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KARAIKUDI– 630 003 TAMILNADU
DIRECTORATE OF DISTANCE EDUCATION
M.B.A. (III Year)
Paper – 3.6
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Paper – 3.6 : Strategic Management Unit 1 The business system – objectives of the business – setting up and balancing the objectives – mission – vision – goals Strategic analysis of functional areas – Production – marketing – human resources – finance – analyzing corporate capabilities – SWOT Unit 2 Corporate strategy – nature and scope – process of strategic planning – formulation of strategy – project life cycle – portfolio analysis : BCG matrix – GE matrix – Stop High Strategy – Directional policy matrix. Strategic management – Strategic decision making – business level sub strategies Unit 3 Generic strategic alternatives – stability strategy – growth strategy – retrenchment strategy – combination strategy and turnaround strategy Strategic alternatives – horizontal, vertical diversification – active and passive alternatives Unit 4 External growth strategy – Merger, Acquisition – amalgamation – joint venture – Problems Organisational structure and corporate development – line and staff functions – Evolution of organization structure – management of change Unit 5
Implementation of strategy – elements of strategy – leadership and organizational climate – Planning and control of implementation Unit 6 ERP’s features and applications – Packages – BaaN, MARSHALL SAP – functional features and implementation difficulties
Reference : 1. 2. 3. 4. Micheal porter, “Corporate strategy, Competitive advantage”. Peter Drucker, “Management tasks, responsibilities and practices”. Bhatacharya, “Achieving managerial excellence”, McMillan Indian Ltd., Jauch and Glueck, “Business Policy and strategic management”, McGRaw Hill 1983 5. Azhar Kazmi “Business Policy and Strategic management”. 6. Francis Cherunilam, “Business Policy and Strategic management”, Himalaya. Course Material Prepared by: Dr. K. S. Chandrasekar, Senior Lecturer in Management, University of Kerla, Trivandrum 695034
Units Unit 1 Lesson 1.1 The business system Lesson 1.2 Objectives of the business Lesson 1.3 Mission – vision – goals Lesson 1.4 strategic analysis of functional areas Lesson 1.5 Analyzing corporate capabilities Lesson 1.6 SWOT Unit 2 Lesson 2.1 Corporate strategy Lesson 2.2 Process of strategic planning Lesson 2.3 Formulation of strategy Lesson 2.4 Project life cycle Lesson 2.5 Portfolio analysis Lesson 2.6 Strategic decision making Unit 3 Lesson 3.1 stability strategy Lesson 3.2 Growth strategy Lesson 3.3 Retrenchment strategy Lesson 3.4 Turnaround strategy Lesson 3.5 Diversification Unit 4 Lesson 4.1 Mergers & acquisition
Lesson 4.2 Amalgamation strategy Lesson 4.3 joint venture strategy Lesson 4.4 Organizational structure and corporate Development Lesson 4.5 Line and staff functions Lesson 4.6 Management of change Unit 5 Lesson 5.1 Implementation of strategy Lesson 5.2 Elements of Strategy Lesson 5.3 Leadership And Organisational Climate Lesson 5.4 Planning And Control or Implementation
Unit 6 Lesson 6.1 ERP Lesson 6.2 ERP Package : BaaN Lesson 6.3 ERP Package : MARSHALL Lesson 6.4 ERP Package : SAP Bibliography Model Test Paper
forecast.STRATEGIC MANAGEMENT Unit -1 Lesson 1. The business portfolio of a phase 2 firm is often viewed as the final expression of strategy rather than as an input to the strategy formulation process. The second.based planning follows naturally from the first as managers project budget requirements beyond the one –year cycle. Concern centers on understanding the organization’s environment and competitive position and generating ideas about how the company might better fit its environment. . are often devised for how the company might fit its environment. financial planning. subsidiaries. Phase 2 planning is very “now” oriented.1 THE BUSINESS SYSTEM 1. Planners are required to about an external orientation and tools and procedures for environmental and internal assessment. in at least rudimentary from. contingency plans. an activity that soon puts top management in the position of choosing a plan in which it had little involvement in developing. Several choices. Most organization has a budgeting process. Phase 3. Introduction : The McKinsey analysis discovered four quite distinct phases of strategic management evolution . Current operations and characteristics are stressed in analyses of the firm and there is little attention to or patience for considering operational options or development of strategic changes. external oriented planning requires a significant change in management viewpoint. Budgets are often constructed for several years at a time and are rolled over annually so that the appropriateness of a budgeted amount can be reviewed several times before it is operationalzed. Lower level planners and managers are often involved in the process of generating choices. This phase represents an effort to extend managers’ attention beyond the immediate future as scenarios are developed which describe their expectations about future time periods.1. not as strategic variables.1.in phase I. Current structure and business activities may be considered fixed. or project. management focuses on the preparation of budgets with an emphasis on functional operation. as a way of allocating resources among functional units.
First.1. Mintzberg developed a taxonomy which is useful for discussing the realism and deliberateness of strategy. Coca-Cola . (Incidentally. Similarly. Seldom is this the case. strategic management. they assume not only that the strategy they imputed from the firm’s behavior’s is the real strategy its employees are implementing. strategic management is the meshing of Phase 3 planning and operational management into one process. and finally graciously conceded to continue producing the old formula product when the public demonstrated a preference for it over the new--"similar to a competitor’s – “formula. Strategy as pan is a chosen course of action. students analyzing case studies are placed in this position when they impute strategy from the data they are able to generate on the firm’s operations. The implication is that Coca-Cola had not intended to really change the formula. Some people think that Coca-Cola’s rumored change in Coke’s formula in ht emid-1980s was such a poly. it has to rank among the top marketing moves ever attempted by any business. Outsiders may also imply intent to an imputed strategy.2 Deliberateness of Strategy: Sometimes outsiders impute strategy to the behavior of firms. introduced a new product with a different formula that tasted a lot like a competitor’s product. Obviously. and of a pattern of behavior. respectively. That is. but they imply that this strategy is the one intended for the firm by its management. and it may or may no0t accurately reflect the real strategy in place. It is analysis and conclusion that takes place yearround and ties performance evaluation and motivational programs to strategy.Phase 4. evolves as top management senses the need to more heavily invest in the planning process because of its lack of understanding of or involvement in the details of earlier plan development. he distinguished between strategy that is the result of a plan. The implication is that Coca-Cola had not intended to really change the formula. 1. He referred to them as “strategy as plan” and “strategy as pattern”. it could be a real strategy (one intended for implementation) or a ploy (a tactical move whereby a competitor may be influenced into making a mistake). journalists and the managers of competing firms may impute strategy to a firm’s behavior. if this was in fact a poly.
the resultant emergent strategy could not have been deliberate in the same way an intended strategy would have been. then the entire process would be a textbook case of strategy formulation and implementation in the sense that the firm successfully implemented what was intended. In Mintzberg’s terms it “emerged” as a pattern of behavior in the absence of intention. That is. If it is the one intended by management then it is deliberate. “Thus. when realized strategy is not intended strategy (that is. not deliberate. An emergent strategy is. If the realized strategy was planned and also accurately the firm’s actions. However. If not. But even here. Strategy as pattern is what you will end up with when you impute strategy to the behavior of a company you are analyzing in a case study. or they drafted no strategy at all ). Mintzberg and Waters call this unintended realized strategy. and the realized strategy is emergent. But what happens if he planned strategy is implemented and. However. when implemented. A realized strategy is what a company is actually doing. by definition. then the intended strategy was undrealized. then it simply “grew” out of the activities of the company. or what journalists produce when they attribute a strategy to a company based only on its actions. “go with” the emergent one. Strategy as plan. If it is realized. a manager may choose nor to consciously formulate strategy and.S. then strategy as pattern and strategy as plan would be synonymous. for some reason. the strategy that is realized is not the intended one? We might say that the planned strategy was unrealized. or despite unrealized intention. and the realized strategy (the one that seems to describe what the company is actually doing) arises out of some consistency in the behavior of the company.reaped an immediate increase in market share of about 15 percent that thrust them once again into unquestioned dominance in the huge U.” or a pattern in a series of actions by the organization. Often it is convenient to distinguish between . the planned strategy could ultimately be either realized or unrealized. may or may not be what the firm ends up with. instead. “strategy as pattern. or they drafted a planned strategy. a realized strategy could be either a deliberate strategy as plan. it was either not what was intended by management when they drafted a planned strategy. soft drink market). or an “unelaborated” strategy as pattern.
3. 2. This emergent strategy could be recognized by outsiders (and insiders for that matter) even though it may not have been intended my management. What is business policy? Why it is important for companies? Under what circumstances strategic management is useful? What are the commitment of top management in strategic outlook? .intended and emergent strategies. When management performs no strategic management at all. Question: 1. they still will have a realized strategy that is emergent.
1. All objectives should be SMART i. • • • • • Specific – Be precise about what you are going to achieve Measurable – Quantify you objectives Achievable – Are you attempting too much? Realistic – Do you have the resource to make the objectives happen (men. minutes?) Timed – State when you will achieve the objectives (within a month? By February 2010?) 1. Achievable. machines.2. Profitability Objectives . their results will inform objectives. materials. Examples of SMART objectives: Some examples of SMART objectives follow: 1. Specific. money. Realistic.2. consistent focus for all functions of an organization. Once environmental analyses and marketing audit have been conducted. To provide an agreed. and Timed. Objectives should seek to answer the question “Where do we want to go?” The purposes of objectives include: • • • To enable a company to control its marketing plan.LESSON 1. To help to motivate individuals and teams to reach a common goal.2. Measurable.2 OBJECTIVES OF THE BUSINESS 1. Introduction The objective is the starting point of the marketing plan.e.
However. 5. many objectives start off as aims or goals and therefore they are of equal importance. They will not be SMART. These are many examples of objectives. 4.000 in 2003 6. .To achieve a 20% return on capital employed by August 2007. Objectives for Branding To make Y brand of bottled beer the preferred brand of 21-28 year old females in North America by February 2006. Objectives for Growth To survive the current double-dip recession. Be careful not to confuse objectives with goals and aims. Promotional Objectives To increase awareness of the dangers of AIDS in India from 12% to 25% by June 2004. Market Share Objectives To gain 25% of the market for sports shoes by September 2006 3.000 in 2002 to $400. To insure trail of X washing powder from 2% to 5% of our target group by January 2005. Objectives for Growth To increase the size of out German Brazilian operation from $200. Goals and aims tend to be more vague and focus on the longerterm. 2.
However. Ansoff’s matrix offers strategic choices to achieve the objectives. Related . repositioning the brand. for example.2. and so on. This often happens with the auto markets where existing models are updated or replaced and then marketed to existing customers. There are four main categories for selection. It is used by marketers who have objectives for growth. Such product are then marketing to our existing customers. the product is not altered and we do not seek any new customers. Exporting the product. Diversification This is where we market completely new products to new customers there are to type of diversification.1. This means that the product remains the same. promoting the product. or marketing it in a new region are examples of market development.3 Objectives of growth: Ansoff Matrix as a marketing tool was first published in the Harvard Business Review (1957) in an article called ‘Strategic for Diversification’. Market development Here we market our existing product range in a new market. this often happens with the auto markets where existing models are updated or replaced and then marketed existing customers. Here we develop and innovate new product offering to replace existing ones. but it is marketed to a new audience. namely related and unrelated diversification. Market Penetration Here we market our existing products to our existing customers. This means increasing our revenue by. Product development This is a new product to be market to our existing customers.
• Ease of access to distribution channels e. Do our competitors have the distribution channels sewn up? • Cost advantages not related to the size of the company e.diversification means that we remain in a market or industry with which we are familiar.g. 1. Dell would analyses the market for business computers i. 4. the benefits associated with bulk purchasing • The high or low cost of entry e.e. and competitive rivalry The threat of entry • Economies of scale e. 2. how much will it cost for the latest technology. g.g. • Will competitors retaliate? . business or SBU (Strategic Business Unit) rather than a single product or range of products. the food industry ). It has similarities with other tools for environmental audit. Setting objectives based on competition: Five forces analysis helps the marketer to contrast a competitive environment. Five forces looks at five key areas namely the threat of entry.e. a soup manufacturer diversifies into cake manufacture (i.g. For example. one of its SBUs. the power of substitutes. personal contracts or knowledge that larger companies do not own or learning curve effects. the power of buyers. Unrelated diversification is where we have no previous industry nor market experience for example a soup manufacturer invests in the roil business Ansoffs matrix is one of the most will know frameworks for deciding upon strategies for growth. For example.
Brewers buying bars. • The cost of switching between suppliers is low e. This desensitizes the influence of the environment. small farming businesses supplying the large grocery chains.g. small suppliers e. large players in a market e.g.g. • Where the switching costs are high e. • If there are a large numbers of undifferentiated. Pizza Hut. • There is a possibility of the supplier integrating forward e. Gas/Petrol stations in remote places. The power of suppliers • The power of suppliers tends to be a reversal of the power of buyers. Microsoft. • Power in high where the brand is powerful e. from one fleet suppliers of trucks to another. the large grocery chains.g.g. Switching from one software supplier to another. This power of buyers • This is high where there a few. • Customers are fragmented (not in clusters) so that they have little bargaining power e.g.g.• Government action e.g. Cadillac.g. . will new laws be introduced that will weaken our competitive position? • How important is differention? e. The Champagne brand cannot be copied.
Video suppliers compete with travel companies. As with Porter’s Generic. email for fax. • Where there is generic substitution (competing for the currency in your pocket) e. cigarettes. • Competitive Rivalry • This is most likely to be high where entry is likely. Option three-Hybrid . This is why it is always seen in the center of the diagram. We could always do without e.The threat of substitutes • Where there is product-for-product substitution e. It’s another suitable way to analyse a company’s competitive position in comparison to the offering of competitors.g. There a six core strategic options. Bowman considers competitive advantage in relation to cost advantage or differentiation advantage. Option two-low price • Risk of price war and low margins/need to be ‘cost leader’. and suppliers and buyers in the market attempt to control. Strategies.g. Option one-low price/low added value • Likely to be segment specific. Where there is substitution of need e.g.g. better toothpaste reduces the need for dentists. there is the threat of substitute products. Bewman’s Strategy Clock The ‘Strategy Clock’ is based upon the work of Cliff Bowman.
• Low cost base and reinvestment in low price and differentiation Option four – Differentiation (a) without a price premium • Perceived added value by user. (b) with a rice premium • Perceived added value sufficient to bear price premium Option five-focused differentiation • Perceived added value to a ‘particular segment’ warranting a premium price.2. yielding market share benefits. Option Six – increased price/standard • Higher margins if competitors do not value follow/risk of losing market share Option Seven – increased price/low values • Only feasible in a monopoly situation Option eight – low value/standard price • Loss of market share 1.5 Objectives of delivering Value: .
Service This includes all areas of service such as installation. training and so on. .E. The organization is spit into ‘primary activities’ and ‘support activities’. retailers or the final consumer.The value chain is systematic approach in examining the development of competitive advantage. and they need to be sent along the supply chain to wholesalers. after-sales service. Goods are moved around the organization. Outbound Logistics The goods are now finished. It was created by M. complaints handling. They culminate in the total value delivered by an organization. The main consists of a series of activities that creat and build value. They are stored until they are needed on the production/assembly line. Individual operations could include room serviced in an hotel. Porter in his book. Operations This is where goods are manufactured or assembled. at this stage the organization prepares the offering to meet the needs of targeted customers. packing of books/videos/games/ by an online retailer or the final tune for a new car’s engine. Marketing and Sales In true customer orientated fashion. Competitive Advantage (1980). Primary Activities Inbound Logistics Here goods are received from a company’s suppliers. This area focuses strongly upon marketing communications and the promotions mix. The ‘margin’ depicted in the diagram is the same as added value.
Support Activities Procurement This functions is responsible for all purchasing of goods. It includes the Management Information System (MIS). Human resource management (HRM) Employees are an expensive and vital resource. The mission and objectives of the organization would be driving force behind the HRM strategy. 2. Question: 1. lean manufacturing. services and materials. Write a note a Value chain. Firm Infrastructure This activity includes and is driven b corporate or strategic planning. Companies need to innovate to reduce costs and to protect and sustain competitive advantage. and other mechanisms for planning and control such as the accounting department. customer Relationship management (CRM). training and development. internet marketing activities. and many other technological developments. and Purchasing (using IT and web-based technologies to achieve procurement aims). They will be responsible for outsourcing (components or operations that would normally be done in. This could include production technology. The aim is to secure the lowest possible price for purchases of the highest possible quality.house are done by other organizations). Technology Development Technology is in important source of competitive. An organization would manage recruitment and selection. What are the methods of deciding the objectives of a business? . and rewards and remuneration.
How competition is playing a role in deciding the objectives? .3.
3 MISSION – VISION – GOALS 1. The role played by mission in guiding the organization is an important one. provides impetus to and guidelines for resource allocation.LESSON 1. and attitudes toward owners. 2. 1. Specifically it. defines the internal atmosphere of the organization. Thus mission outlines the firm’s identity and provides a guide for shaping strategies at all organizational levels. Deal and Kennedy claim that a strong culture is the key to long-term corporate success and that culture has five elements: 1. 1. in terms (a) its basic product or service. product and service quality. and should convey the following categories of information. its fundamental purpose. Values. its climate.” Mission should focus on “long-range economic potentials. It is the guiding principle that drives the processes of goal and action plan formulation. 2.1 Mission Mission is the description of an organization’s reasons for existence. (b) its primary markets. The moral and ethical principles that will shape the philosophy and charter of the organization. Heroes (People Who Personify Values). Business Environment. 3. and overall definition.” It provides identity. its purpose. 3. “a pervasive. 3. serves as a basis for consolidation around the organization’s purpose. employee relations. 2. The ethical climate within the organization. continuity of purpose. although general. attitudes toward customers. and (c) its major production technology.3. . serves as a set of guidelines for the assignment of job responsibilities. expression of the philosophical objectives of the enterprise. 4. facilitates the design of key variables for a control system. Precisely why the organization exists. 5.
In this way it can serve as the foundation for the development of respect for and pride in the firm by management. 5. the values are accepted by all employees. corporate values. Dana Corporation: “Productivity Through people—enlisting the ideas and commitment of employees at every level in support of Dana’s strategy of competing largely on cost and dependability rather than product differentiation… . The mission statement describes primarily the second of these cultural factors. along with the slogans that have come to represent their value systems. They stand for something—the way in which business is to be conducted is widely understood. The strong cultural companies studies by Deal and Kennedy all had “a rich and complex system must be believable in that the company’s behavior should correspond to it over both the short and long term. Roebuck: “Quality at a good price—the mass merchandiser from Middle America. • • • Dupont: “Better things for better living through chemistry—a belief that product innovation. arising out of chemical engineering… Sears. Broad-based acceptance of the values represented by mission can lead to three characteristics of firms that accomplish this acceptance: 1. 3. suppliers. and others who interact with it. The Cultural Network (Communication Systems). Rites And Rituals (Routines of Day-To-Day Corporate Life). 2. “Employees fees special because of a sense of identity which distinguishes the firm from other firms.4. A few of these are listed here. owners. From the topmost levels of management down through the firm’s organization structure to the lowest level of production jobs. customers.” Many examples of firms that have these characteristics as a result of a finely honed sense of cooperation and value acceptance are presented by Deal and Kennedy.
providing products that are safe. SBI ‘s mission is “To retain the bank’s position as the premier Indian financial services group. cost controls and wise investment of resources. integrity and fairness. wholesome. The Videocon Group is committed to create a better quality of life for people and furthering the interests of society. We believe our commercial success depends upon offering quality and value to our consumers and customers. by being a responsible corporate citizen. by internalizing the best practices of customer relationships management. and these principles will manifest themselves in all of Reliance’s interactions with its clients. and providing a fair return to our investors while adhering to the highest standards of integrity. economically efficient and environmentally sound. Reliance’s mission is to evolve into a significant international information technology company offering cost-effective. shareholder and employee satisfaction. PepsiCo’s overall mission is to increase the value of our shareholder’s investment. BPL’s service mission is to support the vision of the company becoming the most customer-oriented company in the country. CREATING HAPPINESS . superior quality and commercially viable software services and solutions. committed to excellence in customer.• • • • • • • Chubb Insurance Company: “Underwriting excellence—an overriding commitment to excellence in a critical function. Price Waterhouse and Company: “Strive for technical perfection” (in accounting). while continuing emphasis on its development banking role. We do this through sales growth. with world class standards and significant global business. Reliance will adhere to strong internal value systems such as pursuit of excellence. and to play a leading role in the expanding and diversifying financial sector. by building a proactive service organization that continuously strives to create customer satisfaction. partners and employees.
far and wide. Statements of mission can be made up of goals and descriptions of the means for achieving them. the reasons for which it exists. entertainment and comfort. realize the goals of the world community and protect the environment. the small group of owners of a closely held corporation. aimed at identifying opportunities and responding intelligently to the dynamics of change.We will bring happiness into every home. offering high quality consumer durables at affordable prices. ACHIEVING PROGRESS We will pursue innovative technologies in the fields of Electronics and Energy. spreading the culture of convenience. Some owner groups prefer to state broad goals as the organization’s purpose and defer to management to set strategy as the way to achieve them. It reflects the essential preferences of owners and managers for what the firm will do. Strategy will accomplish the task of reducing mission to operational terms. Mission should address the basic purpose of the firm. In some organizations questions about purpose are left solely to owners. or the sole owner of a small business. SUSTAINIG PROGRESS We will be a source of pride to our business associates by ensuring mutual prosperity and growth through the implementation of forward-looking corporate strategies. PURSUING EXCELLENCE We will provide a conducive environment for enabling our employees to develop their potential and make a significant. In . Mission typically is not considered a part of a firm’s strategy set. As such mission is somewhat a personal choice of a firm’s dominant group of actors and is an input to the strategy formulation process. Contribution to the Group’s success. mission-related goals are often qualitative as opposed to quantitative. create products and services that will improve the quality of life. However. whether widely dispersed stockholders acting through a board of directors.
and be a leader for world class IT solutions. asset reinvestment.these cases managers are informed of the owners’ expectations and these goals serve as overriding constraints or guidelines on the activities and operations of managers. would serve the new mission. over time. In other firms managers may participate in the process of deciding on purpose. Examples include market share. the achievement of which. As such they specify the major financial outcomes expected by owners and managers from operation of the organization. Although many managers tend to develop qualitative mission statements. stock performance. The importance of a generally understood and accepted notion of purpose cannot be overstressed. Minds of the seasoned SAP & ERP (Enterprise Resource Planning) Consultants with hands on experience in IT. The sole owner of a $30 million-a-year industrial supply firm decided. product development. cash flow. Sapphire Infotech Ltd: To play a vital role in bringing the Global Revolution in IT enabled services with out unidirectional efforts (integrating People. that he no longer saw the purpose of his company as primarily a generator of cash flow for him and his family. they can be expressed as a set of quantitative goals stated in financial terms. market growth. Managers may eve be called upon to submit basic purpose choices to owners for affirmation or veto. along with owners or their representatives. Process and Technology. and so on-suddenly became essential goals. upon reaching fifty years of age. giving a face-lift to small medium enterprises. and dividend payout. Things that had been previously assigned low priority-market development. made the minds unidirectional. while being conducive for the betterment and upliftment of our society. Such like-mindedness and the attitude to be conducive in making the world a global village. The change in purpose from a short-term cash generator to a well-groomed acquisition target necessitated a set of dramatic alterations in the way business was conducted on a day-to-day basis by key managers. Instead he decided its purpose was to generate wealth ultimately through acquisition by a larger company. development of career commitments by employees and managers. Telecom or related industries to stud the corona of Indian industries with a .
a goal to be reached for but not necessarily grasped. Synonyms for goal include the words aim. an Auditorium and large PC laboratories. Hurdle goals would be the targeted revenue increase intended at the end of Years 1 and 2.SAPPHIRE INFOTECH (P) LTD. The Institute to become “Think-Tank” for the Bank and its Associates. Thus. a firm might aspire to be a good corporate citizen. 1. The Institutes to open up eventually its training. (b) a final or overall quantitative goal is a value that should be achieved. This would help to enlarge the activities of the Institute. A quantitative goal is one intended to be reached. There are two types: (1) A hurdle goal value is a certain level of a quantitative goal that is to be exceeded (synonyms include instrumental and interim goal). software development and Consultancy services to other banks in India and for developing countries in South East Asia and Africa. a quantified expected result. 1999. 2. end. a Conference Hall. Was formally launched on the 12th of April. and objectives. A final goal could be established without hurdles have been reached. Exhibit : Relationships Among Types of Goals .3. Vision 2000 of SBIICM The Institute plans to introduce specialized courses on windows-based application software and RDBMS shortly.3 Goals and objectives: 1. A goal in an expected result. Achieving a ten percent increase in total revenue within three years would be a final goal. Plans have been finalized for completing the “Annexe” building. 3. rather than a quantitative level of a certain variable. A qualitative goal is an aspiration toward which effort is directed. to augment training capacity and to meet the long felt requirements of larger class rooms.
Goals Objectives Aims Qualitative Final Values Quantitative Hurdle (Interim) Values Exhibit : Examples of Types of Strategic Goals and Their Definitions Goal Type Qualitative Definition An aspiration Examples “Good corporate citizenship” “Ethical practices” ‘Improved quality of life” “Heightened awareness” “6 percent increase in sales” “Raise ROI by percent” be “Increase sales by percent per year for a there Quantitative (Final Goal) Hurdle goal Numerical aim Minimum to reached win timeframe Andrews suggested that breaking up the system of corporate goals and the character-determining major (actions) for attainment leads to narrow and mechanical conceptions of strategic management and endless logic-chopping. A set of goals would be established first and then discussions about strategy would focus on deciding the best ways to achieve them. If the word strategy applies to means. However. The ultimate separation of goals and strategy results in applying the word strategy only to statements about the means for achieving goals. According to the other view. goal setting and the formulation of means for achieving goals are distinct activities that call for the stabilization of goals followed by selection of the proper strategic alternatives. then what word will be used to refer to goals plus the means for achieving them? In practice goals plus means are often also called strategy. . this view can result in semantic confusion.
and functional-level strategies. instructions that vary little with changes in strategy. in many curricula the management course is called business policy. and so on.Goal set A collection of quantitative and qualitative goals for a particular organizational level. usually with the intention of keeping the organization on its strategic track. would occupy the topmost levels of an organization’s hierarchy of goals. societal goals identify the major ways in which the organization will operate so as to stay within the legal. these goals would be woven into corporate-. Organizational goals manifested as either qualitative or quantitative values would be tied to action plans that identify the appropriate ways to work toward them. ethical. This set of goals and action plans would be called its business-level strategy. Action plan A description of the means by which activity is expected to be directed toward striving for specified goals. affirmative action policy. Policy tends to have fewer competitive implications than strategy when used in this way. This point is covered in the next action. Strategy A set of goals and their action plans for a particular strategy level. A tactic is a short-term action taken by management to adjust to internal or external perturbations. In those that to not develop a separate societal strategy. they have particular . still made up of goals and action plans. They are formulated and implemented within a strategic effort. for other strategy levels. Although they guide the behavior of people at all levels of the organization. business-. However. a policy on absenteeism. We use policy to refer to standing directions. in organizations that employ societal strategy. A single-line business would thus have a set of goals and related action plans that together define how it should compete within its business segment. Societal Goals Societal goals (also called enterprise goals). Thus organization can have vacation policy. Sometimes included in statements called creeds or guiding philosophies. Societal goals mainly address expectations about the firm’s societal legitimacy. “Policy” and “tactic” are other terms that have been defined in many different ways. It could also have strategies. and cultural constraints placed on it by society.
the firm’s antidiscrimination position. Business-Level Goals Goals at the business level specify the anticipated performance results of each SBU. in this case an average cross SBU sales increase of 5 percent could satisfy the corporatelevel target and one would expect each business-level strategy to contain a sales growth element that defines that SBUs “contribution” so to speak. Business-level goals integrate the activities of the SBUs functional departments and guide the behavior of business unit managers. Their values are intended to balance with those of equivalent variables for other SBUs and thereby contribute to the achievement of corporate level goals.relevance for the decisions of key managers related to balancing the claims on the firm of society’s interest groups and institutions. They should include goals that pertain to the major social issues and legislation of the day. They direct the integration of the particular collection of businesses that makes up the overall organization and they serve as behavior specifications for staff members at the corporate level. Legitimacy goals should address the overall role of the firm in the daily functioning of society. and sexual harassment. to the corporate level sales growth goal. For example. and managers (which we refer to generally as the firm’s stakeholders). Corporate levels Goals Corporate-level goals consist of quantitative and qualitative outcomes that encompass management’s expectations about the optimal combination and types of business that make up the company. In other words business . owners. Therefore. “Some examples are pollution standards. but primarily through the contributions of sales increases by present. a corporate-level final goal of sales growth of 5 percent in one year could be achievable partly by acquisition or divestiture moves. safety in working conditions. SBUs.
goals of the respective functional departments to e achieved within appropriate time frames. either directly or indirectly. Functional-Level Goals At this level goals are set for each of the functional departments into which each SBU is organized. threats. and so on. One might say that business-level strategy balances the roles of organizational functions within each business unit in terms of their contributions toward reaching higher level goals. to build a $1 billion Rockwell International consumer products division led company managers.. Jr. These functional requirements become. This change . (3) the set of political influences within which individual compete over goal preferences. and (4) the personal values of the organization’s key managers that shape their preferences. it might be necessary for the personnel department to recruit and screen twenty-five production workers and three more clerical people. The point of functional-level goals is to defined several aims for each department in such a way that their achievement would result in achievement of business-level goals. and hire one more inside salesperson. Present Goals and Action Plans The degree of success experienced by an organizaatio in reaching past or present goals and in implementing related action plans provides insight into the need for new or modified goals. under the leadership of new chairman and CEO Robert Anderson. and opportunities that result from environmental and internal analysis. Thus to reach a business-level target of 5 percent sales growth.satrategy defines the role of each functional area relative to each other and to resource requirements and availability. Failure to meet the goal of retired Chairman Willard Rockwell. to adopt a new goal: $1 billion in foreign sales. (2) the set of strengths weaknesses. Goal Formulation Four sets of factors affect the nature of an organization’s collection of goals: (1) The present goals (and action plans). for marketing to raise advertising costs by a certain amount increase the number of sales representatives by a specified number within a certain region.
seems to have been precipitated by the widespread realization that the previous consumer products goal was not likely to be achieved. Direction for goal formulation at any organizational level also exists in the strategy of the next highest organizational level. These higher levels’ goals have the effect of partially defining the context within which goals are to be set at lower levels. For example, when corporate goals are stated in terms of long-term profitability and sales growth, then business-level goals should be consistent with them. Of course, more information would be required about the other factors that affect goal formulation, but at least corporate goals serve significantly to define the goal choices available for the business level. Similarly, business-level goals can structure the formulation of goals at the functional level and thereby define the context of functional-level goals. Think for a moment of the difficulties that might be encountered by a functional department manager, say, the marketing director, in trying to manage the department without any idea of what businesslevel goals were important to top management. The Data Set The contents of an organization’s environmental and internal data set provide major clues for goal formulation. Threats and opportunities (determined by analysis and forecasts of the organization’s external circumstances), along with weakness and strengths (of the organization’s internal state of affairs, in the present and future time frames), can be transformed into goal sets at appropriate organizational levels. At the corporate level, goals are formulated to define the optimal collection of types of businesses in which the organization is engaged. The firm’s data set can be the primary source of information about what types of businesses would be most conducive to future success. The internal portion of the data set highlights problems with existing operations; the external part points out merger possibilities as well as types of operations to avoid. Forecasts can identify potential problems with the present collections of businesses. Existing business-level goals can e evaluated against the contents of the data set as well. Since business-level goals address business unit performance and
competition, such factors as performance shortcomings, competitive position, latent capabilities, potential obstacles, and new opportunities can be discovered through the environment and internal analysis and their respective parts of the resultant data set. The data set is also intended to provide major inputs into decisions about the appropriateness of functional-level goals. At this level the portions of the data set that reflect internal strengths and weaknesses play a critical role in goal setting. One might find, for example, during financial analysis that the firm’s selling and administrative expenses are excessively high as a percentage of sales. Further analysis might show that sales growth has slowed and that turnover of salespeople is high. Goals could be set for the marketing department that reflects more desirable performance along these dimensions. Marketing action plans would then be modified to achieve the new goals. Goal Formulation Theories Many explanations have been offered in the management literature for how organizational goals are formulated. Mintzberg notes that, during this century, organizational goal formulation theories have undergone a complete reversal form the “rational man” view (one goal setter setting a single organizational goal) through the coalition bargaining view (many goals, many goal setters) to the political arena view no organizational goals, power games among individuals). Some examples of the influential goal formulation theories that have appeared over the past several decades follow, in chronological order: Barnard (1938): Organizational goals are formed by a “trickle-up” process in which subordinates expectations are adopted by a consensus-based acceptance process. A top manager forms the organization’s goals as a multivariate function of the preferences of influential actors.
Cyert and March (1963): Multiple goals emerge from the bargaining among
various coalitions that form out of the parrying for control and personal power by key actors. Simon (1964): Granger (1964): Goals are constraints on profit maximization imposed by decision makers bounded rationality. Hierachy of gals results from a process of screening, filtering, and narrowing broad expectations to more focused, specific subgoals in a reasonably logical fashion. New organization goals are tried out iteratively as means for closing gaps between present goals and hoped-for results. (1) Organization process modes-reasonably stable goals emerge as incompatible constraints the represent the quasi-resolution of conflict among internal and external interest groups; (2) bureaucratic politics modes – key players play” politics to product goals they agree with as individuals. Personal goals of individual come and go as organizational goals according to the short-term victories of key managers as they engage in political combat. There are no organizational goals as such. Goals are set according to three processes, the appropriateness of which depends upon two contingencies, concentration of power and amount of goal-preference conflict: problem solving – concentrated power, no preference conflict; and bargaining – balanced power, preferences in conflict. Organizational coalition members demand coalition
commitment to personal goals; the coalition responds by developing commitment to generalized versions of individual members’ goals. These generalized goals (not the specific goals of individuals) become the organization’s goals.
Questions: 1. 2. 3. What are the methods of developing a mission statement? Write the vision statement of Infosys and analyze the same. What are the various methods of deciding the goal of companies?
LESSON 1.4 STRATEGIC ANALYSIS OF FUNCTIONAL AREAS 1.4.1 LEVELS OF STRATEGY: There is wide diversity in strategic management literature of levels attached to the different levels of strategy that may exist in a firm. For example, Thompson and Strickland propose four levels: corporate strategy, business strategy, functional area support strategy, and operating-level strategy. They go on to say, “Each layer [is] … progressively more detailed to provide strategic guidance of the next level of subordinate managers.” Lorange defines three levels for a typical divisionalized corporation: Portfolio strategy (corporate level), business strategy (division level), and strategic programs (functional level). He defines the focus of each as follows: 1. Portfolio strategy: Developing the desired risk/return balance among the businesses of the firm. 2. Business strategy: Source of competitive advantage of a particular business relatie to its competition. 3. Strategic programs: Bringing to bear functional managers’ specialized skills on the development of programs. He notes that smaller firms may involve only the last two of these, but in any firm there rarely would be more than three. Hofer, et.al list four levels of strategy for business organizations. First, strategy at the societal level is concerned with the definition of a firm’s role in society. It would specify the nature of corporate governance, political involvement of the firm, and trade-offs nature of corporate governance, political involvement of the firm, and trade-offs sought between economic and social objectives. The second strategy level is corporate strategy which addresses (1) the nature of the firm’s business and (2) management of the set of businesses necessary to achieve its goals. Third, business strategy addresses how the firm should be positioned and managed so as to compete in a given business how the firm should be positioned and managed so as to compete in a given business or industry. Finally, functional area strategy is the lowest level of corporate strategy. It is concerned with their respective functional area environments. Newman and Logain present two levels-business strategy and
functional policy—for non diversified firms, and a total of three (with the addition of corporate strategy) for diversified firms. Higgins identifies for levels of strategy: societal response strategy (enterprise strategy), mission determination strategy (corporate level), primary mission strategy (business level), and mission supportive strategy (functional level). He defines their contents as follows: 1. Societal response strategy: how the firm relates to its societal constituents. 2. Mission determination strategy: the organization’s field of endeavor. 3. Primary mission strategy: how the organization will achieve its primary mission. 4. Mission supportive strategies: how primary mission strategy will be supported. Another model proposes five level of strategy but the levels are not tied to organizational structure. Glueck, et al suggest that the levels of planning activity consist of corporate, sector, shared resource unit (SRU), natural business unit (NBU), and product market unit (PMU). The advantages of this system are (10 it separates the strategic management process from organization structure to a large degree and (2) pushes it father down the organization than traditional systems do. These characteristics stem from focusing planning level selection on strategic issues or problems shared by the organization’s activities rather than on the organization levels of its business activities. Corporate level planning is that which involved identifying trends and formulating strategy in global, technical, and market arenas, responsibility for which rests with corporate headquarters in most cases. Sector level planning, where sectors represent national and technological boundaries, may involve several SBU’s product categories, or even product/service-based division of an organization. Shared resources unit planning calls for the development of strategic for activities of the business that are shared by SBU’s or the various productmarket focuses which the company might have. Natural business units, “…are largely self-contained businesses with control over the key factors that govern their success in the marketplace-their market position
That is. corporate-level. lower levels address the problem of integrating functional areas in ways consistent with upper-level strategy. Those discussed above and most of the others have a number of commonalities. and functional-level. the various schemes include a functional level of strategy that represents the ways in which functional departments are expected to respond to businesslevel and. First. Interpreted fundamentally. and business-level strategy are clearly cross-functional. the content of marketing strategy is the subject of . During the mid-1980s some authors began to include the fourth level: enterprise or socictal goals and action plans. business-level. They differ primarily in terms of the organizational levels to which they apply. in turn. functional area strategies are more operationally focused than the others. the topmost level tends to involve structuring the set of acquisitions of divisionalized firms and is usually called corporate-level strategy. there are four primary levels of strategy: societallevel. Finally. Societal strategy was intended to capture the essential ways in which the firm was expected to respond to goals related to the major social issues confronting it. then. Third. Finally.and cost structure”. There are many other interpretations of the levels of strategy. they contain a business or strategic business unit (SBU) level of strategy that applies almost equally to a firm comprised of only one line of business and to the individual subsidiaries of multibusiness corporations. The process of determining how each functional area should be managed is a more specialized problem. the uppermost levels in each scheme tend to concern the problem of fitting the organization to its environment. By contrast. The concerns of societal. corporate. defined largely by the practice and theory applicable to each functional (or operational) area. That is. corporate-level goals and action plans. whatever they may be and regardless of the type of firm. product-market unit planning is the lowest level at which planning takes place and those activities that directly relate the company’s output to its markets. Second. they contain implications for each of a firm’s functional areas (although more distantly removed in the case of societal-and corporate-level strategy).
We prefer the horizontal approach because it seems to be more universally applicable.4. They are intended as beginning points for analysis to formulate their own evaluation systems for each case study or organization analyzed. finance strategy can be found in finance texts and courses. personal strategy in personal texts and courses. If part of a firm’s business-level strategy were a target of a 10 percent increase in sales to be brought about by market penetration. functional strategies serve as guidelines for the employees of each of the firm’s subdivisions.2 Functional-Level Strategy: In contrast with the other levels of strategy. 1. Personal strategy. Analysis can be focused on functional departments. 1. or whatever basis of departmentalization has been used in a particular organization.3 Process of Internal Analysis There are two fundamental ways to conduct an internal analysis: vertical end horizontal.4. Functional goals and action plans are developed for each of he functional parts of the firm to guide the behavior of people in a way that would put the other strategies into motion. Which ones of these segments or functional areas are included in a firm’s functional strategy set is itself a matter of strategy. for example. marketing strategy might include a change in compensation policy for salespersons and a specified increase in the advertising budget. and appropriate other functional strategy areas would do the same. financial strategy would consist of a set of guidelines on how the financial elements of the firm would be put into effect. research and development strategy. and so on. The major dimensions of each area are outlined and discussed in the subsections that follow. production strategy. For example. Strength and weaknesses are identified for each function. strengths and weaknesses are identified at each organizational level. For the vertical approach. Similarly. In that way marketing strategy would provide some detail about how the marketing aspects of the market penetration action plan would be implemented. Stevenson found that managers seem to use three types of criteria in identifying strengths . The horizontal analysis corresponds to the functional areas of the SBUs.marketing texts and courses. whether to have an R & D department or not in the first place is a strategic decision.
Competitive comparisons involve assessing similarities and dissimilarities with successful competitors and finding strengths and weaknesses accordingly. Similarly normative comparisons are those where present characteristics are compared with ideal values as perceived by the analyst or an expert opinion. the analyst must make sure that all weaknesses are identified. can vary from one organization to another. identification of weaknesses at these levels can be painful and embarrassing for these people. and normative. competitive. Organize findings by function according to whether they represent strengths or weaknesses. 1. 6. and depend upon whether the . These discussions must be handled carefully to prevent alienation and to bring about constructive solutions to whatever problems are revealed. or functional areas. Comprehensively identify the major functional areas that make up SBU operations. Identify both qualitative and quantitative variables to describe performance of the SBU on each operational factors.4.4 Identification of Major Functional Areas: Whatever organization is analyzed. the analyst should select a comprehensive set of categories that define the firm’s operations. Perform a complete financial analysis. Analyzing functional areas by historical criteria means comparing present values with their historical counterparts and identifying strength and weaknesses on the basis of those comparisons. 2. Since responsibility for the performance of SBUs and functional often rests with single manager. In practice the process of identifying strengths and weaknesses can be one of the most educational top managers can have especially enlightening are the enumeration and discussion of weaknesses. even though some feeling may be hurt. Enumerate the critical operational factors of each functional area. Conduct research to assign either qualitative or quantitative values to the variables identified in (4). These categories. 3.and weaknesses: historical. 5. 4. The process of internal analysis involves the following steps: 1. However.
e. present and past strategies. By the time most students take a course in strategic management. Although most organizations will have these functions in operation. this function is analyzed by examining the operqating characteristics of the organizations’ products/services. Analysis should make sure that all pertinent are covered. they have completed course in each functional area and topics related to them. Examples of checkpoints for each factor are as follows: 1. and new product development systems. which was discussed earlier). The particular set of functions for which data are gathered should be tailored to the firm in question. Those courses and the texts used in them are the best sources of evaluative criteria for the functions of organizations. the analyst should not restrict the internal analysis to them. b. production. We have selected for discussion of horizontal analysis the common functional areas of marketing. Interest is focused on all aspects of each of these systems that have not already been identifies as part of the financial analysis. 2. price. The key characteristic of the set of functions selected must be comprehensiveness.analyst is conducting a vertical or a horizontal analysis. Operational Factors of Each Functional Area After identifying the appropriate functional areas to study in the internal analysis. d. and external relations (in addition to finance. along with organization structure. Marketing: Consistent with marketing convention. c. personnel. the next step is to decide what aspects of each one to analyze. and R&D. Products/services a. distribution. promotion. Price Market share Penetration Quality level Market size Market expansion rate .
c. Distribution a. b. Relationships to gross profit margin 3. New product introduction rate Sources of ideas effective? Extent of market feedback Success rate The problem is not to identify simply what the organization’s marketing department is doing. acceptable? 4. Promotion a. d. c.a. Therefore. Relative position (leader or follower) b. Personnel and Union Relations: The overall purpose of he personnel function is to manage the relationship between employees and the organization. but instead what it is doing particularly well or poorly. New product development a. d. Job analysis factors . c. b. This function can be analyzed by examining the following factors and questions or others tailored to the organization: 1. b. Effectiveness Appropriateness of emphases Budget as percent of sales Is return measurable. Image c. d. Delivery record Are other methods more appropriate? Unfilled orders Costs 5. internal analysis of the personnel function is an assessment of the strengths and weaknesses of that relationship.
a. Examples of evaluative factors for production are the following: 1. e. 5. 3. managers Seasonality a factor? Performance evaluation a. Job evaluation factors a. Are necessary skills present? Are all necessary jobs present? Are selection and placement systems effective? Recruiting capability Training effectiveness 2. d. d. c. c. 6. 7. Pay scales appropriate? Image of pay scale within labor market Do pay differential reflect job content differences? Adequacy of benefits Turnover/absenteeism Turnover rate Absenteeism rate Attitude of employees. Facilities and equipment . Validity 9. d. c. Union-management relations a. b. Unions representing employees Bargaining positions Quality of relations Negotiation schedule Production: The production or manufacturing area’s strengths and weakness relate to the origination’s ability to produce its products/services at the desire quality level on time at the planned-for-costs. Reliability b. 8. 4. b. b.
b. maintenance 2. c. Level. scheduling a. Defective units Inspection costs Remanufacturing costs Competitive position Consistency 3. b. Sources b. c. Costs and trends c. Quality level a. today. c. Constant lead times 5. turnover b. Formal system Is demand smoothed? Excessive overtime charges? Productivity . b. f. e. Planning. e. future Level of technology applied Process optimality Replacement. d. d.a. Quality of inputs c. Is inventory rationally maintained? 4. Capacity level Per-unit costs of manufacturing Obsolescence. Procurement a. d. Inventory a.
Is R&D funding vulnerable to profit variations? . and with the overall business environment. that business level opportunities have been addressed. Demand for R&D a. as well as quality of the service delivered. Operation of R&D must strike a balance between practicality and creativity in order to contribute successfully to profit goals. Overemphasis on creativity could result in generation of few marketable product ideas while researchers explore the frontiers of their scientific disciplines. and integrated with other functional strategy managers.For most service organizations. the analyst should evaluate the consistency of production strategy with business strategy. The categories within production strategy itself should exhibit a high level of consistency as well. other functional strategies. Then. That is. can be the focus of analysis. understood. and designs products or processes to meet market needs and thereby generate a profit. First. The correct balance between creativity and practicality for a particular firm is a strategic issue that cannot be decided absolutely. the extent to which production strategy is focused on factors of success should be evaluated. Conducting an internal analysis of the R&D function involves identifying strengths and weaknesses in R&D activities such as the following: 1. Costs of providing the service. This involves making sure that priorities among production activities are appropriate to business strategy. Overemphasis on practical matters can impair future profitability because few innovations will be generated. Is R&D funding stable? c. Research and Development: Research and development (R&D) provides technical analysis and support to other departments. and that production strategy is communicated. Is demand for R&D services stable? b. Wheelwright suggests evaluating production strategy by analyzing its consistency and emphasis. the process of providing the service can be roughly equated to the production of a product. this balance is a function of the extent to which the organization required either innovation or market emphasis and that issue is a function of business-level goals and action plans.
organization structure should be changes only because of specific problems. it should not e tampered with unless there is either a problem present that must be corrected or one that can reasonably be expected to develop if a change is not made. though. Are costs effectively monitored? c. but only the structure that minimizes organizationrelated problems. These problems are the characteristics that are searched for to determine the appropriateness of a change in structure. Facilities and equipment a. Is the level of uncertainty associated with the type of R&D activity is which the organization is involved appropriate for the intended level of risk? Organization: Organization structure must support strategies and facilitate their successful implementation. Are jobs planned and scheduled? b. Are marketing and production influences balanced? 4. Market and production inputs a. Therefore. Does production information influence the R&D process? c. To do so. Is obsolete equipment expendable? c. Is space a problem? 3. structure must prevent a certain set of problems from materializing. Some of the criteria that can be used to analyze organization structure are as follows: . In either case. Changing structure is risky. Does market information get fed into the R&D process? b. Are facilities and equipment state-of-the-art? b. there is no absolutely best structure. Planning and scheduling a. That is. Are human resource needs planned? 5.2.
Accountability and control a. retained as is. determine which action plans have and have not been effective. The following steps can be followed to evaluate current strategy at an of the four levels of strategy: 1. d. Select strategy levels for analysis. Are there too many committees? Present strategies Whether present strategies are stated explicitly or must be inferred from behavior of the organization. Is it confusing? Are there too many levels? Are there horizontal communication channels? Does it expedite communication? Are the forms of organization used appropriate? 2. Information about the relative success of current strategy can the e fed into the process of formulating and implementing new strategies. c.1. 4. b. Does structure make sense? a. In this way problems associated with existing strategies can e corrected by formulating modification or replacements for them and effective strategies can e improved upon. Are there single functions assigned to more than one person? c. Does structure fix responsibility? b.and long-term goals have or have not been met. e. 2. Determine extent to which short. . the goals and action plans currently applicable must e identified and analyzed. 3. Identify present goals and action plans at each level. The idea is to determine which strategies are working (that is. which action plans are being implemented in such a way that their associated goals are being met) and which ones are not. or extended so what strategic success is facilitated.
Give examples of Indian companies soley practicing based on functional areas? .Of course. For an internal analysis. Weaknesses are strategies that have been especially unsuccessful in their operation. and Nissan’s production strategy. the point is to identify strategies that are particularly effective – they become strengths. What are the reasons for the strategies to go by functional areas? 3. a strategy successfully carried out constituted a positive attribute of the firm. however. Miller Lite’s marketing strategy. Questions: 1. Why functional area strategies are considered crucial? 2. and one unsuccessfully implemented is a problem to be deal with. Examples include McDonald’s consistency. Coca-Cola’s distribution strategy.
and understood to mange the strategy process effectively. This information is then used as input to the strategy formulation process. industry. and managers’ values.5. weaknesses. corporate culture. Very often financial analysis will bring to light several financial strengths and weakness that are indicative of strategic or operating capabilities and problems within the various strategy levels and within functional areas. Together these four analytical activities-environmental. It almost goes without saying that strategists must understand all there is to know about the internal operations of an organization before strategy can e effectively formulated and implemented. This process identifies strengths and weaknesses within such areas as marketing. This chapter focuses on conducting both external and internal analysis for the purpose of generating information for strategy formulation. An organization’s environment consists of two parts: The industry within which it operates (for multibusiness firms. research and development. the industry is usually considered the activity’ in which the firm generates the majority of its revenue). The section of this chapter devoted to internal analysis first addresses financial analysis—the process of learning about the financial performance of the firm or organization. and other environmental dimensions—economic. Financial analysis is typically followed by internal diagnosis of functional areas. and opportunities that comprehensively descries the internal and external characteristics of the organization. documented. It is factored with data about past strategies. mission. left as they are or replaced as necessary in a particular situation. and financial analysis and internal diagnosis of functional areas—are undertaken to generate a data set consisting of strengths. .LESSON 1. The external influences acting on the firm also must be analyzed. As a result present strategies can be modified. and others. political/legal. social and technological. threats.5 ANALYZING CORPORATE CAPABILITIES 1.1 Introduction: A great deal must be learned about an organization so that strategy formulation decisions can be based upon appropriate information. and so on to evaluate the success or failure of present strategies. personnel.
They can also affect the manner in which implementation and internal circumstances will dictate the effectiveness of strategies as they are implemented (including alternation in the environment itself).The key to effective strategic management is to make major managerial decisions that shape actions by the firm that will correspond positively with the context within which those actions ultimately take place. made biotechnical advances that had profound impacts. economy in a manner that invigorated consumer markets of his products. Analysis of the internal operations of the organization results in a collection of strength and weaknesses that would fill the left-hand cells of the data set model. the action context is dictated to a great degree by conditions external to the firm. Environmental conditions affect the entire strategic management process. the recombinant DNA research firm. Both environmental and industry analysis procedures consist of four interrelated processes: . particularly over the long run. few firms enjoy a scale of impact that allows major shaping of the overall climate in which they operate. Environmental and industry analysis involves filling the right-hand sectors of the data set with information pertiment to a particular firm. Instead we4ll-managed business enterprises adapt to environmental change so that they can take advantage of opportunities that arise and minimize the otherwise adverse impacts of environmental threats. positive and negative factors are forecast into future periods. This involves assessment of present environmental circumstances (for reaction) and the forecasting of future conditions (for proaction). not just on Genentech’s operating circumstances. but on the future of humankind as well. Nonetheless. Henry Ford’s introduction of mass production of automobiles stimulated the U. A data set has both present and future time frames as internal and external. These conditions constitute the firm’s operating “environment. Management’s perceptions of present and future operating environments and internal strengths and weaknesses provide inputs to goal and actions plan choices.S. On the other hand.” To some extent the firm can shape the overall environment to its advantage. Genentech.
1. In many organizations it is done on an informal basis. To rely totally on informal means. Monitoring and forecasting change in key variables. The construction firm executive who learns from a golfing colleague of a request for bids on a major construction project is gaining information that could affect the performance of his firm—information that would be not more valuable had it been acquired through more systematic means. Indeed. 4. One formal approach to generating data about environmental conditions is survey research. survey research is a way to accurately identify the attitudes of selected population groups toward the company. For analysis of external concern in the present. Defining environmental boundaries (the “relevancy envelope”) 3. increasingly exposes the firms to missed opportunities and unforeseen threats. Assessing potential impacts on the firm (or industry) in terms of whether they are treats of opportunities. Discovering changes in tax statues by perusing the Wall Street Journal is not less important than learning about them through a well-established monitoring system within the firm’s tax accounting office. In fact. Developing an assessment taxonomy to outline major environmental dimensions.1. even if the implication themselves go unnoticed. Therefore. however. A reined-out golf game or an overlooked column in the Wall Street Journal can have profound implications. the talent for acquiring valuable information through informal means often marks the successful entrepreneur and manager. . The use of both original and contracted survey research for purposes of evaluating the present corporate environment offers a lot of promise for strategists.2 Formal Versus Informal Scanning: Sensing the pulse of environmental threats and opportunities is a natural and conditions process in business planning.5. a systematic approach to environmental assessment is important for the management of uncertainty and risk. 2. virtually any external constituency’s attitudes toward the organization can be assessed through survey research methods.
and social surroundings. In many cases this disturbed long-standing shareholder composites (making more room for institutional investors to those shorter-term debt instruments. shareholder incomes. customers. To assess environmental conditions. competitors. By the late-1990s. high returns on money market instruments (representing corporate and government debt) led to massive shifts from equity holding s by private investors to those shorter-term debt instruments. or may arise. suppliers. concern is focused on opportunities and threats that exist. This. but intermediate markets as well. can better adapt goals and action plans. employment. . In the early 1980s. These. employees. In many cases this described long-standing shareholder composites (making more room for institutional investors. led many component manufactures to retrench or redirect their marketing efforts elsewhere (e. in turn. can be overlaid by the various constituents of the firm. replacement parts). Personal income. Interest rates. and price-level trends can have dramatic effects on the attractiveness of a firm’s products or services in output markets—not only final markets. Shareholder expectations of financial return are dictated in part by alternative investments and their associated return and risks.The dimensions of environment can be generally classifies by set of key factors that describe the economic. for example) and pressured management to focus more closely on generating higher short-term returns. automotive manufactures during he 1980’s reduced their reliance on outside suppliers for automobile components. savings. availability of funds for margin-purchased equity investments. through impacts on and by the firm’s constituents. and expectations of future economic circumstances will shape changes in equity investor profiles and/or the financial performance expectations of the firm’s owners. tax policies. In efforts to reduce costs during inflationary periods. political/legal. technological. including shareholders. in turn. and the general public (Exhibit 2-3). major oil producing firms has shifted their source of supply form middle-eastern countries to Venezuela because of uncertainties about the political and economic environment of the Middle East.g. Key Economic Variables Firms that anticipate economic change and identify the constituents through which that change will be applied.
Each can be set off macroeconomic changes well outside the control of the firm. Twenty years of inflation. Competitors selling to diverse markets might realize less volatility in their capital bases and abilities to compete across economic cycles than might a firm with a narrow product/market scope. Many thousands of prime defense contractors and their subcontractors spent the early-1990s trying to develop new strategies based on non-military products. Federal discount rates and change in reserve requirements have both short-term and long-term implications in primary capital markets. the collapse of he Soviet Union has led to decreased government spending in the U. The firm accessing these markets experiences the repercussions. and cost structures. The movement of manufactures out of the “snow belt” to areas of the country with lower energy costs could provide decisive competitive advantages vis-avis those who remain. reliability. Economic conditions faced by competitors can play a large part in shaping a firm’s strategies and policies. In any case it is important to recognize that the economic conditions faced by the competition may be different in form and substance from those faced by the target firm. and often affect the private sector borrower through secondary markets.Similarly. Among other implications. on the other hand. yet may be buffered by appropriate strategic action. the survivability of suppliers are largely a function of their economic climate. to accommodate these denominations. that firm becomes a significant factor in the economic climate the supplier experiences. Transportation costs. Both debt and equity capital markets often realize significant swings as a result of overall economic conditions. alternative markets. More significantly. The available supply of goods and services can be affected by the overall economic health of suppliers. or entire cash registers.S. including their productivity. total sectoral outputs. this meant that many retailers had to replace cash drawers. To the extent that the target firm represents a major market for a supplier. and. increased consumer use of $50 and $100 bills in retain trade. The capacity. on defense items. movements in private-sector capital replacement and expansion. could reduce those savings. The choice of multiple versus . government spending. for example. and the allocation of the consumer dollar can have dramatic impacts between and within industrial sectors. in some case. To the extent that the target firm represents a major market for a supplier.
The economic climate of the firm is also manifested through employees. Wage and benefit escalations are often as much a function of he overall econimci circumstances employees face as they are unilateral policy set forth by employers. Inc. can increase or decrease these pressures. and saving patterns. Shifts in employment status. manufacturers’ shipments. including societal and regional unemployment levels. spending. both profited by the economic (and social) trend toward working mothers and contributed to the trend by providing necessary child care at reasonable cost. These can be as abstract as an alteration in high birth rate rends or as direct as changes in personal income. . a chain of child care centers. government spending. in assessing he economic dimension of a firm’s environment. This inadvertently put a number of these firms into the real estate “business” (albeit on a relatively small scale). Raw data on prices. wages. Kinder-Care Learning Centers. Economic conditions usually affect employees unevenly. it is important to recognize the interrelated nature of the participants. Depression of gousing markets in the early 1980s’ for example. led a number of large employers to buy homes from transferred executives. economic conditions have wide-reaching effects on the general public. if at all. The multiplier effect in macroeconomics has its micro counterpart. Clearly. typing up capital and effort. Though could also provide buying leverage for the firm or represent new opportunities for backward integration. thus requiring creative policy adaptation. Finally. and the like are valuable in themselves but represent only the front line of a truly comprehensive analysis. The overall impact was synergistic. public expectations and behavior substantially determine the health or inadequacy of the economy. through earning. who were unable to sell them at reasonable prices. Conversely..singular sources of supply might be dictated by assessments of suppliers’ economic bases as well as by the degree of control the buying firm can maintain over them. In any case the general public is so interwined in the mechanics and psychology of a firm’s economic climate that movement by one can have dramatic implications for the other. Rising consumer prices are usually translated into expectations and/or demands for increased compensation. savings.
And. in turn. environmental protection. Changes in tax structures can affect tax exposure on corporate payouts when treatments of capital recovery versus earnings distributions are considered. The Center for the Study of American Business concluded that fedral regulation of business “cost the American economy more than $100 billion on 1980. timing. The scale of facteral intervention in business is matched only by its turbulence..Key Political/Legal Variables Business firms. Similarly. public policies targeting industries for rejuvenation or expansion can open up a host of market opportunities (such as trade-adjustment programs in energy and steel). intercorporate shareholding can be can affect the “tradability” of shares as well as dictate corporate disclosures. Laws dealing with pension funds and other forms of institutional investing can exhilarate or impair changes in investor profiles. Governments-mandated sales prohibitions (e. Approximately $5 billion represented the administrative costs of the major regulatory agencies. Conversely. requirements. Taxation and government spending can represent both opportunities and threats. like people.. competitors. Antitrust can sustain or impair industry structures and thereby affect the nature of present . health. Incorporation laws often constrain flexibility in capital restructuring. and local). To the extent that corporations themselves are shareholders. Shareholders are affected by governments in a variety of ways. export restrictions (national and interstate can impose market constraints. governments also represent a major factor in the private sector through fiscal policy. of course. are touched directly and indirectly by political/legal influences at all levels of government (federal. state. depending upon the nature. and have an impact on.g. and the balance.” In addition to serving as regulatory bodies. on certain firearms) can limit markets. consumer protection) can create markets for new classes of products and services as well as limit those where noncompliance exists. compliance costs. These influences run the alphabetic gamut from antitrust to zoning. All of these impositions. Social legislation (e. and position of the impacted enterprise. fiscal policy can have dramatic impacts on the overall economic climate of the firm.g. Politics and law are influenced by.
which in turn can affect the overcall socioeconomic climate in which private sector enterprises operate. Cooperation among hospital is no longer an antitrust violation. . Governments themselves can be suppliers (e. and Washington are occasionally out of phase in this regard ).the political/legal climate is both a function and a determinant of public sentiments. state legislatures adopting mandatory automobile insurance laws have had dramatic affects on their states’ insurance industries.and pension funds controls all represent areas of strategy concern. Protection of employees is clearly a major matter in any firm. Further the public sector competes with the private sector for employees. hospital administrators in the state of maine estimated that they were about a 20 percent vacancy for a large number of facilities. Assessing and forecasting the political/legal environment require creativity and sensitivity to industry-specific matters. though they need not always be similarly timed (wall street. mineral rights). This minor legal change alone may save countless millions of dollars in miane’s health care industry by eliminating unnecessary duplication of equipment purchases and operations. employee privacy. Unlike the economic environment. shifts in partition politics.. the public. the political/legal environment requires largely “soft” calculus where numerical relationships and extrapolations are often unavailable or inappropriate. labor statutes. Public expectations of business behavior can cause. And. Finally. Wage laws. Similarly. Federal regulatory reform (including deregulation ) is a prime example. and be caused by. Patent laws provide competitive protection for patent holders. During mid1993. through support of education and training programs. of course the viability of suppliers as a whole can be affected by all forms of political/legal influences. Retrenchment become necessary to survival for a large number of facilities. Import restriction can limit foreign competitions. The maine legisilature assetsharing among institutions. the public sector also represents a source of labor. Expansionary and technologically aggressive moods on the part of the general public have their counterparts in business and industry.and future competition.g. equal employment opportunity. accupational safety and health.
That Timex vastly underestimated market acceptance of the digital watch early in its life cycle is but one of many instances of technological displacement having adverse effects on those caught unaware. New products and process resulting from technological innovation can result in redefinition of customer bases or customer demands. So too the nature of competition can be redefined as technological advances . bringing with them new opportunities. and space are but a few of the fields in which major technological change have opened new areas to private enterprise. in the marketplace. computer-based market reports are reaching increasingly larger proportions of stock market participants. Technological change has had implications for shareholders. more discerning retail customer.” and the proliferation of FAX machines and worldwide e-mail systems make round-the-clock real-time communications commonplace. bioengineering. but may well lead to better informed. medicine. aerospace and automobiles). In other cases technological changes within industries have brought new forms of product competition (e.g. Computer-aided design and computer-aided manufacturing (CAD/CAM) have led to the expectation of shorter lead times and much closer tolerances in many industrial and consumer products industries (e. energy. primarily through communications and information processing. High-speed. and new threats. The design of new. forecast future technological change and its potential for acceptance.. In all instances the firm subject to technological obsolescence or intent on maintaining some form of technological leadership must stay abreast of technological innovation. micro technologies in electronics) have led to different competitive advantages in production costs and product quality. relatively lightweight diesel engines opened up a host of opportunities in the passenger-car industry. and to the extent possible.g. In some cases entire industries have emerged seemingly overnight (such as genetic engineering). On-line office and in-the-home displays mean quicker reaction time in market “plays.Key Technological Variables Electronics. The home information revolution not only may expand markets for consumer product retailers. chemicals.
more and more types of work may be accomplished more effectively and efficiently away from the traditional workplace (at home or at local offices). competitive advantage. Manufacturers may turn to equipment suppliers for the latest in robotics. Fear about runaway advances in bioengineering have resulted in self-imposed restring among firms involved.) while drilling gear is in place. Dissatisfaction with technological lags in the steel industry led to government investigations. And of course everyday life is changed permanently by technology. with competitive differentials possible at each stage. Expectations of technological solutions to serious socioeconomic problems (e. for example. Not many people under-thirty remember the pre-ATM day when consumer had difficulty accessing their cash on weekends . The spread of Automatic Teller Machines in banking has dramatically changed our banking habits. energy may have implication for public policy and for strategic adaptations within affected industries. In acquiring the advantages of new technology.. Even work routines are affected. operation.g. pressures. may well displace metal wire as a primary medium in telecommunications. Older technologies require expensive and time-consuming removeal of the gear before these measurements can be made. new techniques sallow in-the-well sensing of critical geophysical characteristics (temperatures. or food processors to pharmaceutical or chemical firms for the latest in preservatives. As telecommunicating attracts ever-greater interest. In each case technological advantage is passed through the production chain. etc. Sources of supply can also be redefined with technological innovation. technological change looms large in the overall picture of public experiences and expectations. and maintenance. Thus those firms with access to the new technology have a marked. In the oil-well wire-line (or “logging”) industry. Price is no longer a significant factor when the competition for business is between those with and those without the technology. Finally. Fiber optics.unfold. Automation has led to the conversion of hand labor to higher skills needed in machine design. a firm might rely heavily on its suppliers. Telecommunications firms thus would turn to the glass industry instead of the wire industry for this critical material. Employees continually experience the impact of technology by virtue of changes in requisite skills and job assignments.
it must be monitored and forecast aggressively. Smaller enterprises. The time we save preparing food by microwave oven we now lose by watching video-taped movies at home! Few firms are left untouched by technological change. 4. To the extent that technological innovation is a key factor of success in a given industry. In al cases at least a general sensitivity to the technological environment is a primary component of successful strategic planning. Geographic diversity Product/market scope Sources of supply Sources of capital Technology/innovation Regulatory vulnerability Return horizon on fixed commitments Overall flexibility The depth and breadth of environmental scanning also are constrained by available resources. 8. . a singlepoint forecast of interest rates one year hence may be a dangerous premise upon which to base on expansion strategy. FORECASTING In many cases the environmental forecaster needs in make multiple forecast so that contingency goals and action plans can be developed. 5. however. 7. 6. one of which could be implemented as certain economic conditions unfold. rarely can make such communications and must rely on intermittent or more closely focused analysis. Instead well reasoned multiple forecasts of interest rates can lead to contingency expansion strategies. although some may be more severely or rapidly affected than others. Envoronmentsl boundaries can be at least generally established by examining the firm’s strategic postures regarding: 1.because the banks were closed. 3. Larger firms can often make substantial resource commitments within planning units to conduct formalized scans on a continual basis. For example. 2.
industry. For example. Forecasting by analogy is another widely used technique. As with other forecasting techniques. and extending the line into future periods. This normally involves line fitting to historical data. Parameters must be appropriately selected. These techniques can often be used in conjunction with each other to identify opportunities and threats. only a few have received recognition in strategic management circle. the validity and reliability of trend extrapolation must be carefully evaluated in each application. and extending that trend into the future. For example. If this is not done. more sophisticated packages like SPSS (Statistical Package for the Social Sciences) and SAS (Statistical Analysis Software). incorrect forecasts can result – extrapolating the growth of a young blade of grass could easily yield a tree. one might have been able to forecast a decline in public interest in the Space Shuttle program after . noting its trend (statistically or otherwise). Most spreadsheet programs and some operating systems have easy-to-use trend line extrapolation routines build into them. Forecasting Techniques Though a multitude of forecasting techniques might be catalogued. Lead and lag correlates often are used in the process.Forecasts can be made in the context of reasonable ranges. but at a level not to exceed that of. allow detailed trend line analysis. Most simply put. say.S. Trend extrapolation is probably the most widely used. Of course. Here the analyst is less concerned with anticipation of precisely what the future will bring useful when the forecasting horizon is more distant. this involves picking a tracking factor or environmental variable. It involves identification of precursor or concurrent events and simple recognition of the relationship. 1989. installed on most computer mainframe systems and also available in microcomputer versions. The general direction of change is addressed within the confines of anticipated limits. and intrinsic or environmental constraints identified. although it is not a formal forecasting method. one might predict a decrease in federal defense spending in the range of 5-10 percent per year over the next five years or continued Japanese investment in U. Linear and nonlinear statistical models and techniques can be used when hard numerical data exist.
it basically involves the use of expert opinion through anonymous. ecologies. the analyst examines this impact on whatever mobility variables the model contains. controlled feedback among a group of participants (the expert panel). In this case the forecaster is really examining series of analogous (though not identical) events. The analyst begins by . By varying the income variables in the model. They involve the estimation of theoretical and empirically based relationships. it would be of limited use to the student case analyst.. Here the analyst changes assumptions or estimation within the model to generate varying outcomes. miterative. In doing so the analyst is able to evaluate the model itself. Normally the panel is polled bgy questionnaires in a search for opinions on reasonably well-defined issues. Developed by the Rand Corporation. Computers are normally use to make the calculations. thus assessing their sensitivity to income changes. which. Simulations and econometric models are designed as numerical interpretations of real-world systems (e. Delphi represents yet another forecasting procedure. This routine continues through subsequent iterations as the information is reprocessed by the experts and new forecasts are generated. as well as gain some understanding of contingency outcomes. A particular advantage of these techniques is the ability to performance sensitivity analysis.g. These responses are then satistically compiled and fed back anonymously to al member fo the panel. Ideally the composite results will move toward a consensus.the first launch since there was a similar decline reaction to Columbus’ unspectacular second voyage to the New World. one might wish to assess the impact of changes in personal income on population mobility. when taken together interact quantitatively to produce forecast outcomes. national economies. its validity and reliability are open to challenge. Though this technique is employed fairly widely in public and private sector planning. production systems). Because forecasting by analogy is used where historical data are inadequate for the more formal trend extrapolation. For example. Cross-impact analysis is a forecasting technique designed to assess the interactions among future environmental conditions. in a dynamic population forecasting model. Each member responds with a forecast and reasons for it.
competition. The firm is facing new forms of extra-industry competition. If nothing else. A firm interested in this matter might then choose to monitor industry shipments in that product category closely.assuming that a set of future environmental circumstances will come true (e.. 2.g. The latter marely helps refine the make the gathering and processing of environmental information more efficient. For example. 3. The firm’s strategy defines the business in terms of specific industries. The firm is contemplating entry into a new industry. Finally. except that it logically must be preceded by identification of the appropriate industries for analysis along with descriptions of the various characteristics of those industries. Thus industry analysis involves the same processes as those identified earlier for environmental analysis. 1. An industry perspective is also useful for the student case analyst in that it provides the basis for gaining familiarity with the products. but monitoring is the choice for specific environmental variables or factors that are tracked over time. each holding a 5 percent market share within six years). The breadth and depth of industry analysis and the boundaries for information gathering are defined by these industries.3 Industry Analysis Industry analysis complements analyses of the other dimensions of a firm’s environment. Through the use of matrix analysis. an environmental scan may identify a somewhat subtle shift in the packaging industry toward paper containers for liquid consumer products. It focuses on the industries in which the firm competes. The scan is the equivalent of a 360-degree radar sweep. Industry analysis is relevant in any of these situations: 1.5. scanning and monitoring are forecasting methods insofar as they involve future thinking. resource . the analyst then attempts to assess the impact of these circumstances on the possibility and timing of others (such as price competition). The forecast could involve any of the other techniques. four new industry entrants. and ultimately generate a forecast of future volume. the analyst is able to expose forecasting inconsistencies and to clarify underlying assumptions in the forecasts themselves.
the more narrowly defined is the cluster. the threat of new entrants. It is designed ot furnish a common framework for gathering. These clusters are named and coded to provide the needed uniformity and comparability.” “groups. The SIC clusters “establishments” (as opposed to legal entities or firms) together on the basis of the primary type of activity in which they are engaged (normally defined by product or service category).S. Michael E. For example. The industry perspective must be use cautiously since an individual firms or business unit can hardly be considered completely protected from direct extra industry. and the bargaining power of buyers or customers. Industries are assigned a four-digit code. A more universal taxonomy for analytical purpose is that provided by the U. and crossreferencing data in a uniform fashion. therefore. is cautioned to assess direct environmental influences as well as the portion of the environment that affects overall industry conditions. Trade associations themselves define criteria for membership and establish networks for information sharing and cooperation. . analyzing.” “major groups. Additional digits are used for subdivisions within industries.requirements. influences. tabulating.” and “industries”. Proter developed an assessment model for analyzing industry structure that focuses on the forces imposed on the process of competing by five influences: The intensity of rivalry among competitors. Defining an Industry In general an industry is nothing more than cluster of economic units (firms or business units within firms) that are grouped together for analytical or cooperative purposes. The analyst. the threat of substitute products the bargaining power of suppliers. Thus the American Board Builders and Repairers Association defines its own industry scope and becomes a private sector information depository (among other functions) within the confines of the scope. relaxation in occupational safety and health standards for an industry may come at the same time that an individual firm is singled out for stricter compliance enforcement. The more digits in the code. The coding scheme results in a nesting arrangement of “divisions. Government’s Standard Industrial Classification (SIC) scheme. and constraints peculiar to a line of business.
The actors within an industry on whom these forces exert pressure are. Obviously. 2. and major . the starting point for conducting an analysis of the five forces of competition is to identify all the competitors. understanding how these forces affect competition within an industry allows the strategist to identify the most advantageous strategic position. respectively. Yet a full understanding of the elements of competition within an industry is easy to overlook and often difficult to comprehend. potential new entrants. The weaker are Porter’s five forces. The intensity of rivalry among competitors. Where these interactions are intense. suppliers (vendors). Where they are mild and competitors appear docile. Based as it is on the fundamental economics of the industry. potential new entrants to the industry’s markets. 3. The amount of bargaining power possessed by the firm’s/industry’s customers 5. The threat of new entrants to the market. the very profit potential of an industry is determined by competitive interactions. especially business-level strategy. The extent that substitute products present a threat to a firm’s/industry’s products These forces assist in identifying the presence or absence of potential high returns. profit potential tends to be high. The amount of bargaining power possessed by the firm’s/industry’s suppliers. More generally. 4. and makers of substitute products.Porter’s Five Forces Model of Competition The nature of competition in an industry in large part determines the content of strategy. customers. profits tend to be whittled away by the activities of competing. the industry’s competing firms themselves. the greater is the opportunity for firms in an industry to experience superior profitability. Porter has identified five basic forces that collectively describe the state of competition in an industry: 1.
Next. or use sales forces or independent sales representatives for selling. Drafting an offensive posture to take advantages of weak forces in the industry. and then formulating a strategy that will create an advantage for the firm. Using Porter’s model to analyze an industry for a particular firms. For each competitor this data would include market share. A large number of quite small manufacturers accept low levels of profitability as a cost of staying in business. product line differences/similarities. The key task of the analyst is to understand the underlying causes of each of the competitive forces at work. and makers of and nature of substitute products. Competition is low key with little effort and expense devoted to differentiating brands or single products. price/quality relationships represented by products. They usually compete on . An advantage could be established by defining a position from which to defend itself against strong forces somewhere in the model. Such firms often product a catalog and send representative to trade shows to demonstrate products. knowing the magnitude of competitive forces allows the strategist to identify the most important trends that are emerging as opportunities and threats. and the kinds of factors that can create strength for the five sets of competitors. identifying its underlying source. financial strength differences. and the most fertile areas for drafting competitive thrusts can be defined. An example might be industrial fasteners. but various distinguishing data about the industry would also have to be specified. Industry of Rivalry among Competitors Some industries appear “sleepy” because of a low level of rivalry among competitors. and any other information that will help describe the industry. or designing a way to favorably alter the forces. market segments served. With this knowledge.suppliers. the demographic of customers. the manufacturers of nuts and bolts and other devices used to connect the components of products. we’ll identify typical characteristics of each competitive force. a company’s strengths or weaknesses can be clarified. growth/decline trends. ‘Competitors would not only have to be identified. involves estimating the strength of each force. Also.
dissimilarity to foreign beer brands. strength of flavor. Buyers . posters. Undifferentiated products and low switching costs.the basis of price. brewing process. There are few alternative uses of a defunct brewery. weakness of flavor. price. So participants fight it out intensely for a share of the huge beer market. demonstrations. For breweries of given revenue size. some industries are characterized by high level of competitive activity. High exit barriers causing firms to bear low or negative returns on investments Wide spectrum of strategies and types of firms which generates confusion and frequent “collisions” in the market. The opposite case might be an oligopoly like the automobile industry where most actions are reactions to another competitor and rivalry is somewhat orderly. or the convenience of either large or small lot sizes. social acceptance. For example. and so on. We have seen ads. capital investment is large so exit barriers are high. the brewing industry has many competitors who battle fiercely with each other over market share. so brewing firms develop complex promotional and advertising programs to try to gain the upper hand in consumer awareness. jingles. “naturalness. sales and many other types of promotional and advertising program by beer brewers and distributors to differentiate their product on the basis of taste. alcohol content. There is little natural differentiability in beer. There are virtually no screw machine companies advertising on television! On the other hand. appeals. albeit intense.” similarly to foreign beer brads. 1 2 3 4 5 6 7 Relative equilibrium in size and power among a large number of competitors Slow or stagnant growth of industry demand such that expansion of one competitor would come at the expense of others. delivery times. ingredients. High fixed costs of product perishability Even small capacity additions generate large volume increases which raise pressure to cut prices. small retail location-based breweries have been popping up all over the country who make their own beer. Lately.
By contrast. commercial buyers would be other companies that sell Firestone’s products to consumers. delivery times. quality. sells tires directly to the people who will be driving on them through its own retain outlets. would be one group of its set of industrial buyers. an automobile manufacturer could have a powerful bargaining position over a fire maker or the entire tire industry if a large volume of tires was sought for installation on a popular auto line. An industry’s buyers tend to be powerful relative to the firms they are buying from when the conditions listed below apply (keep in mid that these factors apply as well to a group on consumers and to industrial and commercial buyers) . as its suppliers compete with one another to gain favor with its buyers. can enjoy positions of strength over the firm from which they purchase products by superior bargaining power. Buyers. a large retailer (“commercial buyer” to its supplier) with a loyal customer base and high volume of sales of the product in question. Thus it has a strong bargaining position on matters of price. whether consumer. and other factors to its vendors. or purchasers of the firm’s service or product for their own use. AS example would be any of the large discount stored chains that handle Firestone tires. Continuing with the Firestone example. etc. quality level. Industrial buyers are companies that purchase the firm’s product or service to be used as a component in its product. K-Mart..For an industry. Consumers. automobile manufacturers who put Firestone tires on new cars. the wise tire maker would prevent itself from becoming too dependent on one buyers by strenuously soucing”—buying from several producers of the same components—to prevent dependency on too few suppliers. may be able to virtually dictate price. Sears. industrial. and commercial customers. Similarly. (Of cours. The various products that make up its line cater to the needs of different sets of demographic descriptions of people. buyers can usually be broken into three categories: Consumer. are further divided into “bundles” of demographics which collectively identify all the various market segments that are present. order quantity. shipping arrangements. or commercial. like WalMart. for example. etc. For example. industrial. Firestone.
They can influence customers’ purchase decision. 1 2 3 4 5 The power of suppliers is high in the following situations: There are few suppliers who are more concentrated than their customers Suppliers’ product is differentiated Customers! Switching costs are high. an additional source of bargaining power over their manufacturing vendors. The sellers’ product is not critical in one way or another to the buyer. There is a threat that buyers can integrate backward to make the suppliers’ product. then the sellers will have power over the buyers. delivery time. Products are undifferentiated or standardized. and order quantity. price. An industry’s commercial buyers (retailers) have.1 2 3 4 5 6 Buyers are concentrated as in cooperatives. of an industrial buyer group’s finished product. in some cases. If it’s critical to the quality. buyers tend to be less price-sensitive. etc. If these customers cannot successfully play off one supplier against another to protect themselves. Suppliers Providers of goods and services to an industry have power over their customers through their ability to set price and control quality. order quantity. This capability allows retailers to gain price. . Buyers are earning low profits and are thus more price sensitive than if they were highly profitable. When the seller’s product has a small cost share.. delivery time. appeal. and other concessions from their suppliers that other classes of buyers might not receive. There is little pressure on suppliers to protect themselves from substitutes or replacements for their product. or they account for a large volume of purchases. for example. then the industry’s profits can be drained off by suppliers. The seller’s component represents a large portion of the total cost of the buyer’s finished product.
The preferred seed stock (baby shrimp placed in growth ponds to grow to a marketable size) are wild postlarval shrimp (called “PLs”) netted in the country’s estuarine areas by fishermen.6 7 When suppliers have the capability to integrate forward. An interesting example of the power of suppliers is the unusual relationship between the growers of seed shrimp and the growers of mature shrimp in the shrimp mariculture industry in the country of Ecuador. In other years there is an oversupply of wild PLs. Although it is an extreme case. Important customers would be protected from aggressive moves by the supplier because of their mutual interests: unimportant customers would not enjoy this position. are in short supply. they may receive no revenue at all. Substitute Products The shrimp industry example above also demonstrates the plight of an industry facing a substitute for its product. A supplier of engines to a manufacturer of lawnmowers would have a strong bargaining position if the mower company realized the engine supplier’s ability to make the whole-lawnmower. In some years there are not enough wild PLs to stock all the growth farms. The industry is not one of the major customers of the supplier. periods of extremely high bargaining power and virtually no bargaining power may be separated by only a few months. they have the power during these years to control the profitability of the much larger (in terms of revenue) mature shrimp mariculture industry. seed shrimp hatchery operators really only have an industry an all during the years when their product’s substitute. Hatchery operators are spending heavily on research to increase the survival rate of their product. For Ecuadorian shrimp hatchery operators. During the years of wild PL undersupply. If they . But during the wild PL oversupply years. Indeed. wild seed shrimp. the price of hatchery-grown PLs skyrockets and the PL hatchery operators thrive. These PL shrimp are much hardier than their hatchery-grown substitutes—as many as 80 percent of the hatchery-grown PLs die before reaching maturity compared with a mortality rate of about 20 percent for the wild ones. The problem is that the supply of wild PLs fluctuates dramatically from year-toyear with climatic conditions.
strategies must be formulated to protect against displacement by the substitute product/service. and implementation of other profit oriented moves. hiring of professional management. Potential Entrants New entrants to an industry pose several threats to existing competitors. Their availability limits the price that the wild PL fishermen can charge for their product. The threat of new entrants to an industry is high when barriers to entry are low. . Although corporate ownership does not guarantee success of a restaurant this example points out the threat to current participants presented by corporate diversification into their industry. Rhode Island. Corporate parent firms that diversify into an industry by acquisition are especially dangerous to existing competitors both because of their “deep pockets” and potential management expertise. A restaurant in the tourism-driven town of Newport. The parent made capital available to the restaurant and after a major facilities overhaul. They also may bring new technology or greater resources not available to present competitors and achieve a high market share position quickly to the determent of al existing participants. The most dangerous substitute are those that show potential for improving price-performance tradeoffs and those made by firms or industries earning high profits. During years when there are not quite enough wild seed shrimp to go around. In these cases. shrimp growers use some hatchery grown seed stock.are successful in this endeavor. the restaurant quickly became of “industry leader” in Newport. This price ceiling is typical of all industries facing substitutes. rapidly gained market share from other restaurants in town when it was acquired by a large international corporation. New competitors can reduce the market share of all participants by dividing the “pie” into more pieces. then they may be able to displace the wild seed shrimp industry altogether. Manufacturers of products and suppliers of services must constantly scan their environments for the potential emergence of substitutes.
S. Low capital requirements for start-up in an industry leads to new entrants. or visa versa. That small independent pizza parlors exists side by-side with the units of national chains of pizza stores indicates the there are few economies of scale in his industry. As a result. Low switching costs leads to new entrants because customers sense little incentive to stay with current suppliers. 1. Homeowners frequently change rubbish pickup companies because there is little incentive to stay with current provider. An extreme example is the house painting business where capital coasts are minimal.4 Financial analysis Financial statements can reveal much about a firm’s operating strength and weaknesses.5.Low entry barriers would apply in the following situations: 1 Low economies of scale. Compare this situation with the costs of changing from an oil heating system to gas. Thus. They also serve as a basis for predicting future financial developments. Easy access to distribution channels Low familiarization costs-where “learning the ropes” in the industry easy or inexpensive for new entrants. 2 3 4 5 6 Conducting an industry analysis following Porter’s model involve collecting data and developing explanations for the ways in which industries competition is affected by the five forces. Most Americans can’t tell a good shrimp from a bad one. Undifferentiated products in an industry leads’ to new entrants. Ecuador’s dominant market position in the lucrative U. Every community sees the appearance of a large number of new house painters every year. one finds and would expect frequent appearance of new pizza places in just about every town and neighborhood. To the extent that the performance of all parts of an organization is ultimately reflected in the magnitude of entries in a firm’s financial statement financial analysis can structure or bound the question of how well a strategy . shrimp market is under attack by shrimp growers from al over the world.
First. a comprehensive analysis of the firm’s financial position can be conducted by evaluation the resulting ratio. Any ratio strikes a relationship between the numbers in its numerator and denominator. After computing several key ratios whose numerators and denominators are made up of selected items from the statements. ratios help to determine relative meningitides to financial quantities. Toward that goal there are a number of ways in which FRA can be useful. Second. Thus the debt/equity ratio strikes a relationship between these quantities such that their relative magnitudes can be established. FRA can help managers or external analysis make .working. only a few ratios may be necessary to comprehensively analyze a set of financial statements. Third. and predictions of future financial statements. For example. analysis of retained earnings position. it can aid in interpreting and evaluating income statements and balance sheets by reducing the amount of data contained in them to a workable amount. Then expected changes in each item can be forecast. Financial Ratio Analysis Financial ratio analysis (FRA) is a process whereby the analyst or manager determines the degree of financial health represented by the firm’s financial statements. FRA can make financial data more meaningful. Because of these advantages. All findings of the financial analysis should be reduced to strengths and weaknesses of the firm and located accordingly in the data set for the present time frame. is compared with the owner’s investment in the business. interpretation of cash flow position. By selecting sets of numbers that are logically related. Comprehensive financial analysis consists of four elements: ratio analysis of the firm’s historical financial performance. the magnitude of a firm’s debt has little meaning unless it.
Current assets are those normally expected to into cash in the coure of a merchandising cycle. one must select a set of ratios made up of subsets. average ratio values from past periods computed from financial statements of other firms in the same industry (industry average comparison). To analyze a firm’s financial structure comprehensively. This comparative base could be a history of ratios for the firm (trend analysis). The only funds available for payments of short-term debt are either cash or other current assets readily convertible to cash. potential earnings. To use the first of these approaches. Consequently liquidity is measured by ratios that strike a relationship between current liabilities and selected current assets.effective decisions about the firm’s credit worthiness. There are several published sources of data for such comparisons. and financial strengths and weaknesses. . and comparing the product with a base. but the financial dimensions themselves normally are not directly measurable. each of which represents a dimension. Ordinarily they include short-term notes and accounts receivable (due within the next twelve month ). decreasing. followed by its interpretation. Liquidity: The liquidity of a firm is its ability to pay current liabilities as they come due (current liabilities are debts due within one year). or constant. then. Financial Dimensions The financial structure of a business has several dimensions. In this section financial dimensions are explained first. It involves simply selecting the financial entities to be compared from either the income statement or the balance sheet. Each financial dimension may be measure by several ratios. The second approach requires availability of industry average financial ratios that were computed in the same way as those of the firm under analysis. Then the ratios that collectively measure each dimension are discussed. The method of computation for each one is presented. dividing one by the other. or a combination of the two. inventory. and marketable securities (at current realizable values). a ratio’s historical values are computed to determine whether its trend is increasing.
The stronger ratio reflects a numerical superiority of current assets over current liabilities. Net profit can be calculated either before or after taxes. the composition and quality of current assets are a critical factor in the analysis of an individual firm’s liquidity. the greater is the “cushion” between current obligations and a firm’s ability to pay them. Generally any value of less than one to open implies a reciprocal “dependency” on inventory to liquidate short-term debt. that is a refinement of the current ratio and is s more conservative measure of liquidity. However. Interpretation: Also known as the “acid test” ratio. Generally the higher the current ratio. The analyst should ensure that the ratio elements used to compute the profitability ratios (and other as . Interpretation: This ratio is a rough indention of a firm’s ability to service its current obligations. current portion of long-term debt. Ratios that measure profitability usually consist of a profit element and one that represents the amount of funds invested in whatever aspect of the firm is of interest to the analyst. Ratios that measure coverage consist of one component to estimate flow of funds into the firm and another for periodic payments on debt. Ordinarily they include short-term notes and account payable for merchandise. and other accruals. taxes due. Robert Morris Associates and the following explanation use net profit before taxes.Current liabilities are short-term obligation for the payment of cash due on demand or within a year. Profitability: This familiar dimension of a company’s financial structure concerns managements ability to control expenses and to earn a return on committed funds. This ratio also serves as an indicator of a firm’s capacity to take on additional debt. A high ratio may indicate that a borrower would have little difficulty in meeting the interest obligations of a loan. Interpretation: This ratio is a measure of a firm’s ability to meet interest payments. Coverage: Coverage refers to a firm’s ability to service debt that involves interest or premium payments. The ratio expresses the degree to which a company’s current liabilities are covered by the most liquid current assets.
conservatively operated business. could indicate and undercapitalized firm. the analyst is cautioned to use it in conjunction with other ratios. Interpretation: This ratio expresses the return on total assets and measures the effectiveness of management in employing the resources available to it. A low return usually an indicator of inefficient management performance could reflect a highly capitalized. Interpretation: This ratio measures the extent to which owner’s which owner’s (net worth) has been invested in plant and equipment (fixed assets).well) are the same as those used to compute the industry average against which the ratio’s value will be compared. Interpretation: This ratio expresses the rate of return on tangible capital employed (called net worth or capital or owners’ equity less intangibles). the analyst will need to examine the makeup of the assets and take a closer look at the earnings figure. Leverage: The extent to which the firm relies on debt as opposed to owner’s capital (net worth) is its leverage position. A firm with a low debt/worth ratio usually has greater flexibility to borrow inb the future. A heavily depreciated plant and a large amount of intangible assets or unusual income or express items will cause distortions of this ratio. If a specific ratio varies considerably from the ranges found in published sources. While it can serve as an indicator of management performance. normally associated with effective management. A lower ration indicates a proportionately smaller investment in fixed assets in relation to . It expresses the degree of protection provided by the owners for the creditors. A more highly leveraged company has more limited debt capacity. Interpretation: This ratio expresses the relationship between capital contributed creditors and that contributed by owners. Also note that the following two ratios are converted to and reported as percentages. A lower ratio generally indicates greater long-term financial safety. Generally the order or preference given to this ratio is arranged on a continuum such that a low negative ratio is characterized as a weak debt/worth position and a high positive ratio value is perceived as a strong debt/worth position. A high return. A highly leveraged firm is one with a high proportion of debt relative to owner’s investment.
Examining the relationship between a measure of sales and an asset account is their purpose. Then a funds flow statement is prepared to give more detail on cash or working capital transactions expected to be necessary for operations to proceed as planned (although one approach calls for constructing the cash budget first). Similarly. or. Further. A problem with this ratio is that it compares one day’s inventory (at the end of the accounting period) with cost of goods sold and does not take seasonal fluctuations into account. possible overstocking. Low inventory turnover can indicate poor liquidity. One way to resolve this problem when sufficient data are available is to calculate cost of sales and average inventory by month to develop turnover ratios for each month. Typically the income statement and balance sheet are projected furs tot show expected sales and expenses (income statement). These statements include a cash budget. . measure how effectively a firm’s assets are managed. Predicting Financial Performance The financial impact on the firm of a strategic change is presented in pro forma (predicted) financial statements. Activity: Activity ratios. The presence of substantial leased fixed assets (not shown on the balance sheet) may lower this ration deceptively. the level of assets necessary to generate those sales (left side of the projected balance sheet). High inventory turnover can indicate better liquidity or superior marketing. Interpretation: This ratio measures the number of times inventory is turned over during the year. and the way in which assets will be financed (the right side of the projected balance sheet). obsolescence. Conversely it can indicate a shortage of needed inventory for sales. The order of preference normally given this ratio is the same as debt/worth. and a better “cushion” for creditors in case of liquidation. also called “efficiency” or “turnover” ratios. and a balance sheet prepared over the appropriate planning periods. a higher ratio would indicate the opposite situation. it may prove extremely useful to break up cost of sales and inventory by different classes of products. an income statement. in contrast to these negative interpretations. a planned inventory buildup in reparation for future material shortages.net worth.
There are four approached to projecting financial statements: The present-of-sales method. the budgets-and-ratios method. Questions: 1. All require a sales forecast as a foundation for predicting other components. Explain Micheal Porter’s generic model. the statistical-relationship method. and the breakeven sales method. 4. What is core competence? Give examples. . Under what circumstances the companies have to go by their corporate capabilities? 3. What is the need for environmental scanning? 2.
correct weaknesses and protect against vulnerabilities and threats. SWOT analysis stands for Strengths. an opportunity could be a developing market such as the internet. they have an eye on their overall business environment and spot new opportunities faster than competitors. weaknesses.6 SWOT 1. Successful businesses build on their strengths. It is the first stage of planning and helps marketers to focus on key issues. It simply looks at the negative factors first in order to turn them into positive factors. TOWS analysis is extremely similar. During the SWOT exercise. A weakness’ could be the lack of a new product.LESSON 1. business needs to understand what their strengths are and where they are vulnerable. In order to succeed. and threats. Once key issues have been identified. Two people rarely come-up with the same final version of SWOT. It is very popular tool with marketing students because it is quick and easy to learn.1 Introduction: SWOT analysis is a tool for auditing an organization and its environment. SWOT analysis can be very subjective. So not rely on it too much.6. they feed into marketing objectives. . SWOT stands for strengths. It can be used in conjunction with other tools for audit and analysis. The technique looks at where the company has an advantage compared to its industry and where it is weak. 1. A thereat could be new competitor in your home market. list factors in the relevant boxes. opportunities.2 Effective SWOT analysis To be effective SWOT analysis needs a methodical and objective approach. For example. For example. Opportunities and threats are external factors.6. Just as important. or to see strengths that are not real. It is too easy for a company to look at itself – and fail to see any problems. We can help combat this by providing a fully objective view – which can then be used to support and enhance your business and marketing planning. So use it as guide and not a prescription. Weaknesses. Opportunities and Threats Analysis. a strength could be your specialist marketing expertise. Strength and weaknesses are internal factors. such as PEST analysis and Pouter’s five-forces analysis.
take a company employing a large number of women. A SWOT starts with an external analysis of the business environment. in many countries are decided by a central bank. environmental policy. which may have been highlighted in the PEST analysis. Often the political factors spill over into economic factors. tax is usually decided by politicians. the price of paper is a crucial economic measure. The final stage is to combine the analyses to look at opportunities and threats facing the organization and to draw up plans to take advantage of the opportunities and to counter the threats. Some companies – notably Shell Petroleum – had picked up signals that all was not well in Russia. opportunities and threats. you need to look at any political changes that could effect your business. for example. Other economic factors include exchange rates. When examining political factors. magazine or newspaper publisher. For example. The current state of world stock markets is a typical example of the volatility of economic factors. inflation levels income growth. and then looks at the organization’s internal strength and weaknesses. Interest rates. should be considered.SWOT analysis are undertaken by businesses at the start of planning – to identify organizational strengths. The UK software industry is currently complaining of a shortage of computer programmers – which . Are paper costs rising? For a book. These areas are global. As an example. What laws are being drafted? What global change is occurring? Legislation on maternity rights. Many of these were related to economic problems within the oviet Union. The fall of the Soviet Union caught most businesses and Western Governments by surprise – but not all. debt & saving levels (which impact available money) and consumer & business confidence. often called a PEST analysis. They should not be seen as a process in isolation – ant it is important that decisions are taken based on the findings. based on a mixture of political and economic factors. but it is also important to look at factors affecting individual industries. weaknesses. data protection health & safety. but political factors may still be important. relative to internal factors such prior performance and also to external factors. Changes in maternity rights may have a major impact on such a business – the aware business will keep an eye out for changes in such legislation.
Demographic changes can also play a major part. bottom left = Socio – cultural. Such changes can impact purchasing behavior. In the top left corner. So understanding changes in this area can be crucial. Technological change impacts social-cultural attitudes.6. Some companies are now using programmers in countries like India for software development. the elderly. Advances in technology can have major impact on business success – with companies that fail to keep up often going out of business. This helps them keep costs down – and leads to competitive advantage over companies with higher costs. values and attitudes of society. mobile phones. . Not all groups have the same attitudes – and this impacts how they view products and services. etc. EDI. in the top right corner. all this influences and is influenced by social factors – the elements ath build society. Economic. Finally. bottom right = technological. Social factors influence people’s choices and include the beliefs. For example the way people spend their leisure has changed dramatically over the last 30 or so years. put the heading Political. 1. Look out for any technology that could make producing your product easier.is driving up wage costs. As well as advances in your own industry.3 Compiling a PEST analysis: On way of compiling a PEST analysis for your business is to take a LARGE sheet of paper. Again – the global picture can be important. Typical things to look at for each of these follow : consumer attitudes to your product & industry – environmental issues (especially if your involves hazardous or potentially damaging production processes) – the role of women in Society – attitudes to health – attitudes to wealth – attitudes to age (children. And watch out for the technology that could make your product obsolete. and the increasing advances in computing and computers.) Added complication when looking at social and cultural factors are differences in ethnic and social groups. think about the likely impact of new technologies – the Internet.
think of inter-relationships between factors. These are often the areas that will have the greatest potential impact on your company. You will find that some areas have more connections than others. which looks at the company’s external environment. then include these in your planning. A further purpose is to identify opportunities and threats resulting from external factors – especially those that have an impact on the company’s strengths and weaknesses. Think laterally – just because something seem unlikely does not mean that it will not have and influence in the future. analysis is to use the results. .For each heading. relative to the rest of the market (i.Prepare contingency plans to prepare for nay threats identified. in your marketing planning – and represent future opportunities and threats. These are often the areas that some areas have more connections than others. Connect up al inter-related factors. Company strengths and weaknesses need to be identified in all aspects of the business.6.e. However before the results are used effectively. This comes from a SWOT analysis. Having compiled a list of key factors. 1. Its purpose is to identify company strengths and weaknesses so that strengths can be maintained or increased and weaknesses corrected. think of every factor that possibly have an impact on your business.4 Developing SWOT analysis: A SWOT analysis builds on the results of the PEST analysis. compared to competitors) relative to previous performance or expected performance . For example. you should also develop an understanding of your own companies capabilities. The final stage in a PEST. These are the aspects that you most need to be aware of. This is an opportunity to increase production to take advantage of more potential customers. your target customer group may be growing faster than other sectors. the rise of the Internet (technological factors) is likely to influence consumer purchasing (social factors) – while an awareness of prices in other markets through electronic commerce may lead to a narrowing of cross-border price difference (economic). – It there are factors that lead to businedd opportunities. For example.
This approach is preliminary – as it does not evaluate the relative importance of each issue. but where performance is below expectations would receive a higher score than where performance has improved but still is weaker than competitors. Image and reputation – Pricing options – Speed to market – Customer service – R&D and Innovation / New products. These become the focus for future planning. The following is list of some of the things that should be considered: Marketing Aspects Market share and market segments addressed – Competitive Structure Customer base (quality size. etc). Ensure that no weaknesses cancel out company strengths and potential threats to the company strength or opportunities that could arise out of correcting weaknesses. weaknesses. Areas where the company has better performance than competitors. loyalty. An item that won on all 4 categories would be a major strength and vice versa for weaknesses. It is also important to realize that opportunities arise out of weaknesses. opportunities and threats under each of these headings. A further approach is to list key aspects in a table – and score them out of 5. Scoring can be based on the following factors – relative to the overall industry – relative to major competitors or the next largest competitor – relative to expected performance – relative to previous performance. Correcting a weakness presents a marketing opportunity. where 5 is a major strength and 1 a major weakness. Similarly. failing to maintain a strength is a threat to he company. Marketing skills and experience – International / export market capabilities. This is a weakness – and the first company to match this customer need will have a strength relative to the other companies in the industry. Services provided – Distribution capabilities and costs – Sales effectiveness – Promotional effectiveness. . highlight key areas of concern or areas that require action. On the above list. A preliminary approach for carrying out a SWOT analysis is to list perceived company strengths.- relative to customer demand (for example all companies in an industry may fail to satisfy a particular customer need. – Demand forecasts – Product range and quality.
Operational / Manufacturing Aspects Production / Manufacturing facilities (age. Finally after compiling the list. quality. A way forward here is to rank each item on importance to the company. a score of 1 or 2) and high importance should be the major priority. motivation. Similarly. dedication and experience – Employee satisfaction – Employee costs – Work environment – Staff turnover rate – Management and Organisational Aspects Management skills and experience – Leadership and team skills – Ability to respond to market change – Flexibility and adaptability Financial Aspects Cost of capital – Profitability / Return on investment – Financial Stability – Sales / Employee – Cash availability This scheme allows the company to identify where it is strongest against competitors – the company’s competitive advantage – and against previous and expected performance. management should start to consider whether action is needed regarding each identified item. while low importance items that are viewed as strengths can be ignored. Low performance (i. high performance (4 or 5 score) and high importance indicates areas where performance needs to be maintained.e.) – Product failure rate – Flexibility – Costs – Supply / raw material availability. technical. It is better to spend time and money improving or maintaining areas that matter to the company than worrying about perceived strengths that do not add anything . speed…) – Economies of scale – Skills (Employee. etc. Conversely.Employees skills. low importance and low performance can be given a lower priority. Human Resource Aspects .
This can be summarized as: 1. 2. get a team together from the various departments of your company for a brain storming session. If possible use a whiteboard and write down all ideas and comments that might be raised. Ensure adequate finance to address issues. The best method is to split the whiteboard into a 4 sections as follows: Strengths Opportunities Weaknesses Threats List down answers to the following questions: Strengths: What are your advantages? . Low priority – monitor for changes. Focus on only if finances and time allow.worthwhile to the company. Carrying out an analysis using the SWOT tool will be enough to reveal changes which can be implemented easily and gain results. or if finances allow. Later you can edit each one and delete anything not relevant. and to examine the Opportunities and Threats which may affect you. 3. High priority – main focus. The results of this analysis then feed into a marketing or organization strategic plan. Medium priority – focus on after the high priority items have been looked at. A SWOT Analysis is an effective way of analyzing your company’s potential by identifying your Strengths and Weaknesses. To carry out a SWOT Analysis effectively.
Ensure your team feels comfortable and understands the purpose. Weakness: What could be done better? What is done badly? What should be avoided? What causes problems or complaints? It is important to be realistic not and face any unpleasant truths as soon as possible. Opportunities Where are the good chances facing you? What are the interesting trends? Examples of opportunities can be: Changes in technology and markets Changes in government policy or regulations Changes in social patterns. economical Local and global events Threats What obstacles do you face? What is your competition doing? Are the specifications for your products or services changing? Is changing technology threatening your business? . population.What do you do well? What makes you different from your competition? Consider this from your own point of view and from the point of view of the people you deal with. lifestyle changes. It’s important to be honest and realistic.
set an action point for each and assign it to a person. With complicated issues a further brainstorming session might be done to analyze it further and decide what action to take. Although the SWOT analysis will assist in identifying issues. Do you have bad debt or cash-flow problems? Once the SWOT analysis has been completed. . mark each point with the followings: Things that MUST be addressed immediately Things that can be handled now Things that should be researched further Things that should be planned for the future. add a deadline. the action plan will ensure that something is done about each one. 1. both in India and abroad Strong marketing and distribution network Rich Biodiversity Competencies in Chemistry and process development Weakness Low investments in innovative R & D Lack of resources to compete with MNCs for New Drug Discovery Research and to commercialize molecules on a worldwide basis.5 SWOT Analysis of Indian Pharmaceutical Sector: Strengths Cost Competitiveness Well Developed Industry with Strong Manufacturing Base Well Established Network of Laboratories and R&D infrastructure Access to pool of highly trained scientists. Now that each point has been prioritized.6.
restrictions on animal testing outdated patent office. Marketing alliances to sell MNC products in domestic market Contract manufacturing arrangements with MNCs Potential for developing India as a centre for international clinical trials Niche player in global pharmaceutical R&D Threats Product patent regime poses serious challenge to domestic industry unless it invests in research and development. Write a note on TOWS Matrix? 3. Lack of culture of innovation in the industry Low medical expenditure and healthcare spend in the country Inadequate regulatory standards Production of spurious and low quality drugs tarnishes the image of industry at home and abroad Opportunities Significant export potential Licensing deals with MNCs for NCEs and NDDS. Export effort hampered by procedural hurdles in India as well as non-traiff barriers imposed abroad. Drug Price Control Order puts unrealistic ceilings on product prices and profitability and prevents pharmaceutical companies from generating investible surplus. Lack of strong linkages between industry and academia. . R&D efforts of Indian pharmaceutical companies hampered by lack of enabling regulatory requirement. Explain the need to undertake SWOT analysis in the Indian context. Lowering of tariff protection Questions: 1. For instance. What is PEST analysis? 2.
Between World War II and the early 1960s. addressed the problem of coordinating he operations of the various functional departments of the firm. all came together ot reduce what was hoped would be the right collection of policies. along with the proliferation of mergers and acquisitions. reserved for the top. along with years of management experience. this concept. Thus a different set of policies was needed for each subsidiary and managers sought a common thread that might bind them together. business policy. The internal complexity of firms had increased in an attempt to deal with the complexity of a pluralistic society. money. it was policy that typically was analyzed and modified.1. Strategy was usually viewed as an implicit concept reserved for the topmost managers. Policies were established by top management to integrate activities that each department was to carry out. most managers. certain organizational goals. When operations did not meet expectations.Lesson 2. Divisional zed firms no longer had a single line of business. Most firms were single-line businesses. In the top manager’s mind.” Business is merely one such influence (interest group) and competes with many other groups for time. and rarely changed. began to strain the applicability of the relatively simple business-policy approach to management. Davis and Bloodstream describe social pluralism as a society “in which diverse groups maintain autonomous participation and influences in the social system. Strategy was seldom analyzed once it was decided on by top management. 2 Paragraphs. In the top manager’s mind. environmental characteristics. The rapid rise during the 1950s and early 1960s in the number of interest groups making demands on organizations of all kinds. following the so-called prostrate paradigm. this concept. Please refer the book It has increased both in its level of detail and in its importance as the complexity of the environment has increased. . and political circumstances. Thus policy served to standardize and specify behavior within functional departments.1 Co 2. business policy making was conducted in large part at what is known today as the business level.S.1 Evolution of Strategic Strategy Xerox not clear of L.
yet it had four major shortcomings. and hundreds of others. the initial strategy paradigm was unclear about the nature of relationships between strategy and the operation of the various functional areas of business. or respect for. Because of its inability to deal with these factors. and also by the needs imposed by multiple product lines and business-level activities. Equal Employment Opportunity assurances became stricter and product safety standards were improved. and also to the growth in the number of Divisional zed firms. automobile manufactures have been made to correct deficiencies in their products.interest. Increasingly organization that were operated without an understanding of. How does the task of marketing management. All of the “policy” problems remained. allegiance. but they were compounded by a baffling set of external claims. were bought about largely by the political actions of interest groups. Industrial polluters were required by environmental groups to clean up or stop harmful discharges. or attention. strategy increasingly became interpreted as the link between an organization and its environment. Electric utilities were forced by many interest groups to cease or radically change the nature of nuclear power plant construction projects. First it did not clearly differentiate between corporate-level strategy (question related to the collection of business activities a divisional zed company owned) and business level strategy (how to compete within a particular business activity). change with different strategic focuses and how can the functional areas be integrated into an effective whole? Such questions largely went unanswered. Dubbed the initial strategy paradigm. Product labeling requirements were tightened. the business-policy model underwent several evolutionary changes and emerged as what was later called strategic planning. Third. this view of corporate management focused heavily on the process of strategy formulation with emphasis on environmental pressures. Through the pressure of consumer groups. Their activities often resulted in enactment of legislation that today regulates the conduct of business. the various interest-group influence have been subjected to successful attacks by these groups. Second. These changes. for example. this paradigm was incomplete in its discussion of the role of general . In response to this growth in the dimensions of firms’ environments.
has been proposed by An off. Although there is much work to be done in learning how best to integrate functional strategy with other strategy levels. is the third step in the evolution of thought about strategy.) In some ways related to Ansoff’s concept of enterprise strategy. although still in its infancy. there is now a widely accepted distinction between corporate-level business-level. Here too. responsibility for strategic thinking is viewed within this paradigm as the responsibility of manager’s not just top-level executives. enterprise strategy. strategic management address the issue of functional integration by identifying various functional strategies. or just action plans. Yet there is perceptible movement toward consolidation around many of its principles. and it addresses the shortcomings of strategic planning. As initially codified by Schedule and Hofer. the strategic management paradigm lays the groundwork for the conduct of such research. . whereas others claimed that all mangers should be involved in strategic planning. and functional-level strategy. strategic management is far from representing a consensus. The strategic management paradigm not only distinguishes among different levels of strategy but is sufficiently adaptable to accommodate the need for this expanded scope of strategic thinking. Some authors contended that strategic planning was the province of only top managers. they call it international strategy.management. In particular. but the concept has not endured (enterprise strategy was defined as describing the interaction of a firm with its environment—it is now felt by many that this interaction is best incorporated in each of the other strategy levels and not reserved only for a separate category of strategy. a more global strategic orientation is described by Magazines and Reich. The strategic management paradigm. A fourth strategy level. Next. during the early 1990s the idea of isolating global issues and direction in a separate strategy level has given way to the practice of incorporating international competitive matters into all levels of strategic decision making. Finally. At the same time. there was disagreement about whether strategy included both goals and action plans.
Finally, by separating the steps of goal formulation and strategy (action plan) formulation, this paradigm is more objective, more teachable, and less mysterious than earlier interpretations. It may help to continue the increase in popularity of strategy-focused management and thus expand the competitiveness of U.S. business in the international marketplace. 2.1.2 Researching Strategic Management’s Effectiveness: The weight of numbers tends to favor the studies that have supported the positive effects of strategic management. Only a few have not supported it. In 1957 the Stanford Research Institute analyzed some 400 firms and concluded that those that plan outperform those that do not in terms of sales and profit growth. One of the most convincing studies was undertaken by Thune and House in 1970. They identified two groups, formal planners and informal planners, among eighteen matched pairs of companies in six industries. The two groups were then compared by sales, return on stockholders’ equity and total capital, earnings per share and stock prices. One result that is important for our purposes is that the formal planners were significantly better performers on the three profit-related ratios that were the informal planners. Another test of the formal planners compared their performance before planning with their performance after planning was begun. After-planning performance was superior to preplanning performance. Also in 1970, East lack and McDonald showed correlation between planning and performance. In a replication of the Thune and House study by Harold in 1972, the previous findings were upheld—formal planners continued to outperforms informal planners. Another often-cited study, by Rue and Fulmer in 1972, also lends support to the planning-performance relationship, at least for producers of durable goods. However, for businesses in service and nondurable product industries, planners were not significantly better performers than no planners. In 1974 Wood and Lafarge found that banks that planned formally performed better than those that did not. More support was offered by Karger in learning how best to integrate functional strategy with other strategy levels; the strategic management paradigm lays the groundwork for the conduct of such research.
Finally, by separating the steps of goal formulation and strategy (action plan) formulation, this paradigm is more objective, more teachable, and less mysterious than earlier interpretations. It may help to continue the increase in popularity of strategy-focused management and thus expand the competitiveness of U.S business in the international marketplace. 2.1.2. Researching Strategy Management’s Effectiveness: The weight of tends to favor the studies the have supported the positive effect of strategic management. Only a few have not supported it. In 1957 the Stanford Research Institute analyzed some 400 firm and concluded that those that plan outperform those that do not in term of sales and profit growth. One of the most convincing studies was undertaking by Thune and house in 1970. They identified to groups, formal planners and informal planners, among eighteen matched pairs of accompanies in six industries. The two groups were then compared by sales, return on stock prices. One result that is important for our purposes is that the formal planners were significantly better performers on the three profit- related ratio that were the informal planners. Another test of the formal planners compared their performance before planning with their performance after planning was begun. After-planning performance was superior to preplanning performance. Also in 1970, East lack and Mc Donald showed correlation between planning and performance. In a replication of the Thune and House study by Harold in 1972, the pervious finding were upheld-formal planners continued to outperform informal planners. Another often-cited study, by rue and Fulmer in 1972, also lends support to the planning-performance relationship, at least for producers of durable goods. However, for business in service and nondurable product industries, planners were not significantly better performance then no planners. In 1947 wood and Lafarge found that banks that planned formally performed better then those that did not. More support was offered by karger and Alkalis in 1975, when they showed the same result for the machinery, chemicals, drugs, and electronics industries. However, drug and electronic firms in their sample did not show as strong a relationship between planning and performance as did the other
two types. Later studies in this area have tended not to support the findings of the earlier work. In research conducted by kallman and Shapiro and kudla, and Plenitudes and tezel during 1980, no positive relationship was seen between planning and performance. The only study since the mid-1979s we found which showed a positive relationship was one by Burt in Australia in 1979. He showed that the higher the quality of the planning program, the better was performance. 2.1.3 The rise and fall of corporate strategy: EARLY 1960S: Harvard professors ken Andrews and C. Roland Christensen articulate the concept of strategy as a tool to link together the functions of a business and assess a company’s strength and weaknesses against competitors. EARLY 1960S: General Electric emerges as the pioneer in strategic planning, crating a large, centralized staff of planners to ponder the future. Consultant Mc Kinsey & Co. helps GE view its products in terms of strategic business units, identify competitors for each, and evaluate its position against them. 1963: Under founder Bruce D. Henderson, Boston Consulting Group becomes the first of many strategic boutiques. BCG pioneers a series of concepts that tack Corporate America by storm, including the “experience curve” and the “growth and market-share matrix.” 1980: Harvard professor Michael E. Porter’s book Competitive Strategy provides a generation of MBA- trained executives with new models to plot strategy based on economic theories. 1983: New GE Chairman Jack Welch slashes the corporate planning group and purges scores of planners from GE’s operating units. Numerous companies follow his lard. EARLY 1980S:Battered by global competition, turn away from strategic planning and begin to focus on operational improvement. Executives embrace the total Quality movement and the teachings of guru Edward Deming.
LATE 1980S: Corporate America begins massive downsizing and reengineering of operations to increase efficiency and productivity. Guru Michael Hammer leads the reengineering revolution. NOW: A bevy of new books are out from a new group of strategy gurus who are capturing the attention of corporate executives and redefining the process of strategy creation. 2.1.4 Contribution by Management Groups: 188.8.131.52 Gary Hamel: Of the new generation of strategy gurus, no one is in greater demand these days than Gary Hamel. Within that past 18 months, the lanky 41-year-old academic has delivered nearly 75 speeches and built a consulting company that is generating revenues of $20 million year. Together with University of Michigan professor C.K. Prahalad, Hamel has redefined the world of corporate strategy. For decades, strategists spent much of their time figuring out how to position products and businesses within an industry. Instead, Hamel argues strategy should be Wal-Mart Stores Inc. did in retailing or Charles Schwab did in the brokerage and mutual-fund businesses. Hamel urges managers to determine their company’s “core competencies,” or key corporate skills, and to create “strategic intent” based on these skills and the development of others to invent a new future. “Strategy has to be subversive, “he declares. “If it’s challenging internal company rules or industry rules, it is not strategy.” Hamel also urges clients to “democratize” the strategy-creating process “It is imagination and not resources that is scarce, “he says. “So we have to involve hundreds, if not thousands, of new voices in the strategy process if we want to increase the odds of seeing the future.” Hamel changes his own future in 1978 when he quit a job as a hospital administrator and went to the University of Michingan for a PhD in international
business. At Michigan, be met Prahalad. “We shared a deep dissatisfaction with the mechanistic way strategy was carried out, “Hamel says. The pair wrote a series of influential essays published in the Harvard Business Review and put their ideas into a book, competing for the Future, in late 1994. It has become gospel to managers around the world, many of whom seek advice from Hamel’s firm, Strategos Inc. in Menlo Park, Calif. 184.108.40.206 Abrian Slywotsky: While other strategic-planning gurus start with the capabilities and skills of a company, Abrian J. Slywotsky begins with customers. A founding partner of Boston-based Corporate Decisions Inc., Stywotsky maintains that too much of strategy has been based on a mindset that failed to understand what customers want and need. He urges managers to begin the strategy process by studying where stock market value is migrating in an industry. Shifts in value-for example, front Sears, Roebuck & Co. to Wal-Mart Stores Inc.-usually reflect shifting customer priorities. By falling out of touch with those needs, one U.S. company after another has lost ground to new, aggressive rivals. Companies such as Microsoft Nucor, and Starbucks have captures growth and stock market value by having what Slywotsky says are “superior business designs”-configuring resources and going to market based on a keen understanding of customers’ priorities “Strategy is about or a different one? How are any customers and prospects changing? If any business model was good for yesterday’s customers how does it have to change to keep them? A Harvard-trained lawyer, Slywotsky returned to the university for his MBA in 1978. After a three-year stint with consultant Bain & Co., he founded corporate Decisions in 1983. His novel views of strategy, detailed in his book Value Migration, have won audiences at such major companies as Sears, Philips Electronics, and Scarle Pharmaceuticals. Slywotsky’s corporate fans find much appeal in his notion that strategy has paid for too much attention to simple gains in market share. By instead examining the business designs that are capturing stock-market value, Slywotsky says, managers
can find templates for changes within their own organizations. 220.127.116.11 James Moore: James F, Moore, founder and chairman of Cambridge-based GeoPartners Research Inc., is an unlikely corporate strategist. For one thing, his PhD is in cognitive paychology. For another, he once taught art and photography in a New Haven high school-hardly typical training for any would-be counselor to Corporate America. But with the recent publication of The Death of Competitions, the 47-years old Moore has quickly distinguished himself as an original thinker and hot New Age strategist. Moore relives heavily on metaphors from biology and ecology to help managers better understand the dynamics of competition and create successful strategy. He urges clients at such companies as AT&T, ABB Asea Brown Boveri, Royal Dutch/Shell Group, and Hewlett-Packard to view themselves as part of a “business ecosystem. “Why? “The new paradigm requires thinking in terms of whole systems,” he says. “Seeing your business as part of a wider environment.” That demands viewing business opportunities not simply from the perspective of a solo player but as one player among many, each “co-evolving”. With the others. That’s sharply different from the convential idea of competition, in which companies work only with their own resources and do not extend themselves using the capabilities of others. Among other things, Moore favors seeking out partners to create something of value, achieve market coverage, and block alternative ecosystems. In later stages of the business ecosystem, members must look beyond their community for new ideas and work to prevent partners and customers from defecting. And all the while, be says, companies must reach out to customers to predict how marketplace change may occur. “The major challenge for many companies is to get other to co-evolve with their wision of the future, “says Moore, “In a global market, you want to make use of the other players—for capacity, innovation, and capital. “In the corporate Golapagos, It’s co-evolve—or die.
today’s competitor is tomarrow’s collaborator. It fails to accommodate relentless change—the one constant that affects every aspect of business. analyzing. What are the important aspects of corporate strategy? 3. Instead of locking into a too structured approach to strategy. companies that compete on the edge create a constant flow of large and small competitive with a loosely formed organization where most planning happens at the enough freedom —to adapt. . marked by fixed goals. A competing-on-the-edge strategy achieves this by relying on five key activities: improvisation. experimentation. Old generation strategy. regeneration. change. and time pacing.5 Evolution of market related strategies: Markets are shifting. and a “point A to point B” approach is obsolete. as is recognizing patterns of change. Trace the evolution of corporate strategy. Managers spend too much time forecasting. and measuring strategies for a fuzzy guess at “what could be” and not enough time acting on the here and now.2. and ultimately reinvent the firm time and again. reliable assumptions. and products and services are developed and sold in Internet time. coadaptation.1. Questions: 1. Competing on the edge changes all that. Moves are complicated and unpredictable and they allow the company to developing strategy today. What are the contributions to corporate strategy by Management gurus? 2.
to assess and adjust the organization’s direction in response to a changing environment . with a focus on the future. The process is about planning because it involves intentionally setting goals (i. Being strategic. and how to do it. The process is strategic because it involves preparing the best way to respnd to the circumstances of the organization’s environment.2. it is used for one purpose only: to help an organization do a better job – to focus its energy.2. then a set of decisions about what to do. and anticipate the environment in which the organization will be working in the future. then means being clear about the organization’s objectives. The process raises a sequence of questions that helps planners examine experience.LESSON 2.1 Introduction Strategic planning is a management tool. As with any management tool. The plan is ultimately no more. Values That Support Successful Strategic Planning: .e. period. strategic planning implies that some organizational decisions and actions are more important than others – and that much of the strategy lies in making the tough decisions about what is most important to achieving organizational success. being aware of the organizatio’s resources. The process is disciplined in that it calls for a certain order and pattern to keep in focused and productive. 2. test assumptions. whether or not its circumstances are know in advance. choosing a desired future) and developing an approach to achieving those goals.2 PROCESS OF STRATEGIES PLANNING 2. Because it is impossible to do everything that needs to be done in this world. gather and incorporate information about the present. and incorporation both into being consciously responsive to a dynamic environment. nonprofits often must respond to dynamic and even hostile environments. why to do it. Finally. In short strategic planning is a disciplined effort to product fundamental decisions and actions that shape and guide what an organization is.. and why is does it. the proves is about fundamental decisions and actions because choices must be made in order to answer the sequence of questions mentioned above. what is does.2. and no less.
is that an organization must be responsive to a dynamic. For example.2. and it was a useful exercise. the emphasis in strategic planning is on understanding how the environment is changing and will change. Because the environment is assumed to be predictable. Is a key of effective management 2. Long range planning is generally considered to mean the development of a plan of action to accomplish a goal or set of goals over a period of several years. the emphasis is on the articulation of internally focused plans to accomplish agreed upon goals. participatory process in which board and staff take on a shared ownership Accepts accountability to the community Is externally focused and sensitive to the organization’s environment Is based on quality data Requires and openness to questioning the status quo. The major assumption in strategic planning. The major assumption in long range planning as that current knowledge about future conditions is sufficiently reliable to unable the development of these plans. changing environment. the American economy was relatively stable and therefore predictable. Nonetheless. Some would argue that this was always the case. in the nonprofit sector a wide agreement has emerged that the environment is indeed changing in dynamic and often unpredictable ways. Long range planning was very much in fashion. in the late fifties and early sixties. however. Thus.2.Successful strategic planning: Leads to action Builds a shared vision that is values-based Is an inclusive.3 Difference between strategic planning and long range planning The major difference between strategic planning and long range planning is in emphasis. 2. and in developing organizational decisions which are responsive to these changes.4 Strategic Planning Model: .
and many to go much greater lengths than this planning response sheet. and whether they are able to deveote the necessary attention to the “big picture”. For example. other sources may recommend entirely different steps or variations of these steps. but nto the only recipe for creating a strategic plan. the determination essentially comes down to whether an organizatin’s leaders are truly committed to the effort. While a number of issues must be addressed in assessing readiness. but our purpose here is to present the fundamental steps that must be taken in the strategic planning process. an organization must first assets if it is ready. These steps are a recommendation. then it does not make sense to take time out for strategic planning effort at that time. if a funding crisis looms. the steps outlined below describe the basic work that needs to be done and the typical products of the process. Step Two – Articulation Mission and Vision . the founder is about to depart. The product developed at the end of the Step One is a Workplan. An organization that determines it is indeed ready to begin strategic planning must perform five tasks to pave the way for an organized process: Identify specific issues or choices that the planning process should address Clarify roles (who does what in the process) Created a Planning Committee Develop an organizational profile Identify the information that must be collected to help make sound decisions.Many books and articles describe how best to do strategic planning. However. or the environment is turbulent. Below is a brief description of the five steps in the process. Thoughtful and creative planners will add spice to the mix or elegance to the presentation in order to develop a strategic plan that best suits their organization! Step One-Getting Ready To get ready for strategic planning.
training and research. The Support Centers of America will be recognized contributor and leader in that movement. We envision an ever increasing global movement to restore and revitalize the quality of life in local communities. Step Three – Assessing the Situation . and it also shows that the writer knows where he or she is going. and why of an organization’s work. coherent idea of what it is strategically planning for. how. a draft mission statement and a draft vision statement is developed. a mission statement must communicates the essence of an organization to the reader. Our guiding principles are: promote client independence. act as one organization. An organization’s ability to articulate its mission indicates its focus and purposefulness. an organization has taken an important step towards creating a shared. With mission and vision statements in hand. a vision statement presents an image of what success will look like. Whereas the mission statement summarizes the what. Likewise. ensure our own competence. collaborate with others. At the end of Step Two. expand cultural proficiency. the mission statement of the Support Centers of America is as follows: The mission of the Support Centers of America is to increase the effectiveness of the nonprofit sector by providing management consulting.A mission statement is like an introductory paragraph: it lets the reader know where the writer is going. and what it seeks to accomplish Business – the main method or activity through which the organization this it fulfill this purpose Values – the principles or beliefs that guide an organization’s members as they purpose the organization purpose. For example. A mission statement typically describes an organization’s in terms of it: Purpose – why the organization exists.
Once an organization has committed to why it exists and what it does. These could include a variety of primary concerns. Strategies. means obtaining current information about the organization’s strengths. Goals. The Planning Committee should agree on no more than five to ten critical issues around which to organize the strategic plan. goals and objectives may come from individual inspiration. formal decision-making techniques. group discussion. it must take a clear-eyed look at its current situation. weaknesses. and so on – but the bottom line is that. It is even possible that new insights will emerge which change the thrust of the mission statement. Remember. therefore. new program opportunities. in the end. The point is to choose the most important issues to address. and Objectives Once an organization’s mission has been affirmed and its critical issues identified. The products of Step Three include: a data base of quality information that can be used to make decision. This can take considerable time and flexibility: discussions at this stage frequently will require additional information or a reevaluation of conclusions reached during the situation assessment. changing regulations or changing needs in the client population. and so on. and performance – information that will highlight the critical issues that the organization faces and that its strategic plan must address. that part of strategic planning. and a list of critical issues which demand a response from the organization – the most important issues the organization needs to deal with. so that an organization can successfully respond to changes in the environment. such as funding issues. It is important that planners are not afraid to go back to an earlier step in the process and take advantage of available information to create the best possible plan. the leadership agrees on how to address the critical issues. it is time to figure out what to do about then: the broad approaches to be taken (strategies). The product of Step Four is an outline of the organization’s strategic directions – the general . thinking and management is an awareness of resources and an eye to the future environment. Situation assessment. and the general and specific results to be sought (the goals and objectives). Step Four – Developing Strategies.
The matrix is based on the assumption that duplication of existing comparable services (unnecessary competition) among nonprofit organization can fragment the limited resources available. to be all things to all people can result in mediocre or low-quality service instead.strategies. but action should be taken to answer any important question that is raised at this step. or even a planning consulatant wil draft a final planning document and submit it for review to all key decision makers (usully the board and senior staff). Revisions should not be dragged out for months. leaving all providers too weak to increase the quality and costeffectiveness of client services. the executive director. because the conflict. This is alos the time to consult with senior staff to determine whether the document can be translated into operating plans (the subsequent detailed action plans for accomplishing the goals proposed by the strategic plan) and to ensure that the plan answer any questions about proposed by the directions in sufficient detail to sere as a guide. Step Five – Completing the Written Plan The missions has been articulated. long-range goals. the critical issues identified. The MacMillan Matrix for Competitive Analysis of Programs: The MacMillan Matrix is an extraordinarily valuable tool that was specifically designed to help nonprofits assess their programs in that light. and specific objectives of its response to critical issues. if serious. The matrix therefore helps organization think about some very pragmatic questions: Are we the best organization to provide this service? . The matrix also assumes that quality and costeffectiveness of client services. and the goals and strategies agreed upon. The matrix also assumes that instead. 2. It would certainly be a mistake to bury conflict at this step just to wrap up the process more quickly. will inevitably undermine the potency of the strategic directions chosen by the planning committee. Usually one member of the Planning Committee.2. This step essentially involves putting all that down on paper.5. nonprofits should focus on delivering higher –quality service in a tgerfgd focused (and perhaps limited way.
No program should be classified as highly attractive unless it is ranked as attractive on a substantial majority of the criteria below: High appeal to groups capable of providing current and future support Stable funding Market demand from a large client base . Program attractiveness Program attractiveness is the degree to which a program is attractive to the organization from an economic perspective. Any program that does not have high congruence with the organization’s purpose should be classified as unattractive. 2. described below. whether the program easily attracts resources). Ability to draw on existing skills in the organization. Criteria for “good fir” include: Congruence with the purpose and mission of the organization.. Fit Fit is the degree to which a program “belongs” or fits within an organization. Is competition good for out clients Are we spreading ourselves too thin. 1. as an investment of current and future resources (i.e. without the capacity to sustain ourselves? Should we work cooperatively with another organization to provide services? Using the MacMillan Matrix is a fairly straightforward process of assessing each current (or prospective) program according to four criteria. and Ability to share resources and coordinate activities with programs.
the program is classified as “low coverage. Large market share of the target clientele currently served. Criteria for strong competitive position include: Good location and logistical delivery system. Alternative Coverage Alternative coverage is the extent to which similar services are provided. Superior track record (or image) of service delivery. Able to discontinue with relative ease. or very few small. Appeal to volunteers Measurable.. Large reservoir of client. the coverage is “high. credibility.” Otherwise. Probably no program can be classified as being in a strong competitive position unless it has some clear basis for declaring superiority over all competitors in that program category. or support group loyalty. quality. comparable programs being provided in the same regions. If there are no other large. . Past success securing funding. if necessary (i. reportable program results Focus on prevention.” 4. community. rather than cure. low exit barriers) Low client resistance to program services Intended to promote the self-sufficiency or self-rehabilitation of client base. 3. Gaining momentum or growing in relation to competitors. Competitive Position Competitive position is the degree to which the organization has a stronger capability and potential to deliver the program than other agencies – combination of the organization’s effectiveness.e. and market share of dominance.
After each program is assessed in relation to the above four criteria. Superior ability to communicate to stakeholders. 1. as follows. Superiority of technical skills needed for the program. Superior skill at advocacy. For example. Superior local contacts. and Most cost effective delivery of service. Ability to raise funds. particularly for this type of programs. Aggressive Competition. Ability to conduct needed research into the program and/or properly monitor program performance. Better quality service and/or service delivery than competitors. each is placed in the MacMillan matrix. . a program that is a good fit is deemed attractive and strong competitively. Superior organization skills. but for which there is a high alternative coverage would be assigned to Cell No.
. Ideally. in areas that the organization performs well and can compete aggressively for a dominant position. Aggressive Growth 4. but makes a special. “Foreign Aid” or Joint Venture POOR FIT 9. The first would be attractive programs (performs that attract resources easily). These attractive programs can be used to support the second program type: the unattractive programs with low coverage. unique contribution and in which the organization is particularly well qualified. Aggressive Divestment Alternative Coverage Low 2. sometimes called a “program portfolio. with low alternative coverage. an organization can review its mix of programs. Aggressive Divestment 10. The unattractive program is considered unattractive by founders. Build up the Best Competitor 7. Orderly Divestment Program “Difficult” Alternative Coverage Low 6 “Soul of the Agency” 8. Orderly Divestment Once all programs have been placed in the appropriate positions on the matrix.” and decide if any adjustments need to be made. an organization would have only two types of programs. Aggressive Competition 3.High Program Attractiveness: “Easy” Program Alternative Coverage High GOOD FIT Strong Competitive Position Weak Competitive Position 1. Build Strength or Get out Low Attractiveness: Program Alternative Coverage High 5.
These days. the more concise and ordered the document. however. Unwilling to let clients fend for themselves in getting the help they needed. the should of the agency. The point of the document is to allow the best possible explanation of the organization’s plan for the future. funders. An organization cannot afford to fund unlimited “souls. not the one and only way to go about this task. volunteers. and the public. as well as brief descriptions of each component listed. Therefore.2. many organizatins devoted staff time to this service. 6. and priorities: board member staff. These programs are known as the “soul of the agency” because the organization is committed to delivering the program even at the cost of subsidizing it from other programs. and the format should serve the message. the press. which might help writers as they begin trying to organize their thoughts and their material. the greater the likelihood that it will be useful. Below is an example of a common format for strategic plans. that is will be used. why an organization exists. 2. This is just an example. should aggressively compete: those in a weal competitive position should get out of the business. For example. At the time this was a “soul of the agency” program. organizations in a strong position to serve the clients well. TABLE OF CONTENTS: The final document should include a table of contents.6 Standard Format for a Strategic Plan: A strategic plan is a simply a document that summarizes. with cultural competence and program expertise. These are the sections commonly included in a strategic plan: . clients. what it is trying to accomplist and how it will go about doing so. peers at other organizations.” and might have to fact some difficult decision about how to develop a mix of programs that ensure organizational viability as well as high-quality service to clients. It is a document that should offer edification and guidance – so. in about ten pages of written text. this alternative coverage. issues. five years ago there was little funding for case managers by AIDS Services Organizations. Its “audience” is anyone who wants to know the organization’s most important ideas. and that it will be helpful in guiding the operations of the organization.These programs typically fall under Cell No.
choosing instead to “cut to the chase” and simply present goals and objectives. Mission and Vision Statements These statements can stand alone without any introductory text. II. Introduction by the President of the Board A cover letter from the president of the organization’s board of directors introduces the plan to readers.I. and changes over time) so that he or she can understand its historical context (just as the planning committee needed to at the beginning of the planning process) V. Board and staff leaders may refer to this document to check their assumptions. Executive Summary In one to two pages. this section should summarize the strategic plan: it should reference the mission and vision. triumphs. The letter gives a “stamp of approval” to the plan and demonstrates that the organization has achieved a critical level of internal agreement. highlight the long-range goals (what the organization is seeking to accomplish). Organization Profile and History In one or two pages. and perhaps not the process for developing the plan. However. the advantage of including this section is that it makes explicit the strategic thinking behind the plan. From this summary. readers should understand what is most important about the organization. because essentially they introduce and define themselves. as well as thank participants involved in the process. and external readers will better understand . III. Critical Issues and Strategies Sometimes organization omits this section. IV. the reader should learn the story of the organization (key events.
Appendices The reason to include any appendices is to provide needed documentation for interested readers. VII. Management Goals and Objectives In this section the management functions are separated fro the program functions to emphasize the distinction between service goals and organization development goals. Perhaps no appendices are truly necessary (many organizations opt for brevity). VIII. this section should serve as a useful guide for operational planning and a reference for evaluation. Mission and vision answer the big question about why the organization exists and how it seeks to benefit society. Questions: . Program Goals and Objectives In many ways the program goals and objectives are the heart of the strategic plan. it makes sense to group the goals and objectives by program unit if the organization has only a few programs if some programs are organized into larger program groups (e. This gives the reader a clearer understanding both of the difference and the relationship between the two sets of objectives. The section may be presented as a brief outline of ideas or as a narrative that covers several pages VI. Case Management Program in the Direct Services Program Group). For clarity of presentation. not just burden them with more data or complication factors.organization’s point of view. the goals and objectives will be delineated at both the group level and the individual program level..g. They should e included only if they will truly enhance readers understanding of the plan. As such. and enhances the “guiding” function of the plan. but the goals and objectives are the plan of actions – what the organization intends to “do” over the next few years.
What are the key elements of strategic planning? 2. . What is short term planning? 3. Explain the steps in strategic planning. Why long range planning is important for organizations? 4.1.
Lesson 2. Critical environment and operational factors for implementation must be taken into account. 2. considering alternative international entry strategies. Proactive reasons include seeking economies of scale. trade barriers. and customer demands. International expansion and the resulting realized strategy of a firm is the result of intentions from both rational planning and responding the emergent opportunities. 2. including reactive ones. Competitive analysis is an assessment of how a firm’s strengths and weaknesses. affect the opportunities and threats in the international environments. Many MNCs have developed to the point of using an integrative global strategy. resources access. new international markets. such as international competition. Entry and ownership strategies are exporting. contract manufacturing. Companies “go international” for many reasons. or where problem areas exist.3. The steps in the rational planning process for developing an international corporate strategy comprise defining the mission and objectives of the firm. vis-à-vis those of its competitors. Such assessment allows the firm to determine where the company has distinctive competencies that with give it strategic advantage. and then setting up control and evaluation procedures. licensing. and fully owned subsidiaries. franchising.2. management contracts.1 Resource for formulation strategy: 1. and deciding on strategy. The strategic management process is compelted by putting into place the operational plans necessary to implement the strategy. and local incentives. 5. 3. Success of Wal-Mart: . joint ventures.3. scanning the environment for threats and opportunities. Corporate-level strategic approached to international competitiveness include globalization and regionalization. trade barriers. assessing the internal strengths and weaknesses of the firm.3 Formulation of Strategy 2. 4. turnkey operations. cost savings.
“How can we get where we really want to be?” Implement the strategic plans. Identify organizational purpose and objectives. Argentina.If one looked back at the hurable beginnings of Wal-Mart stores.S.4 billion. Target. Brazil.6 billion. The main strategy in consistently low prices and high customer service. Even the computer giant IBM could not reach the $100 billion mark (and they have had more years experience. Ask. “Has everything that needs to be done been done?” Evaluate resulting and renew the strategic planning process as necessary. For example: Target . A strategy is a comprehensive plan of action that sets critical direction and guides the allocation of resources to achieve long-term organizational objectives. Canada. Corporation. and Scars stores to take the number one spot. making. 1997 as $104. Wal-Mart surpassed K-Mart. contribute to the community. Wall-mart has grown from a small town store to over 1600 stores and Mega Centers. Mexico. In the retail industry. Access current performance vis-à-vis purpose and objectives. strategic management can be used by organizations to gain a significant competitive advantage. There are give steps in the Strategic Planning Process. which include. “how well are we currently doing?” Create strategic plans to accomplish purpose and objectives. Sam’s Clubs reported earnings for the same period of $19. “are things working out as planned. Wal-Mart is also a good corporate citizen making sure that they sell environmentally safe products. focus on training. and what can be improved?” When planned and implemented properly. and operate in more countries that any other firm in the world. and Indonesia. asking. the question would be answered with a resounding YES. The company has expanded its operations unemotionally to Puerto Rico. Sam Walton was focused and had a retail strategy that is unmatched by any U. control inventory. and locate in areas where they receive high visibility and find the opportunity for growth. China. Questions to ask here are “what business are we in?” and “where do we want ot be in that future. The chain reported net sales for the year ended January 31. Questions ask here are.
Several common operating objectives for managers are: profitability. Instead. After strategies are selected they are put into actions. In strategy formulation current situations are analyzed. while matching other discounters on prices of everyday household items. and b) Strategy implementation. Planning sessions will be assigned what is considered a fair share of the responsibility to achieve the organization’s objectives. you will see these items referenced in almost 100 percent of them. After deciding what resources are needed. managers at all levels in the organization must participate in. the strategy is implemented. recruit the most highly talented workers. the company attempts to gain a competitive advantage serving department store shoppers through a emphasis on fashion apparel bargains. while using resourced in way that lowers operating costs. Strategic Management is accomplished through a) Strategy formulation. they must find . product quality. Although largely a top management responsibility. Before an organization can focus on the strategic management of its objectives. If you look at an annual report of any organization. There are official objectives which state the basic purpose of the organization as a supplier of goods and/or services. there must be a mission. financial health. An organization’s mission is referred to as its reasons for existence. and support the process.does not attempt to compete head to head with Wal-Mart. A good example of this would be a company whose top management decides that they want to grow revenue by 20% per year over the next then years. Organizations want to product a net profit. and strategies are selected that best fit the organization’s needs. and operating objectives which state specified ends toward which organizational resources are actually allocated. innovation. human talent. they are interested in earning positive returns. and social responsibility. market share. they want to gain and hold the highest possible market share. cost efficiency. and reflects the organization’s basic purpose as a supplier of goods and/or services. They will in turn set objectives based on the internal and external environment. product high quality goods and services in order to remain competitive. The plan is managed through strategic management to ensure that strategies are well implemented and are sufficient to meet the organization’s long term organizational success. identifying key results that are pursued in the organizations day to day activities.
Finally an Analysis of Environment – the second part of the SWOT analysis. beliefs. Corporate Strategy sets overall strategic directions and answers the question. and Distinctive Competencies.innovative ways to product new products. When the environment is dynamic. There are different levels of strategies used by organizations. Specific growth strategies include concentration and diversification 2) Retrenchment – reduced organizational size through operations cutbacks. Analysis of the Organization . organizing. strategies are more stable. Varying environmental conditions have different implications on strategic planning.having the support of the entire organization. and ethical guidelines. locations. Also known as “low risk. organizations use contingency strategy. 3) Stability – Pursuit of present course of actions. “What business should we be in?” Business strategy sets direction for a strategic business unit (SBU) and answers the question “How do we compete in this particular business area?” Functional strategy guides activities within specific functional area and answers the question. Types of retrenchment strategies include Turnaround. values. and philosophy. and be a good corporate citizen by making positive contributions to the community.pointing out the organization’s strengths and weaknesses through SWOT Analysis. This requires the complete Management process of effective planning. A company can have different strategies for different divisions. and liquidation.” 4) Combination – two or more strategies at the same time. Analysis of Mission – including the domain in which the organization intends to operate including its customers. and when the environment is uncertain. showing the opportunities and threats to the organization. Keys to successful/effective strategy implementation are: Management Systems and Practices . leading. and . strategic become more flexible. Divestiture. “How can we best apply functional expertise to serve the needs of the business unit or organization?” The four Grand strategies use by organizations include: 1) Growth – the pursuit to increased organizational size through expanded operations. Analysis of Values – which defines the corporate culture. products. Major elements of the strategic management process are. When operating in a stable environment.
tolerance for ambiguity. What are the reasons for the success of Wal-Mart? . Questions: 1. 6. small businesses have a high failure rate (50 to 60 pre cent within the first five years). 5. 2. In order to avoid some of these pitfalls some basic questions should be asked in an effort to double check a strategy. What are the reasons for formulating strategy? 2. They create job opportunities. 4. and Incrementalism – incremental changes as managers learn were accomplished. Large organizations also depend on entrepreneurial managers who are willing to assume risk. and are the sources of many new goods and services. 3. An entrepreneur is an individual who takes a risk and action to pursue opportunities and situations that others may fail to recognize. given strengths and weaknesses? Is the strategy responsive to opportunities and threats? Does the strategy offer a sustainable competitive advantage? Is the risk in the strategy a “reasonable” risk? Does the strategy have an appropriate time horizon? Is the strategy flexible enough? In studying Entrepreneurship we find that it is someone who is willing to take the risk that results in the creation of new opportunities for individuals and/or organizations. However. Small business offers two major economic advantages.controlling. It has been determined that small business without a business plan are the most likely to fail. Why there is a need to evaluate the requirement of strategy formulation? 3. self-confidence and are action oriented. 7. Entrepreneurs play a very important role in the formation of small business. high need for achievement. 1. Is the strategy consistent with the organizational mission & purpose? Is the strategy feasible. Most entrepreneurs have the following characteristics: Internal focus of control.
5. Archibald (1996) who defined a project as “the entire process required to product a new products. Shrub.1 Introduction: The Guide to the Project Management Body of Knowledge (1996) defines a project as “a temporary endeavor undertaken to create a unique product or service” and proceeds into a fairly detailed explanation of the terms “temporary” and “unique product or service”. business value. the management of which is without strong link with the rest of the organization. Project Life Cycle (PLC) is the name given to the steady progression of a project from its beginning to its completion. Bard. new system.l. complexity and cost.LESSON 2. provide a similar definition: “a project is an organized endeavor aimed at accomplishing specific non-routine or low volume task.4. length.” They cite. At its most basic. or other specified results”.pmi. new plant. on p. Our textbook. p. The word “cycle” suggests a circular movement. “a narrowly defined activity which is planned for a finite duration with a specific goal to be achieved.org and follow the links for PMBOK (Project Management Body of Knowledge). & Globerson (1994). a client… It implies a goal and actions to be carried out with given resources. Projects can be classified on the basis of risk. For details.” Each of these definitions and others than can be identified in the literature. four in all) . The essence of iteration is to repeat the sequence to yield results successively closer to the required product. A project is defined and carried out to fulfill the need of a user. It could be modules and components for testing before solidifying then into the final working product. have strong and weak points.. Any complex activity directed toward the productions of goods or services which will gather resources. but the progression is sequential. it is generally accepted that A typical project life span consists of two broad periods each of two phases (i. Iteration is a distance series of activities designed to float ideas or samples for review. and General Electric (1977).4 PROJECT LIFE CYCLE 2. peruse their we site at www.e.
4. The second period involves implementation. 2.2 Attributes of the phases of PLC: The U.e. identified four phases: 1. i. feasibility planning and design production turnover and startup Whitten and Bentely (1998) look at the life cycle of information systems development and identify five stages or phases: 1. 4. 3. 4. validating and planning. 2. (Morris (1981). Department of Defense directive 5000. 5. planning analysis design implementation support Although not immediately apparent by scanning the bullet-points of the phases . concept exploration and definition demonstrate and validation engineering and manufacturing development production and deployment operations and support Locking at the construction industry. actual construction of the product followed by its transfer to the intended customer.2 (1993) includes a very specific set of phases to be used in defense acquisition projects: 1. 2. 5.4. 3. 3.S. 2. Please phases are known by different names in different environment.The first period involves conceptualizing.
Pl. review.4. cooperation.3 Types of projects: Type A: expected to have a very high business value. and a variety of different stages or iterations depending on the project and its type.above. 115 is cleared. complexity. These will be specific to the project. type this page. alignment. these life cycle models maintain some characteristic similarities. 2. coordination. testing Phase 4 : Finish the project (F) Transfer of product and information. these typical phases may be broken down into sub-phases. analysis. risk. Depending on the size. high complexity . Page no. you don’t move to the next phase until you are satisfied with the current one. Phase 2: Develop the idea into a practical plan (D) Listening. closure Follow the sequence C-D-E-F In general: Requiring different levels of management attention And different skill sets In addition The transition between one phase and the next should represent a “control gate” That is. planning. and Will depend on the overall strategy for accomplishment. sensitivity and so on. commuitment Phase 3: Execute the plan (E) Production work.
technologically challenging but no research. constraints…) Necessity to have coordinating language (international English in our case) Participants are geographically dispersed (distance. cultures. Time constraint (deadline) Fundamental characteristic of the project Any overshooting of the deadline could be fatal to the whole project. value system. about 6 months) Some special features of an internationals project Participants do not have the same cultural background (various nationalities. (some tasks require a technical solution not yet known)? High risk (ex: some (R&D projects). still significant investment for the organiaation. large or small group. One is looking to fulfill precise specifications Desire to achieve a higher level of performance than before. good expected business value. Type C: use only established technology (5 persons. time lag…) Persons involved in Project Project member (managers + engineers) Future users of results (client) Experts Subcontractors Technical performances One is looking performance of quality level. duration several years. Ex: in a software company to create a new software to run under Windows . significant investment for the organization Type B: shorther in lengths.
4.4. Typical Project Management Life Cycle: A typical project life cycle consists of the following steps: Scope of the project State problem Identify problem Identify goal Identify success criteria Develop plan Identify activities Resources requirements Construct /analyze network Execute plan Recruit project team Establish rules Execute tasks Monitor / control Progress reporting systems Monitor progress Close our project . In all European companies: to be ready for the new Euro currency Cost objective Budget must be respected: o The contract is fix cost o The objective is to decrease production cost (new unit of production for microprocessors. electronic market place in a B to B) 2.
Provide deliverables Obtain client acceptance Task of project control Motivate participants Control realization of tasks (budget. How to coordinate Answer the question: Who does what? When? Where? . quality) Project scheduling Estimate consequences of incidents (rescheduling…) 2. time. The four C’s project management: Communicate Coordinate Cooperate Control Communicate and motivate To generate a common desire to reach the objective To transform the goal into reality To provide a reward system coherent with project goals Need to coordinate (organize) To avoid the dispersion of efforts (bad use of resources) To define the task of each project participant To have clear responsibility for the project and for each tasks right from the beginning To plan the necessary resources in terms of manpower. competencies equipment.4.5. finance.
How? Remark: to answer the above questions you must know which tasks have to be carried out. This is a knowledge question not a management question! Styles of Decision Process Directive: project manager for the project and activity manager for the activity makes the decision Participative: everyone in the team contributes to the decision making process. Consultative: the person in authority make the decision. 2. in the team members Lack of an equipment or component Technical solution not known Individual tack of motivation to achieve project goal (the productivity of a workgroup seems to depend on how the group members see their own goals in relation to the goals of the organization. needed to achieve the goal.) Project member does not communicate his difficulties (hopcreep) A task ever-run the task deadline(work but no progress) Conflicts between project members Team member add features or functions to the deliverables… Reasons for IT project failure (based on 1000 IT managers. Standish Group 1995) Incomplete requirements Lack of user involvement Lack of resources Unrealistic expectations Lack of executed support .6 Standard Project Problem: Lack of a particular competence.4. but only after consulting all members of project team.
Explain the various types of projects. 3. . 4. 2. Changing requirement and specifications Lack of planning Elimination of need for the project Lack of IT management Technology illiteracy Question: 1. What are the C’s in project management” What are the stages in project life cycle? Give reasons Identify the reasons for the success and failure of projects.
The four components of strategy can be seen as influences on the firm’s effectiveness and efficiency. they use that framework to assign each a ‘strategic mission’ with respect to its growth and financial objectives and allocate resources accordingly.1 Introduction Portfolio analysis plays a vital role in the analysis. planning implementation of various strategic business units of the organization as a whole. Based on these. They then classify these SBUs on a portfolio grid according to the competitive position and attractiveness of a particular product market. Such companies are expected to redefine businesses for strategic business units (SBU). 2. Direct Interaction with Scope and Resources Deployment They should three fore be considered at the corporate level should not be treated as functional area policy decisions to be decided at lower levels. Implementing Corporate Level Strategy Resources development is very helpful implement corporate level strategy. Corporate level strategy is to determine what business to go into the relative allocation of resource and management of synergies among them. distinctive competence and competitive advantages.5. 2.5.LESSON 2. Portfolio planning hence recognizes that diversified companies are a collection of businesses. Portfolio planning is best advised for diversified companies than a more product coherent ones. Companies can that theoretically assess the strategic position of each of their enterprises and compare these portion using cash flow a s the common variable. each of which makes a distinct contribution to the overall corporate performance and which should be managed accordingly. Business level . The firm’s effectiveness is determined y the combined influences of scope. which may or may not differ from operating units.5 PORTFOLIO ANALYSIS 2.2. Objective of Resources Development: 1.
4 Benefits of portfolio planning: Since the road to portfolio planning is a long one. companies often write in biases the black its usefulness. 2. It promotes substantial improvement in the quality of strategies developed at both the business and the corporate level.strategy focuses on how to compete in a particular product market segment or industry.3 Types of portfolio planning: Following are ht possibilities of various types of portfolio planning undertaken by companies. including the tendency to focus on capital investment rather than resource allocation In spite of such limitations. Table 9. 2. . companies often get stack. Process planning 2. portfolio planning a offering the following benefits to companies is implemented properly. 1. trying to implement it and cannot realize the full potential of the approach. It provides selective resources allocation to the various SBUs. In implementation portfolio planning.5. 3. At functional level. Competitive advent ages and distinction competencies thus become dominant strategic concerns at this level. It provides a guideline for adopting their overall management process to the needs of each business.1 Types of portfolio planning Types Analytic planning Explanations Portfolio planning is only in the stage of planning tool and traditional administrative tools are used Portfolio planning as a central part of the ongoing management process and strategic mission is explicit in activities. the primary focus of strategy is efficiency.5.
“Also-rains:” These are otherwise known as “me-too” products in the market whose existence itself is a question mark. 2. 2. Yesterday’s breadwinners: These are old hat hut eat up all that they earn. He suggests that all products can be classified into five groups as follows: Tomorrow’s breadwinners: These are either modification or improved versions of what one company has got as their major products or new products.5.5. Peter Drucker on portfolio planning: Peter Drucker suggests a mechanism of portfolio analysis of products within the company. It furnishes companies with a greatly improved capacity for strategic cannot when portfolio planning is applied intelligently and with attention to its limitations and problems.4.5.6 Boston Consulting Group Matrix The business policy portfolio models are most popular useful to understand the . “Problem children” Difficult to live with perhaps but better parental control should make the difference between a healthy child and a potential deviant child. Today’s breadwinners: These may exist today but they really are the innovations of yesterday.
” High Star Cash cow Low Question mark Dog . Market growth 2. Table BCG Growth/Share Matrix Relative market share Market Growth High Low Star Star are high growth – High market share business which may or may not be self sufficient in term flow. cash cows are business which generate large amounts of cash but their rate of growth is show In terms of PLC. Cash cows As the term indicates.firms strategic concerns and choices. This cell corresponds closely to the growth phase or product life cycle. They defined the firm’s scope or domain by highlight the inter-relatedness of diverse factors such as 1. Cash and Cash flow patterns 4. these are generally mature business which are reaping the benefits of experience curve. Product maturity etc. Market share 3. The cash generation exceeds the reinvestment that could profitably the made into ‘cash cows. Capital intensity 5.
They required large amount of cash to maintain or gain market share.7 GE Nine Cell Matrix: Another corporate portfolio analysis technique is based on the pioneering effort of general electric (GE) company of the united state supported by the consulting firm of Mckinsey & Company. are termed as ‘dogs’. Dogs Those businesses. and overall corporate risk. The firm should hold its dominant market position by reducing prices and thus keeping away the high cost competitors. cash flows. which are related to slow growth industries and where a company has a low relative market share.5. Market size and growth rate . The BCG matrix makes it very clear that a firm for its ultimate success needs a balanced portfolio of products or businesses. Question mark is usually new products or services.Question Marks Business with high industry growth but low market share for companies are question marks or problem children. The vertical axis represents industry attractiveness. They neither generate nor require large amounts of cash. These factors are1. Dominant position generates positive cash flows. Portfolio should be balanced in terms of profit. 2. which should act as a guide to commit the firm’s resource. which have a good commercial potential. during the mentioned stage of life cycle. Cash flows are likely to be negative during the growth phase in a dominant market since the firm will have to keep in investing to maintain its competitive edge. the ‘dogs’ are usually products in the late maturity or declining stage. In terms of PLC. Portfolio. The individual businesses commit the firm’s resource. which is a weighted composite rating based on eight different factors.
The horizontal axis represents business strength competitive position. Caliber of management Table GE Nine Cell Matrix Industry attractiveness High High Business Strengths Medium Low Investment Growth Selective growth Selectivity Medium Selective growth Selectivity Harvest Low Selectivity Harvest Harvest The two composite values for industry attractiveness and business strength/competitive position are plotted for each business in a company’s . Technological capability and 7. Relative market share 2. Profit margins 3. Knowledge of customer & market 5. Industry profit margins 3. These factors are 1. legal and human impacts. Competitive intensity 4. Seasonably 5. Ability to compete on price and quality 4. Cyclically 6. Competitive strength and weakness 6. a weighted composite rating based on seven factors. which is again. environmental. Economics of Scale 7.2. Social. Technology and 8.
Advantages 1. labeled “business actor prospects” or “prospects for market sector profitability. It compared to the BCG matrix it offers intermediate classification of medium and average rating. The nine cells of the GE matrix are grouped on the basis of low to high industry attractiveness and were to thrown business strength three zones of three cells cash are made denoting different conditions represented by green yellow and red colors for this reason. A firm is rated on a scale from “unattractive. 2. 2. It has nine cells in which business are located depending upon their scores on each of the two axes: Expected marker profitability and competitive positions.8. It incorporates a large variety of strategies variables like market there & industry size.” through “average. The PIE (Circles) denotes the proportional size of the industry and the dark segments represent the company’s market share.portfolio. Draw Back In only provides broad strategic prescriptions rather that the specific or business strategy.5. “Wait and See” indicate hold and maintain type of strategies aimed at stability and consolidation for the red zone the signal is top indicate achievement strategies of divestment and liquidation or rebuilding approach for adopting turnover strategies.” is a measure similar to industry attractiveness used in the GE planning grid. the signal is go ahead to grow and build indicating expansion strategies business in the green zone attract major investment for the yellow zone. the signal. The horizontal axis.” to “attractive” . the matrix is also known as the stoplight strategy matrix. Directional policy matrix (DPM) The DPM is a method of business portfolio analysis formulated by Shell International Chemical Company. Based not the three zone.
1): Likely already iosing money. and environmental aspects. given its score on cach of the two axes. product. for the firm.” firms falling in this sector may require some investment support but heavy investment should be extremely risky Growth (upper-3. Similarly. But can be “milked” of cash due to its strong competitive position. and R&D strongly. Double or Quit (1. More specifically these cell label’s have the following implications: Disinvest (1. Try Harder 2. production capabilities. Others should be abandoned. Proceed with Care (2. its location on a scale that has from a “weak.2): Similar to a “question mark.3): External financing may be justified to push a unit in this sector to a leadership position.” to “strong” competitive position is determined by answering questions about as market shares position. such a move will require judicious application of funds.1) : Probably not generating sufficient cash to justify continuation. Consequently these in the upper rightmost corner of cell (1. The cell labels represent possible strategic activities or types of resource deployments most appropriate.2): Similar to a GE planning grid “green light” strategy.3) (lower – 3.depending upon an evaluation of its industry’s market growth.3) should be singled out for full support. A firm. Cash Generator (3. A firm or product would occupy this cell in later stages of the life cycle that does not warrant heavy investment.1): Equivalent to a “cash cow” in the GE planning grid. However.2): The strategy for this segment is to project this position by external investment (funds beyond those generated by the unit itself – occasionally).3): Units is this sector should become “high fliers” in the not too distant future. Phased Withdrawal (1.2) and (lower – 2. or SBU in these sectors would call ford investment support to allow growth with the market. assets can be reconloyed. negative over time.” through “average.2) and (2. net cash flow. It should generate sufficient cash on its own. market quality. Leader (3. Losses may be minimized by divestiture or even liquidation. earnings should be quite strong and a major focus .
market supply. environmental risk is taken as the third dimension and is divided into four categories from categories from low risk to very high risk. One advantage on DPM it that one of its extension. “risk matrix” provides alternative way to analyze environmental risk. Locating competitors on the DPM can provide useful insights into the nature of corporatelevel strategic configurations. U. The 3 x 3 matrix when plotted from the bassi for recommientind baseline strategies. etc. market quality. However. The Directional Policy Matrix (DPM) developed by Shell Chemicals.may be maintaining sufficient capacity to capitalize on strong demand. uses the two parameters of “business sector prospects” and “company’s competitive abilities. are used to rate the business sector prospects as unattractive. or strong non the basis of several factors. there is room for crror in the positioning of a firm or product on the two axes. attractive or average. A company’s competitive ubilities ar similarly judged weak. Table Directors’ Policy Matrix Insepects for sector profitability Unattractive Weak \Company’s Competitive Capabilities Average Strong Disinvest Phased Withdrawal Cash generation Average Phased Withdrawal Custodial Growth Growth Leader Attractive Double Quit Try harder Leader or The DF can thus be used to identify strategies for single business as well as for plotting combinations of units in multi business or multi products firms.K. average. Each risk position is determined on the basis of environmental threats and the probability of . In a risk matrix. A number of factors such as marked growth. and thus DPM location should be interpreted with an upon mind and not in isolation.
including single-variable and composite Determining the relative importance of the dimensions Maturity Aging . 2.5. the following guidelines are suggested by Yoram Wind and Vijay Mahajan: Establishing the level and unit of analysis and determining what links connect them. Table Business Profile Matrix Stage of Industry maturity Competitive Position Embryonic Growth Dominant Strong Favourable Tenable Weak 2.9. Identifying the relevant dimensions. Business Profile matrix: This matrix is more flexible than the growth/share matrix and uses competitive position and industry maturity as the two dimensions.their occurrence. Designing a portfolio: In order to design a portfolio. It uses twenty cells for clearity of resources allocation. Empirical determination of the correlates of the two dimensions is superior to the growth/share matrix.5.10.
6. 3. the GE matrix can be constructed using the following steps: 1. Establish the business position factors Give agreement among managers to factors. 7. internal discussion or external information. or the company’s strategies and if (b) changes are expected. Make priority list and give each a weightage as in the following table 9. Locating the products or businesses on the relevant portfolio dimensions Projecting the likely position of each product or business on the dimensions if (a) no changes are expected in environmental conditions. 4. competitive activities. 5. 2. constructing a matrix based on them. Apply the weightage to the measurement and arrive at a total. Identify the factors making for an attractive market. Measure each factor – by market research. Apply the totals to the matrix and 8. To the extent that two or more dimensions are viewed as dominant. Start a discussion on what the figures show. In order to establish a matrix our of the available information from both the company and the market. Table Market attractiveness and business position measurement . Selecting the desired position for each existing and new product and developing how resources might best be allocated among these products.6.
00 2.00 0.15 0.20 .45 0.10 0.80 1.00 0.15 .35 .00 4.10 0.00 3.05 .20 0.10 2.40 3.00 0.10 4.00 Business Strengths Market share Share growth Product quality 0.Factors Market attractiveness Overall size Annual growth Competitive intensity Technology requirements Inflationary pressures Energy need Historical margins Weight(%) Measurement Value .30 0.15 .00 2.60 0.00 4.00 1.60 0.20 .10 Social/legal/Economic/ Must be Political/Technological acceptable impact 1.00 5.00 4.15 .
15 0.10 0. cash of Digital theater system (dts) product to be sold in the theatres of Mumbai.75 0. the following done to done to find out about the investment proposition: Product market Digital theatre system Recommended for investment Mumbai theatres importance 1 2 3 4 Attractiveness factors Information available scale Market size Current coverage Competition Current systems Yes No Yes Yes .10 0.05 0.00 4.00 3.10 0.45 0.50 0.05 0. a.15 0.00 0.00 3.05 0.00 4.60 Using the above.40 0.Brand reputation Distribution strength Promotional effectiveness Production capability Unit costs R&D strength Management effectiveness 0.05 5.00 2.00 5.
Social aspects Legal aspects Business strength factors Market share Product quality No No Five-point measure 2 4 Witghtage 5 15 10 15 10 5 10 70 5 6 Value 10 60 50 75 20 15 20 250 350 Value Brand reputation 5 Distribution network Promotional effectiveness Costs Managerial personnel 5 2 3 2 Possible Total Market attractiveness factors Market Size Coverage Five-point measure 5 4 Weightage 15 15 75 60 .
Competition Current systems Social aspects Legal aspects 2 4 2 2 5 10 5 5 60 Possible Total 10 40 10 10 10 275 Table Investment matrix scales: Industry attractiveness 0 350 233 Business Strengths 117 0 High Medium Low 300 High + 200 Medium 100 Low .
Why SBU concept is used for portfolio analysis? 3. What are the constraints of portfolio analysis? 2. Questions: 1. . Trace the developing of GE matrix.The next stage was to use the matrix to compare the present markets with Mumbai as a potential investment by using the same basis. Classify the various matrices and explain their significance? 4. Hence the + in the matrix clearly gives evidence for investment in the market concerned.
a change in that level’s goals set.6. Alternatively. However. one could conceivably change parts of a firm’s functional strategy set without changing business-level strategy. at least not in a successfully managed business. keep in mind that while strategists evaluate strategy. More generally. In most cases a whole new functional strategy set would likely have to be designed and put into effect to implement the new business-level strategy. Of course.6 STRATEGIC DECISION MAKING 2. For this simple example. The reason for this tendency is . this move would most akely agggaeitv the situation. changing functional-level strategy would not correct it. A tendency exists in business to change functional-level strategies or organizational structure in a attempt to remedy any problem. One might say that a “good” business-level strategy would have been poorly implemented by part of its functional strategy set. The new strategy would probably include vestiges of the old along with some unfamiliar elements. a problem with nature of a firm’s or SBU’s business brough about by a major environmental opportunity or threat. for example.1 Introduction: Although the process of creating strategy is often discussed as if it were an unconstrained design process. if the problem existed within the firm’s corporate-or business-level strategy. There is a risk of incorrectly identifying the strategy level at which a problem exists. It may be the case that only a small part of. rarely would one expect to encounter the case in which a change in business-level strategy did not trigger the necessity to alter functional-level strategy in some way. This evaluation involves assessing the extent to which present strategy is meeting expectations. any.LESSON 2. a change in marketing strategy could improve performance while other levels of strategy would remain unchanged. marketing strategy would have to be changed to correct a corporate – and business-level strategy. and also of he firm’s functional strategy performance is les than satisfactory. the firm is operating. In fact. the reason often is a functional strategy shortcoming. or the development of some internal capability or weakness could necessitate a business-level strategy change.
139 Strategies thinking is that which generates (1) creative. Third.probabley that functions. They certainly would offedct fewer people thatn modifications or the corporate or business levels. This is especially true about goals which are in force.S. particualry at the Xerox not cleared of Page No. These requirements of strategic thinking set it apart from other kinds of decision making. people and support. and with widely acknowledged shrankages of fossil fuel suppliers. and unexpected thought processes which are hard for competitors to predict. the manager attempting to thing strategically should be committed to conservation of the organization’s resources. etc. Input information is based on facts and logical data. Previously unquestioned assumptions are sought out and examined. First. . It is easy to be creative while assuming that most resource requirements can be taken care of. strategy chages are potentially less disruptive then changes in the other levels. strategic thinking required factual and logical input data because it is competitively dangerous to base strategy formulation on erroneous information. environmentally relevant ideas and (2) concepts about how to turn them into systematically managed action plans. A burning desire for resource conservation. rather than expecting that a good idea will precipitate a cornucopia of funds. It has the following prerequisites: 1. automobile companies. by changing market stretety only. 138. 3.” Second. With overseas competo’s exporting fier-effective automobiles to the United States. market acceptance and image.. spontaneous. A grater degree of creativity is required when one must conserve resources. long-held assumptions should be identified and analyzed to make sure they still apply. understandings about the environments and competitors. The result of trying to solve-business-level strategic problem with a functionallevel solution is well inlnnn by the “big four” U. 4. A set of major environemntsal threats. 2. well into the 1970s. they still stubbornly tried to retrun their old business and corporate stratregies. and In direct. The stakes are too high to “hoof it.
it is always the result of high intention. A bad decision may force you to make another one.” A good decision is never and accident. “Whenever I make a burn decision. The problems of predicatable strategic thinking are analogous to the football coach scnding in plays to his quarterback using hand signals that are understood by the opposing term’s coaches.3 Complexity of decision making: Many people still remain in the bondage of self-incurred tutelage. and the courage to act upon it. intelligent direction and skillful execution. 2. this has been a too heavy a responsibility for many people to carry. “the individual” finally appeared. Good decision-making brings about a better life. Eventually human beings gained their natural freedom to think for themselves. Tutelage is a person’s inability to make his/her own decisions. as Harry Truman said. Through the Enlightenment era’a struggle and much suffering. strategic thinking must be done without setting patterns which competitors can identify and anticipate. sincere effort. They do not been have the courage to repeat the very phrases which our founding fathers used in the struggle for independence. it represents the wise choice of many alternatives. They easily give up their natural freedom to any cults in exchange for an easy life.Finally. What an ironic phenomenon it is that you can get men to die for the liberty of the world who will not make the little sacrifice that it takes to free themselves from their own individual bondage. was the motto of the Enlightenment era. In fact. One must appreciate the difference between a . many frustrations with oneself are caused by not being able to use one’s own mind to understand the decision problem. I go out and make another one. During this period. The difficulty in life is the choice. Self-incurred is this tutelage when its cause lies not in lack of reason but in lack of resolution and courage to use it without wishing to have been told what to do by something or somebody else. However.6. There has been an excess of failure. Franciso Goya created his well-known “The sleep of reason produces monsters” masterpiece. Sapere aude! “Have courage to use your own reason!”. It gives you some control over your life.
What is the most important thing that I am trying to achieve here? The decision-maker’s style and characteristics can be classified as: The thinker. This is needed in order to find the ransks among values. perhaps unconsciously. called credit scoring. etc. Such techniques are now part of our everyday life. What is the goal you wish to achieve? Select the goal that satisfies your “values”.decision and an objective. The question “what do I want?” can be unbearably difficult (because of the conflicts among our desires) that we often can hardly bear to ask it. quite often we do not know or are not sure what to decide and. it often used. important and critical decisions. Rational decisions are often made unwillingly. Machiavellian (ends justifies the means) the historical (how others did it). and decision tree analysis for risky decisions. and physical resources) . Everyone (including organizations) has a system of values by which one lives one’s life. the cautious (even nervous).e. However formal decision support from an expert has many advantages. For example. and from our capacity (i. The goals follow from the values. our personal abilities. Ask yourself the objectives. the cowboy (snap and uncompromising). The values must be expressed on a numerical and measurable scale. a technique. etc. we resort to an informal decision support techniques such as tossing a johoiu. It is best to learn the decision making process for complex. A good decision is the process of optimally achieving a given objectives. political thinking consists in deciding upon the conclusion first and then finding good arguments for its.. visiting an astrologer. in many substances. When deciding is too complex or the interests at stake are to important. asking an oracle. For example. we may start the process of consideration. The decision-making process is as follows: 1. when a bank must decide whether a given client will obtain credit or not. This web site focuses on the formal model-driven decision support techniques such as mathematical programs for optimization. Winning a big money lottery has left most people wishing they had never brought the successful ticket. Critical decisions are those that cannot and must not the wrong.
to achieve goals. On the other hand, if there were no conflict among our desires, each desire would be unchecked and we would go careening without limit from one direction to another. Abraham Maslow formalized general human desires into a hierarchy of wants, with the biologicalgenetic needs at the bottom and “self-realization” for creativity at the top. 2. Find out the set of possible actions youi can take and then gather reliable information aoutr each one of them. Information can be classified as explicit and tacit forms. The explicit information can be explained in structured form, while tacit information is inconsistent and fuzzy to explain. The explicit information bout the course of actions may also expand your set of alternatives. The more alternatives your develop the better decisions you may make. Creativity in the decision-making process resides in the capacity for evaluation of uncertain, hazardous, and conflicting information. You must become a creative person to expand your set of alternatives. Creativity, arises out of thinking hard (i.e., becoming of a thinker) rather than working hard (i.e. becoming of a workaholic). A bulldozer must work hard, a human being must think hard. A deep immersion in your decision-making process makes you more creative. The roots of creativity lie in consciousness incubation, and in the unconscious aesthetic selection of ideas that thereby pass into consciousness, by the usage of mental images, symbols, words, and logic. The blocks to creativity are Saturation or too Narrow thinking, Inability to incubate (this, one must learn from cows), and the Fear of standing alone doing something new. Most people treat knowledge as a liquid to be swallowed easily rather than as a solid to be chewed, and then wonder why it provides so little nourishment. Aristotle noted, “We call in others to aid us in deliberation on important questions, distrusting ourselves as not being equal deciding.” Be objectives about yourself and your business. More than half of my students semester after semester, raise their hands when I ask “Is your judgment better than that of the average person?” It is important to identify your weaknesses as well as your strengths.
There is no such thing as a creative/non-creative persons. It is the creative process which makes you more creative. Pablo Picasso realized this fact and said about himself: “All human beings are born with the same creative potential. Most people squander theirs away on million superfluous things. I expend mine on one thing and one thing only: my art.” Creative decision alternatives are original, relevant, and practical. 3. Predict the outcome for each individual course of action by looking into the future 4. Choose the best alternative with the least risk in achieving your goal. 5. Implement your decision. Your decision means nothing unless you put at into action. A decision without an action plan is a daydream. The logic of worldly success rests on a fallacy: the strange error that our perfection depends on the thoughts and opinions and applause of other men! A weird life it is, to be living always in somebody else’s imagination, as if that were the only place in which one could a last become real! On a daily basis a manager has to make many decisions. Some of thee4 decision are routine and inconsequential, while others have drastic impacts on the operations of the firm for which he/she works. Some of these decision could involve large sums of money being gained or lost, or could involve whether or not the firm accomplishes its mission and its goals. In our increasingly complex world, the tasks of decision-makes are becoming more challenging with each passing day. The decision-maker (i.e., the responsible manager) must respond quickly to events that seem to take place at an ever-increasing pace. In addition, a decision-maker must incorporate a sometimes-bewildering array of choices and consequences in this or her decision. Routine decisions are often made quickly, perhaps unconsciously without the need for a detailed process of consideration. However, for complex, critical or important managerial decisions it is necessary to take time to decide systematically. Management means making critical decisions that cannot and must not be wrong or fail. One must trust one’s judgment and accept responsibility. There is a tendency to look for scapegoats or to shift responsibility. Decisions are at the heart of any organization. At times there are critical moments
when these decisions can be difficult, perplexing and nerve-wracking. Making decisions can be hard for a variety of structural, emotional, and organizational reasons. Doubling the difficulties are factors such as uncertainties, having multiple objectives, interactive complexity, and anxiety. Strategic decisions are purposeful actions. Making good strategic decisions is learnable and teachable through and effective, efficient, and systematic process known as the decision-making process. This structured and well-focused approach to decision-making is achieved by the modeling process, which helps in reflecting in the decisions before taking any actions. Remember that: one must not only be consisious of his/her purposeful decision, one must also find out the causes for which they are made. There is no such thing as “free will.” Those who believe in their free wills are in fact ignorant to the causes that impel them to their decisions. There is not such thing as arbitrary in any activity of man, least of all in his decision-making, and just as be has learned to be guided by objectives criteria in making his physical tools, so he is guided by unconscious objectives criteria in forming his decision in most cases. The simplest decisions model with only two alternatives, is known as Manicheanism, which was adapted by Zarathustra and then taken by other organized religions. Manidheanism is the quality concept, which divides everything in the world into discrete either/or and opposite polar, such as good and evil, black and white, night and day, mind (or soul) and body, etc. This duality concept was a sufficient model of reality for those old days in order to make their world manageable and calculateable. However, nowdays we very well know that everything is becoming and has a wide continuous spectrum. There are not real opposites in nature. We have to see the world through our colorful mind’s eyes; otherwise we do not understand complex ideas well. The Industrial Revolution of the 19th century probably did more to shape life in the modern industrialized world than any event in history. Large factories with mass production created a need for managing them effectively and efficiently. The field of Decision Science (DS) also known as Management Science (MS), Operations Research (OR) in a more general sense, started with the publication of The Principles Scientific Management in 1911 by Frederick W. Taylor. His approach relied on the measurement of industrial productivity and on
time/movement studies in the factories. The goal of his scientific management was to determine the best method for performing tasks in the least amount of time, while unfortunately using the stopwatch in an inhumane manner. A basic education in OR/MS/DS for managers is essential. They are responsible for leading the business system and the lives in that system. The business system is dynamic in nature and will respond as such to disturbances internally and externally. The OR/MS/DS approach to decision making includes the diagnosis of current dicision making and the specification of changes in the decision process. Diagnosis is the identification of problems (or opportunities for improvement) in current decision behavior; it involves determining how decisions are currently made, specifying how decision should be made, and understanding why decisions are not made as they should be, Specification of changes in decision process involves choosing what specific improvement in decision behavior are to be achieved and thus defining the objectives. Nowadays, the OR/MS/DS approach has been providing assistance to managers in developing the expertise and tools necessary to understand the decision problems, put them in analytical terms and then solve them. The OR/MS/DS analysis are, e.g., “chief of staff for the president”, “advisors”, “R&D modelers” “systems analysis”, etc. Applied Management Science is the science of solving business problems. The major reason that MS/OR has evolved are quickly as it has is due to the evolution in computing power. 2.6.4 Foundations of Good Decision-Making Process: When one talks of “foundations,” usually it includes historical, psychological, and logical aspects of the subject. The foundation of OR/MS/DS is built on the philosophy of knowledge, science, logic, and above all creativity. In this web site the decision “problem”, does not refer to prefabricated exercises or puzzles with which most educators continually confront students, such as the problem of finding a solution to a system of equations, without giving any motivation for its need-to-know.
Science some decision problems are so complicated and so important, the individuals who analyze the problem are nto the same as the individuals who are responsible for making the final decision. Therefore, this site distinguishes between a management scientist, someone who studies what decision to make and a decision maker, someone responsible for making the decision. When deciding to make good decisions there are possibilities to be confronted with decision problems. It means real problems, the effective handling of which can make a significant difference. Almost all decision problems have environments with similar components as follows: 1. The decision-maker. The term decision-maker refers to an individual, not a group. 2. The analyst who model the problem in order to help the decision maker, 3. Controllable factors (including your personal abilities and physical resources). 4. Uncontrollable factors, 5. The possible outcomes of the decisions, 6. The environment/structural constraints, 7. Dynamic interactions among these components. 2.6.5 Deterministic versus Probabilistic Models: All the decisions models can be classifies as either deterministic or probabilistic models. In deterministic models your good decisions bring about good outcomes. You get that which you expect, therefore the outcome is deterministic (i.e., riskfree). However, in probabilistic decision models, that outcome is uncertain, therefore making good decisions may not product good outcome is uncertain, therefore making god decisions may not produce good outcomes. Unlike deterministic models where good decisions are judged by the outcome alone, in probablilistic models, the decision maker is concerned with both the outcome value and the amount of risk each decision carries. When the outcome of your decision is rather certain and all the important consequence occur within a single period, then your decision problem is classified as a deterministic decision. However, in many instances, these types of models are encumbered with the two most difficult factors – uncertainty and delayed effects. Both difficulties can be
overcome by probabilistic modeling which includes the time discounting factor. We will over both deterministic and probabilistic decision-making models. After recognizing this no-nonsense classification of decision-making components, the OR/MS/DS analyst performs the following sequence with some possible feedback loops between its steps: 1. Understanding the Problem: It is critical for a good decision maker to clearly understand the problem, the objective, and the constraints involved. 2. Constructing an Analysis Model: This step involves the “translation” of the problem into precise mathematical language in order to make calculations and comparison of the outcomes under different possible scenarios. 3. Finding a good Solution: It is important here to choose the proper solving technique, depending on the specific characteristics of the model. After the model is solved validatin of the obtained results must be done in order to avoid an unrealistic solution. 4. Communicating the Results with the Decision-Maker: The results obtained by the OR/MS/DS analyst have to be properly communicated to the decision-maker. This is the “sale” part. If the decision-maker does not buy the OR/MS/DS analyst recommendations, he/she will not implement any of them. Problem understanding encompasses a problem structure, and a diagnostic process to assist us in problem formulation (i.e., giving a From to a complex situation) and representation. This stage is the most important aspect of the decision-making process. Problem understanding is an interactive process between the decision maker and the OR/MS/DS analyst. The decision maker may be unfamiliar with the analyst details of the problem formulation such as what elements to include in the model, and how to include them as variables, constraints, indexes, etc. Since the strategic solution to any problem involves making certain assumptions, it is necessary to determine the extent to which the strategic solution changes when the assumptions change. You will learn this by performing the “what-if”
by. We may not think that we are forecasting. and then decide the best course of action. “what”. but it does contain some parts of reality. consider various scenarios for uncontrollable inputs. forecasting. etc. these mathematical models to represent reality required fitting between small integer number (for ease of representation ). for example. the whole process of managerial decision-making is synonymous functions. and Uncontrollable inputs. The main question then becomes. “where” and “how”. “when”. re any good at math at all. It is helpful to understand the nature of the problem by asking “who?”. In making conscious decisions. Structural Modeling The structured modeling process is at the heart of OR/MS/DS activities. As bill Gates side. “How close is the model to the real world?” Know that a model is not reality. but our choices will be directed by our anticipation of results of our actions or omissions.g. The connection between partitioning a circle into 360 degrees and a year into a number of days in an interesting example. “If you. Uncontrollable factors are the main components of decision-making which must be dealt with. “why”. you . The question is: “Does it contain the important parts relevant to the decision problem?” Modeling is a structured process is consecutive –focused –strategic thinking for understanding reality for utilitarian purposes. Planning. Finally. we all make forecasts.scenarios and the necessary sensitivity analysis. Gathering reliable information at the right time is a component of good decisions. involves the following decisions: What should be done? How? Where? By whom? As shown in the following diagram: 2. and complex phenomena whose numerical parameters did not exactly fit in the integer –based scheme. namely: Parameters Controllable. One must evaluate the various courses of actions within the controllable inputs. This desire for a mathematical model of the universe and its processing difficulties is apparent. architecture. e.6. As you know. Some analogous ones exited in music. It is credible that the 360-system and the 6-8-9-12 scheme in music were the result of this conflict.6. break them into three input groups. these example are mathematically suitable models and semantically justified.
Thus. there are three distance concepts: the reality. It’s not its own deep. In all high schools around the world mathematics is used to translate Word or Story Problems into symbolic representations (i. what is to original price of your shirt? Let x and y be the amount of the tax and the original price respectively. Mathematics is not just for calculus majors. the tax is 5%. A mental model is a representation of your thoughts about reality. and x = 0. Here is an example of the usefulness of mathematical symbols. which si the language of all sciences. Mathematics is part of human culture because it does not exist outside of the human mind. analytical modeling is a procedure that recognized and verbalizes and problem and then quantifies it by turning the words into mathematical expressions. therefore. Suppose you wish to buy a shirt for $50 (tax included). Symbolic reasoning and calculations with symbols are central to analytical (i. And it’s not just about making good strategic decisions.62.e.. Therefore. .” With mathematics as a language we can explain the mysteries of the universe or the secrets of DNA. and the representation. mathematical models). the mental model. We can understand the forces of planetary motion. the results are translated back into the original language in which the problem was stated. Modeling is a structured consecutive-focusedstrategic thinking for understanding the decision problems and actions. Mathematical models employ symbols and notations. in mathematics? Well.05 = $47.05y. including numbers. what is this x. whatever we do not know we call it x (or any other latter from the end of alphabet series).05y.05y + y = 1. it is an objectification of reality. the original price is 50/1.understanding business. After solving. Therefore. How much is the tax? How do you generalize this result? You may ask. 50 = 0. deep subject. or discover cures for catastrophic diseases. Therefore. which in turn means the subjective begetting of the reality. mathematical) modeling. It’s for all of us. the mathematical modes is 50 = x + y. X also has a political significance as in Malcom X. In its many different forms. This gives. like any foreign language you must develop an understading of mathematics.e. including the OR/MS/DS modeling process aimed at assisting the decision-maker.
e. The following is a paraphrase of what Adam Smith said about the main difficulty in representation of feeling “It is not an easy task to construct analytical model for feeling. a team approach by capitalizing on the talent of an OR/MS/DS analyst to asses. coordinate. This is the essence of the “human understanding structured process”. it is questionably whether the internal world of one’s experience can also be subjected to analytical modeling. By applying a scientific approach. This enables us to understand the world by finding any relationship. whether the one supervise two employees or one hundred. managers are also able to make accurate predictions for what is not under their control. man certainly arithmetizes. . etc. Span of management refers to the numbers of employees supervised by a single person. (known also as think-tank approach). calculation. The world is qualitative. span of management is the tern applied to the number. The “fuzzy set theory” has even been developed to quantify qualitative terms that we use to express out feelings. human can understand compare. and psychometrics. even in the Liberal Arts areas of study. If ‘God geometrizes’ as Plato says. and using manipulation comparison. numerical scales to quantify the world. “on a scale of one to ten. In the three-person group (i. “However. Qualitative information may be characterized and processed by assigning numbers.. such as organization science. we use some measurable. and incorporate knowledge relevant to solving a certain decision problem from experts in other fields. sociometrics. Therefore. one supervisor and two employees). in the medical professions it is common to be questioned. The difficulties in clear communication among the team members in any OR/MS/DS project can increase with the size of the team. the six possible relationships or interactions may exist.e.OR/MS/DS is a systematic approach to problem solving in that it considers the context of the problem as important as the problem itself. However. become our senses will never inform us of what. Quantative analysis tends to rive out qualitative analysis. The term itself has nothing to do with a desired size of the span.g. somebody is in suffering as long as we ourselves are at our cases. Just like the external world. and manipulate numbers only. Then we use the same scale to qualify it back to the world. In other words. However. It utilizes. OR/MS/DS modeling process is a scientific approach in that it uses measurable and numerical scales to translate observed phenomena.
The problem owner(s) and the management scientist consultant are two different parties. the managers) wish to understand. 2. unless it is perception stimulated and guided by an antecedent modeling process. A management scientist provides and and/or facts to the decision maker in order to make a better decision. how do you feel? This elicits subjective answers from the patients. a mathematical model is abstract because one cannot visualize the system it is supposed to portray by merely looking at it.7 Advantages of using the modeling approach to problem solving: A question for you: “When a management scientist goes to work. The originality of modeling lies in the fact that in model building connections between things are exhibited which. apart from the agency of human reason.. does he/she wait for problem to be assigned or does he/she go find problems?” Do not create problems for yourself and others. A mathematical (i. The management scientist. In this way.one being the worst. The management scientist should not attempt to make these decisions or to influence the decisions. in modeling process the analysts do not model “systems” – rather. It is important and necessary to clearly define the boundaries of the system’s decision problem under investigation.6. analytical) model is the one whose relationships are expressed in the rigorous language of mathematics. is to serve as an objective voice to interpret a managerial decision problem that cannot be solved internally because of proximity or bias. Defining the system boundaries: Often. now in the minds of modeling lie very remote from any notions that can be immediately derived by perceptive through the senses. are extremely unobvious. therefore. As such. Mathematical modeling can claim to be the most original creation of mankind. the management scientist and the decision maker should not be the same person. In this context a system is the restricted portion of the universe under consideration .e.e. they model specific problems that the decision makers (i. This the ideas. Wait for the problem to be assigned to you.
what are the boundaries for such a large system? Components of Analytical Modeling Process Classification of Knowledge Types of Comprehension Types of Analysis Results of Model Evaluations Knowledge about Objects. Possible. to fully analyze a given system it may be necessary to expand the system boundaries to include other substems that strongly affect the decision strategy. Generalize. It is the task of the management science team to write a report that is understandable by all that will read it. 2. Interpret. Compare. it includes methods of investigation and reasoning. Regarding the . Reject. Compare Relate. Interpolate. Often it may turn out that the initial choice of boundaries is too restrictive. the mathematical model may or may not be included. Boundaries isolate the system from its surrounding. Specify Accept. Suppose you are to study and make a descriptive model of an international airport.8. and the means of communications (i.e.. Depending on the audience of the report.6. it is useless if the result is too complex to be communicated to the decision maker. Makings a decision is part of the broader subject of problem solving. Therefore. Events. Recall. Although the management science approach cn be used to construct a mathematical model. Irrelevant Know that analytical modeling is more than a collections of concepts and skills to be mastered. Analytical Modeling Process for Decision . Relations Understand.and its boundaries are the limits that separate the system from the remainder of the universe.Making A decision is a reasoned choice among alternatives. Select. Processes. Relate. Extrapolate. making common what is individually experienced).
It is the task of the management sciences team to write a report that is understandable by all that will read it. they talk drugs. In order to do so. the doctor is the management scientist while the patient is the decision maker (the owner of the problems. A god descriptive model comes from good observation and representation that is validated and verified against evidence. there are always feedback loops among these general steps. When a patient has a health problem. . simplistic manners. Depending on the audience of the report. Decisions deserve appropriate time. The general steps in this process are analogous to the structured process of treating an illness. As a decisions scientist. and then could be used for prescriptive purposes. the patient goes to see the doctor to solve the problem. To avoid such an outcome. I have found that people tend to overcomplicate and issue. with the participation of the patient. Then the doctor prescribes medications (prescribing medicine). You must ever come the communication barriers. they talk drugs. Remember that. In this analogy. Clearly. here there are two distinct parties because if patients wanted to talk diagnosis. There is a general “fear” of appearing unsophisticated or even unintelligent if one writes in a a straightforward. the doctor. That is possible why what the doctors to they call it “practice”. to diagnose the illness.making contains the following similar steps: (1) describe the problem. otherwise the doctor changes the medications. There are also follow-up visits to make sure the prescription actions are effective in curing the patient. This increases confidence in the descriptive model. the analysis should be done in stages. If they wanted to talk symptoms. describes the problem by taking a blood test or x-ray. (2) prescribe a solution. you want the opportunity to see a decision unfold. revealing opportunities for study and assessment.) Descriptive modeling process is using OR/MS/DS techniques to describe how people see their worlds.importance of communication in the OR/MS/DS modeling process. the mathematical model may or may not be included. They talk about solutions before understanding the problem. and (3) control the problem by assessing/ updating the strategic solution continuously in the face of changing business conditions. The worst offense seems to be in written reports. The end result is a product that is incomprehensible to the decision maker. The general procedure that can be used in the process cycle of decision.
we get a better understanding of reality. A satisfactory strategic solution. Here is a question for you: does a good decision always result in the good outcome? Why not? Give an example. if you understand the problem.” This is a wonderful example of the need to understand the question before attempting to answer. think about and understand it in order to adequately describe the problem in writing. Prescription of a Solution: This is an identification of a strategic solution and its implementation stage. Clearly. Solutions depend on budget. Here is another example for problem understanding: give the number of automobiles produced in America during the year of your choice. That’s why OR/MS/DS modeling process utilizes a team approach by capitalizing on the talent of individuals to assess. and incorporate knowledge relevant to solving a certain decision from experts of other fields. is desired. When you think over . Managerial Interpretations and Communication: The decision problem is often stated by the decision maker in non-technical terms. coordinate. it usually tells you how to solve the problem. also called a “good decision”. Think of the design process as involving first the generation of alternative and then the testing of these alternative against a whole array of requirements and constraints. There is no such thing as the solution for real-life problems. (known also as thing-tank approach). Any given managerial decision problem has several solutions. and many other constraints and conditions. Describing all components of a problem is also called inverse-engineering in the field of cognitive science. When different models are combined using different perspective. Develop a mathematical model or framework to re-present reality in order to devise possible solutions to the problem. One size does not fit all. time. “name a former president of the United States who is not buried in the USA. Choose an appropriate solution. In fact. The most important part of decision-making is to understand the problem. An excellent example is. one needs to be skilled at having many different perspective to get closer to reality. Search for a strategic solution using OR/Ms/DS modeling process solution techniques. Remember that the formulation of the problem is often more essential that its solution. The model must be validated before you offer a solution.Description of he Problem: As soon as you detect a problem.
They cannot be “solvent once and forever. In this ever-changing world of ours. to update he . The strategic solution should also be presented to the decision maker in the same style of language which is understandable by the decision maker. Thus becoming and inaccurate representation of reality and adversely affection. do not just giver her/him the computer printout.e. the programs) is taken more seriously than reality itself! The model is in the service to reality.” One must learn to live with dynamic nature. technology is introduced and technology becomes obsolete. Business cycles and management philosophies change. You must also provide managerial interpretations of the strategic solution in some nontechnical terms while preparing a business report or presentation. “everything changes” except the fact that “everything changes”. not the other way around. Post-prescription: Change is the norm in most organizations. demographic factors shift..g. it is crucial to periodically update solutions to any given problem. while all the rest went on with their old measurements and expected them to fit me. This stage of problem solving is practiced in the free-based economy societies in contract to the programmed-based economy societies where the model (i. but nevertheless change in continuous. The speed and duration of change may vary considerabley. nothing remains unchanged. Therefore you must allow for revising the model as necessary. Unlike mathematical puzzles (e. some changes occur quickly. Therefore. employees come and go. The model you create should be able to cope with changes.the problem and find out what module of the software to use. solving equation 2X – 6 = 0 where there is one and only one correct solution). George Bernard Shaw said “The only man who behaved sensibly was my tailor. Everything flows. Good decision-making process is a creative idea. whereas others are almost imperceptible. real life problems do not have a single. it can only be effective in changing forms of creative ideas. A dictionary tells as that “to manage” means “to control. that is.” On the other hand. he took my measurements a new every time he saw me. correct solution. A model that heretofore was valid may lose validity due to changing conditions. the ability of the decision-maker to make god decisions. Monitor that progress of the implementation. you will use the software to get the solution.” Monitoring Activities: These activities include updating the strategic solution in order to control the problem. sales and profits increase or decrease.
The very nature of the environment in which decision-making takes place is change.solutions. It would be a mistake in discussing the context of the OR/MS/DS decision process to ignore the fact that one can never expect to find a never-changing. . What is strategic decision making? 3. The Importance of Feedback and Controls: It is necessary to emphasize more on the importance of strategic thinking about the feedback and control aspects of a decision problem. in this sense. Explain the models used in strategic decision making. and therefore feedback and control are an important part of the context of the OR/MS/DS modeling process. Questions: 1. the OR/MS/DS modeling process to problem solving is not an exact science such as Mathematics. but one where decisions must ultimately be made by the decision maker. Therefore. immutable solution to a business decision problem.
Corporate strategy means financial policy decision involving acquisition. diversification and structural redesigning of the firms assets. Strategic decision making. the strategy means the determinations of the basic long-term goals and objectives of enterprise and the adoption of courses of action and the allocation of resources necessary for carrying out these goals. Strategies are concerned with long range planning.1 Introduction Strategy means “the basic programmes of actions chosen to reach these goals and objectives and major patterns of resource allocation used to relate the organization to its environment”. Forecasting of future strategies. research and development. product divisions and operating units. at the corporate level. the decision makers are primarily concerned with immediate product. strategic decision at this level include policies regarding developing new product.1. Among other things. The Corporate level generic strategic pertain to the question which businesses the company shall be in? The generic strategies are concerned with the portfolio strategy. (These generic strategies re also applicable to SBUs when they confront . market issues and the policies bearing on the integration of the functional units. etc. The following are the features of strategy: It is top level management decision Allocation of Resources. Strategic decisions will have implications for multiple functions. At the business levels. is related to the organization wide policies and is most useful in the case of multidivisional companies having wide range of business.UNIT 3 Lesson 3. marketing mix. According to Alfred Chandler. Strategic decision will have environmental factors.1 Stability Strategy 3.
1. the umbrella brand for things ranging from steel to shaving creates its one of the top most brand in soaps is Old Cinthol and it is being the stable among the most customers. A stability strategy may lead to defensive movies such as taking legal action or obtaining a patent to prevent unethical competition by others. Godrej.2 The need for Stability strategy: As Jauch and Glueck observe. In an effective stability strategy. The stability strategy can be designed to increase profits through such approaches as improving efficiency in current operations. market and functional sectors as defined in its business definition. 3. the major competitor Old Cinthol plays a dominant role in the market and also the trusted brand. Its main strategic decisions focus on incremental improvement of functional performance. In simple words. Hurlicks is a . or in very similar sectors. The stability approach is neither a ‘do nothing’ approach nor does it mean that profit growth are abandoned.the question of the businesses they shall be in) A stable strategy arises out of a basic recognition by management that the firm should concentrate on using it’s present resources for developing it’s competitive strengths in particular in particular market area. The focus is on maintaining and developing competitive advantages consistent with the present resources and market requirements. a company will utilize its resources for its competitive advantages. Stability usually involves keeping track of new developments to make sure the strategy continues to make sense. G’axe Smithkline’s Horlicks is doing remarkable well in the market. stability strategy refers to the company’s policy of continuing the same business and with the same objectives. a stability strategy is a strategy that a firm pursues when: It continues to serve the customers in the same product or service. The other soaps from the HLL.
2. It makes in to the top 10 brands in the segment. not doing anything but sustaining a moderate growth in line within the existing trends. Advantages of Stability strategy: The firm’s executives pursue the stability strategy: as there are more advantages. Hero Honda Company provides better after-sales service through their dealers to its existing customers to improve its company. The essence of stability strategies is. . Unless the conditions are really bad. or at least letting them remain where they are in case they face a volatile environment and a highly competitive market. therefore. However.widely regarded 130 years old brand. free 5 times service is provided by the company and also two year guarantee for the motorcycle purchased. Note that all the companies here do not go beyond what they are presently doing. The strategies aim at stability by causing the companies to marginally improve their performance. Coca Cola Company provides a separate service to its institutional buyers apart from its consumer sales through market intermediaries to order to encourage bulk buying and this improve its marketing efficiency 2. Therefore the management may want to continue with the same activities. they serve the same market with the present products using the existing technology.3.1. A stability strategy is less risky. In order to understand how stability strategy works. product image and increase the sale of accessories and consumables. a firm need not take any additional risk. young females and lower income household continue to back the brand strongly. 1. here are the two examples to illustrate how organization could aim at stability in each of the two dimensions of customer groups. housewives. They are: • • The firm is successfully run and the objectives are achieved and there is satisfactory performance. Rural areas. customer functions respectively. when a new motorcycle is brought from the Hero Honda.
However. It may also have to make offensive and defensive moves vis-à-vis the competitors. Stability strategy is adopted with different designs depending on the circumstances in which such a strategy is preferred. or opportunity in the market or any threat. 3.• • The management doesn’t foresee any change in the environment. When pursuing this strategy. In short this “do-the-same thing” strategy endeavors to “do-the-same thing better. it may involve incremental improvements. The stability strategy is not a “do nothing” strategy. The company may not have the resources and capabilities for expansion. .5 Examples: In southern part of Tamil Nadu. A family dominated or private company may not like to expand its business if it amounts to diluting the control or if effective supervision is not possible by the family members. the competitors are Pepsi and Coca Cola and there are not capabilities for expansion. the business definition remains the same. As indicated above. It also required adoption of appropriate competitive strategies to remain successful in the business. For the company. Long term stability also requires reinvestment. R&D and innovation. The feeling that sticking to the known business is always better and safe.1. By pursuing stability strategy. Kalimark Industries for Soft drink playing a major role in soft drinks.1. the executives normally aim at stable growth. Stability strategy is therefore called the stable growth strategy. there is no disruption in routine work.4 Reasons for Stability Strategy: The important reasons for pursuing stability strategy are the following: The company is doing fairly well and it is hopeful of the same in future. particularly among the lower middle class people and the company have a brand name for long time.” 3.
Taking no decision is sometimes a decision too. that is to continue with the present business definition. When faced with the predictable and certain external environment a stable organizational environment. No major new strengths and weaknesses within the organization. Types Of Stability Strategy NO-CHANGE STRATEGY: This stability strategy is a conscious decision to do nothing new. The firm does not find it worthwhile to alter the present situation by changing the strategy. Taking into account the external and internal environmental situation. The management does not have the mind-set of a strategist to analyses the environmental opportunities and seize the opportunities. The company may not want to take risk of growth and expansion. the firm decides not to do anything new. The company which has core competence in the existing business does not want to take the risk of losing sufficient attention to the current business by going for the diversification. Several small and medium sized firms operating in a familiar market – more often a niche market that is limited in scope and offering products or services through a time-tested technology rely on the no-change strategy. Because.1. No obvious threat of substitute products.The company may not want to take risks of growth and expansion Tortoise. No significant opportunities or threats operating in the environment.6. 3. . the mosquito repellent manufactures only mosquito coils and the company does and expand his business with other repellent like mosquito mats and liquidators. a firm decides to continue with its present strategy. No new competitors.
PAUSE/PROCEED-WITH-CAUTION STRATEGY Pause/proceed-with-caution strategy is such a tactic. not many of them might be aware that Hindustan Levers. while few have resorted to provide services to other organization which need outsourcing facilities. Expansion became impossible due to heavy cost. Example: In the Indian shoe market dominated by the Bata and Liberty. Firms would be generating cash flow as primary concern for ensuring durable stability durable stability of the organization. a profit strategy may arise: If there is a decline of sales of the product in the market. To step out from the market where the product has lost its value. it started selling a few thousand pairs in the cities unobtrusively to gauge market reaction.PROFIT STRATEGY This strategy is adopted in large firms. . It is a temporary strategy just like the profit strategy. better known for FMCGs. Others have hived off some division in non-core businesses to raise money. produces substantial quantities of shoe uppers for the export markets. Contribution of the unit to the total sales in less. This could possibly be a proceed-with-caution strategy before it goes full stream into another FMCG sector that has a lot of potential. A frequent method to tide over temporary difficulties and to keep afloat through a profit strategy is to sell off assets such a prime land in a commercial locality and move out to the suburbs. The Pause/proceed-with-caution strategy is a deliberate and conscious attempt to adjourn major strategic changes to a more opportune time or when the firm is ready to move on with rapid strides again. Under the following circumstance. In late 2000. Exchange the market as and when possible. It defers in the way of objectives are defined. It is employed by firms that wish to test ground before moving ahead with a full-fledged grand strategy.
Question: 1. Poor bank-lending practices. Commentators.2 Growth Strategy 3. 4. Lesson 3. More favourable treatment of capital gains as opposed to income by the taxation system. Bad management on the part of borrowers. and Government management of macro-economic policy . Give examples of stability strategy followed in India.1. The bias towards higher gearing ratios caused by the tax deductibility of interest and asset price speculation. Under what circumstances stability strategy is followed? 2. Inadequate corporate regulation and poor corporate morality. place different weightings on the various factors which appear to have caused corporate problems.2. Trace the various types of stability strategy. Factors blamed include: Deregulation of the banking system and the subsequent over-supply of available money for lending: Widespread community expectations of continuing inflation in asset prices encouraging speculation rather than productions. depending on their allegiances. Why stability strategy is found to be an important aspect? 3. Introduction: Analysis of company failures from the late 1980s is instructive in that it reveals the significant extent to which individual corporate failure is caused by management rather then external factors.
but many of these risks can . the results will be satisfactory. But they do not explain why some companies fail while others do not. the board (and. presumably. Some of the corporate failure have had within their structure some very successful and well managed business. management should be aware of the expected impact on cash flow and profit. either in the sense of a flawed business strategy inappropriate speculation with borrowed funds or a lack of business morality in acting as custodian of shareholders’ interests.2.There is little doubt that each of these factors contributed to an environment in which we cold expect a higher-than-normal company failure rate. but before making the decision. Most of the high-profile corporate failure in the last two or three years have involved bad management. if necessary) and then ratified by the board as being budgets with which. All business are subject to risks due to variables beyond their control. 2. but normally in any commercial enterprise the only way to ensure success is to draw up plans based on achievable assumptions about turnover. and to work those plans through to make sure that if everything goes according to plan. It may be that a discounting period is a justified management decision. Many of them have involved a high-profile. Lesson for Management The Importance of Planning From an individual company’s point of view the first basic lesson from the failures of the 1980s is in relation to the importance of planning. The planning process also involves business risk assessment. The inability of a particular company to withstand major setbacks without becoming insolvent can usually be traced back to the quality of management. Plans or budgets should be produced by management (or consultants. Management can only be sure of this by using financial budgeting. if they were achieved. domineering chief executive – which is itself a warning signal of potential management problems – or a board where there is a majority of executive directors. the shareholders) would be pleased. et cetera. This does not mean that every business strategy should be profitable in the short term. Success sometimes occurs in spite of lack of planning.3.
speculators in the property industry in the 1980s were subject to the risk that asset prices would level off or actually decline. Good technical skills (for example. What if exchange rates move against us?”. is that successful business people to not hold all the necessary skills personally. the business plans need to be adjusted to reduce the company’s exposure to the particular risk involved. There is a tendency for those of us trained in financial management to assume that business managers have some basic understanding of finance and accounting skills. There are a variety of other skills involved in running a business successfully. For example. however. “What if property prices fall?”. but they do not guarantee good management skills. et cetera. It is up to speculators to decide whether to accept that risk in view of their assessment of the potential for gain. Examples are “What if interest rates remain high?”. administrative ability and personnel management.actually be identified. Directors need to ask themselves “What if” questions relevant to their particular business. We are wrong to make that assumption. In a company’s case. marketing skills. A more common occurrence. actuarial) often result in promotion to senior management. and if the answers are that the business would not survive. but instead make judicious use of their own skills and the skills of others (whether employees or outside consultants) as the need arises. which we can presume without further explanation. The Need for a Strong Financial Function The second lesson from the 1980s is in relation to the need for good financial reporting systems. including selling skills. the planning adopted by a board of directors should not expose the company to failure merely because a quite identifiable risk moves against the company. “What if budgeted turnover is not achieved?”. The lack of finance and accounting skills is obvious in many corporate failures. Some of our more flamboyant Australian directors apparently believed that it is . Some successful business people are able to combine all of their necessary skills and run a business personally.
Future survival depends on being able to match the competition. Cost efficiency is a necessary but not sufficient condition for competitiveness. Monthly reports allow management to assess how their plans and budgets are in fact working out. The only reason for taking no action would then be because the unfavorable trend has been explained and accepted as a temporary aberration. service. or the effect that previous decisions have had? The lesson for directors is that they must ensure that their company has a strong financial function capable of producing up-to-date financial reports and forward budgets on a timely basis and the directors must make use of an analysis of those reports to enable them to monitor and assess the success of the company various activities. but it is ignored surprisingly often. Management and employees must change their goals to aim at world-best . and many larger businesses in fact now report more frequently. in order for the monthly reports to be useful. is the failure to keep proper books and records. and where financial reports were only available to the board on an annual basis.possible to run a business with scant regard to conventional financial practice. and to take whatever remedial action asperse to be necessary before problems become critical. Typical examples are the total inability to distinguish between cash and profit. failure to use budgeting as a planning tool. Of course. Our standards of quality and service are below the world average. particularly if they are unfavorable. and surprisingly common. Even worse. Some readers might thing this is all terribly basic. customer awareness. they must be analyzed and compared with the expected results. reliability. Goal-Setting for Competitive Performance Good planning and reporting systems are not only essential for survival. Monthly reporting is almost universally accepted as good business practice. where the company records show no sign of monthly budgeting or cash flow planning. Financial trends need to be explained. How can directors expect to make good planning decisions if they are unable to determine their company’s current position. The aim must be to improve product quality. innovation and technology. Insolvency practitioners often take charge of companies with turnover measured to millions. they are also essential for competitive performance and growth. and failure to use regular reporting of actual results to adjust business strategies.
Because of the many reasons for which they are adopted. expansion strategies are more risky. Expansion strategies have a profound impact on a company’s internal configuration customer extensive changes in almost all aspects of internal functioning. A printing firm changes from the traditional latter-press printing to desktop publishing in order to increase its production and efficiency. Expansion Strategies The expansion grand strategy is followed when an organization aims at high growth by substantially broadening the scope of one or more of its businesses in terms of their respective customer groups. A stockbroker’s firm offers personalized financial services to small investors apart from its normal functions of dealing in shares and debentures in order to increase the scope of its business and spread its risks. Given below are three examples to show how companies can aim at expansion either in terms of customer groups. Expansion Strategies (a) (b) (c) (d) Expansion through concentration Expansion through integration Expansion through diversification Expansion through cooperation . and alternative technologies – singly or jointly – in order to improve its overall performance. In each of the above cases. the company moved in one or the other direction so as to substantially alter its present business definition. expansion strategies are quite popular. A chocolate manufacturer expands its customer groups to include middleaged and old persons among its existing customer comprising of children and adolescents. customer functions. customer functions or alternative technologies. AS compared to stability.performance.
we will try to cover a lot of ground by describing types of expansion strategies. or alternative technologies. It involves converging resources in one or more of a firm’s businesses in terms of their respective customer needs. Almost all organization s plans to expand. focus or specialization strategies. Expansion Strategies Growth is a way of life. This is why expansion strategies are the most popular corporate strategies Companies aim for substantial growth. in such a manner that it results in expansion. In this section. customer functions.(e) Expansion through internationalization. In business policy terminology concentration strategies are know variously as intensification. customers seeking new ways of need satisfaction and emerging technologies offer ample opportunities for companies to seek expansion. first –level type of expansion grand strategy. Or it may try attracting new users for existing products resulting in a market development type of concentration. In practical terms. . (a) (b) (c) (d) (e) Expansion through concentration Expansion through integration Expansion through diversification Expansion through cooperation Expansion through internationalization (a) Expansion through concentration Concentration is a simple. This may be done by various means. either singly or jointly. A growing economy. burgeoning markets. A firm may attempt focusing intensely on existing markets with its present products by using a market penetration type of concentration. concentration strategies involve investment of resources in a product line for an identified market with the help of proven technology. Alternatively it may introduce newer products in existing markets by concentration on product development.
such as. In other words a company attempts to widen the scope of its business definition in such a manner that it results in serving the same set of customers. Firms operating at one end of the value chain attempt to move up or down in the process while integrating activities adjacent to their present activities. Integration is an expansion strategy as its adoption results in a widening of the scope of the business definition of a firm. The alternative technology dimension of the business definition undergoes a change. for the simple reason that it would like to do more of what it is already doing. textiles or hydrocarbons. have integrated firms. So they prefer to concentrate on these industries. Integration is also a subset of diversification strategies as it involves doing something different from what the firm has been doing previously. (d) Expansion through Cooperation . The pivot around which integration strategies are designed in the present set of customer functions and customer groups. petrochemicals. So a firm may move up to down the value chain to concentrate more comprehensively on the customer groups and needs than it is already serving. Several process-based industries. A value chain is a set of interlinked activities performed by an organization right from the procurement of basis raw materials down to the marketing of finished products to the ultimate consumers. Each industry is unique in the sense that there are established ways of doing things. Firms that have been operating in an industry for long are familiar with these ways. A firm that adopts integration as the expansion strategy commits itself to adjacent businesses. These firms deal with products with a value chain extending from the basic raw materials to the ultimate consumer. ( b) Expansion through integration Recall that we referred to the horizontal and vertical dimensions of grand strategies in the first section. A firm that is familiar with an industry would naturally like to invest more in known businesses rather than unknown ones. steel. concentration is often the first – preference strategy for a firm. These dimensions are used to define what are known as integration strategies.For expansion.
One company can benefit at the cost of others. Nalebuff and Adam M. Takeovers (or acquisitions) 3. Basically two. Strategic Alliances Merger and takeover (or acquisition) strategies essentially involve the external approach to expansion. But a subtle distinction can be made.Much of strategy literature assumes competition to be a natural state of existence for companies to operate in. While mergers take place when the objectives of the buyers firm and the seller firm are matched to a large extent. Mergers 2. notably Michael Porter. The term ‘co-operation’ expresses the idea of simultaneous competition and cooperation among rival firms for mutual benefit. or occuasionally more than two. takeovers or acquisitions usually are based on the strong motivation of the buyer firm to acquire. Corporate strategies could take into account the possibility of mutual cooperation with competitors while competing with them at the same time. This sections deals with the strategic alternatives based on cooperation among firms. such cooperation could take place in various ways. It is a win-lose situation where if one wins then one or several others have to lose. Brandenburger that competition could co-exist with cooperation. Takeover is a common way for acquisition and may be defined as “the attempt (often sprung as a surprise) of one firm ot acquire ownership of control over . A contrary view has been expressed by thinkers such as James Moore. Ray Noorda. Barry J. The central point is of complementarity among the interests of rival firms. There is not much difference in the three used for such types of strategies and they are frequently used synonymously. so that the market potential could expand. Joint Ventures 4. Several strategy experts. have based their work on the assumption that companies compete in the market for a limited market share. Cooperative strategies could of the following types: 1. entities are involved. As we will shortly see.
or distribute gods or services. But this definition need not be taken very seriously as in practice. Recall. In fact. Merger. Like joint ventures. In an era of globalization. strategic alliances have become quite popular as strategic alternatives for firms looking for cooperation among national as well as international partners. Then we explain the term ‘international strategies’. we first have a look at the context – international and national – in which firms adopt international strategies for expansion. Recall that strategic management is in an evolutionary phase and such confusion in terms has often to be taken in one’s stride. Hi Beam Electronics merged with two other units to form Tristar Electronics. therefore. Before we mover further. joint venture. another important point to point is that these strategies are very often used as a means of diversification. joint ventures have proved to be an invaluable strategy for companies looking for expansion opportunities globally. takeover. for instance. one can use these terms synonymously. also the means of achieving diversification and integration. and core competencies are combined to pursuer mutual interests to develop. capabilities. and strategic alliance strategies are. Joint ventures occur when an independent firm is created by at least two other firms. subsequently name as Solidaire India Ltd. and may not necessarily be against the wishes of the acquired firm. Spartek took over Neycer in order to integrate horizontally. A brief description of the types of international strategies is followed by a reference to the international entry options available to a firm. Strategic alliances are partnerships between firms whereby their resources. . many takeovers may not have any element of surprise. takeovers are frequently classifies as hostile takeovers (which are against the wishes of the acquired firm).another firm against the wishes of the latter’s management (and perhaps some of its stock-holders)”. the example in the previous section related to horizontal integration. (e) Expansion through Internationalization In this subsection. and friendly takeovers (by mutual consent in which case they could also be described as mergers). Without being too fastidious. manufacture.
Give justification for strategic alliances. 3. Why expansion strategies are important for companies? 2.Questions: 1. Give . 4. What is expansion through cooperation? Give examples. When and why expansions through integration need to be followed? examples.
Instead of pushing on productivity. Moreover. sensitive and values-led while planning a layoff. He bluntly announced that the operations were being shut down from that moment on. Introduction Retrenchment can actually serve as a turnaround strategy.LESSON 3. the wrenching sounds of the hull breaking. scanning the classifieds and hunting for a more secure job in a more trustworthy company. these employees not live under constant fear of the sword. I found a memo to Cisco employees in the first weak of April 2000. they are not focused on polishing resumes. Instead of being a highly-motivated lot who should be focusing on how to bring the company out of the doldrums into calmer waters. Now. Scrolling down the f—edcompany. If you really want to know what a no-holds-barred lay-off feels like. The ship doesn’t sink silently or swiftly into obscurity. none of the laid-off employees expressed shock that they had lost their jobs. . Interestingly. this was no fly-by-night operation: it was the India operations of a global dotcom brand. which has launched operation with much fanfare last year. The most immediate impact is n employees who are still on the rolls: the harsher the treatment to retrenched employees.3 RETRENCHMENT STRATEGY 3.1. Instead. and on a note of gallows humor concluded: “Don’t come back after lunch”. the greater the insecurity in those left behind. in walked a suit from the USA into the Mumbai head-office. meaning the business gains new strength by streamlining its operations and eliminating waste. in agonizing detail you hear the scream of tortured metal. and the last lingering groans as the ship finally sinks into its final journey to the bottom of the ocean.3. the sickening churn that threatens to drown everything in sight. recall the Titanic scenes.com postings. any management which believes that its soon-to-be-ex-employees deserve no time and attention will soon see that strategy boomerang. All were outraged at the manner in which the message was relayed to them: at noon. That’s the kind of anguish that swirls around a corporate in the middle of a retrenchment. This isn’t just the worm’s eye view-smart companies know that they need to minimize the damage control retrenchment bring by being open.
A formal transition support strategy has been worked out and shared with all employees. Religious schools – private.2 Retrenchment strategy in schools: Now that we’ve covered the potential market size. public relations and advertising. Cisco partners and customer have been offered the chance to interview and hire affected employees as a first preference. Clearly. on-line marketing.3. The following plan describes the general course of action and recommendations with a brief discussion of the organizational strategies and the four P’s of the marketing mix. Charter technology schools – private. Before determining the appropriate product marketing mix we first have to consider whether we should attempt either a growth or a consolidation strategy for each existing product (older discontinued products and eval releases are not considered). Those who sign a severance agreement get an additional four months’ pay and benefits continuation. Firmly focused on the long-term health and reputation of the company. but publicly funded (could also be funded by a software or Internet company). Currently the company produces the following products: Imagine the educational options that may be available for children in 2010. Each affected employee is to receive two months’ pay and benefits continuation to seek a new assignment or other employment outside of Cisco. Then. 3. To ensure that information is freely and fully available and Transition Website has been set up. open communication and integrity”. channel marketing. . smart companies retrench with brains – and a heart. Finally. It is also segmented by product marketing. displace employees are being offered extensive outplacement support: right from career counseling to resume writing.which highlights how retrenchment need not be more painful than it. perhaps publicly funded for secular curricula. the Cisco note shows event in this difficult time the company is clinging to the “core values of trust. and have seen the opportunities that await us…we must act.
school choice. With the rise of charter schools.. A school competing on cost leadership premises to offer standard education at a minimal cost. Charter Cultural/ethnicity schools—publicly or globally funded schools for children whose parents want them to retain their heritage or learn about another. Characteristics of this school would include basic educational curricula (the there R’s). Instructional sites could be anywhere in the world.S. Palo Alto. Private-industry charter schools—public. then. carpenters.strategy model popularized by the Harvard Business: School’s Michael E. public schools. designed to offset the shortage of electricians. what would it take for this generic competitive . they must compete more effectively. Home schools—private. Porter to work for U. publicly funded. Australia. Add to these developments the general concerns voiced by public officals about the quality of public schools. and employee participation in cost-control efforts. the local public schools—publicly funded for the remainder of the school-age population. It is clear. intensive screening of budget requests. large class size. and the reality becomes closer still. that leaders of public schools need to create a competitive strategy to survive the intense rivalry for dollars inherent in these diverse educational options. the reality of such a list is closer than many may think. of course. And. such as Sydney. and to survive. low administrative component and other overhead costs. and wireless communication. and other craftspersons. plumbers. The nettlesome question is. They must choose their strategy and develop congruent internal mechanisms to effectively implement that strategy. and to . Public schools no longer have a monopoly on public education. Calif. many selections from the cable/Interned channel. Public-university collaboration – publicly funded for college-track 5-yearolds. schools may compete either on cost leadership or through differentiation. Public schools no longer have a monopoly on public education. Broadly speaking. or Bali.
Management also will periodically re-engineer tasks and activities for efficiency. and organizational philosophies for their schools. . public schools may find success by imitating schools of choice and charter schools through differentiation strategies. Schools will systematically evaluate customer needs and like business. they must compete more effectively. all areas that have singular value for some students. and will creatively tighten the value-adding chain to minimize waste. to identify and appropriate competency. During the early and mid-1990s. specialized subjects such as foreign languages. informational technology.survive. They scanned their external and internal environments using so-called SWOT analysis (Strengths. Differentiators create value for their products by distinguishing them from rivals’. In public education. business management. Schools may compete either on cost leadership or through differentiation. On the other hand. Choosing a strategy will require schools to analyze their internal resources. Management’s role is to continuously standardize curricula and pedagogy and to install volume “resource procurement” strategic to derive economies-of-scale benefits. cost leadership may become the retrenchment strategy for districts devastated by a deluge of exiting students. belief statements. and Threats) to gain insight into their terrain. and global economics. Tomorrow’s successful schools will be build on the shifting sands of competition. Essential to the success of tomorrow’s schools will be administrators who understand and demonstrate strategic leadership. Weaknesses. besides the basics. taking their “voucher” funds with them. and to select a choice that is congruent with that competency. They meet or exceed customer expectations for products and services offered. make internal modification to meet those needs. schools allocated a large portion of their resources to embrace strategic planning. Differentiators may offer. Efficiency is the primary focus in organizational decision making at this kind of school. Opportunities. They will consciously elect to compete for student and staff resources based on price or product differentiation. They wrote mission statements.
the Employment Services agents would aim to assist both employers and workers to plan how to achieve the best package of measures to relieve the hardship that unemployment could bring. Assisting individuals and communities to put together project proposals to the SETOs for learning programmes linked to local economic initiatives. Advising people about the range of support services available to them. Activities would include directing individuals to job opportunities where they occur in these initiatives and assisting other to begin such ventures on their own. Public school leaders must offer a choice to a public that demands it. This would be an integral part of what have become known as “Social Plan” measures. Targeting those people facing retrenchment. and they must be able to implement that choice more effectively than their competitors. as well as information regarding learning opportunities linked to career objectives which people are assisted to develop.Choosing a competitive strategy was not on the agenda. time management. job search skills. Of particular importance is assistance with learning which enable people to interview skills. This includes laying foundation for personal development and social responsibility. assessment of existing capabilities which may have been informally acquired. The Department of Labour proposes of offer an integrated set of advice . with increasing globalization and the emergence of choice as a dominant theme in social and economic matters. service programmes and small business initiatives. 3. These may be welfare or insurance schemes such as UIF. Now. Assisting the most vulnerable groupings to acquire the basic capabilities required to take advantage of the support detailed above. schools must take that next step in strategic planning. communication skills and the like.3 Retrenchment strategy in service sector: The role envisaged for the Employment Services within the new Skills Development Strategy embraces a range of functions which include: Broadening the vision of employment to include development programmes.3. Where large numbers of people are involved.
Reliant Energy Communications was put on the block after it made less than acceptable levels of revenue growth. and Touch America. trade unions or companies who are involved in the process of retrenchment: Where skills assessment and accreditation may be accessed (including recognition of prior learning) Counseling and carrer guidance (this service may be directly provided or in the event of large retrenchments. the average return was 1. Re-training programmes – where they may be accessed and what public financial support is available. this one jammed with enthusiasts heading in the opposite direction. placement in other jobs and industries. Where possible. As the wreckage was being cleared a second bandwagon rolled up. which recently spun away from its parent Montana Power. referral to other agencies may be required. In the late 1980s Pinnacle West Capital Corp lost millions of dollars when its savings and loss unit failed.services through Local Employment Services Centres. In 1994 Pacific Enterprises paid $45-mil to ease shareholders ire after the company embarked on what ultimately proved to be a failed venture in discount drug and sports equipment retailing.5-bil invested in those ventures. More recently Connective Communication was sold by its parent utility holding company at a loss of $100-mil to $125-mil. insurance and citrus fruit. In 1990 FPL Groups wrote off $689-mil from its unsuccessful forays into cable TV. Of the $6. towards retrenchment.1%. The Centres will offer advice on the following services to individuals. Out of the wreck tumbled a number of smart and well reached companies that had expected diversification to lead to better financial results. . Researchers a decade ago looked at 20 utilities that diversified during the 1980s. has since seen its stock value drop dramatically. Somewhere along the road to prosperity the utility diversification bandwagon overturned. The road between diversification and retrenchment has been well traveled— traveled—in both direction—by US utilities for more than a decade.
nonprofit have a number of different ways to cope with the rising costs of insurance. First. the current scale of operations may be inefficiently large – economists would say that diseconomies of scale can occur in some cases. Diversification is almost always a wealth destroyer. Overall. Rising costs of particular inputs are nothing new to the nonprofit sector.3. Retrenchment in non-profit organization: This strategy may work for two reasons. such as grants or annual contributions. In the 1980s. permitting the organization to remain solvent under existing fee schedules and rising costs of certain inputs. for example.The returns in general have not improved over the years. Second. some YMCAs and YWCAs closed their pools. could achieve savings. space. For example. Why retrenchment is adopted by companies? 2. How retrenchment is practiced in Indian companies? . said R Charles Moyer. Questions: 1. an expert in utility finance. while eliminating services for some children. If these are revenue are stable. Following a retrenchment strategy. the unit cost of production day care may rise for groups above a certain size because of variable costs that increase with scale such as supervision or security. A systematic examination of these options ensures that all possibilities will considered in thee difficult situations now promoted by a booming economy. that would not change substantially if services are cut back. cutting back could eliminate costs without commensurate losses in revenue. the organization may have certain fixed sources of revenue. 3. dean of the Babcock School of Management at Wake Forest University. talented staff or other specific inputs to their operations. however. Cutting back. many nonprofit had to curtail programs because of rising premiums for liability insurance. again permitting the maintenance of solvency.4.
Give justification for some of the recent practices of retrenchment. .3.
An organization which faces one or more of these problems is often referred to as a ‘stick’ company. the case studiers of these 10 companies were analyzed.4. Based on a set of 10 elements that contribute to a turnaround. 7. high turnover of employees.4 TURNAROUND STRATEGY 3.1. These danger signs are: 1. and low morale Uncompetitive products or services. were selected for study.4. one company seemed to have been more successful while the other less successful in adopting the turnaround strategy. The elements in a Turnaround Strategy: Ten comparable Indian companies. Changes in the top management 2. Mismanagement. 6. it is important to not what these 10 elements are: 1. 3. First. 2. that is. in five groups of two each. reversing a negative trend. Introduction: A strategic turnarounds is a more serious form of external retrenchment and leads to divestment or liquidation. 5. In each group. Persistent negative cash flow Negative profits Declining market share Deterioration in physical facilities Overmanning in physical facilities Overmanning. 8. 4.2. Initial credibility – building actions . There are certain conditions or indicators which point out that a turnaround is needed if the organization has to survive. Turnaround strategies derive their name from the actions involved. 3.LESSON 3.
coupled with nuclear tests and sectarian violence. Quick cost reductions 7.3. quick cost reductions through various means. Mobilization of the organizations 10. mobilizing the organization for improving motivation and morale. New jobs are not being created. Export growth fell in 1998 and 1999. There has been real recession in many sectors of the industry and sickness as we understand has been endemic across the industry. has not provided atmosphere conductive to domestic and foreign investment. Small industry has suffered to the point of extinction. Asset liquidation for generating cash 9.4. The environment of political instability. Initial control 5. Infrastructural bottlenecks perist. and better internal coordination. Industrial growth has decelerated.3 Recent Industrial Sickness – Turnaround Strategies The last five years in the Indian corporate world has been one of the most difficult times in this history. The crucial difference lies in the way the companies attempted a turnaround on the basis of initial control of operation by the new management. Revenue Generation 8. Neutralizing external pressures 4. Identifying quick payoff activities 6. Better internal coordination The comparative analysis of the actins taken by more successful companies and less successful companies revealed that no significant differences was there as far as the first three elements were considered. 3. The seeds of the industrial sickness were sown around ten years ago by .
Liberalisaitn refers to the domestic response to the globalization process. This round of sickness is not only about management or technology failure. The following are the excerpts of the interview with the Finance minister of India during 1998. Globalization refers to the integration of the world markets into a seamless single market. so that poverty can be wiped out. WTO are all responsible for re-aligning our business needs. The reasons are many and it is important to understand some of them before we attempt to chart out the turnaround strategies. First a few numbers: The Background A few frequently asked questions on this round of Industrial sickness have to be answered before attempting to work out the turnaround strategies. There is an urgent need for business restructuring in the changed environment and financial restructuring to match current valuation s of business. It has occurred due to the changing ways we do business. of finding just one decade of GDP growth at 8 per cent per year. Unless this is done many businesses as we know may has to be closed in the next five years. where our nation responded to the pressures of global forces. In the early 1990s. These have permanently impacted value of businesses in this country. physical restrictions on movement on labour and services and restrictions on investments in selected areas. . a fast growing economy. the evolution of e-Commerce. the Telecommunication revolution. there was a dream which seemed to be tantalizing within reach the dream of becoming a new tiger. the path of opening the economy is fraught with difficulties and the sickness can be attributed to the liberalization process. The dream continues to be elusive. Lower Tariff Regime. without artificial barriers created by nations on tariff. the phenomena of globaliasation. processes beyond our control. Definitely. liberalization. Is the Globalization and Liberalization responsible for the recessionary trends in the Industry? Globalization and Liberalization are two different phenomena.
We have introduced regulatory bodies to match international standards of regulation and supervision. Did the South East Asian crisis impact our economy? The collapse of the Asian economies plunged the area into an era of high interest rates. We could not have been at a commanding position to dictate terms to the creditor to determine what we wanted. high unemployment and high devaluation of currencies. . Did the conditionality of the loan from the IMF trigger the recessionary process? Every lender comes with his conditions. While most of the conditions are relevant in a globalised economy. what could have been delayed and implemented in stages were hurried. We are opening up service sectors to foreign competition. large scale drops in asset values. exports from India in Textiles and Consumer Goods are less competitive than from these economies. We do not have a choice but to liberalise. Even now. Our rupee did not devalue at the same rate as the other currencies in this region. through we were largely insulated from the ills of the collapse. It must be understood that the first tranche of loan came in when the forex reserves of out country were at a low of $2 Billion. How did we liberalize? We have permitted foreign direct investment in many areas hitherto un – thought of. We have reduced (rationalized) duty structures to permit import of many finished goods. The South Asian crises did impact Foreign Direct Investment into this country. This is to be expected. four years after the collapse. Political wisdom and expert negotiating skills are needed to soften the blows of this borrowing. There is definitely a domino effect on out country. The effect resulted in cheaper impost into the country. The pains of transition only increased. hardly enough to finance a month of imports. There could be a debate on degrees and on the pace but in the long run there is no place for insular economies. high inflation. We were not prepared enough. Did we have to liberalize? Communications are integrating global markets like never before and it is important to note that this communications revolution is mostly responsible for the phenomena we are witnessing.
these cost inefficiencies were exposed. There is a lesson here for all of us. This fundamental change happened only because consumer was exposed to these products unlike never before. The industry was not technologically contemporary to enable efficient processes. The capital goods industry was unable to compete The high tariffs for imports in the earlier years clouded many of the inefficient processes of the domestic industries. This can largely be attributed to poor appraisal skills. The collapse took the primary market into a deep coma with not signs of revival except in the IT sector. On liberalization. Better quality goods could be imported and were available at lesser prices. Valuations were high and unjustified and unrelated to performance. a vagrant economy depends hagiology on an active . These cost were passed on to the customers. Naturally. it is unfortunate that the collapse happened at the same time rubbing salt into the wounds. While we undertook the painful transition from a command economy to a liberalized one in these years. 1. The costs were definitely higher than similar goods in the west c. Definitely the fires of the recession in the economy were fuelled by the South Asian collapse. The capacities in the capital goods industry were small in comparison to global sizes making it that much inefficient in production levels and costs. Companies were accessing the markets without adequate asset bases or without underlying business plans. The confidence of the investor was shattered many times. poor regulation and greed of the investor. Did the collapse of the capital market impact? The capital markets were waiting to collapse. yes for two reasons. a. The domestic capital goods industry was inefficient. The consumer was in no mood to pardon sub-standard quality and also was willing to pay a higher price in exchange of quality or aesthetics. b. Is the loss of protection a reason for recession? Of course.
4 Turnaround Strategies: The solution to these problems. capital market. Any turnaround strategy or restructuring exercise (and I am using these terms .4. (c) There are definitely a shift credit to investments with most banks taking to “safe investments” resulting in low credit expansion. Risk taking which is the core of a lending exercise was given a go by. (a) The higher. creating sickness in many industries which otherwise could have been prevented. (b) Bankers shifted from cautious lending to Nonlending to save their jobs. (d) The slow response of the bankers to the difficult times. rather stricter provisioning norms impacted profits of the banking sector. Stricter fiscal discipline has to be conformed if the government wants to at the forefront of the restructuring process. Understanding the impact of the above phenomena is integral to any turnaround strategy. With the Government slowly withdrawing from supporting Financial Institutions and Investment introduces through state funded agencies drying up it has become increasingly important for an active primary capital market as the basis for revival. This fiscal profligacy does not help capital formulation. Money earlier available to the Government to fund Development Financial Institution was going to meet revenue deficits. lies within. Did the high borrowing to fund fiscal deficit induce sickness? The high revenue and fiscal deficits of the government did not help the situation either. 3. however. Did the Banking Sector help? The high Non Performing Assets of the banking sector impacted credit growth in two ways. This results in “crowding out” the investments. The government extensive borrowing programme largely involves borrowing to finance deficits and interest payments. The resource building done by the government for decades has definitely shrunk and impacted the recessionary process.
This would include broad basing the Board with independent directors.4. Employee compensation does play an important role in the turnaround strategy. identifying slow and non moving stocks shifting emphasis within the current assets portfolio and maybe even outsourcing production if it results in . Some of the response will take years to achieve. The new emphasis on improved corporate governance is not misplaced. spreading of spans of control.2.in this paper interchangeably) involves Organizational Restructuring Portfolio Restructuring and Financial Restructuring 3. It pays to unlock the entrepreneurial spirit of the employees by offering them stock options in exchange of performance. This includes redrawing of divisional boundaries. The text book prescription is to align company structure with strategy. transparent compensation packages etc. flattening of hierarchic levels. Portfolio Restructuring The second part of the turnaround strategy is the shedding of unrelated assets.4. 3. reducing product diversification revising compensation streamlining process and reforming governance.1 Organizational restructuring: The response from within companies have to redesign their operations for a variety of reasons. The rules of running the company at an apex level must lend itself to more transparent processes if lenders have to have confidence in the way the company rules itself. Results could be dramatic it the employees know that they could be pare owners of the company. working Audit Committees. The core of restructuring seems to be to hasteh decision making processes – without affecting quality.4.4.
To fund voluntary retirement schemes (VRS) to shift the excess labour These are obviously painful but he restructuring exercise is being geared to meet the changing market competition. say. If it makes sense to acquire businesses. washing machine. Recessionary pressures forced restructuring processes very often cutting down and hiving out businesses which were not relevant to the corporate growth strategy. Lacking in focus and saddled with unremunerative assets. raw material production companies for efficient process. But what was a panacea for growth became brimstone in the neck under the liberalized regime of the nineties. The restructuring need not be one way. such acquisition should be considered. The strategy of diversification worked till the advent of liberalization. . Is the era of diversification as a strategy as a strategy over? Diversification as a growth strategy was relevant in the permit raj. JK Corp. The company was the manufacturer of Air Conditioners. The core of the strategy of turnaround in Voltas seems to be: To identify the businesses in which the company has in built strengths To hive off non core businesses To relocate excess labour due to the down sizing of operations. The diversified conglomerate is seen as a relic of the licence raj when strict MRTP controls forced corporates to venture into new areas in order to grow. Voltas. The lack of focus. fruits drinks the list goes on. refrigerators. really has no choice. The classic case of a diversified company unable to respond to the liberalization processes will be Voltas. the erstwhile giants were not equipped to combat the emergence of global sized competitors. Turnkey projects engineering services. The first four decades saw the rise of conglomerates like Century Textiles.reduction of costs. Indian Rayon. high employee cost and high degree of inoperative assets required a surgical response. limited accountability across dispersed facilities. Many a blue chip fell by the wayside in this decade.
The survivors are slowly building up markets a reduced . These companies were set up shifting production from the coast links of Thailand. Capital costs did not take into account the cost of degradation of land. South Korea and Malaysia.5 Understanding Value as a turnaround strategy: Fundamental to financial restructuring. However the industry was over capitalized and poor management practices saw the death of the industry. What has been missed in this is the act that small farms continue to thrive well.3 Financial restructuring process: This involves a) Identifying value drivers in cash flows b) Developing cost consciousness c) Driving quality d) Understanding impact of information technologies on the business process e) Understanding tax structures and the direction tax structure would take f) Understanding capital needs for financial restructuring between debt and equity 3. In fact many of them had to close down. But there is not superior method to understanding the cash flow of the business. In a scenario where there is widespread crosion in business more due to global forces rather than die to management failures it is important to understand Value and adjust capital structures and cost to the changed value. There are many techniques of valuation.5. is understanding valuation of businesses. there was large scale investment in facilities.3. However. Without understanding the dynamics of this shifting. Excess capacities were built up not related to the mining rights. The case in Granite is slightly different.4. Values were permanently affected by the global trends in protection of environment. The early nineties witnessed a spate of Aqua Culture companies dotting the coast line. The crash was bound to happen. The late eighties saw a spate of industries being set up to convent the raw blocks into finished stones. stricter environment conditions imposed on these units rendered the units unviable. Capital costs were justified on Institutional interest not on real values.2.
in an era of growth (during the period 1980-1992) acquisition of capital and growth in assets was driving corporates. The past three years has changed all that. Cost consciousness has pervaded every aspect of the organization. Another major turnaround response is the time tested fire fighting exercise – better working capital management. However. Earlier. The significant development in the last five years on the performance of corporates has been in the area of cost control. FMCG . Sickness was natural in such a scenario with costs far outstripping revenues. It is significant that the success of many turnaround stories in the country has centred around cost control. There should be no expense which cannot be questioned. The belt tightening has happened across industries including cement. when he took over Chrysler noticed that the company was bleeding cash made the remark that “there is no expenditure which cannot go down by 10%”. The good old Zero based budgeting techniques should find a place in every turnaround strategy. this was done independent of costs of such acquisition and indifferent to whether the costs of capital matched the returns on assets. resulted in increasing dependence for debt funds to complete projects and a consequent increase in interest costs.capital costs. This would involve a) Understanding cash flows of the existing businesses b) Estimating future free cash flows in the changed scenario c) Shedding surplus assets and hiving off unrelated assets Lee Iacocca. The changing demand patterns also left companies with huge inventories and excess capacities. The lower credit expansion in the banking sector and also a study of the working capital rations indicate sharper working capital management practices. The slump in the stock market coupled with cost and time overruns in these project. Interest cost rose significantly. Managing working capital irrespective of the industry has been the focus for most Indian companies.
Quality does net also merely mean that of the product but also of the delivery system and relationship management of the customer. freight saving provides a tremendous opportunity in commodity products. This includes lowering raw material inventory holding levels. Customers must be enthused to use bang technologies for quicker transfer of funds. Some freight consolidation may help. This needs some participation of large industries in the supply chain management of its vendors.sector. There can be no better response to a difficult situation than to make the customer notice that ultimately you have a better product. industrial products and capital goods. The customer derives comfort if the system of the vendor is driven to quality. Quality is an attitude which most of the time costs little in material but more in behavioral costs. Current technology permits banking systems to transfer funds instantly at costs which are lower than the interest costs due the delayed transit times. Britannia Industries. Introduction of Total Quality management. The impact will be as significant as the use of the electricity and the motor car in the beginning of this millennium. Cadbury. and a product which one can product with consistency over a period of time. With states very soon achieving rationalization of sales tax structures. service and quality of warranty will definitely influence the customer to stick to the product. Hindustan Levers. It should be possible to save costs on freight if that local customers can be serviced locally by exchange of information between companies across various states. Identifying slow moving and non moving stores at the factory and shop floor and disposing them is a must. Bata have all achieved almost negative working capital through right management of inventory and receivables. . Continuous re engineering of operations results in effective use of working capital over the years. Every employee must be able to feel for the quality of work he is delivering to the organization. Standardization of products and quality orientation permits this. ISO 9000 must be initiated even in small enterprises. Documentation. The IT sector and consequently e-Commerce will change the way of businesses are run in the next twenty years.
One Time Settlement of dues with the institutions and banks to result in reduction of debt burden of the company. This is done by reworking interest rates from the date of declaration of the unit as an NPA. Settlement with trade creditors either at a reduced level of payment over a period of time-maybe even exchanges it with equity. vendors. The benefits are well known. but an obvious one. A debt restructuring process will usually include one or more of the following: The deferment of payment of interest to be repaid over a period of time The deferment of payment of principal to be repaid over a period of time The lowering of interest rates to match available cash flow. This definitely makes the organization more efficient and definitely pays back the investment. Excise Duty concessions which are usually granted . Wider interaction with customers. Issue of fresh equity to rationalize the debt equity structure and the funding capital requirements. users of the corporate is possible Internal decision making processes can be more efficient and effective Top quality management time can be devoted to organisatinal responses and not merely to data validation. It is still worth recounting some obvious ones. Implementation of ERP related systems lends the organization to respond as a organic whole.Business will be totally transformed and no turn around strategy can be complete without understanding the impact of IT on the business processes. Larger amount of information and analysis of this information as available with the corporate for decision making processes. This is unrelated to the value of the business but gives comfort to the banker in decision banking. Waiver of penal interest and liquidated damages The conversion of interest or principal dues into risk bearing equity/preference shares not a popular method. Issues of Sales tax.
These economies have experience a dramatic fall in exchange rates. a modern textile mil of 25000 spindles which would have cost Rs 40 crores to establish is now available at half the price within this country. Any deferment of interest or principal payments is only a manner of readjusting debt and adjusting the repayment ability on future cash flows. . The recession in the capital goods industry has also impacted the prices of machinery.through the BIFR. The latter should have a response in restructuring. The banks. Most banker s may not be endowed with the knowledge of valuation or with the courage to understand erosion and admit a write off. The former should be punished. As understood. A particular mention must be made of One Time Settlement (OTS) of dues with the financial institutions and banks. though have to take a write of on their books but is makes sense to them to transfer risk to a new lender or a risk taker. this refers to the ability to settle the dues of the corporate at a discounted value to the outstanding. The mills are competing with similar capacities established in South and South East Asia. The discount will enable write backs in the balance sheet which will strengthen the debt equity structure. This twin impact would mean that the capacities in these nations will become more competitive for exports. It is not a solution to reduction of debt. The power of negotiating as a group is obviously must more and it is Important for the banker and institutions to distinguish between management failures and failure due to the changed economic situations. However. Banks are increasingly resorting to OTS as a method of recovering bad loans. Usually these payments are made over a period of time between 3 – 36 months. the system is still not geared to fund these OTS and there is still reluctance amongst the nationalized banks to fund the dues at a discounted values. The scene is steadily changing. The new lender may decide to support the unit based on the rationalization of the capital structure. It is here that Trade Associations play an important role to sensitize the institutions and lenders to the altered rules of the game. which can happen through waivers. For instance. This needs a through understanding of the value of the business and a fair understanding of future cash flows. This however still a difficult decision to take as the banker has to judge the amount of write off he is willing to take on his balance sheet.
and increasing communications throughout the company. Questions: 1. Implementation Phase (6-18 months) 3. and reduce costs. budgets and monthly sales and expense reviews. Restructure the business including recorganizing finance. building consensus. discuss the action plan and determine who will lead the turnaround. 4. If necessary identify strategic investors. 4. 3. In addition. tenders and buyers to recapitalize or sell the firm. executing the business plan. Explain understanding value as a turnaround strategy Write a note on portfolio restructuring . What is turnaround management? Give examples. Stabilize the Business – Take immediate steps to increase liquidity. empowering the management team. improving employee morale. 5. and develop next steps 2. 2. Balanced scorecards. improve creditor relations. accountabity and control processes are put into place including robust financial reporting. Explain the process of turnaround management.4. Evaluate the firm’s condition and future viability.6 Turnaround Management Process: 5-Step Process Below is Turnaround Central’s 5-step process to successfully get your business back on track. Create a detailed Business Plant based on the short-term and long-term considerations. Assessment Phase (2 weeks) 1.3. Conduct the Alignment Meeting with the management and other stakeholders to present assessment results.
it is called concentric diversification. In the era of heavy competitions organization think in different ways and try to bring new innovative strategies. The organizations tend to follow various type of strategies and get good results out of it.5 DIVERSIFICATION 3. In this section the various case studies of different companies are presented which shows how success has touched their doorsteps through diversification strategy. Diversification may involve internal or external. or alternative technologies of one or more of a firm’s businesses. Market and technology – related concentric diversification . and active or passive dimensions – either singly or collectively. Essentially.1 Introduction In this corporate world.2 Different types of diversification strategies: 1) Concentric diversification When an organization takes up an activity in such a manner that is related to the existing business definition of one or more of a firm’s businesses. 3. related or unrelated. Technology – related concentric diversification 3. Diversification strategy offers high rewards if steps are taken for their proper implementation. horizontal or vertical. Marketing – related concentric diversification 2. customer groups.LESSON 3. Concentric diversification may be of three types: 1. customer functions or alternative technologies. diversification involves a substantial change in the business definition – singly or jointly – in terms of customer functions. organizations strive very hard to reach top positions. These strategies involve all the dimensions of strategic alternatives. One among the strategies is the diversification strategy which is widely implemented by major companies. either in terms of customer groups.5.5. Diversification is a much-used and much-talked about set of strategies.
Diversifications. backed off and left Essar in the lurch when it came to disburse sanctioned land for the ongoing projects of Essar. “Essar creates history. During 1998. For last one year. The idea whether diversification is an effective strategy has assumed significance in view of the fact that ideas of core competence and focus (what we call concentration here) have gained greater acceptability among companies. The financial institutions which had major exposure in Essar. were screaming. it had been frantically trying to avoid the unavoidable and in the process. The Essar Group: All the major business newspaper headlines in India on 21 July 1999. investors.2) Conglomerate diversification When an organization adopts a strategy which requires taking up of those activities which are unrelated to the existing business definiti of one or more of its businesses. either in terms of their respective customer groups. It was not only a financially disastrous year for the group but its . customer functions or alternative technologies. defaults on FRN $250 million”. rolling itself in many controversies. seem to be out of favor. This created a political controversy and caused embarrassment to the government. steel consumers has accused Government of India in media of creating import barriers to favor and bail out Essar. The case study of various companies are given below: 1. But there is a divergent and interesting view of which strategic could be better for companies in developing countries like India. Essar group has defaulted on its loan repayment of $250 million of floating rate notes if international markets. specially unrelated ones. Essar became untouchable for government controlled financial institutions. It became the first Indian Company to default in International market raising fears in Indian corporate sector regarding future fund raising capabilities in the international market. it is called conglomerate diversification. Consultants and academicians in the developed countries.
public image also suffered major setback. . After shipping Essar moved into construction activity and then into the supply critical support services for the oil and gas sector. they were obviously not aware that very soon the group would become a case study at the management school. It has been the entrepreneurial sprit and opportunism that has been driving the group from a Rs. Ruia brothers. From these successful medium-sized business in marine and port constructions. controls and major government role and interventions. In 1956. While on diversification spree. Essar started off by exporting iron ore. The group was slowly adding one business after another until late eighties. it acquired a stevedoring contract for bringing iron from the mine heads and loading it onto sheds. 50 who had stunned Indian corporate sector with their vision and daring entrepreneurship were today in a quagmire of their own making. Shashi. founded the Essar group. controls and major companies are in core infrastructure areas with strict regulations. Was it safe. Essar first took the opportunity provided by the gas pipeline to start a very successful sponge iron business. Sahsi (ESS) and Ravi (AR) diversified from family business of trading and ventured into shipping in 1969. Essar is wondering what went wrong in its dreams and their executions. Group Profile Nand Kishore Ruia. stock market depressions in India or was it structured to doom. entering one business after another. Today Essar group is considering various options to consolidate. and shipping. 150 core shipping company to a Rs. sell companies that it had nurtured with heavy debt exposure in past few years. 4000 core conglomerate. 55 and Ravi. a marwari businessmen settled in Madras in 1956. continuing recession in Indian and world market. Its major companies are in core infrastructure areas with strict regulations. Their major breakthrough came in the form of a drilling contract awarded by ONGC. Pokharn nuclear tests in 1998. oil-drilling.
On Essar new business strategy Sashi Ruia commented. The incredible rate of growth of Essar group during this period saw them in virtually all the core sectors. Mr. Anshuman Ruia looks after Shipping. Shashi Ruia engineered Essar’s conquests and they were well capitalized by his younger brother Ravi. Ravi Ruia ws given charge of the operations & overseas businesses. During that period Ruias had been working up on setting more such ventures in Bangladesh. in Indonesia in 1994 of 150. Essar restructured itself in 1994 to include senior professional managers from leading public sector undertakings to manager their growing. The focus for such expansions was to beat possible downturs in domestic demand. Today Prashant Ruia is the director-in-charge of Essar’s Power. Saudi Arabia or Pakistan. Essar also acquired a threeyear-old textile mill Woventex Ltd. diversified businesses. The second generation also started making their way in family business. Mr. Sashi Ruia kept the group’s external environment & business development activities with himself. ED was to import hot rolled coils from Essar Gujarat’s Steel plant in India. Capital markets were opened up and reaising finances became much easier and it became a prime facilitator of rapid growth. Oil & Steel businesses along with communications and personnel. Essar group entered in global business by commissioning a $90 million cold rolled steel plant. Through this they wanted to move in Africa which they belieed would soon see and economic upsurge. Essar Dhananjaya (ED). These professionals were given free had for running independent units.000 tonnes capacity fed by HRC from Essar Gujarat Limited in a joining venture with the Garama group of Indonesia. “We will get into .In 1990’s Government of India started economic liberalization programme that promised growth and vision of catching up with the late industrializing economies of Southeast. Ruia brothers had a resplendent vision of creating a huge empire and they exploited every opportunity that same their way and created many new avenues to realize their vision. in Mauritius.
Indian economy started cooling off. In this process they went on an expansion spree even at high cost debt to reap benefits from the post liberalization growth in India. However the economy growth which they envisaged didn’t last long. Ravi Ruia commented on Essar’s global strategy in 1994. Mumbai used to be that which new company has the group opened today. overcapacity in . Chairman of ESSMCO for reasons of fast acquisition by Essar shipping limited is “… buying ships has become easier now: it takes less time and the access to funds us easier”. In mid 90’s the joke at the corporate headquarters of Essar group at Essar House. We should have basic synergies with what we do. This philosophy became their prime motivator for a rapid expansion and acquisition. Southeast Asian crises happened. “We are looking at impact of globalization on existing businesses in country. “We will get into any new business that will make us more money”. “Today the canvas is wide open. Because of this they could not exploit the price boom in steel sector and could not repay the loans to the financial institutions. Gujarat (their plant location) that took their tool on project. but we must not miss a major opportunity just because it does not fit in with our basic operations”. It was plague and then floods in Sturat.500 crore by the year 2001-02.400 crore and gross profit to Rs. Essar group wanted increase its assets to Rs. Their steel project was delayed. income to Rs. 31. But major factors ere their planning and project management skills.19. When they came on stream with steel plant.7. Not just those with synergies with our existing operations. Commenting on new opportunities he said. but also those that have potential for us”. Next we are looking for opportunities opening up overseas. They had changed the project plan and basic technology number of times. Their strategy hinged on a simple premise – one project will nurture another project & co on. Ravi Ruia commented on Essar’s global strategy in 1994.any new business that will make us more money”.300 crore. We must have an open mind. According to Prashant Ruia.
(TNMB). 1. Today. it has assets worth Rs.030 crore and gross profit of Rs.30 percent of the group’s turnover. The Nadar community. 130 crore to Mr. and NRI businessman. a Tuticorin-based leading bank. 4. and did not limit itself to the manufacturing or trading activities. income of Rs. CLB finally went o Supreme Court of India.150 crore. Tamilnadu Mercantile Bank Essar group had mastered the art of diverting funds. The community floated the Nadar Mahajan Bank Share Investros Forum and tried to buy back Essar’s stake through its Share Retrieval Trust. except that all big companies core industries. 90 crore from Nadar community for buyback of shares in an out of court settlement. Nadar community could not muster the much needed funds to buyback the shares. The takeover however entered into controversy when Nadar community protested against the transfer. Oil & Gas. The group achieved good returns on its investments of Rs.530 crore. Essar group acquired 71 percent stake controlling stake in TNMB. which promoted the Bank.steel sector led to a global glut and price recession in steel. 70 crore. Steel accounts for 70. tried to ensure that the control of the bank did not pass out of its hands. Shipping. Essar demanded Rs. 14. The portfolio is rather diverse with very little synergy amongst them.30 percent. The Nadar’s held 80 percent of the bank’s Rs. They had a long association with Tamil Nadu and had been eyeing acquisition of Tamil Nadu Mercantile Bank. Power Telecom and few financial services companies besides other small businesses. There was an 18-months long tussle to gain control Law Board approved it. 70 crore made in TNMB to acquire majority stake two years ago. TMB is bank run by Nadar community of Tamil Nadu. The Esar group by then had given up its hopes to acquire the Tamilnadu Mercantile Bank Ltd. The fight starting from RBI. all working against their risky debt strategy. During 1994.04 crore deposits. Essar then sold its stake for Rs. Essar is one of India’s leading business groups and has phenomenal presence in Steel. while shipping accounts for 17. C Sivasankaran.1044. at a cost of Rs. Besides all these companies Essar holding included two financaial .
Subsequently as a part of its diversification plans it entered the dairy business. It has followed concentric diversification strategy and it is striving to achieve victory in the fairness wars. Cavin Kare’s Fairever. it has not got so much name in this field. The case also talks about how the fairness formula was not more restricted to creams. the recovery process and the eventual success. But. Amul. Fairness Wars Fairness Wars focuses on the fierce competition among the major players in the fairness products segment of the personal care market. curd. There are numerous companies and ventures where Essar holds equity shares and future participation strategy. Britannia kicked off its repositioning exercise in 1997 when it changed its logo and corporate slogan to transform itself from a bakery business to a food business. 4.companies and investments of $50 million in Afro-Asian Satellite Company. but was also extended to soaps and talcum powders. it is sure to reach success. Tanishq’s Success Tanishq’s Success Story talks about Tanishq’s initial failure. Essar group is having a strong step in diversification strategy. and Godrej’s Fair Glow. . Amul: Spreading Wide through diversification The Gujarat Co-operative Milk Marketing Federation (GCMMF) is India’s largest food marketing body and is the apex body of milk co-operatives in Gujarate. 2. and it is not able to compete with Amul. promoted by GCMMF entered into the areas of ice creams. 3. Britannia Industries Repositioning of Britannia Industries looks at the issues relating ot Britannia’s repositioning and diversification exercise. The company followed a concentric diversification strategy which was a failure in the starting and then it has started to pick up. The branded jewelry line from Titan Industries was not very successful when it was first launched in 1995. The case deals with HLL’s Fair & Lovely.
thereby forcing a change in the lifestyles and food tastes of the people in India.panner. The hard luck didn’t end there. Amul launches pizzas in the Indian market in the Rs. The company cut its 2002 sales forecast by $1 billion after the Pentagon awarded the largest military contract in history. flooded the Indian market with a variety of food products. $200 billion. the company’s 2001 delivery projection of 538 aircraft for Boeing Commercial Airplanes was reduced to 500 and 2002 could see deliveries in the low 400s. Shriram Group is an organization with a strong corporate personality.7 billion concern serving 2. based n the recommendations of IMRB. The company announced its plans to lay off 30.7 million customers. Amul launched its branded “yoghurt” and entered the instant coffee market in 2001 through a tie-up with Tata coffee. Many multinational food corporations backed by liberalization and economic reforms in the country. thereby diversifying its portfolio. which conducted a consumer survey to identify the products that customers wanted from Amul. Boeing’s diversification strategy Since moving its corporate headquarters to Chicago in September. a span in which Boeing should lose production of more than 1. with a leadership position in many segments. 2. 20-25 price range. Boeing Co.000 commercial jet workers. CEO Phil Condit estimated it would take 28 to 42 months for airline traffic to recover from 9/11. multi-dimensional Rs. Boeing has weathered one difficulty after another. cheese and condensed milk in 1996. The case study focuses on the entry of Amul into the fast food segment and provides an insight into Amul’s diversification strategy behind introducing the pizzas into the market.000 airplanes. Our Policy is . In 2001. A downturn in the aviation industry took a turn for the worse with September’s terrorist attacks. A multi-locational. Amul took advantage of this by introducing its branded “pizzas” into the market. Shriram today has acquired a significant national presence in the field of financial services. though. This price was significantly lower than those of the Pizza Hut and Domino’s. In 1999. In mid-November.
Over the past few years. while certain subsidiaries such as Voltas International have . The exercise seeks to ascertain what could be the eventual future of each line of business in year to come. We have also successfully diversified into transport and property development. chairman. the broad trend is to move towards being a ‘total solutions provider’. cooling appliances among others. a Tata group company. This has been christented as Project Eagle. “The title is apt. corporate identity and customer care quality through our vast Network Structure.to achieve service exclusivity. the company has been divesting its interests in non-core subsidiaries. which we have also attempted. Despite all our enthusiasm of progress. textile machinery. the panoramic and all encompassing field of vision of that sharp-eyed bird reflects the long range perspective. Ishaat Hussain. Collection Centres and Network Management. Voltal said in a statement distributed at he 48th annual general meeting. Voltas. upon an exercise to chare out a long-tern strategy for the various businesses in its fold. In all of these. Hussain said. Some businesses include electrical and mechanical business. both internationally and in India. This role promises a better utilization of Voltas’ technological capabilities and its global alliances and agencies as well as better prospects of sustained relationships and interactions with our clientele. It’s hard to imagine that we started off as a single operation in a single town. With a vibrant and young management team heading each activity. has embarked. mining and construction equipment. however our management has never forgotten that they have a special responsibility towards the service provided. central air conditioning and refrigeration. The company has decided to strengthen and establish its core businesses. the group is always on the lookout for associations and opportunities.
with the company entering into a joint venture for participating in the queen mary II project. The company had undertaken a financial restructuring which has bought down the debt-equity ration to 0. Singapore and Egypt. . 4. pumps and water purification and sewage equipment.000 crore in the current fiscal. 3. 2. whereby it can penetrate and new overseas regions for many of its diverse businesses. “Diversification is done for short term gains” – Evaluate the statement. water coolers. Explain how Voltas undertook diversification strategy. The company is targeting a turnover of over Rs. Hussain said these measures have been taken to maximize the potential of our chosen businesses. Write a note on the types of diversification “Diversification is the order of the day” – Discuss. Especially in areas such as forklift trucks.been merged with the parent. Voltas corporate strategy includes manufacturing world-class products. The company is also planning to bid for large infrastructure projects in India. Questions: 1. The company’s electrical and mechanical projects and services is expanding its business by establishing marketing offices in Qatar. to sharpen our edge and increase our competitiveness. The central air conditioning and refrigeration will pursue its growth strategy by offering total customized cooling solutions. 1.52 : 1. The company is also planning to expand into mining services related to operations and maintenance contracts for mining equipment with large mining companies in coal and other minerals such as iron ore. Also. will provide an entry an entry into more such marine businesses in Europe. room air conditioners.
Capacity creation in the country was also concentrated on serving domestic markets (this was not small). The cement industry has been a spate of mergers in the past one year. Banking Sector mergers have just begun. Interest costs also will come down if the lenders view the growth as an . which these capacities could not match.1 Introduction: The single larges impact globalization has made on our economy is on size.1. Gone are the days when it was possible to serve domestic markets with local sized capacities. What does this mean for the small company? Can an SSI merge as efficiently as a large corporate? Isn’t this strategy irrelevant for the thousands of sick small companies? The difficulty in finding “associated” entities in the SSI sector is appreciated.1 MERGERS & ACQUISITION STRATEGY 4.UNIT 4 LESSON 4. Corporates must seriously look into developing size as a strategy. Administrative and marketing expenses will come down on a per unit of cost basis. Textiles should not be far behind and only consolidation will make this industry strong in the wake of global competition. The disadvantages of serving markets in fragmented capacities created inefficiencies that were waiting to be corrected. Pharmaceutical industry is in the business of consolidating. Increase in size of purchases will imply more discounts and hence lesser costs. But the globalized export driven economies demanded size and efficiencies. Customers are benefited from not having to go to different producers for their needs. Mergers impact performance in the many ways Marketing becomes efficient with the company able to offer a wider range of products under one roof. Purchasing is definitely more efficient.
Once again. Competition: Mergers with the competitors as a strategy may also imply that suddenly one day we find discussing strategy with our biggest competitor. To survive in such an environment. it is important to be able to implement these standards These are only some of the benefits of larger sizes 4.3 Examples of M&A in India: Tata Teleservices and Hughes Tele. The other equity partners in the venture will be .com have signed a memorandum of understanding (MoU) to merge their basic telephony operations in a deal valued at more than $1 billion. The Tat as will be the single largest shareholder in the merged entity that covers the Andhra Pradesh and Maharashtra circles with a subscriber base of over 160. control over resources and finally control over the decision making processes. there is wide scale retrenchment as there is a definite economy of labour achieved due to scale and duplication of effort. There are issues related to sentiment. Implementation of quality standards is easier across a wider range of production. information flow patterns levels of transparency. The moral hazard of instigating retrenchment is an issue. efficient process giving more leverage to the borrower to bargain on interest rates.000. More often than not.1. 4. Culture: More mergers come to naught on cultural differences. differences in compensation packages etc. These would typically cover work styles. family ownership. Employment: Inherent in a merger process is downsizing employment.2 Dangers of M & A: Control: The possible loss of control consequent to a merger process would be the single largest stumbling block in going ahead with this strategy. Confidential information of the control of which give status in the company may now have to share with competition whose interests is not clear. the costs of implementing the demanding standards of quality especially in the wake of international competition are high.1. leadership status in the limited area of operations.
In 1999 alone. Most companies fail to execute M&As. HLL’ grew rapidly through its acquisitions of Lakme and Brooke Bond.000 companies across 53 countries in 24 different industries.3 trillion worth or mergers and acquisitions were announced. from 19882000. starting three months prior to acquisition and up to two years after. to judge success. the Mittals of the Ispat group and Tlltel Corporation. 60 per ent of the growth year-on-year was driven by internal growth. mostly perceived to be the key. The merger with Hughes Tele. Similarly. Networks. By merging their basic operations. adding to neither their top line nor their shareholder wealth. for an M & A to succeed issues like size of the deal and the relative size of the acquiring company. adding to both their top line (by about 20 per cent) as well as the shareholder wealth (by about 22 per cent). They don’t create any shareholder value above the industry average.Hughes. The balance growth came from M & As. In fact. We were asking the question: Are these companies creating shareholder value? We found that 44 per cent of them were under-performers. In fact. These companies account for 98 per cent of the words market capitalization. $2. Lack of speed in implementation is one. The fault lies with distinguish their vast majority from the minority of successes. do not count. The enterprise value has been arrived at on the basis of the two firms’ business earnings and total investments. 4. In these companies. Only one out of five companies was a value grower. The reason for failure is not lack of strategy.com in aimed at enhancing the Tat as’ presence in the key Maharashtra and Mumbai circles. And we have studied companies for long periods.4 Growth based on M&A: At Kearney has recently looked at 24. seen out of 10 companies emerge failures.1. Nor are successes or failure industry-specific. successful mergers exhibit a number of characteristics or best practices – mostly around rigorous execution. For an M&A activity follows . the two plan to eliminate competition and save costs. And we looked at them over a 12-year period.
higher billing rates. For an a acquisition to be a success./ Foreign customers are also reported to have become scale-sensitive. there is ample M&A activity. Size is thought to be a factor behind the relatively superior performance of frontline players vis-à-vis. M&A drop down. The integration process has to be planned and executed carefully. . However. Here too. Size and M & A Size is said to lead a virtuous cycle. cultural fit. the post-merger scenario requires that the acquiring company dose not behave like a conqueror. achieve core competence.1. greater value addition all help grow a company. company law. The study AT Kearney did with 24. In fact. Tier-II players have unveiled strategies to readdress the handicap. Larger projects. AT Kearney will soon be releasing this study. preferring to work with big players. layoffs are inevitable and they have to be handled as humanely as possible. The next stage shows a flurry of activity in M&A. Against this backdrop. political stability. This is the time when government deregulation and technical innovation may happen.5. Following that is the focus stage where the top three players have up to 60 percent market share.000 companies showed the top three players held about 30 percent market share in the first stage.an ‘S’ curve that takes approximately 20 years. It is also being suggested that venture capital companies have also been forcing the management of Tier-II players to become bigger to survive. post merger management structure among other things. Mega mergers become unlikely as the government steps in or the anti-trust laws come in. The top three companies have 70 percent market share now. M&A is at its peak in the accumulation state. Where economies of scare are involved. On cross border acquisition extra care is required in the due diligence process with regard to tax laws. repatriation of dividends. build economies of scale and avoid hostile takeover. In the final alliance stage. companies not slow down. going from a stage of deconcentration on to accumulation and focus and then closing with alliances. pick and choose carefully and strengthen their true core competence. 4. Companies build scale. Tier-II players in the IT services industry. Cross border acquisitions like some done recently in India are used to gain entry into a market.
However. did little to enhance these companies’ prospects. put through in 2000 and 2001. However. TierII players had already put through a few acquisitions. it may boil down to merging to survive.The traditional approach in addressing the issue of size has been to merge or acquire. The second wave of acquisitions activity in this segment evolved the merger of group companies operating from India. Software. for SSI. which was acquired by Indian Rayon of Birla group. CMC’s acquisition by the Tata’s may set off a wave of re-organisaion within the Tata group after the listing of Tata Consultancy Services. A third wave involving mergers of unrelated. the acquisitions of companies only increased the head count with little to show in terms of increased sales growth. Another distinct possibility appears to be the acquisition of Tier-II players by overseas services companies. There is increasing demand for India-based . the highly-publicized acquisition did not bring in the expected benefits as the transfer of projects from onsite to offshore was slower than anticipated. Only for BFL Software the acquisition appears to have made sense. Silver line Technologies. The mergers may have even acted as a setback to their fortunes. Nevertheless. a wholly-owned subsidiary of Greasim Industries. The deal was valued at a price to sales multiple of around / times compared to acquisitions that are made now at a price to sales multiple of less than 2. the merger with Emphasis may even have been godsend. was merged with Birla Technologies. Trigyn Technologies. possibilities for that seem limited given the objectives of the various promoter groups that are apparently incompatible. the cost paid for the acquisition has for long pegged back the stock’s valuation. Aptech decoupled its software business from its training business and merged its with another service company from the same group – Hexaware. The acquisitions of companies operating abroad made by erstwhile BFL. PSI Data systems. In fact. over the medium-term. when the larger software players were only talking about acquisitions. Similarly. However. In its case. Tier-II players may happen. DSQ Software. In Silver line Technologies’ case. SSI and Aptech are some examples. A few Indian companies have done this route. the mergers. in the heyday of 2000.
INDIA Cements. The values proposition offered by India development centres is now well accepted. Such combinations look set to be in vogue at least in the medium-term. In Haxaware’s case. this kind of partnership has implications for the companies’ operating margins. they have to work as a sub-contracting partner with larger player. Alliances cannot strictly be seen as an alternative to mergers and acquisitions. it is also allying with a consulting firm. one of the prime players in the market for acquisitions has done a backtracking of sorts by pulling out of a company it acquired in 1999-2000. These include Mastek. The sale of Sri Vishnu Cements by India . Now withstanding such risks. In the normal course. overseas services companies may be on the look out for acquiring Indian companies. some have already adopted the alliances route. a partnership ahs been struck with Valtech with the setting up of offshore development centers that will service the customers of Valtech and its subsidiaries. Since the Indian companies lack the resources to address the customer directly. In fact. For its part. How the combinations will evolve over the long-term remains clouded.services from end-customers abroad. Hex aware. the margins are unlikely to be high given that the volumes are guaranteed. these alliances are in the nature of subcontracting of work. Aztec. and Zensar. Many such ventures have collapsed in the past and the future is unlikely to be any different. For example. Mastek has a joint venture with Deloitte Consulting aimed at offering India-based services to the elements of Deloitte Consulting. These partnerships quickly develop trouble over the incompatible objectives of the two partners. Some among the Tier-II players are also adopting the route of alliances address the size handicap. some companies such as Mastek are adopting two-pronged approach involving alliances and acquisitions. According to Aztec. Zensar has started a venture with Han Consulting of China to address the Chinese market. Understandably. For the Indian companies. Against this backdrop.
What are the dangers of M&A? . The deal highlights the need for a beer flow of information to shareholders and would-be investors on the financial implications of acquisitions – big of small.800 crore. In the last three-and-half years. India Cements has been one of the most aggressive buyers of cement units.5 million tones. What are the benefits of M&A? 3. Questions: 1. 1.Cements is driven mainly by the need to generate cash flows and but the company’s debt burden. But this came at a stiff price as the company took on a debt burden of Rs. A spate of deals – Raasi Cement. What re the circumstances under which M&A takes place? 2. Sri Vishnu Cements and units of the Cement Corporation of India – added to its capacity and made it one of the five major layers with a capacity of around 10.
LESSON 4.2 AMALGAMATION STRATEGY 4.2.1 Introduction An amalgamation refers to the merger of two or existing companies into a single new company. It indicates either merger of one or more Companies with another Company or the merger of two or more Companies to form one company. According to section 2(1B) of the Income-tax Act, 1961 (hereinafter referred to as the Act), amalgamation in relation to companies means the merger of one or more companies with another company or the merger of two or more companies to form one company (the company or companies which so merge being referred to as the amalgamating company or companies and the company with which they merge or which is formed as a result of the merger, as the amalgamated company) in such a manner that: 1. All the property of the amalgamating company or companies immediately before the amalgamation becomes the property of the amalgamated company by virtue of amalgamation. 2. All the liabilities of the amalgamating company or companies immediately before the amalgamation become the liabilities of the amalgamated company by virtue of amalgamation, 3. Shareholders holding not less than 3/4th in value of the shares in amalgamating company or companies (other than shares held therein immediately before the amalgamation or by a nominee for the amalgamated company or this subsidiary) become shareholders of the amalgamated company by virtue of the amalgamation otherwise than as a result of the acquisition of the property of one company by another company pursuant to the purchase of such property by the other company or as a result of distribution of such property to the other company after the winding up of first mentioned company. 4.2.2 Tax Concession: If any amalgamation takes place within the meaning of section 2(1B) of the Act, the following tax concession shall be available.
1. Tax concession to amalgamating company 2. Tax concession to shareholders of the amalgamating company 3. Tax concession to amalgamated company (i) Tax Concession to Amalgamating company: Capital gains tax not attracted: According to section 47(vi) where there is a transfer of any capital asset in the scheme of amalgamation, by an amalgamating company to the amalgamated company, such transfer will not be regarded as a transfer for the purpose of capital gain provided the amalgamated company, to whom such assets have been transferred, is an Indian company. Tax concessions to the shareholders of an amalgamating company section 47(vii) : where as shareholder of an amalgamating company transfers his shares, in a scheme or amalgamation, such transaction will not be regards as a transfer for capital gain purposes, if following conditions are satisfied. The transfer of shares is made in consideration of the allotments to him of any share or shares in the amalgamated company and The amalgamated company is an Indian company.
Cost of acquisition such shares of the amalgamated company are later on transferred. The cost of acquisition of such shares of the amalgamated company shall be the cost or acquisition of the shares in the amalgamating company. Further, for computing the period of holding of such shares, the period for which such share were held in the amalgamating company shall also be includes. (iii) Tax concessions to the amalgamated company: The amalgamated company shall be eligible for tax concession only if the following two condition are satisfied.
The amalgamation satisfies all the three conditions laid down in sections 2(1B) and
The amalgamation company is an Indian company
If the above conditions are satisfied the amalgamated company shall be eligible for following tax concessions. (a) Expenditure on Scientific Research Section 35(5): Where an amalgamation company transfer any asset represented by capital expenditure on the scientific research to the amalgamated Indian company in a schedule of amalgamation, the provisions of section 35 which were applicable to the amalgamating company shall become applicable to the amalgamated company consequently. Unabsorbed capital expenditure on scientific research of the amalgamating company will be allowed to be carried forward and set off in the hands of the amalgamated company. If such asset ceases to be used in a previous year for scientific research related to the business of amalgamated company and is sold by the amalgamated company without having being used for other purposes, the sales prices, in the extent of the cost of the asset shall be treated as business income other amalgamated company. The excess of the sale price over the cost of the asset shall be subject to the provisions of the capital gains.
(b) Expenditure on acquisition of patent rights or copy rights or copy rights Section 35A(6) : Where the patent or copyrights acquired by the amalgamating company is transferred to any amalgamated Indian company, the provisions of section 35A which were applicable to the amalgamating company shall become applicable in the same manner to the amalgamated company consequently. The expenditure on patents copyrights not yet written off shall be allowed to the amalgamated company in the same number or balance installments. Where such rights are later on sold by the amalgamated company, the treatment of the deficiency/surplus will be same as would have been in the case of the amalgamating company.
However, if such expenditure is incurred by the amalgamating company after 313-1998, deduction under section 35A is not allowed, as such expenditure will be
eligible for depreciation as intangible asset to this case, provisions of depreciation shall apply. (c) Expenditure of know-how Section 35AB(3): With effect from assessment year 2000-01, where there is a transfer of an undertaking under a scheme of amalgamation, the amalgamated company shall be entitled to claim deduction under section 36AB in respect of such undertaking to the same extent and in respect of he residual period as it would have bee allowable to the amalgamating company, had amalgamation not taken place. However, if such expenditure is incurred by the amalgamating company after 31-3-1998, deduction under section 35AB is not allowed, as such expenditure will be eligible for depreciation as intangible asset. In case provisions of depreciation shall apply. (d) Treatment of preliminary expenses Section 35D(5): Where an amalgamating company merges in a scheme of amalgamation with the amalgamated company, the amount of preliminary expenses of the amalgamating company, which are not yet written off, shall be allowed as deduction to the amalgamated company in the same matter as would have been allowed to the amalgamating company. (e) amortization of expenditure in case of amalgamating Section 35DD: Where an assessee, being an Indian company, incurs any expenditure, on or after the 1st day of April, 1999, wholly and exclusively for the purposes of amalgamation or demerger of an undertaking, the assessee shall be allowed a deduction of an amount equal to one-fifth of such expenditure for each of the five successive previous year beginning with the previous year in which the amalgamation or demerger or takes place. (f) Treatment of capital expenditure on family planning Section 35(1))(ix): Where the asset representing the capital expenditure on family planning is transferred by the amalgamating company to the Indian amalgamated company, in a scheme of amalgamation, the provisions of section 36(a)(ix) to the amalgamating company shall become applicable in the same manner, the amalgamated company. Consequently
Such transfer shall not be regarded as transfer by the amalgamating company. The capital expenditure on family planning not yet written off shall be allowable to the amalgamated company in the same number of balance installments. Where such assets are sold by amalgamated company, the treatment of the deficiency/surplus will be same as would have been in the case of amalgamating company.
(g) Treatment of bad debts Section 36(1)(vii): Where due to amalgamation, the debts of amalgamating company have been taken over by the amalgamated company and subsequently such debt or part of the debt becomes bad, such bad debt will be allowed a deduction to the amalgamated company. (h) Deduction available under section 801A to 801B: Where an undertaking which is entitled to deduction under section 801A/801B is transferred in the scheme of amalgamation before the expiry of the period of deduction under section 80-1A or 801B. No-deduction under section 80-1A or 80-1B shall be available to the amalgamating company for the precious year in which amalgamation take place and The provisions of section 80-1A or 80-1B shall apply to the amalgamated company in such manner in which they would have applied to the amalgamating company.
(i) Carry forward and set off of business losses and unabsorbed depreciation of the amalgamating company: Under the new provision of Section 72A of the Act, the amalgamated company is entitled to carry forward the unabsorbed depreciation and brought forward loss of the amalgamating company provided the following conditions are fulfilled. The amalgamation should be of a company owing an industrial undertaking or ship
The amalgamated company holds at least 3/4the of the book value of fixed assets of the amalgamating company for a continuous period of 5 years from the date of amalgamation. The amalgamated company continuous the business of the amalgamating company or to ensure that the amalgamation is for genuine business purposes.
It may be noted that in case of amalgamation, the amalgamated company gets a fresh lease of 8 years to carry forward and set off the brought forward loss and unabsorbed depreciation for the amalgamating company. 4.2.3. Areas of concern for Amalgamations: `The new Act allows two or more companies to be amalgamated. When this is done these companies become fused or consolidated as a single corporate entity. This fused entity is entitled to all of the properties, rights, benefits and assets fo all of the former companies. It is also subject to all of the liabilities and obligations of the former companies. These provisions are among the most practical and useful features of the new Act. Key features of amalgamation are that: it avoids the necessity and expense of transferring assets to a single entity; and pre-existing contracts remain in place and do not need to be assigned. Amalgamation in therefore a very desirable mechanism to effect the reconstruction of conglomerates or to create a union of companies for operational reasons. In some situations it can also facilitate effective tax planning. The first step in carrying out an amalgamation is to draw up an agreement incorporating the terms and means of effecting the amalgamation including the form of the proposed by-laws and means of effecting the amalgamation including the form of the proposed by-laws. It is desirable that the by-law of one of the amalgamation companies by adopted as the by-laws of the amalgamated entity. After the amalgamation agreement has been drawn up, it must be approved by the Boards of Directors of the amalgamating companies and must be submitted to the shareholders of each of the amalgamating companies for approval. If the shareholders approve of the amalgamation, then Articles of Amalgamation in the prescribed form must be filed with the Registry accompanied by a declaration of solvency; particulars of directors and the registered office.
and The resolutions of each Board provide that: o The shares of each amalgamating subsidiary will be cancelled without repayment of capital. o The articles of amalgamation will be the same as the articles of incorporation of the bolding company. 4. As a result a knowledge of the laws relating to them is . In today’s business scenario all companies are possible targets for acquisitions or mergers. A directors of officer of each amalgamating company is required to make a statutory declaration establishing to the satisfaction of the Register that: Each amalgamating company is and the amalgamated company will be able to pay its liabilities as they become due. Almost every day one reads of a new merger or acquisition doing the rounds of the corporate circles.4 Procedural Aspects of amalgamation: Mergers and acquisitions have become a symbol of the new economic world.2. The realizable value of the amalgamated company’s assets will not be less than the aggregate of its liabilities and stated capital of all classes. It also brings with it complex issues relating to laws and regulations impacting such M & A decisions. and Either that no creditor will be prejudiced by the amalgamation or that adequate notice has been given to all known creditors and no creditor objects except on grounds that are frivolous or vexatious. A fairly similar short-form mechanism is available to enable two or more whollyowned subsidiaries of a common parent body to amalgamate. and o No shares or debentures will be issued by the amalgamated company in connection with the amalgamation.A holding company which seeks to amalgamate with one or more of its whollyowned subsidiaries is not required to prepare and submit an amalgamation agreement for the approval of shareholders if: The directors of each company approve the amalgamation.
4. Hence this subject is assuring greater importance in today’s business world. Combined sales offices. Section 72A of the Income Tax Act provides this incentive. namely There is not one single reason for a amalgamation but a multitude of reasons. staff facilities. Taxation advantages: Mergers take place to have benefits of tax laws and company having accumulated losses may merge with profit earning company that will shield the income from taxation. staff.5 Reasons for amalgamation: There is not one single reason for a amalgamation but a multitude of reasons. Synergy is also possible in areas of production. 1961.2. At the same time they are critical to the health of the businesses and thereby the shareholders. Other advantages: Growth Diversification Production capacity reduction Operating efficiencies Procurement of supplies Financial Strengths (because of larger size of merged assets) (ii) (iii) . namely (i) Synergy in operating economies: When two or more undertakings combine their resources and efforts they may with combined efforts produce better resuls than two separate undertakings because of the savings in operating costs viz. 1956 and the implications under the Income tax Act.extremely useful. plant management etc. The author has attempted to bring out the fundamental issues under the companies Act. technology etc. finance.
units are being hives off. has made corporate restructuring more relevant today. Supreme Court of India in the landmark judgment of HLL-TOMCO merger has said that “in this era of hypercompetitive capitalism and technological change.2. industrialists have realized that mergers/acquisitions are perhaps the best route to reach a size comparable to global companies so as to effectively compete with them. The harsh reality of globalization has dawned that companies which cannot compete globally must sell out as an inevitable alternative:. which did its operations separately in their business. has emerged as the best form of survival and growth. takeovers and acquisitions. also in the market.6 Amalgamation Evolution in India: Compelled by the present economic scenario and market trends. To the last few years. 4. Companies are being taken over. Later due to heavy competition by many players they . One significant cost disadvantage could be the implication of Stamp Duty which is applicable on transfer of assets from one owner to another. In some states the rate of duty is significant and hence may to some extent neutralize the cost advantages of savings in tax. they were in a same business holding major share in their market. joint ventures tantamount to acquisition in the last few years must be more than the corresponding quantum in the four and a half decades post independence. corporate restructuring through mergers. Same like Lipton India Ltd. The opening up of the Indian economy and the government’s decision to disinvest.2. 4. India has followed the worldwide trends in consolidation amongst companies through mergers and acquisitions. In some states the rate of duty is significant and hence may to some extent neutralize the cost advantage of savings to tax.7 Example of Amalgamation: Broke bond India ltd.One significant cost disadvantage could be the implication of Stamp Duty which is applicable on transfer of assets from one owner to another. amalgamations.
Questions: 1. In the year 1994 they merger together and the new amalgamated company is called by Broke Bond Lipton India Ltd.planned to joined together to strengthen their business. Now they pay a vital role in their market. . It shows positive results for amalgamation. 4. What are the requisites for amalgamation in India? What are the legal constraints of amalgamation? Identify the difficulties faced in amalgamation. And it helps in many aspects. 2. Bring out with some examples of amalgamation. 3.
2 Types of Joint Ventures: Joint Venture are common within industries and in various countries. This led to a confrontation between the multinationals and developing countries. It is also a common practice to split the local share holding between a partner and various public participation (including public sector firm or industrial development organization). In case of the manufacturing sector multinationals felt that it was not necessary to have 100 cent ownership to exercise control.1 Introduction After World War II. For example. and many expropriations.3 JOINT VENTURE STRATEGY 4.3. many countries adopted the socialistic goal of state ownership of productive activities in their economies.3. there are more than two parties involved. In some cases. From the point of view of Indian organization. But they are specially useful for entering international markets. A joint venture may be brought about by: (i) Both the foreign and local entrepreneurs jointly setting up a new firm Foreign firm buying an interest in a local firm A local firm acquiring shares in an existing foreign firm.LESSON 4. Between two firms in one industry . By them term joint venture what is generally referred to is the Indian Joint Venture Abroad. new contractual forms dealing with mineral-based participation with foreign firms. Pepsi’s Indian Joint Venture involves Voltas and Punjab Agro Industries Corporation. particularly in extractive industries. A joint venture is an enterprise which is jointly owned and managed by a local entrepreneur and a foreign entrepreneur. the following types of joint ventures are possible. As a result. 4.
Europe and America have a good number.73 crores. there were 189 joint ventures with a total equity of Rs. 337.3 crores and Rs. consultancy. mostly in South-East Asia.. 72. L&T Info city Ltd. Between an Indian firm and a foreign company in India.. other repatriations of Rs. 4.3. have been removed. Between an Indian firm and a foreign company in a third country. The following are the some joint venture companies in India. The new economic policy of India is expected to encourage foreign investment by Indian companies. textiles. Standard Life Assurance Company. HDFC Standard Life Insurance Co. Ltd. 1917 crores under implementation. The 1990s was a decade of real test for Indian companies in this respect. The total benefit accrued to the country from the joint ventures till the end of 1991 was only Rs. 42. 2. the Rs. The Indian joint ventures are mostly in engineering industries. electrical and chemicals.98 crores from additional investments. shipping. 1. (APIIC). financing restrictions have been eased. Between two firms across different industries. Between an Indian firm and a foreign company in that foreign country. The curbs on growth. Further. Indications are that several Indian companies are drawing up plans for establishing subsidiaries or joint ventures abroad.45 crores. The largest numbers of the Indian joint ventures are in Asia.209 crores in operation and 520 with total investment of Rs.. domestic market is becoming increasing competitive. 451. areas of business opened to the private sector companies have been substantially enlarged and foreign tie up policies have been liberalized. 71 crores joint venture between L&T and Andhra Pradesh Industrial Infrastructure Corporation Ltd. . All these factors should encourage the Indian companies to invest in other countries and take advantage of he economic liberalization in many foreign countries.. There is also a significant number in Africa. and Europe’s leading mutual life company. This included dividend of Rs. construction. even by mergers and acquisitions. trading.3 Indian joint Venture’s Abroad: At the beginning of 1977. the 74:26 joint Venture between HDFC Ltd.
4. Further. Commins Engine Company and Tata Engineering and Locomotive Company formed a joint venture to manufacture Talco engines 6. it would be much less when there is equity holding by the government sector and the public. The local partner would be in a better position to deals with the government and the publics. Many foreign companies entered the communist.3. Partnership with local firms has certain specific advantages. 4. Other benefits are o Minimizing risk . Lusas-TVS is a joint venture between TVS and sons. (BSLICL) is an joint venture between the Aditya group and the Canada based Sun Life Financial. In some cases. 3. socialist and other developing countries by joint venturing.3. The important reasons or advantages of joint venture are the following: 1. UK. Birla Sun Life Insurance Company Ltd. 2. 5.4 Advantage Strategic advantages are important for joint ventures to be set up and sustained. One important advantage of joint venturing is that it permits a firm with limited resources to enter more foreign markets than might be possible under a policy of forming wholly owner subsidiaries. India and Lucas plc. In countries where fully foreign owner firms are not allowed or favored joint venture is the alternative if the international marketer is interested in establishing an enterprise in the foreign market. there would not be much public hostility when there is a local partner. Ashok Leyland and Singapore Telecom are some of the joint venture companies. it is also possible to swap know-how (such as patent rights for equity) in forming joint venture as a means of securing ownership in foreign operations. Tata Industrial and Bell Canada. 4.
so for. A right local partner for a joint venture can have major impact on firm’s competitiveness because such a partner can serve as a cultural bridge between the company and the market. Example Prolease. 6.o o o o o o o Reducing an individual company’s investment Having access to foreign technology Broad-based equity participation Access to governmental and political support Higher profitability Opprotunities for regular technology up gradation Entering new fields of business and synergistic Advantages. Example. Other disadvantages are. But Porlease had not invested any sum in KGISL. i. Prolease’s investment decision would not hold good any more. 4.3. Foreign exchange regulations iii. Some companies after creating the joint venture. IRDA guidelines specify a maximum stake of 26 percent for the foreign joint venture partners. Problems in equity participation ii. 2. So they want to call off venture. they felt individual benefit. application development and R&D service. systems integration.5 Disadvantages: 1. entered into a tie-up with KGISL in October 2001 to cover the entire gamut of IT service including software development. So. 3. MRTP and IRDA are some acts restrict the foreign companies to enter into joint venture strategy. and with the partners deciding to call off the venture. lack of competition in the domestic market etc. foreign companies not like to enter joint venture in India. There is no goal convergence between the shareholders of the Indian companies. a process solutions provider in the US. 7. 4. Lack of proper coordination among participating firms . 5. testing. India was not able to make much progress in investing abroad due to various reasons like government control.
. and enhance competitive power in the context of competitive rivals and collusive agreement.3. In the organizational learning view point. Cultural and behavioral differences 4.iv. joint ventures represent a form of defensive investment by which firms hedge against uncertainty. Joint ventures are used as a vehicle to exchange an imitate knowledge. a joint venture is used to transfer organizationally embedded knowledge that cannot easily be blueprinted or packed through licensing or market transactions. though controlling and delimiting the process of exchange to limit the dissipation of firm-specific advantages can itself be a cause of instability. In the strategic behaviour. deter entry through preemptive patenting. and Organizational learning Transactions costs theory views joint ventures as an efficient method to reduce both transactions costs and the hazards of economic transaction.6 Motivation for Joint Venture Formation: There are basically three perspective to explain the motivations for forming joint ventures: Transaction costs Strategic behaviour.
An organization’s culture is bred from a complex combination of sociological forces operating within its boundaries. Only top management has the power and organizational influence to bring about major change in a company’s culture. A deeply rooted culture well matched to strategy is a powerful lever for successful strategy execution. A results-oriented culture that inspires people to do their best is conducive to superior strategy execution. or modify organization capabilities and resource strengths in response to ongoing customer-market changes. Strong cultures promote good strategy execution when there’s fir and hurt execution when there’s little fit. benefits. An ethical corporate culture has a positive impact on a company’s longterm strategic success. and internal works environment. deepen. Adaptive cultures are a valuable competitive asset-sometimes a necessity-in fast-changing environments. Identifying and empowering champions helps promote an environment of innovation and experimentation. A strong culture is a valuable asset when it matches strategy and a dreaded liability when it doesn’t. It’s a task that can’t be delegated to others. values and behavioral norms are like crabgrass: deeply rooted and difficult to weed out. Values and ethical standards must not only be explicitly stated but must also be ingrained into the corporate culture. and symbols are a fundamental part of culture-shaping and reshaping efforts. it. The faster a company’s business environment changes. an unethical culture can undermine.1 Introduction: Corporate culture refers to a company’s values. ways of operating. the more attention managers must pay to keeping the organization innovative and responsive. A wards ceremonies. traditions. role models. business principles. it is difficult to change. Once a culture is established. It’s a constant organizationbuilding challenge to broaden.4 ORGANISATIONAL STRUCTURE AND CORPORATE DEVELOPMENT 4. In a strong-culture company. High ethical . MBWA is one of the techniques effective leaders use to stay informed on how well strategy implementation and execution are proceeding. What organizational leaders say and do plants the seeds of cultural change.4.LESSON 4. Today’s dot-com companies are classic examples of adaptive cultures. An organization’s culture is either an important contributor or an obstacle to successful strategy execution.
Over time. and operating practices. Corrective adjustments in the company’s approach to executing strategy are normal and have to be made as needed. beliefs. and new operating practices provided such change are compatible with core values and beliefs. Such cultural taints are often precursors to declining company performance.standards cannot be enforced without the open and unequivocal commitment of the chief executive. these are often dominated by self-serving politics. and organization members are honored and rewarded for displaying cultural norms. the elements of company culture originate with a founder or other early influential leaders who articulate the values. Cultures are perpetuated as new leaders act to reinforce them. the ethical standards expected of organization members. strategies. new strategies. the work climate in adaptive-culture companies is receptive to new ideas. resistance to change. as new employees are encouraged to adopt and follow them. and that then get incorporated into company policies. these values and practices become shared by company employees and managers. the values and beliefs that senior managers espouse. innovation. the tone and philosophy underlying key policies. Culture thus concerns the atmosphere and feeling a company has and the style in which it gets things done. In fast-changing business environments. Managers are an organization’s ethics teachers-what they do and say sends signals and what they don’t do and don’t say sends signals.4. One significant defining trait of adaptive cultures is that top management . Very often. Some cultures are unhealthy. and the traditions the organization maintains. Company cultures vary widely in strengths and in makeup. 4. a creed of values statement. and principles to which the company should adhere.2 Developing corporate culture: Building a strategy-supportive corporate culture is important to successful strategy execution because it produces a work climate and organizational esprit de corps that thrive on meeting performance targets and being part of a winning effort. experimentation. Some cultures are strongly embedded. An organization’s culture emerges from why and how it does things the way it does. adaptive cultures are best because people tend to accept and support company efforts to adapt to environmental change. and inward focus. while others are weak and fragmented. as stories of people and events illustrating core values and practices are told and retold.
Because each instance of executing strategy occurs under different organizational circumstances. a strategy implementer’s actions agenda always need to be situation-specific-there’s no neat generic procedure to follow. and a social conscience. Changing a culture requires competent leadership at the top. cultural norms are so well observed that they automatically guide behavior. executing strategy is an action-oriented. The philosophy. and the communities where it operatesand tries to satisfy all their legitimate interests simultaneously. a mismatch poses real obstacles. serving as role models for ethical behavior. strict compliance and enforcement procedures. stockholders. And. goals. rules. make-the-rightthings-happen task that challenges a manager’s ability to lead and direct organizational change. It requires symbolic actions and substantive actions that unmistakably indicate serious commitment on the part of top management. A close strategy-culture alignment promotes implementation and good execution.genuinely cares about the well-being off all key constituencies-customers. “doing the right thing. especially a strong one with traits that don’t fit a new strategy’s requirements. Such standards connote integrity. and practices implicit or explicit in a new strategy may or may not be compatible with a firm’s culture. Successful managers do a number of things to exercise stratregy-executing leadership. top managers must practice what they preach. and socially responsible decision making. listening and talking to organization . create or reinvent business processes.” and genuine concern for stakeholders and for how the company does business. The stronger the fit between culture and strategy. procedures. moral values. major suppliers. Healthy corporate culture are also grounded in ethical business principles. Moreover. employees. and achieve performance targets. and supervision to enforce what people should and should not do rather. Changing a company’s culture. To be effective. as we said at the beginning. and reiterated management endorsements. corporate ethics and values programs have to become a way of life through training. the less managers have to depend on policies. values-driven decision making. is one of the toughest management challenges. manage and motivate people. They keep a finger on the organization’s pulse by spending considerable time outside their offices.
They encourage people to be creative and innovative in order to keep the organization responsive to changing conditions. And they actively push corrective actions to improve strategy execution and overall strategic performance. cheerleading.3 Adapting to changing environment: The major focus of corporate strategy is to present a method by which any business can adapt to a changing envoronemnt. Corporate strategy theory presents us with the following questions: Where are we now? Where do we want to be? How do we get there? Corporate Self Analysis Corporate self analysis is about answering the first question. Areas to look at within corporate self analysis include: Is the business aware of who it’s stakeholders are? Does your business have a mission statement? What are the long term objectives of your business? What are your current business strategies? – Are they simple to understand and communicate to the workforce?. or Are they difficult to understand .members.4. 4. They enforce high ethical standards and insist on socially responsible corporate decision making. The focus of corporate strategy is to enable a business to improve it’s competitive advantage. and what not to change. Alert to new opportunities and anxious to pursue fresh initiatives. what to change. They take pains to reinforce the corporate culture through the things they say and do. where are we now? The logic is to examine the current status of the business. They support champions of new approaches or ideas who are willing to stick their necks out and try something innovative. They work hard at building consensus on how to proceed. coaching. and picking up important information.
the developing new product ranges. STRATEGIC ALLIANCES. Who are your biggest competitors? Review your business internally. what are your objectives? – Achieve x amount of growth/cost reduction? What are all your options? – does it have to be done in a certain manner? Examine all options. the business does little in terms of reaching to changes in the marketplace. thereby generating increased profits. sell your product direct to the consumers.join forces with one of your competitors to develop a stronger position in your marketplace. and communicate? What is the state of the marketplace? – Is it in growth/decline?. INTEGRATION – Integrate in a backward manner by going back and buying up your business suppliers to achieve growth by getting lower priced raw materials. you need to consider: The reasoning behind the strategy. NEW MARKETS. look at your business – Does it support growth and adaptability to change? How effective are your production processes? How well do Sales/Personnel/Marketing/Finance perform? How well does the business control its internal reasons? Formulating Strategy When devising any business strategy. . DEVELOPMENT – Spend vast amounts of money on research. Integrate in a forward manner by buying your product distributors. by buying your competitors to gain increased market shares. Integrate in a horizontal manner. when strategy is going to the most feasible in terms of acceptance? When evaluating the different strategic direction a business can take there are several routes a business can explore: DO NOTHING – In this scenario.the business decides to embark on positioning itself into new markets.
the next step in the process is to look at the different strategies to see which one the most suitable: What is the cost of each potential strategy likely to be? Does the business have the correct current machining capabilities(if applicable?) In terms of evaluating any potential strategy. questions raised by Nutt on implementing a strategy include: Does implementation exceed the manager’s authority to set? Does a technically sound plan exist? Can the manager shape the plan so it falls under his/her control? Does the plan deal with a recurring problem? .The overriding logic of formulating strategy is – that any strategy must be in line with business objectives. Studies of how to implement a strategy by Nutt showed that the success rate for strategies was greater when the strategic managers sent more time looking at how implementation issues. clear. how soon will the costs be recouped?. as opposed to merely forcing a strategy. But above all make sure everyone understands what is expected of them. and will the benefits to the business be long-term?. ensuring stakeholders needs are maintained and that needs of the surrounding environment are adhered to. the first in the financial viability of the strategy. The second element must be the effect of a strategy on the current facilities and resources. After developing several potential strategies. does the business require additional employees to both implement the strategy and maintain it? Implementing Strategy There is no clear cut advice that can be given on how to implement a strategy. The only advice we can give is to keep it simple. precise. two key elements need to be observed.
and finally to ensure the review of the strategy: 1. 3. then strategic reviews need to take place from the management of the business to assess the business in relation to it’s environments. Ensure regular review and adjustments to the targets set within the strategy as and when necessary. What are the requirements of joint venture? Under what circumstances joint venture in useful? Mention the difficulties faced by joint nature players in India. From the outline of the strategy. the next step is to define the processes and tasks which are needed to implement the strategy. accordingly adjusting the strategic focus of the business. Decide who will be responsible for implementing the strategy 3. Give some examples of joint venture in India under different categories. Questions: 1. 4. Break the aim of the strategy into clear implementation tasks 2. If a business is to remain competitive in an ever changing environment. . Can plan acceptance be negotiated with the affected parties? Should consultants be used? Do time constraints exist? When looking at the implementing strategy it is advisable that you keep the aim and text of the strategy as simple as possible. From identifying the tasks for implementation the next phase will be identify who will be responsible to carry out the implementation stages. 2.
Management is interdisciplinary by nature: an engineer manager knowing only engineering is not enough. To be multi-functional To be multi-disciplinary To be multi-sector think-tank To be disperse rapidly new knowledge . 2. 3. information technology. 4. Monitoring is a managerial responsibility and requires to be exercised. legal and economic environment within which he has to operate. Organizations are also cradled of power games and political behavior hence cannot be totally divorce from political governance. 4. Developments in Line-Staff functions: 1. Economic and social prophets have the dismal record ad predicators to technology and its impact.LESSON 4.1 Introduction: Business enterprise at their inception are primarily economic entities but as they grow the emphasis shifts towards a more social character. the strategic implication of his actions and inactions and so on and so forth. He is also required to know behavioral science. Unless the political culture of organization changes. To groom managers to be fit to survive is necessary. he has to have understanding of the social.5. the way the structures and systems operate within the firm. once the technology become effective careful monitoring of the actual impact (both beneficial and detrimental) is essential. In today’s complex environment a manager can hardly thrive on native brilliance and intuitive understanding of the situation he confronts.5. Its actions are to be justifiable in terms of spirit in which society allows it to function. Therefore. The impact of technology is actually more difficult to predict than most other factors. tools. Management is not a mere discipline but a culture with its own values. Corporate governance is not blind adherence to externally imposed norms and codes only but a commitment to the spirit of internally developed management ethos.2. responsible corporate governance will come about. political.5 LINE AND STAFF FUNCTIONS 4. the way finances is managed. beliefs.
People today don’t want to be “used” by the organization as “Victims” or “Pawn”. The more planning a worker does and the more responsibilities he takes for what he does.. To be disperse rapidly new capabilities 6. Transparency means established simple norms. Culturally diverse workers want to be “themselves” and retain their cultural identities. If redundancy is present the CEO is to leave his cocoon of “Deciding & Directing” to “Managing Organizational Learning”. “Salad bowl”. they resist conforming to the “one size fits all” organizational culture. the more productive be can be. Binding between employer and worker can be achieved either through life-time employment (as in Japan) or through partnership in time of profit and loss. One needs a management structure which magnifies and indeed respects the roots of a person and yet a true team with diversities is made. Rather they want. and information limited to very few. if not done to do it in order to match with development.5. Predictability of behavior and action is required Rules and laws help make behavior predictable but total adherence is not a good way to assure success. Effective delegation no longer means delegation only but release of authority as well as giving of responsibility. Empowerment involves trust and demands true leadership. A worker who does only as instructed can do only harm. Framing of rules must include organizational culture. Top team must examine and improve its own ability to learn. “Melting pot’ assimilation of culture is out. The time has come to choose between capacity and transparency. Opacity means a plethora of complex rules. To have distilled knowledge reservoir about place and people To the coming age of the new technology worker. the overall profile of the business scenario is as follows: . massive flow of information across the interfaces. compartmentalization. Hierarchies are replaced by self-managing structures like networks multidisciplinary teams etc. concept is in. Redundancy may be in the skills of workmen and also in the total learning available with managers. work cannot be organized if planning is divorce form doing. Broadly speaking. Transparency returns good dividends.
1. limited tenure of chief executives and a multilevel and slow decision making process. Integral Management approach contrary to fire fighting 3. 4. To change mind-set Awareness of objective and compare data at all levels Clarity of customers. Be proactive instead of reactive 2. 3. type) 4. 2. To grow core areas. What re the developments in line and stag functions? 2. What are the various levels at which functions are decided? . Structural Level 1. 4. Scientific Monitoring Implementation Level 1. 2. In multinationals a highly specialized management. staffing and re-staffing wherever required only for business strategy point of view. 3. trimming off staff etc. deadline and frequent mergers. ‘pensioner’. In family enterprise top post in inherited 2. Team of self-propelled managers (not those ‘look busy’. Authority and Accountablity 3. what they want for others Ensuring shop-flow employees capable of implementing top decision Questions: 1. In private sector. De-staffing.5. 4. Matrix of Responsibility.3 Strategic for different levels: Core Level 1. it is centralized control and closed system based on divide-&-rule policy. In public sector top heavy administration. stiff competition.
Change may working hours and shift change. whether in the context of their pattern of life or in the context of their work situation in an organization. It is necessary way of life in most organization for their survival and growth through there many may be some discontentment. job redesign or re-engineering. Technological and Psychological reasons. Factors to be considered for the change management are: . a. A reactive change may be an automatic response or a planned response to change taking place in the environment conditions change in Managerial personnel.6. persons learn to meet the change and adopt themselves to the changing situation here resistance to change would be short – term phenomenon. Deficiency in existing organizational pattern. Man has to mould himself continuously to meet new demand and face new situations.1 Introduction: Change is the Law of Nature. Fundamental change c. during the early days of the change. Types of Change Changes can be broadly divided into Work change Organisational change Work change includes change in Machinery. Radical change b. size of the organization. A Proactive change has necessarily to be planned to attempt to prepare for anticipated future challenges. Change could be both reactive and proactive.6 MANAGEMENT OF CHANGE 4. Method of work. Government policy. job enlargement and enrichment. working hours.LESSON 4. Despite the fact that change is persistent phenomenon. it is a common experience that people resist change.
Triggers for change Type of change needed Extent of resistance encountered Extent of Urgency created Reasons for choice of change strategies Reason for resistance Factors which helped most in over coming resistance Factors given most consideration during change Methods used most to activate people Methods used most to support people during change Most important implementation actions taken. ii. While a research was undertaken to get additional information apart from the closed ended responses in the questionnaires. x. vi. viii. v.i. iv. RBI guidelines (for banking organizations) Over size. it revealed the following: Triggers for Change Triggers Increased competition Financial Loss Drop in profit An opportunity (or) Event foreseen Improper utilization of staff Additional Information Other triggers were. ix. vii. xi. Number of respondents Opting 4 None None 1 None . iii.
Inferences We find that the most important. Amount of resistance Encountered Extent of Resistance High Low Medium Number of Respondents Preferring 1 2 2 . Increased competition Type of Change Needed. Triggers types of Change Major Modification Minor Modification Immediate Change Minor Transformation Major Transformation No. trigger as perceived by majority of the respondents is. Structural change Inference Most of the respondents have preferred a ‘minor modification’ followed by an ‘immediate change’. of Respondents - 3 2 - - Additional Information The others type of change needed was.
while 1 respondents each have considered ‘confidentiality’ and ‘Post change motivational’. as the change was needed. Reasons for choosing a specific change strategy Reasons No. Inferences 2 unit of the 5 respondents have considered ‘employee motivation’. of respondents Inferences 3 of the respondent have perceived that the change in their organization was very urgently needed. or low resistance. Amount of Urgency Extent of Urgency No. Majority have taken the changes in their organization to be very urgent. of Respondents Employees Participation Employee Motivation 2 Confident ability 1 Cultural Fit Post change motivation 1 High 3 Low 2 Additional Information For educational institutions it was necessary to provide a strong base to students for a best career. did not encounter nay resistance. . In fact one among the respondents.Inference Most of the respondents have encountered either medium (or) moderate resistance.
of respondents Inferences Majority have considered ‘fear of change’ as a main reason for resistances. . followed by ‘resentment of change’ and ‘emotional hang up’. of Respondents Employee Participation 1 Communication 3 Training 2 Motivation 3 Education 1 Fear of change 2 Personal compact - Resentment of change 1 Lack of faith - Emotional hang-up 1 Additional Information The trade unions decision to uphold the organization premier position. Factors which helped to overcome resistance Factor No. Inferences Majority of respondents consider ‘motivating employees’ and ‘Communication of change philosophy’ to be more important. ‘Education’ and ‘Employee participation’. followed by ‘Training’.One among the 5 respondents did not give his opinion in this aspect. Reasons for Resistance Reasons No.
of Respondents Choosing the factor Inference The major factors considered by most of the respondents are ‘organisation structure’ and ‘intended result’ followed by ‘reward system’. Additional Information One of the respondents opined that the employee must be made to realize that he can assist the organization realize it position it’s a premier. . Method used most to activate people Method Training Public relations Personal contact 3 Workshop and conference 2 Communicating with employees 1 No. This is followed by ‘workshop & conferences’ and ‘Communicating with Employees’.Factor Most considered in change Factor Reward System 1 Organization Organisation culture Structure 1 2 People in the Organisation 1 Intended Result 2 No. culture of the organization and ‘people in the organization. of Respondents Inferences 3 Most of the respondents have used ‘Training’ and ‘Personal contact’ mainly to activate people.
Inferences The most used support method as per the majority of ‘respondents’ opinion is ‘expressing confidence working with employee’. of Respondents - 2 2 Additional Information Devising new systematic procedure through R & D. ‘having empathy with people’. Procedures to improve customer service through computerization Plans to achieve set goals are to be implemented slowly and steadily. . which is followed by ‘providing coaching’.Most used support method Support Method No of respondents Expression Confidence 3 Providing Coaching 2 Empowering Key people 1 Having Empathy 2 Using Rewards 1 Additional Information The frictionless assignment of work would prevent egoism among employees. Most Important Implementation Action Action Project Management Short term Plans Budgets 2 Strategies to Implement vision 2 Monitoring change Controlling changes No. ‘empowering key people’ and ‘using rewards’.
“Monitoring change” and “Controlling change”. . Monitoring and controlling change process are considered equally in importance. Strategies. ‘Organistion Structure’ and ‘Intended Result’ are the most important factors considered while brining about the change. ‘Training’ and ‘ Personal contact’ are most used to activate people. the change was expected by the organization. employees should be convinced of vitality of their role in the organization prosperity. there was no resistance to the change process. ‘Expressing Confidence with employees’ is the most used support activity Budgets. The trade unions. But in certain situations similar to the one as described by one of the respondents. The changes needed in response to increases competition. “Strategies to implement vision”. short terms plans. are to be very urgently done. “Project Ma” Short Term Plans & Budgeting”.Inferences There is a equal consideration given for the action. it is thought that all changes will have to encounter a resistance. Fear of Change’ as normally perceived is the major cause for resistance. Findings Normally. ‘Employee Motivation’ and ‘Effective Communication of ideas of change’ are more important to overcome resistance. In fact.
relevance or timeliness. The change agent may be any where in the organization and will meet the denial from above and below: Second Stage :Dodging: Theme – Ignore this. It is agreed that a small amount of change is needed. . As the change is coming from outside. but what is questioned is whether it is critical to change or not.6.2 Phases and level of organizational change: Stages of Organisational Change: Denying Dodging Doing Sustaining 1 2 3 4 First Stage : Denying : Theme – This does not affect India It starts with a presentation of he date supporting a change into an organization. This anger is expressed in a passive – aggressive non-participation.4. Don’t get involved It begins when the accumulated evidence shows that the change process is likely to take place. It centres on processing information its value. dodging is the equivalent of organizational anger.
such as budgeting. a) If the team labour is not divided well between teams and individuals this can were the relationships and destroy the whole change process. This stage occurs quickly and sometimes startles the observes in its contrast. There needs to be bargaining as to what can or cannot be put into the change. In fact. is read at this phase as disagreement and insubordination. For the manager. Third Stage : Doing : Theme – This is very important. Another method to subvert is to change the form. emerge. things are uncovered that require change. At this stage the focus phones from ‘change generators’ to the ‘change implementers’. We have got to do it now. It is earmarked by energy used in going for the change. If it is on personnel.A sub-ordinate can confuse the issue by pretenting the weakness of the approach to the change. if the discussion is on work – flow change. . restructuring. sometimes indicating agreement. quiet behaviour. change it to bulk capital budget funding or to the expense budget. hiring. The need for the team to adapt the process and approach is essential in this stage to make in their own. Minor moves. change it to personnel. b) The dangers of overloading the change process with trying too may things. The difficult part of gaining consent and involvement is over to sit back and let it happen This is dangerous for two reasons. As the specific change is worked on. the general tendency is to let the momentum take over.
4. 3. What is resistance to change? Why change management is important in the present context? What are the difficulties in management if change? What is the process of management of change? . The successful come completion of this stage is the integration of the change into the habitual patterns of behaviour and structure. 2. Questions: 1. where the whole thing collapses under its own weight. The other is a focusing of energy. Fourth Stage : Sustaining : Theme – We have a way of proceeding This stage is less well defined but is a key stage of any change but is a key stage of any change process. This is the refreezing stage and the ‘change adopters’ come into prominence. What required is an accurate drawing of the force fields of the change to that the critical elements in the change are pinpointed and appropriate goals are set.There are two outcomes to the issues of this stage (i) (ii) One is death. It is the focusing of energy to follow through an programmes and projects.
The Board will set objectives and parameters.1 Introduction: The Strategy will be implemented through the concerted actions of all staff working within a partnership framework.1. Management will tae ownership. outlined above. and will review progress in achieving objectives.1 IMPLEMENTATION OF STRATEGY 5. give leadership and agree with staff clearly defined roles and responsibilities in achieving targets and milestones. manageable approach to organizational alignment. and which will drive and complement business planning activities. the business. Critical paths Resouces requirements Linkages to budget “The Strategy Implementation Process provides a comprehensive. for the implementation of the strategy. and the polities or the . It is also recognized that resources issues may affect the full implementation of the strategy.2 The Strategy Implementation Process: It is done through: Action Plans Timelines.UNIT 5 LESSON 5.1. The following actions have been identified which will help to achieve the eight Priority Goals.” Phase I – Data Collection and Analysis Workshops on Strategic Alignment and interviews with selected executive and employees provide the key to uncovering hidden obstacles standing in the way of implementation: Perceptions of management. 5.
In addition. and integrated management development programme. It is anticipated that other issues will emerge as the process evolves. 2. The project groups will comprise of management and staff.4 Internal Implementation 1. focused organizational goals whose achievement will implement the strategy Phase 3 – Implementation Strategic Alignment is accomplished by deploying constructive progress and policies: Communication of the organization’s purpose and strategy Training of missing skills and knowledge Collection of essential measurements Setting of customer-derived unit goals Creating of strategy-driven incentive pay 5. goals. and who have some expectise/knowledge. in . with a particular focus on business planning and performance management. will be provided. directives and policies. project groups will be established to bring forward detailed proposals in respect of issues arising from the eight Priority Goals. who have expressed an interest.1. Unsupported dimensions of he organization’s strategy Phase 2 – Facilitation The management teams derives clear. will a particular focus on business planning and performance management.organization Conflicting programs. To assist management in carrying out its role in delivering the strategy and whatever may evolve in the future. consistent. at all levels. compatible objectives: Future state of the organization required for strategic success Congruent.
The job of strategy execution is to convert strategies plans into actions and good results. 3. annual business plans will be developed and these will also draw on the work of the project groups. Exerting the internal leadership needed to drive implementation forward and to keep improving on how the strategy is being executed.. In deciding how to implement a new or revised strategy. managers have to determine what internal conditions are needed to execute the strategic plan successfully. Reating a strategy-supportive work environment and corporate culture. to set terms of reference. Tying rewards and incentives to die achievement of performance objectives and good strategy execution. to monitor and support progress and to ensure the integration of project group activity and outputs into progressing the organization’s strategy. Shortfalls in performance signal weak strategy. through the Partnership Framework. Regional and Divisional level. The process of implementing and executing strategy involves: Building an organization with the competencies. Capabilities. weak execution. Exerting the internal leadership needed to drive implementation forward . or both.the topic areas. Then they must create these conditions as rapidly as practical. Instituting best practices and pushing for continuous improvement in how value chain activities are performed. At Unit. 4. to agree resources and deadlines. A Steering Group will be established. Establishing strategy – supportive policies and procedures. These plans will be directly related to the Priority Goals and overall organizational strategy. The rest of successful strategy execution is whether actual organization performance matches or exceeds the targets spelled out in the strategic plan. and resource strengths to carry out the strategy successfully. Installing support systems that enable company personnel to carry out their strategies roles successfully day in and day our. Developing budgets to steel ample resources into those value chain activities critical to strategic success.
The key to leveraging a company’s core competencies into long-term competitive advantage is to concentrate more effort and more talent than revivals competitive advantage is to concentrate more efforts and more talent than revivals of on strengthening and deepening organizational competencies and capabilities. (2) between strategy and budgetary allocations. and (3) structuring the internal work effort and melding it with the collaborative efforts of strategic allies. and intellect. create unique organizational capability. (4) between strategy and internal support systems. Implementing strategy is not just a top-management function. and (2) coordinating and networking . knowledge bases. The tighter the fits. when linked. the more powerful strategy execution becomes and the more likely targeted performance can actually be achieves. All managers function as strategy implementers in their respective areas of authority and responsibility. (3) between strategy and policy. Selecting able people for key position tends to be one of the earliest strategy implementation steps because it takes a full complement of capable managers and employees to get changes in place and functioning smoothly. capabilities. Core competencies emerge from skills and activities performed at different points in the value chain that. and (6) between strategy and the corporate culture.and to keep improving on how the strategy is being executed. The multiskill. Building strategy –critical core competencies and competitive capabilities not easily imitated by rivals is one of the best ways to gain a competitive advantage. and structure. (2) building the core competencies and organizational capabilities need to perform value chain activities proficiently. (5) between strategy and the reward structure. The challenge is to create a series of right fits (1) between strategy and the organization’s competencies. The three major organization-building actions are (1) filling key positions with able people. multiactivity character of core competencies and capabilities makes achieving dominating depth an exercise in (1) managing human skills. it is a job for the whole management team. All managers have to consider what actions to take in their areas to achieve the intended results-they each need an action agenda.
calls. finding effective ways to bridge organizational lines of authority and coordinate the related efforts of separate internal units and individuals. There are times when management has to be proactive in developing new competencies to complement the company’s existing resource base and promote more proficient strategy execution. and effectively networking the efforts of internal units and external collaborative partners. Functionally specialized organization structures have traditionally been the most popular way to organize single- . Building organizational capabilities means more than just strengthening what a company already does. departments. groups departments. Other big consideration includes what decisions to centralize and what decisions to decentralize. Either way. and external allies. with the organization-building challenge being one of developing new capabilities and strengthening existing ones in a fashion calculated to achieve competitive advantage through superior strategy execution. and collaborative allies.the efforts of different work groups. Outsourcing means launching initiative relationships. though. Developing the capabilities in-house means hiring new personnel withs skills and experience relevant to he desired organizational competence/capability. Matching structure to strategy centers around making strategy-critical activities the main organizational building blocks. there is no one best way to organize. It is useful hare to think of companies as a bundle of evolving competencies and capabilities. It is a task that senior management must lead and be deeply involved in chiefly because senior managers who are in the best position to guide and enforce the necessary networking and cooperation among individuals. then linking the individual skills/know-how to form organizational capability. One capability-building issue is whether to develop the desired competencies and capabilities internally or whether is makes more sense to outsource them by partnering with key suppliers or forming strategic alliances. All organization structures have strategic advantages and disadvantages. Decisions about whether to outsource or develop in-house capability often turn on the issues of (1) what can be safely delegated to outside suppliers versus what internal capabilities are key to the company’s longterm success and (2) whether noncritical activities an be outsourced more effectively or efficiently than they can be performed internally. for action.
. flat. multiversion production. interdepartmental rivalries. In recent years. and special top management efforts to knit the work of different individuals and groups into valuable competitive capabilities. and rapidly growing use of e-commerce technologies and business practices. distributors/dealers.business companies. leaner staffing of internal support functions. A change in strategy nearly always calls for budget reallocations. Reworking the budget to make it more strategy-supportive is a crucial part of the implementation process because every organization unit needs to have the people. managers and workers empowered to act on their own judgment. Such designs for matching structure to strategy involve fewer layers of management authority. companies with complementary products/services and even select competitors). business process reengineering has been used to circumvent may of the disadvantages of functional organization. and vertically layered management hierarchies. horizontal structures that are responsive and innovative. personalized customer service. not from how the boxes are arranged on an organization chart. special project teams. reengineered work processes to reduce cross-department fragmentation. collaborative partnerships with outsiders (suppliers. Functional organization works well where strategy-critical activities dlosely match discipline-specific activities and minimal interdepartmental cooperation is needed. and winning the race for positions of leadership in global markets and/or industries of the future have prompted increasing numbers of companies to create lean. New strategic priorities like short design-to-market cycles. it usually has to be supplemented with interdisciplinary task forces. relationship managers. aggressive pursuit of e-commerce opportunities. Building core competencies and competitive capabilities emerges from establishing and nurturing collaborative working relationships between individuals and groups in different departments and between a company and its external allies. But it has significant drawbacks: functional myopia. excessive process fragmentation. Whatever basic structure is chosen. incentive compensation schemes tied to measures of joint performance. empire building. empowerment of cross-functional and/or self-directed work teams to perform and unity fragmented process and strategy-critical activities. increased outsourcing of selected value chain activities.
reengineering core business processes. and total quality management programs all aim to improved efficiency. and greater customer satisfaction. creating a supportive fit between strategy and policy can mean many policies. deleting or revising those that are out of sync and deciding if additional ones are needed. (3) by promoting consistency in how particular strategy-critical activities are performed in geographically scattered operating units. facilities and other resources to carry out its part of the strategic plan (but no more than what it really needs).equipment. and (4) by helping to create a strategy supportive work climate and corporate culture. few policies. Competent strategy execution entails visible. Effective use of TQM and contimuous improvement techniques is a . managers are well advised to review existing policies and operating procedures. (2) by putting boundaries on independent actions and decisions. Indeed. better products quality. unyielding managerial commitment ot best practices and continuous improvements. it is better to give people the freedom to do things however they see fit and hold them accountable for good results rather tan try to control their behavior with policies and guidelines for every situation? Hence. Implementing a new strategy often entails shifting resources from one area to another-downsizing units that are overstaffed and overfunded. and killing projects and activities that are no longer justified. the discovery and adoption of best practices. Thick policy manuals are usually unnecessary. when individual creativity and initiative are more essential to good execution than standardization and conformity. or different policies. Reengineering is a way to make quantum progress toward becoming a world-class organization. All these techniques are important tools for learning how to execute a strategy more proficiently. Benchmarkign provides ad realistic basis for setting performance targets. lower costs. while TQM unstills a commitment to continuous improvement. upsizing those more critical to strategic success. and employees regarding how certain things need to be done. Anytime a company alter its strategy. Prescribing new or freshly revised policies and operating procedures aids the task of implementation (1) by providing top-down guidance to operating managers supervisory personnel. Instituting “best-in-industry” or “best-in-world” operating practices in most or all value chain activities provide a means for taking stratregy execution to a higher plateau of competence and nurturing a high-performance work environment. Bendhmarking.
Questions: 1.(2) the use of incentives should extend to all managers and workers.(3) the system should be administered with care and fairness. There’s also a place both monetary and no monetary incentives. (5) each individual’s performance targets should involve outcomes the person can personally effect.(7) monetary rewards should be supplemented with liberal use of no monetary rewards. What is benchmarking? 3. What are the phases of strategy implementation process? 2. service. (4) the incentives should be linked to performance target spelled out in the strategic plan. speeding new products to market. Company strategies can’t be implemented or executed will without a number of support systems to carry on business operations. What are the techniques for effective implementation of strategy? . Well-conceived stateof-the-art support systems not only facilitate better strategy exaction is to make strategically relevant measures of performance the dominating basis for designing incentives. and (8) skirting the system to reward non-performers should be scrupulously avoided. but there is a place for booth.(6) rewards should promptly follow the determination of good performance. Positive motivation practice generally work better than negative ones. For an incentive compensation system to work well (1) the monetary payoff should be a major percentage of the compensation package. or customer satisfaction) and be a source of competitive advantage. or improving product quality. evaluating individual and group effort.valusable competitive asset in a company’s resource portfolio-one than can product important competitie capabilities (in reducing costs. and handing out rewords.
How elements are used for corporate strategies? Corporate – level strategies are basically about the choice of direction that a firm adopts in order to achieve its objectives. .2. The corporate strategy in both these cases in about the basic direction of the firm as a whole. or a large. There could be a small business firm involved in a single business.1 Introduction: Examples of strategy elements include: Customer focus Customization capability The highest functionality products and/or service The most robust product or service The bets process Fastest time to market Value-adding Engineering Lowest-cost competitor Re-use The widest range of products and services Automation Standardization Flexibility Reduce to core Engineering activities Minimize Engineering costs Partnering Skilled workforce/UL 5. In the case of the small firm it could mean the adoption of courses of action that would yield a better profit for the firm. complex and diversifies conglomerate with several different businesses.2.2 ELEMENTS OF STRATEGY 5. In the case of the large firm the corporate – level strategy is also about managing the various businesses to maximize their contribution to the overall corporate objectives.LESSON 5.2.
According to Glueck. An analysis based on business definition provides a set of strategic alternative that an organization can consider. and managing and nurturing a portfolio businesses in such a way that the overall corporate objectives are achieved. Other authors refer to them as basic strategies or generic strategies. customer functions or alternative technologies. retrenchment. there are four grant strategic alternatives: stability. expansion strategies are quite popular. and any combination of these three. Given below are three examples to show how companies can aim at expansion either in terms of customer groups. “Strategic alternative revolve around the question or whether to continue or change the business the enterprise is currently in or improve the efficiency and effectiveness with which the firm achieves its corporate objectives in its chosen business sector”. customer functions. A stockbroker’s firm offers personalized financial services to small investors apart from its normal functions of dealing in shares and debentures in order to increase the scope of its business and spread . These strategic alternatives are termed as grand strategies. Expansion Strategies The expansion grand strategy is followed when an organization aims at high growth by substantially broadening the scope of one or more of its businesses in terms of their respective customer groups. expansion. Because of the many reasons for which they are adopted. transferring resources from one set of business to others. and alternative technologies – singly or jointly – in order to improve its overall performance.Corporate-level strategies are basically about decisions related to allocating resources among the different business of a firm. A chocolate manufacturer – expands its customer groups to include middle-aged and old persons among its existing customers comprising of children and adolescents. We will shortly see what each of these grand strategies mean and why they are called as such.
do think it better to retreat that to advance. Sometimes strategies.its risks. In each of the above cases. Expansion strategies have a profound impact on a company’s internal configuration causing extensive changes in almost all aspects of internal functioning. Expansion Strategies Growth is a way of life. we will try to cover a lot of ground by describing five types of expansion strategies. expansion strategies are more risky. In this section. This is why expansion strategies are the most popular corporate strategies. the company moved in one or the other directions so as to substantially later its present business definition. A growing economy. A printing firm changes from the traditional letter-press printing to desk-top publishing in order to increase its production and efficiency. It . like army commanders. Companies aim for substantial growth. first – level type of expansion grand strategy. It is in such situations that retrenchment is a feasible strategic alternative. a) b) c) d) e) Expansion through concentration Expansion through integration Expansion through diversification Expansion through cooperation Expansion through internationalization a) Expansion through Concentration Concentration is a simple. As compared to stability. Almost all organizations plan to expand. and emerging technologies offer ample opportunities for companies to seek expansion. burgeoning markets customers seeking new ways of need satisfaction.
Or it may try attracting new users for existing products resulting in a market development type of concentration. A firm may attempt focusing intensely on existing markets with its present products by using market penetration types of concentration. In practical terms concentration strategies involve investment of resources in a product line for an identified market with the help of proven technology. customer functions. The products were different and answered latent needs of foreign markets. either singly or jointly. they transformed the market. In business policy terminology concentration strategies are known variously as intensification. So they prefer to concentrate on these industries. concentration is often the first – preference strategy for a firm. Each industry is unique in the sense that there are established ways of doing things. Alternatively it may introduce newer products in existing markets by concentration on product developments. in such a manner that it results in expansion. for the simple reason that it would like to do more of what it is already doing. focus or specialization strategies. The organizations had the self-confidence not to abandon their management and manufacturing systems. ASHOK LEYLAND Key Factors for an Organisation One of the most successful “invasions” in the post-Second World War era has been that of Japanese companies in the American market. Firms that have been operation in an industry for long are familiar with these ways. In fact. They had two strong motive impulses: a national mission to redeem the pride suffered at the World War and a very limited domestic market. or alternative technologies. These organization reflected values. This may be done by various means. A firm that is familiar with an industry would naturally like to invest more in known businesses rather than unknown ones.involves converging resources in one or ore of a firm’s businesses in terms of their respective customer needs. which made their products good value propositions. The success formula stays the same in the current low tariff regime: . For expansion.
firstly. The industry’s subsequent acceptance of these new . with distinct competitive advantage in at least one of these. The traditional industries operate in an environment with greater dependence on various external factors. in order to offer better value to the customer and thereby create and retain a competitive advantage. confident and ambitious – entered into foreign markets. these companies – young. The robust forays made by Indian IT companies in foreign markets validate this premise. competition and the state of the domestic market. the dominant domestic market segments are not in the same stage of evolution as most global markets. cost of finance. there should be a strong urge – both need and mission – to succeed. Attracted by ready and remunerative foreign markets. In industry segments barring a few exceptions like automobiles. the essential factors of competitiveness are more company-dependent. namely. All of them have a huge competitive advantage in one quintessential factor. We have always invested in evolving technology appropriate to the market. In knowledge industries. manufacture. export orientation would presuppose organizational leadership that has the vision to look beyond national boundaries and set up recci missions even as they fight battles in the domestic market. Comment on the steps taken by Ashok Leylond to bring in World Class Competitiveness. The capabilities that make up the competencies are individual rather than collective. management and customer servicing. Irrespective of the industry segment. How mature the domestic market is will determine the ability and readiness of the organization to service a foreign market. External and Internal environment to build world class competitiveness A clear distinction has to be drawn between knowledge-based industries and others. high caliber and low cost human resource. Within this major difference. This should be backed by global competencies in technology. An organizational culture of learning and daring is an equally important precondition. the external factors range from government policies. availability of infrastructure.
we are comparatively weaker due to poor shop floor managerial material and make the carrot and stick combination work at the shop floor. aided by IT connectivity covering vendors. which constitute close to 70% or out product cots. The processes covering he entire supply chain have since been rationalized. warehouses and dealerships. which have heightened employee participation in the efficiency improvement programmes.technologies as norms and the ongoing gains in our market share are only confirmative corollaries of this strategy. we concentrated on enhancing our internal efficiencies. In process industries where productivity and quality are build into the equipment. Our initial focus area was materials. The learning culture has been further intensified. During the slowdown of the mid-90s. We chose for ourselves the route of technology driven growth. the HR systems have been strengthened to facilitate performance management along with quite few people intensive processes. . we have secured technology tie-ups with global technology leaders and put the organization and the systems through assessments for a series of international quality norms. In mass production through assembly operations. Most Indian companies have a long distance to go before they level up on product quality. Industries based on minerals and agri-products will have a competitive advantage. we have intrinsic advantage. Our make or buy decisions have been guided by maximization of value addition. sales and marketing office. We have always been a learning organization given the complexities of technology. but the caveat is that they re capital intensive. Company MD View on how Indian companies can enhance their competitiveness to match other successful MNCs. Simultaneously. we set global benchmarks of products and process technologies and quality standards. Accordingly. in anticipation of economic reforms. manufacturing units. In the early 90s. productivity and internal efficiencies. India’s best chance in the manufacturing sector lies in leveraging its natural resources.
steel. The alternative technology dimension of the business definition undergoes a change. These dimensions are used to define what are known as integration strategies. The third factor is one of size.Restructuring. (b) Expansion through Integration Recall that we referred to the horizontal and vertical dimensions of grand strategies in the first section. Whether we like it or not – and more than egos will be hurt – consolidation is the key. textiles or hydrocarbons. petrochemicals. Consolidation within the domestic industry and in some cases transnational alliances. A firm that adopts integration as the expansion strategy commits itself to adjacent businesses. So a firm may movie up or down the value chain to concentrate more comprehensively on the customer group and needs than it is already serving. Firms operating at one end of the value chain attempt to more up or down in the process while integrating activities adjacent to their present activities. Integration is an expansion strategy as its adoption results in a widening of the scope of the business definition of a firm. Integration is also a subset of diversification strategies as it involved doing something different from what the firm has been doing previously. such as. A value chain is a set of interlinked activities performed by an organization right from the procurement of basic of raw materials down to the marketing of finished products to the ultimate consumers. Several process-based industries. . These firms deal with products with a value chain extending from the basic raw materials to the ultimate consumer. have integrated firms. One reason for the success of MNCs is that they are market driven. The pivot around which integration strategies are designed is the present set of customer functions and customer groups to other words a company attempts to widen the scope of its business definition in such a manner that it results in serving the same set of customers. there are at least three areas where Indian companies can learn from the success of MNCs. size rationalization and technological self-sufficiency apart. The second distinguishing feature is that they are long term players.
Brandenburger that competition could co-exist with cooperation. There is not much difference in the three terms used for such types of strategies and they are frequently used synonymously. Basically two.(d) Expansion through Cooperation Much of strategy literature assumes competition to be a natural state of existence for companies to operate in. The term ‘co-operation’ expresses the idea of simultaneous competition and co-operation among rival firms for mutual benefit. or occasionally more than two. But a subtle distinction can be made. Barry J. One company can benefit at the cost of others. Nalebuff and Adam M. Joint Ventures 3. so that the market potential could expand. Takeover is a common way for acquisitioj and may be defined as “the attempt (often sprung as a surprise) of one firm to adquire ownership of control over another firm against the wishes of the latter’s management (and perhaps . notably Michael Porter. Corporate strategies could take into account the possibly of mutual cooperation with competitors while competing with them at the same time. Mergers and Takeovers (or acquisitions) 2. Several strategy experts. takeovers or acquisition usually are based on the strong motivation of the buyer firm to acquire. While mergers take place when the objectives of the buyer firm and the seller firm are matched to a large extent. A contrary view has been expressed by thinkers such as James Moore. The central point is of complementarily among the interests of rival firms. It is a win-lose situation where if one wins then one or several others have to lose. Ray Noorda. Cooperative strategies could of the following types: 1. have based their work on the assumption that companies compete in the market for a limited market share. Strategic Alliances Merger and takeover (or acquisition) strategies essentially involve the external approach to expansion. entities are involved.
many takeovers may not have any element of surprise. and core competencies are combined to pursue mutual interest to develop. subsequently named as Solidaire India Ltd. Joint ventures occur when an independent firm is created by at least two other firms. takeovers are frequently classifies as hostile takeover (which are against the wishes of the acquired firm). joint ventures have provided to be an invaluable strategy for companies looking for expansion opportunities globally. In an era of globalization. Spartek took over Neyeer in order to integrate horizontally. or distribute goods or services. Like joint ventures. strategic alliances have become quite popular as strategic alternative for firms looking for cooperation among national as well as international partners. Hi Beam Electronics merged with two other units to form Tristar Electronics. Then we eddgdg the terms ‘international strategy’. A brief description of the types of international strategies is followed by a reference to the international entry options available to a firm. takeover. over the past several years. we first have a look at the context – international and national – in which firms adopt international strategies for expansion. have changed the . Context for International Strategies International economic dynamics.. In fact. manufacture. (e) Expansion through Internationalization In this subsection. Merger. Recall that strategic management is in an evolutionary phase and such confusion in terms has often to be taken in one’s stride.some of its stock-holders)”. and may not necessarily be against the wishes of the acquired firm. capabilities. particularly since the oil crisis of 1973. also the means of achieving diversification and integration. accompanied by geopolitical changes. But this definition need not be taken very seriously as in practice. and friendly takeovers (by mutual consent in which case they could also be described as mergers). Without being too fastidious. joint venture. Strategic alliances are partnerships between firms whereby their resources. one can use these terms synonymously. and strategic alliance strategies are. therefore.
In the context of a changing international environment. a country can determine the industry or industry niche in which a cluster of companies that are globally competitive can be developed. communication. Factor conditions: The special factors or inputs of production such as natural resources. What are the elements of strategy? Give examples. transportation and the economic institutions. 3. 4. But doing so is a task that requires concerted and coordinated action on the part of the national government and the business firms. Questions: 1. organized. new materials. Demand condition: The nature and size of the buyer’s needs in the domestic market. finance. four national characteristics create an environment that is conducive to creating globally competitive firms in particular industries. trade. has extended his idea of the competitive advantage of firms to the analysis of competitive advantage of nations. Related and supporting industries: The existence of related and supporting industries to the ones in which a nation excels. in The Competitive Advantage of Nations. 2. and so on that a nation is specially endowed with.paradigms of international business. 4. 1. and managed and the nature of domestic competition. Globalisatin has emerged as a potent force owing to global integration – the intensification of economic linkages among nations – and the internationalization of markets. labour. 2. In his opinion. Under what context expansion strategies are planned? What are cooperative strategies? How to plan them? What circumstances force an organization to plan international strategies? . Firm strategy structure and rivalry: The conditions in the nation determining how firms are created. 3. On the basis of an analysis of these four sets of factors. technology labour. nations need to identify the industries and business that their firms need to firms need to focus upon to gain a competitive edge Porter.
leaders are those who have the ability to influence the behavior of other without the use of force.3 LEADERSHIP AND ORGANIZATIONAL CLIMATE 5. leadership is the set of characteristics attributed to those individuals who are perceived to use that influence successfully.1 Introduction: A person may be both a manager and a leader.LESSON 5. Theories of Leadership Trait Theories: This theory sought the personality. The first leadership researches sought a unique set of traits that distinguished leaders like Gandhi and Lincoln from their . then they align people by communicating this vision and inspiring them to overcome huddles. but an informal leader emerges fro the work group. a colleague of Zaleznile at Harvard. As a property.3. personal history and how they think and act. John Koller. designing rigid structures and monitoring results against the plans. Leader establish direction by developing a vision of the future. social. leadership is the use of non coercive influence to shape to direct the activities of a group towards group goals. In other words. physical or intellectual traits that differentiated leaders from non leaders. Abraham Zeleznik of the Harvard business school argues that leaders and managers are very different kinds of people. They differ in motivation. As a process. a formal leaders is one who is appointed. Leadership in contrast. also argues that leadership is different from management but for other reasons. in about coping with change. in about coping with complexity good management brings about order and constituency by drawing up formal plans.3.2. Management he proposes. 5. On the job. only doing it 5 percent better. He claims use need to forces more on developing leadership in organization because the people in charge today are too concerned with keeping things on time and on budget and with doing what has done yesterday. Leadership may be defined as both a process and a property.
Adaptable to situations Alert to the social envie Ambitions and achievement oriented Assertive Co-operative Dependable Decisive Dominant (the desire to influence others) Energetic (high activity level) Persistent Self-confident Jolyant of stress Willing to assume responsibility Skills of characteristics of successful leaders: Cleuer (intelligent) Conceptually skilled Creative Diplomatic and tactful Fluent in speaking Knowledge abut the group task Organized (administrative ability) Persuasive Socially skilled In the early 1980s kotter (1982) conducted in depth studies of successful . Characteristics of successful leaders: Traits characteristics of successful leaders. Gary yoki (1981) summarized the research by identifying the following traits and skills that are found to be.peers.
Needs / Motive of Successful leaders: ⇒ Linked power ⇒ Linked achievement ⇒ Ambitions Cognitive orientation of Successful leader: ⇒ Above – average intelligence ⇒ Moderately – strong analycally ⇒ Ambitions Temperament of Successful Leaders: ⇒ Emotional stable and even ⇒ Optimistic Interpersonal: ⇒ Personable – good at developing relationship with people ⇒ Unusual set of intervals that allowed them to relate easily to a broad set of business specialists. Knowledge of successful leaders: ⇒ Knowledge about their business ⇒ Knowledge about their organizations Behavioural Theories: The behavioral approach was designed to determine those behavior that were associated with successful leadership. He devised the helpful personality characteristics into four categories. The leadership was associated with three fundamental leadership behavior. .general managers and found cutain characteristics more helpful than others.
. Autocratic leaders make the decisions by themselves and then communicate them to group members or even turn the decision making role over to the group. Participation: The successful leader knows that employees ward to art in making decisions that will have an impact on their work environment. Group maintenance: Maintenance oriented behavior are those taken by the leader to ensure the social stability of the group to develop and maintain harmonious work relationships and to maximize the satisfaction of group member i) feeling ii) comfort iii) stress reduction iv) appreciation. The most common task performance factor i) fast work speed ii) good quality / high accuracy iii) high quality iv) observation at the rules. The necessary task performance behavior refers to the things the leader does to ensure that the group reaches its objectives. Thus the decision participation dimension of leadership behavior can range from autocratic to democratic. Michigan Leadership Studies: The Michigan leadership studies were conducted at the University of Michigan under the direction Rens’s likert to determine the pattern of behavior. Two basic forms of leader behavior were identified. Task performance Group maintenance Employee participation in decision making Task performance * Task Performance If leadership is to be successful the leader must get the job done.
Managerial Grid: . b) Employee Centered Leader Behavior: It includes developing a cohesive work group and ensuring that subordinated are fundamentally satisfied with their job. Ohio State Studies: The Ohio State University leadership studies conducted in the late 1940s and early 1950s also identified to major types of leadership behavior. a) Initiating Structure: The extent to which a leader is likely to define and structure his or her role and those of subordinates in the search for goal attainment. b) Consideration: The extent to which a leader is likely to have job relationship characterized by mutual trust. respect for subordinates ideas and regards for their feelings.a) Job Centered Leader Behavior: It includes paying dose attention to the work of subordinates explaining work procedures and being concerned about performance. In conclusion the Ohio State Studies suggested that the ‘high-high’ style generally resulted in positive outcomes but enough exceptions were found to indicate that situational factors needed to be integrated into the theory.
Fiedler developed an instrument which he called the least preferred cowork questionnaire that purports to measure whether a person is task or relationship oriented. Based on the findings of Blake and Mouton managers were found to perform best under 9. style is most effective in all situations. Relationship motivation is similar to the employee centered and considering behavior.9. They proposed a managerial grid based on the styles of “concern for people” and “concern for production” which essentially represent the Ohio state dirhensions of considerations and initiating structure or the Michigan dimensions of employee oriented and production oriented. One major difference in fielders approach is that task versus relationship motivation is seen as a trait that remains fairly constant. b) Path Goal Theory: The path-goal theory of leadership as developed by evans and house is a .9. Task Vs Relationship Motivation: The task motivation is similar to the job-centered and initiating structure behavior. iii) Contingency Theories: a) Fiedler Model: The theory that effective groups depend upon a proper upon a proper match between a leaders style of interacting with subordinated and the degree to which the situation gives control and influence to the leader. Since there is little substantine and evidence to support the conclusion that a 9. style.The leadership style was developed by Blake and Mouton.
The path goal theory of leadership is a contingency approach arguing that the principal function of a leader is to make valuable organizational awards available in the work place and to clarify for the subordinate the kinds of behavior that will lead to goal accomplishment and valued awards. Situational Factors: * locus of control * perceived ability Characteristics Leader behavior * Directive * Supportive * Participative * Achievement oriented Situational factors: Environment characteristics * Task structure * Authority system * Work group Subordinate’s motivation to perform i) Directive Leadership: Informal subordinates as to what is expected Offering directive on what to do and how .direct extension of the expectancy theory of motivation. It stipulates four kind of leader behavior i) directive ii) supportive iii) participative and achievement oriented.
The theory suggests that there are two basic types of situational factor influencing how a leader related to subordinate satisfaction. Establishing schedules for the work to be done Maintaining specific standards of performance Clarifying the leaders role in the group ii) Supportive Leadership: Making the work and the work environment more pleasant Treating group members as equals Being friendly and approachable Demonstrating concern for the status. iii) Participative Leadership: Getting subordinates involved in decision making Consulting with subordinates Asking subordinates for suggestion Considering those suggestions seriously before making decision. well being and needs of subordinates. iv) Achievement Oriented Leadership: Establishing challenging goals Expecting subordinate to perform these high levels Demonstrating confidence that continued improvement in performance Stressing excellence and continued improvement in performance Path goal theory makes the assumption that the same leader may display any or all of these leadership styles depending on the situation. Locus of Control Perceived Ability .
It deals with the aspect of leadership behavior-subordinate participation in decision making. the leader most their deal with three types of information. It is a decision free approach which allows the leader to assess the situation in terms of a variety of variables and based on these variables to follow the path through the decision-free to a recommended course of action. discuss the situation and the group makes the decision. This model contains the following five decision styles: The manager makes the decision alone. Subordinates to not meet as a group. discuss the situation but manager makes the decision The manager and subordinates meets as a group. The manager and the subordinate meet as a group.c) The Uroom-Yetton Jago Model: This model of leadership describes a leadership style for a given salutation and it assumes that a manager is capable of various leadership styles. the consistency of the employees performance the dist inclutienses of the task Whether there is high or low coarseness among subordinates relate to the task Charismatic Leadership: . The attribution theory model show that in order to select the proper course of action. The manager asks subordinates for information but makes the decision alone The manager shares the situation with subordinates asking for their information and evaluation. The manager takes the decision alone.
Charismatic leadership assumes as the trait theories. Characteristics: Contingent Reward: . that charisma is an individual characteristic of the leader. Charisma is a mysterious human quality that is hard to describe but inspires follows to grant almost unquestioned allegiance to the leader possessing it. House (1977) developed a theory of charismatic leadership that attributed charisma to the following characteristics: followers trust the correctness of leader’s beliefs followers beliefs are similar to the leader’s belief followers accept the leader unquestioningly followers feel affection for the leader followers obey the leader willingly followers have heightened performance goals Characteristics: Self – confidence A vision Ability to ultimate the vision Behavior that in our of ordinary Perceived as being of change agent Environment sensitivity (iii) Transactional Leader’s Vs Transformational Leader: Transactional Leader: Leaders who guide or motive their followers in the direction of established goals by classifying role and taste requirements. Charisma is an individual characteristic of the leader.
The theory defines maturity.faire: Abdicates responsibilities. Management by Exception (active): Watches & searches for deviations from rules and standards. recognizes accomplishments. but as a desire for achievement a willingness to accept responsibility and task-related experience and ability. iv) Life Cycle Theory: The Hussy and Blanchard life cycle theory of leadership contents that the most effective leadership style depends on the maturity of subordinates. when subordinates first enter the work Telling Selling Participating Delegating . promises rewards for good performance. takes collective action. not as age or emotional stability. The appropriate leadership style is described by a prescriptive curve that follows the association between superior and subordinates through a ‘life cycle’ at four phases: a) b) c) d) a) Telling: In the initial phase of the life cycle. Management by Exception (passive) Intervenes only of standards are not met Ldissy. avoid making decisions.Contracts exchange of rewards for effort.
the manager must assume responsibility for subordinates. the manager uses a telling leadership style. Transformational Leaders: Leaders who provide individualized consideration and intellectual stimulation and who posses Charisma.3. as subordinates must be instructed in their tasks and working environment. Often subordinates at this level of maturity are willing but unable to assure responsibility for their own work behavior. Charismatic leadership. by direction in an effort to get workers to ‘buy into’ the desired performance level. because workers at this level cannot take responsibility and have not matured enough emotionally to want responsibility. d) Delegating: The leader provides little direction or support. During this introductory stage. maturity managers tend to use selling leadership. style of support. b) Selling: At the second level of workers. transactional versus transformational leadership and visionary leadership. 5. c) Participating: The leader and follower share in decision making with the main role of the leader being facilitating and communicating.group.3 The Most Recent Approaches to Leadership There are an attribution theory of leadership. Characteristics: Charisma .
and trial.” According to Joseph Badaracco & Richard Ellsworth (1989) “Leadership in a world of dilemmas is not fundamentally. doubt. Care. Courage. In keeping with changing times it is improvement that leaders develop their adaptive capabilities. Leaders should have a clear ‘vision’ of how things should be. 4. attractive vision of the future for an organization or organizational unit that grows our of improves upon the present. In is s difficult daily quest for integrity Commitment to leadership through integrity can help managers through the inevitable periods of anxiety. and give them a sense of priorities to guide them through an uncertain world”. Composure and Competence (Bornstein & Smith. Character. 2. and resources to make it happen. credible. 3. A leader’s credibility should be based on the six criteria. a matter of style. but it will not forgive us for the mistakes in motive.” Leadership profile for the next century: 1. charisma or professional management techniques. Inspiration Intellectual Stimulation Individualized Consideration iv) Visionary Leadership The ability to create and articulate a realistic. integrity of character the most important attribute. also known as the six C’s Conviction. This vision of property selected and implemented in so energizing that it “in effecting starts the future by calling forth the skills talents. They should also be able to communicate the vision becomes a shared vision and everybody willingly contributes towards fulfilling the vision. 1997) . First and foremost of the next century need to radically change their mindset because the leadership traits and qualities which were very important till now may not stand the test of time in the years to come. For a leader to be successful. As a former head of New York Stock Exchange once said “The public may be wiling to forgive us for the mistake in judgment.
values. As Stephen Covey (1989) defines responsibility in his own way: Response – ability i. Their needs are of a higher order than just physiological and safety needs. the ability to choose your response. 1997). The leader of the next century would to well to view responsibility form a different perspective. To be able to deal effectively with the complexities of change in a more flexible manner. Some of the key words a leader of the future is required to put into action are: options not plans. mission and major goals the pyramid should be upright where the boss is responsible and the subordinates are responsive. But when it comes to implementation the pyramid needs to be turned upside down so that the roles are reversed – the people become responsible and the management responsive to them (Blanchard. 1997) which stands for: P. 1997). In other words you must continue to gain expertise. Change will remain a core consideration for 21st century leaders. involvement instead of obedience (Handy. Leaders need to realize that while setting the vision. As Benjamin Disraeli once stated that.5. “In a progressive country. Leaders need to realize what motivates the knowledge workforce. The same is true for effective organization. 10. Not ling ago what you learned in school and college was largely enough for the rest of your life. With accelerated pace of change in the economic. With knowledge expanding exponentially this is no longer true.. Acquisition of knowledge should be viewed as a lifelong experience do not a collection of facts or skills. Leaders could possibly motivate people by following the PRIDE System (smith. Provide for a positive working environment R-Recognise everyone’s efforts l-Involve everyone DDevelop skills and potential E-Evaluate and measure continuously. The process of change starts with self-change.e. 6. leaders of the future should posses cross-functional rather than narrow functional knowledge and expertise. 8. but avoid thinking like an expert. 9. change is constant… Change is inevitable”. the possible rather than the prefect. Higher proactive people recognize their responsibility and do not blame . political and socio-cultural environment leaders not only need to acquire new knowledge and skills but they also need to unlearn many of the things that have outgrown their purpose. You cannot expect your people to change without you your-self being willing to change. 7.
Leaders should test the assumptions and be prepared to change them but at the same time they should stick to their conventions. Leaders need to have a deep insight into the realitites of the world and be receptive to the changes taking place and opportunities that these changes offer. based on feelings. by contrast. As he old proverb goes “You must learn from your past mistakes. 20. prestigious position etc. Innovation is the need of the hour. 12. Leaders should be capable of taking calculated risks as maintaining status quoleads to complacency and mediocrity. Innovation is also to do with finding new application for old ideas that cannot be discarded. 18. 14. Low achievers do one of the two things: either they minimize risk as much as possible or they take wile. leaders need to involve others and elicit their participation in problem solving and decision – making. 15.circumstances. Innovativeness will help the leaders to view the world not for what it is. typically take moderate risks . but not lean on your past successes. Successful leaders set their own standards and compete with themselves. Irrational risks. Some of the implements on the road to excellence which leaders need to overcome are following the path of mediocrity and relying on conventional wisdom. 11. but for what it could be. Self-respect which comes from within cannot be taken away by anyone. 19. material rewards. 16. High achievers. rather than a product of their conditions. conditions or conditioning for their behavior. Only when a leader is innovative can be find opportunity in every crisis. 1961). Their behavior is a product on values.” It has been found that low and high achievers behave quite differently when taking risks (McClelland. Leaders need to have high level of commitment to the organizational goal and the perseverance to achiever the goal in spite of all the impediments. Leaders should learn to depend on them selves and not on other people. in large organization the leader should be willing to share power and control so that leadership is encourages at various levels. for their self-worth as this is not long-lasting. 13. 17. As the tasks become to complex and information too widely distributed. and not with others.
you can flex the business.4 Organization culture: Organization culture could be defined as the set of philosophies ideologies. To encourage teamwork within organizations mechanism have to be created to broaden the concept of individual competence to include working with others and building trusting relationship by breaking brriers of communication across bound arises and encouraging collaborative rather than competitive behavior.3. The corporate environment had become increasingly unstable and unpredictable and vulnerable to outside forces and pressures. experimenting – these are the strategic tools of the leaders of the twenty-first century. you can’t really predict it. : The degree to which the organization creates clear objectives and performance expectations. The Characteristics which help to understand the nature of culture better are: Individual Initiative Risk Tolerance Direction : The degree of responsibility freedom independence that individuals have. innovative and risk seeking.but the nub of it is that they calculate risks against circumstances and their own abilities. testing piloting. .” 5. put you can experiment. 1985). Ross Nisbett (1991) puts it this way: “tinkering. These observations have become every more relevant in the present day. you can rearrange management teams. Managers must learn to cop with non-linear forces (Toffler. leaving things as they are can be just as predictable as changing everything. You cannot control the future. and : The degree of which employees are encouraged to be aggressive. Remember. beliefs etc that joins together are organization and are shared by its employees. You lose (or win) both ways. values. assumption. 22. 21.
favoritism. And within days of starting. : This degree to which reward allocations all based on employees performance criteria in contract to seniority. : The degree to which members identify with the organization as a whole rather then with their particular work group or field of professional expertise. each day people come in to work and product are needs and sold. The company operates in the traditional business manner. there is no existing tradition. quite district behavioral norms begin it . Control Selectivity Reward System Conflict Tolerance. So. : The degree to which employees are encouraged o air conflicts and criticism openly. Since the company is started for the first time. : The degree to which organizational communications are restricted to the formal hierarch of authority.Integration : The degree to which units within the organization are encouraged to operate in a coordinated manners : The number of rules and regulation. lets take up an examples: Imagine a company beginning its operations for the first time. and so on. history or culture. All these are to created. and the amount of direct supervision that is used to oversees and control employee behavior. Communication Pattern How Culture is formed: In order to understand how culture is formed.
and people have gone through the “Expectation” loop quite number of times. were rarely adhered to and workers routinely absented themselves fro the shops floor without consulting supervisors. production was uneven. as district form having a Mr. How Culture is Sustained Once a culture is created. People called each other by their names. The development of expectation through over behavior one thinks about the consequent result and will expect certain things to happen. where as culture arrived over many years. Expectation arise quickly where as. From the outset. These behavioral norms of formality. actions of top management. And one is aware about expectation. punctuality was valued. as people struggled to catch upon their output targets. there were practices within the organization that help keep it alive. And with the attitude are will take things for granted. will find another element emerging called “Culture”. Selection . discipline and output were accompanied by similar norms relating to almost every other types of behavior. there was month end syndrome. and later we will find that a new factor has emerged called as attitude. but much less about the attitude. and socialization methods.develop. and we would be entirely unaware of culture. The people cane to and left on time. Now suppose a couple of years have passed. and are dimly aware of it. Three each practices are selection process. attitude take much more longer time to form. Mea breakers however. punctuality. Attitudes arose over months / a year. and people have been through the two loops. Now that the company has been working for a couple of years. or Mrs.
Therefore the organization has to help new employees adapt to its culture. Workforce diversity is being accepted. normative. By identifying candidate who can culturally match the organizational culture. are available. This way be because they re not familiar with the culture. and employee performance and satisfaction. Socialization No matter how good job the organization does in hiring people. with identical skills and abilities. Impact of Culture on Organisations’s Effectiveness: Impact of culture on organization’s effectiveness could be both functional as well as dysfunctional culture makes are organization a class. new employees are not fully indoctrinated in the organizations culture. how much freedom managers should give their subordinates etc. two or more candidate. Culture acts as a barrier to mergers and acquisitions. and even encouraged. Through what they say and how they behave. for a given job.The main purpose of selections process is to have right people for right jobs. . But modern organization is known for diversity of workforce. senior executive establish norms that filter down through the organization as to whether risk taking is desirable. Top Management The actions of top management have a major impact on the organization’s culture. When. If there is a mismatch acquisitions are likely to fail. culture has an impact on control. final selection is influenced by how well the candidate fits into the organization. order. On the positive side. Among culture could put considerable pressure on employees to confirm.
creative and supports risk taking and conflict. of Educational leadership at Southern Illinious University. professor of the Dept. performance will be higher if the technology is non-routine. A strong culture is characterized by shared belief and expectations to which all must adhere. Miller. How Culture is Analysed The culture could be analyzed by a method developed by Harry C. The more formally structured organizations that are risk averse. As the culture is diffused through out the organization. These expectations regarding appropriate and inappropriate behavior are greatly influenced by culture. and that are prove to more task oriented leadership will achieve higher performance when routine technology is utilized. that seek to eliminate conflict. Normative Order Closely linked to effective control is the use of norms to guide behaviors. consensus may be present but intensity is no. and strong culture have both consensus and intensity regarding these norms. If the culture is informal.Effective Control Organisaion culture serves as a control mechanism in directing behavior. when individuals are not in accordance with the belief and values of the culture. It is a three-step process known as: . In weak cultures. There is relatively strong relationship between cultures and satisfaction. but this is moderated by individual needs and culture satisfaction will be the highest when there is congruence between the individual needs and the culture. People understand what they ar supposed to do and what they should not do. managers and co-workers will step in and insists on corrective action. but not in equal proportions. Performance and Satisfaction Organizational culture has its impact on performance and satisfaction of organizational members.
A founder creates a culture from a pre-conceived cultural paradigm: and the organization. This depends on the organization’s history. The hotness or coldness of morale relative to each person’s perception or work “hot” individuals feel good about what is happening in the organization. Different organizational cultures form around varying corporate purposes. This learning could be based on both positive reinforcement (repeating what works) and avoidance learning (avoiding painful experiences). and ‘cold’ individuals don’t feel okay about their work. The level of desire. if it is “poor and morale. If the employees adopt the values of the prevailing culture. motivation and productivity are expected to drop. traditions and norms. there leaves about this paradigm.Trade Winds Temperature : : The organization’s purpose people are brought together and actions co-ordinated to achieve some purpose. Culture: A social learning process Culture is formed out of a serial learning process. industry norms of behavior and environmental contingencies. Their work and life experience would be qualitatively different from those of individuals living in more traditional societies. They would all be the member of the came organizational society. In . founder styles. Organizations are mini-societies that have their over distinction pattern of culture and sub culture. commitment and energy for organizational goals. Ceiling Level : This measure indicates the fit between the prevailing culture and the individual values and needs. the climate is said to be “good”. The Creation and Change of Organization culture: One would say that people working in factories and offices in an area would being to the same industrial culture.
because leadership initially creates cultural norms and boundaries. rituals etc that will enhance unity of spirit. to meet new realities. Define norms. With top management commitment.the cultural learning. A stable culture producers a feeling of safety. result orientation. This is why cultures resist change. the organization might face the problems of not having a common language or a common set of rules for relating to the environment and to each other. Changing the Culture As an organization changes and grows through its life cycle. Facing potential conflict between the different cultures of two companies. To create this new “partnership” these steps could be taken up: Create a new. a merged organization can create a new joint culture. beliefs and values that work the handle internal and external contingencies. . what it stands for. a cultural change is indicated. The culture should be changed if its guiding beliefs are inadequate to meet present and future competitive needs. Once people in the organization learn set of assumptions. single culture that is appropriate for all the entities that have become part of the merged organization. why it exists. Define its purpose. Mergers often provide the space for a change. Even a positive culture can become dysfunctional if ignored. How Culture can be changed The true change must begin at the top. the uncertainly and the stimular overload would be reduced. several strategies can be used to create more effective cultures. That is if an organisation’s initial beliefs and values are no longer assets to it. its culture needs to change as well.
Peter Mc Collough took over as CEO in 1968.Example: XEROX has gone thrugh three different types of cultures during its life. once the company was content to be ‘Number 2’ offering Pepsi as a cheaper alternative to coke. Growth led to bureaucratic controls. This culture of risk aversion and bureaupathic behavior hindered new product development. A culture that prevents a company from addressing competitive pressures or adapting to changing economic contingencies can lead to stagnation and demise. losing has its penalties. This direct confrontation is reflected inside the company as well managers are pitted against each other for market share to work harder. Xerox and a typical entrepreneurial environment. Employees feel the pressure of this culture. and began the era of professional management. and the innovative spirit returned. Under Wilson. In 1982 David Kearns took over as CEO. beating Coke is the path to success. Pepsi’s cultural emphasis had changed from passivity to aggressiveness. It the leader born or made? Justify . stressed quality and delegated power downward in the organization. with an informal. Pepsi marketing now takes on Coke directly. Rules and policies became less important. and to bring more profit out of their business. an entrepreneur who has CEO of Xerox from 1961 to 1968. Kerans trimmed Xerox down. The first wars created under Joseph Wilson. Example: Pepsico had faced the above problem. Rick-taking culture. C. In recent year’s consumer have been asked to compare the tastes of the two colas. Questions: 1. Because winning is a key value a Pepsico. and this made for a highly motivated workforce. and culture became formal. But today as a new Pepsico employee learns. Virtually everyone knew everyone else.
3. What are the various leadership theories? How organization culture plays a vital role in shaping an organization? How organization culture is changed and maintained? Bring out the culture aspects of Xerox. 5.2. . 4.
Being first is . old model of the solar system win which all the movements of the planets were controlled with clockwork gears. Organizations are restructured. a fundamental shift in thinking is necessary for coping with these changes. massive advertising budgets.1 Introduction: In the old days in science. the universe was fairly simple. no organization can build a competitive advantage that is sustainable. Nearly every science museum had a huge.LESSON 5. shaken to their cores. in fact. have been ripped and torn in the fierce winds of competition. Their competitive advantages. Markets appear and fade.4. deep pockets. once considered unassailable. Aggressive global competitors arrive on the scene. such as General Motors and IBM. Technological wonders appear overnight.4 PLANNING AND CONTROL OF IMPLEMENTATION 5. the best distribution systems in their industries. and many other features that give them power over buyers are suppliers and that raise barriers to entry that seem impregnable. So in this hypercompetitive environment. Every advantage erodes. managers must employ a new 7S’s framework that can be used to analyze industries and competitors and to identify one’s own strengths and weaknesses in meeting the challengers of hypercompetition. while companies have struggled to try to sustain their advantages. To cope with this new reality. Moreover. Al motion was relative. it is essential to understand and take advantage of the dynamic motion and flux of out global markets and technological breakthroughs. Leadership in price and quality is also not enough to assure success. But these are not enough any more. Both GM and IBM still have economies of scale. Business has also entered an age of new realities. Then we realized that reality was much more complex. The weathered rule books and generic strategic once used to plot our strategies no longer work as well in this environment. The traditional sources of advantages no longer provide long-term security. We have seen giants of American industry. companies must actively work to disrupt their own advantages and the advantages of competitors. cutting-edge R&D.
grain production have been jolted awake by the icy waters of hyperdompetition. 5.2. Hypercompetition Hypercompetition results from the dynamics of strategic maneuvering among global and innovative combatants. competition to create new knowhow and establish first-mover advantage. Market stability is threatened by short product life cycles. boldness. Goliaths are brought down by clever Davids with slingshots. and competition based on deep pockets and the creating of even deeper pockets dalliances. that are facing this aggressive competition. environments escalate toward higher and higher levels of uncertainty. It is a condition of rapidly escalating competition based on price-quality positioning. From software to soft drinks.not always the same as being best. Competition American corporations have traditionally sought established markets wherein sustainable profits were attainable. Even such seemingly comatose industries as hot sauces of such commodity strongholds as U. from microchips to corn chips. there are few industries that have escaped hypercompetition. and hostility. commented. or industries shaken by deregulation.S. frequent entry by unexpected outsiders. In hyupercompetitions the frequency. high-tech industries. “It’s going to be brutal.” (4) There are few industries and companies that have escaped this shift in competitiveness. repositioning by incumbents. They have done so by . There is evidence that competition is heating up across the board. short product design cycles. CEO of General Electric. In other words. even in what once seemed the most sedate industries. Entry barriers are trampled down or circumvented. heterogeneity of the players. dynamism. new technologies. It is not just fast-moving. competition to protect or invade established product or geographic markets. When I said a while back that the 1980s were going to be a white-knuckle decade and the 1990s would be even tougher.4. I may have understated how hard it’s going to get. such as the airlines. As Jack Welch. such as computers. and aggressiveness of dynamic movement by the players accelerates to create a condition of constant disequilibrium and change. from package delivery services. and radical redefinitions of market boundaries as diverse industries merge.
This leads to a further escalation of competitions into hypercompetition.looking for low or moderate levels of competition. companies begin to develop new advantages rapidly and attempt to destroy competitors’ advantages. it is neither a desired nor a sustainable state from the perspective f corporations seeking profits. while firms push toward perfect competition. In hypercompetitive markets it is possible to make temporary profits. they are constantly pushing toward perfect competition. Just one hypercompetitive player (often from abroad) is enough to trigger this cycle. at which stage companies actively work t string together a series of temporary movers that undermine competitors in an endless cycle of jockeying for position. where no one has an advantage. is limited because there in incentive to cheat on the collusive agreement and gain advantage. they must attempt to avoid it because abnormal profits are not at all possible in perfectly competitive markets. as firms maneuver and outmaneuver each other. allowing each other to “sustain” an advantage in one or more industries or market segments. however. At each point firms press forward to gain new advantages or tear down those of their rivals. This movement. while it can be useful in limiting aggressiveness. Thus. . However. Collusions or cooperation. The most interesting aspect of this movement is that. As competition shifts toward higher intensity. even though perfect competition is treated as the “equilibrium” state in static economic models. Entry and mobility barriers are destroyed by firms seeking the profit potential of industries or segments with low or moderate levels of competition. takes the industry to faster and more intense levels of competition. Gentlemanly agreements to stay out of each othre’s turf fall apart as firms learn how to break the barriers inexpensively. more genteel levels of competition that existed in the past. Low and moderate-intensity competition occurs if a company has a monopoly (or quasi monopoly protected by entry barriers) or if competitors implicitly or explicitly collude. They would prefer low and moderate levels of competition but often settle for hypercompetitive markers because the presence of a small number of aggressive foreign corporations won’t cooperate enough to allow the old.
These strategies are embodied in the New 7S’s. The exact strategic actions formulated under this system will .4. It is not enough to merely adapt to the environment. all progress depends upon the unreasonable person. It is designed to sustain the momentum through a series of initiatives rather than structure the firm to achieve internal fit or fit with today’s external environment as if today’s external condition will persist for a long period of time. They are focused on disrupting the status quo through a series of temporary advantages rather than maintaing equilibrium by sustaining advantages. The New 7S’s are: • • • • • • • superior stakeholder satisfaction strategic soothsaying positioning for speed positioning for surprise shifting the rules of the game signaling strategic intent simultaneous and sequential strategic thrusts.5. In hypercompetition the reasonable strategic that focus on sustaining advantages do not lead to progress.3 The new 7S’s : Paraphrasing George Bernard Shaw. originally developed by McKinsey and Company. This. the new framework in based on a strategy of finding and building temporary advantages through market disruption rather than sustaining advantage and perpetuating an equilibrium. Companies make progress in hypercompetition by the unreasonable approach of actively disrupting advantages of other to adapt the world to themselves. the New 7S’s are not presented as a series of generic strategies or a recipe of success. Instead. the unreasonable ones persist in trying to adapt the world to themselves. while reasonable people adapt to the world. these are key approaches that can be sued to carry the firm in many different directions. Unlike the old 7S framework. Because of the nature of the hyper competitive environment.
Constantly improving customer satisfaction is now so standard that firms that once led the pack on customer satisfaction now find themselves without nay lead at all. and there are many variations. and has produced software compliers to help software companies use the new chip. Many types of strategic initiatives can be carried out using the New 7S’s. when designing new chips. but now they have instituted a process of concurrent engineering to get customers (and internal manufacturing) involved as early as possible. so employees remain motivated to serve customers. Thus. CEO Andrew Grove holds regular meeting with employees from all parts of the organization to brainstorm about the future. Successful firms learn how to disrupt the status quo. and customer needs. Intel designers visit every major customer and major software housed to ask them what they want in a chip. Before the Pentium chip. Intel has also provided early software simulations of its new chips to computer makers. Now. allowing them to get a jump on designing their new machines. Employees are motivated and empowered to serve customers’ priorities above their own. Disruptions that satisfy current customer needs are not enough. Over the years Intel has also worked to avoid layoffs through asking staff to put in overtime or cut back on hours. The disruptions that work are those that involve the first S-the creating of a temporary ability to serve the customer better than competitors can. A key to their choice of a disruption is the realization that not all disruptions are good. Employees have a right to demand AR—“action required” – of any executive. Create customer needs that never existed before . Intel rarely asked customers what they wanted. the key to achieving real advantage from customer satisfaction is to : • • • identify customer needs that even the customer cannot articulate for him/herself find new. competitive challenges.depend on many variables wihtihn the industry and the firm. previously unserved customer s to serve.
engineers are brought together to consider the emerging technological capabilities nd the performance needed to keep ahead of competitors. firms are now engaging in the second S. As in fencing. To do this. This allows firms to see and create future needs that they can serve better than any competitor does. strategic soothsaying. strategic soothsaying. To act on this vision. is concerned with understanding the future evolution of markets and technology that will proactively create new opportunities to serve existing or new customers. The second S. Intel has also expanded into other areas such as supercomputers. (6) It has gained 85 percent of the emerging market for flash memory chips and practically owns one third of the market for massively parallel computers. flash memories. a company’s ability to move quickly from one advantage t the next is crucial. speed and surprise are key factors in gaining an advantage before competitors are able to do so and in delaying competitor reactions to the new advantages. Speed allows companies to maneuver to disrupt the status quo. Because success depends on the creation of a series of temporary advantages. video chips. (5) As pressure builds from clone makers and rival systems. companies need two key capabilities: speed and surprise.• Predict changes in customer needs before they happen. The ability to see and create these future need depends upon the firm’s ability to predict future trends. If two companies recognize the opportunity to create a new advantage at the same time. This also contributes to the firm’s vision of where the next advantage will be discovered and where the company should focus its disruption. erode the advantage of . This experience provides knowledge that Intel can then apply to standard chips. and to create self-fulfilling prophecies. even if only temporarily. Its sales in these areas are climbing at an average rate of 68 percent per year. Intel CEO Grove has quipped that the company bets millions on science fictions. adding features such as video. to control the development of key technologies and other knowhow that will shape the future. the company that can create the advantage faster will win. and networking boards.
. and it currently has its own versions of the competing RISC-based chip (Reduced Instruction-Set Computing) although it continues to defend its stronghold of CISE (Complex Instruction-Set Computing). other chips. To stay ahead of clonemakers. it has often pursued a strategy of simultaneously pursuing alternative technology.competitors. and supercomputers-keep competitors guessing about its next move.(7) Instead of waiting until the current generation of chip is rolled out before working on the next one. surprise allows the company to create the advantage and to extend the period in which the advantage in unique. The new Quick turn system will allow Intel to perform engineering tests up to thirty thousand times faster. Intel now develos several generations of chips at one. but it has developed the capabilities to do so as the only supplier to computer manufacturers with a brand name—so competitors never know when it might decide to enter the PC market. While this is not a source of sustainable advantage (once the competitor recognizes the advantage. the Pentium. Not wanting to compete with its customers. It is already working on making its chips obsolete before they have even hit the market. Intel used to bring out one or two new chips each year and a new microprocessor family every three or four years. It also has achieved a breakthrough in modeling systems that promises to cut the four-year product – development cycle by six months. Since its early days. Surprise also allows companies to act to undermine competitor advantages before the competitors can take defensive actions. In 1992 it drove out nearly thirty new variations on its 486 chip and introduced the next generation of chip. Intel plans to create new families of chips every year r two throughout the 1990s. flash memories. Intel’s multiple capabilities – with strengths in microprocessors. personal computers. Intel has created designautomation software that allows it to add two or three times the transistors to each new chip design with no increase in development time. Intel hasn’t entered the personal computer market under its own name. and create new advantages before competitors are able to preempt these moves. which offers more software. it can usually move quickly to duplicate it). If a competitor is unaware of the opportunity to create a new advantage surprise can maintain that lack of awareness.
signaling and simultaneous and sequential strategic thrusts-are concerned with the tactics used in delivering a company’s disruption. These three S’s follow the visions developed by the first two S’s and use the potential for speed and surprise from the third and fourth S’s. It usually analyzes potential competitive responses but doesn’t shape those responses to its advantage. Capabilities for speed and surprise are therefore key elements for successfully disrupting the status quo and creating temporary advantages. In what may have been a response to Intel’s signal.Intel has used advance in modeling and design of new chips to surprise competitors. the number of Intel employees declined between 1984 and 1992 to maintain flexibility. At a technology forum in 1991. Intel also maintains a flexible workforce. An Intel executive demonstrated a working model of he Pentium chips. These capabilities are flexible in that they can be deployed across a wide range of specific actions. using a link to the model. these final three S’s are concerned with a dynamic process of creations and interactions. Despite its continued growth in revenues. before and actual chip was ready. Its new modeling system gave it a strategic victory over a competing RISC – based chip. especially tactics that influence the flow of future dynamic strategic interaction among competitors. In contrast to strategic approaches to strategy. shifting employees to different projects and keeping operations lean. six months later Compaq Computer corporation canceled plans to launch a RISC-based personal computer(8) And it is still unclear whether new research efforts in RISC chips will surprise Intel. Most planning is concerned with the company’s next more to gain advantage. Tactics for Disruption: The Last Three S’s The final three S’s-shifting the rules of he game. .
Its precise strategy for doing this is less visible. throw the competitor off balance. Although it has clearly revealed that it has 686 and 786 chips in the works. One can think of sequential thrust as being akin to the sequence of plays used in a football game. reshaping the competitive playing field and confusing the opponent. such as networking circuit boards and graphic chips that make it easier for computer makers to add these features. where Intel lost out to Japanese competitors. from palmtops to supercomputers. Tactics such as actions that shift the rules of competition create a sudden and discontinuous move in the industry.”(9) It has also stated a vision of making the company the center of al computing. This shifts the rules by creating a machine that Intel is not marketing itself. But the brand is only as powerful at the computer chip behind it. Signaling can delay or dampen the competitor’s actions to create advantage. and flash memory has helped shift the rules of competition. As discussed. or create surprise. disrupt the status quo. By making the chip visible and using branding in marketing PCs. a company might feint a mover in one direction and then move forcefully in another direction. Intel used signaling to shift the rules of competition by transforming computer chips from a hidden commodity to a marketing asset through its Intel Inside campaign. and open opportunities for new advantaged. As an example of a set of simultaneous thrust. Intel is adding ancillary products. Intel’s move into new areas such as supercomputers. One team ay run the ball several times until the defense is conditioned to expect a run play. It has also designed a personal computer with workstation power. The purpose of the design is to take full advantage of Intel’s Pentium chip. Flash memory provides an alternatives to the standard memory market. the Panther. Competitive thrusts in this environments are rapid-either a sequence of moves or a set of simultaneous actions-to upset the equilibrium of the industry. creating surprise and temporary advantage from the misdirection of the opponent. which it is licensing to computer makers. it made major gains in its battle against the clones. what these chips will be able to do is still open to speculation. interactive digital video. Grove has signaled Intel’s intent to flight the clonemakers “with everything we’ve got. .The view presented here is a set of tactics designed to disrupt the status quo and create temporary advantage.
its simultaneous development of RISC and CISC technology). It was this effort to simultaneously attack several segments of the market that helped lead to IBM’s decision to adapt the 8088 as the center of its personal computer. Intel has used a variety of simultaneous and sequential strategic thrusts to seize the initiative. while the traditional 7S’s are concerned with capitalizing on creating a static strategic fir among internal aspects of he organization. Although these actions sometimes push companies into the gray areas of antitrust because the behaviors could be construed as exclusionary or anticompetitive actions. As suggested earlier. It has used multiple exploratory attacks to develop a variety of know-how and technology capabilities and gauge competitor and customer reactions (for example. In a way. Intel’s retreat from the memory chip market and return with flash memory might be seen as a sequential set of moves skin to a strategic retreat followed by regrouping and counterattack. to boards. since once the play is used. moving from memory chips to microprocessors. struggling with its 8086 microprocessor chips.Then the offense switches to the long bomb at a time that should call for a run. The sequence of actions create surprise and temporary advantage. to building personal computers (although not marketing them). Intel set up war roomed to work toward making the 8086 the industry standard. the defense will watch out for the long bomb in future plays. It has also explored promising markets (such as video and massively parallel computing) and moved into those with the highest potential for growth. companies are increasingly seeing them as necessary for competitive survival. In the late 1970s. These three tactics reflect the increasing speed and intensity of hypes competitions. It has built its businesses by using a sequential strategy. (10) Intel rode the wave of the PC’s growth to dominance in the microprocessor industry. Operation Crush-against Motorola and other competitors. Intel also participated in both the memory and microprocessor markets at various points in time. . the New 7S’s are concerned with four key goals that are based on understanding dynamic strategic interactions over long periods of time. Intel launched an all-out assault-code-named.
In hyper competition it is not enough to build a static set of competencies. acting to create a new advantage or undermine a competitor’s old advantage. Creating temporary advantage. shifting the rules.1. The opponent s forced to play catch-up. a company’s success depends equally upon its swords and its . and the future. manufacturers are dong remedial work in quality improvement. Competitors disrupt the status quo by identifying new opportunities to serve the customer. In slower and less aggressive competitive environments. Several actions in a row to seize the initiative create momentum. Disrupting the status quo. eroded by fierce competition. otherwise. These advantages are based on better knowledge of customers. This throws the opponent off balance and puts it at a disadvantage of for a while. they have been forced to concentrate much more on the skills of fencing. The company continues to develop new advantages and doesn’t wait for competitors to undermine them before launching the next initiative. while competitors are forced to be reactive. These moves end the old pattern of competitive interaction between rivals. Disruption creates temporary advantages. It is these dynamic skills that re the most significant competencies of the firm. Sustaining the momentum. technology. They are derived from customer orientation and employee empowerment throughout the entire organization. This is precisely why successful firms pay attention to tactics as well as capabilities and vision in an environment of traditional competition and to competencies in an environment of hypercompetition. Thus. The initiator is proactive. reacting rather than shaping the future with its own actions to seize the initiative. By moving aggressively in each arena. while U. This is the only source of sustainable competitive advantage in hypercompetitive environments. Good resources are not enough. This successions of action sustains the momentum. For example. companies could concentrate primarily on making great swords.S. 2. Japanese manufacturers are now building key advantages in flexibility. the company seizes the initiative. In hypercompetition. 4. and attacking through sequential band simultaneous thrusts. This requires speed and surprise. signaling. These advantages are short-lived. They must be used effectively. Seizing the initiative. 3. me company’s competitors simply change at the same rate.
employees and shareholders as well as competitors. Tradeoffs at the expense of future orientation/soothsaying. . Among the tradeoffs implied by the New 7S’s are the following: Tradeoffs at the expense of stakeholder satisfaction (S-1) can be undermined by speed (S-3). signaling (S6). as companies may sacrifice product or service quality to gain speed or push employees to work harder and faster. Furthermore the tradeoff means that the competitor can’t plug the weakness without giving up something else. and the New 7S’s are intended to guide firms towards making the right swords. and pointing them in the right direction. and simultaneous and sequential strategic thrusts (S-7) also have the potential to confuse customers. learning how to fence. Thus. forces the competition to be slow to respond or to give up some other strength in order to respond.fencing skills. and surprise (S-4). companies are forced to make tradeoffs among them.. if attacked. To the extent that competitor reactions are not anticipated. Either way the competitor loses. In choosing which to concentrate on. shifting the rules (S-5). the weakness of the competitor (or one’s own company) is apparent. Once these are identified. This makes it difficult for companies to do all seven equally well. which often eaves little time for reflecting on what lies ahead. Speeding products to market with little testing could also reduce customer satisfaction. Companies choose among the seven to confront different challenges and opportunities that present themselves. Some Tradeoffs One final analysis can be done using the New 7S’s. Similarly surprise (S-4). it is possible to identify weakness. Strategic soothsaying (S-2) can be hurt by speed (S-3). it is possible to analyze a competitor (or one’s own company) to see what types of tradeoffs have been made. which is sudden and unpredictable enough to make prognosticating irrelevant or impossible. which. Thus. Shifting the rules (S-5) often reshapes competition in a way that unpredictably changes future opportunities so that soothsaying becomes difficult.
Simultaneous and sequential strategic thrusts (S-7) can reduce speed (S-3) because they require more effort than single thrusts. will find ways to eliminate the tradeoffs. Tradeoffs exist only if firms believe that tradeoffs re necessities and stop looking for ways to do both alternatives. Alliances to shift the rules sometimes also decrease surprise because the alliances are usually public. Signaling can also reduce the element of surprise because it often involves revealing the strategic intent of the company. After . Also. strategic alliances used to shift the rules (S-5) sometimes reduces speed because of negotiations. Speed (S-3) can be eroded through the slowness of decision making in an organization such as the ones used to increase stakeholders satisfaction (S-1). so they can’t acquire all seen of he New S’s at once. it will be rare that a firm is equally good at all of the New 7S’s. Tradeoffs at the expense of surprise. They must prioritize them and make tradeoffs. truly hypercompetitive firms. Sometimes focusing on the opponent’s weaker S’s sometimes using several in concert. firms have limited resources. Other firms will creatively switch among the New 7S’s to shift the rules of competition. Sequential thrusts can reduce surprise (S4) by committing the company to a clear set of actions. Thus. just in time system could decrease the company’s flexibility while increasing speed. for example. because of the confusion and time it takes to regroup and retool to create the new rules.Simultaneous and sequential strategic thrusts (S-7) sometime make soothsaying more difficult. These tradeoffs mean that firms can’t always do all of the New 7S’s equally well even if they are above a reasonable threshold on each one of them. For example. Thus. Moreover. Finally. a competitor can do a tradeoff analysis to identify the maneuvers it can do through use of the S’s that the opponent can’t do well because the opponent can’t respond without depleting its strengths in one of the other S’s. The flexibility and stealth of surprise (S-4) can be eroded by strategies to increase capabilities for speed. This will create opportunities for a new type of hypercompetitive behavior whereby firms use the resource investment tradeoffs made by a competitor to determine which of he New 7S’s should be invested in first. like Intel. It can temporarily reduce sped (S-3). Tradeoffs at the expense of speed. Shifting the rules of competitions (S-5) may require a tradeoff with speed.
In this way. In particular. The use of simultaneous and sequential strategic thrusts (S-7) present a wide range of options and variation. The New 7S’s and their goals of creating disruption and seizing the initiative remain constant. knowledge of how to use the New 7S’s might eventually be expected to erode as it becomes widely assimilated. competitive opportunities change. it has become less of an advantage and more of a requisite to succeed in business. As customer by the total quality movement and other forces. it was once said that firms could not achieve low cost and high quality at the same time. As knowledge using themthis is already taking place-one might expect that any advantage would be neutralized. this erosions my be seen in the temporary advantages of a customer focus. even if all competitors in an industry are using the New 7S’s. making it difficult for firms to exactly replicate a competitor’s use of New 7S’s Second. Companies perform a balancing act in weighing these tradeoffs. Third. and the tradeoffs may make in difficult to respond. the New 7S’s have some inherent flexibility so that different companies using the new 7S’s can take very different strategies. Tradeoffs among the 7S’s. the New 7S’s are dynamic. companies usually cannot use all of the New 7S’s at once because of inherent. but the methods companies use to achieve these goals constantly change. Like all know-how. While the impact of the New 7S’s may be diminished somewhat by their widespread adoption. Stakeholder satisfaction changes.all. XEROX NOT CLEARED IN ONLY ONE PARA. There are many other trusts that can be designed for specific opportunities. Now it is not just a reality but a necessity for survival in many industries. there are several factors that promise to continue to make them a source advantage event after they are widely used. because companies can use any of the New 7S’s in developing their next strategic move. sourced of temporary advantage change. their moves will continue to be unpredictable. This adds to the unpredictability of competitive movers. Companies use them in different ways over time. First. .
Motorola chose not to try and shield itself from emerging technologies. Despite our lack of skills. Hypercompetitive companies will continue to monitor and define these new strategic approached in new attempts to provide temporary advantages and sustain momentum with a series of successful shortterm advantages. When Japanese electronic . So the New 7S’s will be used more aggressively and more frequently in the future world of hypercompetition. the only way our or this dilemma is for companies to become more aggressive in seizing the initiative. The recommendations of this new framework for increasing speed and targeting disruption make sense to those of us who have played different roles during major organizational upheavals and change. Lagging firms with the fire in their bellies to be number one will not be satisfied with their permanent status as second-class citizens. D’Aveni’s examples also hit close to home. or futile. since it is like shoveling sand against the tide.) Ultimately. one might expect and increased interest in alliances and other forms of cooperation to dampen the intensely of competition (as has already been seen. however. especially with the intensifying competitions of the future.The one certain impact is that as the New 7S’s become more widespread. player in two-way radios and systems in the 1970s and 1980s. While the New 7S’s will continue to be important. Leading firs will be wary of cooperative efforts that ask them to be less aggressive and give up their temporary advantage. we preferred positioning ourselves “behind the wheel”. While positioned as the dominant U. most of us chose the former. there may be even newer 7S’s that emerge as key so competitive success. every competitors will be looking for the next source of temporary advantage. competition will become more aggressive. Given the choice of participating in the group that planned the change versus being in the group on which the bomb is to be dropped. With this father intensification of hyper competition. Cooperative attempts to end this cycle of aggression will be seen as either illegal (collusive antitrust violations). but rather quickly moved to develop these into paging and cellular communications products-products that were in direct competition with those in its core businesses.S. He could have used Motorola just as easily as Intel for the article. Instead of having one or two competitors seeking to disrupt the status quo.
we have in mind before we slam down that accelerator. This means you want to have a change management strategy and dome professional internal or external expertise to guide the change process. Motorola launched its Six Sigma quality program. shared values. the new framework provides substances food for thought for . especially for larger firms with technically complex product lines requiring lengthy developmental cycles. This is not to imply that the new 7S’s are less valuable. It also won’t hurt to have taken emergency driver’s training and have a passenger on board who was a master map reader. you should evaluate your organization in light of the other 6 S’s. When reading the article. Like a cash cow. Motorola’s worldwide success today clearly supports D’Aveni’s position. wouldn’t you want to make sure the rest of the car was ready for higher speeds? The power and handling characteristics of a Ferrari would no doubt be preferred over a heavily loaded 65 Volkswagen bus with bald tires. Does your company have the systems. however. As a final recommendation for driving accelerated change. skills and structure needed to pull off the new 7S’s? Back to the brakeless car metaphor given that slowing down is not an option. The fact that Motorola’s experience fits so well causes me to wonder if the new 7S’s framework is appropriate for organizations operating in more slowly changing markets. There are some question to be raised. The failure to fully address the original 7S’s may make the new framework difficult if not impossible to execute. their screaming and grabbing at the wheel could be downright distracting. I saw many of the new “S’s” as an expansion of the strategy “S” in the McKinsey model. It would be easy to make the argument that in order to effectively implement D’Aveni’s recommendations.firms showed signs of capturing the growing cellular phone market with better quality. might it not be better to milk a moderately competitive situation as long as possible while building organizational capability to launce into the new 7S’s model at the first sign of hypercompetition? Another issue that concerns me involves the notion of this new framework as a replacement for the original one. Hypercompetition is reality in many markets. I’d advocate telling our passengers (our employees what. staff. smaller products. driving itself toward unheard of quality goals on a timetable accelerated beyond what is considered rapid by most industry standards. style.
organizational leaders may e deluding themselves if they attempt to utilize the new 7S’s theory before they have fully attended to those in the original one. “for want of a nail the battle was lost. As the old saying goes. or don’t know why they are fighting.business leaders trying to maintain their company’s competitive edge in hypercompetitive environments. On the other hand. What are the impediment of strategy implementation? 2. have inadequate logistical support.” Even the most brilliantly conceived strategies will be of little consequence if a company fails to correct fundamental problems stemming form marginal alignment. . What are the characteristics of hyper competition? Give example. It may be useful to reflect on the likelihood if a general with a eleve strategy achieving victory in a battle in light of the fact that his troops are poorly trained. Questions: 1. What is the new 7s framework? 3.
But ERP combines them all together into a single.1. Take a customer order. Al that lounging around in in-baskets causes delays and lost orders. for example.1 Introduction Enterprise resource planning software. manufacturing and the warehouse all still get their own software. Typically. to get into the warehouse’s computes system to see whether the item has been shipped. building a single software program that serves the needs of people in finance as well as it does the people in human resources and in the warehouse. HR. Meanwhile. integrated software program that runs off a single database so that he various departments can more easily share information and communicate with each other. Each of those departments typically has its own computer system optimized for he particular ways that the department does its work. Most vendors’ ERP software is flexile enough that you can install some modules without buying the whole package. for example. That integrated approach can have a tremendous payback if companies install the software correctly. and replaces them with a single unified software program divided into software modules that roughly approximate the old standalone systems. often being keyed and rekeyed into different departments’ computer systems along the way. for example. or ERP attempts to integrate all departments and functions across a company onto a single computer system that can serve all those different departments’ particular needs. that order begins a mostly paper-based journey form in basket to in-basket around the company. Many companies.1 ERP 6. . no one in the company truly knows what the status of the order is at any given point because there is no way for the finance department. ERP vanquishes the old standalone computer systems in finance. except not the software in linked together so that someone in finance can look into the warehouse software to see if an order has been shipped. will just install an ERP finance or HR module and leave the rest of the functions for another day. and all the keying into different computer systems invites errors. Finance. manufacturing and the warehouse. when a customer places and order. That is a tall order.UNIT 6 Lesson 6.
for example). and the answers affect the customer and every other department in the company. ERP takes a customer order and provides a software road map for automating the different steps along the path to fulfilling it. rather. People in these different departments al see the same informant and can update it. But it’s not just the customer service representatives have to wake up. It doesn’t handle the upfront selling process (although most ERP vendors have recently developed CRM software to do this).1. the company’s inventory levels from the warehouse module and the shipping dock’s trucking schedule fro the logistics module.6. he has all the information necessary to complete the order (the customer’s credit rating and order history from the finance module. Accountability. People in the warehouse who used to keep inventory in their heads or on scraps of paper now need to put that information online. responsibility and communication have never been tested like this before. When a customer service representative enters a customer order into an ERP system. Will the customer pay on time? Will we be able to shi the order on time? These are decisions that customer service representatives have never had to make before. To find out where the order is at any point. With luck. When one debarment finished with the order it is automatically routed via the ERP system to the next department. . such as employee benefits or financial reporting. and customers get their orders faster and with fewer errors than before. It flickers with the customer’s credit rating from the finance department and the product inventory levels from the warehouse. ERP can apply that same magic to the other major business processes. the order process moves like a bolt of lightning through the organization. That is why ERP is often referred to as back-office software. With ERP. The ERP screen makes tem businesspeople. the customer service representatives are no longer just typists entering someone’s name into a computer and hitting the return key.2 Benefits of ERP: ERP’s best hope for demonstrating value is as a sort of battering ram for improving the way your company takes a customer order and processes it into an invoice and revenue – otherwise known as the order fulfillment process. If they don’t customer service reps will see low inventory levels on their scrcens and tell customers that their requested item is not in stock. you need only log in to the ERP system and track it down.
rather than scattered among many different systems that can’t communicate with one another. The important thing is not to focus on how long it will take—real transformational ERP efforts usually run between one and three years. Integrate customer order information – ERP systems can become the place where the customer order lives from the time a customer service representative receives it until the loading dock ships the merchandise and finance sends an invoice.To do ERP right. Standardizing those . Finance has its own set of revenue numbers.1. of course. he may find many different versions of the truth. your ways of doing business are working extremely well (orders all shipped on time. and coordinate manufacturing. By having this information in one software system. companies can keep track of orders more easily. and the different business units may each have their own version of how much they contributed to revenues. Standardize and speed up manufacturing process – Manufacturing companies – especially those with an appetite for mergers and acquisition-often find that multiple business units across the company make the same widget using different methods and computer systems.but rather to understand why you need it and how you will use it to improve your business. ERP creates a single version of the truth that cannot be questioned because everyone is using the same system. Unless. the ways you do business will need to change and the ways people do their jobs will need to change too. 6. in which case there is no reason to even consider ERP. inventory and shipping among many different locations at the same time. sales has another version.3 Reasons for ERP implementation: There are five major reasons may companies undertake ERP. on average --. And that kind of change doesn’t come without pain. Integrate financial information – As the CEO tries to understand the company’s overall performance. customer s completely satisfied). ERP systems come with standard methods for automating some of the steps of a manufacturing process. productivity higher than all your competitors.
software.4 The cost of ERP: Meta Group recently did a study looking at the total cost of ownership (TCO) of ERP. The TCO for a “heads- . In the race to fix these problems. The TCO numbers include getting the software installed and the two years afterward. which is when the real costs of maintaining. Each of these industries has struggled with the different ERP vendors to modify core ERP programs to their needs. HR may not have a unified. upgrading and optimizing the system for your business are felt. which immediately left all the process manufacturers (oil. increase productivity and reduce head count. and it improves visibility of the order fulfillment process inside the company. To really improve flow of your supply chain. you need supply chain software but ERP helps too. each industry has its quirks that make it unique. That can lead to reduced inventories of the stuff used to make products (work-inprogress inventory). medium and large companies in a range of industries – the average TCO was $15 million (the highest was $300 million and lowest was $400. and it can help users better plan deliveries to customers reducing the finished good inventory at the warehouses and shipping docks. While most packages are exhaustively comprehensive. While it’s hard to draw a solid number fro that kind of range of companies and ERP efforts. Standardize HR information – Especially in companies with multiple business units. professional services and internal staff costs. companies often lose sight of the fact that ERP packages are nothing more than generics representations of the ways a typical company does business. chemical and utility companies that measure their products by flow rather than individual units) out in the cold. Most ERP system were designed to be used by discrete manufacturing companies (that make physical things that can be counted).processes and using a single integrated computer systems can save time.000). simple method for tracking employees’ time and communicating with them about benefits and services. Meta come up with one statistic that process that ERP is expensive no matter what kind of company is using it. 6. ERP can fix that. Reduce inventory – ERP helps the manufacturing process flow more smoothly.1. Among the 63 companies surveyed – including small. including hardware.
One enterprising CIO hired staff from a local business school to help him develop and teach the ERP business-training course to employee. Training expenses are high because workers almost invariably have to learn a new set of processes. those who have implemented ERP packages agree that certain costs are more commonly overlooked or underestimated than others. Training Training is the near-unanimous choice of experienced ERP implements as the most underestimated budget item. . Ultimately. Although different companies will find different land mines in the budgeting process. ERP pros vote the following areas as most likely to result in budget overrun. Remember that with ERP. So take whatever you have budgeted for ERP training and double or triple it up front.6 million.down” user over that period was a staggering $53. To do this accurately. Armed with insights from across the business.320. finance people will be using the same software as warehouse people and they will both entering information that affects the other. Meta Group study of 63 companies found that it tool eight months after the new system was in (31 months total) to see any benefits. outside training companies may not be able to help you. Prepare to develop a curriculum yourself that identifies and explains the different processes that will be affected by the ERP system. They are focused on telling people how to use software. not just a new software interface. But the medium annual savings from the new ERP system were $1. not on educating people about the particular ways you do business. It will be the best ERP investment you ever make. they have a much broader understanding of how others in the company do their jobs than they did before ERP came along. it will be up to your IT and businesspeople to provide that training. Worse. 1.
and something to be avoided if at all possible. No matter what. If you need to build the links yourself. This happens when the ERP software can’t handle one of your business processes and you decide to mess with the software to make it do what you want. and keep them on for good to maintain it. the vendor will not be there to support you. You will have to hire extra staffers to do the customization work. expect things to get ugly. Veterans recommend that instead of plugging in dummy data and moving it from one application to the next.2. All require integration links to ERP. maybe to won’t. run a real purchase order through the system. you’re better off. 4. The customizations can affect every linked together. Customization Add-ons are only the beginning of the integration costs or ERP. form order entry through shipping and receipt of payment—the whole order-to-cash banana-preferably with the participation of the employees who will eventually do those jobs. testing ERP integrating has to be done from a process-oriented perspective. As with training. Integration and testing Testing the links between ERP packages and other corporate software links that have to be built n a case-by-case basis is another oftenunderestimated cost. Maybe it will work. You’re playing with firs. If you can buy add-ons from the ERP vendors that are pre-integrated. A typical manufacturing company may have addon applications form the major – e-commerce and supply chain – to the minor – sales tax computation and bar coding. is actual customization of the core ERP software itself. Upgrading the ERP package-no walk in the park under the best of circumstances-becomes a nightmare because you’ll have to do the customization all over again in the new version. Data conversion . Much more costly. 3.
To avoid this. Companies often deny their data is dirty until they actually have to move it to the new client/server setups that popular ERP packages require. most data in most legacy systems is of little use. Data analysis Often. Replacing your best and brightest It is accepted wisdom that ERP success depends on staffing the project with the best and brightest from the business and IS divisions. Users with heavy analysis needs should include the cost of a data warehouse in the ERP budget-and they should expect to do quite a bit of work to make it run smoothly. the data from the ERP system must be combined with data from external systems for analysis purposes. consulting fees run wild. The . 6. Although few CIOs will admit it. Consultants and infinitum When users fail to plan for disengagement. making selective warehouse updates tough. such as customer and supplier records. 5.It costs money to move corporate information. companies should identify objectives for which its consulting partners must aim when training internal staff. One expensive solution is custom programming. for example. a number of the user company’s staff should be able to pass a project-management leadership test-similar to what Big Five consultants have to pass to lead an ERP engagement. 7. Users are in a pickle here: Refreshing al the ERP data every day in a big corporate data warehouse is difficult. Consequently. from old system to new ERP homes. product design data and the like. The upshot is that the wise will check all their data analysis need before signing off on the budget. But even clean data may demand some overhaul to match process modifications necessitated – or inspired – by the ERP implementation. Include metrics in the consultants contract. those companies are more likely to underestimate the cost of the move. and ERP systems do a poor job of indicating which information has changed from day to day.
you can’t go home again. few IS departments plan for the frenzy of post-ERP instillation activity. Implementation teams can never stop Most companies intend to treat their ERP implementation as they would any other software project. The implementers are to valuable. Because they have worked intimately with ERP. Ant it is in analysis – and. Unfortunately. Waiting for ROI One of the most misleading legacies of traditional software project management is that the company expects to gain value from the . insight-that companies make their money back on an ERP implementation. consultancies and other companies that have lost their best people will be hounding your HR policies permit. and fewer still build it into their budgets when they start their ERP projects. you’ll wind up hiring them-or someone like them-back as consultants for twice what you paid tem in salaries. Companies can’t afford to send their project people back into the business because there’s so must to do after the ERP software is installed. Just writing reports to pull information out of the new ERP system will keep the project team busy for a year at least. one hopes. Once the software is installed. 9. Just writing reports to pull information out of the new ERP software is installed. But after ERP. Though the ERP market is not as hot as it once was. 8. Huddle with Hr early on to develop a retention bonus program and create new salary strata for ERP veterans.software it too complex and the business changes too dramatic to trust he project to just anyone. If you let them go. Many are forced to beg for money and staff immediately after the go-live date. long before the ERP project has demonstrated any benefit. they figure the team will be scuttled and everyone will go back to his or her day job. The bad news is a company must be prepared to replace many of those people when the project is over. they know more about the sales process than the salespeople and more about the manufacturing process tan the manufacturing people.
. 6. Post-ERP depression ERP systems often weak cause have in the companies that install them. Because ERP covers so much of what a business does. To get the best most from the software. and the business goes into spasms. Neither expectation applies to ERP. Political fights break out over how-or-even whether-the software will be installed. The horror stories you hear in the press about ERP an usually be traced to the changes the company made in the core ERP software to fit its own work methods.1.application as soon as it is installed. manufacturing and the warehouse. And the project team is not going to be rewarded until their efforts pay off. The true percentage is undoubtedly much higher. a failure in the software can bring a company to a halt. IT gets bogged down in long. literally. you have to get people inside in the different departments that will use ERP don’t agree that the work methods embedded in the software are better than the one they currently use. expensive customization efforts to modify the ERP software to fit with powerful business barons’ wishes. 10. This is where ERP projects break down. including finance. ERP is a set best practices for performing different duties in your company. When people can’t do their jobs in the familiar way and haven’t yet mastered the new way. they will resist using the software or will want IT to change the software to match the ways they currently do things.5 Reasons for possible failure of ERP: At its simplest level. one in your admitted that they suffered a drop in performance when their ERP system went live. The most common reason for the performance problems is that everything look and works differently from the way it did before. In a recent Deloitte Consulting survey of 64 Fortune 500 companies. Most of the systems don’t reveal their value until after companies have had them running for some time and can concentrate on making improvements in the business process that are affected by the system. Customizations make the software more unstable and harder to maintain when it finally does come to life. they panic. while the project team expects a break and maybe a pat on the back.
No one within the company has any experience using it. Many departments have computer systems that have been honed to match the ways they work. . If your company is resistant to change. companies cast off all their legacy system at once and install a single ERP system across the entire company. largely because the new system will not have any advocates. the speed of the new system may suffer because it is serving the entire company rather than a single department. 6. ERP offers neither the range of functionality not the comfort of familiarity that a custom legacy system can offer. across the enterprise. Though this method dominated early ERP implementations. Getting people inside. ERP inevitably involves compromises. Franchising strategy – This approach suits large or diverse companies that do not share many common processes across business units. your company to use the software to improve the ways they do their jobs is by far the harder challenge. while linking common processes. the most ambitious and difficult of approaches to ERP implementation. few companies dare to attempt it anymore because it calls for the entire company to mobilize and change at once. Getting everyone to cooperate and accept a new software system at the same time is a tremendous effort. Also. In many cases. The mistake companies make is assuming that changing people’s habits will be easier than customizing the software.1. Independent ERP systems are installed in each unit. ERP implementation requires a direct mandate from the CEO.But IT can fix the bugs pretty quickly in most cases. few big companies can avoid customizing ERP in some fashion – every business is different and is bound to have unique work methods that a vendor cannot account for when developing its software. so no one is sure whether its will work. and besides. then your ERP project is ore likely to fail. such as financial bookkeeping. Most of the ERP implementation horror stories from the late 90’s warn us about companies that used this strategy. It’s not. In most cases.6 Organizing ERP projects: There are three commonly used ways of installing ERP The Big Bang – In this.
the business units each have their own “instances” of ERP-that is. Most use it as an infrastructure to support more diligent instillation efforts down the road. Once the project team gets the system up and running and works out all the bugs. the team begins selling other units on ERP. a separate system and database. Fitting ERP with e-commerce: ERP vendors were not prepared for the onslaught of e-commerce. using the first implementation as a kind of in-house customer reference. Yet many discover that a slammed-in ERP system is little better than a legacy system because it doesn’t force employees to change any of their old habits. In fact. The systems link together only to share the information necessary for the corporation to get a performance big picture across al the business units (business unit revenues. these implementations begin with a demonstration or pilot installation in a particularly open-minded and patient business unit where the core business of the corporation will not be disrupted if something goes wrong.1.Usually. Plan for this strategy to take a long time.7. But now customers and suppliers are demanding access to the same . Slam dunk – ERP dictates the process design in this method. such as those contained in an ERP system’s financial module. or for processes that don’t vary much from business unit to business unit (perhaps HR benefits). The slam dunk is generally for smaller companies expecting to grow in ERP. In most cases. Few companies that have approached ERP this way can claim much payback from the new system.This has emerged as the most common way of implementing ERP. where the focus is on just a few key processes. ERP is complex and not intended for public consumption. for example). It assumes that the only people handling order information will be your employees. 6. doing the hard work of process reengineering after he system is in can be more challenging than if there had been no system at all because at that point few people in the company will have felt much benefit. who are highly trained and comfortable with the tech jargon embedded in the software. The goal here is to get ERP up and running quickly and to ditch the fancy reengineering in favor of the ERP system’s “canned” processes.
E-commerce means IT departments need to build two new channels of access in to ERP systems-one for customers (otherwise know as businessbusiness consumer) and one for suppliers and partners (business-tobusiness). adding easily integrated applications from that same vendor can be a money-saving option. The choice is stark if ERP is linked directly to the Web-take down your ERP system for maintenance and you take down your website. For those companies that were smart-or lucky-enough to have bought their ERP systems from a vendor experienced in developing e-commerce wares. These two audiences want two different types of information from your ERP system. without all the ERP software jargon. though they certainly all realize that they must do it and have been hard at work at it for years. The bottom line. Most e-commerce veterans will build flexibility into the ERP and e-commerce links so that they can keep the new e-commerce applications running on the Web while they shut down ERP for upgrades and fixes. One of the most difficult aspects of ERP and e-commerce integration is that the Internet never stops. ERP applications are big and complex and require maintenance. – things like order status. For those companies whose ERP systems came for vendors that are less experienced with e-commerce development. Consumers want order status and billing information. But no matter what the details are solving the difficult problem of integrating ERP and ecommerce requires careful planning which is key to getting integration off on the right track. however.information your employees get through the ERP system. Traditional ERP vendors are having a hard time building the m\links between the Web ant their software. The difficulty of getting ERP and e-commerce applications to work together-not to mention the other application together –not to . inventory leaves and invoice reconciliation – except they want to get all this information simply. is that companies with e-commerce ambitions fact a lot of hard integration work to make their ERP systems available over the Web. through your website. and suppliers and partners want just about everything else. the bestand possibly only-option might be to have a combination of internal staff and consultants back through a custom integration.
Middleware has improved dramatically in recent years. Write a not on the evolution of ERP. These applications act as software translators that take information from ERP and convent it into a format that e-commerce and other applications can understand. Questions: 1. What are the benefits of ERP? 3. How ERP can be fitted with e-commerce? . What are the software of ERP? 4. and though it is difficult to sell and prove ROI on the software with businesses leaders-it is invisible to computer users-it can help solve many of the biggest integration woes that plague IT these days. 2. What are implementation difficulties of ERP? 5.mention the other applications that demand ERP information such as supply chain and CRM software-has led companies to consider software knows alternatively as middleware and EAI software.
These solutions address every phase of an enterprise: form the factory. and the Internet is central to that change. More than 15. closer collaboration throughout their value chain. iBaan: The relationship between companies and their customers is changing. Through its open and powerful iBaan suite of Internet-enabled solutions. Baan helps industrial operations optimize their enterprise performance strategic and compete in the knowledge-driven networked economy. to the warehouse. with us everincreasing demands for information. and collaboration.2.2..2.2 ERP PACKAGE : BAAN 6. to the service center.1 Introduction: Baan was founded in 1978 in the Netherlands. easy-to-configure components that address manufactures’ growing demands for tighter integration and full visibility throughout the supply chain. Today it supplies innovative. services and engineering industries.000 customer sites worldwide Domain expertise in target industry environments More than 200 alliances including Microsoft. flexible. Baan can help them as they move towards tighter integration of their complex processes. IBM etc. integration. The salient features of the company are: • • • • Worldwide headquarters in the Netherlands Part of the Production Management division of Invensys plc. Baan is ideally placed to support organizations in the manufacturing. increasingly integrated software solutions and services for every major are a of business. 6. to the online . iBaan is the only internet-enabled family of solutions based on a comprehensive framework of open. The customer is moving closer to every player in the ‘value chain’. Baan has built on its early expertise in software for the manufacturing industry to become a leading enterprise application provider. logistics.6. Since then. and greater accessibility of cross-enterprise transactional and analytical information.
without having to abandon existing IT investments. and iBaan Procurement. Siemens and B&O. iBaan Finance. iBaan Planning. Most of all. Nortel. iBaan can help bring companies.as well as the Baan architecture and common components for collaboration and e-commerce.2. Dana. Flextronics. Hermann Miller. iBaan Open World. the Baan Consulting approach is designed to help you improve your business agility.4 Services and resources: Baan Consulting services span the full range of Baan Solutions – iBaan CRM.3. collaborative working environment that brings down costs and reduces waste. and integration. • • • It’s collaborative. iBaan Business Intelligence.business presence. information. Baan Consulting Customers: Some of our better-known clients include Boeing. 6. Snecma. Baan consultants have the longest and most in-depth exposure to the Baan products through involvement in beta testing. Baan Consulting: Baan Consulting helps customers get measurable business results from Baan solution. iBaan Manufacturing. our industry and technology consultants have ‘been there’ – so you get the benefit of our experience as well as our knowledge of Baan business tools. By helping you realize capabilities and add value to your business.2. Elcoteq. iBaan Services. Solar Turbines. more agile and more profitable. We provide a single point of contact and responsibility for all issues relating to your implementation. product release programs . With a synchronized enterprise everything can be more efficient. 6. Andersen Windows. with a strong emphasis on knowledge transfer from our consultants to your people on the front line. suppliers and endusers together into a virtual. iBaan Distribution. partners.
They will assist your project team in resolving process-related issues. but also through Baan development and the support organizations. The unique to leverage DCS (Development Consulting Services) resources in situations involving complex technical issues compliments the strength of our technical teams. manufacturing. Baan consultants play a central role in establishing software requirements and managing set-up and use. Just some of the features and benefits include. This experience. customizations. leveraging past involvement in numerous complex implementations. as quickly as possible. • • • As a rule. software architecture design another technical problem solving. Baan functional consultants are hired with extensive industry background Most have 10 to 15 years of experience working in functional positons in finance. . • • Baan Consulting Solution Packs are crafted to address multiple business needs. enables Baan consultants to provide authoritative process and technical recommendations. When it comes to difficult decisions about configuration of a multi-dimensional environment. data migration. distribution and service Most have experience implementing software systems while in those positions Baan’s technical consultants are most familiar with Baan’s technical architectures. Baan Consulting draws upon a wealth of experience.and implementations at customer sites. combined with the knowledge of Baan processes and a deep involvement in the Baan network. and will vary according to your needs – so you get the results you want. may be tailored to your specific situation. • This knowledge is available not only through the consultants themselves and their colleagues. having dealt with the same or related scenarios in the past. Their familiarity with Baan’s business object interface (BOI) development and Data Access Layer (DAL) technologies allows for unique insight and quicker turn-around time for interfaces.
and open up new possible in the way you use Baan software. and is supervised by the Baan Project Management Office. implementation. • Single point of contact and responsibility We provide customers with a single point of contract and responsibility for business. industry knowledge. low budget implementations Cost-effective solution and services bundling Access to experienced Baan consultants Single point of contact and responsibility Access to a huge network of Baan resources Targeted implementation with measurable goals and milestones. and measurement issues related to your stated business goals. 6.• • • • • • Reduced risk. . We encourage the use of solution packs to help improve your company’s efficiency. integration. Baan Consulting Solution Packs embrace a broad range of iBaan solutions.2.5 Benefit of Baan: • Support for any project Our Resource Management Office has access sot experienced people and resources across the globe to provide you with local support. on-time. Program and project reviews complement our implementation services to help further reduce risks. or GDPM. Baan Consuldng’s project and program management methodology focuses on Goal Directed Project Management. strong project management capabilities – and the fact that we are the software developer – helps reduce the risks inherent in any software implementation project. • Helps reduce risk Experience in Baan back-office applications. software.
In addition.• Baan network Baan consultants have unique access to a global network of resources within Baan – consulting service lines. System Control System Control helps customers reduce the complexity and effort associated with the maintenance of their business system. involving both customer users and Baan experts who will apply Baan’s automated test tools. This service offers and extended systems review and periodic analysis of the system environment.6 Application management Application Management offerings help customers with the control and management of Baan-related production systems. a dedicated Support Account Executive will take responsibility for planning. as well as coordination and management of a system-control plan for the customer. documentation database/libraries. including technical functional and user aspects. Internet Knowledge Bases. 6. This plan will include the installation of updates and service packs on the customer’s system. Baan will set up and organize a customer-specific test. Ban is able to offer a range of different services. from purely technically oriented to conceptually or functionally oriented. System help is designed to support customers in addressing the significant . It includes activities such as report changes. user definitions and back-ups. development. System Help System help is a contract-based service that’s intended to take over some or all of the customer’s daily system and application management tasks. sandbox environments and personal networks – so benefit from our knowledge of application development and migration. To do this. The control plan includes data archiving. and gain a way to influence future releases.2.
This ranges from Baan Development. Customization Care Customization care is intended to take over the care. Performance and Benchmarking. and release management of customized software applications. What is Baan? 2. Baan can provide a number of Optimization Services to customers upon request. Porting. Questions: 1. System Help can help customers solve these knowledge management problems while simultaneously reducing costs.knowledge management problems that can arise from the increasing number of technologies being introduced in the industry. What are the benefits of Baan? . Optimization Services deliver ad-hoc services that fall outside the scope of the Support & Application Management agreements. which are already applied to various types of customers all over the world. It brings firstline support activity to a customer’s internal organization and manages communications with second-or even third party support organizations. The staff deployed has access to all necessary resources. As a result. System Control is mandatory for this services. In addition to Support & Application Management. support. Optimization Services are based on years of experience with different versions of Baan applications. maintenance. to competence centers from our strategic alliances It’s all geared to help customers ‘get to the point’ to solving a particular issue or problem.
This average market capitalization of good software companies in India is nto less than eight times the sales figure. is well known for its enterprise resource planning (ERP) software that was launched and endorsed by Microsoft chairman Bill Gates in 1997.Applications. But its development costs are mostly in the past whereas revenues lie in the future. BaaN. But Ramco has survived with Marshall and now promises a lot with its latest upgrade. originally called Ramco Marshall and now renamed Ramco e. it is not active in software services. People soft and initially no one gave Ramco any chance. The proof of the pudding is that many are cating it. Marshall cost a lot of money to develop and nto yielded much profit.3. The other. 71 crore. In 1998-99 Ramco Systems’ sales were about Rs. 100 crore this year. Ramco’s ERP product today has 120 customers. 650 crore. Ramco Systems will then be listed as separate company by allotting.LESSON 6. Unlike most Indian software firms. The ERP product. 800 crore. Ramco Systems’ value is about Rs. Ramco Systems shares to Ramco industries shareholders in the ratio of 1:1. By this reckoning.000. e. having placed most of its eggs in the ERP basket. The figure is expected to grow to about Rs. technological competence and human resources –all intangibles –should be valued at close to Rs 1000 crore The ERP arena is dominated by big foreign players like SAP. last year the software division probably lost money. A second difference is that being a software product. One makes asbestos building materials.1 Introduction: In an age when focus is all the range the Rs 200 crore Ramco Industries is an oddball. An accurate valuation will have to wait until December when the hive-off –-formulated by KPMG – is completed. a little like Wipro.Some analysts say Ramco’s intellectual property. is considered by many to be India’s only truly world-class software product. It consists really of two disparate companies bundled into one.200 man years has been invested in developing Ramco Marshall. . In the international ERP market the cost per year is into less than $70. A total of 2. At this rate. including Hyundai. known as Ramco System and currently a division of the parent.3 ERP PACKAGE : MARSHALL 6. Marshall can be valued at about $164 million or over Rs.Applications.
It has an advantage in rapid application development because it is in the forefront of a revolution in software development. Development practices are ISO 9001 and Y2K certified. These two added revenue streams – from high-end e-commerce and other services and customized nonproduct based software development projects –will help Ramco System software development costs and let it have the best of both words: software services and products. which will be a completely web-based product is due for release 12-18 months from 2002. and E-commerce solutions. Another major development is that Ramco Systems recently added two new lines of business – e-commerce and rapid application development – thereby product – based business model. Ramco ERP.2 e-Applications: Ramco’s ERP. Ramco does the ERP. Here.3. 6. . A number of functions and industry specific complementary solutions held integrate the ERP solution to solutes-partner solutions.ApplicationTM provides business solutions to over 15 industries in four broad areas – ERP or manufacturing and service industries. EAM & HR suite – Ramco e. component-based architecture. Ramco does the ERP. EAM & HR implemntatins for most customers.Applications is Netenabled and is already part of the way there. The next version of e. Ramco Systems provides complete enterprise solutions (ERP. Added to this are seven Web products that get you Internet ready and running. EAM (enterprise asset management) for asset intensive industries. EAM & HR implementations for most customer demonstrating our commitment to make the solution work for you. RAM & HR) form development to implementation and support.Applications. a customized application is developed merely by assembling components. Our global help desk is available for round-the-clock support. EAM & HR solutions are built up form over 35 applictions. Human Resources Management.Migros and NEC. This reduces the cost of and time taken to develop software and gives the user the flexibility to change anything he wants. It is working to ensure that e.
and the levels of dimensions of business. The Ramco e-application applications are enabled for the Internet. The information required for decision making a usually available within an organization enterprise applications system or online transaction processing (OLTP) system. Organizations today operate in a highly competitive environment characterized by a state of flux – accurate business information is critical for success. Further. Ramco Enterprise Intelligence (REI) uses the capability of OLAP tools which are built into relations database systems to provide you a userfriendly data warehousing solution that integrates with existing business process and enterprise applications.Applications comprise over 35 crore business applicatiosn. Conventionally. the information may not be available in the required form. the performance of the operating system deteriorates under pressure from the volume of data involved and the complex joins required across tables in databases. However. only two-dimension analysis can be carried – data subsets cannot be spliced and diced. In a typical enterprise application.The organization like Sunkist Growers. But in addition to this. EAM & HR) – On budget. Intel. However. through a simple dread and drop interface. ICICI and Columtia Helicopters accepted effective enterprise solutions (ERP. REI solution used online analytical processing to provide you the flexibility to use . 6. measures. OLTP typically supports lower level information reporting – it helps generate operational and statutory reports and provides a basic level of data drill down. this method has i\limitations considering the hierarchy of information needs for effective decision making. within schedule. may be inaccessible in the required level of detail. These applications can be combined with functions and industry specific add-ons to deliver either generic enterprise solutions or focused industry and organization specific solutions. managers need to analyze multi-dimensions and to splice and dice data for better consolidation. REI enables you to flexibly analyze a number of dimensions. ecommerce and EDI. information for decision making is retrieved through an OLTP system.4 Enterprise Intelligence: Enterprise intelligence – more than data or information – is an organization’s most important resource. Ramco e. or may be analyzed differently by different functional departments in the enterprise.3.
Main features 1. You can choose various dimensions depending on your information or analysis needs. Easy and quick administration 11. for example. Integrated infrastructures built on multi-tier architecture to facilitate efficient sharing and distribution of information 13. Profitability. promotional activities. Slicing and dicing subsets for on-screen viewing 4. a customer or a customer segment. can be considered from various perspectives – a region. a product category. Proven tools for building and delivering customized analytical application 6.various combinations of dimensions to analyze the data quickly and more efficiently than having a large number of reports. Access rights can be defined for users at different levels 10. This provides the ideal platform to retrieve and analyze organization performance metrics. allocation of resources or product development. a product. Architecture that enables effective exploration using SQL query 7. REI delivers an integrated solution that helps you to measure and analyze profitability from all these different perspectives and by combinations of them across time periods. Data loaded from any source or system. Drill-down to deeper levels of consolidation 5. Allows access of data vis the Internet or intranet 8. Rigorous security 9. Trend analysis over sequential time periods 3. . including third party and legacy applications. Calculations and modeling applied across multi-dimensions through hierarchies and/or across members 2. REI is a complete solutions that gathers data from disparate sources. therefore. Business organization need to analyze profitability to determine pricing. Consider profitability analysis. Integrated models with conformed dimensions provide consistent “snapshot” of information across multiple functions of organizations 12. and combines and delivers it in the from of cube.
3. What is the applications of Marshall? Why e-Applications are different from Marshall? Mention the EAM of Ramco Systems Mention the main features of e-applications. maintenance. This is where Ramco Enterprise Asset (EAM) Management solutions help.5 Enterprise Asset Management Solutions: The business environment for asset intensive enterprises is very challenging today – the regulatory environment is changing. In today’s Internet economy organizations must use IS solutions to transit from conventional ‘brick and mortar” business models to information age business models that will enable them to stay agile and respond effectively to higher customer expectations. . 2. and customers expect service at Internet speed. Questions: 1.3. 4. new capacity addition is expensive output demand is fluctuating. Ramco EAM solutions – part of the Ramco e-Applications TM family of enterprise solutions – are designed on the basis of two critical principles: The enterprise solution needs of maintenance intensive industries are distinct and different from the enterprise solution needs of manufacturing centric industries. logistics. HR and financials to mobile computing and ecommerce capabilities.6. Ramco EAM solutions comprehensively cover operations.
Looking for more growth. and had revenues of $7.1 Introduction SAP the company was founded in Germany in 1972 by five ex-IBM engineers. SAP stands for Susteme. Produckte in her Datenverarbeitung which – translated to English – means systems. SAP expanded into the remainder or Europe during the 80’s. the original five founders have been so successful that they have multiplied many ties over such that SAP AG is now the third largest software maker in world.LESSON 6. SAP America (with responsibility for North Amerca. SAP today is available in 46 country-specific . SAP is listed in Germany (where it is one of the 30 stocks which make up the DAX) and on the NYSE (ticker-SAP). Germany which is close to the beautiful tows of Heidelberg. with more then 10 million users. Within a 5 year period. For years SAP stayed within the German borders until it had panetreated practically every large German Company. This turned out to be a killer app for SAP. The success of SAP R/3 in North America has been nothing short of stunning. South America and Australia – go figure!) is located just outside Philadephia. SAP has subsidiaries in over 50 countries around the world from Argentina to Venezuela (and pretty much everything in between).000 people and has added the names of many of the Fortune 500 to it’s customer list (8 of the top 10 semiconductor companies. the North American market went from virtually zero to 44% of total SAP worldwide sales. SAP America alone employs more than 3. So now you know! Being incorporated in Germany the full name of the parent company is SAP AG. especially in the American region into which SAP expanded in 1988.4. Andwendugen. It is located in WAlldorf. Products in Data Processing. There are now 44. Applications. Badk in 1979 SAP released SAP R//2 was the first integrated.500 customers (including more than half of the world’s 500 top countries). entrrprise wide package and was an immediated success.000 people worldwide today.34 billion and Net Income of $581 millions in FY01. Towards the end of the 80’s.4 ERP PACKAGE : SAP 6. PA. client-server architecture became popular and SAP responded with the release of SAP R/3 (in 1992). in 120 countries. with over 17.500 installatins of SAP. In case you’re ever asked. SAP employs over 27. 7 of the top 10 pharmaceutical companies etc).
One customer reportedly made enough savings on the procurement of a single raw material to pay for the entire enterprise-wide SAP implementation! Of course these are hard to substantiate. that: • • • being able to accurately provide delivery promise dated for manufacturing products (and meet them) doesn’t hurt … and being able to consolidate purchase decisions from around the globe and use that leverage when negotiating with vendors has gotta help … and being able to place kiosks in stores where individual customers can enter their product specifications and them feed this data directly into it’s production planning process is pretty neat. Enabling business process change – From the start. Although it sounds absurd. if you have a burning platform as well the question becomes even easier.3 The cost of SAP: Implementing SAP is expensive. 3. 2. Competitive advantage – The CFO types around have heard this old saying form the CIO types for many years now. . But the potential rewards can dwarf the costs (and have for many existing customers already).Page No. it is probably easier (and less expensive) to change your companies processes to adopt to SAP than the other way around. It seems to us however. depends on the company. of course. The question still has to be asked … can you gain competitive advantage from implementing SAP? The answer. etc. Sweeping them away and replacing them with an integrated system such as SAP can save much money in support. 336 – Xerox not cleared Of course that there is someone around who understands how they work!). but visit SAP’s website and take a look at the customer testimonials. 6. SAP was built in a foundation of process best practices. Of course. Many companies have reported good success from combining a SAP implementation with a BPR project.4.
3. There is also an annual support cost of about 10% which includes periodic upgrades. At the other end of the scale you get the multi. These are not necessarily failures …. Of course the really expensive ones are those we don’t beat about! For the most part.SAP sells it’s R/3 product on a ‘price per user basis’. get that business case out. The actual price is negotiated between SAP and the customer and therefore depends on numerous factors which include number of users and modules (and other factors which are present in any negotiation). 2. It is about now that you need to get the business case out again and remind yourself why you need to do this. Hardware – The smallest of SAP implementations probably use only three instances (boxes) … one for the production system. Timeframe. and one for development. Again. The major drivers of he total implementation cost are the Timeframe. This adds up fast. Then there is the implementation cost. one for test.national who are implementing SAP over 5 to 10 years. you should be able to get your (single instance) project completed in a 9 to 18 months period. especially if they involve multiple parallel projects (otherwise known as a program) . The types of people you will need rung the range from heavy duty techies to project managers. Resource Requirements and Hardware. Many of them are planned as successive global deployments (which seem to roll around the globe forever ). You should check with SAP. People – The smallest of SAP implementations can get done on a parttime basis without outside help. check with SAP.The absolute quickest implementation we have ever heard of is 45 days … but this was for a tiny company with very users and no changes to the delivered SAP processes. Again. The largest swallow up hundreds of people (sometimes over a thousand) and include whole armies of consultants. 1. The largest implementations have well over 100 instances. but for a ballpark planning number your could do worse than starting with $4000 per user.
perhaps SAP’s most significant competitor. Using SAP’s products.6. human resources. most companies supported a full staff of program developers who wrote their necessary business applications from scratch or developers who wrote their necessary business applications from scratch or developed highly complicated interfaces to allow pre-packaged applications from several vendors to pass data back and forth as necessary to complete any full cycle business transactions. comprehensive view of how their business managers and executives to get a timely. distribution. comprehensive view of how their business was doing at any given time. SAP was the first and. meaning a sales-order entry triggers action’s within each application that related and is relevant to the transaction. This process was extremely costly. Not only did SAP’s applications reduce the need for complex and redundant in-house development. time-consuming.4 The Software: Xerox not cleared in this Para Companies both large and small traditionally utilized multiple softwareapplications from various vendors or developed their own applications in-house to process their critical business transactions Prior to the proliferation of SAP. the most successful company to integrate nearly all business processes into one software solution for use in any business in any country in the world. It also made it very difficult for business managers and executive to get a timely. Other competitors include People Soft. Although SAP is recognized as the ERP market leader. and a range of mid-market ERP vendors who all provide similar packaged ERP application. but it also created new business efficiencies by automating many tasks across a corporation and incorporating business’ best practices into each updated version of its software. SAP applications thus provide an environment where “transactions are synchronized throughout the entire systems. has set its sites on SAP’s prestigious ERP leadership position. and error prone. analysis and other transactions into one application. planning. purchasing. companies can now integrate their accounting. to date. Oracle. sales. . manufacturing. JD Edwards. several competitors have found their footing in this arena.4.
Explain how SAP is different from other software Identify the purpose of SAP How SAP is different on account of the cost? . 4.Questions: 1. Trace the evolution SAP. 2. 3.
Chandrasekar . George . 1979 10. “a system for managing diversity” in Start Henderson and Harper Boyd Jr. Arthur sharphin. pp. Sidney Schoeffler. 9. Michel Allen.3. “Business Policy”. “Portfilio analysis for strategic product-market planning”. Robert Buzz ell and Donald Heany. Bruce Hendersn . “Marketing Management and administrative action”. Fifth edition-1985. New Yark. cditors. Himalaya publishing . “Portfolio planning : uses and limits”. “perspective on the product portfolio”. 137. 61-63 11. Wharton School working paper. 4. Lan Wilson.. Stategic Management. “A simultaneous equations model of corporate strategy”. Philippe Haspeslagh. Himalaya publishing .1611. 1980. January-February 1982. editors. Boston consulting Group. p. 13. in Dan Schendel and Charles Holfer.S. Long Range Planning”October 1974.29. “Impact of Strategic planning and profit performance . Harvard Business Review. . eds. Cherunilam. “Diagramming GE’s planning for what’s WATT “in Rober Allio and Malcolm Penningron. 1979. 8.” Harvard Business Review. “Retorming the Strategic planning process: integration of social and business needs”. 6. “carposaand planning techniques and applications”. McGraw Hill. Rechard Cardozo and Yoram Wind.1. Science. 1970 5. “Commentary on strategy Formulation”. Dan Schendel and Richard patton. Boston: Little Brown. March-April 1974. Robert Wright. “product management-text and cases”. p. “Strategic management in General Electric”. Stanley Hoch. Derek Channon. 1978. 12. p. November 1978.p. Day. 7. 2. Strategy management. “Diagnosing the product portfolio” Journal of Marketing April 1977. February 1980. 14. 3. Management.
Managing the resource allocation process..D. M. Cambridge. Knight. Englewood 20. Hall. New York : Harper & Row . W (ed). (ed. & March. New York. L.15. J.: MIT Press. 4th edition. 21. 20. New York: Little. Duncan.H. Allison. 19. Whitten. 17. The functions of the executive.W. Arrow. Upper Darby. J. A.A: 27.A. M. 115 Fifth Avenue. Coleman. & Gloverson.. NJ: Prentice28. J. “planning product line strategy : A matrix approach”. Shtub. 1981. p. Systems analysis and design methods. 29.M. January 1976.A. Van-Nostrand Reinhold. 1938. Boston. uncertainty and profit (c. Project management: Engineering Technology and Implementation. Brown & Co. J. Journal of marketing.J. Bard. Project Management Institute. M.I. A. Essence of decision.) (1988). R. Strategy and Structure. Cambridge. D. Englewood Cliffs. K. Yoram Wind and Henry Claycamp. 1970. NY 100003 18. Harvard Business Review. January-February. (1994). 156164. Project management Handbook. F. MA.G. “Designing product and business portfolios”.S. 1921). Cyert. 16. Clevland. Irwin McGraw Hill. Norton. 23. and Bentley. : Harvard University Press 24. and King. J. Prentice-Hall. Barnard. Chandler. 1962. PA. Homewood. 2nd edition. 1963 A bechavioral theory of the firm. Cambridge. 1974: The limits of organization. 1871. pp. 1990. G. S. (1966). 26. 22. Project Management Institute Stndards Committee. (1988). New York: W. Yoram wind and Vijay Mahajan. IL: Irwin 25. Risk. 1965. A Guide to the Project Maanagement Body of Knowledge. W. C.F. Bower. Foundations of Social Theory.
Competitive advantage. Penrose. Strategy. 1994. Rumelt.E.C. 42.30. Schumpeter. New York 38. 1985.& Ross.C. Porter. & Winter. New York : Harper & Row. and planning. 1959. 1957.E. and economic performance. R.Graw-Hill. & Teece. 32. M. Porter. MA: Harvard University Press. 40. Rumelt. Development Cambridge. Nelson. MA. New York: Free Press 36.M. R. Schendel. 1980. New York : Wiley. .The theory of economic. Regers. T. R. 1974. R.E. S. P. 33. 48.T. M. 35. E. MA. Structure. Organizational strategy. and Snow. MA: Harvard University 47. Mc.P. and process. structure. D. M. Houghton 45. Press.. D.E. industrial market structure and economic performance. Competitive strategy. 1978.A.R. New York: Free Press 37. Leadership in administration: A sociological interpretation. F. New York: 31. The theory of the growth of the firm. 1990.E & Hofer. J. Little. Fundamental Issues in Strategy. 1934. 44. Selznick. Bostom. D. The strategy of conflict. An evolutionary theory of economic change. : Belknap Press 34. Harvard Business School 39.G. C. Mifflin Co: Boston.P. The diffusion of innovations (4th edition). Scherer. D. E.W. Miles. Cambridge. Cambridge. 1982. Brown.J.A. Free Press. Press. Cambridge 41. schendel. C. 1960. 1979. management: A new view of Business Policy 43. Schelling. 46. 1995. MA.
Mention the of importance for organization to succeed in new areas of operations. 8. 4. Elucidate the 7’s framework with its uses to Indian companies. 7. 2. Define Mission and give examples What constituted core competency? What do your mean by turnaround? Give examples How the diversification strategies are undertaken by companies? Illustrate with examples the need for corporate strategy. 14. (4 X 15 = 60) Maximum Marks : 100 (5 X 8 = 40) . 10.Model Question Paper Paper 3. 12. 3. Evaluate the role played by business policy in organizational success. Critically evaluate the growth strategies adopted by Indian organizations. Read the following case carefully and answer the questions at the end of the case. 5. 15. What is management of change? What are the leadership qualities needed for corporate success? Write a note BaaN PART – B Answer any Four questions Question No. 11. 15 is Compulsory 9. Describe the various portfolio models and illustrate their limitations 13. 6.2 : Strategic Management Time : 3 hours PART – A Answer any Five questions 1. Discuss the various elements of corporate strategy.
backed off the left Essar in the lurch when it came to disastrous year for the group but its public image also suffered a major setback. Was it fate. Entering one business after another. rolling itself in many controversies. and in the process. Essar is wondering what went wrong in its dreams and their executions. Essar group had default on its loan repayments of $250 million of floating rate notes in international markets. This created a political controversy and caused embarrassment to the government. Essar started off by exporting iron ore. For last on year it had been frantically trying to avoid the unavoidable. During 1998.”Essar creates history. it acquired a stevedoring contract for bringing iron from the mine heads and loading it onto sheds. controls and major government role intervention. founded the Essar group. In 1956. Its major companies are in core infrastructure areas with strict regulations. Sashi. 50 who had stunned Indian corporate sector with their vision and daring entrepreneurship were today in a quagmire of their own making. Essar became an untouchable for government controlled financial institutions. a marwari businessmen settled in Madras in 1956. they were obviously not are that very soon the group would become a case study at the management school. Ruia brothers. Pokhran nuclear tests in 1998. Sahsi (ESS) and Ravi (AR) diversified from family business of trading and . sell companied that it had nurtured with heavy debt exposure in past few years. 55 and Ravi. It became the first Indian Company to default in International market raising fears in Indian corporate sector regarding future fund raising capabilities in the international market. While on diversification spree. stock market depression in India or was it structured to doom.All the major business newspaper headlines in India on 21st July 1999 were screaming . which had major exposure in Essar. continuing recessions in Indian and world market. Group Profile Nand Kishore Ruia. steel consumers had accused Government of India in media of creating import barriers to favour and bail our Essar. Today Essar group is considering various options to consolidate. defeats on FRN $250 million”. The financial institutions.
Sashi Ruia engineered Essar’s conquests and they were well capitalized by his younger brother Ravi. It has been the entrepreneurial sprit and opportunism that has been driving the group from a Rs. Ruia brothers had a resplendent vision of creating a huge empire and they exploited every opportunity that came their way and created many new avenues to realize their vision. 150 core shipping company to a Rs. Ravi Ruia was given charge of the operations & overseas businesses. 4000 core conglomerate. Essar group entered in global business by commissioning a $90 million cold rolled steel plant. Anshuman Ruia looks after shipping. Essar first took the opportunity provided by the gas pipeline to start a very successful sponge iron business. The group was slowly adding one business after another until late eighties. Capital markets were opened up and raising finances became much easier and it became a prime facilitator of rapid growth.ventured into shipping in 1969.000 tonnes capacity fed by HRC from Essar Gujarat Limited in a joining venture with the Garama group of Indonesia. oil-drilling. Essar Dhananjaya (ED). Sashi Ruia kept the group’s external environment & business development activities with himself. During . ED was to import hot rolled coils from Essar Gujarat’s Steel plant in India. Oil & Steel business along with communications and personnel. Mr. In 1990’s Government of India started economic liberalization programme that promised growth and vision of catching up with the late industrializing economies of Southeast. Mr. The incredible rate of growth of Essar group during this period saw them in virtually all the core sectors. After shipping Essar moved into construction activity and then into the supply critical support services for the oil and gas sector. These professionals were given free hand for running independent units. diversified businesses. From these successful medium-sized business in marine and port constructions. in Indonesia in 1994 of 150. and shipping. The second generation also started making their way in family business. Today Prashant Ruia is the directorin-charge of Essar’s Power. Essar restructured itself in 1994 to include senior professional managers from leading public sector undertakings to manage their growing. Their major breakthrough came in the form of a drilling contract awarded by ONGC.
7. Ravi Ruia commented on Essar’s global strategy in 1994. We must have an open mind.500 crore by the year 2001-02. Chairman of ESSMCO for reasons of fast acquisition by Essar shipping limited is “… buying ships has become easier now: it takes less time and the access to funds us easier”.400 crore and gross profit to Rs. On Essar new business strategy Sashi Ruia commented. In this process they went on an expansion spree even at high cost debt to reap benefits . Not just those with synergies with our existing operations.that period Ruias had been working up on setting more such ventures in Bangladesh. This philosophy became their prime motivator for a rapid expansion and acquisition. Their strategy hinged on a simple premise – one project will nurture another project & co on. Saudi Arabia or Pakistan. “We are looking at impact of globalization on existing businesses in country.300 crore. Next we are looking for opportunities opening up overseas. Essar group wanted increase its assets to Rs. but also those that have potential for us”. but we must not miss a major opportunity just because it does not fit in with our basic operations”. “We will get into any new business that will make us more money”. Ravi Ruia commented on Essar’s global strategy in 1994.19. The focus for such expansions was to beat possible downturns in domestic demand. in Mauritius. Essar also acquired a three-year-old textile mill Woventex Ltd. Through this they wanted to move in Africa which they believed would soon see and economic upsurge. 31. “Today the canvas is wide open. Mumbai used to be that which new company has the group opened today. We should have basic synergies with what we do. income to Rs. “We will get into any new business that will make us more money”. Commenting on new opportunities he said. In mid 90’s the joke at the corporate headquarters of Essar group at Essar House. According to Prashant Ruia.
***************** . The portfolio is rather diverse with very little synergy amongst them.30 percent of the group’s turnover. However the economy growth which they envisaged didn’t last long. it has assets worth Rs. Essar is one of India’s leading business groups and has phenomenal presence in Steel.from the post liberalization growth in India. Southeast Asian crises happened. all working against their risky debt strategy.530 crore. 1. But major factors ere their planning and project management skills. When they came on stream with steel plant.150 crore. 4. Today. Steel accounts for 70. Power Telecom and few financial services companies besides other small businesses. Because of this they could not exploit the price boom in steel sector and could not repay the loans to the financial institutions. income of Rs. except that all big companies core industries.030 crore and gross profit of Rs.30 percent. 14. It was plague and then floods in Sturat. while shipping accounts for 17. Indian economy started cooling off. overcapacity in steel sector led to a global glut and price recession in steel. Their steel project was delayed. Gujarat (their plant location) that took their tool on project. Shipping. They had changed the project plan and basic technology number of times. Oil & Gas.
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