STRATEGIC MANAGEMENT &

OTHER IMPORTANT MANAGEMENT

CONCEPTS

Prepared by: A.Veeramani

22.01.2015

1
STRATEGIC MANAGEMENT:

 When corporation becomes large, layers of management increases and environment changes
substantially and strategic management is the approach.
 The evolution of Strategic Management;
o Phase 1. Basic financial planning –
 Seeks better operational control to meet the budget.
o Phase 2. Forecast based planning-
 Seeking growth by trying to predict future.
o Phase 3. Externally oriented planning (strategic planning) –
 Seeking increasing responsiveness to markets and competition by trying to think
strategically.
o Phase 4. Strategic Management-
 Seeking competitive advantage and a successful future by managing all resources
effectively and efficiently.
o SM does not replace traditional management activities like budgeting, planning,
marketing, monitoring, reporting and controlling.
o SM integrates all and takes into a/c the external environment, internal organizational
capabilities, purpose and overall directions.
o SM = the continuous process of assessing its external environment and its internal
strengths and weaknesses, formulating and implementing strategies and control to
achieve success.
o SM = creating and maintaining competitive advantage.
o Therefore, strategic management’s primary value is to help the organization operate
successfully in dynamic, complex environment.
o The purpose of SM is to perform activities different to gain competitive advantage.
 Competitive advantage –The way an organization succeeds in the competition
with its rivals by doing something that gives it an advantage in the eyes of the
consumers of its products.
 A competitive advantage is an advantage over competitors gained by
offering consumers greater value, either by means of lower prices or by
providing greater benefits and service that justifies higher prices.
 Competitive advantage means superior performance relative to other
competitors in the same industry or superior performance relative to the
industry average.
 It can mean anything that an organization does better compared to its
competitors.
 Nearly everything can be considered as competitive edge, e.g. higher
profit margin, greater return on assets, valuable resource such as brand
reputation or unique competence in producing good quality products.
 Competitive advantage = a state where firms successful strategies cannot
be easily duplicated by its competitors.
 A competitive advantage is what distinguishes from the competition in
the minds of customers.
 Competitive advantage cannot be achieved if an organization creates
same products by same methods, by same activities, by same employees,
by same distribution, by same prices similar to what rivals do.
 It is the company’s Unique Selling Proposition(USP).
2
  It is the reason why a customer buys your product instead of
competitors’ product.
 It is means of having low costs, differentiation advantage or a successful
focus strategy.
 It is sustained above normal returns.
 Instead, competitive advantage comes from the three generic strategies.
 Perform activities that are different from its competitors
 Perform same activities as its competitors but in different ways.
 Perform same activities at lower cost than competitors.
o An organization employs SM to continually adapt itself to changing environment and
this adaptation may involve altering virtually any aspect of the organizations operation.
 It can be -
 Products, prices, promotions, distribution
 Services, the way it is created
 Customer
o Strategic management seeks answers for 4 basic questions.
 Where are we  Situation analysis
 Where would we want to be  vision, mission & strategic goals
 How would we reach where we want to be  Strategy & Activities
 How would we follow & evaluate our success  Performance evaluation
 What is strategy
o a course of action.
o A strategy is top management’s plans to develop and sustain competitive advantage
o Strategy is the plan of action that prescribes resource allocation and other activities
for dealing with environment to achieve goals.
o A strategy is a combination of competitive moves and business approaches used by
management to run the company.
o A strategy is a course of action in allocating resources to achieve identified goals
over time.
 What is planning
o Planning is a management process, concerned with defining goals for company's future
direction and determining on the missions and resources to achieve those targets.
o Planning is preparing a sequence of action steps to achieve some specific goal.
o A plan is like a map. It is used to see how much progress is achieved and knowing
where to go or what to do next.
 What is strategic planning –
o Strategic planning is a disciplined effort to produce fundamental decisions and actions
that shape and guide what an organization is, what it does, and why it does it, with a
focus on the future.
o A strategic plan also helps business leaders determine where to spend time, human
capital, and money.
o Strategic planning involves looking at the organisation as a complete entity and is
concerned with its long term development. This involves looking at where the
organisation is now, determining where you want to get to, and mapping how to get
there.
o The strategic plan should be summarised in a written document to ensure that all
concerned are clear regarding the aims and objectives the organisation is working
towards.
3
 o Strategic planning is the process of:
 clarifying what the organisation is about;
 deciding what is and is not a priority for the use of resources;
 analysing the internal and external environment;
 considering how best to deal with upcoming changes and transitions;
 setting out a clear direction; and
 setting concrete goals for the future.
o Strategic Planning is a systematic way to anticipate and respond to the challenge of
change.

 What is strategic management:

o SM is the art and science of formulating, implementing and evaluating cross functional
decisions that will enable an organization to achieve its objectives.
Strategic
Management

Formulation Implementing Evaluating

Cross functional
decisions

Objectives

 The basic strategic management process/ model

o 1. Environmental scanning / Situation Analysis / Scenario Analysis:
 Situation analysis = is systematic collection and analysis of an organisation’s
external and internal environment that may impact its ability to achieve its
objectives ( e.g., 5 C analysis, SWOT analysis, Porters 5 forces, etc)
 It is the foundation for a Marketing Plan.
 Situation analysis is the process of identifying various facets of your business to
better gauge its current position.
 Scenario planning are detailed and plausible views of how the business
environment of an organization might develop in the future based on grouping
of important influences and drivers of change.
 The following main tools are of use to conduct the above exercise:
 SWOT
 PESTLE
 5 C analysis
 Porters 5 forces
 Porters 4 corner analysis
 Porters Value chain analysis
 VRIO frame work
 Mckensy’s 7 S framework
 Mckensy’s growth pyramid
 BCG matrix
 Ansoff matrix

4
  Define the current business and mission and vision.
 Based on the situational analysis, what should our new business be in
terms of products it will sell.
 What product to sell
 Where and how it will sell
 What is the competitive advantage
 Develop new vision and mission statements.
 Translate the mission into strategic goals- saying mission is to make
quality job one.
 Vision – specifies (What we want to be)
o VISION = general statement of its intended direction that shows
what we want to become. VISION concern’s future business.
o What the organization stands for
o Where it plans to go
o Vision is what the organization wants to be doing in next 5 – 10
years from now.
o How it plans to get there
o Vision comprises markets, products, geographic domain, core
competencies, organizational objectives, philosophy, desired
public image.
 MISSION – (Why we exist)
o Focuses on current business activities = MISSION = a broad
statement of business scope, purpose of operation that
distinguishes from others.
o MISSION is what the organization is doing right now
o Mission states what it provides to society.
o Mission is its purpose.
o Create a road-map of company’s future.
o 2. Strategy Formulation-
 Formulate strategies to achieve the strategic goals.
 Strategy is a course of action and it shows how the firm will move from the
business it is in now to the business it wants to be in as per vision and mission
 Porters generic strategies – cost leadership, differentiation & focus.
o 3. Strategy implementation – is the sum total of the activities and choices required for
the execution of strategic plan by which strategies and policies are put into action
through
 A developed program (a statement of activities)
 Budget
 Procedure (sequential steps)
 Systems
 For better results, while formulating strategies, involve middle level
management otherwise they are ignorant.
 It involves staffing, leadership, training.
 Implement strategies -Translate strategies into actions and results by hiring,
building plants, adding products, allocation and utilisation of resources
o 4. Evaluation and control – all firm’s activities and performance results are monitored
and measures taken.
 Balance Score Card
5
  Management by Objectives.

 WHAT IS SWOT ANALYSIS:

o SWOT is a widely used strategic planning method to evaluate SWOT involved in a
business and marketing strategy.
 It involves identifying the internal and external factors that can affect in favour
or adversely to achieve the objectives.
 This method was first showed by US management consultant Albert Humphrey.
 This helps to determine whether a proposed objective is actually achievable or
not.
 Strengths –
 Things the company does well.
 All the advantages the company holds over other to keep it ahead in the
competitive market.
 an inherent capability of a firm which it can use to gain strategic
advantage over its competitors.
 manufacturing efficiency, skilled workforce, good market share, strong
financial background, superior reputation, etc.
 Weaknesses –
 Things the company does not do well
 The disadvantages and limitations of the company which keep it behind
the competitors and adversely affect.
 outdated facilities, inadequate R&D, obsolete technologies, weak
management, past planning failures.
 an inherent limitation or constraints of a firm which creates strategic
disadvantage to it.
 Opportunities –
 External factors that can work in favour of the company to achieve goal
and improve performance towards achieving the same.
 a favorable condition in the firm’s environment which enables to
strengthen its position.
 possible new markets, strong economy, weak market rivals, emerging
technologies, growth of existing markets.
 Threats –
 External factors that can work against the company to achieve the goal
and adversely affect the performance of the company.
 an unfavorable condition in the firm’s environment which causes risk for
or damage to the firm’s position.
 new competitors, shortage of resources, changing market tastes, new
regulations, substitute products.
o Significances of SWOT.
 Provides logical framework for generation of alternative strategy.
 Presents a comparative account
 Guides strategy identification
 Helps use of strength, stop weakness, exploitation of opportunities and
defending threats.

o Use TOWS matrix as below

6
 External Internal Strengths (S) Weaknesses (W)
Factors manufacturing efficiency, outdated facilities,
skilled workforce, good inadequate R&D, obsolete
market share, strong technologies, weak
financial background, management, past
superior reputation planning failures
Opportunities (O) SO Strategies WO Strategies
possible new markets, Generate strategies that Generate strategies that
strong economy, weak use strengths to take take advantage of
market rivals, emerging advantage of opportunities by
technologies, growth of opportunities overcoming weaknesses
existing markets
Threats (T) ST Strategies WT Strategies
new competitors, Generate strategies that Generate strategies that
shortage of resources, use strengths to avoid minimize weaknesses and
changing market tastes, threats avoid threats
new regulations,
substitute products

 WHAT IS FIVE “C” ANALYSIS:

o It is a tool used for situational analysis.
o To satisfy customer needs profitably, a firm must understand its external and internal
situation, customers, marketing environment and firm’s capabilities.
o As described by the American Marketing Association, a situation analysis is "
the systematic collection and study of past and present data to identify trends, forces,
and conditions potentially to influence the performance of the business and to choose
the appropriate strategies.
o A useful framework is 5 C analysis covering micro and macro.
 Company
 Customers
 Competitors
 Collaborators
 Climate
 Company.
 Product line
 Image in the market
 Technology and experience
 Culture
 Goals
 Customers
 Market size and growth
 Market segments
 Benefits that consumer is seeking – stated and implied
7
  Motivation behind purchase, value, benefits vs costs
 Decision making unit
 Retail channels – where actual purchase takes place
 Customer information – sources
 Buying choices
 Frequency of purchase
 Quantity purchased
 Trend
 Competitors
 Actual or potential
 Direct or indirect
 Products
 Positioning
 Substitutes
 Market share
 Srengths and weaknesses of competitors
 Collaborators
 Distributors
 Suppliers
 Alliances
 Climate (nothing but PEST/PESTLE analysis)
 PEST is used to identify macro economic conditions which drive the
strategy of a company.
 It considers only macro economic
o Political and regulatory – Govt policies affecting market, political
stability, tax rate, labour laws, trade laws, IPR and copyright
protection
o Economic environment-business cycle, inflation, interest rates,
GDP, buying power, unemployement rate, PPP, trade balance
o Social / cultural trends and fashions, sex ratio, age, population,
lifestyle, education, HDI.
o Tehcnological environment – country’s technological
advancement, R&D, Innovation, skilled resources, IT, higher
educational institutions.
o L & E stands for Legal & Environmantal analysis.

 WHAT IS PORTERS FIVE FORCES:

o The model originated from Michael E. Porter's 1980 book "Competitive Strategy: ( Guru
of competitive advantage)Techniques for Analyzing Industries and Competitors." Since
then, it has become a frequently used tool for analyzing a company's industry structure
and its corporate strategy.

8
o It helps to identify the competitive where power lies in a business situation and whether
the new product / service are potentially profitable or not.
o The 5 forces model describes strategy as taking action that create defendable position in
an industry.
o This model assists in identifying the presence or absence of potential high returns.
o The weaker the force, the greater the opportunity for a firm in an industry to reap
superior profitability.
o Widely used tool for systematically diagnosing the significant competitive pressures in a
market and assessing the strength and importance of each is the 5 force model of
competition.
o For assessing and evaluating the competitive strength and position of a business
organization.
o Awareness of the five forces can help a company understand the structure of its
industry and stake out a position that is more profitable and less vulnerable to attack.
o In essence, the job of the strategist is to understand and cope with competition.
o Competitive advantage comes from the ability to earn ROI that is better than the
industry average.
o Porter identified low industry profits are associated with the following characteristics;
 Strong suppliers
 Strong customers
 Many substitutes ( substitutes means something that meets the same need)
 Intense rivalry.
o The objective of corporate strategy should be to modify the competitive forces in a way
that improves the position of the company.
o It is an outside looking in business unit strategy tool used to make an analysis of
attractiveness or value of an industry structure. It supports the decision of entry/exit.
o The 5 forces are:
o 1. Threat of new entrants – an assessment of how easy for new entrants
 Always powerful source of competition. Bigger the new entrants, more the
competitive effect.
 If a new business can be easily started in our sector without substantial
investment, then this is a threat.
 E.g. internet has made this in reality in many sectors. Web design – an easy
market to enter with few requirements.
 How to reduce the threat of new entrants:
 Create a marketing / brand image
 Patents
 IPR
 Alliances with linked products
 Tie up with suppliers and distributors.
o 2. Buyer power – an assessment of how easy it is for buyers to drive prices down.

9
  Bargaining power of customers. The force will become heavier depending upon
the buyers forming cartel.
 If fewer the buyers, then they control the market.
 E.g.. grocery sector – supermarkets tend to retain power over suppliers due to
volume and price.
 They dictate terms.
 How to reduce bargaining power of customers:
 Partner for SCM
 Increase loyalty and incentives
 Put powerful intermediaries.
 Go directly to customers.
o 3. Supplier Power – an assessment of how easy it is for suppliers to drive prices up.
 Bargaining power of suppliers determine the cost of inputs.
 Market where there are fewer suppliers they retain the power
 E.g. sectors of monopolistic (one) or oligopolistic ( few) suppliers such as utility
companies ( power, water)
 How to reduce the bargaining power of suppliers.
 By partnering
 Supply Chain Management
 Take over a supplier.
o 4. Industry competition-
 Competitors( existing) influence prices as well as the costs of competing in
industry, in product development, advt, sales force, etc.
 Markets where there are competitors often buying on price basis
 E.g. stationery, real estate.
 How to reduce competitive rivalry:
 Avoid price competition
 Differentiate your product
 Buy out competition
 Focus on different segment
o 5. Substitute threat –
 A latent source of competition substitute products offering a price advantage to
consumer can alter the competitive character of an industry.
 If alternatives or substitutes available, threat of substitution increases.
 E.g., substitute to all services – focus is on expertise.
 How to reduce the threat of substitute:
 Legal actions
 Increasing switching cost
 Alliances customer surveys to learn about their preferences.
 Enter substitute market and influence.

10
Therefore, all the five forces together determine industry attractiveness/profitability.

 How to use Porter’s Model:

o Answer the following questions;

CALCULATED DEGREE OF POWER

POWER + POSITIVE -NEGATIVE
Competitive rivalry
Supplier power
Substitute power
Buyer power
Power of new entrants
o Fill the above table with crosses by answering the following questions to measure the
degree of power available in the industry.
o For competitive rivalry the questions can be:
 Competitors:
 How many direct or indirect competitors
 What are the size of the my competitors
 How diverse are my competitors
 Industry :
 What is the industry growth rate
 What are the strategic stakes
 Products :
 How different is my product
 What are buyer’s switching costs.
 If the competitive rivalry has many crosses in the + box (i.e., “+” are in favour of the
company and “ -“ are against the company) , the power of competitors are low, etc.
o For new entrants the questions can be;
 Production costs.
11
  Brand
 Distribution.
o For bargaining power of suppliers, the questions can be ;
 Substitution
 Integration
 Players
o For bargaining power of buyers, the question can be ;
 Buyer’s type
 Brand awareness
 Information
o For threat of substitute products, the question can be ;
 Performance substitutes
 Switching costs

o Strategy can be formulated on three levels:

 corporate level
 business unit level
 functional or departmental level.
o While strategy may be about competing and surviving as a firm, one can argue that
products, not corporations compete, and products are developed by business units. The
role of the corporation then is to manage its business units and products so that each is
competitive and so that each contributes to corporate purposes.
o While the corporation must manage its portfolio of businesses to grow and survive, the
success of a diversified firm depends upon its ability to manage each of its product lines.
Many managers consider the business level to be the proper focus for strategic
planning.
o Corporate Level Strategy
 Corporate level strategy fundamentally is concerned with the selection of
businesses, what businesses a corporation should be in or wants to be in which
the company should compete and with the development and coordination of
that portfolio of businesses.
 Fundamentally concerned with the selection of business in which the company
should compete.
 organizations scope and resources deployment
 Defining the issues that are corporate responsibilities; these might include
identifying the overall goals of the corporation, the types of businesses in which
the corporation should be involved, and the way in which businesses will be
integrated and managed.
 Corporations are responsible for creating value through their businesses. They
do so by managing their portfolio of businesses, ensuring that the businesses are
successful over the long-term, developing business units, and sometimes
ensuring that each business is compatible with others in the portfolio.
 Business Unit Level Strategy
 Business-level strategy concentrates on the best means of competing
within a particular business while also supporting the corporate-level
strategy.

12
  A strategic business unit may be a division, product line, or other profit
center that can be planned independently from the other business units
of the firm.
 competitive strategy of a business unit in its industry.
 Division, unit, product line, profit centre that can be planned
 At the business unit level, the strategic issues are less about the
coordination of operating units and more about developing and
sustaining a competitive advantage for the goods and services that are
produced. At the business level, the strategy formulation phase deals
with:

o positioning the business against rivals

o anticipating changes in demand and technologies and adjusting
the strategy to accommodate them
o influencing the nature of competition through strategic actions
such as vertical integration and through political actions such as
lobbying.
 Michael Porter identified three generic strategies (cost leadership,
differentiation, and focus) that can be implemented at the business unit
level to create a competitive advantage and defend against the adverse
effects of the five forces.
 The business unit level is the primary context of industry rivalry. Michael
Porter identified three generic strategies (cost leadership, differentiation,
and focus) that can be implemented at the business unit level to create a
competitive advantage. The proper generic strategy will position the firm
to leverage its strengths and defend against the adverse effects of the
five forces.
 Functional Level Strategy
 The functional level of the organization is the level of the operating
divisions and departments. The strategic issues at the functional level are
related to business processes and the value chain.
 Functional level strategies in marketing, finance, operations, human
resources, and R&D involve the development and coordination of
resources through which business unit level strategies can be executed
efficiently and effectively.
 Functional units of an organization are involved in higher level strategies
by providing input into the business unit level and corporate level
strategy, such as providing information on resources and capabilities on
which the higher level strategies can be based. Once the higher-level
strategy is developed, the functional units translate it into discrete
action-plans that each department or division must accomplish for the
strategy to succeed.
 Targeting, segmenting and positioning for a product. i.e., figuring out the
marketing mix.
 Porter has identified 3 winning and 1 loosing strategy based on his 5 forces model.
o What is marketing strategy = the search for a favorable competitive position.
 Porter says.
13
o Take offensive or defensive actions to create a defendable position in the industry, to
cope with the five competitive forces and to earn good ROI.
o His research (1980) concluded that there are 3 potentially successful generic approaches
to outperform other firms in an industry.
o These generic strategies are major contribution to the development of Strategic
Management. They are:
1. Overall cost leadership – company works hard to achieve lowest production costs and
price than the competitors to win a large market share.
 It will earn highest profit when competing products if undifferentiated and
selling at same price. Companies therefore have to focus on cost reduction in
every activity in the value chain.
 i.e., having the lowest per unit cost in the industry.
 Lower cost can be achieved by 2 methods: - cheaper inputs or more efficient.
 It is a defendable strategy.
 It defends firm against powerful buyers
 It defends firm against powerful suppliers
 It provides as entry barriers to rivals.
 Achieving cost leadership by
 Large capital investment in new technology which may lead to large
market share.
 Reengineering
 No-frills Products
 Efficient Labor
 Process innovation
 Tight control on overheads.
 For competitive rivalry – cost leadership strategy is desirable as
competitors put intense pressures on prices.
 For buyer power – cost leaders only have power to lower prices to
powerful customers.
2. Differentiation – company concentrates on creating a highly differentiated product and
marketing program to emerge as a leader in the industry.
 If a company differentiates its products, it enables that company to charge a
premium price as that of competitors.
 It involves high promotional expenses on advertisement, brand image – but
these are long term investment only.
 Stand out from the crowd.
 Differentiate the product by creating something that is perceived industry wide
as being unique.
 Differentiation can be achieved
 Better quality
 Lower price cost
 Different design
14
  Brand image
 No. of features
 New technology
 Strong dealer network
 It is defendable strategy since,
 It insulates a firm from rivalry by creating brand loyalty.
 It reduces substitutes and gives higher margins.
 High margins will enable to deal with powerful suppliers.
 Achieving this by
 Strong marketing skills
 Product innovation
 Applied R&D
 Customer support
 For competitive rivalry - Differentiation strategy would be viable to retain
existing customers.
 For barriers to entry – if high loyalty towards company’s brand is there, both
differentiation and lower prices will be acting as barriers to new entrants.
 For threat of substitutes – differentiation strategy only can reduce this threat.
 For supplier power – differentiation strategy and charging premium price will
enable company to withstand supplier powers.
3. Focus – company focuses its effort on serving a few market segments well rather than
going after the whole market.
 By being a focused producer (achieving dominance in a niche market)
 Focus on a particular group, segment.
 Focus the market where least amount of competition – niche market.
4. Middle of the road – company do not pursue a clear strategy and they do the worst
finally.
o SIXTH FORCE - Another concept:
 Porter’s 6 forces is also there. It is similar to 5 forces with only difference being
the addition of 6th force. – Relative Power of Other Stakeholders.
 This 6th force can be:
 Complementors – offering complementary products to the sector in
focus.
 Government – it can have direct impact on the industry.
 The public
 Shareholders
 Employees.
 COMPETITIVENESS:
o Competitiveness can be examined at three levels in an economy namely country
competitiveness, Industry/sector competitiveness and company competitiveness.

15
 o Competitiveness refers to the ability of an entity to operate efficiently and productively
in relation to other similar entities.
o Competitiveness could be of a company, a group of companies or nations.
o Competitiveness has been used most recently to describe the overall economic
performance of a nation, particularly its level of productivity, its ability to export its
goods and services, and its maintenance of a high standard of living for its citizens.

 WHAT IS BCG MATRIX/GROWTH SHARE MATRIX:

o BCG – a leading management consulting firm developed a Growth Share Matrix which
will classify a company’s Strategic Business Units ( SBU)
 It is used to evaluate and analyse the business units and product offerings of firm
for portfolio analysis, strategic management, product management and brand
marketing.
 To consider growth opportunities by reviewing its portfolio of products to decide
where to invest, to develop products or to discontinue.
 On the vertical axis – market growth rate.
 On the horizontal axis – relative market share.
 Market growth rate provides a measure of market attractiveness
 Relative market share serves as a measure of company’s strength in the market.
 The matrix defines 4 types of SBUs.


o Use of this model.
 Choose the unit
 Define the market
 Calculate relative market share ( firms market share/largest competitors mkt
share)
 Find out market growth rate
 Draw the circles on the matrix.
o A matrix to assess a company’s position in terms of its product range.
o It helps to make decisions which products to be kept and which should be dropped.
o Stars—Generate large sums of cash because of strong relative market share. Finally it
will become cash cow when market growth rate declines.
16
 o Cash Cow—exhibits a return on assets that is greater than the market growth rate and
generate more cash.
o Question Mark—products that grow rapidly but consumes lot of cash.
o Dogs – low market share and low growth rate .
o Strategies based on the BCG Matrix.
o There are four strategies possible for any product / SBU and these are the strategies
which are used after the BCG analysis. These strategies are
 1) Build – Create a new brand and a new target audience by means of a
Question Mark. By increasing investment, the product is given an impetus such
that the product increases its market share. Example – Pushing a Question mark
into a Star and finally a cash cow (Success sequence).
 2) Hold – Maintain this success and benefit from market growth by means of a
Star The company cannot invest or it has other investment commitments due to
which it holds the product in the same quadrant. Example – Holding a star there
itself as higher investment to move a star into cash cow is currently not possible.
 3) Harvest – Make as much money as possible with the product by means of the
Cash Cow. This can be achieved by improving or renewing the product or by
manufacturing by-products. Best observed in the Cash cow scenario, wherein the
company reduces the amount of investment and tries to take out maximum cash
flow from the said product which increases the overall profitability.
 4) Divest – Abandon the investment in the product by means of a Dog; the
market is saturated or there is no or little interest in the product. Best observed
in case of Dog products which are generally divested to release the amount of
money already stuck in the business.
o Thus the BCG matrix is the best way for a business portfolio analysis. The strategies
recommended after BCG analysis help the firm decide on the right line of action and
help them implement the same.

 WHAT IS GE MATRIX / MCKINSEY MATRIX:

o A nine cell portfolio matrix as a tool for screening General Electrics’ large portfolio of
Strategic Business Unit(SBU).
 It is similar to BCG growth share matrix.
 Inspired from traffic control lights- green for go, amber or yellow for caution and
red for stop.
 This model uses two factors while taking strategic decisions – Business strengths
& market attractiveness.

17
 Zone Strategic Signals

Green * Invest/Expand
Yellow Select/Earn
Red Harvest/Divest
o The position and attractiveness can be understood by better way with following table

Evaluating the ability to compete: Evaluating the Market attractiveness

Business Strengths
Market share Size of the market
Market share growth rate Market growth rate
Profit margin Industry profitability
Distribution efficiency Competitive intensity
Brand image Availability of technology
Ability to compete on price and quality Pricing terms
o If a product falls in green, the business is advantage – reap the benefits.
o If a product is in yellow, caution is needed.
o If a product is in red, divestment or liquidation.
o Strategic implications:
 Grow – attractive industry, strong businesses
 Hold – average business, average industry
 Harvest – weak businesses units.

 WHAT IS MCKINSEY’S SEVEN “S” FRAMEWORK:

o A tool that analyses firm’s organizational design by looking at 7 key internal elements (
7s) in order to identify if they are effectively aligned and allow the organization to
achieve its objectives.

18
  It was developed by Mckinsey Consultants in 1980 and one of the popular
strategic planning tools.
 It emphasizes on HR (soft S) than on traditional mass production tangibles of
capital, infrastructure and equipment as a key organizational performance.
 Goal of this model is how 7 elements of a company can be aligned together to
achieve effectiveness in a company.
 The key point in this model is all 7 S are interconnected and a change in one area
requires change in the rest of a firm for it to function effectively.
 The common uses of Seven “S “
 To facilitate organization change
 To help implement new strategy
 Improve performance of a company
 Examines the likely effects of future changes
 Align depts./processes during merger
 Determine how best to implement a proposed strategy.
o The 7 S model involves 7 inter dependent factors which are characterized as either hard
or soft elements.
HARD ELEMENTS SOFT ELEMENTS
Strategy Shared Values
Structure Skills
Systems Style
Staff
o Hard elements –
 are easier to define, identify and management can directly influence them.
They are Strategy statements, organizational charts, and reporting lines, and
formal process and IT systems.
o Soft elements –
 can be more difficult to describe and are less tangible and more influenced by
culture. The way they are interdependent of the elements and change in one
affects all others.
 These elements can create sustained competitive advantage.

19
 o Strategy – The plan devised to maintain and build competitive advantage over the
competition.
o Structure – The way the organization is structured and who reports to whom.
 Responsibility, organisational chart
o Systems- The daily activities and procedures that staff members engage in to get the job
done.
o Shared Values – Core values of the company that are evidenced in the corporate culture
and general work ethics.
 Core of 7 S model.
o Style—The style of leadership adopted.
 The way company is managed by top management
o Staff—The employees and their general capabilities.
 What type of and how many employees an organization need how they will be
recruited, trained and motivated and talent management.
o Skills – The actual skills and competencies of the employees working for the company.
 Abilities that firm’s employees perform very well.
 Placing shared values in the middle of the model emphasizes that these values are central to
the development of all the other critical elements.
 HOW TO USE THIS MODEL:
o For an organization to perform well, these 7 elements need to be aligned and mutually
reinforcing.
o 7 S model helps identify what needs to be re-aligned to improve performance.
o Steps to asses each of the elements, here are some questions:
o Strategy –
 What is the firm’s strategy seeking to accomplish, how does the firm plans to
use its resources, how does it plans to compete, how does it adapt to changing
market conditions.
o Systems –
 What is the primary business that drive firm, what and where are the system
controls, how is progress and evolution tracked and what internal rules.
o Style –
 What is the management style like, how do they behave, how do employees
respond to management, do employees function co-operatively, are there real
teams functioning, what behavior.
o Structure –
 How is the firm organized, what are the reporting and working relations, how do
employees align to strategy, how are decisions made, how is information shared.
o Shared Value-
 What is the mission of organization, what is the vision, what are the real values.
o Staff-
 What is the size of the organization, what are staffing needs.
o Skills –

20
  What skills are used to deliver products, any gap in skills, how skills are
monitored.
o The answers to all the above questions – to be analysed and look for following aspects.
 Consistency
 Alignment
 Conflicts
 Gaps
 Support
 Strengths and weakness
o Rating can be used in 1 to 5 ( 1= dysfunctional and 5= functional)
o Using the tool:
 Identify the areas that are not effectively aligned.
 Determine the optimal organizational design
 Decide where and what changes should be made
 Make necessary changes
 Review 7 S.

 WHAT IS PORTER’S FOUR CORNER ANALYSIS:

o It is a useful tool for analyzing competitors and determining their course of action.
 It emphasizes that the objective of competitive analysis should be on generating
insights into the future and calls for understanding what motivates competitors.
 The 4 corner refers to 4 diagnostic components that are essential to competitor
analysis: Future goals (drivers), Current strategy, assumptions and capabilities.

SUMMARY OF FOUR CORNER ANALYSIS

21
 WHAT IS PORTERS DIAMOND MODEL OF COMPETITIVE ADVANTAGE OF NATIONS:
o Why some nations succeed and others fail in international competition.
o The traditional advantages
 Land,
 labour,
 resources,
 location, etc.
o Porter says sustained industrial growth has hardly been built on the above basic
inherited factors.
o He introduced a concept called “ cluster ” or groups of inter-connected firms, suppliers,
related industries and institution that arise in certain locations.
o He says competitive advantage of nations is the outcome of 4 inter-linked advanced
factors and activities in and between companies in the cluster and these can be
influenced by Govt.
o He argued that a nation can create new advanced factor endowments such as skilled
labour, strong technological and knowledge base, Govt. support and culture.
o Porter used a diamond shaped diagram as a framework to illustrate the determinants of
national advantage.
o The diamond represents the national playing field that countries establish for their
industries.

o Factor condition –
 A country creates its own factors – skilled resources and technological base.
 Adverse conditions such as labour shortages or scarce raw material – force firms
to develop new methods, Innovation, etc – which lead to national comparative
advantage.
o Demand condition –
 Home country demand plays important role.
 It enables better understanding the needs of domestic market.
 It shapes pressure for innovation and growth – this leads to a national
competitive advantage.
22
 o Related & supporting industries-
 Creation of clusters of supporting industries – thus achieving a strong
competitive position internationally . ( e.g., Gujarat & Maharastra.)
o Firms Strategy, structure & Rivalry-
 Long term vision is a determinant of success.
 Presence of domestic rivalry improves company’s competitiveness.
o Govt’s role-
 Encourage companies to raise their performance
 E.g. products standards – encourage, stimulate, help industry- competition acts.
o Therefore countries will export products from those industries where all 4 components
of the diamond are favourable.
o And countries will import products where all 4 components of the diamond are not
favourable.
o Chance:-
 Events beyond the control of the firm – some gain some firms loose.
o These factors interact with each other to create conditions for competitiveness.

 WHAT IS VRIO ANALYSIS

o The VRIO Analysis was developed by Jay B. Barney as a way of evaluating the resources
of an organization which are divided as follows:

 Financial resources
 Human resources
 Material resources
 Nonmaterial resources (information, knowledge)
o It is a tool used by firms’ internal analysis –
 Internal resources and capabilities to find out if they can be a source of
competitive advantage.
 Internal analysis provides a comparative look at a firm’s capabilities – strengths
& weaknesses.
 It helps a firm to determine if its resources and capabilities are likely source of
competitive advantage.
 To establish strategies that will exploit any sources of competitive advantage.
 In order to understand the source of competitive advantage, firms are using
many tools.
 One is VRIO – four attributes/resources:
o A resource or capability that meets all 4 requirements can bring sustained competitive
advantage for the company.
o Valuable, Rare, Costly to Imitate and Firm Organised to capture the value of resources.
o The VRIO Analysis is an analytical technique which for each type of resource considers
the following questions (evaluation dimension) for an organization as well as for its
competitors. VRIO is an acronym from the first letters of the names of the dimensions:

23
  Value - How expensive is the resource and how easy is it to obtain on the market
(purchase, lease, rent..)?
 Rareness - How rare or limited is the resource?
 Imitability - How difficult is it to imitate the resource? Or whether – costly to
imitate by competitors.
 Organization, respectively arrangement - Is the resource supported by any
existing arrangements and can the organisation use it properly?
o How to use this tool.
 Identify valuable, rare, costly to imitate resources.
 Resources –
 Tangible – rarely the source of competitive advantage
 Intangible – brand reputation IPR, creates competitive advantage.
 Do SWOT analysis – exploit opportunities and defend threats.
 Exploit strengths and minimize weaknesses.
 Find out company is organized to exploit these resources.
 Protect resources.
o If a firm has resources that are valuable, rare, costly to imitate and the firm is organized
to exploit these resources, then the firm can expect to have a sustained competitive
advantage.
 This can be found out by asking four questions about a resource or capability to
determine its competitive advantage.
o MODEL : IS THE RESOURE OR CAPABILITY :

 WHAT IS MCKINSEY GROWTH PYRAMID

o A Model to develop proper growth strategies to attain future growth.
o Business should develop their growth strategies based on the below parameters;
o Operational skills –
 This lead to operational efficiency and higher operating profit which help faster
growth in future.
o Privileged assets-

24
  Assets held by the company (patents, good brands, customer data base,
knowledge H.R) helps to achieve competitive advantage.
o Growth skills-
 Required to lead growth strategy and includes (skills for new product
development, expanding into new area, M&A skills).
o Special relationship-
 Helps to attain higher growth by leveraging the relationship with trade union,
Govt., trade bodies – faster approval of policies by Govt.

o Growth can be achieved by the following business opportunities – 7 ways.

o This model outlines 7 ways of achieving growth:
o 1. Existing products to existing customers:
 Increase sales to existing customers base by improving quality and other
features. ( e.g. increase the frequency of purchase)
o 2. Existing products to new customers:
 By advertising and promotional activities – this involves also selling products to
competitors customers or new customers in new regions.
o 3. New products / services:
 Faster growth can be achieved by introducing new products in the existing
market.
 This is done by 2 ways.
 1. New products based on the demand of the new customers – it
increases customer base.
 2. New products to existing customers.
o 4. New delivery approaches:
 Explore and use new distribution channels to increase sales volumes. Increase
distribution network in untapped areas.
o 5. New geographies – expand business to new geographies/countries.
o 6. New industry structure – achieve growth by acquiring troubled competitor or
consolidate industry through M&A.
o 7. New competitive arenas- integrate different business verticals to exploit different
opportunities.

25
 WHAT IS ANSOFF ANALYSIS
o In 1972 Ansoff published the concept under the name of Strategic Management
through a pioneering paper titled The Concept of Strategic Management, which was
ultimately to earn him the title of the father of strategic management.
o The paper asserted the importance of strategic planning as a major pillar of strategic
management but added a second pillar – the capability of a firm to convert written
plans into market reality. The third pillar- the skill in managing resistance to change –
was to be added in the 1980s.
o Ansoff says that “strategic management is a comprehensive procedure which starts with
strategic diagnosis and guides a firm through a series of additional steps which
culminate in new products, markets, and technologies, as well as new capabilities.
o Strategic Management aimed to give people at all levels the tools and support they
needed to manage strategic change.
o Its focus was no longer primarily external, but equally internal – how can the
organization seize and maintain strategic advantage by using the combined efforts of
the people that work in it?
o Ansoff matrix presents the product and market choices available to an organization.
o It is used in Marketing audit also.
o It presents options of
 Launching new products
 Moving into new markets
 Exploration of possibilities of withdrawing from certain markets.

o Market penetration:
 It occurs with current products with existing customers.
26
  Companies often penetrate markets in 3 ways in order to retain the existing
customers and to create new customers.
 By gaining competitors customers
 Improving the product quality
 Attracting non-users of the product or convincing current customers to
use more.
o Product development:
 It occurs when the company develops new product for the same market.
 It is significantly new product and not minor changes in the existing products.
 The reasons can be – excess production capacity, to counter competitive entry,
maintain company’s reputation as a product innovator and to protect market
share.
o Market development:
 It moves beyond immediate customer base towards attracting new customers
for its existing products.
 It involves moving global, new segments, new uses.
o Diversification:
 It moves out of its current products and markets to new areas – may be
unrelated areas and in related areas – backward, forward, horizontal integration.

 WHAT IS GAP ANALYSIS

o It is a tool that helps firms compare actual performance with the potential performance.
o Also called need-gap, need analysis or need assessment.
o It determines current state and list down factors needed to reach its target state and
then plan on how to fill the gap.
o It is the process of identifying the gap between the optimized allocation and integration
of the inputs and the current level of allocation.
o This GA involves determining, documenting and approving the variance between
business requirements and current capabilities.
o It provides a framework for measuring of time, money and HR resources required to
achieve a particular outcome.
o GA flows from benchmarking and other assessments once the general expectations of
performance in the industry is understood, it is possible to compare that expectation
with the level of performance at which company currently functions. This comparison is
GA.
o Once gaps are identified – strategy to close them by 4 models.
1. Environmental GA – Difference between the firm’s strategy set and resources and
the threats and opportunities that make up environment. This gap can be filled by
new action plan or strategy can be modified.
2. Functional level GA—To compare actual and potential market variables for
marketing strategy ( variables like product line gap, distribution gap, competitive
gap, etc)
27
 3. Business level GA—Gaps between actual and planned results ( profits, cash flow,
corporate image)
4. Corporate Level GA—consolidated performance analysis.

 WHAT IS IMPACT ANALYSIS.

o It is a technique designed to unearth the unexpected negative effects of a change on an
organization.
o It is a brain storming technique which helps users to think through the full impacts of a
proposed change.
o It provides a structured approach for looking at a proposed change, so that we can
identify as many of negative impacts or consequences of the change and to prepare for
and manage any serious issues.
o It takes the form of what if analysis or sensitivity analysis. What if analysis is a
brainstorming approach that uses broad, loosely structured questions.
o Firstly, it makes the evaluation of a new project to proceed or not.
o Secondly, once the decision to go ahead is taken, it helps to prepare for and manage any
serious issues that may arise.

 WHAT IS VALUE CHAIN ANALYSIS:

o Porter introduced generic value chain model in 1985 in his book competitive
advantages.
o VCA is a process where a firm identifies its primary and supporting activities that add
value to its final products and then analyse these activities to reduce cost or increase
differentiation.
o The aim of VC is to maximize value creation and minimizing costs.
o It helps managers to identify key activities within the firm which form the value chain
for that organization and have the potential of a sustainable competitive advantage for
the company. There lies – ability to perform crucial activities better than the
competitors.
o To do this analysis – the company is split into primary and support activities.
o Value chain represents the internal activities a firm engages in when transforming
inputs into outputs.
o It is a strategic planning tool to analyse which activities are the most valuable to the
firm and which ones could be improved further to provide competitive advantage.
o Means of describing the activities within and around an organization and relating them
to an assessment of the competitive strength of an organization. ( Michel Porter).
o VCA originally introduced as an accounting analysis to shed light on value added steps
in complex manufacturing process in order to decide where cost improvements/value
creation could be done.
o Key aspect of VCA is the recognition that organization are much more than a collection
of machine, money, people. These resources are of no value unless deployed into

28
 activities and organized into routines and systems which ensure that products are
produced which are valued by the final consumers.
o It is the competencies to perform particular activities and ability to manage is the source
of competitive advantage.
o Understanding of strategic capability must start with an identification of separate value
activities. They are 2
o 1. Primary activities – grouped into 5 main areas.
 1. Inbound logistics – activities of receiving, storing inputs, etc
 2. Operations – activities of transforming inputs into final products
 3. Outbound logistics – activities of collect, store product to customers
 4. Marketing and Sales – activities of sales, advt, pricing, promotion, managing
customer relations, etc.
 5.Service – all those enhance or maintain value of a product – installation,
repair, spares, training.

 Each of these primary activities are linked to support activities which can be divided into
four.
 1. Procurement – process of acquiring various resources.
 2. Tech development – all value activities have a technology even if it is simply
know how.
 3. HRM – transcends all primary activities.
 4. Infrastructure

 What is MBO PROCESS:

o Management by objectives (MBO), also known as management by results (MBR), is a
process of defining objectives within an organization so that management and
employees agree to the objectives and understand what they need to do in the
organization in order to achieve them.
o The term "management by objectives" was first popularized by Peter Drucker in his
1954 book The Practice of Management.
o The essence of MBO is participative goal setting, choosing course of actions and decision
making.
29
 o An important part of the MBO is the measurement and the comparison of the
employee’s actual performance with the standards set.
o Ideally, when employees themselves have been involved with the goal setting and
choosing the course of action to be followed by them, they are more likely to fulfill their
responsibilities.
o A systematic and organized approach that allows management to focus on achievable
goals to attain the best possible results from available resources.
o MBO managers will focus on results not on the activity.
o MBO empowers employees since they implement and achieve their plans which
automatically achieve those of the organizations.
o MBO clearly defines roles and responsibilities of individuals.
o The MBO process consists of five steps:
 Review organizational objectives: The manager gains a clear understanding of
organization's overall objectives.
 Set worker objectives: The manager and worker meet to agree on worker
objectives to be reached by the end of normal operating period.
 Monitor progress: At periodic intervals during the normal operating period, the
manager and worker check to see if the objectives are being reached.
 Evaluating performance: At the end of normal operating period, the worker's
performance is judged by the extent to which the worker reached the objective.
 Give reward: Rewards given to the worker are based on the extent to which the
objectives were reached.

 What is BALANCED SCORE CARD:

o A widely used strategic management & measurement system or management tool for
analyzing the proper alignment of small operational activities within the company’s
main vision, strategy and business objectives.
o It focuses not only on financial outcomes, but also on operational, marketing and
developmental inputs.
o Design of BSC is mainly about identifying small no. of financial and non-financial
parameters which can help to conduct strategic performance management.
o By checking all the small parameters, we can easily identify their current performance
and whether they are meeting the expectations or not. If deviations –focus on solutions
for improved performance.
o BSC is a new performance measurement system.
o It measures a company’s activities in terms of vision and strategies to give managers a
comprehensive view of the performance of business.
o BSC enables an organization to clarify their vision and strategies and translating them
into action.
o It is an extension of Rate of Return on capital employed or ROI or its modified versions
like Social-Cost benefit analysis or social return.

30
o Traditionally corporate plans were mere financial plans and this traditional way of
management has changed to strategic management.
o All depts. have their own methods of communication. For e.g., Finance dept do the
financial statements, Engineering dept with drawings, etc.
o The strategic plan with attractive cover, well written words, reports, bar charts, etc does
not yield good impact on the people responsible for execution and more so, strategic
plan is devised by top management and execution takes place at lower levels.
o In view of the above issues, with BSC – the strategy is expressed in terms of
measurements and targets to which employees can related. The strategy thus reaches
everyone in a language easy to understand and executable.
o It links – projects, approval, budgeting, compensation, training, etc.
o Performance measurement does not mean only financial performance but also covers
non-finance.
o BSC is a method of defining strategy related to pre determined goals ( e.g., product,
people, process, etc) and retains financial measurement.
o BSC is a strategic planning & management system that is used extensively in business to
align business activities to the vision and strategy of the firm.
o BSC is a strategy performance management tool – a semi structured report – supported
by design method and automation tools that can be used by managers to keep track of
the execution of activities by the staff within their control and to monitor the
consequences arising from these actions.
o BSC transforms an organisations’ strategic pan of passive documents into marching
orders for the organization on daily basis – It helps planners to identity what should be
done and measured.
o Financial performance measures the tangible aspects only but unable to reveal anything
about the intangible aspects of business and therefore BSC.
o BSC considers results from past efforts and the measures that drive future performance.
o BSC is a proven tool to translate a company’s strategy into action.
o It reviews both qualitative and quantitative results.
o It is a strategic management concept developed in 1992 by Robert Kaplan & David
Norton.
o It enables organizations to clarify their vision and strategy and translate them into
action.
o BSC suggests a view of an organization from 4 perspectives, to develop, metrics, collect
data and analyse it.
o The goal of BSC is to link business performance with organizational strategy by
measuring results in the following 4 core perspective/areas;
o In each of this perspective, objectives, targets are fixed and measures like how do we
know whether we have achieved or not is analysed.
 Financial perspective/performance –

31
  Availability of timely and accurate financial data will be priority. Here the
profitability is measured by operating income, return on capital
employed and economic value added.
 Indicates and measures on the context of what do the shareholders think
of us?
 Customer perspective/knowledge –
 Customer focus and satisfaction if they are not satisfied, they do not
patronize. Identify the customer, market segments, define core measures
like customer satisfaction, retention, new customer acquisition, customer
profitability, market share.
 Indicates and measures on the context of what does the customer think
of us?
 Internal business processes/perspective –
 Metrics based on this perspective allow the managers to know how well
their business is running. Identify the crucial internal processes and link
these to superior value to customers.
 Indicates and measures how to improve internal efficiency and profit
margin.
 Learning & growth perspective –
 Includes employee training and corporate attitudes. In a knowledge
based organization, people are only repository of knowledge. In current
situation, it is necessary for knowledge workers in continuous learning.
Ability of employees, MIS, motivated employees.
 Indicates and measures can we continue to learn and create growth for
the company.
 BSC an example

FINANCIAL PERSPECTIVE LEARNING AND GROWTH

Financial results and growth Develop critical skills & knowledge
Key financial parameters ( ROI) & performance Proper knowledge management
Higher profit margin Provide strategic information to all
Improved cash flow Align personal goal with firms goal
Lower debt Employee growth and turnover
Reduced overhead Employee satisfaction and retention
Proper investment
CUSTOMER PERSPECTIVE INTERNAL BUSINESS PROCESS
Increase customer satisfaction Cross sell the products
Increase customer loyalty Improve operational efficiency
Retention of key customers Proper CRM
Sales revenue per customer Higher success rate in converting opportunities
Competitive pricing Fast business decisions and approvals
High quality product / service Good work culture
Customer preference to firms products Higher employee confidence
o BENEFITS OF BSC
 Translating vision and long term into smaller operational goals which can be
achieved easily.

32
  Increases focus on strategy
 Improved services offered to clients and increase the satisfaction
 Revisits the existing strategy through analysis and can be modified
 Improves organisation’s performance by measuring KPI
 Improves learning and knowledge management
 Focuses on key drivers for growth

 WHAT IS WAR GAMING :

o A war game is a role-played simulation of a business situation, usually one that involves
a set of teams representing a company, market or customer, a set of competitors, a
control team and a series of other uncontrollable factors or entities.
o It is a useful technique for identifying competitive vulnerabilities and misguided internal
assumptions about competitor’s strategies.
o It is simply, a business war game is the adaptation of military war gaming to a business
environment: it helps a company with strategic, operational and tactical planning, and
execution.

 WHAT IS COMPETITIVE INTELLIGENCE:

o It is the action of defining, gathering, analyzing, and distributing intelligence about
products, customers, competitors, and any aspect of the environment needed to
support executives and managers making strategic decisions for an organization.
o Competitive intelligence essentially means understanding and learning what's
happening in the world outside your business so one can be as competitive as possible.
It means learning as much as possible—as soon as possible—about one's industry in
general, one's competitors, or even one's county's particular zoning rules.
o In short, it empowers you to anticipate and face challenges head on

 What are the STRATEGIS FOR MATURE PRODUCT /MARKET

o The scenario of mature market;
 Excess capacity
 More intense competition
 Difficulty in maintaining product differentiation
 Distribution problems- channel members lack of interests
 Pressure on price and profits
 No clear competitive advantage
o Strategies for mature market:
 During maturity stage, a variety of threats and opportunities disrupt a firm or
industry.
 Shifts in customer needs or preferences
 Product substitutes

33
  Severe competition
 Increased raw material costs or cost of production
 Changes in regulatory requirements, etc
 Entry of low cost producer
 Mergers and Acquisitions
o Strategic choices available are two types:
 1. Development of a well implemented business strategy to sustain a
competitive advantage, customer satisfaction and loyalty.
 Strategies for maintaining competitive advantage:
o Defensive strategy for leader.
o Differentiation of their product offering
o Maintain low cost position
 2. Flexible and creating marketing programs / pursue growth opportunities.
 New uses
 New users
 New markets
 Convert non-users
 Extended use
 Frequent use
 Market expansions.

 WHAT IS MARKET VALUE ADDED ( MVA):

o It measures the share market, estimate of the net present value of firm’s past and
expected capital investment projects.
 It is difference between the current market value of a firm and the capital
contributed by investors.
 The difference between market value of a business and the cost of capital
invested in it.
 When the market value is less than the cost of capital invested, this implies that
management has not done a good job of creating value with the equity made
available to it by investors.
 How to calculate MVA.
 Multiply the total of all common shares outstanding by market price.
 Multiply the total of all preferential shares outstanding by their market
price.
 Combine these two.
 Substract the amount of capital invested in business.
 Another formula for calculation of MVA= V-K
o Where V= is the market value of the firm ( equity + debt)
o Where K= capital invested in the firm.

34
 WHAT IS ECONOMIC VALUE ADDED ( EVA):
o It is the method of measuring corporate and divisional performance.
o It is the net earnings in excess of cost for the capital employed ( debt+equity)
o The firm is said to have earned an economic return if its after tax return on capital
employed exceeds the cost of capital employed.
o It measures the difference between the pre-strategy and post-strategy value of the
business.
o EVA is the incremental difference in the rate of return over a company’s cost of capital.
o It is the value generated from funds invested in a business.
o It is an estimate of economic profit – being the value created in excess of the required
return of the company’s investors.
o It is the profit earned by a firm, less the cost of financing the firm’s capital.
o MVA & EVA calculations are used to measure the value of the firm and they highlight
whether the firm is doing well or not.

 WHAT IS CHANGE MANAGEMENT:

o The application of set of tools, processes, skills and principles for managing the people
side of change to the required outcomes of the initiative.
o Change Management Institute survey agreed it could be described as “a structured
approach to transitioning individuals, teams and organization from a current state to a
desired future state.
o What is a change–
 If change is to be defined as anything that moves away from the status quo.
 Anything that alters our routine, challenges the perception and makes us
reflection on how things are done.
 It is moving from one static state to another.
 It is making things different.
o Causes of change:
 Planned or unplanned.
 Individual or organizational
 External pressures
 Internal pressures
o Goal of change is to improve the organization by altering how work is done.
 When you introduce a change to the organization, you are ultimately going to be
impacting one or more of the following four parts of how the organization
operates:
 Processes
 Systems
 Organization structure
 Job roles
o Who are Change agents –

35
  Change agents are people who encourage and promote change in an
organisation, by their impact on processes and people. They may have formal
change management roles, or may be part of project teams or the wider
workforce.
 Ideally good change agents:
 Believe change is possible and live in the future, not the past, with a
focus on goals and outcomes.
 Are motivated and resilient when things go badly or slowly, and prepared
to take calculated risks.
 Communicate well with a wide variety of people
 Are empathetic, and able to see things from others’ perspectives
 Are flexible and creative, prepared to try new things and think of
different options.
o Kurt Lewin ( 1951 ) model for change management.
 His model is known as Unfreeze – Change – Refreeze, refers to the three-stage
process of change he describes.
 Lewin, a physicist as well as social scientist, explained organizational change
using the analogy of changing the shape of a block of ice.
 If you have a large cube of ice, but realize that what you want is a cone of ice,
what do you do? First you must melt the ice to make it amenable to change
(unfreeze).
 Then you must mold the iced water into the shape you want (change).
 Finally, you must solidify the new shape (refreeze).

 Unfreeze-
 Prepare the organization to accept that change is necessary.
 Communicate the message why present way of doing things are not
effective and can not continue.
 Link these to declining sales, customer complaints, low profits, etc.
 Challenge the current beliefs, values and attitudes
 Re-examine and review all the necessary changes.
 Change-
 After the uncertainty created in the unfreeze stage, the change stage
is where people begin to resolve their uncertainty and look for new
ways to do things.

36
  People start to believe and act in ways that support the new
direction.
 The transition from unfreeze to change does not happen overnight.
 People take time to embrace the new direction and participate
proactively in the change.
 Time and communication are the two keys to success for the changes
to occur.
 People need time to understand the changes and they also need to
feel highly connected to the organization throughout the transition
period.
 Refreeze –
 When the changes are taking shape and people have embraced the
new ways of working, the organization is ready to refreeze.
 The refreeze stage also needs to help people and the organization
internalize or institutionalize the changes.
 With a new sense of stability, employees feel confident and
comfortable with the new ways of working.
o The two sides of change are Technical & People.
o One has to manage people through good times and lead people through bad times.
o John Kotter’s model of Managing change –
 This model is a road map of how to go about achieving change in 8 steps.
 1. Create urgency:
 people want comfort not uncomfort & they don’t generally like changes.
 For change to happen, it should be believed by at least 75% of
management that change is good.
 So create an urgency for change, start conversations about what is
happening in market, competition, other firms. Explain what will happen
if we don’t change.
 To move to 2nd step, 75% support is needed. Do not force change.
 2. Form a powerful coalition:
 Promote power of change and reasons.
 Search out strong leaders who can influence others in the firm.
 Form teams
 3. Create vision for change:
 Work with the change team / agents for ideas for strategy and vision
 Develop best ideas so that everyone understands for implementation
 4. Communicate the vision:
 At every meeting, everywhere talk about these.
 5. Empower others to act on the vision:
 This step is to start achieving the benefits.
 If everything is done, motivate the team.

37
  6. Create short term wins.
 7. Build on the change :
 After achieving targets, analyse what worked and what did not.
 8. Make change stick:
 Maintain and for continual improvement.

 WHAT IS MOTIVATION
o A motive is an impulse that causes a person to act.
o Motivation in management - ways in which managers promote productivity in their
employees.
o Motivation is an internal process that makes a person move toward a goal.
o Motivation, like intelligence, can’t be directly observed. Instead, motivation can only be
inferred by noting a person’s behavior.
o Motivation actually describes the level of desire employees feel to perform, regardless
of the level of happiness. Employees who are adequately motivated to perform will be
more productive, more engaged and feel more invested in their work. When employees
feel these things, it helps them, and thereby their managers, be more successful.
o Motivation is the process through which managers encourage employees to be
productive and effective.
o Motivation techniques: 6 ways
 1. Build a strong foundation
 Know them first since they are seasoned employees
 Let them know the ultimate outcome or objectives
 Understand their personality and what makes them tick – this will allow
to approach them.
 2. Employee development
 3. Goal setting
 4. Have fun ( i.e., friendly with them)
 5. Coach
 6. Change

 WHAT IS PREDICTIVE SUCCESS
o The capabilities that enable you to identify the specific target population likely to
respond positively to a specific campaign or other marketing activity .
o To state, tell in advance, especially on the basis of special knowledge-
foretell something.
o Predicting future trends of the business or confirming any past predictions which have
been made.

 WHAT IS LEADERSHIP:
o Who is a leader?
38
  One who influences a group of people towards the achievement of a goal.
 It consists of 3P's - Person, People and Purpose.

o Person :-A leader by its meaning is one who goes first and leads by example, so that
others are motivated to follow him. This is a basic requirement. To be a leader, a
person must have a deep-rooted commitment to the goal that he will strive to
achieve it even if nobody follows him.
o Purpose:-A requirement for leadership is personal vision - the ability to visualize your
goal as an accomplished fact.
o People:-To be a leader, one must have followers. To have followers, one must have
their trust. How do you win their trust? Why would others trust you? Most important,
are you worthy of their trust?
 Why are some individuals more effective than others at influencing people?
Effectiveness in leadership has been attributed to
 (1) persuasion skills,
 (2) leadership styles and
 (3) personal attributes of the leader.
 (4) love for people (influence).
o Truly effective leaders are also distinguished by a high degree of emotional intelligence,
which includes self-awareness, self-regulation, motivation, empathy, and social skill.

39
o A leader is one who has followers.
o Leadership is about inspiring others and doing right things.
o Leaders make change happen.
o Peter F Drucker – management is doing things right and leadership is doing right things.
o Leadership is not making friends and influencing people – that is flattery.
 It is lifting a person’s vision to higher sights, the raising of a person’s
performance to a high standard, the building of personalities beyond its normal
limitation.
o Leadership is defined as influencing others to accomplish a mission, task or objective
and direct the organization in a way that makes it more cohesive and coherent.
o A leader is one who knows the way and shows the way.
o Leadership is creating a vision.
o Leadership is a process whereby an individual influences a group of individuals to
achieve to achieve a common goal.
o Leaders have the ability to transform people.
o What are Leadership skills;
 the tools
 the behavior
 the capabilities that a person needs in order to be successful at motivating and
directing others.
o Some of the leadership skills:
 is committed to a vision or mission
 understands his role
 demonstrates integrity
 sets an example
 understands how to motivate the behavior of others
 communicates effectively
 willing to take risks
 is adept at problem solving
o Leaders will have vision of what can be achieved and then communicate this to others
and evolve strategies for realizing the vision.
o They motivate people and are able to negotiate for resources to achieve goals.
o Managers ensure that the available resources are well organized and applied to produce
best results.
o A manager’s role is
 Interpersonal
 Informational Formal authority and status.
 Decisional
o Management is getting things done ( through balanced involvement of people)
o Management is about making decisions.
o A successful leader must have 4 clusters of characteristics;
 1. Vision, perspective and clear understanding of the big picture.

40
  2. Ability to organize and empower to achieve results.
 3. Strong interpersonal skills, ability to communicate, influence and work with
others.
 4. Personal motivation and energy.
o Abilities of Leader:
1. Thinking abilities – think strategically
2. People abilities – manage self, others, lead, manage relationships.
3. Task abilities – manage information, resources, activities, quality.
o How to have more followers:
 By motivation
 By persuasion
 Come down to people.
o Three traits a successful leader must have.
 1. Desire to lead – otherwise the leader will not be comfortable in the leader role
and he will struggle every day.
 2. Commitment to the mission and vision of the organization where they work. If
the leader himself does not believe the vision and mission, then the leader can
not convince others effectively to accomplish the objectives.
 3. Integrity – doing what you say and will do and behave the way you expect
your team to behave. Being true to your word. Integrity can be practiced by 1.
Sincerity, 2. Consistency and 3. Substance.
o NINE KEY STRATEGIC LEADERSHIP ROLES ( BASED ON RESEARCH)
1. Navigator – clearly and quickly works through the key issues, problems &
opportunities to take action.
2. Strategist – develops a long range course of action aligned with organisations’ vision
3. Entrepreneur – identifies and exploits opportunities for new products and markets
4. Mobiliser - proactively builds and aligns stakeholders, resources for getting things
done quickly.
5. Talent advocate- attracts, develops and retains talent to ensure that people with
right skills to meet the business needs are in right place and at right time.
6. Captivator- builds passion and commitment toward a common goal.
7. Global thinker – integrates information from all sources to develop a well informed
perspective that can be used to optimize organizational performance.
8. Change driver – creates an environment that embraces change, makes changes
happen.
9. Enterprise guardian – ensures shareholders value through courageous decision
making that supports enterprise.
o Management skills vs. leadership skills:
 Management skills – required to manage resources to accomplish a task.
 Leadership skills – required to engage with, allocate resources, motivate and
persuade people to buy vision, objective or goal.
o Various leadership styles:

41
  Autocratic – takes major decisions ( short term ok)
 Democratic – share decision making – loyal people
 Bureaucratic – rules with consistency
 Charismatic – inspiring and influencing the action of others.
o Based on a study, the critical skill for a leader are
 1. Effective communication skills and listening
 2. Effective people management
 3. Empathy and emotional intelligence.
o George Ambler published an article : Practice of leadership.
 How to know when you are not leading?.
 He says people fail when they act from the stance of a victim.
 He mentioned such leaders commonly use.
 Deny /Ignore the problem/issue.
 It is not my job.
 No time – busy Called Durian Victim Cycle(DVC)
 Blame and finger pointing
 Confusions – tell me what to do.
 Excuses and defensive attitude
 That’s how , we used to do.
 No money – we will se.
o The responsibility ladder is
o People will see it
o Feel it
o Own it
o Solve it
o Achieve results.

 WHAT IS TEAM BUILDING

o It is a process, a group learns to work together as a team to reach a desired result.
o No individual can do all the work in an organization.
o When the team works, the output should be more than the sum total of individuals.
o Personal and professional learning takes place in a team- i.e. cross training and
development, knowledge sharing, etc.
o What is a team
 A team is a group of people working together towards a common goal.
 Two or more people working inter-dependently towards a common goal.
o What is team building
 The process of gathering right people and getting them to work together for the
achievement of objectives.
o What is team management
 The direction to a group of individuals who work as a unit.
o What is a role
42
  A unit of defined responsibilities for one or more individual.
o What is effective team building-
 Team building is a process of enabling the team to achieve the common goal.
 The stages in team building – clarify the goals, identify inhibitors and remove
them.
 It has to use different skills and talent within the group.
 Effective delegation to empower team members.
o The nature of team building varies in terms of scale and what the team is trying to
achieve.
 If individual – 1 person – changes - individual skills and perception
 If small team – 2-12 persons – changes - relationships between people
 Inter team – 2 or more team – changes – relations between team
 Organization – 15 + people – changes – culture of the organization.
o An effective team should be 5 to 7 people only.
o An effective team needs to
 To tackle the task in hand
 To maintain social relations within the group.
 Ensure individual needs are also met.
o 5 stages of group development / Team development:
 The effectiveness of the team will depend on how well it deals with problem that
emerge at each stage as detailed below;
 1. Forming –
 formalities are preserved
 members are treated as strangers
 people tend to be careful about what they say and how they say.
 Everyone is in his best behavior during this stage.
 With differing ideas about purpose since this is initial stage.
 2. Storming –
 Members start communicating their feelings.
 But still they feel and view themselves as part of their parent dept. only
than as a part of the team.
 Arguments starts, conflicts arise.
 May be conflicts about the purpose, leadership, working, etc.
 People at this stage will never come together.
 3. Norming –
 People feel part of the team
 Realise they can achieve if they accept other’s view point.
 The team members develop a shared vision, goal setting and objectives.
 People get to know each other’s strengths and learning to work together.
 4. Performing-
 The team works with flexibility

43
  Hierarchy is of little importance now.
 Trust is formed.
 Members now have clear idea, shared sense of purposes, open
communication, team spirit.
 5. Adjourning –
 Termination of task
 Recognition for participation and achievement
 Saying goodbyes.

 WHAT IS GROUP DYNAMICS:

o It refers to the interactions between people who are talking together in a group.
o At any time, if there are 3 or more individuals interacting or talking together, there are
group dynamics.
o Managing group dynamics-
 Responding and redirecting the behavior or participation of an individual to a
direction that is better for the group.
o The group dynamics or effectiveness is affected by two roles commonly;
 The person who dominates the group
 The person who remains silent in the group.
o Group problem solving-
 Each member should understand the task.
 Each member should realize how he can contribute
 Each member should recognize potential contribution of others
 Negotiation is important for success
 Managing group dynamics – e.g. help shy person to contribute.
 Do not lose sight of original purpose – these detours waste time and energy.

 WHAT IS COLLECTIVE DECISION MAKING

o Deliberations are integral part of collective decision making.
o It involves some form of communication among its members, free or fully structured.
o Sometimes, free range communication among committee members might instead be
detrimental to decision making.
o Collective decision making / Group decision making is a type of participatory process in
which multiple individuals acting collectively, analyse problems or situations, consider
and evaluate alternative courses of action, and select from among the alternatives a
solution.
o There are many methods /procedures for collective decision making
o Some of them:
 1. Brain storming-
 Members suggesting ideas or alternative course of action.
 Relatively unstructured.
 2. Dialectical inquiry-
44
  It is a group decision making technique which focuses on ensuring full
consideration of alternatives.
 This involves dividing the group into opposing sides – debates the pros
and cons of their respective sides and then arrive at decisions.
 Another technique is Devil’s Advocacy – one member highlight the
problems of a proposed decision and group to consider all ramifications.
 3. Nominal group technique-
 Members to prepare comprehensive list of their ideas or alternatives in
writing privately.
 Then each member to provide one item publicly and recorded on a flip
chart or marker board until all ideas are announced and recorded.
 Then the group engages discussions of the listed alternatives and ranking
is done in order of preferences.
 This is relatively of high quality.
 4. Delphi technique-
 This was developed by Rand corporation
 Members at different locations.
 Each member is asked to provide ideas or inputs, alternative solutions.
 These inputs are compiled and provided to all members.
 Other members can ask questions and then alternatives are ranked.
 After an indefinite no. of rounds, the group eventually arrive at a
consensus decision on best.

 WHAT IS BENCH MARKING

o It is a process of comparing one’s business processes and performance to industry best
practices.
o Best practice means the most efficient ( least amount of efforts) and most effective (
best results) way of accomplishing a task.
o It is moving from where we are to where we want to be.
o BM is not only doing same thing better, but discovering new, better and smarter ways of
doing things.
o It is the process of identifying, understanding and adopting outstanding practices from
organizations anywhere in the world to help our organization improve its performance.
o It is the process of identifying and learning from the best practices anywhere in the
world and implementing the improvements.
o It is measuring our performance against that of best in class companies, determination
how the best in class achieve those performance level and using the information as a
basis for our own company’s targets, strategies and implementation.
o It is essentially to achieve business and competitive objectives.
o It is process used in strategic management.
o Businesses use industry leaders as a model in developing their business practices.

45
 o Involves comparison of firms’ products, activities against other best performing
organizations ( involves how others do it)
o The dimensions typically are quality, time and cost. Improvements from learning mean
doing things better, faster and cheaper.
o Attempts identifying an activity that needs to be improved.
o BM systematically studies the absolute best firms, then uses their best practices as
standards of comparison.
o BM involves determination of where you need to improve, finding an organisation that
is exceptional in this area, then studying the company and applying its best practices in
your firm.
o Various bench markings are there:
 Competitive Bench marking- assessing relative level of performance and finding
ways to close the gap
 Strategic bench marking – to re-align business strategies that have become
inappropriate.
 Process bench marking – to achieve improvement in key processes.
 Functional bench marking – to improve activities
 Internal bench marking- other units or division’s good practices to be applied.
o Bench marking involves –
 Planning
 Goal setting
 Identifying the best performance
 Establishing improvement team
 Defining action plan
 Implementing
 Evaluation

 WHAT IS ENTERPRISE RESOURCE PLANNING:

o A fully integrated business management system covering functional areas of an
enterprise like Production, Finance, Accounting, HRM, Marketing & Logistics.
o It means planning the resources in an enterprise and way of using the resources more
effectively.
o It organizes and integrates operation processes and information flows to make optimum
use of resources.
o ERP promises – one database, one application and one user interface for the entire
enterprise.
o ERP evolved from Manufacturing Requirement Planning(MRP) with the integration of
information between vendors, customers, manufacturing using networks such as LAN,
WAN and internet.
o ERP is a business process management software that allows an organization to use a
system of integrated applications to manage the business and automate back office

46
 functions. It integrates product planning, development, manufacturing process, sales
and marketing.
o ERP can be introduced with sophisticated IT infrastructure only.
o Why ERP.
 Integration of financial information
 Integration of customer order information
 Standardize and speed up manufacturing process
 Reduce inventory
 Standardize HR information
 Reduce paper documents
 Retrieval of information
 Improved cost control
 Fast response to customers
 Competitive advantage
 Improved internal operations and communications

 What is THEORY OF CONSTRAINTS:

o Theory of Constraints focuses its attention on constraints and bottlenecks within the
organization that hinder speedy production.
o The concept is to maximize the rate of manufacturing output.
o This requires examination of Bottleneck & Constraints.
 Bottleneck – demand for a resource is more than its capacity to supply.
 Constraints – achievement of objectives more difficult than it would otherwise.
E.g. lack of skilled employee, lack of customers order.
 A bottleneck is always a constraint but a constraint need not be a bottleneck.

 What is BUSINESS PROCESS RE-ENGINEERING:

o ERP is a result of how information system is to be configured to changing and
challenging environments of a new business opportunities.
o Companies intending to implement ERP has to re-engineer its processes.
o It focuses on the analysis and design of workflows and processes within an
organization.
o BPR is a business management strategy focusing on the analysis and design of
workflows and processes within an organization.
o It is a management approach aimed at improvements by means of elevating efficiency
and effectiveness of the processes which exists within and across organizations.
o The objectives of BPR are to eliminate redundant process to make organization result
oriented and irrelevant process to be eliminated. Also reducing cycle time of processing
for completing the job.
o BPR – is fundamental rethinking and radical redesign of processes to achieve dramatic
improvement in critical contemporary measures of performance such as cost, quality,
service and speed.

47
  Whatever we were doing in the past is wrong – approach.
 Why do we do that – approach.
 Eliminate processes that do not add value to the customers.
o The steps in BPR are
 Develop business vision and process objectives
 Identify the processes to be re-designed
 Measure the performance of existing processes.
 Identification of the opportunity for application of IT.
 Building prototype of new processes and implementing.

 What is CONTINUAL IMPROVEMENT:

o Recurring activity to increase the ability to fulfill requirements through incremental
changes.
o Continuous small changes across an organization make a difference.
o That is not seeking to be 100 percent better at anything but seeking to be one percent
better at 100 things.

 What is a HAZARD:
o Potential cause of an unwanted incident which may result in harm to individuals, assets
or organization.

 What is an IMPACT:
o Evaluated consequence of a particular outcome.

 What is TOTAL QUALITY MANGEMENT:

o Total = all activities, everyone, all people, all resources.
o Quality = understanding & meeting customer requirements.
o Management = manage quality and avoid defects than correcting
o TQM is vision based, customer focused, prevention oriented and continuous
improvement strategy.
o TQM is a structured system for meeting and exceeding customer needs and
expectations by creating organization wide participation in planning and
implementation of continuous improvements processes.
o TQM is a set of concepts and tools for getting all employees focused on continuous
improvement in the eyes of the customer.
o TQM is a management philosophy of continuously improving the quality of all the
products and processes in response to continuous feedback for meeting the customer
requirements.
o It focuses on avoiding defects than correction.
o It’s basic objective is customer satisfaction.
o TQM is customer oriented approach – seeks increase of customer satisfaction.
o TQM builds quality in the product rather allowing defectives and rectifying.

48
o TQM is an operational philosophy that stresses commitment to customer satisfaction
and continuous improvement.
o THREE core concepts of TQM.
 QUALITY CIRCLE: Concerned with past and deals with data obtained from
previous production to stop defective production.
 QUALITY ASSURANCE: Deals with present – putting a system in place to prevent
defects.
 QUALITY MANAGEMENT: Concerned with future and manages people in
continuous improvement.
o TQM advocates 4 principles of “P”s
 Planning – develop vision on the front of TQM
 Processes – process improvement in heart of TQM and this can be achieved by
innovation and small changes.
 People – motivate, train, support and recognize people to achieve quality.
 Performance – identify critical areas for quality improvement. Measure the
performance and communicate to people.
o Four objectives of TQM.
 Better, less variable quality of product
 Quicker, less variable response to customer needs.
 Greater, flexibility in adjusting to customer’s shifting requirements
 Lower, cost through quality improvement and elimination of no value adding
work.
o The 6 “C”s of TQM.
 Commitment
 Co-operation
 Culture
 Customer
 Control
 Continual improvement
o What are the steps in implementation of TQM.
 Identification of customer group
 Identification of customer expectations
 Identification of product utilities
 Comparison with other organization and Bench Marking
 Customer feedback
 Identify improvement opportunity and quality improvement
o What is quality – fitness for use. Fitness = quality of design and quality of conformance.
o PRAISE analysis in TQM.
 One of the tool used in TQM for identification of problem and implementation
process.
 The identification of improvement opportunities and implementation of quality
improvement process of the TQM process is through 6 step sequences.

49
  P  Problem identification =areas of customer dissatisfaction, absence of
competitive advantage.
 R Ranking = prioritize problems and opportunities. Perceived
importance and ease of measurement.
 A Analysis = conduct WHY-WHY analysis to identify possible causes.
What analysis – for potential implications.
 I Innovation = creative thinking to generate solution. Finalise solutions.
 S Solution = implement preferred solution. Action to bring in changes&
Training.
o What is training = training is a means to impart knowledge,
develop skills, change attitude and behavior.
o Learning is the act, process or experience of gaining knowledge or
skills.
o Learning is changes in an individual’s behavior arising from
experience.
o It is overt behavior and internal state of knowledge.
o It is relatively permanent change in behavior resulting from
experience.
 E Evaluation = monitor the effectiveness. Identify the potential for
further improvements.

 What is QUALITY COST:

o Quality is about meeting the needs and expectations of customers.
o Costs associated with producing, identifying, avoiding or repairing products that do not
meet requirements.
o Quality cost is preventing, detecting and dealing with defects cause costs and that are
called quality costs.
o Many organizations use 4 category of quality costs.
 Prevention cost = make it right for the first time. Ensuring failures do not
happen.
 Quality training, quality circles, statistical process control activities,
quality improvement activities, maintenance costs repairs.
 Appraisal cost = measuring, evaluating, inspection, auditing of purchased
material, analysis of in-process. Checking for failures.
 Testing & inspecting materials, final products testing, WIP testing,
package inspection, depreciation of testing equipments.
 Internal failure cost = products fail to meet requirements ( scrap, rework, retest).
Keeping defective products from reaching customers.
 External failure cost = does not perform satisfactorily after delivery to customer.
( complaints, returns, warranty) Cost of defects discovered by customers.
 Cost of field servicing, cost of handling complaints, warranty repairs, lost
sales, replacements, discount on defective items.
50
 What is QUALITY MANAGEMENT SYSTEM:
o Quality is the degree to which a set of inherent characteristics fulfils requirements.
o Requirements is an expectation.
o A QMS is management system driving the organization with regard to quality.
o Standard is documents defining the characteristics of a product, process or service.

 What is SIX SIGMA:

o Six Sigma is a quality improvement methodology.
o It stands for six standard deviations and developed as a set of practices designed to
improve manufacturing process and eliminate defects.
o Products with many components typically have many opportunities for failure or defects
to occur.
o An 'operation' is not limited to the manufacturing processes - an 'operation' can be any
process critical to customer satisfaction, for example, the operation of correctly
understanding a customer request, or the operation of handling a customer complaint.
o Six Sigma is not restricted to engineering and production - Six Sigma potentially covers
all sorts of service-related activities.
o Motorola developed the six sigma in 1980.
o It focuses in reducing variability in key product characteristics to the level at which
failure or defects are extremely unlikely.
o It focuses on the identification of defects and development of internal processes to
minimize defects.
o To achieve six sigma, a process MUST NOT produce more than 3.4 defects per million
opportunities (DPMO).
 If it is 7 sigma – 0.019 DPMO
 If it is 6 sigma – 3.4 DPMO
 If it is 5 sigma – 233 DPMO
 If it is 4 sigma – 6210 DPMO
 If it is 3 sigma – 66807 DPMO
 If it is 2 sigma – 308538 DPMO
 If it is 1 sigma – 691462 DPMO
o A sig sigma opportunity is the total quantity of chances for a defect.
o Most of the organizations operate at a level of 3 sigma or below only.

 What is KAIZEN:
o Kaizen translated means continuous improvement.
o It calls for never ending efforts for improvement involving everyone in the organization.
o Every is a key word in Kaizen: improving everything that everyone does in every aspect
of the organization in every department, every minute of every day.

51
 o Evolution rather than revolution: continually making small, 1% improvements to 100
things is more effective, less disruptive and more sustainable than improving one thing
by 100% when the need becomes unavoidable.
o Everyone involved in a process or activity, however apparently insignificant, has
valuable knowledge and participates in a working team or Kaizen group.
o Everyone is expected to participate, analysing, providing feedback and suggesting
improvements to their area of work.
o Every employee is empowered to participate fully in the improvement process: taking
responsibility, checking and co-ordinating their own activities. Management practice
enables and facilitates this.
o Every employee is involved in the running of the company, and is trained and informed
about the company. This encourages commitment and interest, leading to fulfilment
and job satisfaction.
o Not a single day should go idle without some kind of improvement somewhere in the
organization.
o Don’t just criticize, suggest an improvement.
o Think out of the box and think beyond common sense.

 WHAT IS QUALITY CIRCLES

o Quality circles, similar to Kaizen teams, are a key part of any continuous improvement
programme.
o Circle refers to a team of people.
o Teams or small groups (the circles) meet to analyse, and review working practices with a
view to making suggestions for improvement in their work and the systems.
o As with many Quality Tools, the specific use of Quality Circles is chiefly concentrated
among manufacturing and engineering organizations or in technical departments of this
sort.

 WHAT IS CRITICAL SUCCESS FACTORS

o It refers to the limited no. of areas in which satisfactory results will ensure successful
competitive performance for the individual, dept or organization.
o It is an element that is necessary for organization to achieve its mission. They must go
well to ensure success for a manager or an organization.
o As a common point of reference, CSFs help everyone in the team to know exactly what's
most important. And this helps people perform their own work in the right context and
so pull together towards the same overall aims.
o They are the few key areas where things must go right for the business to flourish.
o Critical Success Factors are strongly related to the mission and strategic goals of your
business or project. Whereas the mission and goals focus on the aims and what is to be
achieved, Critical Success Factors focus on the most important areas and get to the very
heart of both what is to be achieved and how you will achieve it.
o Identifying CSFs is important as it allows firms to focus efforts on building their
capabilities to meet the CSFs.

52
 o Using the Tool: An Example:
o Consider a produce store "Farm Fresh Produce", whose mission is:"To become the
number one produce store in Main Street by selling the highest quality, freshest farm
produce, from farm to customer in under 24 hours on 75% of our range and with 98%
customer satisfaction."
 The strategic objectives of Farm Fresh are to:
 Gain market share locally of 25%.
 Achieve fresh supplies of "farm to customer" in 24 hours for75% of products.
 Sustain a customer satisfaction rate of 98%.
 Expand product range to attract more customers.
 Have sufficient store space to accommodate the range of products that
customers want.
 In order to identify possible CSFs, we must examine the mission and objectives
and see which areas of the business need attention so that they can be achieved.
 We can start by brainstorming what the Critical Success Factors might be (these
are the "Candidate" CSFs).
 An example:

Objective Critical Success Factors

Gain market share locally of 25% Increase competitiveness versus other local stores
Attract new customers
Achieve fresh supplies of “farm to customer” Sustain successful relationships with local suppliers
in 24 hours for 75% of products
Sustain a customer satisfaction rate of 98% Retain staff and keep up customer focused training
Expand product range to attract more Source new products locally
customers
Extend store space to accommodate new Secure financing for expansion
products and customers
o Once you have a list of Candidate CSFs, it's time to consider what is absolutely essential
and so identify the truly Critical Success Factors.
o And this is certainly the case for Farm Fresh Produce. The first CSF that we identify from
the candidate list is relationships with local suppliers". This is absolutely essential to
ensure freshness and to source new products.
o Another CSF is to attract new customers. Without new customers, the store will be
unable to expand to increase market share.
o A third CSF is financing for expansion. The store's objectives cannot be met without the
funds to invest in expanding the store space.
o Whilst there is no hard and fast rule, it's useful to limit the number of CSFs to five or
fewer absolute essentials. This helps your CSFs have maximum impact, and so give good
direction and prioritization to other elements of your business or project strategy.

 What is KNOWLEDGE MANAGEMENT:

o KM is the explicit and systematic management of vital knowledge and its associated
processes of creation, organization, diffusion, use and exploitation.

53
 o E.g., knowledge on customer, products, processes, people, etc.)

 What are MODERN MANUFACTURING METHODS:

o There are 3 key concepts.
 Reduce waste – just enough production to meet current demand.
 Maintain quality – devise manufacturing methods in order to make quality
products continuously.
 Accelerate production – decrease the amount of time needed to produce.
o 1.Reduce Waste:
 It involves lean manufacturing – A method used to achieve all the three of the
above mentioned concepts. i.e., right supplies arrive at the right time at right
place in right quantity to produce the products that are necessary to meet the
demand.
 A no. of concepts are part of this and they are;
 JIT – Just in Time concept suggests any inventory is waste. JIT manufacturers
buy just enough supplies to keep the process moving and schedule them to
arrive at the factory just in time to be used in production.
 KANBAN- When supplies are running low, factories will have automatic request
for new supplies sent to their suppliers. These alerts are called KANBAN.
 JUST IN SEQUENCE(JIS) – Most extreme example of JIT. Supplies arrive at the
factory at the exact moment they are needed within the manufacturing
sequence.
 Total Productive Maintenance (TPM) –Instead of waiting till the end of the day
to repair minor issues with machines, TPM suggests repairing immediately to
avoid deterioration in the future.
 Quick Response Manufacturing ( QRM)-Make the lead time as brief as possible
between customer request and final delivery of a product.
 Cellular Manufacturing- Separate the factory floor into different sections (
CELLS). Machines are placed in a certain order so that materials flow naturally
towards the completion of a product.
o 2. Maintain Quality:
 In order to have consistent product quality, producers to perform frequent
maintenance on not only equipment but entire processes also.
 This means identifying errors or defects in the products flow and eliminating
them to maximize productivity. THIS IS WHERE SIX-SIGMA COMES IN.
 A manufacturing process is given a sigma rating based on the % if its product
yield determined to be defect free. A one sigma rating designates a process with
a disastrously low % of defect free yield, 31%, while a six-sigma rating is reserved
for processes that are nearly perfect 99.99966% defect free.

 What is GREEN MANUFACTURING/ RE-MANUFACTURING:

54
 o It comprises not only forward channel of moving goods from industry to market but also
collecting them back from the market and re-directing them to the industry where these
used products are transformed to serviceable one.
o It is economically profitable and ecologically beneficial.
o It involves product recovery activities and reverse logistics.

 What are the FIVE SKILLS EMPLOYER SEEKS:

o Having a mindset to apply learned knowledge, logic to process it, being thorough and
detail oriented are critical skills.
o Then
 Interpersonal communication skills
 Initiative and self direction ( power to act before others)
 Planning, organizing ability to prioritize and time management
 Flexibility and adaptability
 Team player.

 WHAT IS ENTERPRISE RISK MANAGEMENT:

o Traditionally, risks were managed by functional managers in silos – e.g. credit risk,
interest risk, foreign exchange risk, liquidity risk.
o During such times, the risk management was to purchase of insurance policies or
hedging of interest rates were resorted.
o Father of modern mgt Peter F Drucker said “ a decision that does not involve risk,
probably is not a decision”.
o The point is RM is not to eliminate risks since this would eliminate reward.
o The point is to manage it – that is – choose where to place bets and where to avoid
betting.
o Many people think that the goal of RM is to eliminate risks- which is not so.
o The goal of RM is to achieve the best possible balance of opportunity and risk.
o The outcomes of business operations occur in future after the tasks have been
performed.
o ERM is about taking a big picture view and managing multiple risks impacting different
parts of a firm, in an integrated and coordinated manner.
o ERM has progressed from being a tool for defense against risks to firm strategy for
creating shareholders value.
o ERM is all about building risk management capabilities throughout the organization to
provide value ( value = profit, ROI, market share, market capitalization and so on) to the
organization.
o ERM is a discipline that protects and creates value for the organization.
o Today, ERM is very critical for governance of enterprises due to rising uncertainties and
failure of traditional risk management and notably – operational, reputational and
strategic to create and sustain competitive advantage.

55
o A corporation can manage risk by two way – one is managing one risk at a time on
compartmentalized and de centralised basis and the second is view all the risks together
within a coordinated and strategic framework. The second is ERM.
o Risk Management – protection of the assets and profits of an organization either by
reducing the potential before it occurs, or mitigating the impact of loss.
o Financial RM- mitigation process for an organisation’s financial exposure.
o ERM:
 Enterprise - Goals ( organization, company, institution, business)
 Risk - Events ( outcomes, dangers, loss, obstacle)
 Management - Action ( precautions, handling, getting what you want, avoiding a
collapse)

 ERM—broader, and covers all risks, both internal and external, integrates and
views all risks from a board, creating awareness organization wide with the goal
of creating, protecting and enhancing shareholders’ value by mitigating risks and
seizing opportunities in a continuous process.
 In managing risks by ERM, the following actions are available .
 Avoidance of risk by aborting action that contributes to risk.
 Reduction of risks by reducing the likelihood or impact of risk.
 Share or insure risk by transferring or sharing a portion of risk.
 Acceptance of risk by taking no action as a result of cost/benefit decision.
o Enterprise Risk Management ( ERM) is an organization – wide approach to the
identification, assessment, communication, and management of risk in a cost – effective
manner - a holistic approach to managing risks.
o ERM’s principle is to provide value for its stakeholders.
o Methods and processes used by an organization to manage risks and seize opportunities
to achieve objectives.
o How to sell ERM within an organization:
 People buy what they perceive to be worthwhile to them and to their
performance objectives.
 Therefore, understand the dynamics of internal market and identify what benefit
will they gain if ERM is implemented.
 Focus on the positive outcomes for the individuals rather trying to convince
leadership that we have to do this or that to comply with company’s ERM policy.
o It is identification, assessment and prioritization of risks ( as the effect of uncertainty on
objectives, whether positive or negative) followed by coordinated and economical
applications of resources to minimize, monitor and control the probability of
unfortunate events or to maximize the opportunities.
o Risks can come from uncertainty in financial market, threats from project failures, legal
liabilities, credit risk, accident, natural disasters.

o Risk – in traditional terms = negative

o Risk as per ISO 31000 – is the effect of uncertainty on objectives.
o Risk management is an attempt to

56
  identify
 Measure
 monitor
 manage uncertainty
o Benefits of Risk Management:
- Increased certainty and fewer surprises.
- Better service delivery
- More efficient use of resources
- Promotes continual improvement
- Helps focus internal audit programmes
- Reassures shareholders
- Quick grasp of new opportunities
- Supports strategic and business planning
o Risk management is about everyday trade-off between an expected reward and a
potential danger.
o It is universal – refers to human behavior in the decision making process.
o IMPROTANCE OF ERM:
 Identification of obstacles to achieve business objectives.
 Allows management to make and evaluate well informed or risk adjusted
decisions.
 Determines accountability of risks.
 Enables realistic tolerances, budget for risks and allocation of capital.
 Increased awareness of risks and control by all employees.
 Enables business continuity – Business continuity is creating a plan for
resuming in a predetermined time after disruption)
o Regulatory compliances
o Risk management is a set of strategies for analyzing potential risks and instituting
policies and procedures to deal with them.
o ERM defined: --- COSO – ( Committee of Sponsoring Organisations of the Tradeway
Commission)
o ERM is a
 Process
 effected by an entity’s board of directors, management and other personnel
 applied in strategy setting and across the enterprise
 designed
 to identity potential events that may affect the entity and
 manage risk to be within its risk appetite
 to provide reasonable assurance
 regarding the achievement of entity’s objectives.
o COSO defines uncertainty as which presents both risks and opportunities with potentials
to erode or enhance value.
o Corporate governance, Risk Management and Critical Concern ( GRC) is an integrated
approach for ERM.
o ERM is the aggregate of all functional and process risks a business entity faces in the
course of business.

57
o Casualty Actuarial Society describes four types of risks

1. Hazard risk
2. Financial risk
3. Operational risk
4. Strategic risk

o According to 2009 Risk Management Survey, top 10 risks are

1. Economic slowdown
2. Regulatory / legislative changes
3. Business interruption
4. Increasing competition
5. Commodity price index
6. Damage to reputation
7. Cash flow / liquidity risk
8. Supply chain failure
9. Third party liability
10. Failure to attract or retain top talent

o DRIVERS OF ERM ( NEED FOR ERM)

1. Greater transparency / corporate governance
2. Financial disclosures of more strict reporting and control
3. Security and technology issues
4. Business continuity and disaster preparedness
5. Focus from rating agencies
6. Regulatory compliance
7. Globalization

o ERM is an ongoing process

o is an integral part of how an organization operates
o Applies to all organizations
o Risk applies broadly to all things threatening the achievement of organization
objective.
o Risk is not limited to threats but also refers to opportunities.
o The goal of an organization is not risk minimization but seeking an appropriate risk-
return position.
o Objective of an Enterprise: - 4 categories.
1. Strategic – high level goals aligned with and supporting mission
2. Operations – effective and efficient use of its resources
3. Reporting – reliability of reporting
4. Compliance – compliance with applicable rules and law.

o Implementation of ERM :
 Senior management and board level commitment.
 RM policies and procedures established in writing for the most
prominent risks with specific objectives and targets.
 Clearly defined responsibilities for managing and controlling risks.
 Ongoing employee training

58
  Monitoring of all programmes and procedures.
 Regular reports including independent audits prepared for review by
senior management and board.

o EIGHT COMPONENTS OF ERM.

1. Internal Environment: - It includes management philosophy, risk appetite,
board oversight, integrity and ethical values, competence of people, structure,
assignment of authority and development and training.
The enterprise establishes a philosophy regarding risk management .
It recognizes that unexpected as well as expected events may occur.
Establishes the entity’s risk culture.
2. Objective setting:- When management considers risks strategy in the setting of
objectives.
Forms the risk appetite of the entity – a high level view of how much risk
management and board are willing to accept.
Risk tolerance, the acceptable level of variation around objectives, is aligned
with risk appetite.
3. Event identification :- Differentiates risks and opportunities.
Events that may have a negative impact represents risks.
Events that may have positive impact represents natural offsets ( opportunities)
Involves identifying those incidents occurring internally or externally that could
affect strategy and achievement of objectives.
Addresses how internal and external factors combine and interact to influence
the risk profile.
4. Risk Assessment:- allows an entity to understand the extent to which potential
events might impact objectives.
Assess the risks from two perspective;- likelihood and impact
Employs a combination of both qualitative and quantitative risk assessment
methodologies.
Relates time horizons to objective horizons.
5. Risk Response:- Identifies and evaluates possible responses to risk.
Evaluates options in relation to entity’s risk appetite, cost vs benefit of potential
risk responses and the degree to which a response will reduce impact or
likelihood.
Selects and executes response based on evaluation of the portfolio of risks and
responses.
6. Control activities:- Policies and procedures that help ensure that the risk
responses as well as other entity directives are carried out.
Occur throughout the organization at all levels and in functions.
7. Information and Communication :- Management identifies, captures and
communicates pertinent information in a form and timeframe that enables
people to carry out their responsibilities.
Communication occurs flowing down, across and up the organization.
8. Monitoring :- effectiveness of the other ERM components is monitored through
ongoing monitoring activities and separate evaluations are done.

o SCOPE OF ERM:
1. Aligning risk appetite and strategy.

59
 2. Enhancing risk response decisions
3. Reducing operational losses and surprises
4. Managing multiple and cross enterprise risks
5. Grabbing opportunities
6. Improving deployment of resources.
o OBJECTIES OF ERM:
1. Improve risk based decision making
2. More effective use of capital / resources
3. Comply with regulatory changes
4. Improve shareholders value
5. Anticipating problems before they become threats.
6. Coordinating various RM activities.

o LIMITATIONS OF ERM:
 Human decisions can be faulty
 Breakdowns due to human failures /errors
 Circumvention of control by collusion of 2 or more people.
 Ability of management to override ERM process.

o Risk vs Opportunity
 Risk is a possibility that an event will occur and adversely affect the
achievement of objectives.
 Opportunity is a possibility that an event will occur and positively affect
achievement of objectives.
o TYPES OF RISKS:
 Market – price, interest rate, exchange rate, equity price, credit
 Inherent – impossible to manage
 Static – unique to individual asset
 Credit – failure on payment
 Systematic – risk of holding market portfolio
 Residual – that remains (still) even after mitigating risk

o Risk appetite = is the broad based amount of risk an organization is willing to accept
in pursuit of its mission. The level of aggregate risk that an organization can
undertake and successfully manage over an extended period of time.
o What is operational risk = the risk of direct or indirect loss resulting from inadequate
or failed internal processes, people and systems or from external events.
o What is strategic risks = potential damage to reputation, competition, demographic
trends, technology innovation, capital availability and regulatory trends.

o COSO - risk response – 4 fundamental choices.

1. Avoid
2. Accept
3. Reduce
4. Share

o Risk Management process represents 7 Rs & 4 Ts.

1. Recognition or identification of risks

60
 2. Ranking or evaluation of risks
3. Responding to significant risks
a. Tolerate
b. Treat
c. Transfer
d. Terminate
4. Resourcing controls
5. Reaction planning
6. Reporting and monitoring risk performance
7. Reviewing the RM framework
 1 & 2 are risk assessment activity
 3 -4 Ts are risk treatment or risk response.
 Implementation framework – 4
o 1. Design a framework
o 2. Implement RM
o 3. Monitor and review framework
o 4. Improve framework

o ERM should ensure sustainability of the enterprise by addressing risks impacting all
the key areas like
 Economic performance
 Environmental performance
 Labour practices and performance
 Human rights practices and performance
 Social responsibility
 Product responsibility.
o Risk management –
 Systematic discipline
 System of making choices
 Better understanding of potential liability
 Responding to undesirable events
o Risk management process:
 Determine objectives
 Identify risks
 Risk evaluation
 Development of policy
 Development of strategy
 Implementation
 Review
o Approaches to Risk Management
 Risk avoidance
 Loss control
 Combination
 Separation
 Risk transfer

61
  Risk retention
 Risk sharing
o Measurement of risks
 Range
 Standard deviation
 Sensitivity analysis
 B.E analysis
 Decision tree analysis
o ISO 31000 standard for risk management.
 Identify risks.
 Assess them the likelihood, magnitude of impact
 Determine response strategy
 Monitor progress
 Thereby this process protects and creates value for their stakeholders.
o Incident – an event that has the capacity to lead to loss of or disruption to an
organisation’s operations, services or functions – if not managed – will lead to an
emergency, crisis or disaster.
o Policy – intentions and directions of an organization as formally expressed by top
management.
o Risk – combination of the probability of an event and its consequence.
o Risk – an uncertainty of outcome
o Risk – the potential of loss resulting from a given action, activity, inaction, foreseen or
unforeseen.
o Various Risks.
 Pure risks – loss is the only possible outcome and a person can not consciously
take such risk.
 Speculative risks- when undertaken results in an uncertain degree of gain or loss.
All such risks are made as conscious choices.
 Acceptable risks- while unavoidable in any business, the potential loss may be so
minimal.
 Non-acceptable risks – certain risks are major.
 Strategic risks – a situation that is not affected by a business environment and
remains constant over a period of time.
 Dynamic risks – exposure to loss from changes in the environment.
o Type of Risks-
 Systematic risk – inherent to market –recession, war
 Unsystematic risk – inherent in each investment
 Market price risk- equity risk, interest rate risk
 Business risk – lower than expected profits, competition
 Purchase power risk – unexpected changes in consumer prices and low demand
 Interest rate risk
 Finance risk

62
  Operational risk
 Industry risk
 Political risk
 Legal risk
o Global risk profiles are
 Operational, financial, HR, environment, technological and strategic risks.
o ERM encompasses:
 1. Aligning risk appetite and strategy
 2.Enhancing risk response decisions
 3. Reducing operational surprises and losses
 4. Identifying and managing multiple and cross enterprise risks.
 5. Seizing opportunities
 6. Improving deployment of capital.
o In ERM
 Risk culture is created throughout the enterprise.
 Risk strategy is lined to business strategy.
 Risk management becomes a continuous, systematic process integrated.
 ERM is not a project but a process.

 WHAT IS CORPORATE GOVERNANCE:

o Corporate governance is about commitment to values, about ethical and transparent

business conduct and about making distinction between personal and corporate fund.
o Acceptance by management of the rights of the shareholders as true owners of the
corporations and of their own role as trustees on behalf of the shareholders.
o It is essentially all about how corporations are directed, managed and controlled and
held accountable to their shareholders.
o CG consists of procedures and processes according to which an organization is directed
and controlled.
o It specifies the distribution of rights & responsibilities among different participants in
the organization such as Board, Mangers, Shareholders & other stakeholders and lays
down procedures for decision making.
o It is about promoting corporate fairness, transparency and accountability.
o In simple terms, CG is a set of laws, rules, regulations, systems, principles, process by
which a company is governed.

 WHAT IS SUSTAINABLE DEVELOPMENT

o SD is a pattern of development which meets the needs of the present without

compromising the ability of the future generations to meet their own needs.
o SD stands on 3 pillars.
 Economic:-
 Industry can provide economic benefits like employment, generation of
wealth, etc.
 Environmental:-
 Depletion of non-renewable resources.
63
  Scientific mining, rehabilitation, return the mined sites, other facilities,
restoring mined sites to natural state.
 Social:-
 Issues – align the interest of local communities with organisation’s
strategies. CSR & Benefit sharing.
 WHAT IS CORPORTATE SOCIAL RESPONSIBILITY

o The idea of CSR first came up in 1953.

o CSR is also called corporate conscience, corporate citizenship, social performance or
sustainable business.
o CSR is a company’s commitment to operate in an economically, socially and
environmentally sustainable manner while recognizing the interest of its
stakeholders.
o World Bank definition – CSR is the commitment of businesses to contribute to
sustainable economic development by working with employees, their families, the
local community and society at large to improve their lives in ways that are good for
business and for development.
o CSR is a holistic approach & integrated with core business strategy for addressing
social, environmental impacts of business.
o CSR needs to address well being of all stakeholders and not just shareholders.
o Philanthropic activities are only part of CSR.

 ISO 26000: SOCIAL RESPONSIBILITY:

o This is a guidance tool provided by ISO – enables organisation to understand

meaning and significance of SR.
o It is not a certification but only a guiding tool.
o Organisation who comply with these standards are self certified.
o It covers 6 core areas of social responsibilities.
 1. Human rights
 2. Labour practices
 3. Environment
 4. Fair operating practices
 5. Consumer issues
 6. Community involvement and development
o This ensures a holistic approach to the concept of SR & SD.

 SOCIAL ACCOUNTABILITY, SA 8000 STANDARD:

o First auditable social certification standard.

o Based on ILO, UN and national law conventions and adopts a management system
approach in order to ensure that companies that adopt this approach also comply
with it.
o This standard ensures protection of basic human rights of workers;
o The 9 elements of this standard include;
 1. Child labour
 2. Forced and compulsory labour
64
  3. Health and safety
 4. Freedom of association and right to collective bargaining
 5. Discrimination
 6. Disciplinary practices
 7. Work’s hours
 8. Remuneration
 9. Management systems.
o As per SAAS, there are 695 facilities in India that have been accredited with this
standard. Out of these, SAIL is one among them.

 WHAT IS TRIPLE BOTTOM LINE (TBL)

o John ElKington coined this term TBL ( 1998)

o It is a three dimensional measurement framework of corporate performance.
o They are
 Financial
 Environment
 Social
o Today 3 dimensions are people, planet and profit which lead to sustainable
development.
 People Bottom Line – ( Human Capital)
o pertaining to fair and beneficial (human capital) business practices
toward employees and the community.
 Planet Bottom Line – (Natural Capital)
o refers ( natural capital) to sustainable environmental practices –
sustainability and global warming are real and critical issues that
global business must deal with.
 Profit Bottom Line –
o is the ability of an enterprise to create economic surpluses,
without profit, enterprises would be unsustainable.
o TBL – is a set of 3 criteria used for measuring organizational success – social (
people), ecological ( planet) and economic ( profit).
o TBL concept demands an organization’s responsibility is to all stakeholders rather
than only shareholders.
o Anyone who is influenced, either directly or indirectly by the actions of the
organization is a stakeholder.
o 1.People - relates to fair &beneficial business practices towards employees as well
as communities which are impacted by the operations of the organization.
 A TBL organization seeks to benefit both employees & communities & not
exploit or endanger them.
 Should share value/profits with employees ( PRP, PMS).
 Objective measures to be in place to share value or profits with all
employees.
 Employ safeguards against unethical practices.
 Avoid use of child labour
 Avoid destabilizing local communities

65
  Proactively “ give back” to society by contributing livelihood generation,
health and education.
o 2. Planet – refers to sustainable environmental practices.
 A TBL organization endevors to benefit the environment and not engage in
any proactive which damages the natural ecological balance.
 It reduces ecological footprint by carefully managing energy and non-
renewable by CSR, R&D, SD & EMS).
 Proactively adopts practices for reducing manufacturing waste and
processing waste, to make less toxic before disposing.
 Practice the assessment of Environmental Impact of its products or services.
o 3. Profit – represents the economic value created by the organization after
deducting all input costs, including cost of invested capital.

 WHAT IS PERFORMANCE PRISM

o The score card for measuring and managing business success.

o It was developed by Prof. Andy Neely, Chris Adams, Mike Kenne in 2002.
o They contend that the best way for organizations – for profit or not for profit – to
survive and prosper in the long term will be to think about the wants and needs of
all of their stakeholders and endeavor to deliver appropriate value to each of them.
o What is PP.
 A PRISM refracts light, it illustrates hidden complexity of something as
apparently simple as white light.
 Similarly, Performance Prism illustrates the true complexity of performance
measurement of management.
 A performance Prism is a thinking aid which seeks to integrate five related
perspectives and provide a structure that allows executives to think through
the answers to 5 fundamental questions;
 1. Stakeholder satisfaction –
o Who are they
o What they want and their needs.
 2. Stakeholder Contribution-
o What do we want
o What do we need from stakeholders
 3. Strategies –
o What strategies do we need to put in place to satisfy these
sets of wants and needs.
 4. Processes –
o What processes do we need to put in place to satisfy these
sets of wants and needs.
 5. Capabilities –
o What capabilities – bundle of people, practices, technology
and infrastructure do we need to put in place to allow us to
operate our process more effectively and efficiently.
o Together these 5 view points provide a comprehensive and integrated framework
for managing organizational performance and by answering the related questions.
 First Perspective – Stakeholders Satisfaction:

66
  Organization exist to deliver value to their stakeholders – investors,
customers, employees, suppliers, regulators, pressure group, etc.
 Value differs with each stakeholder
 Customer – rapid and reliable delivery of high quality products.
 Employee – competitive compensation package, training and
development and promotion.
 Shareholders – ROI and profitable growth prospects relative to its
competitors.
 Suppliers – Timely payment
 Second Perspective – Stakeholders contribution:
 For every stakeholder there is a quid pro quo –
 What you want from them &
 What they want from you.
 From customer – loyalty and profitability
 From employees – loyalty, flexibility, productivity and creativity.
 Third Perspective – Strategies :
 Having decided stakeholder wants and needs, executives to decide
and prioritize their satisfaction in the strategies and deliver. Also
ensure organisation’s needs and wants are also satisfied.
 Fourth Perspective – Processes:
 Processes are what make the oganisation work.
 They are cross functional and defines a blue print what work to be
done, who, when and how – development of product, generation of
demand for them, fulfillment of demand.
 Fifth Perspective – Capabilities :
 Processes can not function on their own.
 People are needed with skill, policies and procedures are needed.
 Technology and infrastructure are needed.
o In order to survive and prosper, executives have to
 Understand both stakeholders and organizational needs and wants.
 Link and align strategies, processes, capabilities to satisfy all parties needs
and wants so that value can be delivered to all.

 WHAT IS SUCCESS MAPPING

o Facilitating alignment of strategies, processes and capabilities with the delivery of
stakeholders satisfaction and contribution. The objective of success mapping is to
identify the critical links of all parties.

 WHAT IS BUSINESS CONTINUITY PLAN

o It is a plan to continue operation as usual.
o It identifies an organisation’s exposure to internal and external threats and integrates
the effective prevention and recovery for the organization to resume business.
o It sets out how the business will operate following an incident, emergency or disaster
and how it expects to return to business as usual in the quickest possible time
afterwards.

67
 WHAT IS RISK TAKING
o Risk is frequently defined in relation to ideas of danger, loss, threat, damage and injury.
o Risk is the likely hood of an event happening with potentially harmful or beneficial
outcomes for self and others.
o Positive risk taking –
 It is weighing up the potential benefits and harms of exercising one choice of
action over another.
 This means identifying the potential risks involved, developing plans and actions.
 It involves using available resources to achieve desired outcomes and to
minimize potential harmful outcomes.
o Why take risks-
 We take risks with the intention of achieving positive gains, because we see a
stronger potential for opportunity than for failure.
 Sometimes risk taking is driven by forces beyond our control and by
circumstances, we have no choice but to react to in whatever way we can.

 SUCCESSION PLANNING AND MANAGEMENT

o Business continuity refers to organisation’s ability to ensure that qualified employees
are always available and in place to carry out its host of job functions.
o Traditionally, succession planning is nothing but replacement approach – on executive
level positions.
o Succession planning is a conscious decision by an organization to foster and promote
the continual development of employees, and ensure that key position maintain some
measure of stability to achieve business objectives.
o Succession planning is principally about knowing the needs of the organization and its
employees and developing the capacity to address emerging issues that can or will
affect business continuity.
o Retaining the knowledge held by key employees and passing it on to potential
replacement is an essential part of succession planning.
o Succession management has become an important talent management initiative at
companies around the world.
o It is a strategic process that minimizes leadership gaps for critical positions and provides
opportunities for top talent to develop the skills necessary for future roles.
o It is a competitive advantage for the company.
o Today’s succession management is transparent talent mobility and is a dynamic internal
process for moving talent from role to role at the leadership and professional role.
o Talent management and succession planning:
 Talent management is the process by which an organization identifies, manages
and develops its people now and for the future.
 Talent management is concerned with -
 Developing strategy to determine what the organization needs to meet
the current and future demands of business.

68
 Establishing processes to measure competence available and required.
Identify ways and means to obtain and retain those who are critical to
success.
 It focuses on individual needs to bring out potential of each and
recognizing the necessity of retaining key personnel.
 Succession planning is concerned with –
 Satisfying organisational requirements.
 Identifying posts that are critical to success and how best to satisfy future
requirements.
 Developing strategies to determine optimum mix and internal and
external recruitment.
 Knowledge transfer –
 It is the process of capturing skills and information and sharing them
between employees and also between parts of an organization.
 If it is not transferred, the knowledge will walk away from the
organization if that person leaves or retires.
 The goal of knowledge transfer/management is to make knowledge
available for current and future workers.
 Knowledge transfer is an important part of the succession planning
process.
 It is, how employees get much of the information and skills they need to
move into key position.
o The succession planning process involves the following steps:
 1. Identify key positions:-
 This is required to be done to determine the roles and skills that keep the
organization going.
 This identification process enable to focus on succession planning efforts
where the risk of losing important skills and knowledge.
 This can be done by 2 criteria;
o 1. Criticality – a critical position is one that if it were vacant, would
have significant impact on the organistion’s ability to conduct
normal business. e.g. safety, operation, finance, etc.
o 2. Retention risk – refers to position where the departure of an
employee is expected ( retirement, etc)
 By examining both the above criteria on a low to high scale, organisation
can consider.
 A gap analysis also can be done
 In addition, some more areas to be considered are;
o What jobs have direct impact on the public.
o What jobs if vacant will prevent organisation from achieving its
goals.

69
 o What jobs will be difficult to fill, etc.
 A demographic profile of the workforce can be made with their ages,
role, skills of all employees.
o It will facilitate to find out whether key employees will be lost or
not in the near future.
 2. Identifying competencies and building profiles of key positions:-
 Identify and document the required set of competencies, knowledge,
skills and abilities for key positions and that are expected of employees.
 Succession planning provides review of competencies in today’s
environment.
 Prepare a job profile and that should give complete picture.
 3. Identifying and assessing potential candidates:-
 After job profile is created, identify strong potential candidates who meet
the minimum requirements of job profile, have the potential and learn
the rest and have the desire to take on positions.
 Decide who could advance to the key positions
 Focus on employees learning and developing opportunities in order to
prepare them for future roles.
 Traditionally, it was one sided – i.e., organization identifies a key position,
then executives select a high potential individual for training and this is
not always transparent.
 Modern succession planning – is based on merit, fairness, transparent,
and self identification to see which employees are interested in
leadership roles, career advancement, etc.
 Then help the interested candidate to develop required skills.
 4. Learning and development plans:-
 After identification – ensure access to focused learning and development
opportunities.
 Mentoring, coaching, formal training, job assignments, etc. to create
learning and knowledge transfer goals for these candidates.
 5. Implementation and evaluation:-
 Measure the success, adjust the process, identify the gaps and rectify.

 WHAT ARE SOFT SKILLS

o Communication
o Teamwork
o Leadership skills
o Decision making and problem solving
o Managing time
o Self management

70
 COMMUNICATION SKILLS
o Communication is a process of understanding, sharing and exchanging meanings with
each other.
o Communication is the art and process of creating and sharing ideas.
o Communication is transfer of information from one person to another.
o It is a process of sharing meaning.
o It is the process by which information is exchanged between individuals.
o It is giving and receiving information.
o The essence of communication is to understand each other’s meaning – this requires
effective listening.
o Being able to communicate with others is one of the best life skills.
o Effective communication is much more than being able to talk – it is also the ability to
listen and understand others, to read and interpret body language.
o Good communication skills are mutual respect skills.
o What is communication skills:
 Communication skills are the tools that we use to remove the barriers to
effective communication.
o What are the goals when communicating with some one:
 1. To inform – providing information for use in decision making.
 2. To persuade – to reinforce or change a receivers belief about a topic.
 3. To build relationship – some messages that you send may have the goal of
building good will between you and the receiver.
o What are the barriers to communication:
 Disinterest in the conversation
 Lack of background information
 Jumping to conclusions before communication is completed
 Fear
 Distrust
 Badly expressed messages
 Language differences
 Arguing and debating.
o Categorization of barriers to communication:
 Physiological barriers – ill health, poor eye sight, hearing problem, stammering,
etc.
 Physical barriers – closed door offices, separate areas for people of different
status.
 Cultural barriers
 Language barriers
 Gender barriers – a global study revealed that women speak about 22000 words
a day whereas men speak about 7000 to 10000 words a day. Similarly, childhood
girls speak earlier than boys.
 Interpersonal barriers

71
  Psychological barriers
 Emotional barriers.
o What is communication process:
 The communication process is composed of several stages, each of which offers
potential barriers to successful communication.
 The process involves various parts and stages and they are:
 1. Source or Sender:
 The source of the communication is the sender.
 The sender must know why the communication is necessary and what
result is needed.
 2. Message :
 The message is simply the information that is to be communicated
 Without message there is no cause for communicating.
 3. Encoding:
 It is the process of taking your message and transferring it into the proper
format for sharing it with the receiver.
 It is like how messages are sent – by e.mail, fax,etc.
 The information on the paper has to be encoded or prepared before
sending to another.
 It has to be sent in a format that the other party has the ability to
decode.
 4. Channel:
 It is the method/s that we use to convey our messages.
 Channels include face-to-face, telephonic or video conferences, e.mail,
letters, etc.
 5. Decoding:
 It is the process of receiving the message, accurately and the receiver to
understand the information that was sent.
 It includes ability to read and comprehend, listen or ask clarifying
question when needed.
 6. Receiver:
 The person for whom the communication was meant.
 The receiver will listen to it through their own individual expectations,
opinions and perspectives.
 7. Feedback:
 It lets to measure how successful at communicating.
 If it is face to face, read body language and ask question to ensure
understanding.
 8. Context:
 It involves the environment that you and the receiver are in,
relationships, culture of the organisation.

72
  The context determines tone and style of communication.

 EFFECTIVE COMMUNICATION
o Communication is at the heart we do everything as a manager.
o Communication can be either best friend or worst enemy.
o 7 ways of effective communication:
 1. Be a positive communicator
 Positive ways
 Encouraging
 Avoiding gossips
 Personal connections
 2. Be a careful communicator
 Credibility and reputation
 If you do not know say so
 Explain your decisions
 Never communicate when you are in angry or highly emotional mood
 Do not make promises you can not keep
 Keep people informed
 3. Actively listen.
 It is the foundation of effective communication
 When listening – face the other, stop what you are doing, make an eye
contact.
 Repeat to confirm the understanding of others message.
 4. Meet regularly you direct reports ( people who report to you)
 5. Give and ask for frequent feedback
 6. Be honest, direct and prompt when delivering bad news.
 7. Handle conflict effectively.
 Take conflict seriously
 Solve the conflict in co-operative manner.
o Barriers to effective communications
 Not listening
 Making assumptions
 Body language ( raising arms)
 Ineffective questions
 Information overload
 Conflicting messages

 INTERPERSONAL COMMUNICATION SKILLS

o Interpersonal skills are the tools people use to interact and communicate with
individuals in an organizational environment.

73
 o The inter personal communication skills are – 7
 1. Negotiation – ability to discuss and reach an agreement in a professional
manner.
 2. Listening – ability to hear attentively and process information correctly.
 3. Verbal communication – ability to communicate with the correct words, tone
and manner.
 4. Non verbal communication – consists of facial expression, body languages,
hand gestures.
 5. Problem solving
 6. Decision making
 7. Assertiveness

 WHAT IS BUSINESS SENSE/ BUSINESS ACUMEN

o Business sense is the ability to tap available resources and make the best out of them.
o Possessing sound business sense means having the ability to see a diamond in the
rough.
o One who consistently exercises sound judgment.
o Apart from all resources for a business success, one should have business sense.
o Business sense is nothing but wisdom.
o It is the application of wisdom for todays’ business or simply put, common sense in
business.
o It is more than knowledge, facts and figures.
o It is learning and applying and copious use of ideas.
o It is insights, the ability to interpret developments and business environments
differently, see differently, use differently and profitably when others see and ignore.
o It does not come from MBA or other degrees or other management techniques.
o It means connecting with customers to remain in business.
o It teaches vision, mission, ethics, etc.
o It can be learned and to learn one has to be humble to acquire and apply BS.
o Business Acumen is keenness and quickness in understanding and dealing with a
business situation in a manner that is likely to lead to a good outcome.
o Business savvy or business sense are often used as synonyms for business sense.
o Business sense;
 Have an acute perception of the dimensions of business issues.
 Can make sense out of complexity
 Are mindful of implications of a choice
 Are decisive
 Are flexible if further changes are to be introduced.

 WHAT IS STRATEGIC VISION

o It is one of the essential elements of an overall strategic planning.

74
 o Vision is the identification of the ultimate aim or purpose for a business.
o Strategic vision helps to set the parameters for the development of planning specific
steps to go about making the vision come true.
o Vision is timeless, internally generated, determines the major markets, major
advantages, and possible strategies.
o Strategy is specific to time, competitors, market conditions, and answers the question
how do we achieve our vision in the current market, regulatory and competitive
environment.
 It determines the market segment to pursue, which relationship to pursue with
stakeholders, and organizational structure and priorities.
o Tactics – day to day actions to be achieved with existing resources.
o How to create strategic vision:
 A vision provides a framework for the organization’s mission and goals.
 Without a vision, the organization may pursue a set of isolated goals with which
some employees may not be able to identify.
 E.g. goals such as attaining 10% increase in sales or increase of customer
satisfaction may not be goals that R&D or Purchase dept may find compelling.
 Similarly increasing customer satisfaction may mean one thing to Production (
for better quality) but something different to Marketing dept or Finance dept.
 A strong vision will connect all these goals to the company’s underlying values
and make it more understandable by all to achieve their respective goals.
 Such a strong vision is needed to create value for all stakeholders.
 People should feel that they are part of an ennobling mission.
 The vision should not be a boring stream of words.

 WHAT IS PUBLIC RELATIONS

o Public Relations is the deliberate, planned and sustained effort to establish and maintain
mutual understanding between on organization and its publics.
o Investing on Public relations will help the organisation to achieve its objective effectively
and smoothly.
o Public Relations is not creating good image for a bad team. Since false image cannot be
sustained for a long time.
o Though the organization product or services are good it need an effective Public
Relations campaign for attracting, motivating the public to the product or service or
towards the purpose of the programme. It is not only encourage the involvement from
the public and also resulting in better image.
o An effective Public Relations can create and build up the image of an individual or an
organisation or a nation. At the time of adverse publicity or when the organisation is
under crisis an effective Public Relations can remove the "misunderstanding" and can
create mutual understanding between the organisation and the public.
o Need for PR-
 Promotional Opportunity: To inform the new service / policy which call for Public
Relations to make wider publicity.
75
  Competitive: To overcome the resistance (pre-set mind condition).
 Controversy: To eliminate the contradictory conditions in between the
organisation and the public.
 Adverse publicity:To inform the truth or correct issues and thereby removing the
misunderstanding.
 Catastrophe: Announcement of any unfavourable issues.
 Crisis: Whenever threats arises.
o Public Awareness is to sensitize or to inform people.

 EFFECTIVENESS vs EFFICIENCY
Effectiveness
Doing right things
It constantly measures if the actual output
meets the desired output
Focuses on achieving the end goals
Adequate to accomplish a purpose,
producing the intended / expected result
If a sales man to meet /calls – 70 calls each
day and if this is achieved, they are effective.
i.e., produce or perform the expected result.
It is about doing right things and it
encourages innovation as it demands people
to think, the different ways to meet the
desired goals.
Looks at gaining success
Refers to quality or value
Efficiency
Doings things right
It is getting maximum output with minimum
resources.
Focuses on the process and importance is
given to the means of doing things
Performing in the best possible manner with
least waste of time and effort.
If those 70 calls produce negligible sales,
then it is not efficient.
It is about doing things right and it demands
documentation and repetition of the same
steps - which may discourage innovation
since doing same thing again and again.
Looks at avoiding mistakes or errors.
Refers to quantity or speed.

 CRITICAL THINKING vs CREATIVE THINKING

CRITICAL THINKING CREATIVE THINKING

Ability to think critically
It involves analysis of problem,
evaluation of solution and
implementation.
Learning to develop an argument, use
evidence in support that argument,
draw seasoned and reasoned
conclusions and problem solving
Ability to think creatively or imagine or invent
something new
It involves brainstorm the solutions, innovate the
solutions and make improvements
Generate new ideas, seeing existing situations in a
new way, identifying alternative explanations and
making and seeing new ways to generate positive
outcomes.

 NEGOTIATION
o Negotiation is a dialogue between two or more people or parties intended to reach an
understanding, resolve points of difference, to gain advantage for an individual
or collective, or to craft outcomes to satisfy various interests.
76
o The Bargaining for Advantage - an interactive communication process that may takes
place whenever we want something from someone else or another person wants
something from us.
o Negotiation is also about:
 Building,
 Maintaining, and
 Improving relationships.
o Negotiation is two types.
 Distributive negotiation:- sometimes called positional or hard-bargaining
negotiation. Each side often adopts an extreme position, knowing that it will not
be accepted, and then employs a combination of guile, bluffing, and
brinkmanship in order to cede as little as possible before reaching a deal. It is
referred to as the distribution of a "fixed pie." There is only so much to go
around, but the proportion to be distributed is variable. Distributive negotiation
is also sometimes called win-lose because of the assumption that one person's
gain results in another person's loss. Simple everyday examples would be buying
a car or a house.
 Integrative negotiation:-Sometimes called interest-based or principled
negotiation. It is a set of techniques that attempts to improve the quality and
likelihood of negotiated agreement by providing an alternative to traditional
distributive negotiation techniques. While distributive negotiation assumes there
is a fixed amount of value (a "fixed pie") to be divided between the parties,
integrative negotiation often attempts to create value in the course of the
negotiation ("expand the pie"). It focuses on the underlying interests of the
parties rather than their arbitrary starting positions, approaches negotiation as a
shared problem rather than a personalized battle, and insists upon adherence to
objective, principled criteria as the basis for agreement. Integrative negotiation
often involves a higher degree of trust and the forming of a relationship. It can
also involve creative problem-solving that aims to achieve mutual gains. It is also
sometimes called win-win negotiation.

77
 MANAGEMENT & HR CONCEPTS.
 Mary Parker Follett ( 1868-1933) – defined management as “ the art of getting things done
through people”
 Henry Fayol considers management as five functions: planning, organizing, leading,
coordinating and controlling.
 In 1960, Henry Mintzberg concluded that manager perform 10 different roles categorized into
3.
o Interpersonal Roles – figurehead, leadership and liaison activities.
o Informational Roles – monitoring, disseminating and spokesperson activities.
o Decisional Roles – entrepreneur, disturbance handler, resource allocator and
negotiator.
 In 1970, Robert L. Katz found manager need 3 essential skills
o Technical Skills – job specific knowledge and techniques needed to perform specific task
proficiently.
o Human Skills – ability to work well with other people individually and in a group.
o Conceptual Skills – ability to think and to conceptualize about abstract and complex
situations.
 Efficiency = Getting most outputs from least inputs = Doing things right.
 Effectiveness = Completing activities of organizational goals = Doing right things.

 ARTS & SCIENCE:

o Every discipline of art is always backed by science which is basic knowledge of that art.
Similarly, every discipline of science is complete only when it is used in practice for
solving various kind of problems.
o Under "science" one normally learns the "why" of a phenomenon, under "art" one
learns the "how" of it.
o Both are means of investigation.
o Both involve ideas, theories, and hypotheses that are tested in places.
o SCIENCE –
 is a systematized body of education, which traces the association between cause
and effect.
 knowledge attained through study or practice
 validated by its process
 looks for information and facts
o ART –
 is a systematic body of knowledge which requires skill, creativity and practice to
get perfection.
 is the practical application of scientific laws, principles and theories.
 does not solve problems and rather generates more thoughts and leave
discussions open ended.
 Art is validated by its results.
 Desires for elegance.
o Management is both science and art.

78
 o Profession = an occupation backed by specialized knowledge and training in which entry
is restricted.
 Management: A profession
o The following criteria identifies the statues of a profession to management:
 Profession is a body of specialized knowledge.
 Professional knowledge in systemized and codified form can be learned through
formal education system.
 A profession emphasizes on having a central body to formulate a code of
behavior for its members.
 A profession calls for rendering competent and specialized services to clients.
 A profession maintains the scientific attitude and commitment for discovering
new ideas and upgrading in order to improve quality of service and level of
efficiency provided to clients.
 A profession requires members to exercise restraint and self-discipline.

 THEORIES OF MANAGEMENT:
o What is a theory : A general body of assumptions and principles used to describe a
particular set of facts or some observed phenomenon.
o 1. Classical Theories of Management:
1. Taylors theory of Scientific Management
2. Fayols Administrative Theory
3. Webers theory of bureaucracy
o 2. Humanistic Theories of Organisation:
1. The Hawthorn studies
2. Mary Parker Follet
3. Chester Barnard
4. McGregor’s Theory of X & Y
o 3.Human Resources Theory:
1. Likert’s Systems theory ( 4 systems of management)
2. Blake & Moutons managerial grid

o 1.1. F.W.Taylor known as Father of Scientific Management introduced the concept of

scientific management.
 Scientific management was a theory of management that analysed workflows
with the objective of improving labour productivity.
 It is concerned with improving the performance of individual workers-
operational efficiency.
 Grew out of the industrial revolutions labour shortage at the beginning of the
20th century.
 The elements are :
 Time & Motion study
 Piece work pay system/Differential rate system
 Fatigue study.
 Principles of Scientific Management:
 Replacing rule of thumb
 Cooperation
 Maximum output
 Development of workers
79
o 1.2 Henri Fayol - Father of Modern Management theory used the term administration
instead of management.
 According to him a manager must have the following qualities.
 Physical (health, vigour)
 Mental (ability to understand and learn, judgment, capabilities)
 Moral ( energy, firmness, initiative, loyalty, tact and dignity)
 Education ( general acquaintance)
 Technical ( function being performed)
 Experience ( arising from work)
 He said activities can be divided into 6 groups.
 Technical (related to product)
 Commercial ( buy and sell)
 Financial ( capital and use)
 Security ( protection of person and property)
 Accounting ( including statistics)
 Management ( planning, organizing and control)

o Fayol’s 14 principles of Management:

 1. Division of labour – allows for job specialization
 2. Authority & responsibility –formal and informal
 3. Unity of command – employees to have only one boss.
 4. Line of authority- a clear chain from top to bottom.
 5. Centralization – degree to which authority rests at top.
 6. Unity of direction – one plan of action to guide the organisation
 7. Equity – treat all employees fairly in justice and respect.
 8. Order – each employee is put where they have the most value
 9. Initiative – encourage innovation.
 10. Discipline – obedient, applied, respectful employees
 11.Remuneration of personnel – payment contributes success.
 12. Stability of tenure- long term employment is important
 13. General interest over individual interest.
 14. Esprit de Corps – share enthusiasm or devotion to the organization

o 1.3 Max Weber – developed a theory of authority structure and relations bureaucracy –
ideal type of organisation focused on
 Division of labour
 Clearly defined hierarchy
 Detailed rules and regulations
 Impersonality

2.1 Hawthorn Studies: Conducted by Elton Mayo at Western Electric in 1927-1932.

 It is illumination study.
 This study grew out at Hawthorne plant on the effect of light on productivity.
 The experiment showed no clear connection between productivity and the
amount of illumination but researchers began to wonder what kind of changes
would influence output.

80
  Each change resulted in higher output and greater employee satisfaction.
 The major finding of the study was that irrespective of the experimental
manipulation, worker production seemed to improve continuously.
 The aptitudes of individuals are imperfect predictors of job performance.
 Informal organization affects productivity – The relation that supervisors develop
with workers influence the work.
 Workplace is a social system.
 Need for recognition, security is more important in determining workers’ morale
and productivity.

o 2.2. Mary Parker Follet: 1863-1933.

 Stressed importance of organizations establishing common goals to its
employees.
 Her model took into account not just individuals and group but also the effects
of environmental factors.
 Identified management processes, functions and skills.

o 2.3 Chester Barnards’ communications.

 Looked at organization as systems of co-operation of human activity and noted
they are typically short lived.
 It is rare for a firm to last more than a century.
 And most nations last for less than a century.
 The only organization that can claim substantial age is Roman Catholic church.
 According to him, organizations are not long lived because they do not meet two
criteria necessary for survival effectiveness and efficiency.
 Effectiveness – being able to accomplish goals
 Efficiency – the degree to which that organization to satisfy the motives
of individuals.
 Bernard summarized the functions of executive as
 Authority
 Incentives.
o 2.4 Douglas Mcgregor:
o He proposed theory X & Y concepts of managerial beliefs about people and work.
 Theory X ( Classical theory) – assumes workers dislike work, want to avoid
responsibility and needs to be closely monitored.
 Theory Y ( human relations theory) – assumes workers can exercise self-
direction, accept & actually seek out responsibility and consider work as natural
activity.

o 3.1 LIKERT’s SYSTEM THEORY:

o It was developed by Dr. Rensis Likert during 1960.
o He also developed the famous Likert scale – a psychometric scale used in research.
o According to him, the efficiency of an organization or its depts. is influenced by their
system of management.
o He categorized his 4 management systems.

81
  Exploitative authoritative – the job of employees/subordinates are to abide by
the decision made by managers/top mgt. Organisation is concerned with
completing work and organizations use fear& threat.
 Benevolent authoritative – decisions are made by management. Participation
from employees is encouraged and rewarded. Management will hear what they
want to hear only.
 Consultative system- slightly better than the above and still management take
major decisions.
 Participative system – full fledged system of management by full and free
participation by employees and motivation. Ideal system for optimum
effectiveness.

o 3.2 BLAKE & MOUTONS MANAGERIAL GRID:

o Stresses inter-relationship between production and people.
o Management should promote culture that allows high production and foster
professional and personal development.

 CURRENT TRENDS AND ISSUES OF MANAGEMENT:

o Globalisation –No national border – new opportunities and challenges
o Ethics – cases of manipulation
o Diversity – workforce is heterogeneous in terms of age, ethnic, gender.
o Entrepreneurship – use of organized efforts to pursue opportunities to create value and
grow by fulfilling wants and needs, innovations and growth.
o Managing in an e-business environment – the way an organization does its work by
using electronic linkages to achieve its goals.
o Knowledge management & Learning Organisations – To be successful, today’s
organizations must be learning organization. By learning, adapt, change and manage.

82
 o KM involves cultivating a learning culture, where members systematically gather
knowledge and share it with others for achieving goals.
o Quality Management – continued improvement and response to customer’s needs and
expectations.
 What is organisation’s culture = just as individuals have personality, so do organizations.
o Organisations’ personality is its culture.
o Organisational culture is the shared values, principles, traditions and ways of doing
things that influence the way organizational members act.
 What is social responsibility = protecting and improving society’s welfare.
o It is a business’s intention, beyond its legal and economic obligations, to do the right
things and act in ways that are good for the society.
 What is value based management = managers are guided by the organizations shared values in
their management practices.
 What is managerial ethics = principles, values, beliefs that define what is right and wrong
behavior.
 What is mechanization = use of machines to perform work previously performed by humans.
 What is decision making = a choice made from two or more alternatives.
o It involves –
 identifying a problem,
 decision criteria,
 weighing of criteria,
 developing alternatives,
 selecting alternatives,
 implementing the alternative and
 evaluating.
o Three types of decision making.
 Rational DM= make decisions in the best interests of the organization and not in
his own interest.
 Bounded Rationality = make decision that is rational but limited by an
individual’s ability to process information ( managers tend to operate under
assumption of bounded rationality)
 Intuitive DM = a sub conscious process of making decisions on the basis of
experience and accumulated judgment.
 Two types of problems:
o Structured - straightforward, familiar – for which a programmed decision ( repetitive)
can be taken.
o Unstructured – that are new or unusual for which non-programmed decision is taken.

HUMAN RESOURCE MANAGEMENT

o Every generation believes that its problems and achievements are greater than those of
past. Modern businesses are also seen as being uniquely complex, larger scale than the
enterprises of earlier times.
o But in the ancient world, large no. of people were organized, managed to construct,
dams, tajmahal, pyramids, irrigation systems, military arrangements and many more
achievements.
 The Farmer’s Alamnac – A 5000 year old Sumerian Text includes useful tips on
supervision of farm labourers – making it as oldest known HRM TEXT BOOK.

83
o HRM = that function of all enterprises which provides for effective utilization of people
to achieve both the objectives of the enterprise and the satisfaction and development of
employees.
o HRM – the term originated in mid 1980s.
o HRM refers to holistic approach to managing people.
o HRM covers all the concepts, strategies, policies, practices which organizations use to
manage and develop the people who work for them .
 HR manager plays these roles.
o Strategic Partner – executing strategy by aligning HR and business strategy.
o Change agent – creating a renewed organization by managing transformation.
o Administrative expert- building an efficient infrastructure by re-engineering
organizational processes.
o Employee champion – increasing employee commitment and capability by
listening and responding to employees.
 Different phases in management of employees are
o Concept of welfare management – 1920-40
o Concept of personnel management – 1950-70
o Concept of HRD - 1970-80
o Concept of HRM - 1980 onwards.
 Absenteeism = unscheduled employee absence from the work place.
 Anger management = is control of anger in order to improve relationships and health
prospects.
 Attrition = the reduction in staff and no. of employees in a company through natural
means such as retirement or resignation.
 Behavioural competency = refer to personal attributes or characteristics (motives,
attitudes & values) that describe HOW a job is performed as opposed to particulars of
that job.
 Bonus = an after the fact reward or payment based on the performance of an individual,
a group of workers.
 Bullying = intentional act of direct or indirect causing harm to others through verbal and
or physical.
 Bumping = allowing senior officers whose post is to be eliminated to make accept other
less post.
 Boundaryless organization = an organization that removes roadblocks to maximize the
flow of information throughout the organization.
 Buddy system= a form of employee orientation system whereby newly hired employee
is assigned to another employee.
 Business literacy= knowledge and understanding of finance, accounting, marketing and
operational functions of an organization.
 Management = the process of getting activities completed efficiently and effectively
with and through people.
 Efficiency = doing thing right
 Effectiveness = doing right things
 Competence = ability to perform a particular activity to a prescribed standard.
o It is an acquired personal sill that is demonstrated in an employee’s ability to
perform in a job.
 Competency = knowledge, skills, abilities and the attitude required to perform a specific
job.

84
 Core competency = a bundle of skills that are possessed by individuals across the
organization.
 Core competencies are what a company excels at. Gary Hamel and C K Prahalad define
core competencies as “the skills that enable a firm to develop a fundamental customer
benefit.”
 Corporate culture= core values, beliefs, business principles, ethical standards, operating
practices, traditions, business practices, official policies, and procedures, relationship
with external stakeholders.
 Competitive advantage = an advantage over competitors on anything.
 NDA or CDA = Non-Disclosure Agreement or Confidential Disclosure Agreement
 Core competencies = set of the most strategically significant and value creating skills,
knowledge and abilities.
 Cafeteria plan= a benefit plan which allows employees to choose between one or more
qualified tax favoured benefits and cash.
 Ethics = doing right things, the right ways by following policies and procedures.
 Emotional Intelligence= The mental ability to recognize, understand & regulate own
emotions f & others.
 Employer Branding = process of creating a desired image of an organization as a great
place to work in the mind of current employees and key stakeholders.
 ERM = Enterprise Risk Management is the process of planning, organizing, leading &
controlling the activities of an organization in order to minimize the effects of risk on
capital and earnings, financial, operation, strategic, business and other risks.
 Feather-Bedding - A term often used in industry describing the practice of hiring more
workers than is necessary to carry out a job, often because of a contract with a union.
 Glass Ceiling= invisible barrier keeping women from advancing into executive level
position.
 Gagging Clause - is a clause in an employment contract, or more commonly a
termination contract, which prevents an employee from disclosing certain information
about the company or employing organization to the press, union officers, authorities,
etc., and by implication also extending to the police.
 Gold – Collar employee = scientists, engineers and highly skilled employees who are in
high demand and short supply.
 Grapevine= an informal communication channel used to transmit information/rumours.
 HALO Effect= During selection and recruitment, an applicant is perceived to have one of
the characteristics required for the position and interviewer wrongly infers that he has
all other characteristics required.
o It is nothing but interviewer’s bias- allowing overall perception of the candidate
–positive or negative.
 HR Audit= a method of assessing the effectiveness of HR functions.
 HAWTHORNE Effect: Describes that people improve an aspect of their behavior, which is
being measured simply as a response to the fact that they are being observed and not
because of other influences.
o Study 1924-1932 – to see if workers become more productive in higher or lower
levels of light.
 Human Capital = the collective knowledge, competencies, health & vigour, skills and
abilities of all the employees of organization.
 Horizontal integration = job rotation – shifting between various comparable jobs to
prevent boredom and to boost morale.

85
 Hygiene theory= Herzberg study – understand employee attitudes and what factors
cause job satisfaction and dissatisfaction.
 Insourcing = process of internally administering employee benefit plans or other
programs than utilizing services of a third party provider.
 Intelligent quotient= measure of an individuals’ cognitive abilities.
 Intrapreneur - A person employed by a large company to work independently to
develop new projects and business within the company.
 Induction = a new employee is integrated in the organization , learning about its
corporate culture, policies, procedures, specifics of new job.
 Intrinsic Rewards = rewards associated with job itself like opportunity to perform
meaningful work, receive professional development training, enjoy good relations with
co-workers.
 ISO 9000 = a family of standards and guidelines for quality management.
 Moonlighting= working one or more full or part time jobs in addition to one’s regular full
time job.
 Mentoring = one to one systematic interaction process between an employee and a
senior or experienced person, who acts as an advisor, counselor or guide and provides
support and feedback to facilitate learning.
 Job Analysis = a systematic study of a job to determine what activities and
responsibilities are included, the personal qualifications necessary for performance of
the job.
o Job analysis results in job description.
 Job description= a written description of a job based on JA which includes nature of
work to be performed, specific duties and responsibilities, employee skills and
characteristics required to perform the job, scope, job title.
 Job Evaluation= a system for analyzing and comparing different jobs and placing them in
a ranking order according to the overall demands of each one.
o To asses which jobs should get more pay than others.
o Job evaluation assess the content of a job – not individual’s performance.
 Job Grading = assigning a grade or category in hierarchy.
 Job specification = outlines the basic purpose of a job, nature of work, qualifications and
skills.
 Johari window = a communication model used to improve understanding between
individuals
 Management By Exception - A management style in which managers give employees the
authority to run projects, etc., by themselves and managers only become involved if the
employees fail to meet certain criteria or standards.
 Theory Z - A Japanese management style based on the theory, developed by William
Ouchi, that workers like to build relationships with other workers and management, to
feel secure in their jobs, develop skills through training, and have their family life and
traditions valued.
 Knowledge Management = a range of practices used by an organization to identify,
create, categorise, represent, distribute, store insights and experiences and enable their
adoption. KM focus –
o Improving performance
o Faster innovation
o Create competitive advantage
o Sharing lessons learnt.

86
  Organisational culture = specific collection of values and norms that are shared by
people in an organization and that control the way they interact with each other and
with outsiders.
 Orientation = Introduction of employees to their jobs, co-workers and providing them
organizations information on policies, procedures, history, goals, culture and work rules.
 ONBOARDING = A new concept more broader than orientation. Integrating employees
into their new work environment.
 Outsourcing = a process in which a company delegates some of its in-house operations
or processes to a third party.
 Performance management= a process of identifying, evaluating and developing the
performance of an employee to achieve organizational goals and understood by
employees.
 Quality management = a system for ensuring that all the activities necessary to design,
develop and implement a product is effective and efficient to conform to certain
standards.
o It has three . Quality Control, Quality Assurance & Quality Management.
o QMS are ISO 9001, SIX SIGMA, KAIZEN,QUALITY CIRCLES, TQM.
 Risk Management= The policies, procedures and practices used in identification,
analysis, assessment, control, minimization or elimination of unacceptable risks by the
organizations. They use;
o Risk assumption
o Risk avoidance
o Risk retention
o Risk transfer or combination strategies
 Succession planning = a process for identifying potential candidates to replace core
individuals who may leave at some point.
 Strategy = objectives and action plan
 Salting = refers to paid union organizers who apply for jobs with an employer for the
purpose of organizing the employers’ workforce
 Work life Balance = prioritizing between career or ambitions and family, leisure,
pleasure and spiritual development.
 360 Degree feedback/Appraisal= A performance appraisal where an employee is rated
by people who are directly connected with his work like peers, supervisors, managers,
customers, clients familiar with employees works.
o It is also called multi –rater assessment
 Policies = Broad general guides to action that establish boundaries within which the
employees must operate.(Despatch within 7 days after receipt of payment and order
from customer)
 Procedures = Detailed series of related steps or tasks written to implement policies. (
Marketing dept will issue order acceptance on receipt of orders from customers, then
one copy to customer, one copy to stores, and then the sequences)
 Rules = Detail specific and definite corporate action that employees must follow.( no
smoking)
 What is Time study?
o A method of measurement of labour’s work.
o i.e., time for completing work.
o Parameters included are ; average time of normal labour, rest time, spare time for
drinking water, refreshments.

87
 o Aim of Time study is to increase productivity in limited working time.
 What is Motion Study?
o Choosing the best way out of alternative methods of doing a particular work.
o Spending time per activity is noted.
o Aim is – application of good methods, reduce exhaustion of workers.
 Calculation of Labour Turn Over.

o LTO is all about employee retention - i.e. the ability of a business to convince its
employees to remain with the business.
o LTO is defined as the proportion of a firm’s workforce that leaves during the course of a
year.
o LTO is % of labour changes after a certain time.
 Steps:
o Calculate average no. of employees during a period. i.e., totaling the no. of employees in
the beginning of the year and no. of employees at the end of the year and dividing by 2.
o The formula is No. of employees left during the period/avg. no. employees x 100.

88