Corporate management - strategic management - Manu Melwin Joy

Corporate ManagementStrategic Management

Prepared By

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Manu Melwin JoyAssistant Professor

Ilahia School of Management Studies

Kerala, India.Phone – 9744551114

Mail – [email protected]

Corporate Policy

• A policy is a general statement which is formulated by an organization for the guidance of its personnel.

• The objectives are first formulated and then policies are planned to achieve them.

Considerations in Policy formulation

• Organizational goals – The policies are formulated to achieve organizational goals.

• Proper organization – Policies should be framed by the participation of person at various levels of management.

• Reflect the business environment – The policies should be based on the internal and external environment.

Considerations in Policy formulation

• Consistency – Various policies of an enterprise should conform to each other.

• Proper communication - The policies should be properly communicated to each level of management.

• In writing – the policies should always be in writing.

Process of Policy formulation

• Defining policy area – The areas for which a policy is to be framed should be defined. The objectives and needs of the organization should be kept in mind while specifying the policy area.

• Identifying policy alternatives – The alternatives should be decided on the basis of an analysis of external and internal environment.

Process of Policy formulation• Evaluating alternatives – All

alternatives are evolved in the light of organizational objectives. It should be analyzed to what contribution these alternatives will make in helping the organization for achieving its purpose.

• Selection of a policy – After proper evaluation, most appropriate alternative is selected. The selection of a policy is a long term commitment. In case the alternative do not look satisfactory, then efforts should be made to develop other alternatives.

Process of Policy formulation• Trail run of a policy – The

policy should be implemented on a trial basis. It should be assessed if the policy is achieving the desired objectives.

• Implementing policy – If the policy is finally alright, it should be implemented.

Types of policies• Major policies – Major policies are

those which give a unified direction to an enterprise and imply a commitment of resources. These policies give shape to an enterprise in the accomplishment of its purpose.

• Supportive policies – Supportive policies are meant to help in implementation of major policies. A concern may have the development of a new product as a major policy, the research to find out the unfulfilled needs of consumer may be a supportive policy.

Types of policies• Minor policies – The policies

which do not influence main objectives of the enterprises may be called minor policies. These policies may relate to some routine matters of less importance.

• Composite policies – Some concerns have a number of policies or group of policies. To achieve one objective, a number of policies may be used which are known as composite policies.

Corporate Governance• The Cadbury Committee

report (1991) defines corporate governance as a system by which corporate are directed and controlled.

• According to Salins Sheikh and Williams Ress, corporate governance is concerned with ethics, values and morals of a company and its directors.

Corporate governance in India

• In India, the concept of

corporate governance is

gaining importance mainly

because of two reasons.

– Economic Liberalization

– Deregulation of industry

and business

Corporate governance in India

• Economic Liberalization –

After liberalization, there has

been institutionalization of

financial markets and the

market began to

discriminate between

wealth creators and wealth

destroyers.

Corporate governance in India• Deregulation of industry

and business – The role of private sector has increased and the companies are realizing that shareholders love to stay with those corporate that create value for their shareholders which is possible only by adopting fair, honest and transparent corporate practices.

Mandatory requirements of corporate governance code

• Composition of Board of Directors – The board of directors of the company shall have an optimum combination of executive and non executive directors with not less than 50% of the total number of directors comprising of non executive directors


• Director’s pecuniary relationship – All pecuniary relationship or transactions of the non executive director’s vis-à-vis the company should be disclosed in the Annual Report.


• Audit Committee – Every company is required to set up a Audit Committee consisting of minimum three members, all being non executive directors, majority of them being independent and at least one member having financial and accounting knowledge. They should meet at least 3 times in an year, once in every six months.


• Director’s remuneration – The remuneration of non executive directors shall be determined by the board of directors and the following disclosure shall be in the annual report : (a) all elements of remuneration package of all the directors (b) details of fixed and performance related components of remuneration and (c) service contracts, notice period etc.


• Board meetings – Minimum four board meetings should be conducted in a year. There should not be a time gap of more than four months between any two board meetings.


• Management – The management of the company must disclose to its Board details relating to all material, financial and commercial transactions.


• Shareholders – In case of appointment of a director, shareholders should be provided with a brief resume of the person. The company should publish in their website details regarding information on stock exchanges.


• Report on corporate governance – Every listed company shall have a separate section on corporate governance in the annual report of the company with a detailed compliance report on corporate governance.


• Certificate of compliance – The company is required to obtain a certificate from the auditors of the company regarding compliance of conditions of corporate governance as stipulated in clause 49 of the listing agreement.

Factors influencing corporate governance

• Promoters – In the Indian scenario, the promoters dominate governance in every possible way.

• Management culture – Corporate governance stems from the culture and mindset of the management.


• Board’s value and dedication – If board wants to live up to an ideal Corporate governance, the it must be prepared to face ordeals, difficulties and tribulations.

• Role of professionals – Professionals like company secretaries, accountants and auditors should work together more closely.


• Corporate objectives – The overriding objective of any corporate should be to optimize overtime, the returns of its shareholders.

• Communication and reporting – Corporate should disclose adequate, accurate and timely information and assist investor to make informed decision regarding ownership, acquisition and sales of shares.

Committees on corporate governance

• Hampel Committee – The committee was chaired by Sir Ronnie Hampel, the chairman of ICI and the committee published its reports in August 1997. The basic aim of the committee was to promote high standards of corporate governance in the interests of investors protection and to preserve and enhance the standing of companies listed on the London Stock Exchange.


• Cadbury Committee – The committee was set up in May 1991 by the Financial Reporting Council, the London Stock Exchange and the accountancy profession to address the financial aspects of corporate governance.


• Greenbury committee –

This committee was set

up to determine and to

account for Director’s

remuneration.


• Blue Ribbon committee – The committee was specifically formulated for NewYork Stock Exchange (NYSE), National Association of Securities dealers (NASP) and Securities and Exchange Commission (SEC). The main objectives were to strengthen the independence of audit committee and making it more effective.


• Kumar Manglam Birla Committee – The committee was chaired by Mr. Manglam which submitted its final report in early 2000. The main purpose of the committee is to promote and raise the standards of corporate governance.


• Naresh Chandra Committee – This committee was appointed on 21st August 2002 by the Department of Company Affairs(DCA). The committee submitted two reports and is based on almost the same grounds as Kumar Manglam Birla committee reports.


• Narayana Murthy Committee – SEBI appointed this committee comprising of 23 persons. The committee recommended that the corporate organization should function in a more organized manner and should strive for enhancing long term value to the shareholders.

Top Management

Top Management

• Top management

encompasses mainly two

layers namely, directors

and the chief executives.

Board of directors

• Directors are elected shareholders representing the equity shareholders to manage the affairs of the business in a democratic manner.

• A well balanced board is one which has thorough representation of all interest of financial stake, experience and expertise.

Board of directors

• In the case of reliance industries limited, it has in all 15 members consisting of board of which 12 are whole time and 3 are part time. The whole time directors are made up of one chairman and managing director, 1 vice chairman and director and 10 executive directors. The company has no nominated directors.

Role of board of directors

• It acts as the Trustee of Shareholders – The director’s act as representatives of shareholders and work with utmost faith and degree of honesty in protecting long term aims of wealth maximization of company.


• Determining the fundamental objectives and policies – The board of directors play vital role in long range planning and set the overall goal of the company within the framework.


• Determining the organization structure and selecting the top executives – It is the prerogative of the board to select the CEO and other top level managers.


• Approving financial

matters – These financial

matters relate to two

things namely, approval

of budgets and

distribution of the

corporate earnings.


• Maintaining adequate

checks and controls – In

the final analysis, the

board of directors is held

responsible for the result

of the company.


• Statutory functions –

Directors are to perform

certain legal functions

which are mandatory on

their part.

Chief Executive

• The role of CEO is of paramount importance so far as strategic management is concerned – both in family and professionally managed companies.

• A company may have either a chief executive or multiple chief executives – a team consisting of more than one person.

• CEO is the person who is to shoulder the responsibility in respect to strategic management.

Role of Chief Executive

• Formulating long term plans – CEO is the brain behind long term planning and decision making.

• Guiding and directing – CEO provides his valuable guidance and direction to different functionaries in the organization.


• Integrating – Integration is an essential part of coordination as it deals with integration of interests, timing the operations and balancing of efforts.

• Reviewing and controlling – Review becomes very important task of CEO as he is seeing whether everything is going according to his plans.


• Public relations – CEO is responsible for maintaining good rapport with the publics of the society in which he works.

Entry Strategies

Entry Strategies

• Market entry strategy is influenced by the firm and product characteristics and the domestic and international market characteristics.

Foreign Market Entry and Operations Strategies

Exporting

• Direct Exporting.

• Indirect Exporting.

Contractual Agreement

• Licensing & Franchising.

• Strategic Alliance.

• Contract Manufacturing.

Production facility in foreign

market.• Assembly Operations.• Wholly owned

manufacturing facility.• Joint Ventures.

Mergers and Acquisitions

Direct exporting

In direct exporting, the firm becomes directly involved in marketing its products in foreign markets, because the firm itself performs the export task (rather than delegating it to others).

Direct exportingTo implement a direct exporting strategy, the firm must have representation in the foreign markets. This can be achieved in a number of ways: – Sending international sales

representatives into the foreign market. – Selecting local representatives or agents

to prospect the market. – Using independent local distributors who

will buy the products to resell them in the local market.

– Creating a fully owned commercial subsidiary to have a greater control over foreign operations.

Indirect exporting

The market-entry technique that offers the lowest level of risk and the least market control is indirect export, in which products are carried abroad by others. The firm is not engaging in international marketing and no special activity is carried on within the firm; the sale is handled like domestic sales

Indirect exportingThere are several different methods of indirect exporting: – The simplest method is to deal

with foreign sales through the domestic sales organisation.

– A second form of indirect exporting is the use of international trading companies with local offices all over the world.

– A third form of indirect exporting is the export management company located in the same country as the producing firm and which plays the role of an export department.

ExampleThe mumbai based American Dry Fruits (ADF) which began selling a range of packaged foods liked Chutneys, Spices, Canned vegetables, ready to eat dals, etc under different brand names later moved to other countries with large Indian population.

Licensing & FranchisingLicensing is another way to enter a foreign market with a limited degree of risk. Under international Licensing, a firm in one country permits a firm in another country to use its intellectual property( Patents, trade marks etc).

Licensing & FranchisingFranchising is a business model in which many different owners share a single brand name. A parent company allows entrepreneurs to use the company's strategies and trademarks; in exchange, the franchisee pays an initial fee and royalties based on revenues. The parent company also provides the franchisee with support, including advertising and training, as part of the franchising agreement.

Licensing & FranchisingLicensing is similar to franchising except that the franchising organisation tends to be more directly involved in the development and control of the marketing programme.

Licensing & Franchising The major drawback of

licensing is the problem of controlling the licensee due to the absence of direct commitment from the international firm granting the licence. After few years, once the know-how is transferred, there is a risk that the foreign firm may begin to act on its own and the international firm may therefore lose that market.

ExampleITC Hotels and ITT Sheraton corporation had an agreement under which ITC Hotel’s Welcom group franchised two of its hotels in Bangkok and Hong kong to ITT Sheraton holding, in exchange, the franchise for Sheraton in India. Later, partners decided to set up a joint venture with Sheraton having major stake to manage all new ITC hotel projects in India.

Strategic AllianceIt is an arrangement between two companies that have decided to share resources to undertake a specific, mutually beneficial project. A strategic alliance is less involved and less permanent than a joint venture, in which two companies typically pool resources to create a separate business entity.

Strategic AllianceIn a strategic alliance, each company maintains its autonomy while gaining a new opportunity. A strategic alliance could help a company develop a more effective process, expand into a new market or develop an advantage over a competitor, among other possibilities.

ExampleAn oil and natural gas company might form a strategic alliance with a research laboratory to develop more commercially viable recovery processes. A clothing retailer might form a strategic alliance with a single clothing manufacturer to ensure consistent quality and sizing. A major website could form a strategic alliance with an analytics company to improve its marketing efforts.

Contract ManufacturingIn contract manufacturing, the firm’s product is produced in the foreign market by local producer under contract with the firm. Because the contract covers only manufacturing, marketing is handled by a sales subsidiary of the firm which keeps the market control.

Contract ManufacturingContract manufacturing obviates the need for plant investment, transportation costs and custom tariffs and the firm gets the advantage of advertising its product as locally made. Contract manufacturing also enables the firm to avoid labour and other problems that may arise from its lack of familiarity with the local economy and culture.

ExampleBalsara’s private label manufacturing activity is focused on the supply of children’s toothpaste formulations. Balsara’s empahsis on Private lable products and contract manufacturing has resulted in increased business from North American and European Markets.

Assembly OperationsAssembling is a compromise between exporting and foreign manufacturing. The firm produces domestically all or most of the components or ingredients of its product and ships them to foreign markets to be put together as a finished product.

Assembly OperationsBy shipping CKD (completely knocked down), the firm is saving on transportation costs and also on custom tariffs which are generally lower on unassembled equipment than on finished products. Another benefit is the use of local employment which facilitates the integration of the firm in the foreign market.

ExampleNotable examples of foreign

assembly are the

automobile and farm

equipment industries. In

similar fashion, Coca-Cola

ships its syrup to foreign

markets where local bottle

plants add the water and

the container.

Wholly owned manufacturing facility.Companies with long term and substantial interest in the foreign market normally establish wholly owned manufacturing facilities there. A number of factors like trade barriers, difference in the production and other costs encourage the establishment of production facilities in the foreign markets.

Joint VenturesForeign joint ventures have much in common with licensing. The major difference is that in joint ventures, the international firm has an equity position and a management voice in the foreign firm. A partnership between host- and home-country firms is formed, usually resulting in the creation of a third firm.

Mergers and AcquisitionsFrom a legal point of view, a merger is a legal consolidation of two companies into one entity, whereas an acquisition occurs when one company takes over another and completely establishes itself as the new owner

Corporate management - strategic management - Manu Melwin Joy

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