BM Short Notes (PBP)

Prepared by : Muhammad Asif
Updated &: Faraz Ahmad

Presented by : Syed Atif Hassan Abidi
PREFACE
The Examinations of ICAP are a demanding test of students ability to master the wide
range of knowledge and skills required of the modern professionals. Subject of Business
Management is one of the efforts made by ICAP in this context for enhancing students
knowledge about detailed overview of effective management of businesses.
The best and recommended book for this subject is Study Text by PBP that covers each
and every area of syllabus in extraordinary detail. The basic problems faced by the
students in going through PBP are its size and the language used. Students who are new
to this subject have to spend most of their precious time in understanding the theme
conveyed in any chapter. Moreover students feel it very hard to revise the complete
course near or on the exam day.
For these reasons there arise needs to have some short and easy to revise notes for this
subject that covers the extent of PBP in a concise form. For this purpose we used short
notes of PBP prepared by Muhammad Asif (Ex A.M, AFF & Co Lahore) 3 years earlier.
After compiling the notes Faraz Ahmad reorganized the notes and updated it using the
PBP. Now those notes are finalized and presented to you in a booklet form. Hopefully it
will help you all.
I would suggest that first of all you should read BM from PBP and afterwards you may
consult these notes for revision purposes. An Annexure has been given at the end of this
booklet to help you deciding how you can use this booklet in combination with PBP.
May ALLAH bless you with success in every exam of both lives.
For notes & other study

Thanks material for module E visit
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Faraz Ahmad
These notes are also
March 31, 2009 available at
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Chapter 1 : Objectives of Organisation
Introduction to Strategy
Strategy:
Course of actions, including specification of resources required, to achieve a specific objective
Influences on /Determinants of Strategy:

External
o Society
o Organized groups
Nature of business
o Market situation and conditions
o Products of company
o Technology used
Organizations Culture
o Organizational system and structure
o Leadership style
o Organizations history
o Organizations founder
Stakeholders powers (mapping) and Internal coalition
Economic objectives
Social responsibility
Environmental conditions affecting Strategic Planning:

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

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

It is identification of strategies able to maximize NPV and to allocate scarce resources, and implementing and
monitoring of such strategy.
Financial management decision: (Also see end of chapter 9)

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

Financial objectives: Non financial objectives:
Primary; to maximize wealth of shareholders Service provision.
Others are Fulfillment of responsibility to suppliers & customers.
o Decrease in debt. Welfare of Society
o Profit retention. Welfare of Management
o Sales growth. Welfare of Employees
Government organizations:
External Financing Limit.
To create Value for Money, funds must be applied Economically, Efficiently and Effectively.
Chapter 2 & 4 : Strategy Formulation and
Choice
Strategy formulation/choice
1. How to gain competitive advantage?(question of survival)

i. Porters Generic Strategies (5 forces)
2. Which Direction to go
i. Growth direction
a. Organic growth
Ansoffs Product-Market Matrix
b. Joint development
ii. Defensive/Non growth strategies
a. Capital Restructure Scheme
b. Downsizing
c. Divestment
Porters Generic Competitive Strategies (to achieve competitive advantage):
Competitive position is the market share, costs, prices, quality and accumulated experiences of an organization/product
relative to competition.
Competitive strategy is taking offensive or defensive action to create a defendable position in an industry, and to cope
with competitive forces yielding superior ROI.
Competitive advantage is anything which gives one organization an edge over competitors.
There are following Competitive Strategies for companies to achieve Competitive Advantage.
Lower Cost Differentiation

Broad Target Cost Leadership Differentiation
Cost Focus Differentiation Focus
Niche Focus
(for luxury goods)
Differentiation is creating value through uniqueness. It could be at following levels of product i.e.
1.Actual Product
a). Features.
b). Quality level.
c). Design.
d).Brand name
e). Packaging.
2. Augmented Product
i. Delivery and credit
ii. Warranty
iii. Installation
iv. After sale service
Cost Leadership is having lowest cost of producing. It could be achieved by:

Mass Production (economies of scale)
Latest Technologies
Favorable access to raw materials
Automation
Minimizing overhead by exploiting bargaining power
Constantly improving efficiency and economy e.g. through value chain analysis
Focus involves a restriction of activities to only part of the market (a segment) through
Providing goods/services at lower cost (Cost focus)
Providing a differentiated product/service (Differentiation focus)
Advantages/Comparison of Competitive Strategies:
Competitive Force Cost Leadership strategy Differentiation strategy

Rivalry Profitable even in price competition. Reduces direct competition.
New Entrants Low price is entry barrier. Customer loyalty is entry barrier.
Substitutes Firm is less vulnerable than competitors. Brand loyalty is weapon.
Customers Customers wont switch. Low price sensitivity.
Suppliers High bargaining power because of market Supplier may raise prices but higher
share. margin offsets it.
Ansoffs Product-Market Matrix:
Present Product New Product

Present Market Market Penetration Product Development
New Market Market Development Diversification
Market Penetration: (low risk; no capital investment)

To increase usage by existing customers or
To increase market share through Competitive pricing, Advertising, Sales promotion taking share of
competitors
Market Development: (low risk; less investment)

New geographical area
New segment
New packing size
Product Development: (riskier; requires investment)

Company can exploit followings
Existing marketing arrangements (e.g. Promotion, Distribution)
Knowledge of customers and habits
Cost of entry will go up for competitors.
Diversification (high risk; requires investments and new competence)

Related diversification is when product is new but still within broad confines of industry. e.g.
Vertical integration (control over supply chain)
Forward integration (control/ownership over distributors or retailers)
Backward integration (control/ownership over suppliers)
Horizontal integration (control/ownership over competitors)
Unrelated diversification is where development is beyond industry and product is entirely new having
no relation with existing technology, market or products.
Franchising Unrelated Forward
Diversification Vertical
Related Backward
Growth Horizontal
Organic Growth
Joint Development Strategies
Take Over/ Acquisition

Mergers
Joint Ventures
Strategic Alliance
Licenses
Agency Agreement
Franchising
Chapter # 3 : Planning and Control
Planning
Planning:
Planning involves making choices between alternatives and is primarily a decision making activity
2 approaches to planning:
Top-down approach means strategic management starts from top management and flows down the structure.
Bottom-up approach means information is accumulated at lower level and presented to top management along with
summary and options available.
Planning cycle
1. Identify objectives
2. Identify available strategies
3. Evaluate each strategy
4. Choose strategy (course of action)
5. Implement long-term plan in the form of annual budgets
Risk factors in planning:
Types of risks:
Physical
Economical
Political
Financial
Business
Product lifecycle
Accounting for Risk:

Required rate of return, adjusted by
Return %age
Payback period
Finance (strict rules of financing i.e. out of profits)
Quantification risk:
Rule of Thumb (best estimate of value within worst to best possible range)
Probability Theory (likelihood of occurrence of a forecast result)
Standard Deviation (calculate Standard Deviation of Expected Value, the higher it is the higher risk is)
Budgetary Control
Control:
Control is comparing actual results with planned performance and taking appropriate actions
Control Cycle
1. Actual results are recorded and analyzed for each responsibility center.
2. Feedback is reported to management.
3. Management compares actual results with plans or targets.
4. Do one of three things
i. Decide to do nothing
ii. Take control actions
iii. Alter the plan or target
Feedback:
The process of reporting back control information to management and the control information itself
It may be Single Loop or Double Loop.
It may be Positive or Negative.
Feed forward Control:
Control actions taken in advance.
Actual results are compared with Budgeted (i.e. adjusted by past results)
Well organized system of control should have:

Hierarchy of budget center.
Clearly defined responsibilities.
Responsibilities for Cost, Revenue, and Capital Employed.
Budget Center:
Each section of the organization for which budget is prepared
Objectives of budgeted planning and control:

1. Motivates employees
2. Establish system of control
3. Responsibility accounting
4. Achievement of goals
5. Communication
6. Coordination
7. Compel planning
Responsibility Accounting:
Each manager has a clearly defined area of responsibility and authority to make decisions within that area. No
uncertainty as to who is responsible for what (sometimes dual responsibility exists).
There are 3 different areas of responsibility.
Type of responsibility center Cost Center Profit Center Investment Center

Manager has control over Controllable cost Controllable cost Controllable cost
Sales Price Sales prices
Sales volume Sales volume
Investment in fixed and
current assets
Principal performance Variance analysis Profit Return on investment and
measures residual income
Responsibility Center is a unit of organization headed by a manager who has a direct responsibility for its performance.
Controllable Cost is an item of expenditure which can be directly influences by a given manager within a given time
span.
Controllability of fixed cost:
Committed fixed cost (e.g. PPE-------non-controllable in short term)
Discretionary fixed cost ( e.g. R.&D. or Advertisement ---------- controllable in short term)
Role of IT in Strategic Management
IT as changing industry:
With Porters 5 forces model.
IT/IS as competitive advantage:

With Porters generic strategies for competitive advantage. &
With Peppards 9 ways
5 forces Generic strategies

1. Ensure competitive pricing 7. Differentiating Product/Service
2. Establish entry barrier (cost of entry) 8. Increasing Cost efficiency
3. Using information as a product 9. Decreasing Supply Cost.
4. Limiting access to distribution channel
5. Affecting cost of switching
6. Building close relationship with supplier and
customer.
Chapter 4 & 5 : Strategic Management :
Traditional & other models
Traditional and other models of Strategic Management
Strategic Management:
Strategic Management is the analysis, choice, implementation and control of agreed strategies
Strategy is a course of action including the specification of resources required to meet a specific objective.
Tactics is the deployment of resources to execute an agreed strategy.
Policy is a general statement providing guidelines for management of decision-making.
Levels of strategy: (by Hofer and Schendel)
1. Corporate Strategy determines the overall purpose and scope of the organization. It is concerned with what types of
business the organization is in.
Defining aspects of corporate strategy:
Scope of activities (whole organization)
Faces environment (opportunities and threats)
Resources (how to obtain and allocate them)
Values (of people in power in organization affect it)
Time scale (long term)
Complexity (uncertainty of future)
2. Business Strategy is how an organization approaches a particular product market area (applied at SBU level).
3. Functional/Operational strategies deal with specialized area of activity within an SBU e.g. Production, Marketing,
HRM, Finance.
Traditional approach to make strategy: (through Planning in a systematic way)
o Strategic analysis
Analyzing Vision, Mission and Objectives (Strategic Direction)
Corporate appraisal (where we are)
o Analyzing external environment
i. SLEPT analysis
ii. Porters 5 forces model
iii. Scenarios
o Analyzing internal environment (Situation analysis/Position audit)
i. Resources Audit
ii. BCG and GEBS matrices
iii. Value chain
iv. System structure
o SWOT Analysis
o Gap analysis
o Strategy formulation/Choice (how we can go)
o Strategy implementation
o Strategy evaluation and Control
Favor of rational model: (Ansoff and Drucker support it)

1. Corporate level first
2. Strategies are best generated from Top-Down
3. Provide a common thread
4. Enables decision making in conditions where
i. Partial ignorance (Ansoff)
ii. Risk is inevitable (Drucker)
5. Basis for strategic control
6. Improves stakeholders perception
Problems with rational model: (Mintzberg criticizes it)
1. Organizations are incapable of having objectives because
i. Objectives may conflict with each other.
ii. Objectives will change from time to time
iii. Objectives are unlikely to be directly related to economic benefits of shareholders.
2. Senior management should not be only strategy- setter.
3. In reality formulation is not a simple step by step process.
4. Strategies that firms follow are not the same as ones they set in plans.
5. Over reliance on formalization.
6. Predetermination
7. Failure in practice (suitable for only stable environment)
8. Hinders innovation and radical change.
Other models of(making strategy) Strategic Management
Mintzbergs emergent strategy model: (Considers random shocks)

It is unlikely that a firms environment is totally predictable.
Emergent strategy is a non-conscious strategy arising from patterns of behavior.
Strategic Management is to control and shape/craft these emergent strategies as they arise.
Intended Deliberate
Strategies Strategies
Realized
Unrealized Strategies
Strategies
Patterns of Unexpected Emergent

behavior Contingencies Strategies
Activities affecting Crafting Strategy:

Manage stability
o Implement, not just plan
o Obsession to change is dysfunctional; know when to change
Manage patterns
o Detect patterns and help them shape; grow positives and eliminate negatives.
Know the business operations
Detect discontinuing and significance of environmental changes.
Crafting strategy---- requires natural synthesis of past, present and future. (reconcile change and continuity)
Mintzbergs 8 styles of strategic management:

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

1. Plan - consciously intended course of action
2. Ploy - a competitive game (e.g discouraging competitors to enter)
3. Pattern - ideas of emergent strategies
4. Position - environmentally fit & relationship with other organisations
5. Perspectives - approach towards world
Strategy and managerial intent: (Johnson and Scholes) not emergent
The Command view:
Strategy develops through the direction of an individual or group, but not necessarily through formal
planning.
Control of strategy direction is possessed by autocratic or charismatic leader.
Paradigm and Politics:

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

Mangers are limited by time, information and skills.
They satisfice rather than maximize.
Incrementalism: (Lindblom)
It involves small-scale extension of past practices.
Organizations change incrementally, during which time, strategies form gradually.
Disadvantages of Incrementalism:
1. Not suitable where radical new approaches are needed.
2. Some changes are dramatic not incremental.
3. Ignores influence of corporate culture.
4. Applicable to stable environment only.
Logical Incrementalism: (mid way)

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

Learning organization will generate a flow of fresh ideas and insights, This will promote renewal and prevent
stagnation.
Learning organization is one which is skilled at creating, acquiring, and transferring knowledge, and at modifying
its behavior to reflect new knowledge and insights.
Double loop learning is where purpose is also reviewed. (derived from control theory)
Future will change incrementally
Future Orientation: (Hamel and Prahalad)
Future will be radically different
Future is not just something that happens to organization.

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

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

Fit or Suitability means Organizations are successful when they intentionally achieve internal harmony and
external adaptation.
Strategic logic requires that strategy must:
o Be consistent with objectives
o Match organizations capabilities with environment.
Survival and growth are process of adoptation :

Why : because environment gives physical resources and financial resources
Hence : choice of strategy must follow a strategic logic.
Ecology Model:
Organisations environment changes radically, it will only survivor if it adopts its environment and evolves i.e finding
niche areas which provide both demands for output and resources to be used as input to the system.
Pattern and Competencies: (Andrew)

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

Strategy is a creating process
Success business strategies result not from rigorous analysis but from a particular state of mind.
Aspects of strategic thinking
o Flexible thinking (what if ?questions)
o Keeping details in perspective (specially uncertain)
o Focus on key factors and distinctive competences)
How strategic thinking operates
o Ask right question
o Find solution of problem, not remedy or symptom.
o Observe the problem
o Group problems together (e.g. by brainstorming) to see key factors.
Competition: (Ohmae & Porter)
Competitive strategy is the taking of offensive or defensive actions to create a defendable position within an
industry------ and a superior return on investment.
Successful strategy is the interplay of 3 Cs (strategic triangle)

1. Competitor
2. Customer
3. Company
3 assumptions of theory: (focus: survival in competitive environment)

1. Survival of business is impossible without a competitive strategy.
2. Actual strategy will be unique.
3. Marketplace is a battlefield.
Competitive strategy:
A strategy by which a firm can have significant ground on its competitors at an acceptable costs
Competitive Advantage:
- Re-adjust current resources i.e identify key success factors
- Relative superiority i.e exploiting competitors weakness
- Challenge assumptions
- Degree of freedom i.e segmenting
How to create sustainable strategic position:

- operational effectiveness
- doing unique things
- doing trade-off
- combining good individual activities
- making own choices i.e not blindly imitating competitors
Realised Strategies
Intended or planned strategies Emergent strategies
- Senior management decisions - not planned

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

(Depends upon extent to which strategies are
deliberate or emergent)
Implicit Only in head of chief executive
Explicit Properly documented
Flaws:
- Purely deliberate strategy prevents
learning from experience.
- A purely emergent strategy defies
control
Descriptive and Prescriptive Strategies
Descriptive : what is actually happening in the organisations i.e paradigm, politics, pattern of decisions, incremental approach
Prescriptive : to prescribe something i.e rational model, strategic thinking, learning based environment, resource based
model
Chapter # 6 : SWOT Analysis ad gap analysis
Corporate Appraisal
Corporate appraisal (where we are)
o Analyzing external environment

iv. SLEPT analysis
v. Porters 5 forces model
vi. Scenarios
o Analyzing internal environment (Situation analysis/Position audit)
i. Resources audit
ii. BCG and GEBS matrices
iii. Value chain analysis
iv. System structure
o SWOT Analysis
o Gap analysis
Corporate appraisal is assessment of SWOT in relation to internal (SW) and external (OT) factors affecting
organization to establish long term plans.
OT Analysis---Analyzing external broad environment:

Social factors
Legal factors
Economic factors
Political factors
Technical factors
What Social factors affect:

Changing values and lifestyle
Changing pattern of work and leisure
Demographic change
Why social factors are considered:
Stakeholders are members of society--assessment of their values and beliefs
Good (ethical) reputation
Avoid restrictive legislation
Change = opportunities
Legal factors:
o Health and safety legislation
o Employment laws
o Environmental legislation
o Information about performance.
Economic key forces affecting organizations:

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

Govt. Subsidy
Unemployment rate
International economic issues:
o Extent of protectionist measures
o Comparative rates of growth, inflation, wages and taxation
o The freedom of capital movement
o Exchange rates
o Economic agreements
Exchange rate is the rate at which a national currency exchanges for other national currency.
Determinants are:
Demand and supply of currencies in foreign exchange market (Floating exchange rate)
Govt. (Fixed exchange rate)
Synthesis of above two (Managed exchange rate)
Types are:
Spot exchange rate (rate set for immediate delivery of a currency)
Forward exchange rate (rate set for future exchange of a currency)
Closing rate (Spot exchange rate at Balance Sheet date)

Political factors:
Type of Govt.
Stability of Govt.
Govt. attitude i.e. privatization or nationalization
Amount of bureaucracy
Pricing, dividend, tax, employment issues
Political risk is the risk that political factors will affect an organization e.g. war, corruption, nationalization, political
instability.
Jeannet and Hennessry developed a checklist to assess political risk:

1. How stable is Political system.
2. How long will govt. remain in power.
3. How strong is govt.s commitment to specific rules of game.
4. If present govt. is succeeded, how specific rules of games would change.
5. What would be the effect of change in specific rules of game.
6. In light of these effects, what decisions and actions should be taken now?
Technological factors:
o Change in production techniques
o Invention and innovation
OT Analysis ---Analyzing external specific and direct environment:
(Porters 5 forces model)
i) When costumers have powers:

Small number of customers
They make high volume purchases
Products they are buying are undifferentiated
Alternative sources of supply are available (substitute or switching)
ii) When Suppliers Have Power:
Small number of suppliers
Few substitutes exist
Suppliers are not dependent on the buyer for a lot of their sales
Suppliers have differentiated their products
It is costly to switch suppliers
iii) When Rivalry Among Existing Competitors Is Intense:
Slow industry growth

High fixed costs (plants, machinery, outlets)
Undifferentiated products
A large number of competitors
High exit barriers (what you lose if you leave the business)
Small changes in market share have a big pay-off
iv) Barriers That Block New Entrants
Economies of scale
Large capital requirements
Product differentiation
High switching cost
Limited access to distribution channels
Some government policies and regulations
Other advantages that are hard to duplicate such as patents, great locations, subsidies, partnerships, etc.
History of aggressive retaliation toward new entrants
v) Indirect Competitors/Substitutes
Close substitutes place a ceiling on the price that can be charged for a product or service
Close substitutes also set indirect performance comparisons
Main product is sensitive to price of substitute.
Responding to the Organization/Marketing environment:

Companies can passively take environment as uncontrollable and they must adapt to.
Companies can take environmental management perspective i.e. actively working to change the
environment.
Wherever possible, companies should try to be proactive rather than reactive.
Strategic Intelligence:
Strategic Intelligence is the knowledge of business environment, which enables an organization to anticipate changes
and design appropriate strategies that will create business value for customers and profit for co.
Process of creating strategic intelligence:

Sensing (Identify appropriate external indications of change)
Collecting (Gather information in ways that ensure it is relevant and meaningful)
Organizing (Structure the information in the right format)
Processing (Analyze information for implication)
Communicating (Package and simplify information for users)
Using (Apply strategic intelligence)
Sources for strategic intelligence = Sources of information
SW Analysis ---Analyzing internal environment:
Internal analysis consists of:

Resources Audit
BCG Matrix
GEBS matrix
Value Chain analysis
Core Competence (critically underpins organizations competitive advantage)
Critical Success Factors (CSF are factors on which strategy is fundamentally dependent for its success.
Marketing Finance/Accounting Operation R&D HRM MIS
Is market and share Sufficient working Production capacity Adequate R&D Efficient Or Is IS updated
increasing? capital? facilities? experience regularly?
manpower
Segmented Can we raise capital Economies of scale Outsourcing is Recruitment and Contribution by all
effectively? or borrowings? cost effective? Training functional
managers?
Channel of Return on investment Inventory control Are R&D Communication Effective
distribution reliable & Cost of capital policies and resources allocated passwords for
and cost-effective? procedures, effectively? entry?
effective?
Conduct market Effective budgeting Is machinery Communication Labor relations User friendly IS?
research? process? technically updated? between R&S and
other units?
Product priced Accounting ratios, Is equipment in good Are present Turnover and Training provided?
appropriately? strong or weak? condition? products absenteeism
technologically
competitive?
Effective Quality control Under or over Continuous
promotion? policies and staffing? improvement?
procedures,
effective?
Brand strength How much
expensive?
Products Stocks
Product quality and brand reputation Sources of supply
Age and life of products Turnover periods
Price elasticity of demand Storage capacity
Margin and contribution Obsolescence and deterioration
Market share and growth
Miscellaneous concepts:
A Cruciform chart summarizes significant SWOT.

Critical Success Factors are those components of strategy in which organization must excel to outperform
competition.
Gap analysis (objects existing strategies = Gap) is a comparison between objectives and expected performance of
projects both planned and underway. E.g. Profit Gap (Target profit Forecast Profit)
Forecasting is the identification of factors and quantification of their effect on an entity as a basis for planning. It
includes judgment.
Projection an expected future trend pattern obtained by extrapolation. It includes quantitative factors.
Extrapolation is a technique of determining projection by statistical means.

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

1. Revenue - Fixed costs
2. Profits - Variable costs
3. Assets --------------------------------------
4. Cash Flow - Directly attributable costs
5. ROCE/ROI - Shared general overheads
6. Market share --------------------------------------
7. Number of employees - Controllable costs
8. Number of products - Uncontrollable costs
4 profit concepts to measure performance of divisions:

Contribution (sales variable cost)
Controllable profit ( sales - variable costs - Fixed cost controllable)
Controllable margin ( Controllable profit other costs directly traceable)
Net Profit/Margin ( Controllable margin allocated service center costs and general management overhead)
Value added is cost of material and bought in service.
Measuring performance of Profit Center:

1. ROI/ROCE
2. Residual Income (measure of centers profit after deducting notional or imputed interest cost)
Benchmarking: (adoption of best practices)

Benchmarking is establishment of targets and comparators (through data gathering) through which relative levels of
performance can be identified.
Types of Benchmarking:
Internal Benchmarking comparing one operating unit with another within same industry.
Functional Benchmarking internal functions compared with best external regardless of industry.
Competitive Benchmarking information about direct competitors is gathered through techniques e.g. reverse
engineering.
Strategic Benchmarking aimed at strategic action and organizational change.
Levels of Benchmarking:
1. Resources through resources audit
2. Competences in separate activities through analyzing activities
3. Competences in linked activities through analyzing overall performances.
Inflation:
- Effect of inflation on accounting system
- Effect of inflation on strategy in reference to operating in competitive market and exporting goods
overseas
Performance measurement and inflation:

i) Fixed asset values & depreciation historical costing problem
ii) Cost of sales and inflation increased profits but low stock turnover
(overstated profits)
iii) Need for working capital
iv) Borrowing benefits in period of inflation real value of loan decreases over times
v) Comparability of financial figures figures are ditorted
vi) Ratios for control ratios will be unaffected, as both side of balance
sheet will be inflated
Chapter 8 : Mission Goals and Objectives
Analyzing Vision, Mission and Objectives
Hierarchy
Vision--------Mission----------Goals (objectives and aims) at 3 levels----------strategy at 3 levels
Vision:
Where the organization wants to be
Advantages of vision:
- gives general directions to organisation
- gives hope and motivation
- establishes scope and boundaries
- enables flexibility in choice
Problems with vision

It ignores real, practical problems
It can degenerate into wishful thinking
Strategic intent:
Vision with an emotional core to energize and stretch
- similar to vision
- stretch current competencies
- gives sense of direction
- gives coherence to plans
Mission Statement:
This is a statement purpose of existence-What it wants to accomplish in the larger environment.
Mission statement includes Purpose, Competence, Strategic Scope, Product, Targeted customers, and Values of
various stakeholders.
It should be market oriented, specific, realistic, motivating and consistent with market environment.
e.g. To provide best satisfaction to customers and fair return on investment, keeping environment healthy and clean
and promising secure future to employees.
Place of mission statement:

- Annual reports
- Publicity materials
- In chairmans office
- Communal work area
Elements of mission statement:

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

- Bravity
- Flexibility
- Distinctiveness
Problems with mission statement:

- Ignorance in practice
- Only for public showment and not for internal decision making
- Only rationalising existence of organisation
- Wish list, full of generalisations
Functions/Importance of mission
1. Employee motivation
2. Contributes to profitability
3. Focus for strategic decision making
4. Replaces national or divisional subculture with a corporate culture
5. Communicates nature of organization to insiders and outsiders
Problems with mission = Problems with Rational model of Strategic Management
Goals:
Goals could be
Objectives (quantifiable)
Aims
A goal must be SMART.
Goals
S Specific
Operational goals Non-operational goals
M Measurable
A Attainable Measurable not measurable
R result-oriented
T time-bounded
3 levels of goals/objectives and strategy:

Corporate level
SBU level
Operational level
Corporate level objectives: (trade off between objectives)

1. Profit (Accounting Profit = Economic Profit = Sale price Explicit Cost Implicit Cost i.e. Opportunity
Cost)
2. Market share and growth Objectives
3. Cash flow
4. Customer satisfaction Primary Secondary
5. Quality of product
6. Industrial relations Long-term Short-term
7. ROCE
8. EPS
Unit Objectives:
Commercial sector
Increase number of customer by 15% (sales department)
Decrease number of rejects by 50% (production department)
Public sector
To provide cheaper, subsidized bus traveling (local transport department)
Responding more quickly to calls (police, fire station, hospital)
Types of Goals:
1. System Goals [Derived from organizations existence]
2. Ideological Goals [Focus on organizations mission]
3. Formal Goals [Imposed goals; e.g. from Shareholders]
4. Shared Personal Goals [Consensus b/w individual and collective goals]
System goals (subverting Mission)

Survival
Efficiency
Control
Growth
Dealing with goal conflict (inter departmental):

Rational evaluation (financial criteria)
Satisficing (not aiming to maximize profit)
Bargaining (b/w different goals of managers)
Sequential attention (one by one)
Priority setting
Goal Congruence State of individuals to take actions which are in their own interest and also in
best interest of organization.
Trade off between objectives: [One at expense of other.]
Primary and secondary objectives: [Based on importance.]
Stakeholders
Stakeholders are Groups or Individuals whose interests are directly affected by activities of a firm or organization.
Stakeholder Objectives
Shareholders To maximize wealth
Increased by (dividend, capital gain of shares, EPS, ROCE)
Measured by (increase in Retained earnings, Market Value listed or non-listed)
Lenders Timely repayment of interest and principal
Trade creditors Timely payment
High prices
Continuing profitable relations
Employees High wages
Job security
Job satisfaction
Retailers and Continued supply
customers Quality products
Management Maximize own reward
Training and career development
Society SHE Issues
Level of employment
Govt. Taxes
Legislation compliance
2 approaches to stakeholders:
1. Strong view (To balance all stakeholders is important)
2. Weak view (Primary objective is profit, stakeholders are satisfied indirectly)
Stakeholders mapping: (Mendelow)

High Interest Low Interest
High Key Players Pessimist
Power Strategy must be acceptable for them Should be kept satisfied.
E.g. major customer E.g. large institutional stakeholders
Low Influence powerful stakeholders Negligible
Power Should be kept informed
E.g. Community representatives/Charities
Organizations Culture
Culture/Organizations Culture:
Culture is sum total of belief, knowledge, attitudes, norms, customs, values and peculiarities that prevail in a society/
an organization.
Influences on organizations culture:

Organizations founder
Organizations history
Leadership and management style
Structures and Systems
Levels of Culture:
There are 3 levels of culture in an organization:
1. Basic, underlying assumptions (guide the behavior of individuals and groups in organization)
2. Overt beliefs (expressed by organization and its members)
3. Visible artifacts (e.g. style of offices, display of trophies etc.)
Some Important concepts:
Belief is what we feel to be the case on the basis of objective and subjective information.
Values are beliefs which are relatively general and widely accepted as culturally appropriate behavior.
Customs is culturally accepted behavior in response to given situation.
Artifacts are physical tools designed by human beings for their physical and psychological well being including works
of arts and technology.
Rituals are activities which take on symbolic meanings.
Ethics is a set of moral principles to guide behavior.
McKinseys 7-S model

Explains relationship of different aspects of business: [Link b/w organizational & individual behavior]
3 Hard elements: [Formal Aspects]

1. Structure (division of tasks and hierarchy of authority)
2. System (technical system e.g. Accounting, HRM, MIS)
3. Strategy (org plans, tackling competitors, achieving objectives)
4 Soft elements: [Informal Aspects]

4. Shared values
5. Staff (own concerns and priorities)
6. Style (ways of working, attitude of management)
7. Skills
French and Bells iceberg:

Overt formal aspects (= 3 hard S)
i. Goals
ii. Structure
iii. Policies and procedures
iv. Products
v. Financial resources
Covert informal aspects ( = 4 soft S)
i. Attitude, belief, feelings, perception
ii. Value
iii. Informal interactions
iv. Group norms
Theories on Culture
Harrison and Handys Work: (gods of management)
There are 4 types of culture in organizations:
i) Power Culture (Zeus)

All decisions are centered on one person i.e. founder of business
For small entrepreneurial companies
ii) Task Culture (Athena)

No dominant leader
Principal concern is to get the job done
iii) Role Culture (Apollo)

Organization has formal structure and well established rules and procedures
People do their jobs as specified in their contracts
For large organizations where work is predictable
iv) Person/Existential Culture: (Dionysus)

Organizations purpose is to serve interest of individuals within it.
Miles and Snows Work: (models of strategic culture)
There are 4 approaches to strategy in organizational culture.
1. Defenders (doing things right)

Low risk, low profits
Secured niche market e.g. accountants, engineers etc
Tried and trusted solution
2. Prospectors (doing the right thing)

High risk, high profits
Move into new ways e.g. designers
Take initiatives
3. Analysers
Balance risk and profit
Using core stable products & markets e.g. managers
Follow the change, do not initiate change
4. Reactors
Do not have viable strategy
Denisions model:
Strategic orientation of firm towards environment

Focus on internal Focus on external
Stable environment Consistency Culture Mission Culture
Formal ways of behavior, predictability and Customer oriented. (hospital, church)
reliability(bureaucratic)
Changing Involvement Culture (satisfied employees give Adaptability Culture ( fashion co.)
environment performance e.g. Orchestra) Focus on external environment which is
changing.
Deal and Kennedys work: (Association of culture & risk)

Culture is function of willingness of employees to take risk and Their feedback
Slow feedback Fast feedback

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

Dominance and coherence of culture was an essential feature of excellent companies.
Employees are loyal and make efforts if:
Cause is great.
They are treated as winners.
They can satisfy dual needs of team and own interest.
Key attributes of excellence
1. Autonomy and Entrepreneurship
2. Bias for action
3. Customer orientation
4. Stick to core activities
5. Simple organizational structure
6. Simultaneous loose-tight properties (competition between individuals and group within organization)
Pumpins dynamic company (Cultural characteristics of dynamic companies)

Dynamic company is one that considerably increases the benefits for its stakeholders within a relatively short time
4 aspects of such a culture

Speed
Productivity
Expansion
Risk taking
Weak areas in a dynamic company

Customer service
Innovation
Technology
Attitude to workforce
Company spirit and loyalty
Strategic Excellence Position: (similar to excellence)

SEP will fall into 3 fields:
1. Product related
2. Market related
3. Functional
SEP can be developed only if culture supports it.
Chapter 9 : Mergers and Acquisitions
Take Overs:
Purchase by a company of a controlling interest in the voting share capital of another company
Mergers:
Merger is a business combination that results in the creation of a new reporting entity formed from the combining
parties (Mutual sharing of risks and benefits)
Reasons for Mergers/Take Overs:

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

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

1. Decrease in EPS of own company
2. Decrease in Share Price of own company
3. Decrease in Assets backing per share (decrease in net assets)
4. Entry in risky industry
When takeover resisted by Target Company:

Unwilling to sell
Under bidding
Unattractive after tax value
Terms are poor
Opposed by employees
Founder appeals loyalty of shareholders
Counter steps by Target Company:

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

Persuading dissatisfied shareholders
High prices
Payment Methods
- Cash Purchase
- Share exchange
- Use of convertible loan stock
- Earn out arrangements
Methods are affected by

- Availability of cash
- Desired level of gearing
- Changes in control
- Changes in structure
Choice of Cash or Paper offer or Both for payment depends on view of parties:
Acquiring company and its shareholders:

If purchase consideration is in equity shares, EPS might fall.
If purchase consideration is in debentures (or cash borrowed elsewhere), it will be cheaper because Interest
will be allowable for tax purposes and earnings will not be diluted.
Issue of additional loan stock will be unacceptable for parties if company is highly geared.
Issuance of large new shares will significantly change controlling structure.
Payment in shares preserves cash available.
Company might have to increase authorized share capital or borrowing limits.
Target Company:
If Cash is received, tax on capital gain will become payable immediately.
If other consideration is received, it is to be ensured that
o Existing income is at least maintained, and
o Shares retain their value.
If shareholders want to have stake in business, they will prefer shares.
Mezzanine Finance: (by biding company; to pay for shares)

Lies between equity and debt finance.
It is short to medium term, unsecured, high rate of return loan
It has option to exchange loan for share after takeover.
It is also used in MBO.
Earn-out arrangement:
When consideration is payable upon the target company reaching certain performance targets.
EPS before and after a takeover:

Share purchased at higher P/E ratio will give fall in EPS, and vice versa.
Company may accept dilution of earnings on acquisition if:
There is increase in net assets backing.(from a company having more assets and less earnings)
Quality of earnings is superior.
Post acquisition integration: (Druckers 5 golden rules)

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

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

1. Strategic plan fails to produce expected benefits
2. Over optimism about future market conditions
3. Poor integration management
4. Cultural differences
5. Little or no post acquisition planning
6. Lack of knowledge of target company or industry
7. Little or no experience of acquisition.
Impact of mergers and takeovers on stakeholders:
On acquiring companys shareholders

EPS may fall especially in equity-financed bids and first time players
Cost of mergers exceeds gains.
On target companys share holders
Greatest benefit through significant premium over market price.
Acquiring company management
Increased status and influence
Increased salary and benefits
Target company management
Key personnel will be kept others will be fired
Other employees
Economies of scale will be achieved by loss of job and eliminating duplication of services.
Financial institution
Outright winners
The more complex, longer and problematic the deal is, the greater their fee income regardless of result.
Joint Ventures
Joint ventures: (1st step of acquisition)

It is an arrangement where two or more firms join forces for manufacturing, financial and marketing purposes and
each has a share in both equity and management of business
Advantages:
Joint contribution of
o Production technology
o Corporate expertise
o Market knowledge
Access to foreign markets
Eliminating competition
Cheaper than internal expansion
Spread risk
Suitable for smaller companies
Problems:
Conflict of interests
Where profits will go (in resident company or shareholders of foreign company)
Local partners may wish to export to other countries where foreigner is already supplying.
Transfer pricing issues (on transfer of expertise, technology and components)
Cultural differences e.g.
Equal employment opportunity
Commercial practices
Short term and long term planning
Lack of smooth coordination, control and decision making
Who will lead
Who is responsible
Confidentiality issues
Strategic Alliances
Strategic Alliance:
When two or more firms agree to work together to exploit common advantages
e.g. alliance between national airlines to cross-book passengers.
Licenses
Licenses are very similar to Franchising in their financial aspects, however degree of central control and support is
usually less.
Franchising
This gives limited right to franchisee (e.g. in a geographical area) to exploit patent product or production process,
brands, manufacturing know how and/or technical advice and assistance. e.g. KFC, McDonald
Mechanism:
Franchiser grants permission.
Franchisee pays for permission and assistance.
Franchisee is responsible for day to day running of franchise.
Franchiser may impose Quality Control Measures to ensure that goodwill is not damaged.
Franchisee supplies capital, personal involvement and local market knowledge.
Benefits to Franchiser:
Rapid expansion (franchisee provides capital).
Local knowledge.
Economies of scale.
Problems to Franchiser:
Limited control over quality.
Conflicts of interest.
Franchisee may become competitor.
Key Financial management decisions:
Investment Financing Dividend

Selection of products and markets Target debt/equity mix Capital growth or
Strategic Required level of profitability high dividend payout
Fundamental fixed assets
Tactical Efficient and effective use of Lease Vs. Buy Scrip or cash
resources dividend
Pricing
Operational Working capital management Working capital ------
management
Chapter 10 : Corporate Reorganisation
Defensive Strategies
Capital Restructuring Scheme

A capital reconstruction scheme is a scheme whereby a company reorganizes its capital structure.
Procedure of designing a capital restructuring scheme:

1. Calculate what each partys position would be in a liquidation
2. Assess possible sources of finance
3. Design the reconstruction
4. Assess each partys position as a result of the reconstruction
5. Check that the company is financially viable.
Exit strategies for a venture capitalist:

1. Sale of shares to public or institutional investors following a flotation
2. Sale of shares to another company
3. Sale to company itself or its owners
4. Sale to institution management
Downsizing
Divestment- (selling of business)

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

To concentrate on a particular part of business
Selling a loss making unit
Liquidity problems
Selling a subsidiary with high risk
Selling a subsidiary at profits
Provide an exit route for investors
Remove value gaps to avoid takeover
Demerger is splitting up of a corporate body into two or more separate and independent bodies.
Sell off is a form of divestment involving the sale of a part of a company to third party usually another company.
Liquidation is extreme form of liquidation where the entire business is sold and funds are distributed to shareholders in
their proportion.
Management Buy Out. (MBO) management buyout is the purchase of all or part of a business from its owners by its
managers.
Management Buy Out.(MBI) where purchase of a business is made by group of managers from outside the business.
Spin Off : a new company is created whose shares are owned by the shareholders of the original company which is
making the distribution of assets.
Management Buy Out:
Possible reasons for MBO:

All reasons of Divestment
Best offer from management
Sale can be arranged quickly
Group can still maintain relations
Success factors of MBOs: (Advantages)

Favorable buyout price
Personal motivation and determination
Quicker decision making and more flexibility
Saving in overheads
Healthy relationship with subsidiary
Questions in evaluating MBOs for investment:

Does management has full range of skills?
Why is the company for sale?
Projected benefits and cash flows?
What is being bought?
Price?
Fund availability?
Exit routes?
Problems faced by MBOs: (Disadvantages)

Little experience of financial management
Tax and other legal complications
Changing the attitude of employees
Deciding the bid price
Cash for maintenance of fixed assets
Change in HR (loss of key employees)
Maintenance of relations with suppliers/customers
Going Private
A public company goes Private when a small group of individuals buys all of the companys shares (possibly
including existing shareholders)
Advantages:
Cost saving (cost of meeting statutory requirements are saved)
Limited number of members
Similar objectives of shareholders
Shareholders are close to management
Protection against volatility in share price
Disadvantages:
No trading of shares on stock exchange
Loss of repute
Loss of some value of share
Disadvantages of De-Merger
Loosing economies of scale
Lower turnover
Higher overhead cost
Less ability to raise finance
Chapter # 11 : Ethics and Social
Responsibility
Ethics
Ethics:
Ethics is a set of moral principles to guide behavior. It concerns with what is right and what is wrong.
Individual Organisation
Levels of
Practicing ethics Personal ethics professional ethics Org. culture Org. System
Ethical problems faced by organization:

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

Personal ethics (e.g religious, political, personality ethics)
Professional ethics (e.g CA code of ethics, medical ethics, fit and proper criteria)
Organization culture (e.g. customers first)
Organization system (ethics must be contained in formal code e.g part of ethical sys. and mission
statement)
2 approaches to manage ethics:
Compliance based approach aims to remain within letter of law by establishing system of audit and review so that
violations are prevented, detected and punished. It works from outside the system.
Integrity based approach combines a concern for the law with an emphasis on managerial responsibility. This approach
incorporates ethics in organizations culture in which managers will do the right thing e.g shared accountability, sound
behavior, defining values. It works from within the system
Whistle blowing:
It is the disclosure by an employee of illegal, immoral or illegitimate practices on part of the organization.
Four types of ethical leaderships in organisations:

i) Creative :- reflecting founder, such leaders create ethical style.
ii) Protective :- they sustain value of customer services
iii) Integrative :- aim through consensus through people
iv) Adaptive :- changing culture as per new environment
Social Responsibility
Objectives of a company:
Economic objectives
Social/Ethical objectives
Boundaries (Imposed rules; they restrict managements freedom of action)
Responsibilities (Voluntarily undertaken obligations e.g. charities)
Social/Ethical objectives of a company:

SHE Issues (e.g minimum wages, job security)
Good employer (e.g good working environment, job satisfaction)
Good Public image (e.g good quality products)
Society well being (e.g regular order and timely payments to suppliers)
Pollution
Financial assistance (e.g. Charity, Sports)
(For other objectives see Stakeholders objectives)
Arguments against and favoring Social Responsibility recognition:

Social responsibility is expected from all types of organizations.
AGAINST:
Organizations should concern wealth only because
Shareholders own assets.
Shareholders are part of society.
Taxes on revenues are given to build society.
Businesses exist for profit.
FAVOUR: (by Mintzberg)

Most shareholders are passive.
Ultimately consumer pays taxes via higher prices.
Govt. support
Firms produces 2 outputs:
Goods and services
Social consequences of activities e.g. Pollution
Responsibility recognition (e.g. charity) improves:
Public relations.
Business success and development as part of society.
Decisions by organization affects society
Externality is a social/environmental cost of organizations activities not borne by organization.
Boundary Management:
- Good public image - securing political environment

- Protect environment from pollution - improving quality of life
- Good employer - protecting minorities
- Welfare of local community
Compliance Based Approach Integrity Based Approach
e.g - Audit e.g - Internal commitment

- Review - Guiding values
- Questioning - Pattern of thoughts
- System for employees - Share accountability (managers)
- Disciplinary procedures (lawyers)
Chapter 12 : Corporate Governance
Corporate Governance is the system by which companies are directed and controlled.
Patterns of share ownership: (Who are shareholders of company)

Types of institutional investors:
Pension funds
Insurance companies
Investment trusts
Unit trust
Venture capital organizations
Range of shareholders:
Advantages:
Greater activity in firms shares
No individual controlling whole firm
Less effect on share price if anyone sells
No threat of takeover
Disadvantages:
Administrative cost is high.
Various objectives in holding shares.
Why knowing shareholders:

To get support by exchanging views.
Knowledge of shareholders preference about Dividend Policy.
To explain recent share price movement.
Shareholders attitude to risk and gearing.
Key shareholders to consult in the event of takeover bid.
Agency Theory:
Although individual members of the business team act in their own self-interest, the well being of each individual
depends on the well being of other team members and on performance of the team in competition with other teams
Assumptions of theory:
Behavioral
Individual welfare maximization.
Individual rationality.
Individuals are risk-averse.
Structural
Investments are not infinitely divisible.
Individuals vary in their access to funds and their entrepreneurial ability.
Agency Problem:
Arises from separation of ownership from management.
Goal Congruence: (solution for agency problem)

It is accordance between objectives of agents (acting within organization) and objectives of organization as a whole.
Via (e.g.)
Profits related pay e.g. bonuses, commission, incentive etc.
Rewarding managers with shares
Executives Share Option Plans
Non-executive directors are directors not running the day to day operations of the company.
Chapter 13 : Human Resource Management
Human Resource Management-Introduction
Human Resources Management is concerned with people at work and their relationship as they arise in working
environment.
Roles/Scope of HR Manager:
Staffing:
Job Analysis
HR Planning
Recruitment
Selection
Retirement, Resignation, Redundancy
HR Development:
Performance Appraisal
Career Planning
Training
Development
Motivation/ (Individuals):
Job Analysis and Design
Pay and Promotion
Leadership and Groups:

Creating effective teams
Managing conflicts between teams
Other Aspects:
Health and Safety
Workforce diversity (Equal Employment Opportunity)
Maternity
Compliance with legal and other standards
Personnel record and Information System
Necessity of separate HR Department depends on Size and Activities of organization.
Objectives of HRM:
Cooperative Relationships
Development of motivated employees
Effective response to change
Fulfilling social and legal requirements
Advantages of HRM:
Decrease in Staff Turnover
Increase in Productivity
Increase in Group learning
Increase in initiative
Decrease Absenteeism
Lesser conflicts
Increase quality
Increased co-operation
Increased commitment
HRM Theories
Scientific management [Clearly defined principals]
Human Relation [Fulfillment of needs]
Rational [Division of authority]
Contingency theory [Change according to situation]
4 Roles/Areas of HR Planning: (by Tyson as per new strategic viewpoint)
To represent organizations central value system
To maintain boundaries of organization
To provide stability and continuity
To adapt the organization to change
Views of HRM:
Traditional Odd Job view New Strategic Viewpoint

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

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

1. Strategic Analysis (of)
a. Environment
b. Organizations objectives
c. Manpowers SWOT
2. Job Analysis
a. Job description
b. Job specification
c. Employee specification
3. Forecasting of
a. Internal Demand and Supply
b. External Supply
4. Implementation
a. HR Plan
Job Analysis
The process of collecting, analyzing & setting out information about the contents of job in order to provide basis for job
description and data for recruitment, training, job evaluation & performance management.
Systematic way to gather and analyze information about the
Content
Context
Human requirements of the job.
Type of information needed

Purpose of the job
Content of the job
Relations to other job
Performance criteria
Responsibility
Accountabilities
Organizational factors
Development factors
Environmental factors
Job analysis results in:
Job description
Job specification
Employee specification
Job Description
A written statement of duties, responsibilities and tasks of job.
It should be written in outputs and performance levels.
Purpose of Job description:

Organizational--------- Defines jobs place in organizational structure (job evaluation).
Recruitment------------ Provides person specification
Legal-------------------- Provides basis for contract of employment
Performance----------- Performance objectives can be set.
Contents of Job description:

A job description should be a formal, written document, usually from one to three pages long. It should include the
following:
Date written.
Job Status (full-time or part-time; salary or wage).
Position title.
Job summary (a synopsis of the job responsibilities).
Detailed list of duties and responsibilities.
Supervision received (to whom the jobholder reports).
Supervision exercised, if any (who reports to this employee).
Principal contacts (in and outside the organization).
Related meetings to be attended and reports to be filed.
Competency or position requirements.
Required education and experience.
Career mobility (position[s] for which job holder may qualify next).
Alternative to Job Description is Role Definition. (wider)
Job Specification
Minimum acceptable qualification (i.e. knowledge, skills, abilities, experience and other characteristics needed to do a
particular job.)
Person Specification
Identifies the type of person needed to do a particular job.
Following characteristics are assessed: (Frasers 5 point to assess pattern of personality)
1. Impact on other
2. Motivation
3. Acquired knowledge or qualification
4. Innate ability (initiative, innovative)
5. Adjustment and emotional balance
Competencies
Capacity of a person that leads to behavior that meets the job demands.
Intellectual Competence (Strategic, judgment, planning)
Interpersonal Competence (managing staff)
Adaptability (flexibility with change)
Results
Methods of Job Analysis:

Logos/Diaries
Interviews
Observations
Questionnaires
HR managers write job description & specification for review by managers
Managers identify performance standards based on job analysis information.
Forecasting Demand and Supply of manpower:
Demand is estimated from:

New markets
New product/service
New technology
Divestment
Organizational restructuring
Supply is estimated from:

Current workers Stocks and Flow analysis
External labor market
A Position Survey compares demand and supply. (Grade, skills, location etc)
Closing the gap between Demand and Supply- HR Plan: (along with subsidiary plans of HR Plan)
HR Plan is prepared on the basis of personnel requirements, productivity and cost.
Meeting Shortage of HR (Less supply More Demand)

Internal Promotions, Transfers (Redevelopment Plan) and Training (Training Plan) etc.
Reducing Labor turnover (Retention Plan)
Overtime (Productivity Plan)
External recruitment (Recruitment Plan)
Meeting Surplus of HR (Less Demand More supply)

Restricting recruitment
Part-time working
Redundancies (Redundancy Plan)
Recruitment(a part of HR plan)
Definition:
Recruitment is the process of generating a pool of qualified applicants for organizations job
Strategic Recruitment Decisions:

1. Organization based Vs. Outsourcing
2. Regular Vs. Contractual Vs. Leased
3. Internal Vs. External recruitment
4. EEO and Diversity issues
Systematic approach to recruitment and selection:

HR Planning
Job analysis
Identification whether employee is to be recruited from outside or promoted inside (from HR Plan)
Evaluation and use of Sources of Recruitment
Selection
Notification of result
Induction training
Sources of Recruitment:
Internal Search:
1. Organizational database (HRIS) to sort employee data according to job requirement.
2. Employee referrals
3. Promotion and Transfers
Advantages:
Good employee relations
Encourages ambitious individuals
Less costly
No adjustment or orientation time required, because already familiar
i. Individual with organization and policies
ii. Organization with individual
Disadvantages:
No new blood, no innovation and new perspectives
Political fight for promotion
Morale problems of those not promoted
Diversity lacking
Requires training
External Search:
1. Advertisement (method depends on organization and nature of job)

Newspaper
T.V.
Net
2. Agencies and Professional organization
3. Blind Box ads
4. Schools, Colleges and Universities
5. Unsolicited applications
6. Creative recruitment methods
Banners
Announcing prizes for
Referee
Applicants
What must be included in job advertisement:

Information about organization
Primary business
EEO Employer
Information about job and application process
Title and responsibility
Job location
Starting pay range
Contact address
Closing date for application
Desired qualification of candidate
Experience
3----5 Characteristics needed
Internet Search:
1. Employer website
2. Professional career websites
Advantages:
Cost saving
Time saving
Global in nature
Disadvantages:
Non-serious application
Difficult to process large number of application
Not accessible to all
Selection: (part of Recruitment)
The process of choosing individuals who have needed qualification to fill job in an organization
Purpose of selection:
Filling a right person to the job ensuring
Person fits job (matching people with job characteristics)
Person fits organization (Objectives, culture, values etc. of organization)
Steps in selection process:

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

Cognitive ability tests
o Thinking, memory, reasoning
o Mathematical abilities
o Communication abilities
Physical ability tests
Writing analysis
Performance simulation test (requiring to perform actually a small segment of the job)
Advantages of interview
Most valid to determine applicants
Organization fit
Level of motivation
Interpersonal skills
Limitations of Interviews
Unreliable assessment (wrong decision)
Fail to provide accurate prediction (error of judgment)
Halo and Horns Effect (based upon single attribute)
Stereotyping candidates on the basis of dress, hairstyle, accent etc.
Discrimination in selection is justified only if required by law.
Induction Training:
Identify area for later learning or training (e.g. detailed technical knowledge)
Explain nature of job and goal of each task
Explain working hours
Explain structure of organization hierarchy and his position
Introduce with people in office.
Plan and implement training program.
Appraise after 3,6 or 12 months.
Chapter 14 : Motivation and Performance
Individuals
Variables affecting Job performance:

Organizational and Social variables
Social environment
Type of Incentives
Type of Training and Supervision
Situational variables
Characteristics of Organization
Physical environment
Physical and Job variables

Methods of work
Work space and arrangements
Designing and condition of work equipment
Individual (non work) variables

Age
Sex
Physique
Education
Experience
Intelligence
Aptitude
Motivation
Personality
Personality and individual Development:

(Individuals are different because their personality is difference and personality differences affect work behavior).
Personality is the total patterns of thinking; feeling and behaving that constitute the individuals distinctive method of
relating to the environment.
According to Chris Argyris, as people mature they display certain characteristics:

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

- Authoritarinism - Need of achievement
- Self-esteem - Attitude
- Feedback on performance - controls and standard
- Moderately difficult tasks - levels of risk taking
- Psychological success - challenging goals and achievement
- Commitment - willingness
Motivation (Content theories VS Process Theories)
Motivational Theories
McGregors theory X and theory Y:

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

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

E-----Existence
R---Relatedness
G---Growth
McClellands needs:
Need for achievement, Need for power, Need for affiliation Top management Power
Entrepreneur
These needs could be taught from top to lower managers.
Achievement
Employees Affiliation
Herzbergs two factor theory:
There are 2 groups of work related factors.
Hygiene factors (remove dissatisfaction e.g. Salary, Job security, Working conditions, Interpersonal
relations)
Motivators (creates satisfaction e.g. Status, growth in job, power authority and responsibility)
Vrooms expectancy theory:

Motivation shall depend upon expected results of his efforts i.e value attached to an outcome.
F (Force i.e. motivation) = V (valence i.e. strength for preference of outcome) * E (Expectancy i.e. expectation that
performance will lead to outcomes)
Porter and lawlers model: (extension of expectancy theory)
Valence Force Expectancy
Ability Understanding
Satisfaction Actual Performance
Importance of Success/Failure
reward
Intrinsic rewards Extrinsic rewards

(interest, enjoyment) (pay, bonus)
Equity theory:
Reward of 1/Output of 2 = Reward of 2/ Output of 2
Satisfaction = (atleast fair reward, not maximum reward)
- people compare results and rewards
- people get upset if inequity in rewards
Goal theory:
Goals can motivate.
Psychological contracts
Members will expend efforts and organization will reward them in exchange
Coercive contract (returns are inadequate compensation; involuntary contribution)
Calculative contract (returns are defined; voluntary contribution)
Cooperative contract (employees participate also in decision making)
Pay and Job satisfaction
Under Herzbergs theory, Pay is the most important of all hygiene factors.
Under Expectancy theory, Pay motivates if pay is linked with performance and is valued by individual.
Difficulties in incentive schemes:

No motivation if employee already enjoys good package.
External factors may affect output and reward.
Not suitable in groups
Assessment of satisfaction and moral:

Through Productivity, Absenteeism and Turnover.
Types of incentive schemes:

- performance related pay (PRP) i.e commission
- bonus schemes
- profit sharing e.g opportunity of being member of the company.
Job Design (with parameters of Mintzberg)
Job design is the process of

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

Job enrichment
Vertical expansion of responsibilities
Change in the content and responsibility of job to provide greater challenge
Job enlargement
Horizontal expansion of duties
Provides greater variety of tasks
Job Components:
Occupation------Jobs-----------Position----------Duties------------Tasks (Responsibilities)
Job restructuring and redesign:

Job redesign suiting of jobs according to motivational factors.
Job rotation allowing variety and understanding, development of extra skills
Job enlargement adding extra and related tasks to current job
Job enrichment increases depth of responsibility by adding planning and control of current job.
Working arrangements:
attitude and values flexible working arrangement
high performance work systems multi-skilling
empowerment flexitime
compressed week job sharing
part-time work home-working (distant working)
i) Numerical flexibility
ii) Financial flexibility
iii) Task flexibility
Employee Appraisal
Appraisal is a systematic review and assessment of an employees performance
Why:
Employee Development:
Specific Job performance feed back
Career opportunity information
Assessing employee potential
Decision Making for Action by Administration: (Results of appraisal)

Promotion
Demotion
Transfer
Termination
Organizational Research: (Importance of appraisal)

HR Planning (Promotability and Potential)
Evaluation of Selection and Training methods
To motivate employees giving feedback
Inventory assessment for planning
To assess training needs
Purpose of appraisal:
Reward review for deserving employees
Performance review to confirm whether any training is required or not
Potential review to confirm whether any management career planning is required or not.
Objectives:
Achieving objectives
Performance levels
Training needs
Identifying lacking areas
Communication
360-degree feedback -Sources:

Self
Senior
Peers
Juniors
Assessment centers
Customers
[Upward appraisal is better.]
Types: (What could be assessed)

Traits
Behavior
Performance
Methods:
1. Check list appraisal (yes/no)
2. Forced choice appraisal (MCQs)
3. Essay appraisal/ Overall assessment (paragraph)
4. Grading, result oriented schemes, and self appraisals
An appraisal system:
i) Identify criteria for assessment
ii) Preparation of appraisal report
iii) Appraisal interview
iv) Review assessment
v) Action/plan preparation
vi) Monitoring progress (follow-up)
Methods of appraisal:
i) Upward appraisal sub-ordinates upraise their seniors
ii) Customer appraisal internal & external
iii) 360 degree appraisal
Mairs 3 approaches to appraisal interview:

The tell and sell method
The tell and listen method
The problem solving approach
Effective Appraisal:
Job related criteria
Standardization
Trained appraisers
Employee access
Purpose must be understood by both
It must be participative, problem solving activity
Regularly conducted.
Effort, integrity and ability of line managers.
Locketts appraisal barriers:

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

1) Tell and sell method (manager tells, and then try to gain acceptance)
2) Tell and listen method (manager tells, the subordinates responds, and consensus is achieved)
3) Problem solving approach (manage becomes counseller, and ask work problems)
Managing Careers:
Career management is a technique whereby the progress of individuals within an organization from job to job is
planned keeping organization needs and individual capacity in mind.
Difference between Functional Manager and General Manager:
Functional Manager General Manager

Goals Short term Long term
Orientation Task oriented Goal oriented
Role Organizer Facilitator
Coordinating interdepartmental
activities
Obtaining and allocating resources
Information Defined sources Poorly defined sources
Formal channels Informal channels
Chapter 15 : Training Appraisal and Career
Management
Training and Development
HR Development:
The process of extending personal abilities and qualities through development activities e.g. training, appraisal, career
planning, job rotation etc.
Training:
The process of providing employees with specific skills to carry out work effectively or to correct deficiencies in their
performance
Development:
An effort to enhance a persons abilities that organization will need in future.
Development purpose:
Ensures firm meet current and future performance objectives by
Maximizing peoples potential
Continuous improvement
Development activities:
Training (on job and off the job)
Career planning
Job rotation
Appraisal
Other learning opportunities
Benefits of training and development:
For Organization
Training supports business strategy
Higher productivity
Management of SHE issues
Less need for detailed supervision
Multi skilled people
Succession planning
Increased commitment
For employees:
Enhanced skills
Psychological benefits (valuable)
Social benefits (e.g. contact)
Job management
When training does not work:

Bad management
Poor Job design
Poor equipment
Motivation
Poor recruitment
Other characteristics of employee (e.g. intelligence)
Types of training courses:

Day release
Distant learning
Evening classes
Revision courses
Sandwich course
Full time course
Learning organization:
An organization that facilitates the learning of all its members and continuously transforms itself.
A learning organization creates, exploits and shares knowledge.
Characteristics of learning organization:
Learning approach to strategy
Participation in decision making
Information is used as a resource
Formative accounting
Reward flexibility
Enabling structural responsiveness to external changes
All employees are environmental scanners
Intercompany learning
Learning climate
Training Process:
Step 1. Training needs are identified:

Training need analysis
Current state Desired state
Existing knowledge and skills Required knowledge and skills
Individual performance Required standard
Organizations current results Desired results
Difference between two columns is Training Gap.
Training surveys
Corporate strategy
Appraisal and performance review
Attitude surveys
Evaluation of existing training programs
Job analysis
Step 2. Specify knowledge, skills and competence required:
Step 3. Define training objectives:

These objectives should be clear, specific, measurable, and observable.
Step 4. Plan training program
Step 5. Implement the training

Methods of training
Formal training
Course training (lectures, discussions, exercises, role-plays, case studies)
Computer based training
On Job Training
Instructions/Demonstrations
Coaching
Job rotation
Temporary promotion
Assistant to Positions
Action learning
Committees
Project work
Step 6. Evaluate the training

Ways to evaluate.
Organizational changes as a result of training
Trainees learning test
Trainees reaction to experience
Changes in job behavior following training
Impact of training on organizations goals
Validation of training means observing results of training and measuring whether training objectives have been
achieved.
Evaluation of training means comparing costs incurred with benefits obtained to redesign/withdraw scheme.
Personnel Development Plan:

Development plan for individual
Skill analysis:
Aim is to put interest into actual role.
Performance
High Low
Liking of skills High Likes and does well Likes but does not do well
(Motivated) (Requires training)
Low Dislikes but does well Dislikes and does not do well
Learning cycle by Kolb:
Concrete
experience
Applying/testing
the implications Observation
of concepts in and
new situations reflection
Formation of
abstract concepts
and generalizations
Learning styles of individuals by Honey and Mumford:
Theorists
Understand underlying concepts
Preference for concepts or analysis
Take intellectual hand-off approach based on logical argument
Reflectors
Observe phenomena, think about them and then choose how to act
Find learning difficult if forced into hurried program.
Tend to be fairly slow, non participative and cautious.
Activists
Require training on hand-on
Excited by participation and pressure e.g. new projects
Flexible, optimistic, rush without preparation, take risks and get bored.
Pragmatists
Good at learning new techniques in OJT
Aim is to implement action plans and/or do the task better
May discard as impractical good ideas which require development.
Competence
Capacity that leads to behavior that meets job demands within organizational environment and brings desired results
Types of competence:
1. Personal/Behavioral (Personal characteristics and behavior required for successful performance).
2. Work based/Occupational competence: (expectation of work performance and outputs and standards that are
expected by people in specific roles)
3. Generic competence can apply to all people in an occupation.
Competence of managers:
Intellectual
i. Strategic Perspective
ii. Analytical Judgment
iii. Planning and Organizing
Interpersonal
i. Managing staff
ii. Persuasiveness
iii. Assertiveness and Decisiveness
iv. Interpersonal sensitivity
v. Oral communication
Adaptability results
i. Initiative
ii. Motivated
iii. Business sense
Chapter 16 : Management and Human
Resource
Leadership
Trait Theories:
Leaders have certain qualities (Inborn or Acquired) e.g. Helicopter factor i.e certain traits makes a person good leader.
Style theories:
A managers style is the way in which the manager handles his relationship with the task and with subordinates.
Leadership is an interpersonal process and is affected by behavior. To create an effective group, characteristics of
followers should match with characteristics of leader.
Huneryager and Heckman:
Dictatorial
Manager makes decisions and enforces them
Manager makes decisions and announces them
Autocratic
Manager sells his decisions
Manager suggests own ideas and asks comments
Democratic
Manager suggests his idea and amends as per comments
Manager presents problem, asks for ideas and makes a decision
Laissez-faire
Manager presents a problem and asks to solve it.
Manager allows his subordinates to act freely within prescribed limits.
Leadership:
- Definition
- Management vs Leadership
- Manager VS Leader
- Key leadership skills
- Developing managers as leaders
- Theories of leadership
i) Trait theory
ii) Style theory
iii) Contingency theory
Leadership skills:
- Entrepreneurship
- Interpersonal skills
- Decision making
- Time management
- Self development skills
- Competitive
- Goal oriented
- Team empowering
- motivated
Wholly task oriented

Leaders
Wholly people oriented
Lickerts 4 elements presented in effective managers:

1. Expect high level of performance
2. Employee centered
3. No close supervision
4. Participative style
4 styles of leadership:
Style Characteristics Strengths Weaknesses

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

Low High
Concern for production
Contingency approach to leadership: (by Charles Handy)

Factors which contribute to the success of leader:
Leaders personality
Subordinates
Task
Environment
Power, authority and responsibility:
Power is ability to do.
Following are different forms of powers in an organization:

Position power/legitimate power
Enjoyed by senior management.
It is associated with particular job, almost authority.
Resource power (reward power)
Enjoyed by senior management
Control over resources and power to grant them e.g. promotion
Physical power (coercive power)
Enjoyed by senior/middle management
Power of superior force but mostly absent.
Expert power
Enjoyed by middle/low management
Power based on expertise
Negative power
Enjoyed by middle/low management
Use of disruptive attitude to stop things, it may be destructive.
Personal power
Power in personality of individuals
Authority is right to do. (decision-making power)
Responsibility is obligation to do.
Influence is ability to change behavior of others.
Accountability managers are accountable for their action.
Delegation of authority sharing of decision making power.
Discipline
Discipline promotes good order and behavior in an organization by enforcing acceptable standards of conduct.
Disciplinary problems:
Absenteeism
Poor punctuality
Poor job performance
Poor attitudes
Breaches of safety regulations
Refusal to carry out legitimate instructions
Disciplinary actions:
Informal talk
Oral warning Warning
Written or official warning
Disciplinary lay-offs or suspension
Demotion Action
Discharge
Retirement, Resignation, Redundancy
Why retirement is encouraged:

Promotion opportunities for younger.
Early retirement is an alternative to Redundancy.
Age structure may become unbalanced.
Cost of pension rise with age.
Resignation:
Exit interview
Period of notice.
Fair grounds for dismissal:

Redundancy
o Employer has ceased to carry on business all or in part
o Requirements of employees have ceased or diminished.
o No compensation if
Suitable alternative offer made.
Employee is of pension-able age or has less than 20 years of continues service.
Legal impediment
Non-capability
Misconduct
Other substantial reasons
Unfair Dismissal (See PBP)
Discrimination and Equal opportunities
Discrimination could be
Direct
Indirect
Positive (law protected)
Measures to address underlying problems of equal opportunity:
Support from the top
Appoint equal opportunity managers
Encourage disadvantaged groups to apply
Monitoring of minority
Maternity leaves, Maternity Pay, Work place nurseries
Flexible hours
Career break
Accommodate wheelchair users
Health and Safety
Importance of Health and Safety at work:

1. Legal obligation
2. Accidents cost money
i. Compensation + Repair cost + Increased insurance premium
ii. Time lost
iii. Subsequent performance is reduced.
iv. Recruitment and training of replacement has cost.
3. Corporate image is improved.
Employers Duties:
Work environment must be safe and healthy.
Plant and equipment must be maintained to standard.
Work practices must be safe.
Health and Safety Policy should be communicated to all employees.
Statement of principles
Detail of safety procedures
Detailed instruction of how to use equipment
Training requirement
Compliance with law
Risk assessment should be made.
Hazard and risk information should be shared.
Identify employees who are especially at risk.
Controls must be introduced to reduce risks.
There must be safety and health advisors.
Employees duties:
Take reasonable care of themselves and others.
Allow the employer to carry out his duties.
Inform the employer of any situation which may cause danger.
Use all equipment properly.
National legislation on important labor matters

1. Industrial and Commercial Employment (Standing Orders) Ordinance 1968
i. Appointment, transfer, promotion
ii. Leaves
iii. Insurance
iv. Bonus
v. Termination
vi. Gratuity
2. Industrial Relations Ordinance 1969.
3. Employee Social Security Ordinance 1965
i. Medial expenses
ii. Compensation in lieu of wages during illness
4. Employee Old age Benefits Act 1976
i. Rules for pension
5. Company Profit (Workers Participation) Act 1968.
i. 5% of net profit + adjustments
ii. Fund could be maintained.
6. Workers Welfare Fund Ordinance 1971.
Chapter 17 : Groups in Organisation
Groups:
A group is any collection of people who perceives themselves to be a group.
Sense of identity
Loyalty to group
Purpose & Leadership
Team:
A team is a small number of people with complementary skills who are committed to a common purpose,
performance goals for which they hold themselves accountable
A team could be:

Multi-disciplinary teams
Contains specialists in different areas
Freer and faster communication between disciplines in organization
Multi skilled teams
Contains people who possess many skills
Tasks can be shared in flexible way.
Development of team: (by Tuckman)

Forming (collection of individuals)
Storming (targets are set and trust increases)
Norming (work sharing, individual requirements and expectations)
Performing (execution of task)
Members/Roles of team: (by Belbin)

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

Group norms restrict individual personality.
Conflict in roles and relationship
Personality problems
Rigid leadership
Not suitable for all jobs
Too much harmony (group think) or differences of opinion
Creating an effective team work: (A contingency approach by Handy)
The Given
Groups members
Groups task
Groups environment
Intervening factors
Motivation
Leadership
Process
Procedure
The Outcomes
Productivity
Effectivity
Objective is met within time
Group satisfaction
Management can operate on both givens and intervening factors to affect the outcomes.
Indications of Effective Team:

Quantitative factors
Productivity
Absenteeism
Turnover rate
Accident rate
Targets
Interruption to work rate
Qualitative factors
Commitment
Understanding
Communication
Feed back
Job satisfaction
Motivation
Conflict in organizations: (Individual / Group level)
Different views conflict in organizations:
The happy family view:

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

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

Different solutions Distract attention from task.
Creativity and testing of ideas Objectives may be subverted for secondary goals.
Attention on individual Disintegration of the group
contribution
Brings emotions into open Emotional/ Win-lose conflicts may arise. (Close
Motivational factors brings out competition)
Effects of Conflicts within groups: (Sherif and Sherif) PTCL vs. Union
Within a group:
Group becomes more structured and organized.
Members eliminate their differences, get close and demand loyalty.
Climate becomes task oriented.
Members individual needs are subordinated to achievement.
Leadership moves from democratic to autocratic with groups acceptance.
Winning group:
Cohesion
Relaxation
Return to group maintenance and concern for members needs.
Assertion for group self-concept with little reevaluation.
Losing group:
It may deny defeat or blames on others.
Loses cohesion.
Turn to regrouping.
Reevaluates perception of itself and other group.
Might become cohesive and effective unit if defeat is accepted.
Managerial response to conflicts: (by Hunt)

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

Limited communication
Structural separation
Bureaucratic authority (use of)
To encourage cooperative behavior:

Job rotation
Inter-group training
Integration devices (e.g. problem solving teams, force to work together)
Group think: (IL Janis)

Psychological drive for consensus at any cost, that suppresses dissent and appraisal of alternatives in cohesive
decision making groups
Symptoms of group think:

Moral blindness (might is right)
Perception of unanimity
Strong group pressure to quit dissent
Rationalization for inconsistent facts.
Mutual support to guard the decision.
Group subculture:
Subcultures are cultures which exist within cultures.
Characteristics:
Group share distinctive way of life, beliefs.
Learned from others in the group.
Way of life has somehow become traditional.
Political behavior:
Organizations are political systems because people within them have their own objectives and priorities.
Political behavior is concerned with competition, conflict, rivalry and power relationships in organization.
Political Game:
Mintzberg identifies various Political Games played in organization which can be useful or harmful.
Game resist authority
Game to counter this resistance
Game to build power basis (control over resources and superiors, colleagues, subordinates etc.)
Game to defeat rivals (interdepartmental)
Game to change the organization
At senior level political activities occur in following cases
Allocation of resources.
Management Succession
Interdepartmental coordination
Structural change
Chapter 18 : Strategies for Critical Periods
Large Vs. Small organizations
Issues/problems in large organizations:
Organizations structure:
Sharing roles and responsibilities (who does what?)
How much specialization
How many levels of management
Delegation of authority (centralized or decentralized)
Planning and control:
Vague accountability
MIS should be in place
Coordination
Reward
Slow adoption to change
Motivation is down
No self-esteem
Slow decision-making
Solutions:
Decentralized and delegation of authority
Fair pay policies with bonus, awards and rewards
MIS
Delayering in hierarchy
Job design
Issues/problems in small organizations:

Over reliance on a few key persons
No economies of scale
Small market area/ restricted range of products
Low bargaining power
Cannot raise money
Can not afford help (from experts)
Solutions:
Growth
Specialist servicing
Key persons insurance
Corporate decline
3 types of decline:
1. Declining industries (i.e. Environment entropy; environment is no longer supportive)

Temporary decline (product revitalization)
Permanent decline (end game)
2. Vulnerability
SLEPT
Porters 5 forces
3. Declining company (i.e. organization atrophy)
Symptoms (by Stuart Slatter)

Decrease in sales revenue
Decrease in profitability
Decrease in liquidity
Decrease in market share
Lack of planning
Increase in gearing
Top management fear
Change in senior executive
Financial engineering (change in accounting policies, auditors etc.)
Restriction on dividend policy
4 stages in the crisis (by Stuart Slatter)

Blind stage/Crisis denial
Inaction/Hidden crisis
Faulty action/Disintegration
Crisis/Collapse/Dissolution
Causes of decline and strategies to overcome:
Causes Strategies
Poor management New management + restructuring
Poor financial controls Tighter controls + delegation of responsibilities
High cost structure Cost focus strategy + Ansoffs matrix
Poor marketing Redevelop marketing mix + motivate sales force
Competitive weakness Porters generic strategies
Big projects/acquisition Feasibility reports
Escalation of commitment of bad decisions
Reasons for escalation:

They think decision was right; implementation was wrong.
Humiliation of climb down.
Consistency is valued.
Mistakes are viewed as failure not learning
Outcomes are uncertain.
Failure to understand principle of relevant cost.
Turnaround of decline:
Visionary leader required.
Contraction and cost cutting.
Reinvestment in organizations capability.
Rebuilding with innovation.
Chapter 19 & 20 : Change Management and
Changing Environment
Change
Types of change:
Changes in environment (Cause)

Changes in organization (Effect)
Changes in products/services
Changes in technology and working conditions
Changes in management and working relations
Changes in organizational structure and size
Change is small and gradual whereas Transformation is crucial and significant.
Factors forcing change: Changes may occur due to

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

Determine need/desire for change in a particular area.
Prepare tentative plan (via Brainstorming)
Analyze probable reactions to change.
Make a final decision (Coercive or Adaptive)
Establish time table for change. Speed of implementation will depend on:
Type of change (Coercive, Adaptive or Managed resistance change)
Reaction of people (Acceptance, Indifference, Passive resistance, Active resistance)
Driving and Restraining forces (Force Field Analysis)
Communicate the plan for change
Implement, review and modify change.
Review the change
Approaches to change:
Resistance to change
i) Unfreeze Move /Shake Refreeze
Active resistance passive resistance
ii) Adaptive change approach
iii) Coercive change approach
iv) Using Change agent
v) Integrative VS segmentalist
vi) Theory E & Theory O
Force Field Analysis: (Lewin)

It is an interplay of restraining and driving forces that keeps things in equilibrium.
Introducing change:
3 factors to consider to minimize resistance.

Pace of change:
Adapt strategy according to time available.
Manner of change:
Resistance should be welcomed.
Reasons and results of change should be circulated.
Change must be sold to people concerned.
Individuals must be helped to learn.
Scope of change:
Small or Transformation.
Change process: (by Lewin/Schein)
Unfreeze existing behavior:

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

Physiological effect (e.g. pattern of shift working affect eating, walking and sleeping habits)
Circumstantial effect (e.g. working environment and working relations)
Psychological effect (e.g. feeling of disorientation, Insecurity, risk of rejection, feeling of misfit)
Effect on Self concept (New psychological contract, Uncertainty affects sense of competence)
Changing culture:
Hamper Turner suggests 6 modes of intervention:
1. Find the dangers (locate black sheeps)
2. Brings conflicts in open.
3. Discuss culture with members (play out corporate drama)
4. Reinterpret the corporate myths.
5. Look at symbols, images, rituals.
6. Create a new learning system.
Pattern of unhealthy culture: (by Edwin Baker)

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

Handys sigmoid curve:
Application of concept of lifecycle to organization with 4 broad stages:
1. The organization is established.
2. Organization grows in size and scope.
3. Period of maturity
4. Organization begins to decline.
Such a lifecycle is not inevitable, if organization is able to adapt.
Greiners growth model: (Growth & Organisational Development)

As an organization ages, it grows in size.
This growth takes place in 5 discrete phases.
Each phase has 2 characteristics i.e.
Evolution (distinctive factor that directs growth) and Growth (Move Stage)
Revolution. (crisis to pass to enter next phase) Crisis (Unfreeze Stage)
Phase 1: (Focus)
Evolution (Small organization focusing on operations, personnel issues and innovation)
Revolution (Need for leadership skills)
Phase 2: (Management/group)
Evolution (Management is professionalized, there are more employees but less enthusiasm)
Revolution (delegation is problem; lack of detailed control; no initiation)
Phase 3: (System)
Evolution (decentralized decision making)
Revolution (no coordination between departments, sub optimization occurs)
Phase 4: (Internal Controls)

Evolution (Internal control systems and procedures are developed for coordination and optimal use of
resources)
Revolution (new procedure inhibits useful actions)
Phase 5: (Communication / collaboration)

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

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

Sales revenue
Profit (in absolute term or ROCE)
No. of goods/services sold.
No. of outlets
No. of employees
No. of countries reached.
No. of markets served.
Chapter 22 : The evolution of marketing
concept
the right product or service to the right customer, at the right price, at the right time and right place
Marketing Department: Functions (Research, Demand, Design, Selling)
Marketing Environment: PESTEL (Political, Economical, Social, Technological, Ecological, Legal)
Chapter 1- Introduction
Marketing, :
Managerial definition: Managing profitable customer relationships, by delivering superior value to customers.
Social definition: a social and managerial process by which individuals and groups obtain what they need and want
through creating and exchanging products and value with others.
Core Marketing concepts:
Market:
A market is the set of actual and potential buyers of a product.
Needs, wants and demands:

Needs are fulfilled : a state of felt deprivation.
Wants are satisfied : the form taken by a human need as shaped by culture and individual personality.
Demands are extinguished : Human wants that are backed by buying power.
Marketing Offer:
Combination of good-service offered to market to satisfy need or want.
Value and Satisfaction

Customers perceived value is the difference between the values that the customer gains from owning and using a
product and the costs of obtaining the product.
Satisfaction is whether performance meets or exceeds expectations.
Exchange, Transaction and relationship:

Exchange is an act of obtaining a desired object from someone by offering something in return.
Transaction is a trade of value between two parties.
Elements of Marketing:
Company
Supplier Market Intermediaries End user
Competitors
ENVIORNMENT
Customers life time value:
Value of entire stream of purchases by customer over his lifetime.
Customer Equity:
Total lifetime value of all of companys customers.
Marketing Management:
Marketing management has four functions: Analysis, Planning, Implementation and control.
Demarketings aim is to reduce demand temporarily or permanently. It is done when product is not feasible from
supplier or customers point of view. i.e intentional and non-intentional reduction in demand.
Marketing Management Orientations

The production concept holds that consumers will favor products that are available and highly affordable and that
management should, therefore, focus on improving production and distribution efficiency.
The product concept states that consumers will favor products that offer the most quality, performance, and features,
and that the organization should, therefore, devote its energy to making continuous product improvements.
The selling concept is the idea that consumers will not buy enough of the organizations products unless the
organization undertakes a large-scale selling and promotion effort.
The marketing concept holds that achieving organizational goals depends on determining the needs and wants of target
markets and delivering the desired satisfactions more effectively and efficiently than competitors do.
The societal marketing concept holds that the organization should determine the needs, wants, and interests of target
markets. It should then deliver the desired satisfactions more effectively and efficiently than competitors in a way that
maintains or improves the consumers and the societys well-being.
CONCEPT CUSTOMER WANTS COMPANY SHOULD

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

Determine Need, Wants And Interest Of Target Market
Then Satisfy Them Effectively And Efficiently
Marketing Vs. Selling:

Starting point Focus Means Ends
Selling concept Factory Existing products How to increase Profits through sales volume
demand
Marketing concept Market Customer needs How to satisfy Profits through customer
demand satisfaction
Despite adoption of market oriented approach; there is need for sales force:
To create awareness
To convince to buy from company, not from competitors
To reassess benefits to customers
To convince that average customers requirements are met
Problems in introducing the marketing approach:

Understand what marketing orientation actually means
Organizational, structural and cultural changes are required.
Assessment of Product, logistic, level of services and marketing techniques
Organization wide dedication
Working together as whole Types of Marketing
Strategic Marketing Tactical Marketing
Tied with corporate strategy Short term, and focuses

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

Customer Database
Customer Relationship Management:
Customer Portfolio
Defined narrowly as a customer database management activity.

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

- Purchasing trend
Controllable: - Payment trend
Product - Service obtaining trend
Price - Family trend
Place - History
- Support calls
- Website visits
www.canotes.multiply.com - Emotional attachments
Promotion
Uncontrollable: (Marketing environment)

SLEPT Analysis
Porters 5 forces model
i) Threat of new entrants
ii) Threat of substitutes
iii) Bargaining power of customers
iv) Bargaining power of suppliers
v) Rivalry among competitors
Service industry:
People
Processes
Physical evidence
Important Points for discussion questions:

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

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

Value-Chain : How activities of organisation contributes towards creating value in goods or services.
Internal Customer Concept: Department in an organisation treat each other as customers, it encourages service-
oriented attitude. Hence when every department is satisfied ultimately the
quality will be enhanced.
Relationship Marketing: To build long term relationship with existing customers, rather than focusing on products,
focus is on relationship i.e selling more products to same customer, rather than to new
customers.
Model of Consumer behavior:
A model of consumer behavior helps managers answer questions about what, where, how and how much, when and
why they buy.
The stimulus-response model of buyer behavior shows that marketing (made up of the four Psproduct, price, place,
and promotion) and other environmental stimuli (Micro and Macro) center on the consumers black box and
produce certain responses.
Marketers must figure out what is in the consumers black box.
Marketing and other environmental stimuli: (i.e Stimulus response model)

Already discussed
Consumers Black box:

The black box has two parts.
1). The buyers characteristics influence how he or she perceive and react to
stimuli. (Uncontrollable)
2). The buyers decision process itself affects the buyers behavior. (Semi-controllable)
Characteristics affecting consumer behavior:
Marketer can not control them but should learn them.
Cultural
o Culture
o Subculture
o Social class
Social
o Reference group
o Family
o Roles and status
Personal
o Age and lifecycle stage
o Occupation
o Economic situation
o Lifestyle
o Personality and self concept
Psychological
o Motivation
o Perception
o Learning
o Beliefs and attitudes
Culture is the set of basic values, perceptions, wants, and behaviors learned by a member of society from family and
other important institutions.
Subculture is a group of people with shared value systems based on common life experiences and situations.
Subcultures might be nationality groups, religious groups, racial groups, or geographic area groups.
Social classes are societys relatively permanent and ordered divisions whose members share similar values, interests
and behaviors.
Reference group has a direct (face to face) or indirect points of comparison or reference in forming a persons attitudes
or behavior.
Aspirational group is one to which an individual wishes to belong.
Opinion leader is a person within a reference group who, because of special skills, knowledge, personality or other
characteristics, exerts influence on others.
Personality is a persons unique psychological characteristics that lead to relatively consistent and lasting responses to
his or her own environment.
A motive (drive) is a need that is sufficiently pressing to direct the person to seek satisfaction.
Perception is the process by which people select, organize, and interpret information to form a meaningful picture of
the world.
Learning is changes in an individuals behavior arising from experience.
Belief is a descriptive thought that a person holds about something.
Attitude is a persons consistently favorable or unfavorable evaluations, feelings, and tendencies toward an object or
idea.
Purchase Decision Process
i) Problem Recognition:
Perceiving a need.
It can be stimulated by:
Consumers depleted assortment (e.g. empty paste) or
Marketing efforts
ii) Information Search:

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

Assessing value.
Customer may be interested in many attributes. E.g. for Camera
Picture tube
Ease of use
Size
Price
However sometimes consumer has to base his decision only on one attribute.
iv) Purchase Decision: [The best rated camera will be bought.]
v) Post-Purchase behavior:
Dissatisfied
Satisfied
Delighted
A policy by firms is to understate performance because customers are delighted with better-than-expected performance.
Why satisfaction of Customer/study of this stage is important:

1. To attract new customers cost more than to retain current customers.
2. Satisfied customers are less price sensitive.
3. Satisfied customers tell others (words of mouth). Bad words travel farther and faster.
Decision process for new product i.e. stages in adoption process (from hearing to adoption):
1. Awareness:
2. Interests: seek information i.e. through external sources
3. Evaluation: whether to try or not
4. Trial: on small scale to improve estimate of value
5. Adoption: decides to make full and regular use
Chapter 2 Company and marketing strategy
Strategic Planning Process:

Strategic Planning is the process of developing and maintaining a strategic fit between organizations goals and
capabilities and its changing marketing environment.
Following are steps of strategic planning:
1. Defining mission
2. Analysis of Business Portfolio
3. Setting strategic objectives and goals
4. Developing Competitive strategies
i. Porters 5 forces
ii. Cost-Differentiation-Focus Triangle
iii. Growth Strategies (product/market expansion grid)
5. Developing detailed marketing and departmental plans and strategies
Mission Statement:
This is a statement of organizations purposes- What it wants to accomplish in the larger environment.
It should be market oriented, specific, realistic, motivating and consistent with market environment.
e.g. To provide best satisfaction to customers and fair return on investment, keeping environment healthy and clean
and promising secure future to employees
Designing the business portfolio:

Business portfolio is the collection of businesses and products that make up the company.
Business portfolio planning involves 2 steps:
1. Analysis of current business portfolio.
2. Developing strategies
1. Portfolio Analysis:
A tool by which management identifies and evaluates SBUs to determine which business should receive more, less or
no investment.
BCG growth-share matrix is used to evaluate a companys SBUs in terms of market growth rate and relative market
share.
SBU is a unit of company that has a separate mission and objectives and that can be planned independently from other
company businesses.
2.Developing strategies for growth and downsizing:

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

Existing Market Market Penetration Product Development
New Market Market Development Diversification
Downsizing:
When a firm reduces business portfolio by eliminating products or business that is not profitable or no longer fit its
overall strategy..
Setting strategic objectives and goals:

Firms mission is translated into set of objectives for the current period for each SBU.
Developing plans and strategies
Marketing Process:
The marketing process is the process of
1. segmenting the market,
2. selecting target markets,
3. marketing positioning
4. developing the marketing mix, and
5. managing the marketing effort.
Marketing mix:
The marketing mix is the set of controllable factors that the firm blends to produce the response it wants in the target
market. i.e. Product, Price, Place, Promotion
Managing the Marketing Effort:

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

Working closely and jointly with
Other departments of company
Other companies
to bring greater value.
Value Chain and Value delivery network:
Value Chain is series of departments within the company carrying out value-adding activities e.g.
Designing
Producing
Marketing
Delivery
Supporting
Value delivery network is network of suppliers, company, intermediaries, and consumers who partner with each other
to improve performance of entire system.
Chapter 23 : Strategic Marketing & Planning
1. Market Segmentation
Market segmentation is dividing a market into smaller group of distinct buyers who have different needs,
characteristics or behavior and might require different marketing mixes.
Market segment is a group of buyers who respond in a similar way to a given set of marketing mix.
Basis of segmenting markets:
Segmenting consumer market
Geographic segmentation calls for dividing the market into different geographical units such as states, regions,
counties, cities, or neighborhoods.
Demographic segmentation calls for dividing the market into groups based on variables like age, gender, family size,
family life cycle, income, occupation, education, religion, race, generation, and nationality.
Psychographic segmentation calls for dividing a market into different groups based on social class, lifestyle, or
personality characteristics.
There are four possible lifestyle categories:

1. Upward mobile, ambitious
i. Seek better or more affluent lifestyle
ii. Higher standard of living
iii. Will try new products
2. Traditional and sociable
i. Compliant and conform to group norms
ii. Purchasing pattern will be conformist
3. Security and Status seeking
i. Stresses security and ego-defensive needs
ii. Purchase of known and established products and brands e.g. Insurance
4. Hedonistic preference
i. Emphasis on enjoying life now
ii. Immediate satisfaction of needs and wants
Behavioral segmentation involves dividing a market into groups based on consumer knowledge, attitudes, uses, or
responses to a product. E.g.
Occasion segmentation: dividing market according into groups according to occasions when buyers get the
idea to buy, actually make their purchase, or use purchased item.
Benefit sought: Dividing market into groups according to different benefits that consumers seek from the
product. Consumers seek unique combination of benefits e.g. for a laundry detergent, from cleaning and
bleaching to economy, fresh smell, strength or mildness etc.
User status and user rate
Loyalty status
Segmenting Business Markets
Demographic segmentation
Industry (which industry)
Company size (what size)
Location
Operating variables
Technology (what technology to focus)
User- nonuser status (heavy, medium or light user)
Customer capabilities (many services or few services)
Purchasing approaches
Purchasing function organization (centralized or decentralized)
Power structure
Nature of existing relationship
General purchasing policies (leasing, service contracts, or sealed bidding)
Purchasing criteria (quality, service or price)
Situational factors
Urgency (quick delivery/service?)
Specific application
Size of order
Personal characteristics
Buyer-seller similarity of values
Attitude towards risk (risk taking or averse)
Loyalty (to companies who show high loyalty to suppliers)
Segmenting International Markets

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

Accessiblesegment must be reached and served easily.
DifferentiableIt must be conceptually distinguished and should have the ability to respond differently to different
marketing mix elements and programs.
ActionableIt should be possible to design effective programs for attracting and serving market segment.
MeasurableSize, purchasing power, and profiles of a market segment should be measurable.
2. Target Marketing
Target market is a set of buyers sharing common needs or characteristics that the company decides to serve.
Target marketing strategies: (Product affecting Promotion)

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

Product
Service
Channels
People
Image
Considerations while choosing strategy:

Company, resources and objectives
Competitor, strategies
Product
o stage in the life cycle
o variability
Market, variability
Evaluating Market Segments
Segment size and growth
Segment structural attractiveness
Level of competition
Substitute products
Power of buyers
Power of suppliers
Company objectives and resources
3. Product Positioning
Product positioning is imaging the product in the minds of consumers relative to competing products.
Positioning task (or choosing a positioning strategy) consists of following four steps:
1. Identifying possible competitive advantages
2. Choosing right competitive advantages
3. Selecting an overall positioning strategy
4. Developing a positioning statement
1) Identifying possible competitive advantages:

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

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

What offer to make in relation to competitors offer (Use 2x2 or 3x3 Grid)
Price
More Same Less
More Premium brand Super bargain brand
Same Average Bargain brand
Quality
Less Cow bow brand Economy brand
Other strategies are:
More for same (Penetration)
Same for less
Less for much less
4) Developing positioning statement:

Positioning statement is a statement that summarizes company or brand positioning, it takes following form:
To (target segment and need) our (brand) is (concept) that (point of difference)
e.g.
To young, active, soft-drink consumers who have little time for sleep, Mountain Dew is the soft drink that gives you
more energy than any other brand because it has the highest level of caffeine.
Chapter 24 : Marketing Research
Marketing Research
Marketing Research:
It is the objective gathering, recording, and analyzing of all facts about problems relating to the transfer and sales of
goods and services from producer to consumer or user
Marketing research helps in

a. Regulating systems
b. Reducing risks
c. Decision making
Types of Marketing Research:
Market research:
Study and analysis of
Characteristics of market
Market share
Market trends
Sales forecasting for all products
Market potential for existing products
Likely demand for new products
Product research:
Comparative study between competitive products
Studies into packaging and design
Forecasting new uses for existing products
Customer acceptance of proposed new products
Development of new product lines
Test marketing
Price research:
Analysis of elasticity of demand
Analysis of cost and profit margins
Effect of change in credit policy on demand
Customers perception of price and quality
Place (Distribution) research:

The location and design of distribution centers
Analyzing the packaging for transportation and shelving
Cost of different methods of transportation and warehousing
Dealer supply requirements
Dealer advertisement requirements
Promotion research:
Analyzing the effectiveness of sales force
Analyzing the effectiveness of advertising on sales demand
Establishing sales territories
Research procedure:
The marketing research process consists of following steps:
1. Defining the problem
2. Designing the research (basis of research objectives)
3. Collection of data
4. Analysis of data (Pre and Post testing etc)
5. Presentation of report
6. Management decision
Defining the problem and designing the research
After the problem has been defined carefully, the manager and researcher must set the research objectives.
Collection of data (Research work)

Marketing Research data comprises of
Primary Data (Field search)
Secondary Data (Desk Search)
Researchers usually start from secondary data.
1. Collecting secondary data: (Desk research)
Secondary data collection is information that is neither direct nor specific.

Sources of secondary data:
Internal databases: (i.e. MkIS)

Advantages Disadvantages
Quick access Incomplete
Cheaper Wrong form
Regular & Reliable Ages quickly
Confidentiality Not expert
External sources:
Information about Competitors (annual reports, press releases, web pages, business publications,
advertisements etc.)
Analyzing competing products
Rival companies personnel (executives, engineers, sales force, purchasing agents)
Trade suppliers
Outside suppliers
Online databases
New patents or applications for patents
2. Collecting primary data:( Field research)
Primary data is information collected for the specific purpose at hand.
A plan for primary data collection calls for a number of decisions on
Research approaches,
Observational research
Survey research
Experimental research
Research methods
EPOS (Electronic Point of Sale system)
DSS (Decision Support system)
Data Warehousing
Internet
Contact methods,
Mail questionnaires
Telephone interviewing
Personal interviewing
Individual interviews
Group interviews (including focus-group interviews)
Online (Internet) marketing research
Mechanical instruments
i. People meters
ii. Supermarket scanners
iii. A galvanometer measures strength of interest or emotions aroused by a subjects exposure
to different stimuli, such as an ad or picture.
iv. Eye cameras are used to study respondents eye movements to determine at what points
their eyes focus first and how long they linger on a given item.
Sampling plans
As surveying the whole population would be too expensive & time consuming, so a sample is selected.
Sample is a segment of population selected for marketing research to represent population as a whole.
Sample should be a true representative of population and should not be biased
Types of samples:
Random sampling:
Every member has a known and equal chance of selection)
Non-random sampling:
1. Systematic (Every nth item is selected)
2. Stratified (Population is divided into mutually exclusive groups e.g. age groups and selecting random samples
from each group.
3. Multistage (Process of subdividing population and selecting sample again and again till a suitable selection is
made)
4. Quota (Different categories of populations are made and a specific quota from each category is selected)
5. Cluster (Investigators are told to examine every item in a small population that fits the required definition)
Potential faults in sampling:

Insufficient data
Unrepresentative data
Bias (where chance of occurrence is not equal)
Omission of an important item in questionnaire
Carelessness
Misinterpretation of data
3Implementing the Research Plan

This involves processing, and analyzing the information.
4Interpreting and Reporting the Findings
Distributing the information:
MkIS:
Marketing Information System represent a systematic attempt to supply continuous, useful, usable marketing
information within an organization to decision makers often in the form of a database.
Audits:
Trade audits: count of stock at wholesalers and retailers
Retail audits: count of stock at retailers only
Marketing in the Digital age
E.Business is the all electronic based information exchange within company or between companies and consumers
using following platforms:
Intranet
Extranet
Internet
Intranet is a network that connects people within a company to each other and to the company network.
Extranet connects a company with its suppliers, distributors, and other outside partners.
Internet is a vast public web of computer networks, which connects users of all types all around the world to each
other.
E.Commerce is more specific than E.Business. It is the ability to buy and sell goods and services electronically
primarily by internet.
E. Marketing is the marketing side of E.Commerce. Company efforts to communicate about, promote and sell
products and services over internet. It includes only Business and Consumers.
Advantages:
Geographical reach
Speed
Information sharing of any kind e.g. text, audio, video, animation, graphics
Shopping at home (Consumer)
No physical barriers (Consumer)
Doing business 24 hours (Business)
Paperless business (Business)
Disadvantages:
Security concerns (consumer)
Whom to complaint (consumer)
What you see is sometimes not what you get (consumer)
Sometimes physical presence is necessary e.g. smelling a perfume or fitting clothes (consumers)
Logistic, shipping, distribution and delivery challenges (business)
Availability of secure and affordable communication network
E.Business Models:
Government Business Consumer Employee
Government G2G G2B G2C G2E
Business B2G B2B B2C B2E
Consumer C2G C2B C2C X
B2C E.Commerce occurs when an average citizen interacts with a company (like Bata Pakistan or amazon.com)
through a website to buy shoes or books online or making inquiries.
B2B E.Commerce is companies doing business electronically with other businesses e.g. a business selling up, down or
across the supply chain involving business partners. Such as All Pakistan Textile Association Mills
B2E E.Commerce is use of intranet technology to handle activities that take place within a business. Using B2E
E.Commerce employees collaborate with each other, exchange data and information and access in-house database,
sales information, market news and competitive analysis.
Its need arises when branching out and spreading business across geographical areas. E.g. H/O receiving and
processing Timesheets, Expense Claims, and Absent forms.
C2C E.Commerce is consumers selling goods directly to consumers in an auction process. E.g.
EBay
Chat rooms for information and advertisement
Over personal websites
Advertisement on E.news papers
G2C E.Commerce is the use of E.Commerce technology by the government to handle activities electronically in
which govt. is involved with. E.g.
To publish and disseminate information by Govt.
Change in address, marital or family status
Submission of tax returns
To cast vote
Customization and Customerization:

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

DRTV
Internet (B2C)
o Websites
o Email
Chapter 25 : Product
Product
A product is anything that can be offered to a market for use, or consumption and that might satisfy a want or need
such as soap.
Product includes:
Goods
Services
Other entities e.g. People, idea, places, organizations
Services are a form of product that consist of activities, benefits offered for sale that are essentially intangible and do
not result in the ownership of anything. such as a doctors exam.
Levels of Products and services:
The core product, What is the buyer really buying?

The actual product may have as many as five characteristics that combine to deliver core product benefits. They are:
Quality level..
Features
Style and design.
A brand name.
Packaging.
The augmented product includes any additional consumer services and benefits built around the core and actual
products.
b. Delivery and credit
c. Warranty
d. Installation
e. After sale service
Classification of products:
1. Consumer Products
i. Convenience
ii. Shopping
iii. Specialty
iv. Unsought
Types of consumer products
Marketing Convenience Shopping Specialty Unsought

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

i. Material and parts
ii. Capital items
iii. Supplies and Services
Key Decisions about product:
Individual product
o Standardized or adapted Market offers can be differentiated along the lines of:
Product
Service
Channels
People
Image
o Product attributes
Tangible
Quality
Features
Style and design
Brand name
Packaging
Intangible
Image
Perceived value
o Packaging & Labeling
o Product support service
Product Line Decisions
o Product line length
Product Mix/Assortment/Portfolio Decisions
o Width (No. of product lines of a company)
o Depth (No. of items per product line)
o Consistency (how closely related the various product lines are in end use, production requirements,
distribution channels, or in some other way.
A brand is a name, sign, symbol, or design, or a combination of those that identifies the maker or seller of a product or
service.
Packaging is the activity of designing and producing the container or wrapper for a product.
Labeling is also part of packaging and consists of printed information appearing on or with the package
Product support services are the services that augment actual products.
A product line is a group of products that are closely related because they function in a similar manner, are sold to the
same customer group, are marketed through the same types of outlets, or fall within given price ranges.
Product line length is the number of items in the product line. Long/short depends on increase of profit by
adding/deleting items.
An organization with several product lines has a product mix.
Product-Market Matrices:
It is a simple technique used to classify a Product/Business according to the features of the product and market to
determine the
Relative positions of Businesses/Products and
Strategies for resources allocation between them.
There are 2 commonly used techniques:
1. Boston Consulting Groups Growth-Share Matrix
2. General Electric Business Screen (GEBS)
1) BCG growth-share matrix is used to evaluate a companys SBUs/Product in terms of market growth rate and
relative market share.
Star Question Mark

Needs heavy investment to Requires a lot of cash
Growth rate (%age) finance rapid growth potential (Problem Child)
Cash Cow Dog Relative
market share Established, successful Enough to maintain themselves
Needs less investment No future
After determination of position of a SBU in BCG matrix, following strategies are available:
Build
Hold
Harvest
Divest
The BCG and other formal methods revolutionized strategic planning. Such approaches, however, have limitations:
1). They can be difficult.
2). They can be time consuming.
3). They can be costly to implement.
4). Management may find it difficult to define SBUs and measure market share
and growth.
5). The approaches focus on classifying current businesses but provide little
advice for future planning.
SBU is a unit of company that has a separate mission and objectives and that can be planned independently from other
company businesses.
2) General Electric Business Screen (GEBS):

This approach is like BCG matrix but includes a broader range of company and market factors.
Matrix classifies products according to:
Industry attractiveness (market size, market growth, competitive climate, stability of demand, ease of
market entry, industry capacity, level of investment, nature of regulation, profitability)
Company strength (market share, company image, production capacity, production costs, financial
strengths, product quality, distribution systems, control over prices/margins, benefits of patent
protection)
Classification is highly subjective assessment. Strategy for an individual SBU/Product is then suggested on the basis of
the position of the matrix.
Market attractiveness
Attractive Average Unattractive
Invest for growth Invest selectively for Develop for income
Strong growth
Business
Strength Average Invest selectively Develop selectively Harvest or Divest
and build for income
Weak Develop selectively; Harvest Divest
build on strength
Nature and
Characteristics of a Service
1). Service intangibility (cannot be touched)
2). Service inseparability (from provider)
3). Service variability (standard will vary each time)
4). Service perishability (cannot be stored)
5). Service ownership (not transferred to service taker)
Marketing mix of services:

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

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

That opens up an entirely new market
That replaces an existing product
That broadens the market of an existing product.
When an old product can be new:

Introduced into a new market
Packaged in different way
Different marketing approach is used
Mix variable is changed.
Degree of newness:
Unquestionably new product
Partially new product
Major product change
Minor product change
Sources for new products:

Licensing
Internal product development
Customers
External innovators
Competition
Acquisition
Academic institutions
Patent agents
Why so many new products fail:

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

Relative advantage i.e. new technology making it superior
Compatible with values and experience of potential consumers
Ease of understand and use
Trial option
Communicability of results of using product.
Product Development Process
1. Idea generation
which is the systematic search for new product ideas rather than haphazard?
a. Internal sources (R&D)
b. External sources (customers, competitors, distributors, suppliers)
2. Idea screening
Evaluation against criteria to spot good ideas and drop poor
3. Concept development and testing
Product concept is a detailed version of the new-product idea stated in meaningful consumer terms.
Concept testing involves testing the concepts with a group of target consumers to find out if the concepts have
strong consumer appeal.
4. Marketing strategy development
A marketing strategy statement should be produced. This is a statement of the planned strategy for a new product
that outlines the target market, positioning, market mix and market share, long term sales, profit goals and
marketing budget for the first few years.
5. Business analysis
Review of the sales, costs, and profit projections for a new product to find out whether these factors satisfy the
companys objectives
6. Product development
Developing the product concept into a physical product in order to ensure that the product idea can be turned into
a workable product
7. Test marketing
The basic purpose is to test the product itself in real markets.
8. Commercialization
Introducing a new product into the market.
Stages of Product Life Cycle (PLC)

1. Introduction
2. Growth
3. Maturity
4. Decline
Exceptions are Fad, Style, and Fashions.
Strategies change with change in stage of PLC.
Product life cycle- Characteristics, objectives and strategies: [very nice table]
Introduction Growth Maturity Decline

Characteristics
Sales Low Rapidly rising Peak sales Declining sales
Cost High per customer Average cost per Low cost per Low cost per
customer customer customer
Profit Negative Rising High profit Declining profit
Customers Innovators Early adopters Middle majority Laggards
Competitors Few Growing Stable number Declining number
beginning to decline
Marketing objectives Create product Maximize market Maximize profit Reduce expenditure
awareness and trial share defending market and milk the brand
share
Strategies
Product Offer Basic product Offer product Diversify brand and Phase out weak items
extensions, service, model or Repositioning
quality
Price Use cost-plus Price to Price to match or Cut price
penetrate/skim beat competitors
market
Place Selective distribution Intensive distribution More intensive Go selective; phase
distribution out unprofitable
Promotion Use heavy sales Reduce to take Increase to Reduce to minimal
promotion advantage of heavy encourage brand level
demand switching
Targeting Early adopters (build Mass market (build Stress brand Reduce to level
awareness) awareness) differences and needed to retain core-
benefits loyals
Assessment of PLC:
Regular review of existing products
Analysis of past trends
History of other products
Market research
Analysis of competitors
Estimate of future life and profitability should be discussed with experts
R&D Deptt. ----------------------Product life
Marketing staff-------------------Price and demand
Management accountant------- Cost
Decide to continue, stop or change strategy.
Criticism on PLC approach:

Relevant only for products where consumer demand is high
Underlying stage of PLC is determined by marketing actions.
Stages can not be easily defined.
S shape does not always occur in PLC
Strategic decisions can change PLC
Packaging:
Functions of packaging:
Protection
Quality standard (e.g. expiry)
Distribution
Selling (Advertising, attractive, motivating,)
User convenience (value depicting)
Conforms to govt. regulations (e.g. ingredients, price, expiry etc.)
Usually goods are packaged in more than one layer.
Qualities required of a packing:

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

All product lines and items that company offer for sale [Overall product range of organization]
Width (No of product lines carried by Company)
Depth (No of items carried divided by No of product lines)
Consistency (closeness of items in range in terms of marketing/production characteristics)
Chapter 26 : Price
PRICING CONSIDERATIONS AND APPROACHES

Price is the sum of the values that consumer exchange for the benefits of having or using the product.
Only element to produce revenues
Most flexible element
Could be Fixed or Dynamic
Price Setting
Cost
Competition
Demand (Elastic / Inelastic)
Common Pricing Mistakes

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

1. Marketing objectives
2. Marketing mix strategies
3. Costs
4. Organizational considerations
1. Marketing objectives:
Survival
Current profit maximization
Market share leadership
Product quality leadership
Other objectives
To prevent competitors
To keep loyalty and support of reseller
To avoid govt. intervention
To create excitement or draw attention of new customers
To help the sale of other product in product line
2. Marketing mix strategy:

Price decisions must be coordinated with product design, place, and promotion decisions to form a consistent and
effective marketing program.
Companies often make their pricing decisions first and then base other marketing-mix decisions on the prices that they
want to charge.
Target costing is positioning of product on price and then tailoring other marketing decisions to the price they want to
charge.
But remember that consumers rarely buy on price alone.
3. Costs
Set the floor for the price that the company can charge. (price below this is not acceptable)
Companies want to charge a price that covers all its costs for producing, distributing, and selling the product, and
provides a fair rate of return for its effort and risk.
To price wisely, management needs to know how its costs vary with levels of production.
The experience curve (or the learning curve) indicates that average cost drops with accumulated production
experience
4. Organizational considerations.
Management must decide within the organization who should set prices.
Small companies: CEO or top management
Large companies: Divisional or product line managers
Some companies have pricing departments
External Factors Affecting Pricing Decisions
1) Nature of market and demand
2) Competitors costs, prices, and offers
3) Other environmental elements
1) Nature of market and demand

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

a). Economic conditions (such as boom or recession, inflation, or interest rates).
b). Resellers policies (reactions) must be considered especially if they do not match the suppliers.
c). The government (because of its regulatory power) must be considered.
d). Social concerns may affect the firms short-term sales, market share, and profit goals.
General Pricing Approaches/Methods

Price will be set between 2 extremes.
Roof / Ceiling i.e. Customers value
Floor i.e. Cost
Price will be set between these 2 levels after consideration of
Competitors prices and
Other internal and external factors
Approaches
Cost based pricing
Cost plus pricing
Break even or target profit pricing
Customer value based pricing (i.e. demand based )
Competitive based pricing
Going rate pricing
Sealed bid pricing
Why Cost based pricing is popular

1. Sellers are more certain about cost than demand
2. Price is simplified being tied to cost.
3. Fairer to both buyer and seller
4. Price competition is minimized
New-Product Pricing Strategies
Market-Skimming Pricing
Setting a high price for a new product to skim maximum revenues layer by layer from segments
willing to pay the high price.
Product image must support price
Competitors must not be able to enter the market
Prices are lowered when demand falls
Market-Penetration Pricing
Setting a low price for a new product to attract a large number of buyers and a large market
share.
High volume reduces cost
Spare resources are utilized
Eliminates competition
May promote related products.
Product Mix Pricing Strategies
Product Line Pricing

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

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

N
Hold current Y
price and Will lower price negatively affect our market share and profit?
continue to N
Y
monitor Can/Should affective action be taken?
competitors Y
prices N Reduce price
Raise perceived quality
Improve quality and reduce price
Launch low-price fighting brand
Some other concepts that could not be covered here in Details

Price Leadership
Price elasticity of demand
Absorption & Marginal Costing and breakeven analysis
Chapter 27 : Place
Place / Distribution Channels / Delivery System
Place is selection of distribution channels to deliver goods to consumers.
Key issues in Distribution Channel::

Coverage and density (Exclusive, Selective, Intensive)
Channel length (no. of intermediaries between consumer and producer)
Power and alignment of different elements
Logistic and physical distribution
Support and after sale service
Channel design decision (Customer, Product characteristics, Distributor characteristics, Channel choosed
by competitors, Suppliers own characteristics)
Nature and Importance and Functions of Marketing Channels:
Marketing Channel (distribution channel) is a set of interdependent organizations (intermediaries) involved in the
process of making a product or service available for use or consumption by consumer or business user. Each
organization performs a specialized and specified role.
Importance includes:
1. Channel decisions affect other marketing decisions
2. Competitive advantage could be gained.
3. Involves long term commitments to other firms
4. Channel members add value through
a. Their contacts, experience, specialization and scale (economies) of operation.
b. Matching supply and demand
c. Bridging Time, Place and Possession gap
Functions performed by members of marketing channel:
Functions that help to complete transactions:

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

6. Physical distribution (Transportation, storing and Inventory management)
7. Financing (Acquiring and using funds)
8. Risk taking (Assuming the risk of carrying out the channel work)
You can eliminate middle man, but not middle mans functions
Types of Distribution channels:
Direct distribution channel has no intermediary.

Intermediaries dont get their share.
Intermediaries dont get dominant
Own sales force is best for geographically centered buyers.
Indirect distribution channel has one or more intermediaries.

Where resources are insufficient to finance large sales force.
Where no local knowledge of market
Suitable for geographically spread buyers.
Types of Distributors:
a) Franchisees:
Trade in name of parent in exchange of initial fee + share of sales volume
b) Distributors/Dealers:
Buy and resell at profit
Dealing in narrow range of products;
Sometimes exclusive distribution or dealing only one manufacturer;
Also provide after sale services.
c) Agents: (vs. Dealers)

Consigned for commission on sale)
d) Wholesaling:
Selling goods to business buyers
e) Retailing:
Selling goods to consumer buyers
f) Multiple Stores:
Sell under the own label brand name
How do channel firms interact and organize to do the work of the channel:
Channel Conflict is disagreement among marketing channel members on goals, roles and rewards (who should do
what for what reward). It may be
Horizontal, conflict among firms at same level of channel e.g. dealers may complain that others are
pricing too low or selling beyond their territory.
Vertical, conflict among firms at different level of channel e.g. conflict with dealers when opening
online stores even though for hard to reach customers.
Disintermediation is eliminating or replacing intermediaries. e.g. opening online stores
Marketing logistic and Supply Chain Management (SCM):
Marketing logistic (or physical distribution) involves planning, implementing and controlling the physical flows of
goods, services form points of origin to points of consumption.
Marketing logistic addresses whole Supply Chain Management i.e.
Outbound distribution (moving product form factory to reseller and ultimately to consumers)
Downstream
Inbound distribution (moving products from supplier to factory) Upstream
Revere distribution (moving broken, unwanted or excess products returned by consumers or
resellers)
Major logistic functions/ Functions in distribution process:

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

DRTV
Internet (B2C)
o Websites
o Email
Chapter 28 : Promotion
Two basic strategies of Promotion:
Push strategy using sales force to push the product through the channels, the producer promotes the product to
wholesalers, the wholesalers promote to the retailers, and the retailers promote to the final consumers.
Pull strategy spending a lot on advertising and consumer promotion to build up consumer demand; if successful,
consumers will ask their retailers for the product, the retailers will ask the wholesalers, and the wholesalers will ask the
producers.
Communication media
1. Personal communication channels, through which people communicate directly with each other.
i. Face to face
ii. Person to audience
iii. Over telephone
iv. Through mail
v. Through internet chat
2. Nonpersonal communication channels, media that carry messages without personal contact or feedback.
i. Print media (newspapers, magazines)
ii. Broadcast media (radio, television)
iii. Display media (signs, posters)
iv. Online media (online services, Websites)
Marketing communication mix or Promotional mix

It is a blend of
A. Advertising
B. Personal selling
C. Sales promotion
D. Direct Marketing and
E. Public relations tools
That a company uses to communicate with its customers.
A range is better than only one.
A) Advertising:
Any paid form of nonpersonal presentation and promotion of ideas, goods, or services by an identified sponsor
Advertising objectives (AIDA) are as follows:

1. Informative advertising
a. To communicate information
b. To create awareness
c. In Early stage of PLC or on modification
2. Persuasive advertising
a. To create a desire for a product and to stimulate actual purchase
b. In growth stage of PLC
3. Reminder advertising
a. Reinforcing knowledge and
b. Reminding of benefits
c. In Maturity stage of PLC
Advertising media
Above the line (Press, Radio, TV, Cinema)
Below the line (Direct mail, Exhibition, Package design, Merchandizing)
Advantages (Vs. Personal selling):

Mass communication
Expressive advertisement
Standardization and legitimacy
Seller is able to repeat a message many times
Disadvantages (Vs. Personal selling)

Costly
One way communication
Impersonal
Not so persuasive
B) Personal Selling (face to face via sales force):

Personal presentation by the firms sales force for the purpose of making sales and building customer relationships i.e.
paid form of personal communication
Sales force structures:
1. Salary only
2. Salary with bonus
3. Commission only
C) Sales Promotion:
Marketing activities other than personal, selling & advertising that stimulates customer purchasing
Short-term incentives to encourage the purchase or sale of a product or service.
Major tools are:
1. Samples
2. Coupons
3. Rebates
4. Premiums (buy 2 get 1 free)
5. Contests, sweepstakes, and games
6. Free gifts
Objectives of sales promotion:

To increase in sales revenue
To launch a new product
To attract new customers
To attract resellers to stock
To clear out old stock
Counteraction for competitors
D) Direct Marketing: (one to one marketing)

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

Non public
Immediate and customized
Interactive
Forms of direct marketing:

1. Face to face selling
2. Telephone marketing
i. Outbound calls
ii. Inbound calls (toll free numbers)
3. Catalog marketing
4. Direct mail marketing
e) Public relations:
Building good relations with the companys various publics by obtaining favorable publicity, and building up a good
corporate image
Publicity is non-paid, non-personal communication dealing mass audience.
Planning a Promotion campaign:

Identify the target audience
Specify the promotional message
Select media
Schedule media
Set the promotional budget
Evaluate promotional effectiveness
Branding:
Expenditures on promotion gives rise to brands.
A Brand is a name, term, sign, symbol or design intended to identify the product of a seller to differentiate it from
those of competitors.
Reasons for branding:

Product differentiation
Conveying lot of information quickly and concisely
Advertisement needs a brand name.
The more similar a product is to competing goods; the more branding is necessary.
It facilitates self selection.
It reduces price sensitivity.
Brand loyalty gives control over marketing strategy.
Other products (i.e. new flavors/sizes) can be introduced into brand name/range. (Brand extension)
Eases personal selling
Eases market segmentation
Brand strategies:
Brand extension
Multi branding (different names for similar nature goods serving similar consumer habits)
Product----------------Names----------------Brands in each name
Family branding
Relationship Marketing: (Keeping customers; not getting customers)

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

Like relationship marketing but more specific
It refers to how an organization manages its relationship with those customers identified as key to the
organization in achieving its objectives.
Factors used to identify a key account:
Historic value of purchases
Expected future purchases
Other competitive factors
o Status within the marketplace
o Personal relationship of people
o To prevent a competitor getting a hold in market
Extra services given to key account
Time
Finance
Procedure
Hospitality
Auditing Customer satisfaction: (why customers are not satisfied ? )

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

Interactive marketing in instant communication and responses between promoter and customers. It may be called
sometimes as Computerized Personal Selling e.g.
DRTV (Direct Response Television)
Interactive Internet websites
Interactive Kiosk
Part F : International Business
Theories on International Trade
Scarce resource is a resource for which the quantity demanded at a nil price would exceed the available supply.
4 scarce resources are Land, Labor, Capital and Enterprise.
Scarcity is the excess of human wants over what can be produced.
Production Possibility Curve illustrates limits of possible production of two products within given resources.
Opportunity Cost is the cost of sacrificed alternative.
Mercantilism:
Export > Import
Zero-sum game (benefit at the expense of other)
Absolute advantage:
Absolute advantage is producing goods more efficiently than any other country.
Country should produce goods for which they have an absolute advantage and then trade these goods for
other goods produced by other countries.
Comparative advantage:
One step further than absolute theory introducing concept of opportunity cost.
Country should specialize in the production of those goods in which it has lowest opportunity cost.
Why countries avoid specialization

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

Porter states that Comparative Advantage is too general concept to explain success of individual companies and
industries.
He believes 4 conditions (diamonds) within a country help firms to compete.i.e.
1. Factor conditions
2. Demand conditions
3. Firm strategy, structure and rivalry
4. Related and supported industries
Orientations of International Business Management (by Perlmutter)
Ethnocentrism:
Company focuses on domestic market and export is secondary.
No local research, marketing mix is standardized.
Same products with same market programs.
Polycentrism:
Each country is unique and requires customization.
Product and market programs must match with local environment.
Company establishes independent local subsidiaries and decentralizes marketing management.
Geocentrism:
Synthesis of two approaches.
Think globally, act locally.
Integrated approach to create a global strategy that is fully responsive to local market.
Regiocentrism:
It is Geocentricism but that it recognizes regional differences.
Evolution and Reasons of Global Business (by Ohmae)
Evolution:
Ethnocentrism
1. Export (extension of home sales)
2. Overseas branches (when turnover is large, greater investment)
3. Overseas production (exploits cheap labor and reduces exporting cost)
Polycentrism
4. Insiderisation (full functional organization having production and distribution system is set-up overseas,
company is multinational)
Geocentrism
5. The Global Company
Reasons:
5 Cs
1. Customer (market convergence)
2. Company (economies of scale)
3. Competition (Keeping up)
4. Currency (exchange rate risk)
5. Country (Absolute and comparative advantage, local orientation)
Other reasons:
For Govt. For Company

Surplus deficit balance Large market encouraging economies of
scale.
Political advantages Increased competition at home market
To support govt. policies (e.g. Balance of Payment) Mature or declining home market
To dispose excessive/discontinued products.
Exchange rate:
Purchasing Power Parity theory calculates exchange rate based on relative cost of purchasing same basket of goods in
two countries.
A currencys exchange rate is also determined by Demand and Supply. They in turn are determined by Inflation,
Speculation, Interest rates, Govt. policies and Balance of Payment.
Exchange rate risk is the risk that foreign currency will exchange in smaller amount of domestic currency in future.
Types:
This can arise under any of three Exchange Rate Systems i.e.
1. Fixed (Central bank interferes to fix the rate)
2. Managed (Like fixed but allowed to vary between preset limits)
3. Floating (depends on supply and demand)
Managing exchange risk:

Hedging devices
Flow of money in both direction
Design for global business (by Bartlett and Ghoshal )
Low requirement for local adaptation High requirement for local adaptation and
and responsiveness responsiveness
High pressure to Global environment Transitional environment
Globalize Geocentric orientation Polycentric orientation
Global product divisions Integrated system and structure
Chemicals, Construction Pharmaceutical, motor vehicles
(focus of organization is heteroarchy)
Low Pressure to International Environment Multinational environment
Globalize Ethnocentric orientation Polycentric orientation
International division National or regional divisions
Paper, textile Fast food, tobacco
Planning to enter Foreign Market
Phase 1: Preliminary analysis and screening:
Evaluation of available markets (to exclude obvious unfit)
Applying screening criteria to evaluate remaining markets (criteria might include Profit, Market Share,
Quality)
Analysis of environment conditions in each country
Porters 5 forces analysis
Choosing country (i.e. Target Market)
Screening Process consists of : (by Jeannet and Hennessy)
Marco level research

Environmental analysis
Climate and demographic
General Market factors
Size of market
Regulations
Culture
Micro level research
Competition
Transportation
Healthcare
Education
Labor
Target Market
Phase 2: Adapting the marketing mix to target markets:

Deciding Adaptation or Standardization
Phase 3: Developing the marketing plan:

Situation analysis
Objectives
Strategic options
Budgets
Action programs
Phase 4: Implementation and Control

Objectives and Standards
Assign responsibilities
Measure performance
Corrective actions
Problems in International Planning:

Foreigners dont know local culture, feelings, attitudes
Local level problems
Different attitude to product and marketing task
Lack of strategic outlook and marketing expertise
Resentment at being bossed around
Unclear goals
Inadequate control
HR considerations to be managed at local level
Poor IS and Communication
Diversification of countries over population, income, development, education etc.
Time horizon
International Marketing Research
Objectives:
Availability and quality of information is enhanced for planning.
Change in customers needs and preferences is timely observed.
Competitors plan and strategy
Finding of new markets
Opportunities and Threats
Trends of market
SLEPT analysis
Technology Quality of information
Information sources for International Markets:

Human sources
Managers of subsidiaries, associates, branches (relevant + unpublished + biased)
Consumers, Customers, Distributors, Suppliers and even Competitors
Documentary sources (Publications etc., not to the point)
Direct sources
Direct observation and specialist knowledge
Direct observation and background information
Personal experience supporting indirect information
Export publications
Export Market Information Centers
IMR Process:
Monitoring
Passive information gathering (Market not yet targeted)
Identification of market for which information needs to be gathered.
Investigation (accurate assessment of market opportunities)
Existing demand; where customers needs are already being served.
Latent demand; where potential customers are currently recognized but are not being
served.
Incipient demand; where there is foreseeable, but not a present, market for products.
Research
Define scope of project
Define projects, information needs
Evaluate available sources for required information
Undertake desk research
Undertake field research
Using IMR data:

To estimate patterns of demand/consumption in individual markets by
Demand pattern analysis
Income elasticity of demand
To compare patterns of demand/consumption in different markets by
Comparative analysis
Intermarket timing differences
To identify clusters of markets with similar characteristics
To identify strategically equivalent segments
Problems in IMR:
Secondary data problems
Lack of data
Not timely, out of date information gathered on unpredictable schedules
Not comparable, different data definitions in different countries
Lack of reliability
Response problems (Peoples unwillingness to provide info)
Tax evasion and avoidance of responsibilities
Wish to preserve secrecy
Cultural taboos and norms
General problems (developed vs. undeveloped)
No suitable list (sampling frame)
Inadequate communication infrastructure
Low level of literacy
Problems of language and comprehension
Entry in International Market

Entry in International Market could be through:
Foreign Direct Investment/Overseas production
100% owned subsidiary
Joint venture
o Industrial cooperation/Contractual (fixed period)
o Joint-equity venture (continued)
Export
Direct (greater control but lesser market knowledge)
o To Branch office
o To Agents between importer and exporter
o To Wholesaler, Retailer or Consumers
Indirect (greater market knowledge but lesser control)
o Through Export houses
o Through Specialist export management firms
o Through UK buying offices of foreign stores and government
o Through Complimentary Export (i.e. Piggy back export)
Licensing
Giving right to use production process for Royalty.
Critical analysis of entries
Foreign Direct Investment is direct investment in business operations in a foreign country. It may be:
1. Horizontal FDI (investment in same industry abroad)
2. Vertical FDI (investment in an industry abroad which provides input to firms domestic operations.
i. Backward Integration (to acquire raw material)
ii. Forward Integration (to establish final product)
Selection criteria for entry mode: (Factors to be considered)
Mode varies among firms, according to markets and over time.
Firms marketing objectives (in relation to volume, time scale and coverage)
Low ----------export
High----------produce locally
Firms size
Small--------export
Mode availability
Govt. may restrict modes
Mode quality
Qualified, trained staff is necessary for export of high technology goods.
Human Resource Requirement
If staff is suitable---------Direct export
If staff is not suitable----Indirect export (agent based)
Market information feedback
Is received in case of Direct export.
Learning curve requirement
Heavy investment calls for learning curve i.e. close observation through direct export before
investment.
Political risks
Control needs
FDI vs. Export vs. License:
FDI(Foreign Direct Investment) Export License
Advantages
Lower production cost Concentration on Avoids costs and hassle of
Better understanding of production setting up overseas.
Market and Customers. Economies of scale Rapid penetration
Lower transportation cost. Consistency of product No investment
Overcomes tariff and non- quality No Political risk, No
tariff barriers. International experiment on Protectionism
small scale
Easiest, cheapest, most
common
Political risks are avoided.

Key Issues
Political risks. Protectionism Small cash inflows

Partnership Exchange rates Quality standards issues
Managing overseas Usually less involvement Indirect competition where
facilities both export
Usually more involvement Licensee may become
but subsidiary may act competitor (by transfer of
independent. knowledge and technology)
If FDI, 100% owned subsidiary or Joint venture:
Wholly owned subsidiary (as compared to Joint venture)

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

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

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

1. Tariff and non-tariff barriers e.g. Quotas
2. Govt. interference in contracts
3. Imposition of
i. Increased tax rates
ii. Price controls
iii. Exchange controls through
a. Rationing supply of foreign exchange
b. Blocking funds of foreign parent (counter ways)
Dividend
Selling goods/services (volume and transfer pricing)
Royalty
Loan and high interest rates
Management charges
4. Nationalization
How to cope with political risk:

1. Negotiation (agreement) with Government
i. Transfer of capital
ii. Access to local finance
iii. Govt. interference
iv. Taxation
v. Transfer policy
2. Insurance
3. Contacts with markets
4. Management structure (joint venture or giving control to local)
5. Financial management (obtain finance locally)
6. Production strategies (giving control to local to produce Or to supply chain management)
Regional trading groups/blocks--- A way to overcome Protectionism and Political risks

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

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

Equity or borrowing
If equity, Parents or Subsidiarys
If externally, from host or other country
What Currency (same to avoid fluctuation and symmetry)
How much and what period
Factors influencing choice of financing:

1. Local finance cost
2. Taxation system
3. Restriction on dividend remittance
4. Flexibility in repayment
Global Capital Market

International banks (provide financial and other services)
Factors affecting development of international banks:
1. Globalization (Trade of securities world wide e.g. Euro equity)
2. Securitization (Debt via issuance of securities e.g. Euro bonds, Euro commercial papers)
www.canotes.multiply.com 100
3. Deregulation (national barriers)
4. Disintermediation (directly from investor)
5. Increased foreign exchange and interest rate volatility
Benefits of international banks:

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

Domestic banking is subject to tighter regulation
Domestic banking is subject to security requirements
Euro finance may have
i. Flexibility in draw-down dates
ii. Early redemption penalties
iii. Commitment fee
Euro is suitable for very large finance requirements
Euro Currency:
Following types of currency is available in Euro Markets:
1. Euro equity
2. Euro bond
3. Euro currency
4. Euro Currency loan
5. Euro credits
6. Commercial papers
7. Syndicated credits
8. MOFs
Euro equity issue:

Issue of equity in a market outside the companys own domestic market.
Not developed like Euro bonds, hence sweeteners are added e.g. Rolling Put Option
Euro bond:
Currency differs country of issue (underwritten by international syndicate of banks and sold internationally)
Euro bonds are suitable when:
Large organization with excellent credit rating
Requires long term loan for capital expansion
Requires borrowing not subject to national exchange control
Interest rates are fixed or floating with minimum.
Investors of Eurobonds will be concerned about:

Marketability
Anonymity
Return on Investment
Security
Euro currency:
Eurocurrency is any currency banked outside of its country of origin e.g. Eurodollars are dollars banked outside United
States.
Euro Currency loan:

UK company borrows in US $ from a UK bank, it is a Euro Dollar loan.
Euro credits: like Euro currency loan
Commercial papers:
An example of Securitization.
Short term financial instruments
Issued in the form of unsecured promissory notes with a fixed maturity date.
Issued in bearer form
Issued on discount basis
Companies with net capital of 25 million can issue it.
Syndicated credit market:

Provides credit at high rates over LIBOR.
Suitable for
Takeover bids
Govt. borrowings
Project financing
Credit is a facility whereas Loan is a transaction.
MOFs:
Multiple Options Facilities (MOF) comprise variety of instruments through which company can raise funds and
include:
Note Issuance Facilities (NIF)
Revolving Underwriting Facilities (RUF)
Counter Trade
Counter trade is a trade of goods and services for other goods and services.
Types/arrangements of Counter Trade:

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

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

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

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

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

Foreign Trade raises special financial problems i.e.
Bad debts risk is greater
Large investment appears in receivable and stocks
Reducing bad debts risk:
1. Export factoring
2. Forfeiting
3. Documentary Credit (L/C)
4. International Credit Unions
5. Export Credit Guarantee Schemes
Export factoring:
Factoring company provides administration of:
Client invoicing
Sales accounting
Debt collection
Credit protection
Forfeiting: (providing medium term export finance)

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

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

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

Exclusive
Selective
Intensive
International product policies:
Standardized/Undifferentiated marketing (same product, price, marketing program for all markets)
Adapted/Differentiated marketing
Concentrated marketing
Standardization Vs. Adaptation: whether to adopt or not is linked with promotional issues.
Product Standardization Product Adapted
Occasional exporters Single product meets the same
Communication Also major companies need in all markets but need to be
Standardization seeking economies of adapted.
scale
Communication Adaptation Same product for Costly
different uses in Required to exploit market fully
different countries
Barriers to International Standardization:

Law
Price control
Product regulation
Distribution restrictions
Advertising and media restrictions
Competition
Nature of existing products
Competitors prices
Culture
Consumers tastes and habits
Language and attitude differences
Economy
Income level
Media availability
Domestic business as compared to International business:

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

Communication
Assuring long term business relationships
Regular and frequent personal contacts
Exclusivity
Hofstedes model of national culture:

Hofstede pointed out that countries differ on following dimensions:
1. Power distance how for superiors are expected to exercise power
2. Uncertainty avoidance some cultures prefer clarity and order while others prefer novelty
3. Individualism in some cultures, it is individual achievement what matters.
4. Masculinity in such culture, roles of sexes are clearly differentiated.
Hofstede grouped countries into eight clusters:

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

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

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

By profitability
By low capital expenditures
By receipt from selling part of business
How Cash surplus is utilized

Takeover bids
Buy back of shares
Short term investments
o Banks
o Investment in listed shares
o Investment in debt instruments
Certificate of Deposits (certificates by bank acknowledging deposit for specified
time)
Treasury bills (IOUs by govt. issued weekly for 91 days to finance govt. projects)
Eligible bank bills (IOUs by those top rated banks whose bill Bank of England
agrees to buy)
Bills of exchange
Local authority bonds
Commercial papers
Certificate of Deposits, Treasury bills and Eligible bank bills are Negotiable and Resalable.
International payment modes:

Cheque
Lock boxes (speeds up payment by cheque)
Bills of exchange
Bank draft (cheque by a bank drawn on one of its own account)
Mail Transfer
It is a written payment order authenticated by official in sending bank which
Instructs by Airmail to pay a certain sum of money to a beneficiary.
Telegraphic Transfer
Like mail transfer but instructions are sent by cable or telex instead of by airmail.
Speeder, Costly and Confidentiality than Mail Transfer.
SWIFT (Society for Worldwide Interbank Financial Telecommunication)
Provides rapid electronic fund transfer
In addition to banks, users include Security houses, Exchanges, Money brokers, Fund
managers etc.
International Money Orders
Transfer pricing:
Basis include
Standard Cost
Marginal Cost/ Full Cost/ Opportunity Cost
Market Price
Market Price discount
Negotiated Price (any other basis)
Advantages of having Market Price as Transfer Price Disadvantages of having Market Price as Transfer Price
1. For buying department 1. Market prices may be temporary.
i. Better quality of services 2. Disincentive to use spare resources as
ii. Greater flexibility compared to incremental cost approach.
iii. Dependability of supply 3. Buying department may enforce discount.
2. For both departments 4. Many products dont have equivalent market
i. Lower cost of administration, selling prices.
and transportation
HRM in International Business
HRM issues in International Business:

1. Expatriate or local management
Expatriate (as compared to local)

Advantages: Key Issues:
Poor educational/technical Costs more
opportunities in local market Lesser local knowledge
Greater control Culture shock
Better central communication Language/Communication
Corporate picture is clear training required
2. Recruitment and Training

3. Career management within firm
4. Appraisal schemes
5. Communication with staff (e-mails, conferences and news letters etc.)
Changes in World marketplace: (by Jerry Wind)
Globalization of businesses
Science and Technology development
Strategic alliances
Changing customer value and behavior
Increased scrutiny of business decisions by govt. and public.
Increased deregulation
Changing business practices (e.g. outsourcing,, downsizing, reengineering)
Changing social and business relationship between companies, employees, customers and other
stakeholders.
Porters national competitive advantage:
There are 4 determinants of national competitive advantage.
Factor conditions
These are a countrys endowment of inputs to production e.g. Human Resources, Physical resources, Capital,
Knowledge and infrastructure.
These factors could be
Basic (inherited and creation involves less investment e.g. natural resources) or
Advanced (include modern digital communications, highly educated people and research laboratories
etc.)
Demand conditions
The home market determines how firms perceive, interpret and respond to buyer needs.
Related and supported industries
Competitive success in one industry in liked to success in related industries.
Firm strategy, structure and rivalry
Annexure A
Topic PBP Reference Topic PBP Reference

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

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Prepared by : Muhammad Asif

Updated &: Faraz Ahmad

For notes & other study

Influences on /Determinants of Strategy:

Environmental conditions affecting Strategic Planning:

Characteristics of Strategic Decision:

Strategic Financial Management:

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

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

Porters Generic Competitive Strategies (to achieve competitive advantage):

Lower Cost Differentiation

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

Competitive Force Cost Leadership strategy Differentiation strategy

Ansoffs Product-Market Matrix:

Present Product New Product

Market Penetration: (low risk; no capital investment)

Market Development: (low risk; less investment)

Product Development: (riskier; requires investment)

Diversification (high risk; requires investments and new competence)

Franchising Unrelated Forward

Joint Development Strategies

Take Over/ Acquisition

Risk factors in planning:

Accounting for Risk:

Feed forward Control:

Well organized system of control should have:

Objectives of budgeted planning and control:

Type of responsibility center Cost Center Profit Center Investment Center

Role of IT in Strategic Management

IT/IS as competitive advantage:

With Peppards 9 ways

5 forces Generic strategies

Traditional and other models of Strategic Management

Levels of strategy: (by Hofer and Schendel)

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

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

Problems with rational model: (Mintzberg criticizes it)

Other models of(making strategy) Strategic Management

Mintzbergs emergent strategy model: (Considers random shocks)

Patterns of Unexpected Emergent

Activities affecting Crafting Strategy:

Mintzbergs 8 styles of strategic management:

Mintzbergs 5 ways to describe strategy:

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

The Command view:

Paradigm and Politics:

Bounded Rationality Theory: (Herbert Simon)

Logical Incrementalism: (mid way)

Strategy development is a learning process.

Future is not just something that happens to organization.

How to cope with future:

Environmental Fit: (Hofer and Schendel)

Strategy is a mediating force between organization and environment.

Survival and growth are process of adoptation :

Pattern and Competencies: (Andrew)

Strategic Thinking: (Kenichi & Ohmae)

Competition: (Ohmae & Porter)

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