Bits Strategic Management Notes

8/12/2019 Bits Strategic Management Notes

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BITS STRATEGIC MANAGEMENT NOTES

1. Explain Porters industry analysis briefly and conduct Porter’s industryanalysis for the below given caselet? – PDF

2. Conduct evaluation and control process, choosing your own example?3. Make a strategic business plan for an entrepreneurial venture of your own?4. Compare different types of organizational structures with the stages of

growth?5. Explain the relevance of ethical decision making in strategic management?6. Analyse Porter’s approach to industry analysis taking IT sector in India as an

example? – pdf7. Justify the importance of strategic marketing issues and strategic R&D issues

to the success of strategic planning for the horizontal growth of the firm?8. Explain advantages and disadvantages in going for collusive strategy?9. Explain the phases in BCG matrix taking your own examples of any

company’s products?10. Agency Theory Stewardship Theory in corporate governance11. Carrolls 4 responsibilities of business12. Difference between policy, programme, budget & procedure13. Strategic management & different phases14. External environment variables15. TOWS matrix16. 4 international entry options17. Advantages & disadvantages for going for collusive strategy18. BCG Matrix

19. Importance of strategic marketing issues & strategic R&D issues to successof strategic planning for horizontal growth of firm20. Organization structure in strategic management with the stages of growth21. SWOT analysis22. Competitive advantage/ distinctive advantage in SM23. Scope of SM24. 8 step strategic decision making process. How does a business review its

present position in order to make amends for any mistakes it might bemaking

25. Feedback mechanism in SM



ANSWERS

Answer 11. Corporate social responsibility, or CSR, is a corporation's obligation to its stakeholders, which are

any groups/people that have a stake or interest in a company's success and products. This includes customers,

employees, suppliers, investors and the communities surrounding the business. Stakeholders have varying needs

to be met. Whereas a customer's greatest concern may be the safety of a company's products, an employee's

need might be for a fair wage and safe working conditions. An investor may be concerned with profits and the

bottom line, while the community may care about a business limiting the pollution it causes. Thus, corporate

social responsibility means maximizing the good and minimizing the bad effects your company has on these

stakeholders' diverse interests.

Facets of CSR

In his 1991 article "The Pyramid of Corporate Social Responsibility," Dr. Archie B. Carroll, a business

management author and professor, identifies four areas that make up a corporate social responsibility pyramid:

legal, economic, ethical and philanthropic. This pyramid has become widely used and is meant to explain the

main areas that a business's duties to its stakeholders fall under.

Legal

Corporations must ensure that their business practices are legal. Obeying regulations helps protect consumers,

who rely on a business to be truthful about the products it sells, and investors, who stand to lose profits if a

company is penalized or shut down because of illegal practices.

Economic

According to the 2011 book "Business Ethics," a company's economic responsibilities include being profitable

in order to provide a return on investment to owners and shareholders, to create jobs in their communities and to

contribute useful products and services to society. Part of being economically responsible means streamlining

processes to find the most efficient ways to run your business and innovating your product offerings andmarketing to increase revenue.

Ethical

Beyond abiding by the letter of the law, an organization's ethical responsibilities include managing waste,

recycling and consumption. These areas are sometimes regulated by city, state or federal governments, but often

a company can go further than what the law requests and institute policies that help sustain the environment for

future generations. Other ethical responsibilities come in the form of advertising, as in not stretching the truth to

a customer just to get them to make a purchase, and treatment of employees. A company can provide more than

minimum wage and minimum safety precautions for employees; it can provide excellent benefits, insurance and

invest resources in building a clean and safe workplace where employees will be happy to come each day.

Philanthropic

The authors of the 2011 "Business Ethics" also suggest that part of the philanthropic responsibility corporations

face is to promote the welfare of humans and to spread goodwill. An example of this is The Xerox Foundation's

"Xerox Employee Matching Gifts Program" in which Xerox matches its employees' contributions to higher

education institutions up to $1,000. Similarly, the PepsiCo Foundation has committed over $2 million to World

Food Program USA, which helps fight hunger in "vulnerable communities around the globe."

Answer 10. Unlike agency theory, stewardship theory assumes that managers are stewards whose behaviors are

aligned with the objectives of their principals. The theory argues and looks at a different form of motivation formanagers drawn from organizational theory. Managers are viewed as loyal to the company and interested in



achieving high performance. The dominant motive, which directs managers to accomplish their job, is their

desire to perform excellently. Specifically, managers are conceived as being motivated by a need to achieve, to

gain intrinsic satisfaction through successfully performing inherently challenging work, to exercise

responsibility and authority, and thereby to gain recognition from peers and bosses. Therefore, there are non-

financial motivators for managers.

The theory also argues that an organization requires a structure that allows harmonization to be achieved most

efficiently between managers and owners. In the context of firm’s leadership, this situation is attained more

readily if the CEO is also the chairman of the board. This leadership structure will assist them to attain superior

performance to the extent that the CEO exercises complete authority over the corporation and that their role is

unambiguous and unchallenged. In this situation, power and authority are concentrated in a single person.

Hence, the expectations about corporate leadership will be clearer and more consistent both for subordinate

managers and for other members of the corporate board. Thus, there is no room for uncertainty as to who has

authority or responsibility over a particular matter. The organization will enjoy the benefits of unity of direction

and of strong command and control.

Agency theory is a concept that explains why behavior or decisions vary when exhibited by members of a

group. Specifically, it describes the relationship between one party, called the principal, that delegates work to

another, called the agent. It explains their differences in behavior or decisions by noting that the two parties

often have different goals and, independent of their respective goals, may have different attitudes toward risk.

The concept originated from the work of Adolf Augustus Berle and Gardiner Coit Means, who were discussing

the issues of the agent and principle as early as 1932. Berle and Means explored the concepts of agency and

their applications toward the development of largecorporations. They saw how the interests of the directors and

managers of a given firm differ from those of the owner of the firm, and used the concepts of agency and

principal to explain the origins of those conflicts.

The theory essentially acknowledges that different parties involved in a given situation with the same given goal

will have different motivations, and that these different motivations can manifest in divergent ways. It states that

there will always be partial goal conflict among parties, efficiency is inseparable from effectiveness, and

information will always be somewhat asymmetric between principal and agent. The theory has been

successfully applied to myriad disciplines including accounting, economics, politics, finance, marketing,

and sociology.

Research on agency theory has had several findings. Most notably, an agent is more likely to adopt the goals of

the principal, and therefore behave in the interest of the principal, when the contract is outcome-based. Also,

when the agent is aware of a mechanism in place that allows the principal to verify the behavior of the agent, he

is more likely to comply with the goals of the principal.

Furthermore, outcome uncertainty has a positive relationship to behavior-based contracts, while there is a

negative relationship to outcome-based contracts. Goal conflict has a negative relationship to behavior-based

contracts with a positive relationship toward outcome-based contracts. Outcome measurability is negatively

related to behavior-based contracts; there is a positive relationship with respect to outcome-based contracts.

Opponents to agency theory criticize it as being too general and claim that it is pseudo-scientific. They also

claim that its interpretation is subjective and its validity is not testable. The ability to be empirically tested is a

necessary component of any hypothesis.

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Answer 12. A policy is a principle or protocol to guide decisions and achieve rational outcomes. A

policy is a statement of intent, and is implemented as a procedur e[1] or protocol. Policies are

generally adopted by the Board of or senior governance body within an organization whereas

procedures or protocols would be developed and adopted by senior executive officers. Policies can

assist in both subjective and objective decision making. Policies to assist in subjective decision

making would usually assist senior management with decisions that must consider the relative

merits of a number of factors before making decisions and as a result are often hard to objectively

test e.g. work-life balance policy. In contrast policies to assist in objective decision making are

usually operational in nature and can be objectively tested e.g. password policy.[citation needed]

The term may apply to government, private sector organizations and groups, and

individuals. Presidential executive orders, corporate privacy policies, and parliamentary rules of

order are all examples of policy. Policy differs from rules or law. While law can compel or prohibit

behaviors (e.g. a law requiring the payment of taxes on income), policy merely guides actions toward

those that are most likely to achieve a desired outcome.[citation needed]

Policy or policy study may also refer to the process of making important organizational decisions,

including the identification of different alternatives such as programs or spending priorities, and

choosing among them on the basis of the impact they will have. Policies can be understood as

political, management, financial, and administrative mechanisms arranged to reach explicit goals. In

public corporate finance, a critical accounting policy is a policy for a firm/company or an industry

which is considered to have a notably high subjective element, and that has a material impact on the

financial statement

A budget is a quantitative expression of a plan for a defined period of time. It may include planned

sales volumes and revenues, resource quantities, costs and expenses, assets, liabilities and cash

flows. It expresses strategic plans of business units, organizations, activities or events in measurable

terms Budget helps to aid the planning of actual operations by forcing managers to consider how the

conditions might change and what steps should be taken now and by encouraging managers to

consider problems before they arise. It also helps co-ordinate the activities of the organization by

compelling managers to examine relationships between their own operation and those of other

departments. Other essentials of budget include:

1. To control resources

2. To communicate plans to various responsibility center managers.

3. To motivate managers to strive to achieve budget goals.

4. To evaluate the performance of managers

5. To provide visibility into the company's performance

For accountability

In summary, the purpose of budgeting is tools:

1. tools provide a forecast of revenues and expenditures, that is, construct a model of how a

business might perform financially if certain strategies, events and plans are carried out.

2. Tools enable the actual financial operation of the business to be measured against the

forecast.

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3. Lastly,tools establish the cost constraint for a project, program, or operation.

A procedure is a document written to support a "Policy Directive". A Procedure is designed to

describe Who, What, Where, When, and Why by means of establishing corporate accountability in

support of the implementation of a "policy". The "How" is further documented by each

organizational unit in the form of "Work Instructions" which aims to further support a procedure by

providing greater detail. For example, a manufacturing facility established a policy that all overtime

shall be approved. A procedure can be created to establish “Who” can approve overtime (ranks,

roles & responsibilities), "What" forms/systems need to be used, "Where" they are located, "When"

overtime is applicable. And the "Why" refers to the management directive established via a "Policy".

The output of a procedures become input into a work instruction which is a set of actions or

operations which have to be executed in the same manner in order to achieve intended results

under the same circumstances.(for example, in the latter example, the "what" [output of procedure]

could be further broken down into a work instruction to describe "how" a manager/employee access

the systems for approving/reviewing overtime, i.e. click on this hyperlink, on this button, and choose

these fields, and click approve/reject. In telecommunications, this is the premise under which

a SOP (Standard Operating Procedure) is generated. A SOP is specifically designed to describe and

guide multiple iterations of the same procedure over a broad number of locations, on multiple

occasions, and over an open period of time until such SOP is updated for whatever reason, or

discontinued. Used heavily in the telecommunications industry, a MOP (Method of Procedure)

differs from a SOP in that it contains specific directives for that particular activity, on that particular

date, for that specific location or piece of equipment. In today's business model, wherein telecom

providers can be both "provider" and "user", most "user" organizations require a MOP from the

service provider whenever an activity has the potential to cause a traffic-affecting outage. The

industry standard is <50ms of traffic interruption. If a "switch hit" or traffic interruption is 50 ms orless, it is "transparent" to the bit stream carrying the traffic, and is therefore considered "hitless"

and non-traffic affecting.

A programme or program[1] is a booklet available for patrons attending a live event such

as theatre performances, fêtes, sports events, etc. It is a printed leaflet outlining the parts of the

event scheduled to take place, principal performers and background information. In the case of

theatrical performances, the term playbill is also used. It may be provided free of charge by the

event organisers or a charge may be levied.

Answer 18. The BCG Growth-Share Matrix is a portfolio planning model developed by Bruce

Henderson of the Boston Consulting Group in the early 1970's. It is based on the observation that a

company's business units can be classified into four categories based on combinations of market

growth and market share relative to the largest competitor, hence the name "growth-share". Market

growth serves as a proxy for industry attractiveness, and relative market share serves as a proxy for

competitive advantage. The growth-share matrix thus maps the business unit positions within these

two important determinants of profitability

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Henderson reasoned that the cash required by rapidly growing business units could be obtainedfrom the firm's other business units that were at a more mature stage and generating significant

cash. By investing to become the market share leader in a rapidly growing market, the business unit

could move along the experience curve and develop a cost advantage. From this reasoning, the BCG

Growth-Share Matrix was born.</p>

The four categories are:

Dogs have low market share and a low growth rate and thus neither generate nor consume a large

amount of cash. However, dogs are cash traps because of the money tied up in a business that has

little potential. Such businesses are candidates for divestiture.

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 cashcomsumption. 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 generate large amounts of cash because of their strong relative market share, but also

consume large amounts of cash because of their high growth rate; therefore the cash in each

direction approximately nets out. If a star can maintain its large market share, it will become a cash

cow when the market growth rate declines. The portfolio of a diversified company always should

have stars that will become the next cash cows and ensure future cash generation.

Cash cows- As leaders in a mature market, cash cows exhibit a return on assets that is greater than

the market growth rate, and thus generate more cash than they consume. Such business units

should be "milked", extracting the profits and investing as little cash as possible. Cash cows provide

the cash required to turn question marks into market leaders, to cover the administrative costs of

the company, to fund research and development, to service the corporate debt, and to pay

dividends to shareholders. Because the cash cow generates a relatively stable cash flow, its value

can be determined with reasonable accuracy by calculating the present value of its cash stream

using a discounted cash flow analysis.

Under the growth-share matrix model, as an industry matures and its growth rate declines, a

business unit will become either a cash cow or a dog, determined soley by whether it had become



the market leader during the period of high growth.</p>

While originally developed as a model for resource allocation among the various business units in a

corporation, the growth-share matrix also can be used for resource allocation among products

within a single business unit. Its simplicity is its strength - the relative positions of the firm's entire

business portfolio can be displayed in a single diagram.

Limitations

1. The growth-share matrix once was used widely, but has since faded from popularity as

more comprehensive models have been developed. Some of its weaknesses are:

2. Market growth rate is only one factor in industry attractiveness, and relative market share

is only one factor in competitive advantage. The growth-share matrix overlooks many other

factors in these two important determinants of profitability.

3. The framework assumes that each business unit is independent of the others. In some

cases, a business unit that is a "dog" may be helping other business units gain a competitive

advantage.

4. The matrix depends heavily upon the breadth of the definition of the market. A businessunit may dominate its small niche, but have very low market share in the overall industry. In

such a case, the definition of the market can make the difference between a dog and a cash

cow.

5. While its importance has diminished, the BCG matrix still can serve as a simple tool for

viewing a corporation's business portfolio at a glance, and may serve as a starting point for

discussing resource allocation among strategic business units.

Answer 16. Strategic decision-making requires anticipation of and preparation for the future. One

way to plan is through forecasting. Accurate forecasting of external environmental elements is

essential for successful strategic management. To identify future environmental changes,

opportunities, and threats, take the steps outlined below.

1. Select the environmental variables that are critical to your firm.

When analyzing environmental variables, try to select key variables that are most likely to foster

sharp growth or decline in the marketplace. One such variable is population trends, which not only

can cause disorder in the business environment but also can activate other major changes in the

economic, social, and political environments.

2. Identify appropriate sources of data.

To make accurate forecasts, you need accurate and up-to-date information about your company's

external environment. Although trade and scholarly publications are important sources, you also

should obtain raw data from formal research if time and money permit.

3. Evaluate the available forecasting techniques and make forecasts.

There are five major techniques you can use to conduct environmental forecasting. When choosing a

forecasting technique, you need to consider several factors, including the nature and importance of



the forecast, the cost and time involved, the amount and accuracy of available data, and the skills

and concerns of people involved. The five forecasting techniques are:

Economic forecasts, which are primarily concerned with remote factors, such as general economic

conditions, the consumer price index, wage rates, and productivity

Economic models, which employ complex simultaneous regression equations to relate economic

events to areas of corporate activity

Social forecasts, which involve analysis of population, housing, social security, health, education,

income, and expendituresP

Political forecasts, which take into account a broad range of political factors

Technological forecasts, which attempt to predict changes in technology and estimate their impact

on an organization's operation.

4. Integrate the results into the strategic management process.

If the forecast identifies any gaps or inconsistencies between your company's desired position and

its present position, you can respond with plans and actions.

5. Monitor the forecasts.

To ensure that you are on the right track with strategic planning, continue to monitor those

environmental variables you identified in Step 1, and note any dramatic shifts that can provide

opportunities or threats to your company.

By forecasting elements of your company's external environment, you will be able to identify those

factors that may be necessary for your company's future success, to formulate or reformulate your

company's basic mission, and to design strategies that can help your company achieve its goals and

objectives.

Answer 16.There are a number ways businesses can sell their products in international markets. The

most appropriate method will depend on the business, its products, the outcome of its Marketing

Environment analysis and its Marketing Plan. This article talks you through market entry options.

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Direct Export

The organisation produces their product in their home market and then sells them to customers

overseas.

Indirect Export

The organisations sells their product to a third party who then sells it on within the foreign market.

Licensing

Another less risky market entry method is licensing. Here the Licensor will grant an organisation in

the foreign market a license to produce the product, use the brand name etc in return that they will

receive a royalty payment.

Franchising

Franchising is another form of licensing. Here the organisation puts together a package of the

‘successful’ ingredients that made them a success in their home market and then franchise this

package to oversea investors. The Franchise holder may help out by providing training and

marketing the services or product. McDonalds is a popular example of a Franchising option for

expanding in international markets.

Contracting

Another of form on market entry in an overseas market which involves the exchange of ideas is

contracting. The manufacturer of the product will contract out the production of the product to

another organisation to produce the product on their behalf. Clearly contracting out saves the

organisation exporting to the foreign market.

Manufacturing Abroad



The ultimate decision to sell abroad is the decision to establish a manufacturing plant in the host

country. The government of the host country may give the organisation some form of tax advantage

because they wish to attract inward investment to help create employment for their economy.

Joint Venture

To share the risk of market entry into a foreign market, two organisations may come together to

form a company to operate in the host country. The two companies may share knowledge and

expertise to assist them in the development of company, of course profits will have to be shared

between the two firms.

There are a variety of ways in which a company can enter a foreign market. No one market entry

strategy works for all international markets. Direct exporting may be the most appropriate strategy

in one market while in another you may need to set up a joint venture and in another you may well

license your manufacturing. There will be a number of factors that will influence your choice of

strategy, including, but not limited to, tariff rates, the degree of adaptation of your product

required, marketing and transportation costs. While these factors may well increase your costs it isexpected the increase in sales will offset these costs. The following strategies are the main entry

options open to you.

Direct Exporting

Direct exporting is selling directly into the market you have chosen using in the first instance you

own resources. Many companies, once they have established a sales program turn to agents and/or

distributors to represent them further in that market. Agents and distributors work closely with you

in representing your interests. They become the face of your company and thus it is important that

your choice of agents and distributors is handled in much the same way you would hire a key staff

person.

Licensing

Licensing is a relatively sophisticated arrangement where a firm transfers the rights to the use of a

product or service to another firm. It is a particularly useful strategy if the purchaser of the license

has a relatively large market share in the market you want to enter. Licenses can be for marketing or

production. licensing).

Franchising

Franchising is a typical North American process for rapid market expansion but it is gaining traction

in other parts of the world. Franchising works well for firms that have a repeatable business model

(eg. food outlets) that can be easily transferred into other markets. Two caveats are required when

considering using the franchise model. The first is that your business model should either be very

unique or have strong brand recognition that can be utilized internationally and secondly you may

be creating your future competition in your franchisee.

Partnering

Partnering is almost a necessity when entering foreign markets and in some parts of the world (e.g.

Asia) it may be required. Partnering can take a variety of forms from a simple co-marketing

arrangement to a sophisticated strategic alliance for manufacturing. Partnering is a particularly

useful strategy in those markets where the culture, both business and social, is substantively

different than your own as local partners bring local market knowledge, contacts and if chosen

wisely customers.



Joint Ventures

Joint ventures are a particular form of partnership that involves the creation of a third

independently managed company. It is the 1+1=3 process. Two companies agree to work together in

a particular market, either geographic or product, and create a third company to undertake this.

Risks and profits are normally shared equally. The best example of a joint venture is Sony/Ericsson

Cell Phone.

Buying a Company

In some markets buying an existing local company may be the most appropriate entry strategy. This

may be because the company has substantial market share, are a direct competitor to you or due to

government regulations this is the only option for your firm to enter the market. It is certainly the

most costly and determining the true value of a firm in a foreign market will require substantial due

diligence. On the plus side this entry strategy will immediately provide you the status of being a local

company and you will receive the benefits of local market knowledge, an established customer base

and be treated by the local government as a local firm.

Piggybacking

Piggybacking is a particularly unique way of entering the international arena. If you have a

particularly interesting and unique product or service that you sell to large domestic firms that are

currently involved in foreign markets you may want to approach them to see if your product or

service can be included in their inventory for international markets. This reduces your risk and costs

because you are essentially selling domestically and the larger firm is marketing your product or

service for you internationally.

Turnkey Projects

Turnkey projects are particular to companies that provide services such as environmental consulting,

architecture, construction and engineering. A turnkey project is where the facility is built from theground up and turned over to the client ready to go – turn the key and the plant is operational. This

is a very good way to enter foreign markets as the client is normally a government and often the

project is being financed by an international financial agency such as the World Bank so the risk of

not being paid is eliminated.

Greenfield Investments

Greenfield investments require the greatest involvement in international business. A greenfield

investment is where you buy the land, build the facility and operate the business on an ongoing basis

in a foreign market. It is certainly the most costly and holds the highest risk but some markets may

require you to undertake the cost and risk due to government regulations, transportation costs, and

the ability to access technology or skilled labour.

Answer 13. The Five Stages of the Strategic Management Process

The strategic management process is more than just a set of rules to follow. It is a philosophical approach to

business. Upper management must think strategically first, then apply that thought to a process. The strategic

management process is best implemented when everyone within the business understands the strategy. The five

stages of the process are goal-setting, analysis, strategy formation, strategy implementation and strategy

monitoring.

Goal-Setting

The purpose of goal-setting is to clarify the vision for your business. This stage consists of identifying three keyfacets: First, define both short- and long-term objectives. Second, identify the process of how to accomplish



your objective. Finally, customize the process for your staff, give each person a task with which he can succeed.

Keep in mind during this process your goals to be detailed, realistic and match the values of your vision.

Typically, the final step in this stage is to write a mission statement that succinctly communicates your goals to

both your shareholders and your staff.

AnalysisAnalysis is a key stage because the information gained in this stage will shape the next two stages. In this stage,

gather as much information and data relevant to accomplishing your vision. The focus of the analysis should be

on understanding the needs of the business as a sustainable entity, its strategic direction and identifying

initiatives that will help your business grow. Examine any external or internal issues that can affect your goals

and objectives. Make sure to identify both the strengths and weaknesses of your organization as well as any

threats and opportunities that may arise along the path.

Strategy Formulation

The first step in forming a strategy is to review the information gleaned from completing the analysis.

Determine what resources the business currently has that can help reach the defined goals and objectives.

Identify any areas of which the business must seek external resources. The issues facing the company should be

prioritized by their importance to your success. Once prioritized, begin formulating the strategy. Because

business and economic situations are fluid, it is critical in this stage to develop alternative approaches that target

each step of the plan.

Strategy Implementation

Successful strategy implementation is critical to the success of the business venture. This is the action stage of

the strategic management process. If the overall strategy does not work with the business' current structure, a

new structure should be installed at the beginning of this stage. Everyone within the organization must be made

clear of their responsibilities and duties, and how that fits in with the overall goal. Additionally, any resources or

funding for the venture must be secured at this point. Once the funding is in place and the employees are ready,execute the plan.

Evaluation and Control

Strategy evaluation and control actions include performance measurements, consistent review of internal and

external issues and making corrective actions when necessary. Any successful evaluation of the strategy begins

with defining the parameters to be measured. These parameters should mirror the goals set in Stage 1.

Determine your progress by measuring the actual results versus the plan. Monitoring internal and external issues

will also enable you to react to any substantial change in your business environment. If you determine that the

strategy is not moving the company toward its goal, take corrective actions. If those actions are not successful,

then repeat the strategic management process. Because internal and external issues are constantly evolving, any

data gained in this stage should be retained to help with any future strategies.

Answer 5. Research has shown that while competitive advantage is also driven by exceptionalresource management, ethical conduct is an important factor in sustained superior financialperformance.

The capacity to consider the ethical implications of a decision is critical to an organisation’s success,and is a skill for managers so fundamental that it underpins all the other key managementcompetency areas. While professional ethics are not driven by a literal and straight-forward set ofrules, an array of techniques can provide support for managers and professionals in their ethical

decision-making at the strategic and operational levels.



This guide provides APESMA members with advice on some of the more commmon ethicaldilemmas, help with how to approach ethical reasoning in a structured way, and a checklist as apractical reference tool to use in day-to-day management decision-making.

Few engineers, scientists and managers have formal ethics training. A lack of education and trainingin the discipline of ethics means that professionals may

(a) not recognise an ethical problem before or even when it arises,

(b) not know how to consider the issues of the problem in an effective and consistent way, and

(c) not reach a strong and defensible position in regard to addressing the ethical problem.

This can result in a serious misstep for managers and the potential for substantial legal and socialcosts for the organisation they work for. The aim of this Guide is to help APESMA members overcomesome of these limitations. The Guide is intended for technology management professionals in roleswith Managerial responsibilities but is likely to also be useful for professionals in their day-to-dayactivities which inevitably involve ethical considerations and making decisions with reference to

ethical standards and principles.

Most of us would agree that it is ethics in practice that makes sense; just having it carefully draftedand redrafted in books may not serve the purpose. Of course all of us want businesses to be fair,clean and beneficial to the society. For that to happen, organizations need to abide by ethics or rule oflaw, engage themselves in fair practices and competition; all of which will benefit the consumer, thesociety and organization.

Primarily it is the individual, the consumer, the employee or the human social unit of the society whobenefits from ethics. In addition ethics is important because of the following:

1. Satisfying Basic Human Needs: Being fair, honest and ethical is one the basic human

needs. Every employee desires to be such himself and to work for an organization that is fairand ethical in its practices.2. Creating Credibility: An organization that is believed to be driven by moral values is

respected in the society even by those who may have no information about the working andthe businesses or an organization. Infosys, for example is perceived as an organization forgood corporate governance and social responsibility initiatives. This perception is held far andwide even by those who do not even know what business the organization is into.

3. Uniting People and Leadership: An organization driven by values is revered by its

employees also. They are the common thread that brings the employees and the decisionmakers on a common platform. This goes a long way in aligning behaviors within theorganization towards achievement of one common goal or mission.

4. Improving Decision Making: A man’s destiny is the sum total of all the decisions that he/shetakes in course of his life. The same holds true for organizations. Decisions are driven by

values. For example an organization that does not value competition will be fierce in itsoperations aiming to wipe out its competitors and establish a monopoly in the market.

5. Long Term Gains: Organizations guided by ethics and values are profitable in the long run,though in the short run they may seem to lose money. Tata group, one of the largest businessconglomerates in India was seen on the verge of decline at the beginning of 1990’s, whichsoon turned out to be otherwise. The same company’s Tata NANO car was predicted as afailure, and failed to do well but the same is picking up fast now.

6. Securing the Society: Often ethics succeeds law in safeguarding the society. The law

machinery is often found acting as a mute spectator, unable to save the society and theenvironment. Technology, for example is growing at such a fast pace that the by the time lawcomes up with a regulation we have a newer technology with new threats replacing the olderone. Lawyers and public interest litigations may not help a great deal but ethics can.

Ethics tries to create a sense of right and wrong in the organizations and often when the law fails, it isthe ethics that may stop organizations from harming the society or environment.



Answer 8. Joint licensing, supply and distribution contracts, joint ventures, collaborations, and

collusion agreements all play significant importance with cooperative strategies. Collusive strategies

and strategic alliances are two main forms of cooperation businesses instill. According to Jay Barney

(2011), “a Collusive Strategy exists when several firms in an industry cooperate to reduce industry

competitiveness and raise prices above the full competitive level. Explicit collusion exists when firms

negotiate production output and pricing agreements directly, in order to reduce competition. TacitCollusion exists when firms coordinate their production and pricing strategies indirectly by observing

the ouput and pricing decisions of other firms” (p. 246). Tacit collusion exists when companies with

similar products adjust their pricing point strategy in order to maintain competitiveness. With Stryker

and the medical technology industry, similar products are often created. As a result, they price

indirectly according to other competitors. However, with certain products, Stryker creates

differentiated products that are more highly technological. Therefore, they can create a first-entry

product price where other firms may follow or incorporate tacit collusion.

Answer 4. Types of Organizational Structures

Need to set up a structure for your organization? This article will give you information about the

different types of organizational structures along with their advantages and disadvantages.

"Every company has two organizational structures: The formal one is written on the charts; the

other is the everyday relationship of the men and women in the organization." - Harold S. Geneen

Every organization, to be effective, must have a structure. Let us first understand what an

organization structure is. It is the setup that determines the hierarchy and reporting structure in an

organization.

It is represented by a drawing known as an organizational chart. There are different types of

organizational structures that companies follow, depending on a variety of factors like leadership

style, type of organization, geographical regions, work flow and hierarchy.

To put it simply, an organizational structure is the plan of the hierarchy and arrangement of work.

Here is a list of the different types of organizational structures.

Traditional Structures

These structures are based on functional division and departments. They are the kind of structures

that follow the organization's rules and procedures to the T. They are characterized by having

precise authority lines for all levels in the management. The various types of structures that fall

under traditional structures are:

Line Structure

This is the kind of structure that has a specific line of command. The approvals and orders in this

kind of structure come from top to bottom in a line. Hence it is known as a line structure. This kind

of structure is suitable for smaller organizations like small accounting firms and law offices. This

structure allows easy decision-making and is informal in nature.



Merits

✔ It is the simplest kind of organizational structure.

✔ Strict authority results in a stronger discipline.

✔ Prompt decisions result in quick and effective actions.

✔ There is clarity in the structures of authority and responsibility.

✔ As the control rests with one superior, it accords him the flexibility to adjust the department.

✔ There are good career advancement prospects for individuals who deliver quality work.

Demerits

✗ There are chances of the department head being biased.

✗ Lack of specialization is a persistent problem.

✗ The department head may be burdened with lots of work.

✗ Communication only happens from top to bottom.

✗ Superiors with authority can misuse it for their benefit.

✗ Decisions are taken by a single person and can go wrong.

Line and Staff Structure

Though a line structure is suitable for most organizations, especially the small ones, it is not effective

for larger companies. This is where the line and staff organizational structure comes into play. Line

and staff structure combines the line structure where information and approvals come from top to

bottom, with staff departments for support and specialization. Line and staff organizational

structures are more centralized. Managers of line and staff have authority over their subordinates,

but staff managers have no authority over line managers and their subordinates. The decision-making process becomes slower in this type of organizational structure because of several layers and

guidelines. Also, there is formality involved.

Merits

✔ It enables the employees to perform at a faster rate.

✔ It helps employees to accept responsible jobs and specialize in a particular area.

✔ It helps line managers to concentrate on the task at hand.

✔ Little or no resistance is met when organizational changes take place.

✔ It results in less operational wastage and increases productivity.

✔ Employees feel that they are given the due credit for their contribution.

Demerits

✗ Confusion may be created among employees.

✗ Employees lack operational knowledge to give result-oriented suggestions.

✗ There are too many levels of hierarchy.

✗ Employees may have differences of opinions and this may slow down the work.

✗ As staff specialists exist, it is costlier than a simple line organization.

✗ Decision-making may be time-consuming.



Functional Structure

This kind of organizational structure classifies people according to the function they perform in their

professional life or according to the functions performed by them in the organization. The

organization chart for a functional organization consists of a Vice President, a Sales Department, a

Customer Service Department, an Engineering or Production Department, an Accounting

Department, an Administration Department, etc.

Merits

✔ It has high degrees of specialization.

✔ It has clear lines of authority.

✔ It facilitates easy accountability for the work.

✔ It accords a high level of speed and efficiency.

✔ The need for duplication of work is eliminated.

✔ All the functions command equal importance.

Demerits

✗ Communication has several barriers which makes coordination difficult.

✗ More focus is laid on individuals rather than the organization.

✗ The decisions taken by a single person may not always work in favor of the organization.

✗ As the organization expands, it gets difficult to exercise control on its operations.

✗ There may be lack of teamwork between different departments or units.

✗ As all the functions are separated, employees may not gain knowledge about other

specializations.

Divisional Structure

These are the kinds of structures that are based on different divisions in the organization. They

group together employees based on the products, markets and geographical locations covered. Here

is a detailed description of a divisional structure.

Product Structure

A product structure is based on organizing employees and work on the basis of the different

products. If the company produces three different products, they will have three different divisions

for these products. This type of structure can be best utilized for retail stores with a number of

products.

Merits

✔ Units which are not working can be closed down easily.

✔ Each unit can be operated and treated as a separate profit center.

✔ It accords rapid and easy decision-making.

✔ It also gives a lot of independence to the decision makers.

✔ Individual products get separate attention as per the problems they face.

✔ It enables the organization to have a high productivity and efficiency quotient.



Demerits

✗ As each unit operates on its own, organizational goals may not be achieved.

✗ Unhealthy competition may exist among internal business units.

✗ As it has too many managerial levels, it may hamper the business.

✗ Accounting work and taxes may increase considerably.

✗ All the units may not be considered as equal.

✗ Marketing individual products may add up to the cost significantly.

Market Structure

Market structure is used to group employees on the basis of the specific market the company sells

in. A company could have five different markets they use and according to this structure, each would

be a separate division.

Merits

✔ Employees can communicate with customers in the local language.

✔ They are available for the customers, if need is felt.

✔ The problems in a particular market can be isolated and dealt with separately.

✔ As individuals are responsible for a particular market, tasks are completed on time.

✔ Employees are specialized in catering to a particular market.

✔ New products for niche markets can be introduced.

Demerits

✗ There can be intense competition among the employees.

✗ Decision-making can cause conflicts.

✗ It is difficult to determine the productivity and efficiency.

✗ All the markets may not be considered as equal.

✗ There may be lack of communication between the superiors and the employees.

✗ Employees may misuse their authority.

Geographic Structure

Large organizations have offices at different places, for example, there could be a north zone, south

zone, west zone and east zone. The organizational structure, in such a case, follows a zonalstructure.

Merits

✔ There is better communication among the employees at the same location.

✔ Locals are familiar with the local business environment and can cater to geographical and cultural

differences.

✔ Customers feel a better connection with local managers who can speak their language.

✔ A record of the work of individual markets and groups can be maintained.

✔ Decisions are taken thoughtfully and work when implemented.

✔ New products or product modifications catering to a specific area can be introduced.



Demerits

✗ It may give rise to a feeling of division among the employees of the organization.

✗ There may be unhealthy competition among different zones.

✗ Core company ethics, beliefs and practices may differ from location to location.

✗ Tracing the performance and profits of each region may be time-consuming and tedious.

✗ There may be poor communication among the employees at different locations.

✗ Collaboration and cooperation between employees at different locations may not work out.

Matrix Structure

This structure is a combination of function and product structures. It combines the best of both

worlds to make an efficient organizational structure. This structure is the most complex structure. It

uses teams of employees to accomplish work by capitalizing on their strengths while creating

weaknesses which are of functional form. The different types of matrix structures are:

Weak/Functional Matrix

In this type of matrix structure, a project manager is assigned to look over the cross-functional

aspects of the project. However, he has a very limited authority and it is the functional manager who

actually controls the inventory, resources and the project.

Merits

✔ Employees are not attached to temporary staff or temporary work.

✔ The functional manager controls the project.✔ The functional manager is responsible in case anything goes wrong.

✔ The more the project manager communicates with the employees, the better are the results.

✔ The project manager can make things happen without being in control.

✔ The decision-making rests in the hands of the functional manager.

Demerits

✗ The project manager may face strong apathy from his workers.

✗ The project manager does not have complete authority.

✗ If not supervised, workers can reduce the productivity of the entire unit.

✗ The project manager is a weak authority who has no control over the employees.

✗ He has no control over workload management and task prioritization.

✗ He cannot even give a performance review.

There are two more structures namely balanced/functional matrix and strong/project matrix. In the

balanced/functional matrix, the responsibility and power is shared equally by both the project

manager and the functional head. This may create a power struggle between them. In the

strong/project matrix, the project manager is primarily responsible for the work while the functional

head gives technical advice and allocates resources.

Other Organizational Structures



Bureaucratic Structure

This kind of structure can be seen in tall organizations where tasks, processes and procedures are all

standardized. This type of structure is suitable for huge enterprises that involve complex operations

and require smooth administration of the same. It is highly recommended for industries like food,

beverage, etc. as they have to adhere to stringent rules and regulations.

Merits

✔ As the complete control rests in the hands of one person, it is easy to achieve organizational

goals.

✔ Strict hierarchies ensure timely completion of tasks and quality.

✔ It helps in easy cooperation and coordination among the employees.

✔ Standardization and the best practices can be implemented easily.

✔ Employees have to adhere to policies and procedures.

✔ Production takes place efficiently and effectively.

Demerits

✗ A centralized authority can discourage employees.

✗ It does not encourage innovative ideas.

✗ It can lead to employee dissatisfaction and attrition.

✗ It cannot adapt to changes in the business environment.

✗ One person cannot be responsible for coming up with creative ideas every time.

✗ It can trigger a power struggle in the organization.

Pre-bureaucratic Structure

This structural form is best-exemplified in organizations where administration and control are

centralized, and there is very little, if any, standardization of tasks. This structure is highly

recommended for small-scale industries and start-ups.

Merits

✔ It has a centralized structure with only one decision maker.

✔ The founder has complete control on decisions and their implementation.

✔ Communication mostly happens on a one-on-one basis.

✔ Decisions are made and implemented quickly.

✔ Productivity and profits are closely monitored.

✔ If an employee works hard, he gets noticed.

Demerits

✗ Decisions taken by one person stand the risk of going wrong.

✗ It is only applicable to small businesses and cannot sustain once they expand.

✗ Lack of standardization can lead to inconsistencies.

✗ Employees are not part of the decision-making process and this can demoralize them.



✗ Effective communication may not take place as people do not open up in front of the authority.

✗ Due to lack of flexibility, employees may feel frustrated.

Network Structure

In this structure, organization managers are required to maintain and coordinate

business/professional relations with third parties such as clients, vendors and associates in order to

achieve a collective goal of profitability and growth. Most of the time, these relations are maintained

and tasks are coordinated via telecommunication and electronic media and, hence this structure is

also known as a virtual structure.

Merits

✔ The employees can be closer to the location of the customer.

✔ It helps in optimizing the knowledge potential of the organization.

✔ Even if something like a natural disaster occurs, the work of network employees can continue.

✔ It can be dynamic and easily adaptive to changes in the business environment.

✔ There is a certain level of flexibility for the employees.

✔ There can be a collaborative relationship between the supervisor and the employee.

Demerits

✗ An employee may have to report to too many supervisors and this may affect his work.

✗ As a formal hierarchy is missing, it can lead to conflicts.

✗ Too much dependence on technologies like the Internet, phone, etc. can cause problems.

✗ As there is no physical place for employees, it affects communication.

✗ It can lead to increased work stress among the employees.

✗ An intense competition exists among the supervisors, to get a high-performing employee.

Team Structure

Organizations with team structures can have both vertical as well as horizontal process flows. The

most distinct feature of such an organizational structure is that different tasks and processes are

allotted to specialized teams of personnel in such a way that a harmonious coordination is struck

among the various teams.

Merits

✔ It facilitates practical decision-making and implementation.

✔ Decisions are taken unanimously and not by an individual.

✔ It eliminates traditional scalar chains of command for getting approvals.

✔ The relationships and communication between employees improve.

✔ If one employee in the team fails to work, the other can take his place.

✔ It enables the heads to staff resources which complement each other.

Demerits

✗ There is very less contact with teams of other functions.

✗ If teams undergo constant changes and alterations, it can affect work.



✗ Each team contributes on its own and may not be in alignment with the organizational goals.

✗ Team members need to be proactive and incorporate better project management.

✗ The need for an effective leader can be felt.

✗ As decisions are given by many people, they may take a long time.

A Few More Organizational Structures

Entrepreneurial Structure

The authority of such organizations oftentimes is heavily centralized and lies with one person. It only

comprises two to three vertical levels and the duties of the employees overlap. It is suitable for small

or new organizations where the decision of one person matters the most. It also exhibits easy

responsiveness and adaptability to change in the business environment.

Horizontal Organization Structure

It is also known as a flat structure. In this type, there is absolutely nil or very less interference from

the senior management which allows the employees to conduct their tasks smoothly. Employees are

also involved in the decision-making process. As it eliminates the need for middle management, it

contributes towards giving a quick response to customer feedback. However, it may not be

applicable and practical for big organizations.

Vertical Organization Structure

It relies on the middle management to monitor and control the work of the employees. These

structures have well-defined roles and responsibilities for the employees. Hence, delegating tasks to

the employees becomes easier. It requires a strong leader at the top of the hierarchy as he is the

one to take all the decisions. As a hierarchy exists, it ensures that the work is done in a disciplined

manner.

Mechanistic Structure

This is the most formal and the strictest kind of structure with a clear distinction in the hierarchy and

roles. Hence, these structures are vertically oriented. The hierarchy of the authority is well-defined.

Decision-making rests in the hands of the senior management. As a lot of bureaucracy is involved in

these structures, the leaders find it difficult to deal with competition. Also, innovation oftentimes is

hampered due to red-tapeism. Employees work separately and are specialists of a task.

Organic Structure

It is the exact opposite of a mechanistic organizational structure. In an organization following the

organic structure, the authority is delegated and is decentralized. Hence, communication takes place

laterally. There is a lot of flexibility in this type of an organization. Employees generally work

together and coordinate different tasks. They are highly flexible to adapt to the changes in the

external business environment.

Post-bureaucratic Structure

This is a structure that is not bureaucratic in nature. While bureaucratic organizations are too

controlled, post-bureaucratic ones offer more freedom to the employees. Though there is hierarchy,

the leaders are open to new ideas. The decisions are taken after discussion and consensus is not



dependent on hierarchy. This encourages employee participation, trust, personal treatment,

responsibility and empowerment. This type of structure is often used in housing cooperatives and

non-profit organizations. It also incorporates techniques like total quality management (TQM) and

culture management.

Now that you know about the various organizational structures, implement the right one based on

its applicability, advantages and disadvantages. It is important to find an organizational structure

that works best for the organization as a wrong setup can hamper functioning and be detrimental to

organizational success.

Organizational StructuresTalking Points

There are two main types of organizational structures: centralized and decentralized

These two main types divide into several hybrid types, depending on the organizations

needs

The hybrid types include: team, matrix, functional and divisional In practice, a manager will struggle to manage more than 7 +/- 2 direct reports

Reorganizations seem to always happen when another company gets acquired or new

management gets put in place.

Discussion

Debates rage about the best way to organize a company for success. Some say that the

decentralized, push the power to the individual worker is the most efficient why while others

stress the need for a broad strategic vision that can be acted upon. No matter which side youcome down on, the way you organize your company will play a vital role it its success. The

other thing to remember is an organizational structure needs to evolve as the business needs

evolve. What worked as a five person startup does not work for a 10,000 person company.

Many an organization has made the fatal mistake of not evolving when it made sense. The

other extreme is the constant changing organization that struggles to find it’s way. That’s bad

as well.

Types of Organizational Structures

There are several different types of organizational structures that spawn from the

centralized/decentralized continuum. These structures all have pluses and minuses depending

on the stage your company is in. In broad terms, organizations can be categories as follows:

Team: A small group of people that solely focus on one thing. Teams have leaders

because someone has to reign in the chaos. Think of a sports team with a captain. The

team performs when they work together and the captain keeps them motivated while

contributing.



Functional: An organizational is functional when the common functions (e.g.

Engineering, accounting, manufacturing) are all managed in the same group. Things get

done by farming out the resources to who needs it.

Divisional: Aligns all the necessary resources to go after a particular market or set of

markets. A divisional structure contains all of the necessary functional areas to stand on

it’s own. It’s like a mini-business.

Matrix: is a hybrid between a functional and a divisional organization wherein some

resources are functional (e.g. Engineering and sales) while others are divisional (e.g.

Marketing and management). These organizations try to gain efficiencies by having the

functional groups work for many different divisional entities.

Hierarchical/Bureaucratic: Can be either functional, divisional or matrix but share a

common trait that decisions are typically made at the top and trickle down. Thesestructures rely heavily on process and systems to ensure compliance with all the rules.

The bigger an organization gets, the more hierarchical and bureaucratic it will become.

Flat: These organizations try and remove layers of management so that, ideally, everyone

would report to the boss (or CEO). In practice, this is harder and harder to do as the

company grows. The benefits of a flat organization is that everyone knows exactly what

management wants since they all report to the highest level.

Entrepreneurial: Considers all opportunities like a mini business. Thrives on creating

products and services not just selling the same old stuff. Formal structures are lacking andthings tend to chaos quickly when scaled.

Virtual: No formal office or people in the same state or country. These types are the

collaboration environments where people come together for specific projects and then

fade away. Several consulting firms use this model since talent can be anywhere. and the

Internet has made it easy to collaborate.

Stages of an Organization

Organizations go through many stages. These stages require different structures in order for

the organization to be successful. There is really no magic formulas here but you do need to

understand when you are moving between each stage and what stage you are at. These stages

include:

Start-Up: This stage begins the organization. It’s the spark that ignited a small group of

people to come together and figure out how to change the world. The official end of the

start-up stage is somewhat nebulous. Some consider product launch, first sale or being

profitable as the sign that the organization is moving to the next level.



Growth: At this stage, the organization has a product and it’s selling it into the

marketplace at an accelerating rate. This rate is challenging to keep up with and it feels

like things are happening so fast that no one knows what to do. At this point, companies

hire like crazy. The official end of growth seems to be when your sales growth slows to

your industry average or the organization starts to feel comfortable.

Expansion: Once growth ends, management will look to expand into additional markets

to kick start growth again. This expansion phase will be riddled with mergers, new

divisions or business units. It can be as chaotic as the growth stage because of

managements overwhelming desire to restart growth by any means necessary. In some

organizations, expansion never ends but when it does end, maturity sets in.

Maturity: At some point, a company will stop growing and expanding. At this stage, the

company will look to make systems and processes that focus solely on reducing costs andimproving efficiency. Maturity feels comfortable and the creative spark that might have

existed has been extinguished.

Destruction: There are very few companies that stand the test of time. If you look at the

Dow Jones of 100 years ago, there is only one company that is still on it. This means that

all those other companies either merged with others or went out of business. This phase is

pretty obvious when you are living it. Sales are slowing or sluggish, the company is

losing money and employees are just waiting for the hammer to fall.

One complexity to this is that organizations can be at two stages at the same time. Duringthese times, it’s always challenging to maintain a stable organizational structure since each

stage tends to have conflicting requirements.

Signs You May Need to Change

The stages above are broad enough that it might not seem obvious which organizational

structure is the best one to choose. In general, there are several signs that the organization you

are presently in needs to change. Consider some of the more obvious situations like:

New businesses are fighting with old ones: There will always be a healthy tension

between the people who make the money now and the ones working on making money

later. If it gets too out of hand, it will create silos that will fight each other to the death at

the expense of making the company successful.

Systems and procedures are constantly breaking down: One sure sign of growing

pains is when the old systems (or lack of them) your organization had in place start to

break down under the strain of growth. When this starts to happen, you need to take a

look at your structure and see how it can change to overcome this.



Morale is low and people are leaving: Organizational change or lack of change can

make your talented staff leave. This is a sure sign that whatever structure you are

presently under needs to change.

No new products are being released: New products drive growth. Without them, a

company will fad away. So if your innovation pipeline is drying up or you have not

released something in a while, then you need to rethink your companies structure to

support more new products.

Revenue or profit accelerating or decelerating: Revenue and profit will drive your

organizational decisions either way they go. During highly accelerated revenue times,

there will be a mad dash to grow and expand. During a deceleration, the organization will

want to shed cost (read people) as fast as they can.

Focus on What Makes Sense

Organizations evolve over time. This is an inevitable fact of life. You need to be able to

adjust your organizations to meet there needs but not adjust them so much that you loose the

soul of your company. The desire to change will always be present no matter what stage you

are in. This desire is rooted in managements need to build a better organization. Resist the

urge of constant change because that will just create chaos. What you should focus on is what

makes sense for your organization at the stage that it’s in.

Things To Ponder

Determine the type of organization you are presently in. Write 2 paragraphs on how it’s

organized.

How would you reorganize your group or division to be more effective?

Which organization do you like to work in? Write a paragraph on why you like the one you

choose.

Take a look at a recent merger. How did the two companies sort out their organizational

structure? Write a paragraph or two on the challenges they faced and how they solved

them.

What stage is your organization in? How will you transition to the next level? Write aparagraph or two about your plan



Answer 3 .

Business Plan

[Click here and type your business name]

[Click here and type your address]

[Click here and type your phone number]

[Click here and type the date]

[Click here and type the people on the management team]

Table of Contents

Table of Contents .............................................................................................................. 26Executive Summary .......................................................................................................... 28Vision/Mission Statement and Goals ................................................................................ 29

A. Vision Statement ...................................................................................................... 29

B. Goals and Objectives ................................................................................................ 29C. Keys to Success ........................................................................................................ 29



Company Summary .......................................................................................................... 29A. Company Background.............................................................................................. 29B. Resources, Facilities and Equipment ....................................................................... 29C. Marketing Methods .................................................................................................. 29D. Management and Organization ................................................................................ 30

E. Ownership Structure ................................................................................................. 30G. Internal Analysis ...................................................................................................... 30

Products and/or Services ................................................................................................... 32Market Assessment ........................................................................................................... 32

A. External Analysis ..................................................................................................... 32B. Customers ................................................................................................................. 32C. Strategic Alternatives ............................................................................................... 32

Strategic Implementation .................................................................................................. 33Financial Plan.................................................................................................................... 34

A. Financial Projections ................................................................................................ 34B. Contingency Plan ..................................................................................................... 34

Monitoring .........................................................................Error! Bookmark not defined.



Executive Summary

This section is a summary of the information from the pages that follow. Prepare it last, after

the business plan has been written. It should not exceed two pages. Headings to use in the

Executive Summary: A. Vision/Mission Statement

B. Company Summary

C. Products/Services

D. Market Assessment

E. Strategic Implementation

F. Expected Outcomes



Vision/Mission Statement and Goals

A. Vision Statement

The vision/mission statements are clear summaries of where the business is headed. Itdescribes what the business produces, who products are produced for, and unique businesscharacteristics. It will reflect the values of the management team and the type of businessculture you are trying to create.

B. Goals and Objectives

What do you want your business to achieve? Be specific in terms of financial performance,

resource commitments (time and money) and risk.When will various milestones be achieved?

C. Keys to Success

What do you need, or must happen, for you to succeed?

Company Summary

The material in this section is an introduction to the firm.

A. Company Background

What does your business do?Who were the founders of the business?What were the important milestones in the development of the business?

B. Resources, Facilities and Equipment

With what do you produce your products or services?What are the land, equipment, human and financial resources?Who provides them?How are resource providers rewarded?

C. Marketing Methods

What is your annual sales volume in dollars and units?



Explain how you work with others to improve returns. This may include a strategic alliancewith suppliers or customers that you can leverage.Do you use forward contracting, options, or futures? If so, how?How much does it cost to produce and deliver your products and services?How is contracting used?

D. Management and Organization

Who is currently on the management team?How have management responsibilities been divided among the management team?What are the lines of authority?Who acts as the president/CEO? spokesperson? Chief Financial Officer?Who determines employees’ salaries and conducts performance reviews? What is the educational background of the management team members?What is the management team’s reputation in the community? What special skills and abilities does the management team have?What additional skills does the management team need?Who are the key people and personnel that make your business run?Who do you go to for advice and support?Do management and employees have avenues for personal development?Sketch a diagram of lines of authority for your operation.

E. Ownership Structure

Who are the primary stakeholders in your business?Describe the legal form of your company, such as partnership, proprietorship, or corporation.Do you need special permits to operate, or a record for inspections? If you do, please describethem.

F. Social Responsibility

What environmental practices do you follow?What procedures do you use for handling chemicals?What noise/dust/timing/odor policies do you have?What will be the roles of management and employees in community organizations?

What will be your involvement at the local/state/national level in commodity organizations?What training and new employee orientation practices will you offer to insure properhandling of hazardous materials and safe operation of equipment?

G. Internal Analysis

What are the strengths and weaknesses of your firm?What are the relative strengths of each enterprise or business unit within the firm?What are the core competencies (things you are doing better than others) of your firm?What things can you build on? Think only about the things that you can control.

Suggested areas to consider: knowledge and work



financial position

productivity

family

lifestyle

location

resourcesWhat enterprise or business unit should be exited?What enterprise or business unit shows promise?



Products and/or Services

Describe the products and services you plan to sell.How is your product or service unique?Are you producing a commodity or a differentiated product?

How does your product or service compare to other products inQuality? Price? Location?What experience do you have with this product/service?

Market Assessment

A. Examining the General Market

How is the market characterized?Are there clear segments in the market? Describe them.What important customer need(s) is the market not currently fulfilling?What is the growth potential for each segment of the market?What opportunities and threats does your firm face?What does an analysis using the Five Forces model suggest about your industry? Who is yourcompetition (in light of the Five Forces)?What trends, relevant to your business, do you see?What are the drivers of change?What political and legal issues do you face, such as zoning, environmental laws, inspections,etc?

B. Customer Analysis

Who will be your customers?What do you sell to each of the customers?How does your product/service solve a key customer problem?How difficult is it to retain a customer?How much does it cost to support a customer?

C. Industry Analysis

D. Strategic Alternatives



Strategic Implementation

A. Production

How will you produce your product?

What value will you create and capture with your product?What is your competitive advantage?What technology will you use, i.e. reduced tillage, GPS systems, etc.?What processes will you use to produce products?What growth options will you use to develop the business unit?

Enterprise Expansion

Replicate

Integrate

NetworkWhat is the anticipated timeline?

B. Resource Needs

In order to effectively organize your business you need to insure the resources are available.Assess those needs here.

a) HumanWhat skills are needed?How will human resources be acquired?

b) Financial

What level of financial resources will be needed?

c) PhysicalWhat type, quantity and quality of physical resources will be required?

C. Sourcing/Procurement Strategy

On what do you base a decision to buy products or services? Price? Quality? Convenience?Extra service? A combination?By what venue will you find suppliers — local dealer, Internet, direct from manufacturer,etc.?

D. Marketing Strategy

What is your sales plan?What advertising and promotion will be used to increase sales/awareness?Where will you sell products/services?Will you use the open market or contracts?Do you have a preferred market outlet?Are you a qualified supplier for a specific processor or buyer?How will you price the product?

a) Hedging, forward pricing, optionsHow will you use these to mitigate your risk?



b) Contracting

Will you use production or marketing contracting to reduce risk?

c) Insurance

How will you use crop, liability and other insurance?

E. Performance Standards

What performance standards will be used to monitor this enterprise or business unit?What are acceptable performance standards?What yield or output levels could you attain?What efficiency levels will you reach?What procedures will be used to monitor performance?Who is responsible for monitoring performance?What industry benchmarks will be used to assess performance?

Financial Plan

A. Financial Projections

How will you fund the business?What is your desired debt and equity position?Who will provide capital debt funds?What role will leasing play in your financial strategy?Will you use outside investors for equity capital?How will you manage the financial risks your business faces?What operating procedures, such as developing cash flow budgets or spending limits, willyou have to ensure adequate money for debt repayment?What are the important assumptions that underlie your projections? These assumptions may

be associated with both external or internal factors.What financial aspects of your business (equity, asset growth, ROA, ROE, etc.) will youmonitor?What procedures will be used for monitoring overall business performance?

What level of performance will your business shoot for? These should be targets for next yearand in five years. They should be financial performance standards used to monitor the overall business.What yield and output levels could you attain? What efficiency levels will you reach?

B. Contingency Plan

What will you do if you can’t follow through with your primary plan? How are you preparing for an emergency in your business?How will the business function if something happens to one of the key members of the

management team?



Answer 24. Decisions are a part and parcel of the life of every human being. In every area, be it

personal or professional life, we need to take decisions. There are various types of decision-

making, which can vary in importance. There could also be some instances where decisions may

need to be taken very quickly. But when we are faced with problems or dilemmas where our

decision has the ability to affect not only us, but others around us as well, then they have to be

made very carefully. Many people take decisions depending just on their gut feeling. However, if

the decision involves money or someone's life, it is important to analyze the situation carefully

before making the final decision. The steps can help us make significant decisions thoughtfully.

What are the Steps Involved in Decision-making?

Step 1: The first step is to understand the importance of making the decision. You would have to

make a list of some important factors like -

Time required to make the decision

Result of making a good and a bad decision

People who would help you

Who will face the consequences of the decision?

Affect of the decision on you and the people around youWhat will happen if the decision is not made?

Step 2: Every decision is made to achieve some kind of goal or objective. So, the next step would

involve charting down the goals that you want your decision to achieve. At this stage, it is also

necessary to make a note of the consequences that are not desirable once the decision is made.

Step 3: For a person to make a decision, he or she has to be confronted with two or more options.

If there is no option, making a decision would be impossible. So, the third step requires you to

make a draft stating the options that are available to you. One can also create some options that

do not exist in reality. Doing this may help you find some solution to your problem and make the

decision process a little easier. Once you have listed the available options, you have to examine

each option and make a section for options that sound to be very promising and those that seem

not so relevant. However, you have to be careful not to take out any option from your list before itis analyzed in detail.

Step 4: Step 4 is where you have to analyze the different options in detail. Your analysis would be

on the basis of what would be the result of each option available to you. You can take the help of

different people at this stage, asking them to give their opinion on each option. Here, you would

be able to recognize certain options that require more research or contemplation. This stage is a

filtration process where the options that seem to be irrelevant should be taken out of the list and

only the best possible ones retained.

Step 5: At this step, you have to develop some criteria, according to which you have to compare

the various options available to you. These criteria are conditions that would help you in evaluating

the different options and would aid you in taking the decision.

Step 6: Once you have decided on the criteria, it is time for analysis of each option according to

the set conditions. Make a table, where the criteria appears in columns and options appear in

rows. Rate each option with a numerical digit, as per how it would be beneficial for each criterion.

Step 7: After rating the available options according to criteria, at the seventh step, try to combine

different options that are available to you and see whether you can come up with a better solution,

instead of just choosing one option. You also have to summarize the results you got for each

option to make the final decision.

Step 8: This is the final stage, where you have to make the ultimate decision. Before you do this it

is important to go through all the steps and recheck all the information. This would be beneficialfor delaying the time of taking the final decision, if you find any missing information. One very



important thing that you have to keep in mind is that every decision you take would have some

level of risk. Knowing the potential risk involved in the decision one makes would aid in preparing

for the problem that arises with the decision.

These are essential decision-making techniques that would prevent one from choosing the wrong

option. This is also an important way of learning proper judgment skills that would assist you in

every decision you make.

Answer 23.

Scope of strategic management

J. Constable has defined the area addressed by strategic management as " themanagement processes and decisions which determine the long-term structureand activities of the organization". This definition incorporates five key themes:

* Management process. Management process as relate to how strategies arecreated and changed.* Management decisions. The decisions must relate clearly to a solution ofperceived problems (how to avoid a threat; how to capitalize on an opportunity).* Time scales. The strategic time horizon is long. However, it for company in realtrouble can be very short.* Structure of the organization. An organization is managed by people within astructure. The decisions which result from the way that managers work togetherwithin the structure can result in strategic change.* Activities of the organization. This is a potentially limitless area of study andwe normally shall centre upon all activities which affect the organization.

These all five themes are fundamental to a study of the strategic managementfield and are discussed further in this chapter and other part of this thesis.

Definition of Business Policy

Business Policy defines the scope or spheres within which decisions can be taken by the

subordinates in an organization. It permits the lower level management to deal with the

problems and issues without consulting top level management every time for decisions.

Business policies are the guidelines developed by an organization to govern its actions.

They define the limits within which decisions must be made. Business policy also deals

with acquisition of resources with which organizational goals can be achieved. Business policy is the study of the roles and responsibilities of top level management, the significant

issues affecting organizational success and the decisions affecting organization in long-run.

Features of Business Policy

An effective business policy must have following features-

1. Specific- Policy should be specific/definite. If it is uncertain, then the

implementation will become difficult.

2. Clear- Policy must be unambiguous. It should avoid use of jargons andconnotations. There should be no misunderstandings in following the policy.



3. Reliable/Uniform- Policy must be uniform enough so that it can be efficiently

followed by the subordinates.

4. Appropriate- Policy should be appropriate to the present organizational goal.

5. Simple- A policy should be simple and easily understood by all in the

organization.

6. Inclusive/Comprehensive- In order to have a wide scope, a policy must be

comprehensive.

7. Flexible- Policy should be flexible in operation/application. This does not

imply that a policy should be altered always, but it should be wide in scope so as to

ensure that the line managers use them in repetitive/routine scenarios.

8. Stable- Policy should be stable else it will lead to indecisiveness and

uncertainty in minds of those who look into it for guidance.

Difference between Policy and Strategy

The term ―policy‖ should not be considered as synonymous to the term ―strategy‖.

Thedifference between policy and strategy can be summarized as follows-

1. Policy is a blueprint of the organizational activities which are

repetitive/routine in nature. While strategy is concerned with those organizational

decisions which have not been dealt/faced before in same form.

2. Policy formulation is responsibility of top level management. While strategy

formulation is basically done by middle level management.

3. Policy deals with routine/daily activities essential for effective and efficientrunning of an organization. While strategy deals with strategic decisions.

4. Policy is concerned with both thought and actions. While strategy is concerned

mostly with action.

5. A policy is what is, or what is not done. While a strategy is the methodology

used to achieve a target as prescribed by a policy.

Strategic Decision Making Process:

What are the major categories or processes of Decision Making? Researchers have found it

difficult to spell or specify any one strategy for Decision Making Process.

Decision making is both intuitive and analytical. A rational decision making is based on

several assumptions. Greater inputs of information lower ambiguity and uncertainty can be

minimized.

The decision making process has to be objective. Criteria must be established and weighted

mathematically and factors are added up, thus reducing the chances for subjectivity to drive

the right decision.

Different management gurus and writers have propounded different theories for decision

making. Let us view a few here:

In any situation confronting an organization, the decision makers go through a cycle of

defining moments -



observe the situation

recognize the problem

orient on the situation

make estimate, value judgment and analysis

make a decision

act on decision that affects the situation

feedback to observe the situation.

A linear model of an example of rational decision making steps is –

set organizational goals and objectives

develop alternatives

compare/evaluate alternatives using objective criteria and weights based on the

leader’s guidance. choose among alternatives the one that best matches the criteria

implement the decision

command, lead and manage

feedback loop-observe results and begin process again as required.

In 1976, Mintzberg, Raisinghani and Theoret provided a model for strategic decision making

process with sub-routines and sub-phases within each. These are:-

The Identification Phase:

the decision recognition routine: opportunities, problems and crises are recognizedand evoke decisional activity.

the diagnosis routine: information relevant to opportunities, problems and crises is

collected and problems are more clearly identified.

The Development Phase:

the search routines: organizational decision maker goes through a number of activities

to generate alternative solutions to problems.

the decision routine: ready made solutions which have been identified are modified to

suit the particular problem or new solutions are designed.

The Selection Phase:

the screen routine: the routine is activated when the search routine identifies

more alternatives that can be intensively evaluated. Alternatives are quickly

analyzed and most obviously infeasible ones are eliminated.

`The Strategic Decision Making Process` is analytic, deliberate, systemic and rational

approach because time is available to do it right.



19. Importance of strategic marketing issues & strategic R&D issues to success ofstrategic planning for horizontal growth of firm

The importance of a strategic marketing plan

Whether you are running a large or small organization, Mainstream Marketing can help you prosperby applying our experience, skill-sets and creative approaches to everyday marketing by developing

a highly effective and results driven marketing plan.

When we develop a comprehensive marketing plan, we can objectively assess the current status of

your marketing efforts with regard to Product, Pricing, Distribution, and Promotional strategies;

assess their relationship with all external business factors including (but not limited to), your

competition and target market; develop measurable sales objectives; and outline product, pricing,

distribution, and promotion strategies designed to achieve those objectives.

It doesn't matter if you are running an existing business or starting a new business it is critical to the

success of any business that the business operator understands the importance of a strategic

marketing plan. Ensuring that your business is guided by a strategic plan will determine the

difference between successful growth and flat line growth.

When consulting with a new client our first focus is to establish a clear understanding with ourclient, the importance of a strategic marketing plan. A strategic plan will include initiatives that are

measureable and targeted. Examining and finding all the possible initiatives that can be utilized is

what we are trained to do. We have been successful at consulting with our clients and uncovering

what their business needs are, who their target audience is and what initiatives will best satisfy all of

the organizations revenue goals.

Marketing and advertising are critical elements that should reflect and compliment the exact

financial goals of the organization. The path to reaching those financial goals is through carefully

plotted strategies that directly target the desired consumers. We encourage every business to view

their marketing and advertising plans as a tree that bears fruit. When the plan is originally developed

you should design "a tree" that has strong and sturdy roots, has healthy leaves and bares a bounty of

healthy fruit. When sales in the company are healthy and finances allow you to maintain your

strategic plan as established you will continue to enjoy the bounty of fruits the tree has to bare.

However, a strong and strategic plan will be prepared for unexpected changes in the business

environment and/or financial situations. This is when you need a strong and strategic plan more

than ever, as it will be able to accommodate the unexpected changes in the environment and should

be able to adjust to ensure the proper execution of the strategic plan even during unexpected

situations. Going back to our "tree" concept you should view your plan as such, if you need to cutback on some of your initiatives or make adjustments it is critical to ensure that you know the



difference between trunk items; these being initiatives that cannot or should not be pruned, cut or

eliminated. If you adjust any of these "trunk" items you must be cautioned that you most likely have

destroyed your plan from being effective. However, if you do trim the areas that will allow the tree

to continue to grow and flourish such as the limbs and the leaves you will find your plan will also

continue to sustain. This is the importance of a strategic marketing plan.

When you embrace the importance of a strategic marketing plan you will begin to experience the

security that a strategic plan will offer and which will guide you and your organization through both

good times and hard times. Now, understanding the importance of a strategic marketing plan will

give you the power to control the destiny of your company. Also, this plan will help you to smoothly

navigate around any current competitors or new competitors that may threaten to potentially take

away market-share from you. When your plan is strategic so are all your reactions to threats that

enter into the marketplace. In our experience of developing and understanding the importance of a

strategic marketing plan, we have been fortunate to see many organizations prosper from following

our recommendations and from organizations that have come to us to help them critique their

existing plans.

We encourage our clients to get involved with the development and the execution of their strategic

plans, afterall, YOU are the true "expert" in your own business, so why shouldn't you be intimately

involved in the entire process of developing your strategic plan. Your knowledge combined with our

skills will guarantee your success in business. Don't waste your time, money or that next great new

business idea or concept because you underestimated the importance of a strategic marketing plan.

Are you still unsure if your business needs a strategic plan? Than we would highly encourage you to

contact us and setup a free consultation to discuss your new or existing business and why

developing or critiquing your strategic plan may mean the difference between mediocre success and

reaching your businesses full potential.



Ans 25. Feedback mechanism in SM

Continuous Improvement through Feedback

If you want to enjoy success year after year as an entrepreneur you need to pay

attention to your customers and your operations. Feedback mechanisms are the

best way to gauge objective feedback from clients and from your staff.

Feedback from surveying will shape how you can improve operations to build and

retain customers and revenue. Continuous improvement is a must in this

competitive world.

Feedback Mechanisms

Whether customers are satisfied or not with your service or product, ensure you

havefeedback mechanisms such as surveying as part of your service operation.

You need to analyze a cross-section of feedback from all customers. Even the

happy customers will make note of things that can make the experience, product

or service better. Remember that you should not think your business is at 100%

optimization in your product or service delivery. Don`t fall into the trap of thinking

everything is perfect and you never have to change. Business environments and

industries constantly change, and with that, you need to stay competitive with

continuous improvements. Take that valuable information from your customers

and revise your operations, customer experience, product or service accordingly.

Ensure that you provide a message around your survey process that they are

helping shape better products and services.

Continuous Improvement

Encourage a continuous improvement environment in your business, and empower

your staff to take the lead and charge of recommended improvements. As a

leader, engage with your staff and units and survey them for their valued

feedback. Employee buy-in can occur if you make them a part of the valued

process, and allow them to take ownership of the piece of action. It helps as a

leader to recognize unit and project leaders for their efforts. If the improvement

recommendations result in significant operational or profitability improvements,

compensation incentives may be appropriate. A whole organization that is

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engaged in a continuous improvement process will definitely build a continuous

competitive firm.

Ensure you pay ultimate attention to your customer base and to your internal

members of your business for feedback to make your business better and morecompetitive.

Feedback Mechanisms

One of the most important steps in strategic management is to reevaluate the

organization on a continuous basis. This can help to identify any additional objectives

and how previous objects paid off. One could consider this an on going cycle of tweaking

and adjusting. A mechanism that I thought of for gauging the impacts of the strategicimpacts is simply looking at market share in the power tool segments. If we gained

and/or held our market shares in the various segments than the objectives were a

success. Another mechanism that can be utilized for feedback is organizational profits. If

Able begins making more profit than previous years this can be a definite sign that things

are improving.

The mechanism of feedback has a very simple definition: "thereturn to the input of a part of the output" [1].

This simplicity should however not undermine the importance of

feedback mechanisms and their ubiquitousness in our life, bothon macro- and micro-scales. In order to further present theconcept of feedback mechanisms I introduce a simplifying division

between the systemic view of feedback and the decision

making view of feedback.

2. Systemic view

From the point of view of a system (understood as "a regularlyinteracting or interdependent group of items forming a unified

whole" [2]), feedback mechanisms have a very important role to

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play. Through "feeding back" a part of output again into the

system, we obtain a perfect regulatory mechanism. Thisregulation is based on two basic kinds of feedback, namely:positive and negative feedback.

Positive feedback mechanisms

We call a feedback mechanism positive if the resulting action

goes in the same direction as the condition that triggers it.

A good example of positive feedback is a turbo-charger fittedto the engines of vehicles. As we accelerate, increasing

revolutions of the engine (after crossing some threshold), set theturbo-charger on, that in fact increases the speed even further.Summarizing, a part of output (acceleration) was "fed back" to

the process again, causing action going in the same direction(further acceleration).

Negative feedback mechanisms

A feedback mechanism is called negative if the resulting

action opposes the condition that triggers it. To name anexample, one might think of the heating systems we use at

homes. Very often we set our heaters to maintain constanttemperature while we are at home. So the heaters turn on andoff as a function of the interior temperature. If the temperature

drops below some threshold, the heating system is beingswitched on, compensating and increasing the temperature again.

In other words, a part of output (falling temperature) was "fedback" to the system again, causing action going in the oppositedirection (increasing temperature).

These two above mentioned mechanisms of positive andnegative feedback constitute a basis for system controlling.Furthermore they can be put together in different configurations

composing "feedback loops".

Feedback loops

We may divide feedback loops into negative and positive. Ifpositive and negative feedback mechanisms are alternatinginone system, we talk about the negative feedback loop.



This kind of feedback loop has stabilizing properties. As an

example one might think of some biological (food-chain)mechanisms. Increasing population of storks causesa decrease in the population of frogs, which in turn causes

thedecrease in the number of storks until the moment that thenumber of frogs is up again. In this sense, negative feedbackloops are (ceteris paribus) auto-regulating.

Positive feedback loops can go into two directions: they can

be either "exploding" or "imploding".

If only positive feedback mechanisms are governing a system,

this kind of positive loop is called "exploding".



As an example we might mention a positive feedback loop

between income and consumption. The bigger the income percapita in an economy, the more people consume, therefore

further increasing their income per capita, and so on.Ceteris

paribus, this mechanism will continue infinitely.

In many industries, success feeds success, i.e. a successful

firm makes money (output) which is partly used to improve thesame reasons of its success (input factors). Costly innovation, ifsuccessful, give rise to profits which allows for further Research

and Development, as you can experience with this businessgame.

In consumption, positive feedbacks can be linked

to imitation phenomena.

External funding (e.g. from banks) is positively linked to owncapital commitment, so that loans are given only to healthy firms,

boosting them to even higher levels. For the system effects offinancial fragility see this paper.

Similarly, rich families are usually able to assure to theirchildren a good level of education (e.g. by buying more books, bytravelling, by additional education resources), which in turnpositively affect the employability and family income.

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If only negative feedback mechanisms are governing a system,

we call this loop "imploding". For a rather exaggerated example,think of a person who loses appetite when preoccupied. Once shestarts to worry, she loses weight, therefore being even more

preoccupied seeing her state and losing even more weight, andso on. If nothing else stops this vicious circle (e.g. a societalhelp), imploding positive feedback loop leads to the self-destruction of the system.

This is the dramatic case of denutrition and low

individual productivity (thus, income) in many areas of the ThirldWorld.

From the stance of a system, feedback mechanisms are veryimportant for mutual interaction of the system's elements.However this point of view is in a sense very "endogenous", i.e.

treating the parts of the system as being inert and not able to

vary their behavior depending on the state of the environment. Inorder to further analyze the complexity of feedback we have to

allow for the decision making feature of the system's parts.

3. Decision Making view

From the decision making stance, feedback is specifically definedas "the transmission of evaluative or corrective information to theoriginal or controlling source about an action, event, orprocess" [3]. From now on, I will focus more in detail on the

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processes controlled by humans (as opposed to the processes

controlled by the artificial intelligence, i.e. computers).

Human decision making is largely based on the concept of

feedback. To mention an example on the individual dimension,managers try to estimate the correctness of their past actions byobserving the output of these decisions or managerial indicators(like Balanced Score Cards) and introduce necessary corrections.

On the group decision making dimension, democraticgovernment is also an example of a controlling body trying to

incorporate information from the past into the process ofdecision-making in the future.

Having said that, we have to notice the qualitative change inthe weight of the positive and negative feedback. From now on,

feedback is not only a piece of information "fed back" to thesystem again. Critical consequences of feedback must be now

included into the system: its role in motivation, consistency and

learning.

The most important consequence of feedback information is itsinfluence on the motivation and consistency of decision

makers. It is generally agreed that a decision maker receiving

positive feedback tends to be motivated and to continuewith the previously chosen course of action only slightlymodifying it. If provided with the negative feedbackshe has a

tendency to feel demotivated and search for other alternativesof solving the problem.

For instance, the consumer's behaviour could be interpreted asa trial-and-error process: to buy a good - say because of a hint ofpossible use - to try it, to judge the experience and to renew the

purchase in case it is pleasant or search for new brands in theopposite case. Brand loyalty is often explained in these terms.

It should be however noted that this simplified and generally

accepted view of interactions between feedback, motivation andconsistency in decision making has been lately seriouslychallenged on the academic grounds.

Explore by your own this issue by playing this business game.

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The second, equally important, consequence of feedback is its

relation with learning. Generally experts (but also simpleexamples from everyone's life) indicate that no learning wouldoccur if some kind of feedback was not available. One can easily

imagine that a driving lesson with driver's eyes closed and earsplugged would almost certainly result in an accident. In our life,feedback seems to be an inseparable part of learning. However,recently some researchers stated that people may learn rules

without any feedback whatsoever; they only need more time todo so. For a discussion about the relationship between learningand feedback see this paper.

4. Further dimensions of feedback

There are many ways to divide feedback. Below I propose just a

few, basing on the:

1. simplicity of the feedback; simple feedback is generally basedonly on one cue and complex feedback on multiple cues.

2. timing when feedback is given; generally, feedback can beobtained either immediately after the decision making orbe

delayed (shortly after the decision), or be postponed (delivered

much time after the decision making action), or not bedelivered at all; for a discussion see this paper.

3. source of the feedback; feedback might either be extrinsic,i.e. coming from an external source (e.g. tennis coach giving youinstructions) or intrinsic, i.e. coming from the inside (e.g.

continuous feedback to your brain from muscular proprioceptorswhile practicing your back-hand).

4. "explanatory power" of the feedback; if feedback mirrorsonly the dynamic development of a problem (e.g. providing onlythe result of your previous decision), it is called outputfeedback. If feedback describes why the problem develops in

particular way, it is called cognitive feedback.

5. trustworthiness of the learning environment; some sources

of information are more trustworthy for the decision maker,therefore the feedback from them are going to be considered to a

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bigger extent and some sources of feedback might be

totally disregarded.

5. Time horizon and situational awareness: feedback andfeedforward

From the systemic stance as well as from the decision making

point of view, feedback has a crucial disadvantage: it refers tothe past, or at best, to the present. Feedback control allows the

selection of actions on the basis of past or current informationabout the system.

A control system referring to the future iscalled feedforward. It requires higher situational

awareness, in order to choose an action on the basis ofthe predictions of the future state of the system.

Feedforward control is superior to feedback control because of

its focus on avoiding problems rather than fixing them, butrequires more adequate knowledge and cognitive effort.

Neoclassical theory has based much of its interpretation of

human choice process in terms of feedforward mechanisms, alsoin the form of inter-personal game theoretic interaction. Now, afully new strand of empirical experiments is sheding light on the

complexity of this issue.

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