Fundamentals of Business: Reference Manual

Fundamentals of Business 2019
Fundamentals of Business
Reference Manual
Prakruthi Nithin
CHAPTER – I: Business Management: An Introduction

As the story of Apple suggests, today is an interesting time to study business. Advances in
technology are bringing rapid changes in the ways we produce and deliver goods and services.
The Internet and other improvements in communication (such as smartphones, video
conferencing, and social networking) now affect the way we do business. Companies are
expanding international operations, and the workforce is more diverse than ever.
Corporations are being held responsible for the behavior of their executives, and more people
share the opinion that companies should be good corporate citizens. Because of the role they
played in the worst financial crisis since the Great Depression, businesses today face
increasing scrutiny and negative public sentiment.35
Economic turmoil that began in the housing and mortgage industries as a result of troubled
subprime mortgages quickly spread to the rest of the economy. In 2008, credit markets froze
up and banks stopped making loans. Lawmakers tried to get money flowing again by passing
a $700 billion Wall Street bailout, now-cautious banks became reluctant to extend credit.
Without money or credit, consumer confidence in the economy dropped and consumers cut
back on spending. Unemployment rose as troubled companies shed the most jobs in five
years, and 760,000 Americans marched to the unemployment lines.36 The stock market
reacted to the financial crisis and its stock prices dropped by 44 percent while millions of
Americans watched in shock as their savings and retirement accounts took a nose dive. In fall
2008, even Apple, a company that had enjoyed strong sales growth over the past five years,
began to cut production of its popular iPhone. Without jobs or cash, consumers would no
longer flock to Apple’s fancy retail stores or buy a prized iPhone.37 Since then, things have
turned around for Apple, which continues to report blockbuster sales and profits. But not all
companies or individuals are doing so well. The economy is still struggling, unemployment is
high (particularly for those ages 16 to 24), and home prices have not fully rebounded from
the crisis.
As you go through the course with the aid of this text, you’ll explore the exciting world of
business. We’ll introduce you to the various activities in which business people engage—
accounting, finance, information technology, management, marketing, and operations. We’ll
help you understand the roles that these activities play in an organization, and we’ll show
you how they work together. We hope that by exposing you to the things that
businesspeople do, we’ll help you decide whether business is right for you and, if so, what
areas of business you’d like to study further. A business is any activity that provides goods or
services to consumers for the purpose of making a profit. Be careful not to confuse the terms
revenue and profit. Revenue represents the funds an enterprise receives in exchange for its
goods or services. Profit is what’s left (hopefully) after all the bills are paid. When Steve Jobs
and Steve Wozniak launched the Apple I, they created Apple Computer in Jobs’ family

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garage in the hope of making a profit. Before we go on, let’s make a couple of important
distinctions concerning the terms in our definitions. First, whereas Apple produces and sells
goods (Mac, iPhone, iPod, iPad, Apple Watch), many businesses provide services. Your bank
is a service company, as is your Internet provider. Hotels, airlines, law firms, movie theaters,
and hospitals are also service companies. Many companies provide both goods and services.
For example, your local car dealership sells goods (cars) and also provides services
(automobile repairs). Second, some organizations are not set up to make profits. Many are
established to provide social or educational services. Such not-for profit (or nonprofit),
organizations include the United Way of America, Habitat for Humanity, the Boys and Girls
Clubs, the Sierra Club, the American Red Cross, and many colleges and universities. Most of
these organizations, however, function in much the same way as a business. They establish
goals and work to meet them in an effective, efficient manner. Thus, most of the business
principles introduced in this text also apply to nonprofits.

As you go through the course with the aid of this text, you’ll explore the exciting
world of business. We’ll introduce you to the various activities in which business people
engage— accounting, finance, information technology, management, marketing, and
operations. We’ll help you understand the roles that these activities play in an organization,
and we’ll show you how they work together. We hope that by exposing you to the things
that businesspeople do, we’ll help you decide whether business is right for you and, if so,
what areas of business you’d like to study further.

Business Participants and Activities
Let’s begin our discussion of business by identifying the main participants of business
and the functions that most businesses perform. Then we’ll finish this section by discussing
the external factors that influence a business’ activities.

Participants:
Every business must have one or more owners whose primary role is to invest money
in the business. When a business is being started, it’s generally the owners who polish the
business idea and bring together the resources (money and people) needed to turn the idea
into a business. The owners also hire employees to work for the company and help it reach its
goals. Owners and employees depend on a third group of participants— customers.
Ultimately, the goal of any business is to satisfy the needs of its customers in order to
generate a profit for the owners.

Stakeholders : Consider your favorite restaurant. It may be an outlet or franchise of a
national chain (more on franchises in a later chapter) or a local “mom and pop” without

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affiliation to a larger entity. Whether national or local, every business has stakeholders –
those with a legitimate interest in the success or failure of the business and the policies it
adopts. Stakeholders include customers, vendors, employees, landlords, bankers, and others
(see Figure 1.2). All have a keen interest in how the business operates, in most cases for
obvious reasons. If the business fails, employees will need new jobs, vendors will need new
customers, and banks may have to write off loans they made to the business. Stakeholders do
not always see things the same way – their interests sometimes conflict with each other. For
example, lenders are more likely to appreciate high profit margins that ensure the loans they
made will be repaid, while customers would probably appreciate the lowest possible prices.
Pleasing stakeholders can be a real balancing act for any company.

Accounting period
The time for which profits are being calculated, normally months, quarters or years.

Accounts
Businesses are obligated to produce an annual set of accounts. If they are listed on the stock
exchange, they must also show half-year profits (information regarding profits six months
into the financial year).

Accounts payable
Amounts of money owed by your company to external suppliers.

Accounts receivable
Money owed to your company by customers.

Acquisition
The purchase of one company or resources by another.

Actuary
An actuary is a person employed by pension providers and insurance companies. Their role is
to calculate accident rates, life expectancy and the relevant payouts.

Administration
There are two meanings relating to this word in business.

(1) The organisation and running of a business.

(2) A business going into administration, meaning that a business has gone bankrupt and its
creditors can get in touch to try and claim any money they are owed.

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Affiliate marketing
A retailer or service provider advertising its goods or services via a third party in return for a
commission on any sales.

Annual equivalent rate (AER)
A quote of what interest paid on savings and investments would be. It is calculated by
adding each interest payment to the original deposit, then working out the next interest
payment, compounding the interest.

Annual percentage rate (APR)
This is the rate of interest you agree to pay on money borrowed. The higher the amount, the
more you will pay.

Annuity
This is a type of insurance policy. Upon retirement a lump sum is paid into it and the
insurance company then provide a regular income.

Arbitrage
The process by which a person or business takes advantage of the difference in price of a
share or a currency.

Assets
Property that has value owned by a company.

Audit
An official inspection of a company’s, or individual’s, accounts.

B2B
Business to business.

B2C
Business to consumer.

Balance sheet
A ‘snapshot’ of a company’s assets, liabilities and capital at a particular point in time.

Base rate
Set each month by the Bank of England, this is the country’s base rate of interest. This
influences financial products and services when they set their own cost of borrowing.

Benchmarking
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Checking your company’s standards by comparing them with certain criteria, e.g. a
competitor’s activities.

Bid-offer spread
The buying (offer) and selling (bid) price of shares, bonds or currency. The ‘spread’ is the
difference between those two prices.

Black swan
Financial events that are difficult to predict. It is called this because before people ventured
to Australia, swans were assumed to only be white. No one had seen a black one until then.

Blue chip
This term originates from poker as blue chips are traditionally the highest-valued. Therefore,
a blue-chip company is one that is large and considered to be safe or prestigious.

Bond
An agreement made when money is borrowed from an investor at a set rate of interest. It is
repaid over a set period of time. Bonds are rated from the safest (AAA) to the riskiest (D),
also known as 'junk bonds'.

Bootstrapping
(1) Building a start-up company with very little money, often relying on personal savings
and pushing for the lowest possible operating costs, while implementing cost-saving systems
such as fast inventory turnaround.

(2) Making a forecast beyond a certain period by using the forecasted data for that period.

Break-even point
The point in time when you will have paid back all your debts, or when revenues exactly
match expenses.

Bridging loan
This loan is taken out by people who need access to finance while their property is being sold.

Business angel
Also known as an angel investor. An individual who provides capital for a business start-up
in return for a stake in the company.

Business cycle
The tendency for economies to experience peaks and troughs that follows a cyclical pattern –
known colloquially as ‘boom and bust’. Governments are tasked with smoothing the peaks
and troughs and limiting the effect of these cycles on consumers and businesses.

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Capital
Money invested into a company or project by its owners.

Capital expenditure (CAPEX)
Money spent to create future benefits. Capital expenditure is money spent by a company
either to buy fixed assets or to add to the value of existing fixed assets with a useful life that
extends beyond the taxable year. With regard to tax, capital expenditure cannot be deducted
in the year the money is paid. Compare with operating expenditure (OPEX), which refers to
ongoing costs to run a product, service or system.

Cash flow
The movement of cash into and out of a business

Collateral
Collateral is something lenders can use to give security against a loan. Often this is a major
asset such as a house.

Commodity
This is any item which can be freely bought and sold. Examples include gold, food products
and coffee beans.

Copyright
The exclusive legal right, owned by the individual or group who created a work, or by an
individual or group assigned by the originator, to use certain material and to allow others the
right to use the material.

Corporate social responsibility
Corporate social responsibility (CSR) is a form of self-regulation, where companies integrate
social, environmental and ethical policies into their overall business strategy. Companies
embracing CSR should take responsibility for their actions and take a proactive approach to
having a minimal negative impact on the world.

Creditor
A person or firm that has lent your business money or to whom you owe money.

Critical success factor
A critical success factor is an element that must occur in order for a business to achieve its
ultimate goal.

Debtor
A person or firm that owes money to you or your business.

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Depreciation
The reduction in value of assets over time, usually due to wear and tear.

Diversification
When new products, services, customers or markets are added to your company’s portfolio.
Diversification usually occurs as a risk reduction strategy.

Dividend
Money paid regularly by a company to its shareholders.

Economic growth
This is the term used to describe an increase in the amount of goods and services produced by
the county, known as gross domestic product (GDP).

Economies of scale
The cost advantages obtained by a business when buying an item in bulk. The price of an
item usually decreases as the amount bought increases.

Enterprise value
This is the market value of a business. It is calculated by market capitalisation times current
share price, minus cash, plus debt.

Equity
Equity is used by analysts to work out how financially “healthy” a company is. It also
represents what would be left if all of a businesses’ assets were liquidated and the debt paid
off.

Ethical investment
Investments made in companies that are specifically chosen for their environmental or moral
credentials. Defence contractors, or companies known to use contentious labour practices,
will generally be avoided by ethical investors.

Ethical trade
Ethical trade can refer to many different things but is most often used as an umbrella term
for any business practices that promote socially and/or environmentally responsible trading.

Exit strategy
A plan to enable you to leave your business, either after achieving your goal or deciding you
would like to move on to do something else while recouping any capital you invested when
starting the company.

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Export
Selling your goods or services overseas.

Fairtrade
An organised movement enabling producers in developing countries to receive a fair price for
the items they produce. Fairtrade certification is becoming much more common in many
sectors, particularly food, with several large brands now stating that their products are
‘certified Fairtrade’ on their packaging.

Financial management
Planning, analysing, monitoring, organising, reviewing and controlling an organisation’s
monetary resources. Responsibility for financial management often falls to the finance
director, and by extension the financial department.

Fiscal year
Also known as a financial year, the fiscal year is a set period used to calculate financial
statements. The period used differs between countries and between businesses, although in
the UK the year between 6th April and 5th April is most often used for personal taxation.
The ‘official’ period for corporation tax runs from 1st April to 31st March, however
companies can adopt any yearly period for corporation tax.

Fixed cost
Any cost that remains the same in the short-term, despite changes in volume. Fixed costs
usually include, for example, rent, interest and salaries.

FTSE 100 index
This list is made up of the 100 most highly capitalised blue-chip companies on the London
Stock Exchange.

Futures
These are financial contracts that secure a predetermined future date and price for an asset.
The assets used in futures contracts include commodities, stocks, and bonds.

Golden hello
An attractive package (typically a bonus, or stock options) that are offered to a senior
employee as an incentive to join the company.

Golden share
A golden share in a company is able to outvote all other shares in a specified circumstance.

Grey knight
During a business takeover, this is a bidder who has no clearly stated intentions.

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Gross
The total amount of money you have earned in a period of time before deductions such as
taxes.

Gross domestic product (GDP)
GDP is the sum of all goods and services produced in the country’s economy. If it is up on the
previous three months, the economy is growing. If GDP is down, the economy is contracting.

Gross national product (GNP)
GNP is another way to measure the economy, but also the welfare of British citizens. This is
GDP plus the profits, interest and dividends received from British residents abroad and
minus those profits, interest and dividends paid from the UK to overseas residents.

Half year
This is a term used to describe six months into the financial year when British listed
companies must produce profit figures.

Hedge funds
These investments are only open to professional investors, pension funds and insurance
companies. They are considered risky bets although their aim is to beat falling markets.
There are four main types of hedge fund:

Market-neutral or relative value. These attempt to exploit market inefficiencies.
Event-driven. Invested on anticipated mergers, bankruptcy or corporate reorganisations.
Long/short. Allow fund managers to buy some assets but sell others they do not yet own.
Tactical trading. Speculation on the future direction of markets.
Horizontal merger
When two companies within the same industry and at the same stage in production merge
together.

Hostile takeover
This is a takeover bid of a company that is deemed unacceptable or has unwelcome terms as
deemed by the company’s board.

Hyperinflation
This is inflation that is rapid or out of control. It usually only occurs during wars or during
severe political instability.

Import
Buying goods or services from overseas and bringing them into the country.

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Income statement
Determines the net income/profit of a business. An annual summary of both income and
expenses.

Industrial output
This is an indicator of future economic growth as it is the manufacturing output of the
nation.

Inflation
The term used when prices rise.

Insider trading
The trading of shares based on knowledge that no one else has. It was made illegal in the UK
in 1980.

Insolvency
When a company becomes unable to pay off its creditors, or its liabilities exceed its assets.

Institutional investor
A professional money manager who works for private investors and invests via pension and
life insurance funds.

Intellectual property
Any works or inventions that are original creative designs. The individual or company
responsible for the designs will be entitled to apply for a copyright or trademark on the
designs.

Interim profit statement
This updates shareholders on a company’s unaudited profits for the first half of the financial
year.

Investment trust
A company on the stock exchange that only invests in other companies.

Invoice factoring
Invoice factoring involves a business selling its invoices on to a third party, who will then
add their own fee to the charges and seek the money from the debtor.

Key performance indicator
A key performance indicator (KPI) is a measure of performance to assess the success of a
company or a certain activity the company is taking part in.

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Leveraged buyout
When a company is acquired using borrowed funds. The debt is usually repaid by money
made by the acquired company.

Libor rate
Libor stands for the London interbank offered rate and provides the average interest rate at
which major global banks borrow from one another. It is based on five currencies:

US Dollar
Euro
British Pound
Japanese Yen
Swiss Franc
Libor is also the basis for consumer loans in countries worldwide. It impacts both consumers
and financial institutions.

Liquid asset
Any asset which can be easily converted into cash.

Liquidity
The ease with which a company’s assets can be converted into cash.

Macroeconomics
This is a part of economics that seeks to simplify and show the progress of whole economies
rather than focus on individuals or groups (which is microeconomics).

Managed fund
There are two ways in which a fund can be controlled:

Actively. A fund manager buys and sells to maximise gains and minimise losses.
Passively. A computer programme tracks the performance of a market.
Margin
A profit margin is how much money a company made. For example, a gross profit of £1m on
sales of £10m is a 10% profit margin. Companies can compare profit margins with others to
see how they are doing.

Market segmentation
A market segment is a division of a market with similar characteristics (e.g. age, gender,
religion) that cause them to demand similar products and/or services. For example, in an area
with a large Jewish community, kosher foods are likely to be in greater demand.

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Market share
The percentage or portion of the overall market controlled by one company.

Marketing mix
The combination of marketing elements used by a company to encourage consumers to
purchase its product or service. Also known as the seven Ps: product, price, promotion, place,
people, process, physical evidence.

Merger
When two or more companies are combined into one.

Microeconomics
This is a part of economics that concentrates on the actions of individuals and groups, rather
than of whole economies (which is macroeconomics).

National insurance
National insurance is a form of tax which everyone currently employed must pay in order to
qualify for benefits, including the state pension.

Negative equity
When the value of an asset you have already bought becomes worth less than what you
initially paid.

Net
The amount of profit remaining after deductions such as tax have been made.

Net asset value
A way of measuring investment trusts. Take the total number of its assets minus its
liabilities.

NIESR
National Institute of Economic and Social Research.

Nominal interest rate
An interest rate that isn’t adjusted for inflation.

Nominal values
These values do not take inflation into account.

Non-executive director
This is a director who helps the company and offers an independent view on strategies and
performance but is not actively involved in the day-to-day running.

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Offshore account
Funds which are managed outside of the UK.

Oligopoly
A market where only a few firms control the percentage of total sales.

Operating expenditure (OPEX)
On-going costs for running a business, service or system that includes day-to-day expenditure
such as sales and administration. Compare with capital expenditure, which is money spent on
fixed assets or extensions to already-owned fixed assets. A photocopier, for example, would
involve capital expenditure whereas toner and paper for the photocopier would be operating
expenditure.

Operating profit/loss
The profit or loss a company makes. These figures reflect how the business is performing.

Ordinary share
Also known as common shares, this is one unit of a businesses share capital.

Overheads
Costs that do not vary regardless of the level of production and are not usually directly
involved with the cost of production, such as rent.

Patent
An official legal document confirming that an individual or company has the sole right to
make, use or sell a particular invention.

PAYE
Pay as you earn. A method of collecting income tax on behalf of the Government by taking it
directly from your employees’ weekly/monthly pay.

Philanthropy
Making donations to charities in order to improve human wellbeing.

Present value
Comparison of the money available to the company in the future with the value of money it
currently holds, e.g. due to interest.

Private limited company
A type of legal company structure that, among other features, limits the personal liability of
the company owners so that they can’t be made bankrupt by company debts.

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Privatisation
The process of moving state-owned assets into the private sector.

Producer price index
A measure of inflation in goods bought and manufactured by British-based industry.

Product elasticity of demand (PED)
The degree to which demand for products or services changes with the price. Essential goods,
such as food, do not experience an increase in demand when the price changes, and are
deemed “inelastic”, but non-essential goods do.

Profit and loss account
A financial statement that shows any incomes or outgoings of a company over a certain
period of time so as to show the net profit or loss for that time.

Quantitative easing
This is a policy used by authorities in extreme circumstances to ease pressure placed on
banks. The authorities buy bonds from the banks and from the commercial sector to make
sure banks have enough cash to continue operating.

Quota
This is a limit set by a government on how much of a product can be imported and exported.

Rate of return
This is represented as a percentage and is the annual income an investment makes back.

Real interest rate
The rate of interest minus the current rate of inflation.

Real values
Real values show how relative particular prices are to prices in general. They are adjusted
according to inflation.

Recession
A period of severe economic decline. Defined by a contraction of GDP for six months or
longer.

Return on investment
The earning power of an asset or activity measured as a ratio of the net income of the
activity to the operational cost. Return on investment (ROI) lets a company know whether
an activity is profitable enough to continue.

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Revenue
Amounts of money received by (or owed to) a company for goods or services provided.

Share index
Tracks the value of shares on the exchange to demonstrate their performance.

Share options
A right to buy shares in a company in the future, at a favourable price, in addition to a
regular salary if the person meets specific performance targets or predetermined criteria.

Shareholder
An owner of shares in a company.

SMEs
Small and medium-sized enterprises. A small business has fewer than 50 staff and a
medium-sized business has fewer than 250 staff. Micro-businesses, with fewer than 10 staff,
would also come under the term ‘SME’.

Social enterprise
Social mission driven businesses, with social and/or environmental aims, that use
market-based strategies to achieve their goals. Social enterprises can be both non-profit and
for-profit.

Stakeholders
Any individual or party that has an interest in or may be affected by a business and/or its
activities. This can include anyone, from shareholders to residents of the local community.

Supply chain
The different elements making up the process involved in producing and distributing an item
or items.

Sustainability
The use of natural resources with a minimal impact on the environment; e.g. no depletion of
resources. For example, a company that manufactured paper would be sustainable if it only
made 100 percent recycled paper or planted a new tree for each one it cut down.

Takeover
The buying out of one company by another.

Trade balance
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Only taking visible trade into account (the import and export of physical goods) the trade
balance shows a county’s trade position.

Trademark
A logo, brand name or phrase legally registered by one company to represent them.

Triple bottom line
People, planet, profit. The bottom line was originally considered as just profit. In recent
years, with the growth in popularity of corporate social responsibility, businesses are
increasingly measuring project success not only in monetary terms, but also by examining
their social and environmental performance.

Turnover
The total sales of a business or company during a specified period.

Unit trust
A unit trust invests money in the stock market on behalf of a group of private investors that
have put all their money together to invest and be managed by a fund manager.

Unquoted shares
Some companies choose to not be listed on the stock market, or they may not meet the listing
requirements. Therefore the shares are ‘unquoted’.

Venture capital
Capital invested into projects with higher risks, usually start-up businesses.

Vertical merger
A merger between companies that are in the same industry but are not at the same
production stage. For example, if a car manufacturer buys a tyre company. They are part of
the car manufacturing industry, but now the car maker can reduce the cost of tyres.

Volume
The number of shares traded in a day on the London Stock Exchange.

Without-profits policy
An insurance policy that does not share in the profits of the business that issued it.

Working Capital
This is the capital a business uses in its day-to-day trading. It’s the difference between
current assets and current liabilities. It provides an indication of liquidity and the businesses
ability to meet its current obligations.

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Work-life balance
The balance in demands of both life at work and personal life.

Yield
The income from an investment. Calculated by taking the annual dividend or interest
payment, multiplying by 100 and dividing by the current market price.

Zombie funds
More formally these are called closed funds. It’s a name given to a closed with-profits fund
that no longer accepts new business until the existing policies mature.

TYPES OF BUSINESS ORGANISATIONS
A business is an organization that uses economic resources or inputs to provide goods or
services to customers in exchange for money or other goods and services. Business
organizations come in different types and forms. There are 4 Types of Business,

1. Service Business
A service type of business provides intangible products (products with no physical form).
Service type firms offer professional skills, expertise, advice, and other similar products.
Examples of service businesses are: schools, repair shops, hair salons, banks, accounting
firms, and law firms.

2. Merchandising Business
This type of business buys products at wholesale price and sells the same at retail price. They
are known as "buy and sell" businesses. They make profit by selling the products at prices
higher than their purchase costs. A merchandising business sells a product without changing
its form.
Examples are: grocery stores, convenience stores, distributors, and other resellers.

3. Manufacturing Business
Unlike a merchandising business, a manufacturing business buys products with the intention
of using them as materials in making a new product. Thus, there is a transformation of the
products purchased. A manufacturing business combines raw materials, labor, and factory
overhead in its production process. The manufactured goods will then be sold to customers.

4. Hybrid Business
Hybrid businesses are companies that may be classified in more than one type of business. A
restaurant, for example, combines ingredients in making a fine meal (manufacturing), sells a
cold bottle of wine (merchandising), and fills customer orders (service). Nonetheless, these

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companies may be classified according to their major business interest. In that case,
restaurants are more of the service type – they provide dining services.

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The role of a Business Manager is to supervise and lead a company's operations and
employees. They perform a range of tasks to ensure company productivity and efficiency
including implementing business strategies, evaluating company performances, and
supervising employees.

Business Manager Job Description:
Our company is looking for a skilled Business Manager to lead and supervise the work of our
employees. You will be in charge of designing business strategies and managing all
day-to-day operations to guarantee company efficiency.

Superb interpersonal and leadership skills are vital for this role, as good teamwork is
important for our business success. Suitable candidates should also be excellent written and
verbal communicators, and possess the ability to identify opportunities for growth.

Responsibilities:
● Assess and identify new opportunities for growth in current and prospective markets.
● Establish the company’s goals and objectives.
● Recruit and train new employees.
● Perform regular employee evaluations to determine areas of improvement.
● Design business strategies and plans to meet the company goals.
● Make sure that the company has sufficient resources such as personnel, material, and
equipment.
● Develop a comprehensive company budget and perform periodic budget analyses.
● Ensure all company activities adhere to legal guidelines and policies.
● Assess overall company performance.

Requirements:
● Bachelor’s degree in Business, Business Management or other related fields.
● At least 3 years' experience in a management position.
● Outstanding leadership abilities.
● Excellent written and verbal communication skills.
● Working knowledge of the latest business policies and regulations.
● Demonstrable analytical thinking & business insight.

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Functions of Managers
Managers just don't go out and haphazardly perform their responsibilities. Good managers
discover how to master five basic functions: planning, organizing, staffing, leading, and
controlling.

Planning: This step involves mapping out exactly how to achieve a particular goal. Say, for
example, that the organization's goal is to improve company sales. The manager first needs
to decide which steps are necessary to accomplish that goal. These steps may include
increasing advertising, inventory, and sales staff. These necessary steps are developed into a
plan. When the plan is in place, the manager can follow it to accomplish the goal of
improving company sales.
Organizing: After a plan is in place, a manager needs to organize her team and materials
according to her plan. Assigning work and granting authority are two important elements of
organizing.
Staffing: After a manager discerns his area's needs, he may decide to beef up his staffing by
recruiting, selecting, training, and developing employees. A manager in a large organization
often works with the company's human resources department to accomplish this goal.
Leading: A manager needs to do more than just plan, organize, and staff her team to achieve
a goal. She must also lead. Leading involves motivating, communicating, guiding, and
encouraging. It requires the manager to coach, assist, and problem solve with employees.
Controlling: After the other elements are in place, a manager's job is not finished. He needs to
continuously check results against goals and take any corrective actions necessary to make
sure that his area's plans remain on track.
All managers at all levels of every organization perform these functions, but the amount of
time a manager spends on each one depends on both the level of management and the specific
organization.

Roles performed by managers
A manager wears many hats. Not only is a manager a team leader, but he or she is also a
planner, organizer, cheerleader, coach, problem solver, and decision maker — all rolled into
one. And these are just a few of a manager's roles.

In addition, managers' schedules are usually jam-p acked. Whether they're busy with
employee meetings, unexpected problems, or strategy sessions, managers often find little
spare time on their calendars. (And that doesn't even include responding to e-mail!)

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In his classic book, The Nature of Managerial Work, Henry Mintzberg describes a set of ten
roles that a manager fills. These roles fall into three categories:
● Interpersonal: This role involves human interaction.
● Informational: This role involves the sharing and analyzing of information.
● Decisional: This role involves decision making.
● Table 1 contains a more in-depth look at each category of roles that help managers
carry out all five functions described in the preceding “Functions of Managers”
section.

Not everyone can be a manager. Certain skills, or abilities to translate knowledge into
action that results in desired performance, are required to help other employees become more
productive. These skills fall under the following categories:

● Technical: This skill requires the ability to use a special proficiency or expertise to
perform particular tasks. Accountants, engineers, market researchers, and computer
scientists, as examples, possess technical skills. Managers acquire these skills initially
through formal education and then further develop them through training and job
experience. Technical skills are most important at lower levels of management.
● Human: This skill demonstrates the ability to work well in cooperation with others.
Human skills emerge in the workplace as a spirit of trust, enthusiasm, and genuine
involvement in interpersonal relationships. A manager with good human skills has a
high degree of self-awareness and a capacity to understand or empathize with the
feelings of others. Some managers are naturally born with great human skills, while
others improve their skills through classes or experience. No matter how human skills
are acquired, they're critical for all managers because of the highly interpersonal
nature of managerial work.
● Conceptual: This skill calls for the ability to think analytically. Analytical skills
enable managers to break down problems into smaller parts, to see the relations
among the parts, and to recognize the implications of any one problem for others. As
managers assume ever-higher responsibilities in organizations, they must deal with
more ambiguous problems that have long-term consequences. Again, managers may
acquire these skills initially through formal education and then further develop them
by training and job experience. The higher the management level, the more important
conceptual skills become.

Although all three categories contain skills essential for managers, their relative importance
tends to vary by level of managerial responsibility.

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Business and management educators are increasingly interested in helping people acquire
technical, human, and conceptual skills, and develop specific competencies, or specialized
skills that contribute to high performance in a management job. Following are some of the
skills and personal characteristics that the American Assembly of Collegiate Schools of
Business (AACSB) is urging business schools to help their students develop.

✔ Leadership — ability to influence others to perform tasks
✔ Self-objectivity — ability to evaluate yourself realistically
✔ Analytic thinking — ability to interpret and explain patterns in information
✔ Behavioral flexibility — ability to modify personal behavior to react objectively
rather than subjectively to accomplish organizational goals
✔ Oral communication — ability to express ideas clearly in words
✔ Written communication — ability to express ideas clearly in writing
✔ Personal impact — ability to create a good impression and instill confidence
✔ Resistance to stress — ability to perform under stressful conditions
✔ Tolerance for uncertainty — ability to perform in ambiguous situations

What Are the Main Responsibilities of Managers
Published: 07 Nov 2017
Entrusted with a leadership role, a manager is responsible for overseeing a department or
group of employees within a specific organisation or company.
Managers are utilised in every sector, and the business model relies on their leadership and
ability to operationalise the management structure.
Working as a manager is an accomplishment because it reveals a professional’s ability to
successfully lead, oversee multiple business operations, manage stress, and effectively
communicate with coworkers.
Across every sector, managers contribute to businesses in significant ways, which are
reflected in company profits, organisation, and overall workplace morale.

Management Structures for Businesses
If you are a business professional, the chances are that you actively participate within your
company’s management structure. While management structures vary depending on the size
and ethos of a company, the two most popular structures include the traditional
hierarchy structure and a flatter structure.
For hierarchy management structures, information flows from the top to the bottom
linearly.

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For flatter structures, there are fewer layers within an organisation, and each level of the
business is composed of many employees that communicate and collaborate.
Regardless of the management structure, it is vital that businesses adopt a means of
organising employees to ensure effective communication.

Responsibilities of a Manager

image source
When entering a management position, you can expect the following ten day to day
responsibilities:
1. Daily Operations: The primary role of a manager is to ensure the daily functioning of a
department or group of employees.
2. Staffing: Most employers expect their managers to interview, hire, and train new
employees.
3. Set Goals: A manager articulates both short and long-term goals to ensure a
company’s longevity.
4. Liaising: Although a manager typically oversees a group of employees, managers also
effectively communicate with their bosses and convey the necessary information to
the various company parties.
5. Administration: Managers complete administrative work and correspond with other
departments.
6. Delegation: Effective managers have confidence in their employees and delegate tasks
according to the department’s needs.
7. Motivate: As a leader, a manager motivates staff and creates an environment where
employees thrive.
8. Enforcing Policy: Managers enforce company policy to cultivate an environment that
makes employees hold one another accountable for their actions.
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9. Training: If new technologies or systems are introduced to business, employers turn to
managers to train employees.
10. Evaluation: To encourage satisfactory work, managers evaluate data and employee
performance.

Skills for Business Management

To be an effective business manager, consider sharpening the following skills:
● Coaching: In the business world, managers coach employees to help them perform
their positions more efficiently.
● Organization: Although departments vary in size, managers are responsible for the
performances of other employees, meaning that managers maintain an organised work
environment.
● Budget Development: Many managers oversee business financials, meaning that
managers have the skills to make budgets.
● Handling Pressure: The business world is often competitive and high pressure, so an
effective manager handles that pressure and thrives in a high stakes environment.
● Adaptation: The business sector is constantly changing, and managers adapt to
alternative technologies, management structures, and forms of communication.
● Initiative: Managers do not always wait for their boss to give them directions. Instead,
they take the initiative and begin projects when necessary.
● Collaboration: The best ideas are often created during collaborative efforts, meaning
that managers take the time to work with their employees, other managers, and their
bosses.
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● Project Management: To ensure success, managers oversee every step of a project and
intervene when necessary.

How to Deliver Success
To be successful on the job, managers tend to adopt the following management approaches:
● Contingency Approach: The Contingency Approach is an approach based on the idea
that management techniques should change depending on the particular situation. In
other words, managers adapt appropriately to various situations and alter their
management styles according to these situations.
● Behavioral Approach: To facilitate a positive work environment, managers approach
their jobs with an awareness of employees’ needs for workplace satisfaction.
● Contemporary Approach: This approach argues that effective managers maintain a
strong staff and equip that staff with the proper tools to make the workplace more
efficient and satisfying.
Strategic Tips for New Managers
The following strategic tips can assist new managers in adapting to their work environment:
● Develop an Ethos: It is important for a manager to establish and maintain the desired
professional ethos when in a new workplace.
● Confidence: Beginning a job with confidence equips a manager with the necessary
authority to manage a new group of employees.
● Interpersonal Relationships: To gain employees’ trust, managers make an effort to
develop interpersonal relationships.
● Stress Management: Beginning a new position is hard, so it is important that
managers practice stress management.
● Transition Slowly: Instead of drastically changing a management system once hired, a
smart manager observes the work environment and slowly transitions to the desired
management style.
While many responsibilities accompany a management position, the role of the manager is a
prestigious accomplishment that reflects an employee’s dedication and commitment to a job.
No matter the sector, companies rely on managers and utilize them to maintain a successful
business model.
Career Opportunities
At Telegraph Jobs, there is a vast range of career opportunities available in management
positions. The latest management jobs feature many high-level employment opportunities
that include jobs such as:

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● General Manager
● Engineering Manager
● IT Operations Manager
● Logistics Manager
● Construction/Site Manager
● Business Development Manager
● Controls Manager
● Managing Director
● FMCG Manager
● Regional Sales Manager
● Healthcare Manager

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CHAPTER – II: Business Strategy Management
What Is Strategic Management?
Strategic management is the management of an organization’s resources to achieve its
goals and objectives. Strategic management involves setting objectives, analyzing the
competitive environment, analyzing the internal organization, evaluating strategies, and
ensuring that management rolls out the strategies across the organization.

Understanding Strategic Management
Strategic management is divided into several schools of thought. A prescriptive
approach to strategic management outlines how strategies should be developed, while a
descriptive approach focuses on how strategies should be put into practice. These schools
differ on whether strategies are developed through an analytic process, in which all threats
and opportunities are accounted for, or are more like general guiding principles to be applied.
Business culture, the skills and competencies of employees, and organizational structure are
all important factors that influence how an organization can achieve its stated objectives.
Inflexible companies may find it difficult to succeed in a changing business environment.
Creating a barrier between the development of strategies and their implementation can make
it difficult for managers to determine whether objectives have been efficiently met.

Strategic management extends to internal and external communication practices as
well as to tracking, which ensures that the company meets goals as defined in its strategic
management plan.
While an organization’s upper management is ultimately responsible for its strategy,
the strategies themselves are often sparked by actions and ideas from lower-level managers
and employees. An organization may have several employees devoted to strategy rather than
relying on the chief executive officer (CEO) for guidance.
Because of this reality, organization leaders focus on learning from past strategies and
examining the environment at large. The collective knowledge is then used to develop future
strategies and to guide the behavior of employees to ensure that the entire organization is
moving forward. For these reasons, effective strategic management requires both an inward
and outward perspective.

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Example of Strategic Management
For example, a for-profit technical college wishes to increase enrollment of new
students and graduation of enrolled students over the next three years. The purpose is to
make the college known as the best buy for a student's money among five for-profit technical
colleges in the region, with a goal of increasing revenue.
In the above case, strategic management means ensuring that the school has funds to create
high-tech classrooms and hire the most qualified instructors. The college also invests in
marketing and recruitment and implements student retention strategies. The college’s
leadership assesses whether its goals have been achieved on a periodic basis.

The strategic management process means defining the organization’s strategy. It is also
defined as the process by which managers make a choice of a set of strategies for the
organization that will enable it to achieve better performance.
Strategic management is a continuous process that appraises the business and industries in
which the organization is involved; appraises its competitors; and fixes goals to meet the
entire present and future competitor’s and then reassesses each strategy.
Strategic management process has following four steps:
1. Environmental Scanning- Environmental scanning refers to a process of collecting,
scrutinizing and providing information for strategic purposes. It helps in analyzing
the internal and external factors influencing an organization. After executing the
environmental analysis process, management should evaluate it on a continuous basis
and strive to improve it.
2. Strategy Formulation- Strategy formulation is the process of deciding best course of
action for accomplishing organizational objectives and hence achieving organizational
purpose. After conducting environment scanning, managers formulate corporate,
business and functional strategies.
3. Strategy Implementation- Strategy implementation implies making the strategy work
as intended or putting the organization’s chosen strategy into action. Strategy
implementation includes designing the organization’s structure, distributing
resources, developing decision making process, and managing human resources.
4. Strategy Evaluation- Strategy evaluation is the final step of strategy management
process. The key strategy evaluation activities are: appraising internal and external
factors that are the root of present strategies, measuring performance, and taking
remedial / corrective actions. Evaluation makes sure that the organizational strategy
as well as it’s implementation meets the organizational objectives.

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These components are steps that are carried, in chronological order, when creating a new
strategic management plan. Present businesses that have already created a strategic
management plan will revert to these steps as per the situation’s requirement, so as to make
essential changes.

Components of Strategic Management Process
Strategic management is an ongoing process. Therefore, it must be realized that each
component interacts with the other components and that this interaction often happens in
chorus.
Strategy - Definition and Features
The word “strategy” is derived from the Greek word “stratçgos”; stratus (meaning army) and
“ago” (meaning leading/moving).
Strategy is an action that managers take to attain one or more of the organization’s goals.
Strategy can also be defined as “A general direction set for the company and its various
components to achieve a desired state in the future. Strategy results from the detailed
strategic planning process”.
A strategy is all about integrating organizational activities and utilizing and allocating the
scarce resources within the organizational environment so as to meet the present objectives.
While planning a strategy it is essential to consider that decisions are not taken in a vaccum
and that any act taken by a firm is likely to be met by a reaction from those affected,
competitors, customers, employees or suppliers.
Strategy can also be defined as knowledge of the goals, the uncertainty of events and the
need to take into consideration the likely or actual behavior of others. Strategy is the
blueprint of decisions in an organization that shows its objectives and goals, reduces the key
policies, and plans for achieving these goals, and defines the business the company is to carry
on, the type of economic and human organization it wants to be, and the contribution it
plans to make to its shareholders, customers and society at large.
Features of Strategy
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1. Strategy is Significant because it is not possible to foresee the future. Without a

perfect foresight, the firms must be ready to deal with the uncertain events which
constitute the business environment.
2. Strategy deals with long term developments rather than routine operations, i.e. it
deals with probability of innovations or new products, new methods of productions,
or new markets to be developed in future.
3. Strategy is created to take into account the probable behavior of customers and
competitors. Strategies dealing with employees will predict the employee behavior.

Strategy is a well-defined roadmap of an organization. It defines the overall mission, vision
and direction of an organization. The objective of a strategy is to maximize an organization’s
strengths and to minimize the strengths of the competitors.
Strategy, in short, bridges the gap between “where we are” and “where we want to be”.

Importance of Vision and Mission Statements
One of the first things that any observer of management thought and practice asks is
whether a particular organization has a vision and mission statement. In addition, one of the
first things that one learns in a business school is the importance of vision and mission
statements.
This article is intended to elucidate on the reasons why vision and mission statements are
important and the benefits that such statements provide to the organizations. It has been
found in studies that organizations that have lucid, coherent, and meaningful vision and
mission statements return more than double the numbers in shareholder benefits when
compared to the organizations that do not have vision and mission statements. Indeed, the
importance of vision and mission statements is such that it is the first thing that is discussed
in management textbooks on strategy.
Some of the benefits of having a vision and mission statement are discussed below:
▪ Above everything else, vision and mission statements provide unanimity of purpose
to organizations and imbue the employees with a sense of belonging and identity.
Indeed, vision and mission statements are embodiments of organizational identity and
carry the organizations creed and motto. For this purpose, they are also called as
statements of creed.
▪ Vision and mission statements spell out the context in which the organization
operates and provides the employees with a tone that is to be followed in the
organizational climate. Since they define the reason for existence of the organization,
they are indicators of the direction in which the organization must move to actualize
the goals in the vision and mission statements.
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▪ The vision and mission statements serve as focal points for individuals to identify
themselves with the organizational processes and to give them a sense of direction
while at the same time deterring those who do not wish to follow them from
participating in the organization’s activities.
▪ The vision and mission statements help to translate the objectives of the organization
into work structures and to assign tasks to the elements in the organization that are
responsible for actualizing them in practice.
▪ To specify the core structure on which the organizational edifice stands and to help in
the translation of objectives into actionable cost, performance, and time related
measures.
▪ Finally, vision and mission statements provide a philosophy of existence to the
employees, which is very crucial because as humans, we need meaning from the work
to do and the vision and mission statements provide the necessary meaning for
working in a particular organization.
As can be seen from the above, articulate, coherent, and meaningful vision and mission
statements go a long way in setting the base performance and actionable parameters and
embody the spirit of the organization. In other words, vision and mission statements are as
important as the various identities that individuals have in their everyday lives.
It is for this reason that organizations spend a lot of time in defining their vision and mission
statements and ensure that they come up with the statements that provide meaning instead
of being mere sentences that are devoid of any meaning.

SWOT Analysis of Unilever
Introduction
Unilever operates in nearly 190 countries around the world and has been a traditional
paragon of excellence and quality in the Fast Moving Consumer Goods sector. The company
derives its competitive advantage from its global footprint and its track record of enhancing
value for the consumers around the world. Even in the current recessionary environment, it
has managed to grow at a respectable pace though as we shall discuss latter, Unilever cannot
afford to ignore the emerging threats from a wide range of global, regional, and local players.
Apart from this, as the succeeding SWOT Analysis makes it clear, the battle for the emerging
markets is likely to escalate into a no holds barred competition with a race to the bottom
ensuing between the global giants like Unilever and Proctor and Gamble and a array of local
players.
Strengths
▪ Unilever operates in nearly 190 countries around the world and hence, has a global
footprint combined with top of the mind brand recall among consumers worldwide.
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▪ It has a deep and broad portfolio of brands and a diversified product range, which
makes it uniquely, positioned to tap into the changing consumer preferences across
the world.
▪ Its Research and Development initiatives are heavily funded and manage to bring to
the market innovative and cutting edge products in tune and in line with consumer
preferences.
▪ Unilever has a distinct competitive advantage over its nearest competitor, Proctor
and Gamble because of its flexible pricing and expertise in distribution channels that
manage to reach the nook and the corner of the globe.
▪ The company finds its strengths in leveraging the economies of scale arising from its
breadth of operations as well as synergies between its many manufacturing facilities,
which totaled 270 locations around the world at last count.
▪ Unilever combines global thinking with local execution, which means that it pursues
Glocal strategies that let it win the hearts and minds of consumers who would like to
use its products that are globally famous yet retain a distinct local flavor.
Weaknesses
▪ The biggest weakness that Unilever faces is that it operates in an uber competitive
market where the other global giants like P&G and Nestle in addition to a host of
local players challenge its dominance at every turn and raise the stakes in the Trillion
Dollar FMCG (Fast Moving Consumer Goods) space.
▪ The other weakness is that its products can easily be replaced with substitutes
especially in the emerging markets in Africa and Asia where the rural consumers in
the hinterland often use traditional and natural alternatives to the products that
Unilever markets.
Opportunities
▪ With the advent of globalization and the proliferation of global media, consumers in
the emerging markets are aspiring to western lifestyles and this means that Unilever
has a tremendous opportunity waiting for it as it taps into this large and diversified
consumer base that wants to join the league of westerners in taste and preferences for
consumer goods.
▪ Apart from that, capturing the “Newly Affluent Trillion Dollar Consumers” in China
and India means that it has a golden opportunity to leverage this huge and growing
consumer base, which often tries to imitate and mimic the consumerist preferences of
the material west.
▪ The emergence of the health conscious consumer in the developed world means that
Unilever can seize the opportunity to market to this segment with its existing and yet
to be launched product range that is specially geared for the health conscious
consumer.

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▪ Unilever has a good track record of social and environment responsibility and with
the emergence of the ethical chic consumer who like to buy and consume products and
brands that are responsibly made and sustainably complete.
Threats
▪ The ongoing global economic crisis has severely dented the profitability of many
FMCG companies and Unilever is no exception. With the shrinking of the disposable
incomes of the global consumer, they are buying less and insisting on more value for
their money or “more bang for the buck”. This means that Unilever faces the threat
of diminished revenues and increasing costs, which is like a “Double Whammy” to its
top-line, and bottom-line.
▪ Though we had mentioned that Unilever succeeds and scores over P&G in the CSR or
the Corporate Social Responsibility aspect, the increased awareness among the global
consumers has turned the harsh glare into each and every strategic move that the
company makes. Some practices of the company have been criticized which means
that Unilever has to ensure that it sustains and maintains its focus especially when
the spotlight is on it.
▪ As mentioned earlier, Unilever operates in a market segment where local products and
alternatives to its brands proliferate especially in the emerging markets and hence, it
faces a threat from smaller and more nimble local upstarts who can provide more
value for lesser money without the associated costs that global giants like Unilever
incur.
▪ The entry of Asian multinationals into the global arena has upped the ante for
Unilever and raised the stakes in the global game for dominance in the FMCG market
segment. This means that Unilever faces the prospect of having to battle not only the
recessionary blues but also emerging threats from this new age and new breed of
competition from Asian conglomerates that are beginning to spread their wings
internationally.
Conclusion
Unilever has been in the business of consumer fulfillment for many decades and hence, we are
confident that it can tide over the present gloomy conditions in the FMCG segment. Having
said that, we conclude the article with a cautionary note of not taking the threat from the
Asian FMCG majors lightly as they understand the continent better and at the same time are
mastering the intricacies of the global marketplace.

Business Policy - Definition and Features
Definition of Business Policy
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Business Policy defines the scope or spheres within which decisions can be taken by the
subordinates in an organization. It permits the lower level management to deal with the
problems and issues without consulting top level management every time for decisions.
Business policies are the guidelines developed by an organization to govern its actions. They
define the limits within which decisions must be made. Business policy also deals with
acquisition of resources with which organizational goals can be achieved. Business policy is
the study of the roles and responsibilities of top level management, the significant issues
affecting organizational success and the decisions affecting organization in long-run.

Features of Business Policy
An effective business policy must have following features-
1. Specific- Policy should be specific/definite. If it is uncertain, then the implementation
will become difficult.
2. Clear- Policy must be unambiguous. It should avoid use of jargons and connotations.
There should be no misunderstandings in following the policy.
3. Reliable/Uniform- Policy must be uniform enough so that it can be efficiently
followed by the subordinates.
4. Appropriate- Policy should be appropriate to the present organizational goal.
5. Simple- A policy should be simple and easily understood by all in the organization.
6. Inclusive/Comprehensive- In order to have a wide scope, a policy must be
comprehensive.
7. Flexible- Policy should be flexible in operation/application. This does not imply that a
policy should be altered always, but it should be wide in scope so as to ensure that the
line managers use them in repetitive/routine scenarios.
8. Stable- Policy should be stable else it will lead to indecisiveness and uncertainty in
minds of those who look into it for guidance.
Difference between Policy and Strategy
The term “policy” should not be considered as synonymous to the term “strategy”.
The difference between policy and strategy can be summarized as follows-
1. Policy is a blueprint of the organizational activities which are repetitive/routine in
nature. While strategy is concerned with those organizational decisions which have
not been dealt/faced before in same form.
2. Policy formulation is responsibility of top level management. While strategy
formulation is basically done by middle level management.
3. Policy deals with routine/daily activities essential for effective and efficient running of
an organization. While strategy deals with strategic decisions.
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4. Policy is concerned with both thought and actions. While strategy is concerned
mostly with action.
5. A policy is what is, or what is not done. While a strategy is the methodology used to
achieve a target as prescribed by a policy.

Components of a Strategy Statement
The strategy statement of a firm sets the firm’s long-term strategic direction and broad
policy directions. It gives the firm a clear sense of direction and a blueprint for the firm’s
activities for the upcoming years. The main constituents of a strategic statement are as
follows:
1. Strategic Intent
An organization’s strategic intent is the purpose that it exists and why it will continue to
exist, providing it maintains a competitive advantage. Strategic intent gives a picture about
what an organization must get into immediately in order to achieve the company’s vision. It
motivates the people. It clarifies the vision of the vision of the company.
Strategic intent helps management to emphasize and concentrate on the priorities. Strategic
intent is, nothing but, the influencing of an organization’s resource potential and core
competencies to achieve what at first may seem to be unachievable goals in the competitive
environment. A well expressed strategic intent should guide/steer the development of
strategic intent or the setting of goals and objectives that require that all of organization’s
competencies be controlled to maximum value.
Strategic intent includes directing organization’s attention on the need of winning; inspiring
people by telling them that the targets are valuable; encouraging individual and team
participation as well as contribution; and utilizing intent to direct allocation of resources.
Strategic intent differs from strategic fit in a way that while strategic fit deals with
harmonizing available resources and potentials to the external environment, strategic intent
emphasizes on building new resources and potentials so as to create and exploit future
opportunities.
2. Mission Statement
Mission statement is the statement of the role by which an organization intends to serve it’s
stakeholders. It describes why an organization is operating and thus provides a framework
within which strategies are formulated. It describes what the organization does (i.e., present

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capabilities), who all it serves (i.e., stakeholders) and what makes an organization unique
(i.e., reason for existence).
A mission statement differentiates an organization from others by explaining its broad scope
of activities, its products, and technologies it uses to achieve its goals and objectives. It talks
about an organization’s present (i.e., “about where we are”). For instance, Microsoft’s
mission is to help people and businesses throughout the world to realize their full
potential. Wal-Mart’s mission is “To give ordinary folk the chance to buy the same thing as
rich people.” Mission statements always exist at top level of an organization, but may also be
made for various organizational levels. Chief executive plays a significant role in formulation
of mission statement. Once the mission statement is formulated, it serves the organization in
long run, but it may become ambiguous with organizational growth and innovations.
In today’s dynamic and competitive environment, mission may need to be redefined.
However, care must be taken that the redefined mission statement should have original
fundamentals/components. Mission statement has three main components-a statement of
mission or vision of the company, a statement of the core values that shape the acts and
behaviour of the employees, and a statement of the goals and objectives.
Features of a Mission
a. Mission must be feasible and attainable. It should be possible to achieve it.
b. Mission should be clear enough so that any action can be taken.
c. It should be inspiring for the management, staff and society at large.
d. It should be precise enough, i.e., it should be neither too broad nor too narrow.
e. It should be unique and distinctive to leave an impact in everyone’s mind.
f. It should be analytical,i.e., it should analyze the key components of the
strategy.
g. It should be credible, i.e., all stakeholders should be able to believe it.
3. Vision
A vision statement identifies where the organization wants or intends to be in future or where
it should be to best meet the needs of the stakeholders. It describes dreams and aspirations
for future. For instance, Microsoft’s vision is “to empower people through great software, any
time, any place, or any device.” Wal-Mart’s vision is to become worldwide leader in retailing.
A vision is the potential to view things ahead of themselves. It answers the question “where
we want to be”. It gives us a reminder about what we attempt to develop. A vision statement
is for the organization and it’s members, unlike the mission statement which is for the
customers/clients. It contributes in effective decision making as well as effective business
planning. It incorporates a shared understanding about the nature and aim of the
organization and utilizes this understanding to direct and guide the organization towards a
better purpose. It describes that on achieving the mission, how the organizational future
would appear to be.

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An effective vision statement must have following features-

a. It must be unambiguous.
b. It must be clear.
c. It must harmonize with organization’s culture and values.
d. The dreams and aspirations must be rational/realistic.
e. Vision statements should be shorter so that they are easier to memorize.

In order to realize the vision, it must be deeply instilled in the organization, being owned and
shared by everyone involved in the organization.
4. Goals and Objectives
A goal is a desired future state or objective that an organization tries to achieve. Goals
specify in particular what must be done if an organization is to attain mission or vision.
Goals make mission more prominent and concrete. They co-ordinate and integrate various
functional and departmental areas in an organization. Well made goals have following
features-
a. These are precise and measurable.
b. These look after critical and significant issues.
c. These are realistic and challenging.
d. These must be achieved within a specific time frame.
e. These include both financial as well as non-financial components.
Objectives are defined as goals that organization wants to achieve over a period of time.
These are the foundation of planning. Policies are developed in an organization so as to
achieve these objectives. Formulation of objectives is the task of top level management.
Effective objectives have following features-
f. These are not single for an organization, but multiple.
g. Objectives should be both short-term as well as long-term.
h. Objectives must respond and react to changes in environment, i.e., they must
be flexible.
i. These must be feasible, realistic and operational.

Strategy Formulation vs Strategy Implementation
Following are the main differences between Strategy Formulation and Strategy
Implementation-
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Strategy Formulation Strategy Implementation

Strategy Formulation includes planning and Strategy Implementation involves all those
decision-making involved in developing means related to executing the strategic
organization’s strategic goals and plans. plans.
In short, Strategy Formulation is placing the In short, Strategy Implementation
Forces before the action. is managing forces during the action.
Strategy Formulation is an Entrepreneurial Strategic Implementation is mainly
Activity based on strategic decision-making. an Administrative Task based on strategic and
operational decisions.
Strategy Formulation emphasizes Strategy Implementation emphasizes
on effectiveness. on efficiency.
Strategy Formulation is a rational process. Strategy Implementation is basically
an operational process.
Strategy Formulation requires co-ordination Strategy Implementation requires
among few individuals. co-ordination among many individuals.
Strategy Formulation requires a great deal Strategy Implementation requires
of initiative and logical skills. specific motivational and leadership traits.
Strategic Formulation precedes Strategy Strategy Implementation follows Strategy
Implementation. Formulation.

Benefits of Strategic Management
There are many benefits of strategic management and they include identification,
prioritization, and exploration of opportunities. For instance, newer products, newer markets,
and newer forays into business lines are only possible if firms indulge in strategic planning.
Next, strategic management allows firms to take an objective view of the activities being
done by it and do a cost benefit analysis as to whether the firm is profitable.
Just to differentiate, by this, we do not mean the financial benefits alone (which would be
discussed below) but also the assessment of profitability that has to do with evaluating
whether the business is strategically aligned to its goals and priorities.
The key point to be noted here is that strategic management allows a firm to orient itself to
its market and consumers and ensure that it is actualizing the right strategy.
Financial Benefits
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It has been shown in many studies that firms that engage in strategic management are more
profitable and successful than those that do not have the benefit of strategic planning and
strategic management.
When firms engage in forward looking planning and careful evaluation of their priorities,
they have control over the future, which is necessary in the fast changing business landscape
of the 21st century.
It has been estimated that more than 100,000 businesses fail in the US every year and most
of these failures are to do with a lack of strategic focus and strategic direction. Further, high
performing firms tend to make more informed decisions because they have considered both
the short term and long-term consequences and hence, have oriented their strategies
accordingly. In contrast, firms that do not engage themselves in meaningful strategic
planning are often bogged down by internal problems and lack of focus that leads to failure.
Non-Financial Benefits
The section above discussed some of the tangible benefits of strategic management. Apart
from these benefits, firms that engage in strategic management are more aware of the
external threats, an improved understanding of competitor strengths and weaknesses and
increased employee productivity. They also have lesser resistance to change and a clear
understanding of the link between performance and rewards.
The key aspect of strategic management is that the problem solving and problem preventing
capabilities of the firms are enhanced through strategic management. Strategic management
is essential as it helps firms to rationalize change and actualize change and communicate the
need to change better to its employees. Finally, strategic management helps in bringing order
and discipline to the activities of the firm in its both internal processes and external
activities.
Closing Thoughts
In recent years, virtually all firms have realized the importance of strategic management.
However, the key difference between those who succeed and those who fail is that the way in
which strategic management is done and strategic planning is carried out makes the
difference between success and failure. Of course, there are still firms that do not engage in
strategic planning or where the planners do not receive the support from management. These
firms ought to realize the benefits of strategic management and ensure their longer-term
viability and success in the marketplace.

BCG Matrix
Boston Consulting Group (BCG) Matrix is a four celled matrix (a 2 * 2 matrix) developed by
BCG, USA. It is the most renowned corporate portfolio analysis tool. It provides a graphic
representation for an organization to examine different businesses in it’s portfolio on the
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basis of their related market share and industry growth rates. It is a two dimensional analysis
on management of SBU’s (Strategic Business Units). In other words, it is a comparative
analysis of business potential and the evaluation of environment.
According to this matrix, business could be classified as high or low according to their
industry growth rate and relative market share.
Relative Market Share = SBU Sales this year leading competitors sales this year.

Market Growth Rate = Industry sales this year - Industry Sales last year.
The analysis requires that both measures be calculated for each SBU. The dimension of
business strength, relative market share, will measure comparative advantage indicated by
market dominance. The key theory underlying this is existence of an experience curve and
that market share is achieved due to overall cost leadership.
BCG matrix has four cells, with the horizontal axis representing relative market share and
the vertical axis denoting market growth rate. The mid-point of relative market share is set
at 1.0. if all the SBU’s are in same industry, the average growth rate of the industry is used.
While, if all the SBU’s are located in different industries, then the mid-point is set at the
growth rate for the economy.
Resources are allocated to the business units according to their situation on the grid. The
four cells of this matrix have been called as stars, cash cows, question marks and dogs. Each
of these cells represents a particular type of business.

10 x 1 x 0.1
x
Figure: BCG Matrix
1. Stars- Stars represent business units having large market share in a fast growing
industry. They may generate cash but because of fast growing market, stars require
huge investments to maintain their lead. Net cash flow is usually modest. SBU’s

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located in this cell are attractive as they are located in a robust industry and these
business units are highly competitive in the industry. If successful, a star will become
a cash cow when the industry matures.
2. Cash Cows- Cash Cows represents business units having a large market share in a
mature, slow growing industry. Cash cows require little investment and generate cash
that can be utilized for investment in other business units. These SBU’s are the
corporation’s key source of cash, and are specifically the core business. They are the
base of an organization. These businesses usually follow stability strategies. When
cash cows loose their appeal and move towards deterioration, then a retrenchment
policy may be pursued.
3. Question Marks- Question marks represent business units having low relative market
share and located in a high growth industry. They require huge amount of cash to
maintain or gain market share. They require attention to determine if the venture can
be viable. Question marks are generally new goods and services which have a good
commercial prospective. There is no specific strategy which can be adopted. If the
firm thinks it has dominant market share, then it can adopt expansion strategy, else
retrenchment strategy can be adopted. Most businesses start as question marks as the
company tries to enter a high growth market in which there is already a
market-share. If ignored, then question marks may become dogs, while if huge
investment is made, then they have potential of becoming stars.
4. Dogs- Dogs represent businesses having weak market shares in low-growth markets.
They neither generate cash nor require huge amount of cash. Due to low market
share, these business units face cost disadvantages. Generally retrenchment strategies
are adopted because these firms can gain market share only at the expense of
competitor’s/rival firms. These business firms have weak market share because of high
costs, poor quality, ineffective marketing, etc. Unless a dog has some other strategic
aim, it should be liquidated if there is fewer prospects for it to gain market share.
Number of dogs should be avoided and minimized in an organization.
Limitations of BCG Matrix
The BCG Matrix produces a framework for allocating resources among different business
units and makes it possible to compare many business units at a glance. But BCG Matrix is
not free from limitations, such as-
1. BCG matrix classifies businesses as low and high, but generally businesses can be
medium also. Thus, the true nature of business may not be reflected.
2. Market is not clearly defined in this model.
3. High market share does not always leads to high profits. There are high costs also
involved with high market share.
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4. Growth rate and relative market share are not the only indicators of profitability.
This model ignores and overlooks other indicators of profitability.
5. At times, dogs may help other businesses in gaining competitive advantage. They can
earn even more than cash cows sometimes.
6. This four-celled approach is considered as to be too simplistic.

SWOT Analysis - Definition, Advantages and Limitations
SWOT is an acronym for Strengths, Weaknesses, Opportunities and Threats. By definition,
Strengths (S) and Weaknesses (W) are considered to be internal factors over which you have
some measure of control. Also, by definition, Opportunities (O) and Threats (T) are
considered to be external factors over which you have essentially no control.
SWOT Analysis is the most renowned tool for audit and analysis of the overall strategic
position of the business and its environment. Its key purpose is to identify the strategies that
will create a firm specific business model that will best align an organization’s resources and
capabilities to the requirements of the environment in which the firm operates.
In other words, it is the foundation for evaluating the internal potential and limitations and
the probable/likely opportunities and threats from the external environment. It views all
positive and negative factors inside and outside the firm that affect the success. A consistent
study of the environment in which the firm operates helps in forecasting/predicting the
changing trends and also helps in including them in the decision-making process of the
organization.
An overview of the four factors (Strengths, Weaknesses, Opportunities and Threats) is given
below-
1. Strengths - Strengths are the qualities that enable us to accomplish the organization’s
mission. These are the basis on which continued success can be made and
continued/sustained.
Strengths can be either tangible or intangible. These are what you are well-versed in or what
you have expertise in, the traits and qualities your employees possess (individually and as a
team) and the distinct features that give your organization its consistency.
Strengths are the beneficial aspects of the organization or the capabilities of an organization,
which includes human competencies, process capabilities, financial resources, products and
services, customer goodwill and brand loyalty. Examples of organizational strengths are
huge financial resources, broad product line, no debt, committed employees, etc.
2. Weaknesses - Weaknesses are the qualities that prevent us from accomplishing our
mission and achieving our full potential. These weaknesses deteriorate influences on
the organizational success and growth. Weaknesses are the factors which do not meet
the standards we feel they should meet.
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Weaknesses in an organization may be depreciating machinery, insufficient research and

development facilities, narrow product range, poor decision-making, etc. Weaknesses are
controllable. They must be minimized and eliminated. For instance - to overcome obsolete
machinery, new machinery can be purchased. Other examples of organizational weaknesses
are huge debts, high employee turnover, complex decision making process, narrow product
range, large wastage of raw materials, etc.
3. Opportunities - Opportunities are presented by the environment within which our
organization operates. These arise when an organization can take benefit of conditions
in its environment to plan and execute strategies that enable it to become more
profitable. Organizations can gain competitive advantage by making use of
opportunities.
Organization should be careful and recognize the opportunities and grasp them whenever
they arise. Selecting the targets that will best serve the clients while getting desired results is
a difficult task. Opportunities may arise from market, competition, industry/government and
technology. Increasing demand for telecommunications accompanied by deregulation is a
great opportunity for new firms to enter telecom sector and compete with existing firms for
revenue.
4. Threats - Threats arise when conditions in external environment jeopardize the
reliability and profitability of the organization’s business. They compound the
vulnerability when they relate to the weaknesses. Threats are uncontrollable. When a
threat comes, the stability and survival can be at stake. Examples of threats are -
unrest among employees; ever changing technology; increasing competition leading to
excess capacity, price wars and reducing industry profits; etc.

Advantages of SWOT Analysis
SWOT Analysis is instrumental in strategy formulation and selection. It is a strong tool, but
it involves a great subjective element. It is best when used as a guide, and not as a
prescription. Successful businesses build on their strengths, correct their weakness and
protect against internal weaknesses and external threats. They also keep a watch on their
overall business environment and recognize and exploit new opportunities faster than its
competitors.
SWOT Analysis helps in strategic planning in following manner-
a. It is a source of information for strategic planning.
b. Builds organization’s strengths.
c. Reverse its weaknesses.
d. Maximize its response to opportunities.
e. Overcome organization’s threats.
f. It helps in identifying core competencies of the firm.

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g. It helps in setting of objectives for strategic planning.

h. It helps in knowing past, present and future so that by using past and current data,
future plans can be chalked out.
SWOT Analysis provide information that helps in synchronizing the firm’s resources and
capabilities with the competitive environment in which the firm operates.
SWOT ANALYSIS FRAMEWORK

Limitations of SWOT Analysis
SWOT Analysis is not free from its limitations. It may cause organizations to view
circumstances as very simple because of which the organizations might overlook certain key
strategic contact which may occur. Moreover, categorizing aspects as strengths, weaknesses,
opportunities and threats might be very subjective as there is great degree of uncertainty in
market. SWOT Analysis does stress upon the significance of these four aspects, but it does
not tell how an organization can identify these aspects for itself.
There are certain limitations of SWOT Analysis which are not in control of management.
These include-
a. Price increase;
b. Inputs/raw materials;
c. Government legislation;
d. Economic environment;
e. Searching a new market for the product which is not having overseas market due to
import restrictions; etc.
Internal limitations may include-
a. Insufficient research and development facilities;
b. Faulty products due to poor quality control;
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c. Poor industrial relations;

d. Lack of skilled and efficient labour; etc

Business Policy - Definition and Features
Definition of Business Policy
Business Policy defines the scope or spheres within which decisions can be taken by the
subordinates in an organization. It permits the lower level management to deal with the
problems and issues without consulting top level management every time for decisions.
Business policies are the guidelines developed by an organization to govern its actions. They
define the limits within which decisions must be made. Business policy also deals with
acquisition of resources with which organizational goals can be achieved. Business policy is
the study of the roles and responsibilities of top level management, the significant issues
affecting organizational success and the decisions affecting organization in long-run.

Features of Business Policy
An effective business policy must have following features-
1. Specific- Policy should be specific/definite. If it is uncertain, then the implementation
will become difficult.
2. Clear- Policy must be unambiguous. It should avoid use of jargons and connotations.
There should be no misunderstandings in following the policy.
3. Reliable/Uniform- Policy must be uniform enough so that it can be efficiently
followed by the subordinates.
4. Appropriate- Policy should be appropriate to the present organizational goal.
5. Simple- A policy should be simple and easily understood by all in the organization.
6. Inclusive/Comprehensive- In order to have a wide scope, a policy must be
comprehensive.
7. Flexible- Policy should be flexible in operation/application. This does not imply that a
policy should be altered always, but it should be wide in scope so as to ensure that the
line managers use them in repetitive/routine scenarios.
8. Stable- Policy should be stable else it will lead to indecisiveness and uncertainty in
minds of those who look into it for guidance.

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Difference between Policy and Strategy

The term “policy” should not be considered as synonymous to the term “strategy”.
The difference between policy and strategy can be summarized as follows-
1. Policy is a blueprint of the organizational activities which are repetitive/routine in
nature. While strategy is concerned with those organizational decisions which have
not been dealt/faced before in same form.
2. Policy formulation is responsibility of top level management. While strategy
formulation is basically done by middle level management.
3. Policy deals with routine/daily activities essential for effective and efficient running of
an organization. While strategy deals with strategic decisions.
4. Policy is concerned with both thought and actions. While strategy is concerned
mostly with action.
5. A policy is what is, or what is not done. While a strategy is the methodology used to
achieve a target as prescribed by a policy.

Competitor Analysis - Meaning, Objectives and Significance
Organizations must operate within a competitive industry environment. They do not
exist in vacuum. Analyzing organization’s competitors helps an organization to discover its
weaknesses, to identify opportunities for and threats to the organization from the industrial
environment. While formulating an organization’s strategy, managers must consider the
strategies of organization’s competitors. Competitor analysis is a driver of an organization’s
strategy and effects on how firms act or react in their sectors. The organization does a
competitor analysis to measure / assess its standing amongst the competitors.
Competitor analysis begins with identifying present as well as potential competitors.
It portrays an essential appendage to conduct an industry analysis. An industry
analysis gives information regarding probable sources of competition (including all the
possible strategic actions and reactions and effects on profitability for all the organizations
competing in the industry). However, a well-thought competitor analysis permits an
organization to concentrate on those organizations with which it will be in direct
competition, and it is especially important when an organization faces a few potential
competitors.
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Michael Porter in Porter’s Five Forces Model has assumed that the competitive
environment within an industry depends on five forces- Threat of new potential entrants,
Threat of substitute product/services, bargaining power of suppliers, bargaining power of
buyers, Rivalry among current competitors. These five forces should be used as a conceptual
background for identifying an organization’s competitive strengths and weaknesses and
threats to and opportunities for the organization from it’s competitive environment.
The main objectives of doing competitor analysis can be summarized as follows:
To study the market;
To predict and forecast organization’s demand and supply;
To formulate strategy;
To increase the market share;
To study the market trend and pattern;
To develop strategy for organizational growth;
When the organization is planning for the diversification and expansion plan;
To study forthcoming trends in the industry;
Understanding the current strategy strengths and weaknesses of a competitor can suggest
opportunities and threats that will merit a response;
Insight into future competitor strategies may help in predicting upcoming threats and
opportunities.

Competitors should be analyzed along various dimensions such as their size, growth and
profitability, reputation, objectives, culture, cost structure, strengths and weaknesses,
business strategies, exit barriers, etc.

What is Competitive Advantage in the Field of Strategic Management?
What is Competitive Advantage ?
It is a truism that strategic management is all about gaining and maintaining
competitive advantage. The term can be defined to mean “anything that a firm does
especially well when compared with rival firms”. Note the emphasis on comparison with rival
firms as competitive advantage is all about how best to best the rivals and stay competitive
in the market.
Competitive advantage accrues to a firm when it does something that the rivals cannot do or
owns something that the rival firms desire. For instance, for some firms, competitive
advantage in these recessionary times can mean a hoard of cash where it can buy out
struggling firms and increase its strategic position. In other cases, competitive advantage can
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mean that a firm has lesser-fixed assets when compared to rival firms, which is again a plus
in an economic downturn.
What is Sustained Competitive Advantage ?
We have defined what competitive advantage is as it relates to strategic management and
the sources of competitive advantage differing from firm to firm. However, a firm can have a
source of competitive advantage for only a certain period because the rival firms imitate and
copy the successful firms’ strategies leading to the original firm losing its source of
competitive advantage over the longer term. Hence, it is imperative for firms to develop and
nurture sustained competitive advantage.
This can be done by:
▪ Continually adapting to the changing external business landscape and matching
internal strengths and capabilities by channeling resources and competencies in a fluid
manner.
▪ By formulating, implementing, and evaluating strategies in an effective manner
which make use of the factors described above.
The fact that firms lose their sources of competitive advantage over the longer term is borne
out by statistics that show that the top three broadcast networks in the United States had
over 90 percent market share in 1978 which has now come down to less than 50 percent.

The Advent of the Internet and Competitive Advantage
With the advent of the internet, competitive advantage and the gaining of it has become
easier as firms directly sell to the consumers and interlink the suppliers, customers, creditors,
and other stakeholders into its value chain. Because of the removal of intermediaries, firms
can reduce costs and improve profitability. Essentially, the internet has changed the rules of
the game and hence sources of competitive advantage in this digital era are now about how
well firms utilize the digital platform and social media to gain advantage over their rivals.

Closing Thoughts
Finally, competitive advantage has to be earned, gained, and defended as the preceding
discussion shows. Hence, those firms that are agile and responsive to changing market
conditions and whose internal capabilities are aligned with the external opportunities are
those who would survive in the brutal business landscape of the 21st century. As can be seen
from the characterization of competitive advantage, it is ethereal and subject to change and
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hence firms must always been on the lookout for newer sources of competitive advantage and
be alert for competitors’ moves.

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Fundamentals of Business 2019

CHAPTER – I: Business Management: An Introduction

1. Strategy is Significant because it is not possible to foresee the future. Without a

An effective vision statement must have following features-

Strategy Formulation Strategy Implementation

Weaknesses in an organization may be depreciating machinery, insufficient research and

g. It helps in setting of objectives for strategic planning.

c. Poor industrial relations;

Difference between Policy and Strategy

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