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Name Ashwini N G

Roll No 520950328
Course MBA – Human
Semester 4th Semester
Centre Code 23
Location Bangalore
Submission 20th Nov 2010
Set 1&2 (All Subjects)

Course Code: MB0036 –
Strategic Management & Business Policy
Set 1 & 2

MB0036 – Strategic Management & Business Policy 3 Credits

1. Explain the different circumstances under which a suitable growth strategy should be
selected by any company to improve its performance (i.e., intensive, integrative or
diversification growth). You may select an example of your choice to substantiate your
views (10 marks).
Strategies to Improve Sales
There are three alternatives to improve the sales performance of a business unit, to fill the gap
between actual sales and targeted sales:
a) Intensive growth
b) Integrative growth
c) Diversification growth
a) Intensive Growth:
It refers to the process of identifying opportunities to achieve further growth within the
company’s current businesses. To achieve intensive growth, the management should first evaluate
the available opportunities to improve the performance of its existing current businesses.
It may find three options:
· To penetrate into existing markets
· To develop new markets
· To develop new products
At times, it may be possible to gain more market share with the current products in their current
markets through a market penetration strategy. For instance, SONY introduced TV sets with
Trinitron picture tubes into the market in 1996 priced at a premium of Rs.10,000 and above over
the market through a niche market capture strategy. They gradually lowered the prices to market
levels. However, it also simultaneously launched higher-end products (high-technology products)

Microsoft plans to give these appliances ‘brains‘ and provide them the means to talk to each other through their Windows CE Operating System. if this competitor is weak.). Most multinational companies have been entering Indian markets with this strategy. forward or horizontal integration within the industry. However. This makes sense when such opportunities outside the present businesses are identified with attractive returns and that industry has business 4 . it is forward integration. Microsoft envisions a home where everyday appliances and electronics are smart. it would be able to gain more control over the market or generate more profit. the company could successfully penetrate into the markets to add new customers to its customer base. it is called horizontal integration (however. ‘In the near future. toaster oven. MICROSOFT’s New Strategy It is called PC-plus. b) Integrative Growth: It refers to the process of identifying opportunities to develop or acquire businesses that are related to the company’s current businesses. It has three elements: a) Providing computer power to the most commonly used devices such as cell phone. which could lead to price pressures. The corporate plan may be designed to undertake backward. washing machines and so on. According to Bill Gates. laundry washers can be designed to send an instant message to the home computer when the load is done and refrigerators can be made to send an e-mail when there’s no more milk. b) Developing software to allow these devices to communicate. If the company legally takes over or acquires the business of any of its leading competitors. Product Development Strategy involves consideration of new products of potential interest to its current markets (e. c) Diversification Growth: It refers to the process of identifying opportunities to develop or acquire businesses that are not related to the company’s current maintain its global image as a technology leader. PC-based networks will help us control many of our domestic matters with devices that cost no more than $ 100 each ‘. Gramaphone Records to Musical Productions to CDs)– as part of a Diversification strategy. (Backward Integration) Alternatively. Study the following example to understand what Product Development Strategy is. to develop markets globally. care should be taken to ensure that these new markets are not low density or saturated markets. personal computer. if this company acquires some of its most profitably operating intermediaries such as wholesalers or retailers. c) Investing heavily to help build wireless and high-speed internet access throughout the world to link it all together. refrigerator. Market Development Strategy is to explore the possibility to find or develop new markets for its current products (from the northern region to the eastern region etc. dishwasher. it might be counter-productive due to dilution of brand image). By lowering the prices of TVs with Trinitron picture tubes. More often. If a company operating in music systems takes over the manufacturing business of its plastic material supplier. It is also said at Microsoft that VCRs can be programmed via e-mail. the business processes have to be integrated for linear growth in the profits.

b) A vendor supplying engine boxes to Maruti decides to supply the same with modifications to Hyundai. Here is where you need to capture the attention of your audience so that they will be compelled to read on. Like a good recipe. If they do not see those crucial decision-making components. Use the Executive Summary section of your business plan to accurately describe the nature of your business venture including the need that you plan to fill. In most cases. Show this by including a brief analysis of the characteristics of your potential market. Those reviewing this type of document have expectations you must meet. no matter how great your business idea. they'll see no reason to proceed with their review of your business plan. 5 . Finally include the numbers that those reviewing your business plan want to see . a business plan needs to include certain ingredients to make it work. The classic examples for this would be engineering and textile firms setting up software development centres or Call Centres with new service clients. products or markets (Conglomerate Diversification). Remember. briefly describe your sales and marketing plan or approach. Describe the organization of your business including your management team. A printing press might shift over to offset printing with computerised content generation to appeal to higher-end customers and also add new application areas ( Horizontal Diversification ) – or even sell stationery. don't attempt to recreate its format. 2. c) A company dealing in computer floppies plans to set up a Software Technology Park.strengths to be successful. Show the reasons why people need your product or service. so each and every word must be carefully selected and presented. the company might choose new businesses that have nothing to do with the current technology. A well-written Executive Summary is critical to the success of the rest of the document. Alternatively. When you create a business plan. Also. What are the components of a good Business Plan and briefly explain the importance of each. the carefully calculated sales projections and your plan to repay the loan. it's a summary.(10 marks).the amount of capital you seek. this is planned with new products that have technological or marketing synergies with existing businesses to cater to a different group of customers (Concentric Diversification). Executive Summary Section Every business plan must begin with an Executive Summary section. Situation Analysis Sales Improvement Strategies: a) A supplier of computer stationery invests in a computer stationery manufacturing unit. Answer: The format of a Business Plan is something that has been developed and refined over the years and is something that should not be changed.

These software packages are easy to use and affordable. physical address and detailed description of the nature of your business. This section is basically a summary of your Marketing Plan.including all critical components . Use one today and produce a professional- quality Business Plan . Devote the balance of your business plan to providing details of the items outlined in the Executive Summary The Business Section Be sure to include the legal name. Answer: Every business starts out as an idea. This idea usually involves the invention of a new product. Include all pertinent financial worksheets in this section: annual income projections. Management Section Outline your organizational structure and management team here. Never assume that those reading your business plan have the same level of technical knowledge that you do.If you've captured your audience so far they'll read on. trends within the industry. It needs to show the demand for your product or service. they'll close the document and add your business plan to the heap of other rejected ideas. projected cash flow statements and a balance sheet. you as a business builder must refine this idea into a money- making reality. Show the amount of personal funds you are contributing and their source. Include resumes and biographies of key players on your management team. While many would argue that the idea stage is not a stage at all. the proposed market. Financing Section The Financing section must show that you are as committed to your business venture as you expect those reading your business plan to be. You wish to start a new venture to manufacture auto components. Here in this case supposing we are to start a new venture of manufacturing auto 6 . a description of your pricing plan and packaging and a description of your company policies. or revolves around a better way of making and marketing an existing one. Also include the amount of capital you need and your plan to repay this debt. a break-even worksheet. it is actually a turning point. (10 marks). corporation or limited liability corporation. and there is business plan building software that can help you through this immense project. Describe how you plan to better serve your market than your competition is currently doing. Otherwise. as business adviser Mike Pendrith points out. After this. Well you do. Show staffing projection data for the next few years. By now you're probably thinking that you don't need Business Plan just yet. Include the legal structure of your business whether it is a partnership.tomorrow! 3. Explain different stages in the process of starting this new business. Market Analysis Section An analysis of the market shows that you have done your homework. It's important to keep the description easy to read using common terminology.

Advertising Campaign Decide how you will market your product. or conducting surveys. You can accomplish this by a Google search on the Internet. prepare to budget for it. In the business plan you typically include following heads: i) Executive Summary ii) Company and Product Description iii) Market Description iv) Equipment and Materials v) Operations vi) Management and Ownership vii) Financial Information and Start-Up Timeline viii) Risks and Their Mitigation 3. We will see here in the following paragraphs different stages of achieving the same goal.components and also to market them. Idea Researching In this stage. If insurance is a requirement. 1. Here as the main goal is to start a company that manufactures the auto components. 7 . you are researching your idea. The object of your research is to find out who is marketing the same product or service in your area. Make up business cards with your logo on it. Also. launching a test- marketing campaign. your name and the name of your business. we are to make a research on all the auto companies which are procuring the spares from the outside vendors. Know the tax laws governing your business. you should consider such issues as the costs of running the business. the prices you wish to charge your customers. At this stage. 2. you need to consult with an attorney or business adviser for assistance. As part of the initial research process. This includes the planning of whether to take any loans or make personal investments in the company. Consider your budget and your target audience. And also the competitors who are all marketing that. As Pendrith points out. or if you wish to lease a building. According to the Biz Ed website. Pendrith advises. examine the legal ramifications of your business. be aware of any safety laws governing you as an employer. According to the Biz Ed website. Financial Planning Financial planning involves thinking about the financial costs of starting and maintaining your business. such as a small business loan or grant. and how you wish to set up financial reserves in case of an emergency or an event causing significant loss to the business. cash flow control. this is crucial if you want funding. it is important to consider the legal requirements of selling your product or service. 4. and how successful the marketer has been. Hence we are also to make a research on the feasible area where we can start our organization and licenses that we need to take keeping in mind the environmental factors as well. their existence and also how successful they are. Also. you are attempting to find what the level of interest is in the products (or services) you wish to market. Business Plan Formulation You must write a business plan.

to buy a share of patent rights. Hence sign boards is the feasible solution and also pamphlets circulated across the pioneers. Thus these are all the stages that I would consider performing if incase I plan to start a manufacturing unit producing automobile components. They need to have real time experience in the shop floor activities. Preparing for Launch Advertise for employees. of course. or to support your research. or to find out that the patent was being opposed by another company. your commercial partner will need some reassurance about the quality of the offer you are making to them. potential liabilities and commercial prospects of a project is known as ‘due diligence. or if there were doubts about whether it really owned its assets. or to find that there is prior art available that 8 .(10 marks). 4. a potential commercial partner would not want to invest in patented technology only to find out that patent renewal fees have not been paid and the patent has lapsed. the newspaper.’ Indeed. or was about to be involved in difficult litigation. the size of your advertising budget. The employees apart. The same applies to a potential investment involving intellectual property. making hiring decisions based on the standards you have set. This also requires adequate planning. 5.’ When a future partner is considering whether or not to license technology. Generally. Be specific about the requisite skills and experience you are seeking. Lower level people at the shopfloor people. Here in this case more than TV. This apart personal marketing is much more suggested. they will need to satisfy themselves that it is a viable proposition. Utilizing print. radio or TV is also wise. due diligence will involve assessing the overall commercial operations. The process of assessing the viability. risk. Think about what you look for in an employee. considering. You would think twice about purchasing a business if you found that it was burdened with debts. Answer Due diligence Of course. one needs to plan on the plant and machinery as well. Make sure that they are of the most professional quality. if a potential partner seems not to be interested in this kind of issues. For instance. a better advertising media will be road side sign boards placed close to the auto companies for getting the deals to manufacture their spares. In this case we will be looking for a few candidates in managerial position who must be good in managing things apart from minimal technical knowledge. cash flow. it may actually raise questions about their commitment to the project or the credibility of their business plan. If you are involved in licensing technology or seeking commercial support for your research you are likely to hear of ‘due diligence. particularly if the relationship assumes some degree of risk and investment on their part. As TV is useful only to reach the common man and he is not our target customer. Then begin requesting resumes and setting up interviews. Explain the process of due Diligence and why it is necessary. the Internet. assets and liabilities of a business that is being purchased or otherwise financially supported.

· Details of any legal challenges to the patent. a contractor or a visiting researcher could actually be legally entitled to some or all of the patent rights. and you will be in a stronger negotiating position in negotiating licence terms. responsible business. especially if they have run into this kind of difficulty before. as these may also affect the commercial partner’s interests in the technology. · Searches of patent databases for conflicting technology. such as patent registers and patent databases. For example. They may want the right to use your trade mark in association with the patented technology. to check whether you have later filed patent applications on improvements to the original patented technology. Answer. corporate citizenship. also known as corporate responsibility. that may limit the value of their investment in the original technology. you will be able more effectively to reassure your commercial partner. is a form of corporate self-regulation integrated into a business model. · Checks on employment contracts. you should consider in advance these kind of due diligence issues. your commercial partner may undertake a range of checks and need various forms of information. It should also speed up the licensing negotiations. Other intellectual property rights – such as related trade mark or design registrations. Is Corporate Social Responsibility necessary and how does it benefit a company and its shareholders? (10 marks). · Surveys of the activity of competitors and owners of competing technology. · Independent advice from patent attorneys on issues such as patent ownership.calls into question its validity. So in a due diligence process. · Details of the patent prosecution such as examiners’ reports and other opinions. Due diligence may also involve searching for information about the full range of IP rights that might impact on the relevant technology – for instance. or corporate social performance. or key trade secrets or copyright material (such as manuals or software) – may also need to be identified or located. and the way the proceedings were resolved. CSR 9 . Ideally. If you can anticipate and provide comprehensive answers to these questions. including foreign patents. confidentiality arrangements. and · Analysis of freedom to operate issues. sustainable responsible business (SRB). and possibilities of conflict. It may transpire that a student. patent validity and scope of patent claims. 5. In preparing to licence your technology. These may include: · Checks on external records. and ultimately the commercialization of your intellectual property. · Checks on laboratory notebooks in the event that the validity of US patents is of concern to the commercial partner (this also provides reassurance as to claims of ownership of the patent). and contracts with other parties that may interfere with the exercise of IP rights. Even a serious level of uncertainty or doubt could be enough to deter a potential partner. Corporate social responsibility (CSR). they may be unwilling to take out a licence for your patent without getting access to the software you have developed for a related process.

Public sector organizations (the United Nations for example) adhere to the triple bottom line (TBL). The term stakeholder. higher UK road tax for higher-emission vehicles). consumers. short-term profits. Essentially. Historically. Consequently. In some cases. corporations have re-branded their core values in the light of business ethical considerations (e. Business ethics can be both a normative and a descriptive discipline. today most major corporate websites lay emphasis on commitment to promoting non-economic social values under a variety of headings (e. meaning those on whom an organization's activities have an impact. self-regulating mechanism whereby business would monitor and ensure its support to law. However.g. As a corporate practice and a career specialization. descriptive approaches are also taken. Development business ethics is one of the forms of applied ethics that examines ethical principles and moral or ethical problems that can arise in a business environment. after many multinational corporations formed. business would embrace responsibility for the impact of its activities on the environment. The term "CSR" came in to common use in the early 1970s. the demand for more ethical business processes and actions (known as ethicism) is increasing. regardless of legality. pressure is applied on industry to improve business ethics through new public initiatives and laws (e. ethics codes. Critics argue that CSR distracts from the fundamental economic role of businesses. CSR-focused businesses would proactively promote the public interest by encouraging community growth and development. social responsibility charters). and international norms. communities.g. and voluntarily eliminating practices that harm the public sphere. both within major corporations and within academia. planet. was used to describe corporate owners beyond shareholders as a result of an influential book by R Freeman in 1984. others argue that it is nothing more than superficial window-dressing. profit.policy would function as a built-in. Simultaneously. Proponents argue that there is a strong business case for CSR. In academia. CSR is the deliberate inclusion of public interest into corporate decision-making. the field is primarily normative. interest in business ethics accelerated dramatically during the 1980s and 1990s. it essentially is titled to aid to an organization's mission as well as a guide to what the company stands for and will uphold to its consumers. others yet argue that it is an attempt to pre-empt the role of governments as a watchdog over powerful multinational corporations. It is widely accepted that CSR adheres to similar principles but with no formal 10 . in that corporations benefit in multiple ways by operating with a perspective broader and longer than their own immediate. ISO 26000 is the recognized international standard for CSR (currently a Draft International Standard). Corporate Social Responsibility has been redefined throughout the years. The range and quantity of business ethical issues reflects the degree to which business is perceived to be at odds with non-economic social values. employees. ethical standards. Furthermore. The practice of CSR is much debated and criticized. In the increasingly conscience-focused marketplaces of the 21st century. although it was seldom abbreviated. BP's "beyond petroleum" environmental tilt). and the honouring of a triple bottom line: people.g. stakeholders and all other members of the public sphere. For example.

they can persuade governments and the wider public that they are taking issues such as health and safety. CSR can play a role in building customer loyalty based on distinctive ethical values. Reputations that take decades to build up can be ruined in hours through incidents such as corruption scandals or environmental accidents. See also Corporate Social Entrepreneurship. whereby CSR can also be driven by employees' personal values. governments and media. and Rynes found a correlation between social/environmental performance and financial performance. Risk management Managing risk is a central part of many corporate strategies. By taking substantive voluntary steps. such as The Co-operative Group. in addition to the more obvious economic and governmental drivers.[14] Several major brands. Building a genuine culture of 'doing the right thing' within a corporation can offset these risks. courts. The Body Shop and American Apparel[15] are built on ethical values. diversity. particularly when staff can become involved through payroll giving. CSR may be based within the human resources. business development or public relations departments of an organization. Some companies may implement CSR-type values without a clearly defined team or program. Potential business benefits The scale and nature of the benefits of CSR for an organization can vary depending on the nature of the enterprise..act of legislation. Orlitzky.[11] or may be given a separate unit reporting to the CEO or in some cases directly to the board. Brand differentiation In crowded marketplaces. and are difficult to quantify. though there is a large body of literature exhorting business to adopt measures beyond financial ones (e. balanced scorecards). Business service organizations can benefit too from building a reputation for integrity and best practice. The definition of CSR used within an organization can vary from the strict "stakeholder impacts" definition used by many CSR advocates and will often include charitable efforts and volunteering. or the environment seriously as good corporate citizens with respect to labour standards and impacts on the environment 11 . Schmidt. Deming's Fourteen Points. businesses may not be looking at short-run financial returns when developing their CSR strategy. The business case for CSR within a company will likely rest on one or more of these arguments: Human resources A CSR program can be an aid to recruitment and retention. and having a comprehensive policy can give an advantage. However. These can also draw unwanted attention from regulators.g.[12] particularly within the competitive graduate student market. CSR can also help improve the perception of a company among its staff. The UN has developed the Principles for Responsible Investment as guidelines for investing entities. fundraising activities or community volunteering. Potential recruits often ask about a firm's CSR policy during an interview. License to operate Corporations are keen to avoid interference in their business through taxation or regulations. companies strive for a unique selling proposition that can separate them from the competition in the minds of consumers.

investments were small and shareholders few. two classes of investors emerged. A firm resembled a household and the number of people involved – in ownership and in management – was correspondingly limited. regulators. the scales of industrial production (and of service provision) expanded. management skills. Investors of all colors sought to safeguard their investment by taking over as many management functions as they could. corporations are motivated to become more socially responsible because their most important stakeholders expect them to understand and address the social and community issues that are relevant to them. separate businesses of money making and business management emerged. Answer In the not so distant past. not to be capable of personally tackling the various and varying tasks of the business that he managed. Its orientation is short term: an "exit strategy" is sought as soon as feasible. clientele and a vision. a separation was maintained. For "exit strategy" read quick profits. increased retention. searching for willing buyers for his stake. a sense of direction. improved recruitment.e. So are. Venture capital and risk capital funds. more and more. A single investor (or a small group of investors) could no longer accommodate the needs even of a single firm. Thus. The stock exchange is a popular exit strategy. technology. The financial investor represents the past. As knowledge increased and specialization ensued – it was no longer feasible or possible to micro-manage a firm one invested in. The price of his shares is the most important indication of success. The other type supplied them with know-how. and the media. investment banks and other financial institutions. 6. academics. The financial investor is satisfied with a management team which maximizes value. Distinguish between a Financial Investor and a Strategic Investor explaining the role they play in a Company. there was little difference between financial and strategic investors. more loyalty. to a growing extent. Additionally. 12 . marketing techniques. higher productivity. Understanding what causes are important to employees is usually the first priority because of the many interrelated business benefits that can be derived from increased employee engagement (i. are purely financial investors. and so on).Stakeholder priorities Increasingly. Key external stakeholders include customers. But his interpretation of the rolls and functions of "good management" are very different to that offered by the strategic investor. Actually. consumers. One type supplied firms with capital. the strategic investor also provided the necessary funding. Its money is the result of past . The financial investor has little interest in the company's management. An investor was expected to excel in obtaining high yields on his capital – not in industrial management or in marketing. for instance. and communities in the areas where the corporation operates its facilities. Optimally. In many cases. but also a good management. But. investors (particularly institutional investors). The financial investor is always on the lookout. People invested in industries they were acquainted with first hand. intellectual property. As markets grew. his money buys for him not only a good product and a good market. A manager was expected to manage. (10 marks).right and wrong - decisions.

To regulate. to generate profits. the cost of sales and other budgetary is abundant. 3. 5. the expenditures. Micro-management is left to others . To comply with all reporting. This is usually achieved both during a Due Diligence process and later. feasibility studies. represents the real long term accumulator of value. The strategic investor. That there is a strong relationship between the quality and decisions of the strategic investor and the share price is small wonder. The strategic investor represents a discounted future in the same manner that shares do. the level of customer satisfaction. it is the strategic investor that has the greater influence on the value of the company's shares. to issue new products and to acquire new clients . the success or failure of marketing strategies. This is the extent of its involvement. the income. full and accurate set of accounting books of the firm reflecting all its activities in a manner commensurate with the relevant legislation and regulation in the territories of operations of the firm and with internal guidelines set from time to time by the Board of Directors of the firm. the financial investor has no interest. the management echelons. business plans. financial plans. accounting and audit requirements imposed by the capital markets or regulatory bodies of capital markets in which the securities of the firm are traded or are about to be traded or otherwise listed. lack of compliance. The financial investor participates in quarterly or annual general shareholders meetings. the education of the workforce . the balance between financial investors and strategic investors is shifting in favour of the latter. 1. To alert the Board of Directors and to warn it regarding any irregularity. on the other hand. the financial operations. the rate of the introduction of new products. other budgets. To implement continuous financial audit and control systems to monitor the performance of the firm. so is macro-management. which directly deal with the finances of the firm. Indeed. gradually. 4. investment memoranda and all other financial and business documents as may be required from time to time by the Board of Directors of the Firm. Invested in so many ventures and companies. as financial management is implemented.all depend on the strategic investor. To prepare and present for the approval of the Board of Directors an annual budget. lack of adherence. its flow of funds. Paradoxically. regularly and duly prepare and present to the Board of Directors financial statements and reports as required by all pertinent laws and regulations in the territories of the operations of the firm and as deemed necessary and demanded from time to time by the Board of Directors of the Firm. To timely. 2.but. supervise and implement a timely. in many cases. lacunas and problems whether actual or potential concerning the financial systems. The quality of management. People understand that money is abundant and what is in short supply is good management. the adherence to the budget. the financing plans. Given the ability to create a brand. 6. These are the functions normally reserved to financial investors: Financial Management The financial investor is expected to take over the financial management of the firm and to directly appoint the senior management and. the 13 . nor the resources to get seriously involved in any one of them. especially.This is "bottom line" short termism which also characterizes operators in the capital markets.

To maintain a working relationship and to develop additional relationships with banks. The strategic investor is. auditors. etc. The selection of infrastructure. To improve the collection methods in order to reduce the amounts of arrears and overdue payments. distributors and other debtors in the timely and orderly payment of their dues. quantitative methods. 3. 5. regularity. To fully computerize all the above activities in a combined hardware-software and communications system which will integrate into the systems of other members of the group of companies. To collaborate with legal institutions. To analyse receivables and collectibles on a regular and timely basis. data gathering methods and venues in order to properly evaluate and predict the credit risk rating of a client. equipment. the audits. industrial processes. premises. non-payment and non- performance events. distributor. financial institutions and capital markets with the aim of securing the funds necessary for the operations of the firm. Otherwise. 6. The provision of corporate guarantees and letters of comfort to suppliers. Collection and Credit Assessment 1. To constantly monitor and analyse the payment morale. the budgets and any other matter of a financial nature or which could or does have a financial implication. raw materials. Minimizing the costs of infrastructure by deploying proprietary components and planning. usually. the attainment of its development plans and its investments. He is. 7. To collaborate and coordinate the activities of outside suppliers of financial services hired or contracted by the firm. structures. therefore. or supplier. arrears and overdue payments and other collectibles. etc. factories.. 4. 3. put in charge of: 1. Negotiations and agreements with providers and suppliers. The planning and erecting of the various sites. etc. buildings. conducive to the financial health. whether financial or of other nature. law enforcement agencies and private collection firms in assuring the timely flow and payment of all due payments. financial consultants. put in charge of the following: Project Planning and Project Management The strategic investor is uniquely positioned to plan the technical side of the project and to implement it. 14 . 9. 10. accounting. underwriters and brokers. 8. To coordinate an educational campaign to ensure the voluntary collaboration of the clients. – in order to determine the changes in the credit risk rating of said factors. 5. the growth prospects and the fulfillment of investment plans of the firm to the best of his ability and with the appropriate dedication of the time and efforts required. to initiate and engage in all manner of activities.. including accountants. To construct and implement credit risk assessment tools. questionnaires. the banking system and other financial venues. 4. 2. or the average period of such arrears and overdue payments. 2.

advertising. 3. pricing. Marketing and Sales 1. paper clippings. can attract users. image. if properly used. reliably. etc. The planning and implementation of line connections. it accumulated years of marketing and sales promotion ideas which crystallized into a new conception of the business. 2. Special events. This is an important asset. protocols. sales promotion methods. implement and supervise all the stages of the technological side of the business. The strategic investor also implements these plans or supervises their implementation. its recognition and market awareness.. which. intranet) to deal with all the aspects of the structure and the operation of the firm. The planning and implementation of a fully operative computer system (hardware. points. inventory and accounting controls. collaboration with other suppliers – are all the responsibilities of the strategic investor. advertising and sales promotion drives best suited for it.). Above all. 5. co-branding. 15 . The encouragement of the development of in-house. sponsorships. new marketing ploys. The strategic investor puts at the disposal of the firm proprietary software developed by it and specifically tailored to the needs of companies operating in the firm's market. It owns libraries of material. The strategic investor typically brings to the firm valuable experience in marketing and sales. profiles of potential social and economic categories of clients. collaboration with businesses. solving issues of compatibility (hardware and software. 7. articles. computer network connections. 4. The strategic partner's engineers are available to plan. technological solutions to the needs of the firm. etc. sounds. 2. The strategic investor is usually possessed of a brandname recognized in many countries. Technology 1. new market niches. 6. images. Project planning. It has built large databases with multi-year profiles of the purchasing patterns and demographic data related to thousands of clients in many countries. advertising campaigns. market penetration. and proprietary trademarks and brand names. 6. PR and image materials. proprietary. The enhancement of the brandname. network control. 7. market analyses and research. 3. individual users and businesses in the territory. or a sales network (retail chains) including: training. a franchising network.g. software. The planning and implementation of new technological systems up to their fully operational phase. public relations and other media campaigns. distributors. The strategic investor is also in charge of "vision thinking": new methods of operation. The planning and implementation of incentive systems (e. It has numerous off the shelf marketing plans and drawer sales promotion campaigns. The dissemination of the product as a preferred choice among vendors. It has been providing goods and services to users for a long period of time. predicting the future trends and market needs. The strategic investor usually organizes a distribution and dealership network. implementation and supervision. vouchers). its clients and suppliers. local marketing and sales promotion and other network management functions. It is the market leaders in certain territories. It developed software and personnel capable of analysing any market into effective niches and of creating the right media (image and PR). The presentation to the Board an annual plan of sales and marketing including: market penetration targets. communication. pecuniary and quality supervision.

in the first place – are usually left with the following functions: Administration and Control 1. 16 . 4. 5. 4. customer services. But the very personality traits which qualify them to become entrepreneurs – also hinder the future development of their firms. mean spirited. representations and negotiations with other firms. in collaboration with other suppliers or market technological leaders. This is why entrepreneurs find it very hard to cohabitate with investors of any kind. The planning and the execution of an integration program with new technologies in the field. for fear of losing all their money. Only the introduction of outside investors can resolve the dilemma. To represent the firm in its contacts. or persons. vendors. most conducive to the conduct of its business and to present the new structure for the Board's approval within 30 days from the date of the GM's appointment. Outside investors are not emotionally involved. To secure the unobstructed flow of relevant information and the protection of confidential organization. They may be less visionary – but also more experienced. The entrepreneurs – who sought to introduce the two types of investors. 3. Education and Training The strategic investor is responsible to train all the personnel in the firm: operators. These things antagonize the entrepreneurs. sales personnel. This is where nine out of ten entrepreneurs fail . To oversee the personnel of the firm and to resolve all the personnel issues. They rebel and prefer to remain small or even to close shop than to give up their cherished freedoms. corporate predators. The training is conducted at its sole expense and includes tours of its facilities abroad. And – being well acquainted with entrepreneurs – they insist on having unmitigated control of the business. To structure the firm in an optimal manner. They are more interested in business results than in dreams. Entrepreneurs are excellent at identifying the needs of the market and at introducing technological or service solutions to satisfy such needs. 2. authorities. To run the day to day business of the firm. They feel that they are losing their creation to cold-hearted. knowing when to let go.

Strategic Management & Business Policy Set-2 Note: Each question carries 10 Marks. The first step in planning a new business venture is to establish goals that you seek to achieve with the business. The following are examples of goals you may seek to achieve through the creation of a new business venture: 17 . The board of directors of your organization should review and approve the goals. A liquor store on the corner may be a clear money-maker. Answer all the questions. If you fail to establish clear goals early in the process.(10 marks) Answer: A good business plan will help attract necessary financing by demonstrating the feasibility of your venture and the level of thought and professionalism you bring to the task. Your goals will serve as a filter to screen a wide range of possible business opportunities. because these goals will influence the direction of the organization and require the allocation of valuable staff and financial resources. 1. MB0036. but an inclusive and ordered process like an organizational strategic planning session or a comprehensive neighborhood planning process may be best. You can establish these goals in a number of ways. however. your organization may spend substantial time and resources pursuing potential business ventures that may be financially viable but do not serve the mission of your organization in other important ways. it may not be the retail to assist your community desires. What is the purpose of a Business Plan? Explain the features of the component of the Plan dealing with the Company and its product description.

A good market study will measure the level of existing goods and services provided in the area. Local Market Study: Whether your goal is to revitalize or fill space in a neighborhood commercial district or to rehabilitate vacant housing stock. Many organizations may find themselves starting at this point in the process.” Clearly defined and quantifiable goals provide objective measurements to screen potential business opportunities. goals should have quantifiable outcomes such as “to generate a minimum of $50. you might take several approaches to identify potential business opportunities. or a neighborhood business has closed or moved out of the area.Revenue Generation – Your organization may hope to create a business that will generate sufficient net income or profit to finance other programs. activities or services provided by your organization. Whenever possible. A bad or insufficient market study could encourage your organization to pursue a business destined to fail. but fails to accomplish important goals or to meet the mission of your organization. with potentially disastrous results for the organization as a whole. you might hire a consultant or solicit the assistance of business administration students from a local college or university. Perhaps an entrepreneurial member of the board of directors or a community resident has approached your organization with an idea for a new business. “to occupy and support a minimum of 10. They also establish clear criteria to evaluate the success of the business venture. Establish Goals Once you have identified goals for a new business venture. This assessment is based on the shopping and traffic patterns of the area and the demographic and socio-economic characteristics of the community. Through a market study you will be able to identify gaps in existing products and services and unsatisfied demand for additional or expanded products and services. Employment Creation – A new business venture may create job opportunities for community residents or the constituency served by your organization. Neighborhood Development Strategy – A new business venture might serve as an anchor to a deteriorating neighborhood commercial area. Business opportunities may have been dropped at your doorstep.000 square feet of neighborhood commercial space”. the next step in the business planning process is to identify and select the right business. Even if this is the case. Conducting a 18 . or “to rehabilitate 50 single-family houses over three years. Depending on the goals you have set. You may need to find a use for a vacant commercial property that blights a strategic area of your neighborhood. we recommend that you take a step back and set goals. Or your business might focus on the rehabilitation of dilapidated single family homes in the community. Failing to do so could result in a waste of valuable time and resources pursuing an idea that may seem feasible.000 of net income or profit within three years”. you should conduct a local market study. and assess the capacity of the area to support existing and additional commercial or home- ownership activity. taking jobs and leaving a vacant facility behind. “to employ at least 15 community residents within two years in new permanent jobs at a livable wage”. If your organization does not have staff capacity to conduct a market study. attract additional businesses to the area and fill a gap in existing retail services.

However. Your organization might consider purchasing and taking over the enterprise instead of starting a new business. property management services. travel services. Internal Capacity: The board. because of their expertise. your organization frequently purchases a particular service or product. this may present a business opportunity. Its closure would mean the loss of jobs and services for your neighborhood. may need to remain with the business. You will still need to conduct a complete market study to determine the demand for this product or service beyond your internal needs or the needs of your partners or affiliates. transportation services. Are all the required licenses and permits in place and can they be transferred to a new owner? Also look at the quality of key employees who. You will also need to assess the customer or client base and determine whether its members will remain loyal to the business after it changes hands. Your organization may wish to draw upon this internal expertise in selecting potential business opportunities. metropolitan area or region. these are just a few important areas to research in assessing the business you plan to purchase: Be sure to conduct a thorough review of the financial statements for the past three to five years to determine the current fiscal status and recent financial trends. The regional or metropolitan area planning agency for your area is a good source of data on industry trends. you may wish to consider purchasing an existing business. If nearby affiliate organizations also use this service or product. the validity of the accounts receivable and the status of the accounts payable. catering services. If you decide to pursue this option. Examples of such products or services include printing or copying services. Analysis of Local and Regional Industry Trends: Another method of investigating potential business opportunities is to research local and regional business and industry trends. Internal Purchasing Needs / Collaborative Procurement: Perhaps. you still need to go through the steps of creating a business plan. customers and other businesses in the area to learn more about the reputation of the business. You may be able to identify which business or industrial sectors are growing or declining in your city. Perhaps a local retail or small light manufacturing business that has been an anchor to the local retail area or a much-needed source of jobs in the neighborhood is for sale. 19 .solid and thorough market study up front will provide essential information for your final business plan. before moving ahead. Identify Business Opportunities Buying an Existing Business: Rather than starting a new business. Inspect the facilities and talk to suppliers. office supplies. Another area to evaluate is the perception or image of the business. staff or membership of your organization may possess knowledge and skills in a particular business sector or industry. and other products.

You might consider a combination of the options. You will also need to decide who will conduct the necessary research and write the plan. Will this be an internal plan the board will use to assess the feasibility and appropriateness of the business? Or will this plan be distributed to a larger external audience such as funding sources. although a thorough market analysis will add several days at least. The following table lists the advantages and disadvantages of several options for getting the work done. You may also wish to protect your organization from any liability issues connected with the proposed business activity. He or she will bring valuable knowledge and insights regarding the industry that will prove extremely useful during the business planning process.At this early stage of your planning process. and the 20 . A committee will probably need much more time. consultants and a board committee may lengthen or shorten the process depending on skill level. and establish operating goals and guidelines. seek the expertise of an experienced professional in that particular industry. available time. The first step in writing your business plan is to identify your target audience. Creating One’s Own Business Plan It is also important to establish a timeline for completing the plan. experience with planning and research. volunteers. After you have decided on a particular business activity. attract investment. describe the market for your product or service. be sure to consult an attorney experienced in corporation law. Now you are ready to test the feasibility of the venture and to present your business concept to the world. engaging in income-generating activities not related to your mission may affect your tax-exempt status. commercial lenders or the community to gain financial backing and political support for the proposed venture? The content and emphasis of the plan will shift according to the audience. A business plan can be completed by one staff member working full time in as little as a week. Combinations of staff. have a qualified attorney advise you on the proper corporate structure for your new venture. As a non-profit corporation. Advisory You have decided on a business opportunity that meets the goals of your organization. A solid business plan will clearly explain the business concept. In addition to qualified legal counsel.

Now that you have decided who will put together your business plan and have set a timeline for its completion. 1 Executive Summary In this section of your business plan. The executive summary should be no more than one to three pages long and should answer the following questions: · Who are you? (describe your organization) · What are you planning? (describe the service or product) · Why are you planning it? (discuss the demand and market for the service or product) · How will you operate your business? · When will you be in operation? (overview of timeline) · What is your expected net profit? (discuss your projected sales and costs) Although the executive summary is the first part of your business plan. You should discuss why you are creating this new venture. and establish operating goals and guidelines. describing historic and current growth trends. Also include a description of your non-profit organization. Some readers will look at this section to determine whether or not they want to learn more about a business. provide a description of your company. Sell your concept! The executive summary may be the first and only section of your business plan that most of your audience will read. the role it has played in developing this new venture and the on-going role. manufacturing or service) and the legal structure (corporation or partnership). you are ready to begin assembling the elements of the plan. and the product or service you plan to offer. 2 Company and Product Description In describing your company be sure to include what type of business you are planning (homeownership development. referencing the goals you set at the beginning of the business planning’s facilitation needs. the industry you will be competing in. retail. attract investment. wholesale. you should write it after you have written the other sections of the plan in order to include the most important points of each section. describe the market for your product or service. Tell the audience why the business is a great idea. it will play in operations. Give the reader a brief overview of the industry. Your business plan should contain the following sections: · Executive summary · Company and product description · Market description · Operations · Management and ownership · Financial information and timeline · Risks and their mitigation A solid business plan will clearly explain the business concept. 21 . Other readers will look to the executive summary as a sample of the quality and professionalism of the overall plan. if any.

for example. Provide as much detail as necessary to inform the reader about the particular characteristics of your product that distinguish it from its competition – many nonprofits. such as being “hand-made by a particular people from a specific area.” If you are providing a service. Focus on what distinguishes your product or service from the rest of the market. research journals or other publications. In addition to providing a detailed description of your customer base. 22 . Who will purchase your product or use your service? How large is your customer base? Define the characteristics of your target market in terms of its: · Demographics – Measures of age. explain the steps you will take to provide a service that is better than your competition. expect to produce higher-quality housing than otherwise exists in the area. In other sections of the plan you will discuss the target market for your product or service and also provide additional details on how the price of your product fits into the overall financial projections for the enterprise. An unrealistic price estimate may undermine the credibility of your plan and raise concerns that your product or service may not be of sufficient quality or that you will not be able to maintain profitability in the long run. describe the products or services you plan to provide. Describe where this price positions you in the marketplace: at the high end. Customers In this section of your business plan. race. you will also need to describe your competition (other local developers or nearby businesses providing a similar service to your potential customer base). Price Provide a realistic estimate of the price for your product or service. surrounding amenities and other characteristics that may enhance your business. Product or Service After describing your company and its industry context. gender. Discuss the advantages of the location. provide documentation or references supporting your trend analysis such as articles from business-oriented newspapers and magazines. Depending on your anticipated customer base. Discuss what will attract consumers to your product or service.Whenever possible. · Geography – Measures based on location. such as its accessibility. and discuss the rationale behind that price. Place Describe the location where you will produce or distribute your product or provide your service. Mention any distinctive elements in the manufacture of the product. religion and family size. accessibility to your location via public transportation could affect the marketability of your product or service. low end or in the middle of the existing range of prices for a similar product or service. you will describe the customer base or market for your product or service. Include these references in the attachments of your business plan.

for a housing business. neighborhood surveys and group or individual interviews. the characteristics of your customers and the share of the market you will gain over your competition. Production Description Describe the steps for creating your product. The reader of the plan may be unfamiliar with the industry. Your estimate should be based on the size of your market. if you are offering consulting services). If you plan to provide a service. so avoid using industry jargon to describe the production process. discuss the equipment and materials necessary. from the raw material or initial stage to the finished product. Staffing 23 . for instance. what are the local markets for purchase and rental? How much are people currently paying for similar products or services? Briefly describe what differentiates your proposed venture from these existing businesses and discuss why you are entering this market. 3 Market Description In this section. What other businesses exist in your area that are similar to your proposed venture? For example. as this will further validate your market assumptions. and final presentation. describe the staff required to operate and manage the business. so you must describe how you will inform your target market about your product or service and how you will convince customers to purchase it.· Socioeconomic Status – Measures based on individual or household annual income. You will present information on how you plan to create your product or provide your service. Account for initial presentation and market penetration of your product and any seasonal variations in sales. you will describe how you plan to operate the business. Provide a description of any sub-contractors or external services you plan to use in the production process. assessment. Provide statistical data to describe the size of your target market. Sales Projections Present an estimate of how many people you expect will purchase your product or service. Be sure to list the sources for your data. packaged and ready for distribution and sale. describe the process of service deliver (such as the initial interview. research and design. state or local census data. if any. Include any relevant information regarding the growth potential for your target market if your business is expected to rely on growth. and define the site or facility requirements. Sources for this information may include recent data from the Bureau of Statistics. such as membership lists. or information gathered by your organization. Competition Discuss how people identified in your target market currently meet their need for your product or service. Project how many units you will sell at a specified price over several years. Cite any research forecasting population increases in your target market or other trends and factors that may increase the demand for your product or service. The initial year should be broken down in monthly or quarterly increments. A key component of the operation of your business will be your sales and marketing strategy. if appropriate.

their background and their responsibilities in the business. Provide details on the methods you will use to advertise your product. individual sales agents or representatives. you need to demonstrate that you will have adequate space for administrative functions and other activities related to the service you plan to provide . Also discuss any building features required for the production process such as high ceilings. such as print media (advertisements in newspapers. what type of equipment will you need? Describe any machinery and vehicles necessary in the production. the background required and the steps you plan to take to fill that key position. Federal Express or independent trucking company? 5 Operations In this section of your business plan. magazines or trade journals). 4 Equipment and Materials To manufacture your product or provide your service. the skills. so fully 24 . Market Description Describe your strategy for locating your target market. and the skills they will need. informing or educating customers about your product or service and convincing them to purchase it. telemarketing. Discuss the product’s or service’s features you plan to emphasize to gain the attention of your target market. radio and the Internet). Indicate the amount of building space you will need for production and administration. specialized ventilation and heating systems. electronic media (television. describe the tasks they will carry out. fixtures and telephone systems. including any office equipment such as computers. furniture. Even if you are planning to provide a service instead of manufacturing a product. Success is often due to one’s contacts. If you have already identified a location and a facility that meets your requirements. or directly distribute your product through a delivery service such as United Parcel Service. Also discuss the types of materials you will use in the production process and describe the source and cost of those materials. or other approaches. describe the senior managers responsible for overseeing the start-up and operation of your business. Will you use sales agents or existing retail outlets. sanitized laboratory space or vehicular accessibility. Be sure to highlight your management team’s experience in managing the production. Provide information on how you will recruit staff and provide initial and ongoing training of employees. Facility Describe the type of facility in which you will house your business. copiers. Prepare a chart outlining the salaries and benefits you will provide to your workforce. Be sure to provide a complete job description of any vacancies in your management team. direct mail. Describe the responsibilities. packaging and distribution of your product. marketing and administration of similar businesses or within the selected industry and attach the resumes of each member to the plan. Also detail how you will distribute and sell your product or service.Describe the staff required to operate your business: discuss how many people you will need. Ownership What is its relationship to your existing organization? Who is on the board of directors / board of advisors of the new business and what are their backgrounds and areas of expertise? Potential investors or lenders will be interested in the ownership stake of the board of directors and also in what portion of the company’s equity is available. describe its features.

taxes. fees and other ongoing operating expenses) and capital expenditures (land and buildings. five – year) statement of projected revenue. maintenance. This schedule should indicate how much money your business will have or need and when you will need it. Itemize your projected expenses. equipment. vehicles. This statement should indicate to the reader the potential of your business to generate cash and its profitability over time. If you make assumptions about the growth of your business. facility purchase or rental. In preparing this statement. and building repair or renovation expenses). Income Statement Prepare a multiyear (three. Some items you might include in your start-up budget research and product design and development expenses. Provide a copy of the balance sheet of the business’s sponsoring organization or 25 . insurance. legal and accounting services. 6 Management and Ownership In this section you will describe the financial feasibility of your planned venture and provide several financial reports and statements to document why your business will be a viable enterprise and a sound investment. furniture. Balance Sheet A start-up business probably will not have any assets or liabilities at the time you are drafting the business plan. Lenders may look at this statement to determine whether your business can support the additional debt you are requesting. You should describe your sources of income and capital. marketing. provide supporting documentation such as growth patterns of similar companies or studies that forecast an industry-wide growth rate. For an existing business. and any industry-specific services such as suppliers and distributors. production labor). you may want to seek the advice of a certified public accountant (CPA). Cash Flow Projection This statement presents a month-to-month schedule of the estimated cash inflows and outflows of your business for the first year. At a minimum. also submit an income statement for at least three prior consecutive years. distinguishing between the cost of goods sold (materials. You can use Worksheet B as a sample format for preparing your start-up budget. supplies. equipment and vehicle purchase or rental. expenses. lenders. detailing your projected sales revenue and indicating your own or investor equity contribution. account for a gradual increase in sales from initial product introduction and any expected seasonal fluctuations in revenue projections. utilities. investors and other sources of capital. legal incorporation and licensing expenses. you should provide a brief descriptive narrative for each of the following financial statements and include a copy in the attachments to your plan: · Start-up budget · Cash flow projection · Income statement · Balance sheet In preparing these statements. and initial material or supply purchase. interest. administrative costs and salaries. overhead expenses (rent. Start-up Budget Describe the initial expenses you will incur to get your business up and running. accountants and advertising or public relations agencies.describe your business relationships with attorneys. capital expenditures and cost of goods sold.

building improvements.individual. Include deadlines for task completion. Equity investors are looking for rates of return higher than rates offered by banks or other business lenders. Set realistic deadlines according to your capacity to complete these tasks. describe the type of financing you are seeking: · Seed Capital – Short-term financing to cover start-up costs. Discuss how and when you will draw on these funds and how they will affect the bottom line. describe what they will receive in return for their capital. as will the availability of equity dollars. equipment or vehicles. The following is a list of some of the steps you may wish to include: · Filing legal incorporation documents · Identifying and securing suitable space · Designing and developing the product · Obtaining required licenses or permits · Securing necessary financing · Leasing or purchasing equipment · Hiring key staff · Hiring and training of production or support staff · Purchasing materials and production supplies · Beginning marketing activities · Opening 26 . Also describe any commitments or investments that you may have already secured. or lenders. The level of risk in your business and industry will help to determine the actual market rate. If you are seeking investors. Be sure to describe the current stage you are in and what steps you have taken to date. 7 Financial Information and Start up Timeline Capital Requirements Describe the amount and type of financing you are seeking for your business. And make sure you research the investment market carefully. Initial Start-up Timeline Provide a timeline of tasks and events necessary to get your business operational. · Working Capital – Short-term financing to cover operating expenses and to bridge gaps in cash flow. · Fixed Asset Financing – Longer-term financing for property. Are you looking for debt from a lender or equity from an investor? Refer to your start up budget and cash flow statement presented earlier. Be prepared to negotiate. several socially minded investment pools exist and more are in development. such as venture capitalists. Check with other businesses (although not direct competitors) to see what return on investment their investors demanded. What is the repayment period and the expected return on investment? Also discuss the nature of their ownership share and how it may change with future investments. The asset being purchased is usually pledged as security for the loan. Describe in your narrative any assets that will be allocated to the start-up of the business.

review it to make sure it embodies the following characteristics. thinking about different challenges will strengthen your plan. you should focus its presentation. The executive summary should be no more than three pages and should briefly describe the most important elements of the plan. However. 2. the characteristics of your customers and the share of the market you will gain over your competition. if you have already written the executive summary. The following are steps for developing sales projections. Potential problems could include: · Insufficient public subsidy available to new home owners or residents · The competition drops its prices · Not enough customers · Production costs exceed estimates · Difficulty in finding qualified employees · Environmental or governmental changes such as tax increases. but also a blueprint for how your business should operate. additional regulations or population changes For each potential problem. Write short notes on : a) sales projections (10 marks). Answer Sales Projections Present an estimate of how many people you expect will purchase your product or service. Project how many units you will sell at a specified price over several years. After you have completed all of the elements of your business plan. Review the Executive Summary section of this manual for more tips on this critical introduction to your business. Steps for Developing Sales Projections Your business plan is not just a funding tool. Executive Summary As mentioned earlier. Account for initial presentation and market penetration of your product and any seasonal variations in sales.Although it is impossible to know exactly what will go wrong in starting and running your business. thinking about different challenges will strengthen your plan. Your estimate should be based on the size of your market. A well-organized plan will assist you in communicating the most important elements of your business plan to the reader. Risks and their Mitigation Although it is impossible to know exactly what will go wrong in starting and running your business. 27 . The initial year should be broken down in monthly or quarterly increments. Because it is the first and possibly the only section of the plan that many readers may see. and a persuasive plan will help you to convince the reader to invest in your business. the executive summary should provide an overview of the plan and entice the reader to read the whole plan or to agree to meet with you. this section should be written last. discuss its likelihood and describe possible solutions or actions you might undertake to mitigate the problem. if appropriate.

Step I: Estimate For each product or service. as well as income. supply and staffing needs. Use will most likely increase as people learn about your products and services. keep in mind that business will start off slowly before people become more aware of your business. make projections for each month. or you can base your estimates on your knowledge of the market. You will use these numbers to project your equipment. Seasonal variations may affect your business as well. For the first few months. estimate the number of people who are likely to buy and when they will buy it. · Materials & Supplies · Personnel · Key Employees · Contract Labour/Temps · Training Expenses · Marketing Expenses · Advertisements · Brochures/Literature/Other · Insurance Premiums · Distributor Contracts · Contingency (5%) Expenses: Costs of Goods Sold · Materials/Supplies · Labor 28 . Cost Account Heads: · Organizational Start up Costs · Product Design/Development · Research & Development · Legal/Licensing Expenses · Property & Facilities · Land/Building Purchase · Initial Lease Deposit · Building Repairs/Improvements · Equipment/Machinery · Production-related · Administrative/Office Equip. Using the totals for a week. Step 2: Use a Calendar Estimate your sales and number of customers served during one week. You can get this information from asking your likely customers about their possible use of your business.

· To enhance the skills base and expertise needed to support and develop the NETWORK.) · Legal & Accounting · Marketing · Equipment Maintenance/Supplies · Facility Maintenance · Fees/Miscellaneous Debt / Equity Investment: · Equipment Loan · Building Rehabilitation Loan · Grants · Owner Equity Expenses · Cost of Goods Sold · Wages & Benefits · Materials · Supplies Overhead Expenses: · Rent · Utilities · Building Maintenance/Security · Marketing · Accounting · Legal · Administrative Expense · Interest Expense · Depreciation The Business Priorities are based upon six top-level objectives. Exp. these are: · To make Business data available both to decision-makers and as much as possible available in the public domain.· Rent · Utilities · Insurance · Admin. regional. · To ensure that the NETWORK Gateway gives access to data on Location and species used to inform decisions affecting Business at local. · To ensure all holders of Business information are able to participate. (PT Sec. i) The objectives have cross-cutting themes which are: 29 . use and awareness of the NETWORK. · To ensure that the data available through the NETWORK are of known quality. · To promote knowledge. national and international levels.

It also has the potential for engaging more partners in the NETWORK. · Data contributor engagement – This driver is concerned with accessing sources of data for the NETWORK enabling the assessment of actions and continual improvement in the targeting of actions from the two previous drivers. Data standards and tools C. pattern and quality of Business. · The plan is not intended to represent all the work that could be undertaken. Capacity building D. data quality and gaps. the partners will contribute to the overall realisation of the objectives through work that they initiate on their own account. To give additional focus to the challenging nature of the task that the NETWORK is setting itself. The drivers are: Processes This driver relates to facilitated targeted action on the ground through providing knowledge of resource location. a series of principle drivers have been recognised. Co-ordination and promotion i) In addition. · Operational use – This relates to the use of the NETWORK within the day to day business of agencies as a source of data relevant to local reporting or casework. a lead partner approach for each project will be retained. extent. · Ensuring that the benefits already secured through the earlier work are maintained.e. 30 . ii) A series of assumptions have been made in formulating the Business Priorities and their associated work programme. pattern of distribution. but this work would have to be prioritised against this core activity and separately resourced. · Environmental Impact Assessment (EIA) and Strategic Environmental Assessment – This driver is concerned with providing ready access to data on location.A. extent. · It is anticipated that other work towards the principal aim of adding content and providing a fully functional gateway will be adopted by the NETWORK as part of its programme. These lead naturally to three broad areas of work: · Developing the recording network. These are: · It is assumed that the present way of working. i. The plan also acknowledges the need to co-ordinate activity between the members of the NETWORK and their partners. Working with the wider public E. Infrastructure development B. · Generic enhancement – This driver encompasses capacity building and Recording Schemes and other contributing organisations and user groups. but which does not necessarily fall under the focussed objectives for the Network. and to communicate the progress and successes of the work programme. in order to ensure the continued and enhanced supply and use of information. · Enhancing the Internet Gateway in terms of its functionality and the data it accesses. b) importance of creativity in Business Answer Creativity Everyone in business is creative.

not to complain. But most of the time. · Instead. Look up at people. It’s only your life’s work. Don’t let spelling and grammar issues or relentless self-editing stop you. Technology Last. procedures.Some of most creative people are in manufacturing.” How to Lose an Audience… · Show your audience slides with columns of numbers. Fixing Problems is Creative. Avoid Meetings. vision.) Go retro: Carry a notebook. Do not attend more than two meetings a day. your office. 2 A Simple Creative Exercise… Simplify everything. · Do not read your speech or presentation.” Everyone in Sales Knows… · Tell stories. Story First. Don’t invest in a presentation class called “How to Use PowerPoint”…. · Refuse to tell them a story about the meaning of the numbers. Some of the least creative people perhaps are in advertising. They actually CREATE products that change the world. They spend most of their creative energy telling manufacturers that they…aren’t creative! Salespeople Are Creative – They are natural born story-tellers. How about a Show? Try “giving a performance” instead of merely “giving a presentation. “It’s not my job to be creative. or else you will never get any real creative work done. your desk. 31 . · Don’t just provide data. Everything. pen. Never say. you can’t remember them by the day’s end. and calendar into your meetings. You have a ton every day. your home. Accountants are creative. Brainstorming Don’t tell people that their ideas are bad. Your job is to fix problems.…until you’ve taken a class called “How to Tell Stories and Connect with Your Audience”. Get Fresh Ideas. policy. read your audience. your processes. Your life. Best Creative Exercise Ever Write down your ideas. especially if you don’t have a better one. Get your ideas on paper (Let someone else edit it.

and that these are even more important for re-investments and for gradually growing maintenance investments. …. Master carpenters use fewer tools than novices. Creativity: Use it or Lose it. Another Lame Excuse… Designers should put more of their passion into designing great work. today face scenarios of slow growth (2-3 % p. profitability and productivity. The energy sector faces growing competition with lower prices and cyclic variations of demand. in the heavy metal industry and in other base industries. Create something every day. not once in a while. Don’t Blame the Tool! The more you become a master of your particular creative form…. The core products and services produced by giga-investments are enhanced with life-time service. Use what works. These lessons show that investments in buildings. Creativity takes place every day. either. which point to the importance of immaterial investments. There are lessons learned from the Japanese industry. Global financial markets make sure that capital cannot be used non-productively. Facts and observations Giga-investments made in the paper and pulp industry.the fewer tools you will use.a . instead of endless (boring) discussions about the superiority of the Macintosh over the PC! The Lame Excuse … “I can’t [write/design/create] because I don’t have the latest [software/hardware/ upgrade]…. which has brought (often quite short-term) shareholder return to the forefront as a key indicator of success. New technology and enhanced technological innovations will change the life cycle of a giga- investment. production technology and supporting technology will be enhanced with immaterial investments. So do cooks.) in their key markets and a growing over-capacity in Europe.” You can’t let a machine take credit for your creativity. It’s not rare. 32 .a. It’s just been mystified – Own your creativity.e. Technology providers are involved throughout the life cycle of a giga-investment. with gradually more advanced maintenance and financial add-on services. Productivity improvements in these industries have slowed down to 1-2 % p. And you can’t blame a machine for your creative failures. as its owners are offered other opportunities and the capital will move (often quite fast) to capture these opportunities.Leave the office building at least once a day. The capital markets have learned “the American way”. i. there is a shareholder dominance among the actors.

smaller units are no longer cost effective. · All employees should be informed at approximately the same time. Time value of money. neither can the impact be expected to be covered through the stock market. The proposition that we can describe future cash flows as stochastic processes is no longer valid.00. What factors are to be taken into account in a crisis communications strategy? Answer The following items should be taken into account in the crisis communications strategy: · Communications should be timely and honest. σ Standard deviation of returns on stock Fuzzy numbers (fuzzy sets) are a way to express the cash flow estimates in a more realistic way. · Provide opportunity for audiences to ask questions. · Treat audiences as you would like to be treated. deferred. · Provide regular updates and let audiences know when the next update will be issued. if possible. 3. · Communications should provide objective and subjective assessments. This means that a solution to both problems (accuracy and flexibility) is a real option model using fuzzy sets. cash flows. · To the extent possible. Investment costs X Exercise price Length of time the decision may be t Time to expiry.000 ton paper mill will change the relative competitive positions. rf Risk-free interest rate Risk of the project. · Communicate in a manner appropriate to circumstances: – Face-to-face meetings (individual and group) 33 . A new technology will redefine the CSF:s for the market. Customer needs are adjusting to the new possibilities of the giga-investment.Giga-investments are large enough to have an impact on the market for which they are positioned: A 3. · Give bad news all at once – do not sugarcoat it. an audience should hear news from the organization first. Types of options · Option to Defer · Time-to-Build Option · Option to Expand · Growth Options · Option to Contract · Option to Shut Down/Produce · Option to Abandon · Option to Alter Input/Output Mix Table of Equivalences: INVESTMENT OPPORTUNITY VARIABLE CALL OPTION Present value of a project’s operating S Stock price.

In some respects. First Rule: The firm must appoint ONE due diligence coordinator. who will manage/disseminate crisis communications to the media and others. Preplanning for communications is critical. particularly when using resources such as Intranet and Internet sites and toll-free hotlines. a second. The firm must have ONE VOICE. "Due Diligence" is a legal term (borrowed from the securities industry). It means. Answer The Process of Due Diligence A business which wants to attract foreign investments must present a business plan. more onerous and more tedious process commences: Due Diligence. makes presentations and serves as a coordinator when the DD teams wish to interview people connected to the firm. Procedures to ensure that communications can be distributed at short notice should also be established. to make sure that all the facts regarding the firm are available and have been independently verified. This person interfaces with all outside due diligence teams. Official Spokesperson The organization should designate a single primary spokesperson.– News conferences – Voice mail/email – Company Intranet and Internet sites – Toll-free hotline – Special newsletter – Announcements using local/national media. the management is interviewed and a team of financial experts. more serious. What elements should be included in a Marketing Plan under Due Diligence while seeking investment in for your Company? (10 marks). lawyers and accountants descends on the firm to analyze it. and statements can be crafted in advance for threats identified in the Risk Assessment. scripts. once the foreign investor has expressed interest. it is very similar to an audit. But a business plan is the equivalent of a visit card. Only one person represents the company. The introduction is very important – but. He collects all the materials requested and oversees all the activities which make up the due diligence process. essentially. answers questions. with back-ups identified. In some situations. an appropriately trained site spokesperson may also be necessary. This individual should be trained in media relations prior to a crisis. Drafts of message templates. 4. It should be stressed that personnel should be informed quickly regarding where to refer calls from the media and that only authorized company spokespeople are authorized to speak to the media. All the documents of the firm are assembled and reviewed. All information should be funneled through a single source to assure that the messages being delivered are consistent. Second Rule: 34 .

who are the investors. Technical. · Marketing and advertising campaigns (including cost estimates) – broken by market and by media · Distribution of the products · A flow chart describing the receipt of orders. maintenance. sales targets. The DD is a process which is more structured than the preparation of a Business Plan. Marketing. etc. The Marketing Plan Must include the following elements: · A brief history of the business (to show its track performance and growth) · Points regarding the political. · Customer after-sales service (hotline. training of the sales personnel. shipping. special offers.) · Customer loyalty (example: churn rate and how is it monitored and controlled). complaints. Why is the company raising funds.Brief your workers. Give them the big picture. They must know the DD coordinator and the company’s spokesman in the DD process. They must be instructed not to lie. Controls. Legal Details · Full name of the firm · Ownership of the firm · Court registration documents · Copies of all protocols of the Board of Directors and the General Assembly of Shareholders · Signatory rights backed by the appropriate decisions · The charter (statute) of the firm and other incorporation documents · Copies of licences granted to the firm · A legal opinion regarding the above licences · A list of lawsuit that were filed against the firm and that the firm filed against third parties (litigation) plus a list of disputes which are likely to reach the courts 35 . support. the clients and the competitors · Planned market research · A sales forecast by product group · The pricing strategy (how is pricing decided) · Promotion of the sales of the products (including a description of the sales force. Financial. invoicing. dealerships. sales-related incentives. Both employees and management must realize that this is a top priority. guarantees and after-sales service · Development of new products or services · A general overview of the market and market segmentation · Is the market rising or falling (the trend: past and future) · What customer needs do the products / services satisfy · Which markets segments do we concentrate on and why · What factors are important in the customer’s decision to buy (or not to buy) · A list of the direct competitors and a short description of each · The strengths and weaknesses of the competitors relative to the firm · Missing information regarding the markets. Attach a flow chart of the purchasing process from the moment that the client is approached by the sales force until he buys the product. upgrades. It is confined both in time and in subjects: Legal. legal (licences) and competitive environment · A vision of the business in the future · Products and services and their uses · Comparison of the firm’s products and services to those of the competitors · Warranties. how will the future of the firm (and their personal future) look if the investor comes in. telemarketing and sales support).

) A successful due diligence is the key to an eventual investment. You can. or. references. if the firm is the result of a merger. balances Technical Plan · Description of manufacturing processes (hardware. technological transfer and licensing required · Suppliers of equipment. or sell or assign the rights to another person. filing. software. transmitters) · Raw materials: sources. This is a process much more serious and important than the preparation of the Business Plan.· Legal opinions regarding the possible outcomes of all the lawsuits and disputes including their potential influence on the firm Financial Due Diligence · Last 3 years income statements of the firm or of constituents of the firm.(10 marks). etc. technical specification · Environmental issues and how they are addressed · Leases. collections of debts and ageing of receivables · Introduction of international accounting standards · Monitoring of sales · Monitoring of orders and shipments · Keeping of records. software. lines. Answer Licensing and Assigning IP rights One basic choice is whether you should actively exploit your IP rights yourself. Distinguish between Joint Ventures and Licensing. in accordance with FASB) · Cash Flow Projections and the assumptions underlying them Controls · Accounting systems used · Methods to price products and services · Payment terms.) · Transport and communications (example: satellites. 5. communications. cost and quality · Relations with suppliers and support industries · Import restrictions or licensing (where applicable) · Sites. or to keep your IP rights and license them to others to use. The statements have to include: · Balance Sheets · Income Statements · Cash Flow statements · Audit reports (preferably done according to the International Accounting Standards. explaining the relative advantages and disadvantages of each. other) · Need for know-how. water. special arrangements · Integration of new operations into existing ones (protocols. archives · Cost accounting system · Budgeting and budget monitoring and controls · Internal audits (frequency and procedures) · External audits (frequency and procedures) · The banks that the firm is working with: history. if the firm is looking to raise money in the USA. in 36 . services (including offers) · Manpower (skilled and unskilled) · Infrastructure (power. etc. receivers.

and the patent holder retains ownership and control of the basic patent. However. grant a licence a Canadian company to use the invention in North America. and sell or assign the rights in Europe to a Danish company – whether or not this is the best approach in practice is a different matter. the patent owner would still be able to also grant Company B another non-exclusive for the same rights and the same time period in Malaysia. if a patent owner granted an exclusive licence to Company A to make and sell the invention in Malaysia. a patent owner can grant an exclusive licence to make and sell their patented invention in Malaysia for the term of the patent. and in maintaining and enforcing the underlying IP right. selling or importing the patented product. or a share of the patent. If a patent owner grants a non-exclusive licence to Company A to make and sell their patented invention in Malaysia. using. a separate exclusive licence to another company to use it for relief of cold symptoms. and a further exclusive licence to a third company to use it for veterinary pharmaceuticals. For example. 37 . Patent licences and assignments of patent rights do not have to cover all patent rights together. of course. For instance. An assignment of intellectual property rights is the sale of a patent right. For example. the jurisdiction in which particular IP rights have effect. it normally requires the owner of the invention to invest time and resources in monitoring the licensed use. You can grant different exclusive licences for different territories at the same time. A licence is merely the grant of permission to undertake some of the actions covered by intellectual property rights. In contrast. If you are based in Malaysia. Licensing is a good way for an owner to benefit from their work as they retain ownership of the patented invention while granting permission to others to use it and gaining benefits.principle. A licence is a grant of permission made by the patent owner to another to exercise any specified rights as agreed. from that use. if an inventor creates a new form of pharmaceutical delivery. If an inventor assigns their patent rights to someone else they no longer own those rights. they would not be able to give a licence to anyone else in Malaysia while the licence with Company A remained in force. Indeed. such as financial royalties. licences can be exclusive or non-exclusive. and grant a separate exclusive licence to manufacture and sell their patented invention in India for the term of the patent. they can be in infringement of the patent right if they continue to use it. she could grant an exclusive licence to one company to use the technology for an arthritis drug. you could in theory decide to exploit your patent yourself in the East Asian region. It should be remembered that the person who makes an invention can be different to the person who owns the patent rights in that invention. make different choices in different countries for exploiting IP rights for the same underlying invention. Licenses are normally confined to a particular geographical area – typically. Separate licences can be granted for different ways of using the same technology. The patent right normally includes the right to exclude others from making. The license can therefore cover the use of the patented invention in many different ways. and similar rights concerning patented processes.

This could be a desirable choice in cases where: – you want to keep your institute’s research activities separate from the development and commercialisation of technology. and they will only take on a long-term risk if they can get a share of future profits of the technology. Portions of a patent right can also be assigned – so that in order to finance your invention. Equally. For instance. These options require much more work on your part than licensing or assigning your intellectual property rights. tried and true • Fair and Balanced • Product Exclusivity • Inventions of interest to you • You are free to view our inventions • An informed business decision • A production head start • We are vitally committed to your success • A resource for future projects Joint Venture Agreements and Start-up Companies Rather than simply exploit your IP rights by licensing or assignment. the amount you charge for an assignment is usually considerably higher than the royalty fee you would charge for a patent licence. such as a start-up or spin-off company. Therefore. Licensing Advantages • An Inventive Incentive • "Licensing". you normally lose any possibility of further licensing or commercially exploiting your intellectual property rights. especially when your institute has a public interest focus or an educational role. 38 . or – you need to attract financial support from those prepared to take a risk with an unproven technology (‘angel investors’ or ‘venture capitalists’). If an inventor owns patents on the same invention in five different countries. you might choose to set up a new legal mechanism to exploit your technology. you might negotiate an arrangement that gives you licence to use the patented invention in the event that you come up with an improvement on your original invention and this falls within the scope of the assigned patent. Typically this can be a partnership expressed through a joint venture agreement or a new corporation. you might seek to negotiate a licence from the new owner to ensure that you can continue to use your invention. For example. territories and time periods. they could assign (or sell) these patents to five different owners in each of those countries. the new owner of the assigned patent might want to get access to your subsequent improvements on the invention. a patent owner could exclusively licence only their importation right to a company for the territory of Indonesia for 12 months. If you assign your rights.Licences are often limited to specific rights. you might choose to sell a half-share to a commercial partner. When assigning the rights.

in a specified way. At the same time. A joint venture agreement involves a formal. a company is a new legal entity (a ‘legal person’ recognised by the law as having its own legal identity) which can own and license IP and enter into legal commitments in its own right. If a company is defined as a limited liability company. if a research institute decided to turn its licensing division or a particular laboratory into a separate company. For instance. so that the partners remain directly legally responsible for any losses or other liabilities that the partnership’s operations create. The laws governing partnerships and companies differ considerably from one country to another. 39 . through receiving its share of the profits and growth in assets of the spin-off company. This separate legal identity means that a start-up company can be a useful way of developing and commercialising a new technology based on original research. a partnership which is not a corporation.In working out the right vehicle for your technology. A spin-off company is an independent company created from an existing legal body – for example. you need to check out possible commercial partners and make sure that the objectives of your potential commercial partners are consistent with your objectives. you will normally need specific legal advice from a commercial lawyer. In other words. Before entering into a joint venture agreement. the research institute can benefit from the commercialisation of its research. the partners or investors normally cannot lose more than their investment in the company (but officeholders in the company might be personally responsible for their actions in the way they manage the company). It is normally created for a specific purpose (for example. By contrast. In the joint venture agreement. to commercialise a specific new technology) and for a limited duration. But this kind of partnership isn’t normally able in itself to enter legal commitments. A start-up company is a general term for a new company in its early stages of development. the partners typically agree to share the benefits. thus strengthening the institute’s capacity to do scientific research. you might sign a partnership agreement with a manufacturing company to develop and market a product based on your invention. as well as the risks and liabilities. and this discussion is only intended to give a general flavour of the various options. or own IP in its own right. legally binding commitment between two or more partners to work together on a shared enterprise. preferably one with experience in technology and commercialisation in your jurisdiction. a company or a specific institution doesn’t really separately exist as a legal entity. while keeping the main research effort of an institute focussed on broader scientific and public objectives. and insulated from the commercial risks and pressures of the commercialisation process.

If it is a public company. A private company’s shares.The company is normally owned through shares (its ‘equity’). management skills and substantial capital to draw on for factory premises. it is always a good idea to seek commercial or legal advice. There are many possible variations on each of these general models. But it also can offer a mechanism for attracting financial backing for research. Generally speaking. intellectual property rights should not be a burden but should yield a return from your hard work in creating an invention. development and marketing. as originator of the technology. the higher the degree of control you can secure over exploitation of the technology invention. the higher degree of risk and commitment of finance and resources you can invest. and to receive a portion of any profits produced by the company’s operations. and the mechanism you choose for commercialisation should take into account the particular features of the technology. One basic consideration is to what extent you. are not traded on the open market (but can still be bought and sold). You need to make good commercial decisions to benefit financially from your intellectual property rights. An initial public offering is when the shares in a start up company are first made available to the public to purchase. Properly managed. by contrast. In deciding which model of commercialisation is best for you. marketing skills. These effectively represent a portion of the assets and entitlement to profits of the company. and in practice they can overlap. which can improve access to the necessary resources and expertise. as their shares proportionately rise in value. shares in the company can be bought and sold on the open stock market. commensurate with the number of shares they own. hiring staff and so on. The option of starting up your own company to manufacture and market your patented invention requires you to have business skills. Which model of commercialisation is best for you? Each new technology and associated package of IP rights is potentially difference. wish to be involved and to invest in the subsequent development of the technology. the investors stand to benefit from the growth in the company’s worth. and the higher the financial return to your institution may be. including specialised staff and technology • sharing of risks with a venture partner 40 . You will need to compare the advantages and disadvantages of each model of commercialisation. Investors can purchase shares in the company. which is one way of bringing in new financial resources to support the development of the technology – in exchange. Advantages of Joint ventures: • Provide companies with the opportunity to gain new capacity and expertise • Allow companies to enter related businesses or new geographic markets or gain new technological knowledge • access to greater resources. Remember that IPRs alone do not guarantee you a financial return on your invention.

when a company makes a commitment to manufacture and promote an invention.Defined The difference between licensing and selling your invention is comparable to leasing vs. they are already anticipating a substantial financial commitment for tooling. • In the era of divestiture and consolidation. thus limiting both your commitment and the business' exposure. When you sell your house. Generally. for example. selling house. advance purchases of raw materials.” It is up to the parties to negotiate the terms of the license within the boundaries of antitrust laws and other regulations that would affect licenses and similar business arrangements. JV’s offer a creative way for companies to exit from non-core businesses. What factors would you weigh in choosing an appropriate course? (10 marks). This is a hard point 41 . sell it to the other parent company. If the value is estimated high. Licensing and Assignment . the fewer resources they will have available to put into the promotion. When you license an invention. Answer Following are the ways to commercialize my invention. Should I Sell or License? You will generally have a better chance of licensing your invention instead of assigning (selling) your rights for two reasons: First. the inventor wins and the company loses. and eventually. The terms of this lease are entirely up to you and the person leasing your house. • Companies can gradually separate a business from the rest of the organisation. A company that is savvy with licensing negotiations will state that the more money they pay the inventor up front. the inventor loses out. you retain the title to the house and give someone permission to use it for a limited period of time. engineering expenses. and in consideration for this they pay you on a quarterly basis. Second. if the estimates are low. the inventor would be the “assignor” and the person receiving the title or ownership of the patent would be the “assignee. they pay you on a monthly. companies don’t like to pay cash up front unless they absolutely have to. On the other hand. • Joint ventures can be flexible. it is initially hard to ascertain what the eventual value of an invention will be. Roughly 80% of all joint ventures end in a sale by one partner to the other. manufacturing setup. marketing. you may choose to rent out your house. For example. You wish to commercialize your invention. You’re offering a manufacturer. 6. It is up to you to negotiate within the boundaries of the law. This will almost invariably result in a win/lose situation. except that the process is called “assigning” rather than selling. and promotional expenses.” Instead of selling. In this case you are the “licensor” and the company is the “licensee. yearly or other basis. You. In this case. When you sell your invention. making someone else in charge of and liable for the house from that point on. the right to manufacture and sell your invention for a period of time. In consideration for this. though. the scenario is the same. it’s nearly the same as leasing. you transfer your title. a joint venture can have a limited life span and only cover part of what you do.

At this point. If you start with a new company under new management with a new product. What you lose in control when you license can be gained tenfold from a timing standpoint. these are expenses the company would have normally paid if they had developed such a product on their own. With all its resources. which brings many new products to market. Inventors have often already incurred substantial initial expenses for patenting. Having an invention commercialized can give an inventor a substantial head start in attracting interest in his additional inventions. 3-M’s success rate is said to be only 30%. Large retail outlets prefer to deal with companies 42 . Licensing offers another strong advantage when it is time to sell your manufactured invention to customers. the company may very well come back to the table and agree to reimburse you for such initial expenses. the inventor can argue that the potential licensees should at least reimburse them for these out-of-pocket expenses. it’s important to seriously investigate the distinct advantages of having your invention introduced by an existing company with experience in your field can promote your product effectively and already has a skilled sales force with an existing client base. Manufacturers who introduce only one invention or a very small product line often have a hard time selling to large accounts. and need to be reimbursed as soon as possible. which comes with its own set of risks and rewards. and the marketing team. At that point. There are several different elements at play during the commercialization of an invention: the company. your success rate may be even less. they may want to make it an advance against future royalties. the technology. Unless you have greater resources. The more variables you introduce. your chance of success is obviously much slimmer than an existing company already in the field with experience and knowledge in a similar product line. the company has the prerogative to ditch your technology and simply “sit on it” unless you’ve made other arrangements. Should I Go It Alone? Some inventors prefer to keep their inventions close and go into business for themselves. Because there are significant startup risks. In some cases it is just as important to the inventor to see his invention commercialized as it is to receive the cash from it. Therefore. Although you may have cash in hand from the sale of your invention. Even when you look at an experienced company like 3-M. you will typically lose control of it. Bear in mind that all negotiations are unique and this is just an example. and in reducing your risk. Each of these is a variable. After all. This may eventually be worth more to an inventor than the initial cash he would receive from his first commercialized invention. the market. particularly if you’re interested in the long-range commercial success of your invention . prototyping and research. However. the greater the risk of failure. These factors can greatly reduce the amount of time it takes to introduce your invention to the marketplace. When you assign (sell) your argue against. the management. you’ll find that the company’s new products fail often.

and the personal energy you’ll need for future successes. money. What will your company sell then? Most single-item companies that are still around after five years have done so by introducing new products and expanding their product line. In time. Inventors always take a risk when they spend time and money on an idea and if they’re lucky. you may pique the interest of a potential licensee who can take your invention to the next step. keep careful track of your expenses and constantly weigh these expenses against any royalty potential that may result.where they can do one-stop shopping. Licensing also has advantages over starting your own company because few products have an unlimited life cycle. Then if your sales results are positive. If you find that you must make a substantial investment to actually manufacture an invention to prove its commercial viability and to interest potential licensees. There are too many sad stories of inventors pouring money into inventions that can never provide a return on their investment. If you’ve attempted the licensing route and no manufacturer is interested in your invention at its current stage of development. Buyers (or purchasing agents) for the big outlets want to reduce the number of bills they get and the number of vendors they see each week. This is why the introduction of a new invention to retailers by a new company is particularly challenging. you may need to do a small market test with a limited production run to prove your invention has sales potential. 43 . Get some realistic market research as early in the game as possible. The lesson is to minimize your risks so you can bail out or put the project on hold if warranted. It is easy to get ‘upside down’ financially with invention projects. your invention may be replaced by new technology. It will save you time. This is especially true since inventors have a tendency to overestimate the ultimate value of their inventions. it’ll pay off quite well. Sometimes starting your own company is the only way to go. Companies need new products to survive.

Course Code: MB0037 – International Business Management Set 1 & 2 44 .

defined by the World Bank as the "new globalizers. without being open to the rest of the world." the number of people in absolute poverty declined by over 120 million (14 percent) between 1993 and 1998. and Uganda. On average. those developing countries that lowered tariffs sharply in the 1980s grew more quickly in the 1990s than those that did not. trade opening (along with opening to foreign direct investment) has been an important element in the economic success of East Asia. Indeed. There is considerable evidence that more outward-oriented countries tend consistently to grow faster than ones that are inward-looking. in terms of substantial increases in living standards for its people. Opening up their economies to the global economy has been essential in enabling many developing countries to develop competitive advantages in the manufacture of certain products. The evidence on this is clear. No country in recent decades has achieved economic success. 45 . In contrast. including India. How has liberalizing trade helped international business? (6 marks) Answer The Benefits of Trade Liberalization Policies that make an economy open to trade and investment with the rest of the world are needed for sustained economic growth. where the average import tariff has fallen from 30 percent to 10 percent over the past 20 years. Countries that have opened their economies in recent years.1 a. Vietnam. In these countries. have experienced faster growth and more poverty reduction. one finding is that the benefits of trade liberalization can exceed the costs by more than a factor of 10. MB0037 – International Business Management Q.

the increased growth that results from free trade itself tends to increase the incomes of the poor in roughly the same proportion as those of the population as a whole. often channeled to narrow privileged interests that trade protection provides. But the amount accruing to developing countries would still be more than twice the level of aid they currently receive. The potential gains from eliminating remaining trade barriers are considerable. b. countries benefit most from liberalizing their own markets. Developing countries would gain about equally from liberalization of manufacturing and agriculture. Estimate of the gains from eliminating all barriers to merchandise trade range from US$250 billion to US$680 billion per year. reflecting more rapid economic growth in developing countries. Developing countries can ill-afford the large implicit subsidies. What are the merits and demerits of international trade? (4 marks) Answer Advantages and Disadvantages of International Trade Advantages to consider: • Enhance your domestic competitiveness • Increase sales and profits • Gain your global market share • Reduce dependence on existing markets • Exploit international trade technology • Extend sales potential of existing products • Stabilize seasonal market fluctuations • Enhance potential for expansion of your business • Sell excess production capacity • Maintain cost competitiveness in your domestic market Disadvantages to keep in mind: • You may need to wait for long-term gains • Hire staff to launch international trading • Modify your product or packaging • Develop new promotional material 46 . The main benefits for industrial countries would come from the liberalization of their agricultural markets. The group of low-income countries. New jobs are created for unskilled workers. inequality among countries has been on the decline since 1990. however. Moreover. Although there are benefits from improved access to other countries’ markets. developing countries would gain more from global trade liberalization as a percentage of their GDP than industrial countries. in part the result of trade liberalization. Moreover. raising them into the middle class. would gain most from agricultural liberalization in industrial countries because of the greater relative importance of agriculture in their economies. Overall. because their economies are more highly protected and because they face higher barriers.Freeing trade frequently benefits the poor especially. About two-thirds of these gains would accrue to industrial countries.

largely as a result of the classic work of Hofstede (1980). The globalizing wind has broadened the mindsets of executives. One such new trajectory is the concern with national culture. For reviews. We first review the issues surrounding cultural convergence and divergence. extended the geographical reach of firms. Japanese auto-executives monitor carefully what their European and Korean competitors are up to in getting a bigger slice of the Chinese auto-market. which suggests that the topics reviewed are loosely related. beliefs. we examine the usefulness of experimental methods. Executives of Hollywood movie studios need to weigh the appeal of an expensive movie in Europe and Asia as much as in the US before a firm commitment. 47 . Finally.. with an eye toward productive avenues for future research.1: Cultural Dichotomies In this new millennium. Whereas traditional IB research has been concerned with economic/ legal issues and organizational forms and structures. and behavioural patterns of a national group – has become increasingly important in the last two decades.1. A schematic summary of our coverage is given in Table 2. from capital structure (Chui et al. and that their juxtaposition in the present paper represents our attempt to highlight their importance rather than their coherence as elements of an integrative framework. National culture has been shown to impact on major business activities. (10 marks) Answer The following can be looked as the various aspects of the cultural dichotomies. and how to enhance the precision of cultural models by pinpointing when the effects of culture are important. 2002) to group performance (Gibson. the importance of national culture – broadly defined as values. and the processes underlying cultural changes. The purpose of this Unit is to provide a state-of-the-art review of several recent advances in culture and IB research. We then examine novel constructs for characterizing cultures. 2 Discuss the impact of culture on International Business. see’ Boyacigiller and Adler’ (1991) and ‘Earley and Gibson’ (2002). few executives can afford to turn a blind eye to global business opportunities. norms. which are rarely employed in the field of culture and IB. It is not our purpose to be comprehensive. Table 2. and nudged international business (IB) research into some new trajectories. 1999). our goal is to spotlight a few highly promising areas for leapfrogging the field in an increasingly boundary-less business world. • Incur added administrative costs • Dedicate personnel for traveling • Wait long for payments • Apply for additional financing • Deal with special licenses and regulations Q.

capital. the European Union. and investments across national borders has continued to fall after the rapid gains of the 1990s. consisting of flows of information. and know-how’ (Govindarajan and Gupta. In parallel to the angry protests against globalization. IB- related practices would indeed become increasingly similar. and is conducted via government international organizations such as the North American Free Trade Agreement (NAFTA) and the European Community. as reflected in the increased cross-border flow of three types of entities: goods and services. 2 Evolution of partial globalization Globalization refers to a ‘growing economic interdependence among countries. 1999). These inter – relationships have enhanced participation in the world economy. However today. we review the evidence on the issue and conclude that such an outlook pertaining to the convergence of various IB practices is overly optimistic. 1995. have been sceptical of globalization (Greider. and parts of South Asia. Yet. In fact. money. global organizations such as the International Organization for Standardization (ISO). (1966) and the publication of Industrialism and Industrial Man by Kerr et al. A vivid image associated with the G8 summits is the fervent protests against globalization in many parts of the world. consumption patterns. 4). and acquisitions. If cultures of the various locales of the world are indeed converging (e. Furthermore. and other parts of the world.1 Cultural change. 2001. and inefficiencies and complexities associated with divergent beliefs and practices in the past era would disappear. Heuer et al. culture-free business practices would eventually emerge. and the prevalent term was ‘international trade’ (Drucker. international trade has culminated in the emergence of a global economy. Standard. at best (Schaeffer. including the former republics of the Soviet Union. Indeed. (1960). but in recent times we have also seen heated debates in Western economies triggered by significant loss of professional jobs as a result of off shoring to low – wage countries. 1997). Although it is often assumed that countries belonging to the World Trade Organization (WTO) have embraced globalization. services. Few spoke of ‘world economy’ 25 years ago. as shown in television and reported in the popular media. technology. the fact is that the world is only partially globalized. researchers have continued to search for similarities in culture-specific beliefs and attitudes in various aspects of work related attitudes and behaviours. multinational companies (MNCs). have stimulated discussions about creating other trade zones involving countries in South Asia. 2003). In fact. the creation of regional trade blocs. workers in manufacturing and farming in advanced economies are becoming increasingly wary of globalization. 1995). globalization is not without its misgivings and discontents (Sassan. and people. international mergers. such as NAFTA. convergence and divergence in an era of partial globalization An issue of considerable theoretical significance is concerned with cultural changes and transformations taking place in different parts of the world. parts of Latin America. Africa. and have become a key to domestic economic growth and prosperity (Drucker. Many parts of Central Asia and Eastern Europe. and cross – border alliances in the form of joint ventures. and the like. 1998). and the Association of Southeast Asian Nations. 153). since the landmark study of Haire et al. less than 10% of the world’s population is fully 48 .. the flow of goods. Strong opposition to globalization usually originates from developing countries that have been hurt by the destabilizing effects of globalization. Africa. In the following section..g. as their income continues to decline significantly.

can co-exist with modern values of individual achievement and competition.. This argument is obvious if we reverse the typical situation and put Western Europeans and Americans in the shoes of recipients of cultural influence. Huntington (1996) suggested that it originates from the intellectual elites from a selected group of countries who meet annually in the World Economic Forum in Davos. and Chinese restaurants abound in the West. 2003). Zhang et al. and a great majority of the world’s economic and military capabilities. ‘Universal culture’ often refers to the assumptions.. norms. are fluent in English. A case in point is the findings that Chinese in Singapore and China indeed endorsed both traditional and modern values (Chang et al. and practices of people in the West and some elites in non-Western cultures. Switzerland. being active participants in the consumption of global products and services) (Schaeffer. it seems implausible that Americans and Europeans have espoused more Chinese values because of their fondness of Chinese Kung Fu and food. also contributes to a convergence of consumption patterns and leisure activities around the world.e. and believe strongly in market economics and political democracy. and feminism. again mostly Western European and American in origin. it is imperative that we analyze the issues of cultural convergence and divergence in this partially globalized world. the convergence may be superficial.globalized (i. work with symbols and numbers. groups. and ideas about how individuals. Although the argument that the world is becoming one culture seems untenable. Although those belonging to the Davos group control virtually all of the world’s important international institutions. and other important social agencies ought to function. In fact. are extensively involved with international commitments.. the cultural values of the Davos group are probably embraced by only a small fraction of the six billion people of the world. Popular culture. 58) noted that ‘The essence of Western civilization is the Magna Carta. It is also conceivable that. Therefore. paternalism. and travel frequently outside their country. and have only a small influence on fundamental issues such as beliefs. institutions. However. 3 Role of multiculturalism and cultural identity The broad ideological framework of a country. such as group solidarity. while Chinese Kung Fu dominates fight scenes in Hollywood movies such as Matrix Reloaded. For instance. we may also talk about Easternization of values in response to forces of modernity and consumption values imposed by globalization (Marsella and Choi. Huntington (1996. not the Magna Mac. 2003). A major argument against cultural convergence is that traditionalism and modernity may be unrelated (Smith and Bond. in an attempt to identify several productive avenues for future research. corporation. values. or situation is the most important determinant of the cultural identity that people develop in a given locale (Triandis. The 49 . just as we talk about Westernization of cultural values around the world. there are some areas that do show signs of convergence. The fact that non-Westerners may bite into the latter has no implications for their accepting the former’. 2003. interpersonal harmony. 1998). many of the world’s governments. These individuals are highly educated. They share the cultural value of individualism. We explore in the following the roles of several factors that simultaneously cause cultures of the world to either converge or diverge. Strong traditional values. 1993). 1994).

2003).. there are countries that will reject globalization. Canada. which could result in the redistribution of national power in the conduct of international affairs.. Huntington. Hofstede (2001) asserts that mental programs of people around the world do not change rapidly. presents the view that there is indeed a resurgence of non-Western cultures around the world. His findings indicate that cultural shifts are relative as opposed to absolute. or additive multiculturalism. However.. Although clusters of some countries in given geographical locales (e. in discussing issues of convergence and divergence. In fact. UK). when people from a cultural group add appropriate skills and characteristics of other groups. especially in consumer values and lifestyles. creative synthesis.. The issues of cultural identity and emotional reactions to other cultural groups in an IB context constitute a significant gap in our research effort in this area. In contrast. it is necessary to recognize that the shift in values is not always from Western society to others. significant divergence of cultures persists. our analysis suggests that there is no guarantee that such convergence will come about easily. (2003) have recently argued that adaptation is another approach that could characterize the tendencies of some cultures in the face of mounting pressures to globalize. US.g. reactions to globalization may take other forms. 1997) but also because globalization tends to introduce distortions (in their view) in profound cultural syndromes that characterize their national character. it is hard to initiate these processes. Jung et al. 4 Implications of convergence and divergence issues One message is clear: while convergence in some domains of IB activity is easily noticeable. but remain rather consistent over time. Other approaches are rejection. not only because of its adverse economic impacts (Greider. or without long periods of resistance. These different approaches highlight once again the complex dynamics that underlie cultural convergence and divergence in a partially globalized world.e. if there is a significant history of conflict between the cultural groups. 2002). but can result in the change of Western 50 .g. the changes do not diminish the absolute differences between such countries and those of the Anglo countries (i. Also. Argentina. as is found in Western countries. or what Triandis (1994) calls subtractive multiculturalism.. However. it may be called integration. IB scholars need to understand that although some countries might exhibit strong tendencies toward cultural convergence. although there has been some research on the typology of animosity against other nations (e. Both of these processes are essential for cultural convergence to proceed. Chile) might indicate significant culture shifts towards embracing Anglo values. is certainly worthwhile. we do not know much about how emotional antagonism against other cultural groups affects trade patterns and intercultural cooperation in a business context. as in the case of Israelis and Palestinians. In general. The attempt by the Davos group to bring about uniform practices in various aspects of IB and work culture.‘melting pot’ ideology suggests that each cultural group loses some of its dominant characteristics in order to become the mainstream: this is assimilation. thereby sustaining the forces of globalization. and innovation (Bhagat et al. Bhagat et al. Furthermore. in his ‘The Clash of Civilizations’ (1996). Brazil.

especially the cultural outcomes. reflecting a shared knowledge structure that attenuates variability in values. through the process of globalization. IB is both an agent and a recipient of cultural change. reciprocal relationships with cultural change. the issue of cultural change at the national level has rarely been addressed. High fit means high adaptation of managerial practices to a given culture and. The cause-effect relationships of globalization and its various outcomes. Scholars of IB should recognize that the issue of convergence and divergence in this era of partial globalization will remain as a persistent and complex issue whose direction might only be assessed on a region-by-region basis. and patterns of behaviours (Erez and Earley. distinguished between theories driven by the underlying assumption that adaptation is the mechanism to cope with change. One exception is the eco-cultural model by Berry et al. and for international business to flourish it is important to understand its complex. suggesting that ineffective forms of organization disappear. Schaeffer (2003) has provided an insightful discussion of the social consequences of political. most existing models of culture and work behaviour assume cultural stability and emphasize the fit between a given culture and certain managerial and motivational practices (Erez and Earley. the emphasis on quality and teamwork in the West is partly a result of the popularity of Japanese management two decades ago. in their comprehensive chapter on adaptation and selection in strategy and change. For instance. For example. Leana and Barry. Yet. the end of the 20th century and the beginning of the new millennium have been characterized by turbulent political and economical changes. although organizational changes as a reaction to environmental changes have been subjected to considerable conceptual analyses. For instance. but whether or not these changes will bring about cultural convergence is yet to be seen. and leads to more control over expected behavioural outcomes (Weick and Quinn. which have significant implications for IB. Lewin and Kim (2004). we make the point that. 2000). and views individual psychological 51 .cultural values as well. which instigate cultural changes. which views culture as evolving adaptations to ecological and socio-political influences. 1993). therefore. However. How these complex relationships and processes play out on the stage of IB remains to be uncovered by IB researchers. The assumption of cultural stability is valid as long as there are no environmental changes that precipitate adaptation and cultural change. 1993). Cultural stability helps to reduce ambiguity. As explained before. In line with this argument. There are relatively few theories of culture that pertain to the dynamic aspect of culture. (2002). 1999. 5 Processes of cultural changes In the previous section. culture has been treated as a relatively stable characteristic. we delineate a general model that describes and explains the complex processes underlying cultural changes. behavioral norms. It is also wise to adopt an interdisciplinary perspective in understanding the forces that create both convergence and divergence of cultures in different parts of the world. and theories driven by the underlying assumption of selection and the survival of the fittest. high effectiveness. and new forms emerge. In this section. are not only characterized by bi-directional arrows. economic and other changes. but are embedded in a complex web of relationships. In line with the view of Hofstede (2001) that culture changes very slowly. in Understanding Globalization. cultures influence each other and change.

Inglehart and Baker (2000) examined cultural change as reflected by changes in basic values in three waves of the World Values Surveys. In the absence of research models that can shed light on this complex process of cultural change. Confucian. the deeper level of values. and are likely to be configured in different ways across different socio-cultural groups. changes at micro-levels of culture. masculinity and domestic political violence across 53 countries. or Communist. For example. 6 The dynamics of culture as a multi-level. 52 . tolerant.characteristics in a population as adaptive to their cultural context. group cultures. whether it is Protestant. 2000) could be adopted for understanding the dynamics of culture and cultural change. Roman Catholic. leaves an enduring imprint on traditional values despite the forces of modernization. The second is based on Schein’s (1992) model viewing culture as a multi – layer construct consisting of the most external layer of observed artefacts and behaviours. The process of globalization described before has introduced the most significant change in IB. as well as to the broader ecological and socio-political influences. Orthodox. Erez and Gati (2004) proposed that the general model of multi-level analysis (Klein and Kozlowski. Similarly. organizational. One is a multi-level approach. the data also showed that the broad cultural heritage of a society. Their analysis showed that economic development was associated with shifts away from traditional norms and values toward values that are increasingly rational. which included 65 societies and 75% of the world’s population. Van de Vliert et al. through national cultures. which is testable by social consensus. organizational cultures. as opposed to the entity view that sees culture as a static entity. (1999) identified curvilinear relationships between temperature. viewing culture as a multi-level construct that consists of various levels nested within each other from the most macro-level of a global culture. when shared by the members of the society. trusting. multi-layer construct The proposed model consists of two building blocks. Reciprocally. with its effects filtering down to the national.1. This system view suggests that each person’s psychological processes are organized through the active effort to coordinate one’s behaviours with the pertinent cultural systems of practices and public meanings. Kitayama (2002) proposes a system view to understanding the dynamic nature of culture. Yet. concurrently. and participatory. culminate into macro level phenomena and change the macro-levels of culture. These adaptive views of culture are supported by empirical evidence. and the deepest level of basic assumption. many aspects of the psychological systems develop rather flexibly as they are attuned to the surrounding socio-cultural environment. However. Their findings showed that masculinity and domestic violence are higher in moderately warm countries than in countries with extreme temperatures. which is invisible and taken for granted. as portrayed in Figure 2. group and individual levels. and cultural values that are represented in the self at the individual level.

Their leader also typically facilitates the display of these personal characteristics because they are crucial for developing innovative products. Individuals who belong to the same group share the same values that differentiate them from other groups and create a group – level culture through a bottom-up process of aggregation of shared values. 2003. In the model. they vary in their local organizational cultures. 2000).1: The dynamic of top-down–bottom-up processes across levels of culture.g. their leaders’ values. the values of the founders. global organizational structures need to adopt common rules and procedures in order to have a common ‘language’ for communicating across cultural borders (Kostova. 1999. Within each organization are sub-units and groups that share the common national and organizational culture. and the professional and educational level of their members. respect of freedom of choice. it becomes a shared value that characterizes the aggregated unit (group. the type of ownership. Further down are local organizations. 53 . Kostova and Roth. which differentiate them from other organizational units. As exemplified by the effort of the Davos group discussed earlier. 2000). acceptance and tolerance of diversity. but that differ from each other in their unit culture on the basis of the differences in their functions (e. and although all of them share some common values of their national culture. and local organizations that share similar values create the national culture that is different from other national cultures. Groups that share similar values create the organizational culture through a process of aggregation. which are also shaped by the type of industry that they represent. Figure 2. Below the global level are nested organizations and networks at the national level with their local cultures varying from one nation or network to another. For example. the values that dominate the global context are often based on a free market economy. organizations. R&D vs manufacturing). At the bottom of this structure are individuals who through the process of socialization acquire the cultural values transmitted to them from higher levels of culture. the most macro-level is that of a global culture being created by global networks and global institutions that cross national and cultural borders. democracy. all members of this unit share similar core values. Gupta and Govindarajan. and then. or nations). individual rights. etc. and openness to change (Gupta and Govindarajan.. Given the dominance of Western MNCs. employees of an R&D unit are selected into the unit because of their creative cognitive style and professional expertise. Thus. when shared by individuals who belong to the same cultural context.The present model proposes that culture as a multi – layer construct exists at all levels – from the global to the individual – and that at each level change first occurs at the most external layer of behaviour.

Thus. either above it through top-down processes or below it through bottom-up processes. Sharing common behaviours and values by all employees of the local company then shaped the organizational culture through bottom–up processes. with the Israeli company being higher on the cultural dimension of innovation and lower on the cultural dimension of attention to detail and conformity to rules and standards as compared with the acquiring company. over time. which is an advanced method of quality improvement. on a cultural shift from traditional values to modernization. 2000). Global organizations and networks are being formed by having local-level organizations join the global arena. Similarly. Upon returning to their company. Reciprocally. For example. and individualism facilitate change.. low uncertainty avoidance. A study by Erez-Rein et al. In the long run. multinational companies that operate in the global market develop common rules and cultural values that enable them to create a synergy between the various regions. However. The latter insisted on sending the Israeli managers to intensive courses in Six – Sigma. and introduces uncertainty. The study identified a cultural gap between the two companies. and. and upper levels through a bottom-up process of aggregation. having local organizations join a global company may introduce changes into the global company because of its need to function effectively across different cultural boarders. and explain how culture at different levels is being shaped and reshaped by changes that occur at other levels. and a managerial philosophy that encompasses all organizational functions. followed by the internalization of quality – oriented values. they shape the local organizations. whereas others hinder it. (2004) demonstrated how a multinational company that acquired an Israeli company that develops and produces medical instruments changed the organizational culture of the acquired company. The case of cultural change via international acquisitions demonstrated the two building blocks of our dynamic model of culture: the multi-level structure explains how a lower-level culture is being shaped by top-down effects. The changes in national cultures observed by Inglehart and Baker (2000) could serve as an example for top-down effects of economic growth.Both top-down and bottom-up processes reflect the dynamic nature of culture. and caused behavioural changes. bottom – up processes of shared behaviours and norms shape the local organizational culture. enhanced by globalization. in line with Schein (1992). changes at each level affect lower levels through a top-down process. The values of low power distance. 7 Factors that facilitate cultural change Culture itself influences the level of resistance or acceptance of change. these managers introduced quality improvement work methods and procedures to the local company. Change threatens stability. and that the cultural layer that changes first is the most external layer of behaviour. Harzing and Hofstede (1996) proposed that certain cultural values facilitate change. These global rules and values filter down to the local organizations that constitute the global company. Change also 54 . and resistance to change will therefore be higher in cultures of high rather than low uncertainty avoidance (Steensma et al. the deep basic assumptions still reflect the traditional values shaped by the broad cultural heritage of a society. and different parts of the multinational company. That means that there is a continuous reciprocal process of shaping and reshaping organizations at both levels. a top-down process of training and education led to changes in work behaviour and work values.

and vice versa. accounting for over 97% of world trade. which is highly valued in collectivistic cultures. we also argue for the importance of examining contingency factors that enhance or mitigate the effect of national culture. fairly and predictably. change breaks the existing harmony. She approaches the implementation with trepidation. · the reward structure and its congruence with the underlying cultural values. freely. Over the term of her career. The WTO’s top level decision-making body is the Ministerial Conference which meets at least once every two years. does culture matter? Q. Finally. creating efficiencies and synergies across the remote sites. A majority vote is also possible but it has never been used in the WTO. Decisions are made by the entire membership. she understands the strategic need to create a unified global program that serves to further integrate the firm’s basic processes. A recent study by Erez and Gati (2004) examined the effects of three factors on the change process and its outcomes: · the cultural value of individualism – collectivism. whereas working in teams dominates the collectivistic ones. and therefore will not be easily accepted by collectivists (Levine and Norenzayan.threatens the power structure. in this complex circumstance. Around 30 others are negotiating membership. This is typically by consensus. Explain the brief structure of WTO. 55 . Consider the following scenario. and · the degree of ambiguity in the reward structure. It does this by: · Administering trade agreements · Acting as a forum for trade negotiations · Settling trade disputes · Reviewing national trade policies · Assisting developing countries in trade policy issues. At the same time. The WTO’s agreements have been ratified in all members’ parliaments. (5 marks) Answer Structure of World Trade Organization (WTO) The WTO’s overriding objective is to help trade flow smoothly. the manager has been educated about differences in national culture and is sensitive to intercultural opportunities and challenges. A senior human resource manager in a multinational firm is charged with implementing an integrative training program in several of the firm’s subsidiaries around the globe. GATT. The change process examined was a shift from choosing to work alone to a behavioural choice of working as part of a team. through technical assistance and training programs · Cooperating with other international organizations Structure The WTO has nearly 150 members. 8 Understanding when culture matters: increasing the precision of cultural models Beyond exploring new cultural constructs and the dynamic nature of culture. A key challenge is to determine whether the program should be implemented in the same manner in each subsidiary or modified according to the local culture at each site. and was extremely rare under the WTO’s predecessor. and therefore will be avoided in high power distance cultures. Working alone is more prevalent in individualistic cultures. 1999). a. Put another way.3.

the Secretariat does not have the decision-making role that other international bureaucracies are given with. Numerous specialized committees. the Goods Council. the WTO is different from some other international organizations such as the World Bank and International Monetary Fund. Decisions are normally taken by consensus. The General Council also meets as the Trade Policy Review Body and the Dispute Settlement Body. to analyze world trade. working groups and working parties deal with the individual agreements and other areas such as the environment. All major decisions are made by the membership as a whole. The WTO is run by its member governments. either by ministers (who meet at least once every two years) or by their ambassadors or delegates (who meet regularly in Geneva). Services Council and Intellectual Property (TRIPS) Council report to the General Council. Secretariat The WTO Secretariat. Figure 5. The Secretariat’s main duties are to supply technical support for the various councils and committees and the ministerial conferences. has around 600 staff and is headed by a director-general. The Secretariat also provides some forms of legal assistance in the dispute settlement process and advises governments wishing to become members of the WTO. It does not have branch offices outside Geneva. Since decisions are taken by the members themselves. but sometimes officials sent from members’ capitals) which meets several times a year in the Geneva headquarters. development. with decisions taken by consensus among all member governments. to provide technical assistance for developing countries. In this respect.Below this is the General Council (normally ambassadors and heads of delegation in Geneva. At the next level. and to explain WTO affairs to the public and media. membership applications and regional trade agreements. Its annual budget is roughly 160 million Swiss francs. based in Geneva. In the WTO. 56 . power is not delegated to a board of directors or the organization’s head.1: Structure of WTO The WTO is ‘member-driven’.

57 . The Singapore Ministerial Conference in December 1996 decided to create new working groups to look at investment and competition policy. for example. The countries make their decisions through various councils and committees. Six other bodies report to the General Council. and more Three more councils. including the possibility of trade sanctions. influence a country’s policy by threatening to withhold credit. Highest authority: the Ministerial Conference So. and authorized by the membership as a whole. Again they consist of all WTO members. some remarkable agreements have been reached. all three consist of all WTO members. The Ministerial Conference can take decisions on all matters under any of the multilateral trade agreements. But they still consist of all WTO members. the WTO belongs to its members. But those sanctions are imposed by member countries. Topmost is the ministerial conference which has to meet at least once every two years. each handling a different broad area of trade. and administrative issues. the environment. and trade facilitation. regional trading arrangements. Third level: councils for each broad area of trade. And despite the difficulty. It meets as the Dispute Settlement Body and the Trade Policy Review Body to oversee procedures for settling disputes between members and to analyze members’ trade policies. so they are “committees”. These three also have the subsidiary bodies. Again. Nevertheless. Second level: General Council in three guises Day-to-day work in between the ministerial conferences is handled by three bodies: · The General Council · The Dispute Settlement Body · The Trade Policy Review Body All three are in fact the same – the Agreement Establishing the WTO states they are all the General Council. transparency in government procurement. But for now. Reaching decisions by consensus among some 150 members can be difficult. although they meet under different terms of reference. the WTO is a member-driven. whose membership consists of all WTO members. report to the General Council: · The Council for Trade in Goods (Goods Council) · The Council for Trade in Services (Services Council) · The Council for Trade – Related Aspects of Intellectual Property Rights (TRIPS Council) As their names indicate.When WTO rules impose disciplines on countries’ policies. They cover issues such as trade and development. proposals for the creation of a smaller executive body – perhaps like a board of directors each representing different groups of countries – are heard periodically. This is quite different from other agencies whose bureaucracies can. consensus-based organization. the rules are enforced by the members themselves under agreed procedures that they negotiated. Its main advantage is that decisions made this way are more acceptable to all members. The General Council acts on behalf of the Ministerial Conference on all WTO affairs. that is the outcome of negotiations among WTO members. The scope of their coverage is smaller. the three are responsible for the workings of the WTO agreements dealing with their respective areas of trade. They report to the Ministerial Conference.

GATS rules and specific commitments. or in groups of 20 – 30 of the most interested delegations. least of all in the higher level councils. The “Green Room” is a phrase taken from the informal name of the director- general’s conference room. market access. and the Appellate Body that deals with appeals. Also reporting to the Goods Council is the Textiles Monitoring Body. but more among some outside observers than among delegations. subsidies. anti-dumping measures and so on). usually at the level of heads of delegations. extra efforts are made to ensure that the process is handled correctly. in twos or threes. The Services Council’s subsidiary bodies deal with financial services. and can be called by the minister chairing the conference as well as the director- general. One term has become controversial. The Goods Council has 11 committees dealing with specific subjects (such as agriculture. domestic regulations. 58 . such as those of the Heads of Delegations (HOD). It is used to refer to meetings of 20 – 40 delegations. informal consultations within the WTO play a vital role in bringing a vastly diverse membership round to an agreement. with regular reports back to the full membership. One step away from the formal meetings is informal meetings that still include the full membership. These smaller meetings have to be handled sensitively. These meetings can take place elsewhere. Since decisions are made by consensus. such as at Ministerial Conferences. More difficult issues have to be thrashed out in smaller groups. The key is to ensure that everyone is kept informed about what is going on (the process must be “transparent”) even if they are not in a particular consultation or meeting. which consists of a chairman and 10 members acting in their personal capacities. So. A common recent practice is for the chairperson of a negotiating group to attempt to forge a compromise by holding consultations with delegations individually. these consist of all member countries. and groups dealing with notifications (governments informing the WTO about current and new policies or measures) and state trading enterprises. the Dispute Settlement Body also has two subsidiaries: the dispute settlement “panels” of experts appointed to adjudicate on unresolved disputes. In the past delegations have sometimes felt that Green Room meetings could lead to compromises being struck behind their backs. Again. and that they have an opportunity to participate or provide input (it must be “inclusive”). At the General Council level. Fourth level: down to the nitty-gritty Each of the higher level councils has subsidiary bodies. Heads of Delegations and other boards: the need for informality Important breakthroughs are rarely made in formal meetings of these bodies. without voting. Similar smaller group consultations can be organized by the chairs of committees negotiating individual subjects.Two more subsidiary bodies dealing with the plural-lateral agreements (which are not signed by all WTO members) keep the General Council informed of their activities regularly. although the term Green Room is not usually used for these.

They are necessary for making formal decisions in the councils and committees.) So. Nor are the formal meetings unimportant. In some subjects such as agriculture virtually all countries are members of at least one coalition – and in many cases. (Examples include the traditional tariff negotiations. In order to increase their bargaining power. They are not separate from the formal meetings. because it is virtually impossible for members to change their positions voluntarily in meetings of the full membership. The coordinators also take responsibility for both “transparency” and “inclusiveness” by keeping their coalitions informed and by taking the positions negotiated within their alliances. and ultimately for confirming decisions. precisely because they are informal. however. drove governments to devise other forms of protection for sectors facing increased overseas competition.The way countries now negotiate has helped somewhat. as then represented by GATT. The art of achieving agreement among all WTO members is to strike an appropriate balance. informal bargaining sessions. Continual reductions in tariffs alone helped spur very high rates of world trade growth – around 8 per cent a year on average during the 1950s and 1960s. which depend on individual countries’ interests. Market access negotiations also involve small groups. The rush of new members during the Uruguay Round demonstrated that the multilateral trading system. And the momentum of trade liberalization helped ensure that trade growth consistently out-paced production growth throughout the GATT era. Highlight the drawbacks of GATT. This means that all countries can be represented in the process if the coordinators and other key players are present. decisions have to be taken by all members and by consensus. but for a completely different reason. b. combined with a series of economic recessions in the 1970s and early 1980s. so that a breakthrough achieved among only a few countries can be acceptable to the rest of the membership. (5 marks) Answer Given its provisional nature and limited field of action. but they do not appear in organization charts. putting countries’ positions on the record. They are the forums for exchanging views. but those commitments are the result of numerous bilateral. and market access talks in services. High rates of unemployment and constant factory closures led governments in Europe and North America to seek bilateral market-sharing arrangements with competitors and to embark on a subsidies race to 59 . In the end. countries have formed coalitions. GATT’s success in reducing tariffs to such a low level. was recognized as an anchor for development and an instrument of economic and trade reform. The membership as a whole would resist attempts to impose the will of a small group. The limited achievement of the Tokyo Round. No one has been able to find an alternative way of achieving consensus on difficult issues. outside the tariff reduction results. several coalitions. the success of GATT in promoting and securing the liberalization of much of world trade over 47 years is incontestable. The final outcome is a multilateral package of individual countries’ commitments. was a sign of difficult times to come. informal consultations in various forms play a vital role in allowing consensus to be reached.

a. By comparison. Thus. While the paper is not intended as a direct comparison of integration in East Asia and Europe. European integration has progressed steadily and has gradually deepened over the last 50 years to reach an advanced stage today with a common currency and well-developed regional institutions. it will include some comparisons between the two regions.4. and nowhere is this more evident than in the vastly different integration processes taking place in the regions of Europe and East Asia. the speed of progression and the level of integration attained in the two regions are quite dissimilar. with respect to agriculture where loopholes in the multilateral system were heavily exploited – and efforts at liberalizing agricultural trade met with little success – and in the textiles and clothing sector where an exception to the normal disciplines of GATT was negotiated in the form of the Multi-fibre Arrangement. progress in this area has been slow and the few existing institutions are fairly weak and ineffective. Together. but the driving force is the market rather than policy or institutions. it could be said that the process began centuries ago – even as far back as the 15th century. Thus. Both these changes undermined the credibility and effectiveness of GATT. Apart from the deterioration in the trade policy environment. . Nevertheless. the GATT had been found wanting: for instance. Give a short note on the regional economic integration. In other respects.maintain their holds on agricultural trade. (5 marks) Answer Regional Economic Integration Regional integration can take many forms. however. That effort resulted in the Uruguay Round. at the same time. Even the institutional structure of GATT and its dispute settlement system were giving cause for concern. For a start. 60 . the origins of integration have been institutional in nature. In addition to these differences. the development of regional institutions has also occurred. international investment was exploding and trade in services – not covered by the rules of GATT – was of major interest to more and more countries and. the drivers behind the integration process in each region are different. it also became apparent by the early 1980s that the General Agreement was no longer as relevant to the realities of world trade as it had been in the 1940s. In Europe. regional integration is taking place in East Asia. these and other factors convinced GATT members that a new effort to reinforce and extend the multilateral system should be attempted. world trade had become far more complex and important than 40 years before: the globalization of the world economy was underway. In East Asia. The subject of this paper is regional integration as it has developed in East Asia with a focus on the drivers of that integration. In fact. Integration in East Asia has progressed very slowly and is still in an early stage despite that the process has continued for decades. and the development of institutions has been prominent throughout the process. regional institutions have been the driving force behind integration in Europe. closely tied to further increases in world merchandise trade.

lagged somewhat for product introduction. The EOL element requires that a decision be made about the preceding version at each major redesign: continue production. make a short-term run of spares. The last wave begins shortly before original production ceases and ends when the product is no longer manufactured or supported by the EOL Company or division. The first wave is associated with the "A" version of a product or service. Finally. A second wave begins with the "B" version. (5 marks) Answer Ten Benefits of WTO 1. 5 a. b. The system allows disputes to be handled constructively 3. The basic principles make the system economically more efficient. product marketing. production. Process engineering activity shadows that of design engineering.5. Trade raises incomes 7. Explain five-element product wave model. Freer trade cuts the cost of living 5. The system encourages good government Q. Note that design engineering has a peak of activity level at each upgrade. as system changes will be contemplated and made to facilitate the changes made in the product or service. and end-of-life activities as elements.Corporations and the production networks they have established are driving integration in East Asia. It starts just before the traditional life cycle maturity stage and lives until sales decline to a point at which an EOL decision must be made. Product marketing also has activity level spikes that closely match engineering design activity. keep 61 . the markedly improved second model. and they cut costs 9. (7 marks) Answer The Five-Element Product Wave As illustrated in Figure 4. the wave model employs design engineering. Mention the benefits of WTO. process engineering. A system based on rules rather than power makes life easier for all 4. Trade stimulates economic growth and that can be good news for employment 8. The system helps to keep the peace 2. It gives consumers more choice and a broader range of qualities to choose from 6. the EOL curve peaks at each redesign. The system shields governments from narrow interests 10. Production has one activity peak that results from demand management and production planning through master production scheduling. and survives through the traditional PLC introduction and growth phases.

The wave effect comes from the fact that the process repeats for the successful firm. process engineering. Regardless of whether life cycles are actually being compressed or knowledge is simply being applied faster. product marketing. process engineering. The solution is to maximize the advantage of the relationships within the five-element wave and work in concurrent teams. Recipients find themselves with less and less time to take action. Rather. such as with Caterpillar’s innovative high-drive bulldozers. Boeing expects that concurrent design will save some $4 billion in the development of its 777 airliner. the varying activity levels are a direct result of product introductions and redesigns that. Simple changes in levels of dollar or unit product sales. core capabilities. and manufacturing curves before the final crest at EOL activity. Slater (1993) observes that product life cycles are growing shorter and shorter. or FPW. The focal point becomes the customer. The effect of this is a compression of the design engineering. shows only a two-product model ("A" and "B" versions). forming swells in design engineering. rather than the task. represented by the vertical axis. a product with strong sales may be redesigned in a preemptive strike against competitors. The five-element product wave. Members from each discipline optimize the system. rather than time. result from differing activity levels within the five elements. from the outset. must take into account company strategy. phone lines. Each element is connected to all of the others and is focused on the customer. That the five-element wave is grounded in reality becomes apparent when considering the recent research that suggests product introduction cycles are being compressed. production itself grinds to a halt. there are an increasing number of product variations on the market. Yet since product removals are not keeping pace with introductions. production. In reality.blueprints active so that parts can be made as ordered. Westinghouse recently 62 . (The EOL curve may remain unchanged because accelerated introductions do not necessarily affect EOL efforts. Forget quality. further distancing that product from the competition. The system is totally interactive and bound together. and product marketing elements of the wave model. more and more information is thrown over the wall. or discontinue production.) The five-element wave clearly shows the inefficiency of traditional "over-the-wall" systems as speed to market increases. in and of themselves. conference rooms. uses trigger points. it is apparent that firms are increasing the speed with which they bring their products to market. as the horizon over which the element curves vary. Vesey (1992) reports that the strategy for the 1990s is speed to market and discusses the pressures the market is exerting to shorten product introduction lead times. Bayus (1994) claims that knowledge is being applied faster. Changes in magnitude. The method tears down barriers between departments and speeds the introduction process. thus decreasing costs. That way. Taken to the extreme. enter into a manufacturing and support agreement with another entity. and the state of the competitive environment. (Note that the authors have taken a great deal of artistic license here! What is the recent experience with teams? There is evidence that using concurrent design teams speeds the product to market and provides substantial savings. For example. desks. As the elements compress. and floors are soon gridlocked and littered with unanswered correspondence and things to do. there may be hundreds of significant redesigns. For the sake of parsimony. responsibility is shared throughout the system. resulting in increasing levels of new product introductions. do not necessarily determine the trigger points. in-baskets.

The term has come into common usage since the 1980s. reflecting technological advances that have made it easier and quicker to complete international transactions – both trade and financial flows. Thus. There are also broader cultural. This is particularly true in today’s rapidly compressing environment of speeding products to market. At its most basic. b. Give some examples of companies doing international business and discuss how they have they have managed their business in the international markets. and in the case of the poorest countries may need the support of the international community as they do so. Countries must be prepared to embrace the policies needed. there is nothing mysterious about globalization. Q.suggested that concurrent engineering would eliminate 200 duplicate processes in a project that consisted of 600 using traditional over-the-wall approaches. The strength of the five-element product wave is the fact that it illuminates critical decision points in the life of a product or service. and larger export markets. the result of human innovation and technological progress. Ford’s Team Taurus was able to cut a full year out of model turnaround. technology. The term sometimes also refers to the movement of people (labor) and knowledge (technology) across international borders. It refers to an extension beyond national borders of the same market forces that have operated for centuries at all levels of human economic activity – village markets. design changes. It refers to the increasing integration of economies around the world. The interrelationships of the elements clearly illustrate the benefit of working product introductions.5 million to establish its new software development center in Northern Ireland. particularly through trade and financial flows. whether a given firm’s product is a service or a manufactured good. political and environmental dimensions of globalization that are not covered here. cheaper imports. or financial centers. the five-element wave is a powerful tool that can be deployed to accelerate effective decision making in markets demanding ever-increasing levels of speed and agility. Global markets offer greater opportunity for people to tap into more and larger markets around the world. 63 . In addition. and end-of-life decisions in teams. Furthermore. 6. Markets promote efficiency through competition and the division of labor – the specialization that allows people and economies to focus on what they do best. But markets do not necessarily ensure that the benefits of increased efficiency are shared by all. IMR was up and running with more than one-third its target staff. RAPD M– UP Within six months of announcing it would invest $4. (10 marks) Fall 2010 Answer A PERSPECTIVE OF THE NORTHEN ISLAND SOFTWARE COMPANIES. It means that they can have access to more capital flows. the model is flexible and may be expanded or contracted to include those functional areas relevant to the production team. What do you mean by globalization? (3 marks) Answer Economic "globalization" is a historical process. design changes required after initial production began were reduced by some 76 percent. urban industries.

" said Sanan. president of IMR (NI) Ltd. "The T&EA not only has helped us to identify and recruit qualified software graduates from Northern Ireland’s universities. but who are equally well- educated in other Disciplines and who have demonstrated aptitude for learning computer software programming. Now IT graduates have the chance to find good jobs in Northern Ireland. Recruitment research by IMR indicates that traditionally. versatile graduates of other fields in Northern Ireland." an intensive 20-week training program at the Belfast Institute of Further and Higher Education. nearly half of the region’s computer graduates have been forced to seek jobs outside Northern Ireland due to the lack of available information technology positions. Tom Scott of the T&EA said IMR applicants are assessed throughout the program and those who successfully complete the course are awarded a National Computing Certificate and full-time employment with IMR. the company is hiring 12 to 18 programmers a month in Northern Ireland and is well on its way to meeting its staffing goal of 300 by 1999. Competitive Advantage 64 . Working with the T&EA. and graduates from other fields can take advantage of the IMR Academy training program to get a head start on a career in the growing software sector. Smart And Available "The recent software investments by IMR and other companies provide a new opportunity for Northern Ireland’s computer graduates." McFerran said. nearly half of the region’s computer graduates have been forced to seek jobs outside Northern Ireland due to the lack of available information technology positions." McFerran said. McFerrin said. "The success to date in building a quality work force has surpassed our expectations and opens up new ambitions for our interests in Northern Ireland. IMR developed "IMR Academy. Innovation In Training Impressed by the number and quality of information technology graduates from the region’s universities." McFerrin said."The fast start-up of the Belfast facility reaffirms our confidence to locate in Northern Ireland. McFerran credited Northern Ireland’s Training & Employment Agency (T&EA) with helping place the company’s staffing on the fast track. Recruitment research by IMR indicates that traditionally. IMR recognized an untapped resource in the well-educated. it is also assisting us with a unique initiative to bring additional sources of high quality talent to the company." According to Arthur "Bro" McFerran. "IMR is extremely pleased with the T&EAs ability to design and deliver a training program customized to our needs. and one that is delivering us an impressive pool of incremental programming talent.. Approximately 40 trainees have already participated in the program. to expand the skills of qualified applicants who are not computer software graduates.

restructuring or aid. STB Systems and UniComp. Answer all the questions. mainly to poorer countries. range from as low as $5 per square foot in some development areas. It also offers highly leveraged loans. exchange stability. to foster economic growth and high levels of employment." said Richard W.International Business Management Set-2 Note: Each question carries 10 Marks. in particular those with an impact on exchange rate and the balance of payments. exclusive of property taxes and service charges. the overall annual per capita operational costs to develop high quality software can be significantly less compared with these same costs in the United States. United States. These costs can be as much as 50 percent lower than office space costs in other European cities. Liberty Mutual Group. Fujitsu. Cooke..Northern Ireland recently has attracted information technology – based investments from other multinational companies such as BT. "The availability of high-quality graduates combined with the region’s competitive operating costs and attractive incentives made Northern Ireland the best possible location for STB. and low employee turnover and favorable rates for office space.000 to $25. Q. D. It is an organization formed with a stated objective of stabilizing international exchange rates and facilitating development through the enforcement of liberalising economic policies on other countries as a condition for loans. 65 .000 annually. Seagate Technology. With salaries and fringe costs for well trained software engineers in Northern Ireland approximately 50 percent lower than costs for US engineers. to approximately $14 in Belfast. Typical starting salaries for IT graduates in Northern Ireland are $22. The International Monetary Fund (IMF) is the intergovernmental organization that oversees the global financial system by following the macroeconomic policies of its member countries. and to provide temporary financial assistance to countries to help ease balance of payments adjustment.C. (10 marks) Answer The IMF is an international organization of 185 member countries. These companies cite Northern Ireland’s work force and favorable cost base in their decisions to locate in the region. STB’s director of engineering operations. Northern Ireland’s employee turnover rate is a fraction of the rates typically experienced in other parts of Europe and the United States. Its headquarters is in Washington. It was established to promote international monetary cooperation. MB0036. and orderly exchange arrangements. Annual costs per square foot for office space.1 Evaluate the monetary system and currency markets in international business management. At less than three percent annually.

Tuvalu and Nauru. products just don’t emerge in foreign markets overnight – a firm has to build up a market over time. Taiwan (expelled in 1980). set priorities in improving the timeliness. The system is aimed primarily at statisticians and aims to improve many aspects of statistical systems in a country.with a goal to stabilize exchange rates and assist the reconstruction of the world's international payment system. and the amount of control that the firm is able to maintain.[1 Data dissemination systems In 1995. The IMF works to improve the economies of its member countries. Q. Upon building a framework.C. Several strategies. originally with 45 members. Monaco. for those member countries having or seeking access to international capital markets. 2007). The IMF describes itself as "an organization of 187 countries (as of July 2010). which differ in aggressiveness. promote high employment and sustainable economic growth. reliability and accessibility of financial and economic data. and all members appoint a Governor to the IMF's Board of Governors. This will involve the preparation of meta data describing current statistical collection practices and setting improvement plans. transparency. Andorra. The International Monetary Fund was created in July 1945. by countries with payment imbalances (Condon. The IMF was important when it was first created because it helped the world stabilize the economic system. on a temporary basis. risk. facilitate international trade.2 a. Mention the different entry strategies to enter international markets. the International Monetary Fund began work on data dissemination standards with the view of guiding IMF member countries to disseminate their economic and financial data to the public. nineteen Executive Directors are elected by the remaining members). The International Monetary Fund executive board approved the SDDS and GDDS in 1996 and 1997 respectively and subsequent amendments were published in a revised "Guide to the General Data Dissemination System". With the exception of Cuba (left in 1964). secure financial stability. all UN member states participate directly in the IMF.Organization and purpose IMF "Headquarters 1" in Washington. a country can evaluate statistical needs. are available: 66 . and reduce poverty". Countries contributed to a pool which could be borrowed from. D. Currently there are two such systems: General Data Dissemination System (GDDS) and its superset Special Data Dissemination System (SDDS). The International Monetary and Financial Committee (IMFC) endorsed the guidelines for the dissemination standards and they were split into two tiers: The GDDS and the SDDS. (4 marks) Answer Entry Strategies Methods of entry With rare exceptions.[9] North Korea. The primary objective of the GDDS is to encourage IMF member countries to build a framework to improve data quality and increase statistical capacity building. Member states are represented on a 24-member Executive Board (five Executive Directors are appointed by the five members with the largest quotas. The IMF established a system and standard to guide members in the dissemination to the public of their economic and financial data. It is also part of the World Bank Millennium Development Goals and Poverty Reduction Strategic Papers. [6][7] working to foster global monetary cooperation. Liechtenstein.

by not operating in the country. "Glitches" in online ordering systems may also frustrate consumers. sales over the Internet account for only a small portion of sales – especially outside the U. where a local firm puts up some of the money and knowledge about the local market. How has E-commerce helped in international marketing? (6 marks) Answer Electronic Commerce 1 Prospects for electronic commerce Electronic commerce – usually in the form of sales. Currently. 2 Obstacles to diffusion Obstacles to the diffusion of Internet trade come both from enduring sources and temporary roadblocks which may be overcome as consumer attitudes change and technology is improved. shipping small packages across countries may be inefficient due to 67 . so direct investment entails an additional risk. or support through the Internet – is a hot topic at the moment. market share may be below potential. but now has a huge investment. Similarly. a foreign manufacturer may use lower quality ingredients in manufacturing a brand based on premium contents in the home country. · Contract manufacturing involves having someone else manufacture products while you take on some of the marketing efforts yourself. Internet connections are slower than desired so that downloading pictures and other information may take longer than consumers are willing to wait. In some countries. but again you may be training a competitor. · Licensing and franchising are also low exposure methods of entry – you allow someone else to use your trademarks and accumulated expertise. but also the greatest opportunities for profits. b. but it may be more difficult for the firm to enter on its own later if it decides that larger profits can be made within the country. For example. and registering domain names in some countries is difficult. because the firm makes few if any marketing investments in the new country. this arrangement may represent a "win-win" situation. A drawback is that. Problems here involve the fact that you are training a potential competitor and that you have little control over how the business is operated. the firm. evidenced by the high market capitalization of firms involved in this kind of business. promotion. This saves investment. The firm gains more knowledge about the local market and maintains greater control. it should be recognized that so far.S. learns less about the market (What do consumers really want? Which kinds of advertising campaigns are most successful? What are the most effective methods of distribution?) If an importer is willing to do a good job of marketing. American fast food restaurants have found that foreign franchisees often fail to maintain American standards of cleanliness. who are unable to place their orders at a given time or have difficulty navigating through a malfunctioning site. for at least the next several years. The lack of non-English language sites in some areas may also be off-putting to consumers. Growth rates have been considerable over the last two years and are expected to persist. · Direct entry strategies. A variation involves a joint venture. the government may expropriate assets without compensation. where the firm either acquires a firm or builds operations "from scratch" involve the highest exposure. at least to some extent. Your partner puts up the money and assumes the risk. Further. Yet.· Exporting is a relatively low risk strategy in which few investments are made in the new country. Further.

Some firms will ship to customers in neighbouring countries without collecting sales taxes or duties.high local postage rates and inefficiencies in customs processing. some factors which cause most countries run behind. Most of these obstacles may be overcome within next few years. Finally. ". ". based on current exchange rates. with the responsibility of paying falling on the consumer. global sites will hyperlink surfers to a country or region relevant to the site." designation rather than their countries’ respective suffix (e.") 4 Lifecycle stages across the World It has been suggested that Europe runs some five years behind the U. and ". there are issues of taxation and collection. as several different countries may seek to impose their jurisdiction on advertising and laws of product assortment and business practices.S. with reference only to local sales or support offices. and even in European countries with high penetration rates. the maintenance of databases. in contrast.or B/L) is a document issued by a carrier to a shipper. although the charge could be off "by a few pennies. however.. may conflict with the privacy rules of some countries – this is currently a hot issue of contention between the United States and the European Union. fines for those caught through random checks can be severe. A thorough 68 . which can be prohibitive (e. Note that some confusion exists since many sites outside the U.. consumers are reluctant to use them. 25% in Denmark and 16% in Germany). Some firms have experienced problems getting their banks to accept credit card charges in more than one currency. some British users are put off by American English). Further. there are legal problems. In some countries. suggesting that lack of success among American retailers may have other origins. (8 marks) Sol.S. which are essential to delivering on the promises of e-commerce. so long as unlimited cable or hardwired access is not offered. First. There are.3 a. Explain Bill of Lading and Letters of" for Germany. have considerably greater staying power. have unique sites for each country. Internet access penetration rates are lower than they are in the U... 3 Locus of the site Some firms have chosen to maintain a global site.S. While the Clinton Administration has sought to get the WTO to go along with a three year tax "moratorium" on Internet purchases much like the one observed in the U. however. A great attraction of e-commerce in Europe is that people may order from other countries and thus evade local sales taxes. Even in Europe. In some" for Sweden. Although most consumers who order and do not arrange to pay for these taxes get away with it. such as inadequate adaptation (for example.g. acknowledging that specified goods have been received on board as cargo for conveyance to a named place for delivery to the consignee who is usually identified. the fact that consumers in most countries have to pay a per minute phone charge discourages the essential casual and relaxed browsing common in the U.S. in electronic commerce. and thus it may be difficult to indicate precise prices in more than one denomination (one site based in Britain offered its American customers to be as accurate as possible. Other obstacles may. credit card penetration is lower.g. Q. Further. but some sources dispute this.S. A bill of lading (sometimes referred to as a BOL. strong opposition is expected. and the slower speed associated with downloading Asian characters is" for Australia). maintain the ".

it governs all the legal aspects of physical carriage. and sea. Typically. A bill of lading can be used as a traded object.bill of lading involves the use of at least two different modes of transport from road. • It is a receipt signed by the carrier confirming whether goods matching the contract description have been received in good condition (a bill will be described as clean if the goods have been received on board in apparent good condition and stowed ready for transport). sidewalks. Letters of credit are used primarily in international trade transactions of significant value. the issuing bank of whom the applicant is a client. The term derives from the verb "to lade" which means to load a cargo onto a ship or other form of transportation. which usually provides an irrevocable payment undertaking. i. However. They are also used in the land development process to ensure that approved public facilities (streets. however. • The letter of credit can also be source of payment for a transaction. meaning that redeeming the letter of credit will pay an exporter. whereas the long form of a bill of lading (connaissement intégral) issued by the carrier sets out all the terms of the contract of carriage). the documents a beneficiary has to present in order to receive payment include a commercial invoice. the list and form of documents is open to 69 . commercial letter of credit is a document issued mostly by a financial institution. is separate from any contract for the sale of the goods to be carried. and it may incorporate the full terms of the contract between the consignor and the carrier by reference (i. cannot be amended or canceled without prior agreement of the beneficiary. letters of credit incorporate functions common to giros and Traveler's cheques. air.e. the short form simply refers to the main contract as an existing document. The parties to a letter of credit are usually a beneficiary who is to receive the money. may be at a specific moment. used primarily in trade finance.) will be built. the issuing bank and the confirming bank.e. etc. • A standard. and owner of the goods. it binds the carrier to its terms. if any. and • It is also a document of transfer. irrespectively of who the actual holder of the B/L. bill of lading. This matches everyday experience in that the contract a person might make with a commercial carrier like FedEx for mostly airway parcels. storm water ponds. rail. i. and documents proving the shipment was insured against loss or damage in transit. for deals between a supplier in one country and a customer in another. like a cheque or other negotiable instrument.e. and the advising bank of whom the beneficiary is a client. The standard short form bill of lading is evidence of the contract of carriage of goods and it serves a number of purposes: • It is evidence that a valid contract of carriage. and.. In executing a transaction. Almost all letters of credit are irrevocable. it may be endorsed affecting ownership of the goods actually being carried. or a chartering contract. being freely transferable but not a negotiable instrument in the legal sense. exists.

Although it is often tempting. but in order to justify a different treatment of other segments. which until then governed Q. members should respond in similar ways to various treatments (such as discounts or high service) so that common campaigns can be aimed at segment members. one’s distribution strategy should consider where one’s target market is most likely to buy the product. their members should have their own unique response behaviour. In terms of the "big picture." members of a segment should generally be as similar as possible to each other on a relevant dimension (e. preference for quality vs.4. low price) and as different as possible from members of other segments. b. when observing large markets. Write a short note on branding and trademarks. (6 marks) Answer 70 . 5 a. That is.. Q. Explain the importance of STP in international markets. For example. imagination and negotiation and might contain requirements to present documents issued by a neutral third party evidencing the quality of the goods shipped. to try to be "all things to all people. When world trade began to expand dramatically in the 1960s.g. and a promotional strategy should consider the target’s media habits and which kinds of messages will be most persuasive. national governments began to realize the need for a global set of standards and rules to harmonize national and regional regulations. or their place of origin." this is a dangerous strategy because the firm may lose its distinctive appeal to its chosen segments. (10 marks) Answer The importance of STP Segmentation is the cornerstone of marketing – almost all marketing efforts in some way relate to decisions on who to serve or how to implement positioning through the different parts of the marketing mix. What is UNCITRAL and what it does? (2 marks) Answer The United Nations Commission on International Trade Law (UNCITRAL) was established by the United Nations General Assembly by its Resolution 2205 (XXI) of 17 December 1966 "to promote the progressive harmonization and unification of international trade law.

Poor raw material. It is common practice in Africa that if the original equipment has not been bought through an authorized dealer in the country.). reduce variation in classification and the need for highly trained bate classifiers. Quality is therefore defined as properties of the end use (clothing etc. for one. Further requirements are a certain length (could be short. Previous devices employed to remove these (magnets) are becoming less effective. the reticent dealer will suffer. seed coats. with the new dealers coming up. are automated and are of a precision for constant quality provision. unless all countries are members of a convention. maturity and a certain elongation and colour. sugar and honey dew contamination. especially when contaminated with metal particles. Other aspects of branding include the promotional aspects. As well as the demands of modem machinery. the growers have to ensure that the production. colour and trash content. it also actually builds up consumer resistance to the dealer. that dealer refuses to honour the warranty. and hence enhance the "subjective" product characteristics. It still holds the "standards" for length. picking and ginning is of a very high standard. Unfortunately not everyone upholds them. fineness. relied on the skills of its experts to manually classify raw fibre purchases for its clients. it is difficult to protect a trademark or brand.Branding and trademarks As mentioned in chapter four. Warranty Many large value agricultural products like machinery require warranties. computer based high volume instrument listing systems of raw cotton (HVI systems) are available. 71 . Suppliers In order to meet these high quality demands. Cotton grading The Liverpool Cotton exchange. strength. bark and foreign fibres and. The machines are geared to high production. Spinners require raw cotton which is free of trash. A family brand of products under the Zeneca (ex ICI) label or Sterling Health are likely to be recognised worldwide. Cotton Production/Marketing Interface Spinners Machines are highly flexible. There are strict process controls and built – in quality control. damages opening mills. grid knives. efficiency of weaving and knitting and the efficient running of the spinning plant. The system can handle large numbers of bales. because not only may the equipment have been legitimately bought overseas. uniformity of length. This is unfortunate. When the consumer is eventually offered with a choice. will not nep the cloth. Now. Brand "piracy" is widespread in many developing countries. dust. The consequences are damage in the blow room and carding and danger of fire. for example. that is they can usually switch to a variety of yarn requirements. the lack of standardised measuring and cotton classification procedures has resulted in commercial conflict and legal disputes about the true nature of traded cotton. fans and card clothing. medium or long).

distributor or dealer in the foreign country. Manufacturers include SPINLAR INC. processing equipment and other items which are of substantial value and technology. of Knoxville. Often. Allied to this problem is the poor quality of service due to insufficient training. which make obtaining spare parts difficult.For cotton exporters the system offers the following advantages: · enhanced objectivity in classification · improve communication if similar systems are used by sellers or buyers · reduced conflict and need for arbitration · enhanced competitiveness against synthetic fibres · improved integration with modern spinning machines · reduced costs on training of experts and in measuring time. it is essential that the raw material is as clean as possible. Product communications extension This strategy is very low cost and merely takes the same product and communication strategy into other markets. In selling to many developing countries. The system can process 2000 bales per day and give a printout on the seven parameters of grading. 52. Product strategies There are five major product strategies in international marketing. The assumption is that the product will serve the same function in foreign markets under different usage conditions. but different product functions have to be identified and a suitable communications mix developed. particularly those in the export market are in a highly competitive industry. this is no fault of the agent. strength and elongation. service is a prerequisite. CPC International believed the US consumer would take to dry soups. It did not work. Extended product – communications adaptation If the product basically fits the different needs or segments of a market it may need an adjustment in marketing communications only. In order to illustrate the above points. USA. Also today’s spinning equipment is highly technical and the spinner wishes to avoid costly breakdowns by all means. leaf and colour. However it can be risky if misjudgements are made. In 1990/91. but due to exchange regulations. micronaire or fineness. 72 . Product adaptation – communications extension The product is adapted to fit usage conditions but the communication stays the same. These include length and length uniformity.000 tons were sold overseas at a value of Zim $ 238 million. For example. Service In agricultural machinery. Again this is a low cost strategy. which dominate the European market. cotton can be used as an example. As the spinners. Cotton is a major foreign exchange earner for Zimbabwe. Good original equipment manufacturers will insist on training and updating as part of the agency agreement. manufacturers have found their negotiations at stake due to the poor back-up service. Many organisations attempt to get around this by insisting that a Third World buyer purchases a percentage of parts on order with the original items.

2 summarizes the strategic alternatives with examples. the market defined in terms of the conditions under which the product is used. Invention New Same – Tyson turbine water pump Thailand tuna b. What are the features of exchange and currency markets? (4 marks) Answer The exchange rate regimes adopted by countries in today’s international monetary and financial system. Extension Adaptation Different Same Soups 3. The choice of strategy will depend on the most appropriate product/market analysis and is a function of the product itself defined in terms of the function or need it serves. but the advantages are also very high.2 International strategic alternatives Product Communications Product/ Conditions Examples strategy strategy functions of product Met use 1. and the system itself. are profoundly different from those envisaged at the 1944 meeting at Bretton Woods establishing the IMF and the World Bank.Product adaptation – communications adaptation Both product and communication strategies need attention to fit the peculiar need of the market. In the Bretton Woods system: 73 . the preferences of the potential customers and the ability to buy the product in question. Product invention This needs a totally new idea to fit the exclusive conditions of the market. Adaptation Adaptation Different Different Farm implements 5. Extension Extension Same Same Pepsi 2. This is very much a strategy which could be ideal in a Third World situation. and the costs of adaptation and manufacture to the company considering these product – communications approaches. Adaptation Extension Same Different Agriculture chemicals 4. Table 9. The development costs may be high. Table 9.

· exchange rates were fixed but adjustable. industrial countries have generally abandoned such controls and emerging market economies have gradually moved away from them. or the adoption of another currency as the domestic currency (dollarization). prospects are that: 74 . dollar. may also continue to maintain market-determined floating rates. and developing and transition economies. Developing and transition economies have a wide variety of exchange rate arrangements. The launch of the euro in January 1999 marked a new phase in the evolution of the system. unification with another currency. but the European Central Bank has a clear mandate to focus monetary policy on the domestic objective of price stability rather than on the exchange rate. in an environment of increasing capital market integration. in terms of both their trade in goods and services and of financial transactions.S. The growth of international capital flows and globalization of financial markets has also been spurred by the revolution in telecommunications and information technology. · developing and transition countries have been increasingly drawn into the integrating world economy. In the current system. although more countries could may adopt harder pegs over the longer term. Thus. This system aimed both to avoid the undue volatility thought to characterize floating exchange rates and to prevent competitive depreciations. with their repercussions on trade flows. including some European countries outside the euro area. regimes that allow substantial exchange rate flexibility are probably desirable unless the exchange rate is firmly fixed through a currency board. and Japanese yen) fluctuate in response to market forces. while others have adopted harder pegs. with a tendency for many but by no means all countries to move toward increased exchange rate flexibility This variety of exchange rate regimes exists in an environment with the following characteristics: · partly for efficiency reasons. and widespread use of controls would prevent instability in such flows. the euro. · temporary official financing of payments imbalances. Many medium-sized industrial countries. exchange rates among the major currencies (principally the U. would smooth the adjustment process and avoid unduly sharp correction of current account imbalances. · international private capital flows finance substantial current account imbalances. mainly through the IMF. Therefore. which has dramatically lowered transaction costs in financial markets and further promoted the liberalization and deregulation of international financial transactions. Flexible exchange rates among the major industrial country currencies seem likely to remain a key feature of the system. and also because of the limited effectiveness of capital controls. Lessons from the recent crises in emerging markets are that for such countries with important linkages to global capital markets. while permitting enough flexibility to adjust to fundamental disequilibrium under international supervision. with short-run volatility and occasional large medium-run swings Some medium-sized industrial countries also have market – determined floating rate regimes. the requirements for sustaining pegged exchange rate regimes have become more demanding as a result of the increased mobility of capital. and employment. but the changes in these flows appear also sometimes to be a cause of macroeconomic disturbances or an important channel through which they are transmitted to the international system. · private capital flows were expected to play only a limited role in financing payments imbalances. output.

(10 marks) Answer Production decisions In decisions on producing or providing products and services in the international market it is essential that the production of the product or service is well planned and coordinated. it is essential that any supplier or any of his "out grower" (sub-contractor) can supply what he says he can.· exchange rates among the euro. as well as the welfare implications of alternative monetary and exchange rate policies. This framework has been used extensively to study the properties of the international transmission of shocks. · several of the transition countries of central and eastern Europe. both within and with other functional area of the firm. International Pricing In New Open-Economy Models Recent developments in open-economy macroeconomics have progressed under the paradigm of nominal price rigidities. culture. This is especially vital when contracts for supply are finalized. and the dollar are likely to continue to exhibit volatility. warranty and service. and schemes to reduce volatility are neither likely to be adopted. in horticulture. branding. where monetary disturbances are the main source of fluctuations. Because agents have some degree of monopoly power instead of being price takers. the yen. nor to be desirable as they prevent monetary policy from being devoted consistently to domestic stabilization objectives. new open-economy models have combined price rigidities and market imperfections in a fully micro founded inter-temporal general equilibrium setup. are likely to seek to establish over time the policy disciplines and institutional structures required to make possible the eventual adoption of the euro. For example. 6 Discuss the various International product and pricing decisions. to consider the choice of regime to be a matter for each country to decide and to provide policy advice that is consistent with the maintenance of the chosen regime (Box 3). especially those preparing for membership in the European Union. this framework allows the explicit 75 . specifications. packaging. Following developments in closed-economy models. labelling. Q. the physical product. as failure to supply could incur large penalties. The approach taken by the IMF continues to be to advise member countries on the implications of adopting different exchange rate regimes. The main elements to consider are the production process itself. Imperfect competition is a key feature of the new open-economy framework. particularly marketing.

I review the empirical evidence on the behaviour of real exchange rates and on international market segmentation and pricing. unexpected movements in the nominal exchange rate do not affect the price of imported goods and lead to short-run deviations from the law of one price. In this article I make use of a simplified version of a two-country model where the two markets are segmented. I then turn to a review of the evidence on the sources of movements in real exchange rates. which assumes that prices are preset in the currency of the seller. 76 . different pricing regimes imply different roles for the exchange rate in the international transmission of monetary disturbances. Empirical evidence using disaggregated data suggests that international markets for tradable goods remain highly segmented and that deviations in the law of one price are large. The two polar cases for pricing decisions are producer-currency pricing and local-currency pricing.’ In contrast. This model generates movements in the real exchange rate in response to unexpected monetary shocks. the linkage between macroeconomic volatility and international trade. I then compare this model to a version in which prices are preset in the producer’s currency and examine the implications of these two alternative price-setting regimes for several key issues. In this case. In Section 1. prices are preset in the buyer’s currency. The key role of this assumption in the properties of open-economy models suggests that it is necessary to keep exploring the implications of alternative pricing structures in open-economy models. and the welfare effects of alternative exchange rate regimes. and highly correlated with movements in the nominal exchange rate. the assumption of local-currency pricing still leaves important features of the data unexplained. 1 Some Evidence on Real Exchange Rates I first review some empirical evidence on the behaviour of real exchange rates using aggregate data. In Section 2. prices of imported goods change proportionally with unexpected changes in the nominal exchange rate. and the law of one price always holds. under the assumption of local-currency pricing. and where prices are preset in the consumer’s currency. among others. As we shall see. which are a result of the failure of the law of one price for tradable goods. Here. there is strong evidence that the large and persistent movements that characterize the behaviour of real exchange rates at the aggregate level are largely accounted for by deviations in the law of one price for tradable goods. even for highly tradable goods. While generating deviations from the law of one price that are absent from models assuming producer-currency pricing. Moreover. The first case is the traditional approach.analysis of pricing decisions. this assumption has very striking implications for several important questions. allowing firms to price discriminate across countries. namely real exchange rate variability. persistent. The price-setting regime determines the currency of denomination of imported goods and the extent to which changes in exchange rates affect the relative price of imported to domestic goods and the international allocation of goods in the short run. The final section concludes. I present the model with local- currency pricing and explore the main implications of this pricing assumption. That is.

which used only post-Bretton Woods data. would be re-established in the medium to long run. as the adjustment of prices and wages takes place. The theory of purchasing power parity (PPP) predicts that real exchange rates should equal one. and absent barriers to trade. found it difficult to reject the hypothesis that bilateral real exchange rates for industrialized countries follow a random walk under floating exchange rates.(Delete) In the short run. the real exchange rate is given by where P^sub US^ and P^sub JP^ represent the American and Japanese price levels (measured in terms of dollars and yen. The conventional explanation for the failure of short-run PPP is the presence of nominal price rigidities.The real exchange rate between two countries represents the relative cost of a common reference basket of goods. similar products should sell in different countries for the same price (when converted in the same currency). Because aggregate prices are reported as indices rather than levels. however. say the United States and Japan. However. If this were true. which requires only that the real exchange rate be stable over time. it has proved rather difficult to find evidence supporting convergence of real exchange rates to PPP even in the long run. Not surprisingly.or long-run proposition. or at least show a strong tendency to quickly return to one when they differ from this value. For two countries. Earlier empirical studies. respectively) and where e denotes the nominal exchange rate (defined as the dollar price of one yen). especially when this variable is highly volatile. But if PPP deviations are very persistent. Therefore. these studies did not allow for any dynamics of adjustment to PPP and therefore did not address the validity of PPP as a medium. then nominal price stickiness would translate these disturbances into short- run fluctuations in the real exchange rate. then aggregate price levels (when expressed in a common currency) should be highly correlated across countries. the post-Bretton Woods period may simply be too short to reliably reject the random walk hypothesis. with no offsetting movements in the relative price level. most empirical work has tested the weaker hypothesis of relative PPP. If the short-term volatility of nominal exchange rates were due mostly to monetary and financial disturbances. we should observe a substantial convergence to PPP in one to two years. As shown in Frankel (1986). early empirical work based on simple tests of short-run PPP produced strong rejections of this hypothesis for moderate inflation countries. An extensive body of empirical literature has tested the hypothesis of long run PPP by looking at the mean-reverting properties of real exchange rates. Purchasing power parity. it clearly stands out that short-run deviations from PPP are large and volatile. show the log changes in the CPI-based dollar-yen real and nominal exchange rates and the relative price level. movements in the real exchange rate mimic those in the nominal exchange rate. Large international price differentials would be only temporary. if arbitrage in goods markets ensures that the law of one price holds for a sufficiently broad range of individual goods. therefore. Typical for countries with floating exchange rates and moderate inflation. The fundamental building block of PPP is the law of one price: due to arbitrage in goods markets. As is well known. as profit-maximizing traders would quickly drive international goods prices back in line. then it may be difficult to distinguish empirically between a random walk model and a slow mean-reversion model for the real exchange rate. 77 .

An alternative way to increase the power of unit root tests is to expand the number of countries in the sample and to perform panel tests of convergence to PPP. Not only are failures of the law of one priced significant but. Frankel used an extended data set (annual data for the dollar-pound exchange rates from 1869 to 1984) and rejected the random walk model in favour of a mean-reverting model for the real exchange rate. persistent. the idea underlying PPP is that the law of one price holds for a wide range of individual goods. implying a half-life of PPP deviations of about four years.S. Engel decomposes the CPI real exchange rate into two components: a weighted difference of the relative price of non-traded to traded- goods prices in each country. In brief. 78 . then all variability in the real exchange rate would be explained by movements in the first component. these estimates are also similar to those obtained using long-time series data sets. that even for highly tradable goods and at different levels of aggregation. One possible explanation for the failure of the law of one price is that international markets are segmented by physical distance.To overcome this problem of low power in tests of the random walk hypothesis. Interestingly. and highly correlated with movements in the nominal exchange rate. If tradable. Other studies that test convergence to PPP using long-horizon data sets tend to find values for the half-life of PPP deviations between three to five years. as recent evidence suggests. Engel (1999) measures the proportion of U. deviations in the law of one price are large. However. show that both the distance and the physical border between countries are significant in explaining the variation in prices of similar goods across different U. for example. Engel and Rogers (1996). which implies a half-life of PPP deviations of 4. real exchange rates. however. Frankel and Rose (1996). closely followed the law of one price. In fact. As we shall see next. The Law of One Price: Market Segmentation and International Pricing As I pointed out earlier. however. like different markets within a country. use a panel set of annual data from 1948 to 1992 for 150 countries. Engel and Rogers also show that nominal price stickiness accounts for a large portion of the border effect.6 years. even at long time horizons. It has long been recognized. the effect of the border is estimated to be equivalent to a distance of 1780 miles between cities within one country. His point estimate for the rate of decay of real exchange rate deviations was 14 percent per year.S. They find that price dispersion is much higher for two cities located in different countries than for two equidistant cities in the same country. they also play a dominant role in explaining the behaviour of real exchange rates. They estimate half- lives for PPP deviations of about four years. Engel finds that movements in the relative price of non-traded goods appear to account for almost none of the movement in U. and Canadian cities. suggesting that prices are sticky in the local currency and that changes in the exchange rate lead to deviations in the law of one price.S. as a category. Other studies using panel data sets report similar estimates. real exchange rate movements that can be accounted for by movements in the relative prices of non-traded goods. a look at disaggregated data will provide us with a much richer analysis of the sources of PPP deviations. and the relative price of traded goods between the countries. studies using aggregate data provide strong evidence that deviations from PPP are highly volatile and persistent. Consensus estimates suggest that the speed of convergence to PPP is roughly 15 percent per year.

mainly reflecting changes in destination- specific markups on exports. however. Instead. these findings indicate that consumer prices of most goods (either imported or domestically produced) seem to be sticky in domestic currency terms. which assumes a linear autoregressive process for the price differential. where the speed at which price differentials die out depends on the size of the deviation itself. and Japanese industry-level data. but substantially below one.S. exchange rate pass-through to import prices is virtually zero (suggesting that consumer prices are sticky in domestic currency).. Persistent deviations from the law of one price are implied as an equilibrium feature of models with transaction costs. exchange rate pass-through is generally positive.S. Transaction Costs and the Adjustment of PPP and Law of One Price Deviations Some recent empirical tests of long-run PPP and the law of one price have abandoned the conventional framework. when deviations are within a "band of inaction") and an autoregressive process for large deviations (that is.K. there is strong evidence that international markets for tradable goods remain highly segmented and that deviations from PPP are largely accounted for by movements in the relative price of tradable goods across countries. While the response varies by industry.. An alternative approach to studying the relationship between exchange rates and goods prices is examining how firms in an industry (or country) pass through changes in exchange rates to export prices. The simplest econometric model that implements the notion of a nonlinear adjustment for price differentials assumes that the process is well described by a random walk for small deviations (that is. In brief. Moreover. these studies have started to look into nonlinear models of price adjustment. on average exchange rate pass-through to U. Goldberg and Knetter (1997) provide an extensive survey of the literature and find that local currency prices of foreign products do not respond fully to exchange rate changes. for deviations will be left uncorrected as long as they are sufficiently small relative to the shipping cost. At the consumer level. Taylor (2001) shows that the improper use of linear models when the true model is nonlinear may produce a large bias towards finding a low speed of convergence. 1993) measures the degree of price discrimination across export destinations that is associated with exchange rate changes for U. nearly all the variability can be attributed to movements in the relative price of tradable. Using both monthly data from 79 . a linear model will fail to support convergence to PPP if the true model is nonlinear and the process spends most of the time in the random-walk band. This finding strongly suggests that consumer markets for tradable goods are highly segmented internationally and that movements in the international relative price of consumer tradable are very persistent. He finds that the amount of exchange rate pass-through differs considerably depending on the country and industry. Instead. Intuitively. U. when deviations are outside the band). given the high volatility of nominal exchange rates. This alternative framework for the empirical analysis of price differentials is motivated by the observation that commodity trade is not costless. import prices is only about 50 percent after one year. Knetter (1989. At the producer level. German.

Consumers’ inability to arbitrage price differentials between countries is exogenous. Michael. as opposed to the standard assumption that prices are set in the seller’s currency. with prices set in the seller’s currency.the 1920s and annual data spanning two centuries. imperfect competition. several recent papers have extended Obstfeld and Rogoff’s framework in order to allow for pricing-to- market and deviations from the law of one price. implying that the law of one price always holds for all goods and that the real exchange rate is constant. and Peel (1997) reject the linear adjustment model in favour of a nonlinear model and provide strong evidence of mean- reverting behaviour for PPP deviations for every exchange rate considered. which allows imperfectly competitive firms to price discriminate between home and foreign consumers. This feature reflects the fact that preferences are identical across countries and that all goods are freely tradable. Nobay. That is. there is complete pass-through of exchange rate changes to import prices. this class of models also assumes that prices are sticky in each country’s local currency. This class of models assumes that home and foreign markets are segmented. possibly reflecting arbitrarily high transportation costs at the consumer level. 2 International Pricing in New Open-Economy Macroeconomic Models The common starting point for most of the recent research in open-economy models with price rigidities is the model developed in Obstfeld and Rogoff (1995). In addition to market segmentation. 80 . firms set prices in advance in the buyer’s currency. next outline a basic model in which firms set prices in advance in the local currency of the buyer (or pricing-to-market). Obstfeld and Rogoff’s model does not generate deviations from the CPI– based purchasing power parity. This model explores the international monetary transmission mechanism in a general equilibrium setup characterized by nominal price rigidities. Motivated by the empirical evidence on the sources of real exchange rate fluctuations. The model is then used to explore the main implications of pricing- to-market. I. In this model. and incomplete asset markets.

Course Code: MU0006 81 .

i. each individual’s pay is fair in comparison to others doing the same jobs.e. The ultimate goal of compensation administration (the process of managing a company’s compensation program) is to reward desired behaviors and encourage people to do well in there jobs. Compensation Benefits Set 1 & 2 MU0006 -Compensation Benefits Q-1: Explain the objective of a sound compensation planning. c) Individual equity: It ensures equal pay for equal work. The team equity has three dimensions: a) Internal equity: This ensures that more difficult jobs are paid more. there are other objectives as well. Ans: The most important objective of any pay system is fairness or equity. In addition. Some of the important objectives that are sought to be achieved through effective compensation management are listed below: 82 . b) External equity: This ensures that jobs are fairly compensated in comparison to similar jobs in the labour market.

what will be the strategic incentives plans organization can offer to persuade talented employees besides providing good salary? Ans: An Incentive Program is a formal scheme used to promote or encourage specific actions or behavior by a specific group of people during a defined period of time. etc. or even the use of proper safety precautions. risk- taking. It is startup (new) company. commitment. the levels at 83 . The scientific literature also refers to this concept as Pay for Performance. Incentive Programs are particularly used in business management to motivate employees. In addition to point awarding. and in sales in order to attract and retain customers. benefits. unions and managers. As remuneration plays an important role. Like wise. experience. g) Ease of operation: The compensation management system should be easy to understand and operate. the salaries offered must be high enough to motivate them to apply. initiative and other desired behaviours. b) Retain Talent: If compensation levels fall below the expectations of employees or are not competitive. Then only will it promote understanding regarding pay related matters between employees. Being a new company it might face difficulty in hiring highly talented candidates. the demonstration of organizational values. c) Ensure Equity: Pay should equal the worth of a job. Since many firms compete to hire the services of competent people. Effective compensation management ensures that workers are neither overpaid nor underpaid. f) Comply with legal rules: Compensation programs must invariably satisfy governmental rules regarding minimum wages. Similar jobs should get similar pay. which is trying to woo talent from the market. the sale of new products. allowances. e) Control costs: The cost of hiring people should not be too high. increased overall sales. employees may quit in frustration. employee may go in search of greener pastures outside. bonus. repeat customer purchases. d) New and Desired Behavior: pay should reward loyalty. Q-2: Apex is an ITES service provider Company. more qualified people should get better wages. Depending on the program type and the organizational objectives. Where the company fails to reward such behaviour. Types Points program Points-based incentive programs are a type of program where participants collect and redeem points for awards. a) Attract Talent: compensation needs to be high enough to attract talented people. points can be awarded on a number of criteria including positive employee behavior.

It can motivate the staff which in turn only helps business. In a recent study conducted by Bain & Company’s research. cost less to sell. researchers found that a simple 5% increase in a company’s customer retention rates will increase the average lifetime profits per customer. which is traditionally how a commission plan is derived. new business opportunities and/or management by objectives (MBOs) independent action of the sales professional and is usually used in conjunction with a base salary. It is not uncommon for the members of such teams to be located in different physical locations (often working in different countries) and for the 84 . SIPs are used to incentives sales professionals where total dollars sold is not a precise measure of sales productivity. launch new products. and ultimately drive sales. are less vulnerable to attacks from the competition. These programs help companies capture market share. each contributing unique skills to the sales process. usually broken into a plan for a fiscal quarter or fiscal year. Consumer Consumer incentive programs are programs targeting the customers and consumers of an organization. A Sales Incentive Plan (SIP) is a business tool used to motivate and compensate a sales professional (or sales agent) to meet goals or metrics over a specific period of time. and drive daily employee performance. Dealer/channel Dealer incentive programs are used to improve performance for dealer and channel resellers using sales incentive programs. increase product adoption. and buy more over the long term. Sales incentive programs have the most direct relationship to outcomes. A SIP is very similar to a commission plan. SIPs are used to encourage and compensate each member of the sales team as he/she contributes to the team's ability to sell. reduce sales costs. boost morale and loyalty. however. develop new territory. Employee Employee incentive programs are programs used to increase overall employee performance. and enhance margins. Points programs are a way for organizations to motivate behavior over time while improving the organizations’ overall performance. Sales These programs are primarily used to drive sales. improve employee wellness. increase profitability. increase retention. Sales metrics used in a SIP are typically in the form of sales quotas (sometimes referred to as point of sale or POS shipments). reduce cost of sales. This is usually due to the complexity or length of the sales process or where a sale is completed not by an individual but by a team of people. Consumer programs are becoming more widely used as more companies realize that existing customers cost less to reach.which points can be redeemed can be customized by the organization and set at virtually any level. a SIP can incorporate sales metrics other than goods sold(or value of goods sold). Employee programs are often used to reduce turnover.

commonly referred to as universal gift cards (UGC). which enhances their long-term effect. Accordingly. and awards fulfillment. Online incentive programs pose an attractive alternative to traditional offline programs since online programs save money and time and allow organizations to have much greater control. they are available in two types: (1) cards which carry a major credit card brand. and support the program’s objectives. and are redeemable at all merchants accepting the credit card brand. redeemable only through the issuing retailer. reporting. and consumer promotions. since its emergence. Non-cash rewards Merchandise and other non-cash rewards are more often perceived as separate from compensation. Cash While incentive program participants often state that they prefer cash to non-cash rewards. According to the Online Incentive Council (OIC. sales performance. channel programs. non-cash rewards tend to stand out as rewards for performance. nearly every traditional incentive company offers an online component in programs including employee motivation and recognition. There are several types of rewards. Companies that run their programs online experience efficient communication.” In a recent study conducted by the Center for Concept Development. Online programs When first emerging in 1996. Branded merchandise and other non-cash rewards have high trophy value. The goal in choosing rewards is to select items that will spark the participant’s interest or feelings. Gift cards/certificates Gift cards/certificates are prepaid retail cards or certificates which are redeemed at a later time at checkout. At present. In the 2005 Incentive Federation Study of 85 . defunct). bringing greater recognition to the recipient at the time of the award and possessing a long-term lasting effect that can result in increased engagement in the organizations goals. cash is quickly forgotten as many participants tend to spend it on everyday items or use it to pay bills.product introduction to happen in one location and the purchase of such a product to occur in another location. and (2) retailer-specific cards. cash programs do little to generate the interest required to create an effective incentive program. Effective rewards will both motivate short-term behavior and provide motivation over time. Given that most people do not generally talk about cash awards. Monetary rewards Selecting the appropriate rewards is vital to any programs success. the use of online incentive programs was extremely rare. the number of online programs has almost doubled in size every year. research has shown that cash is a poor motivator due to its lack of “trophy value. issued by well-known merchants. Additionally. In general. three of five respondents agree that a cash payment is perceived to be part of an employee’s total compensation package and not as part of an incentive program.

Motivation and Incentive Applications, gift cards were ranked as the most frequently used type of
corporate reward.


Merchandise rewards can range anywhere from small branded key chains to high-end electronics.
In a 2005 study conducted by the Center for Concept Development, 73% of respondents agreed
that more stimulating, memorable incentive programs can be built around merchandise as
opposed to cash rewards.


Travel rewards can best be defined as a face-to-face event designed to motivate, either directly or
indirectly. In a 2005 study conducted by the Center for Concept Development, 51% of
respondents perceived that travel is remembered longer than other incentive rewards.


Experiential rewards provide program participants with an experience. This form of reward gives
organizations the ability to offer their employees and customers interesting experiences as
incentives. Examples might include a seaplane flight and lunch, a two hour horse ride on the
beach, a day of sailing for two, a chance to meet a star athlete, or the use of a party planner for an
occasion of the recipient’s choice. Experiential rewards allow participants to share their
experiences with others and reinforce the reward and the behavior that led to the giving of the

Non-monetary rewards

Non-monetary incentives are used to reward participants for excellent behavior through
opportunities. Non-monetary incentives may include flexible work hours, payroll or premium
contributions, training, health savings or reimbursement accounts, or even paid sabbaticals. If it
comes to environmental behavior, often labeling and recognition certificates are used. This may
include stickers, T-shirts with banner logo etc.A good example of non-monetary rewards is
exempting business students from doing AB213 Research Methods.

A caution on incentive programs

At its core, an incentive program is designed to lift the performance outputs of a group of people
engaged in some activity by increasing their motivation. There is nothing wrong with this
approach, but it should be part of a broader Quality Management system.

W. Edwards Deming, a leading Quality Management scholar and consultant, taught and
demonstrated that motivation efforts are a form of tampering because they try to make
improvements to individual components of what is largely common cause variation. He argued
that the overall performance of a unit was much more a function of the quality of materials,
process design and management, quality specifications and machine performance – in other
words, the “system.” Deming went on to demonstrate that the result of an improvement strategy
based on trying to lift the performance of each worker one-at-a-time would be no system

improvement; rather, it would simply be increased variation in performance. He encouraged
management to find ways to lift the performance of the whole system.

Q-3: Explain the steps involved in designing a Remuneration Plan.
Ans: Designing a remuneration plan involves the followings:

1. Job Analysis: The main purpose of conducting job analysis is to prepare job description and job
specification which in turn helps to hire the right quality of workforce into the organization.

It helps to understand the qualities needed by employees, defined through behavioral descriptors,
to provide optimum work performance.

It obtains answers to such questions such as: 1. Why does job exists? 2. What physical and mental
activities does the worker undertake? 3. When is the job to be performed? 4. Where is the job to
be performed? 5. How does the worker do the job? 6. What qualifications are needed to perform
the job? 7. What are the working conditions (such as levels of temperature, noise, offensive
fumes, light) 8. What machinery or equipment is used in the job? 9. What constitutes successful

There are several ways to conduct a job analysis, including: interviews with incumbents and
supervisors, questionnaires (structured, open-ended, or both), observation, critical incident
investigations, and gathering background information such as duty statements or classification
specifications. In job analysis conducted by HR professionals, it is common to use more than one
of these methods.

2. Job Documentation: To evaluate job content, it provide objective criteria for making pay
comparison, ensure that jobs are classified according to content as opposed to individual
personalities, effectively communicate the job duties to both supervisor and employees and help
the organization defend it self against charges and discrimination.

3. Development of a job worth hierarchy: It is a result of job evaluation. There are six major
methods which are divided in two groups according to their nature.

a) Whole job evaluation and are non-quantitative in nature
i- Ranking
ii- Classification
iii- Slotting

b) Factor evaluation and are quantitative in nature
i- Point factor
ii- Factor comparison
iii- Scored questionnaires

4. Pay survey: Wages and salary surveys ensure external equity. A wage and salary survey
provides information as to what other organizations that compete for employees are paying. The
survey could cover all jobs within an organization or limited to benchmark jobs.


The benchmark jobs have the following basic characteristics
i- Many workers in other companies have these jobs.
ii- They will not be changing in the immediate future in terms of tasks, responsibilities
iii- They represent the full range in term of salary such that some are among the lowest
paid in the group of jobs, others are in the middle range and some are at the high end
of the pay scale.

Formal and informal surveys could be undertaken to collect data on benefits like insurance,
medical leave, vacation pay etc. and offer a basis on which to take decision regarding employee
benefits. Published sources also provide valuable information. Published sources also provide
valuable information regarding industry-wise trends in salary structures in and around the
The published sources in India include:

i. Reports published by the Ministry of Labour
ii. Pay Commission Reports
iii. Reports of wage Bonds appointed by Government
iv. Reports of employee and employer’s organization
v. Trade journals of specific Industry

5. Pricing the Job: Establishment of pay Ranges:

In order to actually establish a pay structure, an organization needs to set rates of pay for the jobs
in the job hierarchy. This will depend on the number of different levels of relative job value that
are recognized by the organization and the difference in pay between the highest and lowest paid
jobs in the pay structure. The focal point pf the pay range is the midpoint, an organization can
determine the range minimum and maximum.

6. Pay rates and Pay Increases: This means deciding how to pay new employees, how and when
to give employee increases, including how to move existing employees from minimum to
maximum of their assigned pay grades, how to determine the pay increase for an employee being
promoted from one job to another and what influence, if any, cost of labour increases will have on
the determination of pay increases for employees.

7. Starting pay for new Employees: In order to avoid paying new employees the same as more
experienced employees, most employers choose to start new employees closer to the minimum of
the pay range. In general, an employee with minimum qualifications should be paid the minimum
of the range. This general rule is not true when a new hire has skills which are in great demand or
has skills or other expertise substantially above the minimum.

8. Employee Increases: There are several different types of base pay increases: General (across
the board) increases, cost of living/ labour increases, promotion increases, step increases (based
on longevity) and merit increases.

9. Performance appraisal: A performance appraisal, employee appraisal, performance review, or
(career) development discussion[1] is a method by which the job performance of an employee is
evaluated (generally in terms of quality, quantity, cost, and time) typically by the corresponding

manager or supervisor[2]. A performance appraisal is a part of guiding and managing career
development. It is the process of obtaining, analyzing, and recording information about the
relative worth of an employee to the organization. Performance appraisal is an analysis of an
employee's recent successes and failures, personal strengths and weaknesses, and suitability for
promotion or further training. It is also the judgement of an employee's performance in a job
based on considerations other than productivity alone.

10. Maintaining and Auditing a Compensation plan: Changes in the external market or internally
within the organization can cause one or more parts of a compensation plan to become outdated.
Part of the challenge in creating a compensation plan is to build in mechanisms that facilitate
change when necessary, yet maintain control on a regular basis. Some actions an organization can
take to maintain an updated compensation plan include regular review of job descriptions,
monitoring of compensation levels versus companies with which there is competition for
employees, and regular review of the pay structure including pay ranges and pay increase budgets.
An audit is an excellent means to ensure that a compensation plan is being properly administered
and maintained.

When planning to audit a compensation plan, an organization needs to consider the following:
Process measures - Are procedures and practices in place to ensure the compensation plan is
being administered smoothly and efficiently?

Policy compliance - Are there procedures or other mechanisms in place to ensure that the
compensation plan is being administered in accordance with policy?

Documentation adequacy - Is there adequate documentation in place to ensure that the
administration of the compensation plan and compliance issues can be audited?

Overall results - Are there measures that can assess how well the compensation plan is achieving
its goals and objectives?

After reviewing audit results, management can make recommendations on any improvements that
may be necessary, allocate the necessary resources and follow-up to make sure the work is


performance etc. The benefits accomplish four objectives: Fostering external competitiveness Increasing cost effectiveness Meeting individual employee’s needs and preferences. Complying with legal compulsions 90 . Design the steps needed to administer Fringe Benefits to avoid problem in administering indirect remuneration plan.1) Fringe benefits are the important components of remuneration. though most of the organizations face confusion when it comes to administering fringe benefits program. attendance. Steps in administering fringe benefits Establish benefit objectives In establishing objectives management must consider several factors like employee preference for benefits.Compensation Benefits Set 2 Q. length of service. Ans. MU0006 .

the external factors are aspects like govt. Ans. 91 . benefits and services figure prominently in their discussion and the settlement reached invariably cover the indirect remuneration to the benefit of the employees. Communicating the benefits Fringe benefit program must be communicated to the employees through booklets. Further employers must be able to increase the productivity and the advantage of good employee benefits by making the employee aware of what the company does for them that does not appear on their pay slip. These are assessed through market surveys conducted by professional associations and consultants. When union and the management sit for the wage negotiation. factors that influence employee benefits and services are wage regulations. Communication help remove ignorance of the employee about indirect remuneration. policies. An effective technique is to use employee calendars.A. Competitiveness Generally organizations offer benefits to match or outstrip those matched by the competitors.Hasley recognizes individual efficiency and pays bonus on the basis of time saved. Assessing environment External as well as internal factors influence company’s indirect remuneration programs. policies and regulations.2 Explain the different types of incentive plan offered by organizations. which communicate the total remuneration components. These surveys provide data on the various benefit offered. unions are dominant force to improve benefits and services. their coverage. Evaluation and control One way assessing the usefulness of fringes is to ascertain how far the advantages claimed in favor of indirect monetary schemes have really benefited the employees. Whatever the objectives. The data allow employers to assess the competitiveness of their benefits and costs with those offered by others. brochures. Each month of the calendar shows employee receiving the benefit. union and economic factors. The major govt. eligibility and costs. slide presentations and regular employee meetings. they must reflect the organizations ability to pay. In addition to govt. and specific benefit laws. Employee benefit costs are computed on the following lines: a) Total cost of benefits annually for all the employees b) Cost per employee per year c) Percentage to annual payroll d) Cost per employee per hour Q. The main features of this plan are : 1) Standard time is fixed for each job or operation. Types of incentive plans: Time-based individual incentive schemes a) Hasley or Wier plan This plan devised by F. tax policies.

In determining the B’s the time of operation and the rest time both are taken into account. Total Earnings= Time taken X Hourly rate plus bonus Bonus = 50% of the time saved b) The Rowan Plan This plan was introduced by D. Rowan. Total Wages=( Time taken X Time wage) +( % of bonus X Time taken X Time wages) d) Bedeaux Point Plan Under this plan the standard time is fixed scientifically and is expressed in terms of ‘B’. As in Hasley plan the bonus is paid on the basis of time saved. Those who complete the job in less than the standard time are paid bonus for the time saved. The workers who complete their job within or more than the standard time are paid at the normal time rate.X Time taken X Hourly Rate + Bonus Standard time or Time allowed c) Emerson Efficiency Plan Under this plan the standard time for the job is determined scientifically and a minimum time wage is guaranteed to all workers. Bonus is given at an increasing %beyond the prescribed level of efficiency. But unlike a fixed % in case of Hasley plan it takes into account the proportion as follows: Time Saved ------------------- Time Allowed Thus. under this plan the bonus is that proportion of the wages of time taken which the time saved bears to the standard time. 3) If the job is completed in less than the standard time. 92 . Total wages= Standard time X Rate of Wages +75% of Rate of wage( Standard time-Actual time taken) Output based individual incentive schemes: a) Taylor’s differential piece rate system The main features of this plan are: 1) There shall be two piece work rates. Bonus= Time saved -------------------------------------. one is lower and other is higher. 2) The standard of efficiency is determined either in terms of time or output based on time and motion study. Minimum time wage is guaranteed to all the workers. the worker is paid a bonus of 50% of time saved at time rate in addition to his normal time wages. 2) Time rate is guaranteed and the worker receives the guaranteed wages irrespective of whether he completes the work in the time allowed or takes more time to do the same. Efficiency is measured by comparing the actual time taken with the standard time.

rewards an efficient worker by giving high rate because of higher production. 2) 83% to 100% at 110% of the ordinary piece rate. Accelerated Premium Bonus Plan This plan is also known as sliding scale bonus plan because the premium is paid at varying rate of increasing efficiency. Since the earnings increase with increased efficiency the performance above the standard will be rewarded by more than one higher differential piece rate. 5) If the worker exceeds the standard he is paid a higher piece rate. 3) A worker who cannot finish the work on standard time are paid according to time basis. 2) Standard time for task is fixed and both time wages as well as a high rate per piece are determined. 93 . c) Gantt task and Bonus Plan This plan combines time piece and bonus systems. As the efficiency of the worker increases his earnings would increase at greater proportions. The main features are: 1) Day wages are guaranteed. 4) If the worker reaches the standard time he will be paid the time wage plus the bonus at a fixed % of normal time wage. 4) This system penalizes the slow worker by paying low rate because of low production. This plan is most suitable for foreman and supervisors because it will stimulate them to get higher proportions from workers under their supervision but it is not advisable to use it for the machine operators who may rush through work to earn more. b) Merrick’s Differential Piece rate system There are three piece rates under this instead of two and workers producing below the standard output are not penalized by low piece rate. 3) If a worker finishes work in standard time he will be given high piece rate. 3) Above 100% at 120% of the ordinary piece rate. The basic features are: 1) Up to 83% of the standard output workers are paid at the ordinary piece rate. disregarding quality of production.

Piecework at piece rate 3. Time work 2. 2) Payment for every hour or for part of an hour so worked in excess at the overtime rate double of the ordinary rate. issuing notifications etc. Sec. Fixation of minimum rates of wages 1. To make review at such intervals not exceeding 5 years the minimum rates and revise the minimum rates. 4. Government can also fix minimum wages for 1. One such person to be appointed by the chairman. 1948 Object of the act To provide for fixing minimum rates of wages in certain employments. 1948  Payment of Wages Act.3 Minimum rates of wages Such as basic rates of wages etc. Piecework for the purpose of securing to such employees on a timework basis. Employer in equal number and independent persons not exceeding 1/3rd or its total number. Overtime work done by employees for piece work or time rate workers. Write short notes on:  The Minimum Wages Act. 5 Overtime 1) To be fixed by the hour. Sec. by the day or by such a longer wage period works on any day in excess of the number of hours constituting normal working days. Variable DA and value of other concessions etc. The appropriate government to fix minimum rates of wages. 1936 Ans.Q3. 2. The employee employed in para 1 or B of schedule either at 2 or either part of notification u/s 27. Sec. 94 . The Minimum Wages Act. Sec. 5 Composition of committee Representation of employer and employee in schedule. 4 Procedure for fixing and revising minimum rates of wages Appointing committee.

Sec. Employer to pay to every employee engaged in schedule employment at the rate not less than minimum rate of wages as fixed by Notification by not making deduction other than prescribed. 3) To provide for payment for work on a day of rest at a rate not less than the overtime rate. Sec. wages at not less than the minimum rate in respect of each such class. 12 Fixing hours for normal working 1) Shall constitute a normal working day inclusive of one or more specified intervals. be entitled to receive wages in respect of work done by him on that day as if he had worked for a full normal working day. Sec. be entitled to receive wages in respect of work done by him on that day as if he had worked for a full normal working day. Sec 13 4) Wages of workers who work for less than normal working days same as otherwise hereinafter provided. Sec. Sec. 15 Wages for two class of work Where an employee does two or more classes of work to each of which a different minimum rate of wages is applicable. 13 4) Wages of workers who work for less than normal working days same as otherwise herein after provided. 2) To provide for a day of rest in every period of seven days with remuneration. 16 Minimum time rate wages for piece work Not less than minimum rates wages as fixed. 9 Payment of minimum rates of wages. Sec.16 Maintenance of registers and records 95 .payment or nonpayment of wages. Sec. Sec. 12 Fixing hours for normal working 1) Shall constitute a normal working day inclusive of one or more specified intervals. 3) To provide for payment for work on a day of rest at a rate not less than the overtime rate. 2) To provide for a day of rest in every period of seven days with remuneration.17 Claims by employees 1) To be filed by before authority constituted under the act within 6 months. 2) Compensation up to 10 times on under.

m.form 1 rule 21(4) Annual returns. a show cause notice has to be given to the employee. before the expiry of the 10th day of the following month. Sec. Sec.f. advances paid.05 Time of payment of wages The wages of every person employed be paid. When more than 1000 workers.9 Deduction for damage or loss For default or negligence of an employee resulting in loss. Sec.form 4 rule 25 Register of wages – form X.A) Register for overtime. To be recorded in the register. wages should be paid before expiry of the 7th day of the following month. loan. Sec. 7 Fines as prescribed Not to be imposed unless the employer is given an opportunity to show cause. 18 Penalties Payment of Wages Act. 1936 Object of the act To regulate the payment of wages of certain classes of employed persons Coverage of employees Drawing average wage up to Rs.6 Deduction made from wages Deductions such as fine. deduction of wages up to 8 days.form 3 rule 21(4.form V rule 26 Representation of register – for 3 years rule 26-A Sec. 8 Deduction for absence from duties for unauthorized absence Absence for whole or any part of the day If ten or more persons remain absent without reasonable cause. When less than 1000 persons are employed. granted for house building or other purposes etc. as amended w. Sec.form XI. wages slip.9. 96 . 6500 p.Register of fines. 2) After obtaining the authorization either by cheque or by crediting the wages to employees bank account. 6. deduction for amenities and services supplied by the employer. over payment of wages. Sec.e. 5 Wages to be paid in current coins or currency note 1) All wages shall be paid in current coins or currency notes or in both. muster roll. 10 Deduction for service rendered When accommodation amenity or service has been accepted by the employee.

Course Code: MU0007 97 .

priorities and expectations. responsibilities. evaluating and discussing performance with each employee. Ans. priorities and performance expectations in order to ensure mutual understanding between supervisor and employee. Increased two way communications between supervisors and employees. Recognize quality performance. 3. It is a philosophy which values and encourages employee development through style of management which provides frequent feedback and fosters teamwork. 98 . defining performance standards and documenting. Performance management involves clarifying the job duties. Performance Management is an ongoing. It emphasizes teamwork and focuses on adding value to the organization by promoting improved job performance and encouraging skill development. The objectives of performance management are : 1. Define Performance Management? Explain the principles of developing a performance management plan. 2. goals. continuous process of communicating and clarifying job responsibilities.Performance Management and Appraisal Set 1 & 2 MU0007 -Performance Management and Appraisal Q1. Clarify mission.

6. Principles of developing a performance management plan. It follows good management practice in which continual coaching. The performance management plan is primarily a communication tool to ensure mutual understanding of work responsibilities. Training for supervisors and employees is encouraged. they should reflect the incumbent’s actual performance in relation to the performance standard for that major duty. 4. 3. The major duties and responsibilities of specific job should be defined and communicated. Development of performance management plan should be consistent with the following principles: 1. succession and strategic planning and pay for performance. 11. The formal evaluation period should be long enough to allow for full performance and to establish a history such that evaluations are fir and meaningful. Adaptive Capacity 99 . 1. Professional development should be an important component of the plan. Ans. These capacities were suggested for non-profit organizations. However they also apply to organizations in general and thus their descriptions are modified in the following paragraphs to apply to organizations in general. priorities and performance expectations. One year is common evaluation period. 5. If formal ratings are included. Employee involvement is encouraged in identifying major duties and defining performance standards. not an event. The supervisor should be evaluated on the successful administration of the plan and ongoing performance management responsibilities. feedback and communication are integral to success. Letts.-Elucidate. 7. 2. 9. 4. Documentation of performance will occur as often as needed to record the continuum of dialogue between supervisor and employee. Ryan and Grossman suggested four key capacities for organizational effectiveness. Letts.not generalized personality traits. Provide a basis for administrative decisions such as promotions. Q2. 8. Ryan and Grossman suggested four key capacities for organizational effectiveness. Performance Management is considered a process. 10. The performance management plan should be consistent with federal and state laws which address non-discrimination. Elements for discussion and evaluation should be job specific.

Through critical elements. assessments and planning. Performance elements and standards should be measurable. equitable. establishing goals. understandable. Management Capacity It is the ability to ensure effective and efficient use of the resources in the organization. Performance Management process involves 5 steps 1. It is the ability of an organization to maintain focus on external environment of the organization. When used 100 . 3. Technical Capacity It is the ability to design and operate products and services to customers. educate and persuade policy makers. verifiable. collaborating and networking. This capacity is exercised by engaging in activities to inform. as individuals and members of a group in improving organizations effectiveness in the accomplishment of an agency mission and goals. Planning In an effective organization work is planned out in advance. Leadership capacity It is the ability to set direction for the organization and its resources and also guide activities to follow that direction. Performance Management is a systematic process by which the agency involves its employees. directing. Planning refers to setting performance expectations and goals for groups and individuals to channelize their efforts towards achieving organizational objectives. Adaptive capacity is cultivated through attention to assessments. why it needs to be done. and how well it should be done. and achievable. 5. 4. Generative Capacity It is the ability of the of the organization to positively change its external environment. what needs to be done. employees are held accountable as individuals for work assignments and responsibilities. The nature of that technical capacity depends on the particular type of products and services provided by the organization. money and facilities. making decisions and solving problems. Q. Employee performance plans should be flexible so that they can be adjusted for changing program objectives and job requirements.3 Explain the process of performance management Ans. community leaders and other stakeholders. particularly on performing while continually adjusting and aligning itself to respond to those needs and influences. 2. The regularity requirements for planning employee’s performance include establishing the elements and standards of their performance appraisal plans. Getting employees involved in planning process will help them understand the goals of the organization. Leadership capacity is cultivated through attention to vision. motivating. Management capacity is accomplished through careful development and coordination of resources including people.

Carrying out process of performance management provides an excellent opportunity to identify developmental needs. and action can be taken to help successful employees improve even further. Within the context of the formal performance appraisal requirements. rating means evaluating employee or group performance against the elements and standards in an employee’s performance plan and assigning a summary rating of the record. It is based on work performed during entire appraisal period. Monitoring In an effective organization assignments and projects are monitored continually. This can be helpful for looking at and comparing performance overtime or among various employees. such as the introduction of new technologies. Developing In an effective organization. strengthens job related skills and competencies. giving assignments that introduce new skills or higher levels of responsibility. 5. Rating From time to time organizations find it useful to summarize employee performance. Monitoring well means consistently measuring performance and providing ongoing feedback to employees and work groups for their progress toward reaching their goals. Ongoing monitoring provides the opportunity to check how well employees are meeting predetermined standards and to make changes to unrealistic and problematic standards. rewards are used well. individually and as members of groups. employee developmental needs are evaluated and addressed. improving work processes or other methods.effectively these plans can be beneficial working documents that are discussed often and not merely paperwork that is filed in a drawer and seen only when ratings of record are required. Regulatory requirements for monitoring performance includes conducting progress reviews with employees where their performance is compared against their elements and standards. deficiencies in performance become evident and can be addressed. It means recognizing employees. for their performance and acknowledging their contributions to the agencies mission. By monitoring continually unexpected performance can be identified at any time during the appraisal period and assistance provided to address such performance rather than wait until the end of the period when summary rating levels are assigned. Areas of improving good performance also stand out. 4. such as granting within grade pay increases and determining additional retention service credit in a reduction in force. 3. Developing in this instance means increasing the capacity to perform through training. Rewarding In an effective organization. Those consequences should be both 101 . 2. Providing employees with training and developmental opportunities encourages good performance. The rating of record has a bearing on other personal actions. A basic principle of effective management is that all behavior is controlled by its consequences. Organizations need to know who their best performers are. and helps employees keep up with changes in the workplace. During planning and monitoring of work. The rating of record is assigned according to procedures included in the organizations appraisal program.

Performance Management and Appraisal Set 2 Q. cynical and withdrawn. To abandon the performance appraisal process is a breach of business ethics. The ethical ramifications of performance review have caused managers and employees at all the levels to become frustrated. honesty and truthfulness in connection with the performance review. natural part of day to day experience.1 Explain the role of ethics in performance appraisal. Sometimes major miscommunications occur in performance review sessions due to 102 . Most ethical questions arise from people’s relationship with the organization. Managers must realize that ethics is the process of deciding and acting. formal and informal and both positive and negative. Many managers talk about ethics but do not act upon ethical issues in day to day managerial responsibilities. Employees have a big stake in the way managers evaluate and operate. A lot of actions that reward good performance don’t require a specific regulatory authority. Recognition is an ongoing. MU0007 . Managers and non supervisory employees alike cite concern about politics and lack of fair treatment. Ans. Good performance is recognized without waiting for nominations for formal awards to be solicited. Ethics has a very important role to play in performance management.

However being legal does not always equate to being ethical. In the worst scenario low ethics managers use the performance review process as a form of forced humility for individuals reporting to them. He thinks that his subordinates are inherently lazy. Some managers feel that being legal in performance review is enough. Sunil follows theory X. Q.basic differences in ethical orientation. Sunil has on his subordinates are : 1. A perfunctory review is an ethical strike out. Unless the employee and the reviewer are successful in negotiating an ethical balance each may review other as taking unfair shots. Ans. Therefore most people must be forced with the threat of punishment to work towards organizational objectives. According to McGregor’s theory Mr. not to threaten self esteem. According to McGregor theory. his feelings of personal worth will suffer. That requires telling people where they stand and being straight with them. to avoid responsibility is relatively not ambitious and wants security above all else.2 Mr. The overall objective of high ethics performance review should be to provide an honest assessment of performance and to mutually develop a plan to improve individual’s effectiveness.without taking a swing. Treatment of people is the most fundamental ethical issue. When a performance review helps the individual recognize that his or her objectives are closely assigned with the organizations. the individual is more likely to perform at a higher level and the organization is less likely to lose a valuable employee. Performance appraisal must be recognized and treated as an ethical issue of high pay off and peril. 2. 3. an authoritarian style of leadership. Sunil is a manager in a manufacturing company. 4. avoid work and they needs supervision to perform tasks and therefore he shows authority over his subordinates’. If they comply with rules and regulations and are careful about their documentations they feel they are secure enough and have a defensible position. The average person prefers to be directed. what assumptions Mr. Sunil is having of his subordinates. Employees shirk responsibilities and seek formal direction whenever needed. If the person being reviewed feels ignored. And also elucidate McGregor both the theories. 103 . The objective of the performance review is to develop the person. The average person dislikes work and will avoid it. The assumptions that Mr. Performance review as a matter of ethics.

3 Write notes on:  Management by Objectives  Behavioral Anchored Rating Scales  Graphic Rating scale  Behavioral checklist Ans. It is also believed that if given the chance employees have the desire to be creative and forward thinking in the workplace. 3. 5. People will apply self control and self direction in pursuit of organizational objectives. According to this theory employees will show little ambition without an enticing incentive program and will avoid responsibility whenever they can. Management by Objectives It evaluates how well an employee has accomplished objectives determined to be critical in the job performance. It is believed that employees enjoy their mental and physical work duties. anxious to accept greater responsibility and exercise self control. 1. self direction. without external control or the threat of punishment. 3. 2. self motivated. Usually managers feel the sole purpose of employees interest in job is money. Q. autonomy and empowerment. zero defect units produced. Commitment to objectives is a function of rewards associated with their achievement. The method aligns objectives with quantitative performance measures such as sales. 2. They will blame the person first in most situations. In theory Y McGregor proposes that management assumes employees may be ambitious. Behavioral Anchored Rating Scales( BARS) This combines elements from critical incident and graphic rating scale approaches.McGregor’s X-Y theory Douglas McGregor proposed two different sets of assumptions as to what motivates people – theory X and theory Y. There is a chance of greater productivity by giving employees the freedom to perform at the best of their abilities without being bogged down by rules. Assumptions under theory Y (participative management style) 1. People usually accept and often seek responsibility. 4. without questioning whether it may be the system. policy or lack of training that deserves the blame. Effort in work is as natural as work and play. profits. ingenuity and creativity in solving organizational problems is widely not narrowly distributed in the population. In industry the intellectual potential of the average person is only partly utilized. The supervisor rates employees according to items on the numerical scale. The capacity to use a higher degree of imagination. In theory X McGregor proposes that management assumes employees are inherently lazy and will avoid work if they can. Graphic Rating scale 104 . 6. Due of this workers need to be closely supervised and comprehensive systems of control developed. A hierarchical system is needed with arrow span of control at each level.

This method lists a set of performance factors such as job knowledge, work quality, cooperation
that the supervisor uses to rate employee performance using an incremental scale.

4. Behavioral checklist
The rater is given a checklist of descriptions of the behavior of the employee on the job.
The checklist contains a list of statements on the basis of which the rater describes the on the job
performance of the employees.


Course Code: MU0008
Talent Management and Employee
Set 1 & 2

MU0008 -Talent Management and
Employee Retention
Question1: Explain the talent Management imperative
Answer 1:
Competent businesses are adept at hiring and firing workers. Great businesses
however are skilled at developing and deploying talent in ways that continuously
grow their experience, stretch their abilities and enable their achievements. Creating
work environments that promote people agility across jobs and organizational
boundaries is the next imperative for companies seeking competitive advantage
through their talent.

It is surprising how few companies develop and move their talent around the
organization. They know how to recruit stars, fire failures and replace leavers – but

few seem to know how to provide one of the most important factors in retaining
talent – opportunities to achieve, move and grow – within the company. Ever hire a
star only to see them leave in frustration 9-18 months later because they felt stuck?
Or experience shock when an outstanding performer leaves your company after 5
years because they were ‘too valuable’ in their current job to be allowed to move to
a different position or department? So instead, they moved to a different company.

There are many organizational and cultural reasons why companies constrain talent.
Performance obsessed managers are often reluctant to give up the people resources
they feel are needed to achieve ever more challengingly goals and performance
objectives. This short sighted behavior is reinforced by management and incentive
systems that reward business results but not development of people.

HR and line managers often lack the tools and information to understand and
manage the supply and demand of people and skills dynamically. Thus they are
likely to be slow and reactive in responding to shifts in skill requirements and
opportunities to grow new competencies. They may also be prone to rely on
traditional hiring and firing processes as a means of matching skills demand and
supply rather than more complex retraining and redeployment of existing resources.

Some leading edge companies however are beginning to tackle the talent agility
challenge. For example, in “Cisco Systems: Developing a Human Capital Strategy”,
California Management Review, Winter 2005,, Jennifer Chatman, Charles
O’Reilly and Victoria Chang describe how this Silicon Valley legend has refocused its
approach to talent from external acquisition to internal development and
deployment. For years Cisco was the poster child for how to identify, attract and hire
talent. But beneath the surface, it was buying talent through acquisition and keeping
it through high-priced equity stakes distributed to employees. Not much talent
management acumen was required. But when the company’s marketplace and stock
price tanked, Cisco had to learn a different set of skills for attracting and keeping
talent. It also realized that it needed to better utilize the talent it already had.

According to CEO John Chambers, “We made progress in developing employees, but
in our industry, I want the majority of us not to be in the same job – or even the
same function – three to five years from now. I want us to create an environment of
continuous learning and challenge, that will allow us to move from one business unit
to another in engineering, or from sales to customer advocacy, or from financial to

Companies like Cisco that compete in dynamic industries, where technologies,
products and markets are in a continuous state of change must learn how to develop
and redeploy their talent in an agile manner. The company recast its Pathfinder
software application originally developed to support external recruiting and used it
to create an internal job matching system. Pathfinder’s corresponding online
database, I-Profiler, allows employees to voluntarily enter their resumes for
consideration. The profiles capture employees’ work and educational experience,
skills, and technical qualifications and detail their career aspirations for development
discussions with their managers. Line managers have access to each of their

on-the-job learning. color. it’s time for a change. Indeed. But these moves represented only part of the solution. Because companies that find ways to grow and move their talent within their organizational boundaries will not only substantially reduce recruiting and termination costs but will better attract and keep top talent as well. and background checks. periodic forums and talent reviews -Education through a series of customized and focused programs that include significant teaching and involvement of senior Cisco executives as well as outside faculty The impetus for shifting Cisco’s talent management strategy came from the top of the organization. The university does not operate as a centralized place to go for learning. personality tests. as long as they don't use to them to discriminate based on race. medical examinations. Companies can legally use these tests. How good is your organization at moving and retraining staff to anticipate and respond to changes in your business? Not very good you say? If so. credit checks.employees’ profiles to assess existing skills on their teams. “How many people think we are good at moving resources (people) and retraining? (No hands were raised). This learning and development capability is built upon the ‘3E Model’: -Experience through assignments. and traditional learning -Exposure developed through on-line learning. The types of tests and selection procedures utilized include cognitive tests.” This is good advice for any company. to keep up with the market transitions. but as a set of distributed capabilities for everyone to tap across the organization. John Chambers asked in a company meeting prior to starting these initiatives. shadowing. 108 . those companies that can master talent agility will have a leg up on their competition in both the quality of their people and their performance. disability. or age (40 or older). sex. We’ve got to learn how to retrain people effectively as a part of our culture. Employment tests must be validated for the jobs they are being used to hire for and for the purposes for which they are being used. mentoring. The company also chartered Cisco University to lead a company-wide cross-functional effort to create a ‘development culture’ within the organization. religion. Our top leadership…. Question 2: Describe Pre -Employment testing Answer 2: Employers often use tests and other selection procedures to screen applicants for hire.I keep moving them around. But we’ve got to get dramatically better at moving resources around the company. national origin. It’s not even in our vocabulary.

Emotional Intelligence Testing Emotional intelligence (EI) is the ability of an individual to understand his or her own emotions and the emotions of others. perceptual speed and accuracy. memory. saliva drug screen.Online Pre-Employment Tests Depending on the type of test. Types of Employment Tests Personality Tests Personality tests assess the degree to which a person has certain traits or dispositions or predict the likelihood that a person will engage in certain conduct. Online employment tests are often used for pre-employment testing and assessment. hair drug or alcohol testing. assess a candidate's performance and aptitude on particular tasks. 109 . The types of drug tests which show the presence of drugs or alcohol include urine drug screen. and realistic job previews. also called pre-employment tests or career tests. Talent Assessment Tests Talent assessments. and sweat drug screen. including performance tests. are used to help an employer identify candidates that will be a good fit for jobs. as well as knowledge of a particular function or job. Testing job applicants for their emotional intelligence (in the form of psychological-based tests) is a growing employment trend. work samples. simulations. Physical Ability Tests Physical ability tests measure the physical ability of an applicant to perform a particular task or the strength of specific muscle groups. Sample Job Tasks Sample job tasks. Cognitive Tests Cognitive tests measure a candidate's reasoning. Talent assessments help predict a new hire’s performance and retainability. Drug Tests There are several types of drugs tests that candidates for employment may be asked to take. Pre-Employment Physical Exams Employers may require a pre-employment physical examination to determine the suitability of an individual for a job. employment testing can be conducted online or in the employer's office. and skills in arithmetic and reading comprehension. as well as strength and stamina in general. Utilizing online testing eliminates the need for the candidate to visit the company's office or for the company to have to administer the test.

Background and Credit Checks Criminal background checks provide information on arrest and conviction history. While enlightened leaders balance the needs of the organization with the needs of the employee. they do not control all of the factors that can affect attrition. the best retention practices are not the same as the standard menu for good organizational management. the truth is that these leaders are rare. Lie Detector Tests The Employee Polygraph Protection Act (EPPA) prohibits most private employers from using lie detector tests. Therefore. There are a number of manager retention practices which will increase the probability that an employee will remain committed to an organization over time. Though managers play a very crucial role in retention. This often has little to do with the amount of classroom training they have received. And those that do often lack enough data to pinpoint where the problem is most severe. English Proficiency Tests English proficiency tests determine the candidate's English fluency. Most organizations ask their managers to place productivity as the highest priority. 3. but they also increase the likelihood that employees are committed on a long term basis and are performing at their best. there is evidence that an organization's recruiting systems and processes can significantly impact retention ratios. underscored by the pressures to fulfill "our obligations to our investors. Manager Retention Practices Our research consistently validated the reality that the manager plays a significant role in influencing the employee's commitment level and retention. For example. Many organizations do not even know what their attrition rates are. those organizations that measure attrition sometimes do not track it by length of service. These retention practices represent the manager's actual behaviors on the job. and their impact on retention is often unrecognized." 110 . The tenure patterns of the departing employees can reveal valuable information concerning the potential causes for attrition. the second component represents the organization's responsibility in the retention equation. this component ensures that retention becomes an on-going priority. Other systems are less obvious. For example. either for pre-employment screening or during the course of employment. Additionally. Credit checks provide information on credit and financial history. or to uncover the specific causes of attrition. Some of them are evident. These systems support the Manager Retention Practices. 2. but also focus on how the manager can create a climate so that the employee is retained and committed on a long term basis. such as the equity of pay scales." Good retention practices focus not only on what the employee is contributing to the company. many organizations do not track attrition by occupational group other than by "manager" or "no manager. Organizational Retention Systems There are a number of organizational systems and processes that influence retention. Furthermore. 1. Measurement and Accountability Closely linked to the other components.

 Allow team members to share their knowledge with others .This simple segmentation is often a crude one that does not provide the organization the refined information it needs Question 3: Apex is a firm facing high attrition rate. we have found this to be the biggest predictor of future employee retention. It is now more important than ever to retain the team members an organization currently has and to choose the right team members when hiring decisions are made. Good to Great. Hiring individuals who are truly fit to succeed in the position for hire will dramatically increase the chances of that employee being satisfied with his or her work and remaining with the company for an extended period of time.  Include employees in decision making .do not wait for an annual performance evaluation to come due to give feedback on how an employee is performing. Suggest few components and strategies to achieve retention Answer 3: The implications for employers should be clear. especially when decisions will effect an individual's department or work team. Jim Collins talks about the importance of having the right talent on the organizational bus.  Communication. This can help to create a culture of employee involvement and will generate new ideas and perspectives that top management might never have thought of. communication. Facilitating knowledge sharing through an employee mentoring program can be equally beneficial for the team member being mentored as well as the mentor. Shortening the 111 . The following is a short list of useful tips and hints to help increase levels of employee retention in your organization. The Management is highly concerned about the attrition.  Shorten the feedback loop . Ravi the HR Manager has given the responsibility to design strategies for retention. By far. and responsibilities within the organization. Nobody wants to feel that they are being left out of the loop.the highest percentage of information retention occurs when one shares that information with others. There are costs associated with hiring besides talent crunch. Put them to work for you!  Get the right people on the bus . However communication couldn't be more important in the effort to retain employees. Most team members enjoy frequent feedback about how they are performing. They are investing on the candidates by training them and after some time employees are leaving the is incredibly important to include team members in the decision making process. Be sure that team members know their roles. Mr. communication . Having team members share what they have learned at a recent conference or training workshop will not only increase the amount of information they will retain.communication has become so heavily stressed in the workplace that it almost seems cliche. job his book. but also lets a team member know that he is a valuable member of the organization. Communicate any new company policies or initiatives to all employees to be sure that everyone is on the same page.

Often time a short e-mail or quickly stopping by a team member's desk and saying "thanks" can do wonder for morale. but people leave people.any team member wants to feel that he or she is being paid appropriately and fairly for the work he or she does. Nobody wants to feel stuck in their position will no possibility for advancement or new opportunities. Supervisors play the largest role in a team member's development and ultimate success within an 112 . team members will find this out and look for employers who are willing to offer more competitive compensation packages. It is also important to research what the regional and national compensation averages are for that particular position. in all levels of an organization. Everybody. simply stopping by a team member's desk and letting them know they are doing a good job on a current project can do wonders for morale and help to increase retention.the possibilities are endless. You can be sure that if your compensation package is not competitive. Other options might include a mention in the company newsletter for outstanding performance or gift certificates to a restaurant or movie theatre . In a performance driven workplace a lack of clarity regarding job duties and expectations can cause fear and anxiety among employees who are unclear of what is expected of them. If an employee appears to be bored or burned out in a current position offer to train this individual in another facet of the organization where he or she would be a good fit. Even worse outright anger can occur when a team member receives a negative performance evaluation based on expectations and job duties that he or she was unaware of or unclear has been said so often that it is almost cliche.  Provide opportunities for growth and development . wants to know that their efforts are appreciated and recognized. Be sure to research what other companies and organizations are offering in terms of salary and benefits.this can be one of the single greatest factors affecting employee retention.offer opportunities for team members to acquire new skills and knowledge useful to the is incredibly important to team members.nothing can be more frustrating or discouraging for an employee than the lack of a clear understanding of what is expected of him on the job.  Offer a competitive compensation package . Small gestures such as allowing a team member to take an extended lunch once a week to watch his son's baseball game will likely be repaid with loyalty and extended employment with an organization. When work begins to put a significant strain on one's family no amount of money will keep an employee around.  Recognize team members for their hard work and let them know they are appreciated .  Balance work and personal life . Stress the importance of balancing work and one's personal loop will help to keep performance levels high and will reinforce positive behavior.  Clearly define what is expected of team members . This can be as simple or as extravagant as a supervisor may desire.  The quality of supervision and mentorship . Feedback does not necessarily need to be scheduled or highly structured. not their jobs.

organization. and provide an environment where the employee can grow and succeed. MU0008 -Talent Management and Employee Retention Set 2 Q. The so-called "good ole' boys club" can create a noxious organization culture and foster resentment among team members. All employees want to have supervisors who are respectful. live up to their word and promises. deliver timely feedback on performance. Be sure to treat all employees equally and avoid favoritism at all costs. This culture will only get worse and can create a devastating exodus of valued team members.  Fair and equitable treatment of all employees . But more importantly team members want supervisors who set clear performance expectations. Failure by supervisors and management to provide this can cause an employee to start looking for greener pastures. employee development and succession planning – into their talent management strategy. Organizations have integrated most of the key human capital functions .one of the surest ways to create animosity and resentment in an organization is to allow favoritism and preferential treatment of individual team members. Is there something fundamentally different about compensation that sets it apart from other strategic HR areas? 113 . most are missing one other function: compensation. I believe that the most common disadvantage of talent management programs is that they exclude compensation as a prominent factor in employee development and retention.that is a given.1Write down the steps for compensation based talent management. courteous. recruiting. and friendly .

114 . At the same time. planning employee growth and development. it is imperative that employee market valuations also be done for individual employees. Compensation management. and identifying employees with potential then charting a course to help them realize it. This. compensation data is relegated to the sidelines of the talent management systems. requires good compensation data. abilities and competencies – are important influencers of compensation. more traditional job-centric compensation management processes. they can place a market value on knowledge. skills and abilities that differentiate one level in the career hierarchy from the next • Merit systems that are based on the target market value of the employee so managers can determine the right competitive compensation package. Compensation Management I’d argue that there is – compensation management is job-centric whereas all other talent management functions are employee-centric. The Benefits of Using Compensation Data in a Talent Management Strategy Many of the components that make up a talent management strategy – acquisition and mastery of knowledge. Once organizations know how to build a talent management strategy that takes compensation data into account. training employees. a talent management strategy will lack a critical financial metric for making pragmatic decisions. is all about jobs: what they are worth in the marketplace. skills. There is no reason why employee market valuation must be done exclusively on a job-centric basis. how they stack up against one another internally. it doesn’t mean that’s the only role compensation can or should play. education. not a replacement for. and what target incentives and equity compensation are associated with varying levels of jobs within the company. Your talent management strategy is all about recruiting employees. here: HRIS and emerging talent management software applications allow us to collect and store this information – if we take the time to collect it. That said. and new certifications they’ve earned. by contrast. aligning employee performance plans with corporate goals. Without the employee-centric market valuations. experience beyond the current job or even the current employer. why have so few companies taken the steps necessary to bring it about? One of the primary reasons is that market valuation of individual employees requires more compensation data about each employee: their skills.Talent Management vs. specialties. of course. helping to identify flight-risk potential before a competitor attempts to lure your future talent away Bringing Talent Management and Compensation Management Together If compensation data has the potential to play such a vital role in talent management. Think about it for a moment. however. Talent management strategies are our friends. Given the mandate of attracting and maintaining top talent. Market valuation of individual employees is a companion process. A talent management strategy based on compensation data means: • Job offers tailored to the specific value an individual brings to the organization • Career paths within and across job families that are anchored to actual market valuation of the knowledge. skills and abilities. and not simply merit increases from a matrix • A talent management system that monitors the pay competitiveness of high potential employees. without the valuation component offered by employee- centric approaches. what grades or bands they fall into.

It takes time and an accumulation of messages to be effective. It is an evolving process.2What are the 5 steps to strategic talent planning? Elaborate Recruiting rarely is based on any sort of strategic plan. or by getting listed as a "best place to work. Step 2: Image and Brand It is not true that if you build a great strategy or a great organization. One or two advertisements or a handful of posters won't do it. web presence (which is essential). It requires having a consistent communication process as well as a plan to raise general awareness through advertisements. Getting people aware of your organization is a tough job. but you should also make sure your advertising. while at the same time being educated and aware of the talent supply situation from all the sources that are available." You have to be able to answer questions like. competitive environment. It is a combination of understanding and predicating demand. as opposed to an annual event. "What makes your company different or unique?" or "Why would I want to come work for you?" Not only should you have answers to these questions. Step 3: Sourcing Methods 115 . organizations ? you will need a strategic plan coupled to appropriate resources and tactics. This has to be an organization-wide effort. promotions. For most organizations. and few recruiters have the time or charter to look forward more than a few weeks. and overall corporate advertising support this image. and is the most dynamic and critical stage of any strategic process. It means deeply understanding the organization's business goals and the competitive environment the organization functions in. It is mostly reactive. recruiting is a tactical operation ? a series of things that take place that result in qualified people getting hired. This step needs to be far more than simply listing the jobs projected in the annual budgeting process and factoring in turnover. To ensure that your organization has a chance at hiring the best people ? and to successfully operate in a global. people will necessarily flock to your doors.Q. Here's a quick overview of the five essential first steps needed to put this plan together and to begin making it operational: The five key steps in strategic talent planning Step 1: Talent Plan Workforce or talent planning is the first and hardest step.

Step 5: Market and Communicate! Candidates want to be in the know about their status and prospects. web-based search. • If you are a decentralized firm. Make sure you are using referrals from current employees. they are not yet generally available or optimized for recruiting. speed is the real differentiator today. work out a system for who owns what. and then build those sourcing channels to the max. your own web site and also develop methods to keep in touch with potential candidates that you have no current position for but might have at some later time. if any? Are you going to look into using web-based tests? How much will you rely on candidates screening themselves out or in? What role does the hiring managers play in screening and assessing. your network of professionals. Your organization's website is an invaluable tool. Step 4: Screening and Assessing Candidates Are you going to invest heavily in educating managers in behavioral interviewing? Are the recruiters going to be the main screeners. and the recruiter/manager who moves the most quickly will usually get the candidate. Local offices should participate in that process and have great autonomy on the day-to-day stuff. If you all agree together then the areas of dispute will be limited. but you will also need to develop systems to communicate with candidates personally and to send out newsletters and emails. or will you use testing and other tools? What role will the Internet play. Unfortunately. They seek out feedback and information. but maintain the capacity and skills to tap passive candidates. They were most likely told that there were no current openings.Develop a multi-faceted sourcing strategy. Embrace active candidates who are responding to your brand and image-building messages. Decide based on past experience what works best for you in locating candidates. A focus on automating screening to some degree reduces the volume of candidates and actually raises candidate satisfaction. and what are the differences between what you do and they do? This is an area where there can be great improvement with reasonable effort. and make sure your selection criteria are clear to avoid slowing down the process. Wouldn't it be wonderful if you could actually stay in touch with those people and let them know when there is an open position? That's what CRM (candidate relationship management) systems can do. They can supplement broad image and branding activities with local advertising within the bounds of an agreement you all make with one another. Eliminate unnecessary approvals. 116 . but where things are still done mostly the way they have always been done. Probably all the people you need at one time or another sent a resume or expressed interest. As you know. Make sure that whatever systems you choose fit your strategy and make economic sense A few other things to keep in mind: • Make sure all managers and recruiters have a simple system for deciding on a candidate. The rule I use is that the central or corporate function should set standards and establish corporate-wide systems. But ask your ATS vendor what they doing about this and urge them to provide you the tools you need to effectively keep qualified candidates interested in you.

117 . Join us to learn: . developing and retaining current workers. It merges HRM as a discipline and in particular its basic HR activities and processes with the information technology field. interviewing. Talent management refers to the process of developing and integrating new workers. the April 11 event will feature an in depth review and analysis of the 2007 Talent Management Survey Results including: . to helping employees transition out of the company. . EHRMS). The linkage of its financial and human resource modules through one database is the most important distinction to the individually and proprietary developed predecessors. . HR Technology or also called HR modules. making offers. these ERP systems have their origin on software that integrates information from different applications into one universal database. and on-boarding.Why performance management isnÂ’t what you think it is.Satisfaction levels of current solutions.Where your company is on the Talent Management continuum. Supplement your answer with suitable examples. CEO of Knowledge Infusion. The process of attracting and retaining profitable employees. Human Resource Information System (HRIS)." A talent management strategy is no longer a nice to have. On the whole. Presented by Jason Averbook. but an imperative to drive business performance. has come to be known as "the war for talent. The term was coined by David Watkins of Softscape published in an article in 1998. More and more companies today are taking a holistic approach to talent management -– from attracting and selecting wisely.Business drivers of talent management practices. which makes this software application both rigid and flexible. and attracting highly skilled workers to work for a company.3 Think of a situation in which you as team leader have to explain why HRIS or IT is important in talent management and how it helps an organization. as it is increasingly more competitive between firms and of strategic importance. refers to the systems and processes at the intersection between human resource management (HRM) and information technology. A Human Resource Management System (HRMS.What Talent Management initiatives organizations are investing in the next year. or simply "Payroll". . Q. to retaining and developing leaders. whereas the programming of data processing systems evolved into standardized routines and packages of enterprise resource planning (ERP) software.These initial steps and processes are what enable the back-end activities of scheduling. and .Why buying software in 2007 is different than buying software in 2002. Talent management in this context does not refer to the management of entertainers.

A 10-step action plan for achieving maximum success with your talent management initiatives. and .50 recertification credit hours toward PHR and SPHR recertification through the Human Resource Certification Institute (HRCI). HRIS professionals.The growing importance of HRIS in meeting the needs of strategic talent management. Human resource executives.. 118 . learning and organizational development leaders and talent management professionals will gain the most by attending -– and this program has been approved for 1.

work processes and structures. that getting people to enthusiastically support such change is a more complex and difficult task. Experience tells us. The Myth of Resistance Understanding why change is frequently difficult for people can help us build in 119 . however. frequently necessary in our current environment of major technological innovation and globalization. is a tremendous challenge. Course Code: MU0009 Change Management Set 1 & 2 MU0009 -Change Management Question 1: Discuss culture driven change Answer 1: Bringing about significant change in the way an organization works. On the technical side. it may be relatively easy (although costly) to introduce new technology.

they have absorbed a set of norms and expectations about what is expected. one's own behavior is rational. Managing Change Whether or not it is possible to fully "manage change". What Is Organizational Culture? An organization's culture is multi-layered. New assumptions and values were articulated and systematically communicated through every vehicle and reinforced at every opportunity. and the company newspaper along with more subtle forms of communication. This necessarily involves a large cross section of the organization in assessing the current system of norms and beliefs. An Example of "Managed" Culture Change A classic example involves a regulated utility for which de-regulation meant a change in how they do business. it is always the case that.methods for easing the process and increasing the likelihood that it will succeed. In fact. at the very least.. keep them out of trouble. both internally and in relation to its external environment. Those assumptions often meant that "good neighbor" behavior. They have "learned" the way to behave that will. when people have worked in an organization for very long. 120 .) As people at every level of the organization participated in meetings and activities to identify new goals and practices. These beliefs and resulting behaviors needed to be elevated to a conscious level so that the company could choose how it needed to modify its practices. Many people talk about "resistance" as if it were an irrational response to be overcome with rational persuasion. performance reviews. determining what changes are needed. norms and behaviors that have developed gradually and may have become relatively unconscious. was rewarded more than efficiency and this value was reinforced by training programs. consisting of assumptions. When there is a need to change the way an organization works. (One would hope that the utility would not throw out the original intent to be a good neighbor.e. we believe that being very clear about what changes are required and being very intentional about building a culture that supports the new mission. values. it may become necessary to make this implicit set of beliefs explicit as they may no longer be consistent with the actions and behaviors that are now required. In this way. It can explain much about how an organization functions. but only reassign priorities. Generally. from an individual's point of view. what might have become the source of serious resistance became a source of comraderie and com mitment to the new way of doing business. goals. beliefs. "good" or "bad". is the organization's culture. they also created inventories of all the old ways of thinking and doing that would have to change. This set of widely shared beliefs about what is "right" and "wrong". courtesy to customers. Assumptions about customer expectations in a regulated environment led utilities in general to attend more to being a "good neighbor" than to providing low cost service. what is rewarded and what is least approved. and designing an implementation plan. i. strategies and practices increases the probability of success exponentially. "true" or "false". They actually developed a humorous system for "catching" each other in the old ways and rewarding the new.

Resistance management basically means that you prepare yourself for anything anyone might do in order to stop the Change management thus is a big concern. Other forms of celebrating success might be announcing positive outcomes on a bulletin board or holding a company picnic if a goal related to the change is states that feedback and progress are important for change management. These assessments may include evaluations of inventory or other resources. Another resistance management option is to place strong leaders who are accepting of changes as project managers. According to Controlling the effects of change means that a person has to find techniques by which to manage change effectively. Feedback also gives administrators a chance to monitor progress and determine whether action plans related to the change are working properly. Readiness 1. interpersonal relationships and even financial success. productivity. Resistance Management 2. According to change-management. 121 . especially in the business world. effective change management involves rewarding success. then transitions at home or in the workplace may be much easier because the anxiety or ill feelings change produces are lessened. Feedback and Progress 3. Evancarmichael. you might set up a policies and procedures manual that clearly states what the consequences of not following the changes are. Success 4. The key here is consistency--if a leader points out successes of only certain people. If people use such techniques in a systematic way. People may be more likely to accept change if they have a chance to tell leaders their thoughts and concerns. readiness assessments are one of the primary techniques for managing change effectively. For example. Simple acknowledgment or thanks for what someone has done well can make a lot of difference in the attitude of employees regarding change. Readiness assessments measure how prepared employees and administrators are to handle modifications. employees will end up divided.Question 2: Write the techniques for managing change effectively Answer 2: The effects of change impact morale. but they also may include interviews with employees and administrators to analyze what is needed to accommodate the change.

involve each employee in meaningful decisions about their work unit and their work. as much as possible. This sense of unity may help the group turn toward the change with a common purpose. and the goals related to the change. which creates a sense of unity. a small group of employees learns important information about change and change management. planning. think about. in the learning. • Even if employees cannot affect the overall decision about change. If you leave employees behind. 122 . Such explanations. in the change process. decisions. however. People may be more receptive to change or handle it more appropriately if they have a logical understanding of why the change is happening. especially ones that affect a complete organization. the remaining employees will have trouble catching up with the learning curve. and employees who will feel the impact of the changes. Training 6. Often. at any stage of the process. and adjust to the new ideas. it is impossible to involve every employee in each decision. Question 3: Discuss the employee involvement in change management Answer 3: In any change. Employee Involvement for Effective Change Management • Create a plan for involving as many people as possible. for misunderstanding. Respondents to my change management questions over the years suggested. For example. Providing adequate training lets individuals meet the challenges the change requires and eliminates the excuse that the change cannot be implemented for lack of knowledge or preparedness. and hurt. One of the biggest complaints people have about change is that they are not equipped for it. give the impression that all members of the group are valued equally. If a small group makes the change management plans. as early as possible. you open the door in your change management process. in change management. If they fail to share the information with the rest of the employees. employees affected by the decisions will not have had needed time to analyze. an effective change management technique is to hold formal or informal meetings in which leaders can explain why the change is taking place. that when change works. process owners. the potential impacts of the change. • Involve all stakeholders. when done in an open forum. and implementation of the change. a computer programmer might resist a requirement to write code in Java if he has dealt primarily with HTML.Explanation 5. resistance. the organization has gone out of its way to try employee involvement. Thus.

during your change management process. Provide consequences in either case. MU0009 -Change Management Set 2 1. H&M can be more flexible than many other retailers in lowering its costs. Teams can be both horizontal and vertical. are needed. and DaimlerChrysler are all among the companies that actively use teams to perform tasks. Larger bureaucratic organizations can benefit from the flexibility of teams as well. In small businesses. and innovation problem in markets and industries. Not owning any factories. While business giants risk becoming too clumsy to proact (such as). The key is to know. Xerox. the largest natural-foods grocer in the US developing a focused strategy. • Build measurement systems into the change process that tell people when they are succeeding or failing. and eventually. enough is enough. Motorola. the new network organizations contract out any business function. usually by electronic means. they sap your organization of time. After allowing some time for employees to pass through the predictable stages of change. Network Another modern structure is network. the team structure can define the entire organization. is an autonomous profit centre composed of an average of 10 self-managed teams.[12] For example. that can be done better or more cheaply. managers in network structures spend most of their time coordinating and controlling external relations. Employees who are positively working with the change need rewards and recognition. when to say. The potential management opportunities offered by recent advances in complex networks theory have been demonstrated including applications to product design and development. Help employees feel as if they are involved in a change management process that is larger than themselves by taking these actions to effectively involve employees in change management. 123 . negative consequences for failure to adopt the changes. every one of the Whole Foods Market stores. which aligns with its low-cost strategy. You cannot allow the nay-sayers to continue on their negative path forever. act and react efficiently. the quality of organizational structure revolves around the competencies of teams in totality. In essence. affect the morale of the positive many. energy. H&M is outsourcing its clothing to a network of 700 suppliers. more than two-thirds of which are based in low-cost Asian countries. While an organization is constituted as a set of people who synergize individual competencies to achieve newer dimensions. Discuss types of organizational teams? Team One of the newest organizational structures developed in the 20th century is team. and focus. while team leaders in each store and each region are also a team.

These four teams are necessary for the growth of an organization. efficiency and the work environment.Virtual A special form of boundaryless organization is virtual. or marketing groups 3. providing services. in an article The Discipline of Teams. Employees of same rank of different departments combine together to perform a particular task are called cross functional team. Jon Katzenbach and Douglas Smith. assigning tasks. The team which involves the use of computer technology to bind together the dispersed members to accomplish a common goal is called virtual team. and that is what made highly innovative Amazon. published in the Harvard Business Review July –August 2005 . Self managed teams are teams of 10-15 people who take on the responsibility of their supervisors which involves planning. there are so many niche products that collectively they make a significant profit. This means while the core of the organization can be small but still the company can operate globally be a market leader in its niche. work scheduling. Recommender Teams: those that recommend things – task forces or project groups 2. 124 . operations. Managing Teams: those that run things – groups that oversee some significant functional activity Team Type affects team collaboration strategy If you are not clear on what type of team you are dealing with then you are unlikely to have the right focus in your team collaboration strategy. Doer Teams: those that make or do things – manufacturing. because of the unlimited shelf space of the Web. sorting out problems and making decisions accordingly with the help of suppliers and customers. cross functional teams and virtual teams. There are four main types of teams which are Problem-solving teams. self managed teams. It works in a network of external alliances. According to Anderson. using the Internet. the cost of reaching niche goods is falling dramatically. negotiating deals. coordinating projects and making so successful Types of Organizational teams Teams perform various functions which include making products.The High Performance Organisation provide some insight into this by identifying three broad types of teams: 1. Problem-solving teams involve people of around five to twelve employees of the same department work together for few hours each week and discuss ways to improve the quality. Although none sell in huge numbers.

Ram is working in ‘United India’ a public sector company for last 15 years. you have to change yourself for the better. This is a common mistake for parents to make with their children. Doer teams are great for doing things but their networks may be limited to their own functional areas which can blind them to some innovation and cross-functional opportunities. and spiritual health. as they are. You cannot sit on a mountain top waiting for perfection before you help your fellow man. The time to help is now. management has decided to update their information system by integrating information technology in every sphere of functioning. and depression. Q. without expecting perfection.2 Mr. Once you change yourself. what you are.For example: Recommender Teams are often part-time. The organization is facing competition from various private and Multinational companies. great for reviewing work but can lack a “team engine” for getting detailed work done. To meet the challenges. In order for you to change the world around you. Appreciate yourself for who you are. and we must look at ourselves as works in progress. and situations. emotional turmoil. to be the best you can be. you won’t waste time and energy with frustration. family. you will be able to help everyone around you. and associates for who they are. worries. but if you cannot help yourself. 2. Appreciate your friends. This causes inner frustration. mental. As a result of your efforts. alone. along the way. but it also happens in a variety of relationships. Where do we start learning the secrets of self mastery? If you accept things around you. His professional and personal life is badly affecting due to his new found job stress. He finds the new technology and its working difficult to cope up with. you already have taken the first step. To him the new technology is a threat for his job performance. Once you accept people. for what they are. In other words. without demand. the world around you will 125 . So. sounds like a selfish term. Ram is facing? Answer Stress • What is self mastery? Answer: Self Mastery. Ram is accustomed to manual working system. Self mastery is the ability to make the most out of your physical. you will have limited ability to help others. Managing Teams are often staffed with senior executives who have serious time management challenges and are unlikely to engage with traditional team communication and meeting approaches. Accept them. After listening to his problem his friend suggest him to develop self mastery. 1. Mr. let go of demands on others - especially unrealistic demands. through positive self mastery. for the better. and what you have accomplished so far. • What nature of problem Mr. There are two important factors here.

body. My personal breed of anger is the latter. it's a state of mind or body related to an emotion. Even though there are plenty of other ways to express pain. It's been my armor. though I did not come to fully embrace this in myself until fairly recently because I needed it to survive. and one is just as harmful as the next. and spirit. though not necessarily wholly negative. willingness and courage to see the destructive side of my programming. standing up for ourselves while caught in this place is almost always destructive. in a way. Again. You will not be able to make all of the changes to mind. Then there is the type of anger and rage that presents from angst and resentment. Positioned between victim anger and proactive anger. A momentary and present time expression of anger triggered by an event is the most pure form. The side that feels as though it is being annihilated by many people. rendering us unable to stand up for ourselves. a person often fights like a caged wild animal to defend. Stuck in this place. but they are connected. To stop or go against the flow of anger before the energy is alchemized into a higher state of consciousness. certainly did not want to be uncovered because it protected me in my most vulnerable moments. change for the better. actually suppresses it. often righteous. It is often the resultant aftermath of a lifetime of negative beliefs and self-abasement that have never been addressed. Anger about being at the effect of everything in the world is bred from a victim mind-set and is based in blame and regret. And if it's not an emotion. suppressing it here could mean a drop down the ladder into apathy. anger has an important and very specific quality. in most situations. Most of us have at least one nagging and addictive emotion we fall back on. yet it also has the potential to motivate us to blast our way out of the muck. this type of anger will drag us deeper into our traumas and story.3 Explain stages of organizational change. Stages 126 . This fear-based varietal comes from seeds soaked in annihilation and is coupled with an undercurrent of dread and terror. without much effort on your part. This type of anger is different because it is proactive and causal. • Explain the various spheres of self mastery that Ram should follow to cope up the situation? There are three kinds of anger. Clearly. It took a lot of tenacity. and by the rogue negative energies of the world. at once. It assists us in standing up for ourselves by drumming up power from within to draw boundaries when we need them. Anger just looks more obvious and it's so much less politically correct to walk around angry than it is to walk around sad or discouraged! Q. They are all the same.

Often.". the individual begins to come to terms with his mortality or that of his loved one. nor are all steps experienced by all patients. income. Other psychologists state that not confronting death until the end is adaptive for some people. as well many tragedies and disasters. nor lengthened.The progression of states is: Denial – "I feel fine. "I'm going to die. an infertility diagnosis. there are individuals who struggle with death until the end. the onset of a disease or chronic illness.". Because of anger. Anger – "Why me? It's not fair!"... 1.. divorce. people experiencing (or caretakers observing) the stages should not force the process. the individual is saying. "How can this happen to me?"." 3.. It is not recommended to attempt to cheer up an individual who is in this stage.". later to any form of catastrophic personal loss (job. Psychologically. This process allows the dying person to disconnect oneself from things of love and affection. Acceptance – "It's going to be okay. Depression – "I'm so sad. people will experience several stages in a "roller coaster" effect—switching between two or more stages. "I'll do anything for a few more years. I may as well prepare for it. Because of this. Bargaining – "Just let me live to see my children graduate. Any individual that symbolizes life or energy is subject to projected resentment and jealousy. but if I could just have more time. the person is very difficult to care for due to misplaced feelings of rage and envy. This may also include significant life events such as the death of a loved one. "Who is to blame?" Once in the second stage. why go on?" During the fourth stage. However. though she stated a person will always experience at least two. on the basis of an individual's imposed time frame or opinion. One should merely be aware that the stages will be worked through and the ultimate stage of "Acceptance" will be reached." The third stage involves the hope that the individual can somehow postpone or delay death. not to me. It is an important time for grieving that must be processed. 2.". drug addiction. "This can't be happening. the dying person begins to understand the certainty of death. What's the point?". the negotiation for an extended life is made with a higher power in exchange for a reformed lifestyle. "I can't fight it. the individual may become silent. If this is the case. This feeling is generally replaced with heightened awareness of positions and individuals that will be left behind after death. Usually. The grief process is highly personal and should not be rushed. "I will give my life savings if." In this last stage.. the more likely they will be to stay in the denial stage. refuse visitors and spend much of the time crying and grieving. Some psychologists believe that the harder a person fights death. freedom). Those 127 . the individual recognizes that denial cannot continue." Denial is usually only a temporary defense for the individual. returning to one or more several times before working through it. why bother with anything?". "I understand I will die. Significantly. 4. it is possible the ill person will have more difficulty dying in a dignified way. "I miss my loved one. Kübler-Ross claimed these steps do not necessarily come in the order noted above.. Kübler-Ross originally applied these stages to people suffering from terminal illness.

A 2000–2003 study of bereaved individuals conducted by Yale University obtained some findings that were consistent with the five-stage theory and others that were inconsistent with it. is the accurate description of the human grief experience and grief can take any of four trajectories. as well as several rigorous scientific studies which he and others have carried out over 20-plus-year period and which were supported by major research organizations. which contested the concept of stages of grief as they relate to people who are dealing with the deaths of people important to them. A study of 160 people with less than three months to live showed that those who felt they understood their purpose in life or found special meaning. and the National Science Foundation. as first postulated by Bonanno. spirituality helped dying individuals deal with the depression stage more aggressively than those who were not spiritual. such as NIH. NIMH.who experience problems working through the stages should consider professional grief counseling or support groups. Resilience. Several letters were also published in the same journal criticizing this research and arguing against the stage idea. Criticism According to a book by Professor George Bonanno at Columbia University. the preponderance of evidence shows that no stages of grief exist and that the Kubler-Ross theory of stages theory is invalid. 128 . In this and similar studies. Cultural relevance A dying individual's approach to death has been linked to the amount of meaning and purpose a person has found throughout his lifetime. faced less fear and despair in the final weeks of their lives than those who had not. Skeptic Magazine published the findings of the Grief Recovery Institute.