Strategic Management Notes 9-10
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Transcript of Strategic Management Notes 9-10
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Q.1) What is Business Policy? What are main characteristics of Business Policy?
Ans. Every business organization needs to frame appropriate business policies for its
various functional areas such as production, marketing, finance, human resources
development and so on. The policy statements guide managers in taking right decisions. The
policies also provide a general picture to outsiders, such as customers, prospective employees
etc., regarding the functioning of the organization. Here are some of the important definitions
of business policy:
Harold Koontz, !olicies are plans in that they are general statements of principles "hich
guide the thinking, decision#making and action in an organization.$
%eorge Terry, A business policy is a verbal, "ritten or an implied overall guide setting up
boundaries that supply the general limits and directions in "hich managerial action "ill take
place.$
&.T. Haner, 'usiness !olicy is a statement# verbal, "ritten or implied of those principles and
rules that are set by e(ecutive leadership as guidelines and constraints for the organisation)s
thought and action. Their purpose is to enable the management to relate properly theorganizations "ork to its ob*ectives.$
+ature and haracteristics of business policy:
-. Broad statements for the attainment of objectives: !olicies serve as a guide to
action. They help the e(ecutives to take proper actions in the light of ob*ectives of the
organizations. &or instance, if the policy states that redit period not to e(ceed -
days$, the marketing e(ecutive "ho allo"s credit to the customers "ould follo" the
policy statements at the time of giving credit.
/. Assit in smooth functioning of the enterrise: !olicies provide guidelines for the
smooth functioning of the enterprise. The tend to avoid confusion and thereby the
enable the business organization to undertake activities in an orderly and smooth
manner.
0. !acilitates allocation and utili"ation of resources: !olicies facilitate proper
allocation of resources# physical, financial and human resources. !olicies also
facilitate proper utilization of resources, so that the organizational ob*ectives are
achieved effectively a efficiently.
1. !acilitate #oordination and #ommunication: !olicies help to ensure that all units
of an organization operate under the same group rules. They facilitate coordination
and communication bet"een various organizational units.
. $ulti urose in nature: !olicies serve various purposes. The main purposes are:!roviding guidelines at all levels, Assist the organization in allocation of resources,
help in utilization of resources etc.
2. #onsistency in %ecision ma&ing: !olicies provide consistency in decision making,
usually under repetitive conditions. 3anagers and subordinates are e(pected to follo"
the policies of the organization and are e(pected to act accordingly "ithin the
boundaries set by the policy makers.
4. Alicable to all functional areas and levels: !olicies are applicable to all
functional areas, and at all managerial levels. The functional areas include marketing,
production, finance, personnel, research and development and so on. The various
levels include top level, middle level and lo"er level. 'usiness policies aid in
planning, organizing, directing and controlling at all levels and in all the functionalareas.
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Q.') (lain in brief significance or imortance and *imitations of Business Policy
Ans. +!or imortance see ans,er to -uestion no. 1)
*imitations of business olicy can elained as follo,s.
-. Problem of individual discretion: !olicies may not permit individual discretion in
decision making. This is specially true in case of bureaucratic organization.
/. Affect creativity: There may be over dependence on policy statements. E(ecutives maynot use their creativity in taking decisions, "hich may adversely affect the performance of the
organizations.
0. Problem of inter deartmental conflict: !olicies may result in inter departmental
conflicts. &or e.g. the marketing department may prefer to provide a longer credit period to
their customers so as to push and promote the sales.
1. Problem of outdated olicies: There are cases "here the policies are 5uite outdated. They
do not meet the demands of changing situations. Ho"ever, this problem can be solved by
periodic revie" of policies and if need be e(isting policies may be revised or ne" policies
may be framed to meet the needs of the changing environment.
. Problem of clarity of olicy statement: There may be a problem of lack of clarity in the
policy statement. This "ould lead to misinterpretation of the policy statement and "rongdecisions may be taken.
Q.) What are the internal and eternal factors affecting or influencing Business
Policy? + /0%(20/ /34*% 240( 03A0 (503(6 520(62A* 46 (70(62A*
!A#046/ W5** B( A/8(% A2% 240 B403 049(03(6 )
Ans. 6everal factors influence the formulation of policies. The policy formulators must
consider both the internal factors as "ell as e(ternal factors in the formulation of policy.
+A) 520(62A* !A#046/:
1. alue /ystem: The policy of a firm depends upon the value system of the
organization. The value system of the top management affects not only the choice of
business but also the mission and ob*ectives, business policies and practices. &or
instance, those organizations that value and respect their employees "ould have
personnel policies in the interest of their employees and not *ust in the interest of the
organization. Again those organizations that believe in social responsibility to"ards
society "ould incorporate social responsibilities as one of their important ob*ectives
and accordingly policies are framed in the interest of the various sections of the
society.
'. $ission and objectives: The business policies are greatly determined by the mission
and ob*ectives of the firm. 7rganizational mission statements, policies, ob*ectives and
strategy are not mutually e(culsive of each other. 8n fact they are highly
interdependent and inseparable. 7ne can not talk about achieving ob*ectives "ithout
kno"ing the policies that are to be follo"ed.. 3uman 6esources: The organization frames the various business policies taking into
consideration the human resources of the organization. The 5uality, skills, attitudes
etc., of the human resources could contribute to the strength or "eakness of the
organization. 7ne cannot frame policies relating to restructuring or modernization
"ithout the consent of the employees.
;. Physical resources: The physical resources like plant and machinery affect the
framing the corporate policies. The top management should consider the availability
of physical resources before framing business policies. &or instance, if a company
"ants to pursue e(pansion and modernization policy, then it should consider the
number and 5uality of machines available to its disposal before framing the policy.
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=. #ororate image: The corporate image of the firm affects policy formulation. Those
organizations that have good corporate image "ould frame policies in such a "ay that
the corporate image enhanced. &or instance, good corporate citizens "ould place
emphasis on 9 ; to develop environmental friendly products.
>. $anagement *abour 6elations: The labour management relations also have a
bearing on the policy formulation. ordial labour relations are affected by corporate
policies, "ith special reference to personnel policies. Therefore to maintain and
improve labour relations company should frame appropriate personnel policy.. 3istory of the 4rganisation: The corporate policies are also influenced by the
history of the organization. &or instance, "ell established organization may give
importance to certain policies such as research and development policies. 6uch
organizations may allocate a good amount of funds for research and development, in
order to maintain and enhance the competitive advantage that they en*oy in the
market.
+B) (70(62A* !A#046/:
1.9overnment 6egulations:7ne of the important determinants of corporate policy includes
the regulations of both the entral as "ell as 6tate %overnment. %overnment regulates
organizations in areas such as competition, product standards, "orking conditions, "ages,
accounting practices and so on. !olicies need to be developed in order to guide anorganisation)s employees in meeting such government regulations. &or instance, as a result of
government regulation respect of health and safety standards, pharmaceuticals and drugs
companies have developed a policy incorporating such regulations.
'. Policies of cometitors: The policies of the competitors influence an organisation)s
policies. This is especially true "ith pricing policies, advertising policies, 9; policies,
personnel policies etc. for instance, one cannot charge high prices, "hen a ma*or competitor
charges lo" prices. Again one cannot pay lo" "ages, "hen a ma*or competitor pays good
"ages to its employees.
. /uliers: The nature and financial resources of the suppliers need to considered "hile
framing policies relating to suppliers. &or instance, the policies relating to payment to
suppliers must consider the nature and financial position of the suppliers. ertain type of
suppliers may re5uire advance payment from the buyers, and therefore, the firms must frame
appropriate policies relating to suppliers in terms of making payment and in other respect.
;. %ealers: 3aintaining a strong dealers) net"ork is one of the important tasks of an
organization. Efficient dealers are vital as they help to push and promote the products and
services. Therefore an organization must frame its policies in the interest of its dealers and
not *ust in the interest of the organization.
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Q.;) (lain in brief about scoe of Business Policy.
Ans. The scope of business policy covers the broad areas "here the policy statements can
be applied. 'usiness policy covers a "ide range of activities in the organization. Any
business organization, "hether large or small need to have "ell defined business policies. 8n
any organization, business policy needs to cover all the functional areas of business#
production, marketing, finance and personnel.
I PRODUCTION POLICIES :
!roduction is one of the important functional areas in an organization. 'usiness policies inrespect of production can be in the follo"ing areas.
6esearch and %eveloment:9 ; is an important area, "hich is often overlooked
in 8ndia. 7rganization should place a good deal of emphasis on 9 ;. 8t not only
helps to improve 5uality of products and services but also helps to reduce cost.
Therefore, there is a need to frame policies in respect of 9 ;.
Quality #ontrol: 7rganization place lot of emphasis on 5uality of the products.
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IV PERSONNEL POLICIES:
!ersonnel policies need to be framed in respect of various personnel or employees related
matters such as follo"s:
6ecruitment and selection olicies:A firm needs to frame policies regarding the
sources of recruitment depending upon the type of posts. &or instance, a firm may
consider only internal sources of recruitment for e(ecutive position. A firm may also
have a policy for centralized selection in respect of managerial position and
decentralized selection for non#managerial positions. 0raining olicies:There is a need to frame proper training policies in respect of
methods of training, =on the *ob and off the *ob>, training period etc.
Performance araisal olicies:!erformance appraisal is a systematic description
of employees *ob relevant strengths and "eaknesses. +ecessary performance appraisal
policies need to be framed .
Q. !olicy manual = it contains details relating to the
functional or departmental policies of the firm> =b> house *ournals =c> Articles of association=d> 3emorandum of Association =e> Annual reports =f> 6ales catalogues and =g> Employees
handbooks.
b>Policy E"ucaio!: The policy makers should make it a point to provide policy education,
if so re5uired. The e(act meaning of the policy must be e(plained to the concerned persons so
that the right decisions are taken. The policy should be e(plained clearly and completely. The
policy e(planation can be done either orally or in "riting. Ho"ever, it is important to provide
the policy in "riting, especially in case of certain matters such as personnel matters i.e in
respect of promotions, transfers and so on.
0. Policy Accetance:+ormally, a preliminary draft of policy is prepared, and it is circulated
among all those "ho may be e(pected to operate it, because their constructive criticisms and
suggestions "ould be valuable in framing the final draft of the policy. The policy statementsneeds to be accepted by those "ho "ould take decisions "ithin the frame"ork of the policy.
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8f need be, necessary modifications may be made and a final draft of the policy "ould be
framed.
1.Policy 5mlementation: !olicy implemented to those persons "ho take decisions "ithin
the frame"ork of the policy. The chief e(ecutive officer of the company is responsible for
implementation of the overall corporate policy. The departmental managers are responsible
for the implementation of the departmental policies. They monitor the decisions taken by the
lo"er level managers to find out "hether the decisions are taken "ithin the frame"ork of thepolicy statements.
. Policy 6evie,: The policies should be periodically revie"ed and revised as per the needs
of the changing environment. The policy makers obtain opinions, complaints, suggestions,
reactions or comments from those "ho are taking decisions or are affected by the policy.
Accordingly the policy is revised or necessary modifications are mae in the policy statement
in order to confirm to the change conditions operating in the internal and e(ternal
environment affecting the firm.
Q.=) (lain in brief ingredients or essentials of a good Business Policy.
Ans. The essential of good business policy refer to the guidelines or principles fro draftingeffective business policies. A good business policy should be clear, simple and suitable to the
organization, apart from other essentials.
-. 4bject 4riented: The policies should be ob*ective oriented. 8t should be ased on the
organizational ob*ectives. !olicies, "hich are not consistent "ith the ob*ectives of the
organizations, do not serve any purpose.
/. !leibility: &le(ibility refers to the ability to adapt to short run changes. !olicies
should be fle(ible. They should not be rigid like rules. The policies may be modified
depending upon the merit of circumstances. &or instance, if the advertising policy
states that the firm to budget advertising e(penditure of @ of the total sales and if a
ma*or competitor starts advertising aggressively then the firm may increase the @
limit to even -@ if the situation so demands.
0. Accetance: The policies must be acceptable to all those "ho are connected "ith the
adoption of the policies. The policies should be accepted not only by the employees of
the firm but it is also important that the organizational policies do not conflict "ith the
interest of dealers, customers, shareholders and other sections of the society.
1. /imlicity: The policy should be stated in simple, clear and definite terms. larity is
the essence of good policy.
. /uitability: A policy be suitable to the organization depending upon the nature oforganization, the type of business, the resources available "ith the organization, the
management philosophy and so on.
2. Written olicies: !olicies should be in "riting and not oral or implied. Britten
policies not only bring clarity but also it generates commitment on the part of those
"ho follo" them in the organization. Britten policies ensure uniformity of
application and assure continuity of action throughout the organization.
4. Periodically revie,ed: !olicies need to be revie"ed periodically. 6uch revie" is
re5uired in order to revise the policies depending upon the changing needs of the
business. !eriodic revie" of policy not only helps to understand the validity of the
policy in the light of the current situation, but also helps to modify the policies
depending upon the present situations.C. /tability: The business policy should have stability. 8n other "ords policy must be
reasonably constant. 8t should not be altered fre5uently but should be stable for a long
period of about t"o year or more.
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Q.>) What do you mean by /trategies? Also elain imortance@significance@ role of
/trategies. =/tudents lease note same oints can be ,ritten for characterstics also)
Ans. The "ord strategy comes from the %reek "ord D6trategos) "hich means a general. 8n
military science, strategy literally means the art and science of directing military forces in a"ar or battle. Today, the term strategy is used in business to describe ho" an organization is
going to achieve its overall ob*ectives. 3ost organizations have several alternatives for
achieving its ob*ectives. 6trategy can be defined as follo"s:
6trategy is a plan of action or policy designed to achieve a ma*or or overall aim.$
6trategy includes the determination and evaluation of alternative paths to achieve an
organisation)s ob*ectives and mission and eventually a choice of the alternative that is to be
adopted.$
6trategy is a broad long term plan designed to achieve the overall ob*ectives of the firm$.
9ole 6ignificanceimportance of 6trategies.
-. Aids %ecision ma&ing: 6trategies help in decision making. Fike policies, strategy
provides necessary guidance and directions for decision makers. The mangers follo" the blue
print of the strategy at the time of taking vital managerial decisions.
/. 3els to attain objectives: A strategy is a board long term plan designed to achieve
basic ob*ectives of the firm. The ob*ectives of the firm may be e(pressed in terms of gro"th,
profitability, stability and various activities, "hich are re5uired for the attainment of the
ob*ectives.
0. !acilitates short term lanning: 6trategy facilitates organizing of resources in the
organization. 6trategy lays do"n broad targets or ob*ectives to be achieved over a period of
time. 7n the basis of long term ob*ectives the organization can make proper arrangement of
physical, financial and human resources.
1 .!acilitates control: 6trategy can also facilitate controlling of activities in the
organization. The organization or the departments can compare the actual performance "ith
the targets. 8f there are any deviation, the organization or the departments can take necessary
corrective measures to control and correct the deviations.
. 4timum use of resources: There can be optimum utilization of resources in order
to achieve the desired ob*ectives. 8f there are no proper strategies, then the organization may
not be able to make arrangement of proper resources. There may be arrangement of fe"er
resources, in "hich case the organization may not be able to undertake its activities.
2. (nhances #ororate 5mage: Bell defined strategies can generate corporate image ofthe firm. This is because strategies "hen implemented properly bring good returns to the
organization. The organization is in a position to undertake its social responsibility to"ards
customers, employees, suppliers and other and as such the organization can earn good"ill in
the market.
4. $inimise ris&s:6trategies help to minimize risks. &or instance, a firm may have
various sales promotional strategies to put into action in order to face the challenges of the
competitors strategies.
C. Periodic revie,: 6trategies need to be revie"ed periodically. 6uch revie" is
re5uired to revise the strategies depending upon the changing needs of the business. !eriodic
revie" of strategies re5uired to gain competitive advantage in the market.
G. /trategy is a rocess: 6trategy is a process. The strategy process can be broadlydivided into three parts i.e. 6trategy formulation, 6trategy implementation and strategy
evaluation.
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Q) Write in brief about /B +/trategic Business nit)
Ans. The concept of 6' "as developed by %eneral Electric ompany 6A fo manage it
multi products business. 8n 3ulti product or multi geographical areas companies, strategic
business divisions are created to manage effectively each of the products or a group of
products. &or e(ample a multi product firm like Hindustan nilever Ftd, may adopt the
concept of 6'. 6eparate 6's may be created, each focusing on specific products liketoiletries, beverages, ice cream, laundry products, cosmetics and so on.
6tructure of 6's
'7A9; 7& ;89ET796
H8E& EIET8?E 7&&8E9
Advantages of /B:
-. 5ntra #ometition: 6's facilitate intra competiton "ithin the firm. &or instance
HF, form t"o or more 6's each focusing one or t"o brands of soaps, such as
Fifebuoy and HamamJ F( and Firil then each 6' can compete effectively not only
"ith other brands of rival companies but also that of the other brands of same
company
/. (ffective management: Each 6' can concentrate and manage its o"n products andmarkets. Each 6' can plan efficiently. 7rganize the resources properly, give proper
directions to employees and ensure effective control. Each 6' can effectively design
appropriate marketing mi(# product , price, promotion and place of distribution so as
to market the products profitably.
0. 3igher efficiency: 6's generate higher efficiency. Efficiency is the relation
bet"een returns and costs. This is because 6's facilitate optimum utilization of
resources.
1. Better customer service: Each 6' tries to provide effective customer service. The
6' identifies needs and "ants of its target customers and then undertakes product
design and development to satisfy the customers. The 6's believe that customer
satisfaction is the key to business success and therefore each 6' try to provide
effective customer service. Each 6' tries to build long term customer relationship.
. #ororate 5mage: 6's help to develop corporate image. The organization earns
good"ill and reputation in the market for its products and services.
2. !acilitates 5nnovation: 6's facilitate innovation in products and market
development activities. 8n order to compete effectively at the market place. 6's
come up "ith ne" and innovative products and ideas. 8nnovation is re5uired not only
in product development, but also in market development and therefore 6's
undertake innovative efforts both in product development and market development
activities.
4. (ffective $anagement: Each 6' can concentrate and manage its o"n products andmarkets. Each 6' can plan efficiently, organize the resources properly, give proper
directions to employees and ensure effective control. Each 6' can effectively design
3anaging ;irector6' 8
3anaging ;irectors
6' 88
3anaging ;irectors
6' 888
C
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appropriate marketing mi(# product , price, promotion and place of distribution so as
to market the products profitably.
C. $otivation to emloyees: The employees of each 6' can be better motivated to
perform "ell in their unit. 6ince the employees are a"are that their performance is
recognized, they "ill put their best efforts to improve the overall performance of their
unit.
Bhat do you mean by 'usiness Environment Also e(plain its characteristics and
role or importance of business environment.Ans. Environment refers to all those forces or factors that influence various decisions of the
firm. A firm)s environment consist of internal environment and e(ternal environment. The
internal environment analysis helps to identify its strengths and "eaknesses. The e(ternal
environment analysis helps to identify opportunities and threats, "hich are hidden in the
environmental events and trends. 'usiness environment can defined as follo"s
Environment of the business means the aggregate of all conditions, events and
influences that surround and affect it.$
'usiness environment encompasses the Dclimate) or set of conditions, economic,
social, political or institutional in "hich business operations are conducted.$
&eatures of characteristics of business environment:
-. 8nseparable part of business: Environment is an integral part of business. 'usinesscannot "ork "ithout environment. 'usiness re5uires a good frame"ork of legal,
social, cultural, economic, political and other factors, "hich have a positive influence
on the "orking of the business.
/. Environment is ;ynamic: 'usiness environment is dynamic in nature. +ormally there
are changes in business environment. &or instance, the government may change
certain policies affecting the business, such as ta(ation policies, monetary policies etc.
there may be changes in costumer tastes, preferences etc. Technological development,
political changes etc also affect the "orking of a business.
0. 'usiness Facks control over environment: 'usiness firms lack control over e(ternal
environment. They cannot directly influence the changes in the e(ternal environment .
but it is possible for certain large business firms to have an influence over certain
environment changes. &or instance, certain large business houses can influence the
government to introduce favourable changes in government policies affecting
business.
1. 8ts comple( in nature: The environment of modern business is more comple(, fle(ible
and highly unpredictable. 8n olden days, the environment of business "as simple and
stable. The modern business has gro"n in size and scope and so is the environment.
. 3ultifaceted: Any change in environment is follo"ed by a chain of positive and
negative reactions. A change may be favourable to someone and unfavourable to
others. Environment changes bring opportunities to some people and obstacles to
others.9ole or importance of environment analysis:
-. Ensures survival and success: The ability to deal "ell "ith the environment has
enabled organization to survive and succeed, despite certain "eaknesses.
orrespondingly, some of the best managed companies e(pending vital efforts and
resources in a direction not in tune "ith a changing environment do face several
difficulties and even disaster. A failure to respond to changes in the environment
typically results in the eventual failure of the organization, no matter ho" "ell it
might have been operated internally.
/. &acilitates !lanning: Environmental scanning helps the management to recognize that
many products and services have life cycles and that today)s "inners may be losers in
the course of time, and thus, its plans for their successors# tomorro")s bread"inners.The management can plan for the resources to produce and market these successors to
a receptive environment.
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0. Helps to grab opportunities: Though environmental scanning, business oganisations
continuously tunes in the environmental forces that influence the demand for e(isting
products and services and that create opportunities for ne" ones. &irms need to
identify correctly or to anticipate all the development that "ould influence the future
and to be ready for the resulting opportunities.
1. 'uilds 8mage: +o" a days business firms need to be popular and earn good image in
the society. This is possible "hen they not only study the environment and adapt to it,
but also strive to make the environment hospitable to the gro"th of business.. Helps in innovation: 6canning of the environment keeps the firms on their toes.
'usiness firms anticipate changes in the business and industry. A considerable
amount of time and efforts are devoted to 9 ; activities to face threats or changes
in the environment . such 9 ; efforts lead to innovation of ne" and better products
and services.
2. 7ptimum use of resources: A study of technological development, government
policies, demographic pattern etc. "ill help the business firm to plan its activities and
allocate the limited resources in a better "ay. A systematic analysis of business
environment helps a business firm to make optimum utilization of available resources
and meet the ever increasing and changing needs of consumers and society.
Bhat are the main components of 'usiness Environment =8nternal and E(ternal>=Su"#!$ $%oul" !o# &i!ally #i%#r i!#r!al compo!#!$ or #'#r!al
compo!#!$ (ill )# a$*#":+
Ans. The various components or factors of business environment can be broadly divided
into t"o groups:
8nternal Environment
E(ternal Environment
5 5nternal (nvironment:
A firm)s internal environment consist of its plans, policies, resources, relations and other
internal factors, "hich affect its "orking. The follo"ing are some of the important factors ofinternal environment:
-. 3anagement philosophy: The management philosophy greatly influences the "orking of
business form. The management may adopt a traditional philosophy or professional
philosophy. Traditional approach place emphasis on family management, and normally uses
outdated techni5ues or practices. There is no much emphasis on social responsibility. +o" a
days business firms need to adopt professional approach in managing their business activities.
8n other "ords, a pure traditional approach is a "eakness, "hereas professional approach is a
strength.
/. 3ission and ob*ectives: The ob*ectives of the firm must be consistent "ith the mission
statement. Therefore, it is al"ays advisable to frame a mission statement and then to list out
the various ob*ectives. An analysis of internal environment "ill enable the firm to find out"hether the ob*ectives are in line "ith the mission statement.
0. !lans and !olicies: The plans and policies of the firm must be in line "ith its ob*ectives. As
far as possible, a firm should frame proper plans and policies taking into consideration the
ob*ectives and resources of the firm. !roper plans and policies help the firm to accomplish its
ob*ectives.
1. Human resources: The survival and success of the firm largely depends on the 5uality of
human resources. The kno"ledge attitudes, skills and social behaviour of the employees
greatly affect the "orking of the business firm. Therefore, a firm needs to have not only
e(perienced and 5ualified "orkforce, but also highly dedicated and motivated team. An
analysis of internal environment in respect of human resources "ould reveal the
shortcomings of human resources and as such measure can be taken to correct such
"eaknesses. &or instance, employees may lace proper training in the area of skills
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development in the light of changing business environment . in such an instance, the firm
needs to provide timely and 5uality training to improve the employees skills.
. !hysical 9esources: !hysical resources include material, e5uipment, building, office
premises, furniture and fittings, etc. A firm needs ade5uate and 5uality physical resources.
Appropriate physical resources bring *ob satisfaction and improve the 5uality and 5uantity of
production.
2. &inancial 9esources: &inancial resources relate to money resources. A firm needs ade5uate
"orking capital, as "ell as fi(ed capital. There is a need to have proper management of"orking capital and fi(ed capital. Again a firm should obtain funds from right sources at
lo"est possible costs. The firm should give proper attention to debt e5uity ratio, and the
current ratio. The firm should also build up ade5uate reserves for future needs.
4. orporate image: A firm should develop, maintain and enhance a good corporate image in
the minds of employees, investors, customers and others. !oor corporate image is a
"eakness. Therefore, a firm should undertake an analysis of its corporate image. 8f a firm
finds problems in corporate image, then ade5uate measures need to be taken to correct the
image of the firm. This is because, corporate image is vital in the firm)s success not only in
the short term, but also form the long term point of vie".
C. Fabour 3anagement relations: There must be e(cellent relations bet"een management and
"orkers. The management and "orkers should "ork as a team to achieve the ob*ectives ofthe organization. A proper analysis of labour management relations may disclose certain
shortcomings. The management should take immediate measures to correct "eaknesses in
labour management relations.
5 (ternal (nvironment
A: $icro (nvironment.: The micro environment consist of all those factors in the firms)
immediate environment.
-. ustomers: The customer is one of the most important factors in the firm)s internal
environment. The consumers affect most of the business decisions. The customers)
needs, "ants, preferences and buying behaviour must be studied in order to frame
proper production and marketing strategies.
/. The competitor: The company has to identify and monitor its competitors) activities.
8nformation must be collected about competitors in respect of their prices, products,
promotion and distribution strategies. 6uch information "ill enable the firm to analyse
the strengths and "eakness of the competitors. The firm has to take ade5uate
measures to "in over the confidence of the customers in its favour.
0. The 6uppliers: 6uppliers supply ra" materials, machines, e5uipments and other
resources. 6uch purchases do have a direct impact on the firm)s marketing decisions.
The company has to keep a "atch over prices and 5uality of materials and machines
supplied by the suppliers. The company has to maintain good relations "ith thesuppliers to supply 5uality items at the right price and at the right time.
1. hannel 8ntermediaries: The dealers and other intermediaries in the chain of
distribution are important factors in the firm)s immediate environment. The firms has
to select and satisfy its dealers in order push and promote its products in the market.
+o" a days dealers recommendations play an important role to convince buyers to
buy product, especially in the case of consumer durables.
. 6ociety: The society may also affect company)s decisions. The society can either
facilitate or make it difficult for a company to achieve its ob*ectives. Therefore,
professional business firms maintain public relations department to handle
complaints, grievances and suggestions from the general public. The various members
of society include financial institution and banks, media, %overnment etc.B: $acro (nvironment: The macro environment consist of the larger societal factors
that affect the "orking of a firm. 8t relates to the demographic, economic, natural,
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technological, political, cultural, international and legal forces. The various macro
environment factors are briefly discussed as follo"sJ
-. ;emographic Environment: ;emographic environment studies human population
"ith reference to its size, density, literacy rate, life e(pectancy, se( ratio, rural urban
divide, age composition, occupation pattern etc. since, business deals "ith people,
business firms have to study in detail the various demographic factors, "hich "ould
help them to frame proper production and marketing strategies.
/. Economic Environment: A business firm closely interacts "ith its economicenvironment. Economic environment consist of economic conditions, economic
policies and economic system. 'usiness firms should have a good idea about the
economic conditions in the market i.e. demand and supply factors.
0. +atural Environment: +atural environment or ecological environment relates to
natural resources like land, "ater, minerals, port facilities etc. 'usiness firms use
natural resources like "ater, land, iron ore, crude oil etc. 8n doing so, t"o things
happen i.e. Erosion of natural resources and pollution of resources like air, "ater etc.
'usiness firms should understand the above t"o effects and take necessary measures
to control erosion and pollution of natural resources. They may search for alternation
resources such as solar energy, recycle the "aste, install anti pollution devices etc.
they should also produce environment friendly and consumers health orientedproducts.
1. Technological Environment: There are constant technological developments. The
business firms must constantly monitor changes in the technological environment.
This is becauseJ a change in technology may have an impact on firm)s business. As
such business firms should make efforts to adapt and ad*ust to ne" technological
developments, so as to survive and succeed in the competitive business "orld.
. !olitical Environment: 'usiness decisions are greatly influenced by the development
in the political environment. This environment consists of government agencies,
political parties and pressure groups that influence and control various individual and
organizations in the society.
Bhat are the different techni5ues of Environment 6canning
Ans. There are several techni5ues used by strategists to scan the environment . some of the
important techni5ues are briefly discussed as follo"s.
-. !orecasting:&orecasting is a techni5ue of estimating future events based on the
analysiCs of their past and present behaviour. The forecasting can focus on future
aspect of the environment, "hich affects the organization, such as competition,
technological changes, demographic factors, political scenario and so on. There are
several forecasting techni5ues. These techni5ues can broadly be grouped into t"o:
5ualitative techni5ues and 5uantitative techni5ues.
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0. /ying:6pying techni5ue may be used to gather information about potential or actual
competition. The firm may appoint individuals or group individuals for the purpose of
spying. The spy can be an employee of the competitor, or one of competitor)s
suppliers or customers or a professional spy. The spy can collect secret trade
information from the competitor. This techni5ue is narro" in scope as it gathers
information only about the competitor and not of the entire environment in "hich the
firm operates.
1. 9athering erbal information:The most simple and less e(pensive techni5ue isgathering verbal information of the environment through formal or informal "ays.
6ources of verbal information include meetings, seminars, "orkshops, media
information, employees of the firm, feedback form e(ternal parties such as costumers
etc.
. $anagement 5nformation /ystem:7rganisations maintain management information
system to generate and process an information flo" to aid managerial decision
making. 8n order to understand and monitor the environment, firms need to collect
and analys information about the environment. Each functional department may
maintain its o"n information system. &or instance, to understand and monitor
customer needs and "ants, competitor)s actions, and changes in the environment, the
marketing department may maintain marketing information system. The marketinginformation system helps managers to recognize market trends in respect of prices,
designs of products and so on.
2. Q(/0: 8t means
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-. #onsolidate /trengths: 6B7T analysis pinpoints the strengths of the organization
"ith competitors. The strengths may be in respect of its various functional areas such
as production, marketing, finance and personnel. &or instance, the employees may be
highly motivated and dedicated to their "ork, as a result of "hich the firm en*oys high
labour productivity . sound business firms "ill not be *ust be satisfied in kno"ing
their strengths, they "ould also make every possible effort to consolidate on its
strengths, as yesterday)s strengths may turn to be tomorro")s "eakness, especially
"hen the firm adopts a casual approach to"ards its strengths./. $inimises ,ea&ness: 6B7T analysis pinpoints not the strengths but also the
"eaknesses of the organization "ith the competitors. The "eaknesses may be in any
or many of its functional areas such production, 9 ; facilities, as a result of "hich
the firm may not be in a position to improve its 5uality and also fails to bring
innovative or ne" products in the market.
0. 3els to grab oortunities: Through 6B7T analysis, business firms continually
turn in to the environmental forces that influence the demand for e(isting products
and services and that create opportunities for ne" ones. &irms need to identify
correctly or to anticipate all the developments that "ourld influence the future and to
be ready for the resulting opportunities.
1. $inimises 0hreats: 6B7T analysis not only helps to grab opportunities, but it alsohelps to minimize threats. &oresighted management can anticipate threats from the
environment such as from the technological fronts and gear them to face the threats by
remaining proactive. 8t helps business firms to develop an early "arning system to
prevent threats or to develop strategies, "hich can turn a threat to the firm)s
advantage.
. !acilitates Planning: 6B7T analysis helps to management to recognize that may
products and services have life cycles and that today)s "inners may be losers in the
course of time, and thus, it can plan for their tomorro".
2. !acilitates alternative choices: 6B7T analysis helps business firms to narro" the
range of available alternatives and to eliminate unsuitable alternatives and to process
most promising alternatives. 8t helps business firms to reduce time pressure and to
concentrate on those areas or activities "hich are more important and result oriented.
4. 3els to 5nnovate: A proper 6B7T analysis makes the firms to innovate. 'usiness
firms anticipate changes in the business and industry. A considerable amount of time
and efforts are devoted to 9 ; activities by progressive firms to face threats and
changes in the environment.
C. (nsures survival and success: 6B7T analysis enables firms to survive and
succeed. This is because firms, "hich undertake systematic 6B7T analysis , make
every possible effort to overcome "eaknesses and to consolidate on the strengths.
6uch firms also make efforts to grab opportunities and to diffuse threats.
Brite a short note on 6ynergetic Approach.
Ans. 6ynergetic approach can be used to generate competitive advantages for an
organization, if the managers are fully a"are of ho" synergetic effect is developed.
6ynergy is the process of putting t"o or more elements together to achieve a sum total
greater than the sum total of individual elements separately. The synergetic effect can be
described as -L-M0 effect.
Areas of /ynergetic (ffect: There are several areas of synergetic effect of an
organization depending on its strengths and "eaknesses. The synergetic effect in various
functional areas e(plained as follo"s.
1. Production /ynergy: 8t can be attained "hen the present skills and resources of the
production department can be utilized to produce the items in future. 3erging thee(isting firms manufacturing the same product can best attain the production synergy.
&or industry many of iron and steel units have merged in order to take advantage of
production synergy.
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'. $ar&eting /ynergy: 8t can take place, "hen the organization can take the advantage
of its present marketing, skills and resources to market its potential products, even
though the potential products may be a bit different from the e(isting one. &or
e(ampleJ a te(tile manufacture can enter into marketing ready made garments or a
toothpaste company may enter into marketing of toothbrush.
. 6esearch and %eveloment /ynergy: This synergy can be achieved if the firm)stechnologies supporting the development of both the present and the future
anticipated product lines are more or less similar. The prospects in 9 ; usually
emanates either from similar research skills and resources or from similar functional
characteristics of the product.
;. !inancial /ynergy: The financial synergy "ould be to the e(tent to "hich the
organization can raise the funds for investment through larger capital base, increased
borro"ing po"er and greater earning through spreading of administrative overheads
over a large volume of operations.
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factors are based on one)s personal *udgment and descriptive factors. The various
sub*ective factors include organisation)s past strategies, attitudes to"ards risks.
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Q(/0542 $A68/: 'usiness "ith high industry gro"th but lo" market share for a
company are 5uestion marks or problem children. They re5uire large amount of cash to
maintain or gain market share. They belong to ne" products or services "hich have good
commercial potential. 'usiness segments in this category operating at a competitive
disadvantage but having a high gro"th market potential may be e(panded to increase
market share by taking advantage of the market gro"th potential. 'ut cash demand being
high and cash generation lo", it may not be possible to improve the competitive positionand increase market share. 8t "ould thus be desirable to "ithdra" from this business. 8n
other "ords, the strategy in this case should be either that of aggressive gro"th or
divestment.
Brite a short note on %E +ine ell 3atri(.
Ans. An important portfolio analysis techni5ue is based on the outstanding effort of
%eneral Electric =%E> company of the 6A supported by consulting firm of 3cKinsey
and o.
3cKinsey and o. helped %eneral Electric =%E> to produce a nine#cell matri( inorder to analyses the %E !ortfolio. The nine cell matri( is based on the t"o dimension of
long term industry attractiveness and the competitive position of the business. The
positions in the matri( suggest possible options.
-. 8ncrease market share by gro"ing, dominating and investing or defend market share
by segmenting, investing and avoiding "eakness.
/. 6elect opportunities to invest, hold position or find gro"th segments.
0. 3inimise losses by finding specialized products.
High
8ndustry attractiveness 3edium
Fo"
6trong Average Beak
'usiness strengthompetitive position
'ased on green zone, the signal is to go ahead "ith strategic decision such as
market development or e(pansion in respect of certain products and businesses
Green Green yellow
Green yellow Red
yellow Red Red
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The yello" zone gives the signal for "ait and "atch, indicating hold and maintain
current strategies.
The red zone gives the signal to stop, indicating the retrenchment strategies of
divestment and closure or for adopting the turnaround strategy.
7verall G cell %E business screen is improvement over the '% matri(. The %E
matri( considers many more variable and does not lead to simplistic conclusion as in
the case of '% matri( it recognizes the attractiveness of industry and business
strengths.
Bhat are sub*ective and ob*ective factors affecting strategic choice
Ans. There are number of factors affecting the choice of strategy. The factors can
be broadly divided into t"o groupsJ ob*ective and sub*ective factors.
5. 4bjective !actors: The ob*ective factors are based on hard facts or data and are
termed as rational or prescriptive factors. &or the purpose of strategic choice, these
factors are broadly divided into t"o groups # environmental factors and
organizational factors.
=A> E(ternal environmental factors: The environment affects the choice of strategy.
The strategy that can relate the organization effectively "ith its environment is
selected. The nature of environment differs from industry to industry and even from
firm to firm "ithin the same industry. The management must make a decision
regarding the choice of strategy taking into consideration the nature of environment
like competitors, suppliers, dealers and customers and other environmental factors.
='> 8nternal 7rganizational factors: The management must also consider
organizational factors before making a choice of strategy. The organizational factors
include 7rganisation)s mission, organisation)s ob*ectives and policies, 9esources and
management labour releations.
55: /ubjective !actors: The management must also consider the sub*ective factors
before selecting a strategy. The follo"ing are some of the sub*ective factors.
Personal !actors of 0o $anagement:The personal preference of the dominant
strategists as the chief e(ecutive affects the choice of strategy. &or e.g. the chief
e(ecutive may prefer or favour certain products as compared to other products and
therefore, a strategy relating to market development may be selected in favour of the
preferred products.
Past organi"ational strategies:The past strategies of the firm may affect the present
strategies as "ell. &or e.g. if the management is not satisfied "ith the performance ofcertain strategies in the past, then they may be reluctant to adopt similar strategies in
current situation as "ellJ even though such strategies may be *ustified in the present
situation.
alue system of to management:The strategy of a firm depends upon the value
system of the top management. The value system of the management not only affects
the choice of business, but also the strategies as "ell. &or e.g. those organization that
value and believe in social responsibility to"ards the society "ould incorporate social
responsibility as one of their important ob*ectives, "hich in turn "ould affect the
choice of strategy.
Attitude to,ards ris&s:The attitude of the top management to"ards risks is one of
the important factors affecting the choice of strategy. There are some managers "hoare cautious in their approach as far as risks are concerned, "hereas, there are other
managers "ho "ould like to take risks as a part of business. Those manager "ho
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believe in risks as an element of business may go for challenging strategies involving
commitment of huge financial resources.
5nternal Politics:8n many organizations, there is some sort of internal policies, "hich
directly affects the choice of strategy. There are managers in the organization "ho
tend to influence certain decisions including strategy selection depending upon
managerial po"er relationships. They may favour a particular strategy, "hich may not
be suitable to the organization as a "hole, but to a particular section or department in
the organization.
Bhat do you mean by D6trategy 8mplementation) Bhat are the main steps
involved in strategy implementation
Ans. 6trategic implementation is a process of activating the strategy. 8t is the sum
total of all the activities and choices re5uired for the e(ecution of a strategic plan. 8t is
the process by "hich strategies and policies are put into action through the
development of programs, budgets and procedures.
/test in strategy imlementation:
1. 5nstitutionalisation of strategy:8t is the first activity involved in activating the
strategy. 8nstitutionalization of strategy involves t"o aspects i.e. ommunication of
strategy and 6ecuring acceptance of strategy. 7nce the strategy is formulated, it mustbe communicated to those persons "ho "ould implement it. 8t is not enough to
communicate the strategy to the members of the organization, but it is e5ually
important secure their acceptance of the strategy, so that they implement to strategy
effectively.
'. !ormulation of Action Plans:7nce the strategy is institutionalized through its
communication and acceptance, the management proceeds to formulate action plans.
The management has to frame action plans in respect of several activities re5uired to
implement a strategy. The action plans may be in respect of purchasing ne"
machinery, appointing additional personnel, developing a ne" process etc. the type of
action plans depends upon nature of strategy.
. %esigning of organi"ation structure: The organization has to be designed
according to the needs of the strategy implementation. Any change in corporate
strategy may re5uire some changes in the organization structure and in the skills
re5uired in certain position.
;. 5nfusing values and ethics: 'usiness ethics is concerned "ith morality in business.
8n today)s "orld business community forms an important part of the society and its
actions are bound to have a direct impact on the "ell being and "elfare of the society.
'usiness affects society in terms of "hat it does i.e. "hat products it supplies.
Therefore it is necessary that business community conduct its activities "ith self
check and self control keeping in mind the interest of community at large.
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. 6evie, of erformance: The management must revie" the performance of the
strategy. The performance must be revie"ed periodically. 8f re5uired, corrective measures
need to be taken, so as to ensure the achievement of desired ob*ectives.
Bhat is 9esource Allocation E(plain significanceimportance and steps involved
in resource allocation.
Ans. A company needs to mobilize physical, capital and manpo"er resources. The
capital resources can be mobilized by debt or e5uity. Human resources can be mobilizedthrough proper recruitment and selection. 9esource allocation is an important activity in
strategy implementation. 9esource allocation re5uires procurement and commitment of
financial human and physical resources to the various activities re5uired for the
accomplishment of ob*ectives.
/ignificance@ imortance of 6esource allocation.
-. $otivation of emloyees: !roper allocation of resources helps to motivate the
employees to conduct the various activities re5uired to implement the strategy.
/. /mooth flo, of activities: !roper resource allocation helps orderly conduct of
activities in the organization, "hich in turn helps in effective implementation of the
strategy. Bhen the resources are allocated properly, the activities re5uired to
implement a strategy "ould be undertaken by the right people at the right time.0. 4timum se of resources:!roper allocation of resources helps to make optimum
use of resources, "hich in turn helps to achieve the organizational ob*ectives. All the
employees in charge of implementation of strategy "ould strive their best to minimize
"aste of resources.
1. #ooeration and 0eam /irit: Bhen there is proper allocation of resources among
the various departments, then there can be a cooperative spirit throughout the
organization, "hich is vital for the effective implementation of strategy. Ho"ever,
"hen resource allocation is done on the basis of internal politics, there can be serious
disputes among the various units or departments and as such the cooperative spirit can
get adversely affected, "hich in turn results in poor performance of the organisation.
. 3igher efficiency: !roper allocation of resources generates higher efficiency in the
organization, "hich in turn helps to introduce gro"th and e(pansion strategies.
/tes involved in 6esource Allocation:
1. %etermining the tye of amount of resources: A firm may re5uire various types of
resources such as human, financial, physical and informational resources. At times, a
firm may re5uire only the financial resources, as human and informational resources
are already available "ith the firm and that the physical resources such as machinery
can be purchased "ith the financial resources.'. %etermining the source of resources: The ne(t step is to identify the source of
resources. The sources of resources depend upon the type of resources. &or eg. the human
resources can be obtained or selected from both internal and e(ternal sources.
. $obilisation of resources: After determining the amount and the sources of
resources, the ne(t step is to make arrangement to obtain the resources. +ecessary procedure
is re5uired to be follo"ed in obtaining the resources. &or e.g. if the the financial resources are
to be obtained by "ay of term loans, then the procedure involved "ould be follo"ed.
;. 6esource Allocation: After obtaining the resources, the resources must be properly
allocated for the purpose of strategy implementation. The re5uired physical resources can be
purchased "ith the help of financial resources. 8f re5uired, additional human resources can be
selected for the purpose of strategy implementation . in any case, thare must be properallocation of financial, human and physical resources among the various activities or units so
as to implement the strategy effectively.
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and the re5uired resources to undertake activities so as to achieve goals. After
designing the packages, the cost for each package is calculated. nder zero base
budget, the budgeters prepare the budget for each package from base of zero. This
means they calculate costs afresh for each budget period. Thus, they ignore the
common tendency of arrive at budgets only on the basis of historical costs or the past
years costs.
0. /trategic Budgeting:The strategic budgeting considers the performance or results
e(pected and the activities re5uired to produce such results. Therefore, activities need
to be defined in terms of results e(pected, and the management allocates resources to
activities to achieve such performance and results.
1. Boston #onsulting 9rou: = 6tudents please note, for this point refer
. Product *ife cycle base budgeting:9esource allocation can also be undertaken on
the basis of product life cycle. There can be more resource allocation during the
introduction and gro"th stages of product life cycle, as compared to maturity and
decline stages. The resources can be diverted from those products that have reachedthe maturity stage of their life cycle.
3.om !art 8
Sra#gic Ma!ag#m#!