepts especially in the context of business
policy.(b) Environmental Knowledge: A knowledge of external and
internal environment and how it affects functioning of business is
vital. Through the tools of analysis and diagnosis a lerner can
understand the environment in which a firm operates.(c)
Implementation of Strategy: It is a complex issue and is invariably
the most difficult part of strategic management. Through the
knowledge gained from business policy, the lerner would able to
visualize how the implementation of strategic management can take
place.(d) Generalised Approach: The problem in real business life
is unique and so are the solution is an enlightened experience. The
knowledge component of such experience stress the general approach
to adapt in problem solving and decision making.(e) Information:
The information about environment helps in determination of the
mission, objectives and strategies of a firm.(f) Research: To learn
about the research taking place in the field of business policy is
also an important knowledge objective.Mission and Objectives
Formulation: The mission and objectives are formulated by the
corporate level strategists. But these executives do not make
choices in vacuum. Their choices are affected by several factors
such as;(a) External Environment and Power Relationship: The
realities, and past strategy and development of the enterprise. The
stockholder with whom the organisation has an exchange relationship
will present demand or claims. Suppose a manager want to choose
sales maximization as an objective. He may have to modified these
objectives because of governmental regulations regarding excess
profit, consumer labeling and so on. Trade union may require higher
wages than market, which leads to higher costs. Competitors may
sell their products at low price and spend excessive amount on
advertisements. Suppliers may become monopolized and charge
outrageous prices. If the organisation is more dependent on
suppliers than any other stakeholder the operational objectives may
be limited by the availability and cost of supplies. (b) Enterprise
Resources and Internal Power Relationship: The second factor
affecting the formulation of mission and objectives is the
realities of the enterprise resources and internal power
relationship. Larger and more profitable firms have more resources
with which to respond to forces in environment than do smaller or
poorer firms. Mission and objectives are also affected by the power
relationship among strategies either as individual or
representations of units within the organisation. Thus if there is
a difference of opinion on which objectives to seek or the trade
offs among them power relationship may help settle the
difference.(c) Goal of the Top Executives: The value system of top
executives affects the formulation of mission and objectives.
Enterprises with strong value system or ideologies will attract and
regain managers whose values are similar. These values are
essentially a set of attitudes about what is good or bad, desirable
or undesirable.
Qu 3. Define objectives of business policy?
Ans The objectives of business policy have been stated by
various authors in terms of knowledge, skill and attitudes. These
objectives could be derived from purpose of business
policy:Knowledge:
Knowledge of external and internal environment is vital to
understanding of business policy.
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The information about environment helps in determination of the
mission, objectives and strategies of a firm.
The implementation of strategy is a complex issue and is
invariably the most difficult part of strategic management
To survey the literature and learn about the research taking
place in the field of business policy is also an important
knowledge objective.
Skills: The study of business policy should enable a student to
develop analytical ability and use it to
understand the situation in a given case or incident. The study
of business policy should lead to the skill of identifying the
factors relevant in decision
making. The analysis of strengths and weakness of an
organisation, the threats and opportunities present in the
environment.
The above objectives in terms of skill increase the mental
ability of the lerners and enable them to link theory with
practice.
As a part of business policy study case analysis leads to the
development of oral as well as written communication skills.
Attitudes: The attainment of the knowledge and skill objectives
should lead to the inculcation of an
appropriate attitude among the learners. By acting in an
comprehensive manner, a generalist is able to function under
conditions of partial
ignorance by using his or her judgment and intuition. For a
general manager information and suggestions are important to pose a
liberal attitude and
be receptive to new ideas. It is important to have the attitudes
to go beyond and think when faced with a problematic
situation. Developing a creative attitude is the hallmark of
general manager who refuses to be board by precedents and stereo
typed decision.
Characteristics of business policy: The following are the main
features of business policies:(a) Policies are always in writing:
The policies in general are written procedures which specify limits
or guidelines for perfection of work to be undertaken in future.(b)
Directions towards goal achievements: A policy is formulated in
context of organisational objectives. Therefore, the policy tries
to contribute towards the achievements of organisational
achievements by specifying limits.(c) Persuasive Function:
Formulation of policy is a function of all managers whether manager
of marketing, personnel, finance department etc.(d) Policy Differs
from Strategy: A layman may think, there is no difference between
policy and strategy, so at times people use these words
interchangeably. Policies are identified as guides to thinking in
decision making while strategies devote a general program of action
and a commitment of emphasis and resources towards the attainment
of comprehensive objectives.(e) Expressed in Qualitative and
General Way: Policies are generally expressed in a qualitative,
conditional and general way. The verbs most often used in setting
up policies are to maintain to continue, to follow, to adhere, to
provide, to assist, to assure, to employ etc. (f) It Involves
Choice of Purpose: Policies involves a choice of purpose and
defining what needs to be done in order to mould the character and
identify of organisation.(g) Policies Must be Long Range: In
general a policy is a written decision by top management for
achieving certain results.(h) Clarity of Thought: A policy should
be clear and self explanatory thus there will be no change for
wrongdoing.(j) Policies are reflection of management philosophy: a
policy is a written and effective expression of management thought
and action.
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Unit-II
Top management : Constituents- board of directors,
sub-committee, chief executive officer; task, responsibilities and
skills of top management.
Qu. 3 Explain the various level at which strategy is
formulated?Ans. The definition of strategy varied in nature, depth
and coverage, offers us a glimpses of the complexity involved in
understanding this daunting yet interesting and challenging
concept. The different levels at which strategy can be formulated
are as under:(a) Corporate Level strategy: Strategy at corporate
level is designated as corporate strategy. It is the top management
plan to direct and run the enterprises as a whole. Corporate level
strategy represents the pattern of interest in different business,
divisions, product-lines, customer groups and technology etc.
Corporate strategy emphasizes upon the fact that how one should
manage the scope, mix and emphasis of various activities and how
the resources should be allocated over the different priorities of
the corporation.(b) Business Level Strategy: For many companies
that are dealing in number of product mix, dealing with different
types of buyers and types of markets, for them a single strategy is
not only inadequate but also inappropriate. The need is for
multiple strategies at different levels. In order to segregate
different units or segments each performing a separate function, a
seprate strategy is required.
Unit-III
Formation of strategy : Nature of companys environment and its
analysis; SWOT analysis; evaluating multinational environment;
identifying corporate competence and resources; principles and
rules of corporate strategy : strategic excellence positions
Qu. 4 What do you understand by SWOT analysis? How this
technique is used in the formation of corporate strategies?
Ans. A scan of the internal and external environment is an
important part of the strategic planning process. Environmental
factors internal to the firm usually can be classified as strength
(S) or weakness (W), and those external to the firm can be
classified as opportunities (O) or threats (T). Such an analysis of
the strategic environment is referred to as a SWOT analysis. The
SWOT analysis provides information that is helpful in matching the
firms resources and capabilities to the competitive environmental
in strategy formulation and selection. The following shows how SWOT
analysis fits into environmental scan:Strengths (S): A firms
strength are its resources and capabilities that can be used as a
basis for developing its competitive advantage profile.
Patents Strong brand names Good reputation among customer Cost
advantages from proprietary know how Exclusive access to high grade
natural resources Favourable access to distribution network
Weaknesses (W): The absence of certain strengths may be viewed
as a weakness. For example, each of the following may be considered
weaknesses:
Lack of patent protection A weak brand name Poor reputation
among customers High cost structure
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Lack of access to best natural resources Lack of access to key
distribution channels in some cases, a weakness may be the flip
side of the
strength. Take the case in which a firm has a large amount of
manufacturing capacity. While this capacity may be considered a
strength that competitors do not share, it may be also considered
as a weakness if the large investment in manufacturing capacity
prevents the firm from reacting quickly to change in the strategic
environment.
Opportunities(O): The external environmental analysis may revel
certain new opportunities for profit and growth. Some examples of
such opportunities includes:
An unfulfilled customer need Arrival of new technologies
Loosening of regulations Removal of international trade
barriers
Threats (T): Changes in external environment also may present
threats to the firm. Some examples of such threats are:
Shift in consumer tastes away from firms products Emergence of
substitutes products New regulations Increased trade barriers
The basic objectives of SWOT analysis is to provide a frame work
to reflect on the firms ability to overcome barriers and avail of
opportunities emerging in the environment, indeed the dimension of
internal capabilities have relevance in so far they relate to the
environmental conditions. Hence the analysis of comparative
strengths and weaknesses require linking competencies with
characteristic of external environment.An organisation that had
pioneered computer education and training in India in the early
80s, found its position threatened in the mid 90s by competitors.
Analysis of changing environment and its own weakness led to the
outlining of organizations SWOT as follows:Strengths:
Value for money programmes Pool of trained faculty Wide choice
of courses offering Nationals network of well-equipped training
centuries
Weaknesses: Not aggressive in selling Course differentials not
sharp Counselors enthusiasm inadequate Customer services not
focused enough
Opportunities: Growing demand for computer education Computer
library becoming necessity Growth of niche training needs Needs for
customisied training modules
Threats: Rise in competitors High rate of technological
obsolescence Commodities of training Undercutting of fees
Matching strengths and weakness with opportunities and threats
requires that a firm should direct its strength towards exploiting
opportunities and blocking threats while minimizing exposure of its
weaknesses at the same time. Thus strategies which are based on the
matching of strengths and weaknesses may be regarded as
exploitative or developmental strategy. If strengths are used to
repair weaknesses, one may call it remedial strategy. SWOT analysis
may provide the basis of a comprehensive approach to strategy.Uses
of SWOT Analysis: It can be used formulation of corporate strategy
in many ways:(a) To provide a logical framework to be used for
systematic discussion of various issue bearing on the business
situation alternatives strategies and finally the choice of
strategy. Differences in managerial
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perceptions of threats and opportunities, weakness and strength
lead to different assessment reflecting intra organisational power
relations and differing factual perspectives.(b) Another uses of
SWOT analysis is the structured approach where key external threats
and opportunities may be systematically compared with internal
strengths and weakness. Thus the firm internal and external
situations can be matched so as to form distinct pattern and the
strategy chosen on the basis of the situation reflected in
pattern.(c) A business may have several opportunities but also face
some serious threats in the environment. It may have likewise
several weaknesses along with one or two major strengths. In such
situations the SWOT analysis guides the strategist to visualize the
overall position of firm and helps to identify the major
UNIT I
BUSINESS POLICY Christensen and others, it is the study of the
function and responsibilities of senior management, the crucial
problems that affect success in the total enterprise, and the
decision that determine the direction of the organization and shape
its future. The problem of policy in business, like those of policy
in public affairs, have to do with the choice of purposes, the
moulding of organizational identity and character, the continuous
definition of what needs to be done, and the mobilization of
resources for the attainment of goals in the face of competition or
adverse circumstances.This comprehensive definition covers many
aspects: it considered as the study of the functions and
responsibilities of the senior management related to those
organizational problems which affects the success of the
enterprise it deals with the determination of future course of
action that an organization has to adopt it involves a choosing the
purpose and defining what needs to be done in order to mould the
character and identity
of an organization lastly, it is also concerned with the
mobilization of resources, which will help the organization to
achieve its goals
BUSINESS POLICY AS A FIELD OF STUDY/ IMPORTANCE OF BUSINESS
POLICYBusiness Policy is important as a course in the management
curriculum and as a component of executive development programmes
for middle-level managers who are preparing to move up to the
senior management level. A study of business policy fulfills the
needs of management students as well as those of middle-level
managers. To highlight the importance of business policy, we shall
consider four areas where this course proves to be
beneficial.Learning the courseIt seeks to integrate the knowledge
and experience gained in various functional areas of management. It
enables the learner to understand and make sense of the complex
interaction that takes place between different functional areas.It
deals with the constraints and complexities of real-life
businesses.In contrast, the functional area courses are based on a
structured, specialized and well-developed body of knowledge,
resulting from a simplification of the complex overall tasks and
responsibilities of the management.business policy cuts across the
narrow functional boundaries and draws upon a variety of
sources-other courses in the management curriculum and a wide
variety of disciplines, like economics, sociology, psychology,
political science, and so on. In so doing, business policy offers a
very broad perspective to its students.It makes the study and
practice of management more meaningful as one can view business
decision-making in its proper perspective. For Understanding the
Business EnvironmentRegardless of the level of management a person
belongs to, business policy helps to create an understanding of how
policies are formulated. This helps in creating an appr6ciation of
the complexities of the environment that the senior management
faces in policy formulation.By gaining an understanding of the
business environment, managers become more receptive to the ideas
and suggestions of the senior management. Such an attitude on the
part of the management makes the task of policy implementation
simpler. When they become capable of relating environmental changes
to policy changes within an organization managers feel themselves
to be a part of a greater design.For Understanding the
Organization
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Business policy presents a basic framework for understanding
strategic decision making while a person is at the middle level of
management. Such a framework, combined with the experience gained
while working in a specialized functional area, enables a person to
make preparations for handling general management
responsibilities.Business policy, like most other areas of
management, brings the benefit of years of distilled experience in
strategic decision-making to the organization and also to its
managers. Case study-which is the most common pedagogical tool in
business policy-provides illustrations of real-life business
strategy formulation and implementation.An understanding of
business policy may also lead to an improvement in job performance.
As a middle-level manager, a person is enabled to understand the
linkage between the different subunits of an organization and how a
particular subunit fits into the overall picture. This has
far-reaching implications for managerial functions like
coordination and communication, and also for the avoidance of
inter-departmental conflicts.For Personal DevelopmentBusiness
policy offers a unique perspective to executives to understand the
senior management's viewpoint. With such an understanding the
chances that a proposal made by or an action taken by an executive
will be appreciated by senior managers is decidedly better.An
interesting by-product of the business policy course is the
theoretical framework provided in the form of the strategic
management model. The applicability of this model is not limited to
businesses alone. It can be applied to organizations like,
services, educational institutions, family, government, public
administration, and too many other areas. In fact, the model
provides powerful insights for dealing with policy-making at the
macro level as well as at an individual level through self
analysis.The importance of business policy stems from the fact that
it offers advantages to an executive from multiple sources. Apart
from the intangible benefits, an executive gains an understanding
of the business environment and the organization he or she works
in. Such an understanding can help considerably in career planning
and development.
NATURE AND OBJECTIVE OF BUSINESS POLICYThese objectives could be
derived from the purpose of business policy.In Terms of Knowledge1.
The learners of business policy have to understand the various
concepts involved. Many of these concepts, like,
strategy, policies, plans, and programmes are encountered in the
functional area courses too. It is imperative to understand these
concepts specifically in the context of business policy.
2. Knowledge of the external and internal environment and how it
affects the functioning of an organization is vital to an
understanding of business policy. Through the tools of analysis and
diagnosis a learner can understand the environment in which a firm
operates.
3. Information about the environment helps in the determination
of the mission, objectives and strategies of a firm. The learner
appreciates the manner in which strategy is formulated.
4. The implementation of strategy is a complex issue and is
invariably the most difficult part of strategic management. Through
the knowledge gained from business policy, the learner will be able
to visualize how the implementation of strategic management can
take place.
5. To learn that the problems in real-life business are unique
and so are the solutions is an enlightening experience for the
learners. The knowledge component of such an experience stresses
the general approach to be adopted in problem solving and
decision-making. With a generalized approach, it is possible to
deal with a wide variety of situations. The development of this
approach is an important objective to be achieved in terms of
knowledge.
6. To survey the literature and learn about the research taking
place in the field of business policy is also an important
knowledge objective
In Terms of Skills 7. The attainment of knowledge should lead to
the development of skills so as to be able to apply that which
has
been learnt. Such an application can take place by an analysis
of case studies and their interpretation, and by an analysis of the
business events taking place around us.
8. The study of business policy should enable a student to
develop analytical ability and use it to understand the situation
in a given case or incident.
9. Further, the study of business policy should lead to the
skill of identifying the factors relevant in decision-making. The
analysis of the strengths and weaknesses of an organization, the
threats and opportunities present in the environment, and the
suggestion of appropriate strategies and policies form the core
content of general management decision-making.
10. The above objectives, in terms of skills, increase the
mental ability of the learners and enable them to link theory with
practice. Such ability is important in managerial decision-making
where a large number of factors have to be considered at once to
suggest appropriate action.
11. As a part of business policy study, case analysis leads to
the development of oral as well as written communication
skills.
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In Terms of Attitude 12. The attainment of the knowledge and
skill objectives should lead to the inculcation of an appropriate
attitude
among the learners. The most important attitude developed
through this course is that of a generalist. The generalist
attitude enables the learners to approach and assess a situation
from all possible angles.
13. By acting in a comprehensive manner, a generalist is able to
function under conditions partial ignorance by using his or her
judgment and intuition.
14. For a general manager information and suggestions are
important to possess a liberal attitude and be receptive to new
ideas. Dogmatism with regard to techniques should to be replaced
with a practical approach to decision-making for problem-solving.
In this way, a general manager can act like a professional
manager.
15. It is important to have the attitude to 'go beyond and
think' when faced with a problematic situation. Developing a
creative and innovative attitude is the hallmark of a general
manager who refuses to be bound by precedents and stereotyped
decisions.
STRATEGIC MANAGEMENT PROCESS-VISION, MISSIONAccd to Lamb, 1984
Strategic management is an ongoing process that assesses the
business and the industries in which the company is involved;
assesses its competitors and sets goals and strategies to meet all
existing and potential competitors; and then reassesses each
strategy annually or quarterly [i.e. regularly] to determine how it
has been implemented and whether it has succeeded or needs
replacement by a new strategy to meet changed circumstances, new
technology, new competitors, a new economic environment., or a new
social, financial, or political environment. Gluekc it is a stream
of decisions and actions which leads to the development of an
effective strategy or strategies to help achieve corporate
objectives. The strategies management determines strategic
objectives and makes strategic decisions.SM is that set of
managerial decisions and actions that determine the long run
performance of a corporation. SM is defined as the set of decisions
and actions resulting in formulation and implementation of
strategic designer to achieve the objectives of an organization.
Strategic management is the process of specifying an organization's
objectives, developing policies and plans to achieve these
objectives, and allocating resources to implement the policies and
plans to achieve the organization's objectives. It is the highest
level of managerial activity, usually performed by an
organization's Chief Executive Officer (CEO) and executive team.
Strategic management provides overall direction to the
enterprise.It focuses on the following critical areas: Determining
the mission of the company, including broad statements about its
purpose, philosophy and goals External environment analysis of the
company in terms of both competitive and contextual factors
Corporate appraisal and developing a company profile that reflects
internal conditions and capabilities Analysis of possible strategic
options available in light of company mission Evaluation of
possible strategic alternatives and exercising strategic choice of
a particular set of long term
objectives and grand strategies needed to achieve the desired
options Determining the strategic objectives of the organization on
the basis of mission formulated by the corporation and
compatible with grand strategy Implementing strategic choice
decision based on budgeted resource allocation and emphasizing the
matching of
tasks, people, structure, technologies and reward system Review
and evaluation of the success of the strategic process to serve as
a basic for control and as an input for
future decision making.
STRATEGIC MANAGEMENT PROCESS Establishment of Strategic Intent:
it refers to the purpose of the organization and ends it pursues.
Peter F Ducker in mid 90s: what is our business, what will our
business be, what should out business be. Answer to these questions
require and careful consideration of vision, mission and objectives
of the organization. These questions help in defining the nature of
the business, frame work for analysis, choice, and implementation
and evaluation process. Vision : see things which are invisible to
others SM, Vision refers to the category of
intention, that are broad, all inclusive and forward thinking it
is what the firm ultimately like to become aspiration of future
without specifying the means to achieve those desire ends Mangers,
they usually refers to mental image of some desired future
state
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Mission : vision is more tangible than mission, it is the
fundamental unique purpose that sets it apart from other firms of
its type and identifies the scope of its operations in product and
market terms it is a genera enduring statement of companys intent
it embodies the business philosophy of strategic decision makers,
implies the image of the company and seeks to project and reflects
the firms self concept, indicates the principal product or service
area and primary customer need the company will attempt to
satisfy.Imp elements of mission statement: customer & market,
product & service, geographic domain, technology, concern for
survival, companys philosophy, self concepts, concern for public
image.A mission statement should be clear, feasible, precise,
motivating, distinctive, and indicates the major components of
strategy in order to attain the established objectives.Mission
statement should answer the following questions: what is our reason
for being? What is our basic purpose? What are the obligations to
various stakeholders? what is the relative emphasis we will place
on meeting the needs of different stakeholders what is unique or
distinctive about our organization what is likely to be difficult
about our business 5 to 7 years in the future who are, or who
should be, our principal customers or key market segments what are
the principal goods and services present and future what are or
should have our principal economic concerns what are the basic
beliefs values aspiration, and philosophical priorities of the
firm
Goals : as mission statement makes vision specific, goals
attempt to improve organization performance by making mission
statement more concrete. Goals denote what an organization hopes to
accomplish in future period of time. A broad category of financial
and non-financial issues is addressed in goals.
Objectives : objective are the end results of planned activity.
goals describes in fairy general terms what he organization hopes
to accomplish, but objectives details in more precise terms what
need to be accomplished in order to reach goals. The achievement of
corporate objectives should result in the fulfillment of corporate
mission.
Some of the areas in which the organization must establish goals
and objectives are: Profitability, efficiency, growth (sales and
assets), employees (industrial relations, welfare and development),
market leadership (share), social responsibility (communication
welfare & rural development)Strategy Formulation involves:
Doing a situation analysis, self-evaluation and competitor
analysis: both internal and external; both micro-
environmental and macro-environmental. Concurrent with this
assessment, objectives are set. This involves crafting vision
statements (long term view of a
possible future), mission statements (the role that the
organization gives itself in society), overall corporate objectives
(both financial and strategic), strategic business unit objectives
(both financial and strategic), and tactical objectives.
These objectives should, in the light of the situation analysis,
suggest a strategic plan. The plan provides the details of how to
achieve these objectives.
This three-step strategy formulation process is sometimes
referred to as determining where you are now, determining where you
want to go, and then determining how to get there. These three
questions are the essence of strategic planning.Strategy
implementation involves: Allocation of sufficient resources
(financial, personnel, time, technology support) Establishing a
chain of command or some alternative structure (such as cross
functional teams) Assigning responsibility of specific tasks or
processes to specific individuals or groups It also involves
managing the process. This includes monitoring results, comparing
to benchmarks and best
practices, evaluating the efficacy and efficiency of the
process, controlling for variances, and making adjustments to the
process as necessary.
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When implementing specific programs, this involves acquiring the
requisite resources, developing the process, training, process
testing, documentation, and integration with (and/or conversion
from) legacy processes.
Evaluation and Control: it is the process in which corporate
activities and performance results are monitored so that actual
performance can be compared with the desired standards. Managers at
all levels use the resulting information to take corrective action
and resolve processing. They must provide monitoring and
controlling methods to ensure that their strategic plan is
followed. Based on the final performance management was need to
make adjustment in the strategy formulation, in implementation or
in both.
CORPORATE STRATEGYEvery business concern, as a general rule has
its own aims and objectives and it is one of the foremost duties of
the management to fulfill them. Executives formulate different
policies and plans as guidelines not only for themselves but for
their subordinates as well. How to implement both policies and
plans effectively, it is essential to have further overall
planning. Definition of Strategy: Glueck defines a strategy as
unified comprehensive and integrated plan designed to assure that
the basic objectives of the enterprise are achieved. McNichols
defines strategy as the science and art of employing the skills and
resources of an enterprise to attain its basic objectives under the
most advantageous conditions. Corporate strategy means strategy of
corporate bodies. It means the strategy of any enterprise,
institution or organization. Generally strategy is inferred as
external to the organization. Need for Corporate StrategyAll
corporate bodies have their corporation can survive without a
strategy for itself. The need for corporate strategy arises for the
following reasons.
1. Vary fast change of business conditions. 2. To anticipate
future problems and opportunities.3. To provide all employees with
clear goals and directions to the future of the enterprise. 4. to
make the business more effective5. To improve employee morale.6. To
capture, retain and win markets.
Characteristics of Strategies1. Strategies are deliberate
attempts made by the management to win over its opponents. They are
calculated
to counter act actions of opponents. 2. They are special plans
that deal with opponents. 3. Strategies are overall plans that help
management to implement general policies and plans effectively. 4.
Strategies are grown out of policies and plans and thus they direct
the activities in the most appropriate
manner. 5. Strategies include related decisions and actions
meant for implementation of company objectives and plans. 6.
Strategies are devices to reduce business risk and insecurity that
are expected an account of complexity of
business operations and other social and political
contingencies. 7. Strategies are determined sufficiently in advance
having considered companys policies and objective so
that tactful decisions and actions can be taken to accomplish
them. Types of Strategy:Strategy may be classified based on the
purpose or objective; on the nature or on time. Strategy based on
purpose or objective: Based on purpose or objective, strategy can
be classified into three types. Defensive Strategies: Defensive
strategies are followed by corporations as defense against external
forces. For e.g. the strategy followed may be for the purpose of
retaining the market by restricting the competitors from capturing
the market. Offensive Strategies: Steps taken by the corporation in
launching a new venture, a new produce, advertisement campaign etc.
constitute offensive strategies. They mainly aim at expansion or
capturing new markets. Strategy for Survival: Sometimes the
corporation may find it desperate to win the competition. During
such times the measures undertaken for the very survival of the
corporation constitute survival strategies. Survival strategies not
only aim at strengthening the competition to withstand competition
but are undertaken during periods of financial, production and
other crisis. Therefore, they are also called Crisis Strategies.
Strategy based on the nature: Based on nature, strategy can be
classified into five types. Root Strategy: Root strategy aims at
providing basic guidelines in terms of nature and scope of its
business commitment and the context of its skill and resource
development and allocation.
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Operation Strategy: Operation strategy flows from the root
strategy and guides the enterprise in its action commitment in the
market place. The blueprint for market penetration, coping with
environmental changes and directing day to day operations are part
of a firms operating strategy. Organization Strategy: At the
implementation phase the management has a decision choice of
alternative organizational strategies to provide the guidelines,
framework and communication network to complete and put into effect
the operating strategy. Control Strategy: In order to determine the
effectiveness of the organizations performance in relation to the
predetermined objectives developed in the formation and
implementation phases. Recovery Strategy: Recovery strategy is
developed for reformulating and recycling the policy making process
with the help of the data obtained through the control strategy.
Strategy based on Time element: Based on the time, strategy may be
classified into two types.Short term Strategy: Short term strategy
concerns itself with the immediate goals. Long Term Strategy: Long
term strategy generally involves foresight on the expansion and
development of the organization.
Levels of Strategies:The levels of strategy offer you a glimpse
of the complexity about different levels at which strategy is
formulated. The business strategy must contain well coordinated
action programs aimed at securing a long-term competitive edge and
which the company should sustain. Lets take an example of Hindustan
Levers, a multinational subsidiary, is in several businesses such
as animal seeds, beverages, oils and dairy fat , soaps and
detergents. Three types of level are depicted in the exhibit. The
first level is the corporate strategy which is an overarching plan
of action covering the various functions performed by different
SBUSCorporate LevelTake an example of any organization, there are
basically three levels. The top level of the organization consists
of chief executive office of the company, the board of directors,
and administrative officers. The responsibility of the top
management is to keep the organization healthy. Their
responsibility is to achieve the planned financial performance of
the company in addition to meeting the non-financial goals viz.
social responsibility and the organizational image. The issues
pertaining to business ethics, integrity, and social commitment are
dealt with, at this level of strategic decisions. The corporate
level strategies translates the orientation of the stakeholders and
the society into the forms of strategies for functional or business
levels.Business strategy is a comprehensive plan providing
objectives for SBUS, allocation of resources among functional
areas, coordination between them for optimal contribution to the
achievement to the achievement of corporate level objectives. This
is the level where vision statement of the companies emerges.
Exhibit shows typical levels of strategy making in an organization.
In the given exhibit you will see that various companies are
organized on the basis of operating divisions. These divisions are
known as profit centers or strategic business units. Generally SBUs
are involved in a single line of businessBusiness LevelThis level
consists of primarily the business managers or managers of
Strategic Business units. Here strategies are about how to meet the
competition in a particular product market and strategies have to
be related to a unit within an organization. The managers at this
level translate the general statements of direction and intent
churned out at corporate level. The managers identify the most
profitable market segment, where they can excel, keeping in focus
the vision of the company. The corporate values, managerial
capabilities, organizational responsibilities, and administrative
systems that link strategic and operational decision making level
at all the levels of hierarchy, encompassing all business and
functional lines of authority in a company are dealt with at this
level of strategy formulation. The managerial style, beliefs,
values, ethics, and accepted forms of behaviour must be congruent
with the organizational culture and at this level,
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these aspects are diligently taken care of by strategic
managers. Just think for a while how does business strategy make
the study and practice of management more meaningful?Operational
LevelPlanning alone cannot create massive mobilization of resources
and people and can never generate high quality of strategic
thinking required in complex organizational context. For this to
happen, the planning should be carefully dovetailed and integrated
with significant administrative systems viz. management control,
communication, information management, motivation, rewards etc. It
is also vital that all these systems are supported by
organizational structure that defines various authority and
responsibility relationships, among various members of the company
and specifically at operational level. The culture of the
organization should be accounted for, and these systems should find
adaptability with the culture of the organization.Further, put down
at least five reasons how business strategy serves the need of
Management students, Middle-level executives. The managers at this
level of product, geographic, and functional areas develop annual
objective and shortterm strategies. The strategies are designed in
each area of research and development, finance and accounting,
marketing and human relations etc. The responsibilities also
include integrating among administrative systems and organizational
structure and strategic and operational modes and seek for
congruency between managerial infrastructure and the corporate
culture. Thus Exhibit shows the interaction of various functions
for deciding strategies at the operational level.
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UNIT II
BOARD OF DIRECTORSIn relation to a company, a director is an
officer (that is, someone who works for the company) charged with
the conduct and management of its affairs. A director may be an
inside director (a director who is also an officer) or an outside,
or independent, director. The directors collectively are referred
to as a board of directors. Sometimes the board will appoint one of
its members to be the chair of the board of directors.The control
of a company is divided between two bodies: the board of directors,
and the shareholders in general meeting. In practice, the amount of
power exercised by the board varies with the type of company. In
small private companies, the directors and the shareholders will
normally be the same people, and thus there is no real division of
power. In large public companies, the board tends to exercise more
of a supervisory role, and individual responsibility and management
tends to be delegated downward to individual professional executive
directors (such as a finance director or a marketing director) who
deal with particular areas of the company's affairs.The Board of
Directors is responsible for supervising the management of the
Corporations business and its affairs. It has the statutory
authority and obligation to protect and enhance the assets of the
Corporation in the interest of all of its shareholders.The Board
operates by delegating certain of its responsibilities and
authority, including spending authorization, to management and
reserving certain powers to itself. Its principal duties fall into
seven (7) categories.
MANAGEMENT SELECTION, RETENTION AND SUCCESSION Subject to the
Articles and By-Laws of the Corporation, the Board manages its own
affairs, including planning its
composition, selecting its Chairman, who shall not be the CEO,
nominating candidates for election to the Board, appointing the
members of its committees, establishing the terms of reference and
duties of its committees, and determining Board compensation.
The Board has responsibility for the appointment and replacement
of the CEO, for monitoring CEO performance, and for determining CEO
compensation. The Board has responsibility for approving the
appointment and remuneration of all corporate officers, acting upon
the advice of the CEO, and for ensuring that adequate provision has
been made for management succession.
The Board shall provide an orientation and induction program for
new Directors and shall encourage and provide opportunities for all
Directors to continually update their skills as well as their
knowledge of the Corporation, its business and its senior
management.
STRATEGY DETERMINATION The Board has the responsibility to
participate directly or through its committees, in developing and
approving the
mission of the Corporations business, its objectives and goals,
and the strategy for their achievement. The Board shall, among
other assessment processes, evaluate managements analysis of the
strategies of the Corporations competitors or of companies of a
scale similar to that of the Corporation.
The Board has responsibility to ensure congruence between
shareholders expectations, the Corporations plans and management
performance.
The Board has the responsibility to review the Corporations
annual strategic plan with senior management prior to the
commencement of each year and approve the plan. The plan shall take
into account, among other things, the opportunities and risks of
the Corporations business.
RISK EVALUATION The Board has the responsibility to identify the
principal risks of the Corporations business and ensure the
implementation of appropriate systems to manage such
risks.MONITORING AND ACTING The Board has responsibility to monitor
the Corporations progress towards its goals, and to revise and
alter its
direction in light of changing circumstances. At every regularly
scheduled meeting, the Board shall review recent developments, if
any, that impact upon the Corporations growth strategy. The Board
shall, as part of its annual strategic planning process, conduct a
review of human, technological and capital resources required to
implement the Corporations growth strategy and of the regulatory,
cultural or governmental constraints on the Corporations
business.
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The Board has responsibility to provide advice and counsel to
the CEO, and to take action when performance falls short of its
goals or other special circumstances warrant.
POLICIES AND PROCEDURES The Board has responsibility to approve
and monitor compliance with all significant policies and procedures
by
which the Corporation is operated, including the Corporations
Environmental Policy and its Occupational Health and Safety Policy.
In particular, the Environmental Committee and the Occupational
Health and Safety Committee, which have been established by
management, shall report to the Health, Safety and Environment
Committee of the Board of Directors on their respective activities
once a year.
The Board has particular responsibility to ensure that the
Corporation operates at all times within applicable laws and
regulations, and ethical and moral standards.
The Board has responsibility for monitoring compliance with the
Corporations written Code of Ethics, granting any waivers from
compliance for Directors and officers and causing disclosure of any
such waivers to be made in the Corporations next quarterly report,
including the circumstances and rationale for granting the
waiver.
DISCLOSURE TO SHAREHOLDERS AND OTHERS The Board has
responsibility for ensuring that the performance of the Corporation
is adequately reported to its
shareholders, its other security holders, the investment
community, the relevant regulators and the public on a timely and
regular basis.
The Board has responsibility for (i) reviewing and approving the
Corporations un-audited quarterly financial statements and
accompanying notes and the related Managements Discussion and
Analysis and press release (ii) ensuring that the Corporations
audited annual financial statements are presented fairly and in
accordance with generally accepted accounting standards and
reviewing and approving such financial statements and accompanying
notes and the related
Managements Discussion and Analysis and press release (iii)
reviewing and approving the Corporations Management Proxy Circular
and (iv) reviewing and approving the Corporations Annual
Information Forms. The Board has responsibility for ensuring that
timely disclosure is made by press release of any development that
results in, or may reasonably be expected to result in, a
significant change in the value or market price of the Corporations
listed securities.
GENERAL LEGAL OBLIGATIONS To supervise the management of the
business and affairs of the Corporation. To act honestly and in
good faith with a view to the best interests of the Corporation. To
exercise the care, diligence and skill that a reasonably prudent
person would exercise in comparable
circumstances. To act in accordance with the Canada Business
Corporations Act, securities, environmental and other relevant
legislation and the Corporations Articles and By-Laws. To
consider as the full Board and not delegate to a committee:
Any submission to the shareholders of a question or matter
requiring the approval of the shareholders; The filling of a
vacancy among the Directors; The manner and the terms of the
issuance of securities; The declaration of dividends; The purchase,
redemption or any other form of acquisition of shares issued by the
Corporation;The approval of a management proxy circular; The
approval of any take-over bid circular or Directors circular; The
approval of the annual financial statements of the Corporation; or
The adoption, amendment or repeal of By-Laws of the
Corporation.
CEO RESPONSIBILITIESThe CEO is the singular organizational
position that is primarily responsible to carry out the strategic
plans and policies as established by the board of directors. The
chief executive officer reports to the board of directors.The
Dictionary of Business Terms defines it as follows: The Chief
Executive Officer (CEO) is the officer who has ultimate management
responsibility for an organization. The CEO reports directly to the
Board of Directors [and] appoints other managersto assist in
carrying out the responsibilities of the organization.Much of the
current writings around non-profit governance and board roles refer
to the chief staff officer as CEO, such as The Board is responsible
to hire or appoint the CEO. That usage can be attributed somewhat
to consistency (gets beyond the variety of titles in use) and
expediency (quick and easy), however it also no doubt reflects
current trends in practice and governance models.This is a great
list for both taking on a new CEO position and getting up to speed,
as well as to develop a proactive development and learning program
for any CEO or senior executive wishing to improve their executive
management skills. It lays out well all the thing you need to
juggle when you have both the privilege and responsibilities of the
top spot in any organization.General Operations
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1. Establish primary goals of the Board -- maintenance of status
quo, evaluation and recommendations or take charge through
implementation of new game plan.2. Meet all first-reports,
introduce game plan and initiate implementation of action items on
this list.3. Have all first-reports complete the Agenda for the
Future.4. Discuss the dozen biggest problems and opportunities from
perspective of all first-reports.5. If survival mode is required,
cut costs immediately where necessary and prudent and in accordance
with the Board's short and intermediate term goals.6. Identify and
implement top six action items that could measurably increase short
term revenues.7. In addition to this action list, formulate
short-term game plan for company, get board approval and
communicate plan to key personnel, suppliers, lenders, etc.8.
Prioritize top ten action items for the whole company and begin
implementation.9. Identify top goals for the company for the
current month, quarter and year.
Financial Issues10. Within the first week, get current detailed
financial statements, itemized payroll, payables and receivables
list.11. Review budgets of all departments or divisions for
reasonableness of assumptions, quality of projections and relevancy
in light of recent corporate changes and goals.12. Evaluate
obvious, and not so obvious, problems and strengths revealed by the
financial statements.13. Do realistic cash forecast for the next 90
and 180 day periods.14. Evaluate asset utilization and re-deploy if
appropriate and prudent in the short term.
Liabilities / Risks / Time Bombs15. Deal with the six largest
crises within the first three weeks.16. Review banking and debt
obligations for next 90, 180 and 365 day periods and ensure no
technical or major defaults, if possible. If in default, develop
game plan and/or negotiate workout.17. Determine which critical
suppliers have suspended support due to lack of payment, or other
problems.18. Identify and take steps to immediately defuse all
visible, or suspected, ticking time bombs.
Regulatory / Legal / Litigation19. Ensure all payroll taxes are
paid and properly reported.20. Determine what, if any, problems
exist with the IRS and state agencies.21. Ensure the company is in
compliance with all required regulatory and licensing agencies,
etc. and if not, take action to resolve these issues.22. Identity
all outstanding legal issues and litigation risks along with
probable, and possible, associated costs.23. Ensure no securities
law violations have occurred -- and if they have, take immediate
steps to remedy them, or mitigate their impact.24. Ensure any
patents, trade secrets, trademarks and copyrights are properly
filed and appropriate protections are in place.
Product lines / Marketing / Sales / Distribution25. Analyze
product delivery schedules and takes steps to improve meeting
commitment dates.26. Evaluate product development timetables,
budget forecasts and quality of project management systems,
procedures and controls.27. Evaluate sales, marketing,
distribution, forecasts and trend lines for improvement
opportunities in all areas, so as to generate more cash in the
short-term.28. Identify both the best customers and the most
unhappy customers, as well as the company's image in the
marketplace.29. Complete competitive analysis for each product
line.30. Evaluate pricing models for each product line and adjust
accordingly.31. Identify product line strengths and weaknesses and
develop short-term action plan to solve the most glaring
problems.32. Identify potential products -- 6, 12 and 24 months
into the future -- and their possible impact on revenue and
expenses.33. Establish / update / expand web presence.34. Evaluate
expenditures and effectiveness of marketing and advertising for
media, trade shows, market research, focus groups and public
relations and adjust accordingly.35. Evaluate sales force,
sales-related incentives, sales targets, sales personnel training,
special offers, dealerships, telemarketing and sales support.36.
Evaluate and optimize short-term inventory.37. Evaluate customer /
technical support, warranties, guarantees and after-sales
service.
Personnel Issues
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38. Upon arrival, candidly communicate with all company
personnel for introduction and conveyance of immediate game
plan.39. Set up suggestion boxes, and invite anonymous email, to
gain insight into less obvious underlying problems.40. Review major
Human Resource department aspects of company for legal compliance,
competitiveness of benefits package, diversity, clarity of policies
and potential costs savings.41. Evaluate strengths and weaknesses
of all first reports.42. Develop 30/60/90 day performance plans for
all first reports.43. Evaluate organizational structure and
effectiveness -- and reorganize if appropriate, adjusting total
payroll if necessary.44. Identify best and worst five percent of
employees in the company -- probably replacing worst five percent
and ensuring the best five percent are motivated enough to stay.45.
Analyze employee turnover rates to identify fundamental problem
areas.46. Identify key personnel and unfilled job functions, define
criteria and initiate search, within budget constraints.47.
Identify personality issues / company policies that may be creating
negative impact on company morale and productivity.48. Review /
modify written delegation of authority for all first reports.49.
Review all employment contracts or agreements, oral or written,
including any severance or termination compensation agreements with
salaried, hourly, or collective bargaining employees.50. Review all
bonus, deferred compensation, stock option, profit sharing,
retirement programs or plans covering salaried, hourly, or
collective bargaining employees.
IPO / Merger / Acquisition / Disposition / Dissolution51.
Identify which mergers, acquisitions, dispositions and investments
make the most sense for the company.52. Identify the growth issues
regarding acquisitions, spin offs, expansion, downsizing,
establishing new, and/or closing existing branches and stores.53.
If decision is to sell the company, establish price and terms,
subject to Board approval, prepare sales summary and develop game
plan and methodology for sale.54. Complete three year pro forma,
based on realistic assumptions, to determine future valuation
potential of company and likelihood of IPO or merger/acquisition
potential.55. If Board decision is to dissolve company, develop
game plan for liquidation of assets and/or follow up on bankruptcy
filing.
General / Administrative56. Evaluate and control travel,
entertainment and all discretionary expenditures and implement new
written policies for these issues.57. Review facilities and real
estate issues, including a review of current lease requirements.58.
Review all equipment leases for cost cutting / improved technology
opportunities.59. Create / update business plan for current
internal clarity and banking or capital formation needs.60. "Manage
by roaming around" -- gaining insights into attitudes and problem
areas from within all levels of the organization.61. Evaluate
in-place systems and procedures and streamline where
appropriate.62. Evaluate technology implementation and optimize
within budget constraints.63. Visit all branch offices and evaluate
their needs, performance, personnel and cost-effectiveness.
Stockholder Status / Investor Relations64. Evaluate investor and
stockholder relations and communication status and initiate
appropriate action.65. Generate updated lists of all current
shareholders and percentage ownership of each.66. Review stock
options or purchase plans and agreements, as well as lists of
outstanding warrants and options, including date of grant, exercise
price, number of shares subject to option, and date of
exercise.
The Next Steps67. Report to the Board: the objective status,
evaluation, recommended modifications to the short-term game plan
and any cash needs.68. Pick up sword again, and implement updated
and approved game plan.
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ENVIRONMENT:Layman: Surrounding, influences, circumstances,
forces and external objects which affects someone under which
something existsOrg: conditions, variables, factors, events,
influences that surround and affect it.Nature: As a source of
resources : it views that every org depends on the environment for
its resources and these resources
are scare and valued. There is a competing situation in the
industry to obtain and control their resources. It is crucial to
mange and control effectively and efficiently and also it is
necessary to understand environment before making efforts to impact
it.
As a source of information : it views it as a source of
information. Organization becomes aware about the information and
the level of uncertainness associated with the various information.
Environment uncertainty, degree of complexity and degree of change
existing in an organization external environment. Thus the more
complex and dynamic the environment the more uncertain it is. As
the market becomes global the complexity and unpredictability
increases and number of factors a firm considers increases.
The following are the nature of environmentInfluences the
availability of resources, provides opportunities and holding
threats, is complex, is dynamic, is having a far reachable impact,
is multi dimensional, is multi faceted.
COMPONENTS OF ENVIRONMENTMultinational/ Mega Environment: is
composed of elements in the border society that can be indirectly
influencing an industry and the companies within an industry. The
constituents are:Political and legal environment: the directions
direction and stability of political factors is a major
consideration for managers in formulating company strategy.
Political/legal forces that allocate power and provide constraining
and protecting laws and regulations. Political constraints are
places in each company through fair trade decision, programs,
anti-trust laws, labour legislation, environmental protection laws
and many other actions aimed at protecting the consumer and
environment. The important factors which determine the
political/legal environment, are, political system, political
structure, political processed, government philosophy, role of the
government in business and government attitude towards business and
foreign investment etc. Some of the important variables are given
below: Governing regulations or deregulations, Environmental
Protection Laws Tax Laws, Foreign Trade Regulations Intellectual
Property Rights Anti trust legislations, Level of government
subsidies, Attitude towards foreign companies, Foreign Exchange
Laws, Stability of the government, Special Incentives, Level of
defense expenditures, Location and severity of terrorist
activities, Size of government budget taking an example of 1977 the
Janta govt. has followed a strict poling with regard to
multinationals, As a result Coca-Cola and IBM were forced to move
out of India causing a far-reaching impact on the business
environment of the country.Economic Environment: it refers to the
nature and direction f the economy in which a business organization
operates. Economic environment is by far the most important
environmental factor which the business organizations take into
account. In fact, a business organization is an economic unit of
operation. Since the measurement of organizational performance is
mostly in the form of financial terms, often managers concentrate
more on economic factors. The economic environment is also
important for non-business organizations too because such
organizations depend on the environment for their resource
procurement which is greatly determined by the economic factors. As
such, the understanding of economic environment is of crucial
importance to strategic management. Economic environment covers
those factors, which give shape and form to the development of
economic activities and may include factors like nature of economic
system, general economic conditions, various economic policies, and
various production factors. From analytical point of view, various
economic factors can be divided into two broad categories: general
economic conditions and factor market. The discussion of these
factors will bring out the nature of total economic environment.Key
economic Variables: GDP trends, Interest rates, money supply,
inflation rate, shift to service economy, tax rate, unemployment
level, wage/ price control, devaluation and revaluation, money
market rates, monetary fiscal policy, unemployment
trends.Technological Environment: it is key driver of the new
competitive landscape technologies;
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developments are fast and have far reaching impact on the firms
strategy. The technology segment includes institutions and
activities involved with creating new knowledge and translating the
knowledge into new output, new product and process and materials. A
firm must be aware about the technological changes that might
influence the industry. The strategic implications of technological
changes accd to Boris Petrov are three: -- it can change relative
competitive cost of position within a business it can create new
markets and new business segments it can collapse or merge
previously independent business by reducing or eliminating their
segment cost barriers. In fact technology has changed the way in
which business in conducted. e.g. the growth of IT sector has acted
as a catalyst in this direction. Access to internet, enable large
number of employees to work from home, providing strategy with
access to richer resources of information, business to business
transactions, on line shopping through internet and WWW.Key
technology factors: total govt spending for R&D, total industry
spending for R&D, focus of technological efforts, patent
protection, new products, new development in technology transfer
from lab to market place, productivity improvement though
automation, internet availability, telecommunication
infrastructure.Socio-Cultural Environment: this segment involves
beliefs, values, attitudes, opinions and life styles of those in a
firms external environment, as developed from their cultures,
ecological, demographic, religion, educational and ethnic
conditioning. Socio cultural changes occur gradually unlike
technological changes. it is not easy to predict the timing of
their changes. Areas where socio cultural changes may have strong
implication for organization are: --changes in life style work
force composition changes in attitudes about the quality of work
life rate of family formation and growth of population age
distribution ethical standards shift in product & service
preferences.In India, the most profound social changes in recent
years is the emergence of middle class as a major and important
element of total population, increase in the number of women
entering in the labour market, changes in consumer and employees
interest, quality of life issues etc. Key social cultural
variables:Life style change, career expectations, consumer
activism, rate of family formation, birth rate, growth rate of
population, age distribution of population, regional shift in
population, life expectancies, level of educationThe Micro
Environment: the micro environment has a substantial impact on the
organizations current business. It constitutes the
following:Competitors: no. of competitors entry and exit barriers,
nature of completion and relative strategic position of major
competitorsSuppliers: consists of factors related to cost and
availability of the factors of production and service that have an
impact on business of an organizationCustomers: factors such as the
need and preference perceptions bargaining power buying behavior
and satisfaction level of customersMarket Intermediaries: factors
such as level and quality of customers service, middlemen, changes
of distribution logistic, cost and delivery system
SWOT ANALYSIS SWOT is an acronym that stands for Strengths,
Weaknesses, Opportunities, and Threats. SWOT analysis is a basic,
straightforward model that provides direction and serves as a basis
for the development and management of self.Purpose The purpose of
SWOT analysis is to gather, analyze, and evaluate information and
identify strategic options facing a community, organization, or
individual at a given time. SWOT Analysis is a very effective way
of identifying strengths and weaknesses, and of examining the
opportunities and threats one tends to face. Carrying out an
analysis using the SWOT framework helps to focus activities into
areas where one is strong and where the greatest opportunities lie.
This knowledge is then used to develop a plan of action.The
analysis can be performed on a product, on a service, a company or
even on an individual. Done properly, SWOT will give the big
picture of the most important factors that influence survival and
prosperity as well as a plan to act on. Strengths and weaknesses
are internal while opportunities and threats are external.
Strengths and weaknesses have to be matched with the opportunities
in the external environment and also to counter any threats that
might pose a danger to plans. SWOT Analysis is generally considered
a Marketing tool but although it has its origins in Marketing field
and is predominantly used by Marketing people, and it can also be
done for self. SWOT Analysis is a tool which guides one to see
where one stand in terms of job prospects and career growth.You
should do a personal SWOT analysis because it will tell you what
are your strong points and how can you further brush them up to
exploit them to get a good job. It will also show you your negative
character traits that can hinder your chances of getting a good
job. You can then work towards overcoming those shortcomings and
minimizing their effects. Your strengths will tell you the jobs and
the kind of work you are best for hence making it
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easier to avail the right opportunities. Threats will show you
the skills, courses and training you need in order to remain
competitive.SWOT analysis has two main components Issues those are
internal to the organization (Strengths and Weaknesses) Issues
those are external to the organization (Opportunities and
Threats).Follow these rules when developing a SWOT analysis1. Keep
lists short - 10 items per list ensures only important factors are
considered.2. Opinions must be supported with facts - One person's
idea of strength may be another's idea of a weakness.
Having the facts to back up an argument gives it credibility.3.
Show competitive factors - Perhaps you don't have a direct
competitor in your category, but every organization
competes for dollars so competition should not be dismissed.4.
Prioritize and weigh the factors in the lists5. Use language that
is clear and relevant to the task - Confusing or obscure language
may complicate your
ability to execute the strategy.Strengths and WeaknessesA
strength is a positive characteristic that gives a company an
important capability. It is an important organizational resource
which enhances a company, competitive position. Some of the
internal strengths of an organization are: Distinctive competence
in key areas Manufacturing efficiency Skilled workforce Adequate
financial resources Superior image and reputation Economies of
scale Superior technological skills Insulation from strong
competitive pressures Product or service differentiation
Proprietary technology.A weakness is a condition or a
characteristic which puts the company at disadvantage. Weaknesses
make the organization vulnerable to competitive pressures. These
are competitive liabilities and strategic managers must evaluate
their impact on the organizations strategic position when
formulating strategic policies and plans. Weaknesses require a
close scrutiny because some of them can prove to be fatal. Some of
the weaknesses to be reviewed are: No clear strategic direction
Outdated facilities Lack of innovation is Complacency Poor research
and developmental programmes Lack of management vision, depth and
skills Inability to raise capital Weaker distribution network
Obsolete technology Low employee morale Poor track record in
implementing strategy Too narrow a product line Poor market image
Higher overall unit costs relative to competition.Opportunities and
ThreatsAn opportunity is considered as a favourable circumstance
which can be utilised for beneficial purposes. it is offered by
outside environment and the management can decide as to how to make
the best use of it. Such an opportunity may be the result of a
favourable change in any one or more of the elements that
constitute the external environment. It may also be created by a
proactive approach by the management in moulding the environment to
its own benefit. Some of the opportunities are: Strong economy
Possible new markets Emerging new technologies Complacency among
competing organizations Vertical or horizontal integration
Expansion of product line to meet broader range of customer
needs
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Falling trade barriers in attractive foreign marketsA threat is
a characteristic of the external environment which is hostile to
the organization. Management should anticipate such possible
threats and prepare its strategies in such a manner that any such
threat is neutralized. Some of the elements that can pose a threat
are: Entry of lower cost foreign competitors Cheaper technology
adopted by rivals Rising sales of substitute products Shortages of
resources Changing buyer needs and preferences Recession in economy
Adverse shifts in trade policies of foreign governments Adverse
demographic changesSWOT analysis involves evaluating a companys
internal environment in terms Of strengths and weaknesses and the
external environment in terms of opportunities and threats and
formulating strategies that take advantage of all these factors.
Such analysis is an essential component of thinking strategically
about a companys situation.
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UNIT IVSTRATEGIC ANALYSIS AND CHOICE
BCG MATRIXGrowth-share matrixThe BOSTON matrix (aka B.C.G.
analysis, B.C.G.-matrix, Boston Consulting Group analysis) is a
chart that had been created by Bruce Henderson for the Boston
Consulting Group in 1970 to help corporations with analyzing their
business units or product lines. This helps the company allocate
resources and is used as an analytical tool in brand marketing,
product management, strategic management and
portfolio-analysis.
To use the chart, analysts plot a scatter graph to rank the
business units (or products) on the basis of their relative market
shares and growth rates.
Cash cows are units with high market share in a slow-growing
industry. These units typically generate cash in excess of the
amount of cash needed to maintain the business. They are regarded
as staid and boring, in a "mature" market, and every corporation
would be thrilled to own as many as possible. They are to be
"milked" continuously with as little investment as possible, since
such investment would be wasted in an industry with low growth.
Dogs, or more charitably called pets, are units with low market
share in a mature, slow-growing industry. These units typically
"break even", generating barely enough cash to maintain the
business's market share. Though owning a break-even unit provides
the social benefit of providing jobs and possible synergies that
assist other business units, from an accounting point of view such
a unit is worthless, not generating cash for the company. They
depress a profitable company's return on assets ratio, used by many
investors to judge how well a company is being managed. Dogs, it is
thought, should be sold off.
Question marks are growing rapidly and thus consume large
amounts of cash, but because they have low market shares they do
not generate much cash. The result is a large net cash consumption.
A question mark (also known as a "problem child") has the potential
to gain market share and become a star, and eventually a cash cow
when the market growth slows. If the question mark does not succeed
in becoming the market leader, then after perhaps years of cash
consumption it will degenerate into a dog when the market growth
declines. Question marks must be analyzed carefully in order to
determine whether they are worth the investment required to grow
market share.
Stars are units with a high market share in a fast-growing
industry. The hope is that stars become the next cash cows.
Sustaining the business unit's market leadership may require extra
cash, but this is worthwhile if that's what it takes for the unit
to remain a leader. When growth slows, stars become cash cows if
they have been able to maintain their category leadership, or they
move from brief stardom to dogdom.
As a particular industry matures and its growth slows, all
business units become either cash cows or dogs.The overall goal of
this ranking was to help corporate analysts decide which of their
business units to fund, and how much; and which units to sell.
Managers were supposed to gain perspective from this analysis that
allowed them to plan with confidence to use money generated by the
cash cows to fund the stars and, possibly, the question marks. As
the BCG stated in 1970:
Only a diversified company with a balanced portfolio can use its
strengths to truly capitalize on its growth opportunities. The
balanced portfolio has:
stars whose high share and high growth assure the future; cash
cows that supply funds for that future growth; and question marks
to be converted into stars with the added funds.
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Practical Use of the Boston MatrixFor each product or service
the 'area' of the circle represents the value of its sales. The
Boston Matrix thus offers a very useful 'map' of the organization's
product (or service) strengths and weaknesses (at least in terms of
current profitability) as well as the likely cashflows.The need
which prompted this idea was, indeed, that of managing cash-flow.
It was reasoned that one of the main indicators of cash generation
was relative market share, and one which pointed to cash usage was
that of market growth rate.Relative market shareThis indicates
likely cash generation, because the higher the share the more cash
will be generated. As a result of 'economies of scale' (a basic
assumption of the Boston Matrix), it is assumed that these earnings
will grow faster the higher the share. The exact measure is the
brand's share relative to its largest competitor. Thus, if the
brand had a share of 20 percent, and the largest competitor had the
same, the ratio would be 1:1. If the largest competitor had a share
of 60 percent, however, the ratio would be 1:3, implying that the
organization's brand was in a relatively weak position. If the
largest competitor only had a share of 5 percent, the ratio would
be 4:1, implying that the brand owned was in a relatively strong
position, which might be reflected in profits and cashflow. If this
technique is used in practice, this scale is logarithmic, not
linear.On the other hand, exactly what is a high relative share is
a matter of some debate. The best evidence is that the most stable
position (at least in FMCG markets) is for the brand leader to have
a share double that of the second brand, and triple that of the
third. Brand leaders in this position tend to be very stable - and
profitable; the Rule of 123.The reason for choosing relative market
share, rather than just profits, is that it carries more
information than just cashflow. It shows where the brand is
positioned against its main competitors, and indicates where it
might be likely to go in the future. It can also show what type of
marketing activities might be expected to be effective.Market
growth rateRapidly growing brands, in rapidly growing markets, are
what organizations strive for; but, as we have seen, the penalty is
that they are usually net cash users - they require investment. The
reason for this is often because the growth is being 'bought' by
the high investment, in the reasonable expectation that a high
market share will eventually turn into a sound investment in future
profits. The theory behind the matrix assumes, therefore, that a
higher growth rate is indicative of accompanying demands on
investment. The cut-off point is usually chosen as 10 per cent per
annum. Determining this cut-off point, the rate above which the
growth is deemed to be significant (and likely to lead to extra
demands on cash) is a critical requirement of the technique; and
one that, again, makes the use of the Boston Matrix problematical
in some product areas. What is more, the evidence, from FMCG
markets at least, is that the most typical pattern is of very low
growth, less than 1 per cent per annum. This is outside the range
normally considered in Boston Matrix work, which may make
application of this form of analysis unworkable in many
markets.Where it can be applied, however, the market growth rate
says more about the brand position than just its cashflow. It is a
good indicator of that market's strength, of its future potential
(of its 'maturity' in terms of the market life-cycle), and also of
its attractiveness to future competitors. It can also be used in
growth analysis.Risks and criticismsThe BCG growth-share matrix
ranks only market share and industry growth rate, and only implies
actual profitability, the purpose of any business. (It is certainly
possible that a particular dog can be profitable without cash
infusions required, and therefore should be retained and not sold.)
The matrix also overlooks other elements of industry attractiveness
and competitive advantages. Another matrix evaluation scheme that
attempts to mend these problems has been the G.E. multi factoral
analysis (also known as the GE McKinsey Matrix).With this or any
other such analytical tool, ranking business units has a subjective
element involving guesswork about the future, particularly with
respect to growth rates. Unless the rankings are approached with
rigor and skepticism, optimistic evaluations can lead to a dot com
mentality in which even the most dubious businesses are classified
as "question marks" with good prospects; enthusiastic managers may
claim that cash must be thrown at these businesses immediately in
order to turn them into stars, before growth rates slow and it's
too late. Poor definition of a business's market will lead to some
dogs being misclassified as cash bulls.As originally practiced by
the Boston Consulting Group, the matrix was undoubtedly a useful
tool, in those few situations where it could be applied, for
graphically illustrating cashflows. If used with this degree of
sophistication its use would still be valid.However, later
practitioners have tended to over-simplify its messages. In
particular, the later application of the names (problem children,
stars, cash cows and dogs) has tended to overshadow all else - and
is often what most students, and practitioners, remember.This is
unfortunate, since such simplistic use contains at least two major
problems:
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'Minority applicability'. The cashflow techniques are only
applicable to a very limited number of markets (where growth is
relatively high, and a definite pattern of product life-cycles can
be observed, such as that of ethical pharmaceuticals). In the
majority of markets, use may give misleading results.'Milking cash
bulls'. Perhaps the worst implication of the later developments is
that the (brand leader) cash bulls should be milked to fund new
brands. This is not what research into the FMCG markets has shown
to be the case. The brand leader's position is the one, above all,
to be defended, not least since brands in this position will
probably outperform any number of newly launched brands. Such brand
leaders will, of course, generate large cash flows; but they should
not be `milked' to such an extent that their position is
jeopardized. In any case, the chance of the new brands achieving
similar brand leadership may be slim - certainly far less than the
popular perception of the Boston Matrix would imply.Perhaps the
most important danger is, however, that the apparent implication of
its four-quadrant form is that there should be balance of products
or services across all four quadrants; and that is, indeed, the
main message that it is intended to convey. Thus, money must be
diverted from `cash cows' to fund the `stars' of the future, since
`cash cows' will inevitably decline to become `dogs'.