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The strategic-management process does not end when the firm decides what strategy or
strategies to pursue. There must be a translation of strategic thought into strategic action.
This translation is much easier if managers and employees of the firm understand the
business, feel a part of the company, and through involvement in strategy formulation
activities have become committed to helping the organization succeed. Without
understanding and commitment, strategy implementation efforts face major problems.
Implementation strategy affects an organization from top to bottom; it affects all the
functional and divisional areas of business. Even the most technically perfect strategic
plan will serve little purpose if it is not implemented. Many organizations tend to spend
an inordinate amount of time money, and effort on developing the strategic plan, treating
the means and circumstances under which it will be implemented as afterthoughts !
Change comes through implementation and evaluation, not through plan. A technically
imperfect plan that is, implemented well will achieve more than the perfect plan that
never gets off the paper on which it is typed. Concept of Strategy Implementation
Strategy formulation is not in itself sufficient for an organization. It is important to
ensure that the strategy is implemented effectively, Strategy implementation is an
important aspect of strategic management.
Strategic implementation is the sum total of all the activities and choices required for the
execution of a strategic plan. It is the process by which strategies and policies are put
into action through the development of programs, budgets and procedures. Definition
Daniel McCarthy Robert Minichiello and Joseph Curran in their book ' Business Policy
and Strategy ' have defined strategy implementation as: Strategy implementation may
be said to consist of securing resources, organizing these resources and directing the use
of these resources within and outside the organization. Nature of Strategy
Implementation Successful strategy formulation does not guarantee successful strategy
implementation. It is always more difficult to do something ( strategy implementation )
than to say you are going to do it ( strategy formulation ) ! Although inextricably linked ,
strategy implementation is fundamentally different from strategy formulation. Strategy
formulation and implementation can be contrasted in the following ways:
Strategy formulation is positioning force s before the action
Strategy implementation is managing forces during the action
Strategy formulation focuses on effectiveness
Strategy implementation forces on efficiency
Strategy formulation is primarily an intellectual process
Strategy implementation is primarily an operational process
Strategy formulation requires good intuitive and analytical skills
Strategy implementation requires special motivation and leadership skill
Strategy
1. Annual Objectives
Establishing annual objectives is a decentralized activity that directly involves all
managers in an organization. Active participation in establishing annual objectives can
lead to acceptance and commitment. Annual objectives are essential for strategy
implementation because they (1) represent the basis for allocating resources; (2) are a
primary mechanism for evaluating managers (3) are the major instrument for monitoring
progress toward achieving long-term objectives; and (4) establish organizational,
divisional and departmental priorities. Considerable time and effort should be devoted to
ensuring that annual objectives are well conceived, consistent with long -term objective,
and supportive of strategies to be implemented.
2. Policies Changes in a firm's strategic direction do not occur automatically, On a dayto-day basis, policies are needed to make a strategy work. Policies, facilitate solving
recurring problem and guide the implementation of strategy. Broadly defined, policy
refers to specific guidelines, methods, procedures, rules, forms and administrative
practices established to support and encourage work toward stated goals. Policies are
instruments for strategy implementation. Policies set boundaries, constraints and limits
on the kinds of administrative actions that can be taken to reward and sanction the
behavior; they clarify what can and cannot be done in pursuit of an organization's
objectives.
3. Resource allocation Resource allocation is a central management activity that allows
for strategy execution. In organization that do not use a strategic management approach
to decision making, resource allocation is often based on political or personal factors.
Strategic management enables resources to be allocated accordingly to priorities
established by annual objectives. Effective resource allocation does not guarantee
successful strategy implementation because programs. Personnel , controls and
commitment must breathe life into the resources provided. Strategic management itself
is sometimes referred to as a' resource allocation process
4. Managing conflict Interdependency of objectives and competition for limited
resources often leads to conflict. Conflict can be defined as a disagreement between two
or more parties on one or more issues. Establishing annual objectives can lead to conflict
because individuals have different expectations and perceptions, schedule create
pressure, personalities are incompatible, and misunderstanding between line managers
and staff managers occur. For Example , a collection manager's objective of reducing
bad debts by 50 percent in a given year may conflict with a divisional objective to
Allotment of shares
Listing of the Issue
4. Resource Allocation After obtaining the resources, the resources must be properly
allocated for the purpose of strategy implementation. The required physical resources
can be purchased with the help of financial resources. If required, additional human
resources can be selected for the purpose of strategy implementation. In any case, there
must be proper allocation of all the resources.
5. Utilization of Resources - The allocated resources need to be utilized in respect of
various activities. For example, the funds allocated for market development strategy
need to be utilized for various activities in connection with market development
activities such as marketing research, advertising, sales promotion, dealers incentives,
etc. The funds must be utilized for productive activities, and care must be taken to see to
it that the funds are not misused or poorly utlilized.
6. Monitoring the Resources Allocation - The management should monitor the resource
allocation to find out whether or not the allocated are properly utilized. The management
should also find out whether the resources allocated are sufficient enough to undertake
the various activities efficiently and effectively. If required, management may make
necessary changes in resource allocation, i.e. , additional funds may be mobilized, if
required or the resource allocation-mix can be modified depending upon the importance
of activities.
Factors affecting Resource Allocation There are several factors which affects resource
allocation, they are as follow.
1. Objectives of the organization- The aims and objectives of the organization affects
resource allocation. An organization has various objectives to be accomplished- some
are very important, some are least important to the organization. For example increasing
market share is given more importance than other objectives. So accordingly, resources
have to be allocated. Normally resources are allocated to accomplish important
objectives.
2. The nature of strategies - There are various types of strategies of a firm. Some
strategies may require huge capital or some may require less capital. Some may require
more human resources or some may require less human resources. Accordingly the
strategies which requires more capital or more human resources are allocated with more
resources than other strategies. Therefore modernization strategy is allocated with more
resources than product introduction strategy.
3. Availability of Resources The availability of funds affect resources allocation. When
a firm has adequate funds or when a firm is in a position to obtain funds easily, then it
can adequately allocate funds for various resources. But if the firm has a problem of
obtaining additional funds, the certain activities may be dropped out or there may be
distribution of resources according to the importance of activities.
4. Internal Politics Sometimes, internal politics in an organization can affect resource
allocation. Some departmental heads are in a position to get more funds for their
departments. This may be due to their power or influence they have over top
management. For example, if HRD manager has good terms with the top management,
his department may be allocated with more funds.
5. External factors - There are various external factors which influence resource
allocation for example, financial institutions, local community, shareholders,
government policies and others etc. For example, the financial institutions , which have
provided long term loans may restrict allocation of resources in form of dividend to
shareholder, organizational expenditure etc. Some times due to government policies,
firm may have to allocate to employees welfare fund, environment protection fund etc.
PROBLEMS IN RESOURCE ALLOCATION
There are several problems faced in resources allocation. Some problems can not be
avoided. Some problems can be avoided with the efforts on the part of management.
1. Scarcity of Resources The major problem arises due to scarcity of resources. Due to
scarcity of resources, it would be difficult for the management to obtain right type and
right amount of resources. Some times due to scarcity, management may have to pay
high price to obtain required resources.
2. Over-estimation of Resource need The resource allocation problem may arise due to
over-estimation of resource needs. Normally each department may try to obtain
maximum amount of resources. This may be to avoid shortage of resources in future.
Higher the demand of resources from all the department makes it difficult to allocate
resources properly. Sometimes department gets used to overestimating resource needs.
3. Organization's Past allocation of resources
Some units may be allocated with more resources in the past as their activities were
more important than other activities. Sometimes same allocation is followed in the
present situations, even though now their activities are not so important. On the other
hand other department's activities may be more important at present, but they do not get
required amount of resources due to past allocation . So top management should
consider relative importance of the activities and the allocate the resources.
4. Problem of internal politics Some manager may involve the internal politics. They
may try to influence top management and may try to get more funds than other
departments. As a result those departments who actually deserve more funds do not get
required amount of resources.
5. Poor financial climate - Due to financial climate, may investors do not invest in the
shares issued by the company. So company finds it difficult to raise additional finance.
This affects the resource allocation for strategy implementation. Sometimes company
may have to go for additional loans from financial institutions at higher cost.
6. Conflicts of interest There may be problem of conflict of interest between
management and various other parties for example, shareholders, trader unions,
employees , government, society etc. For example trade union may insist to allocate
resources to employee's welfare, management may like to allocate resources for
modernization. This conflict can be solved with proper discussion between management
and various parties and proper planning of resource allocation.
7. Problem of Resistance to Change - Sometimes management may resist to change its
own resource allocation strategy. For example there may be some unprofitable products
in the company, but management may continue to allocate more resources to that
unprofitable product than the other promising products of the company. So management
should try to review market success of each product and try to allocate the resources.
MEANS OF RESOURCE ALLOCATION
There are several ways of allocating resources in a systematic way, namely
Strategic budget: Keeping the assumptions made before the formulation of a budget,
divisional heads (SBUs) and functional managers focus their efforts on allocating funds,
through an interactive exercisetaking the opinions of all those who matter most. The
external influences and their likely impact and the internal capabilities of a firm are also
kept mind in this joint budgeting effort (hence, the name strategic budget).
Capital budget: The primary purpose of a capital budget is to maximize the long term
profitability of a firm while deploying resources. Various techniques like internal rate of
return, pay back period, net present value are used to find where a rupee invested would
earn maximum returns.
Performance budget: Here the basic purpose is to focus attention on the work to be
carried out, services to be rendered rather than things to be spent for or acquired. It
concentrates attention on physical aspects of achievement. Here, there is not only a work
plan but also a work plan in terms of work done. It takes a systems view of activities
trying to associate the inputs of the expenditure with the output of accomplishment in
terms of services, benefits etc.
Zero based budget: The key element of ZBB is future-objective orientation of past
objectives. Instead of taking the last year's budgets and adjusting them for finding out
the future level of activity and preparation of budget there from, ZBB forces managers
to review the current, ongoing objectives and operations. ZBB is, therefore, a type of
budgets that requires managers to rejustify the past objectives, projects, and budget and
to set priorities for the future. The essential idea budget that differentiates ZBB from
traditional budgeting is that it requires managers to justify their budget request in detail
from scratch, without any reference to the level of previous appropriations. It tantamount
to recalculation of all organizational activities to see which should be eliminated, funded
at a reduced level, funded at the current level or increased finances must be provided.
6. Suitability: The functional type of organisation is best for small to medium sized
organisation producing one or a few products where the dominant competitive issue
and goals of the organisation emphasise functional specialisation, efficiency and quality.
In fact, Fayol's model for functional structure was a coal-mining company where there
was only one product, demanding simple, mechanical operations. The operations were
more or less standardised.
Behavioral Issues in Strategy Implementation
Influence Tactics
Apart from a suitable structure, commitment from leaders at the top is important to
successfully implementing and achieving objectives. To this end, they must establish
the firm's direction -by developing and communicating a vision of the future and
to motivate and inspire organisation members to move in that direction. Leadership
success is often linked to the ability of a leader to exercise the right kind of influence
at the right time.
Power
Leaders often use their power to influence others and implement strategy. Formal
authority that comes through the leader's position in the organisation say CEO may
not always help in influencing others. Two reasons could be stated in support of this
contention.
Not everyone in today's organisations passively accepts and enthusiastically
implements multi-myriad rules, orders, instructions coming from the top. Subordinates
may resist orders, subtly ignore them, blatantly question them, or even quit.
The CEO cannot influence some individuals such as customers, government
officials, competing managers in rival firms, board of directors etc. through his
influence tactics (because he has not formal authority over them). The leader, therefore,
needs to exercise something more than formal authority called as power to secure
compliance and cooperation from others. Here, power may be defined as the potential
ability to influence the behaviour of others or represent the resources with which a
leader effects changes in employee behaviour (and thereby implements the strategic
game plan).
Expertise: Power resulting from a leader's special knowledge or skill regarding the
tasks carried out by followers is referred to as expert power. When the leader is a true
expert, subordinates go along with recommendations because of his or her superior
knowledge. Three conditions are essential to maintain expert power. First, since expert
power is based on knowledge and skill, the experts must continue to be
perceived as competent; those who become obsolete lose their expert power. The second
requirement is to make certain that the organisation continues to need the expert's
knowledge and skill. The expert power of many accountants and lawyers is
created by complex laws and tax regulations. If these laws were repealed, the expertise
of accountants and lawyers would suddenly become unnecessary. Finally,
individuals who are exerting expert power must prevent other experts from replacing
them. In short, expert power can be maintained only if there is a critical need for the
skills and knowledge of the expert that cannot be conveniently obtained elsewhere.
Charisma: It refers to a leader's ability to influence others through his personal
magnetism, enthusiasm and strongly held convictions. Often, leaders are able to
communicate these convictions and their vision for the future through a dramatic
persuasive manner of speaking. Dr Martin Luther King's famous "I have a Dream"
speech galvanised a generation to support the Civil Rights Movement in the United
States. As Yukl remarked, charismatic leaders (Mahatma Gandhi, Abraham Lincoln,
Nehru etc.) attempt to create an image of competence and success. They are often hailed
as heroes and role models everywhere. The more that followers admire their leaders and
identify with them the more likely they are to accept the leaders' values and beliefs. This
acceptance helps charismatic leaders to exercise great influence over their followers'
behaviours (Yukl, 1989). If they set high standards for themselves, subordinates follow
their steps religiously. Such leaders, as researchers pointed out, are most likely to be
effective during periods of organisational crisis or transition. Stressful situations are
more likely to encourage employees to repose faith in a leader who seems to steer the
ship out of trouble. If the leader's strategy works and organisational performance
improves, his power base too will expand dramatically.
Reward Power: Top managers can get others to implement the organisation's strategies
by making changes in formal reward systems. Those who carry out the strategy will
receive pay raises, bonuses, promotions etc. Those who support the strategic initiatives
and remain loyal to the leader will assume responsible positions
and get away with plum postings. If the leader has a number of rewards under his
control, which are valued and desired by subordinates strongly, he will be able to secure
cooperation and compliance from subordinates easily.
Information Power: A manager's access to important information and control over
its distribution, often, help him influence the behaviour of subordinates. According
to Mintzberg, the CEO is generally the best informed member of an organisation. He is
able to oversee everything from the top and he has excellent external contacts
to secure as much information as possible. He may not, of course, know everything,
but he usually knows more than anyone else. If the CEO's information is reliable and
complete, no one will be able to question his decisions which are based on a lot of
information and knowledge.
Exchange: The use of exchange as a power base is quite common in corporate circles.
The leader helps others when they are at the receiving end. Others, in turn, will feel
obliged to carry out things the leader would request later. Such reciprocal relationships
flourish when the leaders step down from their ivory tower, join the mainstream and get
along with others shedding a portion of their superego, status and power. Sometimes
connections or links with people inside or outside the work environment by the manager
also bring some power to him. A manager who has got many valuable, respectable and
useful links possesses this type of power; a subordinate who has good public relations
and rapport with officials outside the organisation, or elsewhere can also have
connection power. A manager or subordinate can influence others who acknowledge the
connections they have.
Legitimate Power: This power is the prerogative of a manager by virtue of his position
in the organisation. Power is inherent in the position and authority a manager has. In our
society people accept the right of top managers to direct the organisation. They are
conditioned to accept the authority of superiors in higher positions. Moreover, managers
have control over the distribution of resources and this control earns power for them
over others. The quantum of legitimate power a manager exercises depends on the
nature of his task, the organisation and the willingness of the manager to exercise power.
Coercive Power: Managers who have "reward power" also have "coercive power".
This is generally exercised by the manager against unproductive or disturbing elements
and to restore discipline in the task environment. Coercive power is associated with the
ability to assign distasteful tasks, withhold promotions, harass subordinates by not
rewarding performance suitably, etc. Managers threaten the employees, when exercising
this kind of coercive power, with job-related punishments such as dismissal, demotion,
reprimand, transfer, and discourage low performance etc. Coercive power, if used
properly, can lead to strong leadership. If
punishments are inflicted indiscriminately, several dysfunctional consequences will
automatically follow viz., damaging leader-member relations, frustration of the punished
people, irreparable damage to the organisational set up etc. The punished person may be
totally frustrated so that he retaliates by aggressive and violent responses which may
prove to be very costly, for the organisation in the end.
STRATEGIES AND TACTICS TO ACQUIRE POWER
Various political strategies are pursued by individuals with a view to enhance their
image and gain respect from others. Successful political behaviour involves keeping
people happy, cultivating contacts and wheeling and dealing. Some commonly employed
political strategies are given below (Dubrin):
Forming Alliances: Maintain alliances with powerful people, especially those who
are close to the most powerful person in the organisation.
ethical issues.
1. Legislation: Laws are generally passed as a result of low ethical Standards or the
failure 10 recognizes social responsibilities. They are the result of social pressures. A
practice can be made illegal if society views ir as being unethical. For example, if
contributions to political parties by corporations are viewed as being excessive and
unethical, the practice can be banned.
2. Government rules and regulations: Government regulations regarding working
conditions, product safety, statutory warnings (on cigarettes and other harmful products),
etc., are all supported by laws. These provide guidelines to managers in
determining what are acceptable standards and practices.
3. Industry and for company ethical codes of behaviour: Many times specific guidelines
are provided to managers by the companys' ethical code of behaviour. One important
question in such instances is whether individuals within organisations are really
governed by the code of ethics or give lip-service to the guidelines.
4. Social pressures: Social forces and pressures have considerable influence on ethics in
business. Society, in the recent past, has demonstrated how a special status can be
conferred on backward castes; boycotted products and complained and threatened action
to prevent the construction of nuclear power plants. Such actions by different groups in
society may, in fact, force management to alter certain decisions by taking a broader
view of the environment and the needs of society.
5. Conflicts between personal values and the needs of the firm: Many times, managers
may be forced to compromise their personal ethical and moral values in order to achieve
organisational goals. Everyday ethical decisions are usually made between the lesser of
the two evils rather than obvious right and wrong.
UNETHICAL BEHAVIOUR AND CODE OF CONDUCT
The manager's real world of deciding shades of difference is far more challenging
and complex than the textbook ethical problem situations. In addition to the above
factors, there are other complicating factors in making choices between right and wrong.
Often it may be difficult for the manager to free himself from bias and prejudice and
look at issues objectively. In spite of good intentions, he becomes involved in the
situation and becomes identified with certain positions or points of view. It becomes
difficult to step back and to take a detached point of view in examining the issue from an
ethical standpoint. In spite of these problems, certain examples can be cited to answer
the question as to what constitutes unethical behaviour:
Padding expense accounts to obtain reimbursement for questionable business expenses
society but may be a routine affair or just ignored by society in some other countries.
Interest of Society: Business ethics implies that the business should do first good to
the society and then to itself. Business is an important institution and has a social
responsibility to protect the interest of all those groups like employees, shareholders,
consumers who contribute to the success of business.
Business-Society Relationship: Business ethics set the terms and standards to
understand business society relationship. It indicates what society expects from business
and what it thinks about business.
Provides Framework: Like an individual, business is also bound by social rules and
regulations. Business is expected to confine its activities within the limits of social,
legal, cultural and economic environment.
Systematic Study: Business ethics is a systematic study of business policies and
actions that have an impact (positive and negative) on human beings and the society. For
example, a company that cares for better natural environment will pursue those plans
and policies that protects environment.
Universal Application: Business ethics has universal application. It is applicable to
all business units in all countries whether large or small. However, the degree of
business ethics may vary from country to country.
Code of Conduct: Business ethics, like code of conduct or professional ethics
provides guidelines to regulate business activities on legal, moral, social and ethical
principles. It prescribes what should and should not done for the welfare of the society.
Importance of business ethics and values The need for business ethics is more felt in
recent years than ever before. The following point outline the importance of business
ethics
1. Survival of Business Business need to follow ethical values for its own good and
survival. A firm can have short-term and quick gains by resorting to unethical means and
disregarding social welfare. However, such firms grow fast and are out of business
faster. On the other hand, organizations doing business ethically have continued to
survive and prosper for a long time.
2. Protection of Consumer Rights The application of business ethics will help to
confer and implement consumer rights. This will enhances the strength of individual
consumer against powerful business community. Business ethics can be used to check
malpractices like adulteration, unfair trade practices and to make the working of
business consumer oriented.
3. Consideration of Society's Interest Those firms, which follow business ethics in the
society, would make every possible effort to produce goods and services not only in the
interest of the consumers, but also in the interests of the society. These firms would look
into not only consumer's well being, but also welfare of the society. Therefore, they
would make every possible effort to produce eco-friendly products
4. Better relations with Members of the Society Business ethics is needed to develop
good relations between business and society. The relationship of business with society
has various dimensions such as its relations with shareholders, employees, consumers,
distributors, competitors and government. Ethics is needed to maintain good relations
among the firms on one side and between the firm and the social groups on other side.
5. Mutual Benefit Business ethics benefits the business firm as well as the society. The
business firm that adopts business ethics get good name in the society. It may be able to
increase confidence in the minds of the buyers who in turn would help to improve the
sale of the firm. The society can also gain due to ethical practices on the part of the
business.
SOCIAL RESPONSIVENESS AND STRATEGIC MANAGEMENT
Business is basically an economic activity, but in modem world it cannot concentrate
only on profit maximization. It is a group effort, as there is participation, directly or
indirectly, of the employees, customers, society, government, shareholders etc. Business
can not function independently and depend on the society for supply of raw materials,
capital, labour, and other requirements. Business is a part of society and has to follow
and operate within the limits of the environment, and, rules and regulations prescribed
by the society. There is a need to have social responsiveness in strategic management.
This is because greater social responsiveness means good business.
Normally the top management takes the major decisions in respect of social
responsibility. The decisions in respect of social responsibility are based on the personal
values, views, opinions and business ethics of the top management. Having decided to
adopt social responsibility , the top management should involve social responsiveness in
all the phases of implementation and strategy evaluation will be affected by social
responsiveness. The strategist must consider the social responsibility towards various
group in strategic management.
FUNCTIONAL IMPLEMENTATION
The implementation of strategy also requires development of functional policies
which provide the direction to middle management on how to make the optimal use of
allocated resources. They guide the middle level executives in framing operational plans
and tactics to make strategy implementable. Policies are basically general guidelines to
help executives to make certain choices. They are developed in order to ensure that
strategic decisions are implemented.
In order to formulate plans at the functional level, the strategist has only to decide
which functional area goals (or set of related goals) for which it is necessary to
formulate action plans. A single goal may require action plans at several functional areas
such as marketing, finance, research and development, personnel, production and
external relations are explained below:
MARKETING STRATEGY
Marketing policy provides the guidelines for managerial decision making and actions
to carry out the marketing functions in line with chosen strategy. It basically focuses on
the organizations existing and potential customers and seeks to earn profit through
customers satisfaction with an integrated programme. Broadly speaking, marketing
policy and plan addresses the issues such as pricing, distribution, promotion and product
lines with a view to counter competition from rival.
Pricing: Organization strategy regarding product/services prices is to accomplish the
four fundamental things i.e. (i) change in profitability; (ii) change in sales level or
growth rate; (iii) change in net cash flow; or (iv) maintenance of present sales, profit, or
cash flow level. Marketing goals and action plans deal with price by specifying the
planned-for impact on company performance desired strategy.
The task of actually setting price to yield the impact is normally the responsibility of
the firm's marketing director where marketing is decentralized. The major factors which
are taken into account while formulating the pricing policy include the following:
(a) Prices of competing product;
(b) Prices of different items in product line;
(c) Cost of production and distribution;
(d) Discriminating pricing policies for different customers;
(e) Scope of change in prices.
The major price options which can be adopted by an organization are as under:
Penetrating pricesmeans low price combined with aggressive advertising
in order to capture large share in the market.
Skimming high price policy suitable for established top quality products.
PLC pricingcharging initially higher prices to cover development and
advertising cost. This price is systematically reduced in later stages of
product life cycles.
Incentivessuch as discount, mode of payment, credit terms etc.
Distribution (Place): Channel of distribution is another important aspect of marketing
policy to a strategist. Yet the corporate strategist's input to distribution system design is
critical in that it sets the limits for subsequent distribution decisions. The primary
element of distribution goals and action plans is a definition of planned- for coverage or
exposure of products addressed at higher levels of strategy. Intended product exposure is
a function of: (i) the extent to which the organization is integrated forward or backward,
(ii) whether the output of intermediate steps in the production process will be marketed
or retained only as components, and (iii) desired coverage, usually in geographical
terms, of the items marketed. The important issues of distribution include:
Efficiency and effectiveness of distribution channel.
Type of channels to be useddirect to consumers, producer to retailers and
producer to wholesaler.
Intensity of distributionnumber of sales outlets to be opened.
Choice of distributors and extent of control.
Promotion: The strategist's primary concern with promotion, or, more generally,
communication, is to provide guidance to the firm's marketing specialists so that
marketing communication assumes a form consistent with overall strategy.
There are four types of communication methods:
1. Personal sales presentationsdirect communication between sellers and
potential buyers.
2. Sales promotiondisplays, exhibitions, demonstrations, and trade shows to
complement other communication techniques.
3. Mass advertisingcommunication with large aggregates of potential buyers
simultaneously.
4. Public relationsfree non-personal communication.
In a decentralized firm, the job of selecting a particular combination of
communication methods is usually the responsibility of marketing specialists. The
strategist sets communication strategy as a guide to the specialist's decisions to optimize
congruence between communication methods and overall strategy.
New Product Development: As products reach the decline stage of their life cycles,
they must be replaced by new products in order for the firm to grow and prosper. Thus,
an integral part of a business strategy that stresses product development is a marketing
strategy which defines the way in which new product ideas will be generated.
The product development process can be summarized in the following stages:
(i) Formulation of product goals;
(ii) Search, discovery and evaluation of new product proposals;
(iii) Product development and testing;
(iv) Market entry.
FINANCE POLICIES
Finance strategy is generally concerned with the acquisition and allocation of
financial resources for the purpose of achieving goals at an acceptable level of risk.
Thus, the setting of goals and action plans for finance can be viewed as a problem
relating to the sources and uses of capital that is constrained, at least in part, by
stockholders' wealth goals. Financial goals and action plans are treated from capital
acquisition and allocation perspectives, though this distinction is only for expository
purposes. Rarely is capital acquisition decisions made in isolation from those relating to
how funds would be allocated, and vice versa.
On the matter of risk, we will find that it enters into both sources and uses problems.
It is manifest primarily through the notions of financial leverage, operating leverage,
liquidity, and working capital management. Higher-level strategies normally involve
certain current and fixed asset investments that represent short and long- term
applications or uses of funds. Specifications describing these investments are outlined in
terms of capital budgeting techniques, cost-benefit analysis, and a cash budget, which
serve: (i) to determine the financial characteristics of strategic investments; and (ii) as
evaluative criteria for monitoring the operation of the firm under the business-level
strategy. Of course, to determine the financial impact of strategic investments, a
comprehensive financial analysis of the firm is necessary to define its preimplementation financial structure. All subsequent changes can then be evaluated
according to their expected effect on this financial profile.
Business-level strategy will necessitate selection from among various expenditure
choices. Finance goals and action plans are needed to establish the expected outcomes
and methods to be followed in such evaluations. Related decisions involve the relative
amounts of capital diverted to dividends versus reinvestment in the firm.
WORKING CAPITAL MANAGEMENT
Working capital management is an integral part of a firm's day-to-day affairs and is
guided to some extent directly by strategic choices. Since it entails the management of
current assets and current liabilities, it involves both the allocation and acquisition of
funds and/or their material counterparts. The focus of working capital is generally short
term, although it interacts with longer-term decision-making in the context of strategy
implementation, and insofar as short-term financing is used in lieu of long-term
financing.
Allocation of after-tax net profits is the area of dividend and retention policy. Profits
can either be retained in the business and ploughed back for expansion or growth.
Alternatively, profits may be distributed among shareholders in the form of dividends.
While formulating financial policy regarding the distribution of earnings, management
should consider the companys cash position, need for additional capital, attitudes of
shareholders, effect of income tax, legal restrictions etc. Dividend policy influences not
only the income of shareholders but marketability of shares, credit standing of the
company and its ability to raise debt.
Evaluation of financial performance and protection of assets is an important element
of financial policy. Suitable standards and procedures of financial control are required to
maintain and improve the financial health of an enterprise.
Thus in brief the major areas covered by financial policies include the following:
Capital structure mix i.e. proportion of short-term debt, long-term debt
preferred and common equity.
Efficiency and effectiveness of resource utilization in terms of capital
investments, fixed asset acquisition, current assets, loans and advances,
dividend policy etc.
Maximizing market valuation of the firm.
Extent to which internally generated profits are reinvested within the firm.
Guidelines on decisions regarding leasing versus buying of fixed assets.
Relationship with credit agencies such as banks and financial institutions.
Financial policies are formulated within the framework of corporate strategy. For
example when evaluating proposals for investments in projects, managers will select
high risk projects if expansion is the desired strategy. If retrenchment strategy is being
preferred then low risk projects will be selected.
The successful implementation of financial policies will enable a firm to:
Replace capital assets when necessary.
Pay loan and debenture interest when it falls due and repay the capital on
maturity.
Accumulate adequate reserves to meet contingencies.
Facilitate steady long-term growth.
Ensure ready availability of funds at the lowest cost.
The common thread in the management of working capital is cash or more generally,
cash flow, which leads to changes in cash balances. In some cases, short- term cash flow
is a function of long-term commitments (a capital purchase, for example) that may
require a series of short-term obligations (e.g., current portion of long-term debt) or a
large, non serial cash outlay. In either circumstances working capital is affected through
its cash component.
The minimum cash balance carried by a firm is that which is necessary to conduct
business in a manner consistent with the firm's strategies. This includes the ability to
react to emergencies to maintain compensating balances, and to take advantage of profitgenerating opportunities, as well as to meet regular requirements for raw material or
inventory purchases, operating expenses, debt service, and other day-to-day
expenditures. The management of cash balances and their near- equivalents (e.g.,
marketable securities) can become a critical component of strategy implementation.
Certainly this would be the case for marginal firms embarking on survival or turnaround strategies involving divestment, retrenchment, or financial reorganization.
All this is not meant to imply that working capital management translates solely into
the management of cash. The mix and magnitude of current liabilities and the non-cash
components of current assets also have direct implications for higher-level strategy and
its implementation. Though normally aimed at achieving a desired liquidity position
(with a keen focus on cash flow), working capital decisions must be carefully cast in the
strategic framework that guides them.
HUMAN RESOURCE MANAGEMENT (HRM) POLICY
HRM has assumed a vital place in an organization. The personnel function effectively
contributes in integrating strategies in various functional areas for accomplishing set
objectives.
Personnel goals and action plans are set to guide the personnel department in major
staffing decisions pertinent to business-level strategy. It has the following elements: (i)
job analysis; (ii) staffing plan; (iii) payroll budget; and (iv) union relations strategy.
(i) Job Analysis: Sometimes a strategy has very specific implications for jobs. A job
analysis is performed to gather pertinent information to communicate expectations about
job content. The job-related data are then reported in a set of job descriptions; peoplerelated information is arranged in a set of job specifications.
The primary role of job descriptions and specifications is to guide the process of
hiring and placing people. When no new jobs are involved in a new strategy, job analysis
can be conducted on existing jobs. Ideally job analysis data would already be available
in the latter case; the strategist could simply refer to existing job descriptions and
specifications and note the number of job titles required. Of course, the problem the
strategist faces when a strategy necessitates creation of new jobs is having to decide
what the content of jobs and employment requirements will be before hiring applicants.
(ii) Staffing Plan: The staffing plan presents the required number of employees by job
title which will be needed over the strategy's planning horizon. This is a key
consideration for the organizations personnel specialists. It tells them how many and
when people will have to be brought into the organizations to operationalize the strategy.
Human resource planning procedures are followed to develop the staffing plan. Total
employee requirements are determined by job title for the initial stages of strategy
implementation. Subsequently, these totals are modified to reflect the number of current
employees who can be transferred into the new jobs as `well as expected normal
outflows caused by retirements, deaths, out-transfers, and separations. The result is net
incremental human resource demand by job title generated by the strategic change.
(iii) Payroll Budget: The cost of labor is a major strategy variable. It can be a primary
consideration in determining the feasibility of a new strategy. The staffing budget is
simply the sum of estimated total labor costs involved in the new strategy. It should be
broken down by department. As such, it represents the rupee limits that functional
managers cannot exceed in hiring people to implement the new strategy. Personnel
strategy can address union/management relations whether or not the firm is organized by
a union. By reducing the critical areas of labor/management relations to strategy, the
relationship between unions and management can be productive and comfortable in
unionized firms. For non-unionized firms the relationship between labor and
management can be prevented from degenerating into a strictly adversarial one.
(iv) Union Relations Strategy: The purpose of union relations strategy is to set goals
and action plans which will lead to acceptance of the new strategy set by unions
representing employees of the organization.
Setting union relations strategy involves:
(a) Relationships between Strategy and the Union Contract: There are many
possible ways in which a new strategy set can affect a union/management
contract. A retrenchment strategy might involve layoffs, of which the
circumstances either could be spelled out in the contract or would have to be
negotiated before implementation. Similarly, a product development strategy
could
necessitate a work-force expansion. The process of increasing the number of jobs and
employees could be subject to contract provisions or negotiations.
Labor legislations of major countries define the range of topics subject to collective
bargaining in the private sector, as matters of wages, hours, and working conditions. In
the public sector, the items subject to bargaining are usually covered by statute. They
differ from organization to organization.
When agreement cannot be reached as to whether an item is subject to negotiation,
the appropriate authority can be called upon to make the determination. Bargaining
issues for determination may be placed in three categories: mandatory, permissive, and
illegal. Illegal bargaining subjects are those which are prohibited. Closed-shop
agreements are in this category. Permissive items include management rights issues over
which management has exclusive decision authority. Examples are product choices,
pricing decisions, and types of advertisements. Permissive topics do not have to be