Q1.

“Strategists are individuals or groups who are involved in formulating,

implementing and evaluating strategy.” Briefly discuss their role in the context
of Corporate Management.

The strategic planning is the seed that functionally provides the following:

• Opportunity to determine the environmental impact on the organization /

business.
• Opportunity to assess the organization's strengths/ weaknesses.
• Opportunity to determine the business opportunities/ threats to business.
• Opportunity to develop strategic plans for the company.
• Opportunity to develop long term/short term plans.
• Opportunity to develop a vision for the organization.
• Opportunity to develop a mission statement for the organization.
• Opportunity to develop business objectives for the organization.
• Opportunity to develop business strategies for the organization.
• Opportunity to develop the action/ implementation planning
guidelines, which provides the platform which:
o Helps to set up and develop organization and staffing.
o Helps to set direction for the organization approach.
o Helps to select the right leadership.
Helps to select / set the most appropriate control.

Strategic planning in the business is the premier function, without this:

• You cannot organize your business
• Without business organization , you cannot direct
• Without direction, you cannot control.
• Without control , you cannot get results.

For successful results in business, one needs to apply Strategic Planning.

Hence strategic planning is the primary seed of any business organization be it small
or large

The process of strategic planning has become essential for the Business organization
interested in obtaining significant results. It matters little whether the organization is
large or small or whether it is in the private sector or government service. When an
organization has the need to move into the future with a high degree of confidence in
what that future holds it needs strategic planning. The integrated approach of deciding
on a set of long-range goals and then developing the objectives and plans to reach
them is the most reliable tool that the organization can use to define its own future
and ensure success. In other words, it is the surest way that the management team can
become "system makers"––people who are willing to take the time to make things
happen instead of responding only when their buttons are pushed.

The Strategic Planning -- helps you tie those opportunities to plan and optimize at a
high level over the long term. You can set overall objectives for capital utilization for
capital intensive equipment, inventory and materials (direct and indirect), and labor.
With strategic planning system, you can:
• Drive tactical and operational plans based on STRATEGIC vision and
direction
• Optimize asset utilization including capacity and materials
• Support growth by identifying and proactively removing constraints
• Reduce risk by evaluating alternatives and outcomes before deciding
• Simplify make/buy decisions.

The strategic planning system integrates the necessary competitive analyses, peer
comparisons, and industry averages that give strategic planning the proper context.
You see the entire set of business opportunities and tie the financial analytics to the
business issues, activities, and processes that drive them. The result: a well aligned
organization that’s positioned for long-term success.

• React faster to market changes

• Measure and compare your supply chain performance against competition
• Adjust your strategic plan frequently
• Analyze the ramifications of M&A opportunities
• Avoid excess warehouse capacity and unused equipment
• Perform long-range planning and analysis to determine the impact of
simultaneous business decision combinations
• Confidently optimize your supply chain network

The strategic planning system delivers solutions that synchronize corporate planning
with operations planning and execution on a local and enterprise level, to ensure all
assets are utilized to achieve strategic objectives. This enables manufacturers to
reduce the cost of goods sold, shorten lead-times for orders and reduce inventory
costs with improved supply chain collaboration and management.

Strategic Planners Conduct The Process

1. External Assessment of The Economy:

Areas for opportunities and threats in the economy:

a. Markets [what is the market situation, which is forcing the change
requirements]
b. Customers [how can service the customer-internal / external-better.
c. Industry [is the industry trend]
d. Competition [ is it the competitive situation.
e. Factors of business [ causing the change]
f. Technology [ is it technology change ]

Planning -- Environmental strategy interface as the business expanded, the operation

was affected by various environmental factors and hence was incorporated into the
planning.
Political & Legal:

• Environmental regulations and protection

[what are the government regulations/ protection laws that must be observed
• Tax policies
[what tax hinder the business and what taxes incentives are available]
• International trade regulations and restrictions
[does the government encourage exports / with high tariffs on imports]
• Contract enforcement law/Consumer protection
[does the government enforce on consumer protection]
• Employment laws
[is the government encouraging skilled immigrants with temperature permits]
• Government organization / attitude
[does the government have a very positive attitude towards this industry]
• Competition regulation
[are there regulation for limiting competition]
• Political Stability
[politically, does the government have a very stable government]
• Safety regulations
[has the government adopted some of the modern safety regulations]

Economic:

• Economic growth
[what is the economic growth rate / what are the reasons]
• Interest rates & monetary policies
[are the interest rates under control / is there a sound monetary policies]
• Government spending
[is government spending is significant and is it under control]
• Unemployment policy
[what is the employment / unemployment policies of the government
• Taxation
[has the taxation encouraged the industry]
• Exchange rates
[is there well managed exchange controls and is it helping the industry]
• Inflation rates
[is the inflation well under control]
• Stage of the business cycle
[is your industry is on the growth pattern]
• Consumer confidence
[is the consumer confidence is high / strong and if not, why]

Social:

• Income distribution
[is there balanced income distribution policy]
 • Demographics, Population growth rates, Age distribution
[what is the population growth and why]
• Labor / social mobility
[what are the labor policies and is there labor mobility]
• Lifestyle changes
[are there significant lifestyle changes taking place--more modernization]
• Work/career and leisure attitudes
[are the population career minded and are seeking better lifestyle]
• Education
[what are the education policies / is it successful]
• Fashion, hypes
[are the people becoming fashion conscious]
• Health consciousness & welfare, feelings on safety
[are the people becoming health consciousness]
• Living conditions
[is the living conditions improving fast and spreading rapidly]

Technological:

• Government research spending

[is the government spending on research and development]
• Industry focus on technological effort
[are the industries focused on using improved technology]
• New inventions and development
[are new inventions being encouraged for developments]
• Rate of technology transfer
[is the rate of technology transfer is speeding up]
• Changes in Information Technology
[is the information technology rapidly moving and is there government
support]
• Changes in Internet
[is the internet usage rapidly increasing and why]
• Changes in Mobile Technology
[is the Mobile technology rapidly developing and is there government
support]

Based on the external economic analysis and judgment, we conduct the following

2. Internal Assessment

Areas for strengths, weaknesses, and barriers to success

Organization Dimensions:
a. Culture [ is the working culture change ]
b. Organization [ is the organization demanding change ]
c. Systems [ is it the systems change ]
d. Management practices [ change in management process]

Other Key Dimensions:

 a. Cost-efficiency[ is it for cost efficiency ]
b. Financial performance [is it for financial performance improvement ]
c. Quality [ is it for quality performance improvement
d. Service [ is it for service performance improvement
e. Technology [ is it for technology performance improvement
f. Market segments [ is it for sales performance improvement
g. Innovation [ is it for performance improvement
h. New products [ is it for new product performance improvement
i. Asset condition [ is it for financial performance improvement
j. Productivity [ is it for financial performance improvement

Source Strategic objectives and programs

The critical issues that must be addressed if the organization is to succeed are:

• Strengths
• Weaknesses
• Opportunities
• Threat

From the above, determine the core issues which needs to solved with your
investment Strategic Programs:

From the above core issues, determine your strategic programs Mission Statement &
Vision Statement.

The core purpose

The core objectives
The core markets
The core strategic thrusts.

Business Definition:

The arena of products, services, customers, technologies, distribution methods, and

geography in which you'll compete to get results.

Values:
Desired attitudes and behavior toward internal and external stakeholders that
will yield the culture and business results you want and that you will execute and turn
into action through
• Policy,
• Programs,
• Processes,
• Procedures,
• Personnel selection.

Internal development
• Divest
• Restructure
 • Competitive Advantage
• Cost /Value/ differentiation

External Strategies:

• Product
• Convenience
• Service
• Image
• Target customer
• Geography
• Distribution
• Product design
• Delivery
• Quality
• Value
• Reliability
• Pricing
• Advertising/promotion

Internal Strategies:

• People Skills & Facilities

• Organizational – Product structure & development
• Management style – Incentives & rewards
• Training
• Equipment Sourcing/ manufacturing
• Technology – Systems
• R&D – Service
• Financing - Quality

Strategy Statement Content:

• Priorities and Posture

• Business unit
• Market
• Product
• Strategic thrust/competitive advantage
• External strategies
• Internal strategic thrust
• Internal strategies
• Strategic fixes

Strategic Program Content:

Leadership
Objectives
People - numbers and skills

Coordination Requirements: People and organizational units outside your control who
must contribute
Leverage - the high leverage individuals and units who must contribute at lower
levels
Quarterly - Programs and strategic numbers' progress
Individual Objectives - Performance appraisal
Rewards & Consequences - Based on strategic performance of teams and individuals

So now, we can see how the micro business decisions are affected by the general
economic factors.

Q3.Describe the characteristics of dynamic and stable environments and the

strategic options available to firms in these environments.

The characteristics of stable environment are as below:

• Consistency in most major factors.
• Dependable factors
• Mostly known factors
• Steadfast factors
• Not subject to sudden or extreme changes
• Maintain equilibriums

The characteristics of dynamic environment, the major characteristics are:

• Unpredictability.
• Asynchronous
• Concurrent
• Varying priority
• Limited response time.

The pestle factors play an important role in the value creation opportunities of a
strategy. However they are usually outside the control of the corporation and must
normally be considered as either threats or opportunities

Below are the examples:

Political:

• Environmental regulations and protection

• Tax policies
• International trade regulations and restrictions
• Contract enforcement law/Consumer protection
• Employment laws
• Government organization / attitude
 • Competition regulation
• Political Stability
• Safety regulations

Economic:

• Economic growth
• Interest rates & monetary policies
• Government spending
• Unemployment policy
• Taxation
• Exchange rates
• Inflation rates
• Stage of the business cycle
• Consumer confidence

Social:

• Income distribution
• Demographics, Population growth rates, Age distribution
• Labor / social mobility
• Lifestyle changes
• Work/career and leisure attitudes
• Education
• Fashion, hypes
• Health consciousness & welfare, feelings on safety
• Living conditions

Technological:

• Government research spending

• Industry focus on technological effort
• New inventions and development
• Rate of technology transfer
• Changes in Information Technology
• Changes in Internet
• Changes in Mobile Technology

All these factors affect the business organization.

• In various combinations
• At different times
• At various emphasis
The strategic management process helps to understand how one adapts the business to
the needs of the consumers. Below are the factors taken into consideration :

• Needs of the consumer

• Demand for the product
• Market potential
• Cultural
-culture & social class

• Social
o Household type
o Reference groups
• Psychological
o Motivation
o Perception
o Beliefs
o Attitudes
• Personal
o Age brackets
o Occupations
o Educations
• Economy
• Technology
• Political
• Trade
o Import/export laws
o Tariff
o Local laws
• Environment
• Competition

The adaptation of the business is carried out for the following reasons:

• To meet the local regulations.

• To meet the customs/ beliefs.
• To meet the customer needs.
• To meet the customer wants.
• To meet the customer satisfaction.
• To meet the challenge of the competition.
• To increase the sales volume.
• To increase the market share.
• To increase the profit.
• To improve / increase the return on investment

Based on the analysis, the organization could use various combinations of levels of
strategy:
1. Mission/Domain- Before identification of strategy can occur, one must
clearly identify the mission or domain of the organization. The domain of an
organization consists of the population it serves and the functions it performs
(satisfies) for that population. Sometimes the domain is defined in terms of
products or services offered (rather than functions performed), but this tends
to be more limiting because it defines the mission more in terms of means
rather than ends.

2. Corporate Level Strategy.

a. Vertical Integration Strategy
b. Forward Integration- Gaining ownership or control over distributors.
c. Horizontal Integration Strategy - Seeking ownership or control over
competitors
d. Market Penetration Strategy - Seeking increased market share for
present products through greater marketing efforts
e. Market Development Strategy - Introducing present products in new
markets
f. Product Development Strategy - Seeking increased sales by improving
present products
g. Diversification Strategy
i. Concentric- Adding new or related product lines
ii. Conglomerate- Adding new, but unrelated product lines

3. Competitive or Business Level Strategy - Competitive strategies involve

determining the basis of costumer or client decision making. Generally, they
are based on some combination of quality, service, cost, time, and quality of
the experience.
a. Cost Leadership Strategies
With this strategy you are competing on price. Your various functional
strategies all emphasize cost reduction. This is an effective strategy
when the market is comprised of many price sensitive buyers, when
there are few ways to achieve product differentiation, when buyers do
not care much about differences from brand to brand , or when there
are a large number of buyers with significant bargaining power.
b. Differentiation Strategies
Differentiation strategies rely on some basis of product differentiation
such as flexibility, specific features, service, time and availability, low
maintenance, etc. as the basis for competition. Product development
and market research are generally necessary components of a
differentiation strategy. Generally, a successful differentiation strategy
allows a firm to charge a higher price for its product. Organizations
generally need strong R & D departments with strong coordination
between R & D and marketing departments. Human Resource
strategies must place emphasis maintaining a competitive skill base
and motivating employees toward the basis for differentiation.
c. Focus or Niche Strategies
A successful focus strategy depends upon an industry segment that is
 of sufficient size, has good growth potential, and it not crucial to the
success of other major competitors. Focus strategies are pursued in
limited markets in conjunction with cost leadership and/or
differentiation strategies. Focus strategies are the most effective when
consumers have distinctive preferences or requirements and when rival
firs are not attempting to specialize in the same target segment.

4. Functional Strategies - How do organizational functional units contribute to

the business level strategies? How can functional strategies be integrated to
achieve competitive advantage?

a. Marketing Strategies- How do we communicate our strengths to the

customer? How do we identify customer requirements and changes in
customer requirements?
b. Human Resource Strategies- How do we recruit, train, develop,
motivate, compensate, and place employees so that behavior is
directed toward the competitive strategy and works to build
competitive advantage?
c. Financial Strategies- How do we secure financial resources necessary
to carry our competitive strategy?
d. Operations Strategies- How do we design our processes to produce
products and/or service that meet customer requirements as specified
in our strategy?
e. Information System Strategies- How do we provide decision makers,
at all levels, with information necessary to make decisions consistent
with strategy?
f. Technological (R & D) Strategies- How do we develop products
consistent with customer requirements as specified in strategy?

For strategic management under the dynamic environment, the approach is:
1. Stay put and defend.
2. Go for the results, at all cost.
3. Self adapt / self organize/solve multiple tasks and get the results.

5. Plan and Progress.: Consider these five principles as a single entity

composed of five complementary and interconnected sets of activities, each
balancing the other.
.a Implementation of any one principle and its impact on project success
depends on the implementation of all the others. To compensate for
inability to fully adhere to a principle, be prepared to modify the
implementation of the others as well as adjust project expectations.
.b Embrace and apply these principles as general guidelines that must be
tailored to each unique context of the project (e.g., stability of
objectives, speed, task’s complexity, organizational culture, top
management support, team members’ experience and skills).
* Planning & Control - Plan and Control to Accommodate Change

- Adopt a learning-based planning mind-set: start by defining project objectives that

are dictated by customer’s needs, however, don’t finalize them before you quickly
explore the means and the solutions.
- Start planning early and employ an evolving planning and control process
continuously and throughout project life collect feedback on changes in the
environment and in planning assumptions, and on project performance.

- Use an appropriate amount of redundancy to contain the impact of uncertainty and

enhance the stability of the plan: add reserves; loosen the connections between
uncertain tasks; prepare contingency plans for extremely uncertain and crucial tasks.

* Implementation: Create a Results-Oriented Focus

- Create and maintain a focus; decide what NOT to do.
- Right from the beginning and throughout, focus on results—both long-term and
short-term. In particular, prepare tangible intermediate products (e.g., prototypes) that
provide you rich and quick feedback and that the customer can easily understand
and assess.
- Develop a pragmatic mode of operation: invest in planning yet be ready to respond
swiftly to frequent, unanticipated events; identify areas where the search for optimal
solutions is worthwhile, but for the rest of the project, be ready to embrace “good
enough” solutions; for repetitive activities or critical areas (i.e., safety), employ
formal/standard work processes, otherwise, employ those that are informal or ad hoc.

* Attitude: Develop a Will to Win

- Develop a sense of a mission and “own” the project. (When needed, engage in
politics and work hard to sell your project).
- When necessary, challenge the status quo and be willing to take calculated risks.
- Persevere; keep trying until you get it right. Yet, know when it is time to change
course or retreat.

* People & Organization: Collaborate through Interdependence and Trust

- Take recruiting very seriously and spend as much energy as possible on getting the
right people.
- Develop trust-based teamwork and make sure that team members feel dependent
upon each other and share the conviction that they are mutually responsible for
project results.
- Throughout project life, assess team functioning, ensure its alignment on project
objectives, and renew its energy.

* Communication: Pull and Push Information Intensively:

- Frequently and vigorously pull and push (ask for and provide) information within
and across functions and teams, including all project stakeholders.
- Employ multiple communication mediums; in particular, extensive frequent face-to-
face communication and modern information technology.
- Adopt a moving about mode of communication. (Moving about helps you affect
project performance by better understanding what is going on and by influencing
people’s behavior in a timely, natural, and subtle way.)
For Strategic Management Under the dynamic environment, the approach is:

Concentric Diversification: Type of diversification where a firm acquires or

develops new products or services (closely related to its core business or technology)
to enter one or more new markets. Concentric diversification results when the new
products are related to current products but are introduced into new markets.

Concentric diversification is a growth strategy in which a company seeks to develop

by adding new, but related, products to its existing product lines to attract new
customers. See Conglomerate Diversification; Horizontal Diversification.

Concentric diversification results in new product lines or services that have

technological and/or marketing synergies with existing product lines, even though the
products may appeal to a new customer group.

• Concentric Diversification;
• Conglomerate Diversification.
• Horizontal Integration

These are the strategies for growth in which a company develops by seeking
ownership of or some measure of control over, some of its competitors.

Marketing department must study these factors in depth and then use the 4P’s:

• Product
• Price
• Promotion
• Place

Marketing must respond to the following challenges / opportunities by meeting the

needs:

• Fashion trends:
• Consumer values
• Changing attitudes of society
• Organized consumer groups and pressure groups
• Cyclical fluctuations
• Population trends
• Industry sector trends
• Availability of materials
• Average disposable income.
• Competitiveness compared with overseas companies
• Changes in the structure of the population (e.g. impact of declining birthrate
and an ageing population)
• Population drift to and between capital cities
 • Product range
• Marketing and channels of distribution
• Price structure

In all the factors, the organization which responds to the internal /external factors,
with timely action plan, will survive / expand.

While the ones which do not respond to the internal/external factors, with timely
action plan, will contract/ perhaps demise.

Other areas to consider for the strategic management process are as follows:
• Local Manufacturing or Import.
• Local Marketing Set Up or Use Distributors.
• Selection of Geographical Areas.
• Selection of Market Segments.
• Understanding Local Consumer Values.
• Seasonal Trends.
• Availability of Products.
• Selection of Product Range.
• Competition.
• Price / Pricing
• Distribution
• Selection of Distribution Channels.
• Promotion Mix.
• Sales Promotion Mix.
• Sales Organization.
• Pre –Sales
• After -Sales Service.
• Customer Service.
• Training
• Marketing Research.

Q4. ‘The concepts of creativity and innovation are often used interchangeably.’
Explain this statement in the light of factors influencing creativity and
innovation.

Developing a systematic innovation strategy from scratch is a challenge many

companies are facing in today's fast-paced world.

Steps to Begin a Systematic Innovation Practice –

Step One: Innovation is frequently discussed and is on almost every CEO’s agenda.
Not enough executives, however, know how to pursue and execute innovation. There
are ongoing debates about the definition of innovation, its differentiation from
creativity, innovation methodologies; measures of innovation, innovation strategy
and, of course the types of innovation. The first step in pursuing innovation is to
understand what type of innovation a company needs and how many resources a
company should commit to developing a systematic innovation practice.

Types of Innovation:

• Outcome-Based Innovations: One of the common breakdowns of innovations

represents the incremental, radical and general purpose types of innovation.
o Incremental innovation represents more of a continual improvement
when an existing product, process, service or solution is improved
creatively.
o Radical innovation represents the replacement of an existing solution
with a significantly different approach (e.g., a transistor replacing
vacuum tubes in electronics or email replacing conventional mail). A
radical innovation causes a disruption in the current way of doing
things.
o General purpose innovation describes significant innovations that
fundamentally change the way of thinking and doing. Such
innovations have wide impact, scope of improvement and a broader
range of uses (e.g., the discovery of electricity or Einstein’s theory of
relativity).
• Process-Based Innovations: Four categories of innovation are defined by their
processes:
o Continuous process improvement - Continuous process
improvement innovation represents methodologies such as LEAN. The
focus is on incremental innovations.
o Process revolutions - Process revolutions relates to the
implementation of new technology, such as RFID, for improving
supply chain management productivity.
o Product or service innovations - Product or service innovations
represent new products or services, such as the i-Phone, without
changing business models.
o Strategic innovations - Strategic innovations include new products or
services but with new business models such as Segway rentals or web-
based applications.
• Operations-Based Innovations: Some organizations differentiate between
categories and types of innovation. There are four categories of innovations
including:
o Finance - Finance innovation relates to business models, networks and
alliances for innovations such as Dell’s personal computer business
and supply chain management.
o Process - Process innovation relates to enabling processes for
innovations such as the compensation and benefits packages at
Starbucks and real-time inventory management at Wal-Mart.
o Offerings - Offerings innovations include innovative product
performance through unique features in an automobile, a product
system such as Microsoft Office with multiple products and service
innovations as seen in Singapore Airlines flights.
o Delivery - Delivery innovations include innovations in channel (e.g.,
Martha Stewart products), brands (e.g., the iPod) and customer
experience (e.g., Harley Davidson).
• Pathways-Based Innovations: The four types of pathway-based innovations
include:
o Product - Product innovations are most apparent in the mobile phone
market with new phones arriving frequently.
o Process - Process innovations include new methodologies such as six-
sigma, Lean and TRIZ.
o Positioning - Positioning innovation implies repackaging an existing
product or service, and branding it innovatively (e.g., the increasing
camera capabilities of cell phones could lead to it being branded as a
camera).
o Paradigm - Paradigm innovation represents a shift in thinking and
doing. For example, mainframe computers in the late 1970s led to the
personal computer, a new paradigm of computing. Today, mobile
phones are making conventional landline phones obsolete and Internet
phones are in some cases replacing mobile phones.
• Hierarchy-Based Innovations: In order to build a portfolio of innovations –
and have a strong causative relationship between innovation and allocated
resources – there may be a variety of innovations. Depending upon the
primary responsibility for managing innovation and key steps in the
innovation process, there include the following types:
o Business model - is critical as it sets the direction and the approach of
a corporation.
o Managerial - relates to innovative approaches to managing people,
technology and resources.
o Process - implies a revolutionary improvement to, or re-engineering
of, an existing activity.
o Service - means developing new ways to deliver services or creating
new services altogether.
o Product - involves creating products that offer new capabilities for
significant economic payoff.
• Thought-Based Innovations: While all of the previously-defined
classifications have their merits, fundamentally speaking innovation is an
intellectual activity. Creativity is a unique combination of two events or ideas
– the ability to discover the unique combination is critical. Applied creativity
is innovation. The breadth of an organization’s creativity is controlled by
people, influenced by the environment and opportunities provided by a
company’s leadership.
By reviewing the contributions of great innovators, specifically Einstein,
Galileo and Edison, it is clear that Einstein engaged in mostly theoretical
innovation, Edison innovated practical or business solutions, and Galileo did a
combination of the two. Einstein’s work was more fundamental in nature,
while Edison’s work was more tangible. Einstein conducted mostly thought
experiments (e.g., riding the light wave), while Edison conducted experiments
in his laboratory. Looking at various innovations, they can be classified into
four categories based on the amount of effort and the speed-of-thought
components (knowledge, play and imagination): fundamental, platform,
derivative and variation.
• Fundamental Innovation: Fundamental innovation is a creative idea that leads
to a revolution in thinking. Such innovations are based on extensive research,
 knowledge-driven, theoretically proven and lead to follow-up research and
development. Such innovations occur with the collaborations of academia,
commercial laboratories and even corporations. These innovations may lead to
changes in thinking, extend an existing theory or be a breakthrough concept
with enormous impact – perhaps even leading to the evolution of a new
industry. Examples of such fundamental innovations include Einstein’s theory
of relativity, electricity, penicillin, the telephone, wireless communication, the
transistor, computer software, UNIX and the Internet. A fundamental
innovation has a significant academic component of science, which makes it
available for the common good and also less protected, commercially
speaking.
• Platform Innovation: The platform innovation is defined as one that leads to
the practical application of fundamental innovations. Such innovations
normally are launching pads for a new industry. Examples of platform
innovations include personal computers, silicon chips, cell phones, digital
printers, Microsoft Windows, databases, Linux, drug delivery devices,
satellites and the space shuttle. The platform component increases the portion
of the laboratory or development component more so than do fundamental
innovations. Platform innovations launch industries and change ways of life.
• Derivative Innovation: A derivative innovation is a secondary product or
service derived from a platform innovation. Derivative innovations include
new server-client configurations based on a new network architecture or
operating system for a cell phone, for example. These innovations are slight
modifications of the main product. In the case of Microsoft-like software, the
platform is Windows and derivatives are a new office suite; for CDMA-like
platforms, derivative innovations are various features available to service
providers; for a major satellite system, the derivative innovations are various
launching options or capabilities offered to users.
• Variation Innovation: A variation innovation is a tertiary-level innovation that
requires less time to develop and is a slight variation of the next-level
products or services based on a derivative innovation. For example, variation
innovations in cell phones are various color covers, ring tones, camera feature
and additional software-based optional features. In the case of Microsoft
software, variation innovations are applications developed and based on the
Microsoft platform and derivative innovations. Typically, the variation
innovation occurs close to the customer and may be the candidate for reaching
the ultimate in speed of innovation or innovation on demand in real-time.
• Interactions Among Thought-Based Types of Innovation: Various types of
innovations are achieved by differing degrees of speeds of thought, which
consists of knowledge, play and imagination. A fundamental innovation may
require a more meditative process to think of theories, concepts or solutions
without significant physical experimentation. In fundamental innovation,
knowledge and imagination are key components. For example, Einstein’s
work was completed in his mind rather than in a laboratory – typically
conducting "thought experiments." A platform innovation involves relatively
less knowledge and imagination, but rather more play or experimentation. A
variation innovation requires more play than does a fundamental innovation.
Fundamental innovations can take a much longer time than do the other
innovation types; as a result, more variation innovations will result than will
 fundamental innovations.

Conclusion:

By understanding the types of innovation, an organization can decide its domain of

innovation and develop an innovation strategy suitable to produce solutions within
the designated type of innovation. The company then can look into the resources that
will facilitate particular types of innovation. For example, to develop a fundamental
innovation the leadership must understand the process will take a long time, dedicated
resources, and overall more endurance, persistence and patience. On the other hand,
variation innovation requires more experimentation and/or play, and can be
completed in a shorter time. Company leaders must first decide the planned scope of
innovation activities in order for the corporation to appropriate necessary resources to
facilitate the innovations to come.

Begin a Systematic Innovation Practice - Step Two

Strategize for Innovation - An organization must look for opportunities for innovation
by understanding the types of innovation and recognizing its domain expertise.
Common questions asked by a company are why to innovate and what to innovate.
Consider an R&D division – employees try to innovate to further their careers,
expand their horizons, publish papers or file for patents. As a result, many researchers
are engaged in exploration in multiple directions with few aligned to their company’s
domain expertise and strategy of sustaining profitable growth.

There are many ways to turn this situation around. The organization’s marketing
department should explore new product or service opportunities based on the
customer feedback, supply chain interaction, and related industries. Operations staff
should look for internal opportunities for innovation to improve efficiency, and
productivity through process innovations. Business strategists must look into
competitive benchmarking and explore opportunities for business model innovations.

Knowing the scope of a company’s products or services shows the myriad of

opportunities for product, process and business model innovation. One must assess
scope of the innovation based on the fundamental (creative idea that leads to a
revolution in thinking), platform , derivative (secondary or product or surface derived
from a platform innovation) and variation (tertiary-level innovation that requires less
time to develop and is a slight variation of the next-level products or services based
on a derivative innovation) breakdowns.

Scout for Innovation: A business must be fully aware of its surrounding environment
and its own ecosystem in order to identify opportunities for innovation by not only
completing competitive benchmarking, but also looking for customer pain,
inconveniences, conflicting situations in design, and implicit or explicit demand for
new capabilities. Making use of a company’s existing product or services, by making
them more convenient, less costly and more fun are simple beginnings for creating
innovation opportunities.
Innovation is sometimes thought of as glamorous – looking for the "next big thing."
but innovation breaks down into determining what the next big thing is, what it takes
to produce it and how to make it a success. in order to expand into future products, a
company must first learn the historical trends and evolutions of similar products.
Performing regression analysis, accelerating the evolving trend and expanding the
horizon can help identify new opportunities for breakthrough innovation.
Besides extending and exploring, enlisting established networks can create potential
for new innovation.

Analyzing opportunities to innovate helps a business further recognize, prioritize and

maximize return on investment. This also helps to define innovation targets in terms
of performance, value, price, cost, resources and time.

Strategize for Innovation: Prior to developing an innovation strategy, a company first

must develop a baseline performance level. Innovation diagnostics will identify areas
of strengths and weakness to incorporate in the strategic planning. For a corporation
to institutionalize innovation to sustain profitable growth, a corporate commitment
must be made to achieve continual growth in terms of revenue, profit margin, job
opportunities and employee development. The main drivers for successful, strategic
innovation are profitable growth, intellectual involvement of employees, a creative
and fun culture, and a visionary leadership.

Strategic planning must address the following issues in relation to an innovation

practice:
• Leadership
o Value proposition
o Resources
• Measures
o Identification of key players responsible for the initiative
• Methodologies
o Organization structure
o Roadmap (with toll gates)
• Culture of creativity and risk taking
• Excellence in idea management
• Incentives and controls
• Rapid commercialization
• Sustaining innovation on demand

An innovation initiative should be launched with incremental milestones after the

planning and preparation is complete. A company’s innovation plan can follow the
target, explore, develop, optimize, and commercialize (TEDOC) phases described
below:

• (T)arget – A clear need for innovation based on opportunity analysis

 • (E)xplore – Research, benchmark and analyze the opportunity, and gain
expertise knowledge in the domain
• (D)evelop – Alternative innovative breakthrough solutions to maximize
innovative components
• (O)ptimize – The final solution for minimal diversion in operations and
delivery
• (C)ommercialize – Rapid access to the marketplace and customers to ensure
premium margins and above market return on investment

Conclusion:

Institutionalizing innovation must establish processes for innovation on demand and

innovation driving demand for growth. Continually scouting opportunities for
innovation and scheduled demand-driven innovation provides a competitive edge to a
business and facilitates profitable growth.

Begin a Systematic Innovation Practice: Step Three

The Art of Innovation is a well-known phenomenon that many people know and
practice. Some do more than others, some practice personally while the others do at
work, and some do it without knowing that they are being innovative. Similarly,
corporate leadership practices innovation inadvertently or consciously. Just like
walking, jogging, and running or racing utilize different faculties, level of energy and
intellect; it is the acceleration of innovation that need be mastered in global
competitive environment.

With an understanding of the types of, and strategic planning aspects of, innovation,
the next step for a company’s leadership is committing to innovation for its value
proposition. The challenge is clearly laying out the value proposition – why should a
company commit to innovation, what should be the return on innovation and how
does innovation affect employees?

Reasons for Innovation:

The corporate objective of making money can not suffice for a company’s meeting its
obligations to its stakeholders. Making money by cutting costs hurts employees,
making more money through mergers and acquisitions is not necessarily a long-term
strategy, and growing business while creating more jobs without making money does
not appear to be a viable approach. The commitment to innovation must be driven by
sustaining profitable growth and creating jobs. Eventually, business and society do
complement each other. Without societal contributions business is a non-value entity
in the community; without creating value through businesses a community will not
develop.

Innovation to sustain profitable growth requires new products and services to expand
opportunities to serve customers – innovative approaches to reduce costs and strive
for perfection makes the growth rewarding. New products or solutions can be an
activity primarily assigned to dedicated resources with participation from other
employees; however, cost reduction and perfection require the intellectual
involvement of all employees. A company’s leadership must commit to innovation at
the product and the process level, embedding innovative thinking in everything that
occurs in the company.

Committing to creating jobs drives a business’ growth. Producing more value to grow
profitable revenue is a better approach than making money selling an idea or building
a widget by exploiting cheap resources. Creating jobs also requires the leadership to
think beyond making numbers. Otherwise, people become head counts that are easily
chopped, thus limiting innovation.

Organizational Alignment for Innovation: Once reasons are understood,

responsibilities must be assigned to accelerate innovation both in the process and
product areas, innovating new product concepts and innovating new process
capabilities. The organizational alignment must address the following aspects
explicitly:

• Revenue growth through innovations

• New product innovations
• Process innovations
• Idea management
• Creativity culture

A typical organization includes a chief operating officer (COO), chief financial

officer (CFO) and chief executive officer (CEO), where the COO’s role is to make
money, the CFO’s is to count the profit and the CEO’s role is not clearly defined.
When Lou Gerstner took over IBM’s sinking ship in 1993, he strengthened key
customer relationships, besides leading restructuring the company. CEOs normally
create revenue growth opportunities. The most common approach for dramatic
growth is realized through mergers and acquisitions (M&A). Today, corporations
realize that M&A must be supported with strong organic growth through innovative
products and services. A path for organic growth must be established that is missing
in most organizations. Many organizations hold on to an old innovation strategy too
long.

The path to organic growth begins with listening to sales staff, distributors,
customers, users and suppliers, observing market trends and engaging employee ideas
for identifying new opportunities. Nurturing creativity, enlisting employee ideas,
exploring new opportunities and developing new products becomes the way of doing
business. Innovative thinking becomes an explicit expectation of every employee.

Establishing Key Measures of Innovation:

Innovation Measures vary from company to company. The underlying intent should
be to establish a minimal set of measures that inspire innovation, monitor innovation
activities and maintain accountability for results. Knowing measures alone does not
affect activities, it is the effective use of measures by leadership that will accelerate
innovation. At the operation level, measures could be recognition, incentives, ideas
per employee and revenue growth. However, revenue growth alone without profit can
discourage innovation; revenue growth must be profitable as well. Measures like
profitable growth and return on investment in innovation can also be good measures.
The returns can be calculated as profitable growth over the investment dollars in
research and development, and innovation-related activities.

Protecting Intellectual Property

Businesses need to focus on protecting useful intellectual property. Fundamental

innovations that are more scientific in nature may not be protected, while platform
and derivative innovations that have significant economic ramifications must be
protected. Variation innovations have a limited life and may not be worth protecting.
Establish clear criteria for what to protect, what to hide and what to use without
protection.

Educating Employees in Innovation

Every person is born creative. People do innovate for themselves, so they are not
totally ignorant of the innovation process. People have not thought hard enough,
however, to formulate their process of innovation or creative thinking. Innovation has
been sporadic and rare.

In order to keep up with the growing demand for innovative solutions and services,
employees need to learn a framework of innovation that allows them to utilize their
intellectual and material resources to develop innovative solutions when needed,
rather then randomly developing an innovative solution. Employees need to
accelerate innovation using a holistic process that is easy to apply and good enough to
produce significantly innovative solutions that can generate economic value directly
or indirectly. Organizations must establish a training program in innovation for
executives and employees. Employees directly involved in design and development
must master innovation skills and achieve certain competency levels. Employees
involved in innovative improvement must also understand the framework, corporate
expectations and use of available resources. Two important aspects of training in
innovation are creating awareness to continually identifying opportunities for
innovation and inspiring employees for creating usable innovative solutions quickly.

Conclusion:
Committing to innovation implies understanding the causative relationship between
innovation activities and results, aligning and allowing human resources to innovation
activities, establishing key drivers and having a system to protecting intellectual
property. Cultivating innovation means creating awareness of innovative thinking
through training and education, and nurturing intellectual engagement and innovation
through support and resources.

Begin a Systematic Innovation Practice - Step Four:

In the first three steps for developing a systematic innovation strategy, a company
prepares to innovate disruptively by creating the environment in which to
institutionalize innovation, having its leaders instill a culture that believes in the
significance of innovation. Leadership is accountable for the organization’s profitable
growth. Successful businesses grow through in-house innovations; the challenge is
deciding what to innovate. Companies must learn to identify opportunities for
dramatic growth through disruptive innovations.

Identify Disruptive Innovation Opportunities

According to Clayton Christensen, in his book Innovator’s Solution, the disruptive

innovation must have predictably higher chance of success. An organization cannot
afford to invest resources in a project for disruptive innovation that has a high
probability of not being successful. An organization cannot wait for business
downturns to trigger an innovation as successful organizations continuously innovate
products or solutions. Investing in innovative new products while the organization is
doing well is necessary to perpetuate profitable growth.

Innovation Leadership

Identifying opportunities for innovation or new products is hard thing to do. There are
businesses in which faster, better and bigger products were designed but never sold.
One of the critical acts of leadership is to appoint an innovation leader responsible to
lead a team of innovative new products, such as the role Steve Jobs unofficially holds
at Apple. A planned approach is to appoint a leader who is interested in innovation,
promotes employee creativity, understands new product processes, knows the
significance of profitable growth, challenges employees to do their best, enjoys
competition and takes pride in success.

An innovation leader provides the necessary resources and aligns the organization for
growth through innovation. The innovation leader treats the task of developing new
innovative products as projects and institutionalizes innovation through actions
promoting employees’ intellectual engagement.

Identifying Opportunities for Innovation

The innovation team works on identifying new opportunities through learning

customer behaviors and circumstances, extensions of the current behaviors and
expansions of their needs. Studying customer behaviors in a multi-dimensional
perspective helps better identify customer pain points, complaints, chronic problems,
indecisions, insecurities, stagnations, inconveniences or discomforts. Additionally,
competitive benchmarking, SWOT (strengths, weaknesses, opportunities, threats)
analyses, and trends in marketplaces, industry performances and adjacent markets or
industries can also generate ideas for innovative products. Generating lots of ideas
sounds easy; however, generating innovative ideas require thinking without
constraints. Many times good ideas are shot down by pre-imposed constraints. It is
necessary to separate the definition of requirements from developing solutions, and
not allowing the solution to dictate requirements. Once the ideas are generated they
can be filtered, analyzed and prioritized for salability of the product to meet the
revenue growth requirement.

Avoiding Innovation Failures

Studies have shown that ideas are dime a dozen – there is no shortage of ideas.
Breakthrough products come from the distribution of the quality of ideas. The
likelihood of identifying that product in advance is small. A culture of continual
innovation, therefore, must be created in which a classification of ideas is based on
many industry specific factors.
The most important aspect of making innovative products is to avoid Failures caused
by three factors:
• An inability to introduce the innovation to potential users (i.e., the marketing
plan),
• Poor optimization of design for reproducibility and
• An insufficient value proposition to change behaviors due to lack of sufficient
innovation.

These failure modes can be avoided by:

• Developing a commercialization plan (developed plan with the support of
required resources)
• Planning operations for reproducibility (designed to virtually perfect the
solution) and
• Demonstrating the extent of the innovation (researched and purposefully
imagined).

Establishing Innovation Projects

Once the opportunities have been identified, analyzed, enhanced and sifted through
success filters, potential projects must be defined for new innovative product
development. To prevent project delays, a company must deploy a process for
innovation that in some way includes the following five steps: target, exploration,
development, optimization, and commercialization. The commercialization must be a
distinct and required step as it is the divider between success and failure, an
innovation or simply creativity.

To some extent everyone is creative and innovative. But when asked to be

"innovative," it is not easy to produce results. TEDOC represents all key aspects of
the successful innovations that one must be aware of – helping develop skills and
competency in innovating on demand for breakthrough solutions.

Target

Defining an opportunity for innovation is critical. In order to develop breakthrough

innovations, a business needs to know what to innovate. Determining what to
innovate depends upon the need for innovation. This need can be found in
complaints, nagging or chronic problems, indecisions, frustrations, technical
limitations, circumstances and competitors’ organizational limitations. A business
should also look at the maturity of its industry, trends in supplier performance,
SWOT analyses, industry performance and the available market.

Once potential innovation opportunities have been identified, the innovation team
must document key benefits of the solution to be innovated and determine the key
measures of its success.

Explore

A company needs to fully, and quickly, research its opportunities to beef up its
necessary competencies. The innovation team should identify and research keywords
associated with the opportunity for innovation, generate new ideas, answer questions,
generate new questions and generate more new ideas. These ideas then need to be
combined, filtered, analyzed and prioritized. These selected ideas are analyzed as
inputs to the solution to be developed and experimented with for developing
solutions. Tools in this phase may include brainstorming, affinity diagrams, failure
mode and effects analysis (FMEA), process thinking, etc.

Develop

Innovators need to develop alternate solutions that are significantly innovative.

Experience shows that following the "rule of 2" helps stretch imaginations while
people experiment. According to the rule of 2, in order for a solution to be a
breakthrough innovation, it must affect the performance of the desired features by
dividing or multiplying by 2. In other words, if less is better halve (divide by 2) it, if
more is better then double (multiply by 2) it. The expected change is expected to
force a different approach to the current position.

The extent of innovation depends upon the innovation team’s efforts (the amount of
available time committed to the desired innovation), knowledge (domain expertise),
ability to play (experimentation) and overall imagination (extrapolation to achieve
breakthrough innovation). In order to create a unique selling proposition and barriers
or competition, a company must try to maximize innovation rather than just create a
minimal innovation. Tools used in this phase include the competency necessary to
create new knowledge, creativity for proposing alternative solutions, evaluation and
analytical methods, and the facility to conduct experiments.

Optimize

Many great innovations remain marginally successful and have limited shelf life due
to an inability to reproduce it effectively and economically. A great design alone does
not provide a good return on innovation. The optimize phase focuses on maximizing
the economic benefit of the innovation. In the current R&D-driven product
development environment this is the most significant step missing for ensuring a
product’s success. Due to a lack of optimization in the design or pre-production
stage(s), manufacturing operations suffer from design constraints. Today, most
designs are quickly verified for their functionality and performance, but only on a
limited sample size of potential process conditions during a product’s life cycle. The
prototype or pilot run that looks acceptable may result in continual rework and field
failures leading to a significant adverse impact on profit margins. The typical used
tools in this stage are process management, optimization software programs and the
facility to conduct the necessary experiments.

Commercialize

Many entrepreneurs and innovators fail in this phase – an innovative solution exists
but not enough people who would value it know about it. Without development there
is no creativity, without optimization there is no profit and without commercialization
there is no innovation. It is the commercialization of a creative solution that coverts
creativity into innovation. Every innovator, therefore, must learn the process of
commercialization and develop the knowledge necessary to create value. In the
commercialization phase, an innovation team must practice strategic thinking,
methods of pricing a solution, messages of value proposition, viral marketing,
business planning, and making deals for licensing or selling the breakthrough
solutions.

Leadership expert Steven Covey says to begin a task with the end in mind. In the case
of innovation, begin innovating with commercialization in mind. Often,
commercializing is tougher than discovering the innovative product. The full cycle of
innovation, thus, starts from the identification of the need for an innovative solution
and ends with the commercialization of the innovative solution.

Developing innovation on demand makes the task of commercialization easier as the

innovative solution is already sold. However, improvement in the success rate of
demand-driven innovation depends on the speed of the innovation. Once a company
masters the process of innovation through practice and commitment, a company can
innovate quickly.

Conclusion

Innovating disruptively requires identifying the need, expanding the horizon of

thoughts, developing breakthrough solutions by applying the rule of 2, and optimizing
and commercializing the solutions to ensure the innovation’s profitable growth. A
good understanding of this process improves the speed resulting in making innovation
a success with exciting rewards.

Begin a Systematic Innovation Practice - Step Five

Once a company has invested in deploying innovation through cultural

transformation, it is important that the culture of innovation is sustained. Any
company should begin its innovation journey with the end in mind; in this case, an
effort to sustain innovation must be carefully planned and practiced to perpetuate the
culture of accelerated introduction of new products or solutions.

Return on Innovation
Most studies show that it has been difficult to establish a correlation between
innovation and corporate performance. Even worse, surveys of CEOs have found an
adverse relationship between investment in innovation and corporate performance.
Such existing situations and executive perceptions may be a contributing factor for
the confusion concerning the topic of innovation, and for a lack of commitment to
systematic innovation. The best way to sustain innovation is to ensure there is return
on innovation.

Innovation Intent

Many companies consider growth in revenue as return on innovation; many times

growth in revenue, however, does not translate into more money for the organization
– so there is no return on innovation. Though the revenue growth will somewhat
reflect the role of a company’s innovation, it does not say anything about the
effectiveness of innovation. To ensure return on innovation, profit growth must also
be ensured. Innovative products not only provide more opportunities for revenue
growth, they also enable better margins on sales.

Innovation can have multiple dimensions of impact on corporate performance and can
be analyzed by the following categories:
• Most innovative: revenue growth
• Best innovative: profitable growth due to innovation
• Managed innovation: a causative relationship exists between the innovation
and the resulting outcome
• Return on innovation: the financial return on investment in innovation

In order for a company to sustain innovation, it must regularly introduce new

products and services with significant innovation components, and emphasize the
commercialization of its innovations in order to maximize its return on innovation. As
the table above shows, even a look at five companies shows that return on innovation
(measured in dollars) is far from being maximized. It highlights the need for
institutionalizing innovation, and improving efficiency and effectiveness of the
innovation process.

Linking Innovation to Corporate Strategy

Deploying innovation with a clear mandate for expected outcomes will yield random
results. In many organizations, research and development and innovation become the
end rather than the means to achieve business objectives. Innovation must create
value, excitement and return on investment through leadership, planning and
execution for innovation.

Corporations have objectives to be profitable on a quarter by quarter basis. The

challenge in managing profit by quarter leads to decisions for a quarter that require
mostly actions and little thinking. This leads to no room for innovation, while taking
actions to cut costs. Such an approach is counterproductive to creating a culture of
innovation. Organizations prioritize research and development projects for their
importance to provide returns in the short-term. This strategy will haunt these
organizations in the long-term.

Organizations must apportion resources for long-term research for fundamental and
platform innovations, and for short-term development for derivative and variation
innovations. Large organizations that sacrificed longer term technological research
and development in favor of shorter term design innovations step into sudden
crashing moments. Intel and Motorola are good examples of perennially successful
companies in economic trouble due to a lack of fundamental innovations for
developing new platform products. Intel needs fundamental innovations in process
and manufacturing, while Motorola could benefit from breakthrough innovations in
communication technologies.

Linking the corporate strategy to profitable growth will lead to planning for
innovation at all levels. Successful companies continually look at their innovations
from annual to ten- or twenty-year outlooks in order to perpetuate the culture of
innovation. Maintaining profitable growth through innovation will bring purpose to
innovation activities.

Accelerate Innovation

In the technology age information has become a commodity, with intelligence a

competitive advantage. The ability to continually mine information to extract unique
intelligence and create new knowledge must become routine activities. Continual
analysis and interpretations of market, process, product and business information can
be used to identify new areas of revenue growth and innovation. Corporate leadership
must develop plans to introduce innovative products, services or solutions to generate
achieve margins and revenue growth. Expectations for introducing new products,
solutions and services create a schedule for efficient and predictable innovation –
requiring a process that works for the organization consisting of inspiring leadership,
creativity culture, idea management, engineering skills, optimization tools, operations
capability, marketing resources and economic mindset.

Every organization is an innovative organization to a varying extent. The challenge,

however, is to innovate better and faster. Accelerating innovation requires
formalizing and optimizing the innovation process by understanding its components,
committing resources to the various types of innovations, and driving the success of
the innovation process. The leadership must not question whether innovation works,
but instead challenge the organization for more innovation.

Continual Renewal of Innovative Practices and Behaviors

The innovation focus must not become only a chief executive officer-level initiative.
The culture of innovation requires the establishment of a compelling vision, clear
direction and credible challenge for employees to be engaged and collaborate. The
leadership must set the tone for positive behaviors in the organization for success that
celebrates every employee’s strength rather than look for poor performing employees
in the organization. Innovative organizations must aim to enable every employee to
excel rather than create a bureaucracy to identify excellent people that could stifle
their creativity.

It is the responsibility of the corporate leadership to promote intellectual participation

of employees by sincerely listening to employee ideas and rewarding value creation.
Setting periodic challenges for employees to overcome, recognizing creativity and
rewarding economic success through innovation will drive employee-driven
innovative practices.

Most successful organizations also define their corporate values relative to their
leadership and employee engagement. The values define decision making and
prioritization on a daily basis. These values must incorporate intellectual involvement
of employees for creating value for the organization, partners and society. The culture
of innovation flourishes where thinking without constraints, execution within
resources and celebration with success are practiced. Innovation is an investment that
should – and must – pay dividends if led and managed with care.

The term innovation means a new way of doing something. It may refer to
incremental, radical, and revolutionary changes in thinking, products, processes, or
organizations. A distinction is typically made between Invention, an idea made
manifest, and innovation, ideas applied successfully. In many fields, something new
must be substantially different to be innovative, not an insignificant change, e.g., in
the arts, economics, business and government policy. In economics the change must
increase value, customer value, or producer value. The goal of innovation is positive
change, to make someone or something better. Innovation leading to increased
productivity is the fundamental source of increasing wealth in an economy.

A convenient definition of innovation from an organizational perspective is

"Innovation is generally understood as the successful introduction of a new thing or
method. Innovation is the embodiment, combination, or synthesis of knowledge in
original, relevant, valued new products, processes, or services.
Innovation typically involves Creativity, but is not identical to it: innovation involves
acting on the creative ideas to make some specific and tangible difference in the
domain in which the innovation occurs.

"All innovation begins with creative ideas. We define innovation as the successful
implementation of creative ideas within an organization. In this view, creativity by
individuals and teams is a starting point for innovation; the first is necessary but not
sufficient condition for the second".

For innovation to occur, something more than the generation of a creative idea or
insight is required: the insight must be put into action to make a genuine difference,
resulting for example in new or altered business processes within the organization, or
changes in the products and services provided.

Innovation = Creativity * Risk Taking

Creativity is defined as the tendency to generate or recognize ideas, alternatives, or

possibilities that may be useful in solving problems, communicating with others, and
entertaining ourselves and others.

Three reasons why people are motivated to be creative:

• Need for novel, varied, and complex stimulation
• Need to communicate ideas and values
• Need to solve problems

In order to be creative, you need to be able to view things in new ways or from a
different perspective. Among other things, you need to be able to generate new
possibilities or new alternatives. Tests of creativity measure not only the number of
alternatives that people can generate but the uniqueness of those alternatives. the
ability to generate alternatives or to see things uniquely does not occur by change; it
is linked to other, more fundamental qualities of thinking, such as flexibility,
tolerance of ambiguity or unpredictability, and the enjoyment of things heretofore
unknown.

Q5. Discuss business importance of CSR with special emphasis on quality of

management.

Corporate Social Responsibility (CSR) is a concept whereby organizations consider

the interests of society by taking responsibility for the impact of their activities on
customers, suppliers, employees, shareholders, communities and the environment in
all aspects of their operations. This obligation is seen to extend beyond the statutory
obligation to comply with legislation and sees organizations voluntarily taking further
steps to improve the quality of life for employees and their families as well as for the
local community and society at large.

The practice of CSR is subject to much debate and criticism. Proponents argue that
there is a strong business case for CSR, in that corporations benefit in multiple ways
by operating with a perspective broader and longer than their own immediate, short-
term profits. Critics argue that CSR distracts from the fundamental economic role of
businesses, others argue that it is nothing more than superficial window-dressing, still
others argue that it is an attempt to pre-empt the role of governments as a watchdog
over powerful multinational corporations.

Business benefits

The scale and nature of the benefits of CSR for an organization can vary depending
on the nature of the enterprise, and are difficult to quantify, though there is a large
body of literature exhorting business to adopt measures beyond financial ones, found
a correlation between social/environmental performance and financial performance.
However, businesses may not be looking at short-run financial returns when
developing their CSR strategy.

The definition of CSR used within an organization can vary from the strict
"stakeholder impacts" definition used by many CSR advocates and will often include
charitable efforts and volunteering. CSR may be based within the human resources,
business development or public relations departments of an organization, or may be
given a separate unit reporting to the CEO or in some cases directly to the board.
Some companies may implement CSR-type values without a clearly defined team or
program.

The business case for CSR within a company will likely rest on one or more of these
arguments:

Human resources

A CSR program can be seen as an aid to recruitment and retention, particularly within
the competitive graduate student market. Potential recruits often ask about a firm's
CSR policy during an interview, and having a comprehensive policy can give an
advantage. CSR can also help to improve the perception of a company among its
staff, particularly when staff can become involved through payroll giving, fundraising
activities or community volunteering.

Risk management

Managing risk is a central part of many corporate strategies. Reputations that take
decades to build up can be ruined in hours through incidents such as corruption
scandals or environmental accidents. These events can also draw unwanted attention
from regulators, courts, governments and media. Building a genuine culture of 'doing
the right thing' within a corporation can offset these risks.

Brand differentiation

In crowded marketplaces, companies strive for a unique selling proposition which can
separate them from the competition in the minds of consumers. CSR can play a role
in building customer loyalty based on distinctive ethical values. Several major brands,
such as The Co-operative Group and The Body Shop are built on ethical values.
Business service organizations can benefit too from building a reputation for integrity
and best practice.

License to operate

Corporations are keen to avoid interference in their business through taxation or

regulations. By taking substantive voluntary steps, they can persuade governments
and the wider public that they are taking issues such as health and safety, diversity or
the environment seriously, and so avoid intervention. This also applies to firms
seeking to justify eye-catching profits and high levels of boardroom pay. Those
operating away from their home country can make sure they stay welcome by being
good corporate citizens with respect to labour standards and impacts on the
environment.

Critical analysis
CSR is entwined in the strategic planning process of many multinational
organizations. The reasons or drive behind social responsibility towards human and
environmental responsibility whether driven by ulterior motives, enlightened self-
interest, or interests beyond the enterprise, is subject to much debate and criticism.
Some critics argue that corporations are fundamentally entities responsible for
generating a product and/or service to gain profits to satisfy shareholders and others
argue that there is no place for social responsibility as a business function. These
critics point to the rule of corporate law that prohibits a corporation's directors from
any activity that would reduce profits.

Other critics argue that the practice cherry-picks the good activities a company is
involved with and ignores the others, thus 'greenwashing' their image as a socially or
environmentally responsible company. Still other critics argue that it inhibits free
markets or seeks to pre-empt the role of governments in controlling the socially or
environmentally damaging effects of corporations' pursuit of self-interest.

Philanthropy centric view of Corporate Social Responsibility (CSR) as part of their

contribution to the society, some organizations have been practicing programs such
as:

• Better pay for local workers in the under-developed countries.

• Avoiding under-age employees.
• Support for local community sports.
• Offer of free sports gears for talents.
• Sports events sponsorship.
• Supporting the construction of sports grounds.
• Cheaper brands for selected countries
• Local water supply
• Community developments like sports etc
• Local school sports support
• Scholarships for talent

Q6. Write short notes on

a) Scope of Ethics
b) Knowledge Creation
c) Product Life Cycle

6a) Scope of Ethics –

Below are the ethical principles in a business organization.

• Principle 1. The responsibilities of businesses: beyond shareholders toward

stakeholders.
 • Principle 2. The economic and social impact of business: toward innovation,
justice, and world community
• Principle 3. Business behavior: beyond the letter of law toward a spirit of
trust.
• Principle 4. Respect for rules
• Principle 5. Support for multilateral trade
• Principle 6. Respect for the environment
• Principle 7. Avoidance of illicit operations
• Principle 8. Customers
• Principle 9. Employees
• Principle 10. Owners / Investors
• Principle 11. Suppliers
• Principle 12. Competitors

The importance of the ''ethics'' comes in when we make decisions in the areas covered
by the 12 principles.

Ethics is two things.

First, ethics refers to well based standards of right and wrong that prescribe what
humans ought to do, usually in terms of rights, obligations, benefits to society,
fairness, or specific virtues. Ethics, for example, refers to those standards that impose
the reasonable obligations to refrain from rape, stealing, murder, assault, slander, and
fraud. Ethical standards also include those that enjoin virtues of honesty, compassion,
and loyalty. And, ethical standards include standards relating to rights, such as the
right to life, the right to freedom from injury, and the right to privacy. Such standards
are adequate standards of ethics because they are supported by consistent and well
founded reasons.

Secondly, ethics refers to the study and development of one's ethical standards. As
mentioned above, feelings, laws, and social norms can deviate from what is ethical.
So it is necessary to constantly examine one's standards to ensure that they are
reasonable and well-founded. Ethics also means, then, the continuous effort of
studying our own moral beliefs and our moral conduct, and striving to ensure that we,
and the institutions we help to shape, live up to standards that are reasonable and
solidly-based.

A Framework for Thinking Ethically in decision making:

This information is designed as an introduction to thinking ethically. We all have an

image of our better selves-of how we are when we act ethically or are "at our best."
We probably also have an image of what an ethical community, an ethical business,
an ethical government, or an ethical society should be. Ethics really has to do with all
these levels-acting ethically as individuals, creating ethical organizations and
governments, and making our society as a whole ethical in the way it treats everyone.
Ethics refers to standards of behavior that tell us how human beings ought to act in
the many situations in which they find themselves-as friends, parents, children,
citizens, businesspeople, teachers, professionals, and so on.

Ethics is not the same as feelings. Feelings provide important information for our
ethical choices. Some people have highly developed habits that make them feel bad
when they do something wrong, but many people feel good even though they are
doing something wrong. And often our feelings will tell us it is uncomfortable to do
the right thing if it is hard.

Ethics is not religion. Many people are not religious, but ethics applies to everyone.
Most religions do advocate high ethical standards but sometimes do not address all
the types of problems we face.

Ethics is not following the law. A good system of law does incorporate many ethical
standards, but law can deviate from what is ethical. Law can become ethically
corrupt, as some totalitarian regimes have made it. Law can be a function of power
alone and designed to serve the interests of narrow groups. Law may have a difficult
time designing or enforcing standards in some important areas, and may be slow to
address new problems.

Ethics is not following culturally accepted norms. Some cultures are quite ethical, but
others become corrupt -or blind to certain ethical concerns (as the United States was
to slavery before the Civil War). "When in Rome, do as the Romans do" is not a
satisfactory ethical standard.

Ethics is not science. Social and natural science can provide important data to help us
make better ethical choices. But science alone does not tell us what we ought to do.
Science may provide an explanation for what humans are like. But ethics provides
reasons for how humans ought to act. And just because something is scientifically or
technologically possible, it may not be ethical to do it.

There are two fundamental problems in identifying the ethical standards we are to
follow:
• On what do we base our ethical standards?
• How do those standards get applied to specific situations we face?
If our ethics are not based on feelings, religion, law, accepted social practice, or
science, what are they based on? Many philosophers and ethicists have helped us
answer this critical question. They have suggested at least five different sources of
ethical standards we should use.

Five Sources of Ethical Standards:

The Utilitarian Approach - Some ethicists emphasize that the ethical action is the one
that provides the most good or does the least harm, or, to put it another way, produces
the greatest balance of good over harm. The ethical corporate action, then, is the one
that produces the greatest good and does the least harm for all who are affected-
customers, employees, shareholders, the community, and the environment. Ethical
warfare balances the good achieved in ending terrorism with the harm done to all
parties through death, injuries, and destruction. The utilitarian approach deals with
consequences; it tries both to increase the good done and to reduce the harm done.

The Rights Approach - Other philosophers and ethicists suggest that the ethical action
is the one that best protects and respects the moral rights of those affected. This
approach starts from the belief that humans have a dignity based on their human
nature per se or on their ability to choose freely what they do with their lives. On the
basis of such dignity, they have a right to be treated as ends and not merely as means
to other ends. The list of moral rights -including the rights to make one's own choices
about what kind of life to lead, to be told the truth, not to be injured, to a degree of
privacy, and so on-is widely debated; some now argue that non-humans have rights,
too. Also, it is often said that rights imply duties-in particular, the duty to respect
others' rights.

The Fairness or Justice Approach - Aristotle and other Greek philosophers have
contributed the idea that all equals should be treated equally. Today we use this idea
to say that ethical actions treat all human beings equally-or if unequally, then fairly
based on some standard that is defensible. We pay people more based on their harder
work or the greater amount that they contribute to an organization, and say that is fair.
But there is a debate over CEO salaries that are hundreds of times larger than the pay
of others; many ask whether the huge disparity is based on a defensible standard or
whether it is the result of an imbalance of power and hence is unfair.

The Common Good Approach - The Greek philosophers have also contributed the
notion that life in community is a good in itself and our actions should contribute to
that life. This approach suggests that the interlocking relationships of society are the
basis of ethical reasoning and that respect and compassion for all others-especially the
vulnerable-are requirements of such reasoning. This approach also calls attention to
the common conditions that are important to the welfare of everyone. This may be a
system of laws, effective police and fire departments, health care, a public educational
system, or even public recreational areas.

The Virtue Approach - A very ancient approach to ethics is that ethical actions ought
to be consistent with certain ideal virtues that provide for the full development of our
humanity. These virtues are dispositions and habits that enable us to act according to
the highest potential of our character and on behalf of values like truth and beauty.
Honesty, courage, compassion, generosity, tolerance, love, fidelity, integrity, fairness,
self-control, and prudence are all examples of virtues. Virtue ethics asks of any
action, "What kind of person will I become if I do this?" or "Is this action consistent
with my acting at my best?"

In the organization, I am referring to, we put the approaches together in making

ethical business decisions. Each of the approaches helps us determine what standards
of behavior can be considered ethical. There are still problems to be solved, however.
The first problem is that we may not agree on the content of some of these specific
approaches. We may not all agree to the same set of human and civil rights.
We may not agree on what constitutes the common good. We may not even agree on
what is a good and what is harmful.

The second problem is that the different approaches may not all answer the question
"What is ethical?" in the same way. Nonetheless, each approach gives us important
information with which to determine what is ethical in a particular circumstance. And
much more often than not, the different approaches do lead to similar answers.

The organization I am referring to is:

• A large manufacturer/ marketer of safety products
• The products are used as [personal protection safety] [ industrial safety]
• The products are distributed through the distributors as well as sold directly
• The products are sold to various industries like mining / fireservices /
defence / as well as to various manufacturing companies.
• The company employs about 235 people.
• The company has the following functional departments
o Marketing
o Manufacturing
o Sales
o Finance/ administration
o Human resource
o Customer service
o Distribution
o Warehousing/ transportation
o TQM

Making Decisions - Making good ethical decisions requires a trained sensitivity to

ethical issues and a practiced method for exploring the ethical aspects of a decision
and weighing the considerations that should impact our choice of a course of action.
Having a method for ethical decision making is absolutely essential. When practiced
regularly, the method becomes so familiar that we work through it automatically
without consulting the specific steps. The more novel and difficult the ethical choice
we face, the more we need to rely on discussion and dialogue with others about the
dilemma. Only by careful exploration of the problem, aided by the insights and
different perspectives of others, can we make good ethical choices in such situations.

We have found the following framework for ethical decision making a useful method
for exploring ethical dilemmas and identifying ethical courses of action.
• Recognize an Ethical Issue
o Is there something wrong personally, interpersonally, or socially?
Could the conflict, the situation, or the decision be damaging to people
or to the community?
o Does the issue go beyond legal or institutional concerns? What does it
do to people, who have dignity, rights, and hopes for a better life
together?
• Get the Facts
o What are the relevant facts of the case? What facts are unknown?
o What individuals and groups have an important stake in the outcome?
Do some have a greater stake because they have a special need or
because we have special obligations to them?
 o What are the options for acting? Have all the relevant persons and
groups been consulted? If you showed your list of options to someone
you respect, what would that person say?
• Evaluate Alternative Actions From Various Ethical Perspectives
o Which option will produce the most good and do the least harm?
Utilitarian Approach: The ethical action is the one that will produce
the greatest balance of benefits over harms.
o Even if not everyone gets all they want, will everyone's rights and
dignity still be respected?
• Rights Approach: The ethical action is the one that most dutifully respects
the rights of all affected.
o Which option is fair to all stakeholders?
• Fairness or Justice Approach: The ethical action is the one that treats people
equally, or if unequally, that treats people proportionately and fairly.
o Which option would help all participate more fully in the life we share
as a family, community, society?
• Common Good Approach: The ethical action is the one that contributes most
to the achievement of a quality common life together.
o Would you want to become the sort of person who acts this way (e.g.,
a person of courage or compassion)?
Virtue Approach: The ethical action is the one that embodies the habits
and values of humans at their best.
• Make a Decision and Test It
o 11. Considering all these perspectives, which of the options is the right
or best thing to do?
o If you told someone you respect why you chose this option, what
would that person say? If you had to explain your decision on
television, would you be comfortable doing so?
• Act, Then Reflect on the Decision Later
o Implement your decision. How did it turn out for all concerned? If you
had it to do over again, what would you do differently?

6b) Knowledge Creation -

Knowledge update can mean creating new knowledge based on ongoing experience
in a specific domain and then using the new knowledge in combination with the
existing knowledge to come up with updated knowledge for knowledge sharing.

Knowledge can be created through teamwork.

A team can commit to perform a job over a specific period of time. A job can be
regarded as a series of specific tasks carried out in a specific order. When the job is
completed, then the team compares the experience it had initially (while starting the
job) to the outcome (successful/disappointing). This comparison translates experience
into knowledge.

While performing the same job in future, the team can take corrective steps and/or
modify the actions based on the new knowledge they have acquired. Over time,
experience usually leads to expertise where one team (or individual) can be known
for handling a complex problem very well. This knowledge can be transferred to
others in a reusable format.

There exists factors that encourage (or retard) knowledge transfer.

• Personality is one factor in case of knowledge sharing. For example, extrovert
people usually posses self-confidence, feel secure, and tend to share
experiences more readily than the introvert, self-centered, and security-
conscious people.
• People with positive attitudes, who usually trust others and who work in
environments conductive to knowledge sharing tends to be better in sharing
knowledge.
• Vocational reinforcers are the key to knowledge sharing. People whose
vocational needs are sufficiently met by job reinforcers are usually found to be
more likely to favour knowledge sharing than the people who are deprived of
one or more reinforcers.

Model of Knowledge Creation & Transformation:

The two main types of human knowledge are-
• Tacit knowledge and
• explicit knowledge
The key to knowledge creation lies in the way it is mobilized and converted through
technology.
• Tacit to tacit communication (Socialization): Takes place between people in
meetings or in team discussions.
• Tacit to explicit communication (Externalization): Articulation among people
trough dialog (e.g., brainstorming).
• Explicit to explicit communication (Communication): This transformation
phase can be best supported by technology. Explicit knowledge can be easily
captured and then distributed/transmitted to worldwide audience.
• Explicit to tacit communication (Internalization): This implies taking explicit
knowledge (e.g., a report) and deducing new ideas or taking constructive
action. One significant goal of knowledge management is to create technology
to help the users to derive tacit knowledge from explicit knowledge.

Knowledge Architecture

Knowledge architecture can be regarded as a prerequisite to knowledge sharing.

The infrastructure can be viewed as a combination of people, content, and
technology.
These components are inseparable and interdependent.

6c) Product Life Cycle

Products pass through a series of stages. Successful products progress through four
basic stages:
• Introduction
• Growth
• Maturity and
• Decline.
The product life cycle concept provides important insights about developments at the
various stages of the product's life. Knowledge that profits assume a predictable
pattern through the stages and that promotional emphasis should shift from product
information in the early stages to product promotion in the later stages should allow
the marketing manager to improve planning.

Product Life Cycle Benefits

Here is a brief description of what is expected to take place in the stages of the life
cycle:
1. Initiation starts with the initial conception or discovery of the product
idea and runs until it has been evaluated, has become specific, and has
been approved for development.
2. Development covers the various activities that transform an abstract
product idea into a concrete prototype model of the product (if it is a
tangible good) that can be manufactured.
3. Market plans and tests is our term for the final gestation phase, in
which the product would pass its last tests and everything be ready for
commercialising it.
4. Introduction starts when the offering is made available to buyers,
probably on a limited scale, and continues as it is tried by innovators
and experiences show slow sales growth.
5. Growth begins when numerous tryers like the product, word of its
virtues spread, and the product sales "take off". Since the product is
not established until this takes place, we include it in this chapter of
"evolving products6. Maturity comes eventually, for the halcyon days
of sharply rising demand vanish when most potential buyers have
become actual customers. This may be a very long period during
which demand decelerates and then reaches a plateau.
6. Decline sets in persistently when the product eventually becomes
obsolete. When it actually starts to toboggan, it is time to give the
product a merciful death and burial.

The marketing strategist should never assume that the PLC operates inexorably, but
should rather examine a brand's or product's actual position carefully. Further a
serious effort should be made to find a winning strategy can revive a slumping
demand, rather than summarily abandoning the possibility. In that context, the PLC
does pose a hypothesis of product or brand behaviour that is useful for sales
forecasting. It also enables us to clarify strategies in terms of their timeliness.

The product life cycle curve can be extremely important in generating strategist, and
it should be monitored and controlled by the marketing manager. This is necessary
due primarily to five reasons:
• Rapid Maturity of Products
• Life Cycle Product Mix
• Strategic Implications
• Product Planning
• Changing the Life Cycle Curve
Successful products progress through four basic stages: Introduction. Growth.
Maturity and Decline. This progression is known as the Product Life Cycle.

• Introduction – The company’s objective in the early stages of the product life
cycle is to stimulate demand for the new market entry. Since the product is not
known to the public, promotional campaigns stress information about its
features and benefits. They also may be directed toward marketing
intermediaries in the channel to induce them to carry the product. In this
phase, the public becomes acquainted with the merits of the product and
begins to accept it. Losses are common during the introductory stage due to
heavy promotion and extensive research and development expenditures.
However, the ground is being laid for future profits. Companies are expected
to recover the costs and to begin earning profits when the new product moves
into the second phase of its life cycle - the growth stage.

• Growth - Sales volumes rise rapidly during the growth stage as new
customers make initial purchases and early buyers re-purchase the product.
'Word-of-mouth’ and advertising induce hesitant buyers to make trial
purchases. As the company begins to realise substantial profits from its
investment during the growth stage, the product attracts competitors. Success
breads imitation and other companies rush into the market with competitive
products. The majority of firms in a particular market enter during the growth
stage.

• Maturity - Industry sales continue to grow during the early part of the
maturity stage, but eventually they reach a plateau as the backlog of potential
customers is exhausted. By this time, a large number of competitors have
entered the market, and profits decline as competition intensifies.

In the maturity stage, differences among competing products diminish as

competitors discover the product and promotional characteristics most desired
by the market. Heavy promotional outlays emphasise subtle differences
among competing products, and brand competition intensifies. In this stage,
often available products exceed industry demand. Companies attempting to
increase their sales and market share must do so at the expense of competitors.
As competition intensifies, the competitors tend to cut prices in an attempt to
attract new buyers. Even though a price reduction may be the easiest method
of inducing additional purchases, it is also one of the simplest moves for,
competitors to duplicate. Reduced prices result in decreased revenues for all
firms in the industry unless the price cuts produce enough increased purchases
to offset the loss in revenue on each item sold.

• Decline - In the final stage of the product's life, innovations or customer

preferences bring about an absolute decline in industry sales. Sales and profits
decline and companies begin to leave the industry in search of more profitable
products.
Q2. Compare Cadbury Committee Report with any two Indian Committee
Reports on Code of Corporate Governance.

A brief summary of reports of various committees on corporate governance is

presented in this section. A comparative summary of the recommendations of all the
committees on corporate governance is also presented at the end. Based on the
discussion in this paper, a code of governance that is most appropriate for Indian
corporate sector developed by the authors has also been given. The reports of the
following committees have been examined in this paper.

1. Cadbury committee.
2. Greenbury committee.
3. Organization for Economic Cooperation Development (Europe).
4. World Bank,
5. Confederation of Indian Industry,
6. The Associated Chambers of Commerce and Industry of India an4
7. Kumar Mangalam Birla Committee.

In England Cadbury committee presented a report on financial aspects of

corporate governance in December 1992. It formulated the rules and procedures to
enhance the effectiveness of the board. It emphasized the need to maximize the
shareholders value by a good corporate governance system. Subsequently. Greenbury
committee was appointed to bring out the best practices in determining and
accounting for directors' remuneration. All listed companies registered in United
Kingdom comply with the code to the fullest extent practicable and include a
statement about their compliance in the annual reports to shareholders by their
remuneration committees. Any areas of non-compliance should be explained and
justified. The Cadbury committee report has formed the basis for a debate on code of
corporate governance in India. The report hence has drawn a worldwide attention.

The Organization for Economic Co-operation and Development (OECD ) in its

ministerial level meeting on 27-28 April. 1998 had established an ad-hoc task force
on corporate governance with an objective to develop a set of non-binding principles
that embody the views of member countries on corporate governance. The principles
contained in its report were: 1. protection of shareholders' rights 2. the role of
stakeholders 3, need for disclosure' and transparency and 4. responsibility of the
board for better corporate governance. In September 1999, the World Bank published
a report on corporate governance and presented a framework for implementation. It
has observed that globalization would bring uniformity in corporate governance
system.

The Confederation of Indian Industry's (CII} Desirable Corporate Governance is

the first major functional exercise on corporate governance in Indian Industry. It is
expected that the code for corporate governance be followed uniformly by Indian
companies in private and public sectors. The code of governance is applicable to
banks and financial institutions also. The code of governance emphasizes projection
of investors' interest and developing high level of confidence in business and
industry. There are 17 recommendations to be followed by companies in reporting
corporate governance. It also emphasizes the global concerns about the objectives of
`good' corporate governance: maximizing long-term shareholders' value.

Consequent to the CII publication on code of corporate governance, Indian

companies have started reporting details of future investments, expansion,
diversification plans, intellectual capital valuation, brand value, economic value
added, financial ratios etc. The recent annual reports of companies contained a report
on corporate governance. Economic value added signifies the effort of the company
towards reporting shareholder enrichment. Quantifiable measures like economic
value added and market value added have started appearing in annual reports.
Disclosure of these information provide shareholders an under-standing of the
direction in which a company is moving. Recognizing the importance of good
corporate governance the Indian Companies Act has also been modified to provide
considerable importance to the role of board of directors in corporate governance.

Consequent to the appointment of Kumar Mangalam Birla committee on corporate

governance, a draft report was submitted to The Securities and Exchange Board of
India (SEBI) recently. It agreed that the fundamental objective of corporate
governance is the enhancement of the long-term shareholder value, while at the same
time protecting the interests of other stakeholders. It set out a time limit for
implementing the recommendations.
The Associated Chambers of Commerce and Industry of India has also published a
report on corporate governance. It emphasized that care should be taken in appointing
directors, particularly in listed companies for better corporate governance.

The above reports emphasize the importance of a code of good corporate

governance for Indian corporate sector. These concepts also led to the emergence of
code of governance in Government and code of electronic governance due to the
introduction of electronic commerce in India.

Findings from analysis of recommendations of various committees on corporate

governance

The Cadbury committee states that board of directors is responsible for the
governance of their companies. It insists that the boards should pa) particular
attention to their duty to present a balanced and understandable assessment of their
company's position, Financial reporting should be true and fair. The committee
further recommends that the board should also ensure the integrity and consistency of
their reports.

Kumar Mangalam Birla Committee recommends that board meetings should be

held at least four times in a year, with a maximum time gap of four months between
any two meetings. The committee further recommends that the members of the board
give due importance and commitment to the meetings of the board and its
committees. The committee insists that there should be a ceiling on the maximum
number of committees across all companies in which a director could be a member or
act as chairman.

Organization for Economic Co-operation and Development (Europe) and Cadbury

committee emphasize the need to protect the rights of shareholders and they
recommend that all share-holders should be treated equally. Kumar Mangalam Birla
committee recommend that a director should not be a member in more than ten
committees or act as chairman of more than five committees across all companies in
which he is a director.

Confederation of Indian Industry and Kumar Mangalam Birla committee insist

that the disclosure of financial statements should be accurate and regular. They
further insist that financial statements should reveal timely, accurate, substantive and
material information. Organization for Economic Co-operation and Development
(Europe) recommend that any material Interest in trans-actions or matters affecting
the corporation should be disclosed by board of directors of the company.

All committees invariably recommend setting up of audit committees.

Confederation of Indian Industry insist that listed companies with either a turnover of
over Rs. 100 Crores or a paid up capital of Rs. 20 Crores should set up audit
committees within two years. Both Kumar Mangalam Birla committee and
Confederation of Indian Industry recommend that the audit committee should have
maximum non-executive members, who should have adequate knowledge of finance,
accounts and basic elements of company law. Cadbury committee recommends that
the audit committee should have minimum of three members. Membership should be
confined to the non-executive directors of the company and a majority of the non-
executive directors serving on the committee should be independent. Membership of
the committee should be disclosed in the annual report.

The Associated Chambers of Commerce and Industry recommend that the board of
directors, when they find themselves unable to accept the advice of audit committees
on any issue. the board should be competent to overrule the advice but should be
required to report the facts fully to the general body of shareholders at the next annual
general meeting for their information.

However, in India audit committees do not exist except in few well-managed

companies. It is expected that with the implementation of the recommendations of
various committees audit committees would be set up in all the listed companies in
future.

Cadbury committee, Confederation of Indian Industry and Kumar Mangalam Birla

committee recommend that non-executive directors should be included in board of
directors to bring an independent judgement to bear on issues of strategy, re-sources
including key appointments and standards of conduct. Confederation of Indian
Industry recommends that in order to secure better effort from non-executive
directors, companies should pay a commission over and above the sitting fees and
consider offering stock options for the use of professional inputs. It further
recommends that independent directors should have clearly defined responsibilities
within the board and become active participants in boards, not passive advisors

In England Greenbury committee was especially setup to report on remuneration

policy. It recommends that the remuneration committee should setup by the board of
directors. The remuneration committee should consist of only non-executive
directors. It further recommends that remuneration committees must provide the
package' needed to attract, retain and motivate directors of the quality required but
should avoid paying more than is necessary for this purpose

Kumar Mangalam Birla committee recommends that the remuneration committee

should comprise minimum of three non-executive directors, the chairman of the
committee being an independent director. The committee also recommends that the
chairman of remuneration committee should be present at annual general hod!,
meetings to answer the shareholder queries.

All committees invariably emphasize the need for increasing shareholder value by
good corporate governance. The Associated Chamber of Commerce and Industry
recommends that companies should concentrate not only on wealth maximization of
the shareholders but also on the social responsibility and the accountability to its
other stakeholders.
SUGGESTIONS FOR BETTER CORPORATE GOVERNANCE IN INDIA

The authors suggest the following specific recommendations for policy makers,
with a view to further strengthen an effective corporate governance system in India.

1. The Board

A. The board should consist of 5 percent executive and 50 percent non-executive

professional as its Board of director.

B. Quarterly and half yearly results shall be provided to the shareholders.

Shareholders shall be informed of any transaction involving substantial payments.

D. Companies shall provide ‘shareholders' charter listing out significant

developments about the performance of the company.

E. The annual report shall contain details of Economic value added. Market value
added. Total shareholders return. Brand value and Human assets value.

IV. Rights of Shareholders

A. All categories of shareholders shall be treated equally.
B. Shareholders shall be entitled to postal ballot voting
C. Shareholders shall be provided with the data of new directors and they shall also
be informed of any pending legal proceedings against any director.