Q.1) What is Business Policy? What are main characteristics of Business Policy? Ans.

Every business organization needs to frame appropriate business policies for its various functional areas such as production, marketing, finance, human resources development and so on. The policy statements guide managers in taking right decisions. The policies also provide a general picture to outsiders, such as customers, prospective employees etc., regarding the functioning of the organization. Here are some of the important definitions of business policy: Harold Koontz, !olicies are plans in that they are general statements of principles "hich guide the thinking, decision#making and action in an organization.$ %eorge Terry, A business policy is a verbal, "ritten or an implied overall guide setting up boundaries that supply the general limits and directions in "hich managerial action "ill take place.$ &.T. Haner, 'usiness !olicy is a statement# verbal, "ritten or implied of those principles and rules that are set by e(ecutive leadership as guidelines and constraints for the organisation)s thought and action. Their purpose is to enable the management to relate properly the organizations "ork to its ob*ectives.$ +ature and ,haracteristics of business policy: -. Broad statements for the attainment of objectives: !olicies serve as a guide to action. They help the e(ecutives to take proper actions in the light of ob*ectives of the organizations. &or instance, if the policy states that ,redit period not to e(ceed -. days$, the marketing e(ecutive "ho allo"s credit to the customers "ould follo" the policy statements at the time of giving credit. /. Assit in smooth functioning of the enter rise: !olicies provide guidelines for the smooth functioning of the enterprise. The tend to avoid confusion and thereby the enable the business organization to undertake activities in an orderly and smooth manner. 0. !acilitates allocation and utili"ation of resources: !olicies facilitate proper allocation of resources# physical, financial and human resources. !olicies also facilitate proper utilization of resources, so that the organizational ob*ectives are achieved effectively a efficiently. 1. !acilitate #oordination and #ommunication: !olicies help to ensure that all units of an organization operate under the same group rules. They facilitate coordination and communication bet"een various organizational units. .. $ulti ur ose in nature: !olicies serve various purposes. The main purposes are: !roviding guidelines at all levels, Assist the organization in allocation of resources, help in utilization of resources etc. 2. #onsistency in %ecision ma&ing: !olicies provide consistency in decision making, usually under repetitive conditions. 3anagers and subordinates are e(pected to follo" the policies of the organization and are e(pected to act accordingly "ithin the boundaries set by the policy makers. 4. A licable to all functional areas and levels: !olicies are applicable to all functional areas, and at all managerial levels. The functional areas include marketing, production, finance, personnel, research and development and so on. The various levels include top level, middle level and lo"er level. 'usiness policies aid in planning, organizing, directing and controlling at all levels and in all the functional areas.

Q.') () lain in brief significance or im ortance and *imitations of Business Policy Ans. +!or im ortance see ans,er to -uestion no. 1) *imitations of business olicy can e) lained as follo,s. -. Problem of individual discretion: !olicies may not permit individual discretion in decision making. This is specially true in case of bureaucratic organization. /. Affect creativity: There may be over dependence on policy statements. E(ecutives may not use their creativity in taking decisions, "hich may adversely affect the performance of the organizations. 0. Problem of inter de artmental conflict: !olicies may result in inter departmental conflicts. &or e.g. the marketing department may prefer to provide a longer credit period to their customers so as to push and promote the sales. 1. Problem of outdated olicies: There are cases "here the policies are 5uite outdated. They do not meet the demands of changing situations. Ho"ever, this problem can be solved by periodic revie" of policies and if need be e(isting policies may be revised or ne" policies may be framed to meet the needs of the changing environment. .. Problem of clarity of olicy statement: There may be a problem of lack of clarity in the policy statement. This "ould lead to misinterpretation of the policy statement and "rong decisions may be taken. Q..) What are the internal and e)ternal factors affecting or influencing Business Policy? + /01%(20/ /341*% 240( 03A0 (503(6 520(62A* 46 (70(62A* !A#046/ W5** B( A/8(% A2% 240 B403 049(03(6 ) Ans. 6everal factors influence the formulation of policies. The policy formulators must consider both the internal factors as "ell as e(ternal factors in the formulation of policy. +A) 520(62A* !A#046/: 1. :alue /ystem: The policy of a firm depends upon the value system of the organization. The value system of the top management affects not only the choice of business but also the mission and ob*ectives, business policies and practices. &or instance, those organizations that value and respect their employees "ould have personnel policies in the interest of their employees and not *ust in the interest of the organization. Again those organizations that believe in social responsibility to"ards society "ould incorporate social responsibilities as one of their important ob*ectives and accordingly policies are framed in the interest of the various sections of the society. '. $ission and objectives: The business policies are greatly determined by the mission and ob*ectives of the firm. 7rganizational mission statements, policies, ob*ectives and strategy are not mutually e(culsive of each other. 8n fact they are highly interdependent and inseparable. 7ne can not talk about achieving ob*ectives "ithout kno"ing the policies that are to be follo"ed. .. 3uman 6esources: The organization frames the various business policies taking into consideration the human resources of the organization. The 5uality, skills, attitudes etc., of the human resources could contribute to the strength or "eakness of the organization. 7ne cannot frame policies relating to restructuring or modernization "ithout the consent of the employees. ;. Physical resources: The physical resources like plant and machinery affect the framing the corporate policies. The top management should consider the availability of physical resources before framing business policies. &or instance, if a company "ants to pursue e(pansion and modernization policy, then it should consider the number and 5uality of machines available to its disposal before framing the policy. <. !inancial 6esources: Apart from human and physical resources, the management must also consider capital resources. The financial resources affect almost all policies in the organization. Therefore, before framing any policy, the management must consider the financial re5uirements to implement the policies or plans. /

=. #or orate image: The corporate image of the firm affects policy formulation. Those organizations that have good corporate image "ould frame policies in such a "ay that the corporate image enhanced. &or instance, good corporate citizens "ould place emphasis on 9 : ; to develop environmental friendly products. >. $anagement *abour 6elations: The labour management relations also have a bearing on the policy formulation. ,ordial labour relations are affected by corporate policies, "ith special reference to personnel policies. Therefore to maintain and improve labour relations company should frame appropriate personnel policy. ?. 3istory of the 4rganisation: The corporate policies are also influenced by the history of the organization. &or instance, "ell established organization may give importance to certain policies such as research and development policies. 6uch organizations may allocate a good amount of funds for research and development, in order to maintain and enhance the competitive advantage that they en*oy in the market. +B) (70(62A* !A#046/: 1.9overnment 6egulations: 7ne of the important determinants of corporate policy includes the regulations of both the ,entral as "ell as 6tate %overnment. %overnment regulates organizations in areas such as competition, product standards, "orking conditions, "ages, accounting practices and so on. !olicies need to be developed in order to guide an organisation)s employees in meeting such government regulations. &or instance, as a result of government regulation respect of health and safety standards, pharmaceuticals and drugs companies have developed a policy incorporating such regulations. '. Policies of com etitors: The policies of the competitors influence an organisation)s policies. This is especially true "ith pricing policies, advertising policies, 9:; policies, personnel policies etc. for instance, one cannot charge high prices, "hen a ma*or competitor charges lo" prices. Again one cannot pay lo" "ages, "hen a ma*or competitor pays good "ages to its employees. .. /u liers: The nature and financial resources of the suppliers need to considered "hile framing policies relating to suppliers. &or instance, the policies relating to payment to suppliers must consider the nature and financial position of the suppliers. ,ertain type of suppliers may re5uire advance payment from the buyers, and therefore, the firms must frame appropriate policies relating to suppliers in terms of making payment and in other respect. ;. %ealers: 3aintaining a strong dealers) net"ork is one of the important tasks of an organization. Efficient dealers are vital as they help to push and promote the products and services. Therefore an organization must frame its policies in the interest of its dealers and not *ust in the interest of the organization. <. #ustomers: ,reating and maintaining customers is a must for every business firm. 8t is said that a business e(ists only because of its customers. A firm may have different policies to"ards different gro"th of customers in respect of pricing, promotions etc. =. /hareholders: The shareholders also influence the framing of corporate policies. The shareholders, especially, the large net "orth shareholders do influence the framing of corporate policies. ,ertain policies such as that of e(pansion and modernization may re5uire special approval of the shareholders. Therefore the business firms must consider the nature and the number of shareholders before framing corporate policies. >. /ociety: The society including the media and general public do have a bearing on the policies of the firm, especially "ith reference to policies relating to social responsibility of the firm. ?. 5nternational (nvironment: The international environment may also affect the organisation)s policies, especially "ith reference to import or e(port policies of the firm. &or instance, entry in foreign markets in greatly influenced by the prevailing international environment. 8f the international environment is not favourable then the firm may not enter in the overseas markets.

Q.;) () lain in brief about sco e of Business Policy. Ans. The scope of business policy covers the broad areas "here the policy statements can be applied. 'usiness policy covers a "ide range of activities in the organization. Any business organization, "hether large or small need to have "ell defined business policies. 8n any organization, business policy needs to cover all the functional areas of business# production, marketing, finance and personnel. I PRODUCTION POLICIES: !roduction is one of the important functional areas in an organization. 'usiness policies in respect of production can be in the follo"ing areas. 6esearch and %evelo ment: 9 : ; is an important area, "hich is often overlooked in 8ndia. 7rganization should place a good deal of emphasis on 9 : ;. 8t not only helps to improve 5uality of products and services but also helps to reduce cost. Therefore, there is a need to frame policies in respect of 9 : ;. Quality #ontrol: 7rganization place lot of emphasis on 5uality of the products. <uality control is an important area of production management. Therefore an organization should frame policies in respect of 5uality control, relating to the techni5ues of 5uality control areas of 5uality control etc. Product Policies: Every organization need to have proper product policies in respect of !roduct line or products mi(, development of ne" products and modification in the e(isting products and so on. Plant sites: An organization having various manufacturing sites may also frame policies in respect of the number of production sites, number of shifts, location of manufacturing sites, products to be manufactured at certain sites and so on. II MARKETING POLICIES: 3arketing is an important functional area of a business enterprise. <uite often, the success and survival of a firm depends upon the 5uality and competence of marketing department. Therefore, there is a need to frame proper marketing policies in respect of follo"ing areas. Pricing Policies: !rice is an important element of marketing mi(. A firm should frame pricing policies such as skimming pricing or penetration pricing or follo" the leader pricing and so on. The firm may also consider pricing policies for different products in different markets. Promotion olicies: The promotion mi( consists of advertising, sales promotion, publicity, salesmanship and public relation. A firm needs to adopt appropriate policies such as Advertising policies, sales promotion policies, distribution policies and other marketing policies. III FINANCIAL POLICIES: &inance is often called lifeline of business firm. &inancial policies may be framed in respect of $obilisation of funds: &unds can be mobilized from various sources. There should be proper policies in respect of various sources of fund such as loans from banks, e5uity funds from shareholders and so on. 7ne should not place too much emphasis on borro"ed funds as it put a burden of debt servicing. Also, too much emphasis on e5uity fund dilutes the e5uity. Therefore there must be a proper balance bet"een debt and e5uity. 1tilisation of funds: The main responsibility of finance managers is to ensure proper utilization of funds. The mobilized funds and retained earnings need to be put the best possible use. The finance manager needs to allocate funds for various activities like marketing, research and development etc. 4ther financial olicies: An organization must also frame other financial policies in respect of ;ividend policies, depreciation policies, retained earning policies etc.

IV PERSONNEL POLICIES: !ersonnel policies need to be framed in respect of various personnel or employees related matters such as follo"s: 6ecruitment and selection olicies: A firm needs to frame policies regarding the sources of recruitment depending upon the type of posts. &or instance, a firm may consider only internal sources of recruitment for e(ecutive position. A firm may also have a policy for centralized selection in respect of managerial position and decentralized selection for non#managerial positions. 0raining olicies: There is a need to frame proper training policies in respect of methods of training, =on the *ob and off the *ob>, training period etc. Performance a raisal olicies: !erformance appraisal is a systematic description of employees *ob relevant strengths and "eaknesses. +ecessary performance appraisal policies need to be framed . Q.<) What are elements@com onents of Business Policy? 4r () lain in brief about rocess of Business Policy. Ans. The important components of business policy are e(plained as follo"s. -. Policy !ormulation: The top management is responsible for the development of the overall corporate policy. The top management include the 'oard of ;irectors, the ,hief E(ecutive 7fficer, ?ice presidents and so on. The top management may consult the middle level management before framing the corporate policy. +ormally the top management may present a policy draft to the middle level management for comments and suggestions. After receiving the suggestions from the middle level management, the top level management formulates the corporate policy. 8n policy formulation, there is a need for active participation of several parties. They are often kno"n as policy formulators, and in the case of strategy formulation, they are called as strategists. The top management plays the prominent role in policy formulation. Ho"ever, there are other participants such as the middle level management, the lo"er level management and at times, the consultants and others. /. Policy #ommunication: 7nce the policies are formulated, they need to be communicated to those persons "ho use them or implement them in decision making. !olicy communication is a process of transferring the policy information from the policy formulators to the policy implementers. !olicy information can be communicated through. a> Policy promulga io!: After framing overall corporate policy, the top management announces the policy statement to the departmental heads. The departmental heads in turn formulate the departmental policies, and then announces or promulgates to the lo"er level e(ecutives so that they can take decisions "ithin the frame"ork of the policies. !olicy can be promulgated through methods like =a> !olicy manual = it contains details relating to the functional or departmental policies of the firm> =b> house *ournals =c> Articles of association =d> 3emorandum of Association =e> Annual reports =f> 6ales catalogues and =g> Employees handbooks. b> Policy E"uca io!: The policy makers should make it a point to provide policy education, if so re5uired. The e(act meaning of the policy must be e(plained to the concerned persons so that the right decisions are taken. The policy should be e(plained clearly and completely. The policy e(planation can be done either orally or in "riting. Ho"ever, it is important to provide the policy in "riting, especially in case of certain matters such as personnel matters i.e in respect of promotions, transfers and so on. 0. Policy Acce tance: +ormally, a preliminary draft of policy is prepared, and it is circulated among all those "ho may be e(pected to operate it, because their constructive criticisms and suggestions "ould be valuable in framing the final draft of the policy. The policy statements needs to be accepted by those "ho "ould take decisions "ithin the frame"ork of the policy. .

8f need be, necessary modifications may be made and a final draft of the policy "ould be framed. 1. Policy 5m lementation: !olicy implemented to those persons "ho take decisions "ithin the frame"ork of the policy. The chief e(ecutive officer of the company is responsible for implementation of the overall corporate policy. The departmental managers are responsible for the implementation of the departmental policies. They monitor the decisions taken by the lo"er level managers to find out "hether the decisions are taken "ithin the frame"ork of the policy statements. .. Policy 6evie,: The policies should be periodically revie"ed and revised as per the needs of the changing environment. The policy makers obtain opinions, complaints, suggestions, reactions or comments from those "ho are taking decisions or are affected by the policy. Accordingly the policy is revised or necessary modifications are mae in the policy statement in order to confirm to the change conditions operating in the internal and e(ternal environment affecting the firm. Q.=) () lain in brief ingredients or essentials of a good Business Policy. Ans. The essential of good business policy refer to the guidelines or principles fro drafting effective business policies. A good business policy should be clear, simple and suitable to the organization, apart from other essentials. -. 4bject 4riented: The policies should be ob*ective oriented. 8t should be ased on the organizational ob*ectives. !olicies, "hich are not consistent "ith the ob*ectives of the organizations, do not serve any purpose. /. !le)ibility: &le(ibility refers to the ability to adapt to short run changes. !olicies should be fle(ible. They should not be rigid like rules. The policies may be modified depending upon the merit of circumstances. &or instance, if the advertising policy states that the firm to budget advertising e(penditure of .@ of the total sales and if a ma*or competitor starts advertising aggressively then the firm may increase the .@ limit to even -A@ if the situation so demands. 0. Acce tance: The policies must be acceptable to all those "ho are connected "ith the adoption of the policies. The policies should be accepted not only by the employees of the firm but it is also important that the organizational policies do not conflict "ith the interest of dealers, customers, shareholders and other sections of the society. 1. /im licity: The policy should be stated in simple, clear and definite terms. ,larity is the essence of good policy. .. /uitability: A policy be suitable to the organization depending upon the nature of organization, the type of business, the resources available "ith the organization, the management philosophy and so on. 2. Written olicies: !olicies should be in "riting and not oral or implied. Britten policies not only bring clarity but also it generates commitment on the part of those "ho follo" them in the organization. Britten policies ensure uniformity of application and assure continuity of action throughout the organization. 4. Periodically revie,ed: !olicies need to be revie"ed periodically. 6uch revie" is re5uired in order to revise the policies depending upon the changing needs of the business. !eriodic revie" of policy not only helps to understand the validity of the policy in the light of the current situation, but also helps to modify the policies depending upon the present situations. C. /tability: The business policy should have stability. 8n other "ords policy must be reasonably constant. 8t should not be altered fre5uently but should be stable for a long period of about t"o year or more. 2

Q.>) What do you mean by /trategies? Also e) lain im ortance@significance@ role of /trategies. =/tudents lease note same oints can be ,ritten for characterstics also) Ans. The "ord strategy comes from the %reek "ord D6trategos) "hich means a general. 8n military science, strategy literally means the art and science of directing military forces in a "ar or battle. Today, the term strategy is used in business to describe ho" an organization is going to achieve its overall ob*ectives. 3ost organizations have several alternatives for achieving its ob*ectives. 6trategy can be defined as follo"s: 6trategy is a plan of action or policy designed to achieve a ma*or or overall aim.$ 6trategy includes the determination and evaluation of alternative paths to achieve an organisation)s ob*ectives and mission and eventually a choice of the alternative that is to be adopted.$ 6trategy is a broad long term plan designed to achieve the overall ob*ectives of the firm$. 9oleE 6ignificanceEimportance of 6trategies. -. Aids %ecision ma&ing: 6trategies help in decision making. Fike policies, strategy provides necessary guidance and directions for decision makers. The mangers follo" the blue print of the strategy at the time of taking vital managerial decisions. /. 3el s to attain objectives: A strategy is a board long term plan designed to achieve basic ob*ectives of the firm. The ob*ectives of the firm may be e(pressed in terms of gro"th, profitability, stability and various activities, "hich are re5uired for the attainment of the ob*ectives. 0. !acilitates short term lanning: 6trategy facilitates organizing of resources in the organization. 6trategy lays do"n broad targets or ob*ectives to be achieved over a period of time. 7n the basis of long term ob*ectives the organization can make proper arrangement of physical, financial and human resources. 1 .!acilitates control: 6trategy can also facilitate controlling of activities in the organization. The organization or the departments can compare the actual performance "ith the targets. 8f there are any deviation, the organization or the departments can take necessary corrective measures to control and correct the deviations. .. 4 timum use of resources: There can be optimum utilization of resources in order to achieve the desired ob*ectives. 8f there are no proper strategies, then the organization may not be able to make arrangement of proper resources. There may be arrangement of fe"er resources, in "hich case the organization may not be able to undertake its activities. 2. (nhances #or orate 5mage: Bell defined strategies can generate corporate image of the firm. This is because strategies "hen implemented properly bring good returns to the organization. The organization is in a position to undertake its social responsibility to"ards customers, employees, suppliers and other and as such the organization can earn good"ill in the market. 4. $inimise ris&s: 6trategies help to minimize risks. &or instance, a firm may have various sales promotional strategies to put into action in order to face the challenges of the competitors strategies. C. Periodic revie,: 6trategies need to be revie"ed periodically. 6uch revie" is re5uired to revise the strategies depending upon the changing needs of the business. !eriodic revie" of strategies re5uired to gain competitive advantage in the market. G. /trategy is a rocess: 6trategy is a process. The strategy process can be broadly divided into three parts i.e. 6trategy formulation, 6trategy implementation and strategy evaluation. 4

Q?) Write in brief about /B1 +/trategic Business 1nit) Ans. The concept of 6'H "as developed by %eneral Electric ,ompany H6A fo manage it multi products business. 8n 3ulti product or multi geographical areas companies, strategic business divisions are created to manage effectively each of the products or a group of products. &or e(ample a multi product firm like Hindustan Hnilever Ftd, may adopt the concept of 6'H. 6eparate 6'Hs may be created, each focusing on specific products like toiletries, beverages, ice cream, laundry products, cosmetics and so on. 6tructure of 6'Hs '7A9; 7& ;89E,T796

,H8E& EIE,HT8?E 7&&8,E9 3anaging ;irector 6'H 8

3anaging ;irectors 6'H 88

3anaging ;irectors 6'H 888

Advantages of /B1: -. 5ntra #om etition: 6'Hs facilitate intra competiton "ithin the firm. &or instance HHF, form t"o or more 6'Hs each focusing one or t"o brands of soaps, such as Fifebuoy and HamamJ FH( and Firil then each 6'H can compete effectively not only "ith other brands of rival companies but also that of the other brands of same company /. (ffective management: Each 6'H can concentrate and manage its o"n products and markets. Each 6'H can plan efficiently. 7rganize the resources properly, give proper directions to employees and ensure effective control. Each 6'H can effectively design appropriate marketing mi(# product , price, promotion and place of distribution so as to market the products profitably. 0. 3igher efficiency: 6'Hs generate higher efficiency. Efficiency is the relation bet"een returns and costs. This is because 6'Hs facilitate optimum utilization of resources. 1. Better customer service: Each 6'H tries to provide effective customer service. The 6'H identifies needs and "ants of its target customers and then undertakes product design and development to satisfy the customers. The 6'Hs believe that customer satisfaction is the key to business success and therefore each 6'H try to provide effective customer service. Each 6'H tries to build long term customer relationship. .. #or orate 5mage: 6'Hs help to develop corporate image. The organization earns good"ill and reputation in the market for its products and services. 2. !acilitates 5nnovation: 6'Hs facilitate innovation in products and market development activities. 8n order to compete effectively at the market place. 6'Hs come up "ith ne" and innovative products and ideas. 8nnovation is re5uired not only in product development, but also in market development and therefore 6'Hs undertake innovative efforts both in product development and market development activities. 4. (ffective $anagement: Each 6'H can concentrate and manage its o"n products and markets. Each 6'H can plan efficiently, organize the resources properly, give proper directions to employees and ensure effective control. Each 6'H can effectively design C

appropriate marketing mi(# product , price, promotion and place of distribution so as to market the products profitably. C. $otivation to em loyees: The employees of each 6'H can be better motivated to perform "ell in their unit. 6ince the employees are a"are that their performance is recognized, they "ill put their best efforts to improve the overall performance of their unit. <.G> Bhat do you mean by 'usiness EnvironmentK Also e(plain its characteristics and role or importance of business environment. Ans. Environment refers to all those forces or factors that influence various decisions of the firm. A firm)s environment consist of internal environment and e(ternal environment. The internal environment analysis helps to identify its strengths and "eaknesses. The e(ternal environment analysis helps to identify opportunities and threats, "hich are hidden in the environmental events and trends. 'usiness environment can defined as follo"s Environment of the business means the aggregate of all conditions, events and influences that surround and affect it.$ 'usiness environment encompasses the Dclimate) or set of conditions, economic, social, political or institutional in "hich business operations are conducted.$ &eatures of characteristics of business environment: -. 8nseparable part of business: Environment is an integral part of business. 'usiness cannot "ork "ithout environment. 'usiness re5uires a good frame"ork of legal, social, cultural, economic, political and other factors, "hich have a positive influence on the "orking of the business. /. Environment is ;ynamic: 'usiness environment is dynamic in nature. +ormally there are changes in business environment. &or instance, the government may change certain policies affecting the business, such as ta(ation policies, monetary policies etc. there may be changes in costumer tastes, preferences etc. Technological development, political changes etc also affect the "orking of a business. 0. 'usiness Facks control over environment: 'usiness firms lack control over e(ternal environment. They cannot directly influence the changes in the e(ternal environment . but it is possible for certain large business firms to have an influence over certain environment changes. &or instance, certain large business houses can influence the government to introduce favourable changes in government policies affecting business. 1. 8ts comple( in nature: The environment of modern business is more comple(, fle(ible and highly unpredictable. 8n olden days, the environment of business "as simple and stable. The modern business has gro"n in size and scope and so is the environment. .. 3ultifaceted: Any change in environment is follo"ed by a chain of positive and negative reactions. A change may be favourable to someone and unfavourable to others. Environment changes bring opportunities to some people and obstacles to others. 9ole or importance of environment analysis: -. Ensures survival and success: The ability to deal "ell "ith the environment has enabled organization to survive and succeed, despite certain "eaknesses. ,orrespondingly, some of the best managed companies e(pending vital efforts and resources in a direction not in tune "ith a changing environment do face several difficulties and even disaster. A failure to respond to changes in the environment typically results in the eventual failure of the organization, no matter ho" "ell it might have been operated internally. /. &acilitates !lanning: Environmental scanning helps the management to recognize that many products and services have life cycles and that today)s "inners may be losers in the course of time, and thus, its plans for their successors# tomorro")s bread"inners. The management can plan for the resources to produce and market these successors to a receptive environment. G

0. Helps to grab opportunities: Though environmental scanning, business oganisations continuously tunes in the environmental forces that influence the demand for e(isting products and services and that create opportunities for ne" ones. &irms need to identify correctly or to anticipate all the development that "ould influence the future and to be ready for the resulting opportunities. 1. 'uilds 8mage: +o" a days business firms need to be popular and earn good image in the society. This is possible "hen they not only study the environment and adapt to it, but also strive to make the environment hospitable to the gro"th of business. .. Helps in innovation: 6canning of the environment keeps the firms on their toes. 'usiness firms anticipate changes in the business and industry. A considerable amount of time and efforts are devoted to 9 : ; activities to face threats or changes in the environment . such 9 : ; efforts lead to innovation of ne" and better products and services. 2. 7ptimum use of resources: A study of technological development, government policies, demographic pattern etc. "ill help the business firm to plan its activities and allocate the limited resources in a better "ay. A systematic analysis of business environment helps a business firm to make optimum utilization of available resources and meet the ever increasing and changing needs of consumers and society. <.-A> Bhat are the main components of 'usiness EnvironmentK =8nternal and E(ternal>

=S u"#! $ $%oul" !o # &i!ally #i %#r i! #r!al compo!#! $ or #' #r!al compo!#! $ (ill )# a$*#":+
Ans. The various components or factors of business environment can be broadly divided into t"o groups: 8nternal Environment E(ternal Environment 5 5nternal (nvironment: A firm)s internal environment consist of its plans, policies, resources, relations and other internal factors, "hich affect its "orking. The follo"ing are some of the important factors of internal environment: -. 3anagement philosophy: The management philosophy greatly influences the "orking of business form. The management may adopt a traditional philosophy or professional philosophy. Traditional approach place emphasis on family management, and normally uses outdated techni5ues or practices. There is no much emphasis on social responsibility. +o" a days business firms need to adopt professional approach in managing their business activities. 8n other "ords, a pure traditional approach is a "eakness, "hereas professional approach is a strength. /. 3ission and ob*ectives: The ob*ectives of the firm must be consistent "ith the mission statement. Therefore, it is al"ays advisable to frame a mission statement and then to list out the various ob*ectives. An analysis of internal environment "ill enable the firm to find out "hether the ob*ectives are in line "ith the mission statement. 0. !lans and !olicies: The plans and policies of the firm must be in line "ith its ob*ectives. As far as possible, a firm should frame proper plans and policies taking into consideration the ob*ectives and resources of the firm. !roper plans and policies help the firm to accomplish its ob*ectives. 1. Human resources: The survival and success of the firm largely depends on the 5uality of human resources. The kno"ledge attitudes, skills and social behaviour of the employees greatly affect the "orking of the business firm. Therefore, a firm needs to have not only e(perienced and 5ualified "orkforce, but also highly dedicated and motivated team. An analysis of internal environment in respect of human resources "ould reveal the shortcomings of human resources and as such measure can be taken to correct such "eaknesses. &or instance, employees may lace proper training in the area of skills -A

development in the light of changing business environment . in such an instance, the firm needs to provide timely and 5uality training to improve the employees skills. .. !hysical 9esources: !hysical resources include material, e5uipment, building, office premises, furniture and fittings, etc. A firm needs ade5uate and 5uality physical resources. Appropriate physical resources bring *ob satisfaction and improve the 5uality and 5uantity of production. 2. &inancial 9esources: &inancial resources relate to money resources. A firm needs ade5uate "orking capital, as "ell as fi(ed capital. There is a need to have proper management of "orking capital and fi(ed capital. Again a firm should obtain funds from right sources at lo"est possible costs. The firm should give proper attention to debt e5uity ratio, and the current ratio. The firm should also build up ade5uate reserves for future needs. 4. ,orporate image: A firm should develop, maintain and enhance a good corporate image in the minds of employees, investors, customers and others. !oor corporate image is a "eakness. Therefore, a firm should undertake an analysis of its corporate image. 8f a firm finds problems in corporate image, then ade5uate measures need to be taken to correct the image of the firm. This is because, corporate image is vital in the firm)s success not only in the short term, but also form the long term point of vie". C. Fabour 3anagement relations: There must be e(cellent relations bet"een management and "orkers. The management and "orkers should "ork as a team to achieve the ob*ectives of the organization. A proper analysis of labour management relations may disclose certain shortcomings. The management should take immediate measures to correct "eaknesses in labour management relations. 5 ()ternal (nvironment

A: $icro (nvironment.: The micro environment consist of all those factors in the firms) immediate environment. -. ,ustomers: The customer is one of the most important factors in the firm)s internal environment. The consumers affect most of the business decisions. The customers) needs, "ants, preferences and buying behaviour must be studied in order to frame proper production and marketing strategies. /. The competitor: The company has to identify and monitor its competitors) activities. 8nformation must be collected about competitors in respect of their prices, products, promotion and distribution strategies. 6uch information "ill enable the firm to analyse the strengths and "eakness of the competitors. The firm has to take ade5uate measures to "in over the confidence of the customers in its favour. 0. The 6uppliers: 6uppliers supply ra" materials, machines, e5uipments and other resources. 6uch purchases do have a direct impact on the firm)s marketing decisions. The company has to keep a "atch over prices and 5uality of materials and machines supplied by the suppliers. The company has to maintain good relations "ith the suppliers to supply 5uality items at the right price and at the right time. 1. ,hannel 8ntermediaries: The dealers and other intermediaries in the chain of distribution are important factors in the firm)s immediate environment. The firms has to select and satisfy its dealers in order push and promote its products in the market. +o" a days dealers recommendations play an important role to convince buyers to buy product, especially in the case of consumer durables. .. 6ociety: The society may also affect company)s decisions. The society can either facilitate or make it difficult for a company to achieve its ob*ectives. Therefore, professional business firms maintain public relations department to handle complaints, grievances and suggestions from the general public. The various members of society include financial institution and banks, media, %overnment etc. B: $acro (nvironment: The macro environment consist of the larger societal factors that affect the "orking of a firm. 8t relates to the demographic, economic, natural, --

technological, political, cultural, international and legal forces. The various macro environment factors are briefly discussed as follo"sJ -. ;emographic Environment: ;emographic environment studies human population "ith reference to its size, density, literacy rate, life e(pectancy, se( ratio, rural urban divide, age composition, occupation pattern etc. since, business deals "ith people, business firms have to study in detail the various demographic factors, "hich "ould help them to frame proper production and marketing strategies. /. Economic Environment: A business firm closely interacts "ith its economic environment. Economic environment consist of economic conditions, economic policies and economic system. 'usiness firms should have a good idea about the economic conditions in the market i.e. demand and supply factors. 0. +atural Environment: +atural environment or ecological environment relates to natural resources like land, "ater, minerals, port facilities etc. 'usiness firms use natural resources like "ater, land, iron ore, crude oil etc. 8n doing so, t"o things happen i.e. Erosion of natural resources and pollution of resources like air, "ater etc. 'usiness firms should understand the above t"o effects and take necessary measures to control erosion and pollution of natural resources. They may search for alternation resources such as solar energy, recycle the "aste, install anti pollution devices etc. they should also produce environment friendly and consumers health oriented products. 1. Technological Environment: There are constant technological developments. The business firms must constantly monitor changes in the technological environment. This is becauseJ a change in technology may have an impact on firm)s business. As such business firms should make efforts to adapt and ad*ust to ne" technological developments, so as to survive and succeed in the competitive business "orld. .. !olitical Environment: 'usiness decisions are greatly influenced by the development in the political environment. This environment consists of government agencies, political parties and pressure groups that influence and control various individual and organizations in the society. <.--> Bhat are the different techni5ues of Environment 6canningK Ans. There are several techni5ues used by strategists to scan the environment . some of the important techni5ues are briefly discussed as follo"s. -. !orecasting: &orecasting is a techni5ue of estimating future events based on the analysiCs of their past and present behaviour. The forecasting can focus on future aspect of the environment, "hich affects the organization, such as competition, technological changes, demographic factors, political scenario and so on. There are several forecasting techni5ues. These techni5ues can broadly be grouped into t"o: 5ualitative techni5ues and 5uantitative techni5ues. <ualitative techni5ues are based on opinions of individual or group such as market research, panel opinions, etc. <uantitative techni5ues such as time series analysis, life cycle analysis etc. focus on numerical aspects of the future environment and are suitable for those situations "here environmental variables can be e(pressed more accurately. /. /cenarios: A "idely used method of environmental analysis is the scenario techni5ues. 8t is used to e(plore the likelihood of possible future developments and changes and to identify the interactions of uncertain future trends and events. 6cenarios generated by e(perts or panels picture future situations covering various dimensions of a society, industry or particular organizations. 6cenarios state this is "hat is going to happen, this is "hat the situation "ill be at that future time.) ?arious scenarios presents different futures for discussion, analysis and possible problem solution. 7ne method deliberately contrasts e(act opposite$ scenarios, the ob*ective being that analysis of the most e(treme situation "ill force discussion of situations falling bet"een the t"o e(tremes. -/

0. / ying: 6pying techni5ue may be used to gather information about potential or actual competition. The firm may appoint individuals or group individuals for the purpose of spying. The spy can be an employee of the competitor, or one of competitor)s suppliers or customers or a professional spy. The spy can collect secret trade information from the competitor. This techni5ue is narro" in scope as it gathers information only about the competitor and not of the entire environment in "hich the firm operates. 1. 9athering :erbal information: The most simple and less e(pensive techni5ue is gathering verbal information of the environment through formal or informal "ays. 6ources of verbal information include meetings, seminars, "orkshops, media information, employees of the firm, feedback form e(ternal parties such as costumers etc. .. $anagement 5nformation /ystem: 7rganisations maintain management information system to generate and process an information flo" to aid managerial decision making. 8n order to understand and monitor the environment, firms need to collect and analys information about the environment. Each functional department may maintain its o"n information system. &or instance, to understand and monitor customer needs and "ants, competitor)s actions, and changes in the environment, the marketing department may maintain marketing information system. The marketing information system helps managers to recognize market trends in respect of prices, designs of products and so on. 2. Q1(/0: 8t means <uick Environment 6canning Techni5ue for scanning the environment. The <HE6T is a variation of 6cenario techni5ue. <HE6T is four step techni5ue, "hich "orks as follo"s. The strategists make observations about the ma*or events and trends in their industry. The strategists deliberate on a "ide range of important issues that may affect the future of their organizations A report is prepared summarizing the ma*or issues and their implications, and three to five scenarios incorporating the ma*or themes of the discussion. The group of strategists revie"s the report and scenarios and then identifies feasible alternative strategies to deal "ith the future environment. The alternative are then evaluated . <.-/> Bhat do you mean by 6B7T analysisK Bhat are the main advantages of itK Ans. 6B7T analysis is the primary step in strategic management. The 6B7T analysis refers to analysis of the strengths, "eaknesses, opportunities and threats. The analysis of the internal environment reveals strengths and "eaknesses of the organization and the analysis of the e(ternal environment reveals opportunities and threats for the organization. 6trength are positive competencies of a firm as compared to its competitors in the areas of production, operations, marketing and finance etc. every firm should make an attempt to consolidate its strengths. Beaknesses are the negative competencies of a firm as compared to its competitors in all the functional areas of the organization. 7pportunities are the favourable circumstances or the situations "hich the e(ternal environment offers or provides to organizations and every firm should make an attempt to grab the right opportunity at the right time. Threats are the unfavourbale situations, "hich the e(ternal environment provides to the organization and every firm must make efforts to overcome the effect of threats. Advantages of /W40 analysis: 6B7T analysis provides a frame"ork for strategic planning and decision making. A "ide array of systematic decisions can be made based on the 6B7T analysis. Apart from strategic palling and decision making, 6B7T analysis provides a number of benefits to the firms and it can be e(plained as follo"s -0

-. #onsolidate /trengths: 6B7T analysis pinpoints the strengths of the organization "ith competitors. The strengths may be in respect of its various functional areas such as production, marketing, finance and personnel. &or instance, the employees may be highly motivated and dedicated to their "ork, as a result of "hich the firm en*oys high labour productivity . sound business firms "ill not be *ust be satisfied in kno"ing their strengths, they "ould also make every possible effort to consolidate on its strengths, as yesterday)s strengths may turn to be tomorro")s "eakness, especially "hen the firm adopts a casual approach to"ards its strengths. /. $inimises ,ea&ness: 6B7T analysis pinpoints not the strengths but also the "eaknesses of the organization "ith the competitors. The "eaknesses may be in any or many of its functional areas such production, 9 : ; facilities, as a result of "hich the firm may not be in a position to improve its 5uality and also fails to bring innovative or ne" products in the market. 0. 3el s to grab o ortunities: Through 6B7T analysis, business firms continually turn in to the environmental forces that influence the demand for e(isting products and services and that create opportunities for ne" ones. &irms need to identify correctly or to anticipate all the developments that "ourld influence the future and to be ready for the resulting opportunities. 1. $inimises 0hreats: 6B7T analysis not only helps to grab opportunities, but it also helps to minimize threats. &oresighted management can anticipate threats from the environment such as from the technological fronts and gear them to face the threats by remaining proactive. 8t helps business firms to develop an early "arning system to prevent threats or to develop strategies, "hich can turn a threat to the firm)s advantage. .. !acilitates Planning: 6B7T analysis helps to management to recognize that may products and services have life cycles and that today)s "inners may be losers in the course of time, and thus, it can plan for their tomorro". 2. !acilitates alternative choices: 6B7T analysis helps business firms to narro" the range of available alternatives and to eliminate unsuitable alternatives and to process most promising alternatives. 8t helps business firms to reduce time pressure and to concentrate on those areas or activities "hich are more important and result oriented. 4. 3el s to 5nnovate: A proper 6B7T analysis makes the firms to innovate. 'usiness firms anticipate changes in the business and industry. A considerable amount of time and efforts are devoted to 9: ; activities by progressive firms to face threats and changes in the environment. C. (nsures survival and success: 6B7T analysis enables firms to survive and succeed. This is because firms, "hich undertake systematic 6B7T analysis , make every possible effort to overcome "eaknesses and to consolidate on the strengths. 6uch firms also make efforts to grab opportunities and to diffuse threats. <.-0> Brite a short note on 6ynergetic Approach. Ans. 6ynergetic approach can be used to generate competitive advantages for an organization, if the managers are fully a"are of ho" synergetic effect is developed. 6ynergy is the process of putting t"o or more elements together to achieve a sum total greater than the sum total of individual elements separately. The synergetic effect can be described as -L-M0 effect. Areas of /ynergetic (ffect: There are several areas of synergetic effect of an organization depending on its strengths and "eaknesses. The synergetic effect in various functional areas e(plained as follo"s. 1. Production /ynergy: 8t can be attained "hen the present skills and resources of the production department can be utilized to produce the items in future. 3erging the e(isting firms manufacturing the same product can best attain the production synergy. &or industry many of iron and steel units have merged in order to take advantage of production synergy. -1

'. $ar&eting /ynergy: 8t can take place, "hen the organization can take the advantage of its present marketing, skills and resources to market its potential products, even though the potential products may be a bit different from the e(isting one. &or e(ampleJ a te(tile manufacture can enter into marketing ready made garments or a toothpaste company may enter into marketing of toothbrush. .. 6esearch and %evelo ment /ynergy: This synergy can be achieved if the firm)s technologies supporting the development of both the present and the future anticipated product lines are more or less similar. The prospects in 9 : ; usually emanates either from similar research skills and resources or from similar functional characteristics of the product. ;. !inancial /ynergy: The financial synergy "ould be to the e(tent to "hich the organization can raise the funds for investment through larger capital base, increased borro"ing po"er and greater earning through spreading of administrative overheads over a large volume of operations. <. 9eneral $anagement /ynergy: This synergy takes place "hen the skills and kno"ledge of managers are transferable from the present strategy to potential one in future. The transferability of skills and kno"ledge of management depends upon ho" these factors are ac5uired. <.-1> Bhat do you mean by 6trategic ,hoiceK E(plain its process. Ans. 6trategic choice is the evaluation of alternative strategies and selection of the best alternative. After identifying the pros and cons of the alternative strategies, one is selected. !erhaps, the most important consideration to select the best strategy is the ability of the proposed strategy to deal "ith the specific factors developed earlier in the 6B7T analysis. /trategic #hoice Process: The process of strategic choice is essentially a decision making process. The strategic choice process involves the follo"ing stepsJ 1. Analysis of (nvironment: The managers must analyse the internal and e(ternal environment. Analyses of internal environment "ould involve analyses of manpo"er policies, machines, "orking conditions, "elfare facilities etc. analysis of internal environment "ould indicate strengths and "eakness of the organization. After analyzing the internal environment, the mangers must analyse the e(ternal environment "ith respect to %overnment policies, competitor)s policies etc. The analysis of e(ternal environment "ould reveal opportunities that can be grabbed and threats that need to diffused. '. !ocusing on Alternatives: After 6B7T analysis, the managers must identify feasible alternatives from "hich one alternative "ill be selected for implementation. +ormally, there are several alternatives to consider. Ho"ever, in reality, it is not possible to consider several alternatives, but to focus on only those alternatives "hich are relevant and feasible. .. (valuating the alternatives: After identifying various strategic alternatives, the ne(t step is to evaluate the pros and cons of each and every alternative, so that the best alternative can be selected for the purpose of implementation. &or evaluating various alternatives, portfolio analysis, and profit impact of market strategy can be used. ;. #onsideration of decision factors: There are a number of factors that affet the choice of strategy. 'efore making a final choice of strategy, the decision factors must be considered. The decision factors can be broadly divided into t"o groupsJ ob*ective factors and sub*ective factors. 7b*ective factors are based on hard facts or data and are termed as rational factors. &or the purpose of choice of strategy they are grouped into t"o categories i.e. environmental factors and organizational factors. 6ub*ective -.

factors are based on one)s personal *udgment and descriptive factors. The various sub*ective factors include organisation)s past strategies, attitudes to"ards risks. <. #hoice of strategy: After evaluation of alternatives and considering the various selection decision factors, final choice is made on the strategy is made on the strategy to be implemented. The management may select a single strategy or a set of strategies for implementation purpose. 8n selecting the best feasible strategy or a set of strategies, the management must see that the strategy is consistent "ith the mission and ob*ectives of the firm or not. <.-.> Brite a short note on ',% 3atri(. Ans. 'oston ,onsulting %roup =',%> matri(, developed by 'oston ,onsulting %roup, H6A is one the most popular techni5ue of corporate portfolio analysis. According to this techni5ue, businesses or products are classified as lo" or high performers depending upon their market gro"th rate and relative market share. This matri( can be used for resource allocation. 8n a ',% matri(, products or business unites are identified as 5uestion marks, stars, cash co"s and dogs. High

6TA96

<HE6T87+ 3A9K6 ;7%6

,A6H ,7B6

%ro"th

8ndustry 9ate

High 9elative 3arket 6hare Fo" /0A6/: 6tars are high gro"th#high market share business "hich may or may not be self sufficient in terms of cash flo". This cell corresponds closely to the gro"th phase of product life cycle. 'usiness segments in this category are in the most favourable position "ith respect to both gro"th potential and competitive strength. #A/3 #4W/: ,ash co"s are business, "hich generate large amounts of cash but their rate of gro"th is slo" in terms of product life cycle. There are generally mature business "hich are en*oying the benefits of e(perience curve business units in this category being in a strong competitive position but "ith lo" gro"th potential should be managed by adopting a strategy so as to maintain the present market share "hile using competitive advantage to increase the cash flo"s to be used in high gro"th b segments. %49/: Those business "hich are related to slo" gro"th industries and "here a company has a lo" market share are termed as dogs. A business segment in this category is at a competitive disadvantage "ith a lo" gro"th market. The strategy for this category should consist of cost cutting, divestment or even li5uidation so as to ma(imize short term cash flo". -2

Q1(/0542 $A68/: 'usiness "ith high industry gro"th but lo" market share for a company are 5uestion marks or problem children. They re5uire large amount of cash to maintain or gain market share. They belong to ne" products or services "hich have good commercial potential. 'usiness segments in this category operating at a competitive disadvantage but having a high gro"th market potential may be e(panded to increase market share by taking advantage of the market gro"th potential. 'ut cash demand being high and cash generation lo", it may not be possible to improve the competitive position and increase market share. 8t "ould thus be desirable to "ithdra" from this business. 8n other "ords, the strategy in this case should be either that of aggressive gro"th or divestment.

<.-2> Brite a short note on %E +ine ,ell 3atri(. Ans. An important portfolio analysis techni5ue is based on the outstanding effort of %eneral Electric =%E> company of the H6A supported by consulting firm of 3cKinsey and ,o. 3cKinsey and ,o. helped %eneral Electric =%E> to produce a nine#cell matri( in order to analyses the %E !ortfolio. The nine cell matri( is based on the t"o dimension of long term industry attractiveness and the competitive position of the business. The positions in the matri( suggest possible options. -. 8ncrease market share by gro"ing, dominating and investing or defend market share by segmenting, investing and avoiding "eakness. /. 6elect opportunities to invest, hold position or find gro"th segments. 0. 3inimise losses by finding specialized products.

Green Green yellow High

Green yellow Red

yellow Red Red

8ndustry attractiveness

3edium Fo" 6trong Average Beak

'usiness strengthE,ompetitive position 'ased on green zone, the signal is to go ahead "ith strategic decision such as market development or e(pansion in respect of certain products and businesses -4

The yello" zone gives the signal for "ait and "atch, indicating hold and maintain current strategies. The red zone gives the signal to stop, indicating the retrenchment strategies of divestment and closure or for adopting the turnaround strategy. 7verall G cell %E business screen is improvement over the ',% matri(. The %E matri( considers many more variable and does not lead to simplistic conclusion as in the case of ',% matri( it recognizes the attractiveness of industry and business strengths. <.-4> Bhat are sub*ective and ob*ective factors affecting strategic choiceK Ans. There are number of factors affecting the choice of strategy. The factors can be broadly divided into t"o groupsJ ob*ective and sub*ective factors. 5. 4bjective !actors: The ob*ective factors are based on hard facts or data and are termed as rational or prescriptive factors. &or the purpose of strategic choice, these factors are broadly divided into t"o groups # environmental factors and organizational factors. =A> E(ternal environmental factors: The environment affects the choice of strategy. The strategy that can relate the organization effectively "ith its environment is selected. The nature of environment differs from industry to industry and even from firm to firm "ithin the same industry. The management must make a decision regarding the choice of strategy taking into consideration the nature of environment like competitors, suppliers, dealers and customers and other environmental factors. ='> 8nternal 7rganizational factors: The management must also consider organizational factors before making a choice of strategy. The organizational factors include 7rganisation)s mission, organisation)s ob*ectives and policies, 9esources and management labour releations. 55: /ubjective !actors: The management must also consider the sub*ective factors before selecting a strategy. The follo"ing are some of the sub*ective factors. Personal !actors of 0o $anagement: The personal preference of the dominant strategists as the chief e(ecutive affects the choice of strategy. &or e.g. the chief e(ecutive may prefer or favour certain products as compared to other products and therefore, a strategy relating to market development may be selected in favour of the preferred products. Past organi"ational strategies: The past strategies of the firm may affect the present strategies as "ell. &or e.g. if the management is not satisfied "ith the performance of certain strategies in the past, then they may be reluctant to adopt similar strategies in current situation as "ellJ even though such strategies may be *ustified in the present situation. :alue system of to management: The strategy of a firm depends upon the value system of the top management. The value system of the management not only affects the choice of business, but also the strategies as "ell. &or e.g. those organization that value and believe in social responsibility to"ards the society "ould incorporate social responsibility as one of their important ob*ectives, "hich in turn "ould affect the choice of strategy. Attitude to,ards ris&s: The attitude of the top management to"ards risks is one of the important factors affecting the choice of strategy. There are some managers "ho are cautious in their approach as far as risks are concerned, "hereas, there are other managers "ho "ould like to take risks as a part of business. Those manager "ho -C

believe in risks as an element of business may go for challenging strategies involving commitment of huge financial resources. 5nternal Politics: 8n many organizations, there is some sort of internal policies, "hich directly affects the choice of strategy. There are managers in the organization "ho tend to influence certain decisions including strategy selection depending upon managerial po"er relationships. They may favour a particular strategy, "hich may not be suitable to the organization as a "hole, but to a particular section or department in the organization. <.-C> Bhat do you mean by D6trategy 8mplementation)K Bhat are the main steps involved in strategy implementationK Ans. 6trategic implementation is a process of activating the strategy. 8t is the sum total of all the activities and choices re5uired for the e(ecution of a strategic plan. 8t is the process by "hich strategies and policies are put into action through the development of programs, budgets and procedures. /te st in strategy im lementation: 1. 5nstitutionalisation of strategy: 8t is the first activity involved in activating the strategy. 8nstitutionalization of strategy involves t"o aspects i.e. ,ommunication of strategy and 6ecuring acceptance of strategy. 7nce the strategy is formulated, it must be communicated to those persons "ho "ould implement it. 8t is not enough to communicate the strategy to the members of the organization, but it is e5ually important secure their acceptance of the strategy, so that they implement to strategy effectively. '. !ormulation of Action Plans: 7nce the strategy is institutionalized through its communication and acceptance, the management proceeds to formulate action plans. The management has to frame action plans in respect of several activities re5uired to implement a strategy. The action plans may be in respect of purchasing ne" machinery, appointing additional personnel, developing a ne" process etc. the type of action plans depends upon nature of strategy. .. %esigning of organi"ation structure: The organization has to be designed according to the needs of the strategy implementation. Any change in corporate strategy may re5uire some changes in the organization structure and in the skills re5uired in certain position. ;. 5nfusing values and ethics: 'usiness ethics is concerned "ith morality in business. 8n today)s "orld business community forms an important part of the society and its actions are bound to have a direct impact on the "ell being and "elfare of the society. 'usiness affects society in terms of "hat it does i.e. "hat products it supplies. Therefore it is necessary that business community conduct its activities "ith self check and self control keeping in mind the interest of community at large. <.$otivation and training: There is a need to motivate the employees to implement the strategy effectively. The company must design proper compensation policies to motivate the employees. The employees may be provided "ith ade5uate training. =. 6esource Allocation: &or successful implementation of a strategy there must be proper resource allocation to various units and activities. They resources can be broadly classified into three groups. i.e. financial, physical and human. The various resources are re5uired for the conduct of strategic tasks so as to accomplish the organizational ob*ectives. >. Procedural re-uirement: After allocating resources, the managers must get the strategy implemented. An organization must follo" various procedural re5uirement to implement the strategy. -G

?. 6evie, of erformance: The management must revie" the performance of the strategy. The performance must be revie"ed periodically. 8f re5uired, corrective measures need to be taken, so as to ensure the achievement of desired ob*ectives. <.-G> Bhat is 9esource AllocationK E(plain significanceEimportance and steps involved in resource allocation. Ans. A company needs to mobilize physical, capital and manpo"er resources. The capital resources can be mobilized by debt or e5uity. Human resources can be mobilized through proper recruitment and selection. 9esource allocation is an important activity in strategy implementation. 9esource allocation re5uires procurement and commitment of financial human and physical resources to the various activities re5uired for the accomplishment of ob*ectives. /ignificance@ im ortance of 6esource allocation. -. $otivation of em loyees: !roper allocation of resources helps to motivate the employees to conduct the various activities re5uired to implement the strategy. /. /mooth flo, of activities: !roper resource allocation helps orderly conduct of activities in the organization, "hich in turn helps in effective implementation of the strategy. Bhen the resources are allocated properly, the activities re5uired to implement a strategy "ould be undertaken by the right people at the right time. 0. 4 timum 1se of resources: !roper allocation of resources helps to make optimum use of resources, "hich in turn helps to achieve the organizational ob*ectives. All the employees in charge of implementation of strategy "ould strive their best to minimize "aste of resources. 1. #oo eration and 0eam / irit: Bhen there is proper allocation of resources among the various departments, then there can be a cooperative spirit throughout the organization, "hich is vital for the effective implementation of strategy. Ho"ever, "hen resource allocation is done on the basis of internal politics, there can be serious disputes among the various units or departments and as such the cooperative spirit can get adversely affected, "hich in turn results in poor performance of the organisation. .. 3igher efficiency: !roper allocation of resources generates higher efficiency in the organization, "hich in turn helps to introduce gro"th and e(pansion strategies. /te s involved in 6esource Allocation: 1. %etermining the ty e of amount of resources: A firm may re5uire various types of resources such as human, financial, physical and informational resources. At times, a firm may re5uire only the financial resources, as human and informational resources are already available "ith the firm and that the physical resources such as machinery can be purchased "ith the financial resources. '. %etermining the source of resources: The ne(t step is to identify the source of resources. The sources of resources depend upon the type of resources. &or eg. the human resources can be obtained or selected from both internal and e(ternal sources. .. $obilisation of resources: After determining the amount and the sources of resources, the ne(t step is to make arrangement to obtain the resources. +ecessary procedure is re5uired to be follo"ed in obtaining the resources. &or e.g. if the the financial resources are to be obtained by "ay of term loans, then the procedure involved "ould be follo"ed. ;. 6esource Allocation: After obtaining the resources, the resources must be properly allocated for the purpose of strategy implementation. The re5uired physical resources can be purchased "ith the help of financial resources. 8f re5uired, additional human resources can be selected for the purpose of strategy implementation . in any case, thare must be proper allocation of financial, human and physical resources among the various activities or units so as to implement the strategy effectively. /A

<. 1tilisation of resources: The allocated resources need to be utilized in respect of various activities. &or e.g. the funds allocated for market development strategy need to be utilized for various activities in connection "ith market development activities. =. $onitoring of resource allocation: The management should monitor the resource allocation to find out "hether or not the resources allocated are properly utilized. The management should also find out "hether the resources allocated are sufficient enough ot undertake the various activities efficiently and effectively. 8f re5uired, management may make necessary changes in resources allocation. <./A> Bhat are the main factors affecting resource allocationK 79 E(plain problems in 9esource allocation. Ans. There must be proper resource allocation so that the strategy can be effectively implemented and the ob*ectives of the organization are accomplished. ,ertain factors affect the allocation of resources. The factors are as follo"sJ
-. 4bjectives of organi"ation: There can be various ob*ectives of an organization. 6ome of the ob*ectives are considered important by the management and there may be least important ob*ectives. Therefore all the ob*ectives must be considered "hile allocating the resources. /. 0he nature of strategies: There are various strategies of a firm. 6ome strategies may re5uire huge sums of money, "hereas, other strategies may re5uire lesser funds. +aturally, the strategies that re5uire more funds "ould be allocated more resources. 0. Availability of resources: The availability of funds affect resource allocation. Bhen a firm has ade5uate amount of funds or "hen a firm is in a position to obtain funds easily, then it can ade5uately allocate funds for various activities. Ho"ever, if the firms has a problem of dropped out or there may be rationing of funds depending upon priority of activities. 1. 5nternal olitics: 6ome time internal politics get an upper hand in resource allocation. As mentioned earlier, it is not al"ays that rationality matters in resource allocation. 6ome e(ecutives or departmental or divisional heads are in a better position to get more funds allocated for their departments or divisions, even though they may be due to the po"er and influence, "hich the e(ecutives could e(ert over the top management to allocate the resources. .. ()ternal 5nfluences: There are cases "here e(ternal influences also affect resource allocation. The e(ternal agencies such as financial institution, local community, shareholders, government policies and others can e(ert pressure on the management to allocate funds for certain activities. 2. !inancial climate: There may be a poor financial climate in the country, "here the investors are cautious in investing funds in companies through e5uity participation or other"ise due to financial scams or some other reasons. 8n such instances, firms "ould find it difficult to mobilize financial resources from the market. 4. #onflict of interest: There may be problems of conflict of interests of various parties in respect of resource allocation. &or e.g. there can be a conflict of interest bet"een the management and the trade unions. The management may like to allocate more funds for automation and modernization of plant, "hereas, it may be resented by the trade unions for the fear of retrenchment of "orkers as result of automation and modernization of plant.

<./-> Bhat are the main means of resources allocationK Ans. -. #a ital budgeting: 9esource allocation for ne" pro*ects or ne" products can be undertaken on the basis of capital budgeting. ,apital budgeting is the budgeting of financial resources for the purpose of long term profitability of the firm. 8n this type of budgeting, various techni5ues like payback, internal rate of return and the present value are used to determine the allocation of funds for ma(imum possible returns. /. Aero Base Budget: 8t is one of the techni5ue of budgeting. Hnder this techni5ue, the organizational programmes are divided into packages composed of goals, activities /-

and the re5uired resources to undertake activities so as to achieve goals. After designing the packages, the cost for each package is calculated. Hnder zero base budget, the budgeters prepare the budget for each package from base of zero. This means they calculate costs afresh for each budget period. Thus, they ignore the common tendency of arrive at budgets only on the basis of historical costs or the past years costs. 0. /trategic Budgeting: The strategic budgeting considers the performance or results e(pected and the activities re5uired to produce such results. Therefore, activities need to be defined in terms of results e(pected, and the management allocates resources to activities to achieve such performance and results. 1. Boston #onsulting 9rou : = 6tudents please note, for this point refer <.-. and "rite the short ans"er for this point> .. Product *ife cycle base budgeting: 9esource allocation can also be undertaken on the basis of product life cycle. There can be more resource allocation during the introduction and gro"th stages of product life cycle, as compared to maturity and decline stages. The resources can be diverted from those products that have reached the maturity stage of their life cycle.

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S ra #gic Ma!ag#m#!
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