UTU-MBA
BUSINESS POLICY AND STRATEGIC ANALYSIS Unit-I
Business policy as a field of study; nature and objectives of business policy; strategic management process-vision, mission, establishment of organisational direction, corporate strategy, strategic activation. Qu. 1 Is there any distinction between between business business policy and Strategic Management? Discuss Discuss the comprehensive model of strategic management process. Ans A distinction between policy and strategic management is made on following basis : (a) Guidelines Vs Direction : Policy is a guide line to the thinking and action of those those whose finally take decision. While the strategic concerns with the direction direction in which human and physical physical resources are deployed and applied in order to maximize the chances of achieving organizational objectives in the face of environmental variables v ariables.. (b) Directions and Rules for taking taking Decisions ; Ausff makes differences between between policy and strategy strategy by arguing that policy is contingent decision whereas whereas strategy is a rule rule for taking decisions. decisions. A contingent event is repetitive but at the time time of its stipulated occurrence occurrence cannot be specified. It is not worthwhile worthwhile to decide every time what to do when when such contingencies arises. It is better to decide in advance advance what will be done in such contingent conti ngent events. (c) Delegation Vs Implementations Implementations : Another distinction distinction between between policy and strategy is made on basis basis of delegation and implementation. implementation. Since the policy provides guidelines for decision, it can be delegated downwards in the organisation. organisation. In fact, the policy id prescribed prescribed for the people what what they are expected to do in certain cases. Thus its implementation is through subordinate managers. Strategy can not be delegated downwards since it may require last minute executive decision. Comprehensive model of Strategic Management : The process of strategic management is depicted through model, which consist consist of different phases, each each having a number of elements. Our purpose in giving a working model, devoid of complexity observed in the comprehensive model is to assist you in remembering and recalling recalling it with ease. ease. Various elements in strategic management process process are as under: (a) The Hierarchy Of Strategic Intent: It lays foundation for the strategic management of any organisation. In this hierarchy, the vision business business definition, mission and objectives are established. established. The strategic intent makes clear what what an organisation stand stand for. The element element of vision in hierarchy hierarchy of strategic serves serves the purpose of stating what an an organisation wishes wishes to achieve in the long run. The objectives of an organisation state state what is to be achieved in a given time period. period. These objectives serve serve as yardsticks and benchmark for measuring oranisational performance (b) Environmental and Organisational Organisational appraisal: It helps to find out the opportunities opportunities and threats threats operating in the environment and the strength and weaknesses of an organisation in order to create a match between them. them. In such a manner opportunities opportunities could be availed availed of and the impact of threats neturalised to capitalize on the organisation strength and minimise the weaknesses. (c) Strategic Alternatives Alternatives and Choice: These are required required for evolving alternative alternative strategies out of many possible options and choosing the most appropriate strategy or strategies in the light of environmental opportunities, threats, threats, corporate strength strength and weaknesses. weaknesses. Strategies are chosen at corporate corporate and business level. (d) Strategic Plan : For implementation implementation of a strategy, strategy, the strategic strategic plan is put into action through six sub sub process such as: (i) Project Implementation: Implementation: It deals with setting up the organisation. organisation. (ii) Procedural Implementation: It deals with different aspects of regulatory framework within which Indian organisations have to operate. (iii) Resources Allocation: It relates to the procurement and commitment of resources for implementation. (iv) Structural Implementation: It deals with the designing of appropriate organizational structures and systems and reorganizing reorganizing to match the structure to the needs of the strategy. (v) Behavioral: It is considered considered as the leadership style for implementation strategies strategies and other issues like corporate culture, politics and use of power impersonal values, business ethics and social responsibilities.
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UTU-MBA
(vi) Functional and Operational: This aspect relates to the policies to be formulated in different functional areas. The operational aspect deals with the productivity, process, people and ace of implementing the strategies. (e) Strategic Evaluation: It appraises appraises the implementation of strategies and measures measures organizational organizational performance. The feedback from strategic management evaluation is meant to exercise strategic control over the strategic management process.
Qu. 2 Why do firms have objectives? Elaborate how mission and objectives are formulated? Ans. Objectives : The objectives of a business firm are as under: (a) Business Concepts: The learners learners of business policies policies have to understand the various concepts involved. Many of these concepts, concepts, like strategy, policies, policies, plans and programmes are encountered encountered in the functional are courses too. It is imperative imperative to understand these these concepts especially in the context of of business policy. (b) Environmental Knowledge: A knowledge knowledge of external external and internal environment environment and how it affects functioning of business is vital. Through the tools of of analysis and diagnosis a lerner can understand the environment in which a firm operates. (c) Implementation of of Strategy: It is a complex issue and is invariably the most difficult difficult part of strategic management. Through the knowledge gained from from business policy, the lerner would would able to visualize how the implementation of strategic management can take place. (d) Generalised Approach: The problem problem in real business business life is unique and so so are the solution is an enlightened experience. The knowledge component of such experience stress the general approach approach to adapt in problem solving and decision making. (e) Information: The information about environment helps in determination determination of of the mission, objectives and strategies of a firm. (f) Research: To learn about the the research taking place in the field of business business policy is also also an important knowledge objective. Mission and Objectives Formulation: Formulation: The mission mission and objectives are formulated by the corporate level strategists. But these executives do not make choices in vacuum. Their choices are affected by several factors such as; (a) External Environment Environment and Power Relationship: The realities, realities, and past strategy strategy and development of the enterprise. The stockholder with whom whom the organisation has an an exchange relationship will present present demand or claims. Suppose a manager want want to choose sales maximization as an objective. He may have to modified these objectives because of governmental regulations regarding excess profit, consumer labeling and so on. Trade union may require higher wages wages than market, which which leads to higher higher costs. Competitors may sell their products at low price and spend excessive amount on advertisements. advertisements. Suppliers may become monopolized and charge outrageous prices. prices. If the organisation is more dependent on suppliers than any other stakeholder the operational objectives may be limited by the availability and cost of supplies. (b) Enterprise Resources Resources and Internal Power Relationship: Relationship: The second factor affecting the formulation of mission and objectives is the realities of the enterprise resources resources and internal power relationship. Larger and more profitable firms have more resources with which to respond to forces in environment than do smaller or poorer firms. Mission and objectives are also affected by the power relationship among strategies either as individual or representations of units within the organisation. Thus if there is a difference of opinion on which objectives to seek or the trade offs among them power relationship may help settle the difference. (c) Goal of the Top Executives: The value system system of of top executives affects affects the formulation of of mission and objectives. Enterprises with with strong value system or ideologies will attract and regain managers whose values are similar. similar. These values are essentially a set of attitudes attitudes about what what is good or bad, desirable or undesirable.
Qu 3. Define objectives of business policy? Ans The objectives of of business policy have have been stated by various authors authors in terms of knowledge, skill skill and attitudes. These objectives could could be derived from purpose purpose of business policy: Knowledge: Knowledge of external and internal environment is vital to understanding of business policy.
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UTU-MBA
The information about environment helps in determination of the mission, objectives and strategies of a firm. The implementation of strategy is a complex issue and is invariably the most difficult part of strategic management To survey the literature and learn about the research taking taki ng place in the field of business policy is also an important knowledge objective.
Skills: The study of business policy should enable a student to develop analytical ability and use it to understand the situation in a given case or incident. The study of business policy should lead to the skill of identifying the factors relevant in decision making. The analysis analysis of strengths and weakness of an organisation, organisation, the threats and opportunities present in the environment. The above objectives in terms of skill increase the mental ability of the lerners and enable them to link theory with practice. As a part of business policy study case analysis leads to the development of oral as well as written communication skills. Attitudes: The attainment of the knowledge and skill objectives should lead to the inculcation of an appropriate attitude among the learners. By acting in an comprehensive manner, a generalist is able to function under conditions of partial ignorance by using his or her judgment and intuition. For a general manager information and suggestions are important to pose a liberal attitude and be receptive to new ideas. It is important to have the attitudes to go beyond and think when faced with a problematic situation. Developing a creative creative attitude is the hallmark of general general manager who who refuses to be board by precedents and stereo typed decision. Characteristics of business policy: policy: The following following are the main features of of business policies: (a) Policies are always in writing: The policies in general are written written procedures which specify limits or guidelines for perfection of work to be undertaken in future. (b) Directions towards towards goal achievements: A policy is formulated in context of organisational objectives. Therefore, the policy tries to contribute towards the achievements of organisational achievements by specifying limits. (c) Persuasive Function: Function: Formulation of policy policy is a function of all all managers whether manager of marketing, personnel, finance department etc. (d) Policy Differs from Strategy: A layman may think, think, there is no difference difference between policy and strategy, strategy, so at times people use use these words interchangeably. interchangeably. Policies are identified identified as guides to thinking thinking in decision making while strategies devote a general program of action and a commitment of emphasis and resources towards the attainment of comprehensive objectives. (e) Expressed in Qualitative Qualitative and General Way: Policies are generally generally expressed expressed in a qualitative, conditional and general way. The verbs most often used in setting up policies are to maintain to continue, to follow, to adhere, to provide, to assist, to assure, to employ etc. (f) It Involves Involves Choice of of Purpose: Policies involves a choice of purpose purpose and defining what what needs to be done in order to mould the character and identify of organisation. (g) Policies Must be Long Range: In general general a policy is a written written decision decision by top management for achieving certain results. (h) Clarity of Thought: A policy should be clear and self explanatory thus there will be be no change for wrongdoing. (j) Policies are reflection reflection of management philosophy: philosophy: a policy is a written and and effective effective expression expression of management thought and action.
VIMAL JOSHI
UTU-MBA
Unit-II
Top management : Constituents- board of directors, sub-committee, chief executive officer; task, responsibilities and skills of top management.
Qu. 3 Explain the various level at which strategy is formulated? Ans. The definition of of strategy varied in nature, nature, depth and coverage, coverage, offers us a glimpses glimpses of the complexity involved involved in understanding this daunting yet interesting interesting and challenging concept. The different levels at which strategy can be formulated are as under: (a) Corporate Level Level strategy: Strategy at corporate corporate level level is designated as corporate corporate strategy. strategy. It is the top management plan to direct and run the enterprises enterprises as a whole. whole. Corporate level strategy represents the pattern of interest in different business, divisions, product-lines, customer groups and technology etc. Corporate strategy emphasizes upon the fact that how one should manage the scope, mix and emphasis of various activities and how the resources should be allocated over the different priorities of the corporation. (b) Business Level Strategy: For many companies companies that are dealing in number of of product mix, dealing dealing with different types of buyers and types of markets, for them a single strategy is not only inadequate but also inappropriate. The need is for multiple strategies strategies at different levels. In order to segregate different different units or segments each performing a separate function, a seprate strategy is required. Unit-III Formation of strategy : Nature of company’s environment and its analysis; SWOT analysis; evaluating multinational environment; identifying corporate competence and resources; principles and rules of corporate strategy : strategic excellence positions
Qu. 4 What do you understand by SWOT analysis? How this this technique is used in the formation of corporate strategies? Ans. A scan of the internal and external environment environment is an important important part of the strategic planning process. Environmental factors internal to the firm usually usually can be classified as strength (S) or weakness (W), and those external to the firm can be classified classified as opportunities (O) or threats threats (T). Such an analysis of the strategic environment is referred to as a SWOT analysis. The SWOT analysis provides provides information that is helpful in matching the firm’s resources and capabilities to the competitive environmental in strategy formulation and selection. The following shows how how SWOT analysis fits into environmental environmental scan: Strengths (S): A firm’s strength are its resources resources and capabilities that can be used as a basis for developing its competitive advantage profile. Patents Strong brand names Good reputation among customer Cost advantages from proprietary know how Exclusive access to high grade natural resources Favourable access to distribution network Weaknesses (W): The absence of certain strengths strengths may be viewed as a weakness. weakness. For example, each of the following f ollowing may be considered weaknesses: Lack of patent protection A weak brand name Poor reputation among customers High cost structure Lack of access to best natural resources
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UTU-MBA
Lack of access to key distribution channels in some cases, a weakness may be the flip side of the strength. Take the case in which a firm has a large amount amount of manufacturing manufacturing capacity. While this capacity may be considered a strength that competitors do not share, it may be also considered as a weakness if the large investment in manufacturing capacity prevents the firm from reacting quickly to change in the strategic environment. environment. Opportunities(O): The external environmental analysis may revel certain new opportunities for profit and growth. Some examples of such opportunities opportunities includes: An unfulfilled customer need Arrival of new technologies Loosening of regulations Removal of international trade barriers Threats (T): Changes in external environment also may present present threats to the firm. Some examples examples of such threats are: Shift in consumer tastes away from firm’s products Emergence of substitutes products New regulations Increased trade barriers The basic objectives of SWOT analysis is to provide a frame work to reflect on the firm’s ability to overcome barriers and avail of opportunities emerging in the environment, indeed the dimension of internal capabilities capabilities have relevance in so far they relate to the environmental environmental conditions. conditions. Hence the analysis of comparative strengths and weaknesses require linking competencies with characteristic of external environment. An organisation that had pioneered computer education and training in India in the early 80s, found its position threatened in the mid 90s by competitors. Analysis of changing environment environment and its own weakness led to the outlining of organization’s SWOT as follows: Strengths: Value for money programmes Pool of trained faculty Wide choice of courses offering Nationals network of well-equipped training centuries Weaknesses: Not aggressive in selling Course differentials not sharp Counselors enthusiasm inadequate Customer services not focused enough Opportunities: Growing demand for computer education Computer library becoming necessity Growth of niche training needs Needs for customisied training modules Threats: Rise in competitors High rate of technological obsolescence Commodities of training Undercutting of fees Matching strengths and weakness with opportunities and threats requires that a firm should direct its strength towards exploiting opportunities and blocking threats while minimizing exposure of its weaknesses at the same time. Thus strategies which are based on the matching of strengths and weaknesses may be regarded as exploitative exploitative or developmental strategy. If strengths are used to repair weaknesses, one may call it remedial strategy. SWOT analysis may provide the basis of a comprehensive approach to strategy. Uses of SWOT Analysis: It can be used formulation of corporate strategy in many ways: (a) To provide a logical framework framework to be used used for systematic discussion discussion of various issue bearing on the business situation alternatives strategies and finally the choice of strategy. Differences in managerial perceptions of threats and opportunities, weakness and strength lead to different assessment reflecting intra organisational power relations and differing factual perspectives.
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UTU-MBA
(b) Another uses of SWOT analysis analysis is the structured structured approach where where key external threats and opportunities may be systematically compared compared with internal internal strengths and weakness. Thus the firm internal and external situations can be matched so as to form distinct pattern and the strategy chosen on the basis of the situation reflected in pattern. (c) A business business may have have several opportunities opportunities but also face some serious threats in the environment. environment. It may have likewise several several weaknesses along with one or two major strengths. In such situations the SWOT analysis guides the strategist to visualize the overall position of firm and helps to identify the major
UNIT I
BUSINESS POLICY function and responsibilities r esponsibilities of senior management, the crucial Christensen and others, it is the study of the function problems that affect success in the total enterprise, and the decision that determine the direction of the organization organization and shape its future. The problem of policy in business, like those of p olicy in public affairs, have to do with the choice of purposes, the moulding of organizational identity and character, the continuous definition of what needs to be done, and the mobilization of resources for the attainment of goals in the face of competition or adverse circumstances. This comprehensive definition covers many a spects: it considered as the study of the functions and responsibilities of the senior management related to th ose organizational problems which affects the success of the enterprise it deals with the determination of future course of action that an organization organization has to adopt it involves a choosing the purpose and defining what needs to be done in order to mould the character and identity of an organization organization lastly, it is also concerned with the mobilization of resources, which will help the organization to achieve its goals BUSINESS POLICY AS A FIELD OF STUDY/ IMPORTANCE OF BUSINESS POLICY Business Policy is important as a course in the management curriculum and as a component of executive development programmes for middle-level middle-level managers who are preparing to move up to the senior management level. A study of business policy fulfills the needs of management students as well as those of middle-level managers. To highlight the importance of business policy, we shall consider four areas where this course proves to be beneficial. Learning the course It seeks to i ntegrate the knowledge and experience ex perience gained in various functional areas of management. It enables the learner to understand and make sense of the complex interaction that takes place between different functional areas. It deals with the constraints and complexities of real-life businesses. In contrast, the functional area courses are based on a structured, specialized and well-developed body of knowledge, resulting from a simplification of the complex overall tasks and r esponsibilities esponsibilities of the management. business policy cuts across the narrow functional boundaries and draws upon a variety of sources-other courses in the management curriculum and a wide variety of disciplines, like economics, sociology, sociology, psychology, political science, and so on. In so doing, business policy offers a very broad perspective to its students. It makes the study and practice of management more meaningful as one can view business decision-making in its proper perspective. perspective. For Understanding the Business Environment Regardless of the level of management a person belongs to, business policy helps to create an understanding of how policies are formulated. This helps in creating an ap pr6ciation of the complexities of the environment that the senior management faces in policy formulation. By gaining an und erstanding of the business environment, managers become more receptive to the ideas and suggestions of the senior management. Such an attitude on the part of the management makes the task of policy implementation implementation simpler. When they become capable of relating en vironmental vironmental changes to policy changes within an organization organization managers feel themselves to be a part of a greater design. For Understanding the Organization Organization Business policy presents a basic framework for understanding strategic decision making while a person is at the middle level of management. Such a framework, combined with the experience gained while working in a specialized functional area, enables a person to make preparations for handling general management responsibilities. VIMAL JOSHI
UTU-MBA Business policy, like most other areas of management, brings the benefit of years of distilled experience in strategic decision-making to the organization and also to its managers. Case study-which is the most common pedagogical tool in business policy-provides policy-provides illustrations of r eal-life eal-life business strategy formulation and implementation. implementation. An understanding of business policy may also lead to an improvement in job performance. As a middle-level manager, a person is enabled to understand the linkage between the different subunits of an organization organization and h ow a particular subunit fits into the overall picture. This has far-reaching implications for managerial functions like coordination and communication, and also for the avoidance of inter-departmental inter-departmental conflicts. For Personal Development Development Business policy offers a unique perspective to executives to understand the senior management's viewpoint. With such an understanding the chances that a proposal made by or an action taken by an executive will be appreciated appreciated by senior managers is decidedly better. An interesting by-product of the business policy course is the theoretical framework framework provided in the form of the strategic management model. The applicability of this model is not limited to businesses alone. It can be applied to organizations like, services, educational institutions, family, government, public administration, and too many other areas. In fact, the model provides powerful in sights for dealing with policy-making at the macro level as well as at an individual level through self analysis. The importance of business policy stems from th e fact that it offers advantages to an executive from multiple sources. Apart from the intangible benefits, an executive gains an understanding of the business environment and the organization he or she works in . Such an understanding can help considerably in career planning and development. NATURE AND OBJECTIVE OF BUSINESS POLICY These objectives could be derived from the purpose of business policy. In Terms of Knowledge 1. The learners of business policy have to understand the various concepts involved. Many of th ese concepts, like, strategy, policies, plans, and programmes are encountered in the functional area courses too. It is imperative to understand these concepts specifically in the context of business policy. 2. Knowledge of the external and internal environment and how it affects the functioning of an organization is vital to an understanding of business policy. Through the tools of analysis and diagnosis a learner can understand the environment in which a firm operates. 3. Information about the environment helps in the determination determination of the mission, objectives objectives and an d strategies of a firm. The learner appreciates the manner in which strategy is formulated. 4. The implementation of strategy is a complex issue and is invariably the most difficult part of strategic management. Through the knowledge gained from business policy, the learner will be able to visualize how the implementation implementation of strategic management can take place. 5. To learn that the problems in real-life business are unique and so are the solutions is an enlightening experience for the learners. The knowledge component of such an experience stresses the general approach to be adopted in problem solving and decision-making. With a generalized approach, it is possible to deal with a wide variety of situations. The development of this approach is an important objective objective to be ach ieved in terms of knowledge. 6. To survey the literature and learn about the research taking place in the field of business policy is also an important knowledge objective In Terms of Skills 7. The attainment of knowledge should lead to the development of skills so as to be able to apply that which has been learnt. Such an a pplication pplication can take place by an analysis of case studies and their interpretation, and by an analysis of the business events taking place around us. 8. The study of business policy sh ould enable a student to develop analytical ability and use it to understand the situation in a given case or incident. 9. Further, the study of business policy should lead to the skill of identifying the factors relevant in decision-making. The analysis of the strengths and weaknesses of an organization, the threats and opportunities present in the environment, and the suggestion of appropriate strategies and policies form the core content of general management decision-making. decision-making. 10. The above objectives, in terms of skills, increase the mental ability of the learners and enable them to link theory with practice. Such ability is important in managerial decision-making where a large number of factors have to be considered at once to suggest appropriate action. 11. As a part of business policy study, case analysis leads to the development of oral as well a s written communication skills. In Terms of Attitude
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UTU-MBA 12. The attainment of the knowledge and skill objectives objectives should lead to the inculcation of an appropriate attitude among the learners. The most important attitude developed through this course is that of a generalist. The generalist attitude enables the learners to approach and assess a situation from all possible angles. 13. By acting in a comprehensive manner, manner, a generalist is able to function under conditions partial ignorance by using his or h er judgment and intuition. 14. For a general manager information and suggestions are important to possess a liberal attitude and be receptive to new ideas. Dogmatism with regard to techniques should to be replaced with a practical approach approach to decisionmaking for problem-solving. In this way, a g eneral manager can act like a professional professional manager. 15. It is important to have the attitude to 'go beyond and think' when faced with a problematic situation. Developing a creative and innovative attitude is the hallmark of a general manager who refuses refuses to be bound by precedents and stereotyped decisions. STRATEGIC MANAGEMENT PROCESS-VISION, MISSION management is an ongoing process that assesses the business and the industries in Accd to Lamb, 1984 “Strategic management which the company is involved; assesses its competitors and sets goals and strategies to meet all existing and potential competitors; and then reassesses each strategy annually or quarterly [i.e. regularly] to determine how it has been implemented and whether it has succeeded succeeded or n eeds replacement by a new strategy to meet changed circumstances, new technology, new competitors, a n ew economic environment., or a n ew social, financial, or political environment.” environment.” Gluekc “it is a stream of decisions and actions which leads to th e development of an effective strategy or strategies to help achieve a chieve corporate objectives. The strategies management determines strategic objectives and makes strategic decisions.” SM is that set of managerial decisions and actions that determine the long run performance of a corporation. SM is defined as the set of decisions and actions resulting in formulation and implementation of strategic designer to achieve the objectives of an organization. Strategic management management is the process of specifying an organization's objectives, developing policies and plans to achieve these objectives, and allocating resources to implement the policies and plans to achieve th e organization's objectives. objectives. It is the highest level of managerial activity, usually performed by an organization's Chief Executive Officer (CEO) and executive team. Strategic management provides overall direction to th e enterprise. It focuses on th e following critical areas: Determining the mission of the company, including broad statements about its purpose, philosophy and goals External environment analysis analysis of the th e company in terms of both competitive competitive and contextual factors Corporate appraisal and developing a company profile that reflects internal conditions and capabilities Analysis of possible strategic options available in light of company mission Evaluation of possible strategic alternatives and exercising strategic choice of a particular set of long term objectives and grand strategies needed to achieve the desired options Determining the strategic objectives objectives of th e organization on the basis of mission formulated by the corporation and compatible with grand strategy Implementing strategic choice decision decision based on budgeted resource allocation and emphasizing the matching of tasks, people, structure, technologies and r eward system Review and evaluation of the success of the strategic process to serve as a basic for control and as an input for future decision making.
STRATEGIC MANAGEMENT PROCESS Establishment of Strategic Intent: it refers to the purpose of the organization and ends it pursues. Peter F Ducker in mid 90’s: what is our business, what will our business be, what should out business be. Answer to these questions require and careful consideration of vision, mission and objectives of the organization. These questions help in defining the nature of the business, frame work for analysis, choice, and implementation and evaluation process. Vision: see things which are invisible to others – SM, Vision refers to the category of intention, that are broad, all inclusive and forward thinking –it is what the firm ultimately like to become – aspiration of future without specifying the means to achieve those desire ends – Mangers, they usually refers to mental image of some desired future state Mission: vision is more tangible than mission, it is the fundamental unique purpose that sets it apart from other firms of its type and identifies the scope of its operations in product and
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UTU-MBA
market terms – it is a genera enduring statement of company’s intent – it embodies the business philosophy of strategic decision makers, implies the image of the company and seeks to project and reflects the firms self concept, indicates the principal product or service area and primary customer need the company will attempt to satisfy. Imp elements of mission statement: customer & market, product & service, geographic domain, technology, concern for survival, company’s philosophy, self concepts, concern for public image. A mission statement should be clear, feasible, precise, motivating, distinctive, and indicates the major components of strategy in order to attain the established objectives. Mission statement should answer the following questions: what is our reason for being? What is our basic purpose? – What are the obligations to various stakeholders? – what is the relative emphasis we will place on meeting the needs of different stakeholders – what is unique or distinctive about our organization – what is likely to be difficult about our business 5 to 7 years in the future – who are, or who should be, our principal customers or key market segments – what are the principal goods and services present and future – what are or should have our principal economic concerns – what are the basic beliefs values aspiration, and philosophical priorities of the firm Goals: as mission statement makes vision specific, goals attempt to improve organization performance by making mission statement more concrete. Goals denote what an organization hopes to accomplish in future period of time. A broad category of financial and non-financial issues is addressed in goals. Objectives: objective are the end results of planned activity. goals describes in fairy general terms what he organization hopes to accomplish, but objectives details in more precise terms what need to be accomplished in order to reach goals. The achievement of corporate objectives should result in the fulfillment of corporate mission. Some of the areas in which the organization must establish goals and objectives are: Profitability, efficiency, growth (sales and assets), employees (industrial relations, welfare and development), market leadership (share), social responsibility (communication welfare & rural development) Strategy Formulation involves:
Doing a situation analysis, self-evaluation and competitor analysis: both internal and external; both microenvironmental and macro-environmental. macro-environmental. Concurrent with this assessment, objectives are set. This involves crafting vision statements (long term view of a possible future), mission statements (the role that the organization gives itself in society), society), overall corporate objectives (both financial and strategic), strategic business unit objectives objectives (both financial and strategic), and tactical objectives. objectives. These objectives should, in the light of t he situation analysis, suggest a strategic plan. The plan provides the details of how to ach ieve these objectives. This three-step strategy formulation formulation process is sometimes r eferred to as determining where you are now, determining where you want to go, and then determining how to get there. These three questions are the essence of strategic planning.
Strategy implementation involves:
Allocation of sufficient resources (financial, personnel, time, technology support) Establishing a chain of command or some alternative structure structure (such as cross functional teams) Assigning responsibility of specific tasks or processes to specific individuals or groups It also involves managing the process. This includes monitoring monitoring results, comparing to benchmarks and best practices, evaluating the efficacy and efficiency of the process, controlling for variances, and making a djustments to the process as n ecessary. When implementing specific programs, this involves acquiring the requisite resources, developing the process, training, process testing, documentation, and integration with (and/or conversion from) legacy processes.
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UTU-MBA
Evaluation and Control: it is the process in which corporate activities and performance results are monitored so that actual performance can be compared with the desired standards. Managers at all levels use the resulting information to take corrective action and resolve processing. They must provide monitoring and controlling methods to ensure that their strategic plan is followed. Based on the final performance management was need to make adjustment in the strategy formulation, in implementation or in both. CORPORATE STRATEGY Every business concern, as a general rule has its own aims and objectives and it is one of the foremost duties of the management to fulfill them. Executives formulate different policies and plans as guidelines not only for themselves but for their subordinates as well. How to implement both policies and plans effectively, it is essential to have further overall planning. Definition of Strategy: Glueck defines a strategy as “unified comprehensive and integrated plan designed to assure that the basic objectives objectives of the enterprise are achieved”. McNichols defines strategy as “the science and art of employing th e skills and resources of an enterprise to attain its basic objectives under the most advantageous conditions.” Corporate strategy means strategy of corporate bodies. It means the strategy of any enterprise, institution or organization. Generally strategy is inferred as external to the organization. Need for Corporate Strategy All corporate bodies have their corporation can survive without a strategy for itself. The need for corporate strategy arises for the following following reasons. r easons. 1. Vary fast change of business conditions. 2. To anticipate future problems and opportunities. 3. To provide all employees with clear goals and directions to the future of the enterprise. 4. to make the business more effective 5. To improve employee morale. 6. To capture, retain and win markets. Characteristics of Strategies 1. Strategies are deliberate attempts made by the management to win over its opponents. They are calculated to counter act a ctions of opponents. 2. They are special plans that deal with opponents. 3. Strategies are overall plans that help management to implement general policies and plans effectively. effectively. 4. Strategies are grown out of policies and plans and thus they direct the activities in the most appropriate manner. 5. Strategies include related decisions and actions meant for implementation of company objectives and plans. 6. Strategies are devices to reduce business risk and insecurity that are expected an account of complexity of business operations and other social and political contingencies. contingencies. 7. Strategies are determined sufficiently sufficiently in advance h aving considered company’s policies and objective so that tactful decisions and actions can be taken to accomplish them. Types of Strategy: Strategy may be classified based on the purpose or objective; on the nature or on time. Strategy based on purpose or objective: Based on purpose or objective, strategy can be classified into three types. Defensive Strategies: Defensive strategies are followed by corporations as defense against external forces. For e.g. the strategy followed may be for the purpose of retaining the market by r estricting estricting the competitors competitors from capturing the market. Offensive Strategies: Steps taken by the corporation in launching a new venture, a new produce, advertisement campaign etc. constitute offensive strategies. They mainly aim at expansion or capturing new markets. Strategy for Survival: Sometimes the corporation may find it desperate to win the competition. During such times the measures undertaken for the very survival of the corporation constitute survival strategies. Survival strategies not only aim at strengthening strengthening the competition to withstand competition but are undertaken during periods of financial, production and other crisis. Therefore, they are also called “Crisis Strategies”. Strategies”. Strategy based on the nature: Based on nature, strategy can be classified into five types. Root Strategy: Root strategy aims at providing basic guidelines in terms of nature and scope of its business commitment and the context of its skill and resource development and allocation.
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UTU-MBA Operation Strategy: Operation strategy flows from the root strategy and guides the enterprise in its action commitment in the market place. The blueprint for market penetration, coping with environmental changes and directing day to day operations are part of a firms operating strategy. strategy. Organization Strategy: Strategy: At the implementation phase the management has a decision choice of alternative organizational strategies to provide the guidelines, framework framework and communication communication network to complete and put into effect the operating strategy. Control Strategy: In order to determine the effectiveness of the organizations organizations performance in relation to the predetermined objectives developed in the formation formation and an d implementation implementation phases. Recovery Strategy: Recovery strategy is developed for reformulating and recycling the policy making process with the help of th e data obtained through the control strategy. Strategy based on Time element: e lement: Based on the time, strategy may be classified into two types. Short term Strategy: Short term strategy concerns itself with the immediate goals. Long Term Strategy: Long term strategy generally involves foresight on the expansion and development of the organization.
Levels of Strategies: The levels of strategy offer you a glimpse of the complexity about different levels at which strategy is formulated. The business strategy must contain well coordinated action programs aimed at securing a long-term competitive edge and which the company should sustain. Lets take an example of Hindustan Levers, a multinational subsidiary, is in several businesses such as animal seeds, beverages, oils and dairy fat , soaps and detergents. Three types of level are depicted in the exhibit. The first level is the corporate strategy which is an overarching plan of action covering the various functions performed by different SBU’S Corporate Level Take an example of any organization, there are basically three levels. The top level of the organization consists of chief executive office of the company, the board of directors, and administrative officers. The responsibility of the top management is to keep the organization healthy. Their responsibility is to achieve the planned financial performance of the company in addition to meeting the non-financial goals viz. social responsibility and the organizational image. The issues pertaining to business ethics, integrity, and social commitment are dealt with, at this level of strategic decisions. The corporate level strategies translates the orientation of the stakeholders and the society into the forms of strategies for functional or business levels. Business strategy is a comprehensive plan providing objectives for SBU’S, allocation of resources among functional areas, coordination between them for optimal contribution to the achievement to the achievement of corporate level objectives. This is the level where vision statement of the companies emerges. Exhibit shows typical levels of strategy making in an organization. In the given exhibit you will see that various companies are organized on the basis of operating divisions. These divisions are known as profit centers or strategic business units. Generally SBUs are involved in a single line of business Business Level This level consists of primarily the business managers or managers of Strategic Business units. Here strategies are about how to meet the competition in a particular product market and strategies have to be related to a unit within an organization. The managers at this level translate the general statements of direction and intent churned out at corporate level. The managers identify the most profitable market segment, where they can excel, keeping in focus the vision of the company. The corporate values, managerial capabilities, organizational responsibilities, and administrative systems that link strategic and operational decision making level at all the levels of hierarchy, encompassing all business and functional lines of authority in a company are dealt with at this level of strategy formulation. The managerial style, beliefs, values, ethics, and accepted forms of behaviour must be congruent with the organizational culture and at this level, VIMAL JOSHI
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these aspects are diligently taken care of by strategic managers. Just think for a while how does business strategy make the study and practice of management more meaningful? Operational Level Planning alone cannot create massive mobilization of resources and people and can never generate high quality of strategic thinking required in complex organizational context. For this to happen, the planning should be carefully dovetailed and integrated with significant administrative systems viz. management control, communication, information management, motivation, rewards etc. It is also vital that all these systems are supported by organizational structure that defines various authority and responsibility relationships, among various members of the company and specifically at operational level. The culture of the organization should be accounted for, and these systems should find adaptability with the culture of the organization. Further, put down at least five reasons how business strategy serves the need of Management students, Middle-level executives. The managers at this level of product, geographic, and functional areas develop annual objective and shortterm strategies. The strategies are designed in each area of research and development, finance and accounting, marketing and human relations etc. The responsibilities also include integrating among administrative systems and organizational structure and strategic and operational modes and seek for congruency between managerial infrastructure and the corporate culture. Thus Exhibit shows the interaction of various functions for deciding strategies at the operational level.
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UNIT II BOARD OF DIRECTORS In relation to a company, a director is an officer (that is, someone who works for the company) charged with the conduct and management of its affairs. A director may be an inside director (a director who is also an officer) or an outside, or independent, director. The directors collectively are referred to as a board of directors. Sometimes the board will appoint one of its members to be the chair of the board of directors. The control of a company is divided between two bodies: the board of directors, and the shareholders in general meeting. In practice, the amount of power exercised by the board varies with the type of company. In small private companies, the directors and the shareholders will normally be the same people, and thus there is no real division of power. In large public companies, the board tends to exercise more of a supervisory role, and individual responsibility and management tends to be delegated downward to individual professional executive directors (such as a finance director or a marketing director) who deal with particular areas of the company's affairs. The Board of Directors is responsible for supervising the management management of the th e Corporation’s business and its affairs. It has the statutory authority and obligation to protect and enhance the assets of t he Corporation in the interest of al l of its shareholders. The Board operates by delegating certain of its r esponsibilities esponsibilities and authority, authority, including spending authorization, authorization, to management and reserving certain powers to itself. Its principal duties fall into seven (7) categories. MANAGEMENT SELECTION, RETENTION AND SUCCESSION Subject to the Articles and By-Laws By-Laws of the Corporation, Corporation, the Board manages it s own affairs, including planning its composition, selecting its Chairman, who shall not be the CEO, nominating nominating candidates for election to the Board, appointing the members of its committees, committees, establishing the terms of reference and duties of its committees, and determining Board compensation. The Board has responsibility for the appointment and r eplacement of the CEO, for monitoring CEO performance, and for determining CEO compensation. The Board has responsibility for approving the appointment and remuneration of all corporate officers, acting upon the advice of th e CEO, and for ensuring that adequate provision has been made for management succession. succession. The Board shall provide an orientation orientation and induction program for new Directors and shall encourage and provide opportunities for all Directors to continually update their skills as well a s their knowledge of the Corporation, its business and its senior management. STRATEGY DETERMINATION or through its committees, committees, in developing and approving the The Board has the responsibility to participate directly or mission of the Corporation’s business, its objectives and goals, and the strategy for their achievement. The Board shall, among other assessment processes, evaluate management’s analysis analysis of th e strategies of the Corporation’s competitors or of companies of a scale similar to that of the Corporation. The Board has responsibility to ensure congruence between between shareholders’ expectations, the Corporation’s plans and management performance. performance. The Board has the responsibility to review the Corporation’s annual strategic plan with senior management prior to the commencement of each year and approve the plan. The plan shall take into account, among other things, the opportunities and risks of the Corporation’s business. RISK EVALUATION The Board has the responsibility to identify the principal risks of the Corporation’s business and ensure the implementation implementation of appropriate a ppropriate systems systems to manage such risks. MONITORING AND ACTING Corporation’s progress towards its goals, and to revise and alter its The Board has responsibility to monitor the Corporation’s direction in light of changing circumstances. At every regularly scheduled meeting, the Board shall review recent developments, if any, that impact upon the Corporation’s Corporation’s growth strategy. The Board shall, as part of its annual strategic planning process, conduct a review of human, technological and capital r esources required to implement the Corporation’s growth strategy and of the r egulatory, egulatory, cultural or governmental constraints on on the Corporation’s Corporation’s business.
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UTU-MBA The Board has responsibility to provide advice and counsel to the CEO, and to take action when performance falls short of its goals or other special circumstances warrant. POLICIES AND PROCEDURES The Board has responsibility to approve and monitor compliance with all significant policies and procedures by which the Corporation is operated, including the Corporation’s Environmental Policy and its Occupational Health Health and Safety Safety Policy. In particular, the Environmental Committee Committee and the Occupational Health and Safety Committee, which have been established by management, shall report to the Health, Safety and Environment Environment Committee of the Board of Directors on their respective activities activities once a year. The Board has particular responsibility to ensure that the Corporation Corporation operates at all times within applicable laws and regulations, and ethical and moral standards. standards. The Board has responsibility for monitoring compliance with the Corporation’s written Code of Ethics, granting any waivers from compliance for Directors and officers and causing disclosure of any such waivers to be ma de in the Corporation’s next quarterly report, including the circumstances and rationale for granting the waiver. DISCLOSURE TO SHAREHOLDERS AND OTHERS The Board has responsibility for ensuring that the performance performance of the th e Corporation is adequately reported to its shareholders, its other security holders, the investment community, the relevant regulators and the public on a timely and regular basis. The Board has responsibility for (i) reviewing and approving the Corporation’s un-audited quarterly financial statements and accompanying notes and the related Management’s Discussion and Analysis and press release (ii) ensuring that the Corporation’s audited annual financial statements are presented fairly and in a ccordance with generally accepted accounting standards and reviewing and approving such financial statements and accompanying notes and the r elated Management’s Discussion and Analysis and press release (iii) reviewing and approving the Corporation’s Management Proxy Circular and (iv) r eviewing eviewing and an d approving the Corporation’s Annual Information Information Forms. The Board has responsibility for ensuring that timely disclosure is made by press release of any development that results in, or may reasonably be expected to result in, a significant change in the value or market price of the Corporation’s listed securities. GENERAL LEGAL OBLIGATIONS To supervise the management of the business and affairs of the Corporation. Corporation. To act honestly and in good faith with a view to the best interests of the Corporation. To exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. To act in accordance with the Canada Business Corporations Act , securities, environmental and other relevant legislation and the Corporation’s Corporation’s Articles and By-Laws. By-Laws. To consider as the full Board and not delegate to a committee: Any submission to the shareholders of a question or matter requiring the approval of the shareholders; The filling of a vacancy among the Directors; The manner and the terms of th e issuance of securities; The declaration of dividends; The purchase, redemption or any other form of acquisition of shares issued by the Corporation; Corporation; The approval of a management proxy circular; The approval of any take-over bid circular or Directors’ Directors’ circular; The approval of the annual financial statements of the Corporation; or The adoption, amendment or repeal of ByLaws of the Corporation.
CEO RESPONSIBILITIES RESPONSIBILITIES The CEO is the singular organizational position that is primarily responsible to carry out the strategic plans and policies as established by the board of directors. The chief executive officer reports to the board of directors. The Dictionary of Business Terms defines it as follows: “The Chief Executive Officer (CEO) is the officer who has ultimate management responsibility responsibility for an organization. The CEO reports directly to the Board of Directors [and] appoints other managers…to assist in carrying out the responsibilities of the organization.” Much of the current writings around non-profit governance and board roles refer to the chief staff officer as CEO, such as “The Board is responsible to hire or appoint the CEO”. That usage can be attributed somewhat to consistency (gets beyond the variety of titles in use) and expediency (quick and easy), however it also no doubt reflects current trends in practice and governance models. This is a great list for both taking on a new CEO position and getting up to speed, as well as to develop a proactive development and learning program for any CEO or senior executive wishing to improve their executive management skills. It lays out well all the thing you need to juggle when you have both the privilege and responsibilities of the top spot in any organization. General Operations VIMAL JOSHI
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Establish primary goals of the Board -- maintenance of status quo, evaluation and recommendations or take charge through implementation of new game plan. 2. Meet all first-reports, introduce game plan and initiate implementation of action items on this list. 3. Have all first-reports complete the Agenda for the Future. 4. Discuss the dozen biggest problems and opportunities from perspective perspective of all first-reports. first-reports. 5. If survival mode is required, cut costs immediately where where necessary and prudent and in accordance with the Board's short and intermediate term goals. 6. Identify and implement top six action items that could measurably increase short term revenues. 7. In addition to this action list, formulate short-term game plan for company, get board approval and communicate plan to key personnel, suppliers, lenders, etc. 8. Prioritize top ten action items for the whole company and begin implementation. 9. Identify top goals for the company for the current month, quarter and year. Financial Issues 10. Within the first week, get current detailed financial statements, itemized payroll, payables and receivables list. 11. Review budgets of all departments or divisions for r easonableness easonableness of assumptions, quality of projections and relevancy in light of recent corporate changes and goals. 12. Evaluate obvious, and not so obvious, problems and strengths revealed by the financial statements. 13. Do realistic cash forecast for the n ext 90 and 180 day periods. 14. Evaluate asset utilization utilization and re-deploy r e-deploy if appropriate and prudent in the short term. Liabilities / Risks / Time Bombs 15. Deal with the six largest crises within the first three weeks. 16. Review banking and debt obligations for n ext 90, 180 and 365 day periods and ensure n o technical or major defaults, if possible. If in default, develop game plan and/or negotiate workout. 17. Determine which critical suppliers have suspended support due to lack of payment, or other problems. 18. Identify and take steps to immediately defuse defuse all visible, or suspected, ticking time bombs. Regulatory / Legal / Litigation 19. Ensure all payroll taxes are paid and properly reported. 20. Determine what, if any, problems exist with the IRS and state agencies. 21. Ensure the company is in compliance with with all required r equired regulatory regulatory and licensing agencies, etc. and if not, take action to resolve these issues. 22. Identity all outstanding legal issues and litigation risks along with probable, and possible, associated costs. 23. Ensure no securities law violations have occurred -- and if they have, take immediate steps to remedy th em, or mitigate their impact. 24. Ensure any patents, trade secrets, trademarks and copyrights are properly filed and appropriate protections protections are in place. Product lines / Marketing / Sales / Distribution 25. Analyze product delivery schedules and takes steps to improve meeting commitment commitment dates. 26. Evaluate product development timetables, budget forecasts and quality of project management systems, systems, procedures and controls. 27. Evaluate sales, marketing, distribution, distribution, forecasts and trend lines for improvement opportunities in all areas, so as to generate more cash in the short-term. 28. Identify both the best customers and the most unhappy customers, as well as the company's image in the marketplace. 29. Complete competitive analysis for each product line. 30. Evaluate pricing models for each product line and adjust accordingly. accordingly. 31. Identify product line strengths and weaknesses and develop short-term action plan to solve the most glaring problems. 32. Identify potential products -- 6, 12 and 24 months into the future -- an d their possible impact on revenue and expenses. 33. Establish / update / expand web pr esence. 34. Evaluate expenditures and effectiveness of marketing and advertising for media, trade shows, market research, focus groups and public r elations and adjust accordingly. 35. Evaluate sales force, sales-related incentives, sales targets, sales personnel training, special offers, dealerships, telemarketing and sales support. 36. Evaluate and optimize short-term inventory. 37. Evaluate customer / technical support, warranties, guarantees guarantees and after-sales service. Personnel Issues VIMAL JOSHI
UTU-MBA 38. Upon arrival, candidly communicate with all company personnel for introduction and conveyance of immediate game plan. 39. Set up suggestion boxes, and invite anonymous email, to gain insight into less obvious un derlying problems. problems. 40. Review major Human Resource department aspects of company for legal compliance, competitiveness of benefits package, diversity, clarity of policies and potential costs savings. 41. Evaluate strengths and weaknesses of all first reports. 42. Develop 30/60/90 day performance plans for all first reports. 43. Evaluate organizational structure and effectiveness -- and reorganize if appropriate, adjusting total payroll if necessary. 44. Identify best and worst five percent of employees in the company -- probably replacing worst five percent and ensuring the best five percent are motivated enough to stay. 45. Analyze employee turnover rates t o identify fundamental problem areas. 46. Identify key personnel and unfilled job functions, define criteria criteria and initiate search, within within budget constraints. 47. Identify personality issues / company policies that may be creating n egative impact on company morale and productivity. 48. Review / modify written delegation of authority for all first reports. 49. Review all employment contracts or agreements, oral or written, including any severance or termination compensation agreements with salaried, hourly, or collective collective bargaining employees. employees. 50. Review all bonus, deferred compensation, stock option, profit sharing, retirement programs or plans covering salaried, hourly, or collective collective bargaining barga ining employees. IPO / Merger / Acquisition / Disposition / Dissolution 51. Identify which mergers, acquisitions, dispositions and investments make the most sense for the company. 52. Identify the growth i ssues regarding acquisitions, spin offs, expansion, downsizing, establishing new, and/or closing existing branches and stores. 53. If decision is to sell the company, establish price and terms, subject to Board approval, prepare sales summary and develop game plan and methodology for sale. 54. Complete three year pro forma, based on realistic assumptions, to determine future valuation potential of company and likelihood of IPO or merger/acquisition potential. 55. If Board decision is to dissolve company, develop game plan for liquidation of assets and/or follow up on bankruptcy filing. General / Administrative Administrative 56. Evaluate and control travel, entertainment entertainment and all discretionary expenditures and implement new written policies for these issues. 57. Review facilities and real estate issues, including a review of current lease r equirements. 58. Review all equipment leases for cost cutting / improved technology opportunities. 59. Create / update business plan for current internal clarity and banking or capital formation needs. 60. "Manage by roaming around" -- gaining insights into attitudes and problem areas from within all levels of the organization. 61. Evaluate in-place systems and procedures an d streamline where appropriate. 62. Evaluate technology implementation and optimize within budget constraints. 63. Visit all branch offices and evaluate their n eeds, performance, performance, personnel an d cost-effectiveness. cost-effectiveness. Stockholder Status / Investor Relations 64. Evaluate investor and stockholder relations and communication communication status and initiate appropriate action. 65. Generate updated lists of all current shareholders and percentage ownership of each. 66. Review stock options or purchase plans and agreements, as well as lists of outstanding warrants and options, including date of grant, exercise price, number of shares subject to option, and date of exercise. The Next Steps 67. Report to the Board: the objective status, evaluation, evaluation, recommended modifications to the short-term game plan and any cash needs. 68. Pick up sword again, and implement updated and approved game plan.
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UTU-MBA ENVIRONMENT: Layman: Surrounding, influences, circumstances, forces forces an d external objects which a ffects ffects someone under which something exists Org: conditions, variables, factors, events, influences that surround and affect it. Nature: As a source of resources: it views that every org depends on the environment for its resources and these resources are scare and valued. There is a competing situation in the industry to obtain and control their resources. It is crucial to mange and control effectively effectively and efficiently efficiently and also it is necessary to understand environment before before making efforts to impact it. As a source of information: it views it as a source of information. Organization Organization becomes aware about the information and the level of uncertainness associated with the various information. Environment uncertainty, uncertainty, degree of complexity and degree of chan ge existing in an organization organization external environment. Thus the more complex and dynamic the environment the more uncertain it is. As the market becomes global the complexity and unpredictability increases and number of factors a firm considers increases. The following are the nature of environment Influences the availability of resources, provides opportunities and holding threats, is complex, is dynamic, is having a far reachable r eachable impact, is multi dimensional, dimensional, is multi faceted. COMPONENTS OF ENVIRONMENT Multinational/ Mega Environment: is composed of elements in the border society that can be indirectly influencing an industry and the companies within an industry. The constituents are: Political and legal environment: the directions direction and stability of political factors is a major consideration for managers in formulating company strategy. Political/legal forces that allocate power and provide constraining an d protecting laws and regulations. Political constraints are places in each company through fair trade decision, programs, anti-trust laws, labour legislation, environmental protection laws and many other actions aimed a t protecting the consumer and environment. The important factors which determine the political/legal environment, are, political system, political structure, political processed, government philosophy, role of the government in business and government attitude towards business and foreign investment etc. Some of th e important variables are given below: Governing regulations or deregulations, Environmental Protection Laws Tax Laws, Foreign Trade Regulations Intellectual Property Rights Anti trust legislations, Level of government subsidies, Attitude towards foreign companies, Foreign Exchange Laws, Stability of the government, Special Incentives, Incentives, Level of defense expenditures, Location and severity of terrorist activities, Size of government budget
taking an example of 1977 the Janta govt. has followed a strict poling with regard to multinationals, As a result Coca-Cola and IBM were forced to move out of India causing a farreaching impact on the business environment of the country. Economic Environment: it refers to the nature and direction f the economy in which a business organization operates. Economic environment is by far the most important environmental factor which the business organizations take into account. In fact, a business organization is an economic unit of operation. Since the measurement of organizational performance is mostly in the form of financial terms, often managers concentrate more on economic factors. The economic environment is also important for non-business organizations too because such organizations depend on the environment for their resource procurement which is greatly determined by the economic factors. As such, the understanding of economic environment is of crucial importance to strategic management. Economic environment covers those factors, which give shape and form to the development of economic activities and may include factors like nature of economic system, general economic conditions, various economic policies, and various production factors. From analytical point of view, various economic factors can be divided into two broad categories: general economic conditions and factor market. The discussion of these factors will bring out the nature of total economic environment. Key economic Variables: GDP trends, Interest rates, money supply, inflation rate, shift to service economy, tax rate, unemployment level, wage/ price control, devaluation and revaluation, money market rates, monetary fiscal policy, unemployment trends. Technological Environment: it is key driver of the new competitive landscape technologies; VIMAL JOSHI
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developments are fast and have far reaching impact on the firm’s strategy. The technology segment includes institutions and activities involved with creating new knowledge and translating the knowledge into new output, new product and process and materials. A firm must be aware about the technological changes that might influence the industry. The strategic implications of technological changes accd to Boris Petrov are three: -- it can change relative competitive cost of position within a business – it can create new markets and new business segments – it can collapse or merge previously independent business by reducing or eliminating their segment cost barriers. In fact technology has changed the way in which business in conducted. e.g. the growth of IT sector has acted as a catalyst in this direction. Access to internet, enable large number of employees to work from home, providing strategy with access to richer resources of information, business to business transactions, on line shopping through internet and WWW. Key technology factors: total govt spending for R&D, total industry spending for R&D, focus of technological efforts, patent protection, new products, new development in technology transfer from lab to market place, productivity improvement though automation, internet availability, telecommunication infrastructure. Socio-Cultural Socio-Cultural Environment: this segment involves beliefs, values, attitudes, opinions and life styles of those in a firm’s external environment, as developed from their cultures, ecological, demographic, religion, educational and ethnic conditioning. Socio cultural changes occur gradually unlike technological changes. it is not easy to predict the timing of their changes. Areas where socio cultural changes may have strong implication for organization are: -changes in life style – work force composition – changes in attitudes about th e quality of work life – rat e of family formation and growth of population – a ge distribution – ethical standards – shift in product & service preferences. In India, the most profound social changes in recent years is the emergence of middle class as a major and important element of total population, increase in the n umber of women entering in the labour market, changes in consumer and employees interest, quality of life issues etc. Key social cultural variables: Life style change, career expectations, consumer activism, rate of family formation, birth rate, growth rate of population, age distribution of population, r egional shift in population, life expectancies, level of education organization’s current business. It The Micro Environment: the micro environment has a substantial impact on the organization’s constitutes the following: following: Competitors: no. of competitor’s entry and exit barriers, nature of completion and relative strategic position of major competitors Suppliers: consists of factors related to cost and availability of the factors of production and service that have an impact on business of an organization Customers: factors such as the need and preference perceptions bargaining power power buying behavior and satisfaction level of customers Market Intermediaries: factors such as level and quality of customer’s service, middlemen, changes of distribution logistic, cost and delivery system SWOT ANALYSIS SWOT is an acronym that stands for Strengths, Weaknesses, Opportunities, and Threats. SWOT analysis is a basic, straightforward straightforward model that provides direction and serves as a basis for the development and management of self. Purpose The purpose of SWOT analysis is to gather, analyze, and evaluate information and identify strategic options facing a community, organization, or individual at a given time. SWOT Analysis is a very effective way of identifying strengths and weaknesses, and of examining the opportunities and threats one ten ds to face. Carrying out an analysis using the SWOT framework helps to focus activities into areas where one is strong and where the greatest opportunities lie. This knowledge is then used to develop a plan of action. The analysis can be performed on a product, on a service, service, a company or even on an individual. Done properly, SWOT will give the big picture of the most important factors that influence survival and prosperity as well as a plan to act on. Strengths and weaknesses are internal while opportunities and threats are external. Strengths and weaknesses have to be matched with the opportunities in the external environment and also to counter any threats that might pose a danger to plans. SWOT Analysis is generally considered a Marketing tool but although it h as its origins in Marketing field and is predominantly used by Marketing people, and it can also be done for self. SWOT Analysis is a tool which guides one to see where one stand in terms of job prospects and career growth. You should do a personal SWOT analysis analysis because it will tell you what are your strong points and how can you further brush them up to exploit them to get a good job. It will also show you your negative character traits that can hinder your chances of getting a good job. You can then work towards overcoming those shortcomings and minimizing their effects. Your strengths will tell you the jobs and the kind of work you are best for hence making it VIMAL JOSHI
UTU-MBA easier to avail the r ight opportunities. Threats will show show you th e skills, courses and training you n eed in order to remain competitive. SWOT analysis has two main c omponents • Issues those are in ternal to the organization (Strengths and Weaknesses) • Issues those are external to the organization (Opportunities (Opportunities and Threats). Follow these rules when developing a SWOT analysis 1. Keep lists short - 10 items per list ensures only important factors are considered. 2. Opinions must be supported with facts - One person's idea of strength may be another's idea of a weakness. Having the facts to back up an argument gives it credibility. 3. Show competitive factors - Perhaps you don't have a direct competitor in your category, but every organization competes for dollars so competition should not be dismissed. 4. Prioritize and weigh the factors in the lists 5. Use language that is clear and relevant to the task - Confusing or obscure language may complicate your ability to execute the strategy. Strengths and Weaknesses A “strength” is a positive characteristic that gives gives a company an important capability. It is an important organizational resource which enhances a company, competitive position. Some of the internal strengths of an organization are: Distinctive competence in key areas Manufacturing efficiency Skilled workforce Adequate financial resources Superior image and r eputation Economies of scale Superior technological skills Insulation from strong competitive competitive pressures Product or service differentiation differentiation Proprietary technology. A “weakness” is a condition condition or a characteristic which puts the company at disadvantage. Weaknesses make the organization vulnerable to competitive pressures. These are competitive competitive liabilities and strategic managers must evaluate their impact on the organization’s strategic position when formulating formulating strategic policies and plans. Weaknesses require a close scrutiny because some of them can prove to be fatal. Some of the weaknesses to be reviewed are: No clear strategic direction Outdated facilities Lack of innovation is Complacency Poor research and developmental programmes Lack of management vision, depth and skills Inability to raise capital Weaker distribution network Obsolete technology Low employee morale Poor track record in implementing strategy Too narrow a product line Poor market image Higher overall unit costs relative to competition. Opportunities and Threats An “opportunity” is considered as a favourable circumstance which can be utilised for beneficial purposes. it is offered by outside environment and the management can decide as to how to make the best use of it. Such an opportunity may be the result of a favourable change in an y one or more of the elements that constitute the external environment. It may also be created b y a proactive approach by the management in moulding the environment to its own benefit. Some of the opportunities are: Strong economy Possible new markets Emerging new technologies Complacency among competing organizations Vertical or h orizontal integration integration Expansion of product line to meet broader range of customer needs
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UTU-MBA Falling trade barriers in attractive foreign markets A “threat” is a characteristic characteristic of the external environment environment which is h ostile to the organization. Management should anticipate such possible threats and prepare its strategies in such a manner that any such threat is neutralized. Some of the elements that can pose a threat are: Entry of lower cost foreign competitors competitors Cheaper technology adopted by rivals Rising sales of substitute products Shortages of resources Changing buyer needs and preferences Recession in economy Adverse shifts in trade policies of foreign governments Adverse demographic changes SWOT analysis involves evaluating a company’s internal environment in terms Of strengths and weaknesses and the external environment in terms of opportunities and threats and formulating strategies that take advantage of all these factors. Such analysis is an essential component of thinking strategically strategically about a company’s situation. situation.
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UTU-MBA UNIT IV STRATEGIC ANALYSIS AND CHOICE BCG MATRIX
Growth-share matrix The BOSTON matrix (aka B.C.G. analysis, B.C.G.-matrix, Boston Consulting Group analysis) is a chart that had been created by Bruce Henderson for the Boston Consulting Group in 1970 to h elp corporations with analyzing their business units or product lines. This helps the company allocate resources and is used as an analytical tool in brand marketing, product management, strategic management and portfolio-analysis.
To use the chart, analysts plot a scatter graph to rank the business units (or products) on the basis of their relative market shares and growth rates. slow-growing industry. These units typically generate cash Cash cows are units with high market share in a slow-growing in excess of the am ount of cash needed to maintain the business. They are regarded as staid and boring, in a "mature" market, and every corporation would be thrilled to own as many as possible. They are to be "milked" continuously with as little investment as possible, since such investment would be wasted in an industry with low growth. Dogs, or more charitably called pets, are units with low market share in a mature, slow-growing industry. These units typically "break even", generating barely enough cash to maintain the business's market share. Though owning a break-even unit provides the social benefit of providing jobs and possible synergies that assist other business units, from an accounting point of view such a unit is worthless, not generating cash for the company. They depress a profitable company's return on assets ratio, used by many investors to judge how well a company is being managed. Dogs, it is thought, should be sold off. Question marks are growing rapidly and thus consume large amounts of cash, but because they have low market shares they do not generate much cash . The result is a large net cash consumption. A question mark (also known as a "problem child") has the potential to gain market share and become a star, and eventually a cash cow when the market growth slows. If the question mark does not succeed in becoming the market leader, then after perhaps years of cash consumption it will degenerate into a dog when the market growth declines. Question marks must be analyzed carefully in order to determine whether they are worth the investment required to grow market share. Stars are units with a high market share in a fast-growing industry. The hope is that stars become the next cash cows. Sustaining the business unit's market leadership may require extra cash, but this is worthwhile if that's what it takes for the unit to remain a leader. When growth slows, stars become cash cows if they have been able to m aintain their category leadership, or they move from brief stardom to dogdom. As a particular industry matures and its growth slows, all business units become either cash cows or dogs. The overall goal of this rank ing was to help corporate analysts decide which of their business units to fund, and how much; and which units to sell. Managers were supposed to gain perspective from this analysis that allowed them to plan with confidence to use money generated by the cash cows to fund the stars and, possibly, the question marks. As the BCG stated in 1970:
Only a diversified company with a balanced portfolio can use its strengths to truly capitalize on its growth opportunities. The balanced portfolio has: stars whose high share and high growth assure the future; cash cows that supply funds for that future growth; and question marks to be converted into stars with the added funds.
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Practical Use of the Boston B oston Matrix For each product or service the 'area' of the circle represents the value of its sales. The Boston Matrix thus offers a very useful 'map' of the organization's product (or service) strengths and weaknesses (at least in terms of current profitability) profitability) as well as the likely cashflows. The need which prompted this idea was, indeed, that of managing cash-flow. It was reasoned that one of the main indicators of cash generation was relative market share, and one which pointed to cash usage was that of market growth rate.
Relative market share This indicates likely cash generation, because the higher the share the more cash will be generated. As a result of 'economies of scale' (a basic assumption of the Boston Matrix), it is assumed that these earnings will grow faster the higher the share. The exact measure is the brand's share relative to its largest competitor. Thus, if the brand had a share of 20 percent, and the largest competitor had the same, the ratio would be 1:1. If the largest competitor had a share of 60 percent, however, the ratio would be 1:3, implying that the organization's brand was in a r elatively weak weak position. If the largest competitor only had a share of 5 percent, the ratio would be 4:1, implying that the brand owned was in a relatively strong position, which might be reflected in profits and cashflow. If this technique is used in practice, this scale is logarithmic, logarithmic, not linear. On the other hand, exactly what is a high relative share is a matter of some debate. The best evidence is that the most stable position (at least in FMCG markets) is for the brand leader to have a share double that of the second brand, and triple that of the third. Brand leaders in this position tend to be very stable - and profitable; the Rule of 123. The reason for choosing relative market share, rather than just profits, is that it carries more information than just cashflow. It shows where the brand is positioned against its main competitors, and indicates where it might be likely to go in the future. It can also show what type of marketing activities might be expected to be effective.
Market growth rate Rapidly growing brands, in rapidly growing markets, are what organizations strive for; but, as we have seen, the penalty is that they are usually net cash users - they require investment. The reason for this is often because the growth is being 'bought' by the high investment, in the reasonable expectation that a high market share will eventually turn into a sound investment in future profits. The theory behind the matrix assumes, therefore, that a higher growth rate is indicative of accompanying demands on investment. The cut-off point is usually chosen as 10 per cent per annum. Determining this cut-off point, the rate above which the growth is deemed to be significant (and likely to lead to extra demands on cash) is a critical requirement requirement of the technique; and one that, again, makes the use of the Boston Matrix problematical in some product areas. What is more, the evidence, from FMCG markets at least, is that the most typical pattern is of very low growth, less than 1 per cent per annum. This is outside the range normally considered in Boston Matrix work, which may make application of this form of analysis unworkable in many markets. Where it can be applied, however, the market growth rate says more about the brand position than just its cashflow. It is a good indicator of that market's strength, of its future potential (of its 'maturity' in terms of the market lifecycle), and also of its attractiveness attractiveness to future competitors. competitors. It can also be used in growth analysis.
Risks and criticisms The BCG growth-share matrix ranks only market share and industry growth rate, and only implies actual profitability, profitability, the purpose of any business. (It is certainly possible that a particular dog can be profitable without cash infusions required, and therefore should be retained and not sold.) The matrix also overlooks other elements of industry attractiveness and competitive advantages. Another matrix evaluation scheme that attempts to mend these problems has been the G.E. multi factoral analysis (also known as the GE McKinsey Matrix). With this or any other such analytical tool, ranking business units has a subjective element involving guesswork about the future, particularly with respect to growth rates. Unless the rankings are approached with rigor and skepticism, optimistic evaluations can lead to a dot com mentality in which even the most dubious businesses are classified as "question marks" with good prospects; enthusiastic managers may claim that cash must be thrown at these businesses immediately in order to turn them into stars, before growth rates slow and it's too late. Poor definition of a business's market will lead to some dogs being misclassified as cash bulls. As originally practiced by the Boston Consulting Group, the matrix was undoubtedly a useful tool, in those few situations where it could be a pplied, for graphically illustrating cashflows. If used with this degree of sophistication its use would still be valid. However, later practitioners have tended to over-simplify its messages. In particular, the later application of the names (problem children, stars, cash cows and dogs) has tended to overshadow all else - and is often what most students, and practitioners, practitioners, remember. This is unfortunate, since such simplistic use contains at least two major problems:
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UTU-MBA 'Minority applicability'. The cashflow techniques are only applicable to a very limited number of markets (where growth is relatively high, and a definite pattern of product life-cycles can be observed, such as that of ethical pharmaceuticals). In the majority of markets, use may give misleading results. 'Milking cash bulls'. Perhaps the worst implication of the later developments is that the (brand leader) cash bulls should be milked to fund new brands. This is not what research into the FMCG markets has shown to be the case. The brand leader's position is the one, above all, to be defended, not least since brands in this position will probably outperform any number of newly launched brands. Such brand leaders will, of course, generate large cash flows; but they should not be `milked' to such an extent that their position is jeopardized. In any case, the chance of the new brands achieving similar brand leadership may be slim - certainly far less than the popular perception of the Boston Matrix would imply. Perhaps the most important danger is, however, that the apparent implication of its four-quadrant form is that there should be balance of products or services across all four quadrants; and that is, indeed, the main message that it is intended to convey. Thus, money must be diverted from `cash cows' to fund the `stars' of the future, since `cash cows' will inevitably decline to become `dogs'. There is an almost mesmeric inevitability about the whole process. It focuses attention, and funding, on to the `stars'. It presumes, and almost demands, that `cash bulls' will turn into `dogs'. The reality is that it is only the `cash bulls' that are really important - all the other elements are supporting actors. It is a foolish vendor who diverts funds from a `cash cow' when these are needed to extend the life of that `product'. Although it is necessary to recognize a `dog' when it appears (at least before it bites you) it would be foolish in the extreme to create one in order to balance up the picture. The vendor, who has most of his (or her) products in the `cash cow' quadrant, should consider himself (or herself) fortunate indeed, and an excellent marketer; marketer; although he or she might also consider creating a few stars as an insurance policy against unexpected future developments and, perhaps, to add some extra growth.
Alternatives As with most marketing techniques there are a number of alternative offerings vying with the Boston Matrix; although this appears to be the most widely used (or at least most widely taught - and then probably 'not' used). The next most widely reported technique is that developed by McKinsey and General Electric; which is a three-cell by three-cell matrix - using the dimensions of `industry attractiveness' and `business strengths'. This approaches some of the same issues as the Boston Matrix, but from a different direction and in a more complex way (which may be why it is used less, or is at least less widely taught). Perhaps the most practical approach is that of the Boston Consulting Group's Advantage Matrix, which the consultancy reportedly used itself; though it is little known amongst the wider population.
Other uses The initial intent of the gr owth-share matrix was to evaluate business units, but the same evaluation can be made for product lines or any oth er cash-generating entities. This should only be attempted for real lines that h ave a sufficient history to allow some prediction; if the corporation has made only a few products an d called them a product line, the sample variance will be too high for this sort of analysis to be meaningful. SWOT ANALYSIS MATRIX The TOWS matrix illustrated systematically compares the external opportunities and internal strengths. the objective is identification as one of four distinct patterns in the match between the firms internal and external situations. situations. The matrix generates a series of possible strategies for the company or SBU under consideration bases on four sets of combinations given in four cells. (internal factors, Stranght and weaknesses, External Factors Opportunity and threats) SO Strategies: the most favourable situations, the firm face numerous opportunities and have numerous strengths. This situation suggests “growth oriented strategies’; the firm should maximize the strength in order to capture the available opportunities WO Strategies: The firm faces impressive market opportunities but is constrained by the several internal weaknesses. The focus of strategy for such firm is eliminating internal weaknesses weaknesses to more m ore effective pursue market opportunities WT Strategies: the most favourable situation with the firm facing major environmental threats from a position of relative weakness. The firm should act defensively in order to minimize weakness and avoid threat. ST strategies: the firm faces unfavourable environment having key strengths. The strategies suggests building long term opportunities in other products/ market. SWOT analysis helps to resolve one fundamental concern in selecting strategy. What will be the principle purpose of grand strategy? is it to take advantage of a strong position or to overcome a weaknesses. SWOT analysis provides a means as an swering this fundamental question and give direction to grand strategy. VIMAL JOSHI
UTU-MBA SWOT analysis can also be used to take a broader view of strategy though the following formula SA=O/ (S-W) i.e strategic alternatives = opportunities divided strengths minus weaknesses. SPACE (Strategic position and action evaluation) SPACE is an approach used to d efine different strategies alternative alternative and strategic postures postures for a firm. it involves consideration on four dimensions: -- company’s competitive advantage – company’s financial strength – industry strength – environment stability SAP provides an idea about th e company’s competitive advantage and financial strengths and ETOP and industry analysis gives insight regarding the environment stability and industry strengths. These factors are assess numerically constructed a scale from 0-7. With 0 reflecting the most unfavourable assessment and 7 most favourable, then average numerical score is calculated. (FIGURE—FS up, CA left, IS right, ES down) Strategic alternative postures: SPACE matrix depicts 4 possible postures. Aggressive Posture: appropriate for company enjoys a competitive advantage and belongs to an attractive industry that operates in a relatively stable environment. Possible strategies – full exploitation of resources, look for acquisition possibilities, enhance market share though expansion, expansion, concentric diversification, diversification, vertical integration. (FS IS 7, CA ES 2) Competitive Postures: suitable suitable for company enjoys a competitive advantage but has limited financial strengths and belongs to an attractive industry operating unstable environment. Possible strategies—maintain strategies—maintain & enhance competitive advantage, improvement and differentiation, differentiation, improve marketing effectiveness, effectiveness, concentric merger, turn around (FS 2 IS 6 CA 7 ES 2) Conservative posture: appropriate for a company, which enjoys financial strength but has limited competitive advantage and belongs to a non-attractive industry operating operating in a stable environment: environment: possible strategies—pursue stability strategies, cut costs, improve productivity, productivity, diversification (FS 7 IS 3, CA 7 ES 2) Defensive posture: suitable for a company which lacks competitive advantage as well as financial strengths and belongs to an unattractive industry operating in an unstable environment. (FS 2 IS 4, CA 7 ES 7) Thus SPACE provides a useful insight to different strategies alternate available to firm and guides in grand strategy selection. GE9 Cell Matrix The GE Company of US is widely respected for the sophistication, maturity, and quality of its planning system. The matrix developed by this company for g uiding resources allocation is called General Electric’s 9 Cell Matrix. It calls for analyzing various products of the firm in terms of two issues— Business Strengths: How strong is the firm vis-à-vis its competitor, factor--Market factor--Market share, profit margin, ability to compete, customer and market knowledge, knowledge, competitive position, technology and management management caliber etc. Industry attractiveness: What is the attractiveness attractiveness or potential of the industry, Factors—Ma Factors—Market rket growth, size and industry profitability, profitability, competition, season ability and critical qualities, economic of scale, technology, social/ environmental/ legal/ human factors identified as enhancing industry attractiveness. The GE uses multiple factors to a ssess industry attractiveness attractiveness and business strength rather than single measurement employed in BCG matrix. GE expanded the matrix from four cells to nine cells, replacing the high low axes with high medium low axes to make finer distinction between business portfolio positions. The matrix shows three basic approaches –invest, hold and divest. The r esources resource allocation allocation decision is quite similar to those in BCG Matrix. Businessman Businessman which are classified are invest would be treated like the stars in BCG Matrix. They require resource for their growth. Business classified in the divest category would be managed like dogs in BCG Matrix and business classified under hold are categorized as cash cows or as question mark. Industry Business strengths Attractiveness Strong Average Weak High -> Invest Invest Hold Medium -> Invest Hold Divest Low -> Hold Divest Divest In nutshell, the portfolio analysis is useful because it offers following benefits: attractiveness, market growth and competitive It provides and comparative analysis of market share, industry attractiveness, position of each product or businesses It aids in generating good strategies on the basis of above analysis It promotes efficient and effective ways of resource allocation clarifying and an d determine broad strategic interest It facilitates in clarifying
DIRECTIONAL POLICY MATRIX VIMAL JOSHI
UTU-MBA The Directional Policy Matrix is another matrix similar to the BCG Matrix. It measures the health of th e market and the organization's strengths to pursue it to indicate the direction for future investment. The vertical axis is market attractiveness (as opposed to business Growth rate in th e BCG Matrix) and the horizontal axis is Industry Attractiveness (as opposed to Market Share in the BCG Matrix). The recommendations are similar to that of the BCG Matrix, i.e., invest, grow, harvest or divest.
Business Strengths Expert systems are used to determine the organizational strength of the organization. The position of the enterprise on the chart based upon the assessment of the following factors: Supplier Bargaining Power Threat of Substitutes Reputation Customer Loyalty Staying Power Experience Threat of New Entrants Competitive Rivalry Buyer Bargaining Power Product Quality Product Value Relative Market Share There are eight steps involved in the analysis. The following steps are an example that is based on work carried out at in a multinational firm. Step 1. Determine the products or services for markets that you intend to include in the matrix. This can be countries, companies, subsidiaries, regions, products, markets, segments, customers, distributors or any other unit of analysis that may be considered important by the organization. Step 2. Define the market attractiveness factors - The purpose for the vertical axis is to discriminate between more and less attractive markets. Factors can be summarized into three headings Growth rate Accessible market size - an attractive market is not only large but is also accessible Profit potential - this varies considerable from industry to industry (Porter's Five Forces model can be used to estimate the profit potential of a segment) Step 3. Determine the scoring method and weightage criteria. Weight and score the market attractiveness for the relevant products or services for markets (weighting out of 100 and score out of 10 for example) Step 4. Define business strengths. These factors are usually a combination of the organizations strengths in relation to the competitors' strengths in connection with the customer-facing needs or those things that the customer requires. These can be grouped into the following factors as an example and each factor can be made up of numerous sub-factors: Product requirements Price requirements Service requirements Promotion requirements
Step 5. Weight and score the business strengths. Weights of the factors should equal 100. Score the factor out of 10 and multiply the score by the weighting. Divide this score by 100 and add it to the other factor scores to obtain an overall score for the unit being analyzed. Divide each score into the score of the biggest competitor to obtain a relative score. The biggest competitor's position is taken as 1 and the other units are plotted accordingly
CSF
Wei ht Us
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Product 30
7
210=2.1
6
180=1.8
4
120=1.2
= = = Ima e 10 4 40=0.4 40=0.4 8 80=0.8 80=0.8 3 30=0.3 30=0.3 Total 100 6.35 6.95 6.25 The x-axis coordinates are therefore Us = 6.35/6.95= 0.91 -- Compl=6.95/6.95= 1.0 (This IS the biggest competitor) Comp2= 6.25/6.95 = 0.90 Step 6 Producing the directional policy matrix - These 'x'-co-ordinates along with their corresponding market attractiveness co-ordinates must now be positioned on the matrix. The market size is used to determine the size of the circle and the organizations share of this market is depicted as a wedge in the circle. Step 7 - Forecasting (an optional step). The factors are rescored for the products /services in three years time. (This can be any time frame that fits in with the organizations forecast period). The circles are plotted on the same matrix as the original demonstrates the movement that will have to take place to achieve forecast. Step 8. Set strategies - Strategies are set to achieve the desired positions on the matrix This matrix is a good one to use if the organization wishes to assess the competitors relative to themselves. The DPM shows: Markets categorized based on a scale of attractiveness to the organization The organization's relative strengths in each of these markets The relative importance of each market It allows for a good analysis of the strengths and weaknesses of the competitors competitors from the customer's point of view. However, this concept has limits to the analysis. If m ore than ten SBUs/products are plotted onto one matrix, the resultant picture can be confusing - one has to limit the number of circles on the matrix
Advantages & Disadvantages of Matrix Models The degree of applicability of the portfolio model depends on the relative importance and the manner in which the models are used. One has to be careful in the use of matrix analyses. The advantages and disadvantages of using matrixes for decision making are given below: Advantages Key areas. These models highlight certain aspects of business that are considered essential to success or failure Cash flows. They focus on cash flow requirements of the SBU's and help identify the different cash flow implications and requirements of different business activities. This helps management to carry out its resource allocation function. Balance portfolio. They help identify strengths and weaknesses in the portfolio, the gaps that need to be filled; when a new SBU needs to be added or when one needs to be removed; and the duplicative businesses in the portfolio. Diverse perspective. The diverse activities of a multi-business company are analyzed in a systematic manner and enterprise diversity highlighted. Flexible comparisons. Some matrices, like the McKinsey Matrix, are highly flexible in being able to select different factors for different industries. This kind of analysis can provide coverage of a wide number of strategically relevant variables. Disadvantages of Matrix Modles Too simple. Matrix models are simplistic. The important factors are reduced to only two dimensions (e.g., market share and business attractiveness) other factors are necessarily excluded or lose their distinctiveness in the collapsed dimensions. Market share. Market share, though used widely, may not be the best measure of a company's success. For example, product differentiation for a particular market segment may have low
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market share but produce high success within a market segment. Market share and cash flow mismatch. High market share in a low-growth industry does not necessarily result in large positive cash flow characteristics of a "cash cow" business. For example, the BCG would classify GM auto operations as a cash cow, but the capital investments needed to remain competitive are so substantial in the auto industry that the reverse is likely true. Low growth industries can be very competitive and staying ahead in such environments can require major cash investments. Market share and cost savings mismatch. The connection between relative market share and economies of scale may also not be a direct relationship. For example, in the steel industry low market share companies using low share technology (mini mills) can have lower production costs than high market share companies using high share technologies (integrated mills). While the BCG matrix would classify them as "dogs", their performance would show them as "star" businesses. Subjective numbers. The numerical format of some matrices may lead the user to place greater confidence in them than is warranted. The numbers from most ratings are subjectively derived, subject to personal biases, political pressure, and budgetary needs. Static pictures. The analyses most often provide a static picture of SBUs. They are not projective, they do not account adequately for changes due industry evolution, technological change, and other environmental forces, etc. Multiple SBUs. There is a limit to the number of SBUs that can be examined; otherwise the resulting analysis becomes increasingly superficial. Such problems can occur when the volume exceeds 40-50 SBUs. Conflict of interests. When a SBU contains several different but related businesses conflicts of interest can occur between the cash flow priorities of a SBU and the priorities of the company as a whole. Inappropriate divesting. Improper application of portfolio techniques may result in inappropriate divesting of useful synergistic holdings. Synergistic effects of linked SBUs are usually not reflected in matrices.
Grand Strategy Clusters Model Grand Strategy Clusters Model is an excellent framework to examine the strategies, we have covered so far. The classification in this model is based upon the organization's competencies and markets. The axes of the diagram are products and market characteristics. The product includes services and any form of offering; and the market need can be any group of potential customers whether defined by their needs, inclinations, or income bracket. The possible future choices about products and markets can be represented as movements within or away from this cell. In this approach, you first consider the industry. What is the product sector growth rate? Is it growing or· declining? You then consider the organization's competitive strengths within that sector. Competitive Strength can be assessed on two levels: the size and trend of the market share, whether it is moving up, static or going down, and the organization's financial strength; specifically either cash flow from operations, or access to capital. This will determine the competitive position of the organization. Put simply, the competitive position can be summarized as follows: Strong marker share + strong finances = strong competitive position. Strong market share and weak finances = average competitive position Low market share and strong finances = average competitive position. Neither strong market share nor strong finances = weak competitive position.
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Strong sector, strong competitive position. This means that the organization is in a growing market. It holds a good market position, and has cash with which it can man oeuvre its position. The strategic choices, therefore, include: Market strategy to increase demand and sales for existing products and services, in existing and new markets. Marketing strategy to increase market penetration for existing products and services and capture greater share. Enhance or extend existing products and services; add-ons, backbends, strategic Joint ventures. Gain control over distribution - bring external sales inside. Take sales from distributors. Gain control over suppliers Acquisition, merger, or joint-ventures with competitors Develop strategic partnerships to increase distribution, or gain new products. Develop related products and services for existing customer base - backend strategies. Strong sector, weak competitive position This is a difficult decision, because the sector is strong, but the organization has relatively small market share, and limited or no cash. The choices include: Move into small, defined and profitable niche markets. Focus on increasing market penetration for existing products and services and capture greater share using marketing as a strategy. Seek strategic partnerships for products/services for existing customers Develop products and services for existing customer base - backend strategies. Get out of the business: Sell your client base to a competitor; or reposition your existing products to appeal to new customer types; or sell the product line and use cash to reposition remaining assets Weak sector, strong competitive position This is an ideal case for using the organization's dominant position in a weak market for Growth. As the Qrganization has cash, it is in a position to exploit its standing. The organization should: Add related products and services for existing customer base - backend strategies. Add un-related products and services for existing customer base - backend strategies. Add new products and services for new customer base Create joint ventures in unrelated markets Weak sector, weak competitive position This requires the organization to retreat. The different options are: 1 Reduce costs if you can. 2 Sell product line 3 Sell company Rapid Market Growth Quadrant II Quadrant I Market development Market development Market penetration Market penetration Product development Product development Horizontal integration Forward integration divestiture Backward integration Quadrant III Quadrant IV Retrenchment Concentric Horizontal div Concentric diversification Conglomerate div
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Horizontal diversification Joint venture Conglomerate diversification Liquidity If you don't want to liquidate, look at the option of expanding your markets using low-cost / nocost marketing strategies. However, this may be a high risk proposition. Another option could be an attempt to create strategic partnerships and joint ventures. This will not be easy as it may be difficult to attract partners to a market with poor fundamentals. This framework is specific to a business unit with one major industry and/or product focus. If the business is more complex, the process will need to be repeated for each focus sector. The model is shown in figure 9. This framework provides a form to the discussion and each of the strategies that we have discussed. It involves examining both the markets and competencies of the organization. It challenges us to think strategically. As we go through the various strategic options, it helps at identifying the strategic choices, keeping the requirements of competencies and the marketplace in mind. We need to go back to Chris Zook. Based on his investigations, Zook identifies and explains three key factors that differentiate strategies that succeed from those that fail: 1 strategies reaching full potential in the core business 2 strategies expanding into logical adjacent businesses surrounding that core 3 strategies preemptively redefining the core business in response to market turbulence We need to look at the strategic intent .of the organization and identify strategic issues, to confirm that the strategy we have chosen adequately addresses the issues facing the organization in these three areas. Does the strategy facilitate the organization to reach its full potential in the core business; orland effectively expand into logical adjacent businesses surrounding that core; or permit the organization to preemptively redefine the core business so as to maintain its position in the marketplace. An affirmative answer confirms the success of the strategy.
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EXPLAIN THE VARIOUS LEVELS AT WHICH STRATEGY IS FORMULATED. DESCRIBE THE ROLE OF BOARD OF DIRECTORS IN STRATEGIC MANAGEMENT PROCESS OPERATING AT ALL LEVELS. Strategic management is the process of specifying the organization's objectives, developing policies and plans to achieve these objectives, and allocating resources to implement the policies and plans to achieve the organization's objectives. It is the highest level of managerial activity, usually formulated by the Board of directors and performed by the organization's Chief Executive Officer (CEO) and executive team. Strategic management provides overall direction` to the enterprise and is closely related to the field of Organization Studies. “Strategic management is an ongoing process that assesses the business and the industries in which the company is involved; assesses its competitors and sets goals and strategies to meet all existing and potential competitors; and then reassesses each strategy annually or quarterly [i.e. regularly] to determine how it has been implemented and whether it has succeeded or needs replacement by a new strategy to meet changed circumstances, new technology, new competitors, a new economic environment., or a new social, financial, or political environment.” [1] (Lamb, 1984:ix) Strategic management is a combination of 1) strategy formulation and 2) strategy implementation. Strategy formulation involves:
Performing a situation analysis, self-evaluation and competitor analysis : both internal and external; both micro-environmental micro-environmental and macro-environmental. macro-environmental. Concurrent with this assessment, objectives are set. This involves crafting vision statements (long term view of a possible future), mission statements (the role that the organization gives itself in society), overall corporate objectives (both financial and strategic), strategic), strategic business unit objectives (both financial and strategic), and tactical objectives. objectives. These objectives should, in the light of the situation analysis, suggest a strategic plan. The plan provides the details of how to achieve these objectives.
This three-step strategy formulation process is sometimes referred to as determining where you are now, determining where you want to go, and then determining how to get there. These three questions are the essence of strategic planning. SWOT Analysis: I/O Economics for the external factors and RBV for the internal factors. The role of the board of directors in strategic formulation is to carry out three basic tasks: Monitor: By acting through its committees, a board can keep abreast of developments inside and outside the corporation, bringing to management’s attention developments it might have overlooked. A board should at least carry out this task. Evaluate and influence: A board can examine management’s proposals, decisions, and actions; agree or disagree with them; give advice and offer suggestions; and outline alternatives. alternatives. Active boards perform this task in addition to the monitoring one Initiate and determine: A board can delineate a corporation’s mission and specify strategic options to its management. Only the most active boards take on this task in addition to the two previous ones. Board of Directors Continuum A board of directors is involved in strategic management to the extent that it carries out the three tasks of monitoring, evaluating and influencing, and in itiating itiating and an d determining. The board of directors continuum shown in Figure ‘A’ shows the possible degree of involvements (from low to high ) in the strategic management process. As types, boards can range from phantom board with no real involvement to catalyst boards with very high degrees of involvement. Research Research suggests that active board involvement in strategic management management is positively related to corporate financial performance. Figure ‘A’Board of Directors Continuum DEGREE OF INVOLVEMENT IN STRATEGIC FORMULATION Low Positive Phantom Rubber Minimal Nominal Active Catalyst Stamp Review Participation Participation Never knows Permits Formally Involved to a Approves, Takes the
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officers to make all decisions. It votes as the officers recommend on action issues.
reviews selected issues that officers bring to its attention
limited degree in the performance or review of selected key decisions, indicators, or programs of management
questions, and leading role in makes final establishing decisions on and modifying mission, strategy, the mission, policies, and objectives, objectives. Has strategy and active board policies. It has committees. a very active Performs fiscal strategy and management committee. audits Highly involved boards tend to be very active. They take their tasks of monitoring,, evaluating, and influencing, plus initiating and determining, very seriously; seriously; they th ey provide advice when necessary and keep management alert. As depicted in Figure ‘A’, their heavy involvement in the strategic management management process places them in the active participation or even catalyst positions. Fro example, in a survey of dir ectors of large U.S corporations conducted by Korn/Ferry International, International, more then 60% in dicated that they were deeply involved in the strategy-setting strategy-setting process. In the same survey, 54%of the r espondents indicated that their boards participate in annual retreats or special planning sessions to discuss company strategy. Nevertheless, only slightly more than 32% of th e boards help develop the strategy. More than two – thirds of the boards review strategy only after it has been first developed by management. Another 1 admit playing no r ole at all in strategy. These and oth er studies suggest that most large publicly owned corporations have boards that operate at some point between nominal and active participation. Some corporations that have boards that operate at some point between nominal and active participation. Some corporations that have actively participating boards are Mead Corporation, Rolm and Haas, Whirlpool, 3m, Apria Healthcare, General Electric Pfizer, and Texas Instruments. Instruments. As a board becomes less involved in the affairs of the corporation, it moves farther to the left on the continuum shown in Figure.. On the far left are passive phantom or rubber-stamp boards that typically do not initiate or determine strategy (for example, Tyco ) unless a crisis occurs. In these situation, the CEO also serves as Chairman of the Board, personally nominates all directors, and works to keep board members under this or the control by giving them the “mushroom treatment” throw manure on them and keep them in the dark! Generally, Generally, the smaller the corporation, the less active its board of directors. In an entrepreneurial venture, for example, the privately held corporation may be 100% owned by the founders, who also manage the company. In this case, there is no n eed for and a ctive board to protect the interests of the owner-manger owner-manger shareholders – the interests of the owners and the managers are identical. In this instance, a board is really unnecessary and meets only to satisfy legal requirements. If stock is sold to outsiders to finance growth, however, the board becomes more active. Key investors want seats on the board so they can oversee their investment. To the extent that they still control most of the stock, however, the founders dominate the board acts primarily as a rubber stamp for an y proposal put forward by the owner-managers. This cozy relationship between the board and m anagement should change, however, when the corporation goes public and stock is more widely dispersed. The founders, who are still acting as management, may sometimes make decisions that conflict with the needs of th e other shareholders (especially if the founders own less than 50% of the common stock). In this instance, problems could occur if the board failed to become more active in terms of its roles and responsibilities.
purpose of the gram strategy being considered. c onsidered.
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