Vuca Management Unit I

VUCA MANAGEMENT UNIT I
Introduction to Volatility, Uncertainty, Complexity, Ambiguity (VUCA) – Significance – Challenges

in Business - Digitalization, Globalization, and Social Inclusion.
1.0 Introduction
VUCA is an acronym for Volatility, Uncertainty, Complexity and Ambiguity. Management is always
concerned with future for its decision making purpose. But ever thing management tries to
visualize filled with these four risk factors, if left unmanaged the art of management becomes
nothing less than the art of gambling. The term VUCA world implies a situation of business decision
making where management of these four factors becomes vital than need.
1.1 VUCA
VUCA is an acronym first used in 1987 to describe or to reflect on the volatility, uncertainty,
complexity and ambiguity of general conditions and situations drawing on the leadership theories
of Warren Bennis and Burt Nanus
Volatility : It basically tells about the velocity with which change happens. Software industry is
considered to be more volatile than automobile industry. Derivative market is more volatile than
stock market. When change is expected to happen and one is referring to its speed, then he is said
to be dealing with volatility. Understanding and measuring of the volatility is of paramount
importance in business decision making.
Uncertainty : Lack of perfect information about state of nature. For example we know there will be
demand, we also have information that it’s likely to be more but we don‘t know how much it’s going
to be. Management course of action depends on state of nature, so attempting to predict a state of
nature means dealing with uncertainty. Success of decision depends on how nearly we predicted
the state of nature and course of action matched to it.
Complexity : Multiplicity of several factors involved at a time. In attempting to develop a
mathematical model, analysts try to help managers by providing them with an input out model.
Managers need not be mathematicians for this purpose. Once a business model is developed and
found accurate in application, managers provide required input and base their decision making
skills on output from the model. But the problem is multiplicity of factors.
For example an Uncertain Demand forecasting model has to consider many factors like price of the
product, price of substitute, complementary products, tastes and habits of consumers, product life
cycle stage, new inventions around the world, Government enactments on essential goods, taxes
etc. Exclusion of any of these factors effects accuracy of the model and inclusion of everything
makes the model complex in development stage and also in application stage as well.
Ambiguity : Lack of clarity on the meaning or conceptual understanding. In VUCA world ambiguity
refers to a situation of zero information. In such situation decision makers to be flexible enough to
react in a suitable manner to such ambiguous events occur. Col. Eric G.K ail defines ambiguity in the
VUCA model as the inability to accurately conceptualize threats and opportunities before they
become lethal. Thus the causes and the who, what, where, how, and why behind the things that are
happening (that) are unclear and hard to ascertain
1.2 Growing importance of VUCA

The experiences of high-tech companies in the last few decades who failed to navigate the rapid
changes is a warning to all the businesses, institutions and nations. Even those survived also facing
these inevitable changes but lack the leadership, flexibility and imagination to adapt not because
they are not smart or aware, but because the speed of change is simply overwhelming them. This
rapid flattening, as Friedman calls it, is creating a new environment that strategic business leaders
are increasingly calling a VUCA environment. Coined in the late 1990‘s, the military-derived
acronym stands for the volatility, uncertainty, complexity, and ambiguity terms that reflect an
increasingly unstable and rapidly changing business world. This new VUCA environment will
require HR and talent management professional’s to change the focus and methods of leadership
mnnappaji@gmail.com VUCA Management
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development. The Boston Consulting Group (BCG) concurs. A recent BCG study concluded that
organizations today must shift their business models and their leadership skills to become adaptive
firms. Adaptive firms can adjust and learn better, faster, and more economically than their peers,
giving them an adaptive advantage. Adaptive firms, the study notes, include Apple, Google, 3M,
Target, and Amazon.HR and talent management professionals must position their organizations to
succeed in today‘s turbulent business environment by developing agile leaders. Applying the VUCA
model as a framework to re-tool leadership development models may enable HR and talent
management professionals to identify and foster the leaders their organizations need now and in
the future.
1.3 Business value of VUCA

Anticipate the Issues that Shape Conditions
Understand the Consequences of Issues and Actions
Appreciate the Interdependence of Variables
Prepare for Alternative Realities and Challenges
Interpret and Address Relevant Opportunities
1.4 Origin and Development of VUCA

The notion of VUCA was introduced by the U.S. Army War College to describe the more volatile,
uncertain, complex, and ambiguous, multilateral world which resulted from the end of the Cold War
(Kinsinger & Walch, 2012). The acronym itself was not created until the late 1990s, and it was not
until the terrorist attacks of September 11, 2001, that notion and acronym really took hold. More
frequent use and discussion of the term "VUCA" began from 2002 and derives from this acronym
from military education. It has subsequently taken root in emerging ideas in strategic leadership
that apply in a wide range of organizations, from for-profit corporations to education. VUCA was
subsequently adopted by strategic business leaders to describe the chaotic, turbulent, and rapidly
changing business environment that has become the new normal. By all accounts, the chaotic new
normal in business is real. The financial crisis of 2008-2009, for example, rendered many business
models obsolete, as organizations throughout the world were plunged into turbulent environments
similar to those faced by the military. At the same time, rapid changes marched forward as
technological developments like social media exploded, the world‘s population continued to
simultaneously grow and age, and global disasters disrupted lives, economies, and businesses
1.5 Historic perspective – VUCA
In the resent past it was identified at that sometimes the final decision by executives on strategic
investments is made during the yearly medium-term planning process. Controlling can hardly
anticipate "VUCA-events", hut it can rate the risk of investments at a certain point of time and
activate discussions and solutions findings as part of a medium-term strategic interactive system.
This may he emphasized by two examples:
The CFO of a global truck and bus manufacturer had stopped further investments in additional
production capacities despite of good actual reporting figures, positive medium term demand
forecast and the existing strategic plan of the board of management. This decision was not
backed by ''extensive" reports. Just a few macroeconomic information, intuition and experience
lead to this decision. The value of leadership became clear I year later during the financial crisis
2008/2009.
An engineering company had developed and produced prototypes of a machine for the Asian
market. Due to a few new market insights for changing customer demand and just 3 months
before the presentation at an Asian trade fair the family-owner decided to redesign major
technical parts of the machine. Under the leadership of the owner, at the sacrifice of the
Christmas holiday, the workforce developed and produced the new. successful model of the
machine, timely for the Asian fair. Therefore a medium-term strategy and planning has become
more important for big players as also medium-sized enterprises.

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2.0 Challenges in Business - Digitalization, Globalization, and Social Inclusion
To-day the business environment is so dynamic that change had become the order of the day.
Managing such change in light of digitalization, globalization and through social inclusion is the
need for the hour for every business manager.
2.1 Digitalization
Digitalization can be defined as a system developed by business to match the informational needs
through the aid of information technology. Management information system, Executive information
system and Decision support system are all the outcomes of digitalization of business process.
Under VUCA environmental conditions, business decision making need to be very much
spontaneous that a slow decision based on manual information sources is of no use. As see in VUCA
world, velocity of change is very fast and a delayed decision in response is equal to a denied
decision.
Management Information System (MIS): A management information system (MIS) is a computer
system consisting of hardware and software that serves as the backbone of an organization's
operations. An MIS gathers data from multiple online systems, analyzes the information, and
reports data to aid in management decision-making. While management information systems can
be used by any and every level of management, the decision of which systems to implement
generally falls upon the chief information officers (CIO) and chief technology officers (CTO). These
officers are generally responsible for the overall technology strategy of an organization including
evaluating how new technology can help their organization. They act as decision makers in the
implementation process of new MIS.
Executive Information Systems (EIS): A executive information system (EIS), also known as an
executive support system (ESS), is a type of management support system that facilitates and
supports senior executive information and decision-making needs. It provides easy access to
internal and external information relevant to organizational goals. It is commonly considered a
specialized form of decision support system (DSS).EIS emphasizes graphical displays and easy-to-
use user interfaces. They offer strong reporting and drill-down capabilities. In general, EIS are
enterprise-wide DSS that help top-level executives analyze, compare, and highlight trends in
important variables so that they can monitor performance and identify opportunities and problems.
EIS and data warehousing technologies are converging in the marketplace.
Decision Support System (DSS):A decision support system(DSS) is an information system that
supports business or organizational decision-making activities. DSSs serve the management,
operations and planning levels of an organization (usually mid and higher management) and help
people make decisions about problems that may be rapidly changing and not easily specified in
advance—i.e. unstructured and semi-structured decision problems. Decision support systems can
be either fully computerized or human-powered, or a combination of both.
2.1.1 Advantages
Digitalization of business processes provides wide spectrum of value to the business. Dreaming to
manage the business organization in VUCA conditions will remain as a far cry, unless digitalization
is practiced at desired levels.
1. Quick decisions : Information needs of the management are meet in no time (real time)
using computerized data processing and digitalized report generating. This will in turn
through the aid of specialized applications (accounting software’s or computer aided audit) can
further process the inputs in a manner more useful for quick decision of managers.
2. Process wise management : Current management practice of managing on functional wise is
age old and in dealing with volatility conditions management need to have full control over
processes than on functions ( Human resource marketing and finance). A collection of
activities is called a process and a collection of process is called business. So today the style of
management needs to be Business process management rather than traditional functional.
3. Product differentiation: We need to identify that current uncertainty conditions does not
allow any business to standardize their products. As such product differentiation is going to
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be a certainty. Therefore having control and expertise over process is more important for
making required changes as when demand arises for a change. Computerized information
resources and with aid of special purpose application tools, new product model and their cost
of production and profit margins etc can be developed virtually. We need process leaders who
can quickly adapt to changes using the digitalized process information.
4. Environmental Friendly : Digitalization not only increases the speed of information
transformation, it shall also avoid use of paper and printing chemical whose manufacture is
not eco- friendly in nature.
5. Drilling down capabilities : With digitalization special purpose application software helping
business organization link with external research centers in obtaining latest information on
every change in real time to increase the informational efficiency. Opportunities and threats
can thus be analyzed quickly by management due to these drilling down capabilities which
fetch information external to the organization. Example changing direct and indirect tax rules
and case laws, economic conditions in the country and forecast for near future by experts in
the industry etc.
6. Cost effectiveness : In light of the direct and indirect benefits to be derived from the
digitalization, return on investment or payback of capital expenditure is likely to be
economically feasible for all business with considerable size.
7. Strategic position : Sustainability and long term survival is the major challenge faced by
business entities around the globe. For this every business want to effective in terms of cost
and profitability. In this competitive era no business can charge its ineffectiveness on
consumers. Digitalization is only available way for reaching this strategic position.
8. Connecting with suppliers and customers: Increased use of web applications, speed of
internet and intranet to day allows connecting with anyone. Managing your business partners
through the use of supply chain management and customer relationship management is done
so easily with special purpose applications and mobile apps.
9. Automation: This is the ultimate benefit that can be derived by any business which uses
digitalization at its optimum levels. Built in programs concept in the application can
automatically perform certain tasks on its own. Example generating an acknowledgement,
email etc.
2.1.2 Disadvantages
While there are many advantages and business values associated with digitalization of business
process, there certain disadvantages which are sometimes too dangerous that they make business
vulnerable to further conduct business.
1. Cyber security threats: Recent Ransom virus is an example that hit many developed
countries and many banks and government services were shutdown to recover from it.
Processing of data in computerized environment is dependent on proper functioning of all sub
systems and application programs. As such errors or threats at any stage can falter business
activities.
2. Cost of acquisition: For use of information technology the organization need to of
considerable size. Otherwise there will be diseconomies of scale and average cost to be borne
by businesses will be very high.
3. Compatibility problems: Information systems developed by organization will suite to current
technology conditions and any change in current technology needs re-development of system
which cost a lot to business entities. Example changes in windows versions
2.2 Globalization: Growth prospects of an economy and business units working in it will be limited
in a closed or isolated system. Supply cannot be matched with demand in the absence of
international opportunities made available to entities. Pricing mechanism tends to be imperfect
for closed economies. Thus globalization means converting a closed or semi opened economy to
international trade and commerce, which at its full scope will have unrestricted investment,
exports and imports of goods and services across the globe. Liberalization is a process through
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which these restrictions are removed and foreign investment opportunities are increased.
Globalization is in fact the main reason for increase in volatility conditions in business
environment. But for long run sustainability of business, if opportunities are taken up in right
spirit and threats are managed with ability globalization can reduce the VUCA conditions
pertaining to the business. Thus uncertainty conditions can be insured due to multinational
diversification. It means globalization can reduce business risk conditions when business
operations increased to considerable scale in international level.
2.2.1Globalization challenges to Businesses

While managing the globalization by entering foreign markets or defending a new entrant in our
domestic territory, a business faces certain challenges in managing the impacts. Important among
them are:-
1. Inconsistent Ethical standards : Many business enterprises in India, find business
practices of foreign entities as unethical to local business standards. This is in fact influenced
by protected economy transforming into competitive conditions. So ethical dilemma arises
in framing strategies due to variation in ethical standards between various nations. For
example entertaining intoxicated drinks in business meeting with customers and suppliers
not unethical for western culture.
2. Customer expectations : Being global increases the expectation levels on the business.
Hence to maintain the standards of quality and quantity, certain strategies have to removed
from available alternatives. Organization cannot compromise for short term survival in light
of global standards expected from it.
3. Cost of doing business : The cost of doing business at multinational level naturally
increases. So financing the increased working capital needs and investments is a major
concern. An increased fixed cost on the other hand increases the business risk to break even.
Thus overall business risk increases for the business.
4. Cultural barriers : Operating in cross cultural conditions need good knowledge on
managing cultural barriers that are quite common. For effective marketing organization
need to invest additional costs to reach customers with separate strategies.
2.2.2 Impact of Globalization on VUCA world

The business arena has become increasingly globalized. Governments have collaborated to work
toward more mutually beneficial trade policies in many instances to promote cross border
business exchanges. The Internet has created a virtual global marketplace, which allows even
small businesses to easily and affordably gain access to a global marketplace. In a globalized
economy, primary trends indicate increase in volatility and uncertainty conditions. A change or a
crisis at any place on the globe is going to have its impact on domestic business due to global
connectivity of investments. It‘s quite evident from Indian capital markets responding to
international capital markets. When the business leadership is proactive enough to anticipate and
adapt to fast changing global scenarios, it can cope up with change and experience a decreased
level of business risk due to globalization in VUCA world. It all depends on agile leadership that can
respond with equal speed to complexities thrown by international markets.
2.3 Social Inclusion

Social Inclusion is a process of improving the status of individuals and groups in terms of their
opportunities and abilities to participate in economic development. Social inclusion, also referred
to as social integration or social cohesion, represents a vision for a society for all in which every
individual has rights, responsibilities and an active role to play. Referring to historical perspectives,
it is established that opportunities were denied or disadvantage was created unknowing their
implications and long run costs.
2.3.1 Need for Social Inclusion

Managing in VUCA world should consider the need for social inclusion for sustainable development.
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Development of leadership and decision making capabilities by including the lower level managers
in the process is also a social inclusion process. It provides opportunity to those denied the chance
of providing suggestions at gangplank level.
Social Inclusion at business level implies providing opportunity for those who didn‘t get
opportunity to improve their status due to earlier discriminations in terms of religion, caste,
physical disability and gender inequality.
Providing opportunity to participate in decision making aspects to lower level employees who
are otherwise not allowed to share ideas in the development of enterprise.
Organizations which are socially responsible are likely to gain society support even during
the VUCA conditions.
Due to additional cost or sacrifices in the process of social inclusion, it seems we are
increasing the business risk, but when compared with likely costs or consequences that an
entity had to face if social exclusion is continued, such costs are negligible.
Sustainable development of the enterprise is not complete without social inclusion.
2.3.2 Measures and strategies for social inclusion:

At macro level economic policy frame work of government must provide guidance measures and
strategies for inclusive growth. UNICEF India recognizes that while social protection is important
for societies in general, it is crucial to reach the most vulnerable children and families for whom
barriers tend to remain even when services and national human development averages improve.
MGNREGA (Mahatma Gandhi National Rural Employment Guarantee Act) aims at poverty
eradication through social inclusion of poor.
Identification of projects and programs that will address social inclusion.

Development of a system to measure the cost of exclusion
Prioritize loan facilities by banks to areas that can promote social inclusion
Strategies and action plans to be developed to remove gender based inequality
Rules and regulations to be amended in such a way that poverty eradication is possible
through social inclusion.

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UNIT II
Sensitive Analysis – Capital Expenditure decisions under risk & Uncertainty – Introduction to
Financial Derivatives – Turnaround Strategies (theory only)
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1.1Sensitivity Analysis
All decisions that business managers take are forward looking. Decisions need to be based
on expected values as correct information is not available regarding future. So uncertainty
cannot be avoided in business decisions. Sensitivity analysis is a statistical tool that determines
how consequential deviations from the expected value occur. Sensitivity Analysis deals with
finding out the amount by which we can change the input data for the output of our linear
programming model to remain comparatively unchanged. This helps us in determining the
sensitivity of the data we supply for the problem. It also helps to determine the optimal levels of
each input.
Sensitivity Analysis is defined as the technique used to determine how different values of
an independent variable will impact a particular dependent variable under a given set of
assumptions. It is used within specific boundaries that will depend on one or more input
variables, such as the effect that changes in interest rates will have on a bond's price.
Also known as "What if Analysis. Till now in our analysis we have assumed that all the
quantitative factors in the investment decisions i.e. cash inflows, outflows, cost of capital
(discount rate) and duration of the project are known with certainty, whereas it rarely happens.
Sensitivity analysis helps to overcome this problem. It should be noted sensitivity analysis can
be applied to a variety of planning activities not just to capital budgeting decisions. This analysis
determines how the distribution of possible NPV or internal rate of return for a project under
consideration is affected consequent to a change in one particular input variable. This is done by
changing one variable at one time, while keeping other variables (factors) unchanged.
Sensitivity analysis begins with the base-case situation which is developed using the expected
values for each input. If provides the decision maker with the answers to a whole range of
―what if ― questions.
1.2Applications
Estimates of cash flows are based on assumptions about the economy, competitors,
consumer tastes and preferences, construction costs, and taxes, among a host of other possible
assumptions. One of the first things managers must consider about these estimates is how
sensitive they are to these assumptions. For example, if we only sell 2 million units instead of 3
million units in the first year, is the project still profitable?
Or, if Government increases the tax rates, will the project still be attractive?
We can analyze the sensitivity of cash flows to change in the assumptions by re-estimating
the cash flows for different scenarios. Sensitivity analysis, also called scenario analysis, is a
method of looking at the possible outcomes, given a change in one of the factors in the analysis.
Sometimes we refer to this as ―what if analysis-what if this changes,-what if that changes, and
so on.
1.3 Need for Sensitivity Analysis

Sensitivity analysis can be useful for a number of reasons, including:
1. Support decision making or the development of recommendations for decision makers
(e.g., testing the robustness of a result)
2. Enhance communication from models to decision makers (e.g., by making recommendations
more credible, understandable, compelling or persuasive).
3. Increase understanding or quantification of the system (e.g., understanding relationships
between input and output variables).
4. Model development (e.g., searching for errors in the model).

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1.4 Measurement of sensitivity analysis:
Below are mentioned the steps used to conduct sensitivity analysis:

1. Firstly the base case output is defined; say the NPV at a particular base case input value
(V1) for which the sensitivity is to be measured. All the other inputs of the model are kept
constant.
2. Then the value of the output at a new value of the input (V2) while keeping other inputs
constant is calculated.
3. Find the percentage change in the output and the percentage change in the input.
4. The sensitivity is calculated by dividing the percentage change in output by the
percentage change in input.
This process of testing sensitivity for another input (say cash flows growth rate) while keeping the
rest of inputs constant is repeated till the sensitivity figure for each of the inputs is obtained. The
conclusion would be that the higher the sensitivity figure, the more sensitive the output is to any
change in that input and vice versa.
1.5 Various techniques of Sensitivity Analysis

Differential sensitivity analysis: It is also referred to the direct method. It involves solving
simple partial derivatives to temporal sensitivity analysis. Although this method is
computationally efficient, solving equations is intensive task to handle.
One at a time sensitivity measures: It is the most fundamental method with partial
differentiation, in which varying parameters values are taken one at a time. It is also called
as local analysis as it is an indicator only for the addressed point estimates and not the entire
distribution.
Factorial Analysis: It involves the selection of given number of samples for a specific
parameter and then running the model for the combinations. The outcome is then used to
carry out parameter sensitivity.
Through the sensitivity index one can calculate the output % difference when one input
parameter varies from minimum to maximum value.
Correlation analysis helps in defining the relation between independent and dependent
variables.
Regression analysis is a comprehensive method used to get responses for complex models.
Subjective sensitivity analysis: In this method the individual parameters are analyzed.
This is a subjective method, simple, qualitative and an easy method to rule out input
parameters.
1.6 Using Sensitivity Analysis for decision making

One of the key applications of Sensitivity analysis is in the utilization of models by
managers and decision-makers. All the content needed for the decision model can be fully
utilized only through the repeated application of sensitivity analysis. It helps decision
analysts to understand the uncertainties, pros and cons with the limitations and scope of a
decision model. Most if not all decisions are made under uncertainty. It is the optimal
solution in decision making for various parameters that are approximations. One approach to
come to conclusion is by replacing all the uncertain parameters with expected values and
then carry out sensitivity analysis. It would be a breather for a decision maker if he / she has
some indication as to how sensitive will the choices be with changes in one or more inputs.
1.7 Uses of Sensitivity Analysis

The key application of sensitivity analysis is to indicate the sensitivity of simulation to
uncertainties in the input values of the model.
They help in decision making.
Sensitivity analysis is a method for predicting the outcome of a decision if a situation turns out
to be different compared to the key predictions.
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It helps in assessing the riskiness of a strategy.
Helps in identifying how dependent the output is on a particular input value. Analyses if the
dependency in turn helps in assessing the risk associated.
Helps in taking informed and appropriate decisions
Aids searching for errors in the model
1.8 Advantages and disadvantages of Sensitivity Analysis

Critical Issues: This analysis identifies critical factors that impinge on a project's
success or failure.
Simplicity: This analysis is quite simple.
Following are main disadvantages of Sensitivity Analysis
Assumption of Independence: This analysis assumes that all variables are independent i.e.
they are not related to each other, which is unlikely in real life.
Ignore probability: This analysis does not look to the probability of changes in the variables.
Not so reliable: This analysis provides information on the basis of which decisions can be
made but does not point directly to the correct decision
1.9 Scenario Analysis:

Although sensitivity analysis is probably the most widely used risk analysis technique, it does have
limitations. Therefore, we need to extend sensitivity analysis to deal with the probability distributions
of the inputs. In addition, it would be useful to vary more than one variable at a time so we could see
the combined effects of changes in the variables. Scenario analysis provides answer to these situations
of extensions. This analysis brings in the probabilities of changes in key variables and also allows us to
change more than one variable at a time. This analysis begins with base case or most likely set of
values for the input variables. Then, go for worst case scenario (low unit sales, low sale price, high
variable cost and so on) and best case scenario. In other words, scenario analysis answers the
question ―How bad could the project look!. Some enthusiastic managers can sometimes get carried
away with the most likely outcomes and forget just what might happen if critical assumptions such as
the state of the economy or competitors reaction are unrealistic. This analysis seek to establish ̳or
stand best scenarios so that whole range of possible outcomes can be considered
Conclusion
Sensitivity analysis is one of the tools that help decision makers with more than a solution to a
problem. It provides an appropriate insight into the problems associated with the model under
reference. Finally the decision maker gets a decent idea about how sensitive is the optimum
solution chosen by him to any changes in the input values of one or more parameters.
2.1 Risk and Uncertainty in Capital budgeting

Risk denotes variability of possible outcomes from what was expected. Standard Deviation is
perhaps the most commonly used tool to measure risk. It measures the dispersion around the mean
of some possible outcome. If investors are risk averse, the management shall be duty bound to
select investment proposals after doing a careful analysis of the risk associated. Because investment
proposals contain different degrees of business risk, it is necessary to analyse not only their
expected profitability but also the possible deviations from those expectations. When this is done,
risk is expressed in terms of the dispersion of the probability distribution of possible net present
values or possible internal rates of return and is measured by the standard deviation. Consider an
example of a single project in which the cash flows are independent from period to period.
Following details are provided

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Independent cash flows from period to period implies that the outcome in perod t does not depend
upon what had happened in period t-1. As you would have noticed, there are several projections for
the same period having different probabilities attached to themselves. Multiple probabilities along
with multiple projections of cash flows shall result in possible multiple NPVs and IRRs. The mean of
the probability distribution of possible net present values is calculated by using the following
formula;
We use the risk free rate as the rate of discounting because our immediate task is to ascertain the
riskiness of the investment because of which we need to isolate the time value of money. In case we
include a premium for risk in the discount rate e.g. in cases where cost of capital is used as the
discounting factor, we resort to imbibed double counting with respect to our analysis. This happens
because the premium of risk imbibed in the discount helps address the risk by itself in the
discounting process. A subsequent analysis of risk over such a risk adjusted result would be a
second time adjustment and hence would be inappropriate. Standard Deviation – The following
formula may be used to compute this important measure ofdispersion.
In the example above the standard deviation of possible net cash flows in periods 1,2 and 3 is `
1,140. Using a risk free rate of 6% the standard deviation shall work out to be ` 1,761. Also if we
employ the same risk free rate in the equation for the mean of the probability distribution of NPV,
the latter would work out as ` 1,635. Assuming a normal probability distribution, it shall be possible
to compute the probability of an investment proposal providing more or less than a specific
amount. The concept of risk till now has been applied for NPV computation. The same concept
holds true for IRR also. We have examined the case of serially independent cash flows‘ over time.
However, frequently we come across situations where the cash flows of time period t+1‘ is
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dependent on the cash flows of time period t For example, the level of marketing capabilities of a
firm to push through its products in time t+1‘ will invariably depend on the market share it has
carved for its products in time period t. This temporal dependency has two following possibilities,
arising from the potency of the cash flow impact: 1. Cash flows are perfectly correlated over time: In
cases where cash flows in period t + 1 are entirely dependent upon what happened in period t then
perfect correlation is said to exist. In such cases, standard deviation is computed using thefollowing
formula
In case we compute the standard deviation from the data given in Table 1 assuming perfect
correlation, we shall arrive at ` 3,047 which is significantly higher than the ` 1,761 computed with
assumptions of serial independence. 2. Cash flows are moderately correlated over time: In cases
where cash flows are moderately correlated over time, the standard deviation is computed as
follows:
Where NPVt is the net present value for series t of net cash flows covering all periods, NPV is the
mean net present value of the proposal and Pt is the probability of occurrence of that specific
series.
2.2 Methods of IncorporatingRisk:

The methods of incorporating risk into capital budgeting analysis can be broadly catergorised as
follows:
1. Risk Adjusted Discount Rate Method: The use of risk adjusted discount rate is based on the
concept that investors demands higher returns from the risky projects. The required return of
return on any investment should include compensation for delaying consumption equal to risk free
rate of return, plus compensation for any kind of risk taken on.
The case, risk associated with any investment project is higher
than risk involved in a similar kind of project, discount rate is
adjusted upward in order to compensate this additional risk
borne. After determining the appropriate required rate of
return (Discount rate) for a project with a given level of risk
cash flows are discounted at this rate in usual manner.
Adjusting discount rate to reflect project risk- If risk of project
is greater than, equal to, less than risk of existing investments
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of firm, discount rate used is higher than, equal to or less than average cost of capital as the, case
may be. Risk Adjusted Discount Rate for Project 'k' is given by d k is positive/negative depending on
how the risk of the project under consideration compares with existing risk of firms. Adjustment
for different risk of project 'k' depends on management‘s perception of project risk and
management‘s attitude towards risk (risk - return preference). If the project's risk adjusted
discount rate (rk) is specified, the project is accepted if NPV is positive.
2. Certainty Equivalent Approach (CE Approach): This approach allows the decision maker to
incorporate his or her utility function into the analysis. In this approach a set of risk less cash flow
is generated in place of the original cash flows. It is based on game theory. Suppose on tossing out a
coin, if it comes head you will get ` 10,000 and if it comes out to be tail, you will win nothing. Thus
you have 50% chances of winning and expected value is ` 5,000. In such case if you are indifferent at
receiving ` 3,000 for a certain amount and not playing then ` 3,000 will be certainty equivalent and
0.3 (i.e 3,000/10,000) will be certainty equivalent coefficient. Students may remember a popular
game show on TV called ―Deal or No Deal. The entire game is based on the Certainty Equivalent
Approach. The participant is asked by the banker‘ (hidden to the viewers and participants)
periodically whether he/she would accept a certain amount (say ` 225,000) in exchange for the sum
of uncertain amounts left in more than one closed box (say the expected value of the same could be
` 275,000). Depending upon the risk appetite of the player‘, the player would call NO DEAL‘ for the
offer and continue to play the game or accept the offer and call it a DEAL. The takeaway here is that
someone else may not have as much of fear of risk as you do and as a result, you will have a
different certainty equivalent.
Steps in the Certainty Equivalent (CE) approach
Step 1: Remove risk by substituting equivalent certain cash flows from risky cash flows. This can be
done by multiplying each risky cash flow by the appropriate α t value (CE coefficient)
Step 2: Discounted value of cash flow is obtained by applying risk less rate of interest. Since you
have already accounted for risk in the numerator using CE coefficient, using the cost of capital to
discount cash flows will tantamount to double counting of risk.
Step 3: After that normal capital budgeting method is applied except in case of IRR method, where
IRR is compared with risk free rate of interest rather than the firm‘s required rate of return.
3.0 Introduction to Financial Derivates

Financial markets are, by nature, extremely volatile and hence the risk factor is an important
concern for financial agents. To reduce this risk, the concept of derivatives comes into the picture.
Derivatives are products whose values are derived from one or more basic variables called bases.
These bases can be underlying assets (for example forex, equity, etc), bases or reference rates. For
example, wheat farmers may wish to sell their harvest at a future date to eliminate the risk of a
change in prices by that date. The transaction in this case would be the derivative, while the spot
price of wheat would be the underlying asset.
3.1 Development of exchange-traded derivatives

Derivatives have probably been around for as long as people have been trading with one another.
Forward contracting dates back at least to the 12th century, and may well have been around before
then. Merchants entered into contracts with one another for future delivery of specified amount of
commodities at specified price. A primary motivation for pre-arranging a buyer or seller for a stock
of commodities in early forward contracts was to lessen the possibility that large swings would
inhibit marketing the commodity after a harvest.
3.2 Financial Derivatives-Meaning

The term derivative instrument is generally accepted to mean a financial instrument with a payoff
structure determined by the value of an underlying security, commodity, interest rate, or index. The
term "derivative" indicates that it has no independent value, i.e. its value is entirely "derived" from
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the value of the cash asset. A derivative contract or product, or simply "derivative", is to be sharply
distinguished from the underlying cash asset, i.e. the asset brought / sold in the cash market on
normal delivery terms.
3.3 Need for a derivatives market [ Functions of Derivatives]

The derivatives market performs a number of economic functions:
They help in transferring risks from risk averse people to risk oriented people
They help in the discovery of future as well as current prices
They catalyze entrepreneurial activity
They increase the volume traded in markets because of participation of risk averse people in
greater numbers
3.4 Factors driving the growth of financial derivatives

Increased volatility in asset prices in financial markets,
Increased integration of national financial markets with the international markets,
Marked improvement in communication facilities and sharp decline in their costs,
Development of more sophisticated risk management tools, providing economic agents a wider
choice of risk management strategies, and
Innovations in the derivatives markets, which optimally combine the risks and returns over a
large number of financial assets leading to higher returns, reduced risk as well as transactions
costs as compared to individual financial assets.
3.5 Growth of Financial Derivatives in India

Development of derivatives market in India
The first step towards introduction of derivatives trading in India was the promulgation of the
Securities Laws(Amendment) Ordinance, 1995, which withdrew the prohibition on options in
securities. The market for derivatives, however, did not take off, as there was no regulatory
framework to govern trading of derivatives. SEBI set up a 24–member committee under the
Chairmanship of Dr.L.C.Gupta on November 18, 1996 to develop appropriate regulatory framework
for derivatives trading in India. The committee submitted its report on March 17, 1998 prescribing
necessary pre–conditions for introduction of derivatives trading in India. The committee
recommended that derivatives should be declared as ̳securities‘ so that regulatory framework
applicable to trading of securities‘ could also govern trading of securities. SEBI also set up a group
in June 1998 under the Chairmanship of Prof.J.R.Varma, to recommend measures for risk
containment in derivatives market in India. The report, which was submitted in October 1998,
worked out the operational details of margining system, methodology for charging initial margins,
broker net worth, deposit requirement and real–time monitoring requirements.
The Securities Contract Regulation Act (SCRA) was amended in December 1999 to
include derivatives within the ambit of securities and the regulatory framework was developed for
governing derivatives trading. The act also made it clear that derivatives shall be legal and valid
only if such contracts are traded on a recognized stock exchange, thus precluding OTC derivatives.
The government also rescinded in March 2000, the three– decade old notification, which prohibited
forward trading in securities.
Derivatives trading commenced in India in June 2000 after SEBI granted the final approval
to this effect in May 2001. SEBI permitted the derivative segments of two stock exchanges, NSE and
BSE, and their clearing house/corporation to commence trading and settlement in approved
derivatives contracts. To begin with, SEBI approved trading in index futures contracts based on S&P
CNX Nifty and BSE–30(Sensex) index. This was followed by approval for trading in options based
on these two indexes and options on individual securities. The trading in BSE Sensex options
commenced on June 4, 2001 and the trading in options on individual securities commenced in July
2001. Futures contracts on individual stocks were launched in November 2001. The derivatives
trading on NSE commenced with S&PCNX
Nifty Index futures on June 12, 2000. The trading in index options commenced on June 4,
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2001 and trading in options on individual securities commenced on July 2, 2001.
Single stock futures were launched on November 9, 2001. The index futures and options contract
on NSE are based on S&P CNX Trading and settlement in derivative contracts is done in accordance
with the rules, byelaws, and regulations of the respective exchanges and their clearing
house/corporation duly approved by SEBI and notified in the official gazette. Foreign Institutional
Investors (FIIs) are permitted to trade in all Exchange traded derivativeproducts.
3.6 Derivative Markets -Participants

Hedgers use futures or options markets to reduce or eliminate the risk associated with price
of an asset.
Speculators use futures and options contracts to get extra leverage in betting on future
movements in the price of an asset. They can increase both the potential gains and potential
losses by usage of derivatives in a speculative venture.
Arbitrageurs are in business to take advantage of a discrepancy between prices in two
different markets. If, for example, they see the futures price of an asset getting out of line
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with the cash price, they will take offsetting positions in the two markets to lock in a profit.
3.7 Types of Derivatives

The various types of derivatives, commonly used all over the world.
(i) Forwards: A forward contract is a customized contract between two entities, where settlement
takes place on a specific date in the future at today‘s pre-agreed price. A forward contract specifies
the price at which an asset can be purchased or sold at some future date. Although a forward
contract is classified as a derivative in many markets it is difficult to distinguish between the
underlying and the forward contract. Large trading volumes in OTC forwards can in fact make them
more significant than spot markets.
(ii) Futures: A futures contract is an agreement between two parties to buy or sell an asset at a
certain time in the future at a certain price. Futures contracts are special types of forward contracts
in the sense that the former are standardized exchange-traded contracts
Features of Future Market:
Terms and conditions are standardized.
Tradingtakesplaceonaformalexchangewhereintheexchangeprovidesaplacetoengagein
these transactions and sets a mechanism for the parties to trade these contracts.
There is no default risk because the exchange acts as counterparty, guaranteeing
delivery and payment by use of a clearinghouse.
The clearing house protects itself from default by requiring its counterparties to settle
gains and losses or mark to market their positions on a daily basis (NSCCL).
Futures are highly standardized, have deep liquidity in their markets and trade on an
exchange.
Profits and losses on futures contracts are settled on a periodic basis (Marking to Market).
An investor can offset his or her future position by engaging in an opposite transaction
before the stated maturity of the contract.
(iii) Options: Options are of two types - calls and puts. Calls give the buyer the right but not the
obligation to buy a given quantity of the underlying asset, at a given price on or before a given
future date. Puts give the buyer the right, but not the obligation to sell a given quantity of the
underlying asset at a given price on or before a given date.
Terminologies used in options
a. Option holder: The buyer of the option who gets the right
b. Option writer: The seller of the option who carries the obligation
c. Premium: The consideration paid by the buyer for the right
d. Exercise price: The price at which the option holder has the right to buy or sell. It is also called
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as the strike price.
e. Call option: The option that gives the holder a right to buy
f. Put option: The option that gives the holder a right to sell
g. Tenure: The period for which the option is issued
h. Expiration date: The date on which the option is to be settled
i. American option: These are options that can be exercised at any point till the expiration date
j. European option: These are options that can be exercised only on the expiration date
k. Covered option: An option that an option writer sells when he has the underlying shares
with him.
l. Naked option: An option that an option writer sells when he does not have the underlying
shares with him.
M. In the money: An option is in the money if the option holder is making a profit if the option
was exercised immediately.
N. Out of money: An option is in the money if the option holder is making a loss if the option was
exercised immediately.
O. At the money: An option is in the money if the option holder evens out if the option was
exercised immediately.
Warrants: Options generally have lives of upto one year, the majority of options traded on options
exchanges having a maximum maturity of nine months. Longer-dated options are called warrants
and are generally traded over-the-counter.
LEAPS: The acronym LEAPS means Long-Term Equity Anticipation Securities. These are options
having a maturity of upto three years.
Baskets: Basket options are options on portfolios of underlying assets. The underlying asset is
usually a moving average or a basket of assets. Equity index options are a form of basket options.
(iv)Swaps: A swap is one of the most simple and successful forms of OTC-traded derivatives. It is a
cash-settled contract between two parties to exchange (or "swap") cash flow streams. As long as
the present value of the streams is equal, swaps can entail almost any type of future cash flow. They
are most often used to change the character of an asset or liability without actually having to
liquidate that asset or liability.
A Swap is an agreement to exchange a sequence of cash flows over a period of time in the
future in same or different currencies. Mainly used for hedging various interest rate exposures, they
are very popular and highly liquid instruments. Some of the very popular swap types are Interest
Rate Swaps and Currency Swaps.
• Interest rate swaps: These entail swapping only the interest related cash flows between the
parties in the same currency.
Similarly an interest rate floor is a derivative contract in which the buyer receives payments at
the end of each period in which the interest rate is below the agreed strike price.
• Currency swaps: These entail swapping both principal and interest between the parties, with
the cash flows in one direction being in a different currency than those in the opposite direction.
• Swaptions: A swaption, also known as a swap option, refers to an option to enter into an
interest rate swap or some other type of swap. In exchange for an options premium, the buyer
gains the right but not the obligation to enter into a specified swap agreement with the issuer on a
specified future date.
3.8 The Regulatory Framework of Derivatives Trading in India.

The SEBI's advisory committee on derivatives has proposed a set of measures to improve liquidity
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in the markets. These measures once approved by the SEBI board, would permit FII participation in
all derivative products. Allow intuitions limited short selling up to their exposures in derivatives
market, and introduce stock futures and margin trading. The committee also suggested that banks
funds could be channeled through the stock exchange clearing house/ corporation and allowing
banks to participate in the derivatives markets. Once these measures are approved and
implemented effectively, liquidity should get a substantial boost and improve overall market
sentiment.
Bank participation in derivatives and access to FIIs, which are at present allowed to trade only in
index futures, to all derivative products need the approval of the Reserve Bank of India.
The Success of most of these initiative depends on an efficient stock borrowing and leading
mechanism. But that requires to nationwide infrastructure for electronic funds transfer (the
problem is that it takes three day to receive the proceeds of a cheque, which means that the short
seller has to fund his position for those days) and that of course is outside the purview of the SEBI &
it is high time that Finance Ministry and RBI facilitate electronic fund transfer.
4.1 Turnaround strategy

A turnaround can be defined as process that intends to remove the company quickly from a
prospective danger. Such danger is generally possibility of liquidation. The aim of a turnaround
strategy is to save the company and restore the corporate value. There are certain stages through
which a company travels during this turnaround phase.
A turnaround is the financial recovery of a company that has been performing poorly
for an extended time. To affect a turnaround, a company must acknowledge and identify its
problems, consider changes in management, and develop and implement a problem-solving
strategy. Now the question arises, when the firm should adopt the turnaround strategy?
Following are certain indicators which make it mandatory for a firm to adopt this strategy for its
survival. These are:
Continuous losses
Poor management
Wrong corporate strategies
Persistent negative cash flows
High employee attrition rate
Poor quality of functional management
Declining market share
Uncompetitive products and services
Also, the need for a turnaround strategy arises because of the changes in the external environment
Viz, change in the government policies, saturated demand for the product, a threat from the
substitute products, changes in the tastes and preferences of the customers, etc.
4.2 Turnaround phases

1. Management change – involves the board of directors or senior management recognizing that
change is necessary and then initiating a corporate turnaround programme. Often a company will
bring in an external turnaround specialist or a new Chief Executive Officer (CEO) specifically to
make the challenging and controversial decisions required to restructure the business.
Business review – the company must quickly identify the underlying problems causing the
current situation and understand the business chances of survival. This includes a thorough
assessment of
Strategy – does the organization have a clear and deliverable strategy that sets out the focus for
the organization? Is the business tackling the right markets?
Operations – is the focus on what really matters? Which products, customers and channels create
or destroy value? Are the products or services being provided in the most effective possible manner
and at the lowest possible cost? Is there waste in the organization’s processes?
Finances – what is the organization’s cash position? Does it have sufficient lines of credit or
access to funding? Is there reliable information on the organization’s performance and financial
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situation? Does the business have effective budgetary control? Is the business managing its working
capital?
Infrastructure/people – does the organization have sufficient flexibility to response to changes
in market conditions? Does it have the right departmental structure? Is the organization over
staffed? Does it have the right people with the right skills?
Commitment and capacity to change – is there a clear mandate for change that is driven
through the organization? Is the organization capable of dealing with the significant (and often
painful) adjustments that may be needed?
2. Business restructuring plan – the next stage is to identify appropriate strategies and develop
an achievable recovery plan with detailed functional actions. Typically, this will include action to:
restructure outstanding debt obligations
reduce operating costs
improve management of working capital
enhance product pricing and customer mix
streamline product lines
Accelerate growth of high potential products.
The plan must then be communicated to all key stakeholders in the business, including the board of
directors, the management team and employees, to ensure buy-in. Communicating the plan with
external parties, such as the bank, key suppliers and creditors will be critical to gaining credibility
and restoring confidence in the business
3. Implementation – at the emergency stage, companies must do whatever is necessary to survive.
This may include:
Making redundancies
Eliminating departments
Drastically reducing all non-essential costs.
Positive cash flow is critical and must be established as quickly as possible. Cash will often be
required to implement the turnaround strategy and this must also be sourced without delay. Often,
unprofitable business units or operations are sold as a means to raise cash. Operations that cannot
be sold within a reasonable timeframe may be liquidated.
4. Stabilisation– once the business has stopped haemorrhaging, overheads have been cut and loss
making operations have either been divested or liquidated, the main focus is on improving the
efficiency and effectiveness of the remaining business operations. To ensure long-term survival, the
company must increase profitability and its return on investment while ensuring the smooth
operation of existing facilities. This is often the hardest stage for an organization to achieve
successfully. Improving return on investment is typically more challenging than removing loss-
making operations or cutting costs.
5. Embedding the change – the final stage concentrates on embedding the turnaround, with the
company gradually returning to financial health. Management behavior and reward and
compensation systems need to focus employees on profitability, return on investment and value
creation. To achieve long-term sustainability and growth, the organization may also need to:
develop new markets, new products or strategic alliances with other successful organizations
improve customer service or enhance product quality
secure long-term financing and strengthen its balance sheet, shifting the emphasis from cash
flow management to strategic financial management and control.
Finally, the organization will need to rebuild morale and develop a confident, positive corporate
culture that focuses on continuous improvement, lean thinking and long-term profitability.
4.3 Characteristics (or) Features of Turnaround strategy

1) Turnaround involves restructuring the sick company.
2) It is applicable to a loss-making unit.
3) It needs consultation of internal and external experts.
4) It is a long and time-consuming process.
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5) It involves in-depth planning with evidential testing.
6) It is a capital intensive strategy.
7) It helps to utilize all available resources optimally.
8) It leaves a permanent effect on the structure of the sick company.
9) It needs full co-operation of people associated with the sick company for its success.
1. Involves restructuring
Turnaround involves restructuring the sick company. Restructuring means rearranging the
resources of the company for improving its profitability and performance. Restructuring can be a
Financial restructuring, Technical restructuring, Marketing restructuring, Personnel restructuring,
etc.
2. Applicable to a loss-making unit
Turnaround is a strategy of converting a loss-making or an uneconomic unit into a profitable
one. It is applicable to a loss-making unit.
It is done (applied or implemented) by making systematic efforts.
It is a solution to solve the problem of industrial sickness.
3. Needs consultation of experts
Turnaround can be done by consulting company's own (internal) experts or by external experts
(hired consultants).
These two types of experts have their own advantages and limitations:
Internal experts know the company's culture, resources, level of technology, etc., and much better.
However, they may be biased because their interests are involved. External experts though may be
unbiased, but their suggestions may not be practical and the sentiments of the employees may not
be considered. So, a sick company must keep a proper balance of consultation between the internal
and external experts.
4. Long and time-consuming process
Turnaround strategy is a long-term strategy:
(i) It is not a one-day task.
(ii) It is a lengthy and a time-consuming process.
(iii) In some cases, it may even take few years to turn around a sick unit.
5. Involves an in-depth planning
Turnaround involves stages like analysis, planning, arranging, testing, rearranging, and re-
planning. It goes through the following stages:
Turnaround strategy first involves detailed analysis or study of the failed model or structure of the
sick company. It begins with planning suitable, adaptable and result-oriented strategies to initiate
the turnaround. The implementation of newly planned strategies takes place by arranging
(orienting) the structure of the once failed model. It is done so as per instructions (orders)
conveyed by a planning authority or committee. After this basic arrangement, planning is put to a
practical test for some determined time period. Over a time, data is collected and analysed
statistically by experts to seek improvements or failures, if any, in its performance. The plan is
enhanced or tweaked even further if some improvements are noticed in its testing phase. In case of
witnessing some failures, the plan is corrected and again re-planned followed by making proper
rearrangements. Thus, turnaround strategy involves in-depth planning with evidential testing.
6. Capital intensive strategy
Turnaround is a capital intensive strategy. It mainly requires a large amount of funds (money) to
restructure the resources of a sick company. For its initiation, company needs an excellent team of
expert consultants and professionals. Along with utilising the expertise of its internal staff,
company also needs external support and/or consultations of other professionals. It needs more
funds to pay for the services of these professionals. Furthermore, since the time period of a
turnaround cannot be fixed it needs a continuous supply of funds for its uninterrupted operation
until a satisfactory success is achieved. This overall makes a turnaround strategy a costly affair. It is
not a viable choice for those companies who cannot afford its capital intensiveness.
7. Optimum utilization of resources
Generally, a sick company doesn't make an optimum utilisation of its all available resources. These
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mainly consist of human resources, financial resources, physical resources, and so on. The
turnaround strategy helps to utilise the resources optimally. Turnaround helps to restructure and
reorganize all available resources of the company. It tries to channel (use) resources only for
profitable venture and not for non-profitable ones.
8. Leaves a permanent effect
Turnaround leaves a permanent effect (mark or impact) on the structure and working of the
company. It helps a sick company to stop its all unproductive activities and concentrate on
productive ones. It aids the company to change its technology from a labour intensive (that
involves many people working) to a capital intensive (that requires large capital investment in
modern equipments, high-tech machines, etc. and hence less people working) one. It may also help
a sick company to amalgamate with some other company, thereby forming a totally new company.
9. Needs co-operation of people
For turnaround to be successful, full co-operation of employees is necessary. This is because the
turnaround strategy will involve the employees. Co-operation of other groups such as shareholders,
financial institutions, suppliers, and others is also required for the turnaround strategy to be
effective. Thus, turnaround needs full co-operation of people associated (attached) with the sick
company for its success.
4.4 Turnaround Strategies

Corporate turnaround isn’t just one-point procedure that can be achieved by making just a few
minor changes. Turning around a struggling business to a thriving one can be a complex process,
one which involves several steps, methods, and strategies. It may sometimes take years to bring a
business back on its feet because several factors need to be taken care of including management,
finances, marketing, operations, human resources and many others. A strategic approach has to be
followed to fulfill the turnaround and some of the best strategies for an effective corporate
turnaround:
1. Situation Revaluation: To cure a problem, a diagnosis of the initial cause is the first step that is
to be followed. Same is the case with corporate turnarounds. The first step that you need to follow
is to figure out whether your business is damaged beyond repair or not. If not, then you need to
look within the organization to figure out what the problem is. Only when you reevaluate the
situation can you decide what actions can be taken next. To achieve this, you need to focus on some
key areas, which are given as follows:
 Product– A business is made by the products and services it offers and hence it is important
to focus on whether the products you are offering are innovative enough, unique enough and
buyable enough for the consumers.
 Customers– You need to figure out whether your consumers are satisfied with the products
being offered to them and is the right target audience being targeted.
 Finance– Is the cash flow enough to sustain the business’s operations? Do you have short
term financing to stabilize the situation?
 Process– You must fathom whether all your business processes and systems are in place and
Working effectively. Without this, business performance can go down considerably.
 People– It may be time to figure out whether your business is supported by the right people
and staff. Employees can play a big role in any organization’s success and hence you may
have to cut down on few who may not be providing a good output.
2. Crisis stabilization: Once the situation has been looked into, the next step is to stabilize the
situation and make sure that the emergency state can be eliminated. To stabilize the crisis, you will
need to conserve the liquidity of funds so that a window of opportunity can be created. You must
aim for gaining a little restructuring of both the finances as well as the business so that the next
steps can be easily dealt with, without worrying about the shortage of funds or chaos in business

20
operations.
3. Strategy redefining: The next step to follow in order to turnaround the business effectively is to
redefine the strategy that is being followed by your company currently. Redefining the strategy
means making strategic or objective changes in the approach followed by your business to reach its
goals. If the corporation is on a downward spiral, then one of the biggest reasons behind this could
be a gap in the strategy. This is the step where you can make all the difference for the future of the
organization and give it a new direction. Revisiting the strategic approach can also make you realize
the holes in the previous approach and the changes that need to be made to it.
Key areas to focus on:
 Vision– You need to create your new strategy by keeping in mind what your vision or
objective is. You must know exactly what you wish to achieve and where you want to take
your business.
 Purpose–Are you aware of the real purpose of your business? Your strategy must address
this purpose and make sure it is fulfilling the objective for which it was created in the first
place.
 Brand–Your business strategy must also address your brand value and should focus on the
kind of impact you wish to have on the public as a brand.
 Mission– You must incorporate the intent to succeed in the business and how to succeed in
the strategy as well.
 Values– Does your business have any principles, policies and standards that it wants to
maintain and follow? If yes, make sure your strategy takes them into consideration.
4. Employee retention and reemployment: There is hardly any corporate turnaround without
talking about the people involved in it. It is the people or employees which run a business and no
matter how your finances are, how good your strategy is, if the people backing it are not performing
well, there is no way for it to succeed. Now may be the right time to figure out who really is offering
the best services to your organization and who isn’t performing as per expectations.
At this step, you need to take the decision of reemploying people, eliminating the weaker links and
retaining those who are crucial to your business. To revive a business, it is important to retain the
right people on board and politely excuse yourself of the wrong ones.
5. Process and product improvements: Besides people and strategy, another thing that you need
to focus upon is the re-innovation of the products (services) and the business operations. Without
regular upgradation and innovation of products and services, customers soon tend to lose interest,
and this could be the reason for your downfall. Make sure you are offering your consumers
something that they cannot find anywhere else. Regular changes in the products according to the
demands of the market and customers are the keys to maintaining consumer interest.
6. Financial restructuring: One of the main and obvious reasons for a failing business is the lack of
funds. Without solving the problem of financing, all the other efforts towards a turnaround can fail
miserably. If you are running out of cash, then it is a good idea that you focus on the financial
restructuring of your business. While it is a great idea to look for external funding, it is even better
to try to source it from within your company. Some of the ways to do so are given as follows:
 Cut down on costs wherever possible and lay off some of the unproductive staff.
 If you need to raise quick cash, consider selling some fixed assets.
 Try to take some money from your personal savings.
Only after internal funding sources have been exhausted should you opt for external funding,
the best examples of which are borrowing from a friend, taking a loan from a bank and leasing,
etc.
7. Back to normal: Now the next strategy involves returning to normal. Once the company has a
constant cash flow, and everyone has gotten used to the changes, it is important to go back into the
21
same work schedule and create an atmosphere of normality. Once the company is out of the crisis
situation, employees begin to gain more confidence, processes are put back into their normal speed
and efforts are made to maintain the strong performance.
8. Become digital: As the world is moving towards technological advancements and development,
it is important to move ahead with it. Most consumers and customers these days look online for
buying products and services and the industry demands you to go digital. Going the digital route is
not just the need of the hour but also the demand of the consumers. Introduce latest systems, online
technologies and online marketing in your strategy to gain the maximum in the current
circumstances. Going digital also gives you an edge over your competitors and puts you in the
league of those who are already gaining huge profits through online marketing and sales.

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UNIT-3
Merger Strategies, Acquisitions/Takeovers, Joint Ventures, Strategic Alliances (theory only)
Restructuring - Challenge of business sustainability.
..............................................................................................................................................
Introduction: This unit provides new insights into managing business volatility through external
growth strategies. Growing internally by making further investments in the same business may
add to the short term profitability but not to the long term sustainability. For this reason
corporations around the globe are looking towards diversification strategies by investing in
unrelated business. Merger strategies, acquisitions or takeovers are all the means to achieve this
end. In several industries, starting a green field venture and trying to develop knowledge,
resources, scale of operations, and market reputation to become a significant and effective player
will take years. Acquiring an already established organization will enable a company to get over
the problems of gestation and help it to leap-frog to the next level of focusing on the task of
building a strong market position in the target industry.
1.0 Reasons For Mergers and Acquisitions

1. Increasing capabilities: Increased capabilities may come from expanded research and
development opportunities or more robust manufacturing operations (or any range of core
competencies a company wants to increase). Similarly, companies may want to combine to leverage
costly manufacturing operations (as was the hoped for case in the acquisition of Volvo by Ford).
Capability may not just be a particular department; the capability may come from
acquiring a unique technology platform rather than trying to build it. Biopharmaceutical companies
are a hotbed for M&A activities due to the extreme investment necessary for successful R&D in the
market. In 2011 alone, the four biggest mergers or acquisitions in the biopharmaceutical industry
were valued at over US$75 billion.
2. Gaining a competitive advantage or larger market share: Companies may decide to merge
into order to gain a better distribution or marketing network. A company may want to expand into
different markets where a similar company is already operating rather than start from ground zero,
and so the company may just merge with the other company. This distribution or marketing
network gives both companies a wider customer base practically overnight. One such acquisition
was Japan- based Takeda Pharmaceutical Company’s purchase of Nycomed, a Switzerland-based
pharmaceutical company, in order to speed market growth in Europe. (That deal was valued at
about US$13.6 billion, if you’re counting.)
3. Diversifying products or services: Another reason for merging companies is to complement a
current product or service. Two firms may be able to combine their products or services to gain a
competitive edge over others in the marketplace. For example, in 2008, HP bought EDS to
strengthen the services side of their technology offerings (this deal was valued at about US$13.9
billion).
4. Replacing leadership: In a private company, the company may need to merge or be acquired if
the current owners can’t identify someone within the company to succeed them. The owners may
also wish to cash out to invest their money in something else, such as retirement.
5. Cutting costs: When two companies have similar products or services, combining can create a
large opportunity to reduce costs. When companies merge, frequently they have an opportunity to
combine locations or reduce operating costs by integrating and streamlining support functions.
This economic strategy has to do with economies of scale. When the total cost of production of
services or products is lowered as the volume increases, the company therefore maximizes total
profits.
6. Surviving: It’s never easy for a company to willingly give up its identity to another company, but
sometimes it is the only option in order for the company to survive. A number of companies used
mergers and acquisitions to grow and survive during the global financial crisis from 2008 to 2012.
During the financial crisis, many banks merged in order to deleverage failing balance sheets that
otherwise may have put them out of business.

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1.1 Types of Mergers
In mergers, the combining companies engage in prior negotiations which may ultimately lead to a
transaction. In tender offers, the acquiring company may seek to hold initial discussions with the
top executives of the target company. If they are not able to move towards a mutual agreement, the
acquirer may make an open offer to the shareholders of the acquiring company to tender their
shares at a specified offer price. Mergers are generally friendly. Tender offers may become hostile.
1.Horizontal mergers: It refers to two firms operating in same industry or producing ideal products
combining together. For e.g., in the banking industry in India, acquisition of Times Bank by HDFC
Bank, Bank of Madura by ICICI Bank, Nedungadi Bank by Punjab National Bank etc. in consumer
electronics, acquisition of Electrolux’s Indian operations by Videocon International Ltd., in BPO
sector, acquisition of Daksh by IBM, Spectra mind by Wipro etc. The main objectives of horizontal
mergers are to benefit from economies of scale, reduce competition, achieve monopoly status and
control the market.
2.Vertical merger: A vertical merger can happen in two ways. One is when a firm acquires another
firm which produces raw materials used by it. For e.g., a tyre manufacturer acquires a rubber
manufacturer, a car manufacturer acquires a steel company, a textile company acquires a cotton
yarn manufacturer etc.
Another form of vertical merger happens when a firm acquires another firm which would help it get
closer to the customer. For e.g., a consumer durable manufacturer acquiring a consumer durable
dealer, an FMCG company acquiring Merger advertising company or a retailing outlet etc.
3. Conglomerate merger: It refers to the combination of two firms operating in industries unrelated
to each other. In this case, the business of the target company is entirely different from those of the
acquiring company. For e.g., a watch manufacturer acquiring a cement manufacturer, a steel
manufacturer acquiring a software company etc. The main objective of a conglomerate merger is to
achieve big size.
4. Concentric merger: It refers to combination of two or more firms which are related to each other
in terms of customer groups, functions or technology. For eg., combination of a computer system
manufacturer with a UPS manufacturer.
5. Forward merger: In a forward merger, the target merges into the buyer. For e.g., when ICICI Bank
acquired Bank of Madura, Bank of Madura which was the target, merged with the acquirer, ICICI
Bank.
6. Reverse merger: In this case, the buyer merges into the target and the shareholders of the buyer
get stock in the target. This is treated as a stock acquisition by the buyer.
7. Subsidiary merger: A subsidiary merger is said to occur when the buyer sets up an acquisition
subsidiary which merges into the target.
1.2 Theories of Mergers &Acquisitions:

There are three major theories of Mergers & Acquisitions.
1. Synergy or Efficiency: In this theory, the total value from the combination is greater than
the sum of the values of the component companies operating independently.
2. Hubris: The result of the winner’s curse, causing bidders to overpay. It is possible that
value is unchanged.
3. Agency: The total value here is decreased as a result of mistakes or managers who put their
own preferences above the well-being of the company.
While the target company always gains, the acquirer gains when synergy accrues from combined
operations, and loses under the other two theories. The total value becomes positive under
synergy, becomes zero under the second, and becomes negative under the third
1.3 Major Challenges to Merger Success:

While there are many potential gains from a merger activity, there are three major challenges that
need to be handled carefully. They are:
1. Due Diligence: While some corporate acquirers may judge a deal by relying on numbers
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provided by the seller, or on their own gut feel for the market, the best buyers look for a level of
detail similar to that required by the private-equity investors who do deals for a living. They
commission outside help when necessary and look well beyond the financial statements of each
potential target.
2. Cultural Factors: Corporate culture is defined by an organization’s values, traditions, norms,
beliefs and behaviour patterns. In planning for inorganic growth through mergers and acquisitions
and alliances, the company must recognize cultural factors besides products, assets and financial
factors. The company must recognize the need for all sub-systems of the organization to work in
total synchronization as a team, putting together all the systems, informal processes, and cultures
required for overall organizational effectiveness. A prudent acquirer will place culture at the top of
the process and earliest in the planning sessions. Cultural differences have caused mergers to fail or
prevented them from achieving their full potential. Cultural differences are certainly likely to
surface when two different entities come together in a marriage of merger or acquisition, and
become even more important as in a cross border transaction.
3. Implementation difficulties: Integration, the final phase of an acquisition, is nearly as important
as the target-selection phase, say experienced buyers. A good deal on paper can easily fall apart
during the post-deal marriage of the two companies. Speed is everything in the integration process.
The longer the integration process is stretched out, the harder it becomes to change certain
practices. To lay the groundwork for a speedy integration, it is important to establish a full
integration team before a transaction closes. Facilitating interaction between employees at the two
companies as quickly as possible is also important.
1.4 Major Reasons why Mergers fail:

The reasons why normally mergers and acquisitions fail are given below:
1) Lack of fit due to differences in management styles or corporate structure
2) Lack of commercial fit
3) Paying too much
4) Cheap purchases turning out to be costly in terms of resources required to
turnaround the acquired company
5) Lack of commonality of goals
6) Failure to integrate effectively
7) Ineffective change management
2.0 Joint Ventures and Strategic Alliance -Meaning

Joint ventures and strategic alliances allow companies with complementary skills to benefit from
one another's strengths. They are common in technology, manufacturing and commercial real
estate development, and whenever a company wants to expand its sales or operations into a foreign
country. In a joint venture, the companies start and invest in a new company that's jointly owned by
both of the parent companies. A strategic alliance is a legal agreement between two or more
companies to share access to their technology, trademarks or other assets. A strategic alliance does
not create a new company. Example-In July 2011, Facebook announced a strategic alliance with
Skype, which had been recently acquired by Microsoft. This allowed Microsoft to quickly move into
the social networking space, Skype received access to a large number of new users and Facebook
could leverage Skype's technology to enable video chat without making the investment in building
it. By contrast, Dow Chemical formed a joint venture that same month with Japanese firm Ube to
create a factory for a particular high-tech battery. They will share the technology and the risk of
new product development
2.1 Need for JV’s: Both forms of partnership can be used to transfer technology, assets and
knowledge between complementary companies. Strategic alliances are usually undertaken to
allow each company to pursue a new market, product or strategy that they can't manage on
their own. Joint ventures are often used to shield the parent companies from the risk of a new
venture failing; if the new product flops, the joint venture can go bankrupt without harming the
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parent company except to the extent of its investment. Some countries require that all
companies that do business within their borders be at least partly owned by citizens of that
country. In this case, a foreign company can start a joint venture with a domestic company to
comply with the law.
2.2 Advantages of forming a Joint Venture
1) Provide companies with the opportunity to gain new capacity andexpertise
2) Allow companies to enter related businesses or new geographic markets or gain
new technological knowledge
3) Access to greater resources, including specialised staff and Technology
4) Sharing of risks with a venture partner
5) Joint ventures can be flexible. For example, a joint venture can have a limited life span and
only cover part of what you do, thus limiting both your commitment and the business'
exposure.
6) In the era of divestiture and consolidation, JV’s offer a creative way for companies to exit
from non-core businesses.
7) Companies can gradually separate a business from the rest of the organisation, and
eventually, sell it to the other parent company. Roughly 80% of all joint ventures end in a sale
by one partner to the other.
2.3 Disadvantages of Joint Ventures
It takes time and effort to build the right relationship and partnering with another business can
be challenging. Problems are likely to arise if:
1) The objectives of the venture are not 100 per cent clear and communicated to everyone
involved.
2) There is an imbalance in levels of expertise, investment or assets brought into the venture
by the different partners.
3) Different cultures and management styles result in poor integration and co-operation.
4) The partners don't provide enough leadership and support in the early stages.
5) Success in a joint venture depends on thorough research and analysis of the objectives.
3.0 Restructuring Meaning

Restructuring is a process by which a firm does an analysis of itself at a point of time and alters
what it owes and owns, refocuses itself to specific tasks of performance improvements.
Restructuring would sometimes radically alter a firm’s capital structure, asset mix and organization
so as to enhance the firm’s value.
3.1 Reasons for Restructuring

There are basically six reasons why companies are going for restructuring:
1) The globalization of business has compelled Indian companies to open new export houses to
meet global competition. Global market concept has necessitated many companies to
restructure because lowest cost producers only can survive in the competitive global market.
2) Changed fiscal and government policies like deregulation/decontrol has led many companies
to go for newer market and customer segments.
3) Revolution information technology has made it necessary for companies to adapt new
changes in the communication/information technology for improving corporate performance.
4) Many companies have divisionalised into smaller businesses. Wrong divisionalisation strategy
has led to revamp themselves. Product divisions which do not fit into the company’s main line of
business arebeingdivested.FiercecompetitionisforcingIndiancompaniestorelaunchthemselves.
5) Improved productivity and cost reduction has necessitated downsizing of the work force both
at works and managerial level
6) Convertibility of rupee has attracted medium-sized companies to operate in the global market.

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3.2 Broad areas of restructuring:
Financial restructuring: decisions relating to acquisition, mergers, joint ventures and
strategic alliances, restructuring the capital base and raise finance for new projects
Technological restructuring: investments in research and development and also
alliance with multinational companies for exchange of technologies
Market restructuring: the product market segments where the company plans to operate
based on its core competencies
Manpower restructuring: internal structures and processes for improving the
capability of personnel of the organization.
3.3 Techniques of Corporate Restructuring

A. Expansion techniques
Mergers and amalgamations: Merger is the fusion of two companies to achieve expansion and
diversification. Amalgamation is an arrangement for bringing the assets of two companies
under the control of one management
Takeovers: A takeover occurs when an acquiring company makes a bid in an effort to assume
control of a target company, often by purchasing a majority stake in the target firm. If the
takeover goes through, the acquiring company becomes responsible for all of the target
company’s operations, holdings, and debt. It is a business strategy wherein a person/company
acquires control over the other company, directly or indirectly by owning the control over
management.
Joint ventures: A Joint Venture (JV) is a cooperative enterprise entered into by two or more
business entities for the purpose of a specific project or other business activity. The reason for a
joint venture is usually some specific project. It is a part of strategic business policy to diversify
and explore into the new markets, acquire finance, technology, patent and brand names
Business Alliances: A business alliance is an agreement between businesses, usually motivated
by cost reduction and improved service for the customer. Alliances are often bounded by a
single agreement with equitable risk and opportunity share for all parties involved and are
typically managed by an integrated project team. Alliance helps in gaining importance in
infrastructural sectors, more particularly in the areas of power, oil and gas.
Foreign franchises: It is key mechanism for technological, marketing and service linkages
between enterprises within a country as well as in cross-border transactions.
Intellectual property rights: Intellectual property (IP) is a category of property that includes
intangible creations of the human intellect, and primarily encompasses copyrights, patents, and
trademarks. It also includes other types of rights, such as trade secrets, publicity rights, moral
rights, and rights against unfair competition. These gives the real value to a company.
B. Divestment techniques
Sell-off: A sell-off is the rapid and sustained selling of securities at high volumes that causes a
sharp drop in the value of the traded securities. Sell-offs most commonly occurs with liquid
assets such as stocks, bonds, currencies and commodities. A corporate/company may take
decision to concentrate on core business activities by selling out the non-core business activities.
Demerger (spin-off): A demerger is a form of corporate restructuring in which the entity's
business operations are segregated into one or more components. It is the converse of a
mergeror acquisition. A corporate body splits into two or more corporate bodies with separation
of management and accountability.
Management buyout: A management buyout (MBO) is a transaction where a company’s
management team purchases the assets and operations of the business they manage. If the
existing owners are unable to run the company successfully for which the very existence of the
company is at stake, management buyout takes place.
Liquidation: Liquidation is the process of bringing a business to an end and distributing its assets
to claimants. It is an event that usually occurs when a company is insolvent, meaning it cannot
pay its obligations when they come due. With accumulated losses equal to or exceeding the net
worth, a company may go into liquidation.
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Leveraged buyout: A leveraged buyout (LBO) is the acquisition of another company using a
significant amount of borrowed money to meet the cost of acquisition. The assets of the company
being acquired are often used as collateral for the loans, along with the assets of the acquiring
company.
C. Divestmenttechniques
Sell-off: A sell-off is the rapid and sustained selling of securities at high volumes that causes a
sharp drop in the value of the traded securities. Sell-offs most commonly occur with liquid
assets such as stocks, bonds, currencies and commodities. A corporate/company may take
decision to concentrate on core business activities by selling out the non-core business
activities.
Demerger (spin-off): A demerger is a form of corporate restructuring in which the entity's
business operations are segregated into one or more components. It is the converse of a
mergeror acquisition. A corporate body splits into two or more corporate bodies with
separation of management and accountability.
Management buyout: A management buyout (MBO) is a transaction where a company’s
management team purchases the assets and operations of the business they manage.
If the existing owners are unable to run the company successfully for which the very
existence of the company is at stake, management buyout takes place.
Liquidation: Liquidation is the process of bringing a business to an end and distributing its
assets to claimants. It is an event that usually occurs when a company is insolvent, meaning it
cannot pay its obligations when they come due. With accumulated losses equal to or
exceeding the networth, a company may go into liquidation.
Leveraged buyout: A leveraged buyout (LBO) is the acquisition of another company using a
significant amount of borrowed money to meet the cost of acquisition. The assets of the
company being acquired are often used as collateral for the loans, along with the assets of the
acquiring company.
D. Other techniques
Going private: A company can avoid the predators from bidding the company. Going private
is a transaction or a series of transactions that convert a publicly traded company into a
private entity. Once a company goes private, its shareholders are no longer able to trade
their stocks in the open market
Share repurchase: A share repurchase is a program by which a company buys back its own
shares from the marketplace, usually because management thinks the shares are
undervalued, and thereby reducing the number of outstanding shares. A company can
buy-back its shares by utilizing its reserves
Buy-in: The management team who have got special skills will search out and purchase
business, to their interested area, which has considerable potential but that has not been run
to its full advantage due to lack of managerial and technical skills, fails to establish the
market for the company’s products.
Reverse-merger: A smaller company acquires the larger company. A reverse takeover or
reverse merger takeover (reverse IPO) is the acquisition of a public company by a private
company so that the private company can bypass the lengthy and complex process of going
public. The transaction typically requires reorganization of capitalization of the acquiring
company.
4.0 Takeover Defenses-Meaning

The term takeover refers to the attempt, and often sprung as a surprise, of one firm to acquire

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ownership or control over another firm against the wishes of the latter’s management, and perhaps
some of its stockholders.
While facing a hostile takeover through a hostile bid, the management of the targeted company acts
to protect their independence or to ensure that the hostile bidder is pressured to sweeten their bid
further. Often, the main purpose is to make the acquisition more costly or time consuming and in
such way making the targeted company less attractive due to the rise in cost which follows. These
strategies can be divided in to proactive and reactive strategies, depending on when a company
decides to adapt it.
4.1 Pre-Offer Takeover Defenses (or) Proactive Defenses

1.Staggered Board Elections
In this corporate charter provision, the board of directors is classified into three groups. Each year
only one of the groups, or one-third of the directors, is elected. This makes it difficult for a hostile
bidder to gain immediate control of the target firm, even if the bidder owns a majority of the
common stock. About one-half of Standard &Poors 500 firms have adopted this type of takeover
defense.
2. Super-Majority Provisions
These corporate charter provisions require a very high percentage of shares to approve a merger,
usually 80 percent. These provisions are also typically accompanied by lock-in provisions that
require a super-majority to change the antitakeover provisions. Some super-majority provisions
apply to all mergers. Others are only applied at the board's discretion to takeovers that they oppose
or that involve a large stockholder. Hostile takeover bidders require a higher percentage of shares
to obtain control of the target firm when the firm has a super-majority amendment.
3. Fair Price Amendments
In these corporate charter changes, a fair price is defined as the same price. That is, a super-
majority provision is waived if the bidder pays all stockholders the same price. About 35 percent of
firms have these amendments. Fair price amendments are designed to prevent two-tier takeover
offers. In such offers, the bidding firm makes a first- tier tender offer for a fraction of the target's
common stock. The tender offer includes provisions for a second-tier merger. The merger price in
the second tier is substantially below the first-tier tender offer price. This provides an incentive for
stockholders to tender to receive the higher price. Since most stockholders tender, and since the
bidder accepts shares on a pro rata basis, most shareholders get a weighted average of the first and
second tier offer prices, or the blended price.
4. Poison Pills
These are preferred stock rights plans adopted by the board of directors; shareholder approval is
not generally required. However, the plans usually use "blank check preferred stock," securities
authorized by stockholders and whose terms are determined by the board prior to issuance. In a
poison pill, rights to preferred stock are issued to stockholders. The rights are inactive until they
are triggered. A triggering event occurs when a tender offer is made for a large fraction of the firm,
usually 30 percent, or after a single shareholder accumulates a large block of the firm, usually 20
percent. The triggered rights can be redeemed by the board of directors for a short time after the
triggering event occurs. If the rights are not redeemed, they can be exercised. There are two
different plans for using exercised rights: flip-over plans and flip-in plans.
(a) In flip-over plans the exercised rights are used to purchase preferred stock, for, say, $100. The
preferred stock is then convertible into $200 of equity in the bidding firm in the event of a merger.
The primary effect of this plan is to raise the minimum offer price that shareholders would accept
in a tender offer. For example, suppose a target's stock price was $50. Shareholders would choose
not to tender their shares for any offer price less than the $150 payoff they would get from
exercising the right ($50 of stock plus $200 of equity in the bidder minus the $100 cost of
exercising the right). The minimum premium, therefore, is 200percent.
(b) In flip-in plans, the rights are repurchased from the shareholders by the issuing firm at a
substantial premium, usually 100 percent. That is, the $100 of preferred stock would be
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repurchased for $200. The triggering firm that made the offer, or the triggering large shareholder, is
excluded from the repurchase. This repurchase price sets a lower bound on the minimum offer
price that shareholders will accept. It also dilutes the value of the bidding firm's equity position in
the target. Flip-in plans often contain flip-over provisions that are effective for mergers.
5. Dual Class Recapitalizations
These plans restructure the equity of the firm into two classes with different voting rights. Usually,
the class with inferior voting rights has one vote per share and the class with superior voting rights
has ten votes per share. The superior voting stock is typically distributed to shareholders. It can
then be exchanged for ordinary common stock. The superior voting stock generally has lower
dividends or reduced marketability; this induces stockholders to exchange their superior voting
stock for inferior voting common stock. The managers of the firm do not participate in the
exchange. This shifts the voting power of the corporation. Managers with relatively small equity
holdings can control a majority of the votes after the recapitalization. This gives managers veto
rights over control changes.
4.2 Post-Offer Takeover Defenses
After a bidder makes a hostile tender offer, the defensive actions include many of the pre-offer
defenses, as well as several actions that can be directed at a specific bidder.
1. Targeted Repurchases
These transactions, popularly called greenmail, occur when a firm buys a block of its common stock
held by a single shareholder or a group of shareholders. The repurchase is often at a premium, and
the repurchase offer is not extended to other shareholders. Targeted repurchases can be used as a
takeover defense by offering an inducement to a bidder to cease the offer and sell its shares back to
the issuing firm at a profit.
2. Standstill Agreements
These agreements limit the ownership by a given firm for a specified period of time. The agreement
may involve allocating a number of seats on the board of directors to the large shareholder. Also,
the shareholder may agree to vote with management. These agreements serve as a takeover
defense by eliminating, at least temporarily, a potential bidder. The shareholder may, however, gain
some control over corporate assets through seats on the board. Thus, a standstill agreement is
more like a treaty than a defense.
3. Acquisitions and Divestitures These changes in the firm's asset structure can be used to defend
against a takeover bid. Such tactics include divesting an asset that the bidder wants, buying assets
that the bidder does not want, or buying assets that will create antitrust or other regulatory
problems. Each of these actions make the target less attractive to the bidding firm, and reduces the
price the bidder is willing to pay for the target. Data provided by Dann and DeAngelo (1986) for
twenty such transactions indicate that they reduce stock prices by about 2 percent, which is
statistically significant.
4. Liability Restructuring
Issuing voting securities can increase the number of shares required by a hostile bidder. Typically,
the firm places these voting securities in friendly hands that agree to support the incumbent
managers. Repurchase can also be used to reduce the number of public shares, making it more
difficult to buy enough shares to obtain control. Such repurchases are often financed by debt issues
that may make the firm less attractive to potential bidders. These restructures seem to reduce
stockholder wealth. Dann and DeAngelo (1986) report stock price declines of 2 percent on average
for thirty-one such restructurings.
5.0 Business Sustainability –Meaning

Business sustainability is often defined as managing the triple bottom line – a process
by which firms manage their financial, social, and environmental risks, obligations and
opportunities. These businesses survive external shocks because they are intimately connected to
healthy economic, social and environmental systems.
Profitability of a business does not guarantee its long term survival on the globe unless

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its products and services are environmental friendly and contribute to reduction of climatic change.
By the year 2050, world population will reach 9 Billion, requiring doubling of current food
production and further estimates indicate that by 2025 itself fresh drinking water requirements
will grow up by 25%. Meanwhile the impact of climatic changes is likely to magnify on annual basis
causing heavy drought conditions in some parts and huge floods on the other parts of the same
globe. If a business organization does not recognize these prime drivers, they cannot survive in the
much possible turbulence. So mergers and acquisitions need to be motivated by need for producing
sustainable products and services. Recent responses in this direction are:-
1. Philips, the Dutch healthcare, lifestyle and lighting company, which already generates 30% of
total revenues from green products, and is doubling R&D investment in such product
innovation to €2 bn by 2015.
2. Kingfisher, the European home improvement group, whose revenue from independently
verified eco products reached £1.1bn in 2010-11, representing 10.5% of its total retail sales.
3. Daimler and components giant Bosch are pursuing a 50-50 joint venture to develop
traction motors for electric vehicles, and aim to produce a million electric motors
by2020.
4. A rival Volvo-Siemens partnership also aims to speed the technical development of electric cars.
5.1 Challenges for business sustainability

1) There are too many metrics that claim to measure sustainability—and they’re too confusing.
2) Government policies need to incent outcomes and be more clearly connected to sustainability.
3) Consumers do not consistently factor sustainability into their purchase decisions.
4) Companies do not know how best to motivate employees to undertake sustainability initiatives.
5) Sustainability still does not fit neatly into the business case.
6) Companieshavedifficultydiscriminatingbetweenthemostimportantopportunitiesand threats on
the horizon.
7) Organizations have trouble communicating their good deeds credibly, and avoid being
perceived as green washing.
8) Better guidelines are needed for engaging key stakeholders, such as aboriginal communities.
9) There is no common set of rules for sourcing sustainably.

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UNIT IV
Crisis Management – Types, Strategies, Talent Management- Triple bottom line approach. (People –
social bottom line, Planet – ecological bottom line, Profit – economic bottom line).
1.0Crisis Management - Meaning

The term crisis implies a point of time that had intensified difficulty or danger. In relation
to business management crisis is a situation that endangers the further existence of the business
operations. Management looks for turnaround strategies to save the company from alarming
danger. Crisis affects an individual, group, organization or society on the whole. Crisis management
is the application of strategies designed to help an organization deal with a sudden and significant
negative event.
A crisis can occur as a result of an unpredictable event or as an unforeseeable consequence
of some event that had been considered a potential risk. In either case, crises almost invariably
require that decisions be made quickly to limit damage to the organization. For that reason, one of
the first actions in crisis management planning is to identify an individual to serve as crisis
manager. Crisis refers to unplanned events which cause harm to the organization and lead to
disturbances and major unrest amongst the employees. Crisis gives rise to a feeling of fear and
threat in the individuals who eventually lose interest and trust in the organization.
1.1 Crisis Management

The art of dealing with sudden and unexpected events which disturbs the employees, organization as
well as external clients refers to Crisis Management. The process of handling unexpected and sudden
changes in organization culture is called as crisis management.
1.2Meaning of Crisis
A sudden and unexpected event leading to major unrest amongst the individuals at the workplace is
called as organization crisis. In other words, crisis is defined as any emergency situation which
disturbs the employees as well as leads to instability in the organization. Crisis affects an individual,
group, organization or society on the whole. In other words, crisis is defined as any emergency
situation which disturbs the employees as well as leads to instability in the organization.
1.3Characteristics of Crisis
1. Harmful : Events that are considered as crisis or not normal events. They are harmful for very
existence of the organizations. Such abnormal events demand immediate consideration before they
do the largest damage to entity.
2. Short notice : It may be possible to particularly proactive in identifying the events that leads to
crisis. They happen with no notice or with very short notice. So one need to be spontaneously
reactive rather than proactive in dealing with crisis.
3. Fear and Threat : Behavioural attitude of all those dealing with crisis is clearly indicate the fear
and threat factors. So behavioural balance and emotional intelligence occupies a prominence in
dealing with crisis.
1.4Reasons for Crisis in organization

1. Technological failure and Breakdown of machines lead to crisis. Problems in internet,
corruption in the software, errors in passwords all result in crisis.
2. Crisisariseswhenemployeesdonotagreetoeachotherandfightamongstthemselves.Crisis arises
as a result of boycott, strikes for indefinite periods, disputes and so on.
3. Violence, thefts and terrorism at the workplace result in organization crisis.
4. Neglecting minor issues in the beginning can lead to major crisis and a situation of uncertainty
at the work place. The management must have complete control on its employees and should
not adopt a casual attitude at work.
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5. Illegal behaviors such as accepting bribes, frauds, data or information tampering all lead to
organization crisis.
6. Crisis arises when organization fails to pay its creditors and declares itself a bankrupt
organization.
1.5Need for Crisis Management

Crisis Management prepares the individuals to face unexpected developments and adverse
conditions in the organization with courage and determination.
Employees adjust well to the sudden changes in the organization.
Employees can understand and analyze the causes of crisis and cope with it in the best
possible way. Crisis Management helps the managers to devise strategies to come out of
uncertain conditions and also decide on the future course of action.
Crisis Management helps the managers to feel the early signs of crisis, warn the employees
against the aftermaths and take necessary precautions for the same.
1.6Essential Features of Crisis Management

1) Crisis Management includes activities and processes which help the managers as well as
employees to analyze and understand events which might lead to crisis and uncertainty in the
organization.
2) Don’t panic or spread rumors around. Keep patience.
3) Crisis Management enables the managers and employees to respond effectively to changes in
the organization culture.
4) It consists of effective coordination amongst the departments to overcome emergency
situations.
5) Employees at the time of crisis must communicate effectively with each other and try their
level best to overcome tough times. Points to keep in mind during crisis
6) At the time of crisis the management should be in regular touch with the employees,
external clients, stake holders as well as media.
7) Avoid being too rigid. One should adapt well to changes and new situations.
1.7 Types of Crisis

Crisis refers to sudden unplanned events which cause major disturbances in the organization
and trigger a feeling of fear and threat amongst the employees. Following are the types of crisis:
1. Natural Crisis
1. Disturbances in the environment and nature lead to natural crisis.
2. Such events are generally beyond the control of human beings.
3. Tornadoes, Earthquakes, Hurricanes, Landslides, Tsunamis, Flood, Drought all result in natural
disaster.
2. Technological Crisis
1. Technological crisis arises as a result of failure in technology. Problems in the overall systems
lead to technological crisis.
2. Breakdown of machine, corrupted software and so on give rise to technological crisis.
3. Confrontation Crisis
1) Confrontation crises arise when employees fight amongst themselves. Individuals do not agree
to each other and eventually depend on non productive acts like boycotts, strikes for indefinite
periods and soon.
2) Insuchatypeofcrisis,employeesdisobeysuperiors;givethemultimatumsandforcethemto
3) accept their demands.
4) Internal disputes, ineffective communication and lack of coordination give rise to
confrontation crisis.

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4. Crisis of Malevolence
1) Organizations face crisis of malevolence when some notorious employees take the help of
criminal activities and extreme steps to fulfill their demands.
2) Acts like kidnapping company’s officials, false rumours all lead to crisis of malevolence.
5. Crisis of Organizational Misdeeds

1) Crises of organizational misdeeds arise when management takes certain decisions knowing
the harmful consequences of the same towards the stakeholders and externalparties.
2) In such cases, superiors ignore the after effects of strategies and implement the same for
quick results.
Crisis of organizational misdeeds can be further classified into following three types:
1. Crisis of Skewed Management Values: Crisis of Skewed Management Values arises when
management supports short term growth and ignores broader issues.
2. Crisis of Deception: Organizations face crisis of deception when management purposely
tampers data and information. Management makes fake promises and wrong commitments to
the customers. Communicating wrong information about the organization and products lead to
crisis of deception.
3. Crisis of Management Misconduct: Organizations face crisis of management misconduct
when management indulges in deliberate acts of illegality like accepting bribes, passing on
confidential information and so on.
6. Crisis due to Workplace Violence: Such a type of crisis arises when employees are indulged in
violent acts such as beating employees, superiors in the office premises itself.
7. Crisis Due to Rumors: Tarnish the Spreading false rumors about the organization and brand lead
to crisis. Employees must not spread anything which would image of their organization.
8. Bankruptcy: A crisis also arises when organizations fail to pay its creditors and other parties.
Lack of fund leads to crisis.
9. Crisis Due to Natural Factors: Disturbances in environment and nature such as hurricanes,
volcanoes, storms, flood; droughts, earthquakes etc result in crisis.
10. Sudden Crisis: As the name suggests, such situations arise all of a sudden and on an extremely
short notice. Managers do not get warning signals and such a situation is in most cases beyond any
one’s control.
11. Smoldering Crisis: Neglecting minor issues in the beginning lead to smoldering crisis later.
Managers often can foresee crisis but they should not ignore the same and wait for someone else to
take action. Warn the employees immediately to avoid such a situation.
1.8Steps (or) stages in crisis management

According to Gonzalez-Herrero and Pratt, crisis management includes following three stages:
1.Diagnosis of Crisis: The first stage involves detecting the early indicators of crisis. It is for the
leaders and managers to sense the warning signals of a crisis and prepare the employees to face the
same with courage and determination. Superiors must review the performance of their
subordinates from time to time to know what they are up to.
The role of a manager is not just to sit in closed cabins and shout on his subordinates. He
must know what is happening around him. Monitoring the performance of the employee regularly
helps the managers to foresee crisis and warn the employees against the negative consequences of
the same. One should not ignore the alarming signals of crisis but take necessary actions to prevent
it. Take initiative on your own. Don’t wait for others.
2. Planning: Once a crisis is being detected, crisis management team must immediately jump into
action. Ask the employees not to panic. Devise relevant strategies to avoid an emergency situation.
Sitanddiscusswiththerelatedmemberstocomeoutwithasolutionwhichwouldworkbestatthe
times of crisis. It is essential to take quick decisions. One needs to be alert and most importantly
patient. Make sure your facts and figures are correct. Don’t rely on mere guess works and
assumptions. It will cost you later.

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3. Adjusting to Changes: Employees must adjust well to new situations and changes for effective
functioning of organization in near future. It is important to analyze the causes which led to a crisis
at the workplace. Mistakes should not be repeated and new plans and processes must be
incorporated in the system.
1.9Theories of Crisis Management

1.Structural Functions Systems Theory:
According to structural functions systems theory, communication plays a pivotal role in crisis
management. Correct flow of information across all hierarchies is essential. Transparency must be
maintained at all levels. Management must effectively communicate with employees and provide
them the necessary information at the times of crisis. Ignoring people does not help, instead makes
situations worse. Superiors must be in regular touch with subordinates. Leaders must take charge
and ask the employees to give their best.
2. Diffusion of innovation Theory:
Diffusion of innovation theory proposed by Everett Rogers, supports the sharing of information
during emergency situations. As the name suggests during crisis each employee should think out of
the box and come out with something innovative to overcome tough times. One should be ready
with an alternate plan. Once an employee comes up with an innovative idea, he must not keep
things to himself. Spread the idea amongst all employees and departments. Effective
communication is essential to pass on ideas and information in its desired form.
3. Unequal Human Capital Theory:
Unequal human capital theory was proposed by James. According to unequal human capital theory,
inequality amongst employees leads to crisis at the workplace. Discrimation on the grounds of
caste, job profile as well as salary lead to frustrated employees who eventually play with the brand
name, spread baseless rumors and earn a bad name for the organization.
1.10 Strategies in Crisis Management

The manner in which the crisis is handled can make or break a business. The political,
organizational, communication, and business problems that confront an organization before,
during, and after a crisis all pose major challenges for the managers. How they analyze and respond
to these issues may determine the crisis management strategy of their business.
Thus strategies to combat on the crisis are very unique to the nature of business and type of crisis
to be handled. As such defining a best strategy as a part of literature is not possible. So one need to
identify the strategies involved in the process of crisis management
These are of two types
1. Reactive strategies
2. Proactive strategies.
Reactive strategies are formulated and implemented after the crisis occurs. That means absolutely
there is not active planning in pre- crisis stage. Planning might be started after understanding the
implications of crisis. Crisis responses and planning is identified only in defensive stage. In the post
crisis stage, management implements, evaluates and make amendments as needed. So chances for
failure of strategies to save the organization cannot be ruled out due to delay in formulating the
strategy and adjustments in implementation. Lack of flexibility causes severe problems
implementation.
In Proactive strategies vulnerability analysis is done in the pre-crisis stage itself. This helps
managers to plan and formulate the strategies more quickly during the onset of crisis stage. Its
implementation is also started and completed during this stage itself. Due to proactive
phenomenon flexibility increases and need for adjustments decreases in defensive stage. So the
chances for turnaround drastically improves with proactive strategies. Under this proactive model
managers complete a risk assessment, which helps in developing a plan and contingencies to deal
with the crises. The consequences of choosing one of these paths are significant. Managers have to
weigh the difference between the investments in planning for a crisis versus the potential costs that
result from failure to plan. This choice is integrally linked to an understanding of the types of crisis
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that exist.
1.11 Crisis Management Functions

Crisis management encompasses five functions: team formation, assessment, strategy
making, crisis response and evaluation. Understanding how the four problems interface and affect
the business operation provides the knowledge base for proper direction and leadership.
Crisis management requires managers to engage in active leadership that gives employees the
proper direction and resources to complete their jobs.
An effective crisis management plan establishes protocols for addressing the logistics
needed to deal with a crisis. Typically these are the elements and resources that are commonly
needed in all situations. Examples include supplies and emergency backup equipment. Having these
resources in place leaves managers better able to supervise the content aspect of the crisis.
The four functions discussed above operate within each of the systemic problems faced by an
organization. The four problems that were discussed earlier affect all levels of the organization. To
address their impact, managers
should have a perspective on when,
how, and to what extent the
problems alter the organization.
An organization can have all
the resources, plans, and
contingency arrangements;
however, if it does not promote a
crisis management culture and
attitude, all the efforts to prevent
and manage a potential crisis are
wasted. It is a continuous process of
persuading stakeholders to
recognize the vulnerabilities that
exist and identify alternatives that
will best resolve the issues.
1.12 Elements of proactive crisis management strategy

While there is no absolute panacea for crisis prevention, concentrating on the following areas
will go a long way in helping prevent crises before they emerge:
1) forming a crisis management team,
2) knowing how to detect pre-crisis symptoms and conduct vulnerability analysis,
3) developing a very good communication mechanism within the organization,
4) training personnel to be vigilant, prepared, and responsive,
5) remaining flexible to meet the changing environments, as wel las
6) having a continuous evaluation process.
1.13 Crisis Management Plan

Crisis refers to a sequence of unwanted events leading to major disturbances and uncertainty at
the workplace.
Crisis is an unexpected event which not only causes harm to the organization but also triggers a
feeling of fear and insecurity amongst the individuals.
Why Crisis Management Plan ?
Crisis management plan helps the employees to adopt a focused approach during
emergency situations.
Crisis management Plan elaborates the actions to be taken by the management as well as the
employees to save organization’s reputation and standing in the industry. It gives a detailed
overview of the roles and responsibilities of employees during crisis.

36
Individualsrepresentingthecrisismanagementteamformulatecrisismanagementplantoreduce the
after effects of crisis at the workplace.
Crisis Management Plan helps the managers and superiors to take quick and relevant actions
as per the situation.
Crisis Management plan protects an organization from inevitable threats and also makes
its future secure.
Such plans reduce instability and uncertainty amongst the employees and help them
concentrate on their work.
1.14.1 Characteristics of Crisis Management Plan

Crisis Management Plan should be made in the presence of all executives. Every member of
crisis management team should have a say in the plan. It is important for each one to give
his / her valuable inputs and suggestions.
Crisis Management Plan should take into account all identified problem areas and suggest a
possible solution for all of them to help the organization come out of crisis as soon as
possible.
Make sure the plans are realistic and solve the purpose of saving organization’s reputation
and name.
How to make a crisis management plan ?
Identify the problem areas and various factors which led to crisis at the workplace.
Discuss issues and areas of concern amongst yourselves on an open forum for everyone to
share their opinion.
Make sure you have accurate information. Don’t depend on guess works and
assumptions. Double check your information before submitting the final plan.
Crisis Management Plan should not only focus on ways to overcome crisis but also on
making the processes foolproof to avoid emergency situations in future.
Sequence of sudden unwanted events leading to major disturbances at the workplace is called
crisis. Crisis arises on an extremely short notice and triggers a feeling of fear and uncertainty in the
employees.
It is essential for the superiors to sense the early signs of crisis and warn the employees against the
same. Once a crisis is being detected, employees must quickly jump into action and take quick
decisions.
1.15 Crisis Management Team

A Crisis Management Team is formed to protect an organization against the adverse effects of crisis.
Crisis Management team prepares an organization for inevitable threats.
Organizations form crisis management team to decide on future course of action and devise
strategies to help organization come out of difficult times as soon as possible.
Crisis Management Team is formed to respond immediately to warning signals of crisis and execute
relevant plans to overcome emergency situations.
Role of Crisis Management Team
Crisis Management team primarily focuses on:
Detecting the early signs of crisis.
Identifying the problem areas
Sit with employees face to face and discuss on the identified areas of concern
Prepare crisis management plan which works best during emergency situations
Encourage the employees to face problems with courage, determination and smile.
Motivate them not to lose hope and deliver their level best.
Help the organization come out of tough times and also prepare it for the future.

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1.15.1 Crisis Management Team includes
1. Head of departments
2. Chief executive officer and people closely associated with him
3. Board of directors
4. Media Advisors
5. Human Resource Representatives
The role of Crisis Management Team is to analyze the situation and formulate crisis management
plan to save the organization’s reputation and standing in the industry.
A Team Leader is appointed to take charge of the situation immediately and encourage the
employees to work as a single unit.
The first step is to understand the main areas of concern during emergency situations. Crisis
Management Team then works on the various problems and shortcomings which led to crisis at
the workplace. The team members must understand where things went wrong and how current
processes can be improved and made better for smooth functioning of the organization.
It is important to prioritize the issues. Rank the problems as per their effect on the employees as
well as the organization. Know which problems must be resolved immediately and which all can be
attended a little later. A single brain cannot take all decisions alone. Crisis Management Team
should sit with rest of the employees on a common platform, discuss prevailing issues, take each
other’s suggestions and reach to plans acceptable to all. One of the major roles of the Crisis
management team is to stay in touch with external clients as well as media. The team must handle
critical situations well. Develop alternate plans and strategies for the tough times. Make sure you
have accurate information. Double check your information before finalizing the plan.
Implement the plans immediately for results. Proper feedback must be taken from time to time.
Crisis Management team helps the organization to take the right step at the right time and help
the organization overcome critical situations.
1.15.2 Ways to overcome organizational crisis

Sequence of unwanted events leading to uncertainty at the workplace is called as crisis. Crisis leads
to major disturbances at the workplace and creates unrest amongst the employees.
Employees must not lose hope during crisis. It is important for them to face inevitable threats with
courage, determination and smile.
Let us go through various ways to overcome crisis:
Adopt a focused approach. Take initiative and find out where things went wrong. Identify the
problem areas and devise appropriate strategies to overcome the same.
Gather correct and relevant information. One should not depend on mere guess works and
assumptions during emergency situations. Double check your information before submitting
reports.
Employees should change their perspective. One should always look at the brighter side of
things. Remember life has its own ups and downs. Unnecessary cribbing and complaining does
not help at the workplace. Avoid making issues over petty things. Don’t adopt a negative
attitude; instead understand the situation and act accordingly.
Effective communication is essential to overcome crisis in the organization. Information must
flow across all departments in its desired form. Employees must be aware of what is happening
around them. Individuals should have an easy access to their superior’s cabin to discuss critical
issues and seek their suggestions. Superiors must address employees on an open forum during
critical situations.
Roles and responsibilities must be delegated as per the employee’s specialization. Make sure the
right person is doing the right job. Employees must be motivated to deliver their level best and
focus on the organization’s goals to overcome tough times in the best possible way.
It is essential to take quick decisions during critical situations. Learn how to take risks. The
moment an employee detects the early signs of crisis, it is important for him to act immediately.
Escalate issues to your superiors and do inform your co workers as well. Don’t wait for others to
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take action.
Be calm and patient. Don’t panic and spread baseless rumours around. Taking unnecessary
stress makes situation all the more worse. Remember a calm individual can handle things
better. Relax and then decide on the future course of action to overcome crisis. Don’t lash out at
others under pressure.
Discussions are essential during crisis. Sit with fellow workers and discuss issues amongst
yourselves to reach to mutually acceptable solutions which would work best at the times of
crisis.
Be loyal to your organization even at the times of crisis. Stick to it during bad times. Don’t just
treat your organization as a mere source of earning money. It is important to respect your
workplace.
Review your performance regularly. Be your own critic. Strive hard to achieve your targets
within the desired time frame. Don’t work only when your boss is around.
Avoid unnecessary conflicts and misunderstandings at the workplace. Treat your fellow workers
as members of your extended family. Help each other when needed. Employees should not ask
for unjustified things. Think from the management’s perspective as well. Avoid criticizing your
colleagues.
Don’t hide at the times of crisis. Come out; interact with external clients as well as media. Do not
hesitate to ask for help. Ignoring outsiders worsens the situations.
1.16 Managing stress duringcrisis

Crisis refers to a sequence of unwanted events leading to major disturbances at the workplace. It
triggers a feeling of insecurity and fear amongst the employees.
Crisis causes major harm to the organization and poses a threat to its reputation and brand image.
Let us go through various ways of managing stress during crisis:
Once a crisis is being detected, employees should immediately jump into action. Do not panic.
Getting hyper and nervous never lead to any solution; instead make the situation all the more
worse.
It is essential for the individuals to stay calm at the times of crisis. One should not react over
petty issues. Remember a calm and composed individual can take better decisions than a
stressed one.
Help your fellow workers during emergency situations. Don’t lash out at others under pressure.
Criticizing others at the workplace is just not professional. Try to understand what the other
person has to say. Employees find it difficult to think logically under stress.
One should always look at the brighter sides of things. Adopting a negative attitude goes a long
way in increasing stress among individuals. Don’t take things to heart. It is best to ignore minor
issues.
Job mismatch and overlapping of duties lead to stress during emergency situations. Roles and
responsibilities must be clearly defined as per the specialization of employees during crisis.
Everyone should be very clear as to what is expected out of him.
Make individuals work as a team. Individuals working alone are generally overburdened and
eventually more stressed out. Let them work together and share ideas on various topics.
Speaking out and discussing issues reduce the stress level at the workplace.
It is absolutely okay to take short breaks at work even during emergency situations. Human
beings are not machines who can start and stop working just at the push of a button. They need
time for themselves. Working at a stretch can lead to fatigue and eventually individuals lose
interest in work. Short tea and snack breaks are necessary to reduce stress. During these
breaks employees get time to interact with each other.
Make necessary arrangements for individuals working at night. It is important for them to feel
comfortable at the workplace. Make sure individuals get dinner on time for them to deliver
their level best. There should be proper restrooms and places where employees can take a nap.
Light music also reduces stress to a large extent. Ensure the office is adequately lit. Dark cabins

39
and suffocated rooms increase stress and lead to a negative ambience at the workplace.
Encourage necessary motivation programs for the employees to make them face tough times
with determination and courage.
Make sure employees do not feel insecure during emergency situations. It is better to act
immediately as per the situation rather than complaining and cribbing. One should never lose
hope even in the worst conditions.
Appreciating the hard work of employees motivates them to perform better every time. Each
employee should get his /her due credit. Employees should stay away from blame games and
nasty politics. Such activities are considered highly unproductive and lower the morale and self
confidence of the employees.
Employees should be heard. Ignoring individuals results in stress and affects their performance.
Don’t try to do all things together. Adopt a step by step approach. Plan your work well.
Managing time effectively also reduces stress.
1.17 Role of employees in crisis

The art of managing an emergency situation at the workplace through effective planning and quick
action refers to crisis management. An unstable condition which leads to major disturbances at the
workplace must be controlled immediately for effective functioning of the organization. Employees
must be serious about their own work. Review your performance regularly. Don’t always wait for
your boss to ask for reports. Be your own critic. Strive hard to achieve your targets within the
desired time frame. Never adopt a casual attitude at work. An individual must be able to sense the
early signs of crisis and warn his fellow workers against the same. Take initiative on your own.
Escalate issues immediately to your seniors. Don’t wait for others to take action.
One should not take things lightly. Once a crisis is being detected, employees must
immediately jump into action.
Encourage effective communication during emergency situations. Don’t keep things to
yourself. Discuss ideas amongst your fellow workers to reach to a plan which would work
best at the times of crisis.
Don’t spread baseless rumours about your product and organization. Avoid spreading fake
information.
It is essential for the employees to respect their organization. One should maintain the
decorum of the organization. Enter office with a cool mind. Don’t unnecessarily fight fault in
your coworkers and fight with them. Remember conflicts lead to no solution. It is always
better to discuss things face to face and come to a mutually beneficial solution.
Don’t ask for unjustified things. Think from the management’s perspective as well. Remember
your organization pays you for your hard work and not for spreading negativity around.
Employees should never indulge in unproductive activities like boycotts or strikes to get their
demands fulfilled. Violence at the workplace is a crime. Neither the management nor the
employee benefits out of it. Such activities in turn tarnish the brand name.
Don’t panic. Maintain your calm and decide on the ways to overcome crisis rather than
complaining and cribbing. Employees should never get hyper as stress and anxiety lead to
more mistakes one might not otherwise commit. Relax and give your best.
Employees must rely on accurate information. Mere assumptions and guess works
create problems and misunderstanding Slater.
Think out of the box. Try to come out with innovative ideas and strategies to overcome
tough times as soon as possible. Employees must identify the causes of crisis and devise
relevant strategies and ways to avoid it.
Individuals must work as a single unit during emergency situations. Ensure free flow of
information across departments. Avoid playing blame games or criticizing others. It only
makes situation worse.
Don’t hide, instead come out, interact with stake holders and external parties, and ask for help.
One must not avoid media.
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Discrimination on the grounds of caste, status, income, sex and so on is unethical and leads
to crisis. Everyone must be treated as one for a peaceful environment at the workplace.
1.18 Role of leader/manager in crisis

A sequence of sudden, unplanned and unexpected events leading to instability in the
organization and major unrest amongst the individuals is called as crisis.
One should lead from the front. Show confidence and steadiness. Take complete charge of
the situation.
Managers should have full control on the employees. They should know what is happening
around. Any issue neglected in the initial stage might be a major concern later. Problems
must be attended immediately. One should not ignore even minor issues or wait for
someone else to take
the initiative. Any issue left unattended might lead to crisis and major unrest later.
One should be alert at the workplace. A leader should be able to feel the early signs of crisis
and warn the employees against the negative consequences of the same. It is his duty to take
precautionary measures to avoid an emergency situation. A leader should be able to foresee
crisis. Such a stage is also called as Signal Detection.
Leaders must try their level best to prevent crisis. Encourage effective communication at the
workplace. Let employees discuss issues amongst themselves and come to the best possible
alternative to overcome crisis.
Ask the employees not to panic at the time of crisis. Encourage them to face the tough times
with courage, determination and smile. Make them work as a single unit. It is the duty of the
leader to provide a sense of direction to the employees.
The leaders should interact with the employees more often. Let them feel that you are there
for them. Impart necessary crisis management trainings to the employees.
Planning is essential to avoid emergency situations. Learn to take quick decisions. Make sure
everyone at the workplace is well informed about emergency situations.
Identify the important processes and systems which should keep functioning for the smooth
running of the organization. Develop alternate plans with correct and accurate information.
Don’t let negativity creep in the organization. Motivate the employees to believe in
themselves and the organization. It is essential to trust each other during such situations.
Take strict action against those spreading rumours and trying to tarnish organization’s
image.
Don’t avoid stakeholders, external parties and most importantly media. Come out, meet
them and explain the whole situation. Ignoring people makes things worse. Develop strong
partnerships with external parties and ask for help.
Never lose hope. Be a strong pillar of support for your team members. They should be able
to fall back on you.
Leaders should strive hard to come out of tough times as soon as possible. Learn to take
risks. Clarify the roles and responsibilities of the individuals during this time.
Once the organization is out of crisis, it is the leader’s duty to communicate the lessons
learnt so that employees do not commit same mistakes again. Work hard and relive your
organization’s image. Adapt well to changes and new situations.
2.0 Talent Management –Meaning

As it has been observed in previous unit, for sustainable development human resources
dimension is most prominent factor requiring special focus. When companies try to leverage
human resources to achieve sustainable development the concept of talent management becomes
key for them.HR (Human Resources) is different from talent management. While HR focus on day to
day work needs of the organization, talent management is strategic in its holistic approach of
hiring, training and retaining key employees in a way they can continue their contribution for
sustainability of the entity. Unlike HR activities in talent management are not centralized. Here

41
activities concerning talent management are performed at frontline manager level itself. Here main
aim is helping and improving the top talent in the organization.
Talent Management can be defined as a set of organizational HR processes designed to attract,
develop, motivate and retain the productive, engaged employees.Talent Management, as the name
itself suggests is managing the ability, competency and power of employees within an organization.
The concept is not restricted to recruiting the right candidate at the right time but it extends to
exploring the hidden and unusual qualities of your employees and developing and nurturing them
to get the desired results. Hiring the best talent from the industry may be a big concern for the
organizations today but retaining them and most importantly, transitioning them according to the
culture of the organization and getting the best out of them is a much bigger concern.
Talent Management in organizations is not just limited to attracting the best people from the
industry but it is a continuous process that involves sourcing, hiring, developing, retaining and
promoting them while meeting the organization’s requirements simultaneously. For instance, if an
organization wants the best talent of its competitor to work with it, it needs to attract that person
and offer him something that is far beyond his imagination to come and join and then stick to the
organization. Only hiring him does not solve the purpose but getting the things done from him is
the main task. Therefore, it can be said that talent management is a full-fledged process that not
only controls the entry of an employee but also his or herexit.
We all know that it’s people who take the organization to the next level. To achieve
success in business, the most important thing is to recognize the talent that can accompany you in
achieving your goal. Attracting them to work for you and strategically fitting them at a right placein
your organization is the next step. It is to be remembered that placing a candidate at a wrong place
can multiply your problems regardless of the qualifications, skills, abilities and competency of that
person. How brilliant he or she may be, but placing them at a wrong place defeats your sole
purpose. The process of talent management is incomplete if you’re unable to fit the best talent of
the industry at the place where he or she shouldbe.
Some organizations may find the whole process very unethical especially who are at the
giving end (who loses their high-worth employee). But in this cut-throat competition where
survival is a big question mark, the whole concept sounds fair. Every organization requires the best
talent to survive and remain ahead in competition. Talent is the most important factor that drives
an organization and takes it to a higher level, and therefore, cannot be compromised at all. It won’t
be exaggerating saying talent management as a never-ending war for talent!
2.1 Need for Talent management

Employees are central to creating sustainable organizations, yet they are left on the
sidelines in most sustainability initiatives along with the HR professionals who should be helping to
engage and energize them. In the current VUCA filled business environment focus should be on
Talent, transformation and the Triple bottom line (TBL).
Talent management should be key for all strategies, policies and action plans organizations uses to
get into the sustainability game or enhance their sustainable capabilities dramatically.
2.2 Objectives of Talent management
1. Motivate employees to create economic, environmental and social value: This feature of
Talent management is the key for its unique identity and increasing focus around the globe. HR
professionals today give equal importance to environmental and social values along with
economic interests. That means appraisal of methods and techniques should not overlook their
impact on environment and social values. Perfect communication and motivation towards this
TBL requirement among the employees is crucial step for HR managers.
2. Facilitate necessary culture, strategic and organizational change: Talent management
ultimate aim is transformation to sustainability. So talent management aims at creating a culture,
strategic and organizational change that facilitates TBL enabled sustainability for the
organization.
3. Identification of Talent: Talent at work places are identified by measuring the employees
engagement at work, his/her approaches in getting the things right, their ability to accomplish in
42
crisis situations. Front line managers and supervisors should develop strategies to identify talented
employees at workplace.
4. Development and Retention of employees: Talent management process does not end with
identification of talent. Hence suitable strategies and action plans are equally needed for
development of talent of engaged employees having prospects of contributing to sustainability of
the entity. Retention is another dimension requiring special attention in framing long term
strategies that provide the employee with large economic benefits if he continues to contribute to
the organization.
2.3 Talent Management Process

People are, undoubtedly the best resources of an organization. Sourcing the best people from the
industry has become the top most priority of the organizations today. In such a competitive
scenario, talent management has become the key strategy to identify and filling the skill gap in a
company by recruiting the high-worth individuals from the industry. It is a never-ending process
that starts from targeting people. The process regulates the entry and exit of talented people in an
organization. To sustain and stay ahead in business, talent management can not be ignored. In order
to understand the concept better, let us discuss the stages included in talent management process:
Understanding the Requirement: It is the preparatory stage and plays a crucial role in
success of the whole process. The main objective is to determine the requirement of talent. The
main activities of this stage are developing job description and job specifications.
Sourcing the Talent: This is the second stage of talent management process that involves
targeting the best talent of the industry. Searching for people according to the requirement is
the main activity.
Attracting the Talent: it is important to attract the talented people to work with you as the
whole process revolves around this only. After all the main aim of talent management process
is to hire the best people from the industry.
Recruiting the Talent: The actual process of hiring starts from here. This is the stage when
people are invited to join the organization.
Selecting the Talent: This involves meeting with different people having same or different
qualifications and skill sets as mentioned in job description. Candidates who qualify this round
are invited to join the organization.
Training and Development: After recruiting the best people, they are trained and developed
to get the desired output.
Retention: Certainly, it is the sole purpose of talent management process. Hiring them does not
serve the purpose completely. Retention depends on various factors such as pay package, job
specification, challenges involved in a job, designation, personal development of an employee,
recognition, culture and the fit between job and talent.
Promotion: No one can work in an organization at the same designation with same job
responsibilities. Job enrichment plays an important role.
Competency Mapping: Assessing employee’s skills, development, ability and competency is
the next step. If required, also focus on behaviour, attitude, knowledge and future possibilities
of improvement. It gives you a brief idea if the person is fir for promoting further.
Performance Appraisal: Measuring the actual performance of an employee is necessary to
identify his or her true potential. It is to check whether the person can be loaded with extra
responsibilities or not.
Career Planning: If the individual can handle the work pressure and extra responsibilities
well, the management needs to plan his or her career so that he or she feels rewarded. It is good to
recognize their efforts to retain them for a longer period of time.
Succession Planning: Succession planning is all about who will replace whom in near future.
The employee who has given his best to the organization and has been serving it for a very long
time definitely deserves to hold the top position. Management needs to plan about when and
how succession will take place.
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Exit: The process ends when an individual gets retired or is no more a part of the organization.
Talent Management process is very complex and is therefore, very difficult to handle. The sole
purpose of the whole process is to place the right person at the right place at the right time. The
main issue of concern is to establish a right fit between the job and the individual.
2.4 Principles of Talent Management

There are no hard and fast rules for succeeding in execution of management practices, if you ask
me. What may work wonders for one organization may ruin another one! For convenience sake
however there are certain principles of Talent Management that one should follow or keep in
mind.
Principle 1 - Avoid Mismatch Costs: In planning for future manpower requirements, most of the
HR professionals prepare a deep bench of candidates or manpower inventory. Many of the people
who remain in this bracket start searching for other options and move when they are not raised to
a certain position and profile. In such a scenario it is better to keep the bench strength low and hire
from outside from time to time to fill gaps. This in no way means only to hire from outside, which
leads to a skill deficit and affects the organizational culture.
Such decisions can be taken by thinking about the ‘Make or Buy’ decision. Perhaps questions like -
How accurate is the demand forecast? How long is the talent required? Can we afford to develop?
Answers to these questions can better help the talent management to decide on whether to develop
or buy talent.
Principle 2 - Reduce the Risk of Being Wrong: In manpower anticipations for future an
organization can ill afford to be wrong. It’s hard to forecast talent demands for future business needs
because of the uncertainty involved. It is therefore very important to attune the career plans with the
business plans. A 5 year career plan looks ridiculous along with a 2 year business plan. Further, long
term development and succession plans may end up as a futile exercise if the organization lacks a
firm retention strategy.
Principle 3 - Recoup Talent Investments: Developing talent internally pays in the longer run. The
best way to recover investments made in talent management is to reduce upfront costs by finding
alternative and cheaper talent delivery options. Organizations also require a rethink on their talent
retention strategy to improve employee retention.
Another way that has emerged of late in many organizations is sharing development costs with the
employees. Many of TATA companies for example sponsor their employees’ children education.
Similarly lots of organizations use ‘promote then develop’ programs for their employees where the
cost of training and development is shared between the two. One important way to recoup talent
investments is spotting the talent early, this reduces the risk. More importantly this identified lot of
people needs to be given opportunities before they get it elsewhere.
Principle 4 - Balancing Employee Interests: How much authority should the employees’ haves
over their own development? There are different models that have been adopted by various
corporations globally. There is ‘the chess master model’, but the flipside in this is that talented
employees search for options. Organizations can also make use of the internal mobility programs
which are a regular feature of almost all the top organizations.
3.0 Triple Bottom line

Triple bottom line (TBL) is a concept which seeks to broaden the focus on the financial
bottom line by businesses to include social and environmental responsibilities. A triple bottom line
measures a company's degree of social responsibility, its economic value, and its environmental
impact. The phrase was introduced in 1994 by John Elkington and later used in his 1997 book
"CannibalswithForks:TheTripleBottomLineof21stCenturyBusiness."Akeychallengewiththe triple
bottom line, according to Elkington, is the difficulty of measuring the social and environmental
bottom lines, which necessitates the three separate accounts being evaluated on their own merits.
1. One is the traditional measure of corporate profit—the ―bottom line of the profit and loss
account.
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2. The second is the bottom line of a company's ―people account—a measure in some shape or
form of how socially responsible an organisation has been throughout its operations.
3. The third is the bottom line of the company's ―planet account—a measure of how
environmentally responsible it has been.
The triple bottom line (TBL) thus consists of three Ps: profit, people and planet. It aims to measure
the financial, social and environmental performance of the corporation over a period of time. Only a
company that produces a TBL is taking account of the full cost involved in doing business.
1.1 Elements of TBL

An investment manager, individual investor, or CEO that wants to pursue the triple bottom line
(TBL) must consciously consider, in addition to the economic bottom line, the social and
environmental areas in making investing and business decisions. Deploying money and other
resources, such as human labor, to a project or an investment can either contribute to these three
goals or focus on profit at the expense of one or both of the other two. Some of the repercussions
that have come about from ignoring the TBL in the name of profits include destruction of the
rainforest, exploitation of labor, and damage to the ozone layer.
1. Social Sustainability: The Social bottom line measures your business’ profits in human capital,
including your position within your local society. Your social bottom line is increased by having
fair and beneficial labour practices and through corporate community involvement. After all, if
your business is not nurturing positive relationships with your community, your client base and
employee pool shrinks accordingly. The social bottom line questions the belief that the less a
business pays its work force the longer it can afford to operate. Instead, the social bottom line
measures the long- term sustainability of business human capital, with the understanding that a
business that is also a desirable workplace will always be able to operate. Essentially, corporate
interests and labour interests are seen as interdependent. Like most subjective public relations
efforts or intangible benefits, your social bottom line can be difficult to measure. However the
Global Reporting Initiative (GRI) has developed guidelines to enable businesses to report and
measure their social impact.
2. Environmental Sustainability: The Triple Bottom Line approach to sustainability takes the view
that the less impact your business has on the environment and the fewer natural resources you
consume, the longer and more successful your business will be. Controlling your Environmental
bottom line means managing, monitoring, and reporting your consumption and waste and
emissions. This is typically the work of your EHS department, though most sustainable business
models also make waste reduction and green policies corporate-wide values across all levels of
management. A sustainability committee is usually required to communicate your sustainability
solution to all departments.
Measuring and reporting your environmental bottom line is certainly possible, though depending
on the size of your business, it can be a time-consuming and difficult process. However, EHS or
corporate sustainability software can make the process much quicker and cost effective.
3. Economic Sustainability: In the Triple Bottom Line approach, economic sustainability is not
simply your traditional corporate capital in addition to your environmental and human capital.
Your economic capital must be measured in terms of how much of an impact your business has on
its economic environment. The business that strengthens the economy it is part of is one that will
continue to succeed in the future. Of course, a business needs to be aware of its traditional profits
as well, and the Triple Bottom Line accounts for this as well. By using the Triple Bottom Line
method, your business can expand how it understands its position in the economy and its ability
to survive in the future. Corporate sustainability measures your ability to be in business
indefinitely, based on your impact on the environment, your relationship to your community, and
contribution to your economy. Unlike the traditional method, the Triple Bottom Line allows you to
see your business as a social and environmental entity and measure it along these parameters.
1.2 Challenges of TBL

The 3Ps do not have a common unit of measure. Profits are measured in currency. How is social
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capital measured in? How about environmental or ecological health? Finding a common unit of
measurement is one challenge.
1. Currency is the common measure for all P’s: Some advocate monetizing all the
dimensions of the TBL, including social welfare or environmental damage. While that would
have the benefit of having a common unit—dollars—many object to putting a dollar value on
wetlands or endangered species on strictly philosophical grounds. Others question the
method of finding the right price for lost wetlands or endangered species.
2. Using Index: Another solution would be to calculate the TBL in terms of an index. In this
way, one eliminates the incompatible units issue and, as long as there is a universally
accepted accounting method, allows for comparisons between entities, e.g., comparing
performance between companies, cities, development projects or some other benchmark.
1.3 Measures of Individual components of TBL

1.Economic Measures: Economic variables ought to be variables that deal with the bottom line and
the flow of money. It could look at income or expenditures, taxes, business climate factors,
employment, and business diversity factors. Specific examples include:
Personal income
Cost of underemployment Establishment churn Establishment sizes
Job growth
Employment distribution by sector Percentage of firms in each sector
Revenue by sector contributing to gross state product
2. Environmental Measures: Environmental variables should represent measurements of natural
resources and reflect potential influences to its viability. It could incorporate air and water quality,
energy consumption, natural resources, solid and toxic waste, and land use/land cover. Ideally,
having long-range trends available for each of the environmental variables would help
organizations identify the impacts a project or policy would have on the area. Specific examples
include:
Sulfur dioxide concentration: Concentration of nitrogen oxides Selected priority pollutants
Excessive nutrients
Electricity consumption Fossil fuel consumption Solid waste management Hazardous waste
management Change in land use/land cover
3. Social Measures: Social variables refer to social dimensions of a community or region and could
include measurements of education, equity and access to social resources, health and well-being,
quality of life, and social capital. The examples listed below are a small snippet of potential variables:
Unemployment rate
Female labor force participation rate Median household income
Relative poverty
Percentage of population with a post-secondary degree or certificate Average commute time
Violent crimes per capita Health-adjusted life expectancy
UNIT – V
Issues of VUCA in Product Management – Pricing, Promotion – Distribution, Strategic Leadership
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– Developing core competencies
1.0 Product Management in VUCA

Product management in the context of organizational life cycle means planning,
forecasting, production and marketing of a product at all stages of product life cycle. In dealing with
current uncertain conditions product life cycle management need to integrate people, data, process
and business systems. This will facilitate ready adaptability of marketing system to cope with
demands of VUCA scenarios.
Product managers, entrepreneurs, and leaders, are all confronted with the
challenge of making decisions under uncertainty. This is especially true in situations where they are
trying to decide something based on the external environment market trends, customer needs, or
competitor reactions. To be an effective leader, however, it’s important to be able to make the right
decisions in a timely manner, despite the uncertainty.
1.1 Issues of VUCA in product management

In most companies, developing new products is a critical component of strategy. Many
companies are finding this to be more and more difficult as their environment increases in VUCA.
Bob Johansen has proposed a leadership response to the VUCA environment which he titles VUCA
Prime. According to Johansen, volatility is countered by vision, uncertainty is countered by
understanding, complexity is countered by clarity, and ambiguity is countered by agility. Let’s take
alookateachoftheelementsofVUCAandVUCAPrimeastheyapplytoproductdevelopment.
Volatility
Volatile is defined as changeable and often with an explosive or fleeting connotation. Volatile
situations are full of surprises. Vision is the recommended leadership response.
Product development involving innovative new technology, or a marketplace that is fast
developing with new customers and competitors, can often be volatile. The vision that is needed for
the product development team is a clear product line strategy. The strategy that has identified
target markets and the characteristics of new products will guide the product development team
through the technology, design, and business trade-offs that must be made when volatility strikes.
Without a clear product line strategy, the product development team often stalls as they start
chasing options and waiting for decisions from stakeholders.
Uncertainty
Uncertain is defined as the state of being unpredictable and indeterminate. There are numerous
significant unknowns in the business situation. The environment is novel to the point that past
experience cannot be used as the measure for what should be done now.
Within the product development environment for innovative new products; there is
normally uncertainty with respect to customer needs, product performance, and market response.
There are two approaches being used to create understanding within product development
methodologies. One approach is to do extensive upfront analysis using tools such as the Quality
Function Deployment. The other approach is to create a series of rapid prototypes of a minimally
viable product to get “real-world” experience andfeedback.
Complexity
Complex is defined as intricate, often complicated, interconnected parts, processes, or
organizations. With complexity comes options and opportunities. Some of these options and
opportunitiesareveryfavourableandsomearedisastrous.Productdevelopmentofnewinnovative
products will often involve complexity on several levels. If the product is a system, there will be
multiple components, possibly hardware and software, that must all work together. And research
shows that system integration and test is one of the most likely areas of a product development
project to overrun both time and money. In addition, there is often organizational complexity.
Marketing is developing requirements, engineering is creating designs, quality is establishing test
and inspection methodologies, operations is setting up manufacturing and logistics processes and
facilities, IT is bringing new databases online and possibly new systems for support. All of these
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functions must work together and a change in one cascades through all the rest. Establishing a
stage-gate product development methodology with defined practices and decisions points will go a
long way to creating clarity in product development.
Ambiguity
Ambiguous is defined as obscure, indistinct, and with numerous possible interpretations. Unlike
our definition for uncertain where facts are available but are not yet known; in an ambiguous
environment there is normally no “right” or “wrong” answer.
In the global marketplace, industries are separating into those that are ambiguous and those that
are rigid. The highly regulated industries have a tendency to be very rigid and those that are not
regulated are often ambiguous. But regardless of the industry, the product development
environment is ambiguous. It follows that an ambiguous end market will create an ambiguous
product development process. As the target for product definition and performance is constantly
changing, whatever product is developed will immediately need an upgrade or replacement
product. But even in rigid end markets, development is ambiguous. The regulatory environment is
often different in different countries or areas, and these regulations are frequently changing.
Finally, the product development metrics must be focused on business success or failure of the
product, not on time and budget targets for the project.
2.0 Pricing Strategies:

Pricing is the process whereby a business sets the price at which it will sell its products and
services, and may be part of the business's marketing plan. In setting prices, the business will take
into account the price at which it could acquire the goods, the manufacturing cost, the market place,
competition, market condition, brand, and quality of product
The financial goals of the company (i.e. profitability)
The fit with market place realities.
The extent to which the price supports a product's market positioning and be consistent with
the other variables in the marketing mix
Price is influenced by the type of distribution channel used, the type of promotions used, and the
quality of the product. Where manufacturing is expensive, distribution is exclusive, and the product
is supported by extensive advertising and promotional campaigns, then prices are likely to be
higher. Price can act as a substitute for product quality, effective promotions, or an energetic selling
effort by distributors in certain markets.
From the marketer's point of view, an efficient price is a price that is very close to the
maximum that customers are prepared to pay. In economic terms, it is a price that shifts most of the
consumer economic surplus to the producer. A good pricing strategy would be the one which could
balance between the price floor (the price below which the organization ends up in losses) and the
price ceiling (the price by which the organization experiences a no-demand situation).
Marketers develop an overall pricing strategy that is consistent with the organisation's
mission and values. This pricing strategy typically becomes part of the company's overall long -
term strategic plan. The strategy is designed to provide broad guidance to price-setters and ensures
that the pricing strategy is consistent with other elements of the marketing plan. While the actual
price of goods or services may vary in response to different conditions, the broad approach to
pricing (i.e., the pricing strategy) remains a constant for the planning outlook period which is
typically 3–5 years, but in some industries may be a longer period of 7–10years.
Broadly, there are six approaches to pricing strategy mentioned in the marketing literature:
1.Operations-oriented pricing: where the objective is to optimise productive capacity, to achieve
operational efficiencies or to match supply and demand through varying prices. In some cases, prices
might be set to de-market
2. Revenue-oriented pricing: (Also known as profit-oriented pricing or cost-based pricing) Here
marketer seeks to maximise the profits (i.e., the surplus income over costs) or simply to cover costs
and break even For example, dynamic pricing (also known as yield management is a form of revenue
oriented pricing.
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3. Customer-oriented pricing: The objective is to maximise the number of customers; encourage
cross-selling opportunities or to recognize different levels in the customer's ability.
4. Value-based pricing: (Also known as image-based pricing) occurs where the company uses prices
to signal market value or associates price with the desired value position in the mind of the buyer.
The aim of value-based pricing is to reinforce the overall positioning strategy e.g. premium pricing
posture to pursue or maintain a luxury image
5. Relationship-oriented pricing: The marketer sets prices in order to build or maintain
relationships with existing or potential customers
6. Socially-oriented pricing: The objective is to encourage or discourage specific social attitudes
and behaviours. e.g. high tariffs on tobacco to discourage smoking.
2.1 Pricing in VUCA conditions

Typically, three parameters (cost, competitors and customers) are seen as pivotal, when
determining the optimal price for a product. While a focus on production cost perspective leads to a
cost-plus pricing and a focus on competition leads to a price matching, a value-based pricing is
derived from the customer perspective.
In a world characterized by uncertainties and rapid structural changes, these landmarks only have
a limited value. It is an illusion and rather naïve to assume the maximum willingness to pay for
individual decision makers is robust and remains unchanged over a long period of time. In addition,
modern IT-systems allow a fast reaction of the competition on individual pricing- decisions taken
by a company. This "pricing-in-3-D" approach takes into account different decision criteria:
(1) The customer’s willingness to pay for the product or service,
(2) Psychological factors influencing the customer decision and
(3) Impact of price decisions on the long-term customer relationship.
2.2 The future of pricing in a VUCA world

Conventional methods of pricing and price optimization are not sufficient to ensure a value- based
pricing in a VUCA environment. If managers accept this they can realize a competitive advantage.
(1) Continuous segmentation: The increasing speed of market changes requires a modified
segmentation of the market in two directions: First, apply continuous customer segmentation
instead of an ad-hoc approach. Second, avoid multiple, concurrent and potentially contradictory
segmentations.
(2) Focus of the segmentation: Customer segmentation must be need-based (value-based) and
must allow statements on the price sensitivity of customers.
(3) Close link of pricing with CRM: Value-Based Pricing puts the customer in the center and then
determines the value drivers. Therefore, customer data from CRM systems are an essential source
for decision support.
(4) Testing under real market conditions: If possible hypotheses should first be developed to the
expected price elasticity and price-demand relationships and are reviewed in the following targeted
market testing and real purchasing conditions.
(5) Using surveys to determine the “Willingness to Pay”: In the event that market tests are not
possible or too costly, the willingness to pay in the context of customer or market surveys can be
determined. These procedures should be transparent, robust and simple.
(6) Applying experiments with altering price presentation and models: As illustrated, the
number of options and the context in which they are presented influence the customer's decision.
The knowledge of the influence factors allows control of the demand.
(7) No blind faith for results of market simulation models: Elaborate survey methods such as
conjoint measurement not only provide utility values for different features and their attributes.
Moreover, these can be used as input data for simulation models. Market simulation models can be
helpful, as long as the users are aware of the limitations.
(8) Performing sensitivity tests and considering worst-case-scenarios: Even no complex
simulation models are used, the sensitive parameters can be examined based on simple analyzes.

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(9) Create organizational structures, which enable rapid decisions and its implementation. It is
less important, whether the pricing competence and responsibilities are anchored centralized or
decentralized within the company, but the "time to market" is crucial.
(10) VUCA conditions are also a chance to see a more active role in pricing. This can for
example be effected by existing pricing rules which are changed or innovative pricing models which
are offered.
Consequence of VUCA environment is necessarily a corresponding dynamic approach to the price
setting and alignment of prices. It is recommended to use the expanded Pricing-in-3-D approach to
develop an optimal pricing structure.
3.0 Promotion
In marketing, promotion is advertising a product or brand, generating sales, and creating brand
loyalty. It is one of the four basic elements of the market mix, which includes the four P's: price,
product, promotion, and place.
Promotion is also defined as one of five pieces in the promotional mix or promotional plan. These
are personal selling, advertising, sales promotion, direct marketing, and publicity. A promotional
mix specifies how much attention to pay to each of the five factors, and how much money to budget.
Promotion covers the methods of communication that a marketer uses to provide information
about its product. Information can be both verbal andvisual.
3.1 Types of Promotion

1. In a physical environment
Promotions can be held in physical environments at special events such as concerts, festivals, trade
shows, and in the field, such as in grocery or department stores. Interactions in the field allow
immediate purchases. The purchase of a product can be incentive with discounts (i.e., coupons),
free items, or a contest. This method is used to increase the sales of a given product. Interactions
between the brand and the customer are performed by a brand ambassador or promotional model
that represents the product in physical environments. Brand ambassadors or promotional models
are hired by a marketing company, which in turn is booked by the brand to represent the product
or service. Person-to-person interaction, as opposed to media-to-person involvement, establishes
connections that add another dimension to promotion. Building a community through promoting
goods and services can lead to brand loyalty.
2. Traditional media
Examples of traditional media include print media such as newspapers and magazines, electronic
media such as radio and television, and outdoor media such as banner or billboard advertisements.
Each of these platforms provides ways for brands to reach consumers with advertisements.
3. Digital media
Digital media, which includes Internet, social networking and social media sites, is a modern way
for brands to interact with consumers as it releases news, information and advertising from the
technological limits of print and broadcast infrastructures. Digital media is currently the most
effective way for brands to reach their consumers on a daily basis. Over 2.7 billion people are online
globally, which is about 40% of the world's population. 67% of all Internet users globally use social
media. Mass communication has led to modern marketing strategies to continue focusing on brand
awareness, large distributions and heavy promotions. The fast-paced environment of digital media
presents new methods for promotion to utilize new tools now available through technology. With
the rise of technological advances, promotions can be done outside of local contexts and across
geographic borders to reach a greater number of potential consumers. The goal of a promotion is
then to reach the most people possible in a time efficient and a cost efficient manner.
Social media, as a modern marketing tool, offers opportunities to reach larger audiences in an
interactive way. However, there are downsides to virtual promotions as severs, systems, and
websites may crash, fail, or become overloaded with information. You also can stand risk of losing
uploaded information and storage and at a use can also be effected by a number of outside
variables. Brands can explore different strategies to keep consumers engaged. One popular tool is
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branded entertainment, or creating important for brands to utilize personalization in their ads,
without making the consumer feel vulnerable or that their privacy has been be trayed.
3.2 VUCA elements in promotional strategies

1. Volatility impact on promotion strategies: High volatility in promotion implies, that the swing
for improvement or worsen in market share are quite large that with a single successful promotion
strategy, one can reach from nothing to everything at same time competitor can go into a not
competitive situation. The case of Reliance Jio is a perfect example.
2. Uncertainty on competitor’s responses: The counter strategy of competitor’s is highly
uncertain to predict. Availability of wide range of media to reach customers and technology to
differentiate, making it difficult to estimate the competitor’s responses to combat on others
promotion strategy. If some superstar from North India is chosen as the ambassador for promotion,
our immediate competitor will choose a south Indian ambassador in their counterstrategy.
3. Complexity and Ambiguity subsists due to cultural and legal issues: Promotional activities
are not free from legal and cultural bounds of a nation. Sometimes brand loyalty is damaged due to
unintentional use of means which are against the cultural or legal barriers of a nation.
4. Transformation in promotional strategies due to VUCA elements
Digitalization and globalization had brought a significant change in the way promotional activities
are done in general marketing practices. Under VUCA environment, organization need to be very
careful in choosing media for communication because, taking a second chance in promotion
activities costs a lot and entities chances of recovering from it and again competing back is
intolerable. Sustainable methods of promotion are important than age old techniques in which
current generations place less reliance.
The success of any promotional strategy does not solely dependent on one single strategy. In this
digital era, when people are highly associated with electronic gadgets, what will be the use of
advertising in newspapers. Facebook, whatsapp, google adds,etc cannot be ignored any more.
3.3 Following are transformational strategies practiced by enterprises and more can be
added to the list with advancements in technology.
1. Social Media
Social media websites such as Facebook and Google+ offer companies a way to promote products
and services in a more relaxed environment. This is direct marketing at its best. Social networks
connect with a world of potential customers that can view your company from a different
perspective. Rather than seeing your company as "trying to sell" something, the social network can
see a company that is in touch with people on a more personal level. This can help lessen the divide
between the company and the buyer, which in turn presents a more appealing and familiar image of
the company.
2. Mail Order Marketing
Customers who come into your business are not to be overlooked. These customers have already
decided to purchase your product. What can be helpful is getting personal information from these
customers. Offer a free product or service in exchange for the information. These are customers
who are already familiar with your company and represent the target audience you want to market
your new products to.
3. Product Giveaways
Product giveaways and allowing potential customers to sample a product are methods used often
by companies to introduce new food and household products. Many of these companies sponsor in-
store promotions, giving away product samples to entice the buying public into trying new
products.
4.Point-of-Sale Promotion and End-Cap Marketing
Point-of-sale and end-cap marketing are ways of selling product and promoting items in stores. The
idea behind this promotional strategy is convenience and impulse. The end cap, which sits at the
end of aisles in grocery stores, features products a store wants to promote or move quickly. This
product is positioned so it is easily accessible to the customer. Point-of-sale is a way to promote
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new products or products a store needs to move. These items are placed near the checkout in the
store and are often purchased by consumers on impulse as they wait to be checked out.
5. Customer Referral Incentive Program
The customer referral incentive program is a way to encourage current customers to refer new
customers to your store. Free products, big discounts and cash rewards are some of the incentives
you can use. This is a promotional strategy that leverages your customer base as a sales force.
6. Causes and Charity
Promoting your products while supporting a cause can be an effective promotional strategy. Giving
customers a sense of being a part of something larger simply by using products they might use
anyway creates a win/win situation. You get the customers and the socially conscious image;
customers get a product they can use and the sense of helping a cause. One way to do this is to give
a percentage of product profit to the cause your company has committed to helping.
7. Branded Promotional Gifts
Giving away functional branded gifts can be a more effective promotional move than handing out
simple business cards. Put your business card on a magnet, ink pen or key chain. These are gifts you
can give your customers that they may use, which keeps your business in plain sight rather than in
the trash or in a drawer with other business cards the customer may not look at.
8. Customer Appreciation Events
An in-store customer appreciation event with free refreshments and door prizes will draw
customers into the store. Emphasis on the appreciation part of the event, with no purchase of
anything necessary, is an effective way to draw not only current customers but also potential
customers through the door. Pizza, hot dogs and soda are inexpensive food items that can be used
to make the event more attractive. Setting up convenient product displays before the launch of the
event will ensure the products you want to promote are highly visible when the customers arrive.
9. After-Sale Customer Surveys
Contacting customers by telephone or through the mail after a sale is a promotional strategy that
puts the importance of customer satisfaction first while leaving the door open for a promotional
opportunity. Skilled salespeople make survey calls to customers to gather information that can later
be used for marketing by asking questions relating to the way the customers feel about the
products and services purchased. This serves the dual purpose of promoting your company as one
that cares what the customer thinks and one that is always striving to provide the best service and
product.
4.0 Distribution Strategies in VUCA strategies:
Supply chain management in cloud computing environment – Enhancing core competency in
1.Distribution networks in Digitized era.
The term supply chain management refers to flow of goods and services from the place of its origin
to place of its consumption. It involves purchase, storage and internal transportation of raw
material, achieving optimum efficiency levels in dealing with work in process and finished goods by
partnering with distributors as well as suppliers. But to reach the objectives of supply chain
management, use of technology in the form of cloud computing environment is of paramount
importance.
2. Cloud computing : Cloud computing represents business data processing using internet
connectivity and server based services. In other words, cloud computing allows the centralized data
processing that had inbuilt application capabilities to provide information as per model designed
across the supply chain.
(a)SaaS Model: SaaS is a model of cloud computing software service is provided by the centralized
server. SaaS stands for Software as a Service.
4.1 Advantages of cloud computing for supply chain management

Alongside these core strategic advantages, the replacement of on-premise solutions with SaaS-
based SCM models have the potential to deliver four immediate tactical benefits, with quick wins
helping to support buy-in
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1. Speed: Much faster to deploy than linear on-premise ERP implementations, SaaS-based SCM
solutions facilitate rapid demonstration of ROI and avoid long IT project queues. In addition,
upgrades can be delivered more timely with limited man power.
2. Single source of truth: By enabling a single source of the truth—accessible anywhere/anytime
and easily shared on a real-time basis—SaaS-based solutions can quickly lead to the connectivity
that turns traditional supply chains into supply networks.
3. Cost: SaaS-based SCM solutions enable low cost-of-entry for fast-growing companies to build a
business case and gain executive buy-in. Because they can support highly distributed operational
processes at a low cost, they provide an attractive alternative to on-premise solutions for supply
chain managers confronted with limited IT resources and tight budget constraints. These solutions
also help reduce the need for substantial upfront capital investment– integration and configuration
costs can be transferred into operating costs.
4. Business value: Ideally suited to facilitate rapid, flexible implementation of SCM capabilities in
small and mid-sized companies, SaaS based solutions allow these organizations to build the
competencies they need prior to investing, as well as providing a route to experiment with
innovation at a lower cost, without long-term commitment.
5.0 Strategic leadership

Strategic Leadership is the ability of influencing others to voluntarily make decisions that enhance
the prospects for the organization’s long-term success while maintaining long-term financial
stability. Different leadership approaches impact the vision and direction of growth and the
potential success of an organization. To successfully deal with change, all executives need the skills
and tools for both strategy formulation and implementation. Managing change and ambiguity
requires strategic leaders who not only provide a sense of direction, but who can also build
ownership and alignment within their workgroups to implement change. It is developing agile
leaders capable of increasing the VISION to deal with volatility, Understanding to deal with
uncertainty, Cleary to deal with complexity and Agility to deal with ambiguity.
1. Distribute responsibility: Strategic leaders gain their skill through practice, and practice
requires a fair amount of autonomy. Top leaders should push power downward, across the
organization, empowering people at all levels to make decisions. Distribution of responsibility gives
potential strategic leaders the opportunity to see what happens when they take risks. It also
increases the collective intelligence, adaptability, and resilience of the organization over time, by
harnessing the wisdom of those outside the traditional decision- making hierarchy.
2. Be honest and open about information: The management structure traditionally adopted by
large organizations evolved from the military, and was specifically designed to limit the flow of
information. In this model, information truly equals power. The trouble is, when information is
released to specific individuals only on a need-to-know basis, people have to make decisions in the
dark. They do not know what factors are significant to the strategy of the enterprise; they have to
guess. And it can be hard to guess right when you are not encouraged to understand the bigger
picture or to question information that comes your way. Moreover, when people lack information, it
undermines their confidence in challenging a leader or proposing an idea that differs from that of
their leader.
3. Create multiple paths for raising and testing ideas: Developing and presenting ideas is a key
skill for strategic leaders. Even more important is the ability to connect their ideas to the way the
enterprise creates value. By setting up ways for people to bring their innovative thinking to the
surface, you can help them learn to make the most of their own creativity.
This approach clearly differs from that of traditional cultures, in which the common channel for
new ideas is limited to an individual’s direct manager. The manager may not appreciate the value in
the idea, may block it from going forward and stifle the innovator’s enthusiasm. Of course, it can
also be counterproductive to allow people to raise ideas indiscriminately without paying much
attention to their development. So many ideas, in so many repetitive forms, might then come to the
surface that it would be nearly impossible to sort through them. The best opportunities could be

53
lost in the clutter.
4. Make it safe to fail: You must enshrine acceptance of failure and willingness to admit failure
early in the practices and processes of the company, including the appraisal and promotion
processes. Strategic leaders cannot learn only from efforts that succeed; they need to recognize the
types of failures that turn into successes. They also need to learn how to manage the tensions
associated with uncertainty, and how to recover from failure to try new ventures again.
5. Provide access to other strategists: The first step is to find them. Strategic leaders may not be
fully aware themselves that they are distinctive. A good way to learn about candidates is to ask,
“Who are the people who really seem to understand what the organization needs and how to help it
get there?” These may be people who aren’t traditionally popular; their predisposition to question,
challenge, and disrupt the status quo can unsettle people, particularly people at the same level.
6. Develop opportunities for experience-based learning: The vast majority of professional
leadership development is informative as opposed to experiential. Classroom-based training is,
after all, typically easier and less expensive to implement; it’s evidence of short-term thinking,
rather than long-term investment in the leadership pipeline. Although traditional leadership
training can develop good managerial skills, strategists need experience to live up to their potential.
7. Hire for transformation: Hiring decisions should be based on careful considerations of
capabilities and experiences, and should aim for diversity to overcome the natural tendency of
managers to select people much like themselves. Test how applicants react to specific, real-life
situations; do substantive research into how they performed in previous organizations; and
conduct interviews that delve deeper than usual into their psyche and abilities, to test their
empathy, their skill in reframing problems, and their agility in considering big-picture questions as
well as analytical data.
8. Bring your whole self to work: Strategic leaders understand that to tackle the most demanding
situations and problems, they need to draw on everything they have learned in their lives. They
want to tap into their full set of capabilities, interests, experiences, and passions to come up with
innovative solutions. And they don’t want to waste their time in situations (or with organizations)
that doesn’t align with their values.
9. Find time to reflect: Strategic leaders are skilled in what organizational theorists Chris Argyris
and Donald Schö n call “double-loop learning.” Single-loop learning involves thinking in depth about
a situation and the problems inherent in it. Double-loop learning involves studying your own
thinking about the situation the biases and assumptions you have, and the “undiscussables” that are
too difficult to raise.
10. Recognize leadership development as an ongoing practice: Strategists has the humility and
intelligence to realize that their learning and development is never done, however experienced they
maybe.Theyadmitthattheyarevulnerableanddon’thavealltheanswers.Thischaracteristic has the
added benefit of allowing other people to be the expert in some circumstances. In that way,
strategic leaders make it easy for others to share ideas by encouraging new ways of thinking and
explicitly asking for advice.
5.1 Specific requirements of Agile leaders

These four are not the full range of agile behaviors, but they are necessities in attaining agility.
1.Provide guidance and direction to teams working across time zones, cultures and
organizational barriers: Leaders rarely work with team members on a face-to-face basis, forcing
them to rely on a range of virtual communication channels. And team members come from a variety
of disciplines, cultures and experience levels, making clarity of communication and mutual
understanding an even greater challenge. Effective leaders will learn to balance the requirements of
task completion and relationship development with equal finesse.
2. Take more risks by briskly connecting talent and moving information and knowledge
around the globe: Leaders are required to complement full-time employees with part-timers,
consultants, suppliers and even customers as part of the broader definition of the company's
54
workforce. Effective and efficient talent management models enable high-performing companies to
source, assess, assign and develop this mix of talent across various projects and initiatives. User-
friendly technology supports these models and allows them to incorporate multiple sources of
global information about the workforce into decision-making processes. A global learning
management system helps support effective talent management.
3. Maintain a laser-like focus on employee commitment and engagement across generational,
global, cultural and demographic boundaries: We have witnessed just how easy it is to lose the
commitment of employees whose talent is most needed in times of uncertainty. The Center for
Work-Life Policy research indicates that employee loyalty plunged from 95 to 39 percent from June
2007 to December 2008 (Hewlett, 2009). With employees residing in a sea of project and matrix
relationships, a major challenge lies in assigning accountability and focusing attention on strategic
priorities. Agile leaders learn to keep the balance between the right amount of delegation and the
right amount of strategic direction, so teams of people can sense and respond to changing needs in
their customer worlds. This means creating the environment for employees to develop improved
work solutions and new products/processes, allowing needed decisions to happen on more of a
just- in-time basis, closer to the customer.
4. Make collaboration among suppliers, partners, customers, part-time employees and
consultants a signature part of organizational culture: Functional departments have no place in
an agile organization, and agile leaders regularly need to model collaborative behavior.
Furthermore, agile leaders are learning how to infuse collaboration into work processes, job roles,
and measures, rewards and development systems, thus generating changes in mindsets and
behavior. They need to identify the key customer/supplier relationships in which both sides benefit
from collaborative innovation. It also can mean creating collaborative physical and virtual spaces
that allow relevant stakeholders to have access to, post and comment on relevant ideas and
materials.
6.0 Core competency

A core competency is a concept in management theory introduced by C. K. Prahalad and Gary
Hamel. It can be defined as "a harmonized combination of multiple resources and skills that
distinguish a firm in the marketplace". That means resource competency along with skill
competency attained by a firm shall keep it in a distinguished position in the market place.
Core competencies fulfill three criteria:
1. Provides potential access to a wide variety of markets.
2. Should make a significant contribution to the perceived customer benefits of the end product.
3. Difficult to imitate by competitors.
Core competencies tend to be rooted in the ability to integrate and coordinate various groups in the
organization. While a company may be able to hire a team of brilliant scientists in a particular
technology, in doing so it does not automatically gain a core competence in that technology. It is the
effective coordination among all the groups involved in bringing a product to market those results in
a core competence. It is not necessarily an expensive undertaking to develop core competencies. The
missing pieces of a core competency often can be acquired at a low cost through alliances and
licensing agreements. In many cases an organizational design that facilitates sharing of competencies
can result in much more effective utilization of those competencies for little or no additional cost.
To better understand how to develop core competencies, it is worthwhile to understand what they
do not entail. According to Prahalad and Hamel, core competencies are not necessarily about:
outspending rivals on R&D
sharing costs among business units
integrating vertically
While the building of core competencies may be facilitated by some of these actions, by themselves
they are insufficient.
6.1 Core Products

Core competencies manifest themselves in core products that serve as a link between the
55
competencies and end products. Core products enable value creation in the end products. Examples
of firms and some of their core products include:
3M - Substrates, coatings, and adhesives
Black & Decker - Small electric motors
Canon - Laser printer subsystems
Matsushita - VCR sub systems, compressors
NEC -Semiconductors
Honda - Gasoline powered engines
The core products are used to launch a variety of end products. For example, Honda uses its
engines in automobiles, motorcycles, lawn mowers, and portable generators.
Because firms may sell their core products to other firms that use them as the basis for end user
products, traditional measures of brand market share are insufficient for evaluating the success of
core competencies. Prahalad and Hamel suggest that core product share is the appropriate metric.
While a company may have a low brand share, it may have high core product share and it is this
share that is important from a core competency stand point. Once a firm has successful core
products, it can expand the number of uses in order to gain a cost advantage via economies of scale
and economies of scope
6.2 Implications for Corporate Management

Prahalad and Hamel suggest that a corporation should be organized into a portfolio of core
competencies rather than a portfolio of independent business units. Business unit managers tend to
focus on getting immediate end-products to market rapidly and usually do not feel responsible for
developing company-wide core competencies. Consequently, without the incentive and direction
from corporate management to do otherwise, strategic business units are inclined to under invest
in the building of core competencies.
If a business unit does manage to develop its own core competencies over time, due to its autonomy
it may not share them with other business units. As a solution to this problem, Prahalad and Hamel
suggest that corporate managers should have the ability to allocate not only cash but also core
competencies among business units. Business units that lose key employees for the sake of a
corporate core competency should be recognized for their contribution.

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VUCA MANAGEMENT UNIT I

Introduction to Volatility, Uncertainty, Complexity, Ambiguity (VUCA) – Significance – Challenges

1.2 Growing importance of VUCA

1.3 Business value of VUCA

1.4 Origin and Development of VUCA

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2.2.1Globalization challenges to Businesses

2.2.2 Impact of Globalization on VUCA world

2.3 Social Inclusion

2.3.1 Need for Social Inclusion

2.3.2 Measures and strategies for social inclusion:

Identification of projects and programs that will address social inclusion.

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1.3 Need for Sensitivity Analysis

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Below are mentioned the steps used to conduct sensitivity analysis:

1.5 Various techniques of Sensitivity Analysis

1.6 Using Sensitivity Analysis for decision making

1.7 Uses of Sensitivity Analysis

1.8 Advantages and disadvantages of Sensitivity Analysis

1.9 Scenario Analysis:

2.1 Risk and Uncertainty in Capital budgeting

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2.2 Methods of IncorporatingRisk:

3.0 Introduction to Financial Derivates

3.1 Development of exchange-traded derivatives

3.2 Financial Derivatives-Meaning

3.3 Need for a derivatives market [ Functions of Derivatives]

3.4 Factors driving the growth of financial derivatives

3.5 Growth of Financial Derivatives in India

3.6 Derivative Markets -Participants

3.7 Types of Derivatives

3.8 The Regulatory Framework of Derivatives Trading in India.

4.1 Turnaround strategy

4.2 Turnaround phases

4.3 Characteristics (or) Features of Turnaround strategy

4.4 Turnaround Strategies

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1.0 Reasons For Mergers and Acquisitions

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1.2 Theories of Mergers &Acquisitions:

1.3 Major Challenges to Merger Success:

1.4 Major Reasons why Mergers fail:

2.0 Joint Ventures and Strategic Alliance -Meaning

3.0 Restructuring Meaning

3.1 Reasons for Restructuring

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3.3 Techniques of Corporate Restructuring

4.0 Takeover Defenses-Meaning

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4.1 Pre-Offer Takeover Defenses (or) Proactive Defenses

5.0 Business Sustainability –Meaning

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5.1 Challenges for business sustainability

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1.0Crisis Management - Meaning

1.1 Crisis Management

1.4Reasons for Crisis in organization

1.5Need for Crisis Management

1.6Essential Features of Crisis Management

1.7 Types of Crisis

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