strategic management notes 9-10

8/13/2019 Strategic Management Notes 9-10

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Q.1) What is Business Policy? What are main characteristics of Business Policy?

Ans. Every business organization needs to frame appropriate business policies for its

various functional areas such as production, marketing, finance, human resources

development and so on. The policy statements guide managers in taking right decisions. The

policies also provide a general picture to outsiders, such as customers, prospective employees

etc., regarding the functioning of the organization. Here are some of the important definitions

of business policy:

Harold Koontz, !olicies are plans in that they are general statements of principles "hich

guide the thinking, decision#making and action in an organization.$

%eorge Terry, A business policy is a verbal, "ritten or an implied overall guide setting up

boundaries that supply the general limits and directions in "hich managerial action "ill take

place.$

&.T. Haner, 'usiness !olicy is a statement# verbal, "ritten or implied of those principles and

rules that are set by e(ecutive leadership as guidelines and constraints for the organisation)s

thought and action. Their purpose is to enable the management to relate properly theorganizations "ork to its ob*ectives.$

+ature and haracteristics of business policy:

-. Broad statements for the attainment of objectives: !olicies serve as a guide to

action. They help the e(ecutives to take proper actions in the light of ob*ectives of the

organizations. &or instance, if the policy states that redit period not to e(ceed -

days$, the marketing e(ecutive "ho allo"s credit to the customers "ould follo" the

policy statements at the time of giving credit.

/. Assit in smooth functioning of the enterrise: !olicies provide guidelines for the

smooth functioning of the enterprise. The tend to avoid confusion and thereby the

enable the business organization to undertake activities in an orderly and smooth

manner.

0. !acilitates allocation and utili"ation of resources: !olicies facilitate proper

allocation of resources# physical, financial and human resources. !olicies also

facilitate proper utilization of resources, so that the organizational ob*ectives are

achieved effectively a efficiently.

1. !acilitate #oordination and #ommunication: !olicies help to ensure that all units

of an organization operate under the same group rules. They facilitate coordination

and communication bet"een various organizational units.

. $ulti urose in nature: !olicies serve various purposes. The main purposes are:!roviding guidelines at all levels, Assist the organization in allocation of resources,

help in utilization of resources etc.

2. #onsistency in %ecision ma&ing: !olicies provide consistency in decision making,

usually under repetitive conditions. 3anagers and subordinates are e(pected to follo"

the policies of the organization and are e(pected to act accordingly "ithin the

boundaries set by the policy makers.

4. Alicable to all functional areas and levels: !olicies are applicable to all

functional areas, and at all managerial levels. The functional areas include marketing,

production, finance, personnel, research and development and so on. The various

levels include top level, middle level and lo"er level. 'usiness policies aid in

planning, organizing, directing and controlling at all levels and in all the functionalareas.

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Q.') (lain in brief significance or imortance and *imitations of Business Policy

Ans. +!or imortance see ans,er to -uestion no. 1)

*imitations of business olicy can elained as follo,s.

-. Problem of individual discretion: !olicies may not permit individual discretion in

decision making. This is specially true in case of bureaucratic organization.

/. Affect creativity: There may be over dependence on policy statements. E(ecutives maynot use their creativity in taking decisions, "hich may adversely affect the performance of the

organizations.

0. Problem of inter deartmental conflict: !olicies may result in inter departmental

conflicts. &or e.g. the marketing department may prefer to provide a longer credit period to

their customers so as to push and promote the sales.

1. Problem of outdated olicies: There are cases "here the policies are 5uite outdated. They

do not meet the demands of changing situations. Ho"ever, this problem can be solved by

periodic revie" of policies and if need be e(isting policies may be revised or ne" policies

may be framed to meet the needs of the changing environment.

. Problem of clarity of olicy statement: There may be a problem of lack of clarity in the

policy statement. This "ould lead to misinterpretation of the policy statement and "rongdecisions may be taken.

Q.) What are the internal and eternal factors affecting or influencing Business

Policy? + /0%(20/ /34*% 240( 03A0 (503(6 520(62A* 46 (70(62A*

!A#046/ W5** B( A/8(% A2% 240 B403 049(03(6 )

Ans. 6everal factors influence the formulation of policies. The policy formulators must

consider both the internal factors as "ell as e(ternal factors in the formulation of policy.

+A) 520(62A* !A#046/:

1. alue /ystem: The policy of a firm depends upon the value system of the

organization. The value system of the top management affects not only the choice of

business but also the mission and ob*ectives, business policies and practices. &or

instance, those organizations that value and respect their employees "ould have

personnel policies in the interest of their employees and not *ust in the interest of the

organization. Again those organizations that believe in social responsibility to"ards

society "ould incorporate social responsibilities as one of their important ob*ectives

and accordingly policies are framed in the interest of the various sections of the

society.

'. $ission and objectives: The business policies are greatly determined by the mission

and ob*ectives of the firm. 7rganizational mission statements, policies, ob*ectives and

strategy are not mutually e(culsive of each other. 8n fact they are highly

interdependent and inseparable. 7ne can not talk about achieving ob*ectives "ithout

kno"ing the policies that are to be follo"ed.. 3uman 6esources: The organization frames the various business policies taking into

consideration the human resources of the organization. The 5uality, skills, attitudes

etc., of the human resources could contribute to the strength or "eakness of the

organization. 7ne cannot frame policies relating to restructuring or modernization

"ithout the consent of the employees.

;. Physical resources: The physical resources like plant and machinery affect the

framing the corporate policies. The top management should consider the availability

of physical resources before framing business policies. &or instance, if a company

"ants to pursue e(pansion and modernization policy, then it should consider the

number and 5uality of machines available to its disposal before framing the policy.


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=. #ororate image: The corporate image of the firm affects policy formulation. Those

organizations that have good corporate image "ould frame policies in such a "ay that

the corporate image enhanced. &or instance, good corporate citizens "ould place

emphasis on 9 ; to develop environmental friendly products.

>. $anagement *abour 6elations: The labour management relations also have a

bearing on the policy formulation. ordial labour relations are affected by corporate

policies, "ith special reference to personnel policies. Therefore to maintain and

improve labour relations company should frame appropriate personnel policy.. 3istory of the 4rganisation: The corporate policies are also influenced by the

history of the organization. &or instance, "ell established organization may give

importance to certain policies such as research and development policies. 6uch

organizations may allocate a good amount of funds for research and development, in

order to maintain and enhance the competitive advantage that they en*oy in the

market.

+B) (70(62A* !A#046/:

1.9overnment 6egulations:7ne of the important determinants of corporate policy includes

the regulations of both the entral as "ell as 6tate %overnment. %overnment regulates

organizations in areas such as competition, product standards, "orking conditions, "ages,

accounting practices and so on. !olicies need to be developed in order to guide anorganisation)s employees in meeting such government regulations. &or instance, as a result of

government regulation respect of health and safety standards, pharmaceuticals and drugs

companies have developed a policy incorporating such regulations.

'. Policies of cometitors: The policies of the competitors influence an organisation)s

policies. This is especially true "ith pricing policies, advertising policies, 9; policies,

personnel policies etc. for instance, one cannot charge high prices, "hen a ma*or competitor

charges lo" prices. Again one cannot pay lo" "ages, "hen a ma*or competitor pays good

"ages to its employees.

. /uliers: The nature and financial resources of the suppliers need to considered "hile

framing policies relating to suppliers. &or instance, the policies relating to payment to

suppliers must consider the nature and financial position of the suppliers. ertain type of

suppliers may re5uire advance payment from the buyers, and therefore, the firms must frame

appropriate policies relating to suppliers in terms of making payment and in other respect.

;. %ealers: 3aintaining a strong dealers) net"ork is one of the important tasks of an

organization. Efficient dealers are vital as they help to push and promote the products and

services. Therefore an organization must frame its policies in the interest of its dealers and

not *ust in the interest of the organization.


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Q.;) (lain in brief about scoe of Business Policy.

Ans. The scope of business policy covers the broad areas "here the policy statements can

be applied. 'usiness policy covers a "ide range of activities in the organization. Any

business organization, "hether large or small need to have "ell defined business policies. 8n

any organization, business policy needs to cover all the functional areas of business#

production, marketing, finance and personnel.

I PRODUCTION POLICIES :

!roduction is one of the important functional areas in an organization. 'usiness policies inrespect of production can be in the follo"ing areas.

6esearch and %eveloment:9 ; is an important area, "hich is often overlooked

in 8ndia. 7rganization should place a good deal of emphasis on 9 ;. 8t not only

helps to improve 5uality of products and services but also helps to reduce cost.

Therefore, there is a need to frame policies in respect of 9 ;.

Quality #ontrol: 7rganization place lot of emphasis on 5uality of the products.


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IV PERSONNEL POLICIES:

!ersonnel policies need to be framed in respect of various personnel or employees related

matters such as follo"s:

6ecruitment and selection olicies:A firm needs to frame policies regarding the

sources of recruitment depending upon the type of posts. &or instance, a firm may

consider only internal sources of recruitment for e(ecutive position. A firm may also

have a policy for centralized selection in respect of managerial position and

decentralized selection for non#managerial positions. 0raining olicies:There is a need to frame proper training policies in respect of

methods of training, =on the *ob and off the *ob>, training period etc.

Performance araisal olicies:!erformance appraisal is a systematic description

of employees *ob relevant strengths and "eaknesses. +ecessary performance appraisal

policies need to be framed .

Q. !olicy manual = it contains details relating to the

functional or departmental policies of the firm> =b> house *ournals =c> Articles of association=d> 3emorandum of Association =e> Annual reports =f> 6ales catalogues and =g> Employees

handbooks.

b>Policy E"ucaio!: The policy makers should make it a point to provide policy education,

if so re5uired. The e(act meaning of the policy must be e(plained to the concerned persons so

that the right decisions are taken. The policy should be e(plained clearly and completely. The

policy e(planation can be done either orally or in "riting. Ho"ever, it is important to provide

the policy in "riting, especially in case of certain matters such as personnel matters i.e in

respect of promotions, transfers and so on.

0. Policy Accetance:+ormally, a preliminary draft of policy is prepared, and it is circulated

among all those "ho may be e(pected to operate it, because their constructive criticisms and

suggestions "ould be valuable in framing the final draft of the policy. The policy statementsneeds to be accepted by those "ho "ould take decisions "ithin the frame"ork of the policy.


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8f need be, necessary modifications may be made and a final draft of the policy "ould be

framed.

1.Policy 5mlementation: !olicy implemented to those persons "ho take decisions "ithin

the frame"ork of the policy. The chief e(ecutive officer of the company is responsible for

implementation of the overall corporate policy. The departmental managers are responsible

for the implementation of the departmental policies. They monitor the decisions taken by the

lo"er level managers to find out "hether the decisions are taken "ithin the frame"ork of thepolicy statements.

. Policy 6evie,: The policies should be periodically revie"ed and revised as per the needs

of the changing environment. The policy makers obtain opinions, complaints, suggestions,

reactions or comments from those "ho are taking decisions or are affected by the policy.

Accordingly the policy is revised or necessary modifications are mae in the policy statement

in order to confirm to the change conditions operating in the internal and e(ternal

environment affecting the firm.

Q.=) (lain in brief ingredients or essentials of a good Business Policy.

Ans. The essential of good business policy refer to the guidelines or principles fro draftingeffective business policies. A good business policy should be clear, simple and suitable to the

organization, apart from other essentials.

-. 4bject 4riented: The policies should be ob*ective oriented. 8t should be ased on the

organizational ob*ectives. !olicies, "hich are not consistent "ith the ob*ectives of the

organizations, do not serve any purpose.

/. !leibility: &le(ibility refers to the ability to adapt to short run changes. !olicies

should be fle(ible. They should not be rigid like rules. The policies may be modified

depending upon the merit of circumstances. &or instance, if the advertising policy

states that the firm to budget advertising e(penditure of @ of the total sales and if a

ma*or competitor starts advertising aggressively then the firm may increase the @

limit to even -@ if the situation so demands.

0. Accetance: The policies must be acceptable to all those "ho are connected "ith the

adoption of the policies. The policies should be accepted not only by the employees of

the firm but it is also important that the organizational policies do not conflict "ith the

interest of dealers, customers, shareholders and other sections of the society.

1. /imlicity: The policy should be stated in simple, clear and definite terms. larity is

the essence of good policy.

. /uitability: A policy be suitable to the organization depending upon the nature oforganization, the type of business, the resources available "ith the organization, the

management philosophy and so on.

2. Written olicies: !olicies should be in "riting and not oral or implied. Britten

policies not only bring clarity but also it generates commitment on the part of those

"ho follo" them in the organization. Britten policies ensure uniformity of

application and assure continuity of action throughout the organization.

4. Periodically revie,ed: !olicies need to be revie"ed periodically. 6uch revie" is

re5uired in order to revise the policies depending upon the changing needs of the

business. !eriodic revie" of policy not only helps to understand the validity of the

policy in the light of the current situation, but also helps to modify the policies

depending upon the present situations.C. /tability: The business policy should have stability. 8n other "ords policy must be

reasonably constant. 8t should not be altered fre5uently but should be stable for a long

period of about t"o year or more.

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Q.>) What do you mean by /trategies? Also elain imortance@significance@ role of

/trategies. =/tudents lease note same oints can be ,ritten for characterstics also)

Ans. The "ord strategy comes from the %reek "ord D6trategos) "hich means a general. 8n

military science, strategy literally means the art and science of directing military forces in a"ar or battle. Today, the term strategy is used in business to describe ho" an organization is

going to achieve its overall ob*ectives. 3ost organizations have several alternatives for

achieving its ob*ectives. 6trategy can be defined as follo"s:

6trategy is a plan of action or policy designed to achieve a ma*or or overall aim.$

6trategy includes the determination and evaluation of alternative paths to achieve an

organisation)s ob*ectives and mission and eventually a choice of the alternative that is to be

adopted.$

6trategy is a broad long term plan designed to achieve the overall ob*ectives of the firm$.

9ole 6ignificanceimportance of 6trategies.

-. Aids %ecision ma&ing: 6trategies help in decision making. Fike policies, strategy

provides necessary guidance and directions for decision makers. The mangers follo" the blue

print of the strategy at the time of taking vital managerial decisions.

/. 3els to attain objectives: A strategy is a board long term plan designed to achieve

basic ob*ectives of the firm. The ob*ectives of the firm may be e(pressed in terms of gro"th,

profitability, stability and various activities, "hich are re5uired for the attainment of the

ob*ectives.

0. !acilitates short term lanning: 6trategy facilitates organizing of resources in the

organization. 6trategy lays do"n broad targets or ob*ectives to be achieved over a period of

time. 7n the basis of long term ob*ectives the organization can make proper arrangement of

physical, financial and human resources.

1 .!acilitates control: 6trategy can also facilitate controlling of activities in the

organization. The organization or the departments can compare the actual performance "ith

the targets. 8f there are any deviation, the organization or the departments can take necessary

corrective measures to control and correct the deviations.

. 4timum use of resources: There can be optimum utilization of resources in order

to achieve the desired ob*ectives. 8f there are no proper strategies, then the organization may

not be able to make arrangement of proper resources. There may be arrangement of fe"er

resources, in "hich case the organization may not be able to undertake its activities.

2. (nhances #ororate 5mage: Bell defined strategies can generate corporate image ofthe firm. This is because strategies "hen implemented properly bring good returns to the

organization. The organization is in a position to undertake its social responsibility to"ards

customers, employees, suppliers and other and as such the organization can earn good"ill in

the market.

4. $inimise ris&s:6trategies help to minimize risks. &or instance, a firm may have

various sales promotional strategies to put into action in order to face the challenges of the

competitors strategies.

C. Periodic revie,: 6trategies need to be revie"ed periodically. 6uch revie" is

re5uired to revise the strategies depending upon the changing needs of the business. !eriodic

revie" of strategies re5uired to gain competitive advantage in the market.

G. /trategy is a rocess: 6trategy is a process. The strategy process can be broadlydivided into three parts i.e. 6trategy formulation, 6trategy implementation and strategy

evaluation.

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Q) Write in brief about /B +/trategic Business nit)

Ans. The concept of 6' "as developed by %eneral Electric ompany 6A fo manage it

multi products business. 8n 3ulti product or multi geographical areas companies, strategic

business divisions are created to manage effectively each of the products or a group of

products. &or e(ample a multi product firm like Hindustan nilever Ftd, may adopt the

concept of 6'. 6eparate 6's may be created, each focusing on specific products liketoiletries, beverages, ice cream, laundry products, cosmetics and so on.

6tructure of 6's

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H8E& EIET8?E 7&&8E9

Advantages of /B:

-. 5ntra #ometition: 6's facilitate intra competiton "ithin the firm. &or instance

HF, form t"o or more 6's each focusing one or t"o brands of soaps, such as

Fifebuoy and HamamJ F( and Firil then each 6' can compete effectively not only

"ith other brands of rival companies but also that of the other brands of same

company

/. (ffective management: Each 6' can concentrate and manage its o"n products andmarkets. Each 6' can plan efficiently. 7rganize the resources properly, give proper

directions to employees and ensure effective control. Each 6' can effectively design

appropriate marketing mi(# product , price, promotion and place of distribution so as

to market the products profitably.

0. 3igher efficiency: 6's generate higher efficiency. Efficiency is the relation

bet"een returns and costs. This is because 6's facilitate optimum utilization of

resources.

1. Better customer service: Each 6' tries to provide effective customer service. The

6' identifies needs and "ants of its target customers and then undertakes product

design and development to satisfy the customers. The 6's believe that customer

satisfaction is the key to business success and therefore each 6' try to provide

effective customer service. Each 6' tries to build long term customer relationship.

. #ororate 5mage: 6's help to develop corporate image. The organization earns

good"ill and reputation in the market for its products and services.

2. !acilitates 5nnovation: 6's facilitate innovation in products and market

development activities. 8n order to compete effectively at the market place. 6's

come up "ith ne" and innovative products and ideas. 8nnovation is re5uired not only

in product development, but also in market development and therefore 6's

undertake innovative efforts both in product development and market development

activities.

4. (ffective $anagement: Each 6' can concentrate and manage its o"n products andmarkets. Each 6' can plan efficiently, organize the resources properly, give proper

directions to employees and ensure effective control. Each 6' can effectively design

3anaging ;irector6' 8

3anaging ;irectors

6' 88

3anaging ;irectors

6' 888

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appropriate marketing mi(# product , price, promotion and place of distribution so as

to market the products profitably.

C. $otivation to emloyees: The employees of each 6' can be better motivated to

perform "ell in their unit. 6ince the employees are a"are that their performance is

recognized, they "ill put their best efforts to improve the overall performance of their

unit.

Bhat do you mean by 'usiness Environment Also e(plain its characteristics and

role or importance of business environment.Ans. Environment refers to all those forces or factors that influence various decisions of the

firm. A firm)s environment consist of internal environment and e(ternal environment. The

internal environment analysis helps to identify its strengths and "eaknesses. The e(ternal

environment analysis helps to identify opportunities and threats, "hich are hidden in the

environmental events and trends. 'usiness environment can defined as follo"s

Environment of the business means the aggregate of all conditions, events and

influences that surround and affect it.$

'usiness environment encompasses the Dclimate) or set of conditions, economic,

social, political or institutional in "hich business operations are conducted.$

&eatures of characteristics of business environment:

-. 8nseparable part of business: Environment is an integral part of business. 'usinesscannot "ork "ithout environment. 'usiness re5uires a good frame"ork of legal,

social, cultural, economic, political and other factors, "hich have a positive influence

on the "orking of the business.

/. Environment is ;ynamic: 'usiness environment is dynamic in nature. +ormally there

are changes in business environment. &or instance, the government may change

certain policies affecting the business, such as ta(ation policies, monetary policies etc.

there may be changes in costumer tastes, preferences etc. Technological development,

political changes etc also affect the "orking of a business.

0. 'usiness Facks control over environment: 'usiness firms lack control over e(ternal

environment. They cannot directly influence the changes in the e(ternal environment .

but it is possible for certain large business firms to have an influence over certain

environment changes. &or instance, certain large business houses can influence the

government to introduce favourable changes in government policies affecting

business.

1. 8ts comple( in nature: The environment of modern business is more comple(, fle(ible

and highly unpredictable. 8n olden days, the environment of business "as simple and

stable. The modern business has gro"n in size and scope and so is the environment.

. 3ultifaceted: Any change in environment is follo"ed by a chain of positive and

negative reactions. A change may be favourable to someone and unfavourable to

others. Environment changes bring opportunities to some people and obstacles to

others.9ole or importance of environment analysis:

-. Ensures survival and success: The ability to deal "ell "ith the environment has

enabled organization to survive and succeed, despite certain "eaknesses.

orrespondingly, some of the best managed companies e(pending vital efforts and

resources in a direction not in tune "ith a changing environment do face several

difficulties and even disaster. A failure to respond to changes in the environment

typically results in the eventual failure of the organization, no matter ho" "ell it

might have been operated internally.

/. &acilitates !lanning: Environmental scanning helps the management to recognize that

many products and services have life cycles and that today)s "inners may be losers in

the course of time, and thus, its plans for their successors# tomorro")s bread"inners.The management can plan for the resources to produce and market these successors to

a receptive environment.

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0. Helps to grab opportunities: Though environmental scanning, business oganisations

continuously tunes in the environmental forces that influence the demand for e(isting

products and services and that create opportunities for ne" ones. &irms need to

identify correctly or to anticipate all the development that "ould influence the future

and to be ready for the resulting opportunities.

1. 'uilds 8mage: +o" a days business firms need to be popular and earn good image in

the society. This is possible "hen they not only study the environment and adapt to it,

but also strive to make the environment hospitable to the gro"th of business.. Helps in innovation: 6canning of the environment keeps the firms on their toes.

'usiness firms anticipate changes in the business and industry. A considerable

amount of time and efforts are devoted to 9 ; activities to face threats or changes

in the environment . such 9 ; efforts lead to innovation of ne" and better products

and services.

2. 7ptimum use of resources: A study of technological development, government

policies, demographic pattern etc. "ill help the business firm to plan its activities and

allocate the limited resources in a better "ay. A systematic analysis of business

environment helps a business firm to make optimum utilization of available resources

and meet the ever increasing and changing needs of consumers and society.

Bhat are the main components of 'usiness Environment =8nternal and E(ternal>=Su"#!$ $%oul" !o# &i!ally #i%#r i!#r!al compo!#!$ or #'#r!al

compo!#!$ (ill )# a$*#":+

Ans. The various components or factors of business environment can be broadly divided

into t"o groups:

8nternal Environment

E(ternal Environment

5 5nternal (nvironment:

A firm)s internal environment consist of its plans, policies, resources, relations and other

internal factors, "hich affect its "orking. The follo"ing are some of the important factors ofinternal environment:

-. 3anagement philosophy: The management philosophy greatly influences the "orking of

business form. The management may adopt a traditional philosophy or professional

philosophy. Traditional approach place emphasis on family management, and normally uses

outdated techni5ues or practices. There is no much emphasis on social responsibility. +o" a

days business firms need to adopt professional approach in managing their business activities.

8n other "ords, a pure traditional approach is a "eakness, "hereas professional approach is a

strength.

/. 3ission and ob*ectives: The ob*ectives of the firm must be consistent "ith the mission

statement. Therefore, it is al"ays advisable to frame a mission statement and then to list out

the various ob*ectives. An analysis of internal environment "ill enable the firm to find out"hether the ob*ectives are in line "ith the mission statement.

0. !lans and !olicies: The plans and policies of the firm must be in line "ith its ob*ectives. As

far as possible, a firm should frame proper plans and policies taking into consideration the

ob*ectives and resources of the firm. !roper plans and policies help the firm to accomplish its

ob*ectives.

1. Human resources: The survival and success of the firm largely depends on the 5uality of

human resources. The kno"ledge attitudes, skills and social behaviour of the employees

greatly affect the "orking of the business firm. Therefore, a firm needs to have not only

e(perienced and 5ualified "orkforce, but also highly dedicated and motivated team. An

analysis of internal environment in respect of human resources "ould reveal the

shortcomings of human resources and as such measure can be taken to correct such

"eaknesses. &or instance, employees may lace proper training in the area of skills

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development in the light of changing business environment . in such an instance, the firm

needs to provide timely and 5uality training to improve the employees skills.

. !hysical 9esources: !hysical resources include material, e5uipment, building, office

premises, furniture and fittings, etc. A firm needs ade5uate and 5uality physical resources.

Appropriate physical resources bring *ob satisfaction and improve the 5uality and 5uantity of

production.

2. &inancial 9esources: &inancial resources relate to money resources. A firm needs ade5uate

"orking capital, as "ell as fi(ed capital. There is a need to have proper management of"orking capital and fi(ed capital. Again a firm should obtain funds from right sources at

lo"est possible costs. The firm should give proper attention to debt e5uity ratio, and the

current ratio. The firm should also build up ade5uate reserves for future needs.

4. orporate image: A firm should develop, maintain and enhance a good corporate image in

the minds of employees, investors, customers and others. !oor corporate image is a

"eakness. Therefore, a firm should undertake an analysis of its corporate image. 8f a firm

finds problems in corporate image, then ade5uate measures need to be taken to correct the

image of the firm. This is because, corporate image is vital in the firm)s success not only in

the short term, but also form the long term point of vie".

C. Fabour 3anagement relations: There must be e(cellent relations bet"een management and

"orkers. The management and "orkers should "ork as a team to achieve the ob*ectives ofthe organization. A proper analysis of labour management relations may disclose certain

shortcomings. The management should take immediate measures to correct "eaknesses in

labour management relations.

5 (ternal (nvironment

A: $icro (nvironment.: The micro environment consist of all those factors in the firms)

immediate environment.

-. ustomers: The customer is one of the most important factors in the firm)s internal

environment. The consumers affect most of the business decisions. The customers)

needs, "ants, preferences and buying behaviour must be studied in order to frame

proper production and marketing strategies.

/. The competitor: The company has to identify and monitor its competitors) activities.

8nformation must be collected about competitors in respect of their prices, products,

promotion and distribution strategies. 6uch information "ill enable the firm to analyse

the strengths and "eakness of the competitors. The firm has to take ade5uate

measures to "in over the confidence of the customers in its favour.

0. The 6uppliers: 6uppliers supply ra" materials, machines, e5uipments and other

resources. 6uch purchases do have a direct impact on the firm)s marketing decisions.

The company has to keep a "atch over prices and 5uality of materials and machines

supplied by the suppliers. The company has to maintain good relations "ith thesuppliers to supply 5uality items at the right price and at the right time.

1. hannel 8ntermediaries: The dealers and other intermediaries in the chain of

distribution are important factors in the firm)s immediate environment. The firms has

to select and satisfy its dealers in order push and promote its products in the market.

+o" a days dealers recommendations play an important role to convince buyers to

buy product, especially in the case of consumer durables.

. 6ociety: The society may also affect company)s decisions. The society can either

facilitate or make it difficult for a company to achieve its ob*ectives. Therefore,

professional business firms maintain public relations department to handle

complaints, grievances and suggestions from the general public. The various members

of society include financial institution and banks, media, %overnment etc.B: $acro (nvironment: The macro environment consist of the larger societal factors

that affect the "orking of a firm. 8t relates to the demographic, economic, natural,

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technological, political, cultural, international and legal forces. The various macro

environment factors are briefly discussed as follo"sJ

-. ;emographic Environment: ;emographic environment studies human population

"ith reference to its size, density, literacy rate, life e(pectancy, se( ratio, rural urban

divide, age composition, occupation pattern etc. since, business deals "ith people,

business firms have to study in detail the various demographic factors, "hich "ould

help them to frame proper production and marketing strategies.

/. Economic Environment: A business firm closely interacts "ith its economicenvironment. Economic environment consist of economic conditions, economic

policies and economic system. 'usiness firms should have a good idea about the

economic conditions in the market i.e. demand and supply factors.

0. +atural Environment: +atural environment or ecological environment relates to

natural resources like land, "ater, minerals, port facilities etc. 'usiness firms use

natural resources like "ater, land, iron ore, crude oil etc. 8n doing so, t"o things

happen i.e. Erosion of natural resources and pollution of resources like air, "ater etc.

'usiness firms should understand the above t"o effects and take necessary measures

to control erosion and pollution of natural resources. They may search for alternation

resources such as solar energy, recycle the "aste, install anti pollution devices etc.

they should also produce environment friendly and consumers health orientedproducts.

1. Technological Environment: There are constant technological developments. The

business firms must constantly monitor changes in the technological environment.

This is becauseJ a change in technology may have an impact on firm)s business. As

such business firms should make efforts to adapt and ad*ust to ne" technological

developments, so as to survive and succeed in the competitive business "orld.

. !olitical Environment: 'usiness decisions are greatly influenced by the development

in the political environment. This environment consists of government agencies,

political parties and pressure groups that influence and control various individual and

organizations in the society.

Bhat are the different techni5ues of Environment 6canning

Ans. There are several techni5ues used by strategists to scan the environment . some of the

important techni5ues are briefly discussed as follo"s.

-. !orecasting:&orecasting is a techni5ue of estimating future events based on the

analysiCs of their past and present behaviour. The forecasting can focus on future

aspect of the environment, "hich affects the organization, such as competition,

technological changes, demographic factors, political scenario and so on. There are

several forecasting techni5ues. These techni5ues can broadly be grouped into t"o:

5ualitative techni5ues and 5uantitative techni5ues.


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0. /ying:6pying techni5ue may be used to gather information about potential or actual

competition. The firm may appoint individuals or group individuals for the purpose of

spying. The spy can be an employee of the competitor, or one of competitor)s

suppliers or customers or a professional spy. The spy can collect secret trade

information from the competitor. This techni5ue is narro" in scope as it gathers

information only about the competitor and not of the entire environment in "hich the

firm operates.

1. 9athering erbal information:The most simple and less e(pensive techni5ue isgathering verbal information of the environment through formal or informal "ays.

6ources of verbal information include meetings, seminars, "orkshops, media

information, employees of the firm, feedback form e(ternal parties such as costumers

etc.

. $anagement 5nformation /ystem:7rganisations maintain management information

system to generate and process an information flo" to aid managerial decision

making. 8n order to understand and monitor the environment, firms need to collect

and analys information about the environment. Each functional department may

maintain its o"n information system. &or instance, to understand and monitor

customer needs and "ants, competitor)s actions, and changes in the environment, the

marketing department may maintain marketing information system. The marketinginformation system helps managers to recognize market trends in respect of prices,

designs of products and so on.

2. Q(/0: 8t means


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-. #onsolidate /trengths: 6B7T analysis pinpoints the strengths of the organization

"ith competitors. The strengths may be in respect of its various functional areas such

as production, marketing, finance and personnel. &or instance, the employees may be

highly motivated and dedicated to their "ork, as a result of "hich the firm en*oys high

labour productivity . sound business firms "ill not be *ust be satisfied in kno"ing

their strengths, they "ould also make every possible effort to consolidate on its

strengths, as yesterday)s strengths may turn to be tomorro")s "eakness, especially

"hen the firm adopts a casual approach to"ards its strengths./. $inimises ,ea&ness: 6B7T analysis pinpoints not the strengths but also the

"eaknesses of the organization "ith the competitors. The "eaknesses may be in any

or many of its functional areas such production, 9 ; facilities, as a result of "hich

the firm may not be in a position to improve its 5uality and also fails to bring

innovative or ne" products in the market.

0. 3els to grab oortunities: Through 6B7T analysis, business firms continually

turn in to the environmental forces that influence the demand for e(isting products

and services and that create opportunities for ne" ones. &irms need to identify

correctly or to anticipate all the developments that "ourld influence the future and to

be ready for the resulting opportunities.

1. $inimises 0hreats: 6B7T analysis not only helps to grab opportunities, but it alsohelps to minimize threats. &oresighted management can anticipate threats from the

environment such as from the technological fronts and gear them to face the threats by

remaining proactive. 8t helps business firms to develop an early "arning system to

prevent threats or to develop strategies, "hich can turn a threat to the firm)s

advantage.

. !acilitates Planning: 6B7T analysis helps to management to recognize that may

products and services have life cycles and that today)s "inners may be losers in the

course of time, and thus, it can plan for their tomorro".

2. !acilitates alternative choices: 6B7T analysis helps business firms to narro" the

range of available alternatives and to eliminate unsuitable alternatives and to process

most promising alternatives. 8t helps business firms to reduce time pressure and to

concentrate on those areas or activities "hich are more important and result oriented.

4. 3els to 5nnovate: A proper 6B7T analysis makes the firms to innovate. 'usiness

firms anticipate changes in the business and industry. A considerable amount of time

and efforts are devoted to 9 ; activities by progressive firms to face threats and

changes in the environment.

C. (nsures survival and success: 6B7T analysis enables firms to survive and

succeed. This is because firms, "hich undertake systematic 6B7T analysis , make

every possible effort to overcome "eaknesses and to consolidate on the strengths.

6uch firms also make efforts to grab opportunities and to diffuse threats.

Brite a short note on 6ynergetic Approach.

Ans. 6ynergetic approach can be used to generate competitive advantages for an

organization, if the managers are fully a"are of ho" synergetic effect is developed.

6ynergy is the process of putting t"o or more elements together to achieve a sum total

greater than the sum total of individual elements separately. The synergetic effect can be

described as -L-M0 effect.

Areas of /ynergetic (ffect: There are several areas of synergetic effect of an

organization depending on its strengths and "eaknesses. The synergetic effect in various

functional areas e(plained as follo"s.

1. Production /ynergy: 8t can be attained "hen the present skills and resources of the

production department can be utilized to produce the items in future. 3erging thee(isting firms manufacturing the same product can best attain the production synergy.

&or industry many of iron and steel units have merged in order to take advantage of

production synergy.

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'. $ar&eting /ynergy: 8t can take place, "hen the organization can take the advantage

of its present marketing, skills and resources to market its potential products, even

though the potential products may be a bit different from the e(isting one. &or

e(ampleJ a te(tile manufacture can enter into marketing ready made garments or a

toothpaste company may enter into marketing of toothbrush.

. 6esearch and %eveloment /ynergy: This synergy can be achieved if the firm)stechnologies supporting the development of both the present and the future

anticipated product lines are more or less similar. The prospects in 9 ; usually

emanates either from similar research skills and resources or from similar functional

characteristics of the product.

;. !inancial /ynergy: The financial synergy "ould be to the e(tent to "hich the

organization can raise the funds for investment through larger capital base, increased

borro"ing po"er and greater earning through spreading of administrative overheads

over a large volume of operations.


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factors are based on one)s personal *udgment and descriptive factors. The various

sub*ective factors include organisation)s past strategies, attitudes to"ards risks.


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Q(/0542 $A68/: 'usiness "ith high industry gro"th but lo" market share for a

company are 5uestion marks or problem children. They re5uire large amount of cash to

maintain or gain market share. They belong to ne" products or services "hich have good

commercial potential. 'usiness segments in this category operating at a competitive

disadvantage but having a high gro"th market potential may be e(panded to increase

market share by taking advantage of the market gro"th potential. 'ut cash demand being

high and cash generation lo", it may not be possible to improve the competitive positionand increase market share. 8t "ould thus be desirable to "ithdra" from this business. 8n

other "ords, the strategy in this case should be either that of aggressive gro"th or

divestment.

Brite a short note on %E +ine ell 3atri(.

Ans. An important portfolio analysis techni5ue is based on the outstanding effort of

%eneral Electric =%E> company of the 6A supported by consulting firm of 3cKinsey

and o.

3cKinsey and o. helped %eneral Electric =%E> to produce a nine#cell matri( inorder to analyses the %E !ortfolio. The nine cell matri( is based on the t"o dimension of

long term industry attractiveness and the competitive position of the business. The

positions in the matri( suggest possible options.

-. 8ncrease market share by gro"ing, dominating and investing or defend market share

by segmenting, investing and avoiding "eakness.

/. 6elect opportunities to invest, hold position or find gro"th segments.

0. 3inimise losses by finding specialized products.

High

8ndustry attractiveness 3edium

Fo"

6trong Average Beak

'usiness strengthompetitive position

'ased on green zone, the signal is to go ahead "ith strategic decision such as

market development or e(pansion in respect of certain products and businesses

Green Green yellow

Green yellow Red

yellow Red Red

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The yello" zone gives the signal for "ait and "atch, indicating hold and maintain

current strategies.

The red zone gives the signal to stop, indicating the retrenchment strategies of

divestment and closure or for adopting the turnaround strategy.

7verall G cell %E business screen is improvement over the '% matri(. The %E

matri( considers many more variable and does not lead to simplistic conclusion as in

the case of '% matri( it recognizes the attractiveness of industry and business

strengths.

Bhat are sub*ective and ob*ective factors affecting strategic choice

Ans. There are number of factors affecting the choice of strategy. The factors can

be broadly divided into t"o groupsJ ob*ective and sub*ective factors.

5. 4bjective !actors: The ob*ective factors are based on hard facts or data and are

termed as rational or prescriptive factors. &or the purpose of strategic choice, these

factors are broadly divided into t"o groups # environmental factors and

organizational factors.

=A> E(ternal environmental factors: The environment affects the choice of strategy.

The strategy that can relate the organization effectively "ith its environment is

selected. The nature of environment differs from industry to industry and even from

firm to firm "ithin the same industry. The management must make a decision

regarding the choice of strategy taking into consideration the nature of environment

like competitors, suppliers, dealers and customers and other environmental factors.

='> 8nternal 7rganizational factors: The management must also consider

organizational factors before making a choice of strategy. The organizational factors

include 7rganisation)s mission, organisation)s ob*ectives and policies, 9esources and

management labour releations.

55: /ubjective !actors: The management must also consider the sub*ective factors

before selecting a strategy. The follo"ing are some of the sub*ective factors.

Personal !actors of 0o $anagement:The personal preference of the dominant

strategists as the chief e(ecutive affects the choice of strategy. &or e.g. the chief

e(ecutive may prefer or favour certain products as compared to other products and

therefore, a strategy relating to market development may be selected in favour of the

preferred products.

Past organi"ational strategies:The past strategies of the firm may affect the present

strategies as "ell. &or e.g. if the management is not satisfied "ith the performance ofcertain strategies in the past, then they may be reluctant to adopt similar strategies in

current situation as "ellJ even though such strategies may be *ustified in the present

situation.

alue system of to management:The strategy of a firm depends upon the value

system of the top management. The value system of the management not only affects

the choice of business, but also the strategies as "ell. &or e.g. those organization that

value and believe in social responsibility to"ards the society "ould incorporate social

responsibility as one of their important ob*ectives, "hich in turn "ould affect the

choice of strategy.

Attitude to,ards ris&s:The attitude of the top management to"ards risks is one of

the important factors affecting the choice of strategy. There are some managers "hoare cautious in their approach as far as risks are concerned, "hereas, there are other

managers "ho "ould like to take risks as a part of business. Those manager "ho

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believe in risks as an element of business may go for challenging strategies involving

commitment of huge financial resources.

5nternal Politics:8n many organizations, there is some sort of internal policies, "hich

directly affects the choice of strategy. There are managers in the organization "ho

tend to influence certain decisions including strategy selection depending upon

managerial po"er relationships. They may favour a particular strategy, "hich may not

be suitable to the organization as a "hole, but to a particular section or department in

the organization.

Bhat do you mean by D6trategy 8mplementation) Bhat are the main steps

involved in strategy implementation

Ans. 6trategic implementation is a process of activating the strategy. 8t is the sum

total of all the activities and choices re5uired for the e(ecution of a strategic plan. 8t is

the process by "hich strategies and policies are put into action through the

development of programs, budgets and procedures.

/test in strategy imlementation:

1. 5nstitutionalisation of strategy:8t is the first activity involved in activating the

strategy. 8nstitutionalization of strategy involves t"o aspects i.e. ommunication of

strategy and 6ecuring acceptance of strategy. 7nce the strategy is formulated, it mustbe communicated to those persons "ho "ould implement it. 8t is not enough to

communicate the strategy to the members of the organization, but it is e5ually

important secure their acceptance of the strategy, so that they implement to strategy

effectively.

'. !ormulation of Action Plans:7nce the strategy is institutionalized through its

communication and acceptance, the management proceeds to formulate action plans.

The management has to frame action plans in respect of several activities re5uired to

implement a strategy. The action plans may be in respect of purchasing ne"

machinery, appointing additional personnel, developing a ne" process etc. the type of

action plans depends upon nature of strategy.

. %esigning of organi"ation structure: The organization has to be designed

according to the needs of the strategy implementation. Any change in corporate

strategy may re5uire some changes in the organization structure and in the skills

re5uired in certain position.

;. 5nfusing values and ethics: 'usiness ethics is concerned "ith morality in business.

8n today)s "orld business community forms an important part of the society and its

actions are bound to have a direct impact on the "ell being and "elfare of the society.

'usiness affects society in terms of "hat it does i.e. "hat products it supplies.

Therefore it is necessary that business community conduct its activities "ith self

check and self control keeping in mind the interest of community at large.


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. 6evie, of erformance: The management must revie" the performance of the

strategy. The performance must be revie"ed periodically. 8f re5uired, corrective measures

need to be taken, so as to ensure the achievement of desired ob*ectives.

Bhat is 9esource Allocation E(plain significanceimportance and steps involved

in resource allocation.

Ans. A company needs to mobilize physical, capital and manpo"er resources. The

capital resources can be mobilized by debt or e5uity. Human resources can be mobilizedthrough proper recruitment and selection. 9esource allocation is an important activity in

strategy implementation. 9esource allocation re5uires procurement and commitment of

financial human and physical resources to the various activities re5uired for the

accomplishment of ob*ectives.

/ignificance@ imortance of 6esource allocation.

-. $otivation of emloyees: !roper allocation of resources helps to motivate the

employees to conduct the various activities re5uired to implement the strategy.

/. /mooth flo, of activities: !roper resource allocation helps orderly conduct of

activities in the organization, "hich in turn helps in effective implementation of the

strategy. Bhen the resources are allocated properly, the activities re5uired to

implement a strategy "ould be undertaken by the right people at the right time.0. 4timum se of resources:!roper allocation of resources helps to make optimum

use of resources, "hich in turn helps to achieve the organizational ob*ectives. All the

employees in charge of implementation of strategy "ould strive their best to minimize

"aste of resources.

1. #ooeration and 0eam /irit: Bhen there is proper allocation of resources among

the various departments, then there can be a cooperative spirit throughout the

organization, "hich is vital for the effective implementation of strategy. Ho"ever,

"hen resource allocation is done on the basis of internal politics, there can be serious

disputes among the various units or departments and as such the cooperative spirit can

get adversely affected, "hich in turn results in poor performance of the organisation.

. 3igher efficiency: !roper allocation of resources generates higher efficiency in the

organization, "hich in turn helps to introduce gro"th and e(pansion strategies.

/tes involved in 6esource Allocation:

1. %etermining the tye of amount of resources: A firm may re5uire various types of

resources such as human, financial, physical and informational resources. At times, a

firm may re5uire only the financial resources, as human and informational resources

are already available "ith the firm and that the physical resources such as machinery

can be purchased "ith the financial resources.'. %etermining the source of resources: The ne(t step is to identify the source of

resources. The sources of resources depend upon the type of resources. &or eg. the human

resources can be obtained or selected from both internal and e(ternal sources.

. $obilisation of resources: After determining the amount and the sources of

resources, the ne(t step is to make arrangement to obtain the resources. +ecessary procedure

is re5uired to be follo"ed in obtaining the resources. &or e.g. if the the financial resources are

to be obtained by "ay of term loans, then the procedure involved "ould be follo"ed.

;. 6esource Allocation: After obtaining the resources, the resources must be properly

allocated for the purpose of strategy implementation. The re5uired physical resources can be

purchased "ith the help of financial resources. 8f re5uired, additional human resources can be

selected for the purpose of strategy implementation . in any case, thare must be properallocation of financial, human and physical resources among the various activities or units so

as to implement the strategy effectively.

/


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and the re5uired resources to undertake activities so as to achieve goals. After

designing the packages, the cost for each package is calculated. nder zero base

budget, the budgeters prepare the budget for each package from base of zero. This

means they calculate costs afresh for each budget period. Thus, they ignore the

common tendency of arrive at budgets only on the basis of historical costs or the past

years costs.

0. /trategic Budgeting:The strategic budgeting considers the performance or results

e(pected and the activities re5uired to produce such results. Therefore, activities need

to be defined in terms of results e(pected, and the management allocates resources to

activities to achieve such performance and results.

1. Boston #onsulting 9rou: = 6tudents please note, for this point refer

. Product *ife cycle base budgeting:9esource allocation can also be undertaken on

the basis of product life cycle. There can be more resource allocation during the

introduction and gro"th stages of product life cycle, as compared to maturity and

decline stages. The resources can be diverted from those products that have reachedthe maturity stage of their life cycle.

3.om !art 8

Sra#gic Ma!ag#m#!

strategic management notes 9-10

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