BP Notes

DR.SHANTHI LATHA/ASST. PROFESSOR/DEPT.
OF MBA/SATHYABAMA UNIVERSITY
BUSINESS POLICY AND STRATEGIC MANAGEMENT
UNIT – I & II
INTRODUCTION
Business policy deals with the top level decision making thus in this subject one
has to study both the aspects of business and policy making both of which are various
serious, extensive and are usually handled by the top level of the organization.
BUSINESS
Business is considered as
• an enterprise,
• providing goods and services
• community needs and
• are willing to pay the taxes, rent, etc.
Besides these, it should be a
• part of the society,
• works for a certain return (profit)
• and a clear motive (profit, service etc)
OBJECTIVES OF BUSINESS:
Every business that is started / or continues to exist is based on certain objectives.
They explain the reason for existence of the business
Some of the major reasons or objectives for establishing or continuing a business
are listed below;
1. earnings a livelihood
2. earning profit
3. accumulating wealth
4. earning social approval
5. prestige
6. service motive
7. getting recognition in your own inner circles or business circles
8. to protect family wealth and interests of business
9. achieving power- economic and political power
10. to exploit an opportunity available in the business environment
11. to invest surplus funds
12. to try out a new technology
13. to become a market leader
14. to finish off competition
15. to be engaged in a meaningful activity or an activity of one’s own liking
16. to achieve self expression, esteem or actualization
17. to become a member of certain class of society
18. philanthropic activities or objectives like providing education, developing an area
or providing medical care, etc
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DR.SHANTHI LATHA/ASST. PROFESSOR/DEPT. OF MBA/SATHYABAMA UNIVERSITY
19. to provide / uphold or prove a country’s prestige while doing business in a foreign
country.
These are some of the objectives listed by WHEELER as objectives for
starting / continuing a business.
POLICY
Usually or generally policy goes on only for a particular period of time. Thus,
policy can be defined as
“focusing attention on the allocation of crucial and scarce resources”
Prof. Radgen
STRATEGY
Strategy has been defined by several people in several ways. However, a strategy
is called thus when it is used as long as it works. But some of the other well known
definitions are
“A unified, comprehensive and integrated planning designed approach to
assure that the objectives of the organization are achieved”
Prof. Glueck
Another common definition which is used comprehensively for both policy and
strategy is
“The pattern of an organization response to its internal and external
environment over a period of time”
Another definition is
“The determination of basic long term goals and objectives of an enterprise
and the adoption of the course of action and the allocation of resources
necessary for carrying out these goals. There are three major ideas
identified:
i) determination of long term objectives
ii) adopting a suitable course of action
iii) allocation of sufficient resources”
Prof. Chandler
Yet another definition says
“Developing and communicating the company’s unique problem, making
Trade-off’s (let go off the loss) and forging fit (taking up activities that fit)
among the other organizational activities. This involves
i) planning a course of action
ii) finding a common pattern
iii) relating the activities within the organization to each other specialization
areas or departments
iv) find the resources required for each department and allocate accordingly
v) connected to each strategic position to eliminate problems when they arise”
Prof. Micheal Poster
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NATURE AND SCOPE OF BUSINESS POLICY:

The nature and scope of business policy is as follows;
1. Proactive and not reactive:
In other works this helps in taking the right decision before any problem
arises, rather than searching for a cure after the problem has caused trouble.
For this purpose, opportunities are to be properly scanned and then
decisions are to be taken. This helps the organization to excel
2. it is the idea or view of top management about the organization and the
competitors
3. broad perspective and narrow or comprehensive perspective:
The company should know i.e., the top level should have an idea if the
company is ready to widen its market or restrict itself to selected
companies. Like recruiting people with any degree (broad) or people with a
technical degree (narrow).
4. long range impact:
Any event which influences the market for a long period will affect the
business. Hence organizations are supposed to think long range.
5. huge resources and large segments:
Every organization involves the use of huge resources (money, people, etc)
and large segments or departments. Thus, scope is large and diverse.
6. Multi-disciplinary approach:
All disciplines of employees are employed so that even if any problem
arises, the organization can overcome by using the skills of employees in
other departments
7. legal and ethical standards:
The organization established should meet the legal and ethical standards set
up or established by the organisation, society and government.
8. clear action and clear direction
The organisation should be forcussed in whatever it does and whatever
path it is following. It should not change direction (business/policies) often
9. within the principles of management:
The policies formulated should remain within the principles formulated by
the organisation and should not cross over.
10. relevant to the objectives:
The actions of the organisation should be suitable to the established
objectives of the organisation.
11. stable yet dynamic:
The organisation should be stable in growth, profits earned, etc, but
dynamic in meeting challenges and organizational threats.
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SIGNIFICANCE OF THE SUBJECT:

This subject has a certain significance they are broadly classified into three, they
are;
1. knowledge uses:
a) Knowledge of concepts, i.e., what concept to use and when to use.
b) Knowledge about the business environment
c) Real life knowledge about practical (happening) aspects of business
d) Knowledge about standards and methods of evaluations ( of whatever is
happening in the organisation and outside and how standards are set,
modified and work evaluated)
e) Build up business literature: all relevant, important happenings and related
information about what is taking place in the organisation and outside, will
help future plans, policies and decisions.
2. skill uses:
a) Analytical skills: for developing the organisation and its standards.
b) Empirical skills: for testing any concept which is to be introduced newly
into the organisation, the organisation should be capable of testing from
positive and negative angles.
c) Decision making skills: to make the right decision, at the right time to help
increase profit and improve the organisation.
d) Intuitive skills: every business owner should have an idea to guess what
may happen in the future and take suitable actions or develop policies in
advance
e) Communication skills: so as to help inform others and gather data from
others, for overall organizational development.
3. attitude uses:
a) Develop wholesome approach rather than narrow approach; this will
involve the entire business than taking or giving importance to any one part
of the organisation. Thus, a whole some approach covering he entire
organisation is always better than a narrow approach.
b) Creative and innovative approach: organizations should be creative, i.e.,
adopt new approaches to get better profits or make new product or they can
also be innovative by altering the existing products slightly suit the existing
markets, increase the market share or organisation image.
c) Flexibility and dynamism: the organisation should be flexible to suit and
change or modify itself to the changing environmental conditions. It should
have dynamism to adopt new technology or changes as per new technology
or changes as per organisation need and requirement
d) Intuition: the people at the top level in the organisation should be capable
to foresee the future of the organisation based on very limited data
available at present.
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HISTORY AND EVOLUTION OF THE SUBJECT
1911 saw the introduction of strategic management as a subject in

HARVARD BUSINESS SCHOOL. After 1930 too it was yet to gain acceptance
among other business schools.
In between 1920 and 1940 efforts were being taken to make this subject
organized and systematic to make it suitable to academic purpose.
In the period of 1940 and 1960 there was rapid industrialization and forced
organizations and businesses to define the scope and interest of the subject with
respect to the society. This became even more easy and possible as in 1959; there
were tow sponsored studies by Ford and Carnegic Foundations. These foundations
gave reports that there is need for the subject to be included in the curriculum of
business studies.
1960 onwards it was accepted as a duty of the top management to initiate
and practice strategies for their survival and growth. Thus, it became a compulsory
subject in all business schools across the world.
MISSION
Mission of any organisation identifies with
“the scope of operations of an organisation. It gives the reason for the
existence of an organisation and clearly an organisation with a mission finds it
easier to succeed than an organisation without one”.
Thus, mission of any organisation is to see the scope of an organisation or the boundary of
an organization, or the limit to which the organisation can expand or reach.
EXAMPLE: IOCL (INDIAN OIL COPORATION LIMITED) has its mission statement
as thus:
“Maintaining national leadership in oil refining, marketing and pipeline transportation”.
VISION
These are long term goal projections as to what one is to be. What is intended to
do over a long period.
Vision of any organisation can be defined as;
“the goals that are the broadest, most general and all inclusive. The most
effective visions are those that appeal to the emotions of the employees and the
aspirations of the organiation’s management”.
Thus, they reveal what the organisation should be like in the future.
EXAMPLE: IOCL vision states that

“Indian Oil aims to achieve international standards of excellence in all aspects of
energy and diversified businesses with focus on customer delight through quality
products and services”.
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CURRENT VISION OF WIPRO as given by Azin Premji in Economic Times

dated June 13, 2003 is as follows.
“BUSINESS LEADERSHIP: Among the top 10 IT companies (services)
globally and the No.1 IT company in India”.
“CUSTOMER LEADERSHIP: To be No.1 choice of customers through
innovative solutions and by 6σ (six sigma) processes”.
“PEOPLE LEADERSHIP: Among the top 10 most preferred employers
globally, by creating an environment of empowerment, intellectual challenge and
wealth sharing”.
“BRAND LEADERSHIP: WIRPO to be among the five most admired
brands in India”.
CHARACTERISTICS OF MISSION AND VISION STATEMENT
The following are the chief or important characteristics of mission and vision statements.
They are;
1. It should be feasible.
2. It should be precise.
3. It should be clear.
4. It should be motivating.
5. It should be distinctive.
6. It should indicate the major components of strategy.
7. It should indicate how objectives are to be accomplished.
GOALS
Goals denote what an organisation hopes to accomplish in future period of time.
They represent a future state or an outcome of the effort put in now (both financial and
non-financial issues, qualitative) to achieve objectives.
OBJECTIVES
“the ends that state specifically what the goals should achieve. They are strong
(concrete) and specifc, in contrast (comparative) to goals which can be generalized
(qualitative)”.
EXAMPLE: IOCL’s objectives are to focus on cost, quality, customer care, value
addition and risk management.
ROLE OF OBJECTIVES:
The following are the role of objectives;
1. Objectives define the organisation relationship with its environment.
2. Objectives help an organisation to pursue its vision and mission.
3. Objectives provide the basis for strategic decision making.
4. Objectives provide the standards for performance appraisal.
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CHARACTERISTICS OF OBJECTIVES
The objectives have certain characteristics, they are;
 Understandable (clarity).
 Concrete and specific (specificity)
 Related to a time frame (periodicity)
 Measurable and controllable (verifiability)
 Challenging and good (quality)
 Correlate with other objectives (multi publicity)
 Set within constraints (reality)
FORMULATION OF OBJECTIVES
The objectives of any organisation are formulated based on certain factors. They
are;
 Forces in the business environment
 Realities of enterprises resources and internal power relationship
 The value (ethics) system of top executives
 Awareness of management (top level)
CHANGE OF OBJECTIVES
Objectives of an organisation can be changed when;
 There is a change in the state of the organisation.
 Change in the organizations’ aspirations i.e., goals, vision, mission, etc
 Change in the management team.
 Demand for change in the objectives by the interest groups in the organisation like
management, shareholders, stakeholders, financial institutions, etc
 Change in the internal or external business environment.
 Crisis/ emergencies situation of the organisation.
TYPES OF OBJECTIVES
The different types of objectives are
 Economic objectives: financial aspects, fiscal and other objectives
 Social objectives: objectives, which are societally suitable and acceptable
 Survival objectives: objectives established or taken up by companies to survive,
or exist in the business
 Growth objectives: established by firms or organizations to grow and develop.
 Long term objectives: objectives established for a period of more than an year
 Short term objectives: objectives that are established for a period of less than a
year.
 Higher level objectives: the objectives that are established for the strategic level
or top level of the organisation
 Lower level objectives: the objectives that are established for lower level of the
organisation or the middle level
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 General objectives: objectives which cover the overall aspect of the business
 Specific objectives: objectives that are specific with clear instructions for any
business are termed thus
 Comprehensive objectives: a concise, brief list of objectives covering all areas of
the organisation
 Functional objectives: a set of objectives specifically developed for each
functional area in the organisation like HR, R&D, finance, Quality Control,
Marketing, and Production and so on.
CLASSIFICATION OF POLICIES
Similar to objectives policies are also classified. They are as follows;
 According to level of formation
 Functional area policies
 According to expression
 According to nature of origin
 According to scope of organisation
 According to the nature of managerial functions
 Situational or contingency policies
I. ACCORDING TO LEVEL OF FORMULATION

a) Top Management policies:
These are usually developed by the MD, VC, and GM. They are
usually about investments, diversification, acquisitions, available capital,
HR requirement, R & D requirements, problems with promotion, transfer,
and achieving organizational goals, etc
b) Middle level Management policies:
These are developed after talks between middle and upper level
executives. They usually are about employee selection for a specific job,
installation (fixing) new equipments, resources and their selection,
deciding wages and salaries, and developing incentive plans, getting
finance to solve problems, etc
c) Lower Level Management policies:
These are developed by the people who are usually supervisors.
They are directly related in achieved. They are in-charge of providing
tools, raw materials, training, quality, discipline, improving the morale of
employees, motivating them and reducing absenteeism, etc
d) Operational Level Management policies:
This is usually written down rules and policies in manuals and work
books which the operational level employees are supposed to follow.
II. ACCORDING TO FUNCTIONAL AREA

a) Production Policies:
These involve policies regarding product line, type of product,
selection of technology, process, equipment, tools, location of plant, layout,
budget, maintenance, inventory control, quality, cost control, labour
relations, etc.
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b) Marketing and sales policies:

These are related to market analysis, trend, demand forecasting,
total concept of product mix and market mix. Spotting present and
potential market, the size and nature of customers, competitors, distribution
of products, promotion and pricing, selection, training and developing sales
force, division of market area, establishing sales volume and sales budgets,
etc.
c) Financial Policies:
These are required for prosperity and long survival. They include
capital requirement such as working, short, medium, and long term,
methods of fund raising, utilization of funds, profit policy, accounting
policy, allocation policy, finished goods inventory policy, provision for bad
debts, etc
d) Personnel Policies:
These are concerned with recruitments, selection, utilization of
human resources. Sources of HR, training, promotion, transfer, wages,
incentives, benefits, services, etc.
III. ACCORDING TO EXPRESSION:

a) Expressed Policies:
These policies are stated in clear words, either orally or in writing.
i) Oral policies:
These are word of mouth policies adopted usually, when
organizations are small and face to face communication is desired.
Direct communication with better understanding is desired, for
flexibility. However, it suffers from drawbacks like improper
interpretation, easily forgotten when issued less frequently etc.
ii) Written Policies:
These are put in black and white and stated clearly, for the
personnel to understand. Therefore, it is clear, complete, precise,
contain legal terms use simple language and be warm to all those
who read. It should be convenient and handy for reference and
application wherever and whenever necessary. However, they too
have disadvantages, as they are at times problem creating if not
properly framed.
b) Implied Policies:
These can be understood from the behaviour of executives, they are not
stated or written, they may be included in the philosophy of the business, social
values and even traditions. Best suitable are dress codes, prohibition of
smoking or drinking in working areas. Employing people of certain
community, race, gender, etc can only be an implied policy, but written
policies like above can cause legal problems.
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IV. ACCORDING TO NATURE OF ORIGIN:

a) Originated Policies:
These policies are derived from the company objectives, which are
determined by the top management. Subordinate are supposed to readily accept
such policies.
b) Appealed Policies:
These are also known as “suggested policies”, since these are based on
the suggestions of employees, subordinate or consultant. They are more
effective as they involve employees and the top management.
c) Imposed Policies:
These are not accepted willingly, but are rather forced by external
forces like government, trade unions, legal acts, society, etc. they have to be
followed whether they like it or not.
d) Derivate Policies:
These are derived from the basic or major policies and are operational.
They are guidelines in day-to-day operations and are usually developed by the
respective departments or sections.
V. ACCORDING TO THE SCOPE OF ORGANISATION:

a) Basic Policies:
They form the basis of the organization and are developed by top
management. They give idea about the company, its activities, its environment,
and their influence over other policies, which is very important to the
organization.
b) General Policies:
They are usually developed by the middle level management. Such
policies are very specific and apply to large segments of the organizations.
c) Specific or departmental Policies:
It is developed by a specific department, for managing its routine
activities i.e., day-to-day activities of the department.
VI. ACCORDING TO THE NATURE OF MANAGERIAL FUNCTIONS:

a) Planning Policies:
These are connected with the path of action, which leads to
company activities, and achieving organizational goals. They include;
 Establishing corporate objectives.
 Collecting and classifying information
 Developing alternate course of action
 Comparison of objectives against feasibility, consequence etc
 Optimum (minimum use of resources) course of action
 Establishing standards, rules, policies, procedures, programs,
budgets, etc
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b) Organizing Policies:
These policies include
 Establishing and maintaining a clear and precise organizational
structure
 Determining the role of each level of management
 Deciding authority, responsibility, degree of centralization,
decentralization
 Line and staff relationship and their communication
c) Directional Policies:
They are also called ‘actuating’ policies, they involve
 Providing effective leadership
 Assisting people in achieving their objectives and organizational
goals.
 Integrating people to suitable tasks
 Effective communication with all members of the organization.
 Proper organizational climate for employee development and
motivation
d) Controlling Policies:
These are established to measure results. They involve measuring
actual results against standards or pre-established results. They involve
 Continuous observation of performance
 Measurement of results
 Finding deviation and taking corrective action
 Best mode of control
 Comparison of actual with standards
 Finding causes for deviations, pin-pointing deviations which are
significant
 Implementing corrective action when there is deviation
VII. SITUATIONAL AND CONTINGENCY POLICIES:

They involve the following types of policies;
a) Normal Policies:
These policies provide guidelines to the employees in routine day-
to-day conduct of business and its smooth functioning.
b) Contingency Policies:
These policies are made to meet unexpected moments or situations
like
 Sudden floods, earth quakes, fire, famine, market slump
 Change in business cycles, war, labour strike, political problems,
and social sensitivity.
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 Situational beyond the control of business unit like economic

policy, fiscal policy changes, monetary policy, trade or industrial
policy being unfavourable.
 Competitors’ strategies in production, R & D, innovations, quality
improvement, new techniques of production.
Most companies which are farsighted prepare contingency policies well in
advance, to help them to meet the situations whenever they arise.
EFFECTIVE BUSINESS POLICY:

The following are the characteristics of an effective business policy
1. It should be related to the original objectives.
2. Simple and easy to understand
3. let it be in black and white
4. policies should be stable but not rigid
5. policies should be comprehensive
6. they should be complementary to one another
7. they should be supplementary to overall corporate practices
8. they should be consistent with public policy
9. fair, first and reasonable
10. ethical
11. planned development should be possible
12. maintenance of individuality
PROCEDURE OF POLICY MAKING

Policy can be defined as follows;
“Business policy is an implied overall guide, setting up boundaries, that
supply the general limits and direction in which management action will
take place”
Prof. George Terry
Besides a business policy

“is nothing more than a well developed statement of individuals and goals”
Prof. Peter and Wotrube
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STEPS IN POLICY MAKING
IDENTIFY THE SITUATION
DEVELOPMENT OF POLICY
DISSEMINATION
EXPLANATION OF THE POLICY
ACCEPTANCE OF THE POLICY
FEED BACK
TYPES OF POLICIES
The well known scientist Sir Alfred came up with the following types of policies
in modern organization. They are as follows;
 financial policies
 accounting policies
 operational policies
 foreman’s policies
 production policies
 marketing policies
 sales policies
 promotion policies
 product policies
 personnel policies
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 research policies
 top management policies
 upper- middle management policies
 costing policies
CHIEF FEATURES OF POLICY

The following are the important features of any policy
 policies are general statements for the attainment of objectives
 policies have hierarchy
 policies limit the area within which the decision is to be taken
 policies in general are meant for mutual application by subordinates
 they pre decide issues and avoid repetition
 it should be applied in all functional areas and at all levels
 it should provide the clearest guidelines to avoid confusion
PURPOSE OF POLICY
The purposes of policy essentials or effect are;
 clarify objectives
 have a planning guide
 help subordinate in decision making
 facilitate overall coordination and control
 set up yard sticks for measuring the accomplishment of policies both qualitatively
and quantitatively
 build up employee loyalty and enthusiasm
 ensure consistency and uniformity in decisions and so on
MAKING OF EFFECTIVE BUSINESS POLICY

Any business policy is considered effective if it has the following features
 it should be related to the original objectives
 simple and easy to understand
 let every policy be written
 policies should be stable but not rigid
 policies should be comprehensive
 policies should be complementary to one another
 supplementary to overall corporate practices
 consistent with public policy
 fair, just and reasonable
 planned development
 maintenance of individuality
STRATEGY AND ITS PURPOSE

Strategy has its purpose. Strategy is defined as;
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“Strategy is the grand design or an overall plan which organizations choose

in order to mover or react towards a set of objectives by using its resources. The
strategy includes;
a) awareness of mission, purpose and objectives
b) unpredictability and uncertainty of events
c) takes into account the probable behaviour of other in general and
rivals in particular” and so on.
DIFFERENCE BETWEEN POLICY AND STRATEGY

The following are the differences between policy and strategy; some of them are
given below;
CONCEPT POLICY STRATEGY

Definition Statements or paths to reach a Pattern of action to achieve
goal goals
Orientation Thought oriented Action oriented
Power Delegated to be implemented by Everyone is empowered by a

subordinates strategy
Long-run identity Merely guidelines Means to an end
Concern Generally only about fulfilling Uncertainty is in competitive

objectives situations, risks etc
Line of action Overall guide that governs and Used to mobilize available
controls action resources in the best interest of
the company
PROGRAM AND ITS EFFECTIVENESS

Program has the following definitions
“It is a single use comprehensive plan laying down the principle steps for
accomplishing (completing) a specific job or objective in a specific time”.
Thus, it outlines by whom, when and where
New product development programs, management programs, training, sales
programs, etc
EFFECTIVE PROGRAMS
An effective program has the following steps:
 it is divided into several steps for achieving objectives
 it establishes relationship between several steps to ensure a smooth flow of the
sequence of operations.
 It decides responsibility and accountability
 It determines the resources needed
 It fixes the time limit by assigning a time for each program, etc
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DIFFERENCE BETWEEN POLICIES AND PROGRAMS

The differences between policies and programs are given below;
CONCEPT POLICY PROGRAM

Definition Broad and comprehensive Detailed step by step course of
guidelines about the future action
direction of the company
Time period Long range plan of action Short and stable
Type Broad in direction and has to Simple and complex activities

be followed taken up to carry out the given
policy
Basics It is the foundation for It exists due to policies
programs
PROCEDURES ITS IMPORTANCE
Procedures can be definite in several ways;

“A series of functions or steps taken up to accomplish a specific task”
It can also be defined as
“It is a precise means of making a step by step guide of action that operates within
a policy frame work”.
IMPORTANCE OF PROCEDURES
The importances of procedures are given bellows;
 It reduces directing work

 It indicates the steps to be taken and the required time and the order for performing
certain activities
 It facilities training
 It reduces the problem of trail and error techniques
 Work operation gets simplified through a well planned steps
 Better results at lower costs
 The true limit in performance helps in effective control over operations
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STEPS IN EFFECTIVE PROCEDURE

The following are the steps in effective procedures;
 List out the detailed and essential steps and then taken up performance
 Establish accountability and responsibility then standardize the procedure
 All the phases are to be linked with control so that performance can be reviewed
 They should be stable and not rigid
 Develop fruitful decisions in policies by taking into consideration, time, cost and
environment
 Any changes to be made should be taken up well in advance and should be written
down to help easy understanding
 These procedures should be understood, accepted and known to everyone involved
with them.
DIFFERENCE BETWEEN POLICIES AND PROCEDURES

The following are the differences between policies and procedures;
CONCEPT POLICY PROCEDURE

Definition Guide for thought and action Guide for action and involves the
method of doing a task
Basis Foundation for procedures They follow policies
Responsibility Top management Middle and lower levels
Stability Stable Changes in the short-run
Emphasis General approach Step-by-step approach
Scope and Broad and comprehensive Rigid with no freedom

flexibility
Application Long range plans Short range plans
Goal orientation Directly related Indirectly related
Work Does not provide a method for A standard method for work
methodology doing work exists
STANDARDS AND ITS TYPES

Standard is defined as
“A norm or oriented against which performance is compared and
evaluated. They are an integral part of the control function in management”.
ESTABLISHING STANDARDS
Standards are established based on
 Past experience
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 Guess and estimates

 Scientific methods
TYPES OF STANDARDS
The different types of standards are established
a) Based on Performance:
i) service – provide is good or bad
ii) conduct – behaviour of the employees
b) Quantitative standards:
i) Time – determines the costs
ii) Cost – determines overall cost and price
c) Qualitative standards:
i) Charts – quality charts to maintain quality standards
ii) Statistical quality control – to reduce quality problems
TACTICS AND ITS APPLICATION

Definitions of the tactics is as given below
“The detailed program prepared by the management for the effective
implementation of strategies devised”.
Thus, while strategies are master documents and are broad in nature, tactics are minute.
APPLICATION OF TACTICS
The application of tactics is listed below;
 To meet competition effectively – Wheel was introduced when Nirma came up.
 Continuous efforts to curb aggressive firms – Surf to prevent Ariel Excel.
 To retain competitive position – Colgate has introduced several different types of
variants to meet everyone need
 To consolidate gains – BPL withdrew certain products to consolidate on the
existing range of products
 For retreating into certain specific areas – Godrej soaps.
DIFFERENCE BETWEEN STRATEGY AND TACTICS

The following are the differences between strategy and tactics as suggested by
Steiner, niner and gray;
CONCEPT STRATEGY TACTICS

Level of Top level Lower level
conduct
Regularity Situational, so may or may not be Periodic with fixed time schedule
continuous
Value Weighed with subjective value Less subjective in nature
Alternatives Larger in number Fewer in number
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Uncertainty Greater as there are greater risks Less risk due to well known and
limited alternative
Nature of Unstructured Structural and often repetitive
problems
Informative Large, futuristic and as accurate as Internal data, greater use of
needs possible historical information
Time horizon Longer in most of the times Short and uniform in all areas
Reference Original source Within the persuit of strategy
Details Broad with few details Many details
Evaluation Difficult and takes many years Easy results are clear and quick
with specifications
Point-of-view Corporate point of view Functional
Importance Higher Lower
DIFFERENCE BETWEEN POLICY AND TACTICS

The following are the differences between policy and tactics;
CONCEPT POLICY TACTICS

Definitions Broad guide lines Micro level actions and activities
Concern Thinking, intellectual oriented Operations, action oriented
Range Long range planning Short range for immediate

problems
Scope Wide and broad Narrow and specific
Guidelines For entire business and external For best utilization of available
environment resources within the organization
Implementation Delegation of authority based on Junior executives are given
and delegation the size of the firm specific and clear responsibilities
Orientation Mission oriented Goal and target oriented
Position Primary Derived
Estimation Future availability of resources Current mobilization and

utilization of resources
Role Guidance for the future course of To solve existing problems
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action
Stability Stable and not rigid Dynamic as they are formulated t
suit the requirements of each
separate problem
RULES AND ITS CHARACTERISTICS

Rules are usually defined as
“A principles to which an action or a procedure conforms (adopts) or is
intended to conform”.
It is also defined as,
“A standard or a norm to be followed in the conduct of a business in a particular
situation. It guides action and gives no discretion on its applicability”.
DIFFERENCE BETWEEN POLICIES AND RULES

The following are the difference between policies and rules;
CONCEPT POLICY RULES

Concern Thought and action paths Action only
Nature Broad instructions, directions Specific with do’s and don’ts

and guidelines
Deviation Allowed as it is broad in nature Not permitted and often leads to
penalty
STRATEGY MANAGEMENT PROCESS

The following flow chart shows the strategic management process;
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DETERMINATION OF MISSION AND VISION
ESTABLISHMENT OF OBJECTIVES
SWOT ANALYSIS
CONSIDERATION OF STRATEGIC ALTERNATIVES
CHOICE OF STRATEGY
IMPLEMENTATION OF STRATEGY
EVALUTATION AND CONTROL
BUSINESS POLICIES IN VARIOUS ECONOMIC SYSTEMS

Even though formulation of business policy is the same in all economies, the
factors which influence the formation of a policy vary among different systems of politics
or economics. The differences are as follows;
CONCEPT CAPITALISTIC SOCIALISTIC MIXED

Market Largely privatized Mostly public or Both survive
government owned
Consumer Greater Less Greater
awareness
Rules and Few More More
regulations
Liberalization More Less or more Moderate to more
thrust
Investment Greater with foreign Not open to FDI Greater FDI is
direct investment (FDI) allowed
Market Unprotected Protected totally Not protected
structure (unless there is no
rule for
privatization)
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Competition Intense Less to nil Intense
Product Large Limited Large

availability
Quality Best Marginal Marginal to best
Price Variable Regulated by the Variable with

government regulation
Employment High Total Semi
Inflation Moderate Low High to moderate
KEY RESULT AREAS

Peter F. Drucker gave a list of a Key Result Areas (KRA) in organizations, but
under the specifications that they may vary from business to business and hence may not
be suitable to all business environments. They are as follows:
 Market standing - TVS
 Innovation - TVS, Nutrine, Nokia, etc
 Productivity - Hero cycles
 Physical and financial resources - Reliance Industries
 Profitability - Lakme
 Managerial performance and
Development - WIPRO
 Worker performance and attitude - BHEL
 Public Responsibility - TATA
ROLE OF CEO IN STRATEGY FORMULATION

The several roles played by a CEO in an organization are short listed below. The
following are a few of the several roles. The CEO;
 Is the creator of the organisation’s policies and strategy
 Is the administrator of the organization
 Is the figure head
 Is the spokes person of the organization, to both the internal and the
external environment
 Is the moulder of the organisation’s culture and philosophy
 An organization is said to be an extension/reflection of the CEO
 Sets the pace of the organization
 Sets the standard operating practices
 Is the disseminator of all information including policies
 Is the coordinator, negotiator and conflict handler
 Is the motivator
 It the resource allocator
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 Is the innovator and trouble shooter

 Is a visionary and path finder
 Is the leader
BUSINESS ETHICS (OR) HONESTY IN BUSINESS

Business and ethics they say don’t go hand in hand. However, the movement of
consumerism and the growing awareness among both the public, and the customer has
made business houses understand the need to be honest about their products and about the
practices too. Thereby, the concept of ethics in business came up;
In general ethics in business is defined as;

“A business or a businessman’s integrity so far as his conduct or behaviour
in all fields of business as well as towards the society”.
This when formally defined by a few economists or strategists is put forth as;
“A law which is generally concerned only with the minimum regulation
necessary for public order while ethics examines both the individual and
the social good in all dimensions”.
Prof.Garrett
President Woodrow Wilson of the US suggested four golden principles for the practices
of business ethics. They are principles of;
 Transparency:
Everything should be known to all within the business and outside.
 Equivalent Price:
All the produce should have similar pricing.
 Conscience:
Every business person should listen to his/her inner voice and act
accordingly.
 Spirit of free services:
One should be willing to serve the humanity for the spirit or interest of
service.
IMPROVEMENT OF ETHICS IN BUSINESS INSTITUTIONS

Ethics in any business institution can be improved with the following few
guidelines;
 Reward and punish openly:

Those who have practiced ethics or were unethical respectively
 Setting standards or norms in organizations on ethics:
By clear demarcation on what is ethical and what is unethical
 Have role models in the top management:
To observe and imbibe (the junior level)
 Differentiate between corruption and unethical practices
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 Remember that corruption is just more than money

 ‘Success at any cost’ is a big mistake.
 Aim reasonably in everything, be it targets, work loads, profits or growth.
CORPORATE SOCIAL RESPONSIBILITY

The most talked about aspect of today’s organization is the social side of it.
Social responsibility has been defined differently by several management
gurus’, two such definitions are given below
“Social responsibility is to understand public consensus to recognize it and to
cooperate and achieve this is some way to commensurate with its power”.
Prof.Steiner
Another definition is
“The personal obligation of the people as they act in their own interests to assure
that the rights and legitimate interests of others are not suppressed”.
Prof.Koontz & O’Donnell
NECESSITY OF SOCIAL RESPONSIBILITY

The need or necessity of social responsibility is because;
 Business and society mutually influence each other
 The basic resources for any business functions is the same as that of the society
 The end product of the company also goes to the society
 It is the highest or the largest power both financially and politically and hence
there may be a misuse.
 Business, cultural and social factors are useful for maintaining and improving the
health of the society.
AREAS OF SOCIAL RESPONSIBILITY:

The following are the clearly demarketed areas in which an organization can
practice social responsibility. They are;
 Towards the owners and shareholders by fair dividends, efficient business,
and by avoiding malpractices
 Towards employees – job satisfaction, providing good quality of worklife,
benefits, succession planning
 Towards customers - fair prices, safety and quality of the product need to
be maintained
 Towards the society and government – payment of taxes, employment
without discrimination, observation of law and order, pollution and
ecobalancing
 Towards competitors or inter business – fair competition, effective
collaboration, sharing of scarce resources.
IMPLEMENTING SOCIAL RESPONSIBILITY:
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Now, it is almost mandatory for all organizations to practice social responsibility.

The implementation is given below:
 Include social responsibility as a part of your mission (or) vision statement.
 Social responsibility projects should be attached to all senior managers as
additional responsibilities
 Do some survey on what the community needs
 Give financial assistance in these areas.
 Have separate departments to identify separate aspects of social
responsibility, such as sports, community development, family welfare,
education, etc
 Try and join or assist government sponsored programs
SOCIAL AUDIT
The founding father of social audit stated or defined social audit as;
“This is an approach for monitoring, appraising and measuring the social
performance of a business”.
Prof. Kreps
Kreps along with Goven identified 8 areas where social audit is considered
important;
 Price:
It should not affect the customer or the competitors, verification if the price
affects the society
 Advertising:
Audit on the advertising if it affects the competition
 Wages:
No discrimination and equitable wages
 R & D:
The effluents (wastage) should not pollute or affect people outside i.e., the
society
 Public Relations:
With the customers, business compatiates, etc
 Human relations:
With people of the society
 Community relations:
With the community which is directly in the viscinity of the organization.
 Employment stabilization:
By providing fixed and continuous employment opportunities.
Thus, social audit can be broadly defined as

The purpose of helping to breakdown the broad term of social responsibility into
identifiable component and to develop scales that can measure these components.
Some of the other factors identified include:
 Transparency in business
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 Providing information
 Environmental factors
 Charitable activities, etc”
Prof. Sethi
OBJECTIVES OF SOCIAL AUDIT

The following are the objectives of social audit
 Identifying areas of social responsibility
 Develop scales for measuring performance
 Actual measurement process
 To measure the impact of social responsibility activities on the business and on the
society
NEED FOR SOCIAL AUDIT

The need usually arises in four categories
 Community development and involvement
 Social performance directed to the well being of employees
 Physical resources and environmental contribution
 Production and service contribution
In India, the Sacher committee was established in 1978 to look into the aspects of social
audit and its uses.
SPECIAL FEATURES OF SOCIAL AUDIT

Some of the important features or aspects of social audit are;
• It is a delicate and difficult job
• The audit team must comprise of experts from all functional areas to facilitate
better auditing
• It should include financial and non-financial assets, qualitative and quantitative
aspects
• The audit team besides having the right orientation and expertise should also have
correct ideas.
• Social and economic performance should be given equal importance
• It should be positive and encouraging and also give a definite future direction, but
should not be critical in its assessment.
APPROACHES TO SOCIAL AUDIT

The following are some of the approaches to social audit
• Inventory Approach:
Listing all the social activities carried out to know the extent of
involvement. It is an exhaustive list of all the social activities taken up the
company in which it also is actively involved
• Cost or balance sheet approach:
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This is also called financial outlay or budget approach. It aims at finding

the amount of money spent on the project. The allotted amount that is spent
towards these projects over a period of time by the company.
• Program management approach:
It is an inventory of the activities that a company intends to have done or
not.
• Cost benefit method:
Benefits and costs are proportioned and the outcome is assessed both
tangibly and intangibly.
BENEFITS OF SOCIAL AUDITING:

The benefits of social auditing are very simple and clear;
♦ Awareness on social responsiveness increases
♦ Generate data to identify the social responsibility targets
♦ Comparison of data of several social responsibility projects is possible
♦ It guarantees information which can be used to improve public relations
♦ The overall improvement in the conduct of business and business practices
which help the business in future.
BUSINESS AS A SUBSYSTEM
“Business came into existence to fulfill the requirements of the society and of the
many subsystems the society is made of business is one of the many subsystems the
society is made of in other words. The other subsystems are;
 Economic subsystems
 Legal subsystem
 Demographic subsystem
 Government subsystem
 Technology subsystem
 Market forces
 Culture and traditions”.
Prof. Steiner
This is the definition that a management Guru has given;
Thus, a small change in one system leads to changes of varying proportions in the other
systems.
Business in given greater importance among these subsystems because;

 It is always in the public eye and hence is more visible to everyone
 It is financially viable because it can create or damage the wealth of the
society
 It can be a contribution to the society in both positive and negative ways
 There is every need for the company or the business firm to stick to social
value
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All these subsystems though interlinked pull away from each other in different
directions due to different interests; there skill is a certain amount of equilibrium
maintained. Thus, any small change in one system triggers a major change overall.
MANAGEMENT BY OBJECTIVES (MBO)

MBO or management by objectives is defined as;
“a technique need for improving the performance of management. It shapes
a clearly structured, generally applicable implementation methodology out of the
various new concept and theories of management”.
It is also called as “result management” or “management by results”.
STEPS IN MBO OR PROCESS OF MBO

The following are the steps in MBO;
 Setting objectives
 Developing action plan
 Conducting periodic review
 Appraising annual performance
PRECAUTIONS FOR MBO PROCESS:
The following are the precautionary measures that are to be taken for establishing
objectives;
 Setting clear and well defined objectives
 Communicating the objectives to achieve results
 Integration of departmental objectives with overall organizational
objectives
 Set reasonably attainable objectives
 Consideration for uncontrollable factors while fixing the individual factors,
i.e, objectives
 Review of objective periodically and change if necessary
 Complete participation by all personal
RESPONSIBILITY OF MBO
The responsibilities of MBO are;
 Performance of one’s own managerial unit
 Contribution of one’s unit to other units
 Contribution expected from other units
FLOW CHART FOR MBO

The formal flowchart of annual MBO appraisal is similar to the flow chart given
below;
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YES NO
DO WE REVISE GOAL STANDARDS

OR TARGET WHAT IS THE REASON?
OBJECTIVE ACHIEVEMENT
OTHER REASON
YES NO NEED OF SKILL
RESULTS ARE IMPROVE IMPROVE

BY HOW MUCH SATISFCTORY
HOW? HOW?
HOW? HOW?
ADVANTAGES
The advantages of MBO are as follows;
 Provides a basis for planning
 It provides meaning and direction to people
 Better coordination is possible
 It constitutes standards and so it is a controlling measure
 It is a motivating device
 It shows the path to the management to think ahead
 It makes individual know what is expected to them
 It makes individual more aware of the organsiational goals
 It makes evaluation process more equitable by focusing on specific
accomplishment. It also lets subordinates know their objectives will
DISADVANTAGES
The limitations of MBO are as follows;
 Not all accomplishments can be quantified
 This may cause tension and resentment
 It is difficult for the superiors to help instead of judging the subordinate
 Not all people are capable of participating and
 Awareness of MBO is very limited among personnel, especially about its merits.
MANAGEMENT BY EXCEPTION (MBE)
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Management by Exception or MBE is a system of identification and

communication that signals to the manager when his attention is needed. This involves the
use of MBE particularly in the controlling aspect. Thus, it can be stated that MBE is a
controlling technique
PROCESS OF MBE
The basic steps in the process of MBE are
 Measurement
 Projection
 Selection
 Observation
 Comparison
 Decision-making
Now, understanding each of these steps in detail. We have,
Measurement:
By assigning values to past and present performances, exceptional areas can be
identified.
Projection:
All the values that are meaningful to the organizational objectives are to be
extended (projected) to see further or future requirements (whether they can be achieved
or not)
Selection:
this involves criteria and method which the management will use to follow the
progress path towards organizational objectives.
Observation:
Current performances are observed and measured so that managers are aware of
the current state of affairs in the organization.
Comparison:
It involves the evaluation of the actual performance against planned performance,
identifying the exceptions that require attention and reporting the variations to the
management.
Decision-Making:
This involves prescribing the action that must be taken in order to bring
performance back into control or to adjust expectations to reflect changing conditions
within and outside the organization or to exploit the opportunity.
DIFFERENCE BETWEEN MBE AND OTHER PRACTICES

The difference between MBE and other practices is as follows;
 Superiors’ attention is drawn only in the case of exceptional difference between
planned performance and actual performance.
 When there is no such large or exceptional differences, the decisions are taken by
subordinate manager
 All exceptional work should go through the entire process till normally is
established.
ADVANTAGES
30
The following are the advantages of MBE

 Executives are left with more time to tackle bigger and tougher issues as the
details of small problems are left to the subordinates
 There is better utilization of managerial talent across the organization as, even the
subordinates get to implement their own decisions and solve problems in their own
way, however small they may be
 It increases the span of management and delegation of authority is improved
 It provides greater opportunities and thus increases confidence and motivation
 It uses the latest knowledge on trends, history and business data
 It forces every manager to be thorough and precise and also upto date with all
relevant information.
 It helps to identify problems before they become big
 It also prevents last minute rush and panic
 Qualitative and quantitative yardsticks can be established judging the situations
and people
 Increased chances of better performance appraisal and hence improves motivation
 Communication is improved between different segments of an organization
 Better organizational cohesiveness for the achievement of objectives
 The focus on results causes it to identify any problem in any part of the
organization
LIMITATION
The limitations on MBE are as follows;
 Newly established organisations’ and organizations with a dynamic environment
(fast changing) cannot adapt this technique easily
 Establishing standards i.e., both qualitative and quantitative takes a lot of time and
involves a lot of effort and precision (accuracy)
 Proper (situation) and knowledgeable subordinates need to be found, which is a
difficult process
 Subordinate act out of over confidence and think they can handle bigger problems
too. Thus, often tougher problem go unreported and by the time it comes to the
superior, it is many times too late to set things right.
 Keeping track of all the latest trends is often tedious (tough) and at times
inaccessible (unreachable) to all subordinates
 Too much of precision and accuracy leads to magnifying even the slightest change
in trend and creating problems for the organization and the executive
 Superseding (over looking) superiors in the vital communication process is
possible
 Training subordinates to be almost at the level of superiors, but still retaining them
at the lower level, often leads to demotivation and stress among individuals.
 Too much of focus on result leads to lack of quality in the process.
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UNIT – III
BUSINESS ENVIRONMENT
Business is dynamic in nature, it is affected and it affects the society. Thus, the
business environment is vital to study before, during and after establishing a business.
CLASSIFICATION OF BUSINESS ENVIRONMENT

Business Environment is broadly classified as;
INTERNAL ENVIRONMENT
EXTERNAL ENVIRONMENT
32
Internal Environment can be controlled, while the External Environment cannot be

controlled. Similarly, internal environment does not influence external environment. But
external environment thoroughly influences the external environment. This is
schematically represented below;
These five forces are;
1. threat for new entrants
2. threat for substitutes
3. bargaining power of buyer
4. bargaining power of supplier
5. industry competitor rivalry
These five forces are further subdivided as follows;
THREAT FOR/FROM NEW ENTRANTS

The list of factors under this are
 economics of scale
 Brand Identity
 Capital Requirement
 Proprietary Product differences
 Switching costs
 Access to distribution
 Proprietary learning curve
 Access to necessary inputs
 Low cost product design
 Government policy
 Expected competition
THREAT OF SUBSTITUTES
This threat is determined by
 Relative performance of substitutes
 Switching (changing costs)
 Buyers’ chances to substitute
BARGAINING POWER OF BUYERS

The bargaining power of buyer constitute of
 Buyer concentration
 Buyer volume
 Switching costs
 Buyer information
 Buyer profits
 Substitute products
 Pull – through
 Price sensitivity
33
 Price/ total purchase

 Product difference
 Brand loyalty
 Ability to integrate backward
 Impact of quality / performance
 Decision makers’ incentive
BARGAINING POWER OF SUPPLIERS

The sources of bargaining power of suppliers are
 Switching costs
 Differentiation of inputs
 Supplier concentration
 Presences of substitute inputs
 Importance of volume to suppliers
 Impact of inputs on cost or differentiation
 Threat of forward / backward integration
 Cost relative to total purchase in industry
INDUSTRY COMPETITORS’ RIVALRY

The factors affecting rivalry are;
 Industry growth
 Concentration and balance
 Fixed costs / value added
 Intermitted over capacity
 Product differences
 Brand loyalty
 Switching costs
 Information complexity’
 Diversity of competitors
 Corporate stakes
 Exit barriers
EXTERNAL (MACRO) ENVIRONMENT

While these above listed factors a part of the micro environment, the macro
environment constitutes of;
 Socio-cultural environment
 Economic environment
 Technical environment
 Political – legal environment
 International (world) environment
34
 Natural environment
All these play a crucial role, as these aspects of the environment, are uncontrollable.
Thus, understanding them in detail we have;
SOCIO – CULTURAL ENVIRONMENT

The cultural habits, values of the society, influence the society and culture,
individuals and thus the business, since individuals buy or are the consumers of business.
EXAMPLE: McDonalds’ shifting to Vegetarian, chicken and mutton Burgers in
place of Beef and Hamburgers.
ECONOMIC ENVIRONMENT
The GNP, per capita income, growth rate, inflation and all these play a very
important role. Besides the economic cycle of the country like boom, recession,
depression or recovery. This will decide the companies to enter into the market, diversify,
expand, etc.
EXAMPLE: Growth rate decides investment in securities, Gold, etc., so, Gulf i.e.,
Middle Eastern and south eastern countries invest more in these.
TECHOLOGICAL ENVIRONMENT
The progress of technology in the country and the utilization of such technology in
the industry also affect markets.
EXAMPLE: up gradation of Hardware, software; use of equipment with do not
harm environment.
POLITICAL ENVIRONMENT
The political situation i.e., stable/unstable government, the political philosophy of
the party in power. The type of government, the policies that is adopting etc play vital
role. The laws, acts and the legal machinery and establishment and enforcement of law too
play a very vital role, even the relations with other countries is crucial
EXAMPLE: the EXIM policy, Trade policy, Regional Associations, Economic
Policy, Budget Customs, Duties, etc
INTERNATIONAL ENVIRONMENT
This too plays a crucial role as we are concerned with international trade, laws,
regulation which will help industries to market their products world wide. Besides the
active competition of international (MNC) companies functioning within the country and
outside need to be monitored for successful marketing of products.
Some of the major factors influencing the international Business Environment are
listed over leaf;
35
FACTORS IN THE INTERNATIONAL ENVIRONMENT WHICH CAUSE AN

IMPACT ON BUSINESS POLICY FORMULATION
 Monetary and fiscal policies
 International demand and supply pattern
 Liberalization and globalization programs
 Exchange rate and revaluation policies
 Devaluation and revaluation of currencies
 EXIM policies
 Technological advancement and obsolescence
 International bench marking of the country’s product quality
 Country’s productivity levels Vs International levels
 Declaration of War
 Relative economic strength
 GATT and other tariff agreements
 Economic and financial policies of various countries
 Balance of trade considerations
 International terrorism
 Protectionist policies
 Dumping practices
 Law and order problems
 Comparative cultures and traditions
 Patent laws and intellectual property rights
 Trade zones and military zones
 Different rules and regulations in the legal systems
 Political relationship
 Different labour conventions
 Different practices and documentation
 Infrastructure facilities
 Speed schemes like export processing zones, encouragement to 100% EOU units
 Free port, port of call etc
 Tax rebate and subsidies
 Social security schemes
 Currency blocks EURO, NATO, SAARC etc
 Most favoured nation or non-favoured nation
 Credit rating schemes
 Availability of international credit
 Stability of the government
 International corruption
 Foreign institutional investments
 Economic sanction
NATURAL ENVIRONMENT
36
Natural environment affects businesses which are either dependent on it or are

indirectly influenced. This factor plays a crucial role in several businesses.
EXAMPLE: insufficient monsoon affects agro based industries lack of power, industries
using water suffer. Floods, snow, fog, earthquakes, volcanoes, etc are to be taken care
before establishing i.e., the climate of the area needs to be forecasted or judged by earlier
records before going in for setting up business. That is the reason factories are not set up
in earthquake belts, regions often flooded and are near to volcanoes.
SCANNING THE ENVIRONMENT

Environment scanning constitutes of internal and external appraisal;
 INTERNAL APPRAISAL: is also called SWOT analysis. At times it is called
ETOP analysis (ENVIRONMENT AND OPPORTUNITY PROFILE)
 EXTERNAL APPRAISAL: is also called as STEP analysis or PEST analysis

where S-stands for Social, T- Technical, E- Economic and P- Political.
These are the two techniques which are used for scanning the environment, both
internal and external. SWOT analysis is discussed in detail at the end of this unit,
along with Key Success Factors (KSF).
SOURCES OF DATA AND TECHNIQUES

The sources of data and techniques for analysis business environment are listed as
follows;
I. GOVERNMENT OF INDIA PUBLICATIONS

a. Economic survey by ministry of finance
b. Guidelines to industries
c. Five year plans
d. Planning commission reports
e. Census reports
f. RBI reports
g. IDBI portfolio studies
h. ICICI portfolio studies
i. Indian trade journal
j. NSE directory
II. JOURNALS / WEEKLIES / DAILIES

a. Business world
b. Business today
c. Business India
d. Economic times
e. Capital
f. Commerce
g. Foreign trade published by IIFT, New Delhi
h. CII reports
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III. INTERNATIONAL PUBLICATIONS

a. All publications of United Nations like
i. World Economic Survey
ii. Statistical Year Book
iii. International Financial Statistics
iv. Economic – Survey of Asia and Far East
v. Economic survey of Latin America
vi. Economic bulletins of Europe, Latin, America and Africa
b. Exchange Journal NASDAQ, Export Promotion Council
c. WTO Reports
IV. PRIVATE PUBLICATIONS

a. ORG – MARG survey
b. Auto – industry survey
c. SEWA survey
d. Others
ENVIRONMENT FORECASTING TECHNIQUES

The basic environment forecasting techniques are
 Single – variable extrapolation
 Scholastic modeling
 Multivariate analysis
 Expert opinion techniques
 General forecasts
 Mapping
 Decision trees
 Delphi technique
 Demand and sales forecasting techniques
 Trend analysis etc
Thus, internal organizational appraisal constitutes of SWOT analysis and key

success factors. While external organizational appraisal constitutes of STEP analysis
Thus, the study of business environment is in itself for the sustainance of the
company. The CEO plays a vital role in this situation. His roles are given clearly
below;
ROLE OF CEO IN STARTEGY FORMULATION

1. He / She is the creator of the organisation’s policies and strategy
2. He / She is the administrator of the organization
3. He / She is the figurehead
38
4. He / She is the spokesperson of the organization, to both the internal and

external environment
5. He / She is the moulder of the organisation’s culture and philosophy.
6. an organization is said to be an extension /reflection of the CEO
7. he / she sets the direction and pace of the organization
8. he / she sets the standard operating practices (SOP)
9. he / she is the disseminator of all information including policies
10. he / she is the coordinator, negotiator and conflict handler
11. he / she is the motivator
12. he / she is the resource allocator
13. he / she is the innovator and troubleshooter
14. he / she is a visionary and pathfinder
15. he /she is the leader
SWOT ANALYSIS FOR ORGANISATIONS

What are you looking for?
STRENGHTS
Potential resource strengths and competitive capabilities;
 A powerful strategy supported by competitive valuable skills and expertise in key
areas.
 A strong financial condition; ample financial resource to grow the business
 Strong brand name, image / company reputation
 A widely recognized market leader and an attractive customer base
 Ability to take advantage of economics of scale and / or learning and experience
curve effects
 Proprietary technology / superior technological skills / important patents
 Superior intellectual capital relative to key rivals
 Cost advantages
 Strong advertising promotion
 Product innovation skills
 Proven skills in improving production processes
 Sophisticated use of e-commerce technologies and processes
 Superior skills in supply chain management
 Reputation for good customer service
 Better product quality relative to rivals
 Wide geographic coverage and / or strong global distribution capability
 Alliances / joint ventures with other firms that provide access to valuable
technology, competencies and / or attractive geographic markets
WEAKNESSES
Potential resources weaknesses and competitive deficiencies:
 No clear strategic direction
 Obsolete facilities
 A weak balance sheet burden with too much debt
 Higher overall unit cost relative to key competitors
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 Missing some key skills or competencies / lack of management depth / a

deficiency of intellectual capital relative to leading rivals
 Profitability is low as plagued with internal operating problems
 Falling behind rivals in putting e-commerce capabilities and strategies in place
 Too narrow a product line relative to rivals
 Weak brand image or reputation
 Weaker dealer network than key rivals and / or lack of adequate global distribution
capability
 Short on financial resources to fund promising strategic initiatives
 Subpart e-commerce systems and capabilities relative to rivals
 Lots of under utilized plant capacity
 Behind on product quality and / or R & D and / or technological know how
 Not attracting new customers as rapidly as rivals due to ‘ho-hum’ product
attributes.
OPPORTUNITIES
Potential company opportunities
 Serving additional customer groups or expanding into new geographic markets or
product segments
 Expanding the company’s product line to meet a broader range of customers needs
 Utilizing existing company skills or technological know how to enter new product
line or new businesses
 Using the internet and e-commerce technologies to dramatically cut costs and / or
to pursue new sales growth opportunities
 Integrating forward or backward
 Falling trade barriers in attractive foreign markets
 Openings to take market share away from rivals
 Ability to grow rapidly because of sharply rising demand in one or more market
segments
 Acquisition of rival firms or companies with attractive technological expertise
 Alliances or joint ventures that expand the firms market coverage or boost its
competitive capability
 Openings to exploit emerging new technologies
 Market openings to extend the company’s brand name or reputation to new
geographic areas
THREATS
Potential external threats to company’s well being;
 Likely entry of potent new competitors
 Loss of sales to substitute products
 Mounting competition from new internet start up. Companies pursuing
e-commerce strategies
 Increasing intensity of competition among industry rivals – may cause squeeze on
profit margins
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 Technological changes or product innovations that undermine demand for the

firms product
 Slow downs in market growth
 Adverse shifts in foreign exchange rates and trade policies of foreign governments
 Costly new regulatory requirement
 Growing bargaining power of customers or suppliers
 A shift in buyer needs and tastes, away from the industry’s product
 Adverse demographic changes that threaten to curtail demand for the firm’s
product
 Vulnerability to industry driving forces
KEY SUCCESS FACTORS (KSF)

KSF’s are those things that most affect industry members ability to prosper in the
market place – the particular strategy elements, product attributes, resources,
competencies, competitive capabilities, and business outcomes that spell the differences
between profit and loss and ultimately, between competitive success or failure.
They are categorized as follows;
TECHNOLOGY RELATED;
 Scientific research expertise
 Technical capability to make innovative improvement in production processes
 Product innovation capability
 Expertise in a given technology
 Capability to use the internet for all kinds of e-commerce activities
MANUFACTURING RELATED
 Low cost production efficiency
 Quality of manufacture
 High utilization of fixed costs
 Low cost plant location
 Access to adequate supplies of skilled labour
 High labour productivity
 Low cost product design and engineering
 Ability to manufacture or assemble products that are customized to buyer
specifications.
DISTRIBUTION RELATED
 A strong network of whole sale distributors/dealers ( or electronic distribution
capacity via internet)
 Gaining ample space on retailer shelves
 Having company owned retail outlets
 Low distribution costs
 Accurate filling of customer orders
 Short delivery times
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MARKETING RELATED
 Fast, accurate technical assistance
 Courteous customer services
 Accurate filling of buyer orders (back orders, mistakes)
 Breadth of product line and product selection
 Merchandising skills
 Attractive styling and packaging
 Customer guarantee and warrantees
 Clear and clever advertising
SKILL RELATED
 Superior workforce talent
 Quality control know-how
 Design expertise
 Expertise in a particular technology
 An ability to develop innovative products and product improvements
 An ability to quickly develop newly developed products past R & D into market.
ORGANISATIONAL CAPABILITY
 Superior information systems
 Ability to respond quickly to shifting market conditions
 Superior ability to employ the internet and other aspects of electronic commerce to
conduct business
 Managerial experience
MISCELLANEOUS TYPES
 Favorable image or reputation
 Overall low cost
 Convenient locations
 Pleasant courteous employees in all customers contact positions
 Access to financial capital
 Patent protection
INTERNAL OR MICRO ENVIRONMENT IN DETAIL

Earlier the Five forces influencing Internal or Micro environment were given, the
discussion now in detail; these five forces are;
THREAT FOR / FROM NEW ENTRANTS

Now understanding the factors a little more in detail we have;
ECONOMICS OF SCALE
Most of the existing organization are already when functioning well, would have
achieved or will be on the verge of achieving the break even or even attaining economics
of scale. Then, these new organizations or entrants will take a long time to gestate (come
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to original or living state) in the mean while, the existing organizations van either crush it
or swallow it. There by eliminating new entrants
However, the existing organizations do face problems when new entrants into the
market. They need not take up R & D, but they can imitate the existing products and
manufacture them at a lesser price. There by these new entrants not only enter the market
with a lesser price product, but also sell more number of products. By these volume based
sales, they achieve higher profits (sales maximization) and thus slowly either lead the
market in any one segment or become 2nd or 3rd in the market leadership. By these two
methods a new entrants faces threat in terms of economics of scale.
BRAND IDENTITY
Good brands which are well established and are deeply marked into the brains of
the people, they cannot be easily removed from their brains, thus, the new entrants face
threat. But that is one reason why duplicate can create a problem.
CAPITAL REQUIREMENT
The new entrants being small need only small amount of capital the plus point
being that they need not invest in R & D or heavy infrastructure. However, being new
entrants, the finance will be tight, and financiers do not lend or loan money in large sums
unless the brand name is trusted. Thus, new entrants face trouble in meeting finance
demands.
PROPRIETORY PRODUCT DIFFERENCE

Patented products cannot be imitated and thus, there need to be difference. These
differences can be problems which are solved by the new products. These small
differences make up for the big profits. However, unless these small differences exist the
new products cannot survive. These small differences are the major threats the existing
products.
SWITCHING COSTS
Each time technology is changed or products are modified there are additional
costs added. This is a major problem with the existing products, as they need to keep
changing their technology or modifying products to beat the imitators and competitors.
Besides, they need to bring
ACCESS TO DISTRIBUTION
New entrants penetrate deep as they have greater access to all customers in a
segment, i.e., they try to reach as many as possible. Others i.e., the existing players
however reach only through the existing outlets only. There by they need to spend
additional amount to reach the customers directly, so there is an additional requirements
of sales force. Therefore this expenditure arises each time there is a new entrant. This is
another threat.
PROPRIETARY LEARNING CURVE

The new entrants due to products aimed at the gaps will be able to reach the
market at greater speed, so will imitations. The real researched or developed products take
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longer duration to reach. Yet though this is a drawback, it is an advantage to the existing
firms because their research and learning is at their disposal.
ACCESS TO NECESSARY INPUTS

The availability of necessary inputs is an important factor that determines the
position in the market. An existing firm can acquire a source of input or a holder of input
may start a firm. Either way there is an advantage to the new entrant or the existing firm.
LOW COST PRODUCT DESIGN

Due to continuous research a firm may get a product design of low cost or an
imitator without R & D can enter the market at low cost, better still, they may fill the gap
with a better suited customer accepted design.
GOVERNMENT POLICY
The government may decide on open competition and more number of players
may be asked to enter into the market. Further, the government may fix the price too
without identifying imitator and original, thereby leading to further problems, of
competition among rivals.
EXPECTED COMPETITION
There is an amount of competition that every organization expects, both the
established and the unestablished. While established need to worry only about a few, the
new entrants take the entire market as competition, thus, battling becomes difficult.
THREAT OF SUBSTITUTES
Now trying to understand the list of factors in detail, we have;
RELATIVE PERFORMANCE OF SUBSTITUTES

Any organization and product faces competition and rivalry. However, the
competition is greater from rivals or competitors who perform well, as they become
substitute to the products. But products which perform not upto mark won’t trouble the
competition.
SWITCHING (CHANGING) COSTS

When customers or consumers change or switch from one brand to another or from
one company’s product to another they face or problem of bringing those customers’ back
and keeping them loyal to their product or brand, this is an expensive job, so it involves
lot of costs and thus arises switching costs or changing costs.
BUYERS’ CHANCES TO SUSTITUTE

When the customer has a choice, then there are chances for substitution. However,
if a certain product has that unique attribute or special feature due to which or by which
they are distinguished, preferred, liked, and purchased, then there will be very little chance
of substitution. Thus, unless an equally similar product with all the specialty, but with an
additional attribute comes up, the chances of substituting remain slim, weak or little.
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BARGAINING POWER OF BUYER

The following are the factors that come under this, now understanding them in
detail, we have
BUYER CONCENTRATION
The lesser the buyers, then greater in chance to bargain by them, since there are
very few buyers, they can withdraw from buying the product and soon the manufacturer
will be at loss. However, certain factors influence this aspect. They include;
 Number of companies manufacturing the product
 The extent of utility of the product
 Durability of the product
 Availability of foreign buyers
 Alternate uses of the product
 Storage details and so on
If few manufacturers and large number of buyers exist in the market, then it becomes the
other way around and the company’s can manipulate the buyers and charge higher and
make greater profits.
BUYER VOLUME
The volume of purchase also determines the capacity of the buyer to bargain. In
other words, the larger the volume of purchases, the greater is their capacity to bargain
and these influences the internal revenues or finance of the organization.
SWITCHING COSTS
A dissatisfied buyer or a more lucrative manufacturer, who is willing to sell his
product at a lesser cost, will definitely take the buyer away. Thus, a manufacturer has to
bring the customer (in this case the buyer) back, need to may be sell for lesser price, offer
credit, discounts etc to regain them back. Each time a modification is made the
manufacturer needs to take this up, so as to retain the customer and prevent them from
switching.
BUYER INFORMATION
The buyers have access to some important information like the cost, availability,
future increase or decline in price, government involvement, etc. these trigger a change in
purchase pattern or bargaining patterns of buyers. Thereby either helping or hindering the
manufacturers.
BUYER PROFITS
The amount of profit that a buyer makes is crucial for the buyer and the
manufacturer. The buyer tries to maximize his profits, and the manufacturer wants to
maximize his own profits. Thus, there is a keen battle between the two. The manufacturers
offer greater benefits, discounts and price cuts for bulk purchase and thereby prompting
the buyers to buy in bulk. However, the buyers want all the benefits that are offered for
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the amount or number of products that they buy or are willing to buy. Thus, since buyers
are vital for the organization, many a time they wield to the buyers tactics.
SUBSTITUTE PRODUCTS
The type of products being made influence others to copy, because they are going
well in the market. Thus, if the product does well, then naturally several other products
which are imitations or similar crop up. They have some variations and may click, due to
superior packaging, cheaper price and so on. Then they become a threat.
PULL THROUGH
Many products have highly successful marketing companies backing and usually
are pulled through to success. So, there instead of going through early hiccups and slowly
and steady pick up and reaching the top, end up getting a kick start and reach the top fast.
Buyers especially know the value of brand.
PRICE SENSITIVITY
It is normal for consumers to be sensitive to pricing. Hence, the products which
have similar quality or attributes compete only with price.
PRICE / TOTAL PURCHASE

Many times, it is not the cost of a single purchase or the price of a single product
that is purchased, but the cost or sum total of all the purchases made in that brand, which
matters. This is the reason why organizations go for tag on sales or discounted sales to
improve the sale of their products as buyers may buy a product here, but will purchase an
additional attachment to it from another. This is what makes the differences.
PRODUCT DIFFERENCES
Minor changes also make large change in purchase. In other words, small product
changes or modification usually bring about large changes in purchase pattern of buyers.
Thus, every organization has to watch out on the changes made by competitors
ABILITY TO INTEGRATE BACKWARD

Many buyers in other words, retailers and wholesalers after a period of time, start
selling products in their own brand name. This becomes flexible when these middlemen
have access to an economical source or they have their own manufacturing unit, on which
they can depend upon. Thus, they make greater profits by overcoming the problem of
giving percentage returns or commission to middlemen. Thus is called as backward
integration.
IMPACT OF QUALITY / PERFORMANCE

Quality and / or performance play a major role in the purchase of any product.
Thus, any product which has either quality or performance or both is a definite click with
the market or with the buyers and hence succeed. Yet there are a segment of buyers for
whom quality is not important I all cases, then it doesn’t matter as performance too will be
less. But then these products will be priced low too. However, if a high priced product
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which is said to be of good brand name or quality doesn’t perform as expected, then it
becomes a definite failure, as it wouldn’t be accepted among the buyers.
DECISION MARKERS’ INCENTIVES

The benefit obtained by the decision maker also plays a key role in the purchase
process. A customer may benefit from lesser price, or discount offer, tag on free purchase
etc. but a retailer may benefit from free advertisements, better merchandise or free
display, return or replacement of spoilt goods, greater handling of stock of by the
company itself. These are indirect incentives given along with direct incentives of
commission. These help in deciding
Thus, these factors in combination constitute the bargaining power of buyers.
BARGAINING POWER OF SUPPLIERS

The various sources of bargaining power of suppliers include the following factors
in detail;
SWITCHING COSTS
A dissatisfied supplier or more lucrative manufacturers, who are willing to sell his
product at a lesser cost, will definitely take the buyer away. Thus, a manufacturer has to
bring the customer (in this case the supplier) suitable to his need, need to may be buy for
lesser price, offer credit, discounts etc., to regain them back. Each time a modification is
made the manufacturer needs to take this up, so as to retain the customer and prevent from
switching in case of supplier. In other words the suppliers have to be given the best
otherwise, they end u p giving their supplies to others i.e., other manufacturers.
DIFFERENTIATION OF INPUTS:
The inputs given to the manufacturer for making a product not only vary from
batch to batch but also from supplier to supplier. Thus, this differentiation in the inputs
brings differences in the output also. Therefore, suppliers who give homogeneous input
over a period of time or those who give quality input are accepted. Thus, suppliers who
are able to provide similar quality input over a period of time have better bargaining
power than the other suppliers over the manufacturer. These suppliers get better payment,
credit and other facilities from the customer or manufacturer.
SUPPLIER CONCENTRATION:
The greater the suppliers the less is the chance for a supplier to bargain with the
manufacturer. Thus, fewer suppliers have greater chance of bargaining, as they can
become an oligopolistic market and then develop a fixed pattern of supply and price. This
then provides a chance to bargain with manufacturers. Thus, suppliers never permit new
entrants into the business. If they dare to then they either try to buyout their share or
reduce the price so much that the new entrant will fail to reach that low price that they
can’t lose their business or get loss. So, they leave the business. Thus, the supplier leads
again.
PRESENCE OF SUBSTITUTE INPUTS:
When there are alternative inputs then naturally the bargaining power of suppliers
goes down. Thus, substitute inputs are always threats to suppliers. However, suppliers do
try to over come these by trying to provide the manufacturers with
 Bulk purchase discounts
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 Quality assurance
 Out time delivery of supplies
 Replacement with supplies are not upto the mark, etc
Besides this the substitute product should also be
 A close substitutes
 Should have same or more attributes
 Should be affordable
 Should have good quality
 Must be easily available
 Must be available in plenty
 Processing the input into output should not be difficult, etc
When the substitute products have these qualities then the substitute is equally successful
in the market. Thus, they become a threat to manufacturers’ suppliers.
IMPORTANCE OF VOLUME TO SUPPLIERS:
The suppliers should understand or realize the importance of volume ie., bulk
orders. In other words bulk or voluminous orders bring about a lot of chance to negotiate,
in terms of price-offs, discounts, credit terms, exchange risk taking and so on. This is vital
for penetrating business.
IMPACT OF INPUTS ON COST OR DIFFERENTIATION:
Inputs or raw materials makes up 70% of the total cost of the product. Hence any
change ie., reduction or increase in the cost of the input directly affects the cost and price
of the product. Every manufacturer thus knows not to tamper with price due to the reasons
that buyers will not be interested. However, the manufacturer should negotiate well so that
the suppliers will not increase the price of the input, there by upsetting the entire cycle.
Similarly, differentiation in inputs may change the product quality wise or in any other
sense. But until the customers are convinced that the input or product has quality, (even
when the supplier has increased the price) the products price should not be increased.
Suppliers noting that the product is being sold well, try to increase the cost of the
input, so that they make profits. All these have to be monitored.
THREAT OF FORWARD OR BACKWARD INTEGRATION:
The supplier just with his experience, reach or financial worthiness may plan to
integrate forward and manufacture the product himself. This will then cause problem to
manufacturers. Since, suppliers has raw materials available at lesser cost than
manufacturer, their products can be sold in the market at cheaper prices.
The other threat is if the supplier goes into backward integration and takes over a
source of raw material. Then it has greater chances to bargain because, it can provide large
volumes of raw material, may start to competitors, and so. On, all these act as threats from
the suppliers.
COST RELATIVE TO TOTAL PURCHASE IN THE INDUSTRY:
The comparison in the cost with respect to the total amount purchased in the whole
industry is to be taken up. If the product is purchased by many manufacturers and the
amount of money involved in the purchase of material in the overall industry is more.
Then the product is considered vital and suppliers start negotiating the price of the inputs.
Thus, fluctuating markets.
INDUSTRY COMPETITORS’ RIVALRY:
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The major factors affecting this are listed as;

 Industry growth
 Concentration and balance
 Fixed costs / value added
 Intermittent over capacity
 Product differences
They are discussed in detail below;
INDUSTRY GROWTH:
The industry growth ie., faster the industry grows, greater will be the number of
competitors, as new entrants swarm the industry. In other words, the growth of an industry
makes more people to invest, start associated companies, and also seek employment. This
triggers a great competition as more and more the brand name, greater will be the
investments. Thus, each company, big or small is a competitor or rival.
CONCENTRATION AND BALANCE:
The number of competitors in an industry is termed concentration. That is, the
number of alternative products or services available for one need. Balance is that sensitive
situation where there is enough demand and supply or may be a slight difference in the
demand and supply. If there is vast difference then the balance collapses. Similarly, he
competitors’ should be able to provide what the customer wants, and also, at time more
that what the customer expects. Then the customers’ balance too is retained.
FIXED COSTS OR VALUE ADDED COSTS:
Every competitor provides a set of solutions or a gamut of services. What a
customers requires besides these is the availability of value added services and their costs.
The value added services can be;
 Free maintenance for the first year
 Free insurance for the first year
 Transportation to the premises free of cost
 Replacement when required
 24 hour helpline
 easy availability of genuine spare parts and so on
INTERMITTANT OVER CAPACITY:
The competitors should be in a position to take up over production capacity,
suddenly when there is a spurt in demand. If this is not possible by a company, then the
competitors will take over that sudden spurt and the company tends to lose valuable
customers.
PRODUCT DIFFERENCES:
Without differentiation, products cease to exist in the market. Thus, differentiation
is the reason behind successful brand. Every product must compete on some unique
selling proposition which is the platform by or on which a product is identified and holds
value in the eye of the customers. Thus, in any industry rival products should be in a
position to differentiate itself.
ENVIRONMENTAL FACTORS INFLUENCING BUSINESS POLICY

(INTERNAL AND EXTERNAL)
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The factors constituting the external environment may be divided into two
interrelated sub-categories. Viz., remote environment and
 remote environment and
 operating environment
REMOTE ENVIRONMENT:
Remote environment consist of forces that originate beyond the generate
approachable environment ie., the environment which cannot be handled. They constitute
of;
 political
 economics
 social
 technological and
 industry factors
POLITICAL
Stable political conditions influence the environment in which the company’s
operated. This helps in identifying with the predictability of business activities.
Political instability or unrest, threats to law and orders, change in the ruling party
ideology etc influence business considerably.
Categorically listing the factors which influence business environment on the outside and
the sub factors under them we have some of the factors in the political environment which
influence business are;
 political instability
 threat to law and order
 ideology of the ruling party
 interest in local business groups
 insurgency in border party
 dissent within ruling party
 international power associations
 foreign economics associations and their impact
 strength or power of the party in opposition
 trade agreements with trade unions
 coalition government, etc
SOCIAL FACTORS:
Some of the social factors influencing the business and the business policy are;
 population density
 inter-state migration
 rural – urban mobility
 growth of educational opportunities
 change in life style
 marriageable age of men and women
 values and attitudes of people towards life, family, spending
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 size of the family

 women’s participation in the work force
 consumer behaviour
 changes in the tastes and preferences of consumers
 corporate social responsibility of company’s
TECHNOLOGICAL FACTORS:
The several technologies based or technological conditions which influences the
following factors;
♦ advice on diffusion of technology than invention
♦ social and economic factors influencing technology adoption
♦ availability of proper infrastructure facilities
♦ availing chances of collaboration. Current product conditions, and the extent to
which the people using them are advanced in using these products
♦ of the market is not developed, then it is not suitable to have a highly technical
market.
ENVIRONMENTAL SCANNING:
Environmental scanning processors the several methods by which the information
can be gained are a plenty. A few are listed below;
♦ inputs from industrial espionages
♦ forecasts given by economic survey or the finance ministry, Govt. of India
♦ census reports
♦ reserve Bank of India Reports
♦ ICICI portfolio studies
♦ Survey of Indian Industry (annual)
♦ Annual survey of agriculture
♦ Indian Trade journals
♦ Planning commission reports
♦ Business dailies like economic times
♦ Financial express, business standards
♦ Bombay stock exchange directory
STATISTICAL FORECASTING TECHNIQUES:

The overall performance is based on statistics forecasts. They are;
♣ Single variable extrapolation
♣ Dynamic models
♣ Mapping
♣ Multivariate interaction analysis
♣ Structured expert opinion
♣ Unstructured expert opinion
♣ Structured inexpert opinion
♣ Unstructured inexpert opinion
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ECONOMIC ENVIRONMENT:
Anticipating the changes in the economic environment might have a bearing on the
progress of trade and industry in future needs information processing with respect to the
following aspects;
♣ The existing state of economy and the stage of the business cycle (boom,
depression, recession or recovery)
♣ The rate of growth of GNP and the per capita income at current and constant prices
♣ Rates of saving and investments
♣ Volume of imports and exports of different items
♣ Balance of payments and changes in foreign exchange reserves
♣ Fluctuations in currency exchange
♣ Percentage of interest of loans taken
♣ Agricultural and industrial production trends
♣ Changes in the distribution of income and wealth
♣ Expansion of transport and communication facilities
♣ Planned outlay in the private and public sectors, and priorities of development laid
down in the five year plans
♣ Government budgetary, allocation, economic and fiscal policy provision
♣ Money in supply
♣ Rate of inflation
♣ Internal and external public debt etc
LEGAL OR REGULATORY CONDITIONS:
Legal or regulatory conditions and government policies too invariably affect the
business and its policies. There are several such laws that govern Indian business houses.
They include;
♣ The government should set right market failures. Which cause in equities and
imbalances in the economy
♣ The government should ensure allocation of resources for proper economic
development
♣ Industrial licensing
♣ Import restrictions
♣ Differential taxation
♣ Exemptions
♣ Remissions
♣ Foreign exchange control including control over the flow of cash, technology,
foreign collaboration and joint ventures under FERA act
♣ Capital issues control Act, 1956
♣ Control over expansion of existing capacity
♣ Creation of excess capacity MRTP act
♣ Approval for Foreign Direct Investment (FDI)
♣ Securities Exchange Board of India (SEBI) for investor protection
TYPES OF FORECASTS:
These techniques of forecasting are use to find or determine;
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♣ Economic forecasts
♣ Social forecasts
♣ Political forecasts and
♣ Technological forecasts
ECONOMIC FORECASTS:
Economic forecasts can be made using general statistical techniques like trend
analysis, econometric models, judgmental models etc. Here they try to determine the
overall revenue and expenditure connected or related forecasts and estimates.
SOCIAL FORECASTS:
Social forecasts are very complex tasks. Trend analysis using time series, scenario
development, and judgmental approaches are the most popular techniques in social
forecasting in areas such as demographic trends, housing, health and nutrition, household
income and expenditure patterns, government policy on social issues.
POLITICAL FORECASTS:
Political forecasts such as domestic political conditions and political developments
across the borders including foreign international relations constitute important aspects of
political forecasting. It takes into account such criteria as social development,
technological advancement, natural resource endowment, level of domestic peace or calm
(within the country) and type of political system in forecasting political conditions. The
political factors depend on the unique hypothesis ie., assumption that “if development in
respect of any of the criteria, moves faster than in other criteria, than there is tension and
violence”.
TECHNOLOGICAL FORECASTS:
Technological forecasts have been done mostly using judgmental models, scenario
development, brain storming and Delphi method. These methods have proven to be useful
in forecasting technology.
SCENARIO GENERATION:
The next most suitable techniques is use of scenario, in other words scenario
generation. This has been proven to be quite useful in interpreting the oft changing
business environment. The first or primary reason for scenario generation is to reduce the
risk and also the boundaries to decision making. This along with probability estimates and
other qualitative and quantitative data, helps in generating a similar situation (simulates a
similar situation) so that the ideas and strategies can be tested.
These are a few techniques by which the external environment can be forecasted
and found besides the ETOP/SWOT/PEST/SLEPT analysis.
INTERNAL ENVIRONMENT ANALYSIS:

The environmental analysis outside the company after being taken up. The next
logical step is to find out the situation that exists internally.
NEED FOR INTERNAL ANALYSIS:
The need to have an internal analysis arises due to several reasons;
♣ All enterprises are not equally strong in their functional attributes
♣ Competitive advantage varies from company to company
♣ To assess the strengths or capabilities of the current organization vis –a – vis
(when compared to the current market)
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♣ The nature and magnitude of the skills and resources available compared to the
requirement.
♣ Potential sources for supply of resources and skill need to be assessed and
monitored
♣ It helps (aids) in establishing a link between the resources and the strategic
advantages (capability) of the organization.
For the above purpose every organization under take a strategic advantage analysis.
STRATEGIC ADVANTAGE ANALYSIS:

Strategic advantage analysis is also termed as factors of common concern analysis
or search for factors of common concern. In this search the strategists examine firms’
resources and capabilities in the key financial areas to determine where the firm has
significant strengths (and weaknesses) so that they can be either expoited or met. The
main reasons being;
♣ Following a course of action different from those of rival firms
♣ Developing a strategy which will provide different and better outcomes than those
of its competitors
♣ Making it different for other firms to duplicate the strategy or enter the area of
opportunity if the strategy works
Usually every organizations internal resource succeed if, they have a common concern
among strategists. These common concerns have been listed under five essential
categories, but have been further sub divided. They are;
MAJOR CATEGORIES ATTRIBUTES / FACTORS
Organization organization form and structure
Top Management interest and skills
Standard operating procedure (SOP)
The control systems
The planning systems
Personnel Employee attitude
Technical skills
Experience
Number if employees
Marketing Sales force
Knowledge of the customers’ needs
Product quality
Breadth of the product line
Reputation
Customer service
Technical production facilities
Production techniques
Product development
Basic research
Finance Financial size
Price earning ratio
Growth pattern
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SWOT (INTERNAL)
Thereby based on these attributes, the assessment of the strengths and weakness of
a firm thus, centres around an analysis of the following factors under the functional
groups of;
♣ Marketing / Distribution
♣ Finance and Accounting
♣ Production, Manufacturing, Engineering
♣ Personnel and Labour Relations
♣ Research and Development
♣ Corporate resources / Management
Now understanding these functions in detail, we have;

MARKETING ANALYSIS:
The marketing function is considered to be a key area not just because its
performance will result in the success or failure of business activities. Besides, it also
provides a vital communication link between the organization and the external
environment. The elements under this are
♣ Existence of a sizable market share and competition position
♣ Existence of a wide range and variety of design and qualities and sizes in the
product line
♣ The phase of the life cycle are the main products
♣ Effectiveness of the pricing strategy
♣ The effectiveness of sales force
♣ Effectiveness of distribution channels in terms of market coverage
♣ Target market – mass consumption or selective
♣ Creation of brand image by the advertising policy
♣ Existence of separate market research unit and its effectiveness
♣ Efficiency or effectiveness of packaging and similar services
♣ Consistency of marketing policy with competition, consumer preferences,
technological change and other environmental factors.
FINANCIAL AND ACCOUNTING ANALYSIS:
The financial and accounting resources help in indicating the extent to which a
firm can make commitment to implement a strategy. Besides, this they also plan the
acquisition and utilization of funds, control over finances to the concerned top officials.
The finance and accounting departments are also involved in;
♣ Availability of long term funds
♣ Whether funds can be procured consistently when in need
♣ Capital structure planning
♣ Cost of capital in comparison with the industry and competing firms
♣ Consistent dividend policy
♣ Consistent profit retention policies with shareholders’ expectations’
♣ Efficiency in financial planning and budgeting procedures
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♣ Efficient accounting systems for cost accounting, budget accounting, profit

planning and auditing
♣ Information about tax advantages, concessions through tax planning etc.
PRODUCTION AND OPERATIONS ANAYLSIS:

The production and operations departments contribute a great deal to a firm’s
profitability through efficient use of capital and human resources. The production and
operations management is closely related to the marketing and distribution departments.
The assessment of capabilities of the departments can be done by the following;
♣ Comparative cost of operation among competing firms
♣ Efficiency of cost control
♣ Adequate production capacity to meet current and future demand
♣ Full capacity utilization
♣ If no, capacity not or under utilized
♣ Adequate production facilities, which are modern and well maintained
♣ Facilities when compared with competitors
♣ Relative cost of raw material and components
♣ Adequate availability of the above
♣ Congenial location of the plat facilities from strategic point of view
♣ Existence of effective purchasing and inventory control systems
♣ Efficient procedures relating to design, scheduling, testing, tooling and quality
control
♣ Efficiency and effectiveness of management information and production control
systems
R & D DEPARTMENT ANAYLSIS:
The success and growth of an enterprise depends on the R & D department and the
work they do. The development of new product, innovations in product design and
processes which are a part of R & D functions play a very vital role in the future of an
organization. An R & D department may be involved in basic research, new product or
process research, improvement research, cost reduction research, and raw material
adaptation research. By these the company should gain competitive advantage. The
capabilities of any R & D department can be assessed by;
♣ Adequacy of R & D facilities like laboratories, equipment, material and so on
♣ Consistency of facilities with the latest scientific advancement
♣ Efficiency in maintaining facilities that are being used
♣ Efficiency in utilizing the facilities
♣ Amount of R & D expenditure
♣ Basis for the outlay of R & D expenditure
♣ Meeting recurring expenses
♣ Results of the R & D efforts for the past five years
♣ Marketability of the efforts
♣ Profitability of those efforts
♣ Organizing and managing such efforts
♣ Comparison between technical personnel of the company with competitors
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♣ Conductive ness of work environment for creativity and innovation

♣ Managers’ disposition towards change and innovation
♣ Mix of basic, long term R & D projects and applied short term projects
HUMAN RESOURCES ANALYSIS:

Human resources capability and the organization are closely related. Together they
yield corporate resources. The organizational environment and the associated managerial
and technical quality of other employees can be easily identified from the following
elements;
♣ Healthy organizational climate
♣ Consistency in employee performance record
♣ Effective implementation of company policies with respect to staffing, promotion,
training and development, compensation and benefits and so on.
♣ Are these policies comparative with the competitive firms?
♣ The best way the organization can describe its managerial talent (delegative,
participative, communicative or autocratic)
♣ Degree of unionization of employees of the organization
♣ Union and organization relationship
♣ Image of the company to provide a source of prided and loyalty to the employees
OVERALL MANAGEMENT FUNCTION:
The overall performance of the organization function and their ability to engage
people to attain results and goals to attain objectives is clearly identified. This helps in
analyzing the extent to which an organization is assessing and responding to
organizational changes and also changes in the environment. This helps in identifying the
competency of the managers and the organizations.
♣ Their mentality in dealing with internal or external problems
♣ Their propensity to take risks
♣ Their values and norm and personal goals
♣ Their critical success factors and behaviour
♣ The position of power of the manager in the firm
♣ His / her ambition to use or drive using the power
♣ Talents / personality
♣ Problem solving skills
♣ Leadership style / skills
♣ Knowledge about the environment in which the firm operates
♣ Personal work capacity and
♣ Work habits
While the above set deals with managers, the following set identifies with the
organizational climate, culture and competence. They are;
♣ Organisations’ attitude and interest towards change for the better
♣ Willingness to take risks
♣ Perspective towards problems
♣ Action oriented
♣ Interested in improving organizational behaviour
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♣ factors that trigger (start) change

♣ organization perception to critical success factors
♣ proper distribution of power among groups with different culture
♣ stability of the power structure
♣ organizational competence in solving problem (skills to solve)
♣ the problem – solving process in itself (whether it is centralized or decentralized)
♣ the management process is it creative, anticipatory or backward in ideology
♣ the updation of information systems to scan the environment
♣ flexibility and adaptability of organization structure
♣ managerial rewards and incentives (growth based, performance based, creativity
based)
♣ job description or definition – narrow or open, encouraging initiative or venture
♣ extent of availability of technical devices to aid decision making
♣ the capacity of the management to handle different volumes of work
VALUE CHAIN APPROACH:

Michael Porter devised the value – chain approach to assessment of internal
resources across distinct functional areas. This approach consists of identifying the series
of activities which are undertaken by the firm and are strategically relevant for meeting
customer demand and it tries to identify in which respect the firm is better than its
competitors.
Thus, the internal factors of key (vital) importance are linked with the chain of
value by systematically identifying the activities as potential source of strength and
weaknesses. There are two broad categories of value activities; namely,
♣ primary activities and
♣ support activities
The support activities are those which provide inputs or infrastructure for primary
activities to be performed. The support activities and primary activities are classified
based on technological and strategic distinctness:
♣ procurement of raw materials
♣ technology development
♣ human resources management
♣ firm infrastructure
The primary activities are;
♣ inbound (incoming) logistics
♣ operations
♣ outbound (outgoing) logistics
♣ marketing and sales
♣ service
The generic value chain can be seen below;
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FIRM INFRASTRUCTURE
HUMAN RESOURCE MANAGEMENT
TECHNOLOGY DEVELOPMENT
PROCUREMENT
Inbound Operations Outbound Marketing & Service

Logistics logistics Sales
KEY FACTORS EVALUATION:

The evaluation of key factors and value activities against attainable goals or
standards determine which factors or activities are having potential strengths or which
have potential weakness.
Any factor is considered to have strengths if it has a competitive advantage over
competitive firms. The list of factors is;
♣ past performance and capabilities
♣ evolution of product / market
♣ comparison with competitors
♣ success factors in the industry (internal to the value activities)
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STRATEGIC ADVANTAGE PROFILE (SAP)

A profile of strategic advantages is a summary statement which provides an
overview of the advantages and disadvantages in key areas likely to affect future
operations o f the firm. This profile gives a detailed analysis of the position and negative
aspects of each functional area. The other relevant data useful for critical areas may go as
a supplement to this profile. Based on the strategic advantage profile (SAP) a strategic
capability grid can be drawn which gives an idea about the position where the company
lies and the strategy that they need to adopt.
Numerous
Environmental Opportunities
Cell 3: Cell 1:
Turn around Aggressive
Strategy growth oriented
Strategy
Critical Substantial
Internal Internal
Weaknesses Strengths
Cell 4: Cell 2:
Diversification Defensive
Strategy Strategy
Major Environmental Threats
Thus, any internal analysis or strategic advantage profile is aimed at

♣ intensifying functional differentiation
♣ avoid head – on competition
♣ aggressive initiative
♣ maximize user benefit
♣ identifying core competency
GAP ANALYSIS
Gap analysis aims at identifying the achieved level of goals in comparison with the
set or stated goals. In other words GAP analysis aims at finding the difference between
standards set and goals achieved. These achieved goals can be depend or below the set
standards. But whether one have over achieved or underachieved the reasons behind are to
be analyzed. The reasons are then used to reset these standards.
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The set standards may not be achieved due to troubles in the organization, which
come suddenly, like strike, lockout, government order or accidents like fire, flood and so
on. They may also be not achieved due to changes in the external environment like
dynamic changes in the market, product ban in the market, consumer related issues,
withdrawal of product from the market due to hazard in use and the standards may be set
too high.
The set standards may be achievable because or may be achieved in excess due to
several reasons like understating of objectives, underestimating the strengths of the
employees, downplaying the competence of the organization, overestimating market
hurdles and so on, besides the standards may be set too low too.
Invariably a GAP analysis plays a vital role in identifying our set standards vis – a
– vis (as against) our achieved standards.
FACTORS INFLUENCING POLICY FORMATION IN THE INTERNATIONAL

ENVIRONMENT:
There are several factors in the international environment which cause an impact
on the business policy formulation. They are;
♣ monetary and fiscal policies
♣ international demand and supply pattern
♣ liberalization and globalization programs
♣ exchange rate and revaluation policies
♣ devaluation and revaluation of currencies
♣ EXIM policies
♣ Technologies advancement and obsolescence
♣ International bench marking of the country’s product quality
♣ Country’s productivity level Vs International level
♣ Declaration of war
♣ Relative economic strength
♣ GATT and other tariff agreement
♣ Economic and financial policies of various countries
♣ Balance of trade consideration
♣ International terrorism
♣ Protectionist policies
♣ Dumping practices
♣ Law and order problems
♣ Comparative culture and traditions
♣ Patent laws and intellectual property rights
♣ Trade zones and military zones
♣ Different rules and regulations in the legal system
♣ Political relationship
♣ Different labour conventions
♣ Infrastructure facilities
♣ Different practices and documentations
♣ Speed schemes like export processing zones, encouragement to 100% EO units
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♣ Free port, port of call etc

♣ Tax rebates and subsidies
♣ Socials security schemes
♣ Currency blocks like EURO, NATO, SAARC, etc
♣ Most favoured nation or non-favoured nation states
♣ Availability of international credit
♣ Credit rating schemes
♣ International corruption
♣ Foreign institutional investment
♣ Economic sanctions
Thus, these factors need to be given due importance before strategy formulation.
APPROACHES TO STRATEGY FORMULATION:

The possible approaches to strategy formulation are many, the traditional approach
designed by Frank Gilmore in 1971 comprised of;
♣ A size up of the situation of the company as a whole. This is done generally on the
basis of size-ups of the functional department (HR, finance, production, etc)
♣ Determination of objective and
♣ Development of a program, which covers the various activities of the company,
and then directs these activities in a single direction to achieve the objectives.
This process was applicable to short term problems, sudden problems and as alternative
strategy has to be adopted soon, to meet the existing situation.
The new modern approach has evolved with emphasis on reappraisal of the
existing strategy in the light of changing external conditions, constant survey of the
environment to identify and make use of long term opportunities, developing alternative
strategy if necessary.
Any strategy at any time is reappraisal from time to time in the light of internal
operating results, economic trends, competitors’ actions, and technological development.
Based on the SWOT then the management proceeds. The usual procedure is followed for
developing a strategy. The procedure discussed in earlier units page number has
been arrived through a rational, normative idea. However, there are several other
approaches to strategy formulation. They are;
♣ Intuition or intuitive approach
♣ Disjointed incrementalism
♣ Entrepreneurial approach
♣ ‘inside out’ planning
♣ key factor approach
♣ integrated approach
♣ defensive and creative approach and
♣ strategic postured
Now, taking up each of these approaches in detail, we have;
INTUITION OR INTUITIVE APPROACH:
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This method is also called “Brain Child” approach. In other words the strategy that
evolves in the mind of the chief executives is implemented. This is done without ever
being explicitly (clearly) stated and without any formal (official) procedure.
However, strategists have clearly stated that this approach is good when combined
with personal judgment. There are several examples of successful intuitive leaders;
Example: Alfred Sloan of General Motors, Henry Ford, JRD Tata, GD Birla, GM modi,
TT Krishnamachary are a few industrialists who are often remembered for their
imagination, drive and vision, which led their companies to prosperity.
The very nature of this strategy development or formation is because, strategic
planning is essentially irregular. Problems, opportunities and bright ideas do not arise
according to some set time table; they have to be dealt with whenever they happen to be
perceived. However, any mathematical (analytical) model introduced should be based on
the nature of problem being analysed. However, since such mathematical problems are
rare or non existent (suitability based) there is very little help.
Yet one needs to understand a systematic approach is quite likely to dampen the
essential element of creativity.
DISJOINED INCREMENTALISM:
This method is also called ‘muddling through’. In other words the management
acts only when forced to. then the management considers a few convenient alternative
involving small or non-problematic changes in the organization. These decisions are
usually remedial or problem-solving in nature. Therefore, it doesn’t help further future
development.
The strategist in this particular situation instead of thinking for the future, or trying
to understand how the current strategy will cause problems for the organization in the
future, just implements the new strategy. The implementation is taken up considering only
the current state of all functional areas and how they will differ from now once, the
strategies are implemented. Strategist believe that this approach is not really possible,
since it is very difficult for an individual to cope with complex problems, lack of
information, cost analysis, time constraint and difficulty in stating achievable goals
ENTREPRENEURIAL APPROACH:
This approach is related with the role of the manager as an entrepreneur. The
entrepreneurial manager is a systematic risk maker and a risk taker looking for
opportunity and also who tries to find an opportunity.
Entrepreneurship is essentially the acceptance of change as an opportunity and the
acceptance of the leadership in change as the unique task of the entrepreneur.
Thus the role of the entrepreneur is opportunity focused and not problem focused.
In short there is no specific written role on how a function has to be taken up or how to
perform.
INSIDE OUT PLANNING:
A basic approach to developing strategies could be ‘inside out’ planning.
Strategies according to this approach have to be first conceived in a thought process
arising out of the unique talents and resources possessed by a company market forecasts
should be considered later as a kind of check or constraint on strategies so developed.
KEY FACTOR APPROACH:
This approach consists in finding out what the significant factors are, that are
important in the success of a particular business and concentrating all the major decisions
63
on them. Thus, any significant product, customer segment or market which has been
crucial for the success of the company can be repeated made use of (used) to make the
strategy a success.
INTERNAL APPROACH:
An integrative approach to the strategy making process provides as framework
which consists of the following steps;
♣ analyzing the present internal and external conditions
♣ identifying and evaluating the present strategy – the major objectives, policies and
plans currently guiding the firm
♣ search for strengths and weaknesses viewed within the present strategy and
environment
♣ considering changes in the present strategy
♣ generating alternatives to resolve the problems and exploit the opportunities
♣ developing alternative unified strategies by
♣ combining the various alternatives in each of the problem and opportunities area
and trying to create synergies
♣ evaluation of each unified strategy in terms of the enterprises objectives and
choosing the strategy that best satisfies the objectives
DEFENSIVE AND CREATIVE APPROACH:

A starting point for developing alternatives in business is to find out whether to
continue the present line of activities / business or change. This identification of
alternative can be taken up by the routine method or by using a creative alternative
method.
A passive or defensive approach involves developing alternatives to meet
environmental pressures under the force of circumstances. This approach amounts to
generating alternatives by routine methods, as used in the past.
On the other hand, a creative approach is characterized by an action search for
alternative in anticipation (expectation) of environmental threats and opportunities. This
amounts to generating ideas the offensive way.
The type of strategy to choose be it defensive, offensive or combined approach,
would depend on the relative size of the organization in the market.
Thus, small firms adopt active or defensive strategies for segments that are
dominated by large firms, and try to develop active or offensive strategies in the markets
segments where large firms do not exist. A large firm can do well by developing offensive
strategy for quality products.
Example: wheel, Surf Excel, Lipton Yellow label, Brook bond red label, etc
STRATEGIC POSTURES:
A study of strategic postures adopted by firms in different industries revealed four
types of approaches;
♣ Firms penetrating a narrow product market segment and holding on to it with
intensive planning, centralized control, zealous cost efficient production, and
limited concern for external conditions. These firms approach strategy making as
‘defenders’ of the posture.
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♣ Firms which may be called ‘prospectors’ – having broad-based planning,

comprehensive environmental scanning, decentralized control and seeking new
product market postures on the basis of unutilized resources.
♣ Firms which choose to be analysers in the sense of sometimes being defenders of
their posture (position) and sometimes adopting the role of prospectors.
♣ Firms which are incapable of effecting a realignment of known environmental
changes and strategies and thus reflect an unstable strategic posture. These firms
called ‘reactors’ must sooner or later, adopt any of the other three approaches, or
else face extinction.
EXPERIENCE CURVE EFFECT:
The experience curve theory is based on the relationships between the total cost
per unit and the number of unit produced (experience). The characteristic pattern of the
experience curve is the value added net production costs decline 25 to 30 percent each
time the total accumulated experience has been doubled. In other words, as the experience
(number of units produced) doubles, the production costs decrease by 25 to 30%. Same is
the case with labour costs.
This theory is based on the hypothesis (assumption) that when an individual
performs (does) a task repeatedly, they tend to get better (improve), thereby reducing the
mistakes and increasing the production in the same limited period of time.
Associates of BCG worked on the experience curve theory and propounded that if
the vertical axis is used as an index of the cost per unit, and the horizontal axis is used to
plot the number of units or cumulative experience, then the resulting slope of the
experience curve will be used to analyze relative costs at various levels of production.
Based on this curve the BCG associates came to a conclusion that, the cost of most
value added items declines quite a lot each time the experience doubles.
Cost
per
unit
No. of units (or) cumulative exp.
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The experience curve effect is derived (got) by dividing the accumulated costs by the
accumulated product outputs. The factors influencing these include economies of scale,
the learning curve, critical masses of knowledge and specialization. In short, the more
experience a company has in producing a product, the lower is its unit costs.
The following factors produce the experience curve effect;
♣ Labour efficiency
♣ New processes and improved methods
♣ Product redesign
♣ Product standardization
♣ Scale effect and
♣ Substitution in the product
The factors in the experience curve model are said to include; cost, volume and
market share. The greater the volume, the lower the cost, and larger the market share,
the larger the production volume.
EXPANSION AN UNMIXED BLESSING:

From the experience of executives, who have been on the look out and used
opportunities for growth, have attained success, which happens to be the main objective of
both individuals and the company.
All organization prefers growth to no growth or zero growth. However, no
organization can grow continuously (exponentially) for a long period. This may not be
possible because there are external environmental pressures which suppress the growth.
First the company itself is not bound to have limits (as a part of the strategy).
Growth strategy is one of the most difficult to manage strategies. Among the several
reasons cited the first reason has been stated above. Several serious problems will remain
hidden till the growth rate stops or a decline is experienced. Usually after a period of time,
as the rate of growth accelerates, there is a decline in profitability. The relation between
size and profitability also declines after a period. The second set of limits arising due to
environmental limitations include scarcity of resources, decline in target market
population, compulsive environment protection laws, government regulations, public
attitudes, and side effects of technological advancement.
Companies which actually show an increase in the number of employees, products
and scales do not always improve their profits. Companies that expand quickly often lose
sight and end up unable to focus on the strength that brought success in the first place.
Many times the basic investments money itself becomes difficult to get back.
Expansion often creates confusion and many companies get active in areas which
are not suitable for them. Thus, in the long run, both the old and the new businesses will
require large amounts of capital to survive, an the new business will yield losses more
than profits.
Thus, small scale operations and changes are better, as their force either
constructive or destructive is very little or limited. Even if human error occurs it is easier
to correct in small scale than large scale.
Between these extremes, lies the third option. This option is that of sustained
growth or sustainable growth.
This strategy aims at a growth pattern that keeps a firm increase in output and
productive capacity in line with increase in its external environment. This strategy implies
66
that ‘increase or decrease in the systems’ productive capacity with commensurate

(equivalent) increase or decrease in its external environments’ carrying capacities. Thus,
many firms are opting for this strategy to attain achievable and retainable growth or
success.
MCKINSEY’S 7S (6S) FRAME WORK:

Peters and Watermann, the two organizational scientists came forward with the
Mckinsey 7S frame work to give an idea about the inter – relations that exists in the
organizations among the staff or workers and the management. They evaluated and
categorized 22 components into 7 distinguishing or distinguished categories. They are;
1. structure
2. strategy
3. system
4. styles
5. skills
6. staff and
7. shared values
Now understanding these categories in detail, we have;

STRUCTURE:
The attributes of the organization which can be expressed through an organization
chart such as span of control, line of command, communication network, authority,
responsibility, centralization, decentralization etc come under this.
STRATEGY:
Actions that an organization plans or undertakes in response to a particular
situation or in anticipation of any future development in the external environment are
termed strategy.
Example: an increase in the demand (future) if expected results in extra production. This
in term means greater intake of raw materials (inventory policy) adjustments and
reallocation of personnel (production policy) to the production department. These may
lead to vacancies resulting in new recruitment (personnel policy). All this would require
additional financial resources (financial policy) and to bet back the investment, the
product should be thoroughly marketed (sales and marketing policy).
SYSTEMS:
Procedures and process regularly followed by an organization, so as to improve its
efficiency and eliminate wastage.
STAFF:
The kinds of specialties / professions that are required and represented in an
organization. Because specialized staff handle specialized jobs.
Example: engineers in production, accounting and financial experts for income and profit
calculations, MBA’s for administration etc.
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SKILLS:
Distinctive attributes and capabilities of the organization and its people in
comparison with its competitors.
Example: Highly expertise technical staff, greater creativity among employees etc.
STYLE:
Patterns of behaviour and managerial styles of senior manager’s which influence
all the employees positively.
SHARED VALUES:
Spiritual or philosophical principles and concepts that an organization is able to
instill in its members.
The first three components i.e., the systems, structure and strategy do not change
or vary regularly. They are adapted according to the changes in the organizations’
environment and thus are termed HARDWARE.
The remaining three in other words, staffs, styles and skills, need to be altered on a
regular basis to help in effective and efficient functioning of the organization. That is the
reason why the overall skills of the staff are repetitively altered through training. The
styles are modified by giving additional responsibilities and thus the entire staff can be
improved by job enlargement, enrichment or rotation. Hence as these components are very
malleable, they put together are termed SOFTWARE.
The key binding factor between these two is the core ideology, mission, vision or
the core values for which the organization has been established and exists.
This frame work is the idea of an ideal organization.
STRATEGY EVALUATION TOOLS AND TECHNIQUES:

The strategies made by the company’s or chosen by the organizations have be
evaluated. There is a need to assess if the strategy chosen is correct or not. It is for the
purpose that the following tools or techniques are use. They are;
♣ Boston Consultancy Group Matrix (BCG Matrix)
♣ General Electric Company Matrix (GEC Matrix)
♣ HOFER’S product / Market Evolution Matrix
♣ Directional Policy Matrix
♣ Strategic Position and Action Evolution (SPACE) strategy Matrix
♣ Corporate Parenting Analysis (or) Parenting Fit Matrix
♣ TOWS Matrix
♣ ARTHUR D’LITTLE company Matrix
Now understanding each of these matrices in detail we have;
BOSTON CONSULTANCY GROUP (BCG) MATRIX:

The Boston Consultancy Group which actively involves in developing strategies
for organizations, based on their products, market share in relation with the market growth
rate come up with the concept of the BCG Matrix:-
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Diagram
The relative market share refers to the organization’s (strategic Business Unit or
SBU) market share in relation to the largest competitors in the segment. It serves as a
measure of the company’s’ strength in the relative market segment.
The market growth rate indicates the annual growth rate of the market in which the
business operates.
QUESTION MARKS:
♣ These are the products of an organization or SBU’s which are surviving in

a high growth market but have relatively low market share.
♣ A lot of cash is required to maintain them as functioning products / SBU’s
♣ It also requires a lot of person plant, equipment and time.
♣ The organization has to think hard whether to keep it or remove it because
maintenance involves lot of cash.
♣ If they are successful, they increase the company’s image and thus bring
out cash later.
♣ Every company is thus advised to invest in one or two question marks.
STARS:
♣ If a question mark is successful, then it is termed as a star
♣ It is a market leader in a high growth market.
♣ However, it need not necessarily produce positive cash flow for the organization
♣ The organization has to spend large amounts of money to keep up the fight against
competition.
Example: Rin soap during its introductory period Ujala liquid blue …..
CASH COWS:
♣ When the market’s annual growth rate slows down, then a star becomes cash cow
♣ They have large market share
♣ They earn a lot of cash for the company
♣ There is no need to expand the organization as the market is slow
♣ Economies of scale are practiced as it is a leader
♣ They bring high profit margins
♣ This money can be used to develop future SBUs or Products
DOGS:
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♣ Weak products in weak markets are termed dogs, same in the case of SBUs
♣ They have low profits and so may even bring losses
♣ For sentimental reasons, they are continued in production
♣ Unless a term around take place they can be let off.
The general tendencies of the market are to build on the question marks as they may in the
future become stars. The cash cows are to be milked for the maximum profits possible.
Harvesting i.e., R & D, investment, to eliminate wastage, wear and tear are taken up for be
earned. Lastly, the products or SBU’s which are functioning bad under question marks
and dogs need to be divested or let off.
GENERAL ELECTRIC COMPANY MATRIX:

The GEC Matrix identifies the business strengths and find out or give solution
about how to proceed.
BUSINESS STRENGHTS
WEAK
STRONG MEDIUM
PROTECT INVEST TO BUILD

HIGH
POSITION BUILD SELECTIVELY
MARKET
ATTRACT LIMITED
IVENESS SELECTIVITY
EXPANSION
BUILD / MANAGE
MEDIUM (OR)
PRODUCT SELECTIVELY FOR
HARVEST
POSITION: EARNINGS
THRUST
PROTECT AND MANAGE FOR DIVEST

LOW
REFOCUS EARNINGS
♣ Invest to grow at maximum digestible speed

♣ Concentrate effort on maintaining strength
Example: Colgate
INVEST TO BUILD:
♣ Challenges for leadership
♣ Build selectively on strengths
♣ Reinforce vulnerable areas
Example: Chick Shampoo
BUILD SELECTIVELY: I
♣ Specialize around limited strengths
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♣ Seek ways to overcome weakness

♣ Withdraw if indications sustainable growth are lacking
Example: Tide Washing Powder
BUILD SELECTIVELY: II
♣ Invest heavily in most attractive segments
♣ Build up ability to counter act competition
♣ Emphasize profitability by arising productivity
Example: Ariel washing powder, Whirlpool home appliances.
SELECTIVELY MANAGE FOR EARNINGS:
♣ Protect existing programs / products
♣ Concentrate investments in segments where
♣ Profitability is good and risks are relatively low.
Example: Pepsodent G
LIMITED EXPANSION (OR) THRUST FOR HARVEST:

♣ Look for ways to expand without high risk or
♣ Minimize investment and rationalize operations
Example: Aircel (RPG wings)
PROTECT AND REFOCUS:

♣ Manage current earnings
♣ Concentrate on attractive segments
♣ Defend strengths
Example: Pizza hut, Basking Robbins
MANAGE FOR EARNINGS:

♣ Protect position in most profitable segments
♣ Upgrade product line’
♣ Minimize investment
Example: Fair and Lovely, Dettol
DIVEST:
♣ Sell at a time that will maximize cash value
♣ Cut fixed costs and avoid investment till the asset can be disposed off or
turnaround
Example: Chandrika
HOFER’S PRODUCT / MARKET EVOLUTION MATRIX:

The following is the grid or matrix for Hofer’s product / market evolution, where
in A, B, C, D and E are assumed to be different products or businesses.
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DIAGRAM
Hofer and Schnnedel proposed a 15 cell matrix, similar to the 9 cell GEC matrix.
This matrix considers the stages of development of the product or market the competitive
position of these different products / business of a company’s corporate portfolio or list.
♣ Business A is a high potential one and thus deserves lot of investment to expand
♣ Business B has to expand cautiously as it may have to drop off heavy loads when
entering the next stage. So, during investment if proper care is taken then
unnecessary investment can be stopped, saved or reduced.
♣ Business C is a losing business and thus has to be discarded or shaken out.
♣ Business D is an old business which is well established and generates a lot of cash
which can be diverted to A and B
♣ Business E is a potential loses which is declining and can be considered for
disinvestments
This matrix thus, portrays a corporate portfolio with high level of accuracy and
completeness.
DIRECTIONAL POLICY MATRIX:

This policy matrix was developed by shell chemicals UK, using the two
parameters of ‘Business Sector prospects’ and ‘company’s competitive activities’.
Factors affecting business sector prospects as unattractive average or attractive,

such as
♣ Market growth
♣ Market quality
♣ Market supply and so on
BUSINESS SECTOR PROSPECTS
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UNATTRACTIVE AVERAGE ATTRACTIVE
WEAK DISINVESTMENT IMITATION / PHASED

PHASED WITHDRAWAL/
WITHDRAWN CASH GENERATION
AVERAGE PHASED MAINTENANCE EXPANSION /

WITHDRAWAL / OF POSITION / PRODUCT
MERGER MARKET DIFFERENTIATION
PENETRATION
STRONG DIVERSIFICATION/ GROWTH / MARKET
CASH GENERATION MARKET LEADERSHIP /
SEGMENTATION INNOVATION
COMPANY’S COMPETITIVE ABILITIES
These are combined with the organisations’ strengths and weakness to evaluate the
risk to the organiations and its products based on the environmental threats and the
probability of their occurrence.
STRATEGIC POSITION AND ACTION EVALUATION (SPACE) STRATEGY

MATRIX:
This approach considers the company’s strategic position in relation with the
strategic position of the industry.
Diagram
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The company’s strategic position is determined on the basis of the financial

strength (ROI, leverage, liquidity, etc) and competitive advantage (market share, product
quality, etc). The industry’s strategic position is based on industry strength (growth and
profit potential etc) and environment stability (technological changes, competitive
pressures etc)
When these two positions are combined four strategies are evolved. They are;
Aggressive - divestment, liquidation and vertical integration
Defensive - divestment, liquidation and retrenchment
Conservative - stability, conglomerate diversification
Concentric - concentric merger, conglomerate merger and turnaround
CORPORATE PARENTING ANALYSIS: PARENT FIT MATRIX

This matrix analyses the aspects of a new venture. Compbell, Goold and
Alexander suggested that the manner in which the centre manage and nurtures the
individual business is known as corporate planning. The total corporation is viewed in
terms of resources and capabilities, which can be used to build individual business as well
as create synergies across these businesses. (Especially and only diversified business)
diagram
Besides, this matrix views the organization in totality as a diversified corporation

and focuses on the value added or created from this relationship between the parent (main
company) and its children (other business)
Thus, this matrix mainly addresses what businesses should a diversified
corporation own and why?
What organizational structure, management process and philosophy will faster
superior performance from the individual business unit?
The following five different strategic positions results, with its own rules for
corporate strategy and critical success factor.
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HEARTLAND BUSINESSES:
The parent company plays a good role of knowing the critical success factors of
the child business and thus, there are opportunities for the parent to make improvement.
EDGE – OF – HEARTLAND BUSINESS:

In this some characteristics are known by the parent company and they fit well into
the parent company, but a few do not. Thus, these are a need for understanding between
the parent and the child. Expansion strategies are suitable provided if the parent has the
necessary confidence to devote a large investment of both time and money to these
businesses.
BALLAST BUSINESS:
These fit well with the parent company, but have very few opportunities for
improvement by the parent. These are business which have been established long time
back and are still surviving. They contribute (or give) a lot to the business, but may also
drag the parent. A is the parent cannot do anything it is better to retrench these at the right
time if the opportunity cost is higher than the expected future cash flows.
ALIEN TERRITORY BUSINESS:

They have very little opportunity as they are misfits between the characteristics of
the parents and the business and critical success factors. These are a result of misguided
diversification in the past. Retrenchment strategy is the best under the circumstances.
VALUE TRAP BUSINESS:
These have good parenting opportunities but are a misfit with the understanding of
the other units of the parent. These are the business which have very good growth but do
not suit the parent’s core competencies. They should be avoided, retrenched or left to
function separately.
TOWS MATRIX:
This theory was proposed by Heinz Weihrich. This is an important strategy
formulation matching tool. The TOWS matrix alternative strategies are listed below;
Diagram
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W – T STRATEGY:
The W – T or the mini – mini strategy seeks to minimize the weakness and threats.
They can be even overcome. In some cases an unprofitable business that cannot be
revived may be given up.
W – O STRATEGY:
The W – O or mini – maxi strategy aims at mini – missing the weaknesses and
maximizing the opportunities. The solutions are to given thrust to R & D and to develop
technology. Measures to reduce the time lag and this is to be in a better position to exploit
the opportunities. Maximize on the growing demand.
S – T STRATEGY:
The S – T or maxi – mini strategy attempts to use the organizations’ strategy to
deal with environmental threats.
S – O STRATEGY:
This maxi – maxi strategy, which is the most desirable and advantageous strategy,
seeks to mass up a firm’s strengths to exploit the opportunities.
ARTHUR D’LITTLES COMPANY MATRIX:
DOMINANT
STRONG
FAVOURABLE
TENABLE
WEAK
EMBRYONIC GROWTH MATURITY DECLINE
This matrix identifies the product life cycle (PLC) with the business positions.
This uses the link of whether or not to continue in the business of manufacturing a
product, if the product in itself is on the decline then, there is no need to further proceed in
the business in its self. i.e., manufacturing of the product.
Based on the above criterion, the four stages of PLC can be plotted against the 5
stages of business strengths to get four strategies. They are;
♣ Build (increase investment, and time)
♣ Hold (expand, improve R & D)
♣ Harvest (encash as mush as possible)
♣ Unacceptable (Sell off it ROI is difficult)
These in brief are the commonly used strategy evaluation tools or techniques.
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GENERIC COMPETITIVE STRATEGIES:

These strategies are also called Michael Posters’ Generic strategies. They are the
types of competitive advantage being pursued against the target market.
Diagram
The different types of strategies are

♣ Overall cost leadership strategy
♣ Broad differentiation strategy
♣ Best cost provider strategy
♣ Focused low cost strategy
♣ Focused differentiation strategy
Now, understanding these strategies in detail we have;
LOW COST PROVIDER STRATEGY:

This is also called cost leadership strategy. The overall low cost leadership strategy
is the appeal (favour) to a large and varied (different) customers based on being the
overall low cost provider of a product or services.
BROAD DIFFFERENTIATION STRATEGY:
Seeking to differentiate (separate) the company’s product, offering in such a way
which is different from the competitors that will be appealing (liked) by a wide variety of
customers.
FOCUSSED LOW – COST STRATEGY:
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Concentrating on a narrow buyer segment (niche) and overcoming competition by

serving these members at lower cost than rival companies.
FOCUSSED DIFFERENTIATION STRATEGY:
Concentrating on a narrow buyer segment (niche) and overcoming the rivals by
offering these consumers certain specific product attributes (quality, cost, range,
availability, guarantees, service, etc) that meet their, tastes and requirement better than
rivals’ product
BEST COST PROVIDER STRATEGY:
Giving customers more value for their money by incorporating good – to –
excellent product attributes at a lower cost than competitors. The target is to have the
lowest (best) costs and prices compared to competitors who are offering products with
comparatively costlier or higher attributes.
Each of these strategies is unique to compete and operate.
GRAND STRATEGIES
The grand strategies of business are broadly classified into three. They are
I. STABILITY STRATEGIES
II. GROWTH STRATEGIES
III. RETRENCHMENT STRATEGIES
These three strategies are further classified into several more;

Now systematically, we shall proceed with one strategy after another;
STABILITY STRATEGY:
This strategy is also called as ‘NO – GO’ strategy. Organizations which are
operating in a reasonably certain and predictable environment usually adopt this strategy.
These organizations attempt at incremental or step by step improvements in its functional
performance. Mostly these strategies are taken up by small or medium sized firms, or for
short run, when such firms are satisfied with the current performance.
They are basically classified into three;
♣ No – change strategy
♣ Pause or proceed with caution strategy
♣ Profit strategies
Now, taking up these strategies one after another first we have;
NO CHANGE STRATEGY:
This stability strategy is a conscious decision to do nothing new (ie) to continue
with the present business. This even though appears to be very unbusiness like is actually
a very wise business decision. The following may be the reasons why this strategy is
chosen;
♣ It may not be profitable to change the strategy in the current business strategy
♣ There are no significant opportunities or threats in the environment
♣ There are also no major strengths and weaknesses within the organizations.
Several small and medium scale firms offering products to a niche market or to a familiar
market follow this strategy. This strategy will be successful till a major crisis or threat
comes up in the environment.
PAUSE OR PROCEED WITH CAUTION STRATEGY:
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This strategy is often employed by firms to test the ground before moving ahead
with a full – fledged grand strategy. Even firms which have been into expansion for a long
time and wish to take rest before the next phase, use this strategy. There are several
reasons for choosing this strategy.
They are;
♣ Companies need to know where they are and what they want to do in the future,
and if it would be successful.
♣ Internal organization gets to know the idea and will be able to change suitably or
accept strategic change will
♣ Structural changes needed to adapt to the new strategies can be made using these
strategies.
♣ When major strategic changes are to be made, a firm has to be ready to move
faster has to wait till the appropriate time arrives.
♣ Waiting for the right environment to implement a new strategy or to launch a new
product.
PROFIT STRATEGY:
♣ This strategy tries to maintain the profitability level when there is a sudden threat,
which may not exist for a long time.
♣ When companies face the threat of being totally removed from the market, a
situation arises to test the company’s ‘strategy development authorities’
♣ If the company assumes that the problems are short lived or that they will be
eliminated with the passage of time, it will adapt / adopt this strategy.
♣ In other words, a firm tries to maintain its profitability by artificial methods and
adapting / adopting a profit strategy. A few methods are;
i. Reducing investments, cutting costs, raising prices, increasing productivity
or any other such measure to overcome the crisis and maintain the same
level of profitability.
ii. External factors such as economic recession, government attitude, industry
downturn, competitive pressures and so on are very bad.
If the company assumes that these problems are short term in nature and try to maintain
profitability by selling away some unused assets, moving from the city premises to sub
urban, leasing away non – core business, outsourcing company facilities and expertise to
other companies etc.
CHARACTERTISTICS AND SCOPE OF STBILITY STRATEGY:

The following are the characteristics and scope of stability strategy is as follows;
♣ A firm opting for stability strategy stays with the same business, same product –
market position and function, maintaining same level of effort as at present.
♣ The effort is to enhance the firms efficiencies in an incremental way, through
better deployment and utilization of resources.
♣ The idea of the firm is that the desired income and profits would be available in
the future. Through such incremental functional efficiencies.
♣ Naturally, the growth objective of firms employing this strategy will be quite
modest.
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♣ Or only that company’s with modest (simple, humble) growth objectives will take
up this strategy.
♣ Stability strategy does not include or involves a redefinition of the business of the
corporation
♣ It is basically a safety – oriented status – quo oriented strategy
♣ It does not warrant much of fresh investment
♣ The risk is also less
♣ It is a fairly frequently employed strategy
♣ With the stability strategy, the firm has the benefit of concentrating its resources
and attention on the existing business’s / products and markets.
♣ But the strategy does not permit the renewal process of bringing in fresh
investments and new products and markets for the firm.
GROWTH STRATEGIES:
These strategies are also called expansion strategies. There are several growth
strategies which will be classified, and later discussed in detail in the following notes.
♣ Growth or expansion strategy is the opposite of stability strategy. While in stability
strategy rewards are limited, in expansion strategy the rewards are high. However,
the risks too are similarly high in expansion strategies.
♣ Thus, one can safely say that in stability strategy the rewards and risks are low.
While in expansion strategy the rewards and risks are high.
♣ This strategy is the most frequently employed generic strategy
♣ Expansion strategy is the true growth strategy. A firm with a mammoth growth
ambition can meet its objective only through the expansion strategy.
♣ Expansion strategy involves a redefinition of the business of the corporation.
♣ The process of renewal of the firm through fresh investments and new business /
product / markets is facilitated or possible only be expansion strategy.
♣ Expansion strategy offers several permutations and combinations for growth
♣ A firm opting for the expansion strategy can generate many alternatives within the
strategy by altering (changing) its proposition (plans) regarding products, markets
and functions and pick the one that suits its most.
♣ Expansion strategy holds within its fold two major strategy routes;
i. Intensification
ii. Diversification
♣ Both the them are growth strategies, the difference lies in the way in which the
firm actually per sues the growth.
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♣ With intensification strategy, the firm pursues growth by working with its current
businesses.
♣ Intensification in turn has three alternatives;
i. Market penetration strategy
ii. Market development strategy
iii. Product development strategy
♣ Diversification strategy involves expansion into new business that are outside the
current business markets.
♣ There are three types of diversification;
a. Vertically integrated Diversification
b. Concentrated diversification
c. Conglomerate diversification
♣ Vertically integrated diversification involves going into new businesses, which are
related to the current ones.
♣ It has two components
a. Forward Integration
b. Backward Integration
♣ The firm remains vertically within the given product – process sequence. The
intermediaries in the chain become new business.
♣ in concentric diversification too the new products are connected to the firms
existing process / technology. But the new products are not vertically linked to the
existing ones. They are not intermediaries. They serve new functions in new
markets. A new business is taken up (span off) from the existing facilities.
♣ In conglomerate diversification too, a new business is added to the forms portfolio
(list of businesses). But it is disjoined (separated) from the existing business. In
process technology functions, there is no connection between the new business and
the existing ones. Thus, it is an unrelated diversification.
♣ Thus, broadly, expansion strategies can be identified as expansion through
a. Concentration
b. Integration
c. Diversification
d. Cooperation and
e. Internationalization
CONDITIONS FOR ADOPTING EXPANSION STRATEGY:

The following may be the conditions, circumstances for firms to adopt this generic
strategy.
♣ When the corporate ambitions and objectives are high and keeps rising, ie. When
the firm desires continuous and big growth in assets, income and profits,
expansion becomes the choice as stability will not suit them.
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♣ When enormous new opportunities are coming up in the environment and the firm
is ready and willing to expand, its business opportunities / chances. Then this
strategy is taken up.
♣ Forfighting competition in a growing business, firms find expansion through
intensification the most suitable route. The very size of the company creates
superiority in the competition.
♣ When a firm which is a leader or an aggressive contender in its industry and
decides to protect its position, it has to constantly resort to expansion through
intensification. This is because if it stops expanding then the company may stop
being the leader.
♣ To overcome the vulnerability of a single business position or the limitations
arising out of PLC of existing business. When they show signs of maturity, or
saturation or leveling off, it means , they want to expand (and most probably
diversify)
♣ In other words when a firm needs flexibility in business portfolio it turns to
expansion through diversification as it facilitates such flexibility
♣ This is a method adopted by firms to minimize their risks by spreading it over
other business
♣ Expansion strategy is chosen by firms when the industries are highly unstable. In
this case substantial (great, considerable) growth is necessary to cushion or reduce
shocks that might arise in such industries.
♣ Diversification would be especially useful to firm that are eager to achieve rapid
and big growth. This is quite natural since diversification involves exploitation of
new opportunities emerging in business, which are outside the existing fields of
the firm.
♣ When the environment especially the regulatory scenario blocks the growth of the
firm in its existing business, it turns to diversification for meeting its growth needs.
♣ When the firm has an advantage for synergy and for successful tapping of certain
additional opportunities it opts for intensification / diversification.
♣ By using this competitive advantages in obtained in terms of cost of
differentiation. Often economies of scale result (happen, occur) due to such actions
(due to synergy). This result in a cost advantage for the firm.
CONCENTRATION STRATEGY
♣ In concentration strategy, a firm directs its resources to the profitable growth of a
single product in a single market and with a single technology.
♣ Concentration has the lowest risk and it only requires more amount of the same
resources
♣ However, companies practicing this strategy have a steady growth and
profitability, but they achieve it very slowly. They also have reduced and narrow
range of investment options.
♣ Due to the reason that they have very narrow level of competition, they suffer from
performance variations, resulting from industrial trends
♣ By concentrating on one product, one market and with one technology, a company
can gain competitive advantage over other competitors.
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♣ This competitive advantage can be in production skills, marketing know-how

customer sensitivity or reputation in the market place.
♣ The business can also attempts to capture larger market share, by increasing the
usage of the product among the existing customers or by attracting customers of
competitors. It can also create interest among non-users of the product.
OPTION UNDER CONCENTRATION

The following are the specific options under concentration;
♣ Increasing the usage rate of the current or existing customers by;
a. Increasing the size (bulk) of purchase
b. Increasing the rate of product obsolescence i.e., expiry or life of the
product
c. Advertising other uses
d. Giving price incentives for increased use
♣ Attracting the competitor’s customers’ is another method. This can be done by;
a. Establishing sharper brand differentiation
b. Increasing promotional effort
c. Initiating price cuts
♣ Attracting non – users to buy the product by;
a. Inducing trail use through sampling
b. Price incentives and so on
c. Pricing up or pricing down
d. Advertising new uses
PRODUCT DEVELOPMENT AND MARKET DEVELOPMENT

When strategic managers forecast that the combination of their current products
and their markets will not provide a basis for achieving the company’s mission, then the
organizations have two options that involve moderate risk and cost. They are;
I. MARKET DEVELOPMENT
II. PRODUCT DEVELOPMENT
I. MARKET DEVELOPMENT:
♣ It is the second most commonly employed strategy
♣ It is also the least costly and least risky among the 12 grand strategy
♣ It consist of marketing present products with only cosmetic / peripheral /
superficial / just outwardly modification
♣ They are sold to customers in related market areas by adding different channels of
distribution or by changing the content of advertising or the promotional media
♣ Thus, this strategy aims at
 Selling present products in new market
 Selling slightly modified products in the existing market
SPECIFIC OPTIONS UNDER MARKET DEVELOPMENT:

♣ There are several specific options under market development. They are;
♣ Opening additional geographic markets
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 Regional expansion
 National expansion
 International expansion
♣ Attracting other market segments
 Developing product versions to appeal to other segments
 Entering other channels of distributions and
 Advertising in other media
PRODUCT DEVELOPMENT
♣ This strategy involves substantial (great or large) modifications of existing
products
♣ Also creation of new but related items, that can be marketed to current customers
through established channels
♣ This strategy is often adopted either to prolong the life cycle of current products or
to take advantage of favourable reputation or band name.
♣ The idea is to attract satisfied customers to new products as a result of their
positive or good experience with the company’s initial offerings.
♣ Thus, the strategy involves;
 Developing new products for present markets
 Developing new products for new markets
SPECIFIC OPTIONS UNDER PRODUCT DEVELOPMENT

The specific options under product development are as follows;
♣ Developing new product features
♣ Adapt (to other ideas, development)
♣ Modify (change colour, motion, sound. Odour, form and shape)
♣ Magnify (stronger, longer, thicker, extra value)
♣ Substitute (other ingredients, process, power)
♣ Rearrange (other patterns, layout, sequencing components)
♣ Reverse (inside out)
♣ Combine (blend, alloy, assortment, assemble, combine units, purpose, appeals,
ideas)
♣ Developing quality variations
♣ Developing additional models and sizes (product proliferation)
INTEGRATION STRATEGY
The essence of integration strategy is as follows;
♣ Integration basically means combining related activities to the current activity of
the firm
♣ So, a company may move up or down the value chain to concentrate more closely
on the customers groups and the needs of that group which they are serving
♣ A firm that expands using integration strategy commits itself to its adjacent
business as well
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♣ Integration is an expansion strategy which results in the widening the scope of the
business definition of a firm
♣ Integration also means a set of diversification strategy as it involves doing
something different from what the firm has been doing presently
CONDITIONS SUITING INTEGRATION STRATEGY

The conditions under which the firms are motivated to adopt integration strategies;
♣ When the cost of a product used in production is evaluated and make or buy
decision has to be taken up
♣ Selling of finished goods against selling through a retailer and the cost associated
with it
♣ Forms usually operate on two dimensions
 New products
 New functions
♣ New products can be made through related or unrelated technology
♣ New functions can range from the firm being its own customer to having an
entirely new products
♣ Based on these dimensions, it is possible to have four types of integration
strategies
♣ Integration strategies are broadly classified into two;
 Vertical integration
 Horizontal integration
FEATURES UNDER VERTICAL INTEGRATION

Features under vertical integration;
♣ When an organization starts making new products that serve its own needs,
vertical integration takes place
♣ Thus, any new activity under taken with the purpose of either supplying inputs
(such as raw materials) or serving as a customer for output (such as marketing of
the firms’ products) can be called vertical integrations.
♣ Vertical integration can be classified as;
 Backward integration
 Forward integration
♣ Backward integration means going back to the source of raw materials
♣ Forward integration means the organization moves nearer to the ultimate customer,
even taking up distribution directly
♣ Usually, companies integrate completely but at times due to lack of resources, or
uncertainty in the strategy adopted companies opt for partial integration.
♣ Two such partial vertical integration strategies are;
 Taper integration
 Quasi integration
♣ Taper integration strategies require firms to manufacture a part of their own
requirements and to buy the remaining part
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♣ Quasi integration strategy following firms purchase most of their requirement from
other firms in which they have an ownership stake.
Example: Maruthi Udyog Ltd, AV Birla Group etc
♣ Setting or using ancillary industrial units and outsourcing through sub contracts are
different forms of quasi integration
♣ Firms can create their own supply sources by providing these ancillary units with
manufacturing requirements such as
 Design and blue prints
 Raw materials
 Sub contractors and specialists
Example: Dr Reddy Labs, Philips lighting systems, Hindustan pencils Ltd
♣ Ancillary units can produce as per the company requirements due to the help
provided by the mother company.
HORIZONTAL INTEGRATION
♣ When an organization takes up the same type of products at the same level of
product or marketing process, it is said to follow horizontal integration strategy
♣ Horizontal integration strategy may be frequently adopted with a view to expand
geographically by buying competitors’ business. It may be for;
 Increasing market share (or)
 Benefit form economies of scale
Example: Madhusudan ceramics, manufacturers of Hind sanitary ware was taken
over by EID parry to expand geographically
Epartek ceramic floor tiles integrated with Neyveli Ceramics and refractories to increase
production facilities.
ADVANTAGES OF INTEGRATION STRATEGIES:

The advantages of integration strategies are as follows;
♣ Quality can be maintained as the company is committed to manufacture the
product totally
♣ Better R & D can be taken up
♣ New designs and innovations can be patented
♣ Consumer needs are better understood
♣ Increased brand loyalty is possible as the company provides all benefits to the
customers
♣ Better control over the value chain right from raw material to the market.
DISADVANTAGES OF INTEGRATION STRATEGY:

The disadvantages of integration strategy are
♣ The risk of investing in the same business is very large
♣ If the product fails, it faces great risk as the specific set of customers are totally
lost
♣ Costly products and high expenditure on process and patenting go waste if the
product fails
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♣ Any future development on the product has to be decided by the customer. If it is

not done so, consumers may shift loyalty
DIVERSIFICATION STRATEGY
Diversification involves a substantial change in the business definition either as a
single entity or as a joint entity. It can be in terms of customer satisfaction with functions.
Customer groups or alternate technologies of one or more of a firm’s business
These strategies involve all the dimensions of strategic alternatives
Diversification may involve or be

 Internal or External
 Related or Unrelated
 Horizontal or Vertical
 Active or Passive dimensions either
 Singly or Jointly
The following types of diversification strategies are;
♣ Concentric diversification
 Market related
 Technology related
 Marketing and technology related and
 Conglomerate diversification
REASONS FROR ADOPTING DIVERSIFICATION:

There are several reasons for adopting diversification strategy. They may be
 Minimizing risk by spreading it over several businesses
 For capitalizing on organizational strengths and minimizing weakness
 When existing business is blocked due to environmental and regulatory factors
reducing chances of growth
 Scope for higher profitability
 Availability for existing synergies and emerging opportunities
 Revising mission statement
CONCENTRIC DIVERSIFICATION
Concentric diversification when taken up by an organization can be defined as
“Organizations taking up an actively in such a manner that is related to the existing
business are said to be diversifying concentrically. Thus the changes in the firm can be
a combination of customer groups, functions or alternative technologies”
MARKET RELATED CONCENTRIC DIVERSIFICATION

 When a new product is offered to the same target market
 When a similar product is offered with the help of unrelated technology or
alternative technology
 Then it is called market related concentric diversification
Example: Medicar Shampoo new Medikar Hairoil
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TECHNOLOGY RELATED CONCENTRIC DIVERSIFICATION

 Same product is offered with new technology
 New type of product is offered with the help of related technology
Example: Solar Cookers, Water Heaters, Vehicles. Lighting systems, etc
MARKETING AND TECHNOLOGY RELATED CONCENTRIC DIVERSIFICATION:

A similar type of product / service is provided with the help of related technology
to the same market.
The existing product and technology are extended into new markets.
Example: Rural telephony
CONGLOMERATE DIVERSIFICATION
When an organization adopts a strategy which requires taking up activities which
are unrelated to the existing business definition, it is called Conglomerate Diversification.
This diversification can be in terms of customer groups or functions and
technology.
CONDITIONS FOR SUCCESS IN DIVERSIFICATION

♣ Diversification requires meticulous preparation
♣ As it is a resource intensive strategy; diversification can succeed only when it is
backed up by adequate resources
♣ Managers handling diversification should be very competent
♣ All proposals must be screened and pre tested
♣ The industry chosen must be attractive or it should be suitable for being made
attractive
♣ By entering into the industry, the company should gain profits and should not lose
what it already has
CRUCIAL TESTS FOR SUCCESS IN DIVERSIFICATION

There are three crucial tests which indicate the success of a diversification
strategy. They are;
♣ Attractive test
♣ Cost of entry test
♣ Better off test
The attractive test involves in determining if the industry in which or into which
diversification is taking place is attractive or not (suitable – unsuitable). It is done by the
following factors;
♣ Industry growth rate
♣ Industry potential
♣ Industry profitability
♣ Competitive structure of the industry
♣ Likely future or pattern of the industry
♣ Technology related issues and
♣ Other environmental factors
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The cost of entry test:

♣ Economics of scale in production
♣ Marketing
♣ R&D
♣ Level of product differentiation
♣ Brand domination
♣ Channels of distribution
♣ Loss of favourable locations
Better – off test should satisfactorily answer the following EIGHT questions;
♣ Does the diversification add to the corporate fit?
♣ Does it strain the corporate balance?
♣ Is the diversification built around the existing business of the firm?
♣ Is the firm moving into totally unrelated areas?
♣ Where does the balance of advantage lie?
♣ It is advantageous to develop concentrically?
♣ What organizational competence needs to be developed for managing a diversified
firm? And
♣ List advantageous to diversify into unrelated areas?
MANAGING THROUGH COOPERATION
EXPANSION STRATEGIES
Corporate strategies take into account the possibility of mutual cooperation with
the competitors. This helps in expanding the market potential.
The term cooperation expresses the idea of simultaneous competition and
cooperation among rival firms for mutual benefit.
Cooperative strategies can be of the following types;
a) Mergers
b) Acquisitions
c) Joint Ventures
d) Strategic alliances
DEFINITION:
The following are the nearest definitions of the cooperative strategies listed.
MERGER:
It denotes the fusion of two or more firms into one company or organization.
ACQUISITION:
This is also termed take over. It is a transaction through which on firm buys up a
part or whole of the assets of another company by paying compensation.
JOINT VENTURE:
Two or more firms join together to share the stake and float the business
STRATEGIC ALLIANCES:
Two or more firms arrive at an agreement on certain issues of mutual interest but
however no new firm is created, only working agreement are taken up.
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MERGER
There are several reasons for the taking up of mergers; they are as given below;
PURPOSE FOR MERGER
♣ Procurement of suppliers:
 Protect source of raw materials
 Obtain discounts and savings
 Transportation costs are reduced
 Standardizing raw materials
♣ Revamping production facilities:
 To achieve economies of scale
 Better utilization of plant and resources
 Standardize product specifications
 Improving quality
 Introducing better technology
♣ Market expansion and strategy:
 Eliminate competition
 To obtain new market outlets
 For diversification or substitution for the present products
 Reducing advertising costs
 Strategic control of patents and copyrights
♣ Financial strengths:
 Improve cash resources
 Dispose outdated assets
 Enhance borrowing capacity
 Avail tax benefits
 To improve EPS
♣ General gains:
 Improve the company image
 Attract superior managerial talent offer better satisfaction to consumers
 For developing a company’s own mobile
TYPES OF MERGERS:
There are basically four types of mergers
♣ Vertical Merger
♣ Horizontal Merger
♣ Concentric Merger
♣ Conglomerate Merger
♣ Demerger
VERTICAL MERGER:
It is a combination of two or more organizations not necessary in the same
business.
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They create complementary either in terms of supply of materials or marketing of

goods / services
Example: Godrej and Procter and Gamble merged their distribution network for better
distribution of their products.
HORIZONTAL MERGER:
It take s place when there is a combination of two or more organizations in the
same business. Organizations are engaged in certain aspects of production or marketing
aspects.
Example: BrookBond merged with Lipton India Ltd
CONCENTRIC MERGER:
This takes place when there is a combination of two or more organizations related
to each other in terms of customer focus or technologies used.
Example: Dr.Reddy labs combining with centre for Cellular and Molecular Biophysics
(CCMB) for testing drugs and pharmaceuticals
Ranbaxy merging with Elility for better R & D facilities in Pharmaceutical sector.
CONGLOMERATE MERGER:
This take place when there is a combination of two or more organizations
unrelated to each other come together to provide benefits to a group of customers.
Example: The RPG group previously established in the two wheeler industry shifted its
prospects into a totally unrelated field of Music by first merging with Music India Ltd and
the with HMV
They have now ventured into the retail business
DEMERGER:
♣ Mergers carried out in the reverse are called demergers or spin – off. In other
words when an existing business unit of the firm is detached from the main
business unit then it is called demerger.
♣ Demerger involves spinning off (separating) an unrelated business in a diversified
company into a unit which stands separate
♣ It involves free distribution of the company’s shares to the existing shareholders of
the original company
Example: Aptech was demerged from Apple Industries Ltd
MOTIVES BEHIND MERGERS:

They are basically of two types;
♣ Defensive / Passive
♣ Offensive / Active
DEFENSIVE MERGER MOTIVES:

This can be further sub-divided into;
 Survival requirement motives
 Protection motives
The reasons behind survival requirement motives are;
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i. Prevention form deterioration of capital structure which results in losses

ii. Technological obsolescence
iii. Loss of raw materials can be reduced
iv. Prevention of market loss to superior products
The reasons behind protection motive can be;

i. Protection form market infringement
ii. Lower cost position of a competitor
iii. Product innovation by others
iv. An unwanted take over
OFFENSIVE MERGER MOTIVE:

This can be further diversified into;
 Diversification motive
 Gains motive
Diversification motive might arise due to;

i. Counter any problems arising due to cyclical changes
ii. To counter seasonal problems
iii. International operations
iv. Multiple strategic plans
Gains motive can be taken up due to;

i. Market position
ii. Technological edge
iii. Financial strength
iv. Managerial talents
ASPECTS LOOKED INTO BEFORE MERGERS:

The following are the aspects that need to be considered before mergers;
♣ Financial consideration:
 How much is the company worth?
 How does the acquire pay for it?
♣ Legal consideration:
 Will the government approve the merger?
 What are the tax laws?
 What legal considerations may prompt take over attempt?
♣ Human resource consideration:
 Are the executives of the acquiring company threatening the target
company?
 Are the executives of the target company fearing that they will have to
leave the firm?
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POST MERGER SUCCESS FORMULA:

The following strategies create better chances of success in the post merger phase;
also called the post merger success formula;
♣ Focusing on limiting the financial risk. This can be done by;
 Maintaining price disciplines
 Pricing ahead of inflation
 Reducing the response time to price changes and
 Pricing to value
♣ Emphasize on cost discipline to maintain margin
♣ Emphasize financial control over balance sheet items
♣ Emphasize on product discipline by
 Exploiting winning products and getting rid of losses
 Redesigning products
 Raising the hurdle required for margins on new product entry
♣ Stay close to respective markets by
 Building the strength of core product lines
 Avoiding excessive diversification
 Finding specialized niches for opportunity
SEVEN DEADLY SINS OF MERGERS:

The seven sins which cause the failures of mergers are as given below;
♣ Paying too must when merging
♣ Assuming that a boom market will not crash
♣ Leaping before looking
♣ Straying too far away form the field in which they currently specialize
♣ Swallowing (merging) a company that is too big
♣ Marrying (merging) two diverse corporate culture
♣ Counting that the key employees will stay forever
TAKEOVER STRATEGIES:
Take over and acquisitions are use interchangeably. This strategy has been adopted
by several Indian companies in the post liberalization scenario.
REASONS FOR TAKE OVER (ADVANTAGES)

The reasons for takeover or taking over of a company;
♣ For presence over large geographical area
♣ To avoid long gestation period
(the period taken for the company to function from the time of starting or initiation
to completion)
♣ To attain increased growth rate
♣ To achieve a sudden increase in resources
♣ To improve market prices of shares
♣ For investing surplus funds
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♣ To acquire trained man power

♣ To fill in the gaps in the existing product line
♣ To have access to another company’s markets
♣ To benefit from tax advantages
♣ For distributing risks
♣ To take a chance to turnaround a sick unit
♣ Benefits of economies of scale
Procedure for takeover:

The following is the procedure for take over;
♣ Spell out the objective clearly
♣ Indicate how the objective would be achieved
♣ Assess managerial quality
♣ Check the compatibility of business styles of both the firms
♣ Anticipate and solve problems early
♣ Treat people with dignity and concern
TYPES OF TAKEOVERS:
There are basically two types of takeovers;
♣ Friendly Takeovers
♣ Hostile Takeovers
Friendly Takeovers have negotiations done through intermediaries who bring the
concerns of both the company the result or complete a takeover
Hostile Takeovers are those which are resisted or expected to be opposed by the
existing management or professionals.
DISADVANTAGES OF TAKE OVERS:

The following are the disadvantages of takeovers;
♣ Professionalism is replaced by money power
♣ They are detrimental (bad) to the nations economy
♣ Interests of minority shareholders is not protected
♣ Stress and strain are created in the company’s that are taking over and also among
those facing takeover
TEN COMMANDMENTS FOR ACQUIRING A FIRM:

The following are the Ten Commandments for acquiring a firm, they are;
1. pin point merger objectives (especially financial ones)

2. specify the gains to the stock holders of both the company’s (the company that is
being acquired and the company that has been acquired)
3. convince that the acquired company can be made competent
4. do not expect perfection but certify all important resources
5. involve everybody in the merger program
6. clearly define / redefine the business you are in
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7. take up an in depth SWOT and KSP of both the companies

8. create a climate of mutual trust by trusting problems can be solved
9. do not threaten the management and the employees that are to be acquired
10. make people your number one consideration in structuring (developing) your
merger plan
JOINT VENTURE STRATEGIES:

Merger can take place in two ways;
♣ absorption
♣ consolidation
♣ Absorption takes place in mergers and acquisitions among companies

♣ Consolidation takes place when two or more companies combine to form a new
company
♣ Joint ventures are a special case of consolidation where two or more companies
form a temporary partnership for a specified purpose
CONDITIONS FOR JOINT VENTURES:
Joint Ventures (JV) are useful under four conditions;
♣ When an activity is uneconomical for an organization to do alone
♣ When the risk of business has to be shared and is therefore reduced when there are
participating firms
♣ When the distinctive competence of two or more organizations can be brought
together
♣ When setting up an organization requires surmounting or overcoming hurdles such
as import quotas, tariffs, nationalistic and political interests and cultural barriers.
TYPES OF JOINT VENTURES:

From the Indian point of view the following types of Joint Ventures are possible;
♣ Between two firms in one industry
♣ Between two firms across different industries
♣ Between an Indian firm and a foreign company in India
♣ Between an Indian firm and a foreign company in foreign
♣ Between an Indian firm and foreign firm in a 3rd country
STRATEGIC ISSUES IN JOINT VENTURE:

The following are the strategic issues in JV;
♣ They offer advantages of achieving objectives mutually by participating firms

♣ Eliminating, controlling or reducing competition
♣ An increase in the market share can be achieved
♣ Diversification strategies may be adopted by the participating teams
♣ If technology is a critical factor, then JV’s in foreign companies can be feasible
♣ Legal and regulatory hurdles which can arise in external expansion can be
overcome when a JV is established in a third country
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♣ Besides the environmental threats in one country, can be overcome by utilizing

opportunities in another company
ADVANTAGES OF JOINT VENTURES

There are several advantages of joint ventures;
♣ Risk minimization
♣ Reduction in investment by an individual company
♣ Access to foreign technology
♣ Broad based equity participation
♣ Access to government and political support
♣ Entering new fields of business
♣ Synergistic advantages
DISADVANTAGES OF JOINT VENTURES

♣ Problems in equity participation
♣ Foreign exchange regulations
♣ Lack of proper coordination among participating firms
♣ Cultural and behavioral differences
♣ Possibility of conflict among partners
STRATEGIC ALLIANCES
They can be defined as,
Cooperation between two or more independent firms involving shared control and
continuing contribution by all partners for mutual benefit.
Example: TVS & Suzuki, Mahindra & Ford, BPL & SANYO, Taj Hotels & British
Airways, Airlndia & Oberoi
TYPES OF STRATEGIC ALLIANCES

The types of strategic alliances are as follows;
♣ Pro competitive alliances
♣ Non competitive alliances
♣ Competitive alliances
♣ Pre competitive alliances
PRO COMPETITIVE ALLIANCES: (Low interaction and low conflict)

They are usually inter industry with vertical value chain relationships, such as
between suppliers and manufacturers
NON COMPETITIVE ALLIANCES: (High interaction and low conflict)
These are intra industry partnerships between non – competitive firms
COMPETITIVE ALLIANCES: (High interaction and high conflict)
These firms entering into partnership are rival firms
PRE COMPETITIVE ALLIANCES: (Low interaction and high conflict)
Two firms from different and often unrelated industries are brought together to
work on well defined activities.
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REASONS FOR ENTERING STRATEGIC ALLIANCES:

There may be several reasons for entering into strategic alliances; a few are listed
below;
♣ Entering new markets which may be difficult to enter on its own
♣ Reducing manufacturing costs and achieving economies of scale
♣ Developing and diffusing technology by getting the best technical expertise
MANAGING STRATEGIC ALLIANCES

The following are the four principles to manage alliances successfully;
♣ Clearly define a strategy and assign responsibility

♣ Build up relationships between the partners
♣ Blend the cultures of the partners
♣ Provide a chance for an exit strategy
EXPANSION THROUGH INTERNATIONALIZATION

The expansion strategy of a company beyond the boundaries of a nation is termed
as internationalization.
MOTIVES BEHIND INTERNATIONALIZATION
The national characteristics which are the reason behind internationalization are as
follows;
♣ FACTOR CONDITIONS: such as raw materials, labour, are cheap or in plenty, then
that place is chosen for establishing units
♣ DEMAND CONDITIONS: Low, and high fluctuations, high quality requirement and
so on, influence the prospects of internationalization
♣ RELATED AND SUPPORT industries existence of such industries will help in
expanding to new countries
♣ FIRMS STRATEGY – if the firms vision is to expand to off shore areas too
♣ THE COMPANY STRUCTURE- too at time causes this, if a part of the production
unit is off shore due to specific reasons
♣ RIVALRY OF COMPETING FIRMS – also causes companies to expand off-shore, in
search of new markets which have either no competitors, new market have few
competitors, or create fresh markets.
ENTRY MODES FOR INTERNATIONALISATION

The entry modes for internationalization are three in nature. They are;
♣ Export entry mode
♣ Contractual entry mode
♣ Investment entry mode
Discussing a little in detail, we have;
EXPORT ENTRY MODE:

This mode can be both direct and indirect. Any organization, which exports
directly to the company or customer is in the internationalization mode. Similarly many
organizations use channelized export (indirect) mode. Where in the export order and
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material are sent to an organization, which in turn sells it the customer. This occurs due to
government sanction or for secrecy
♣ Example: In India all edible oils, Spices and movies etc come through indirect
mode NDDB, Spices Board, and NFDC are the channel agents, they also are the
mode for export.
♣ Machinery, software etc are usually purchased and sold directly in the export
market.
CONTRACTUAL ENTRY MODE:
Organizations can enter into contract with their off-shore partners. There are
usually three types of off-shore partnering, they are;
♣ Licensing
♣ Franchising and
♣ Contracts
LICENSING:
It is a system where the organization plans to give the acceptance for another
organization on an off-shore land to do their job (given the key material and also the blue
prints). In other words the off-shore organization is more like an assembling unit and
doesn’t manufacture by its own rule (the R & D, and related decisions). The local
company is supposed to pay, royalty for using the trade mark, logo, brand name etc. the
exporting company doesn’t pay a single dime. But gives the use of copyright and
patenting. However, when considered important R & D is taken up by the licensee also.
FRANCHISEE:
On the other hand is an exclusive retailer or marketer of the organizations services
or products. The franchisee (an independent business person) abides by the marketing plan
of the original company. They also pay royalty to use the brand and know-how. At times a
franchisee is also a licensee with a clause to manufacture too. Thus, franchisees are
licensee and franchisee or they are only franchisees.
Example: Licensee and franchisee Pizza hut, Coke etc. Franchisee DHL, standard-
chartered, Citibank
CONTRACTS:
Manufactures can be either a franchisee or a licensee for a special period of time,
which is also termed the contract period, which is clearly specified in the written
documents called contract. This contract also specifies the terms and conditions of the
contract or the arrangement (agreement) during the period of the contract.
INVESTMENT ENTRY MODE:

The types of investment entry mode in internationalization are;
♣ Joint Venture
♣ Foreign Direct Investment
♣ Subsidiaries
JOINT VENTURE
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Strategy where in an organization joins another counterpart off-shore to invest in

mutually beneficial venture which provide greater profits. Also , to get synergistic results.
Example: Suzuki motors with Maruthi and TVS. Electrolux with Kelvinator
FOREIGN DIRECT INVESTMENT:

In this form of internationalization, the partnering organization only invests into
the financial part of the firm. This investment can be in the initial investment of the firm
(capital) or it can be made for the working capital, expansion capital, capital for R & D etc
Example: Hyundai, HM with GM, etc
SUBSIDIARIES
These are branches or ancillary units of the main organization existing off-shore.
They also can be sister concern which offer allied services to the consumers along with
the original brands. So, a subsidiary provides services suitable to the customers of that
area along with the original ones.
Example: HLL for Unilever, Kwalitywalls for Walls etc
TYPES OF INTERNATIONAL STRATEGIES

Based on the response given by local customers (local responsiveness) to
international products. Besides this, the cost pressures, which arises due to distribution, R
& D services etc, which are to be provided, the international strategies are classified into
four:
Pressures for
High Local Responsiveness Low
GLOBAL TRANSNATIONAL
STRATEGY STRATEGY
Cost
Pressures
INTERNATIONAL MULTI DOMESTIC
STRATEGY STRATEGY
Low
Understanding the key features of these four strategies, we have;

GLOBAL STRATEGY
The features of global strategy are;
♣ Stick to a few products
♣ Concentrate on production standards
♣ Provide the same products through out the world
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TRANSNATIONAL STRATEGY
The features of this strategy are;
♣ Flows of expertise are better
♣ Creativity to reduce costs and maintain local responsiveness
INTERNATIONAL STRATEGY:
The features of this strategy include
♣ Creation of value by transferring products and services
♣ Offer standardized products with little (or) no differentiation worldwide
♣ Keep a tight control over the overseas operations
MULTI DOMESTIC STRATEGY

The features of this strategy include
♣ Try to match the products and services offered in the local market to the ones
offered in the international market
♣ Customize products and services to the local conditions
Example: Lux, Colgate, etc
MERITS OF INTERNATIONAL STRATEGIES

Firms opting for International strategies will have following merits;
♣ Lower costs
♣ Increased sales and higher profits
♣ Ample opportunities
♣ Economies of scale
♣ Use of extra operational capacity and
♣ Above average returns
DEMERITS OF INTERNATIONAL STRATEGIES

The following are the demerits when a firm opts for international strategy;
♣ Greater (or) higher costs if failure occurs
♣ Uncertainty in economic and political environment
♣ Difficulty in managing cultural diversities
♣ Cost of co-ordination is high
♣ Communication and distribution are difficult and
♣ Trade barriers
HARVESTING STRATEGY
It is one of the internal growth strategies. It is also called as Profit Sub-Strategy. It
is usually taken up by large organizations for specific businesses (product (or) market
division) when generations of cash flow are important (or) are the prime concern. This is
taken up to ensure stability in the organization.
The circumstances promoting such a strategy may be one (or) more of the
following;
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♣ Declining product market of a unit

♣ Nature of expansion required being too costly
♣ Small percentage contribution of the business unit to the total scale of the
organization
♣ Funds available having better use
♣ Maximizing the return on investment when it is the right time, and
♣ To quit the product – market before it is too late
FORCED STABILITY STRATEGY

This is considered desirable when external and internal conditions are not
favourable for growth. The usually created problems are pertaining to resource
constraints. They are as follows;
♣ Tight conditions in capital and money markets
♣ Normally accessible sources of finance can no longer to tapped
♣ The drying of loan able revolving funds of development banks
♣ Changes in income distribution in the economy, and
♣ Competition due to liberalization of imports
INTENSIVE GROWTH STRATEGY

The strategy has the following features;
♣ Internal growth consists of

 Increasing sales revenue
 Increase of profits
 Increase in the market share of the existing product line or services
♣ It involves the concentration of resources in a high – growth (or) market segment
and is widely used in the industry
♣ If the product is not in the maturity stage of the life – cycle, this is an attractive
strategy
♣ It is often limited to firms with a small market share irrespective of whether the
product is in the high growth stage (or) maturity stage of the life cycle
There are several ways to achieve it:

♣ Increasing the volume of scales of existing products in unexplored sectors of the
economy
♣ Increasing sales by encouraging new uses of the existing product in the same
market
♣ Increasing primary demand for the product at the same price and with the existing
organizational set up
♣ Increasing the sales volume by introducing minor modifications in the product and
entering new product segments
♣ Increasing sales in new geographic areas with in the country (or) in markets abroad
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♣ Increasing sales volume on the basis of new pricing policy, offering economy
packs, exchanging old goods for new at discounted rates, discriminatory pricing in
rural and urban areas
RETRENCHMENT STRATEGIES
♣ This grand strategies is followed when an organization substantially reduces the
scope of its activities
♣ This is done through an attempt to find out the problem areas and diagnose the
causes of the problem
♣ Steps are to be taken to solve the problems
There are different kinds of retrenchment strategies, they are;

♣ Turnaround strategy
♣ Disinvestment / Divestment / Divestiture
♣ Liquidation strategy
SITUATIONS WHEN RETRENCHMENT STRATEGY CAN BE ADOPTED:

The prospects of industries and markets are threatened by various external and
internal developments.
The external development can be;

♣ Adverse government policies
♣ Demand saturation for the product
♣ Emergence of substitute products
♣ Changing customer needs and preferences
The internal or company specific developments are;

♣ Power management
♣ Wrong strategies
♣ Poor quality of functional management
SYMPTOMS OF DECLINE
Symptoms of decline are reflected in
♣ Diminishing profitability
♣ Dwindling cash flow
♣ Falling sales
♣ Shrinking market share or land
♣ Increasing debt
RECOVERY SITUATION
All downfall or decline situations are not hopeless. There are chances of recovery.
There are basically four recovery situations;
♣ Realistically non recoverable situations
♣ Temporary recovery situation
♣ Sustained recovery situation
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♣ Sustained survival situation
REALISTICALLY NON RECOVERABLE SITUATIONS

This situation arises when;
♣ The company is no longer competitive
♣ The potential for improvement is low
♣ There is a cost disadvantage
♣ The demand for the basic products or service is in decline
In this case the company has very little chance of survival.
TEMPORARY RECOVERY SITUATION

This situation arises when in a company;
♣ There could be initial successful retrenchment but no turnaround
♣ Repositioning of the products is possible
♣ New forms of competitive advantage have to be found
♣ Cost reduction and revenue generation is possible
SUSTAINED RECOVERY SITUATION

A genuine and successful turnaround is possible in these cases;
♣ It is usually because of new product development and / or market repositioning
♣ However, the industry must still be attractive enough
♣ Possibly, the decline was caused by more of internal reasons than external reasons
SUSTAINED SURVIVAL SITUATION

In these cases turnaround is achievable. The industry in this case may be in the
process of slow decline.
♣ A company in this case can go for divestment or turnaround
♣ This is possible only if the company sees a niche market in the industry
♣ The company can by itself have a niche and thus seize the chances of surviving
and then becoming the leader later on
PATH CHOSEN
♣ If the organization chosen to focus on ways and means to reverse the process of
decline, it adopts the turnaround strategy
♣ If it cuts off loss making units, divisions or strategic business units, similarly
reduces its product line or the functions performed, then it can adopt a divestment
strategy
♣ If none of these actions work, then it may choose to abandon the activities totally
resulting in a liquidation strategy
DANGER SIGNS BEFORE TURNAROUND

An organization which faces one or more of the problems referred below, is
termed as a sick company
♣ Persistent negative cash flow
♣ Declining market share
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♣ Deterioration in physical facilities

♣ Over manning, high turnover of employees and low morale
♣ Uncompetitive products or services
♣ Mismangement
MAJOR APPROACHES FOR TURNAROUND STRATEGIES

The major approaches include;
♣ Reducing costs
♣ Increasing revenue
♣ Reducing assets
♣ Reorganizing products and / or markets
REDUCING COSTS:
This can be achieved by;
♣ Cutting down the number of employees by lay – offs
♣ Reducing less crucial maintenance work
♣ Trimming allowances to executives
♣ Using less expensive stationary
♣ Leasing equipment and machinery than purchasing it
INCREASING REVENUE
This can be done by;
♣ Better investment of cash and current assets
♣ Tighter inventory control
♣ Better collection of receivable
♣ Use of more effective advertising, sales promotion etc
♣ Generating and increasing the sales and profit without increasing expenditure
REDUCING ASSETS:
This can be any one or many of the following;
♣ Selling unutilized land
♣ Selling away equipment no longer needed
♣ Selling away prior purchased equipment which was bought for expansion plans,
but due to known or unknown reasons, the expansion didn’t take place
REORGANISING PRODUCTS AND / OR MARKETS: can be taken up in the following

way;
♣ Change in the pace of production
♣ Dropping some products or markets
♣ Dropping pans of vertical integration
♣ Selective price increase
♣ Cost control without price reduction
FORCES COUNTER ACTING TURNAROUND
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Porter stated that there are three very important factors which act against
turnaround, they are;
♣ Structural factors (the company, its structure, staff etc): since larger the company,
bigger the structure with more levels, and greater the number of employees, it is
more difficult to turnaround
Example: NTC (staff), Binny (structure)
♣ Corporate strategy factors (expanding etc)
♣ Managerial factors (efficient staff, autocratic managers, etc)
ELEMENTS IN A TURNAROUND STRATEGY

The ten most important elements in a turnaround strategy are;
♣ Changes in the top management
♣ Initial credibility building actions
♣ Neutralizing external pressures
♣ Initial control
♣ Identifying quick pay off activities
♣ Quick cot reductions
♣ Revenue generation
♣ Asset liquidation for generating cash
♣ Mobilization of the organizations
♣ Better internal coordination
APPROACHES TO TURNAROUND
There are three ways in which turnaround can be handled;
♣ The existing CEO and management take advice from an expert and handle the
turnaround. This will successful if the CEO has any credibility (good connections)
left with the financial institutions (banks, lenders, etc) but it is very rarely
attempted
♣ The second situation is when the existing team withdraws temporarily and an
executive consultant or turnaround expert is employed to do the job. This persons
is usually deputed by the financial institutions. Once the job is over, the situation
gets back to the original state, and the expert leaves the company. This is rarely
used in India
♣ The last and the most difficult method to attempt but most often used, involves the
replacement of the existing teams, especially the CEO, or by merging the sick unit
with a healthy one.
DIVESTMENT STRATEGY
The divestment strategy is having the following characteristics;
♣ It is also called disinvesting or divestiture or cut back
♣ This strategy involves the sale or liquidation of a portion of the business, or a
major division or a profit centre or strategic business unit
♣ Divestment is a part of the rehabilitation or restructuring plan that is adopted when
a turnaround has been attempted but has proved to be successful
♣ The reason for disinvestment is taken up, can also be because a turnaround
strategy cannot be used.
105
REASONS FOR DIVESTMENT

The reasons for divestment may be;
♣ A business that had been acquired proves to be a mismatch and cannot be
integrated within the company
♣ Continuous negative cash flows from a particular business creates financial
problems for the whole company
♣ Severity of competition and the inability of a firm to cope with it may cause it to
divest
♣ Investing the required technological up gradation, essential for the survival of
business is not possible here
♣ Better alternative may be available for investment, so selling away unprofitable
businesses will create chances for investment
♣ Due to legal provision
♣ It may also be a part of a merger plan or exchange plan with another company
APPROACHES TO DIVESTMENT
There are two approaches basically;
♣ A part of the company is divested by separating it from the main company and
spinning it off (functioning) as a financially and managerially independent
company. The parent company may or may not retain partial ownership right
Example: Timex division being separated from Titan Division
♣ The next option is to sell it out right
Example: TOMCO (Tate Oil Mills Company) was sold outright to HLL
Lakme was sold outright to HLL by Tata’s
Thus, it is not just failures that are disinvested careful thinking and planning give
raise to ideas of disinvesting unprofitable lines of business and divesting the resources
to better investment option. Or companies may try to concentrate in a core sector
where there are larger or greater chances of expansion or market leadership, due to
better edge over competitors (core competency) and so on.
LIQUIDATION STRATEGIES
An extreme form of retrenchment strategy is the liquidation strategy. It involves
closing down a firm and selling its assets
Liquidation: (Undesirable or Difficult)

Liquidation is undesirable or difficult because;
♣ It is considered as a lost resort because it leads to serious consequences such as
unemployment of worker, termination of opportunities, where a firm could persue
any future activities and the stigma (feeling) of failure
♣ Political, legal and social problems arise buyers for a company is difficult to find.
There is usually inadequate compensation as the assets are considered unusable or
scrap
LEGAL ASPECTS OF LIQUIDATION
106
Under the Companies Act 1956 in India, liquidation is termed as ‘winding up’.
Liquidation or winding up according to the act may be done in three ways.
♣ Compulsory winding up under an order of the court
♣ Voluntary winding up
♣ Voluntary winding up under the supervision of the court
COMBINATION STRATEGY
Companies adopt more than one grand strategy at times, then they are said to
persue combination strategies.
The combination strategies (usually stability, expansion and at times retrenchment)
are adopted by any organization in three ways;
♣ Simultaneous adoption – two or more strategies are taken up at the same time
♣ Sequential adoption – adopting one strategy after another
♣ Simultaneous and sequential adoption
Example: The TATA’s after disinvesting in TOMCO, Lakme, used the amount
obtained in the development of R & D infrastructure in TATA motors for developing
LCV’s like INDICA. Also this amount was partially invested in establishing textile
retailing of readymade apparels WESTSIDE
END GAME STRATEGIES

Successful end game strategies are
♣ Internal expansion
♣ Internal stability
♣ Internal retrenchment
♣ External stability
♣ External retrenchment
The possible strategy variations are;
Internal like: - reducing costs and assets

Dropping products, markets and / or functions
External like: - Liquidation
Divestment and bankruptcies
Related like: - Elimination of related products markets or functions
Un related Like: - Elimination of unrelated products, markets or functions
Horizontal like: - elimination complementary products or markets
Vertical like: - reducing functions
These in short are end game strategies

Thus, this clearly gives a picture of the various strategies adopted by industries in
day – to – day functioning of organizations.
STRATEGY IMPLEMENTAION
107
DEFINITION
“Strategy Implementation is the process by which strategies and policies are put
into action through the development of programs, budgets and procedure” – MICHEAL
“The sum total of the activities and choices required for the execution of a
strategic plan”
Once the strategy is formulated, they are implemented on the basis of the
following six steps, namely;
♣ Structure
♣ Policies and directions
♣ Resources commitment
♣ Leadership
♣ Motivation
♣ Power and politics
STRUCTURE
The organization and the interrelations within the organization constitutes the
structure. It is essentially (required) for the implementation of the strategy formulated.
Chandler said that, “The structure should follow the strategy”. But on
understanding the essence of both, it has been clarified that both structure and strategy are
inter related as it suits the strategy, then the decision is made.
POLICIES AND DIRECTIONS

Within the organizations both policies and directions plays a very important role.
As these policies are what is going to determine our destiny. They are the path on which
(or) with the help of which are attain (or) reach our destination (or) goals even objectives.
We have different types of policies like marketing policy, financial policy etc, and
these can be written, oral, expressed, implied, etc all these have to be considered
RESOURCES COMMITMENT
The amount of resources available, the resources planned, the resources to be
procured, all play a vital role. Thus, proper care is to be taken in allocating resources
which can be like
♣ Physical
♣ Financial
♣ Human
LEADERSHIP
The potential of leadership is when in the hands of a right leader increases since a
good leader can reach heights and help in the prosperity of firm by good strategy
implementation. The least leader can achieve good goals and objectives set up with
optimal resources on time. The leadership grid of Blake and Mouten as follow;
108
1,9 9,9
Care for the 5,5

Worker
care for the
task
1 , 1 –
1,1 9,1
impoverished Manager
1 , 9 – country club Manager
5 , 5 – Middle of the Road Manager
9 , 1 – task Manager
9 ,9 – Team Manager
MOTIVATION
Proper motivation can be achieved by using the proper care like coercive power,
rewarding power. Thus, properly motivating people to go ahead. Here one should mention
the Mckinsey’s 7s frame work as all those elements together form a structure and together
work motivated, a loss of one S will result in the loss of entire structure.
Diagram
POWER AND POLITICS

The upliftment and also the downfall can be caused due to power. Thus, proper
care has to be taken exercised while using power whereas the politics is the undue
influence exercised for the good (or) lead for an individual (or) the occurrence of an event
away from the path (or) course of action
109
When these steps are properly taken care, then strategy implementation becomes
easy and also it becomes easy to achieve our goals
Thus, we can define strategic implementation clearly now.
RELATIONSHIP OF IMPLEMENTATION TO THE PRODUCT LIFE CYCLE

Functional R&D Production Marketing Physical
focus distribution
Pre Coordination Reliability Production Test Plan
commercialization of R & D tests release design process marketing shipping
and other blueprints planning detailed schedules,
functions purchasing marketing mixed
department plan carloads
lines up rent
vendors and warehouse
subcontractors space,
trucks
Introduction Engineering: Technical Subcontracting Induce trial: Plan a

debugging in corrections centralize pilot fill pipeline: logistics
R & D (engineering plants; test sales agents system
production, changes) various or
and field processes; commissioned
develop salespeople;
standards publicity
Growth Production Start Centralize Channel Expedite
successor production commitment deliveries
product phase out brand shift to
subcontractors emphasis owned
expedite salaried sales facilities
vendors force, reduce
output; long price if
runs necessary
Maturity Marketing Develop Many short Short-run Reduce
and logistic minor runs promotions costs and
variants decentralize salaried sales raise
reduce costs import parts, people customer
through low – priced cooperative service
value models advertising level
analysis routinization forward control
originate cost reduction integration finished
major routine goods
adaptations marketing inventory
to start new research:
cycle panels, audits
Decline Finance Withdraw Revert to Revert to
all R & D subcontracting commission
110
from initial simplify basis;

version production withdraw
line careful most
inventory promotional
control; buy support raise
foreign or price selective
competitive distribution
goods; stock careful phase-
spare parts out,
considering
entire channel
Personnel Finance Management other customer competiti

accounting
Pre Recruit for Life – cycle Payout Final legal Panels and Neglects
commercialization new activities plan for cash planning; full clearances other test opportuni
negotiate flows costs/revenues (regulatory respondents is workin
operational profits, determine hurdles, similar id
changes with investments optimum patents)
unions subsidiaries lengths of appoint life-
life-cycle cycle
stages through coordinator
present-value
method
Introduction Staff and Accounting Help develop Innovators (monopol
train middle deficit; high production and some disparage
management net cash and early of legal
stock options outflow distribution adopters extra
for executives authorize standards interferen
large prepare sales
production aids, sales
facilities management
portfolio
Growth Add suitable Very high Short – term Early (oligopoly
personnel for profits; net analyses adopters and few i
plants many cash outflow based on early improve,
grievances still rising return per majority price
heavy sell equities scarce
overtime resource
Maturity Transfers, Declining Analyze Pressure for Early (monopol
advancements profit rate differential resale price adopters, competiti
incentives for but cost/revenue maintenance early and first sha
efficiency increasing spearhead price cuts late yet many
safety; and so net cash cost bring price majority,
111
on flow reduction, wars; some

suggestions value analysis possible laggards;
system and efficiency price first
drives collusion discontinued
by late
majority
Decline Find new Administer Analyse Accurate Mainly (oligopoly
slots system; escapable sales laggards after s
encourage retrenchmen costs pinpoint forecast stakeouts,
early t sell remaining very few rivals
retirement unneeded outlays important
equipment
export the
machinery
POLICIES – CHANGES – AND – IMPLEMENTATION

Changes in the strategic direction do no occur automatically. Operational plans
and tactics must be established to make a strategy work
DEVELOPMENT OF PLANS AND POLICIES

Creating plans and policies leads to conditions where sub ordinate managers will
know what they are supposed to do and willingly implement the decision
Managers create plans and policies to make the strategy work. Policies provide the
means for carrying out plans and strategic decisions. The amount of planning and policy-
making in the formal sense will vary with the size and complexity of the firm. The
processes involved in establishing plans and policies are quite similar to those influencing
strategy formation and choice. Plans and policies should be flexible to help repeated work
and inflexible to stop any problems arising after the first attempt. So, criteria for judging
the adequacy of plans and policies developed would include the following;
♣ Do they reflect present (or) desired company practices and behaviour?
♣ Are they practical, given existing or expected situation?
♣ Do they exist in areas critical to the firm’s success?
♣ Are they consistent with one another and do they reflect the timing needed to
accomplish goals?
♣ As such the plans and policies will:
♣ Specify more precisely how the strategic choice will come to be – what is to be
done, who is to do it, how it is to be done and when it should be finished?
♣ Establish a follow – up mechanism to make sure the strategic choice, plans and
policy decision will take place
♣ Lead to new strength which can be used for strategy in the future
FINANCIAL AND ACCOUNTING POLICIES AND PLANS
112
Financial and accounting plans and policies are closely related to the resources
allocation process. These are set to provide guidelines in advances about the following
issues;
♣ Where the capital will come from?
♣ How the capital will, may or may not be used?
♣ How the recurring needs will be met?
♣ How to handle inventories?
♣ Which accounts to capitalize?
♣ What tax approaches to use? And
♣ How to treat expenses and costs?
These policies can make a huge difference in the firm’s appearance of success (or) failure
Basically the main areas of focus are capital, lease (or) buy decisions, risk and use
of assets.
Hence, some of the crucial financial questions needing implementation include;
♣ Where will we get additional funds to expand, either internally or externally?
♣ If external expansion is desired, how and where will it be accomplished?
♣ What will the strategy do to our cash flow?
♣ What accounting systems and policies do we use? (LIFO or FIFO)
♣ What capital structure policies do us persue? No debt or a heavily leveraged
structure
♣ How much should we pay out in dividends?
♣ How much cash and how many other assets do we keep on hand?
♣ Should we hedge our foreign currency exchange risk?
It is crucial that the financial plans and policies are such that the funds needed are
available at the right time and at lower cost.
MARKETING PLANS AND POLICIES

If marketing plans and policies don’t rest with the corporate strategy, and if
marketing plans don’t fit carefully with other functional policies, the objectives of the
company will not be met. The major areas are products and markets, distribution and
promotion, price and packaging.
Some of the critical marketing plans and policy questions include;

♣ Specifically, which product or services will be focused on, present one or new
ones?
♣ Which channels will be used to market these products or services? Will we use
exclusive dealership? Or multiple channels?
♣ How ill we promote these products or services? Is it our policy to use large
amounts of TV advertising or no advertising?
♣ Heavy personal selling expenses or none? Price competition or non – price
competition
♣ Do we have adequate sales force?
113
PRODUCTION – OPERATIONS MANAGEMENT (POM) POLICIES AND PLANS

POM is another area needing implementation plans and policies, the areas include;
capacity & utilization, location of facilities. Processes, equipment, and maintenance and
sourcing.
Critical questions in this area include;
♣ Can we handle the business with our present facilities and number of shifts? Must
we add equipment, facilities and shifts? Where? Are lay off’s is needed? Should
we sub contract?
♣ What is the firms inventory safety level? How many suppliers do we need for
purchases of major supplies?
♣ What level of productivity and costs should the firm seeks?
♣ How much emphasis should there be on quality control and maintenance?
♣ How far ahead should we schedule production?
♣ How is the management of production and operations integrated with our strategy?
♣ Should we locate facilities in foreign countries or exit countries where facilities are
at risk?
RESEARCH AND DEVELOPMENT PLANS AND POLICIES

R & D function which takes care of production, operations and marketing. The
crucial areas are;
♣ Products and processes
♣ Basic and applied research
♣ Offensive or defensive strategies and
♣ Allocating R & D resources
The crucial implementation questions include;

♣ Will we emphasize product (or) process improvement?
♣ Should we encourage basic research (or) focus on commercial
development?
♣ Are we going to be the leaders (or) followers?
♣ How much will we spend on R & D?
♣ Which technology should we persue, and when should we persue it?
♣ How can we manage the transition from one technology to another?
♣ How do we prepare the firm for technological change?
But care needs to be taken while R & D policies are finalized.
PERSONNEL, LEGAL AND PUBLIC RELATIONS POLICIES AND PLANS:

Besides the four major line functions, major staff functions need the functional
policy implementation too. The major areas are
♣ Personnel
♣ Legal issues and
♣ Public relations
The crucial implementation questions for personnel include;
♣ Will we have an adequate work force?
114
♣ How much hiring and retraining are necessary?

♣ What types of individuals do we need to recruit? College graduates?
Members of minority groups?
♣ How should we recruit – through advertising (or) personal contact? What
methods of selection should we use – informal interviews or very
sophisticated testing?
♣ What standards and methods are used for promotion? (Internal Promotion,
Basis for seniority)
♣ What will our payment policies, Incentives plans, benefits, labour relations,
policies etc?
♣ Is executive compensation tied to strategic objectives?
The basic questions for the legal staff include:
♣ Are the policies and plans in other areas legal?
♣ What are the implementations of testing the law?
Finally, the public relations policies deal with the presentation of the corporate image and
involvement in community activities
Theses are the major areas to be noted and identified while implementing plans
and policies in the different strategies in the strategic choice.
115
116

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DR.SHANTHI LATHA/ASST. PROFESSOR/DEPT.

BUSINESS POLICY AND STRATEGIC MANAGEMENT

NATURE AND SCOPE OF BUSINESS POLICY:

SIGNIFICANCE OF THE SUBJECT:

HISTORY AND EVOLUTION OF THE SUBJECT

1911 saw the introduction of strategic management as a subject in

EXAMPLE: IOCL vision states that

CURRENT VISION OF WIPRO as given by Azin Premji in Economic Times

CHARACTERISTICS OF MISSION AND VISION STATEMENT

I. ACCORDING TO LEVEL OF FORMULATION

II. ACCORDING TO FUNCTIONAL AREA

b) Marketing and sales policies:

III. ACCORDING TO EXPRESSION:

IV. ACCORDING TO NATURE OF ORIGIN:

V. ACCORDING TO THE SCOPE OF ORGANISATION:

VI. ACCORDING TO THE NATURE OF MANAGERIAL FUNCTIONS:

VII. SITUATIONAL AND CONTINGENCY POLICIES:

 Situational beyond the control of business unit like economic

EFFECTIVE BUSINESS POLICY:

PROCEDURE OF POLICY MAKING

Besides a business policy

Prof. Peter and Wotrube

STEPS IN POLICY MAKING

IDENTIFY THE SITUATION

EXPLANATION OF THE POLICY

ACCEPTANCE OF THE POLICY

CHIEF FEATURES OF POLICY

MAKING OF EFFECTIVE BUSINESS POLICY

STRATEGY AND ITS PURPOSE

“Strategy is the grand design or an overall plan which organizations choose

DIFFERENCE BETWEEN POLICY AND STRATEGY

CONCEPT POLICY STRATEGY

Power Delegated to be implemented by Everyone is empowered by a

Concern Generally only about fulfilling Uncertainty is in competitive

PROGRAM AND ITS EFFECTIVENESS

DIFFERENCE BETWEEN POLICIES AND PROGRAMS

CONCEPT POLICY PROGRAM

Type Broad in direction and has to Simple and complex activities

PROCEDURES ITS IMPORTANCE

Procedures can be definite in several ways;

 It reduces directing work

STEPS IN EFFECTIVE PROCEDURE

DIFFERENCE BETWEEN POLICIES AND PROCEDURES

CONCEPT POLICY PROCEDURE

Responsibility Top management Middle and lower levels

Stability Stable Changes in the short-run

Emphasis General approach Step-by-step approach

Scope and Broad and comprehensive Rigid with no freedom

Goal orientation Directly related Indirectly related

STANDARDS AND ITS TYPES

 Guess and estimates

TACTICS AND ITS APPLICATION

DIFFERENCE BETWEEN STRATEGY AND TACTICS

CONCEPT STRATEGY TACTICS

Alternatives Larger in number Fewer in number

Reference Original source Within the persuit of strategy

Details Broad with few details Many details

Point-of-view Corporate point of view Functional

Importance Higher Lower

DIFFERENCE BETWEEN POLICY AND TACTICS

CONCEPT POLICY TACTICS

Concern Thinking, intellectual oriented Operations, action oriented