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Prepared by : Muhammad Asif

Updated &: Faraz Ahmad

Presented by : Syed Atif Hassan Abidi

The Examinations of ICAP are a demanding test of student’s ability to master the wide
range of knowledge and skills required of the modern professionals. Subject of “Business
Management” is one of the efforts made by ICAP in this context for enhancing student’s
knowledge about detailed overview of effective management of businesses.

The best and recommended book for this subject is “Study Text by PBP” that covers each
and every area of syllabus in extraordinary detail. The basic problems faced by the
students in going through PBP are its size and the language used. Students who are new
to this subject have to spend most of their precious time in understanding the theme
conveyed in any chapter. Moreover students feel it very hard to revise the complete
course near or on the exam day.

For these reasons there arise needs to have some short and easy to revise notes for this
subject that covers the extent of PBP in a concise form. For this purpose we used short
notes of PBP prepared by Muhammad Asif (Ex A.M, AFF & Co Lahore) 3 years earlier.
After compiling the notes Faraz Ahmad reorganized the notes and updated it using the
PBP. Now those notes are finalized and presented to you in a booklet form. Hopefully it
will help you all.

I would suggest that first of all you should read BM from PBP and afterwards you may
consult these notes for revision purposes. An Annexure has been given at the end of this
booklet to help you deciding how you can use this booklet in combination with PBP.

May ALLAH bless you with success in every exam of both lives.

For notes & other study

Thanks material for module E visit
and download mails from

E-Mail id:
Talib e Doa atifnotes@gmail.com

Syed Atif Hassan Abidi a4atif
Faraz Ahmad
These notes are also
March 31, 2009 available at
Chapter 1 : Objectives of Organisation
Introduction to Strategy
“ Course of actions, including specification of resources required, to achieve a specific objective”

Influences on /Determinants of Strategy:

 External
o Society
o Organized groups
 Nature of business
o Market situation and conditions
o Products of company
o Technology used
 Organization’s Culture
o Organizational system and structure
o Leadership style
o Organization’s history
o Organization’s founder
 Stakeholders’ powers (mapping) and Internal coalition
 Economic objectives
 Social responsibility

Environmental conditions affecting Strategic Planning:

1. Resources (mineral)
2. Disaster
3. Logistics
4. Government
Environmental Management Accounting is a solution: examples are
1. Eco – Balance
2. Cleaner Technology
3. Lifecycle assessment
4. Performance appraisal
5. Budgetary planning and control
6. Corporate liabilities (a factor in PERT)

Characteristics of Strategic Decision:

Scope: Overall long-term direction.
Matching: Matches activities to environment & resources capability.
Affect: Affected by values, beliefs and powers of people in organization. & Affect operational decisions.
Implications for change.
Complex in nature.
Allocation or reallocation of resources.

Strategic Financial Management:

It is identification of strategies able to maximize NPV and to allocate scarce resources, and implementing and
monitoring of such strategy.

Financial management decision: (Also see end of chapter 9)

 Investing decisions (merger, divestment etc.)
 Financing decisions (Capital structure and Working Capital Management)
 Dividend decisions (Cash or Bonus share)

Financial objectives: Non financial objectives:
 Primary; to maximize wealth of shareholders Service provision.
 Others are Fulfillment of responsibility to suppliers & customers.
o Decrease in debt. Welfare of Society
o Profit retention. Welfare of Management
o Sales growth. Welfare of Employees

Government organizations:
External Financing Limit.

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To create Value for Money, funds must be applied Economically, Efficiently and Effectively.

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Chapter 2 & 4 : Strategy Formulation and
Strategy formulation/choice

1. How to gain competitive advantage?(question of survival)

i. Porter’s Generic Strategies (5 forces)
2. Which Direction to go
i. Growth direction
a. Organic growth
Ansoff’s Product-Market Matrix
b. Joint development
ii. Defensive/Non growth strategies
a. Capital Restructure Scheme
b. Downsizing
c. Divestment

Porter’s Generic Competitive Strategies (to achieve competitive advantage):

Competitive position is the market share, costs, prices, quality and accumulated experiences of an organization/product
relative to competition.

Competitive strategy is taking offensive or defensive action to create a defendable position in an industry, and to cope
with competitive forces yielding superior ROI.

Competitive advantage is anything which gives one organization an edge over competitors.
There are following Competitive Strategies for companies to achieve Competitive Advantage.

Lower Cost Differentiation

Broad Target Cost Leadership Differentiation
Cost Focus Differentiation Focus
(for luxury goods)

Differentiation is “creating value through uniqueness”. It could be at following levels of product i.e.

1.Actual Product
a). Features.
b). Quality level.
c). Design.
d).Brand name
e). Packaging.
2. Augmented Product
i. Delivery and credit
ii. Warranty
iii. Installation
iv. After sale service

Cost Leadership is “having lowest cost of producing”. It could be achieved by:

 Mass Production (economies of scale)
 Latest Technologies
 Favorable access to raw materials
 Automation
 Minimizing overhead by exploiting bargaining power
 Constantly improving efficiency and economy e.g. through value chain analysis

Focus involves a restriction of activities to only part of the market (a segment) through
− Providing goods/services at lower cost (Cost focus)
− Providing a differentiated product/service (Differentiation focus)

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Advantages/Comparison of Competitive Strategies:

Competitive Force Cost Leadership strategy Differentiation strategy

Rivalry Profitable even in price competition. Reduces direct competition.
New Entrants Low price is entry barrier. Customer loyalty is entry barrier.
Substitutes Firm is less vulnerable than competitors. Brand loyalty is weapon.
Customers Customers won’t switch. Low price sensitivity.
Suppliers High bargaining power because of market Supplier may raise prices but higher
share. margin offsets it.

Ansoff’s Product-Market Matrix:

Present Product New Product

Present Market Market Penetration Product Development
New Market Market Development Diversification

Market Penetration: (low risk; no capital investment)

− To increase usage by existing customers or
− To increase market share through Competitive pricing, Advertising, Sales promotion taking share of

Market Development: (low risk; less investment)

− New geographical area
− New segment
− New packing size

Product Development: (riskier; requires investment)

− Company can exploit followings
 Existing marketing arrangements (e.g. Promotion, Distribution)
 Knowledge of customers and habits
− Cost of entry will go up for competitors.

Diversification (high risk; requires investments and new competence)

− Related diversification is when product is new but still within broad confines of industry. e.g.
 Vertical integration (control over supply chain)
 Forward integration (control/ownership over distributors or retailers)
 Backward integration (control/ownership over suppliers)
 Horizontal integration (control/ownership over competitors)
−Unrelated diversification is where development is beyond industry and product is entirely new having
no relation with existing technology, market or products.

Franchising Unrelated Forward

Diversification Vertical
Related Backward
Growth Horizontal

Organic Growth

Joint Development Strategies

 Take Over/ Acquisition

 Mergers
 Joint Ventures
 Strategic Alliance
 Licenses
 Agency Agreement
 Franchising

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Chapter # 3 : Planning and Control


“ Planning involves making choices between alternatives and is primarily a decision making activity”

2 approaches to planning:
Top-down approach means strategic management starts from top management and flows down the structure.
Bottom-up approach means information is accumulated at lower level and presented to top management along with
summary and options available.

Planning cycle
1. Identify objectives
2. Identify available strategies
3. Evaluate each strategy
4. Choose strategy (course of action)
5. Implement long-term plan in the form of annual budgets

Risk factors in planning:

Types of risks:
 Physical
 Economical
 Political
 Financial
 Business
 Product lifecycle

Accounting for Risk:

Required rate of return, adjusted by
 Return %age
 Payback period
 Finance (strict rules of financing i.e. out of profits)

Quantification risk:
 Rule of Thumb (best estimate of value within worst to best possible range)
 Probability Theory (likelihood of occurrence of a forecast result)
 Standard Deviation (calculate Standard Deviation of Expected Value, the higher it is the higher risk is)

Budgetary Control
“Control is comparing actual results with planned performance and taking appropriate actions”

Control Cycle
1. Actual results are recorded and analyzed for each responsibility center.
2. Feedback is reported to management.
3. Management compares actual results with plans or targets.
4. Do one of three things
i. Decide to do nothing
ii. Take control actions
iii. Alter the plan or target

“ The process of reporting back control information to management and the control information itself”
 It may be Single Loop or Double Loop.
 It may be Positive or Negative.

Feed forward Control:

 Control actions taken in advance.

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 Actual results are compared with Budgeted (i.e. adjusted by past results)

Well organized system of control should have:

 Hierarchy of budget center.
 Clearly defined responsibilities.
 Responsibilities for Cost, Revenue, and Capital Employed.

Budget Center:
“Each section of the organization for which budget is prepared”

Objectives of budgeted planning and control:

1. Motivates employees
2. Establish system of control
3. Responsibility accounting
4. Achievement of goals
5. Communication
6. Coordination
7. Compel planning

Responsibility Accounting:
Each manager has a clearly defined area of responsibility and authority to make decisions within that area. No
uncertainty as to who is responsible for what (sometimes dual responsibility exists).
There are 3 different areas of responsibility.

Type of responsibility center Cost Center Profit Center Investment Center

Manager has control over… Controllable cost Controllable cost Controllable cost
Sales Price Sales prices
Sales volume Sales volume
 Investment in fixed and
current assets
Principal performance Variance analysis Profit Return on investment and
measures residual income

Responsibility Center is a unit of organization headed by a manager who has a direct responsibility for its performance.
Controllable Cost is an item of expenditure which can be directly influences by a given manager within a given time
Controllability of fixed cost:
 Committed fixed cost (e.g. PPE-------non-controllable in short term)
 Discretionary fixed cost ( e.g. R.&D. or Advertisement ---------- controllable in short term)

Role of IT in Strategic Management

IT as changing industry:
With Porter’s 5 forces model.

IT/IS as competitive advantage:

With Porter’s generic strategies for competitive advantage. &

With Peppard’s 9 ways

5 forces Generic strategies

1. Ensure competitive pricing 7. Differentiating Product/Service
2. Establish entry barrier (cost of entry) 8. Increasing Cost efficiency
3. Using information as a product 9. Decreasing Supply Cost.
4. Limiting access to distribution channel
5. Affecting cost of switching
6. Building close relationship with supplier and

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Chapter 4 & 5 : Strategic Management :
Traditional & other models

Traditional and other models of Strategic Management

Strategic Management:
“Strategic Management is the analysis, choice, implementation and control of agreed strategies”

Strategy is a course of action including the specification of resources required to meet a specific objective.
Tactics is the deployment of resources to execute an agreed strategy.
Policy is a general statement providing guidelines for management of decision-making.

Levels of strategy: (by Hofer and Schendel)

1. Corporate Strategy determines the overall purpose and scope of the organization. It is concerned with what types of
business the organization is in.
Defining aspects of corporate strategy:
− Scope of activities (whole organization)
− Faces environment (opportunities and threats)
− Resources (how to obtain and allocate them)
− Values (of people in power in organization affect it)
− Time scale (long term)
− Complexity (uncertainty of future)

2. Business Strategy is how an organization approaches a particular product market area (applied at SBU level).

3. Functional/Operational strategies deal with specialized area of activity within an SBU e.g. Production, Marketing,
HRM, Finance.

Traditional approach to make strategy: (through Planning in a systematic way)

o Strategic analysis
 Analyzing Vision, Mission and Objectives (Strategic Direction)
 Corporate appraisal (where we are)
o Analyzing external environment
i. SLEPT analysis
ii. Porter’s 5 forces model
iii. Scenarios
o Analyzing internal environment (Situation analysis/Position
i. Resources Audit
ii. BCG and GEBS matrices
iii. Value chain
iv. System structure
o SWOT Analysis
o Gap analysis
o Strategy formulation/Choice (how we can go)
o Strategy implementation
o Strategy evaluation and Control

Favor of rational model: (Ansoff and Drucker support it)

1. Corporate level first
2. Strategies are best generated from Top-Down
3. Provide a common thread
4. Enables decision making in conditions where
i. Partial ignorance (Ansoff)
ii. Risk is inevitable (Drucker)
5. Basis for strategic control
6. Improves stakeholders’ perception

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Problems with rational model: (Mintzberg criticizes it)
1. Organizations are incapable of having objectives because
i. Objectives may conflict with each other.
ii. Objectives will change from time to time
iii. Objectives are unlikely to be directly related to economic benefits of shareholders.
2. Senior management should not be only strategy- setter.
3. In reality formulation is not a simple step by step process.
4. Strategies that firms follow are not the same as ones they set in plans.
5. Over reliance on formalization.
6. Predetermination
7. Failure in practice (suitable for only stable environment)
8. Hinders innovation and radical change.

Other models of(making strategy) Strategic Management

Mintzberg’s emergent strategy model: (Considers random shocks)

 It is unlikely that a firm’s environment is totally predictable.
 Emergent strategy is a non-conscious strategy arising from patterns of behavior.
 Strategic Management is to control and shape/craft these emergent strategies as they arise.

Intended Deliberate
Strategies Strategies

Unrealized Strategies

Patterns of Unexpected Emergent

behavior Contingencies Strategies

Activities affecting Crafting Strategy:

 Manage stability
o Implement, not just plan
o Obsession to change is dysfunctional; know when to change
 Manage patterns
o Detect patterns and help them shape; grow positives and eliminate negatives.
 Know the business operations
 Detect discontinuing and significance of environmental changes.
 Crafting strategy---- requires natural synthesis of past, present and future. (reconcile change and continuity)

Mintzberg’s 8 styles of strategic management:

1. Planned strategies (imposed by central leadership, large no. of controls, precise intentions)
2. Imposed strategies (imposed by environment e.g. influential customers)
3. Ideological strategies (collective vision of organization’s members, shared values)
4. Umbrella strategies (ends are defined, means are emergent, target based)
5. Disconnected strategies (members mind their own business, strategies are deliberate for sub-units but
emergent for organization)
6. Consensus strategies ( groups shares common patterns)
7. Entrepreneurial strategies (visioned from strong leadership)
8. Process strategies

Mintzberg’s 5 ways to describe strategy:

1. Plan - consciously intended course of action
2. Ploy - a competitive game (e.g discouraging competitors to enter)
3. Pattern - ideas of emergent strategies
4. Position - “environmentally fit” & relationship with other organisations
5. Perspectives - approach towards world

Strategy and managerial intent: (Johnson and Scholes) not emergent

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The Command view:
 Strategy develops through the direction of an individual or group, but not necessarily through formal
 Control of strategy direction is possessed by autocratic or charismatic leader.

Paradigm and Politics:

 Paradigm (basic assumption and beliefs common in organization’s decision makers) is inhabitant and
conservative than culture.
 Politics is process of bargaining and negotiation of strategy among powerful stakeholders.
 Process by which Paradigm and Politics influence process of strategy development.
o Issue awareness (by internal results, customer response or environmental change)
o Issue formulation (analysis of issue to get its root)
o Solution development
 Memory search (from past experience) a) Managers do not take best
 Passive search (time will tell) decisions but satisfactory
o Solution selection ones.
 Eliminate unacceptable plans (politics) b) Managers do not pursue the
 Endorsement to junior management whole rational model but take
small-scale decisions.

Bounded Rationality Theory: (Herbert Simon)

 Mangers are limited by time, information and skills.
 They satisfice rather than maximize.

Incrementalism: (Lindblom)
 It involves small-scale extension of past practices.
 Organizations change incrementally, during which time, strategies form gradually.

Disadvantages of Incrementalism:
1. Not suitable where radical new approaches are needed.
2. Some changes are dramatic not incremental.
3. Ignores influence of corporate culture.
4. Applicable to stable environment only.

Logical Incrementalism: (mid way)

Managers have a vague notion as to where the organization should go, but strategies should be tested in small steps
because of uncertainty about future.
Knowledge as a source tacit knowledge
Learning based strategy:
Knowledge creation explicit knowledge

 Strategy development is a learning process.

 Learning organization will generate a flow of fresh ideas and insights, This will promote renewal and prevent
 Learning organization is one which is skilled at creating, acquiring, and transferring knowledge, and at modifying
its behavior to reflect new knowledge and insights.

Double loop learning is where purpose is also reviewed. (derived from control theory)
Future will change incrementally
Future Orientation: (Hamel and Prahalad)
Future will be radically different

 Future is not just something that happens to organization.

 Organizations can create the future.
They offered a ‘diagnostic’ to indicate how future oriented an organization is.


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Diagnostic statement Protect the past Create the future
Senior management, view about future Reactive Distinctive
Senior management, spending most time on Re-engineering current practices Regenerating core strategies
Are managers…… Engineers of present Architect of future
Are employees….. Anxious Hopeful
The company is better at Operational efficiency Building new businesses
Within the industry, the company Follows the rules Makes the rules
Competitive advantage is pursued by Catching up with competitors Creating new sources of
competitive advantage
Agenda for change is set by Competitors Vision of future

How to cope with future:

- Simply more far-sightedness
- Imaging products and services that do not exist.
- Spend less time in positioning in competitive environment
- Future orientation is embodied in the corporate culture.
Environmental Fit: (Hofer and Schendel)

 Strategy is a mediating force between organization and environment.

 Fit or Suitability means ‘ Organizations are successful when they intentionally achieve internal harmony and
external adaptation.
 Strategic logic requires that strategy must:
o Be consistent with objectives
o Match organization’s capabilities with environment.

Survival and growth are process of adoptation :

Why : because environment gives physical resources and financial resources
Hence : choice of strategy must follow a strategic logic.

Ecology Model:
Organisation’s environment changes radically, it will only survivor if it adopts its environment and evolves i.e finding
niche areas which provide both demands for output and resources to be used as input to the system.

Pattern and Competencies: (Andrew)

 Corporate strategy is the pattern of management decisions in a company
o That determines and reveals its objectives, purposes or goals,
o That produces the principal policies and plans to achieve those goals,
o Defines the range of business, and
o Kind of human and economic organization it is or intends to be.
 Strategy is exploitation of competencies.
o The distinctive competence is what it does well, uniquely or better than rivals. It comes through
• Experience
• Quality of co-ordination
• Talents and potentials of individuals

Strategic Thinking: (Kenichi & Ohmae)

 Strategy is a creating process
 Success business strategies result not from rigorous analysis but from a particular state of mind.
 Aspects of strategic thinking
o Flexible thinking (what if ?questions)
o Keeping details in perspective (specially uncertain)
o Focus on key factors and distinctive competences)
 How strategic thinking operates
o Ask right question
o Find solution of problem, not remedy or symptom.
o Observe the problem
o Group problems together (e.g. by brainstorming) to see key factors.

Competition: (Ohmae & Porter)

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Competitive strategy is the taking of offensive or defensive actions to create a defendable position within an
industry------ and a superior return on investment.

Successful strategy is the interplay of 3 Cs (strategic triangle)

1. Competitor
2. Customer
3. Company

3 assumptions of theory: (focus: survival in competitive environment)

1. Survival of business is impossible without a competitive strategy.
2. Actual strategy will be unique.
3. Marketplace is a battlefield.

Competitive strategy:
“ A strategy by which a firm can have significant ground on its competitors at an acceptable costs”

Competitive Advantage:
- Re-adjust current resources  i.e identify key success factors
- Relative superiority  i.e exploiting competitors weakness
- Challenge assumptions
- Degree of freedom  i.e segmenting

How to create sustainable strategic position:

- operational effectiveness
- doing unique things
- doing trade-off
- combining good individual activities
- making own choices i.e not blindly imitating competitors

Realised Strategies

Intended or planned strategies Emergent strategies

- Senior management decisions - not planned

- Imposed from top - not fore throught
- Well planned - not the result of management intentions
- Well thought-out - caused by pattern of behavior
- Time consuming
- Deliberately planned

Implicit & Explicit Strategies

(Depends upon extent to which strategies are
deliberate or emergent)
Implicit  Only in head of chief executive
Explicit  Properly documented

- Purely deliberate strategy prevents
learning from experience.
- A purely emergent strategy defies

Descriptive and Prescriptive Strategies

Descriptive : “what is actually happening in the organisations i.e paradigm, politics, pattern of decisions, incremental approach
Prescriptive : “to prescribe something” i.e rational model, strategic thinking, learning based environment, resource based

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Chapter # 6 : SWOT Analysis ad gap analysis
Corporate Appraisal

Corporate appraisal (where we are)

o Analyzing external environment

iv. SLEPT analysis
v. Porter’s 5 forces model
vi. Scenarios
o Analyzing internal environment (Situation analysis/Position
i. Resources audit
ii. BCG and GEBS matrices
iii. Value chain analysis
iv. System structure
o SWOT Analysis
o Gap analysis

Corporate appraisal is assessment of SWOT in relation to internal (SW) and external (OT) factors affecting
organization to establish long term plans.

OT Analysis---Analyzing external broad environment:

 Social factors
 Legal factors
 Economic factors
 Political factors
 Technical factors

What Social factors affect:

• Changing values and lifestyle
• Changing pattern of work and leisure
• Demographic change
Why social factors are considered:
• Stakeholders are members of society--assessment of their values and beliefs
• Good (ethical) reputation
• Avoid restrictive legislation
• Change = opportunities

Legal factors:
o Health and safety legislation
o Employment laws
o Environmental legislation
o Information about performance.

Economic key forces affecting organizations:

 Economic Growth
 Interest Rates and Tax rates
 Availability of Credit
 Inflation Rates
 Govt. fiscal policies (taxation, govt. spending, borrowing and repayment) and monetary policies (control of
money demand and supply through rates)
 Foreign Exchange Rates
 Foreign Trade Balances

 Consumer income, debt and spending

 Govt. Subsidy
 Unemployment rate
International economic issues:
o Extent of protectionist measures
o Comparative rates of growth, inflation, wages and taxation

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o The freedom of capital movement
o Exchange rates
o Economic agreements

Exchange rate is the rate at which a national currency exchanges for other national currency.

Determinants are:
− Demand and supply of currencies in foreign exchange market (Floating exchange
− Govt. (Fixed exchange rate)
− Synthesis of above two (Managed exchange rate)

Types are:
− Spot exchange rate (rate set for immediate delivery of a currency)
− Forward exchange rate (rate set for future exchange of a currency)
− Closing rate (Spot exchange rate at Balance Sheet date)

Political factors:
 Type of Govt.
 Stability of Govt.
 Govt. attitude i.e. privatization or nationalization
 Amount of bureaucracy
 Pricing, dividend, tax, employment issues

Political risk is the risk that political factors will affect an organization e.g. war, corruption, nationalization, political

Jeannet and Hennessry developed a checklist to assess political risk:

1. How stable is Political system.
2. How long will govt. remain in power.
3. How strong is govt.’s commitment to specific rules of game.
4. If present govt. is succeeded, how specific rules of games would change.
5. What would be the effect of change in specific rules of game.
6. In light of these effects, what decisions and actions should be taken now?

Technological factors:
Change in production techniques
o Invention and innovation

OT Analysis ---Analyzing external specific and direct environment:

(Porter’s 5 forces model)

i) When costumers have powers:

•Small number of customers
•They make high volume purchases
•Products they are buying are undifferentiated
•Alternative sources of supply are available (substitute or switching)

ii) When Suppliers Have Power:

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•Small number of suppliers
•Few substitutes exist
•Suppliers are not dependent on the buyer for a lot of their sales
•Suppliers have differentiated their products
•It is costly to switch suppliers

iii) When Rivalry Among Existing Competitors Is Intense:

•Slow industry growth

•High fixed costs (plants, machinery, outlets)
•Undifferentiated products
•A large number of competitors
•High exit barriers (what you lose if you leave the business)
•Small changes in market share have a big pay-off

iv) Barriers That Block New Entrants

•Economies of scale
•Large capital requirements
•Product differentiation
•High switching cost
•Limited access to distribution channels
•Some government policies and regulations
•Other advantages that are hard to duplicate such as patents, great locations, subsidies, partnerships, etc.
•History of aggressive retaliation toward new entrants

v) Indirect Competitors/Substitutes
•Close substitutes place a ceiling on the price that can be charged for a product or service
•Close substitutes also set indirect performance comparisons
•Main product is sensitive to price of substitute.

Responding to the Organization/Marketing environment:

 Companies can passively take environment as uncontrollable and they must adapt to.
 Companies can take environmental management perspective i.e. actively working to change the
 Wherever possible, companies should try to be proactive rather than reactive.

Strategic Intelligence:

Strategic Intelligence is the knowledge of business environment, which enables an organization to anticipate changes
and design appropriate strategies that will create business value for customers and profit for co.

Process of creating strategic intelligence:

− Sensing (Identify appropriate external indications of change)
− Collecting (Gather information in ways that ensure it is relevant and meaningful)
− Organizing (Structure the information in the right format)
− Processing (Analyze information for implication)
− Communicating (Package and simplify information for users)
− Using (Apply strategic intelligence)
Sources for strategic intelligence = Sources of information

SW Analysis ---Analyzing internal environment:

Internal analysis consists of:

 Resources Audit
 BCG Matrix
 GEBS matrix
 Value Chain analysis
 Core Competence (critically underpins organization’s competitive advantage)
 Critical Success Factors (CSF are factors on which strategy is fundamentally dependent for its success.

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Marketing Finance/Accounting Operation R&D HRM MIS
Is market and share Sufficient working Production capacity Adequate R&D Efficient Or Is IS updated
increasing? capital? facilities? experience regularly?
Segmented Can we raise capital Economies of scale Outsourcing is Recruitment and Contribution by all
effectively? or borrowings? cost effective? Training functional
Channel of Return on investment Inventory control Are R&D Communication Effective
distribution reliable & Cost of capital policies and resources allocated passwords for
and cost-effective? procedures, effectively? entry?
Conduct market Effective budgeting Is machinery Communication Labor relations User friendly IS?
research? process? technically updated? between R&S and
other units?
Product priced Accounting ratios, Is equipment in good Are present Turnover and Training provided?
appropriately? strong or weak? condition? products absenteeism
Effective Quality control Under or over Continuous
promotion? policies and staffing? improvement?
Brand strength How much

Products Stocks
Product quality and brand reputation Sources of supply
Age and life of products Turnover periods
Price elasticity of demand Storage capacity
Margin and contribution Obsolescence and deterioration
Market share and growth

Miscellaneous concepts:

A Cruciform chart summarizes significant SWOT.

Critical Success Factors are those components of strategy in which organization must excel to outperform

Gap analysis (objects – existing strategies = Gap) is a comparison between objectives and expected performance of
projects both planned and underway. E.g. Profit Gap (Target profit – Forecast Profit)

Forecasting is the identification of factors and quantification of their effect on an entity as a basis for planning. It
includes judgment.

Projection an expected future trend pattern obtained by extrapolation. It includes quantitative factors.

Extrapolation is a technique of determining projection by statistical means.

Scenario Planning:
“ A scenario is an internally consistent view of what the future might turn out to be”
An industry scenario is concerned with the future of industry.
Macro scenario uses macro economic or political factors, creating alternative ways of the future environment.
6 steps in planning scenarios:
1. Decide on the driver for change
i. Environmental analysis
ii. Important issues and degree of certainty (time horizon is 10 years)
2. Bring drivers together into a viable framework
3. Provide 7 to 9 mini scenarios.
4. Group mini scenarios into two or three larger scenarios containing all topics.
5. Write the scenario.
6. Identify issues arising.

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Chapter 7 : Performance Appraisal &

Performance Appraisal
Measurement of Performance:

Measurement of Growth and effects of inflation: Costs:

1. Revenue - Fixed costs
2. Profits - Variable costs
3. Assets --------------------------------------
4. Cash Flow - Directly attributable costs
5. ROCE/ROI - Shared general overheads
6. Market share --------------------------------------
7. Number of employees - Controllable costs
8. Number of products
- Uncontrollable costs
4 profit concepts to measure performance of divisions:
 Contribution (sales – variable cost)
 Controllable profit ( sales - variable costs - Fixed cost controllable)
 Controllable margin ( Controllable profit – other costs directly traceable)
 Net Profit/Margin ( Controllable margin – allocated service center costs and general management

Value added is cost of material and bought in service.

Measuring performance of Profit Center:

2. Residual Income (measure of center’s profit after deducting notional or imputed interest cost)

Benchmarking: (adoption of best practices)

Benchmarking is establishment of targets and comparators (through data gathering) through which relative levels of
performance can be identified.

Types of Benchmarking:

Internal Benchmarking comparing one operating unit with another within same industry.
Functional Benchmarking internal functions compared with best external regardless of industry.
Competitive Benchmarking information about direct competitors is gathered through techniques e.g. reverse
Strategic Benchmarking aimed at strategic action and organizational change.

Levels of Benchmarking:
1. Resources through resources audit
2. Competences in separate activities through analyzing activities
3. Competences in linked activities through analyzing overall performances.

- Effect of inflation on accounting system
- Effect of inflation on strategy in reference to operating in competitive market and exporting goods

Performance measurement and inflation:

i) Fixed asset values & depreciation  historical costing problem
ii) Cost of sales and inflation  increased profits but low stock turnover
(overstated profits)
iii) Need for working capital
iv) Borrowing benefits in period of inflation real value of loan decreases over times
v) Comparability of financial figures  figures are ditorted

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vi) Ratios for control  ratios will be unaffected, as both side of balance
sheet will be inflated

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Chapter 8 : Mission Goals and Objectives

Analyzing Vision, Mission and Objectives

Vision--------Mission----------Goals (objectives and aims) at 3 levels----------strategy at 3 levels

“ Where the organization wants to be”

Advantages of vision:
- gives general directions to organisation
- gives hope and motivation
- establishes scope and boundaries
- enables flexibility in choice

Problems with vision

 It ignores real, practical problems
 It can degenerate into wishful thinking

Strategic intent:
“Vision with an emotional core to energize and stretch”
- similar to vision
- stretch current competencies
- gives sense of direction
- gives coherence to plans

Mission Statement:

This is a statement purpose of existence-What it wants to accomplish in the larger environment.

Mission statement includes Purpose, Competence, Strategic Scope, Product, Targeted customers, and Values of
various stakeholders.

It should be market oriented, specific, realistic, motivating and consistent with market environment.
e.g. “To provide best satisfaction to customers and fair return on investment, keeping environment healthy and clean
and promising secure future to employees”.

Place of mission statement:

- Annual reports
- Publicity materials
- In chairman’s office
- Communal work area

Elements of mission statement:

- Purpose ( e.g creating wealth, satisfy shareholders)
- Strategy ( e.g logic, product, service)
- Scope
- Politics & behaviors
- Values & culture (e.g commitment)

Characteristics of mission statement:

- Bravity
- Flexibility
- Distinctiveness

Problems with mission statement:

- Ignorance in practice
- Only for public showment and not for internal decision making
- Only rationalising existence of organisation
- Wish list, full of generalisations

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Functions/Importance of mission
1. Employee motivation
2. Contributes to profitability
3. Focus for strategic decision making
4. Replaces national or divisional subculture with a corporate culture
5. Communicates nature of organization to insiders and outsiders

Problems with mission = Problems with Rational model of Strategic Management

Goals could be
 Objectives (quantifiable)
 Aims
A goal must be SMART.
S  Specific
Operational goals Non-operational goals
M  Measurable
A  Attainable Measurable not measurable
R  result-oriented
T  time-bounded

3 levels of goals/objectives and strategy:

 Corporate level
 SBU level
 Operational level

Corporate level objectives: (trade off between objectives)

1. Profit (Accounting Profit = Economic Profit = Sale price – Explicit Cost – Implicit Cost i.e.
Opportunity Cost)
2. Market share and growth
3. Cash flow
4. Customer satisfaction
Primary Secondary
5. Quality of product
6. Industrial relations
Long-term Short-term
8. EPS

Unit Objectives:
 Commercial sector
• Increase number of customer by 15% (sales department)
• Decrease number of rejects by 50% (production department)
 Public sector
• To provide cheaper, subsidized bus traveling (local transport department)
• Responding more quickly to calls (police, fire station, hospital)

Types of Goals:
1. System Goals [Derived from organization’s existence]
2. Ideological Goals [Focus on organization’s mission]
3. Formal Goals [Imposed goals; e.g. from Shareholder’s]
4. Shared Personal Goals [Consensus b/w individual and collective goals]

System goals (subverting Mission)

 Survival
 Efficiency
 Control
 Growth

Dealing with goal conflict (inter departmental):

 Rational evaluation (financial criteria)
 Satisficing (not aiming to maximize profit)

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 Bargaining (b/w different goals of managers)
 Sequential attention (one by one)
 Priority setting

Goal Congruence State of individuals to take actions which are in their own interest and also in
best interest of organization.
Trade off between objectives: [One at expense of other.]
Primary and secondary objectives: [Based on importance.]


Stakeholders are Groups or Individuals whose interests are directly affected by activities of a firm or organization.

Stakeholder Objectives
Shareholders To maximize wealth
 Increased by (dividend, capital gain of shares, EPS, ROCE)
 Measured by (increase in Retained earnings, Market Value listed or non-listed)
Lenders Timely repayment of interest and principal
Trade creditors  Timely payment
 High prices
 Continuing profitable relations
Employees  High wages
 Job security
 Job satisfaction
Retailers and  Continued supply
customers  Quality products
Management  Maximize own reward
 Training and career development
Society  SHE Issues
 Level of employment
Govt.  Taxes
 Legislation compliance

2 approaches to stakeholders:
1. Strong view (To balance all stakeholders is important)
2. Weak view (Primary objective is profit, stakeholders are satisfied indirectly)

Stakeholders’ mapping: (Mendelow)

High Interest Low Interest
High  Key Players  Pessimist
Power  Strategy must be acceptable for them  Should be kept satisfied.
 E.g. major customer  E.g. large institutional stakeholders
Low  Influence powerful stakeholders Negligible
Power  Should be kept informed
 E.g. Community representatives/Charities

Organization’s Culture

Culture/Organization’s Culture:
“ Culture is sum total of belief, knowledge, attitudes, norms, customs, values and peculiarities that prevail in a society/
an organization”.

Influences on organization’s culture:

 Organization’s founder
 Organization’s history
 Leadership and management style
 Structures and Systems

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Levels of Culture:
There are 3 levels of culture in an organization:
1. Basic, underlying assumptions (guide the behavior of individuals and groups in organization)
2. Overt beliefs (expressed by organization and its members)
3. Visible artifacts (e.g. style of offices, display of trophies etc.)

Some Important concepts:

Belief is what we feel to be the case on the basis of objective and subjective information.
Values are beliefs which are relatively general and widely accepted as culturally appropriate behavior.
Customs is culturally accepted behavior in response to given situation.
Artifacts are physical tools designed by human beings for their physical and psychological well being including works
of arts and technology.
Rituals are activities which take on symbolic meanings.
Ethics is a set of moral principles to guide behavior.

McKinsey’s 7-S model

Explains relationship of different aspects of business: [Link b/w organizational & individual behavior]

3 Hard elements: [Formal Aspects]

1. Structure (division of tasks and hierarchy of authority)
2. System (technical system e.g. Accounting, HRM, MIS)
3. Strategy (org plans, tackling competitors, achieving objectives)
4 Soft elements: [Informal Aspects]
4. Shared values
5. Staff (own concerns and priorities)
6. Style (ways of working, attitude of management)
7. Skills

French and Bell’s iceberg:

 Overt formal aspects (= 3 hard S)
i. Goals
ii. Structure
iii. Policies and procedures
iv. Products
v. Financial resources
 Covert informal aspects ( = 4 soft S)
i. Attitude, belief, feelings, perception
ii. Value
iii. Informal interactions
iv. Group norms

Theories on Culture
Harrison and Handy’s Work: (gods of management)
There are 4 types of culture in organizations:

i) Power Culture (Zeus)

 All decisions are centered on one person i.e. founder of business
 For small entrepreneurial companies

ii) Task Culture (Athena)

 No dominant leader
 Principal concern is to get the job done

iii) Role Culture (Apollo)

 Organization has formal structure and well established rules and procedures
 People do their jobs as specified in their contracts
 For large organizations where work is predictable

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iv) Person/Existential Culture: (Dionysus)
 Organization’s purpose is to serve interest of individuals within it.

Miles and Snow’s Work: (models of strategic culture)

There are 4 approaches to strategy in organizational culture.

1. Defenders (doing things right)

 Low risk, low profits
 Secured niche market e.g. accountants, engineers etc
 Tried and trusted solution

2. Prospectors (doing the right thing)

 High risk, high profits
 Move into new ways e.g. designers
 Take initiatives

3. Analysers
 Balance risk and profit
 Using core stable products & markets e.g. managers
 Follow the change, do not initiate change

4. Reactors
 Do not have viable strategy

Denision’s model:

Strategic orientation of firm towards environment

Focus on internal Focus on external
Stable environment Consistency Culture Mission Culture
Formal ways of behavior, predictability and Customer oriented. (hospital, church)
Changing Involvement Culture (satisfied employees give Adaptability Culture ( fashion co.)
environment performance e.g. Orchestra) Focus on external environment which is

Deal and Kennedy’s work: (Association of culture & risk)

Culture is function of “willingness of employees to take risk” and “Their feedback”

Slow feedback Fast feedback

High risk Bet your company Culture Hard ‘Macho’ Culture
“Slow and steady wins the race” “Find a mountain and climb it”
 Long decision cycles  Entertainment,
 Stamina required Advertisement, Consultancy
 Oil company, Aircraft company, Architects
Low risk Process Culture Work hard/Play hard culture
“It is not what you do, it is the way you do” “Find a need and fill it”
 Attention to excellence of technical detail.  All action and fun
 Risk management  Team spirit
 Procedures and Status symbol  Computer companies
 Banks, Financial services, Government

Peter and Waterman’s Excellence Culture:

“Dominance and coherence of culture was an essential feature of excellent companies”.
Employees are loyal and make efforts if:
 Cause is great.

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 They are treated as winners.
 They can satisfy dual needs of team and own interest.

Key attributes of excellence

1. Autonomy and Entrepreneurship
2. Bias for action
3. Customer orientation
4. Stick to core activities
5. Simple organizational structure
6. Simultaneous loose-tight properties (competition between individuals and group within

Pumpin’s dynamic company (Cultural characteristics of dynamic companies)

“Dynamic company is one that considerably increases the benefits for its stakeholders within a relatively short time”

4 aspects of such a culture

 Speed
 Productivity
 Expansion
 Risk taking

Weak areas in a dynamic company

 Customer service
 Innovation
 Technology
 Attitude to workforce
 Company spirit and loyalty

Strategic Excellence Position: (similar to excellence)

SEP will fall into 3 fields:
1. Product related
2. Market related
3. Functional
SEP can be developed only if culture supports it.

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Chapter 9 : Mergers and Acquisitions
Take Overs:
“Purchase by a company of a controlling interest in the voting share capital of another company”

“Merger is a business combination that results in the creation of a new reporting entity formed from the combining
parties” (Mutual sharing of risks and benefits)

Reasons for Mergers/Take Overs:

1. Synergy (1+1=11)
2. Eliminating competition
3. Entry in new market
4. Spread risk (diversification)
5. Acquisition is cheaper than internal expansion
6. Assets backing
7. Management acquisition
8. Operating economies (by eliminating duplicate and competing facilities)
9. Improvement of liquidity and finance-raising ability

Deciding factors in a takeover decision:

1. Cost
2. Value
a. Earning basis
b. Assets basis
c. Prospects for sale and growth basis
d. Saving brought and additional expenditure basis
3. Will it be desirable for shareholders and stock market
4. What will be form of purchase consideration
a. Cash (borrowed)
b. Equity shares
c. Debentures
d. Convertible Loan Stock
5. How takeover would be reflected in published accounts

Risks for shareholders of acquiring company in takeover:

1. Decrease in EPS of own company
2. Decrease in Share Price of own company
3. Decrease in Assets backing per share (decrease in net assets)
4. Entry in risky industry

When takeover resisted by Target Company:

 Unwilling to sell
 Under bidding
 Unattractive after tax value
 Terms are poor
 Opposed by employees
 Founder appeals loyalty of shareholders

Counter steps by Target Company:

1. Issuing a forecast of attractive future profits and dividends.
2. Launching advertising campaign against the takeover bid.
3. Finding a “White Knight”, i.e. a company which will make a welcome takeover bid.
4. Making a counter bid for the predator company.
5. Arranging a management buyout
6. Introducing a “Poison-Pill” , i.e. anti takeover advice

Tactics by Acquiring company:

 Persuading dissatisfied shareholders
 High prices

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Payment Methods
- Cash Purchase
- Share exchange
- Use of convertible loan stock
- Earn out arrangements
Methods are affected by
- Availability of cash
- Desired level of gearing
- Changes in control
- Changes in structure

Choice of Cash or Paper offer or Both for payment depends on view of parties:

Acquiring company and its shareholders:

 If purchase consideration is in equity shares, EPS might fall.
 If purchase consideration is in debentures (or cash borrowed elsewhere), it will be cheaper because Interest
will be allowable for tax purposes and earnings will not be diluted.
 Issue of additional loan stock will be unacceptable for parties if company is highly geared.
 Issuance of large new shares will significantly change controlling structure.
 Payment in shares preserves cash available.
 Company might have to increase authorized share capital or borrowing limits.

Target Company:
 If Cash is received, tax on capital gain will become payable immediately.
 If other consideration is received, it is to be ensured that
o Existing income is at least maintained, and
o Shares retain their value.
 If shareholders want to have stake in business, they will prefer shares.

Mezzanine Finance: (by biding company; to pay for shares)

 Lies between equity and debt finance.
 It is short to medium term, unsecured, high rate of return loan
 It has option to exchange loan for share after takeover.
 It is also used in MBO.

Earn-out arrangement:
When consideration is payable upon the target company reaching certain performance targets.

EPS before and after a takeover:

Share purchased at higher P/E ratio will give fall in EPS, and vice versa.
Company may accept dilution of earnings on acquisition if:
 There is increase in net assets backing.(from a company having more assets and less earnings)
 Quality of earnings is superior.

Post acquisition integration: (Drucker’s 5 golden rules)

1. There must be common core of unity.
2. Acquirer must ask, “What is in for us” and “ What we can offer”
3. Acquirer must treat product, market and customers of acquired company with respect.
4. Acquirer must provide top management with relevant skills within one year.
5. Cross company promotions should occur within one year.

5 steps of Integration sequence: (C S Jones)

1. Decide and communicate initial reporting relationships
2. Achieve rapid control of key factors which will require access to right, accurate information
3. Human and physical Resource audit to get a clear picture
4. Redefine corporate objectives and to develop strategic plans
5. Revise the organizational structure

Failure of mergers and takeovers:

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1. Strategic plan fails to produce expected benefits
2. Over optimism about future market conditions
3. Poor integration management
4. Cultural differences
5. Little or no post acquisition planning
6. Lack of knowledge of target company or industry
7. Little or no experience of acquisition.

Impact of mergers and takeovers on stakeholders:

On acquiring company’s shareholders

 EPS may fall especially in equity-financed bids and first time players
 Cost of mergers exceeds gains.
On target company’s share holders
 Greatest benefit through significant premium over market price.
Acquiring company management
 Increased status and influence
 Increased salary and benefits
Target company management
 Key personnel will be kept others will be fired
Other employees
 Economies of scale will be achieved by loss of job and eliminating duplication of services.
Financial institution
 Outright winners
 The more complex, longer and problematic the deal is, the greater their fee income regardless of result.

Joint Ventures

Joint ventures: (1st step of acquisition)

“ It is an arrangement where two or more firms join forces for manufacturing, financial and marketing purposes and
each has a share in both equity and management of business”

 Joint contribution of
o Production technology
o Corporate expertise
o Market knowledge
 Access to foreign markets
 Eliminating competition
 Cheaper than internal expansion
 Spread risk
 Suitable for smaller companies

 Conflict of interests
 Where profits will go (in resident company or shareholders of foreign company)
 Local partners may wish to export to other countries where foreigner is already supplying.
 Transfer pricing issues (on transfer of expertise, technology and components)
 Cultural differences e.g.
 Equal employment opportunity
 Commercial practices
 Short term and long term planning
 Lack of smooth coordination, control and decision making
 Who will lead
 Who is responsible
 Confidentiality issues

Strategic Alliances

Strategic Alliance:

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“ When two or more firms agree to work together to exploit common advantages”
e.g. alliance between national airlines to cross-book passengers.

Licenses are very similar to Franchising in their financial aspects, however degree of central control and support is
usually less.

This gives limited right to franchisee (e.g. in a geographical area) to exploit patent product or production process,
brands, manufacturing know how and/or technical advice and assistance. e.g. KFC, McDonald

 Franchiser grants permission.
 Franchisee pays for permission and assistance.
 Franchisee is responsible for day to day running of franchise.
 Franchiser may impose Quality Control Measures to ensure that goodwill is not damaged.
 Franchisee supplies capital, personal involvement and local market knowledge.

Benefits to Franchiser:
 Rapid expansion (franchisee provides capital).
 Local knowledge.
 Economies of scale.

Problems to Franchiser:
 Limited control over quality.
 Conflicts of interest.
 Franchisee may become competitor.

Key Financial management decisions:

Investment Financing Dividend

Selection of products and markets Target debt/equity mix Capital growth or
Strategic Required level of profitability high dividend payout
Fundamental fixed assets
Tactical Efficient and effective use of Lease Vs. Buy Scrip or cash
resources dividend
Operational Working capital management Working capital ------

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Chapter 10 : Corporate Reorganisation

Defensive Strategies

Capital Restructuring Scheme

“ A capital reconstruction scheme is a scheme whereby a company reorganizes its capital structure”.

Procedure of designing a capital restructuring scheme:

1. Calculate what each party’s position would be in a liquidation
2. Assess possible sources of finance
3. Design the reconstruction
4. Assess each party’s position as a result of the reconstruction
5. Check that the company is financially viable.

Exit strategies for a venture capitalist:

1. Sale of shares to public or institutional investors following a flotation
2. Sale of shares to another company
3. Sale to company itself or its owners
4. Sale to institution management


Divestment- (selling of business)

“Divestment is a proportional or complete reduction in ownership stake of an organization” e.g.
 Demerger
 Sell off
 Liquidation
 Spin off
 Management Buy Out (MBO)
 Privatization

Reasons for Divestment:

 To concentrate on a particular part of business
 Selling a loss making unit
 Liquidity problems
 Selling a subsidiary with high risk
 Selling a subsidiary at profits
 Provide an exit route for investors
 Remove value gaps to avoid takeover

Demerger is splitting up of a corporate body into two or more separate and independent bodies.

Sell off is a form of divestment involving the sale of a part of a company to third party usually another company.

Liquidation is extreme form of liquidation where the entire business is sold and funds are distributed to shareholders in
their proportion.

Management Buy Out. (MBO) management buyout is the purchase of all or part of a business from its owners by its

Management Buy Out.(MBI) where purchase of a business is made by group of managers from outside the business.

Spin Off : a new company is created whose shares are owned by the shareholders of the original company which is
making the distribution of assets.

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Management Buy Out:

Possible reasons for MBO:

 All reasons of Divestment
 Best offer from management
 Sale can be arranged quickly
 Group can still maintain relations

Success factors of MBOs: (Advantages)

 Favorable buyout price
 Personal motivation and determination
 Quicker decision making and more flexibility
 Saving in overheads
 Healthy relationship with subsidiary

Questions in evaluating MBOs for investment:

 Does management has full range of skills?
 Why is the company for sale?
 Projected benefits and cash flows?
 What is being bought?
 Price?
 Fund availability?
 Exit routes?

Problems faced by MBOs: (Disadvantages)

 Little experience of financial management
 Tax and other legal complications
 Changing the attitude of employees
 Deciding the bid price
 Cash for maintenance of fixed assets
 Change in HR (loss of key employees)
 Maintenance of relations with suppliers/customers

Going Private
“A public company goes Private when a small group of individuals buys all of the company’s shares (possibly
including existing shareholders)”

 Cost saving (cost of meeting statutory requirements are saved)
 Limited number of members
 Similar objectives of shareholders
 Shareholders are close to management
 Protection against volatility in share price

 No trading of shares on stock exchange
 Loss of repute
 Loss of some value of share

Disadvantages of De-Merger
 Loosing economies of scale
 Lower turnover
 Higher overhead cost
 Less ability to raise finance

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Chapter # 11 : Ethics and Social

Ethics is a set of moral principles to guide behavior. It concerns with what is right and what is wrong.

Individual Organisation
Levels of
Practicing ethics Personal ethics professional ethics Org. culture Org. System

Ethical problems faced by organization:

While achieving a higher ROI, an organization faces following problems:
− SHE Issues (Safety, Health, Environment)
− Extra payments to govt. officials
 Extortion (when officials threaten company with complete closure)
 Bribery (where organization is not entitled to services)
 Grease money ( where organization is entitled but unable to receive services)
 Gifts
− Honesty in advertisement (e.g Marketing ethics)
− Competitive behavior (e.g putting others to competitive disadvantage)

Ethical systems in an organization:

− Personal ethics (e.g religious, political, personality ethics)
− Professional ethics (e.g CA code of ethics, medical ethics, fit and proper criteria)
− Organization culture (e.g. customers first)
− Organization system (ethics must be contained in formal code e.g part of ethical sys. and mission

2 approaches to manage ethics:

Compliance based approach aims to remain within letter of law by establishing system of audit and review so that
violations are prevented, detected and punished. It works from outside the system.
Integrity based approach combines a concern for the law with an emphasis on managerial responsibility. This
approach incorporates ethics in organization’s culture in which managers will do the right thing e.g shared
accountability, sound behavior, defining values. It works from within the system

Whistle blowing:
It is the disclosure by an employee of illegal, immoral or illegitimate practices on part of the organization.

Four types of ethical leaderships in organisations:

i) Creative :- reflecting founder, such leaders create ethical style.
ii) Protective :- they sustain value of customer services
iii) Integrative :- aim through consensus through people
iv) Adaptive :- changing culture as per new environment

Social Responsibility

Objectives of a company:
− Economic objectives
− Social/Ethical objectives
− Boundaries (Imposed rules; they restrict management’s freedom of action)
− Responsibilities (Voluntarily undertaken obligations e.g. charities)

Social/Ethical objectives of a company:

− SHE Issues (e.g minimum wages, job security)

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− Good employer (e.g good working environment, job satisfaction)
− Good Public image (e.g good quality products)
− Society well being (e.g regular order and timely payments to suppliers)
 Pollution
 Financial assistance (e.g. Charity, Sports)
(For other objectives see Stakeholders’ objectives)

Arguments against and favoring Social Responsibility recognition:

Social responsibility is expected from all types of organizations.

Organizations should concern wealth only because
− Shareholders own assets.
− Shareholders are part of society.
− Taxes on revenues are given to build society.
− Businesses exist for profit.

FAVOUR: (by Mintzberg)

− Most shareholders are passive.
− Ultimately consumer pays taxes via higher prices.
− Govt. support
− Firms produces 2 outputs:
 Goods and services
 Social consequences of activities e.g. Pollution
− Responsibility recognition (e.g. charity) improves:
 Public relations.
 Business success and development as part of society.
− Decisions by organization affects society

Externality is a social/environmental cost of organization’s activities not borne by organization.

Boundary Management:

- Good public image - securing political environment

- Protect environment from pollution - improving quality of life
- Good employer - protecting minorities
- Welfare of local community

Compliance Based Approach Integrity Based Approach

e.g - Audit e.g - Internal commitment

- Review - Guiding values
- Questioning - Pattern of thoughts
- System for employees - Share accountability (managers)
- Disciplinary procedures (lawyers)

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Chapter 12 : Corporate Governance
Corporate Governance is the system by which companies are directed and controlled.

Patterns of share ownership: (Who are shareholders of company)

Types of institutional investors:
 Pension funds
 Insurance companies
 Investment trusts
 Unit trust
 Venture capital organizations

Range of shareholders:
− Greater activity in firm’s shares
− No individual controlling whole firm
− Less effect on share price if anyone sells
− No threat of takeover
− Administrative cost is high.
− Various objectives in holding shares.

Why knowing shareholders:

− To get support by exchanging views.
− Knowledge of shareholders’ preference about Dividend Policy.
− To explain recent share price movement.
− Shareholders’ attitude to risk and gearing.
− Key shareholders to consult in the event of takeover bid.

Agency Theory:
“Although individual members of the business team act in their own self-interest, the well being of each individual
depends on the well being of other team members and on performance of the team in competition with other teams”

Assumptions of theory:
− Behavioral
 Individual welfare maximization.
 Individual rationality.
 Individuals are risk-averse.
− Structural
 Investments are not infinitely divisible.
 Individuals vary in their access to funds and their entrepreneurial ability.
Agency Problem:
Arises from separation of ownership from management.

Goal Congruence: (solution for agency problem)

It is accordance between objectives of agents (acting within organization) and objectives of organization as a whole.
Via (e.g.)
 Profits related pay e.g. bonuses, commission, incentive etc.
 Rewarding managers with shares
 Executives Share Option Plans

Non-executive directors are directors not running the day to day operations of the company.

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Chapter 13 : Human Resource Management
Human Resource Management-Introduction
Human Resources Management is concerned with people at work and their relationship as they arise in working

Roles/Scope of HR Manager:

 Job Analysis
 HR Planning
 Recruitment
 Selection
 Retirement, Resignation, Redundancy

HR Development:
 Performance Appraisal
 Career Planning
 Training
 Development

Motivation/ (Individuals):
 Job Analysis and Design
 Pay and Promotion

Leadership and Groups:

 Creating effective teams
 Managing conflicts between teams

Other Aspects:
 Health and Safety
 Workforce diversity (Equal Employment Opportunity)
 Maternity
 Compliance with legal and other standards
 Personnel record and Information System

Necessity of separate HR Department depends on Size and Activities of organization.

Objectives of HRM:
 Cooperative Relationships
 Development of motivated employees
 Effective response to change
 Fulfilling social and legal requirements

Advantages of HRM:
 Decrease in Staff Turnover
 Increase in Productivity
 Increase in Group learning
 Increase in initiative
 Decrease Absenteeism
 Lesser conflicts
 Increase quality
 Increased co-operation
 Increased commitment

HRM Theories
 Scientific management [Clearly defined principals]
 Human Relation [Fulfillment of needs]
 Rational [Division of authority]

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 Contingency theory [Change according to situation]

4 Roles/Areas of HR Planning: (by Tyson as per new strategic viewpoint)

 To represent organization’s central value system
 To maintain boundaries of organization
 To provide stability and continuity
 To adapt the organization to change

Views of HRM:

Traditional Odd Job view New Strategic Viewpoint

“It is a collection of incidental techniques without much
internal cohesion” (Drucker)
Manager was partly a Clerk, housekeeper, social worker
and fire fighter.
It dealt mainly with Hiring and Firing. It is concerned about Organization, Motivation,
Employee’s relations and service.
Reactive and defensive role Proactive and constructive role
Employee’s Consent was obtained. Employee’s Commitment is obtained.

HR Planning

Human Resource Planning:

“HR Planning is forecasting demand of human resources, forecasting its supply and closing gap between demand and
It considers When employees needed. How many employees needed. So basically HR Plan deals with recruitment,
retention, downsizing & training of workforce.

Process of Human Resource Planning

1. Strategic Analysis (of)
a. Environment
b. Organization’s objectives
c. Manpower’s SWOT
2. Job Analysis
a. Job description
b. Job specification
c. Employee specification

3. Forecasting of
a. Internal Demand and Supply
b. External Supply
4. Implementation
a. HR Plan

Job Analysis
The process of collecting, analyzing & setting out information about the contents of job in order to provide basis for job
description and data for recruitment, training, job evaluation & performance management.
Systematic way to gather and analyze information about the
 Content
 Context
 Human requirements of the job.

Type of information needed

 Purpose of the job
 Content of the job
 Relations to other job
 Performance criteria
 Responsibility
 Accountabilities
 Organizational factors
 Development factors

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 Environmental factors

Job analysis results in:

 Job description
 Job specification
 Employee specification

Job Description
A written statement of duties, responsibilities and tasks of job.
It should be written in outputs and performance levels.

Purpose of Job description:

 Organizational--------- Defines job’s place in organizational structure (job evaluation).
 Recruitment------------ Provides person specification
 Legal-------------------- Provides basis for contract of employment
 Performance----------- Performance objectives can be set.

Contents of Job description:

A job description should be a formal, written document, usually from one to three pages long. It should include the
 Date written.
 Job Status (full-time or part-time; salary or wage).
 Position title.
 Job summary (a synopsis of the job responsibilities).
 Detailed list of duties and responsibilities.
 Supervision received (to whom the jobholder reports).
 Supervision exercised, if any (who reports to this employee).
 Principal contacts (in and outside the organization).
 Related meetings to be attended and reports to be filed.
 Competency or position requirements.
 Required education and experience.
 Career mobility (position[s] for which job holder may qualify next).

Alternative to Job Description is Role Definition. (wider)

Job Specification
Minimum acceptable qualification (i.e. knowledge, skills, abilities, experience and other characteristics needed to do a
particular job.)

Person Specification
Identifies the type of person needed to do a particular job.
Following characteristics are assessed: (Fraser’s 5 point to assess pattern of personality)
1. Impact on other
2. Motivation
3. Acquired knowledge or qualification
4. Innate ability (initiative, innovative)
5. Adjustment and emotional balance
Capacity of a person that leads to behavior that meets the job demands.
 Intellectual Competence (Strategic, judgment, planning)
 Interpersonal Competence (managing staff)
 Adaptability (flexibility with change)
 Results

Methods of Job Analysis:

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 Logos/Diaries
 Interviews
 Observations
 Questionnaires
HR managers write job description & specification for review by managers
Managers identify performance standards based on job analysis information.

Forecasting Demand and Supply of manpower:

Demand is estimated from:

 New markets
 New product/service
 New technology
 Divestment
 Organizational restructuring

Supply is estimated from:

 Current workers’ Stocks and Flow analysis
 External labor market

A Position Survey compares demand and supply. (Grade, skills, location etc)

Closing the gap between Demand and Supply- HR Plan: (along with subsidiary plans of HR Plan)

HR Plan is prepared on the basis of personnel requirements, productivity and cost.

Meeting Shortage of HR (Less supply More Demand)

 Internal Promotions, Transfers (Redevelopment Plan) and Training (Training Plan) etc.
 Reducing Labor turnover (Retention Plan)
 Overtime (Productivity Plan)
 External recruitment (Recruitment Plan)

Meeting Surplus of HR (Less Demand More supply)

 Restricting recruitment
 Part-time working
 Redundancies (Redundancy Plan)

Recruitment(a part of HR plan)

“ Recruitment is the process of generating a pool of qualified applicants for organization’s job”

Strategic Recruitment Decisions:

1. Organization based Vs. Outsourcing
2. Regular Vs. Contractual Vs. Leased
3. Internal Vs. External recruitment
4. EEO and Diversity issues

Systematic approach to recruitment and selection:

 HR Planning
 Job analysis
 Identification whether employee is to be recruited from outside or promoted inside (from HR Plan)
 Evaluation and use of Sources of Recruitment
 Selection
 Notification of result
 Induction training

Sources of Recruitment:

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Internal Search:
1. Organizational database (HRIS) to sort employee data according to job requirement.
2. Employee referrals
3. Promotion and Transfers

 Good employee relations
 Encourages ambitious individuals
 Less costly
 No adjustment or orientation time required, because already familiar
i. Individual with organization and policies
ii. Organization with individual

 No new blood, no innovation and new perspectives
 Political fight for promotion
 Morale problems of those not promoted
 Diversity lacking
 Requires training

External Search:

1. Advertisement (method depends on organization and nature of job)

 Newspaper
 T.V.
 Net
2. Agencies and Professional organization
3. Blind Box ads
4. Schools, Colleges and Universities
5. Unsolicited applications
6. Creative recruitment methods
 Banners
 Announcing prizes for
• Referee
• Applicants

What must be included in job advertisement:

 Information about organization
 Primary business
 EEO Employer
 Information about job and application process
 Title and responsibility
 Job location
 Starting pay range
 Contact address
 Closing date for application
 Desired qualification of candidate
 Experience
 3----5 Characteristics needed

Internet Search:

1. Employer website
2. Professional career websites

 Cost saving
 Time saving
 Global in nature

 Non-serious application

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 Difficult to process large number of application
 Not accessible to all

Selection: (part of Recruitment)

“The process of choosing individuals who have needed qualification to fill job in an organization”

Purpose of selection:
“Filling a right person to the job” ensuring
 Person fits job (matching people with job characteristics)
 Person fits organization (Objectives, culture, values etc. of organization)

Steps in selection process:

 Initial screening
 Complete application (on specific form)
 Employment tests
 Comprehensive interview (keeping in mind job description & job specification)
 Background information (depends on nature and sensitivity of job)
 Medical examination
 Conditional job offer
 Permanent job offer

Why and What tests are conducted

 Cognitive ability tests
o Thinking, memory, reasoning
o Mathematical abilities
o Communication abilities
 Physical ability tests
 Writing analysis
 Performance simulation test (requiring to perform actually a small segment of
the job)

Advantages of interview
 Most valid to determine applicant’s
 Organization fit
 Level of motivation
 Interpersonal skills

Limitations of Interviews
 Unreliable assessment (wrong decision)
 Fail to provide accurate prediction (error of judgment)
 Halo and Horns Effect (based upon single attribute)
 Stereotyping candidates on the basis of dress, hairstyle, accent etc.

Discrimination in selection is justified only if required by law.

Induction Training:
− Identify area for later learning or training (e.g. detailed technical knowledge)
− Explain nature of job and goal of each task
− Explain working hours
− Explain structure of organization hierarchy and his position
− Introduce with people in office.
− Plan and implement training program.
− Appraise after 3,6 or 12 months.

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Chapter 14 : Motivation and Performance

Variables affecting Job performance:

Organizational and Social variables
 Social environment
 Type of Incentives
 Type of Training and Supervision

Situational variables
 Characteristics of Organization
 Physical environment

Physical and Job variables

 Methods of work
 Work space and arrangements
 Designing and condition of work equipment

Individual (non work) variables

 Age
 Sex
 Physique
 Education
 Experience
 Intelligence
 Aptitude
 Motivation
 Personality

Personality and individual Development:

(Individuals are different because their personality is difference and personality differences affect work behavior).
Personality is the total patterns of thinking; feeling and behaving that constitute the individual’s distinctive method of
relating to the environment.

According to Chris Argyris, as people mature they display certain characteristics:

1. Increasing self awareness
2. Acceptance of equal or superior relationship to others
3. A tendency to move from dependence towards independence
4. Diversification of behavior patterns
5. An increasing tendency to activity, rather than passivity
6. Deepening and more stable interests

Factors affecting personality differences:

- Authoritarinism - Need of achievement
- Self-esteem - Attitude
- Feedback on performance - controls and standard
- Moderately difficult tasks - levels of risk taking
- Psychological success - challenging goals and achievement
- Commitment - willingness

Motivation (Content theories VS Process Theories)

Motivational Theories

McGregor’s theory X and theory Y:

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 Theory X---People dislike work and responsibility, they have to be controlled, threatened, punished to
get work done.
 Theory Y---Work is as natural as play and rest, they accept responsibility, they give way to consultation
and self growth.

Maslow’s hierarchy of needs:

( A ranked structure of behavior stimulating within individual which explains motivation)
 Self actualization (fulfillment of personal potential, freedom, fairness, justice)
 Esteem needs (Independence, status, respect, gaining knowledge)
 Social needs (relationship, affection, belonging)
 Safety needs (security, threat)
 Physiological needs (food, cloth, shelter)

Alderfer’s ERG theory:

 E-----Existence
 R---Relatedness
 G---Growth

McClelland’s needs:
 Need for achievement, Need for power, Need for affiliation Top management  Power
 These needs could be taught from top to lower managers. Entrepreneur 
Employees  Affiliation
Herzberg’s two factor theory:
There are 2 groups of work related factors.
 Hygiene factors (remove dissatisfaction e.g. Salary, Job security, Working conditions, Interpersonal
 Motivators (creates satisfaction e.g. Status, growth in job, power authority and responsibility)

Vroom’s expectancy theory:

Motivation shall depend upon expected results of his efforts i.e value attached to an outcome.
F (Force i.e. motivation) = V (valence i.e. strength for preference of outcome) * E (Expectancy i.e. expectation that
performance will lead to outcomes)

Porter and lawler’s model: (extension of expectancy theory)

Valence Force Expectancy

Ability Understanding

Satisfaction Actual Performance

Importance of Success/Failure

Intrinsic rewards Extrinsic rewards

(interest, enjoyment) (pay, bonus)

Equity theory:
Reward of 1/Output of 2 = Reward of 2/ Output of 2
Satisfaction = (atleast fair reward, not maximum reward)
- people compare results and rewards
- people get upset if inequity in rewards

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Goal theory:
Goals can motivate.

Psychological contracts
“Members will expend efforts and organization will reward them in exchange”
− Coercive contract (returns are inadequate compensation; involuntary contribution)
− Calculative contract (returns are defined; voluntary contribution)
− Cooperative contract (employees participate also in decision making)

Pay and Job satisfaction

Under Herzberg’s theory, Pay is the most important of all hygiene factors.
Under Expectancy theory, Pay motivates if pay is linked with performance and is valued by individual.

Difficulties in incentive schemes:

− No motivation if employee already enjoys good package.
− External factors may affect output and reward.
− Not suitable in groups

Assessment of satisfaction and moral:

Through Productivity, Absenteeism and Turnover.

Types of incentive schemes:

- performance related pay (PRP) i.e commission
- bonus schemes
- profit sharing e.g opportunity of being member of the company.

Job Design (with parameters of Mintzberg)

“Job design is the process of

 determining the specific tasks to be performed (Job specialization),
 methods used in performing these tasks (training and indoctrination in organizational values), and
 how job relates to other works in organization (regulation of behavior).

Change in job design may be :

 Job enrichment
 Vertical expansion of responsibilities
 Change in the content and responsibility of job to provide greater challenge
 Job enlargement
 Horizontal expansion of duties
 Provides greater variety of tasks

Job Components:
Occupation------Jobs-----------Position----------Duties------------Tasks (Responsibilities)

Job restructuring and redesign:

Job redesign  suiting of jobs according to motivational factors.
Job rotation  allowing variety and understanding, development of extra skills
Job enlargement  adding extra and related tasks to current job
Job enrichment  increases depth of responsibility by adding planning and control of current job.

Working arrangements:
 attitude and values  flexible working arrangement
 high performance work systems  multi-skilling
 empowerment  flexitime

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 compressed week  job sharing
 part-time work  home-working (distant working)

i) Numerical flexibility
ii) Financial flexibility
iii) Task flexibility

Employee Appraisal
“Appraisal is a systematic review and assessment of an employee’s performance”

Employee Development:
 Specific Job performance feed back
 Career opportunity information
 Assessing employee potential

Decision Making for Action by Administration: (Results of appraisal)

 Promotion
 Demotion
 Transfer
 Termination

Organizational Research: (Importance of appraisal)

 HR Planning (Promotability and Potential)
 Evaluation of Selection and Training methods
 To motivate employees giving feedback
 Inventory assessment for planning
 To assess training needs

Purpose of appraisal:
 Reward review for deserving employees
 Performance review to confirm whether any training is required or not
 Potential review to confirm whether any management career planning is required or not.

 Achieving objectives
 Performance levels
 Training needs
 Identifying lacking areas
 Communication

360-degree feedback -Sources:

 Self
 Senior
 Peers
 Juniors
 Assessment centers
 Customers
[Upward appraisal is better.]

Types: (What could be assessed)

 Traits
 Behavior
 Performance

1. Check list appraisal (yes/no)
2. Forced choice appraisal (MCQs)
3. Essay appraisal/ Overall assessment (paragraph)

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4. Grading, result oriented schemes, and self appraisals

An appraisal system:
i) Identify criteria for assessment
ii) Preparation of appraisal report
iii) Appraisal interview
iv) Review assessment
v) Action/plan preparation
vi) Monitoring progress (follow-up)

Methods of appraisal:
i) Upward appraisal  sub-ordinates upraise their seniors
ii) Customer appraisal  internal & external
iii) 360 degree appraisal

Mair’s 3 approaches to appraisal interview:

− The tell and sell method
− The tell and listen method
− The problem solving approach

Effective Appraisal:
 Job related criteria
 Standardization
 Trained appraisers
 Employee access
 Purpose must be understood by both
 It must be participative, problem solving activity
 Regularly conducted.
 Effort, integrity and ability of line managers.

Lockett’s appraisal barriers:

− Lack of agreement on performance level
− Rater is biased.
− Recency effect (weighting recent events)
− Disagreement on long term prospects
− One sided process
− Central tendency
− Many targets at annual meeting become out of date.
− Central tendency (giving average rating to anyone)
− Sampling Error (available information is insufficient or inaccurate)

Interview and counseling:

1) Tell and sell method (manager tells, and then try to gain acceptance)
2) Tell and listen method (manager tells, the subordinates responds, and consensus is achieved)
3) Problem solving approach (manage becomes counseller, and ask work problems)

Managing Careers:
Career management is a technique whereby the progress of individuals within an organization from job to job is
planned keeping organization needs and individual capacity in mind.

Difference between Functional Manager and General Manager:

Functional Manager General Manager

Goals Short term Long term
Orientation Task oriented Goal oriented
Role Organizer  Facilitator
 Coordinating interdepartmental

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 Obtaining and allocating resources
Information  Defined sources  Poorly defined sources
 Formal channels  Informal channels

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Chapter 15 : Training Appraisal and Career
Training and Development
HR Development:
“The process of extending personal abilities and qualities through development activities e.g. training, appraisal, career
planning, job rotation etc.”

“The process of providing employees with specific skills to carry out work effectively or to correct deficiencies in their

“ An effort to enhance a person’s abilities that organization will need in future”.

Development purpose:
− Ensures firm meet current and future performance objectives by
 Maximizing people’s potential
 Continuous improvement
Development activities:
− Training (on job and off the job)
− Career planning
− Job rotation
− Appraisal
− Other learning opportunities

Benefits of training and development:

For Organization
− Training supports business strategy
− Higher productivity
− Management of SHE issues
− Less need for detailed supervision
− Multi skilled people
− Succession planning
− Increased commitment
For employees:
− Enhanced skills
− Psychological benefits (valuable)
− Social benefits (e.g. contact)
− Job management

When training does not work:

− Bad management
− Poor Job design
− Poor equipment
− Motivation
− Poor recruitment
− Other characteristics of employee (e.g. intelligence)

Types of training courses:

 Day release
 Distant learning
 Evening classes
 Revision courses
 Sandwich course
 Full time course

Learning organization:

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An organization that facilitates the learning of all its members and continuously transforms itself.
A learning organization creates, exploits and shares knowledge.
Characteristics of learning organization:
− Learning approach to strategy
− Participation in decision making
− Information is used as a resource
− Formative accounting
− Reward flexibility
− Enabling structural responsiveness to external changes
− All employees are environmental scanners
− Intercompany learning
− Learning climate

Training Process:

Step 1. Training needs are identified:

− Training need analysis
Current state Desired state
Existing knowledge and skills Required knowledge and skills
Individual performance Required standard
Organization’s current results Desired results
Difference between two columns is Training Gap.
− Training surveys
 Corporate strategy
 Appraisal and performance review
 Attitude surveys
 Evaluation of existing training programs
 Job analysis

Step 2. Specify knowledge, skills and competence required:

Step 3. Define training objectives:

− These objectives should be clear, specific, measurable, and observable.

Step 4. Plan training program

Step 5. Implement the training

Methods of training
− Formal training
 Course training (lectures, discussions, exercises, role-plays, case studies)
 Computer based training
− On Job Training
 Instructions/Demonstrations
 Coaching
 Job rotation
 Temporary promotion
 ‘Assistant to’ Positions
 Action learning
 Committees
 Project work

Step 6. Evaluate the training

Ways to evaluate.
− Organizational changes as a result of training
− Trainees’ learning test
− Trainees’ reaction to experience
− Changes in job behavior following training
− Impact of training on organization’s goals

Validation of training means observing results of training and measuring whether training objectives have been
Evaluation of training means comparing costs incurred with benefits obtained to redesign/withdraw scheme.

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Personnel Development Plan:
“Development plan for individual”

Skill analysis:
Aim is to put interest into actual role.
High Low
Liking of skills High Likes and does well Likes but does not do well
(Motivated) (Requires training)
Low Dislikes but does well Dislikes and does not do well

Learning cycle by Kolb:


the implications
of concepts in
new situations Formation of
abstract concepts
and generalizations

Learning styles of individuals by Honey and Mumford:

 Theorists
 Understand underlying concepts
 Preference for concepts or analysis
 Take intellectual ‘hand-off’ approach based on logical argument
 Reflectors
 Observe phenomena, think about them and then choose how to act
 Find learning difficult if forced into hurried program.
 Tend to be fairly slow, non participative and cautious.
 Activists
 Require training on hand-on
 Excited by participation and pressure e.g. new projects
 Flexible, optimistic, rush without preparation, take risks and get bored.
 Pragmatists
 Good at learning new techniques in OJT
 Aim is to implement action plans and/or do the task better
 May discard as impractical good ideas which require development.

“ Capacity that leads to behavior that meets job demands within organizational environment and brings desired results”

Types of competence:
1. Personal/Behavioral (Personal characteristics and behavior required for successful performance).
2. Work based/Occupational competence: (expectation of work performance and outputs and standards that are
expected by people in specific roles)
3. Generic competence can apply to all people in an occupation.

Competence of managers:
 Intellectual
i. Strategic Perspective
ii. Analytical Judgment
iii. Planning and Organizing
 Interpersonal
i. Managing staff
ii. Persuasiveness
iii. Assertiveness and Decisiveness

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iv. Interpersonal sensitivity
v. Oral communication
 Adaptability results
i. Initiative
ii. Motivated
iii. Business sense

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Chapter 16 : Management and Human

Trait Theories:
Leaders have certain qualities (Inborn or Acquired) e.g. Helicopter factor i.e certain traits makes a person good leader.

Style theories:
A manager’s style is the way in which the manager handles his relationship with the task and with subordinates.

Leadership is an interpersonal process and is affected by behavior. To create an effective group, characteristics of
followers should match with characteristics of leader.

Huneryager and Heckman:

− Dictatorial
 Manager makes decisions and enforces them
 Manager makes decisions and announces them
− Autocratic
 Manager sells his decisions
 Manager suggests own ideas and asks comments
− Democratic
 Manager suggests his idea and amends as per comments
 Manager presents problem, asks for ideas and makes a decision
− Laissez-faire
 Manager presents a problem and asks to solve it.
 Manager allows his subordinates to act freely within prescribed limits.

- Definition
- Management vs Leadership
- Manager VS Leader
- Key leadership skills
- Developing managers as leaders
- Theories of leadership
i) Trait theory
ii) Style theory
iii) Contingency theory

Leadership skills:
- Entrepreneurship
- Interpersonal skills
- Decision making
- Time management
- Self development skills
- Competitive
- Goal oriented
- Team empowering
- motivated

Wholly task oriented

Wholly people oriented

Lickert’s 4 elements presented in effective managers:

1. Expect high level of performance
2. Employee centered
3. No close supervision

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4. Participative style

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4 styles of leadership:

Style Characteristics Strengths Weaknesses

Tell Manager makes decisions  Quick decision making  No initiative and
(autocratic) and enforces them  Suitable for routine work. commitment
 One way communication
Sell Manager makes decisions  Reasons are told to staff.  No initiative and
(persuasive) but convince staff to  They have better idea of commitment
motivate them. what to do  One way communication
Consults Manager presents  Employees contribute  Slow decision making
problem, asks for ideas knowledge and  Staff may not be mature.
and makes a decision experience.
 Initiative and commitment
Joins Leader and followers  High motivation and  Slow decision making
(democratic) make decisions on commitment  Staff may not be mature.
consensus.  Shares knowledge and  Conflict may arise.

Blake and Mouton’s managerial grid:

High Country club Team

Concern for people Middle road

Low Impoverished Task

Low High
Concern for production

Contingency approach to leadership: (by Charles Handy)

Factors which contribute to the success of leader:
 Leader’s personality
 Subordinates
 Task
 Environment

Power, authority and responsibility:

Power is ability to do.

Following are different forms of powers in an organization:

− Position power/legitimate power
 Enjoyed by senior management.
 It is associated with particular job, almost authority.
− Resource power (reward power)
 Enjoyed by senior management
 Control over resources and power to grant them e.g. promotion
− Physical power (coercive power)
 Enjoyed by senior/middle management
 Power of superior force but mostly absent.
− Expert power
 Enjoyed by middle/low management
 Power based on expertise
− Negative power
 Enjoyed by middle/low management
 Use of disruptive attitude to stop things, it may be destructive.
− Personal power
 Power in personality of individuals

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Authority is right to do. (decision-making power)
Responsibility is obligation to do.
Influence is ability to change behavior of others.
Accountability managers are accountable for their action.
Delegation of authority sharing of decision making power.


Discipline promotes good order and behavior in an organization by enforcing acceptable standards of conduct.

Disciplinary problems:
 Absenteeism
 Poor punctuality
 Poor job performance
 Poor attitudes
 Breaches of safety regulations
 Refusal to carry out legitimate instructions

Disciplinary actions:
 Informal talk
 Oral warning Warning
 Written or official warning
 Disciplinary lay-offs or suspension
 Demotion Action
 Discharge

Retirement, Resignation, Redundancy

Why retirement is encouraged:

− Promotion opportunities for younger.
− Early retirement is an alternative to Redundancy.
− Age structure may become unbalanced.
− Cost of pension rise with age.

− Exit interview
− Period of notice.

Fair grounds for dismissal:

− Redundancy
o Employer has ceased to carry on business all or in part
o Requirements of employees have ceased or diminished.
o No compensation if
 Suitable alternative offer made.
 Employee is of pension-able age or has less than 20 years of continues service.
− Legal impediment
− Non-capability
− Misconduct
− Other substantial reasons

Unfair Dismissal (See PBP)

Discrimination and Equal opportunities

Discrimination could be
 Direct
 Indirect
 Positive (law protected)

Measures to address underlying problems of equal opportunity:

 Support from the top

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 Appoint equal opportunity managers
 Encourage disadvantaged groups to apply
 Monitoring of minority
 Maternity leaves, Maternity Pay, Work place nurseries
 Flexible hours
 Career break
 Accommodate wheelchair users

Health and Safety

Importance of Health and Safety at work:

1. Legal obligation
2. Accidents cost money
i. Compensation + Repair cost + Increased insurance premium
ii. Time lost
iii. Subsequent performance is reduced.
iv. Recruitment and training of replacement has cost.
3. Corporate image is improved.

Employer’s Duties:
− Work environment must be safe and healthy.
− Plant and equipment must be maintained to standard.
− Work practices must be safe.
− Health and Safety Policy should be communicated to all employees.
 Statement of principles
 Detail of safety procedures
 Detailed instruction of how to use equipment
 Training requirement
 Compliance with law
− Risk assessment should be made.
− Hazard and risk information should be shared.
− Identify employees who are especially at risk.
− Controls must be introduced to reduce risks.
− There must be safety and health advisors.

Employee’s duties:
− Take reasonable care of themselves and others.
− Allow the employer to carry out his duties.
− Inform the employer of any situation which may cause danger.
− Use all equipment properly.

National legislation on important labor matters

1. Industrial and Commercial Employment (Standing Orders) Ordinance 1968
i. Appointment, transfer, promotion
ii. Leaves
iii. Insurance
iv. Bonus
v. Termination
vi. Gratuity
2. Industrial Relations Ordinance 1969.
3. Employee Social Security Ordinance 1965
i. Medial expenses
ii. Compensation in lieu of wages during illness
4. Employee Old age Benefits Act 1976
i. Rules for pension
5. Company Profit (Workers Participation) Act 1968.
i. 5% of net profit + adjustments
ii. Fund could be maintained.
6. Workers Welfare Fund Ordinance 1971.

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Chapter 17 : Groups in Organisation
“A group is any collection of people who perceives themselves to be a group”.
 Sense of identity
 Loyalty to group
 Purpose & Leadership

“A team is a small number of people with complementary skills who are committed to a common purpose,
performance goals for which they hold themselves accountable”

A team could be:

 Multi-disciplinary teams
 Contains specialists in different areas
 Freer and faster communication between disciplines in organization
 Multi skilled teams
 Contains people who possess many skills
 Tasks can be shared in flexible way.

Development of team: (by Tuckman)

 Forming (collection of individuals)
 Storming (targets are set and trust increases)
 Norming (work sharing, individual requirements and expectations)
 Performing (execution of task)

Members/Roles of team: (by Belbin)

− Coordinator (presides and coordinates)
− Shaper (dominant, extrovert, task oriented)
− Plant (introverted, source of ideas)
− Monitor evaluator (analytical rather than creative)
− Resource investigator
− Implementer (administrator not leader, scheduling, planning)
− Team worker (supportive, noticed in absence)
− Finisher

Problems with team:

− Group norms restrict individual personality.
− Conflict in roles and relationship
− Personality problems
− Rigid leadership
− Not suitable for all jobs
− Too much harmony (group think) or differences of opinion

Creating an effective team work: (A contingency approach by Handy)

− The Given
 Group’s members
 Group’s task
 Group’s environment
− Intervening factors
 Motivation
 Leadership
 Process
 Procedure
− The Outcomes
 Productivity
 Effectivity
 Objective is met within time

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 Group satisfaction
Management can operate on both ‘givens’ and ‘intervening factors’ to affect the ‘outcomes’.

Indications of Effective Team:

Quantitative factors
− Productivity
− Absenteeism
− Turnover rate
− Accident rate
− Targets
− Interruption to work rate
Qualitative factors
− Commitment
− Understanding
− Communication
− Feed back
− Job satisfaction
− Motivation

Conflict in organizations: (Individual / Group level)

Different views conflict in organizations:

The happy family view:

 Organizations are essentially harmonious.
 There are cooperative structures to achieve common goals with no systematic conflict of interest.
The conflict view:
 Organizations have conflict on individual and group level.
 Members battle for limited resources, status and reward.
 Conflict could be destructive if not handled carefully.
The evolutionary view:
 Conflict is seen as a useful basis for evolutionary change and not for revolutionary change.
 Could be constructive if handled by arguments or competition(Handy).

Causes and tactics of conflicts between departments:

 Operative goal incompatibility
 Personality differences
 Task interdependence (if managed badly)
 Scarcity of resources
 Power distribution (Boundaries of authority)
 Uncertainty (in change)
 Reward systems (not being fair)

Conflict – constructive and destructive

How constructive How destructive

Different solutions Distract attention from task.
Creativity and testing of ideas Objectives may be subverted for secondary goals.
Attention on individual Disintegration of the group
Brings emotions into open Emotional/ Win-lose conflicts may arise. (Close
Motivational factors brings out competition)

Effects of Conflicts within groups: (Sherif and Sherif) PTCL vs. Union

Within a group:
− Group becomes more structured and organized.
− Members eliminate their differences, get close and demand loyalty.
− Climate becomes task oriented.
− Members’ individual needs are subordinated to achievement.

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− Leadership moves from democratic to autocratic with group’s acceptance.

Winning group:
− Cohesion
− Relaxation
− Return to group maintenance and concern for members’ needs.
− Assertion for group self-concept with little reevaluation.

Losing group:
− It may deny defeat or blames on others.
− Loses cohesion.
− Turn to regrouping.
− Reevaluates perception of itself and other group.
− Might become cohesive and effective unit if defeat is accepted.

Managerial response to conflicts: (by Hunt)

− Denial/Withdrawal (if conflict is trivial)
− Suppression (preserve working relations despite minor conflicts)
− Dominance (application of power to settle the conflict)
− Compromise (bargaining, negotiating, conciliating)
− Integration/Collaboration (emphasis must be put on task and individuals must modify behavior)

To reduce conflict behavior:

− Limited communication
− Structural separation
− Bureaucratic authority (use of)

To encourage cooperative behavior:

− Job rotation
− Inter-group training
− Integration devices (e.g. problem solving teams, force to work together)

Group think: (IL Janis)

“Psychological drive for consensus at any cost, that suppresses dissent and appraisal of alternatives in cohesive
decision making groups”

Symptoms of group think:

− Moral blindness (might is right)
− Perception of unanimity
− Strong group pressure to quit dissent
− Rationalization for inconsistent facts.
− Mutual support to guard the decision.

Group subculture:
Subcultures are cultures which exist within cultures.

 Group share distinctive way of life, beliefs.
 Learned from others in the group.
 Way of life has somehow become traditional.

Political behavior:
Organizations are political systems because people within them have their own objectives and priorities.
Political behavior is concerned with competition, conflict, rivalry and power relationships in organization.

Political Game:
Mintzberg identifies various Political Games played in organization which can be useful or harmful.
 Game resist authority
 Game to counter this resistance
 Game to build power basis (control over resources and superiors, colleagues, subordinates etc.)
 Game to defeat rivals (interdepartmental)

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 Game to change the organization
At senior level political activities occur in following cases
− Allocation of resources.
− Management Succession
− Interdepartmental coordination
− Structural change

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Chapter 18 : Strategies for Critical Periods
Large Vs. Small organizations

Issues/problems in large organizations:

Organization’s structure:
− Sharing roles and responsibilities (who does what?)
− How much specialization
− How many levels of management
− Delegation of authority (centralized or decentralized)
Planning and control:
− Vague accountability
− MIS should be in place
− Coordination
− Reward
Slow adoption to change
Motivation is down
No self-esteem
Slow decision-making

− Decentralized and delegation of authority
− Fair pay policies with bonus, awards and rewards
− Delayering in hierarchy
− Job design

Issues/problems in small organizations:

− Over reliance on a few key persons
− No economies of scale
− Small market area/ restricted range of products
− Low bargaining power
− Cannot raise money
− Can not afford help (from experts)

− Growth
− Specialist servicing
− Key person’s insurance

Corporate decline

3 types of decline:

1. Declining industries (i.e. Environment entropy; environment is no longer supportive)

− Temporary decline (product revitalization)
− Permanent decline (end game)

2. Vulnerability
− Porter’s 5 forces

3. Declining company (i.e. organization atrophy)

− Symptoms (by Stuart Slatter)

 Decrease in sales revenue
 Decrease in profitability
 Decrease in liquidity

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 Decrease in market share
 Lack of planning
 Increase in gearing
 Top management fear
 Change in senior executive
 Financial engineering (change in accounting policies, auditors etc.)
 Restriction on dividend policy

− 4 stages in the crisis (by Stuart Slatter)

 Blind stage/Crisis denial
 Inaction/Hidden crisis
 Faulty action/Disintegration
 Crisis/Collapse/Dissolution

Causes of decline and strategies to overcome:

Causes Strategies
− Poor management − New management + restructuring
− Poor financial controls − Tighter controls + delegation of responsibilities
− High cost structure − Cost focus strategy + Ansoff’s matrix
− Poor marketing − Redevelop marketing mix + motivate sales force
− Competitive weakness − Porter’s generic strategies
− Big projects/acquisition − Feasibility reports
− Escalation of commitment of bad decisions

Reasons for escalation:

− They think decision was right; implementation was wrong.
− Humiliation of climb down.
− Consistency is valued.
− Mistakes are viewed as failure not learning
− Outcomes are uncertain.
− Failure to understand principle of relevant cost.

Turnaround of decline:
− Visionary leader required.
− Contraction and cost cutting.
− Reinvestment in organization’s capability.
− Rebuilding with innovation.

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Chapter 19 & 20 : Change Management and
Changing Environment

Types of change:

− Changes in environment (Cause)

− Changes in organization (Effect)
 Changes in products/services
 Changes in technology and working conditions
 Changes in management and working relations
 Changes in organizational structure and size
Change is small and gradual whereas Transformation is crucial and significant.

Factors forcing change: Changes may occur due to

- Threat of new entrants
Environmental factors: - Bargaining power of suppliers
− SLEPT - Bargaining power of customers
− Porter’s 5 competitive forces - Threat of substitutes
Changes in Technology: - Rivalry between competitors
− Computerization
− New products
− Better MIS
Change in Working conditions: Nature of strategic change:
− New offices Incremental
Change may be
− Varied work times
− Emphasis on health
− Govt. regulations Reactive
Change in Management: Management may
− New style of leadership Be Pro-active
− Participation in decision making
− Collaboration between management staff & unions Step change
Change in Personal policies: Types of Planned change
− Change in rules and procedures (e.g. smoking) Changes
− Promotion, transfer, training , development Emergent change
Change in structure and size:
− Due to Takeovers
− Delegation of authority
− Centralization
− Downsizing

Model for change:

− Determine need/desire for change in a particular area.
− Prepare tentative plan (via Brainstorming)
− Analyze probable reactions to change.
− Make a final decision (Coercive or Adaptive)
− Establish time table for change. Speed of implementation will depend on:
 Type of change (Coercive, Adaptive or Managed resistance change)
 Reaction of people (Acceptance, Indifference, Passive resistance, Active resistance)
 Driving and Restraining forces (Force Field Analysis)
− Communicate the plan for change
− Implement, review and modify change.
− Review the change

Approaches to change:
Resistance to change
i) Unfreeze – Move /Shake– Refreeze
ii) Adaptive change approach Active resistance passive resistance

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iii) Coercive change approach
iv) Using Change agent
v) Integrative VS segmentalist
vi) Theory E & Theory O

Force Field Analysis: (Lewin)

It is an interplay of restraining and driving forces that keeps things in equilibrium.

Introducing change:

3 factors to consider to minimize resistance.

Pace of change:
− Adapt strategy according to time available.
Manner of change:
− Resistance should be welcomed.
− Reasons and results of change should be circulated.
− Change must be sold to people concerned.
− Individuals must be helped to learn.
Scope of change:
− Small or Transformation.

Change process: (by Lewin/Schein)

Unfreeze existing behavior:

− Most difficult and neglected stage.
− Selling the change.
− Give motive for change.
Behavior change:
− Identify new behavior.
− Encourage individuals to own change.
Refreeze new behavior:
− Through positive or negative reinforcement

Effect of change on People:

− Physiological effect (e.g. pattern of shift working affect eating, walking and sleeping habits)
− Circumstantial effect (e.g. working environment and working relations)
− Psychological effect (e.g. feeling of disorientation, Insecurity, risk of rejection, feeling of misfit)
− Effect on Self concept (New psychological contract, Uncertainty affects sense of competence)

Changing culture:
Hamper Turner suggests 6 modes of intervention:
1. Find the dangers (locate black sheeps)
2. Brings conflicts in open.
3. Discuss culture with members (play out corporate drama)
4. Reinterpret the corporate myths.
5. Look at symbols, images, rituals.
6. Create a new learning system.

Pattern of unhealthy culture: (by Edwin Baker)

− Flourished initially by founder.
− Founder retired, employees become rigid and insular.
− Speed, innovation, flexibility, concern for survival and customer disappeared.
− Formalization
− Departmentalism/ Sub optimization
− Coercive actions needed to compete.

Organizational life cycle:

Handy’s sigmoid curve:
Application of concept of lifecycle to organization with 4 broad stages:
1. The organization is established.
2. Organization grows in size and scope.
3. Period of maturity

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4. Organization begins to decline.
Such a lifecycle is not inevitable, if organization is able to adapt.

Greiner’s growth model: (Growth & Organisational Development)

As an organization ages, it grows in size.
This growth takes place in 5 discrete phases.
Each phase has 2 characteristics i.e.
− Evolution (distinctive factor that directs growth) and  Growth (“Move” Stage)
− Revolution. (crisis to pass to enter next phase)  Crisis (“Unfreeze” Stage)

Phase 1: (Focus)
− Evolution (Small organization focusing on operations, personnel issues and innovation)
− Revolution (Need for leadership skills)

Phase 2: (Management/group)
− Evolution (Management is professionalized, there are more employees but less enthusiasm)
− Revolution (delegation is problem; lack of detailed control; no initiation)

Phase 3: (System)
− Evolution (decentralized decision making)
− Revolution (no coordination between departments, sub optimization occurs)

Phase 4: (Internal Controls)

− Evolution (Internal control systems and procedures are developed for coordination and optimal use of
− Revolution (new procedure inhibits useful actions)

Phase 5: (Communication / collaboration)

− Evolution (Increased informal collaboration; control is cultural rather than formal)
− Revolution (Crisis of psychological saturation in which individuals become exhausted by teamwork)

Criticism on lifecycle models:

 Formation could also be by Merger or Joint venture. i.e not always founded by visionary ppl.
 Too many issues for growth and control. (i.e org. structure, org. culture)
 Growth is not the same as effectiveness. (i.e not a normal state of affair)
 No idea of time scale involved in any stage. (i.e Linear development)
 Growth seen as linear development over time; there might be different rates of growth at
different times and even loss.
 Model does not clearly indicate relationship with environment. (i.e it ignores environment)
 Effect of competition in market is also ignored.

Measurement of Growth: (how Adamjee is the largest insurance co.)

 Sales revenue
 Profit (in absolute term or ROCE)
 No. of goods/services sold.
 No. of outlets
 No. of employees
 No. of countries reached.
 No. of markets served.

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Chapter 22 : The evolution of marketing
“the right product or service to the right customer, at the right price, at the right time and right place”
Marketing Department: Functions (Research, Demand, Design, Selling)
Marketing Environment: PESTEL (Political, Economical, Social, Technological, Ecological, Legal)

Chapter 1- Introduction

Marketing, :
Managerial definition: Managing profitable customer relationships, by delivering superior value to customers.
Social definition: “a social and managerial process by which individuals and groups obtain what they need and want
through creating and exchanging products and value with others.”

Core Marketing concepts:

A market is the set of actual and potential buyers of a product.

Needs, wants and demands:

Needs  are fulfilled : a state of felt deprivation.
Wants  are satisfied : the form taken by a human need as shaped by culture and individual personality.
Demands  are extinguished : Human wants that are backed by buying power.

Marketing Offer:
Combination of good-service offered to market to satisfy need or want.

Value and Satisfaction

Customer’s perceived value is the difference between the values that the customer gains from owning and using a
product and the costs of obtaining the product.
Satisfaction is whether performance meets or exceeds expectations.

Exchange, Transaction and relationship:

Exchange is an act of obtaining a desired object from someone by offering something in return.
Transaction is a trade of value between two parties.

Elements of Marketing:
Supplier Market Intermediaries End user
Customer’s life time value:
Value of entire stream of purchases by customer over his lifetime.

Customer Equity:
Total lifetime value of all of company’s customers.

Marketing Management:
Marketing management has four functions: Analysis, Planning, Implementation and control.
Demarketing’s aim is to reduce demand temporarily or permanently. It is done when product is not feasible from
supplier or customers’ point of view. i.e intentional and non-intentional reduction in demand.

Marketing Management Orientations

The production concept holds that consumers will favor products that are available and highly affordable and that
management should, therefore, focus on improving production and distribution efficiency.
The product concept states that consumers will favor products that offer the most quality, performance, and features,
and that the organization should, therefore, devote its energy to making continuous product improvements.
The selling concept is the idea that consumers will not buy enough of the organization’s products unless the
organization undertakes a large-scale selling and promotion effort.
The marketing concept holds that achieving organizational goals depends on determining the needs and wants of target
markets and delivering the desired satisfactions more effectively and efficiently than competitors do.

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The societal marketing concept holds that the organization should determine the needs, wants, and interests of target
markets. It should then deliver the desired satisfactions more effectively and efficiently than competitors in a way that
maintains or improves the consumer’s and the society’s well-being.


Production concept Availability and affordability Improve production, distribution
Product concept Quality, performance, features Continues product improvement
Selling concept No feelings to purchase Large scale selling, promotion
Marketing concept Needs & wants of target market Effective & efficient than competitor

Two Steps of marketing:

 Determine Need, Wants And Interest Of Target Market
 Then Satisfy Them Effectively And Efficiently

Marketing Vs. Selling:

Starting point Focus Means Ends
Selling concept Factory Existing products How to increase Profits through sales volume
Marketing concept Market Customer needs How to satisfy Profits through customer
demand satisfaction

Despite adoption of market oriented approach; there is need for sales force:
− To create awareness
− To convince to buy from company, not from competitors
− To reassess benefits to customers
− To convince that average customers’ requirements are met

Problems in introducing the marketing approach:

 Understand what marketing orientation actually means
 Organizational, structural and cultural changes are required.
 Assessment of Product, logistic, level of services and marketing techniques
 Organization wide dedication
 Working together as whole Types of Marketing

Strategic Marketing Tactical Marketing

Tied with corporate strategy Short term, and focuses

Scope of Marketing = Marketing Planning e.g which product of market to choose on place, promotion,
Marketing Vs. R&D department:
Marketing has commercial and competitive atmosphere whereas R&D has University atmosphere with open-end work
and consumption of substantial resources.
Customers’ needs and change in product specification tighten them.

Consumerism is a term describing importance and power of consumers.

Customer Database
Customer Relationship Management:
Customer Portfolio

Defined narrowly as a customer database management activity.

“CRM is managing detailed information about individual customers and carefully managing customer touch points to
maximize customer loyalty”.
Companies look for touch points. These includes customer purchases, sales force contact, service, and support calls,
Web site visits, satisfaction surveys, credit and payment interactions, market research studies, etc.
To be effective in CRM, the marketer must forego short-term profit maximization on individual transactions.

Elements of Marketing Mix: How to Get Customer Touch Points:

- Purchasing trend
Controllable: - Payment trend
− Product - Service obtaining trend
− Price - Family trend
− Place - History
− Promotion - Support calls
- Website visits
- Emotional attachments
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Uncontrollable: (Marketing environment)
− SLEPT Analysis
− Porter’s 5 forces model
i) Threat of new entrants
ii) Threat of substitutes
iii) Bargaining power of customers
iv) Bargaining power of suppliers
v) Rivalry among competitors

Service industry:
− People
− Processes
− Physical evidence

Important Points for discussion questions:

1. Expectation = Perceived value
2. Customers often do not judge product’s value and cost accurately and objectively.
3. A Customer buys the highest perceived value.
4. Satisfied customers give benefits of
i. Loyal
ii. Being less price sensitive
iii. Talk favorably
5. Two fold object of marketing
i. Retain existing customer by providing satisfaction
ii. Attract and grow new customers by promising superior value

Marketing Approaches

Push Approach Pull Approach

Focused on pushing goods to Focused on pulling resellers
Reseller and customer. The focus and customers by satisfying them,
Is on sale volumes. Fulfilling their demands to attract
Them to the company

Three Important Concepts:

Value-Chain : How activities of organisation contributes towards creating value in goods or services.
Internal Customer Concept: Department in an organisation treat each other as ‘customers’, it encourages service-
oriented attitude. Hence when every department is satisfied ultimately the
quality will be enhanced.
Relationship Marketing: To build long term relationship with existing customers, rather than focusing on products,
focus is on relationship i.e selling more products to same customer, rather than to new

Model of Consumer behavior:

A model of consumer behavior helps managers answer questions about what, where, how and how much, when and
why they buy.
The stimulus-response model of buyer behavior shows that marketing (made up of the four P’s—product, price, place,
and promotion) and other environmental stimuli (Micro and Macro) center on the consumer’s “black box” and
produce certain responses.
Marketers must figure out what is “in” the consumer’s “black box.”

Marketing and other environmental stimuli: (i.e Stimulus – response model)

Already discussed

Consumer’s Black box:

The “black box” has two parts.
1). The buyer’s characteristics influence how he or she perceive and react to
stimuli. (Uncontrollable)
2). The buyer’s decision process itself affects the buyer’s behavior. (Semi-controllable)

Characteristics affecting consumer behavior:

Marketer can not control them but should learn them.

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• Cultural
o Culture
o Subculture
o Social class
• Social
o Reference group
o Family
o Roles and status
• Personal
o Age and lifecycle stage
o Occupation
o Economic situation
o Lifestyle
o Personality and self concept
• Psychological
o Motivation
o Perception
o Learning
o Beliefs and attitudes

Culture is the set of basic values, perceptions, wants, and behaviors learned by a member of society from family and
other important institutions.
Subculture is a group of people with shared value systems based on common life experiences and situations.
Subcultures might be nationality groups, religious groups, racial groups, or geographic area groups.
Social classes are society’s relatively permanent and ordered divisions whose members share similar values, interests
and behaviors.
Reference group has a direct (face to face) or indirect points of comparison or reference in forming a person’s attitudes
or behavior.
Aspirational group is one to which an individual wishes to belong.
Opinion leader is a person within a reference group who, because of special skills, knowledge, personality or other
characteristics, exerts influence on others.
Personality is a person’s unique psychological characteristics that lead to relatively consistent and lasting responses to
his or her own environment.
A motive (drive) is a need that is sufficiently pressing to direct the person to seek satisfaction.
Perception is the process by which people select, organize, and interpret information to form a meaningful picture of
the world.
Learning is changes in an individual’s behavior arising from experience.
Belief is a descriptive thought that a person holds about something.
Attitude is a person’s consistently favorable or unfavorable evaluations, feelings, and tendencies toward an object or

Purchase Decision Process

i) Problem Recognition:
Perceiving a need.
It can be stimulated by:
• Consumer’s depleted assortment (e.g. empty paste) or
• Marketing efforts

ii) Information Search:

To clarify options available to consumers.
o Internal search: Scanning of memory (experience) or knowledge about solution of problem/need sufficient
For frequent/regular purchases.
o External search:
 Personal sources (family, friends, neighbors, acquaintances)
 Commercial sources (advertisement, dealers, websites, salesmen)
 Public sources ( Mass media, consumer rating organizations)
For new products.
“Word of Mouth” or “Personal sources” has 2 major advantages (through satisfied customers):
1. Convincing, i.e. of consumers by consumers for consumers
2. Costs are low.
At the end of this stage, customer arrives at a set of final brand choices.

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iii) Evaluation of alternatives:
Assessing value.
Customer may be interested in many attributes. E.g. for Camera
• Picture tube
• Ease of use
• Size
• Price
However sometimes consumer has to base his decision only on one attribute.

iv) Purchase Decision: [The best rated camera will be bought.]

v) Post-Purchase behavior:
• Dissatisfied
• Satisfied
• Delighted
A policy by firms is to understate performance because customers are delighted with better-than-expected performance.

Why satisfaction of Customer/study of this stage is important:

1. To attract new customers cost more than to retain current customers.
2. Satisfied customers are less price sensitive.
3. Satisfied customers tell others (words of mouth). Bad words travel farther and faster.

Decision process for new product i.e. stages in adoption process (from hearing to adoption):
1. Awareness:
2. Interests: seek information i.e. through external sources
3. Evaluation: whether to try or not
4. Trial: on small scale to improve estimate of value
5. Adoption: decides to make full and regular use

Chapter 2 Company and marketing strategy

Strategic Planning Process:

“Strategic Planning is the process of developing and maintaining a strategic fit between organization’s goals and
capabilities and its changing marketing environment.
Following are steps of strategic planning:
1. Defining mission
2. Analysis of Business Portfolio
3. Setting strategic objectives and goals
4. Developing Competitive strategies
i. Porter’s 5 forces
ii. Cost-Differentiation-Focus Triangle
iii. Growth Strategies (product/market expansion grid)
5. Developing detailed marketing and departmental plans and strategies

Mission Statement:
This is a statement of organization’s purposes- What it wants to accomplish in the larger environment.
It should be market oriented, specific, realistic, motivating and consistent with market environment.
e.g. “To provide best satisfaction to customers and fair return on investment, keeping environment healthy and clean
and promising secure future to employees”

Designing the business portfolio:

Business portfolio is the collection of businesses and products that make up the company.
Business portfolio planning involves 2 steps:
1. Analysis of current business portfolio.
2. Developing strategies

1. Portfolio Analysis:
A tool by which management identifies and evaluates SBUs to determine which business should receive more, less or
no investment.

BCG growth-share matrix is used to evaluate a company’s SBUs in terms of market growth rate and relative market

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SBU is a unit of company that has a separate mission and objectives and that can be planned independently from other
company businesses.

2.Developing strategies for growth and downsizing:

The product/market expansion grid is a portfolio-planning tool for identifying company growth opportunities through:

Existing Product New Product

Existing Market Market Penetration Product Development

New Market Market Development Diversification

When a firm reduces business portfolio by eliminating products or business that is not profitable or no longer fit its
overall strategy..

Setting strategic objectives and goals:

Firm’s mission is translated into set of objectives for the current period for each SBU.

Developing plans and strategies

Marketing Process:
The marketing process is the process of
1. segmenting the market,
2. selecting target markets,
3. marketing positioning
4. developing the marketing mix, and
5. managing the marketing effort.

Marketing mix:
The marketing mix is the set of controllable factors that the firm blends to produce the response it wants in the target
market. i.e. Product, Price, Place, Promotion

Managing the Marketing Effort:

Marketing Management has four functions of analysis, planning, implementation, and control..
1. Marketing Analysis
o Analysis of company’s Strength and Weakness [Internal]
o Analysis of environment’s Opportunities and Threats. [External]
2. Marketing Planning involves deciding on marketing strategies to attain its overall strategic objectives of company.
3. Marketing Implementation is the process that turns marketing strategies and plan into marketing actions in order to
accomplish strategic marketing objectives. Implementation addresses the who, where, when, and how.
4. Marketing control is the process of evaluating the results of marketing planning and its implementation, and taking
corrective action to ensure that marketing objectives are attained.
Two broad forms of control are important:
1). Operating control involves checking ongoing performance against the annual plan and taking corrective
action when necessary.
2). Strategic control involves looking at whether the company’s basic strategies are well matched to its
opportunities. The major tool for accomplishing this form of control is the marketing audit.
The marketing audit is a systematic analysis and evaluation of organization’s marketing position and performance. It
may cover all marketing activities or some of them.
Audit will focus on 3 things:
1. Marketing capabilities
2. Performance evaluation (are sales meeting forecasts?)
3. Competitive effectiveness (competitive advantage, product differentiation)

Partnership relationship management:

“Working closely and jointly with
 Other departments of company
 Other companies
to bring greater value”.

Value Chain and Value delivery network:

Value Chain is series of departments within the company carrying out value-adding activities e.g.

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 Designing
 Producing
 Marketing
 Delivery
 Supporting
Value delivery network is network of suppliers, company, intermediaries, and consumers who partner with each other
to improve performance of entire system.

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Chapter 23 : Strategic Marketing & Planning
1. Market Segmentation

Market segmentation is dividing a market into smaller group of distinct buyers who have different needs,
characteristics or behavior and might require different marketing mixes.
Market segment is a group of buyers who respond in a similar way to a given set of marketing mix.

Basis of segmenting markets:

Segmenting consumer market

Geographic segmentation calls for dividing the market into different geographical units such as states, regions,
counties, cities, or neighborhoods.

Demographic segmentation calls for dividing the market into groups based on variables like age, gender, family size,
family life cycle, income, occupation, education, religion, race, generation, and nationality.

Psychographic segmentation calls for dividing a market into different groups based on social class, lifestyle, or
personality characteristics.

There are four possible lifestyle categories:

1. Upward mobile, ambitious
i. Seek better or more affluent lifestyle
ii. Higher standard of living
iii. Will try new products
2. Traditional and sociable
i. Compliant and conform to group norms
ii. Purchasing pattern will be ‘conformist’
3. Security and Status seeking
i. Stresses security and ego-defensive needs
ii. Purchase of known and established products and brands e.g. Insurance
4. Hedonistic preference
i. Emphasis on “enjoying life now”
ii. Immediate satisfaction of needs and wants

Behavioral segmentation involves dividing a market into groups based on consumer knowledge, attitudes, uses, or
responses to a product. E.g.
• Occasion segmentation: dividing market according into groups according to occasions when buyers get the
idea to buy, actually make their purchase, or use purchased item.
• Benefit sought: Dividing market into groups according to different benefits that consumers seek from the
product. Consumers seek unique combination of benefits e.g. for a laundry detergent, from cleaning and
bleaching to economy, fresh smell, strength or mildness etc.
• User status and user rate
• Loyalty status

Segmenting Business Markets

Demographic segmentation
 Industry (which industry)
 Company size (what size)
 Location

Operating variables
 Technology (what technology to focus)
 User- nonuser status (heavy, medium or light user)
 Customer capabilities (many services or few services)

Purchasing approaches
 Purchasing function organization (centralized or decentralized)
 Power structure

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 Nature of existing relationship
 General purchasing policies (leasing, service contracts, or sealed bidding)
 Purchasing criteria (quality, service or price)

Situational factors
 Urgency (quick delivery/service?)
 Specific application
 Size of order

Personal characteristics
 Buyer-seller similarity of values
 Attitude towards risk (risk taking or averse)
 Loyalty (to companies who show high loyalty to suppliers)

Segmenting International Markets

Companies can segment international markets using one or more of a combination of variables. The chief factors that
can be used are:
1). Geographic location: location or region
2). Economic factors: Population income or level of economic development
3). Political and legal factors: Type / stability of government, monetary regulations, amount of bureaucracy, etc.
4). Cultural factors: Language, religion, values, attitudes, customs, behavioral patterns.

Requirements for Effective Segmentation

Substantial—segment must be substantially large or profitable.

Accessible—segment must be reached and served easily.
Differentiable—It must be conceptually distinguished and should have the ability to respond differently to different
marketing mix elements and programs.
Actionable—It should be possible to design effective programs for attracting and serving market segment.
Measurable—Size, purchasing power, and profiles of a market segment should be measurable.

2. Target Marketing
Target market is a set of buyers sharing common needs or characteristics that the company decides to serve.

Target marketing strategies: (Product affecting Promotion)

The firm can adopt one of four target marketing strategies:
A. Undifferentiated marketing (or mass marketing) a market-coverage strategy in which a firm decides to ignore
market segment differences and go after the whole market with one offer
B. Differentiated marketing (or segmented marketing) a market-coverage strategy in which a firm decides to target
several market segments and designs a separate offer for each.
C. Concentrated marketing (or niche marketing) a market-coverage strategy in which a firm goes after a large
share of one or a few segments or niches.
D. Micromarketing is the practice of tailoring products and marketing programs to suit the tastes of specific
individuals (individual marketing) and local customer groups (Local marketing).

Market offers can be differentiated along the lines of:

 Product
 Service
 Channels
 People
 Image

Considerations while choosing strategy:

 Company, resources and objectives
 Competitor, strategies
 Product
o stage in the life cycle
o variability
 Market, variability

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Evaluating Market Segments
 Segment size and growth
 Segment structural attractiveness
 Level of competition
 Substitute products
 Power of buyers
 Power of suppliers
 Company objectives and resources

3. Product Positioning
Product positioning is imaging the product in the minds of consumers relative to competing products.
Positioning task (or choosing a positioning strategy) consists of following four steps:
1. Identifying possible competitive advantages
2. Choosing right competitive advantages
3. Selecting an overall positioning strategy
4. Developing a positioning statement

1) Identifying possible competitive advantages:

Competitive advantage (making a difference) is an advantage over competitors gained by offering consumers greater
value, either through lower prices or by providing more benefits that justify higher prices.

2) Choosing the right competitive advantages:

How many to promote:
Only one difference. Aggressive approach
More than one differences. Where more than one firms are claiming to be the best at same attribute. However it risks
disbelief and a loss of clear positioning.
Which ones to promote:
 Important for buyers
 Distinctive than competitors offer
 Superior
 Communicable and visible difference
 Competitors can not copy easily
 Affordable for buyers
 Profitable for company

3) Selecting an overall competitive positioning strategy:

What offer to make in relation to competitor’s offer (Use 2x2 or 3x3 Grid)
More Same Less
More Premium brand Super bargain brand
Same Average Bargain brand
Less Cow bow brand Economy brand


Other strategies are:

− More for same (Penetration)
− Same for less
− Less for much less

4) Developing positioning statement:

Positioning statement is a statement that summarizes company or brand positioning, it takes following form:
“To (target segment and need) our (brand) is (concept) that (point of difference)”
“To young, active, soft-drink consumers who have little time for sleep, Mountain Dew is the soft drink that gives you
more energy than any other brand because it has the highest level of caffeine”.

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Chapter 24 : Marketing Research
Marketing Research

Marketing Research:
“It is the objective gathering, recording, and analyzing of all facts about problems relating to the transfer and sales of
goods and services from producer to consumer or user”

Marketing research helps in

a. Regulating systems
b. Reducing risks
c. Decision making

Types of Marketing Research:

Market research:
Study and analysis of
− Characteristics of market
− Market share
− Market trends
− Sales forecasting for all products
− Market potential for existing products
− Likely demand for new products

Product research:
− Comparative study between competitive products
− Studies into packaging and design
− Forecasting new uses for existing products
− Customer acceptance of proposed new products
− Development of new product lines
− Test marketing

Price research:
− Analysis of elasticity of demand
− Analysis of cost and profit margins
− Effect of change in credit policy on demand
− Customers’ perception of price and quality

Place (Distribution) research:

− The location and design of distribution centers
− Analyzing the packaging for transportation and shelving
− Cost of different methods of transportation and warehousing
− Dealer supply requirements
− Dealer advertisement requirements
Promotion research:
− Analyzing the effectiveness of sales force
− Analyzing the effectiveness of advertising on sales demand
− Establishing sales territories

Research procedure:
The marketing research process consists of following steps:
1. Defining the problem
2. Designing the research (basis of research objectives)
3. Collection of data
4. Analysis of data (Pre and Post testing etc)
5. Presentation of report
6. Management decision

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Defining the problem and designing the research
After the problem has been defined carefully, the manager and researcher must set the research objectives.

Collection of data (Research work)

Marketing Research data comprises of
 Primary Data (Field search)
 Secondary Data (Desk Search)
Researchers usually start from secondary data.

1. Collecting secondary data: (Desk research)

Secondary data collection is information that is neither direct nor specific.

Sources of secondary data:

Internal databases: (i.e. MkIS)

Advantages Disadvantages
Quick access Incomplete
Cheaper Wrong form
Regular & Reliable Ages quickly
Confidentiality Not expert

External sources:
 Information about Competitors (annual reports, press releases, web pages, business
publications, advertisements etc.)
 Analyzing competing products
 Rival companies’ personnel (executives, engineers, sales force, purchasing agents)
 Trade suppliers
 Outside suppliers
 Online databases
 New patents or applications for patents

2. Collecting primary data:( Field research)

Primary data is information collected for the specific purpose at hand.

A plan for primary data collection calls for a number of decisions on

• Research approaches,
 Observational research
 Survey research
 Experimental research
• Research methods
 EPOS (Electronic Point of Sale system)
 DSS (Decision Support system)
 Data Warehousing
 Internet
• Contact methods,
 Mail questionnaires
 Telephone interviewing
 Personal interviewing
• Individual interviews
• Group interviews (including focus-group interviews)
 Online (Internet) marketing research
 Mechanical instruments
i. People meters
ii. Supermarket scanners

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iii. A galvanometer measures strength of interest or emotions aroused by a subject’s
exposure to different stimuli, such as an ad or picture.
iv. Eye cameras are used to study respondents’ eye movements to determine at what points
their eyes focus first and how long they linger on a given item.
• Sampling plans
 As surveying the whole population would be too expensive & time consuming, so a sample is selected.
 Sample is a segment of population selected for marketing research to represent population as a whole.
 Sample should be a true representative of population and should not be biased

Types of samples:

Random sampling:
Every member has a known and equal chance of selection)
Non-random sampling:
1. Systematic (Every nth item is selected)
2. Stratified (Population is divided into mutually exclusive groups e.g. age groups and selecting random samples
from each group.
3. Multistage (Process of subdividing population and selecting sample again and again till a suitable selection is
4. Quota (Different categories of populations are made and a specific quota from each category is selected)
5. Cluster (Investigators are told to examine every item in a small population that fits the required definition)

Potential faults in sampling:

− Insufficient data
− Unrepresentative data
− Bias (where chance of occurrence is not equal)
− Omission of an important item in questionnaire
− Carelessness
− Misinterpretation of data

3—Implementing the Research Plan

This involves processing, and analyzing the information.

4—Interpreting and Reporting the Findings

Distributing the information:

“Marketing Information System represent a systematic attempt to supply continuous, useful, usable marketing
information within an organization to decision makers often in the form of a database”.

Trade audits: count of stock at wholesalers and retailers
Retail audits: count of stock at retailers only

Marketing in the Digital age

E.Business is the all electronic based information exchange within company or between companies and consumers
using following platforms:
 Intranet
 Extranet
 Internet
Intranet is a network that connects people within a company to each other and to the company network.
Extranet connects a company with its suppliers, distributors, and other outside partners.
Internet is a vast public web of computer networks, which connects users of all types all around the world to each
E.Commerce is more specific than E.Business. It is the ability to buy and sell goods and services electronically
primarily by internet.
E. Marketing is the marketing side of E.Commerce. Company efforts to communicate about, promote and sell
products and services over internet. It includes only Business and Consumers.


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 Geographical reach
 Speed
 Information sharing of any kind e.g. text, audio, video, animation, graphics
 Shopping at home (Consumer)
 No physical barriers (Consumer)
 Doing business 24 hours (Business)
 Paperless business (Business)

 Security concerns (consumer)
 Whom to complaint (consumer)
 What you see is sometimes not what you get (consumer)
 Sometimes physical presence is necessary e.g. smelling a perfume or fitting clothes (consumers)
 Logistic, shipping, distribution and delivery challenges (business)
 Availability of secure and affordable communication network

E.Business Models:
Government Business Consumer Employee

Government G2G G2B G2C G2E

Business B2G B2B B2C B2E

Consumer C2G C2B C2C X

B2C E.Commerce occurs when an average citizen interacts with a company (like Bata Pakistan or amazon.com)
through a website to buy shoes or books online or making inquiries.

B2B E.Commerce is companies doing business electronically with other businesses e.g. a business selling up, down or
across the supply chain involving business partners. Such as All Pakistan Textile Association Mills

B2E E.Commerce is use of intranet technology to handle activities that take place within a business. Using B2E
E.Commerce employees collaborate with each other, exchange data and information and access in-house database,
sales information, market news and competitive analysis.
Its need arises when branching out and spreading business across geographical areas. E.g. H/O receiving and
processing Timesheets, Expense Claims, and Absent forms.

C2C E.Commerce is consumers selling goods directly to consumers in an auction process. E.g.
 EBay
 Chat rooms for information and advertisement
 Over personal websites
 Advertisement on E.news papers

G2C E.Commerce is the use of E.Commerce technology by the government to handle activities electronically in
which govt. is involved with. E.g.
 To publish and disseminate information by Govt.
 Change in address, marital or family status
 Submission of tax returns
 To cast vote

Customization and Customerization:

Customization is individualizing the marketing offer. E.g. taking measurement of jeans for a customer.
Customerization is leaving it to individual customers to design the marketing offer, allowing customers to be
prosumers rather than consumers. E.g. adding specific features to jeans like colorful patches.

New technology in Distribution:

− Internet (B2C)
o Websites
o Email

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Chapter 25 : Product

A product is anything that can be offered to a market for use, or consumption and that might satisfy a want or need
such as soap.
Product includes:
 Goods
 Services
 Other entities e.g. People, idea, places, organizations

Services are a form of product that consist of activities, benefits offered for sale that are essentially intangible and do
not result in the ownership of anything. such as a doctor’s exam.

Levels of Products and services:

The core product, What is the buyer really buying?

The actual product may have as many as five characteristics that combine to deliver core product benefits. They are:
 Quality level..
 Features
 Style and design.
 A brand name.
 Packaging.
The augmented product includes any additional consumer services and benefits built around the core and actual
b. Delivery and credit
c. Warranty
d. Installation
e. After sale service

Classification of products:
1. Consumer Products
i. Convenience
ii. Shopping
iii. Specialty
iv. Unsought

Types of consumer products

Marketing Convenience Shopping Specialty Unsought

Consumer buying Frequent purchase Less frequent Special effort Either no awareness
behavior Little planning purchase Little comparison or no interest
Little effort and involvement Much planning Strong brand loyalty
Little comparison Much effort & Low price sensitivity
Much comparison
Price Low Higher Very high Varies
Place Intensive distribution at Selective distribution in Exclusive distribution in only Varies
convenient locations fewer outlets one or few outlets per market
Promotion Mass promotion Advertising and Targeted promotion by Aggressive
personal selling producer and reseller advertising and
personal selling
Examples Tooth pastes Televisions Luxury goods e.g. Rolex Life insurance
Magazines Furniture watches Red cross blood
Clothing donation

2. Industrial (Business) Products,:

i. Material and parts
ii. Capital items
iii. Supplies and Services

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Key Decisions about product:

• Individual product
o Standardized or adapted Market offers can be differentiated along the lines of:
 Product
 Service
 Channels
 People
 Image
o Product attributes
 Tangible
• Quality
• Features
• Style and design
• Brand name
• Packaging
 Intangible
• Image
• Perceived value
o Packaging & Labeling
o Product support service
• Product Line Decisions
o Product line length
• Product Mix/Assortment/Portfolio Decisions
o Width (No. of product lines of a company)
o Depth (No. of items per product line)
o Consistency (how closely related the various product lines are in end use, production requirements,
distribution channels, or in some other way.

A brand is a name, sign, symbol, or design, or a combination of those that identifies the maker or seller of a product or
Packaging is the activity of designing and producing the container or wrapper for a product.
Labeling is also part of packaging and consists of printed information appearing on or with the package
Product support services are the services that augment actual products.

A product line is a group of products that are closely related because they function in a similar manner, are sold to the
same customer group, are marketed through the same types of outlets, or fall within given price ranges.
Product line length is the number of items in the product line. Long/short depends on increase of profit by
adding/deleting items.
An organization with several product lines has a product mix.

Product-Market Matrices:
It is a simple technique used to classify a Product/Business according to the features of the product and market to
determine the
− Relative positions of Businesses/Products and
− Strategies for resources allocation between them.
There are 2 commonly used techniques:
1. Boston Consulting Group’s Growth-Share Matrix
2. General Electric Business Screen (GEBS)
1) BCG growth-share matrix is used to evaluate a company’s SBUs/Product in terms of market growth rate and
relative market share.

Star Question Mark

Needs heavy investment to Requires a lot of cash
Growth rate (%age) finance rapid growth potential (Problem Child)
market share Cash Cow Dog
Established, successful Enough to maintain themselves
Needs less investment No future

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After determination of position of a SBU in BCG matrix, following strategies are available:
• Build
• Hold
• Harvest
• Divest
The BCG and other formal methods revolutionized strategic planning. Such approaches, however, have limitations:
1). They can be difficult.
2). They can be time consuming.
3). They can be costly to implement.
4). Management may find it difficult to define SBUs and measure market share
and growth.
5). The approaches focus on classifying current businesses but provide little
advice for future planning.
SBU is a unit of company that has a separate mission and objectives and that can be planned independently from other
company businesses.

2) General Electric Business Screen (GEBS):

This approach is like BCG matrix but includes a broader range of company and market factors.
Matrix classifies products according to:
 Industry attractiveness (market size, market growth, competitive climate, stability of demand, ease of
market entry, industry capacity, level of investment, nature of regulation, profitability)
 Company strength (market share, company image, production capacity, production costs, financial
strengths, product quality, distribution systems, control over prices/margins, benefits of patent
Classification is highly subjective assessment. Strategy for an individual SBU/Product is then suggested on the basis of
the position of the matrix.

Market attractiveness
Attractive Average Unattractive
Invest for growth Invest selectively for Develop for income
Strong growth
Strength Average Invest selectively Develop selectively Harvest or Divest
and build for income
Weak Develop selectively; Harvest Divest
build on strength
Nature and
Characteristics of a Service
1). Service intangibility (cannot be touched)
2). Service inseparability (from provider)
3). Service variability (standard will vary each time)
4). Service perishability (cannot be stored)
5). Service ownership (not transferred to service taker)

Marketing mix of services:

Along with 4 normal Ps, 4 extra Ps are also required i.e.
1. Personal selling (greater reassurance, information and reliance required)
2. Process
3. People (sometimes people and services are inseparable; first line importance)
4. Physical evidence ( remedy for intangibility)

Service Profit Chain:

“Profit of service firm is linked with satisfaction of employees and customers”
i. Internal service quality
ii. Satisfied and productive service employees
iii. Greater service value
iv. Satisfied and loyal customers
v. Healthy service profits and growth
It requires more than just traditional external marketing:
 External marketing (B2C)
 Internal marketing (B2E)
 Interactive marketing (E2C)

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Product Development: (New Product)

What is a new product:

− That opens up an entirely new market
− That replaces an existing product
− That broadens the market of an existing product.

When an old product can be new:

− Introduced into a new market
− Packaged in different way
− Different marketing approach is used
− Mix variable is changed.

Degree of newness:
− Unquestionably new product
− Partially new product
− Major product change
− Minor product change

Sources for new products:

− Licensing
− Internal product development
− Customers
− External innovators
− Competition
− Acquisition
− Academic institutions
− Patent agents

Why so many new products fail:

1). Overestimated market size.
2). Poorly designed product.
3). Poorly priced, placed, promoted or positioned.
4). Result based on poor market research findings.
5). The costs of producing the product may have been higher than expected.
6). Sometimes competitors fight back harder than expected.

5 product characteristics affecting rate of adoption for new product:

• Relative advantage i.e. new technology making it superior
• Compatible with values and experience of potential consumers
• Ease of understand and use
• Trial option
• Communicability of results of using product.

Product Development Process

1. Idea generation
which is the systematic search for new product ideas rather than haphazard?
a. Internal sources (R&D)
b. External sources (customers, competitors, distributors, suppliers)
2. Idea screening
Evaluation against criteria to spot good ideas and drop poor
3. Concept development and testing
Product concept is a detailed version of the new-product idea stated in meaningful consumer terms.
Concept testing involves testing the concepts with a group of target consumers to find out if the concepts have
strong consumer appeal.
4. Marketing strategy development
A marketing strategy statement should be produced. This is a statement of the planned strategy for a new product
that outlines the target market, positioning, market mix and market share, long term sales, profit goals and
marketing budget for the first few years.
5. Business analysis
Review of the sales, costs, and profit projections for a new product to find out whether these factors satisfy the
company’s objectives

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6. Product development
Developing the product concept into a physical product in order to ensure that the product idea can be turned into
a workable product
7. Test marketing
The basic purpose is to test the product itself in real markets.
8. Commercialization
Introducing a new product into the market.

Stages of Product Life Cycle (PLC)

1. Introduction
2. Growth
3. Maturity
4. Decline
Exceptions are Fad, Style, and Fashions.
Strategies change with change in stage of PLC.

Product life cycle- Characteristics, objectives and strategies: [very nice table]

Introduction Growth Maturity Decline

Sales Low Rapidly rising Peak sales Declining sales
Cost High per customer Average cost per Low cost per Low cost per
customer customer customer
Profit Negative Rising High profit Declining profit
Customers Innovators Early adopters Middle majority Laggards
Competitors Few Growing Stable number Declining number
beginning to decline
Marketing objectives Create product Maximize market Maximize profit Reduce expenditure
awareness and trial share defending market and milk the brand
Product Offer Basic product Offer product Diversify brand and Phase out weak items
extensions, service, model or Repositioning
Price Use cost-plus Price to Price to match or Cut price
penetrate/skim beat competitors
Place Selective distribution Intensive distribution More intensive Go selective; phase
distribution out unprofitable
Promotion Use heavy sales Reduce to take Increase to Reduce to minimal
promotion advantage of heavy encourage brand level
demand switching
Targeting Early adopters (build Mass market (build Stress brand Reduce to level
awareness) awareness) differences and needed to retain core-
benefits loyals

Assessment of PLC:
 Regular review of existing products
 Analysis of past trends
 History of other products
 Market research
 Analysis of competitors
 Estimate of future life and profitability should be discussed with experts
 R&D Deptt. ----------------------Product life
 Marketing staff-------------------Price and demand
 Management accountant------- Cost
 Decide to continue, stop or change strategy.

Criticism on PLC approach:

− Relevant only for products where consumer demand is high
− Underlying stage of PLC is determined by marketing actions.
− Stages can not be easily defined.
− “S” shape does not always occur in PLC

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− Strategic decisions can change PLC


Functions of packaging:
− Protection
− Quality standard (e.g. expiry)
− Distribution
− Selling (Advertising, attractive, motivating,)
− User convenience (value depicting)
− Conforms to govt. regulations (e.g. ingredients, price, expiry etc.)
Usually goods are packaged in more than one layer.

Qualities required of a packing:

− Size and variety should be minimized.
− Attractive and distinctive to target consumer.
− All functions of packing are also required.
− Cost effective
− Fitting for storage purposes

Product Portfolio Planning

All product lines and items that company offer for sale [Overall product range of organization]
− Width (No of product lines carried by Company)
− Depth (No of items carried divided by No of product lines)
− Consistency (closeness of items in range in terms of marketing/production characteristics)

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Chapter 26 : Price


“Price is the sum of the values that consumer exchange for the benefits of having or using the product.
• Only element to produce revenues
• Most flexible element
• Could be Fixed or Dynamic

Price Setting
• Cost
• Competition
• Demand (Elastic / Inelastic)

Common Pricing Mistakes

1). Pricing is too cost-oriented.
2). Prices are not revised often enough to reflect market changes.
3). Prices do not take into account the other elements of the marketing mix.
4). Prices are not varied for different products, market segments, and purchase occasions.

Internal Factors Affecting Pricing Decisions

1. Marketing objectives
2. Marketing mix strategies
3. Costs
4. Organizational considerations

1. Marketing objectives:
• Survival
• Current profit maximization
• Market share leadership
• Product quality leadership
• Other objectives
 To prevent competitors
 To keep loyalty and support of reseller
 To avoid govt. intervention
 To create excitement or draw attention of new customers
 To help the sale of other product in product line

2. Marketing mix strategy:

Price decisions must be coordinated with product design, place, and promotion decisions to form a consistent and
effective marketing program.
Companies often make their pricing decisions first and then base other marketing-mix decisions on the prices that they
want to charge.
Target costing is positioning of product on price and then tailoring other marketing decisions to the price they want to
But remember that consumers rarely buy on price alone.

3. Costs
Set the floor for the price that the company can charge. (price below this is not acceptable)
Companies want to charge a price that covers all its costs for producing, distributing, and selling the product, and
provides a fair rate of return for its effort and risk.
To price wisely, management needs to know how its costs vary with levels of production.
The experience curve (or the learning curve) indicates that average cost drops with accumulated production

4. Organizational considerations.
Management must decide within the organization who should set prices.
 Small companies: CEO or top management
 Large companies: Divisional or product line managers
 Some companies have pricing departments

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External Factors Affecting Pricing Decisions
1) Nature of market and demand
2) Competitors’ costs, prices, and offers
3) Other environmental elements

1) Nature of market and demand

Pure competition No single buyer or seller has much effect on the going market price.
Monopolistic competition Market consists of many buyers and sellers who trade over a range of prices because they
can differentiate their products.
Oligopolistic competition Market consists of a few sellers who are highly sensitive to each other’s pricing and
marketing strategies.
Pure monopoly Monopolists do not always charge a full price because:
1]. They do not want to attract competition.
2]. They want to penetrate the market faster.
3]. They fear government regulation.
Price-demand relationship
 Demand curve
 Price elasticity of demand
Factors affecting Demand / Price elasticity of demand/ Consumer choice
 Price
 Price of substitute and complementary goods
 Consumer income
 Taste and fashion
 Advertisement and Training
 After sale services and grant of credit

2) Competitors’ costs, prices, and offers

3) Other environmental elements

a). Economic conditions (such as boom or recession, inflation, or interest rates).
b). Reseller’s policies (reactions) must be considered especially if they do not match the supplier’s.
c). The government (because of its regulatory power) must be considered.
d). Social concerns may affect the firm’s short-term sales, market share, and profit goals.

General Pricing Approaches/Methods

Price will be set between 2 extremes.
 Roof / Ceiling i.e. Customer’s value
 Floor i.e. Cost
Price will be set between these 2 levels after consideration of
• Competitors’ prices and
• Other internal and external factors

 Cost based pricing
 Cost plus pricing
 Break even or target profit pricing
 Customer value based pricing (i.e. demand based )
 Competitive based pricing
 Going rate pricing
 Sealed bid pricing

Why Cost based pricing is popular

1. Sellers are more certain about cost than demand
2. Price is simplified being tied to cost.
3. Fairer to both buyer and seller
4. Price competition is minimized

New-Product Pricing Strategies

• Market-Skimming Pricing
 “Setting a high price for a new product to skim maximum revenues layer by layer from segments
willing to pay the high price”.

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 Product image must support price
 Competitors must not be able to enter the market
 Prices are lowered when demand falls

• Market-Penetration Pricing
 “Setting a low price for a new product to attract a large number of buyers and a large market
 High volume reduces cost
 Spare resources are utilized
 Eliminates competition
 May promote related products.

Product Mix Pricing Strategies

• Product Line Pricing

 Setting price steps between product line items.
 Kodak prices different types of films at different level.
• Optional-Product Pricing
 Pricing optional or accessory products sold with the main product
 Car buyer may choose to order power windows, cruise control, and a CD changer.
• Captive- product pricing.
 Setting a price for products that must be used along with a main product.
 Examples of captive products are blade with razors, game cassettes with system.
• By-Product Pricing
 Pricing low-value by-products to get rid of them
• Product Bundle Pricing
 Pricing bundles of products sold together
 Theater and support teams sell season tickets.

Price adjustment strategies:

“To account for various customer differences and situation differences”
Discount and allowance pricing Reduction in price to reward customer response for paying or promoting product.
Segmented pricing Adjusting prices to allow for differences in customers, products, or locations.
Psychological pricing Seller considers the psychology of prices and not simply the economics e.g. consumers usually
perceive higher priced products as having higher quality in the absence of past experience
or information.
Promotional pricing Temporarily reducing pricing to promote short term sales.
Geographical pricing Adjusting prices to account for the geographic location of customers.
International pricing Adjusting prices for international markets.

Assessing and responding to competitor’s price changes

Has competitor cut prices?

Hold current Y
price and Will lower price negatively affect our market share and profit?
continue to N
monitor Can/Should affective action be taken?
competitor’s Y
prices N Reduce price
Raise perceived quality
Improve quality and reduce price
Launch low-price “fighting brand”

Some other concepts that could not be covered here in Details

• Price Leadership
• Price elasticity of demand
• Absorption & Marginal Costing and breakeven analysis

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Chapter 27 : Place
Place / Distribution Channels / Delivery System
Place is selection of distribution channels to deliver goods to consumers.

Key issues in Distribution Channel::

− Coverage and density (Exclusive, Selective, Intensive)
− Channel length (no. of intermediaries between consumer and producer)
− Power and alignment of different elements
− Logistic and physical distribution
− Support and after sale service
− Channel design decision (Customer, Product characteristics, Distributor characteristics, Channel
choosed by competitors, Supplier’s own characteristics)

Nature and Importance and Functions of Marketing Channels:

Marketing Channel (distribution channel) is a set of interdependent organizations (intermediaries) involved in the
process of making a product or service available for use or consumption by consumer or business user. Each
organization performs a specialized and specified role.

Importance includes:
1. Channel decisions affect other marketing decisions
2. Competitive advantage could be gained.
3. Involves long term commitments to other firms
4. Channel members add value through
a. Their contacts, experience, specialization and scale (economies) of operation.
b. Matching supply and demand
c. Bridging Time, Place and Possession gap

Functions performed by members of marketing channel:

Functions that help to complete transactions:

1. Information (Marketing research and intelligence information)
2. Promotion (Developing and spreading persuasive communication)
3. Reselling (Finding and communicating with prospective buyers)
4. Matching (shaping and fitting to the buyers’ needs e.g. assembling, packing)
5. Negotiation

Functions that help to fulfill the completed transactions:

6. Physical distribution (Transportation, storing and Inventory management)
7. Financing (Acquiring and using funds)
8. Risk taking (Assuming the risk of carrying out the channel work)
“You can eliminate middle man, but not middle man’s functions”

Types of Distribution channels:

Direct distribution channel has no intermediary.

− Intermediaries don’t get their share.
− Intermediaries don’t get dominant
− Own sales force is best for geographically centered buyers.

Indirect distribution channel has one or more intermediaries.

− Where resources are insufficient to finance large sales force.
− Where no local knowledge of market
− Suitable for geographically spread buyers.

Types of Distributors:

a) Franchisees:

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“Trade in name of parent in exchange of initial fee + share of sales volume”

b) Distributors/Dealers:
“Buy and resell at profit”
− Dealing in narrow range of products;
− Sometimes exclusive distribution or dealing only one manufacturer;
− Also provide after sale services.

c) Agents: (vs. Dealers)

“Consigned for commission on sale)

d) Wholesaling:
“Selling goods to business buyers”

e) Retailing:
“Selling goods to consumer buyers”

f) Multiple Stores:
“Sell under the ‘own label’ brand name”

How do channel firms interact and organize to do the work of the channel:

Channel Conflict is disagreement among marketing channel members on goals, roles and rewards (who should do
what for what reward). It may be
 Horizontal, conflict among firms at same level of channel e.g. dealers may complain that
others are pricing too low or selling beyond their territory.
 Vertical, conflict among firms at different level of channel e.g. conflict with dealers when
opening online stores even though for hard to reach customers.

Disintermediation is eliminating or replacing intermediaries. e.g. opening online stores

Marketing logistic and Supply Chain Management (SCM):

Marketing logistic (or physical distribution) involves planning, implementing and controlling the physical flows of
goods, services form points of origin to points of consumption.
Marketing logistic addresses whole Supply Chain Management i.e.
 Outbound distribution (moving product form factory to reseller and ultimately to consumers)
 Inbound distribution (moving products from supplier to factory) Upstream
 Revere distribution (moving broken, unwanted or excess products returned by consumers or

Major logistic functions/ Functions in distribution process:

 Warehousing
o Production and consumption cycles rarely match.
o A company must decide, how many, what types and where
o Company might use either storage ware house or distribution centers.
 Inventory management
o Managers must maintain balance between too little and too much inventory.
o Just in time requires accurate forecasting along with fast, frequent and flexible delivery
o Just in time substantial cost saving in carrying and handling cost and low obsolescence.
 Logistic information management, In VMI (Vendor Managed Inventory) customer share real-time
data on sales and current inventory levels with supplier and supplier then takes full responsibility
for managing inventories and deliveries.
 Transportation
 Promotion
 Display

New technology in Distribution:

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− Internet (B2C)
o Websites
o Email

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Chapter 28 : Promotion
Two basic strategies of Promotion:

Push strategy using sales force to push the product through the channels, the producer promotes the product to
wholesalers, the wholesalers promote to the retailers, and the retailers promote to the final consumers.
Pull strategy spending a lot on advertising and consumer promotion to build up consumer demand; if successful,
consumers will ask their retailers for the product, the retailers will ask the wholesalers, and the wholesalers will ask the

Communication media
1. Personal communication channels, through which people communicate directly with each other.
i. Face to face
ii. Person to audience
iii. Over telephone
iv. Through mail
v. Through internet chat
2. Nonpersonal communication channels, media that carry messages without personal contact or feedback.
i. Print media (newspapers, magazines)
ii. Broadcast media (radio, television)
iii. Display media (signs, posters)
iv. Online media (online services, Websites)

Marketing communication mix or Promotional mix

It is a blend of
A. Advertising
B. Personal selling
C. Sales promotion
D. Direct Marketing and
E. Public relations tools
That a company uses to communicate with its customers.
A range is better than only one.

A) Advertising:
“Any paid form of nonpersonal presentation and promotion of ideas, goods, or services by an identified sponsor”

Advertising objectives (AIDA) are as follows:

1. Informative advertising
a. To communicate information
b. To create awareness
c. In Early stage of PLC or on modification
2. Persuasive advertising
a. To create a desire for a product and to stimulate actual purchase
b. In growth stage of PLC
3. Reminder advertising
a. Reinforcing knowledge and
b. Reminding of benefits
c. In Maturity stage of PLC

Advertising media
 Above the line (Press, Radio, TV, Cinema)
 Below the line (Direct mail, Exhibition, Package design, Merchandizing)

Advantages (Vs. Personal selling):

 Mass communication
 Expressive advertisement
 Standardization and legitimacy
 Seller is able to repeat a message many times

Disadvantages (Vs. Personal selling)

 Costly
 One way communication
 Impersonal

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 Not so persuasive

B) Personal Selling (face to face via sales force):

“ Personal presentation by the firm’s sales force for the purpose of making sales and building customer relationships
i.e. paid form of personal communication”
Sales force structures:
1. Salary only
2. Salary with bonus
3. Commission only

C) Sales Promotion:
“Marketing activities other than personal, selling & advertising that stimulates customer purchasing”
“ Short-term incentives to encourage the purchase or sale of a product or service”.
Major tools are:
1. Samples
2. Coupons
3. Rebates
4. Premiums (buy 2 get 1 free)
5. Contests, sweepstakes, and games
6. Free gifts

Objectives of sales promotion:

− To increase in sales revenue
− To launch a new product
− To attract new customers
− To attract resellers to stock
− To clear out old stock
− Counteraction for competitors

D) Direct Marketing: (one to one marketing)

“Direct connections with carefully targeted individual consumers to obtain and immediate response and cultivate
lasting customer relationships”
It is the use of mail, telephone, fax, email, internet and other tools to communicate directly with specific consumers.

Characteristics of Direct marketing:

 Non public
 Immediate and customized
 Interactive

Forms of direct marketing:

1. Face to face selling
2. Telephone marketing
i. Outbound calls
ii. Inbound calls (toll free numbers)
3. Catalog marketing
4. Direct mail marketing

e) Public relations:
“Building good relations with the company’s various publics by obtaining favorable publicity, and building up a good
corporate image”
Publicity is non-paid, non-personal communication dealing mass audience.

Planning a Promotion campaign:

− Identify the target audience
− Specify the promotional message
− Select media
− Schedule media
− Set the promotional budget
− Evaluate promotional effectiveness

Expenditures on promotion gives rise to brands.
A Brand is a name, term, sign, symbol or design intended to identify the product of a seller to differentiate it from
those of competitors.

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Reasons for branding:
− Product differentiation
− Conveying lot of information quickly and concisely
− Advertisement needs a brand name.
− The more similar a product is to competing goods; the more branding is necessary.
− It facilitates self selection.
− It reduces price sensitivity.
− Brand loyalty gives control over marketing strategy.
− Other products (i.e. new flavors/sizes) can be introduced into brand name/range. (Brand extension)
− Eases personal selling
− Eases market segmentation

Brand strategies:
− Brand extension
− Multi branding (different names for similar nature goods serving similar consumer habits)
Product----------------Names----------------Brands in each name
− Family branding

Relationship Marketing: (Keeping customers; not getting customers)

Sale is not end of process; but start of relationship.
It is easy, cheaper and profitable to retain old customers than to make new customers because:
− Old are valuable
− Old have trust in company
− Old are satisfied.

Key account management: (Key Customer Database)

− Like relationship marketing but more specific
− It refers to how an organization manages its relationship with those customers identified as key to the
organization in achieving its objectives.
− Factors used to identify a key account:
 Historic value of purchases
 Expected future purchases
 Other competitive factors
o Status within the marketplace
o Personal relationship of people
o To prevent a competitor getting a hold in market
− Extra services given to key account
 Time
 Finance
 Procedure
 Hospitality

Auditing Customer satisfaction: (why customers are not satisfied ? )

− Customer satisfaction surveys
− Work won and lost
− Changes in market shares
− Revenue from newly released products
− Rude and unhelpful staff
− A policy is to encourage customers to complain( 96% do not)

Technology Development – Interactive marketing:

Interactive marketing in instant communication and responses between promoter and customers. It may be called
sometimes as Computerized Personal Selling e.g.
− DRTV (Direct Response Television)
− Interactive Internet websites
− Interactive Kiosk

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Part F : International Business
Theories on International Trade
Scarce resource is a resource for which the quantity demanded at a nil price would exceed the available supply.
4 scarce resources are Land, Labor, Capital and Enterprise.
Scarcity is the excess of human wants over what can be produced.
Production Possibility Curve illustrates limits of possible production of two products within given resources.
Opportunity Cost is the cost of sacrificed alternative.

 Export > Import
 Zero-sum game (benefit at the expense of other)

Absolute advantage:
 Absolute advantage is producing goods more efficiently than any other country.
 Country should produce goods for which they have an absolute advantage and then trade these goods for
other goods produced by other countries.

Comparative advantage:
 One step further than absolute theory introducing concept of opportunity cost.
 Country should specialize in the production of those goods in which it has lowest opportunity cost.

Why countries avoid specialization

 Comparative advantage is never stable.
 Diversification protects fall in world demand.
 Agriculture industry is subject to uncertainties of climate.
 Import restrictions are possible by other governments to develop self sufficiency.
 Multi nationals may assemble or manufacture in different countries for political or logistic reasons.

Competitive advantage (national):

Porter states that Comparative Advantage is too general concept to explain success of individual companies and
He believes 4 conditions (diamonds) within a country help firms to compete.i.e.
1. Factor conditions
2. Demand conditions
3. Firm strategy, structure and rivalry
4. Related and supported industries

Orientations of International Business Management (by Perlmutter)

 Company focuses on domestic market and export is secondary.
 No local research, marketing mix is standardized.
 Same products with same market programs.

 Each country is unique and requires customization.
 Product and market programs must match with local environment.
 Company establishes independent local subsidiaries and decentralizes marketing management.

 Synthesis of two approaches.
 Think globally, act locally.
 Integrated approach to create a global strategy that is fully responsive to local market.

 It is Geocentricism but that it recognizes regional differences.

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Evolution and Reasons of Global Business (by Ohmae)

1. Export (extension of home sales)
2. Overseas branches (when turnover is large, greater investment)
3. Overseas production (exploits cheap labor and reduces exporting cost)
4. Insiderisation (full functional organization having production and distribution system is set-up
overseas, company is multinational)
5. The Global Company


5 Cs
1. Customer (market convergence)
2. Company (economies of scale)
3. Competition (Keeping up)
4. Currency (exchange rate risk)
5. Country (Absolute and comparative advantage, local orientation)
Other reasons:

For Govt. For Company

Surplus deficit balance  Large market encouraging
economies of scale.
Political advantages  Increased competition at home
To support govt. policies (e.g. Balance of Payment)  Mature or declining home market
 To dispose excessive/discontinued

Exchange rate:

Purchasing Power Parity theory calculates exchange rate based on relative cost of purchasing same basket of goods in
two countries.
A currency’s exchange rate is also determined by Demand and Supply. They in turn are determined by Inflation,
Speculation, Interest rates, Govt. policies and Balance of Payment.

Exchange rate risk is the risk that foreign currency will exchange in smaller amount of domestic currency in future.

This can arise under any of three Exchange Rate Systems i.e.
1. Fixed (Central bank interferes to fix the rate)
2. Managed (Like fixed but allowed to vary between preset limits)
3. Floating (depends on supply and demand)

Managing exchange risk:

− Hedging devices
− Flow of money in both direction

Design for global business (by Bartlett and Ghoshal )

Low requirement for local adaptation High requirement for local adaptation and
and responsiveness responsiveness
High pressure to Global environment Transitional environment
Globalize  Geocentric orientation  Polycentric orientation
 Global product divisions  Integrated system and structure
 Chemicals, Construction  Pharmaceutical, motor vehicles
(focus of organization is heteroarchy)
Low Pressure to International Environment Multinational environment
Globalize  Ethnocentric orientation  Polycentric orientation
 International division  National or regional divisions

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 Paper, textile  Fast food, tobacco

Planning to enter Foreign Market

Phase 1: Preliminary analysis and screening:
− Evaluation of available markets (to exclude obvious unfit)
− Applying screening criteria to evaluate remaining markets (criteria might include Profit, Market Share,
− Analysis of environment conditions in each country
 Porter’s 5 forces analysis
− Choosing country (i.e. Target Market)

Screening Process consists of : (by Jeannet and Hennessy)

 Marco level research

 Environmental analysis
 Climate and demographic
 General Market factors
 Size of market
 Regulations
 Culture
 Micro level research
 Competition
 Transportation
 Healthcare
 Education
 Labor
 Target Market

Phase 2: Adapting the marketing mix to target markets:

Deciding Adaptation or Standardization

Phase 3: Developing the marketing plan:

− Situation analysis
− Objectives
− Strategic options
− Budgets
− Action programs

Phase 4: Implementation and Control

− Objectives and Standards
− Assign responsibilities
− Measure performance
− Corrective actions

Problems in International Planning:

− Foreigners don’t know local culture, feelings, attitudes
− Local level problems
 Different attitude to product and marketing task
 Lack of strategic outlook and marketing expertise
 Resentment at being bossed around
 Unclear goals
 Inadequate control
− HR considerations to be managed at local level
− Poor IS and Communication
− Diversification of countries over population, income, development, education etc.
− Time horizon

International Marketing Research

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− Availability and quality of information is enhanced for planning.
− Change in customers needs and preferences is timely observed.
− Competitors’ plan and strategy
− Finding of new markets
− Opportunities and Threats
− Trends of market
− SLEPT analysis
− Technology – Quality of information

Information sources for International Markets:

− Human sources
 Managers of subsidiaries, associates, branches (relevant + unpublished + biased)
 Consumers, Customers, Distributors, Suppliers and even Competitors
− Documentary sources (Publications etc., not to the point)
− Direct sources
 Direct observation and specialist knowledge
 Direct observation and background information
 Personal experience supporting indirect information
 Export publications
 Export Market Information Centers

IMR Process:

− Monitoring
 Passive information gathering (Market not yet targeted)
 Identification of market for which information needs to be gathered.
− Investigation (accurate assessment of market opportunities)
 Existing demand; where customer’s needs are already being served.
 Latent demand; where potential customers are currently recognized but are not being
 Incipient demand; where there is foreseeable, but not a present, market for products.
− Research
 Define scope of project
 Define projects, information needs
 Evaluate available sources for required information
 Undertake desk research
 Undertake field research

Using IMR data:

− To estimate patterns of demand/consumption in individual markets by
 Demand pattern analysis
 Income elasticity of demand
− To compare patterns of demand/consumption in different markets by
 Comparative analysis
 Intermarket timing differences
− To identify clusters of markets with similar characteristics
− To identify strategically equivalent segments

Problems in IMR:
− Secondary data problems
 Lack of data
 Not timely, out of date information gathered on unpredictable schedules
 Not comparable, different data definitions in different countries
 Lack of reliability
− Response problems (People’s unwillingness to provide info)
 Tax evasion and avoidance of responsibilities
 Wish to preserve secrecy
 Cultural taboos and norms

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− General problems (developed vs. undeveloped)
 No suitable list (sampling frame)
 Inadequate communication infrastructure
 Low level of literacy
 Problems of language and comprehension

Entry in International Market

Entry in International Market could be through:
 Foreign Direct Investment/Overseas production
 100% owned subsidiary
 Joint venture
o Industrial cooperation/Contractual (fixed period)
o Joint-equity venture (continued)
 Export
 Direct (greater control but lesser market knowledge)
o To Branch office
o To Agents between importer and exporter
o To Wholesaler, Retailer or Consumers
 Indirect (greater market knowledge but lesser control)
o Through Export houses
o Through Specialist export management firms
o Through UK buying offices of foreign stores and government
o Through Complimentary Export (i.e. Piggy back export)
 Licensing
 Giving right to use production process for Royalty.

Critical analysis of entries

Foreign Direct Investment is direct investment in business operations in a foreign country. It may be:
1. Horizontal FDI (investment in same industry abroad)
2. Vertical FDI (investment in an industry abroad which provides input to firm’s domestic operations.
i. Backward Integration (to acquire raw material)
ii. Forward Integration (to establish final product)
Selection criteria for entry mode: (Factors to be considered)
Mode varies among firms, according to markets and over time.
Firm’s marketing objectives (in relation to volume, time scale and coverage)
− Low ----------export
− High----------produce locally
 Firm’s size
− Small--------export
 Mode availability
− Govt. may restrict modes
 Mode quality
− Qualified, trained staff is necessary for export of high technology goods.
 Human Resource Requirement
− If staff is suitable---------Direct export
− If staff is not suitable----Indirect export (agent based)
 Market information feedback
− Is received in case of Direct export.
 Learning curve requirement
− Heavy investment calls for learning curve i.e. close observation through direct export before
 Political risks
 Control needs
FDI vs. Export vs. License:
FDI(Foreign Direct Investment) Export License

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− Lower production cost − Concentration on − Avoids costs and hassle of
− Better understanding of production setting up overseas.
Market and Customers. − Economies of scale − Rapid penetration
− Lower transportation cost. − Consistency of product − No investment
− Overcomes tariff and non- quality − No Political risk, No
tariff barriers. − International experiment on Protectionism
small scale
− Easiest, cheapest, most
− Political risks are avoided.
Key Issues

− Political risks. − Protectionism − Small cash inflows

− Partnership − Exchange rates − Quality standards issues
− Managing overseas − Usually less involvement − Indirect competition where
facilities both export
− Usually more involvement − Licensee may become
but subsidiary may act competitor (by transfer of
independent. knowledge and technology)

If FDI, 100% owned subsidiary or Joint venture:

Wholly owned subsidiary (as compared to Joint venture)

Advantages: Key Issues:
− No sharing in profit − Heavy investment needed
− No sharing in decision making − Suitable managers not available
− No communication problem − Govt. discourages 100% ownership
− Operation of integrated international − No local knowledge
− Varied experience

Protectionism (discouraging imports) by Govt.

Government and Local producers get benefit not consumers.
1. Tariff (tax on imports)
2. Non-tariff barriers
a. Official
i. Subsidy
ii. Import Quotas/ Export Restraint
iii. Local Content Requirement (specific fraction must be produced locally)
iv. Anti-dumping policies (e.g. special duty)
v. Administrative policies (informal instruments or bureaucratic rules)
vi. Embargo (total ban)
b. Un-Official
i. Quality and inspection procedures
ii. Packing safety and documentation standards
iii. Restriction of distribution
3. Exchange control (making difficult to obtain required currency)
4. Exchange rate policies (e.g. competitive devaluation of currency)

Dumping is selling goods in foreign market below cost or market value to:
 Unload excessive production
 Capture market.

Political risk in FDI for multinationals

Political risk is the risk that political actions will affect the position and value of a company.

How Political actions can affect:

1. Tariff and non-tariff barriers e.g. Quotas
2. Govt. interference in contracts
3. Imposition of
i. Increased tax rates
ii. Price controls
iii. Exchange controls through
a. Rationing supply of foreign exchange

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b. Blocking funds of foreign parent (counter ways)
− Dividend
− Selling goods/services (volume and transfer pricing)
− Royalty
− Loan and high interest rates
− Management charges
4. Nationalization

How to cope with political risk:

1. Negotiation (agreement) with Government
i. Transfer of capital
ii. Access to local finance
iii. Govt. interference
iv. Taxation
v. Transfer policy
2. Insurance
3. Contacts with markets
4. Management structure (joint venture or giving control to local)
5. Financial management (obtain finance locally)
6. Production strategies (giving control to local to produce Or to supply chain management)

Regional trading groups/blocks--- A way to overcome Protectionism and Political risks

Regional trading group promotes trading between members of group. Following are common types:
Free trade area:
 Internal barriers to trade are removed.
 Each company determines its own external trade policy.
Customs Union:
 Internal barriers to trade are removed.
 Common external trade policy is adopted.
Common Market:
 Similar to customs union except it allows factors of production to move freely between countries.
Economic Union:
 It is Common market but more closer integration including establishment of common currency and tax rates.

Taxation issues in FDI

By structuring the group, tax advantages could be availed.
Foreign tax credit avoids double taxation in both countries.
Tax havens is a country with exceptionally low or even no income tax but there should be:
 Stable currency and Govt.
 Adequate financial services support facilities.

Capital Structure Decisions

 Equity or borrowing
 If equity, Parent’s or Subsidiary’s
 If externally, from host or other country
 What Currency (same to avoid fluctuation and symmetry)
 How much and what period
Factors influencing choice of financing:
1. Local finance cost
2. Taxation system
3. Restriction on dividend remittance
4. Flexibility in repayment

Global Capital Market

International banks (provide financial and other services)
Factors affecting development of international banks:
1. Globalization (Trade of securities world wide e.g. Euro equity)
2. Securitization (Debt via issuance of securities e.g. Euro bonds, Euro commercial papers)
3. Deregulation (national barriers)

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4. Disintermediation (directly from investor)
5. Increased foreign exchange and interest rate volatility

Benefits of international banks:

1. Financing of foreign trade
2. Financing of capital projects
3. Provision for advice and information
4. Providing full local banking services in different countries
5. International Cash Management services
6. Trading in foreign exchange and currency options
7. Participation in syndicated loan facility
8. Lending and borrowing in foreign and euro currency markets
9. Underwriting of euro bonds

Borrowing in Euro market Vs. Domestic market

 Domestic banking is subject to tighter regulation
 Domestic banking is subject to security requirements
 Euro finance may have
i. Flexibility in draw-down dates
ii. Early redemption penalties
iii. Commitment fee
 Euro is suitable for very large finance requirements

Euro Currency:
Following types of currency is available in Euro Markets:
1. Euro equity
2. Euro bond
3. Euro currency
4. Euro Currency loan
5. Euro credits
6. Commercial papers
7. Syndicated credits
8. MOFs

Euro equity issue:

Issue of equity in a market outside the company’s own domestic market.
Not developed like Euro bonds, hence ‘sweeteners’ are added e.g. Rolling Put Option

Euro bond:

Currency differs country of issue (underwritten by international syndicate of banks and sold internationally)
Euro bonds are suitable when:
− Large organization with excellent credit rating
− Requires long term loan for capital expansion
− Requires borrowing not subject to national exchange control
− Interest rates are fixed or floating with minimum.

Investors of Eurobonds will be concerned about:

 Marketability
 Anonymity
 Return on Investment
 Security

Euro currency:
Eurocurrency is any currency banked outside of its country of origin e.g. Eurodollars are dollars banked outside United

Euro Currency loan:

UK company borrows in US $ from a UK bank, it is a Euro Dollar loan.

Euro credits: like Euro currency loan

Commercial papers:

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 An example of Securitization.
 Short term financial instruments
 Issued in the form of unsecured promissory notes with a fixed maturity date.
 Issued in bearer form
 Issued on discount basis
 Companies with net capital of 25 million can issue it.

Syndicated credit market:

− Provides credit at high rates over LIBOR.
− Suitable for
 Takeover bids
 Govt. borrowings
 Project financing
Credit is a facility whereas Loan is a transaction.

Multiple Options Facilities (MOF) comprise variety of instruments through which company can raise funds and
 Note Issuance Facilities (NIF)
 Revolving Underwriting Facilities (RUF)

Counter Trade
Counter trade is a trade of goods and services for other goods and services.

Types/arrangements of Counter Trade:

 Barter (direct exchange of goods/services between two parties without a cash transaction)
 Counter purchase (A reciprocal buying agreement between two parties whereby seller also undertakes to
purchase a certain amount of merchandize from other country)
 Offset (like counter purchase but party can purchase from any firm in the country)
 Switch Trading (A third party trading house buys the firm’s counter purchase credits and sells them to
another firm that can better use them)
 Buyback (One country supplies capital goods and receives its output as partial/full payment)

Advantages of Counter Trade:

1. A mode to finance exports when other modes are not available.
2. Competitive advantage over parties preferring cash transactions.

Disadvantages of Counter Trade:

1. Goods received may be unusable, poor quality, or unprofitable.
2. Expensive and time consuming to develop a separate in-house trading department to dispose those goods
3. Unrealistically high value may be impose on goods.
4. Cost may exceed expectation. (Cost includes Consultancy fee, Discount, Bank fee, Insurance, Any fee paid to
third party)

Why Countries do Counter trade:

 Countries lack commercial credit or convertible FCY.
 Countries use it as an instrument of political, economical policies (e.g. Balance of Trade,
 To boost developing manufacturing industries
 To obtain more trade or new technology

Which Countries do Counter trade:

 Oil exporting companies.
 Less developed and developing countries.
 Unusual in industrial countries with exception of defense, aviation and big advanced technology.

Financial problems in Foreign Trade

Foreign Trade raises special financial problems i.e.
 Bad debts’ risk is greater
 Large investment appears in receivable and stocks

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Reducing bad debts’ risk:
1. Export factoring
2. Forfeiting
3. Documentary Credit (L/C)
4. International Credit Unions
5. Export Credit Guarantee Schemes

Export factoring:
Factoring company provides administration of:
 Client invoicing
 Sales accounting
 Debt collection
 Credit protection

Forfeiting: (providing medium term export finance)

 Exporter sends Capital goods to overseas buyer who wants medium term loan.
 Buyer makes down payment and issues notes/ accepts draft.
 Notes/drafts are guaranteed by Availising bank.
 Exporter discounts them from Forfeiting bank.

Documentary Credit (L/C):

1. Importer orders.
2. Exporter accepts.
3. Importer’s bank issues L/C to exporter’s bank.
4. Exporter’s bank authorizes exporter to ship merchandize.
5. Exporter ships and gives documents and draft to own bank.
6. Exporter’s bank sends documents to importer’s bank and gets the draft accepted.
7. Importer’s bank informs importer about arrival of documents and merchandize.
8. Importer pays (or not pays) his bank.
9. On maturity, importer’s bank pays to exporter’s bank who pays to exporter.

International Credit Unions:

These are organizations/associations of finance houses/banks in different countries having reciprocal arrangements for
providing installment credit finance.

Export Credit Guarantee Scheme: (where L/C is not acceptable by strong importer)
Preshipment Facility:
 Guarantee is issued to banks to indemnify them against losses on finance given to exporters to manufacture
and process goods for export.
 Risks covered are:
o Insolvency of exporter
o Inability to repay or deliver on due date
Postshipment Facility:
 Exporter submits application with required particulars to ECGS.
 ECGS will issue a guarantee specifying maximum amount covered and rate of premium.
 Risks covered are:
o Insolvency of buyer
o Political and Economic risks
o Risks of refusal to take delivery
o Risk of any loss (beyond control of buyer or exporter)
Reducing large investment in Receivables and Stocks:
− Advance against collection
− Documentary credit
− Negotiation of bills or cheques

International Marketing Mix Policies

International place policies:

 Exclusive
 Selective
 Intensive

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International product policies:
 Standardized/Undifferentiated marketing (same product, price, marketing program for all markets)
 Adapted/Differentiated marketing
 Concentrated marketing

Standardization Vs. Adaptation: whether to adopt or not is linked with promotional issues.
Product Standardization Product Adapted
 Occasional exporters  Single product meets the same
Communication  Also major companies need in all markets but need to be
Standardization seeking economies of adapted.
Communication Adaptation  Same product for  Costly
different uses in  Required to exploit market fully
different countries

Barriers to International Standardization:

 Law
− Price control
− Product regulation
− Distribution restrictions
− Advertising and media restrictions
 Competition
− Nature of existing products
− Competitors’ prices
 Culture
− Consumers’ tastes and habits
− Language and attitude differences
 Economy
− Income level
− Media availability

Domestic business as compared to International business:

Social factors:
 No language problem.
 Homogenous market.
 Rules of game are understood.
 Similar purchasing habits.
Economic factors:
 Single currency
 Uniform financial climate
 Stable business environment
Competitive factors:
 Data collection is easy and accurate.
Political factors:
 Relatively unimportant
Technological factors:
 Standard production and measurement systems

Motivating international agents:

− Communication
− Assuring long term business relationships
− Regular and frequent personal contacts
− Exclusivity

Hofstede’s model of national culture:

Hofstede pointed out that countries differ on following dimensions:
Power distance how for superiors are expected to exercise power
1. Uncertainty avoidance some cultures prefer clarity and order while others prefer novelty

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2. Individualism in some cultures, it is individual achievement what matters.
3. Masculinity in such culture, roles of sexes are clearly differentiated.

Hofstede grouped countries into eight clusters:

1. More developed Latin
2. Less developed Latin
3. More developed Asian
4. Less developed Asian
5. Near Eastern
6. Germanic
7. Anglo
8. Nordic
Type of industry and size of company is also important.

Finance in International Business

Treasureship is the function used with provision and use of finance. It covers
 Provision of short term borrowings/ capital
 Foreign Currency management
 Banking
 Collection
 Money market investment
Treasury department should be cost center or profit center?

Cash Management:

Centralized Cash Management:

1. Avoids mix of cash Surplus and overdraft.
2. Large volumes of cash are available to invest
3. Any borrowing could be arranged in bulk at lower rates.
4. Foreign currency risk management in improved.
5. Specialist Treasury Department will employ experts.
Decentralized Cash Management:
1. Great autonomy
2. Quick and more response to needs of individual operating units
3. More opportunities to invest on short-term basis.
Float is amount of money tied up between initialization and finalization of payment.
Measures to reduce Float include:
− Lodgment delay should be minimum
− Standing orders/ direct debit for regular payments
− Lock boxes for international payments
Cash Pooling is netting of Debit and Credit balances with same bank to reduce interest cost.

How Cash surplus arises

− By profitability
− By low capital expenditures
− By receipt from selling part of business

How Cash surplus is utilized

− Takeover bids
− Buy back of shares
− Short term investments
o Banks
o Investment in listed shares
o Investment in debt instruments

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 Certificate of Deposits (certificates by bank acknowledging deposit for specified
 Treasury bills (IOUs by govt. issued weekly for 91 days to finance govt. projects)
 Eligible bank bills (IOUs by those top rated banks whose bill Bank of England
agrees to buy)
 Bills of exchange
 Local authority bonds
 Commercial papers
Certificate of Deposits, Treasury bills and Eligible bank bills are Negotiable and Resalable.

International payment modes:

 Cheque
 Lock boxes (speeds up payment by cheque)
 Bills of exchange
 Bank draft (cheque by a bank drawn on one of its own account)
 Mail Transfer
 It is a written payment order authenticated by official in sending bank which
 Instructs by Airmail to pay a certain sum of money to a beneficiary.
 Telegraphic Transfer
 Like mail transfer but instructions are sent by cable or telex instead of by airmail.
 Speeder, Costly and Confidentiality than Mail Transfer.
 SWIFT (Society for Worldwide Interbank Financial Telecommunication)
 Provides rapid electronic fund transfer
 In addition to banks, users include Security houses, Exchanges, Money brokers, Fund
managers etc.
 International Money Orders

Transfer pricing:
Basis include
 Standard Cost
 Marginal Cost/ Full Cost/ Opportunity Cost
 Market Price
 Market Price – discount
 Negotiated Price (any other basis)

Advantages of having Market Price as Transfer Price Disadvantages of having Market Price as Transfer Price
1. For buying department 1. Market prices may be temporary.
i. Better quality of services 2. Disincentive to use spare
ii. Greater flexibility resources as compared to incremental cost
iii. Dependability of supply approach.
2. For both departments 3. Buying department may enforce
i. Lower cost of discount.
administration, selling and 4. Many products don’t have
transportation equivalent market prices.

HRM in International Business

HRM issues in International Business:

1. Expatriate or local management

Expatriate (as compared to local)

Advantages: Key Issues:
− Poor − Costs more
educational/technical − Lesser local knowledge
opportunities in local market − Culture shock
− Greater control − Language/Communication
− Better central training required
− Corporate picture is

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2. Recruitment and Training

3. Career management within firm
4. Appraisal schemes
5. Communication with staff (e-mails, conferences and news letters etc.)

Changes in World marketplace: (by Jerry Wind)

− Globalization of businesses
− Science and Technology development
− Strategic alliances
− Changing customer value and behavior
− Increased scrutiny of business decisions by govt. and public.
− Increased deregulation
− Changing business practices (e.g. outsourcing,, downsizing, reengineering)
− Changing social and business relationship between companies, employees, customers and other
Porter’s national competitive advantage:
There are 4 determinants of national competitive advantage.

Factor conditions
These are a country’s endowment of inputs to production e.g. Human Resources, Physical resources, Capital,
Knowledge and infrastructure.
These factors could be
− Basic (inherited and creation involves less investment e.g. natural resources) or
− Advanced (include modern digital communications, highly educated people and research laboratories
Demand conditions
The home market determines how firms perceive, interpret and respond to buyer needs.
Related and supported industries
Competitive success in one industry in liked to success in related industries.
Firm strategy, structure and rivalry

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Annexure “A”

Topic PBP Reference Topic PBP Reference

Chapter 4 & 5 : Strategic Management : Chapter 22 : The Evolution of Marketing
Traditional and other models Concept
Levels of strategy Figure Marketing management Explanation
Traditional approach to make strategy Explanation Elements of marketing mix – Promotion Details
Activities affecting Crafting strategy Explanation Value-chain Explanation & examples
Learning based strategy Explanation Marketing process Details
Competitive strategy Overview Chapter 23 : Strategic Marketing &
Chapter 6 : SWOT Analysis and Gap Analysis Development in segmentation Details
Porter’s 5 Forces model Figure & Benefits of market segmentation Details
Chapter 7 : Performance Appraisal & Target Market Explanation
Measuring performance of profit center. Explanation & Evaluating market segments – porter’s 5 forces Explanation
Inflation Detail Competitive strategy options Details
Chapter 9 : Mergers and Acquisition Identifying gap in market through positioning Explanation
Strategic alliances – benefits to franchiser Details & Chapter 24 : Marketing Research
Chapter 10 : Corporate Re-organization Research procedures - Analysis of data Explanation
Management buy-out Details Collecting secondary data – internal and Details
external databases
Chapter 11 : Ethics and Social Responsibility Questionnaires Details
Social responsibility – Favors - Externality Explanation Marketing Information System (MkIS) Explanation
Chapter 13 :Human Resource Management Marketing Decision Support System Explanation
Different concepts - Pg : 298 Market Sensing Explanation
Termination Details Service Quality (SERVQUAL) Explanation
Chapter 14 : Measurement and Performance Sales Forecasting [Forecasting demands] Explanation
Factors affecting personality differences Concepts Marketing Communication Explanation
Job restructuring & redesign Details Chapter 25 : Product
Employee appraisal – working arrangements and Explanation & Nature and characteristics of a service Explanation
types of organizations examples
Types of incentive schemes Details Stages of product life cycle Details
Employee appraisal – Methods of appraisal Details Product Portfolio Planning Explanation
Chapter : 15 Training, Appraisal and Career Chapter 26 : Price
Competence Details Price leadership Explanation & Example
Chapter 16 : Management and Human Price Elasticity of Demand Explanation & Example
Trait theory Explanation Absorption and Marginal costing, and Explanation
breakeven analysis
Leadership Explanation & Chapter 27 : Place
Discipline – Disciplinary problems in Details Channel conflict – Horizontal and Vertical Explanation
organizations Conflict
Retirement, Resignation, Redundancy – Unfair Details Consideration in distribution Details
Chapter 17 : Groups in Organization Channel design decision Explanation
Effects of conflicts within groups – Groups & Details Benefits of direct and indirect sales Details
Chapter 18 : Strategies for Critical periods Distribution strategy Explanation
Corporate Decline – 3 types of decline Explanation Marketing and Information System Details
Chapter 19 & 20 : Change Management and Customer Dynamics and internet as Details
Changing Environment distribution channel
Nature of strategic change Explanation Chapter 28 : Promotion
Model for change Explanation Push and Pull Strategy Details
Approaches to implement change Explanation Merchandising Explanation
Force Field Analysis Explanation Planning a promotion campaign Details
Change process Details Relationship Marketing Details
Pressure groups Explanation & Chapter : International Business
Chap 20 : Strategic intelligence Details Competitive advantage Details
Chap 20 : Environmental data Details Protectionism Explanation
*Details → Topic included in these notes and needs further detail from PBP
*Explanation → Topic not included in these notes at all so needs to be read from PBP
*Example → For examples relating to the topic, see PBP
*Figure → For graphical representation relating to the topic, see PBP