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