Course Code : MS-91

Course Title : Advanced Strategic Management

Assignment Code : 91/TMA/SEM-I/2017

Q1.a) Discuss the nature and process of corporate planning.

Ans:

Nature of corporate planning

Corporate planning is a process used by businesses to map out a course of action that will result in
revenue growth and increased profits. Although large corporations may have staff members -- or
entire departments -- devoted to performing the planning function, small business owners can
become proficient through learning basic concepts and putting forth the effort necessary to create a
comprehensive plan.

End Products

Small businesses usually prepare an annual business plan that includes a narrative discussion of the
opportunities the company intends to pursue and the strategies to be implemented. Forecast
financial results -- the projected revenues, expenses and profit for the company -- are also part of
the plan. Some companies prepare a separate strategic plan, which focuses mainly on the strategies
the company will use to beat the competition and the logic behind the strategies. A company owner
also may prepare a long-range capital plan, which describes large projects the company intends to
undertake, such as building a new manufacturing facility.

Value

Being skilled at and dedicated to planning allows the business owner to identify emerging
opportunities before his competitors do because he is continually gathering information about
changes in the business environment, including changes in customer needs. Planning allows the
company to use its human and financial resources more wisely. The strategies the business owner
selects to deploy have a greater probability of success when based on a more complete
understanding of his customers and his competitors.

Difficulty

A company’s actual results may not match forecasts because it is very difficult for a business owner
to anticipate the direction the economy will take and whether his competitors will gain strength
and be successful with their own strategies. Predicting how readily the company’s target markets
will accept its products or services is difficult as well. The cost of introducing a new product or
entering a new market may be significantly higher than the business owner expected.

Making the Process More Meaningful

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The plan will be more valuable -- and accurate -- if the business owner asks his team members for
their input as he prepares the plan. Employees who deal with customers on a daily basis, for
example, can provide insight regarding customers’ most pressing needs -- and in what aspects of its
operations the company needs to improve in order to attract more customers. Companies that
gather information about competitors on a systematic basis -- called competitive intelligence -- are
better able to identify threats to the business from changes in competitors’ strategies. A business
owner should consider revising the financial forecast in his plan during the course of the year if
business conditions materially change.

Process of corporate planning

Process

Effective planning requires gathering data about the projected growth of the industry and
information about competitors -- their strengths, weaknesses and the strategies they are deploying.
The small business owner also must identify the best opportunities for his company to pursue. He
starts by analyzing customer needs and determines how to create products and services to meet
these needs. He then sets goals for the company, which may include revenue targets and
productivity goals such as the gross margin percentage he intends to achieve. The next step is
designing strategies and action plans -- the specific steps the owner and his team will take to reach
company goals.

Qb)Select a company of your choice and explain the behavioral implementation of corporate
plan discussing details of the company.

Ans:

The behavioral implementation of TATA MOTORS

The organizational structure of Tata Motors follows the matrix form which incorporates the
elements of functional and divisional organizational structures. It is a global automotive giant
operating in various automobile sectors across distant geographies; hence there is a need to
integrate its divisions along the various functional units of its business. If we look at the
organizational structure of Tata Motors, we will find that the functional units are divided into the
categories of Finance, Strategy, Engineering, Communications, Human Resources and Legal. These
functional departments construct the strategic framework on which Tata Motor's different business
sectors are based; such as India Operations, Commercial Vehicle Business Unit and Passenger Car
Business Unit . Tata Motors consists of flexible, adaptive and multi-tasking individuals who can
work in different situations in different roles.

According to Chen & Huang (2007), the organizational design impacts and is impacted by the type
of interactions, information exchange and knowledge management. Tata Motors encourages
relationships at both formal and informal levels through designing flat organizational structures at
different divisional units.

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Considering the span of control a flat organizational structure benefits Tata Motors because it has
some very experienced team of leaders who can provide a strategic direction to the management
working under their supervision (See Appendix 7 for key players in Tata Motors Ltd). The
organization is focused towards achieving the goals and visions set by Mr. Ratan Tata, thus there is
a visible need for autonomy which is well supported by a flatter structure. Lesser levels in the
organization structure provide a better platform for innovation and customization of products.

Linking Organizational Culture with Organizational Culture and Strategy

An indistinguishable feature of organizational structure is the flow of information; the employees

follow a formalized pattern of reporting. Tata Motors follows a code of conduct that helps in
deciding on and assigning responsibilities to promote group working. One of the biggest benefit of
such a structure is the accessibility of top management to the middle and lower management level
employees. This is extremely critical in building a culture that is positive and productive. Tata
Motors Ltd links all its functional departments through Enterprise Resource Planning (ERP). It
promotes easy sharing of important information between its different departments. The various
divisions and departments are interconnected through intranet; thus promoting instant
information sharing among the employees and management. This is especially helpful in keeping
the organization's human resources connected at every level.

The current focus of Tata Motors is on revolutionizing the car business. This means the strategic
focus in on innovating and developing the domestic and international market. The two recent
examples supporting the rationale are the launch of Tata's world's cheapest car- NANO and
acquisition of Jaguar and Land Rover brands (JLR). During the phase of Nano development and
launch the whole organization took it as their personal achievement. All these factors are
strengthening the organization's culture along with its organizational design by implementing the
right business strategy.

Organizational Culture

The employees at different levels of the organization (lower, middle and top) are aware of
organization's every setting and action embedded in the elements of culture; thus the way an
organization manages is inadvertently judged by its human resources which influences their
behaviour towards their own and organization's objectives Nadi (2008). Whether an organization
will successfully implement its strategy and achieve the set goals is highly dependent on the culture
within it.

It is extremely critical for an organization to develop the right kind of cultural settings within which
its workforce operates, learns, develops and demonstrates. Culture can be understood as the
integration of organization's beliefs, norms practices and organizational behaviours. It also links
the organization's strategies, technologies and products. The organizations which focus extensively
on improving quality through Total Quality Management, such as Tata Motors Ltd find that the
premise of managing quality (TATA Motors Ltd managed its quality through TQMS) can be defining
force behind culture change and improvement.

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The culture in one organization can be very different from another depending on the corporate
strategy and what is to be achieved. Cultural development is also an essential facilitator of
leadership development (Bal and Quinn, 2001). Tata Motors works towards developing leaders
keeping in view the context and culture in which they are developed.

Organizational culture is the backgrounds in which leaders are developed the leaders are
developed and is therefore imperative towards developing a competitive and sustainable
leadership across organization. Studies by Collins and Poras (1994) found out the strong linkage
existing between organizational culture and the performance of its employees which is indirectly
linked with customer satisfaction.

Elements of Organizational Culture at Tata Motors Ltd

The organizational culture of Tata Motors is understandable as the "task culture". Tata Motors
believes in providing complete customer satisfaction and follows strict safety related measures and
guidelines. To provide a rich customer service experience it undertakes effective and efficient
networking of sales and service networking. It performs in concord with its customer requirements
and expected levels of performance and service. It also adapts itself to the various competitor
strategies and upcoming rules and regulations. Thus the culture within the organization is focused
on dealing dynamic and challenging forces of business environment and is very well complemented
by its matrix and flat organization structure.

The Task Environment

Tata Motors strongly believes in the fact that "all the difference is made by the people". For
implementing the concept in reality it makes a lot of investment in developing its people potential
by the methods of participation, empowerment, training and development, learning opportunities.
Thus the organizational culture of Tata Motors can be best understood as one which provides space
for continuous improvement for its human resources. The managers need not worry about the
routine chores as much as they need to focus on really improving the quality of work and
technological and social advances. The culture at Tata Motors can be best described as delegation-
oriented and empowerment-focused. It is a culture which recognizes people, groups and teams for
their personal and organizational achievements.

Tata Motors Ltd has always given significant importance to developing an organizational culture
wherein innovation is encouraged. The employees are continuously encouraged to adopt
innovative practices. With this effect, TATA Motors Ltd has various technological and quality
improvement related programs.

Although its main focus rests on the Indian automotive market, it has been forging in the
international markets in recent times. It is expanding its business profile in emerging markets like
Hong Kong, Mexico, Russia, South Africa, United Kingdom, etc. This poses challenges for Tata
Motors to fit its culture in these countries with its corporate culture. It is critical to choose the right
business model with cultural values and beliefs that are consistent with its overall corporate
strategy. It is also expanding its operations in countries in Britain, Italy and Spain.

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Tata Motors has always been striving to attain technological excellence it its business processes and
operations. Therefore the Research and Development department is constantly working towards
achieving excellence. It is investing on big scale in research and green technology reflecting
commitment towards ecological impacts of automotive industry.

Tata Motors possesses strong belief in assisting the cause of nature and climate control; its efforts
for innovation in the field of engineering and technology are aimed at developing alternative fuels.
It has also made CO2 emission norms- EURO compulsory in many of its vehicles.

The organizational culture of Tata Motors makes it essential to develop its leadership potential and
impact while maintaining its original values which aim to improve the people's quality of life. It is
equally committed to the cause of societal development which is visible in its Corporate Social
Responsibility through which it helps the under privileged sections of rural and urban society.

Management and Leadership

The group chairman Ratan Tata is responsible for transforming Tata Motors Ltd. into a Group
strategy think businesses. His vision of making a truly international company brought in a foreign
CEO. As per one of the paper there is no such ideal leader rather one evolves as an ideal leader with
experience. Initially he assumed to be one of the best in the world. He is currently part of 203 board
members in 20 different organizations across 23 different industries.

Q2.Discuss the issues which result in bad Corporate Governance citing examples. What
measures should be taken to correct such failures.

Ans:

Corporate governance reforms in developed countries in the last two decades have generated some
fruitful outcomes, but did not solve the fundamental problems in corporate governance practices.
The corporate governance system not just failed to prevent the recent financial crisis and corporate
collapses, but has actually incentivised corporations to mani-pulate share price and abuse
corporate accounting principles and practices, to create and take excessive financial and business
risks for short-term profit maximisation. The underlying problems with corporate governance are
not just some technical or implementation issues, but more about the issues of paradigms,
governing approaches and the orientation of corporate governance systems, which are deeply
ingrained in Anglo-American financial capitalism.

Debates on Corporate Governance Failures

The main problems with banks and the entire financial industry in developed countries that caused
the 2008 financial crisis have not been resolved. For example, the culture of short-term profit
maximization, excessive bonuses for CEOs and senior managers (even with taxpayers’ money), and
banks routinely exploiting their millions of customers and believing in a ‘too-big-to-fail’ world are
still there. For this reason, in March 2011, the Governor of the Bank of England Sir Mervyn King
warned that, without reform of the banks, Britain risks suffering another financial crisis.

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However, not everyone has agreed that the governance of banks and other financial institutions has
been malfunctioned and resulted in the recent financial crisis. There are three different views in the
debate on the relationship between corporate governance and the financial crisis. The first view is
that corporate governance was unrelated or little related to the financial crisis. It is claimed that
since the 1970s corporate governance in the United States and other developed countries has
improved significantly. Publicly held corporations were, in general, governed satisfactorily before
and during the financial crisis with no significant correlation between corporate governance and
the financial crisis. Drawing on his empirical study of 37 firms removed from the S&P 500 index
during 2008, Cheffins (2009) concludes that corporate governance in those firms functioned
tolerably well and did not fail in the financial crisis. Using a large sample of data on financial and
non-financial firms from 1996 to 2007, Adams (2009) shows that the governance of financial firms
was on average not worse than that of non-financial firms. Boards of banks receiving bailout money
were more independent than the boards of other banks, and bank directors received far less
compensation than directors in non-financial firms.

The second view is that the financial crisis was closely associated with the insufficient
implementation of corporate governance codes and principles while current corporate governance
frameworks are not wrong in general (OECD, 2009). OECD identifies four weak areas in corporate
governance that contributed to the financial crisis: executive remuneration, risk management,
board practices and the exercise of shareholder rights. Yet, it argues that the principles of corporate
governance had adequately addressed those key governance concerns and the “major failures
among policy makers and corporations appear to be due to lack of implementation” of those
principles. The UK Financial Reporting Council shares a similar view that there were no major
problems with corporate governance codes prior to the financial crisis and the only problem
remained with the implementation of the codes .

The third view is that the financial crisis was at least in part caused by a systemic failure of
corporate governance. The failure of corporate governance was not purely an implementation
issue, but more a systemic failure of institutional arrangements that were underpinned by
increasingly popular paradigms or paradigmatic assumptions like market fundamentalism, self-
regulation, self-interest human behaviour and shareholder primacy. Caulkin (2009) points out that
‘The financial crisis is both a failure of the invisible hand of market and a failure of the visible hand
of management’. Corporate governance and management was hijacked by the ideology of
‘Reagonomics’:

‘The company’s job was to make money for shareholders; the individual’s job was to pursue self-
interest, allowing the invisible hand to work its magic; and the job of governance was to align
“agents” (managers) with “principals” (shareholders) by incentives and sanctions. The carrot was
pay linked to stock price, often in the form of stock options. The stick: high levels of debt and a
vigorous market for corporate control, which ensured that underperforming assets could readily
pass into the hands of sharper managers at hungrier companies.’ (Caulkin, 2009)

The systemic failure of corporate governance is particularly associated with the Anglo-American
corporate governance model that has enabled, permitted or tolerated excess power and wealth at
the hands of CEOs, cultivated a ‘greed-is-good’ culture in banks, corporations, financial markets and

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financial capitalism, and incentivized investment bank executives to pursue vast securitization and
high leveraging to enrich themselves at the severe cost of shareholders, investors and other
stakeholders

Q3.Discuss different market structures and their impact on competition.

Ans:

Different Market Structure

A market is the area where buyers and sellers contact each other and exchange goods and
services. Market structure is said to be the characteristics of the market. Market structures
are basically the number of firms in the market that produce identical goods and services.
Market structure influences the behavior of firms to a great extent. The market structure
affects the supply of different commodities in the market.

When the competition is high there is a high supply of commodity as different companies
try to dominate the markets and it also creates barriers to entry for the companies that
intend to join that market. A monopoly market has the biggest level of barriers to entry
while the perfectly competitive market has zero percent level of barriers to entry. Firms
are more efficient in a competitive market than in a monopoly structure.

Perfect Competition

Perfect competition is a situation prevailing in a market in which buyers and sellers are so
numerous and well informed that all elements of monopoly are absent and the market
price of a commodity is beyond the control of individual buyers and sellers

With many firms and a homogeneous product under perfect competition no individual firm
is in a position to influence the price of the product that means price elasticity of demand
for a single firm will be infinite.

Pricing Decisions

Determinants of Price Under Perfect Competition

Market price is determined by the equilibrium between demand and supply in a market
period or very short run. The market period is a period in which the maximum that can be
supplied is limited by the existing stock. The market period is so short that more cannot be
produced in response to increased demand. The firms can sell only what they have already
produced. This market period may be an hour, a day or a few days or even a few weeks
depending upon the nature of the product.

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Market Price of a Perishable Commodity

In the case of perishable commodity like fish, the supply is limited by the available quantity
on that day. It cannot be stored for the next market period and therefore the whole of it
must be sold away on the same day whatever the price may be.

Market Price of Non-Perishable and Reproducible Goods

In case of non-perishable but reproducible goods, some of the goods can be preserved or
kept back from the market and carried over to the next market period. There will then be
two critical price levels.

The first, if price is very high the seller will be prepared to sell the whole stock. The second
level is set by a low price at which the seller would not sell any amount in the present
market period, but will hold back the whole stock for some better time. The price below
which the seller will refuse to sell is called the Reserve Price.

Monopolistic Competition

Monopolistic competition is a form of market structure in which a large number of

independent firms are supplying products that are slightly differentiated from the point of
view of buyers. Thus, the products of the competing firms are close but not perfect
substitutes because buyers do not regard them as identical. This situation arises when the
same commodity is being sold under different brand names, each brand being slightly
different from the others.

For example − Lux, Liril, Dove, etc.

Each firm is therefore the sole producer of a particular brand or “product”. It is monopolist
as far as a particular brand is concerned. However, since the various brands are close
substitutes, a large number of “monopoly” producers of these brands are involved in a keen
competition with one another. This type of market structure, where there is competition
among a large number of “monopolists” is called monopolistic competition.

In addition to product differentiation, the other three basic characteristics of monopolistic

competition are −

 There are large number of independent sellers and buyers in the market.
 The relative market shares of all sellers are insignificant and more or less equal.
That is, seller-concentration in the market is almost non-existent.
 There are neither any legal nor any economic barriers against the entry of new firms
into the market. New firms are free to enter the market and existing firms are free to
leave the market.
 In other words, product differentiation is the only characteristic that distinguishes
monopolistic competition from perfect competition.

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Monopoly
Monopoly is said to exist when one firm is the sole producer or seller of a product which
has no close substitutes. According to this definition, there must be a single producer or
seller of a product. If there are many producers producing a product, either perfect
competition or monopolistic competition will prevail depending upon whether the product
is homogeneous or differentiated.

On the other hand, when there are few producers, oligopoly is said to exist. A second
condition which is essential for a firm to be called monopolist is that no close substitutes
for the product of that firm should be available.

From above it follows that for the monopoly to exist, following things are essential −

 One and only one firm produces and sells a particular commodity or a service.
 There are no rivals or direct competitors of the firm.
 No other seller can enter the market for whatever reasons legal, technical, or
economic.
 Monopolist is a price maker. He tries to take the best of whatever demand and cost
conditions exist without the fear of new firms entering to compete away his profits.

The concept of market power applies to an individual enterprise or to a group of

enterprises acting collectively. For the individual firm, it expresses the extent to which the
firm has discretion over the price that it charges. The baseline of zero market power is set
by the individual firm that produces and sells a homogeneous product alongside many
other similar firms that all sell the same product.

Since all of the firms sell the identical product, the individual sellers are not distinctive.
Buyers care solely about finding the seller with the lowest price.

In this context of “perfect competition”, all firms sell at an identical price that is equal to
their marginal costs and no individual firm possess any market power. If any firm were to
raise its price slightly above the market-determined price, it would lose all of its customers
and if a firm were to reduce its price slightly below the market price, it would be swamped
with customers who switch from the other firms.

Accordingly, the standard definition for market power is to define it as the divergence
between price and marginal cost, expressed relative to price. In Mathematical terms we
may define it as −

Oligopoly
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In an oligopolistic market there are small number of firms so that sellers are conscious of
their interdependence. The competition is not perfect, yet the rivalry among firms is high.
Given that there are large number of possible reactions of competitors, the behavior of
firms may assume various forms. Thus there are various models of oligopolistic behavior,
each based on different reactions patterns of rivals.

Oligopoly is a situation in which only a few firms are competing in the market for a
particular commodity. The distinguishing characteristics of oligopoly are such that neither
the theory of monopolistic competition nor the theory of monopoly can explain the
behavior of an oligopolistic firm.

Two of the main characteristics of Oligopoly are briefly explained below −

 Under oligopoly the number of competing firms being small, each firm controls an
important proportion of the total supply. Consequently, the effect of a change in the
price or output of one firm upon the sales of its rival firms is noticeable and not
insignificant. When any firm takes an action its rivals will in all probability react to
it. The behavior of oligopolistic firms is interdependent and not independent or
atomistic as is the case under perfect or monopolistic competition.
 Under oligopoly new entry is difficult. It is neither free nor barred. Hence the
condition of entry becomes an important factor determining the price or output
decisions of oligopolistic firms and preventing or limiting entry of an important
objective.

Q4.What are the characteristics of innovative organizations? Giving the example of an

organization, explain how creativity contributes to the success of the organization.

Ans:

The characteristics of innovative organizations

1. Unique and Relevant Strategy

Arguably, the most defining characteristic of a truly innovative company is having a unique and
relevant strategy. We all know what companies like Apple, Facebook and Google do. That’s because
they make their strategies clear and relentless follow them. An innovative smaller player may not
be recognised globally, but its leaders, employees, business partners and customers all will have a
clear idea of the company’s strategy. If a business does not have definable, unique strategy, it will
not be innovative. Bland strategies, such as “to be the best”, do not provide a path to innovation in
the same way clearer strategies, such as “to be on the cutting edge of mobile communications
technology,” “to build the world’s safest cars”or “to deliver anything anywhere” do. If your strategy

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is vague or fails to differentiate your company from the competition, you should change this
situation as quickly as possible!

2. Innovation Is a Means to Achieve Strategic Goals

Highly innovative companies do not see innovation as an end, but rather as a means to achieving
strategic goals. Just as a good camera is an essential tool that enables the photographer to take
professional images and the saw is an essential tool for the carpenter, innovation is an essential tool
for visionary companies intent on achieving their strategic goals. Indeed, if you look at the web sites
of the world’s most innovative companies, they tend not to trumpet innovation, but rather
corporate vision.

3. Innovators Are Leaders

The one thing innovation provides more than anything else is market leadership. When companies
use innovation to achieve strategic goals, they inevitably take the lead in their markets.
Unfortunately, this does not always translate to being the most successful or profitable. Amazon has
been an innovator from the beginning, setting many of the standards for e-commerce. Nevertheless,
it took some years for the company to become profitable. Cord was one of the world’s most
innovative car companies, launching cutting edge innovations such as front wheel drive and pop-up
headlights – in the 1920s and 30s. However the company was never very successful financially and
went out of business in 1938. On the other hand, innovators like Apple and Google have been
financially successful as a result of their innovation. In short, innovators are leaders, but not always
profitable leaders!

4. Innovators Implement

Most businesses have a lot of creative employees with a lot of ideas. Some of those ideas are even
relevant to companies’ needs. However, one thing that differentiates innovators from wannabe
innovators is that innovators implement ideas. Less innovative companies talk more about ideas
than implementing them!

5. Failure Is an Option

I would argue the the most critical element of business culture, for an innovative company, is giving
employees freedom and encouragement to fail. If employees know that they can fail without
endangering their careers, they are more willing to take on risky, innovative projects that offer
huge potential rewards to their companies. On the other hand, if employees believe that being part
of a failed project will have professional consequences, they will avoid risk – and hence innovation
– like the plague. More importantly, if senior managers reward early failure, employees are far
more likely to evaluate projects regularly and kill those projects that are failing — before that
failure becomes too expensive. This frees up resources and budget for new innovative endeavours.
However, in businesses where failure is not an option, employees will often stick with failing
projects, investing ever more resources in hopes that the project will eventually succeed. When it
does not, losses are greater and reputations are ruined. As a result, companies that reward failure
often fail less than those that discourage it.

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6. Environment of Trust

The Innovative company provides its employees with an environment of trust. There is a lot of risk
involved in innovation. Highly creative ideas often initially sound stupid. If employees fear ridicule
for sharing outrageous ideas, they will not share such ideas. Likewise, if employees fear reprimand
for participating in unsuccessful projects, they will not participate (see item 5 above). If employees
do not trust each other, they will be watching their backs all the time. If they fear managers will
steal their ideas and claim them as their own, employees will not share ideas. On the other hand, if
employees know they can take reasonable risks without fear, if they know outrageous ideas are
welcome, if they know that their managers will champion their ideas and credit them for those
ideas, these employees can be creative, implement ideas and drive the company’s innovation. In
short, creativity and innovation thrive when people in an organization trust each other and their
organization.

7. Autonomy

Along with trust, individual and team autonomy is a key component of innovation. If you give
individuals and teams clear goals together with the freedom to find their own paths for achieving
those goals, you create fertile ground for innovation. But, if managers watch over their
subordinates’ shoulders, micro-managing their every move, you stifle the creativity and individual
thought that is necessary for innovation. Of course giving employees autonomy means they may
make mistakes. They may choose inefficient routes to achieving goals. But at worst, they will learn
from their mistakes and inefficiencies. At best, they will discover new and better ways of
accomplishing objectives. Most importantly, if you hire intelligent, capable, creative people and give
them the freedom to solve problems, they will do so. And, in so doing, they well help innovation to
thrive throughout the company.

Innovation is the process of creating and implementing a new idea. It is the process of taking useful
ideas and converting them into useful products; services or processes or methods of operation.
These useful ideas are the result of creativity, which is the prerequisite for innovation. Creativity in
the ability to combine ideas in a unique way or to make useful association among ideas. Creativity
provides new ideas for quality improvement in organizations and innovation puts these ideas into
action.

Change and innovation are closely related, even though they are not the same. Change often
involves new and better ideas. The new idea may be the creation of a new product or process or it
can be an idea about how to change completely the way business is carried out. Successful
organisations understand that both innovation and change are required to satisfy their most
important stake holders.

Strategic Importance of Innovation:

For both established organisations as well as new organisations, innovation and change become
important in a dynamic, changing environment. When a company fails to innovate and change as
needed, its customers, employees and the community at large can all suffer. The ability to manage
innovation and change is an essential part of a manager’s competencies.

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Types of Innovation:

Three basic types of innovation are:

(i) Technical,

(ii) Process and

(iii) Administrative.

Technical innovation involves creation of new goods and services. Many technical innovations
occur through research and development efforts intended to satisfy demanding customers who are
always seeking, new, better, faster and/or cheaper products.

Process innovation involves creating a new way of producing, selling or distributing an existing
good or service.

Administrative innovation occurs when creation of a new organisation design better supports the
creation, production and delivery of goods and services.

The various types of innovation often go hand in hand. For example, the rapid development of
business to business e-commerce represents process innovation. But this new process requires
many technical innovations in computer hardware and software. Also as firms began to use
business to business e-commerce, administrative innovation soon followed. Further,
implementation of process innovations necessitated organisational change. “Doing something new
means doing something differently”. Thus, innovation and organisational change go hand in hand.

Technology and Innovation:

Technology is defined as the systematic application of scientific knowledge to a new product,

process or service. It is also defined as the methods, processes, systems, and skills used to
transform resources into products. Technology is embedded in every product, service, process and
procedure used or produced.

“Innovation is a change in technology”. When we find a better product, process or procedure to do

our task, we have an innovation. Process innovations are changes which affect the methods of
producing outputs. For example, manufacturing practices such as just-in-time, mass
customerisation, simultaneous or concurrent engineering – are all innovations.

In contrast, product innovations are changes in the actual outputs themselves. Technological
innovation is daunting in its complexity and pace of change. It is vital for a firm’s competitive
advantage because today’s customers often demand products that are yet to be designed. As
technologies develop, product obsolescence increases and innovative products will have to be
introduced into the markets.

Managing technology requires that managers understand how technologies emerge, develop and
affect the ways organisations compete and the way people work. Technology can greatly affect an
organisation’s competitiveness and managers have to integrate technology into their organisation’s

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competitive strategy. Managers need to assess the technological needs of their organisations and
the means by which these needs can be met.

Understanding the forces driving technological development and the patterns they follow can help
a manager anticipate, monitor and manage technology more effectively.

i. First, there must be a need or demand for the technology. The need acts as a driving force for
technological innovation to occur.

ii. Second, it must be theoretically possible to meet the need using the knowledge available from
basic science.

iii. Third, it must be possible to convert the scientific knowledge into practice in both engineering
and economic terms.

iv. Fourth, the necessary resources such as finance, skilled labour, time, space and other resources
must be available to develop the technology.

v. Finally entrepreneurial initiative is needed to identify and put all the elements together.

Q5.What are the various types of Social Audit? Illustrate and emphasize the need for social
audit.

Ans:

Audit is an appraisal activity undertaken by an independent practitioner (e.g. an external auditor)

to provide assurance to a principal (e.g. shareholders) over a subject matter (e.g. financial
statements) which is the primary responsibility of another person (e.g. directors) against a given
criteria or framework (e.g. IFRS and GAAP).

Main types of audit engagements

and services include:

 External Audit
 Internal Audit
 Forensic Audit
 Public Sector Audit
 Tax Audit
 Information System Audit
 Environmental & Social Audit
 Compliance Audit
 Value For Money Audit

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External

External audit, also known as financial audit and statutory audit, involves the examination of the
truth and fairness of the financial statements of an entity by an external auditor who is independent
of the organization in accordance with a reporting framework such as the IFRS. Company law in
most jurisdictions requires external audit on annual basis for companies above a certain size.

The need for an external audit primarily stems from the separation of ownership and control in
large companies in which shareholders nominate directors to run the affairs of the company on
their behalf. As the directors report on the financial performance and position of the company,
shareholders need assurance over the accuracy of the financial statements before placing any
reliance on them. External audit provides reasonable assurance to the owners of the company that
the financial statements, as reported by the directors, are free from material misstatements.

External auditors are required to comply with professional auditing standards such as the
International Standards on Auditing and ethical guidelines such as those issued by IFAC in order to
maintain a level of quality and trust of all stakeholders in the auditing exercise.

Internal

Internal audit, also referred as operational audit, is a voluntary appraisal activity undertaken by an
organization to provide assurance over the effectiveness of internal controls, risk management and
governance to facilitate the achievement of organizational objectives. Internal audit is performed by
employees of the organization who report to the audit committee of the board of directors as
opposed to external audit which is carried out by professionals independent of the organization
and who report to the shareholders via audit report.

Unlike external audit, whose scope is primarily restricted to matters that concern the financial
statements, the scope of work of an internal audit is very broad and can encompass any matters
which can affect the achievement of organizational objectives. Internal audit is typically centered
around certain key activities which include:

 Monitoring the effectiveness of internal controls and proposing improvements

 Investigating instances of fraud and theft
 Monitoring compliance with laws and regulations
 Reviewing and verifying where necessary the financial and operating information
 Evaluating risk management policies and procedures of the company
 Examining the effectiveness, efficiency and economy of operations and processes

Forensic

Forensic Audit involves the use of auditing and investigative skills to situations that may involve
legal implications. Forensic audits may be required in the following instances:

Fraud investigations involving misappropriation of funds, money laundering, tax evasion and
insider trading

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  Quantification of loss in case of insurance claims
 Determination of the profit share of business partners in case of a dispute
 Determination of claims of professional negligence relating to the accountancy profession

Findings of a forensic audit could be used in the court of law as expert opinion on financial matters.

Public Sector

State owned companies and institutions are required by law in several jurisdictions to have their
affairs examined by a public sector auditor. In many countries, public sector audits are conducted
under the supervision of the auditor general which is an institute responsible for strengthening
public sector accountability and governance and promoting transparency.

Public sector audit involves the scrutiny of the financial affairs of the state owned enterprises to
assess whether they have been operated in way which is in the best interest of the public and
whether standard procedures have been followed to comply with the requirements in place to
promote transparency and good governance (e.g. public sector procurement rules). Public sector
audit therefore goes a step further than the financial audit of private organizations which primarily
focuses on the reliability of financial statements

Audits of public sector companies are becoming increasingly concerned with the efficiency,
effectiveness and economy of resources used in state organizations which has given way for the
development of value for money audits.

Tax

Tax audits are conducted to assess the accuracy of the tax returns filed by a company and are
therefore used to determine the amount of any over or under assessment of tax liability towards
the tax authorities.

In some jurisdictions, companies above a certain size are required to have tax audits after regular
intervals while in other jurisdictions random companies are selected for tax audits through the
operation of a balloting system.

Information System

Information system audit involves the assessment of the controls relevant to the IT infrastructure
within an organization. Information system audits may be performed as part of the internal control
assessment during internal or external audit.

Information system audit generally comprises of the evaluation of the following aspects of
information system:

 Design and internal controls of the system

 Information security and privacy
 Operational effectiveness and efficiency
 Information processing and data integrity

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  System development standards

Environmental & Social

Environmental & Social Audits involve the assessment of environmental and social footprints that
an organization leaves as a consequence of its economic activities. The need for environmental
auditing is increasing due to higher number of companies providing environment and sustainability
reports in their annual report describing the impact of their business activities on the environment
and society and the initiatives taken by them to reduce any adverse consequences.

Environmental auditing has provided a means for providing assurance on the accuracy of the
statements and claims made in such reports. If for example a company discloses the level of CO2
emissions during a period in its sustainability report, an environment auditor would verify the
assertion by gathering relevant audit evidence.

Compliance

In many countries, companies are required to conduct specific audit engagements other than the
statutory audit to comply with the requirements of particular laws and regulations. Examples of
such audits include:

 Verification of reserves available for distribution to shareholders before the declaration of

interim dividend
 Audit of the statement of assets and liabilities submitted by a company at the time of
liquidation
 Performance of cost audit of manufacturing companies to verify the cost of production in
order for a regulator to determine the maximum price to be allowed after allowing a
reasonable profit margin to companies operating in a sensitive sector (e.g. pharmaceuticals
industry)

Value For Money

Value for money audits involves the assessment of the efficiency, effectiveness and economy of an
organization's use of resources.

Value for money audits are increasingly relevant to sectors which do not have profit as their main
objective such as the public sector and charities. They are usually performed as part of internal
audit or public sector audit.

Need for Social Audit

Each business enterprise is not only connected with internal public but intimately connected with
external public also. The modem corporations are more powerful and command huge resources.
This power should not be used indifferently, irresponsibly or in an antisocial way. Its activities can
create much impact on the society. As such its impact over society cannot be ignored or taken
lightly. Its behavior not only affects the society but also creates problems to the Government. Thus,
social audit has become the need of the day.

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Is it me or is there a huge increase of almost epidemic proportions of social impact reporting
amongst organisations and social enterprises that wish to explain the social difference they make.

This is to be welcomed, but it does raise the question of how much credibility we should attribute to
these reports. Some of them are well-researched and detailed, others are more grandiose in their
claims – but surely there must be some way of ensuring they possess integrity and are a true
representation of what the organisation has achieved and the social impact it has made.

Understanding what changes as a result of an organisation’s actions is important, but it is also

important to know that the claims made, have integrity. Thus, in the same way that financial
accounts are given credence with an independent audit of the financial detail, it is clear that an
account of the social change achieved by or organisation should be independently audited. This
would enable on organisation to be confident of its claims and would show it to be accountable to a
wide range of its stakeholders as well as to the wider public.

Organisations often employ independent evaluators to assess the degree of change that has
happened as a result of their activity. This is fair enough, but it is expensive. Should an
organisation not, therefore, keep social accounts using a social book-keeping system comprising of
output and outcome information – and then subject that account to a ‘social’ audit? This would lie
alongside the financial accounts and provide a more holistic picture of an organisation’s
performance and impact.

Q6.Write short notes on the following:

Qa)Product Life Cycle

Ans:

The product life cycle is an important concept in marketing. It describes the stages a product goes
through from when it was first thought of until it finally is removed from the market. Not all
products reach this final stage. Some continue to grow and others rise and fall.

The main stages of the product life cycle are:

Introduction – researching, developing and then launching the product

Growth – when sales are increasing at their fastest rate

Maturity – sales are near their highest, but the rate of growth is slowing down, e.g. new competitors
in market or saturation

Decline – final stage of the cycle, when sales begin to fall

This can be illustrated by looking at the sales during the time period of the product.

Qb)Knowledge Management

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Ans:

Knowledge management (KM) is the process of creating, sharing, using and managing the
knowledge and information of an organization.It refers to a multi-disciplinary approach to
achieving organizational objectives by making the best use of knowledge.

An established discipline since 1991, KM includes courses taught in the fields of business
administration, information systems, management, library, and information sciences.Other fields
may contribute to KM research, including information and media, computer science, public health,
and public policy.Several universities offer dedicated Master of Science degrees in knowledge
management.

Many large companies, public institutions, and non-profit organisations have resources dedicated
to internal KM efforts, often as a part of their business strategy, information technology, or human
resource management departments.Several consulting companies provide advice regarding KM to
these organisations.

Knowledge management efforts typically focus on organizational objectives such as improved

performance, competitive advantage, innovation, the sharing of lessons learned, integration, and
continuous improvement of the organisation.These efforts overlap with organisational learning and
may be distinguished from that by a greater focus on the management of knowledge as a strategic
asset and a focus on encouraging the sharing of knowledge. KM is an enabler of organisational
learning.

Qc)Corporate Philanthropy

Ans:

Corporate philanthropy is a general term for the actions that businesses take to improve their
communities and society in general. Corporate philanthropy can include donations of money or of
time and labor at community centers or for improvement projects, or for fundraising for a cause.
There are both clear advantages to corporate philanthropy, especially on a large scale, and
disadvantages in spending time on the process.

Businesses are increasingly creating a culture of corporate philanthropic engagement, moving

beyond just grant checks to more strategic and effective giving. Today, many companies manage
highly visible, well-structured programs that span geographic borders and align corporate giving
with core business capabilities. The 21st century generation of corporate philanthropy is
transforming the arena once again, repositioning it as a comprehensive portfolio of strategic, long-
term, value-based programs.

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