MODULE – V

STRATEGIC EVALUATION AND CONTROL

INTRODUCTION

Strategic evaluation refers to the measurement and testing the efficiency of strategic decisions
and the effective implementation of business strategy to achieve desired business objectives.
It is advisable to identify the corrective steps and actions to achieve business efficiency. It is
considered as the final step of strategy management process. Strategic management
concentrates on formulating organisational objectives based on an analysis of the business
(internal and external) environment, formulating the plans and policies, controlling and
implementing the action plans to achieve the business results.

Continuous evaluation and monitoring is essential requirement of strategic management

process. The strategic evaluation and controlling process indicates the organization whether
the organizational objectives are achieved or not. The evaluation system concentrates on
three main aspects of strategy such as appropriate strategy, consistency and feasibility of
strategy. Strategy should be appropriate to achieve desired objectives of the organization and
it should be formulated as per the available resources and analyses of the internal and
external business environment. It should be feasible which implies easy implementation of
the strategic decision with available resources of the organization. Strategic management is
continuous nature of management process. Strategic evaluation is considered as the last stage
under the strategy management process. If there is difference between desired objectives and
achieved objectives, controlling process indicates steps for corrective actions. Strategic
evaluation and control process provides the right paths and directions to achieve desired
organisational goals. The controlling process makes sure about corrective strategies and
actions are required to achieve organisational target.

Definition given by Stahl and Grigsley, “Strategic evaluation and control is the process of
evaluating strategic plans and monitoring organizational performance so that necessary
corrective action can be taken. Today, it also indicates process of improvement in order to
preclude out of control situations from occurring and to continually provide greater value to
customers”.

NATURE OF STRATEGIC EVALUATION

The business environment is the current context in quite complex, volatile uncertain and
ambiguous. Change is inevitable and occurs very frequently. The organisation has to
continually adapt itself to adapt to the changing requirements of the environment.

Strategic evaluation is a complex system to undertake for the effective implementation of

management strategy and analyses for strategic decisions. There is need of evaluation for the
smooth functioning of strategic decisions and checking to achieve the set objectives of the
organization. It is essential to involve and cooperation from all the people of the
management. They should understand the evaluation process for the effective implementing
the strategy for the benefits of all stakeholders of the organization.

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The business environment is dynamic and complex in nature. The business environments are:

• Highly sensitive and complex in nature

• Unpredictable about the future and accuracy of business environment

• Globalisation and other factors also increase the flexibility of business environment which
make difficult to implement business strategies.

IMPORTANCE OF STRATEGIC EVALUATION

Most of the time, strategists have only concentrated their efforts to formulate strategic
decisions and implementation. They might ignore or overlook the strategic evaluation and
control process until situation warns. It is essential to measure the strategic decisions
effectiveness and controlling process to ensure the right directions of strategic plans and
policies.

The importance of strategic evaluation process may be described with the following points:

1. The strategic evaluation identifies the corrective steps and actions to achieve business
efficiency and effectiveness.

2. The strategic evaluation is not only focused to measure the result but also provides the
right paths and directions to achieve desired organisational goals.

3. The output of strategic evaluation is feedback which provides essential inputs for the future
strategic decisions or plans and polices of the organization.

4 The strategic evaluation is also related with performance appraisal system for reward and
recognitions which leads the motivation of employees and boosts the morale of the
employees in the organization.

5. Strategic evaluation process is beneficial for all organizations whether small, medium, or
large.

PROCESS OF STRATEGIC EVALUATION

The process of strategic evaluation starts with formulation of strategic decisions and plans as
per the available resources and analysis of the business environment to achieve the desired
organisational objectives. After the formulation of strategic plan the next step is effective
implementation of strategic plans within available resources to achieve desired result within
stipulated time. The process is shown below:

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Source: -The role of evaluation and control in strategic management HRC Group, Strategic
management briefing papers (1989).

Strategic evaluation process is to measure the efficiency and effectiveness of strategic

decisions. It identifies the desired results achieved by the strategic decisions. The controlling
process makes sure about corrective strategies and actions that are required to achieve
organisational goals.

STRATEGIC CONTROL

Strategic controlling is the process of monitoring and checking the performance of strategic
decisions, ensuring the effective implementation of strategic plans and polices, identifying
the problems and to take corrective actions whenever required for achieving the desired
organizational objectives. In other words it describes the controlling system for the effective
implementation.

Some of the definitions of strategic control are stated below:

Schreyogg and Steinmann (1987) have described Strategic Control as “the critical
evaluation of plans, activities, and results, thereby providing information for the future
action”.

According to Robert J Mockler, “Management control implies systematic efforts to set

standards to compare actual performance with the predetermined standards, to determine

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whether there are any deviations and to measure their significance so as to take any action
required to assure that all corporate resources are being used in the most effective and
efficient way”.

The above definition of Robert J Mockler has divided the controlling process in various steps
as follows.

i. To establish performance standards

ii. To measure organizational performance

iii. To measure the techniques

iv. To compare the performance with standards

v. To evaluate of deviations

vi. To take corrective actions

Strategic Evaluation and Control Process

1. To establish performance standards:

This is the beginning steps of controlling process. The organization should develop the
standards of performances. While fixing the standards, precaution should be taken about their

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specificity. Some standards may be difficult to quantify in explicit terms such as morale,
discipline, creativity etc. In such cases qualitative goals and design control mechanism are
useful for measuring the performance. The following are the some quantitative standards
against the performance can be measured.

• Time standard: The time factor should be considered to complete the task or goal of the
organization. It may be for measuring per hour unit of production, or in the sales, numbers of
sales are made by the executives in day, etc.

• Cost Standard: This describes the financial expenditure involved per unit of activity. It
could be material cost per units, cost of distribution or selling cost on per sales call basis.

• Income standard: It could be sales for the months, sales generated by sales executives in a
year, etc.

• Market share standard: It is emphasized on to increase the share of market. For example
company wants increasing the market share by 5 percent in the next 5 years.

• Return on investment: It is one the indicators which shows the various performance of
business such as turnover sales, working capital, production and operating costs and
Investment.

2. To measure organizational performance: After the finalized the goals or objectives of

the organization, the next step is controlling process to measure the actual achieved
organizational performance as compared the fixed goals or objectives of the organization.

3. To measure the techniques

It is one of the difficult tasks to measure the actual performance in the strategic decisions.
There are various techniques to measure the efficiency and effectiveness of strategic
management. What is to be measured, how to be measured, when to be measured or whether
to be measured continuously or periodically etc. are important objectives. These questions
provide right path for the measure the performance of strategy. The following are some of the
techniques of measurement:

a. Financial measures:-It indicates the financial condition of the business organization. It

involves various ratios, relationship of business variables to each other’s. Some of the
ratios which exhibit financial soundness of business are:
 Net Sales to Working Capital
 Current Ratio
 Liquid ratio
 Net profit to net sales ratio
 Net profit to Net worth ratio
 Collection period on credit sales

b. Production measures:-It is related with outcome of activities to the production related

effort. It involves pre controls, concurrent control and post controls measures.

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  Pre controls: - It involves the inputs of productions activities such as men, machines,
raw materials, capitals, etc. It is aimed at the control of quality of inputs for the desired
objectives. It ensures the skilled personnel as per the requirement with quality of raw
materials.
 Con-current control:-It is also known as Production Scheduling. It involves the
timeframe work for the production activity. Program Evaluation and Review techniques
(PERT) facilitates concurrent control.

 Post Control:-It is also known as “Feedback Controls”. It measures the results of

completed actions or production activities.

c. Marketing measures:-According to Smith, Arnold and Bizzell, there are five categories
to measures marketing performance.

 Sales analysis:-In this method, the actual sale is compared with projected sales. Any
deviation can be analysed with volume of sales.
 Market Share analysis:-It is calculation between Company’s Sales volumes to
competitor’s sales volume. It indicates the corporate image or goodwill of the company in the
competitive market
 Marketing expenses to sales ratio:-It includes the sales promotions expenses such as
marketing, advertising, publicity etc.
 Customer attitude tracking:-Customers are the centric point for every business.
Without customers, no one can survive in the competitive market. It is analysed the behaviour
of customers. Collected feedback with proper mechanism and maintain customer relationship
management.
 Efficiency Analysis:-It is focused on the efficiency of all marketing efforts to achieve
the desired sales in the market. It is involved the Sales force, Sales promotions and
techniques and distributions plans and polices etc.

4. To compare performance with standards: - The next step of controlling process is to

compare the actual performance with pre-determined performance with standards. If there are
not specified standards performances, It would be difficult to measure the performance and to
identify the efficiency and effectiveness of strategic decisions.

5. To evaluate deviations: - It is essential step before the deviation is corrected. The reasons
should be investigated. The main idea is to find the root cause for the deviations or problems
therefore it would never arise in the future also. The deviations may be positive or negatives.
The positive deviations are in various forms such as achievement of the target before the time
with less cost actually planned. The negative deviations may be low quality or quantity than
the standards, late schedule of production, increasing the cost of production as compared to
estimated costs etc.

6. To take corrective actions: - After the analysis and investigation, the final steps are
arrived to take corrective actions for remedy of the problem. The corrective actions should be

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consistant to the internal and external environment of business. It should be as per the
company’s culture, philosophy, labour unions, rules and regulation, etc. the following
guidelines should take into consideration while taking corrective actions.

 Management should identify the root cause of the problem instead of focusing on time
being solutions for the problems.
 It should be as per the company’s philosophy and rules and regulations.

TYPES OF STRATEGIC CONTROL

1. Premise Control in Strategic Control: Premise control is being checked continuously

and systematic whether the premises set during the planning and implementation process
is still valid. If any premise is not suitable to the internal or external situation, the strategy
would modify or change as per the requirement. It is always established during the
formulation of strategic planning process. It should be considered two basic environment
factors as follow.

 Environmental factors: It includes political, social, technological and economic

factors are prevailed in the external business environment
 Industry factors: It consists of Competitors, Supplier and Market conditions
available for the Industry.

2. Strategic Surveillance in Strategic Control: Strategic Surveillance is concerned within

and outside of the organization of various ranges of events that would effect on strategic

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decisions and policies. The main aim of Strategic Surveillance is monitoring of number of
information systems as well as encouraged the untapped information and opportunities for the
effective implementation of strategy. It is also similar to the environmental scanning to
identify new information’s and untapped opportunity. It is also helped to safeguard the
established strategy.

3. Implementation Control in Strategic Control: Implementation control strategies are

applied when the events are being started. It is involved numbers of events, plans; acts are
implemented to achieve organisational goals. It is further divided into two types such as

 Strategic thrusts or projects: - It provides relevant information that would help to

frame the effective strategy decisions and plans.
 Milestone reviews: - It is process to monitor and review the progress of strategy
through specific intervals or milestone achieved.

4. Strategic Alert Control in Strategic Control: It is applied at the time of unexpected

events or occurring suddenly situations which would impact on management strategy. It is
special alert control system for the rapid and meticulous reassessment of strategy. Strategic
alert control system is useful during the emergency situation such as natural disasters, plane
crashes, product defects, hostile, chemical spills, etc.

IMPORTANCE OF STRATEGIC CONTROL

Strategic control is process monitoring and evaluating of strategies to achieve the desired
objectives and make sure about the smooth functioning of management strategies. If the
desired objectives are not achieved then the corrective steps or actions are taken into
consideration.

It helps the Manager to obtain quality, innovation, consistency in the strategies, and complete
the target within stipulated time. The following are the importance of controlling process.

 Control and quality: Quality of the products or Services indicates the success and
progress path of the organization in the competitive environment. The feedback mechanism
under the evaluation systems played crucial role for the improvement of quality of the
product.
 Control and Efficiency: Efficiency indicates the output and input ratio of production
which includes all resources of the organization. It is involved the production and the efforts
of human resources. The controlling system makes sure about everything goes as per the
strategy if not the corrective actions should take for the efficiency under the production
process.
 Control and innovations: Strategic control leads towards innovative and creativity
through continues monitoring and implementing the effective actions to achieve desired
results. Strategic decision and policies ensure the appropriate controlling system and
evaluation increased the risk taking abilities and improved the skills of management.
 Control and customers satisfaction: The success of the strategic evaluation process
is to measure the satisfaction level of customers. An evaluation controlling system monitors

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and interacted with employees through proper system and boosts the employees’ morale to
provide better quality and services to the customers. Customers are the backbone of the
organization and if they satisfied then our business also survived and progress therefore it is
essential to maintain satisfaction level among the employee.

TECHNIQUES OF STRATEGIC EVALUATION AND CONTROL

Strategic evaluation is referred to the process of the measurements and testing the efficiency
and effectiveness of strategic decisions to achieve business objectives and taking the
corrective steps and actions if desired objectives not achieved.

Techniques of Strategic Evaluation are stated below:

1. Gap Analysis: This is one of the techniques which can identify the gap between the actual
achieved performance and expected performance of the organization as per the management
strategy. With the various business tools and ratio analyse, it can easily identify the gap
between actual and expected performance. Under the Financial measures the gap identify
with the help of various ratio, relationship of business variables to each other’s such as Net
Sales to Working Capital ,Current Ratio, Net profit to net sales ratio, etc. Under marketing
measures, the gap identify with the analyses of Sales, Market share, Competitors
performance, etc.

2. SWOT Analysis: This is one techniques of strategic evaluation to actual monitor the
performance of strategic decisions. SWOT describes as organization’s strengths, weaknesses,
opportunities and threats. The business environment is complex and dynamic nature and
consists of internal and external environment. It is an Unpredictable about the future and
accuracy of business environment. Internal Environment consists of organization’s strengths,
weaknesses and on other side external environment is only being provided only opportunities
and threats. The Evaluation system should analyse the internal and external environment of
business and plan organization’s strengths, weaknesses, opportunities and threats for the
effectively applicable business resources to achieve desired results.

3. PEST Analysis: This is one of the techniques used for the evaluation system of strategy.
The business atmosphere is highly sensitive and complex in nature. PEST denotes Political,
Economic, Social and Technological factors directly impact on the business. These are
essential factors should be considered while framing the strategy. The success of strategic
decisions is mainly depending on these factors. Political factors are considered rules and
regulation, legislatures, and environmental norms etc. Economic factors exhibits the
economic conditions prevailed in the market to identify opportunity and threats for the
business. Social factors show the behavior of customers, demographic pattern of customers
and about the values and tradition of people for adopted best suitable strategy. Technological
factors are highly sensitive and dynamic in nature. Today technology will be stale for
tomorrow exhibits the flexible or changing pattern of technology. Due to rapid changes in
technology cause the obsolete our plans and business strategies, these factors should consider
while framing the strategy of management.

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4. Benchmarking: It is technique of strategic evaluation to identify whether the organization
is achieved the expected results or not. If it is failed to achieve the expected result, then what
is the difference between actual result and expected result. The organization must set the
Standard performance is benchmark for the measuring actual performance. The regular
monitoring and measuring the performance of strategic plan and collection of data that
indicates actual result of the given activity and set the benchmark of activity.

5. Balanced scorecard: It is a method based on the identification of four key performance

measures i.e. customer perspective, internal business perspective, innovation and learning
perspective, and the financial perspective. This method is a balanced approach to
performance measurement. As a range of financial and non-financial parameters are taken
into account for evaluation.

6. Key factor rating: It is a method that takes into account the key factors in several areas
and then sets out to evaluate performance on the basis of these. This is quite a comprehensive
method as it takes a holistic view of the performance areas in an organization.

7. Responsibility Centres: Control systems can be established to monitor specific functions,

projects or divisions. Responsibility centres are used to isolate a unit so that it can be
evaluated separately from the rest of the corporation. There are five major types of
responsibility centres: Cost centres, Revenue centres, Expense centres, Profit centres and
Investment centres. Each responsibility centre has its own budget and. is evaluated on the
basis of its performance.

STANDARDS

Standards are the basis for evaluation of performance and are related to the goal of an
enterprise. They are the specific criteria required to be fulfilled by the workers. A standard is
the desired outcome or expected event with which managers can compare subsequent
activities, performance or change. Setting of standards is useful for an enterprise for the
following reasons:

a) They enable the employees to know their limitations of work and the expectations that the
managers have from them,

b) They enable the employees to know as to whether or not they possess the ability to
perform the work according to standards. If not, necessary training can increase the employee
potential,

c) They co-ordinate the individual goals with the organizational goals.

Types of Standards

A company must set the following standards:

1. Time Standard: These relate to the time that an employee should take perform a particular
activity; it may be a product or service rendered.

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2. Cost Standards: The products. produced or services rendered must be cost effective so
as to generate maximum profits for the firm, The cost standards specify the cost per unit of
the products produced.

3. Production Standards: Production standard specifies the number of units of a product

that should be produced within the time specified in the time standards. For example, the
company can set production, standards that each employee should produce 10 units of
product A in one hour.

4. Quality Standards; The quality standard aims at maintaining the quality of products. Not
only should the goods be cost effective, they must also be qualitative in nature.

Once the standards have been set, the workers perform their activities according to these
standards. The activities having been performed, how many units have actually been
produced, at what cost, within what time period is monitored by the managers.

BENCHMARKING

Benchmarking is the process of measuring a firm's performance against that of the top
performers in the industry. After determining the appropriate benchmark, firm's managers
then set goals to meet or exceed the performance of the firm's top competitors. Taken to its-
logical conclusion, competitive benchmarking - if practiced by all the firms in the industry,
would result in increased' industry-wide performance.

One of the best ways to develop distinctive competencies that contribute toward superior
efficiency, quality, innovation, and customer responsiveness is to identify best industrial
practices and to adopt it. Identifying best industrial practice involves tracking the practice of
other companies, and perhaps the. Best ways to do so is through benchmarking. This is the
process of measuring the company against the products, practices, and services of some of the
most efficient global competitors.

Benchmarking has become a central concern of mangers in quality commercial companies

worldwide. In structuring the internal analysis, managers seek to systematically benchmark
the costs and results of the smaller value activities against relevant competitors. The ultimate
objective in benchmarking is to identify the "best practices" in performing an activity, to
learn how to lower costs, fewer defects, or excellence are achieved. Benchmarking enables a
firm to take action to improve its competitiveness by identifying (and improving upon) value
chain activities where rival firms have comparative advantages in cost, service, reputation, or
operation.

Definition of Benchmarking

Robert Camp defines benchmarking as "Benchmarking is the search for industry best
practices that lead to superior performance".

San Bookhart defines benchmarking s "A standard of excellence or achievement against

which other similar things must be measured or judged".

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Types of Benchmarking

The different types of benchmarking are as follows:

1. Strategic benchmarking: This is attempted to improve a company's performance in

totality by analyzing and synthesizing the long-term strategies and plans executed by the best
practice companies for their continuing success in any sphere of activity around the world.

2. Functional benchmarking: This benchmarking is attempted for optimizing the functions

through benchmarking with another company in any business sector but engaged in a similar
function.

3. Process benchmarking: This is confined to improving specific, critical

activities/operations and is compared with companies that practice similar processes.

4. Competitive benchmarking: This benchmarking relates to performance characteristics of

the company's critical products and services. As this is a competitive benchmarking, this
involves identifying the best practices of the competitors.

5. Product benchmarking: The process of designing new-products or upgrades to current

ones. This process can sometimes involve reverse engineering which is taking apart
competitor's products to find strengths and weaknesses.

6. Financial benchmarking: Performing a financial analysis and comparing the results in an

effort to assess your overall competitiveness.

Benchmarking Process

1. Determining Benchmark Focus; During this phase the company determines the specifics
of the research project. (e.g., which companies will they include in the research, what types
metrics they will compare).

2. Planning and Research: During this phase the company puts the resources together to
implement the project (e.g., develop surveys, seek co-operation from other companies, find
databases already available).

3. Gathering Data: During this phase the data is collected through the methodology
determined in the planning and research phase.

4. Analysis: After gathering the data, the company, uses statistical techniques to examine
and create findings.

5. Recommendations: After analyzing the data and areas where the company, can improve,
recommendations are developed.

6. Implementation: After reviewing recommendations, the company implements those that

are feasible.

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COST BENEFIT ANALYSIS

Cost-benefit analysis (CBA) is a technique used to compare the total costs of a

programme/project with its benefits, using a common metric (most commonly monetary
units). This enables the calculation of the net cost or benefit associated with the programme.

As a technique, it is used most often at the start of a programme or project when different
options or courses of action are being appraised and compared, as an option for choosing the
best approach. It can also be used, however, to evaluate the overall impact of a programme in
quantifiable and monetised terms.

CBA adds up the total costs of a programme or activity and compares it against its total
benefits. The technique assumes that a monetary value can be placed on all the costs and
benefits of a programme, including tangible and intangible returns to other people and
organizations in addition to those immediately impacted. As such, a major advantage of cost-
benefit analysis lies in forcing people to explicitly and systematically consider the various
factors which should influence strategic choice.

Decisions are made through CBA by comparing the net present value (NPV) of the
programme or project's costs with the net present value of its benefits. Decisions are based on
whether there is a net benefit or cost to the approach, i.e. total benefits less total costs. Costs
and benefits that occur in the future have less weight attached to them in a cost-benefit
analysis. To account for this, it is necessary to 'discount' or reduce the value of future costs or
benefits to place them on a par with costs and benefits incurred today. The 'discount rate' will
vary depending on the sector or industry, but public sector activity generally uses a discount
rate of 5-6%. The sum of the discounted benefits of an option minus the sum of the
discounted costs, all discounted to the same base date, is the 'net present value' of the option,

PERFORMANCE GAP AHALYS1S

Gap Analysis can be understood as a strategic tool used for analyzing the gap between the
target and anticipated results, by assessing the extent of the task and the ways, in which gap
might be bridged. It involves making a comparison of the present performance level of the
entity or business unit with that of standard established previously.

Gap Analysis is a process of diagnosing the gap between optimized distribution and
integration of resources and the current level of allocation. In this, the firm's strengths,
weakness, opportunities, and threats are analyzed, and possible moves are examined.
Alternative strategies are selected on the basis of:

• Width of the gap

• Importance

• Chances of reduction

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If the gap is narrow, stability strategy is the best alternative. However, when the gap is wide,
and the reason is-environment opportunities, expansion strategy is appropriate, and if it is due
to the past and proposed bad performance, retrenchment strategies are the perfect option.

Types of Gap

The term 'strategy gap' implies the variance between actual performance and the desired one,
as mentioned in the company's mission, objectives, and strategy for reaching them. It is a
threat to the firm's future performance, growth, and survival, which is likely to' influence the
efficiency and effectiveness of the company. There are four-types of Gap:

1. Performance Gap: The difference between expected performance and the actual
performance.

2. Product/Market Gap: The gap between budgeted sales and actual sales is termed as
product/market gap.

3. Profit Gap: The variance between a targeted and actual profit of the company.

4. Manpower Gap: When there is a lag between required number and quality of workforce
and actual strength in the organization. It is known as manpower gap.

Stages in Gap Analysis

1. Ascertain the present strategy: On what assumptions the existing strategy is based?

2. Predict the future environment: Is there any discrepancy in the assumption?

3, Determine the importance of gap between current and future environment: Are changes in
objectives or strategy required?

RESPONS1B1LTY CENTRE

These are segments or departments of an organization. A responsibility centre is assigned to a

manager who is responsible for the performance of the centre. The centre is associated with
its inputs and outputs. The inputs are the physical or intangible resources by the centre. These
are measured in terms of costs expressed in monetary terms. The outputs are the performance
of the centre measured in terms of revenues generated by the centre.

Types of Responsibility Centres

The responsibility centres may be classified into the following types;-

1. Cost centres

2. Revenue centres

3. Profit centres

4. Investment centre

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1. Cost centres: A cost centre is a segment of the organization where inputs are used. The
inputs are measured in terms of costs and expenses. The manager of the cost centre is
responsible for the cost incurred and is not responsible for the revenue of such centre.

2. Revenue Centres: A revenue centre is a segment of division where the manager is

responsible for the revenue or sales. These are centres to which revenues can be attributed.
The performance evaluation of such centre is made by comparing actual revenues with
targeted revenues.

3. Profit centres: A profit centre is a product segment or product line to which both costs
and revenues can be attributed. These are the most important responsibility centres among all.
These centres are identified by the top management after a detailed analysis of all product
segments. The performance of profit centre is evaluated by comparing actual profits with
targeted profits.

4, Investment centres: An investment centre is a segment using assets or investments for

generating profits. The manager of the centre is responsible for the effective use of assets
under his control and generating targeted profits. The performance of the Investment centre is
evaluated on the. Basis of Return on Investment.

STRATEGIC MANAGEMENT IN SMALL BUSINESS

A small is established by a single person or a small group of close friends/family members. In

India, small scale sector has been defined as follows:

1. In Case of Manufacturing Enterprise:

a. A micro enterprise is one in. which the investment in plant and machinery does
not exceed Rs.25 Lakh.

b. A small enterprise one in which the investment in plant and machinery is more
than Rs.25 Lakh but does not exceed Rs. 5 crore.

c. A medium enterprise is one in which the investment in plant and machinery is

more than Rs. 5 crore but does not exceed Rs. 10 crore.

2. In Case of Service Enterprise:

a. A micro enterprise is one in which the investment in plant and machinery does
not exceed Rs. 10 lakh.

b. A small enterprise is one in which the investment in plant and machinery is more
than Rs. 10 lakh but does not exceed Rs. 2 crore.

c. A medium enterprise is which, the investment in plant and machinery is 'more

than Rs. 2 crore but does not exceed Rs. 5 crore.

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3. Small Scale Unit Owned and Managed by Woman Entrepreneur: An enterprise
promoted by a woman entrepreneur and in which women own not less than 51 percent. Share
capital.

4. Village Industry: An industry located in a rural area which produces any goods, renders
any service with' or without the use of power and wherein investment does not exceed Rs.
50,000 per head.

STRATEGIC ISSUES IN SMALL BUSINESS

The strategic issues involved in small business -are as follows:

1. Mature of Business: First of all, the small entrepreneur has to decide the type of business
to be undertaken. The entrepreneur usually chooses a line of business in which he has
knowledge, skill, aptitude and experience.

2. Scale of Operations: The size of business to be undertaken will depend on the

managerial, financial, risk-bearing capabilities of the entrepreneur. It is preferable to begin
with small size and gradually expands the operations.

3. Form of Ownership: -A small scale business may be organized in either of the three
forms- sole proprietorship, limited liability partnership, and one person company. In single
proprietorship, the single owner controls the business. It offers benefits of quick decisions,
ease of formation, uniform policies, tight control and secrecy of business. But the single,
owner may be unable to finance and manage the business and assumes the risk beyond a
certain size.

4. Sources of Funds: Small firms may raise funds from the following sources:

a) Self-financing - funds contributed by the proprietor or partners

b) Loans from friends and relatives

c) Loans from banks and financial institutions

d) Incentives and subsidies from government agencies.

5. Marketing Methods: The marketing mechanisms depend on the type of business. For
example, a grocery shop sells directly to consumers. On the other hand, a small
manufacturing unit may supply all its output to a big buyer. But the firm's future is dependent
on the buying firm and on the terms it gets due to its weak bargaining power.

6. Process of Learning: A small scale entrepreneur is inspired mainly by the desire to be

his own boss. Therefore, his focus is on survival and organic growth rather than rapid or
major growth. A small firm usually does not have a formal training system. Therefore, its"
staff must share their knowledge and experience for mutual learning.

7. Succession planning: When a small firm expands beyond the managerial capacity of the
owner, it requires additional executives. Generally, family members are moped in because

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they are trusted by the owner. But the business may suffer in case the family members do not
work as a close team.

Small forms usually lack formal system to monitor the environment, make forecasts or
evaluate and control strategy. They depend on experience and intuition. Therefore, strategic
planning in small firms tends to be less formal and systematic.

STRATEGIC ISSUES IN MON-PROFIT ORGANISATIONS

1, Strategic Piggybacking: When a non-profit organization develops a new activity to

generate funds needed to make up the deficit in its budget, it is known as piggybacking. The
new activity is undertaken mainly to subside the primary activities. The non-profit
organization invests in new, safe cash cows to funds its current cash-hungry stars. Before
taking up a revenue-generating activity, a non-profit organization must consider the
following:

a) Finding a market for its products/services.

b) Enough people must be available to nourish and sustain the income-earning venture over
the long time. •

c) Trustees must support the income-earning venture.

d) Management must adopt an entrepreneurial attitude and take interest in innovative ideas
which are practical.

e) Enter into a joint venture with a business organization to secure necessary funds,
marketing and management support for the new activity.

2. Inter-organizational Linkage: Another strategy adopted by non-profit organizations is

to develop co-operative ties with other organizations so as to acquire resources and increase
the ability to serve clients efficiently.

3. Linkage with a Profit-making Organization: This strategy is employed to augment

funds, marketing and management. Educational institutions, particularly business schools,
adopt this strategy. They get funds, guest faculty, and jobs for their graduates, etc. Therefore,
management and engineering institutes tie up with business houses.

4. Mission-driven Work Culture; In order to be successful, a non-profit organization

must develop mission-driven work culture. Clients or beneficiaries of such an organization
have no control over its activities. Therefore, managers and employees of the organization
must decide and act not in their self-interest but in the interest of beneficiaries.

5. Managing Multiple Stakeholders: There are several stakeholders in a non-profit

organization and each stakeholder group tries to influence its decision making in its own
favor.- Founders/trustees, government agencies which provide grants, major donors,
employees and recipients of paid services are these stakeholders. The final outcome depends
upon the relative power of various stakeholders.

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This situation may lead to goal displacement which means displacement of original goals by
goals of most powerful stakeholders. For example, several educational institutions set up as
non-profit focus on earning money for their founders/trustees.

6. Mobilization of Resources: A vast majority of non-profit organizations face shortage of

funds. In order to generate funds they can take the following steps:

a) Finding new donors and persuading the existing donors to contribute more.

b) Persuading government agencies to give more grants.

c) Collaborating with other organizations having similar goals.

d) If possible, taking up income generating activities.

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