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.

Thanks

For notes & other study

Talib e Doa material for module E visit
and download mails from
Syed Atif Hassan Abidi
Faraz Ahmad E-Mail id:
atifnotes@gmail.com HTU

March 31, 2009 Password:

(Updated: Oct. 19, 2009) a4atif

These notes are also

available at
www.canotes.multiply.com HTU

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 To create Value for Money, funds must be applied
Chapter 1 : Objectives of Economically, Efficiently and Effectively.
Organization
Chapter 2 & 3: Strategy
Introduction to Strategy
Strategy: Formulation and Choice
Course of actions, including specification of resources required,
to achieve a specific objective Strategy formulation/choice

Influences on /Determinants of Strategy: 1. How to gain competitive advantage?(question of

External survival)
o Society i. Porters Generic Strategies (5 forces)
o Organized groups 2. Which Direction to go
Nature of business i. Growth direction
o Market situation and conditions a. Organic growth
o Products of company Ansoffs Product Market Matrix
o Technology used b. Joint development
Organizations Culture ii. Defensive/Non growth strategies
o Organizational system and structure a. Capital Restructure Scheme
o Leadership style b. Downsizing
o Organizations history c. Divestment
o Organizations founder
Stakeholders powers (mapping) and Internal coalition Porters Generic Competitive Strategies (to achieve
Economic objectives competitive advantage):
Social responsibility Competitive position is the market share, costs, prices, quality
and accumulated experiences of an organization/product relative
Environmental conditions affecting Strategic Planning: to competition.
1. Resources (mineral)
2. Disaster Competitive strategy is taking offensive or defensive action to
3. Logistics create a defendable position in an industry, and to cope with
4. Government competitive forces yielding superior ROI.
Environmental Management Accounting is a solution: examples
are Competitive advantage is anything which gives one organization
1. Eco Balance an edge over competitors.
2. Cleaner Technology There are following Competitive Strategies for companies to
3. Lifecycle assessment achieve Competitive Advantage.
4. Performance appraisal Lower Cost Differentiation
5. Budgetary planning and control Cost Leadership Differentiation
6. Corporate liabilities (a factor in PERT) Broad
Target
Characteristics of Strategic Decision: Cost Focus Differentiation Focus
Scope: Overall long-term direction. Niche (for luxury goods)
Matching: Matches activities to environment & resources Focus
capability.
Affect: Affected by values, beliefs and powers of people in
organization. & Affect operational decisions. Differentiation is creating value through uniqueness. It could be
Implications for change. at following levels of product i.e.
Complex in nature.
Allocation or reallocation of resources. 1. Actual Product
a). Features.
Strategic Financial Management: b). Quality level.
It is identification of strategies able to maximize NPV and to c). Design.
allocate scarce resources, and implementing and monitoring of d).Brand name
such strategy. e). Packaging.
Financial management decision: 2. Augmented Product
Investing decisions (merger, divestment etc.) i. Delivery and credit
Financing decisions (Capital structure and Working ii. Warranty
Capital Management) iii. Installation
Dividend decisions (Cash or Bonus share) iv. After sale service
Financial objectives:
Primary object is to maximize wealth of shareholders Cost Leadership is having lowest cost of producing. It could be
Others are achieved by:
o Decrease in debt. 9 Mass Production (economies of scale)
o Profit retention. 9 Latest Technologies
o Sales growth. 9 Favorable access to raw materials
Non financial objectives: 9 Automation
Service provision. 9 Minimizing overhead by exploiting bargaining power
Fulfillment of responsibility to suppliers and customers. 9 Constantly improving efficiency and economy e.g. through
Welfare of Society value chain analysis
Welfare of Management
Welfare of Employees Focus involves a restriction of activities to only part of the market
(a segment) through
Government organizations: Providing goods/services at lower cost (Cost focus)
External Financing Limit. Providing a differentiated product/service (Differentiation
focus)
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 Advantages/Comparison of Competitive Strategies:
Competitive Cost Leadership strategy Differentiation strategy
Force
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 share. Supplier may raise prices but higher margin offsets it.

Ansoffs Product-Market Matrix: Related diversification is when product is new but

still within broad confines of industry. e.g.
Present Product New Product Vertical integration (control over supply chain)
Present Market
Market Product Forward integration (control/ownership over
Penetration Development distributors or retailers)
New Market Backward integration (control/ownership over
Market Diversification
suppliers)
Development
Market Horizontal integration (control/ownership over
Penetration: (low risk; no capital investment) competitors)
To increase usage by existing customers or Unrelated diversification is where development is
To increase market share through Competitive pricing, beyond industry and product is entirely new
Advertising, Sales promotion taking share of competitors having no relation with existing technology,
Market Development: (low risk; less investment) market or products.
New geographical area
New segment Joint Development Strategies
New packing size Take Over/ Acquisition
Product Development: (riskier; requires investment) Mergers
Company can exploit followings Joint Ventures
Existing marketing arrangements (e.g. Strategic Alliance
Promotion, Distribution) Licenses
Knowledge of customers and habits Agency Agreement
Cost of entry will go up for competitors. Franchising
Diversification (high risk; requires investments and new
competence)

Franchising Unrelated Forward

Diversification Vertical
Related Backward
Growth Horizontal

Organic Growth
Required rate of return, adjusted by
Chapter # 4: Planning and Control Return %age
Payback period
Finance (strict rules of financing i.e. out of profits)
Planning Quantification risk:
Planning: Rule of Thumb (best estimate of value within worst to best
Planning involves making choices between alternatives and is possible range)
primarily a decision making activity Probability Theory (likelihood of occurrence of a forecast
2 approaches to planning: result)
Top-down approach means strategic management starts from Standard Deviation (calculate Standard Deviation of
top management and flows down the structure. Expected Value, the higher it is the higher risk is)
Bottom-up approach means information is accumulated at lower
level and presented to top management along with summary and Budgetary Control
options available. Control:
Control is comparing actual results with planned performance
Planning cycle and taking appropriate actions
1. Identify objectives
2. Identify available strategies Control Cycle
3. Evaluate each strategy 1. Actual results are recorded and analyzed for each
4. Choose strategy (course of action) responsibility center.
5. Implement long-term plan in the form of annual budgets 2. Feedback is reported to management.
3. Management compares actual results with plans or
Risk factors in planning: targets.
Types of risks: 4. Do one of three things
Physical i. Decide to do nothing
Economical ii. Take control actions
Political iii. Alter the plan or target
Financial Feedback:
Business The process of reporting back control information to
Product lifecycle management and the control information itself
Accounting for Risk: It may be Single Loop or Double Loop.

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 It may be Positive or Negative. 1. Motivates employees
2. Establish system of control
Feed forward Control: 3. Responsibility accounting
Control actions taken in advance. 4. Achievement of goals
Actual results are compared with Budgeted (i.e. 5. Communication
adjusted by past results) 6. Coordination
Well organized system of control should have: 7. Compel planning
Hierarchy of budget center.
Clearly defined responsibilities. Responsibility Accounting:
Responsibilities for Cost, Revenue, and Capital Each manager has a clearly defined area of responsibility and
Employed. authority to make decisions within that area. No uncertainty as to
who is responsible for what (sometimes dual responsibility
Budget Center: exists).
Each section of the organization for which budget is prepared There are 3 different areas of responsibility.
Objectives of budgeted planning and control:

Type of responsibility center Cost Center Profit Center Investment Center

Manager has control over Controllable Controllable Controllable cost
cost cost Sales prices
Sales Price Sales volume
Sales volume Investment in fixed and current assets
Principal performance measures Variance Profit Return on investment and residual income
analysis

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)

9 Scenarios
Chapter 4 & 5: Strategic o Analyzing internal environment
Management: Traditional and (Situation analysis/Position audit)
o Resources Audit
other models o BCG and GEBS matrices
o Value chain
o System structure
o SWOT Analysis
Traditional and other models of Strategic Management
o Gap analysis
Strategic Management: o Strategy formulation/Choice (how we can go)
Strategic Management is the analysis, choice, implementation o Strategy implementation
and control of agreed strategies o Strategy evaluation and Control
Strategy is a course of action including the specification of
resources required to meet a specific objective. Favor of rational model: (Ansoff and Drucker support it)
Tactics is the deployment of resources to execute an agreed 1. Corporate level first
strategy. 2. Strategies are best generated from Top-Down
Policy is a general statement providing guidelines for 3. Provide a common thread
management of decision-making. 4. Enables decision making in conditions where
i. Partial ignorance (Ansoff)
Levels of strategy: (by Hofer and Schendel) ii. Risk is inevitable (Drucker)
Corporate Strategy determines the overall purpose and scope 5. Basis for strategic control
of the organization. It is concerned with what types of business 6. Improves stakeholders perception
the organization is in. Problems with rational model: (Mintzberg criticizes it)
Defining aspects of corporate strategy: 1. Organizations are incapable of having objectives
Scope of activities (whole organization) because
Faces environment (opportunities and threats) i. Objectives may conflict with each other.
Resources (how to obtain and allocate them) ii. Objectives will change from time to time
Values (of people in power in organization affect iii. Objectives are unlikely to be directly related to
it) economic benefits of shareholders.
Time scale (long term) 2. Senior management should not be only strategy- setter.
Complexity (uncertainty of future) 3. In reality formulation is not a simple step by step process.
Business Strategy is how an organization approaches a 4. Strategies that firms follow are not the same as ones they
particular product market area (applied at SBU level). set in plans.
Functional/Operational strategies deal with specialized area 5. Over reliance on formalization.
of activity within an SBU e.g. Production, Marketing, HRM, 6. Predetermination
Finance. 7. Failure in practice (suitable for only stable environment)
8. Hinders innovation and radical change.
Traditional approach to make strategy: (through Planning in
a systematic way) Other models of (making strategy) Strategic
o Strategic analysis Management
Analyzing Vision, Mission and Objectives
(Strategic Direction)
Corporate appraisal (where we are) Mintzbergs emergent strategy model: (Considers random
o Analyzing external environment shocks)
9 SLEPT analysis It is unlikely that a firms environment is totally
9 Porters 5 forces model predictable.
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 Emergent strategy is a non-conscious strategy arising Strategic Management is to control and shape/craft
from patterns of behavior. these emergent strategies as they arise.

Intended Deliber
Strategies
t
Realized
Unrealized Strategies
Strategies

Patterns of
Unexpected Emergent
behavior Contingencies Strategies

Activities affecting Crafting Strategy: 3. Pattern - ideas of emergent strategies

Manage stability 4. Position - environmentally fit & relationship with other
o Implement, not just plan organizations
o Obsession to change is dysfunctional; know 5. Perspectives - approach towards world
when to change
Manage patterns Strategy and managerial intent: (Johnson and Scholes) not
o Detect patterns and help them shape; grow emergent
positives and eliminate negatives.
Know the business operations The Command view:
Detect discontinuing and significance of environmental Strategy develops through the direction of an individual or
changes. group, but not necessarily through formal planning.
Crafting strategy---- requires natural synthesis of past, Control of strategy direction is possessed by autocratic or
present and future. (reconcile change and continuity) charismatic leader.
Mintzbergs 8 styles of strategic management:
1. Planned strategies (imposed by central leadership, large Paradigm and Politics:
no. of controls, precise intentions) Paradigm (basic assumption and beliefs common in
2. Imposed strategies (imposed by environment e.g. organizations decision makers) is inhabitant and
influential customers) conservative than culture.
3. Ideological strategies (collective vision of organizations Politics is process of bargaining and negotiation of strategy
members, shared values) among powerful stakeholders.
4. Umbrella strategies (ends are defined, means are Process by which Paradigm and Politics influence process of
emergent, target based) strategy development.
5. Disconnected strategies (members mind their own o Issue awareness (by internal results, customer response or
business, strategies are deliberate for sub-units but environmental change)
emergent for organization) o Issue formulation (analysis of issue to get its root)
6. Consensus strategies ( groups shares common patterns)
7. Entrepreneurial strategies (visioned from strong o Solution development
leadership) Memory search (from past experience)
8. Process strategies Passive search (time will tell)
Mintzbergs 5 ways to describe strategy: o Solution selection
1. Plan - consciously intended course of action Eliminate unacceptable plans (politics)
2. Ploy - a competitive game (e.g. discouraging Endorsement to junior management
competitors to enter)

Summary:
Incrementalism: a) Managers do not take best
Bounded Rationality Theory: (Herbert Simon) decisions but satisfactory
Mangers are limited by time, information and skills. ones.
They satisfice rather than maximize. b) Managers do not pursue the
whole rational model but take
Incrementalism: (Lindblom) small-scale decisions.
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.

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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:
Protect the past Create the future
Diagnostic statement
Senior management, view about future Reactive Distinctive
Senior management, spending most Re-engineering current practices Regenerating core strategies
time on
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: o Focus on key factors and distinctive competences)
- simply more far-sightedness How strategic thinking operates
- imaging products and services that do not exist. o Ask right question
- spend less time in positioning in competitive environment o Find solution of problem, not remedy or symptom.
- future orientation is embodied in the corporate culture. o Observe the problem
o Group problems together (e.g. by brainstorming) to see
Environmental Fit: (Hofer and Schendel) key factors.

Strategy is a mediating force between organization and Competition: (Ohmae & Porter)
environment.
Fit or Suitability means Organizations are successful when Competitive strategy is the taking of offensive or defensive
they intentionally achieve internal harmony and external actions to create a defendable position within an industry------ and
adaptation. a superior return on investment.
Strategic logic requires that strategy must:
Successful strategy is the interplay of 3 Cs (strategic
o Be consistent with objectives
triangle)
o Match organizations capabilities with environment.
1. Competitor
2. Customer
Survival and growth are process of adaptation :
3. Company
Why: because environment gives physical resources and
3 assumptions of theory: (focus: survival in competitive
financial resources
environment)
1. Survival of business is impossible without a competitive
Hence: choice of strategy must follow a strategic logic.
strategy.
2. Actual strategy will be unique.
Ecology Model:
3. Marketplace is a battlefield.
Organizations environment changes radically, it will only survivor
if it adopts its environment and evolves i.e. finding niche areas
Competitive strategy:
which provide both demands for output and resources to be used
A strategy by which a firm can have significant ground on its
as input to the system.
competitors at an acceptable costs
Pattern and Competencies: (Andrew)
Corporate strategy is the pattern of management decisions
Competitive Advantage:
in a company
- Re-adjust current resources i.e. identify key success
o That determines and reveals its objectives,
factors
purposes or goals,
- Relative superiority i.e. exploiting competitors
o That produces the principal policies and plans to
weakness
achieve those goals,
- Challenge assumptions
o Defines the range of business, and
- Degree of freedom i.e. segmenting
o Kind of human and economic organization it is or
intends to be.
How to create sustainable strategic position:
Strategy is exploitation of competencies.
- operational effectiveness
o The distinctive competence is what it does well,
- doing unique things
uniquely or better than rivals. It comes through
- doing trade-off
Experience
- combining good individual activities
Quality of co-ordination
- making own choices i.e. not blindly imitating competitors.
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)

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 -
Implicit & Explicit Strategies
Realized Strategies
(Depends upon extent to which strategies are
deliberate or emergent)
Intended or planned strategies Emergent strategies
Implicit Only in head of chief executive
Explicit Properly documented
- Senior management decisions - not planned
- Imposed from top - not fore thought
Flaws:
- Well planned - not the result of mangmnt intentions
- Purely deliberate strategy prevents
- Well thought-out - caused by pattern of behavior
learning from experience.
- Time consuming
- A purely emergent strategy defies
- Deliberately planned
control

Descriptive and Prescriptive Strategies

Descriptive : what is actually happening in the organizations 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

Competitive Benchmarking information about direct

Chapter 6 : Performance competitors is gathered through techniques e.g. reverse
Appraisal & Analysis engineering.
Strategic Benchmarking aimed at strategic action and
organizational change.
Performance Appraisal
Measurement of Performance: Levels of Benchmarking:
Measurement of Growth and effects of inflation: 1. Resources through resources audit
1. Revenue 2. Competences in separate activities through analyzing
2. Profits activities
3. Assets 3. Competences in linked activities through analyzing
4. Cash Flow overall performances.
5. ROCE/ROI
6. Market share Inflation:
7. Number of employees - effect of inflation on accounting system
8. Number of products - effect of inflation on strategy in reference to operating in
competitive market and exporting goods overseas
Costs:
- fixed costs Performance measurement and inflation:
- variable costs i) fixed asset values & depreciation historical costing
-------------------------------------- problem
- directly attributable costs ii) cost of sales and inflation increased profits but low
- shared general overheads stock turnover (overstated profits)
-------------------------------------- iii) need for working capital
- Controllable costs iv) borrowing benefits in period of inflation real value of
- Uncontrollable costs loan decreases over times
v) comparability of financial figures figures are
deteriorated
4 profit concepts to measure performance of divisions: vi) ratios for control ratios will be unaffected, as both side
Contribution (sales variable cost) of balance sheet will be inflated
Controllable profit ( sales - variable costs - Fixed cost
controllable)
Controllable margin ( Controllable profit other costs Chapter 7 : Mission Goals and
directly traceable)
Net Profit/Margin ( Controllable margin allocated
Objectives
service center costs and general management overhead)
Value added is cost of material and bought in service. Analyzing Vision, Mission and Objectives
Hierarchy
Measuring performance of Profit Center: Vision--------Mission----------Goals (objectives and aims) at 3
1. ROI/ROCE levels----------strategy at 3 levels
2. Residual Income (measure of centers profit after Vision:
deducting notional or imputed interest cost) Where the organization wants to be
Benchmarking: (adoption of best practices)
Benchmarking is establishment of targets and comparators Advantages of vision:
(through data gathering) through which relative levels of
performance can be identified. - gives general directions to organization
- gives hope and motivation
Types of Benchmarking: - establishes scope and boundaries
Internal Benchmarking comparing one operating unit with - enables flexibility in choice
another within same industry.
Functional Benchmarking internal functions compared with Problems with vision
best external regardless of industry. It ignores real, practical problems
It can degenerate into wishful thinking

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Strategic intent:
Vision with an emotional core to energize and stretch
- similar to vision
- stretch current competencies 3 levels of goals/objectives and strategy:
- gives sense of direction Corporate level
- gives coherence to plans SBU level
Operational level
Mission Statement:
This is a statement purpose of existence-What it wants to Corporate level objectives: (trade off between objectives)
accomplish in the larger environment. 1. Profit (Accounting Profit = Economic Profit = Sale price
Mission statement includes Purpose, Competence, Strategic Explicit Cost Implicit Cost i.e. Opportunity Cost)
Scope, Product, Targeted customers, and Values of various 2. Market share and growth
stakeholders. 3. Cash flow
It should be market oriented, specific, realistic, motivating 4. Customer satisfaction
and consistent with market environment. 5. Quality of product
e.g. To provide best satisfaction to customers and fair return 6. Industrial relations
on investment, keeping environment healthy and clean and 7. ROCE
promising secure future to employees. 8. EPS

Place of mission statement: Objectives

- annual reports
- publicity materials Primary Secondary
- in chairmans office
- communal work area Long-term Short-term
Elements of mission statement:
- purpose ( e.g. creating wealth, satisfy shareholders)
- strategy ( e.g. logic, product, service)
- scope Unit Objectives:
- politics & behaviors Commercial sector
- values & culture (e.g. commitment) Increase number of customer by 15% (sales
Characteristics of mission statement: department)
- brevity Decrease number of rejects by 50% (production
- flexibility department)
- distinctiveness Public sector
Problems with mission statement: To provide cheaper, subsidized bus traveling (local
- ignorance in practice transport department)
- only for public showment and not for internal decision Responding more quickly to calls (police, fire station,
making hospital)
- only rationalizing existence of organization Types of Goals:
- wish list, full of generalizations 1. System Goals [Derived from organizations
existence]
Functions/Importance of mission 2. Ideological Goals [Focus on organizations mission]
1. Employee motivation 3. Formal Goals[Imposed goals; e.g. from Shareholders]
2. Contributes to profitability 4. Shared Personal Goals [Consensus b/w individual
3. Focus for strategic decision making and collective goals]
4. Replaces national or divisional subculture with a System goals (subverting Mission)
corporate culture Survival
5. Communicates nature of organization to insiders and Efficiency
outsiders Control
Growth
Problems with mission = Problems with Rational model of
Strategic Management Dealing with goal conflict (inter departmental):
Rational evaluation (financial criteria)
Goals: Satisficing (not aiming to maximize profit)
Goals could be Bargaining (b/w different goals of managers)
Objectives (quantifiable) Sequential attention (one by one)
Aims Priority setting
A goal must be SMART.
Goal Congruence is the state of individuals to take actions
S Specific which are in their own interest and also in best interest of
M Measurable organization.
A Attainable
R result-oriented Trade off between objectives:
T time-bounded One at expense of other.
Primary and secondary objectives:
Goals Based on importance.
Operational goals Non-operational goals
Measurable not measurable
Stakeholders
Stakeholders are Groups or Individuals whose interests are directly affected by activities of a firm or organization.
Stakeholders and their objectives:

Stakeholder Objectives
Shareholders To maximize wealth
Increased by (dividend, capital gain of shares, EPS, ROCE)

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 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 Power Key Players Pessimist
Strategy must be acceptable for them Should be kept satisfied.
E.g. major customer E.g. large institutional stakeholders
Low Power Influence powerful stakeholders Negligible
Should be kept informed
E.g. Community representatives/ Charities
2. System (technical system e.g. Accounting, HRM,
Organizations Culture MIS)
3. Strategy (org plans, tackling competitors, achieving
Culture/Organizations Culture: objectives)
Culture is sum total of belief, knowledge, attitudes, norms,
customs, values and peculiarities that prevail in a society/ an 4 Soft elements: [Informal Aspects]
organization. 4. Shared values
5. Staff (own concerns and priorities)
Influences on organizations culture: 6. Style (ways of working, attitude of management)
Organizations founder 7. Skills
Organizations history French and Bells iceberg:
Leadership and management style Overt formal aspects (= 3 hard S)
Structures and Systems i. Goals
ii. Structure
Levels of Culture: iii. Policies and procedures
There are 3 levels of culture in an organization: iv. Products
1. Basic, underlying assumptions (guide the behavior of v. Financial resources
individuals and groups in organization) Covert informal aspects ( = 4 soft S)
2. Overt beliefs (expressed by organization and its i. Attitude, belief, feelings, perception
members) ii. Value
3. Visible artifacts (e.g. style of offices, display of trophies iii. Informal interactions
etc.) iv. Group norms

Important concepts: Theories on Culture

Belief is what we feel to be the case on the basis of objective Harrison and Handys Work: (gods of management)
and subjective information. There are 4 types of culture in organizations:
Values are beliefs which are relatively general and widely
accepted as culturally appropriate behavior. i) Power Culture (Zeus)
Customs is culturally accepted behavior in response to given All decisions are centered on one person i.e. founder of
situation. business
Artifacts are physical tools designed by human beings for their For small entrepreneurial companies
physical and psychological well being including works of arts
and technology. ii) Task Culture (Athena)
Rituals are activities which take on symbolic meanings.
Ethics is a set of moral principles to guide behavior. No dominant leader
Principal concern is to get the job done
McKinseys 7-S model iii) Role Culture (Apollo)
Explains relationship of different aspects of business: [Link b/w Organization has formal structure and well established
organizational & individual behavior] rules and procedures
People do their jobs as specified in their contracts
3 Hard elements: [Formal Aspects] For large organizations where work is predictable
1. Structure (division of tasks and hierarchy of authority) iv) Person/Existential Culture: (Dionysus)
Organizations purpose is to serve interest of
individuals within it.
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 (e.g. designers)
Miles and Snows Work: (models of strategic culture) Take initiatives
There are 4 approaches to strategy in organizational culture.
3. Analyzers
1. Defenders (doing things right) Balance risk and profit
Low risk, low profits Using core stable products & markets
Secured niche market e.g. managers
(e.g. accountants, engineers etc) Follow the change, do not initiate change
Tried and trusted solution
4. Reactors
2. Prospectors (doing the right thing) Do not have viable strategy
High risk, high profits
Move into new ways
Denisions model:

Strategic orientation of firm towards environment

Focus on internal Focus on external
Stable Consistency Culture Mission Culture
environment Formal ways of behavior, predictability Customer oriented. (hospital, church)
and reliability(bureaucratic)
Changing Involvement Culture (satisfied employees Adaptability Culture ( fashion co.)
environment give 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,
Oil company, Aircraft company, Architects Consultancy
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: SEP will fall into 3 fields:
Dominance and coherence of culture was an essential feature 1. Product related
of excellent companies. 2. Market related
Employees are loyal and make efforts if: 3. Functional
9 Cause is great. SEP can be developed only if culture supports it.
9 They are treated as winners.
9 They can satisfy dual needs of team and own interest.
Key attributes of excellence Chapter 8 : Corporate
1. Autonomy and Entrepreneurship
2. Bias for action
Reorganization
3. Customer orientation Defensive Strategies
4. Stick to core activities Capital Restructuring Scheme
5. Simple organizational structure A capital reconstruction scheme is a scheme whereby a
6. Simultaneous loose-tight properties (competition company reorganizes its capital structure.
between individuals and group within organization) Procedure of designing a capital restructuring scheme:
Pumpins dynamic company (Cultural characteristics of 1. Calculate what each partys position would be in a
dynamic companies) liquidation
Dynamic company is one that considerably increases the 2. Assess possible sources of finance
benefits for its stakeholders within a relatively short time 3. Design the reconstruction
4 aspects of such a culture 4. Assess each partys position as a result of the
Speed reconstruction
Productivity 5. Check that the company is financially viable.
Expansion Exit strategies for a venture capitalist:
Risk taking 1. Sale of shares to public or institutional investors
following a flotation
Weak areas in a dynamic company 2. Sale of shares to another company
Customer service 3. Sale to company itself or its owners
Innovation 4. Sale to institution management
Technology
Attitude to workforce Downsizing
Company spirit and loyalty
Divestment- (selling of business)
Strategic Excellence Position: (similar to excellence)

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Divestment is a proportional or complete reduction in ownership Disadvantages:
stake of an organization e.g. No trading of shares on stock exchange
Demerger Loss of repute
Sell off Loss of some value of share
Liquidation
Spin off
Management Buy Out (MBO) Disadvantages of De-Merger
Privatization 9 Loosing economies of scale
Reasons for Divestment: 9 Lower turnover
To concentrate on a particular part of business 9 Higher overhead cost
Selling a loss making unit 9 Less ability to raise finance
Liquidity problems
Selling a subsidiary with high risk Chapter # 9 : Ethics and Social
Selling a subsidiary at profits Responsibility
Provide an exit route for investors
Remove value gaps to avoid takeover
Demerger is splitting up of a corporate body into two or more Ethics
separate and independent bodies.
Sell off is a form of divestment involving the sale of a part of a Ethics:
company to third party usually another company. Ethics is a set of moral principles to guide behavior. It concerns
Liquidation is extreme form of liquidation where the entire with what is right and what is wrong.
business is sold and funds are distributed to shareholders in
their proportion.
Management Buy Out. (MBO) management buyout is the Levels of
purchase of all or part of a business from its owners by its Practicing ethics
managers.
Management Buy Out.(MBI) where purchase of a business is Individual
made by group of managers from outside the business.
Spin Off : a new company is created whose shares are owned Personal ethics professional ethics
by the shareholders of the original company which is making the
distribution of assets.
Organization
Management Buy Out: Org. culture Org. System
Possible reasons for MBO:
All reasons of Divestment Ethical problems faced by organization:
Best offer from management While achieving a higher ROI, an organization faces following
Sale can be arranged quickly problems:
Group can still maintain relations
SHE Issues (Safety, Health, Environment)
Extra payments to govt. officials
Success factors of MBOs: (Advantages)
Extortion (when officials threaten company with
Favorable buyout price
complete closure)
Personal motivation and determination
Bribery (where organization is not entitled to
Quicker decision making and more flexibility
services)
Saving in overheads
Grease money ( where organization is entitled but
Healthy relationship with subsidiary
unable to receive services)
Gifts
Questions in evaluating MBOs for investment:
Does management has full range of skills? Honesty in advertisement (e.g. Marketing ethics)
Why is the company for sale? Competitive behavior (e.g. putting others to competitive
Projected benefits and cash flows? disadvantage)
What is being bought?
Price? Ethical systems in an organization:
Fund availability? Personal ethics (e.g. religious, political, personality
Exit routes? ethics)
Professional ethics (e.g. CA code of ethics,
Problems faced by MBOs: (Disadvantages) medical ethics, fit and proper criteria)
Little experience of financial management Organization culture (e.g. customers first)
Tax and other legal complications Organization system (ethics must be contained in
Changing the attitude of employees formal code e.g. part of ethical sys. and mission
Deciding the bid price statement)
Cash for maintenance of fixed assets
Change in HR (loss of key employees) 2 approaches to manage ethics:
Maintenance of relations with suppliers/customers Compliance based approach aims to remain within letter of
law by establishing system of audit and review so that violations
Going Private are prevented, detected and punished. It works from outside the
system.
A public company goes Private when a small group of Integrity based approach combines a concern for the law with
individuals buys all of the companys shares (possibly including an emphasis on managerial responsibility. This approach
existing shareholders) incorporates ethics in organizations culture in which managers
Advantages: will do the right thing e.g. shared accountability, sound behavior,
Cost saving (cost of meeting statutory requirements are defining values. It works from within the system
saved)
Limited number of members Whistle blowing:
Similar objectives of shareholders It is the disclosure by an employee of illegal, immoral or
Shareholders are close to management illegitimate practices on part of the organization.
Protection against volatility in share price
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Four types of ethical leaderships in organizations:
i) Creative:-reflecting founder, such leaders create ethical style.
Chapter 10: Corporate
ii) Protective:-they sustain value of customer services Governance
iii) Integrative: - aim through consensus through people Corporate Governance is the system by which companies are
iv) Adaptive: - changing culture as per new environment directed and controlled.
Patterns of share ownership: (Who are shareholders of
Social Responsibility company)
Objectives of a company: Types of institutional investors:
Economic objectives Pension funds
Social/Ethical objectives Insurance companies
Boundaries (Imposed rules; they restrict Investment trusts
managements freedom of action) Unit trust
Responsibilities (Voluntarily undertaken obligations e.g. Venture capital organizations
charities)
Range of shareholders:
Social/Ethical objectives of a company: Advantages:
SHE Issues (e.g. minimum wages, job security) Greater activity in firms shares
Good employer (e.g. good working environment, job No individual controlling whole firm
satisfaction) Less effect on share price if anyone sells
Good Public image (e.g. good quality products) No threat of takeover
Society well being (e.g. regular order and timely Disadvantages:
payments to suppliers) Administrative cost is high.
Pollution Various objectives in holding shares.
Financial assistance (e.g. Charity, Sports)
(For other objectives see Stakeholders objectives) Why knowing shareholders:
To get support by exchanging views.
Arguments against and favoring Social Responsibility Knowledge of shareholders preference about Dividend
recognition: Policy.
Social responsibility is expected from all types of organizations. To explain recent share price movement.
Shareholders attitude to risk and gearing.
AGAINST: Key shareholders to consult in the event of takeover bid.
Organizations should concern wealth only because Agency Theory:
Shareholders own assets. Although individual members of the business team act in their
Shareholders are part of society. own self-interest, the well being of each individual depends on
Taxes on revenues are given to build society. the well being of other team members and on performance of
Businesses exist for profit. the team in competition with other teams

FAVOUR: (by Mintzberg) Assumptions of theory:

Most shareholders are passive. Behavioral
Ultimately consumer pays taxes via higher prices. o Individual welfare maximization.
Govt. support o Individual rationality.
Firms produces 2 outputs: o Individuals are risk-averse.
Goods and services Structural
Social consequences of activities e.g. o Investments are not infinitely divisible.
Pollution o Individuals vary in their access to funds and their
Responsibility recognition (e.g. charity) improves: entrepreneurial ability.
Public relations. Agency Problem:
Business success and development as part of Arises from separation of ownership from management.
society.
Decisions by organization affects society Goal Congruence: (solution for agency problem)
It is accordance between objectives of agents (acting within
Externality is a social/environmental cost of organizations organization) and objectives of organization as a whole. Via
activities not borne by organization. (e.g.)
Profits related pay e.g. bonuses, commission, incentive etc.
Boundary Management: Rewarding managers with shares
Executives Share Option Plans
- good public image
- securing political environment Non-executive directors are directors not running the day to day
- protect environment from pollution - improving quality of life operations of the company.
- good employer
- protecting minorities
- welfare of local community Chapter 11 : Leadership (New
Compliance Based Approach
Chapter)
e.g. - audit
- review Chapter 12 : Human Resource
- questioning
- system for employees - Management
disciplinary procedures (lawyers)
Integrity Based Approach Human Resource Management-Introduction
- internal commitment Human Resources Management is concerned with people at
- guiding values work and their relationship as they arise in working environment.
- pattern of thoughts
- share accountability (managers)
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 Roles/Scope of HR Manager: Objectives of HRM:
Staffing: Cooperative Relationships
Job Analysis Development of motivated employees
HR Planning Effective response to change
Recruitment Fulfilling social and legal requirements
Selection
Retirement, Resignation, Redundancy Advantages of HRM:
Decrease in Staff Turnover
HR Development: Increase in Productivity
Performance Appraisal Increase in Group learning
Career Planning Increase in initiative
Training Decrease Absenteeism
Development Lesser conflicts
Increase quality
Motivation/ (Individuals): Increased co-operation
Job Analysis and Design Increased commitment
Pay and Promotion
HRM Theories
Leadership and Groups: Scientific management [Clearly defined
Creating effective teams principals]
Managing conflicts between teams Human Relation [Fulfillment of needs]
Rational [Division of authority]
Other Aspects: Contingency theory [Change according to
Health and Safety situation]
Workforce diversity (Equal Employment
Opportunity) 4 Roles/Areas of HR Planning: (by Tyson as per new
Maternity strategic viewpoint)
Compliance with legal and other standards To represent organizations central value system
Personnel record and Information System To maintain boundaries of organization
Necessity of separate HR Department depends on Size and To provide stability and continuity
Activities of organization. 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 description and data for recruitment, training, job evaluation &
Human Resource Planning: performance management.
HR Planning is forecasting demand of human resources, Systematic way to gather and analyze information about the
forecasting its supply and closing gap between demand and Content
supply Context
It considers When employees needed. How many employees Human requirements of the job.
needed. So basically HR Plan deals with recruitment, retention,
downsizing & training of workforce. Type of information needed
Purpose of the job
Process of Human Resource Planning Content of the job
Relations to other job
1. Strategic Analysis (of) Performance criteria
a. Environment Responsibility
b. Organizations objectives Accountabilities
c. Manpowers SWOT Organizational factors
2. Job Analysis Development factors
a. Job description Environmental factors
b. Job specification
c. Employee specification Job analysis results in:
Job description
3. Forecasting of Job specification
a. Internal Demand and Supply Employee specification
b. External Supply Job Description
4. Implementation A written statement of duties, responsibilities and tasks of job.
a. HR Plan It should be written in outputs and performance levels.
Job Analysis
The process of collecting, analyzing & setting out information Purpose of Job description:
about the contents of job in order to provide basis for job

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 Organizational--------- Defines jobs place in HR Plan is prepared on the basis of personnel requirements,
organizational structure (job evaluation). productivity and cost.
Recruitment------------ Provides person specification
Legal-------------------- Provides basis for contract of Meeting Shortage of HR (Less supply More Demand)
employment
Internal Promotions, Transfers (Redevelopment Plan) and
Performance----------- Performance objectives can be
Training (Training Plan) etc.
set.
Reducing Labor turnover (Retention Plan)
Overtime (Productivity Plan)
Contents of Job description:
External recruitment (Recruitment Plan)
A job description should be a formal, written document, usually
from one to three pages long. It should include the following:
Date written. Meeting Surplus of HR (Less Demand More supply)
Job Status (full-time or part-time; salary or wage). Restricting recruitment
Position title. Part-time working
Job summary (a synopsis of the job responsibilities). Redundancies (Redundancy Plan)
Detailed list of duties and responsibilities.
Supervision received (to whom the jobholder reports). Recruitment (a part of HR plan)
Supervision exercised, if any (who reports to this employee). Definition:
Principal contacts (in and outside the organization). Recruitment is the process of generating a pool of qualified
Related meetings to be attended and reports to be filed. applicants for organizations job
Competency or position requirements. Strategic Recruitment Decisions:
Required education and experience. 1. Organization based Vs. Outsourcing
Career mobility (position[s] for which job holder may qualify 2. Regular Vs. Contractual Vs. Leased
next). 3. Internal Vs. External recruitment
Alternative to Job Description is Role Definition. (wider) 4. EEO and Diversity issues

Job Specification Systematic approach to recruitment and selection:

Minimum acceptable qualification (i.e. knowledge, skills, abilities, HR Planning
experience and other characteristics needed to do a particular Job analysis
job.) Identification whether employee is to be recruited from
outside or promoted inside (from HR Plan)
Person Specification Evaluation and use of Sources of Recruitment
Identifies the type of person needed to do a particular job. Selection
Following characteristics are assessed: (Frasers 5 point to Notification of result
assess pattern of personality) Induction training
1. Impact on other
2. Motivation Sources of Recruitment:
3. Acquired knowledge or qualification Internal Search:
4. Innate ability (initiative, innovative) 1. Organizational database (HRIS) to sort employee data
5. Adjustment and emotional balance according to job requirement.

Competencies
Methods of Job Analysis: Capacity of a person that leads to behavior that meets
Logos/Diaries the job demands.
Interviews Intellectual Competence (Strategic, judgment,
Observations planning)
Questionnaires Interpersonal Competence (managing staff)
HR managers write job description & specification for review by Adaptability (flexibility with change)
managers Results
Managers identify performance standards based on job analysis 2. Employee referrals
information. 3. Promotion and Transfers
Advantages:
Forecasting Demand and Supply of manpower: Good employee relations
Demand is estimated from: Encourages ambitious individuals
New markets Less costly
New product/service No adjustment or orientation time required, because
New technology already familiar
Divestment i. Individual with organization and policies
Organizational restructuring ii. Organization with individual
Supply is estimated from: Disadvantages:
Current workers Stocks and Flow analysis No new blood, no innovation and new perspectives
External labor market Political fight for promotion
A Position Survey compares demand and supply. (Grade, skills, Morale problems of those not promoted
location etc) Diversity lacking
Requires training
Closing the gap between Demand and Supply- HR Plan: External Search:
(along with subsidiary plans of HR Plan) 1. Advertisement (method depends on organization and
nature of job)
Newspaper
T.V.
Net
2. Agencies and Professional organization
3. Blind Box ads

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 4. Schools, Colleges and Universities Fail to provide accurate prediction (error of judgment)
5. Unsolicited applications Halo and Horns Effect (based upon single attribute)
6. Creative recruitment methods Stereotyping candidates on the basis of dress, hairstyle,
Banners accent etc.
Announcing prizes for
o Referee Discrimination in selection is justified only if required by law.
o Applicants
Induction Training:
What must be included in job advertisement: Identify area for later learning or training (e.g. detailed
Information about organization technical knowledge)
Primary business Explain nature of job and goal of each task
EEO Employer Explain working hours
Information about job and application process Explain structure of organization hierarchy and his
Title and responsibility position
Job location Introduce with people in office.
Starting pay range Plan and implement training program.
Contact address Appraise after 3,6 or 12 months.
Closing date for application
Desired qualification of candidate Chapter 13 : Motivation and
Experience Performance
3----5 Characteristics needed
Internet Search:
1. Employer website Individuals
2. Professional career websites Variables affecting Job performance:
Advantages:
Cost saving Organizational and Social variables
Time saving Social environment
Global in nature Type of Incentives
Disadvantages: Type of Training and Supervision
Non-serious application
Difficult to process large number of application
Situational variables
Not accessible to all
Selection: (part of Recruitment) Characteristics of Organization
Definition Physical environment
The process of choosing individuals who have needed
qualification to fill job in an organization Physical and Job variables
Purpose of selection: Methods of work
Filling a right person to the job ensuring Work space and arrangements
9 Person fits job (matching people with job Designing and condition of work equipment
characteristics)
9 Person fits organization (Objectives, culture, values etc. Individual (non work) variables
of organization)
Steps in selection process: Age
Initial screening Sex
Complete application (on specific form) Physique
Employment tests Education
Comprehensive interview (keeping in mind job Experience
description & job specification) Intelligence
Background information (depends on nature and Aptitude
sensitivity of job) Motivation
Medical examination Personality
Conditional job offer
Permanent job offer Personality and individual Development:
(Individuals are different because their personality is difference
and personality differences affect work behavior).
Why and What tests are conducted
Personality is the total patterns of thinking; feeling and behaving
Cognitive ability tests that constitute the individuals distinctive method of relating to the
o Thinking, memory, reasoning environment.
o Mathematical abilities According to Chris Argyris, as people mature they display
o Communication abilities certain characteristics:
Physical ability tests 1. Increasing self awareness
Writing analysis 2. Acceptance of equal or superior relationship to others
Performance simulation test (requiring to perform 3. A tendency to move from dependence towards independence
actually a small segment of the job) 4. Diversification of behavior patterns
5. An increasing tendency to activity, rather than passivity
Advantages of interview 6. Deepening and more stable interests
Most valid to determine applicants
o Organization fit Factors affecting personality differences:
o Level of motivation - Authoritarianism - Need of achievement
o Interpersonal skills - Self-esteem - Attitude
- Feedback on performance- controls and standard
Limitations of Interviews - Moderately difficult tasks- levels of risk taking
- Psychological success - challenging goals and achievement
Unreliable assessment (wrong decision) - Commitment - willingness

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Motivation (Content theories VS Process Theories)
Motivational Theories McClellands needs:
McGregors theory X and theory Y: Need for achievement, Need for power, Need for
Theory X---People dislike work and responsibility, affiliation
they have to be controlled, threatened, and These needs could be taught from top to lower
punished to get work done. managers.
Theory Y---Work is as natural as play and rest, they Top management Power
accept responsibility, and they give way to Entrepreneur Achievement
consultation and self growth. Employees Affiliation

Maslows hierarchy of needs:

(A ranked structure of behavior stimulating within individual which Hertzbergs two factor theory:
explains motivation) There are 2 groups of work related factors.
Self actualization (fulfillment of personal potential, Hygiene factors (remove dissatisfaction e.g. Salary,
freedom, fairness, justice) Job security, Working conditions, Interpersonal
Esteem needs (Independence, status, respect, relations)
gaining knowledge) Motivators (creates satisfaction e.g. Status, growth
Social needs (relationship, affection, belonging) in job, power authority and responsibility)
Safety needs (security, threat)
Physiological needs (food, cloth, shelter) Vrooms expectancy theory:
Motivation shall depend upon expected results of his efforts i.e.
Alderfers ERG theory: value attached to an outcome.
E-----Existence F (Force i.e. motivation) = V (valence i.e. strength for preference
R---Relatedness of outcome) * E (Expectancy i.e. expectation that performance will
G---Growth 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: - bonus schemes

Reward of 1/Output of 2 = Reward of 2/ Output of 2 - profit sharing e.g. opportunity of being member of the
Satisfaction = (at least fair reward, not maximum reward) company.
- people compare results and rewards
- people get upset if inequity in rewards Job Design (with parameters of Mintzberg)
Goal theory:
Job design is the process of
Goals can motivate.
determining the specific tasks to be performed (Job
o Psychological contracts
specialization),
Members will expend efforts and organization will reward them in
methods used in performing these tasks (training and
exchange
indoctrination in organizational values), and
Coercive contract (returns are inadequate how job relates to other works in organization
compensation; involuntary contribution) (regulation of behavior).
Calculative contract (returns are defined; voluntary Change in job design may be :
contribution) Job enrichment
Cooperative contract (employees participate also in Vertical expansion of responsibilities
decision making) Change in the content and responsibility of job to
provide greater challenge
Pay and Job satisfaction Job enlargement
Under Hertzbergs theory, Pay is the most important of all Horizontal expansion of duties
hygiene factors. Provides greater variety of tasks
Under Expectancy theory, Pay motivates if pay is linked with
performance and is valued by individual. Job Components:
Difficulties in incentive schemes: Occupation------Jobs-----------Position----------Duties------------
No motivation if employee already enjoys good package. Tasks (Responsibilities)
External factors may affect output and reward.
Not suitable in groups Job restructuring and redesign:
Assessment of satisfaction and moral: Job redesign suiting of jobs according to motivational factors.
Through Productivity, Absenteeism and Turnover.
Job rotation allowing variety and understanding,
Types of incentive schemes: development of extra skills
- performance related pay (PRP) i.e. commission
Job enlargement adding extra and related tasks to current job

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 Methods:
Job enrichment increases depth of responsibility by adding 1. Check list appraisal (yes/no)
planning and control of current job. 2. Forced choice appraisal (MCQs)
3. Essay appraisal/ Overall assessment (paragraph)
4. Grading, result oriented schemes, and self appraisals
Working arrangements:
attitude and values flexible working arrangement An appraisal system:
high performance work systems multi-skilling Identify criteria for assessment
empowerment flexi time Preparation of appraisal report
compressed week job sharing Appraisal interview
part-time work home-working (distant Review assessment
working) Action/plan preparation
i) Numerical flexibility Monitoring progress (follow-up)
ii) Financial flexibility
iii)Task flexibility Methods of appraisal:
i) Upward appraisal sub-ordinates upraise their seniors
Employee Appraisal ii) Customer appraisal internal & external
Appraisal is a systematic review and assessment of an iii) 360 degree appraisal
employees performance Mairs 3 approaches to appraisal interview:
Why: Employee Development: The tell and sell method
Specific Job performance feed back The tell and listen method
Career opportunity information The problem solving approach
Assessing employee potential
Decision Making for Action by Administration: (Results of Effective Appraisal:
appraisal) Job related criteria
Promotion Standardization
Demotion Trained appraisers
Transfer Employee access
Termination Purpose must be understood by both
Organizational Research: (Importance of appraisal) It must be participative, problem solving activity
HR Planning (Promotability and Potential) Regularly conducted.
Evaluation of Selection and Training methods Effort, integrity and ability of line managers.
To motivate employees giving feedback
Inventory assessment for planning Locketts appraisal barriers:
To assess training needs Lack of agreement on performance level
Purpose of appraisal: Rater is biased.
Reward review for deserving employees Recency effect (weighting recent events)
Performance review to confirm whether any training
Disagreement on long term prospects
is required or not
One sided process
Potential review to confirm whether any
management career planning is required or not. Central tendency
Objectives: Many targets at annual meeting become out of date.
Achieving objectives Central tendency (giving average rating to anyone)
Performance levels Sampling Error (available information is insufficient or
Training needs inaccurate)
Identifying lacking areas
Communication Interview and counseling:
1) Tell and sell method (manager tells, and then try
360-degree feedback -Sources: to gain acceptance)
9 Self
9 Senior 2) Tell and listen method (manager tells, the
9 Peers subordinates responds, and consensus is achieved)
9 Juniors
9 Assessment centers 3) Problem solving approach (manage becomes
9 Customers counselor, and ask work problems)
Upward appraisal is better.
Managing Careers:
Types: (What could be assessed)
Traits Career management is a technique whereby the progress of
Behavior individuals within an organization from job to job is planned
Performance 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 Poorly defined sources
sources Informal channels

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 Formal
channels

Chapter 14 : Groups in Indications of Effective Team:

Organization Quantitative factors
Productivity
Groups in Organization Absenteeism
Groups: Turnover rate
A group is any collection of people who perceive themselves to Accident rate
be a group.
Targets
Sense of identity
Interruption to work rate
Loyalty to group
Qualitative factors
Purpose & Leadership
Commitment
Team:
A team is a small number of people with complementary skills Understanding
who are committed to a common purpose, performance goals Communication
for which they hold themselves accountable Feed back
A team could be: Job satisfaction
Multi-disciplinary teams Motivation
Contains specialists in different areas
Freer and faster communication between Conflict in organizations: (Individual / Group level)
disciplines in organization Different views conflict in organizations:
Multi skilled teams The happy family view:
Contains people who possess many skills Organizations are essentially harmonious.
Tasks can be shared in flexible way. There are cooperative structures to achieve
Development of team: (by Tuckman) Important common goals with no systematic conflict of
Forming (collection of individuals) interest.
Storming (targets are set and trust increases) The conflict view:
Norming (work sharing, individual requirements and Organizations have conflict on individual and
expectations) group level.
Performing (execution of task) Members battle for limited resources, status and
Members/Roles of team: (by Belbin) reward.
Coordinator (presides and coordinates) Conflict could be destructive if not handled
Shaper (dominant, extrovert, task oriented) carefully.
Plant (introverted, source of ideas) The evolutionary view:
Monitor evaluator(analytical rather than creative) Conflict is seen as a useful basis for evolutionary
change and not for revolutionary change.
Resource investigator
Could be constructive if handled by arguments or
Implementer (administrator not leader, scheduling,
competition(Handy).
planning)
Team worker (supportive, noticed in absence)
Causes and tactics of conflicts between departments:
Finisher
Operative goal incompatibility
Problems with team: Personality differences
Group norms restrict individual personality. Task interdependence (if managed badly)
Conflict in roles and relationship Scarcity of resources
Personality problems Power distribution (Boundaries of authority)
Rigid leadership Uncertainty (in change)
Reward systems (not being fair)
Not suitable for all jobs
Too much harmony (group think) or differences of
opinion
Creating an effective team work: (A contingency approach by
Handy) Conflict constructive and destructive
The Given
Groups members How constructive How destructive
Groups task
Groups environment Different solutions Distract attention from
task.
Intervening factors
Motivation Creativity and testing of ideas Objectives may be
subverted for secondary
Leadership
Process goals.
Procedure Attention on individual Disintegration of the
contribution group
The Outcomes
Productivity Brings emotions into open Emotional/ Win-lose
Affectivity Motivational factors brings out conflicts may arise.
Objective is met within time (Close competition)
Group satisfaction
Management can operate on both givens and intervening Effects of Conflicts within groups: (Sherif and Sherif) PTCL
factors to affect the outcomes. vs. Union
Within a group:

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 Group becomes more structured and organized. Game to change the organization
Members eliminate their differences, get close and At senior level political activities occur in following cases
demand loyalty. Allocation of resources.
Climate becomes task oriented. Management Succession
Members individual needs are subordinated to Interdepartmental coordination
achievement. Structural change
Leadership moves from democratic to autocratic
with groups acceptance. Chapter 15 : Strategies for
Winning group:
Cohesion
Critical Periods
Relaxation
Large Vs. Small organizations
Return to group maintenance and concern for
members needs. Issues/problems in large organizations:
Organizations structure:
Assertion for group self-concept with little
reevaluation. Sharing roles and responsibilities (who does
Losing group: what?)
It may deny defeat or blames on others. How much specialization
Loses cohesion. How many levels of management
Turn to regrouping. Delegation of authority (centralized or
decentralized)
Reevaluates perception of itself and other group.
Planning and control:
Might become cohesive and effective unit if defeat
Vague accountability
is accepted.
MIS should be in place
Managerial response to conflicts: (by Hunt) Coordination
Denial/Withdrawal (if conflict is trivial) Reward
Suppression (preserve working relations despite Slow adoption to change
minor conflicts) Motivation is down
No self-esteem
Dominance (application of power to settle the
Slow decision-making
conflict)
Compromise (bargaining, negotiating, conciliating)
Solutions:
Integration/Collaboration (emphasis must be put
Decentralized and delegation of authority
on task and individuals must modify behavior)
Fair pay policies with bonus, awards and rewards
To reduce conflict behavior:
MIS
Limited communication
Delayering in hierarchy
Structural separation
Job design
Bureaucratic authority (use of)
To encourage cooperative behavior:
Issues/problems in small organizations:
Job rotation
Over reliance on a few key persons
Inter-group training
NO economies of scale
Integration devices (e.g. problem solving teams,
Small market area/ restricted range of products
force to work together)
Low bargaining power
Group think: (IL Janis) Cannot raise money
Psychological drive for consensus at any cost that suppresses Can not afford help (from experts)
dissent and appraisal of alternatives in cohesive decision Solutions:
making groups Growth
Symptoms of group think: Specialist servicing
Moral blindness (might is right) Key persons insurance
Perception of unanimity
Strong group pressure to quit dissent Corporate decline
Rationalization for inconsistent facts. 3 types of decline:
Mutual support to guard the decision.
1. Declining industries (i.e. Environment entropy;
Group subculture: environment is no longer supportive)
Subcultures are cultures which exist within cultures.
Characteristics: Temporary decline (product revitalization)
Group share distinctive way of life, beliefs. Permanent decline (end game)
Learned from others in the group. 2. Vulnerability
Way of life has somehow become traditional. SLEPT
Porters 5 forces
Political behavior: 3. Declining company (i.e. organization atrophy)
Organizations are political systems because people within them Symptoms (by Stuart Slatter)
have their own objectives and priorities. Decrease in sales revenue
Political behavior is concerned with competition, conflict, rivalry Decrease in profitability
and power relationships in organization. Decrease in liquidity
Decrease in market share
Political Game: Lack of planning
Mintzberg identifies various Political Games played in Increase in gearing
organization which can be useful or harmful. Top management fear
Game resist authority Change in senior executive
Game to counter this resistance Financial engineering (change in
Game to build power basis (control over resources accounting policies, auditors etc.)
and superiors, colleagues, subordinates etc.) Restriction on dividend policy
Game to defeat rivals (interdepartmental) 4 stages in the crisis (by Stuart Slatter)

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 Blind stage/Crisis denial Faulty action/Disintegration
Inaction/Hidden crisis Crisis/Collapse/Dissolution

Causes of decline and strategies to overcome:
Causes Strategies
Poor management New management + restructuring
Poor financial controls Tighter controls + delegation of
High cost structure responsibilities
Poor marketing Cost focus strategy + Ansoffs matrix
Competitive weakness Redevelop marketing mix + motivate sales
Big projects/acquisition force
Escalation of commitment of bad decisions Porters generic strategies
Feasibility reports
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 16 & 17 : 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

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

Model for change: Reaction of people (Acceptance, Indifference,

Determine need/desire for change in a particular area. Passive resistance, Active resistance)
Prepare tentative plan (via Brainstorming) Driving and Restraining forces (Force Field
Analyze probable reactions to change. Analysis)
Make a final decision (Coercive or Adaptive) Communicate the plan for change
Establish time table for change. Speed of implementation Implement, review and modify change.
will depend on: Review the change
Type of change (Coercive, Adaptive or
Managed resistance change) Approaches to change:
i) unfreeze move refreeze

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 ii) Adaptive change approach 3. Period of maturity
iii) Coercive change approach 4. Organization begins to decline.
iv) Using Change agent Such a lifecycle is not inevitable, if organization is able to adapt.
v) Integrative VS segmentalist
vi) Theory E & Theory O
Greiners growth model: (Growth & Organizational
Resistance to change Development)
As an organization ages, it grows in size.
Active resistance passive resistance This growth takes place in 5 discrete phases.
Each phase has 2 characteristics i.e.
Evolution (distinctive factor that directs growth)
Force Field Analysis: (Lewin) and Growth (Move Stage)
It is an interplay of restraining and driving forces that keeps Revolution. (crisis to pass to enter next phase)
things in equilibrium. Crisis (Unfreeze Stage)

Introducing change:
3 factors to consider minimizing 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.
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.

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Chapter 18 : 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.
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 Environment
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.
De-marketing is 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.

Core Marketing concepts: Marketing Management Orientations

Needs, Wants and Demands The production concept holds that consumers will favor
Markets products that are available and highly affordable and that
Marketing Offers management should, therefore, focus on improving production
Exchange, Transaction and relationship and distribution efficiency.
Value and satisfaction The product concept states that consumers will favor products
that offer the most quality, performance, and features, and that
Market: . the organization should, therefore, devote its energy to making
A market is the set of actual and potential buyers of a product. continuous product improvements.
The selling concept is the idea that consumers will not buy
Needs, wants and demands: enough of the organizations products unless the organization
Needs are fulfilled : a state of felt deprivation. undertakes a large-scale selling and promotion effort.
Wants are satisfied : the form taken by a human need as The marketing concept holds that achieving organizational
shaped by culture and individual personality. goals depends on determining the needs and wants of target
Demands are extinguished : Human wants that are markets and delivering the desired satisfactions more effectively
backed by buying power. and efficiently than competitors do.
The societal marketing concept holds that the organization
Marketing Offer: should determine the needs, wants, and interests of target
Combination of good-service offered to market to satisfy need markets. It should then deliver the desired satisfactions more
or want. effectively and efficiently than competitors in a way that
maintains or improves the consumers and the societys well-
Value and Satisfaction being.
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.

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
demand volume
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.
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 Assessment of Product, logistic, level of services and marketing techniques
Organization wide dedication
Working together as whole Types of Marketing

Strategic Marketing Tactical Marketing

Scope of Marketing = Marketing Planning Tied with corporate strategy Short term, and focuses
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.

How to Get Customer Touch Points:

Elements of Marketing Mix:
- Purchasing trend
Controllable:
- Payment trend
Product
- Service obtaining trend
Price - Family trend
Place - History
Promotion - Support calls
Uncontrollable: (Marketing environment) - Website visits
SLEPT Analysis - Emotional attachments
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 Internal Customer Concept: Department in an organization
2. Customers often do not judge products value and cost treat each other as customers, it encourages service-oriented
accurately and objectively. attitude. Hence when every department is satisfied ultimately the
3. A Customer buys the highest perceived value. quality will be enhanced.
4. Satisfied customers give benefits of
i. Loyal Relationship Marketing: To build long term relationship with
ii. Being less price sensitive existing customers, rather than focusing on products, focus is on
iii. Talk favorably relationship i.e. selling more products to same customer, rather
5. Two fold object of marketing than to new customers.
i. Retain existing customer by providing satisfaction
ii. Attract and grow new customers by promising Model of Consumer behavior:
superior value
A model of consumer behavior helps managers answer
Marketing Approaches questions about what, where, how and how much, when and
Push Approach why they buy.
The stimulus-response model of buyer behavior shows that
Focused on pushing goods to reseller and customer. The focus marketing (made up of the four Psproduct, price, place, and
Is on sale volumes. promotion) and other environmental stimuli (Micro and Macro)
center on the consumers black box and produce certain
Pull Approach responses.
Focused on pulling resellers by satisfying them, Fulfilling their Marketers must figure out what is in the consumers black
demands to attract them to the company. box.

Three Important Concepts: Marketing and other environmental stimuli: (i.e. Stimulus
Value-Chain : How activities of organization contributes towards response model)
creating value in goods or services.

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Already discussed For frequent/regular purchases.
Consumers Black box: o External search:
The black box has two parts. Personal sources (family, friends, neighbors,
1). The buyers characteristics influence how he or she acquaintances)
perceive and react to Commercial sources (advertisement, dealers, websites,
stimuli. (Uncontrollable) salesmen)
2). The buyers decision process itself affects the buyers Public sources ( Mass media, consumer rating
behavior. (Semi-controllable) organizations)
For new products.
Characteristics affecting consumer behavior: Word of Mouth or Personal sources has 2 major advantages
Marketer can not control them but should learn them. (through satisfied customers):
Cultural 1. Convincing, i.e. of consumers by consumers for
o Culture consumers
o Subculture 2. Costs are low.
o Social class At the end of this stage, customer arrives at a set of final brand
Social choices.
o Reference group
o Family iii) Evaluation of alternatives:
o Roles and status Assessing value.
Customer may be interested in many attributes. E.g. for Camera
Personal
o Age and lifecycle stage Picture tube
o Occupation Ease of use
o Economic situation Size
o Lifestyle Price
o Personality and self concept However sometimes consumer has to base his decision only on
Psychological one attribute.
o Motivation
o Perception iv) Purchase Decision:
o Learning o The best rated camera will be bought.
o Beliefs and attitudes
v) Post-Purchase behavior:
Culture is the set of basic values, perceptions, wants, and Either
behaviors learned by a member of society from family and other Dissatisfied
important institutions. Satisfied
Subculture is a group of people with shared value systems Delighted
based on common life experiences and situations. Subcultures A policy by firms is to understate performance because
might be nationality groups, religious groups, racial groups, or customers are delighted with better-than-expected performance.
geographic area groups.
Social classes are societys relatively permanent and ordered Why satisfaction of Customer/study of this stage is
divisions whose members share similar values, interests and important:
behaviors. 1. To attract new customers cost more than to retain
Reference group has a direct (face to face) or indirect points of current customers.
comparison or reference in forming a persons attitudes or 2. Satisfied customers are less price sensitive.
behavior. 3. Satisfied customers tell others (words of mouth). Bad
Aspirational group is one to which an individual wishes to words travel farther and faster.
belong.
Opinion leader is a person within a reference group who, Decision process for new product i.e. stages in adoption
because of special skills, knowledge, personality or other process (from hearing to adoption):
characteristics, exerts influence on others. 1. Awareness:
Personality is a persons unique psychological characteristics 2. Interests: seek information i.e. through external sources
that lead to relatively consistent and lasting responses to his or 3. Evaluation: whether to try or not
her own environment. 4. Trial: on small scale to improve estimate of value
A motive (drive) is a need that is sufficiently pressing to direct 5. Adoption: decides to make full and regular use
the person to seek satisfaction.
Perception is the process by which people select, organize, and Chapter 2 Company and marketing strategy
interpret information to form a meaningful picture of the world. Strategic Planning Process:
Learning is changes in an individuals behavior arising from Strategic Planning is the process of developing and maintaining
experience. a strategic fit between organizations goals and capabilities and
Belief is a descriptive thought that a person holds about its changing marketing environment.
something. Following are steps of strategic planning:
Attitude is a persons consistently favorable or unfavorable 1. Defining mission
evaluations, feelings, and tendencies toward an object or idea. 2. Analysis of Business Portfolio
3. Setting strategic objectives and goals
2. Purchase Decision Process 4. Developing Competitive strategies
i. Porters 5 forces
i) Problem Recognition: ii. Cost-Differentiation-Focus Triangle
Perceiving a need. iii. Growth Strategies (product/market
It can be stimulated by: expansion grid)
Consumers depleted assortment (e.g. empty paste) or 5. Developing detailed marketing and departmental
Marketing efforts plans and strategies

ii) Information Search: Mission Statement:

To clarify options available to consumers. This is a statement of organizations purposes- What it wants to
o Internal search: Scanning of memory (experience) or accomplish in the larger environment.
knowledge about solution of problem/need sufficient

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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:
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.

Existing Product New Product Value Chain and Value delivery network:
Value Chain is series of departments within the company
Existing Market Penetration Product carrying out value-adding activities e.g.
Market Development Designing
New Market Market Diversification Producing
Development Marketing
Delivery
Supporting
Downsizing: Value delivery network is network of suppliers, company,
When a firm reduces business portfolio by eliminating products intermediaries, and consumers who partner with each other to
or business that is not profitable or no longer fit its overall improve performance of entire system.
strategy..

Setting strategic objectives and goals: Chapter 19 : Strategic Marketing

Firms mission is translated into set of objectives for the current
period for each SBU. & Planning
Developing plans and strategies 1. Market Segmentation
Marketing Process: Market segmentation is dividing a market into smaller group of
The marketing process is the process of distinct buyers who have different needs, characteristics or
1. segmenting the market, behavior and might require different marketing mixes.
2. selecting target markets, Market segment is a group of buyers who respond in a similar
3. marketing positioning way to a given set of marketing mix.
4. developing the marketing mix, and
5. managing the marketing effort. Basis of segmenting markets:
Segmenting consumer market
Marketing mix:
The marketing mix is the set of controllable factors that the firm Geographic segmentation calls for dividing the market into
blends to produce the response it wants in the target market. i.e. different geographical units such as states, regions, counties,
Product, Price, Place, Promotion cities, or neighborhoods.
Demographic segmentation calls for dividing the market into
Managing the Marketing Effort: groups based on variables like age, gender, family size, family
Marketing Management has four functions of analysis, planning, life cycle, income, occupation, education, religion, race,
implementation, and control.. generation, and nationality.
Marketing Analysis Psychographic segmentation calls for dividing a market into
o Analysis of companys Strength and Weakness different groups based on social class, lifestyle, or personality
[Internal] characteristics.
o Analysis of environments Opportunities and There are four possible lifestyle categories:
Threats. [External] 1. Upward mobile, ambitious
Marketing Planning involves deciding on marketing strategies i. Seek better or more affluent lifestyle
to attain its overall strategic objectives of company. ii. Higher standard of living
Marketing Implementation is the process that turns marketing iii. Will try new products
strategies and plan into marketing actions in order to accomplish 2. Traditional and sociable
strategic marketing objectives. Implementation addresses the i. Compliant and conform to group norms
who, where, when, and how. ii. Purchasing pattern will be conformist
3. Security and Status seeking
i. Stresses security and ego-defensive needs

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 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.
Target Marketing
Target market is a set of buyers sharing common needs or
characteristics that the company decides to serve.
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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
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
26
 More Same Less Research procedure:
More Premium Super The marketing research process consists of following steps:
brand bargain 1. Defining the problem
Quality brand 2. Designing the research (basis of research
Same Average Bargain objectives)
brand 3. Collection of data
4. Analysis of data (Pre and Post testing etc)
Less Cow boy Economy
5. Presentation of report
brand brand
6. Management decision
Other strategies are:
More for same (Penetration) Defining the problem and designing the research
Same for less After the problem has been defined carefully, the manager and
Less for much less researcher must set the research objectives.
4) Developing positioning statement:
Positioning statement is a statement that summarizes Collection of data (Research work)
company or brand positioning, it takes following form: Marketing Research data comprises of
To (target segment and need) our (brand) is (concept) that 9 Primary Data (Field search)
(point of difference) 9 Secondary Data (Desk Search)
e.g. Researchers usually start from secondary data.
To young, active, soft-drink consumers who have little time for
sleep, Mountain Dew is the soft drink that gives you more energy 1. Collecting secondary data: (Desk research)
than any other brand because it has the highest level of Secondary data collection is information that is neither direct
caffeine. nor specific.
Chapter 20 : Marketing Research Sources of secondary data:

Internal databases: (i.e. MkIS)

Marketing Research Advantages Disadvantages
Marketing Research: Quick access Incomplete
It is the objective gathering, recording, and analyzing of all facts Cheaper Wrong form
about problems relating to the transfer and sales of goods and Regular & Reliable Ages quickly
services from producer to consumer or user Confidentiality Not expert
Marketing research helps in
External sources:
a. Regulating systems Information about Competitors (annual reports,
b. Reducing risks
press releases, web pages, business publications,
c. Decision making
advertisements etc.)
Analyzing competing products
Types of Marketing Research:
Rival companies personnel (executives,
Market research:
engineers, sales force, purchasing agents)
Study and analysis of
Trade suppliers
Characteristics of market Outside suppliers
Market share Online databases
Market trends New patents or applications for patents
Sales forecasting for all products
Market potential for existing products 2. Collecting primary data:( Field research)
Likely demand for new products
Primary data is information collected for the specific purpose at
Product research:
hand.
Comparative study between competitive products
Studies into packaging and design A plan for primary data collection calls for a number of decisions
Forecasting new uses for existing products on
Customer acceptance of proposed new products Research approaches,
Development of new product lines o Observational research
Test marketing o Survey research
Price research: o Experimental research
Analysis of elasticity of demand Research methods
Analysis of cost and profit margins o EPOS (Electronic Point of Sale system)
Effect of change in credit policy on demand o DSS (Decision Support system)
Customers perception of price and quality o Data Warehousing
Place (Distribution) research: o Internet
The location and design of distribution centers Contact methods,
Analyzing the packaging for transportation and Mail questionnaires
shelving Telephone interviewing
Cost of different methods of transportation and Personal interviewing
warehousing Individual interviews
Dealer supply requirements Group interviews (including focus-group
Dealer advertisement requirements interviews)
Promotion research: Online (Internet) marketing research
Analyzing the effectiveness of sales force Mechanical instruments
Analyzing the effectiveness of advertising on sales i. People meters
demand ii. Supermarket scanners
Establishing sales territories iii. A galvanometer measures strength of
interest or emotions aroused by a
subjects exposure to different stimuli,
such as an ad or picture.
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 iv. Eye cameras are used to study E. Marketing is the marketing side of E.Commerce. Company
respondents eye movements to efforts to communicate about, promote and sell products and
determine at what points their eyes focus services over internet. It includes only Business and Consumers.
first and how long they linger on a given
item. Advantages:
Sampling plans Geographical reach
As surveying the whole population would be too Speed
expensive & time consuming, so a sample is Information sharing of any kind e.g. text, audio,
selected. video, animation, graphics
Sample is a segment of population selected for Shopping at home (Consumer)
marketing research to represent population as a No physical barriers (Consumer)
whole. Doing business 24 hours (Business)
Sample should be a true representative of Paperless business (Business)
population and should not be biased
Disadvantages:
Types of samples: Security concerns (consumer)
Random sampling: Whom to complaint (consumer)
Every member has a known and equal chance of selection) What you see is sometimes not what you get
Non-random sampling: (consumer)
th
1. Systematic (Every n item is selected) Sometimes physical presence is necessary e.g.
2. Stratified (Population is divided into mutually exclusive smelling a perfume or fitting clothes (consumers)
groups e.g. age groups and selecting random samples Logistic, shipping, distribution and delivery
from each group. challenges (business)
3. Multistage (Process of subdividing population and Availability of secure and affordable
selecting sample again and again till a suitable communication network
selection is made)
4. Quota (Different categories of populations are made E.Business Models:
and a specific quota from each category is selected) Government Business Consumer Employee
5. Cluster (Investigators are told to examine every item in
a small population that fits the required definition) Government G2G G2B G2C G2E

Potential faults in sampling: Business B2G B2B B2C B2E

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.
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)

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 o Websites
o Email Part F : International Business
Branding:
Expenditures on promotion gives rise to brands. Theories on International Trade
A Brand is a name, term, sign, symbol or design intended to Scarce resource is a resource for which the quantity demanded
identify the product of a seller to differentiate it from those of at a nil price would exceed the available supply.
competitors. 4 scarce resources are Land, Labor, Capital and Enterprise.
Reasons for branding: Scarcity is the excess of human wants over what can be
Product differentiation produced.
Conveying lot of information quickly and concisely Production Possibility Curve illustrates limits of possible
Advertisement needs a brand name. production of two products within given resources.
The more similar a product is to competing goods; the Opportunity Cost is the cost of sacrificed alternative.
more branding is necessary.
It facilitates self selection. Mercantilism:
It reduces price sensitivity. Export > Import
Brand loyalty gives control over marketing strategy. Zero-sum game (benefit at the expense of other)
Other products (i.e. new flavors/sizes) can be Absolute advantage:
introduced into brand name/range. (Brand extension) Absolute advantage is producing goods more efficiently
than any other country.
Eases personal selling
Country should produce goods for which they have an
Eases market segmentation
absolute advantage and then trade these goods for
Brand strategies:
other goods produced by other countries.
Brand extension Comparative advantage:
Multi branding (different names for similar nature goods One step further than absolute theory introducing
serving similar consumer habits) concept of opportunity cost.
Product----------------Names----------------Brands in each name Country should specialize in the production of those
Family branding goods in which it has lowest opportunity cost.
Relationship Marketing: (Keeping customers; not getting
Why countries avoid specialization
customers)
Sale is not end of process; but start of relationship. Comparative advantage is never stable.
It is easy, cheaper and profitable to retain old customers than to Diversification protects fall in world demand.
make new customers because: Agriculture industry is subject to uncertainties of climate.
Old are valuable Import restrictions are possible by other governments to
Old have trust in company develop self sufficiency.
Old are satisfied. Multi nationals may assemble or manufacture in different
countries for political or logistic reasons.
Key account management: (Key Customer Database)
Competitive advantage (national):
Like relationship marketing but more specific
Porter states that Comparative Advantage is too general
It refers to how an organization manages its
concept to explain success of individual companies and
relationship with those customers identified as key to the
industries.
organization in achieving its objectives.
He believes 4 conditions (diamonds) within a country help firms
Factors used to identify a key account: to compete.i.e.
o Historic value of purchases 1. Factor conditions
o Expected future purchases 2. Demand conditions
o Other competitive factors 3. Firm strategy, structure and rivalry
Status within the marketplace 4. Related and supported industries
Personal relationship of people
To prevent a competitor getting a hold
Orientations of International Business Management (by
in market
Perlmutter)
Extra services given to key account
Time Ethnocentrism:
Finance Company focuses on domestic market and export is
Procedure secondary.
Hospitality No local research, marketing mix is standardized.
Auditing Customer satisfaction: (why customers are not Same products with same market programs.
satisfied ? )
Customer satisfaction surveys Polycentrism:
Each country is unique and requires customization.
Work won and lost
Product and market programs must match with local
Changes in market shares
environment.
Revenue from newly released products Company establishes independent local subsidiaries
Rude and unhelpful staff and decentralizes marketing management.
A policy is to encourage customers to complain( 96%
do not) Geocentrism:
Synthesis of two approaches.
Technology Development Interactive marketing: Think globally, act locally.
Interactive marketing in instant communication and responses Integrated approach to create a global strategy that is
between promoter and customers. It may be called sometimes fully responsive to local market.
as Computerized Personal Selling e.g.
DRTV (Direct Response Television) Regiocentrism:
Interactive Internet websites It is Geocentricism but that it recognizes regional
Interactive Kiosk differences.
CH 21 : Strategic Options (NEW)

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 Evolution and Reasons of Global Business (by Ohmae) For Govt.
Evolution: i. Surplus deficit balance
ii. Political advantages
iii. To support govt. policies (e.g. Balance of Payment)
Ethnocentrism
For Company
1. Export (extension of home sales) i. Large market encouraging economies of scale.
2. Overseas branches (when turnover is large, greater ii. Increased competition at home market
investment) iii. Mature or declining home market
3. Overseas production (exploits cheap labor and reduces iv. To dispose excessive/discontinued products.
exporting cost) Exchange rate:
Purchasing Power Parity theory calculates exchange rate
Polycentrism based on relative cost of purchasing same basket of goods in
4. Insiderisation (full functional organization having two countries.
production and distribution system is set-up overseas, A currencys exchange rate is also determined by Demand and
company is multinational) Supply. They in turn are determined by Inflation, Speculation,
Interest rates, Govt. policies and Balance of Payment.
Geocentrism Exchange rate risk is the risk that foreign currency will
exchange in smaller amount of domestic currency in future.
5. The Global Company
Types:
Reasons: This can arise under any of three Exchange Rate Systems i.e.
5 Cs 1. Fixed (Central bank interferes to fix the rate)
1. Customer (market convergence) 2. Managed (Like fixed but allowed to vary between
2. Company (economies of scale) preset limits)
3. Competition (Keeping up) 3. Floating (depends on supply and demand)
4. Currency (exchange rate risk) Managing exchange risk:
5. Country (Absolute and comparative advantage, local Hedging devices
orientation)
Flow of money in both directions.
Other reasons:

Design for global business (by Bartlett and Ghoshal )

Low requirement for local High requirement for local adaptation and
adaptation and responsiveness responsiveness
Global environment Transitional environment
High pressure to Geocentric orientation Polycentric orientation
Globalize 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

Strategic options
Planning to enter Foreign Market Budgets
Phase 1: Preliminary analysis and screening: Action programs
Evaluation of available markets (to exclude obvious unfit)
Applying screening criteria to evaluate remaining Phase 4: Implementation and Control
markets (criteria might include Profit, Market Share, Objectives and Standards
Quality) Assign responsibilities
Analysis of environment conditions in each country Measure performance
Porters 5 forces analysis Corrective actions
Choosing country (i.e. Target Market) Problems in International Planning:
Screening Process consists of : (by Jeannet and Hennessy) Foreigners dont know local culture, feelings, attitudes
Marco level research Local level problems
Environmental analysis Different attitude to product and marketing task
Climate and demographic Lack of strategic outlook and marketing
General Market factors expertise
Size of market Resentment at being bossed around
Regulations Unclear goals
Culture Inadequate control
Micro level research HR considerations to be managed at local level
Competition Poor IS and Communication
Transportation Diversification of countries over population, income,
Healthcare development, education etc.
Education Time horizon
Labor
Target Market
International Marketing Research
Phase 2: Adapting the marketing mix to target markets:
Deciding Adaptation or Standardization Objectives:
Availability and quality of information is enhanced for
Phase 3: Developing the marketing plan: planning.
Situation analysis Change in customers needs and preferences is timely
Objectives observed.
Competitors plan and strategy
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 Finding of new markets Wish to preserve secrecy
Opportunities and Threats Cultural taboos and norms
Trends of market General problems (developed vs. undeveloped)
SLEPT analysis No suitable list (sampling frame)
Technology Quality of information Inadequate communication infrastructure
Low level of literacy
Information sources for International Markets: Problems of language and comprehension
Human sources
Managers of subsidiaries, associates, branches Entry in International Market
(relevant + unpublished + biased) Entry in International Market could be through:
Consumers, Customers, Distributors, Suppliers Foreign Direct Investment/Overseas production
and even Competitors 100% owned subsidiary
Documentary sources (Publications etc., not to the point) Joint venture
Direct sources o Industrial cooperation/Contractual (fixed period)
Direct observation and specialist knowledge o Joint-equity venture (continued)
Direct observation and background information Export
Personal experience supporting indirect Direct (greater control but lesser market knowledge)
information o To Branch office
Export publications o To Agents between importer and exporter
Export Market Information Centers o To Wholesaler, Retailer or Consumers
Indirect (greater market knowledge but lesser control)
IMR Process: o Through Export houses
Monitoring o Through Specialist export management firms
Passive information gathering (Market not yet o Through UK buying offices of foreign stores and
targeted) government
Identification of market for which information o Through Complimentary Export (i.e. Piggy back
needs to be gathered. export)
Investigation (accurate assessment of market Licensing
opportunities) Giving right to use production process for Royalty.
Existing demand; where customers needs are
already being served. Critical analysis of entries
Latent demand; where potential customers are
currently recognized but are not being served. Foreign Direct Investment is direct investment in business
Incipient demand; where there is foreseeable, operations in a foreign country. It may be:
but not a present, market for products. 1. Horizontal FDI (investment in same industry abroad)
Research 2. Vertical FDI (investment in an industry abroad which
Define scope of project provides input to firms domestic operations.
Define projects, information needs i. Backward Integration (to acquire raw
Evaluate available sources for required material)
information ii. Forward Integration (to establish
Undertake desk research final product)
Undertake field research
Selection criteria for entry mode: (Factors to be considered)
Using IMR data: Mode varies among firms, according to markets and over time.
Firms marketing objectives (in relation to volume, time
To estimate patterns of demand/consumption in
scale and coverage)
individual markets by
Demand pattern analysis Low ----------export
Income elasticity of demand High----------produce locally
To compare patterns of demand/consumption in different Firms size
markets by Small--------export
Comparative analysis Mode availability
Intermarket timing differences Govt. may restrict modes
To identify clusters of markets with similar characteristics Mode quality
To identify strategically equivalent segments Qualified, trained staff is necessary for export of
high technology goods.
Problems in IMR: Human Resource Requirement
Secondary data problems If staff is suitable---------Direct export
Lack of data If staff is not suitable----Indirect export (agent
Not timely, out of date information gathered on based)
unpredictable schedules Market information feedback
Not comparable, different data definitions in Is received in case of Direct export.
different countries Learning curve requirement
Lack of reliability Heavy investment calls for learning curve i.e. close
Response problems (Peoples unwillingness to provide observation through direct export before investment.
info) Political risks
Tax evasion and avoidance of responsibilities Control needs.

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 FDI vs. Export vs. License:
FDI(Foreign Direct Investment) Export License
Lower production cost Concentration on Avoids costs and hassle
Better understanding of production of setting up overseas.
Market and Customers. Economies of scale Rapid penetration
Lower transportation Consistency of product No investment
cost. quality No Political risk, No
Overcomes tariff and International experiment Protectionism
Advantages

non-tariff barriers. on small scale

Easiest, cheapest, most
common
Political risks are
avoided.
Political risks. Protectionism Small cash inflows
Partnership Exchange rates Quality standards issues
Managing overseas Usually less involvement Indirect competition
Key Issues

facilities where both export

Usually more Licensee may become
involvement but competitor (by transfer of
subsidiary may act knowledge and
independent. technology)

If FDI, 100% owned subsidiary or Joint venture:

Wholly owned subsidiary (as compared to Joint venture)

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

iii. Exchange controls through

Protectionism (discouraging imports) by Govt. a. Rationing supply of foreign exchange
Government and Local producers get benefit not consumers. b. Blocking funds of foreign parent
1. Tariff (tax on imports) (counter ways)
2. Non-tariff barriers Dividend
a. Official Selling goods/ services (volume and
i. Subsidy transfer pricing)
ii. Import Quotas/ Export Restraint Royalty
iii. Local Content Requirement (specific fraction must Loan and high interest rates
be produced locally) Management charges
iv. Anti-dumping policies (e.g. special duty) 4. Nationalization
v. Administrative policies (informal instruments or
bureaucratic rules) How to cope with political risk:
vi. Embargo (total ban) 1. Negotiation (agreement) with Government
b. Un-Official i. Transfer of capital
i. Quality and inspection procedures ii. Access to local finance
ii. Packing safety and documentation standards iii. Govt. interference
iii. Restriction of distribution iv. Taxation
3. Exchange control (making difficult to obtain required v. Transfer policy
currency) 2. Insurance
4. Exchange rate policies (e.g. competitive devaluation of 3. Contacts with markets
currency) 4. Management structure (joint venture or giving control to
Dumping is selling goods in foreign market below cost or market local)
value to: 5. Financial management (obtain finance locally)
Unload excessive production 6. Production strategies (giving control to local to produce
Capture market. Or to supply chain management)
Political risk in FDI for multinationals
Political risk is the risk that political actions will affect the position Regional trading groups/blocks--- A way to overcome
and value of a company. Protectionism and Political risks
Regional trading group promotes trading between members of
How Political actions can affect: group. Following are common types:
1. Tariff and non-tariff barriers e.g. Quotas Free trade area:
2. Govt. interference in contracts Internal barriers to trade are removed.
3. Imposition of Each company determines its own external trade policy.
i. Increased tax rates Customs Union:
ii. Price controls Internal barriers to trade are removed.

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 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)
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:
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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:
33
 1. Goods received may be unusable, poor quality, or 5. Exporter ships and gives documents and draft to own
unprofitable. bank.
2. Expensive and time consuming to develop a separate in- 6. Exporters bank sends documents to importers bank
house trading department to dispose those goods and gets the draft accepted.
3. Unrealistically high value may be imposed on goods. 7. Importers bank informs importer about arrival of
4. Cost may exceed expectation. (Cost includes documents and merchandize.
Consultancy fee, Discount, Bank fee, Insurance, Any fee 8. Importer pays (or not pays) his bank.
paid to third party) 9. On maturity, importers bank pays to exporters bank that
pays to exporter.
Why Countries do Counter trade: International Credit Unions:
Countries lack commercial credit or convertible FCY. These are organizations/associations of finance houses/banks in
Countries use it as an instrument of political, economical different countries having reciprocal arrangements for providing
policies (e.g. Balance of Trade, relationships) installment credit finance.
To boost developing manufacturing industries
To obtain more trade or new technology Export Credit Guarantee Scheme: (where L/C is not
acceptable by strong importer)
Which Countries do Counter trade: Preshipment Facility:
Oil exporting companies. Guarantee is issued to banks to indemnify them against
Less developed and developing countries. losses on finance given to exporters to manufacture and
Unusual in industrial countries with exception of defense, process goods for export.
aviation and big advanced technology. Risks covered are:
o Insolvency of exporter
Financial problems in Foreign Trade o Inability to repay or deliver on due date
Postshipment Facility:
Foreign Trade raises special financial problems i.e.
Exporter submits application with required particulars to
Bad debts risk is greater
ECGS.
Large investment appears in receivable and stocks
ECGS will issue a guarantee specifying maximum
Reducing bad debts risk:
amount covered and rate of premium.
1. Export factoring
Risks covered are:
2. Forfaiting
o Insolvency of buyer
3. Documentary Credit (L/C)
o Political and Economic risks
4. International Credit Unions
o Risks of refusal to take delivery
5. Export Credit Guarantee Schemes
o Risk of any loss (beyond control of buyer or
exporter)
Export factoring:
Reducing large investment in Receivables and Stocks:
Factoring company provides administration of:
Client invoicing Advance against collection
Sales accounting Documentary credit
Debt collection Negotiation of bills or cheques
Credit protection
Forfaiting: (providing medium term export finance) International Marketing Mix Policies
Exporter sends Capital goods to overseas buyer who International place policies:
wants medium term loan. Exclusive
Buyer makes down payment and issues notes/ accepts Selective
draft. Intensive
Notes/drafts are guaranteed by Availising bank.
Exporter discounts them from Forfaiting bank. International product policies:
Documentary Credit (L/C): Standardized/Undifferentiated marketing (same product,
1. Importer orders. price, marketing program for all markets)
2. Exporter accepts. Adapted/Differentiated marketing
3. Importers bank issues L/C to exporters bank. Concentrated marketing.
4. Exporters bank authorizes exporter to ship
merchandize.

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
Standardization seeking economies of be adapted.
scale
Communication Adaptation Same product for Costly
different uses in Required to exploit market fully
different countries

Barriers to International Standardization: Consumers tastes and habits

Law Language and attitude differences
Price control Economy
Product regulation Income level
Distribution restrictions Media availability
Advertising and media restrictions
Competition Domestic business as compared to International business:
Nature of existing products Social factors:
Competitors prices No language problem.
Culture Homogenous market.

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 Rules of game are understood.
Similar purchasing habits. Cash Pooling is netting of Debit and Credit balances with same
Economic factors: bank to reduce interest cost.
Single currency
Uniform financial climate Short term Investment:
Stable business environment
Competitive factors: How Cash surplus arises
Data collection is easy and accurate.
By profitability
Political factors:
Relatively unimportant By low capital expenditures
Technological factors: By receipt from selling part of business
Standard production and measurement systems
How Cash surplus is utilized
Motivating international agents: Takeover bids
Communication Buy back of shares
Assuring long term business relationships Short term investments
Regular and frequent personal contacts o Banks
Exclusivity o Investment in listed shares
o Investment in debt instruments
Hofstedes model of national culture: Certificate of Deposits (certificates by bank
Hofstede pointed out that countries differ on following acknowledging deposit for specified time)
dimensions: Treasury bills (IOUs by govt. issued weekly for
1. Power distance how for superiors are expected to 91 days to finance govt. projects)
exercise power Eligible bank bills (IOUs by those top rated
2. Uncertainty avoidance some cultures prefer clarity banks whose bill Bank of England agrees to
and order while others prefer novelty buy)
3. Individualism in some cultures, it is individual Bills of exchange
achievement what matters. Local authority bonds
4. Masculinity in such culture, roles of sexes are clearly Commercial papers
differentiated. Certificate of Deposits, Treasury bills and Eligible bank bills are
Negotiable and Resalable.
Hofstede grouped countries into eight clusters:
1. More developed Latin International payment modes:
2. Less developed Latin Cheque
3. More developed Asian Lock boxes (speeds up payment by cheque)
4. Less developed Asian Bills of exchange
5. Near Eastern Bank draft (cheque by a bank drawn on one of its own
6. Germanic account)
7. Anglo Mail Transfer
8. Nordic It is a written payment order authenticated by
Type of industry and size of company is also important. official in sending bank which
Instructs by Airmail to pay a certain sum of
Finance in International Business money to a beneficiary.
Treasure ship: Telegraphic Transfer
Treasure ship is the function used with provision and use of Like mail transfer but instructions are sent by
cable or telex instead of by airmail.
finance. It covers
Provision of short term borrowings/ capital Speeder, Costly and Confidentiality than Mail
Transfer.
Foreign Currency management
Banking SWIFT (Society for Worldwide Interbank Financial
Collection Telecommunication)
Provides rapid electronic fund transfer
Money market investment
In addition to banks, users include Security
Treasury department should be cost center or profit center?
houses, Exchanges, Money brokers, Fund
Cash Management: managers etc.
Centralized Cash Management: International Money Orders
1. Avoids mix of cash Surplus and overdraft.
Transfer pricing:
2. Large volumes of cash are available to invest
3. Any borrowing could be arranged in bulk at lower rates. Basis include
4. Foreign currency risk management in improved. Standard Cost
Marginal Cost/ Full Cost/ Opportunity Cost
5. Specialist Treasury Department will employ experts.
Market Price
Decentralized Cash Management: Market Price discount
1. Great autonomy Negotiated Price (any other basis)
2. Quick and more response to needs of individual
operating units Advantages of having Market Disadvantages of having
3. More opportunities to invest on short-term basis. Price as Transfer Price Market Price as Transfer
Price
Float is amount of money tied up between initialization and 1. For buying department 1. Market prices may be
finalization of payment. i. Better quality of temporary.
Measures to reduce Float include: services 2. Disincentive to use
Lodgment delay should be minimum ii. Greater flexibility spare resources as
iii. Dependability of supply compared to
BACS
2. For both departments incremental cost
CHAPS
i. Lower cost of approach.
Standing orders/ direct debit for regular payments administration, selling 3. Buying department may
Lock boxes for international payments
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 and transportation enforce discount. Increased scrutiny of business decisions by govt.
4. Many products dont and public.
have equivalent market Increased deregulation
prices. Changing business practices (e.g. outsourcing,,
downsizing, reengineering)
HRM in International Business Changing social and business relationship
between companies, employees, customers and
HRM issues in International Business: other stakeholders.
1. Expatriate or local management Porters national competitive advantage:
Expatriate (as compared to local) There are 4 determinants of national competitive advantage.
Advantages: Key Issues:
Poor Costs more Factor conditions
educational/technical Lesser local These are a countrys endowment of inputs to production e.g.
opportunities in local knowledge Human Resources, Physical resources, Capital, Knowledge and
market Culture shock infrastructure.
Greater control Language/ These factors could be
Better central Communication Basic (inherited and creation involves less
communication training required investment e.g. natural resources) or
Corporate picture is clear Advanced (include modern digital
2. Recruitment and Training communications, highly educated people and
3. Career management within firm research laboratories etc.)
4. Appraisal schemes Demand conditions
5. Communication with staff (e-mails, conferences and The home market determines how firms perceive, interpret and
news letters etc.) respond to buyer needs.
Changes in World marketplace: (by Jerry Wind) Related and supported industries
Globalization of businesses Competitive success in one industry in liked to success in
Science and Technology development related industries.
Strategic alliances Firm strategy, structure and rivalry.
Changing customer value and behavior
Annexure A
Topic PBP Reference Topic PBP Reference
Chapter 4 & 5 : Strategic Management : Chapter 18 : The Evolution of Marketing
Levels of strategy Figure Concept
Traditional approach to make strategy Explanation Marketing management Explanation
Activities affecting Crafting strategy Explanation Elements of marketing mix - Promotion Details
Learning based strategy Explanation Value-chain Explanation & examples
Competitive strategy Overview Marketing process Details
Chapter 7 : Performance Appraisal & Chapter 19 : Strategic Marketing &
Measuring performance of profit center. Exp. & exmp Planning
Inflation Detail Development in segmentation Details
Chapter 9 : Corporate Re-organization Benefits of market segmentation Details
Management buy-out Details
Chapter 10 : Ethics and Social Resp. Target Market Explanation
Social responsibility - Favors - Externality Explanation Evaluating market segments - porters 5 F Explanation
Chapter 12 :Human Resource Management Competitive strategy options Details
Different concepts - Pg : 298 Identifying gap in market positioning Explanation
Termination Details Chapter 20 : Marketing Research
Chapter 14 : Groups in Organization Research procedures - Analysis of data Explanation
Effects of conflicts within groups - Groups & Details Collecting secondary data - internal and Details
Departments external databases
Chapter 15 : Strategies for Critical periods Questionnaires Details
Corporate Decline - 3 types of decline Explanation Marketing Information System (MkIS) Explanation
Chapter 16, 17 : Change Management Env. Marketing Decision Support System Explanation
Nature of strategic change Explanation Market Sensing Explanation
Model for change Explanation Service Quality (SERVQUAL) Explanation
Approaches to implement change Explanation Sales Forecasting [Forecasting demands] Explanation
Force Field Analysis Explanation Marketing Communication Explanation
Change process Details Chapter : International Business
Pressure groups Explanation & Competitive advantage Details

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