Professional Documents
Culture Documents
JNU, Jaipur
First Edition 2013
JNU makes reasonable endeavours to ensure content is current and accurate. JNU reserves the right to alter the
content whenever the need arises, and to vary it at any time without prior notice.
Index
I. Content....................................................................... II
IV. Abbreviations.........................................................IX
Book at a Glance
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Contents
Chapter I........................................................................................................................................................ 1
Business Environment.................................................................................................................................. 1
Aim................................................................................................................................................................. 1
Objectives....................................................................................................................................................... 1
Learning outcome........................................................................................................................................... 1
1.1 Introduction............................................................................................................................................... 2
1.2 Definition of Business............................................................................................................................... 2
1.3 Characteristics of Business....................................................................................................................... 3
1.4 Components of Business........................................................................................................................... 3
1.4.1 Industry..................................................................................................................................... 4
1.4.2 Commerce................................................................................................................................. 4
1.5 Purpose of a Business............................................................................................................................... 5
1.6 Characteristics of Business Environment................................................................................................. 5
1.7 Environmental Influences and Analysis on Business............................................................................... 6
1.7.1 Environmental Analysis............................................................................................................ 8
1.7.2 Environment influence on SWOT............................................................................................ 8
1.8 Components of Business Environment..................................................................................................... 9
1.9 Relationships between Organisation and its Environment....................................................................... 9
1.10 Internal Analysis of the Organisation/Company................................................................................... 10
1.11 External Environment............................................................................................................................11
1.11.1 Micro Environment................................................................................................................11
1.11.2 Macro Environment ............................................................................................................. 12
1.12 Economic Environment........................................................................................................................ 13
1.13 Political-Legal Environment................................................................................................................. 14
1.14 SocioCultural Environment................................................................................................................ 15
1.15 Demographic Environment................................................................................................................... 16
1.16 Natural Environment............................................................................................................................. 17
1.17 Technological Environment.................................................................................................................. 17
Summary...................................................................................................................................................... 19
References.................................................................................................................................................... 19
Recommended Reading.............................................................................................................................. 20
Self Assessment . ......................................................................................................................................... 21
Chapter II.................................................................................................................................................... 23
Introduction to Business Strategy............................................................................................................. 23
Aim............................................................................................................................................................... 23
Objectives..................................................................................................................................................... 23
Learning outcome......................................................................................................................................... 23
2.1 Introduction............................................................................................................................................. 24
2.1.1 Features of Strategy................................................................................................................ 24
2.2 Strategy at Different Levels of Business................................................................................................ 24
2.2.1 Corporate Strategy.................................................................................................................. 24
2.2.2 Business Unit Strategy............................................................................................................ 24
2.2.3 Operational Strategy............................................................................................................... 24
2.3 Nature of Business Policy....................................................................................................................... 25
2.3.1 Types of Policies..................................................................................................................... 25
2.3.2 Features of Business Policy.................................................................................................... 25
2.3.3 Difference Between Policy and Strategy................................................................................ 26
2.4 Objectives of Business............................................................................................................................ 26
2.5 Classification of Objective of Business.................................................................................................. 26
2.5.1 Economic Objectives.............................................................................................................. 27
2.5.2 Social Objectives.................................................................................................................... 27
2.5.3 Human Objectives................................................................................................................... 28
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2.5.4 National Objectives................................................................................................................. 29
2.5.5 Global Objectives................................................................................................................... 30
Summary...................................................................................................................................................... 31
References.................................................................................................................................................... 31
Recommended Reading.............................................................................................................................. 31
Self Assessment............................................................................................................................................ 32
Chapter III................................................................................................................................................... 34
Strategic Management for Business.......................................................................................................... 34
Aim............................................................................................................................................................... 34
Objectives..................................................................................................................................................... 34
Learning outcome......................................................................................................................................... 34
3.1 Introduction............................................................................................................................................. 35
3.2 Need for Strategic Management............................................................................................................. 35
3.2.1 Due to Change........................................................................................................................ 35
3.2.2 Provides Guidelines................................................................................................................ 35
3.2.3 Better Performance................................................................................................................. 35
3.2.4 Improved Allocation of Resources......................................................................................... 35
3.2.5 Competitive Advantage........................................................................................................... 35
3.2.6 Provides Holistic Approach.................................................................................................... 35
3.2.7 Improved Integration.............................................................................................................. 35
3.2.8 Systematise Business Decisions............................................................................................. 35
3.3 Strategic Management Process............................................................................................................... 36
3.3.1 Environmental Scanning......................................................................................................... 36
3.3.2 Strategy Formulation.............................................................................................................. 36
3.3.3 Strategy Implementation......................................................................................................... 37
3.3.4 Evaluation and Control........................................................................................................... 38
3.4 Benefits of Strategic Management.......................................................................................................... 38
3.4.1 Proactive Approach................................................................................................................. 38
3.4.2 Facilitates Better Delegation................................................................................................... 38
3.4.3 Exploiting Opportunities......................................................................................................... 38
3.4.4 Assists in Realistic and Effective Plans.................................................................................. 38
3.4.5 To Gain Competitive Advantage............................................................................................. 38
3.4.6 Minimises Weaknesses........................................................................................................... 38
3.4.7 Promotes Employees Participation........................................................................................ 38
3.4.8 Boost Profits........................................................................................................................... 39
3.4.9 Systematic Approach for Management Decision.................................................................... 39
3.4.10 Empowerment of Employees................................................................................................ 39
3.5 Limitations of Strategic Management..................................................................................................... 39
3.6 Strategies and their Role in Strategic Management................................................................................ 39
3.7 Role of Strategy in Strategic Management............................................................................................. 40
3.7.1 Deliberate Attempt to Counteract Actions of Opponents....................................................... 40
3.7.2 Emergence of Tactful Decision............................................................................................... 40
3.7.3 Creates System Approach....................................................................................................... 40
3.7.4 Helps in Formulating General Policies................................................................................... 40
3.7.5 Provides Integrated Approach................................................................................................. 40
3.7.6 Minimises Risk....................................................................................................................... 40
3.7.7 Optimum Use of Organisational Resources............................................................................ 40
3.7.8 Continues Review................................................................................................................... 40
3.8 Reasons behind Failure of Strategic Management.................................................................................. 41
Summary...................................................................................................................................................... 42
References.................................................................................................................................................... 42
Recommended Reading.............................................................................................................................. 42
Self Assessment............................................................................................................................................ 43
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Chapter IV................................................................................................................................................... 45
Corporate Strategy..................................................................................................................................... 45
Aim............................................................................................................................................................... 45
Objectives..................................................................................................................................................... 45
Learning outcome......................................................................................................................................... 45
4.1 Introduction............................................................................................................................................. 46
4.2 Corporate Strategy.................................................................................................................................. 46
4.2.1 Scope of Corporate Management........................................................................................... 46
4.3 Corporate Planning................................................................................................................................. 46
4.3.1 Essentials of Corporate Planning............................................................................................ 46
4.3.2 Steps of Corporate Planning Process...................................................................................... 47
4.3.3 Benefits of Corporate Planning............................................................................................... 47
4.3.4 Reasons Attributed to the Failure of Corporate Planning....................................................... 47
4.3.5 Prerequisites for Success in Corporate Planning.................................................................... 47
4.4 Need for Corporate Management............................................................................................................ 47
4.5 Components of Corporate Strategy......................................................................................................... 48
4.5.1 Objectives............................................................................................................................... 48
4.5.2 Vector...................................................................................................................................... 48
4.5.3 Competitive Advantage........................................................................................................... 48
4.5.4 Synergy................................................................................................................................... 48
4.6 Functions of Corporate Strategy............................................................................................................. 49
4.7 Kinds of Corporate Strategy................................................................................................................... 49
4.7.1 Stability Strategy..................................................................................................................... 49
4.7.2 Expansion Strategy................................................................................................................. 49
4.7.3 Retrenchment Strategy............................................................................................................ 49
4.7.4 Combination Strategies........................................................................................................... 49
4.8 Significance of Corporate Strategy......................................................................................................... 50
4.9 Limitations of Corporate Strategy.......................................................................................................... 50
4.10 Concept and Meaning of Corporate Policy........................................................................................... 50
4.11 Features of Corporate Policy................................................................................................................. 50
4.12 Scope of Corporate Policy.................................................................................................................... 51
4.13 Classification of Corporate Policies .................................................................................................... 52
4.13.1 Classification on the Basis of Scope..................................................................................... 52
4.13.2 Classification on the Basis of Expression............................................................................. 52
4.13.3 Classification on the Basis of Level..................................................................................... 52
4.13.4 Classification on the Basis of Origin.................................................................................... 52
4.13.5 Classification on the Basis of Functional Areas................................................................... 53
4.13.6 Classification of Policies on the Basis of Nature of Management....................................... 53
4.14 Importance of Corporate Policy............................................................................................................ 53
References.................................................................................................................................................... 54
Recommended Reading.............................................................................................................................. 54
Self Assessment............................................................................................................................................ 55
Chapter V..................................................................................................................................................... 57
Top Management......................................................................................................................................... 57
Aim............................................................................................................................................................... 57
Objectives..................................................................................................................................................... 57
Learning outcome......................................................................................................................................... 57
5.1 Introduction............................................................................................................................................. 58
5.2 Management Levels................................................................................................................................ 58
5.2.1 Top Level Managers............................................................................................................... 58
5.2.2 Middle Level Managers.......................................................................................................... 58
5.2.3 First Level Managers.............................................................................................................. 59
5.3 Board of Directors................................................................................................................................... 59
5.3.1 Duties of Board of Directors................................................................................................... 59
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5.4 Sub Committee....................................................................................................................................... 59
5.5 Chief Responsibilities and Skills of Top Management........................................................................... 60
5.5.1 Planning.................................................................................................................................. 60
5.5.2 Organising............................................................................................................................... 60
5.5.3 Controlling.............................................................................................................................. 60
5.6 Chief Executive Officer (CEO).............................................................................................................. 60
5.6.1 Responsibilities....................................................................................................................... 60
Summary...................................................................................................................................................... 62
References.................................................................................................................................................... 62
Recommended Reading.............................................................................................................................. 62
Self Assessment............................................................................................................................................ 63
Chapter VI................................................................................................................................................... 65
Strategic Planning....................................................................................................................................... 65
Aim............................................................................................................................................................... 65
Objectives..................................................................................................................................................... 65
Learning outcome......................................................................................................................................... 65
6.1 Introduction............................................................................................................................................. 66
6.2 Strategic Planning................................................................................................................................... 66
6.2.1 Methodologies........................................................................................................................ 66
6.3 Strategic Planning Process...................................................................................................................... 66
6.3.1 Organisation Mission and Purposes........................................................................................ 67
6.3.2 Importance of Vision Statement.............................................................................................. 67
6.3.3 Importance of Mission Statement........................................................................................... 67
6.3.4 Benefits of Vision................................................................................................................... 68
6.3.5 Developing a Mission Statement............................................................................................ 68
6.3.6 Developing a Vision Statement............................................................................................... 69
6.3.7 Setting Organisational Goals and Objectives......................................................................... 69
6.4 SWOT Analysis...................................................................................................................................... 70
6.4.1 Internal and External Factors.................................................................................................. 70
6.4.2 Avoiding Errors....................................................................................................................... 71
6.5 The SWOT Matrix.................................................................................................................................. 73
6.5.1 Formulating Strategic Alternatives......................................................................................... 74
6.5.2 Selecting the Best Strategy..................................................................................................... 75
6.5.3 Preparing an Operational Plan................................................................................................ 76
6.5.4 Resource Allocation................................................................................................................ 77
6.5.5 Co-ordinating Internal Factors................................................................................................ 77
6.5.6 Integrating Strategy and Operational Plan.............................................................................. 77
Summary...................................................................................................................................................... 79
References.................................................................................................................................................... 80
Recommended Reading.............................................................................................................................. 80
Self Assessment............................................................................................................................................ 81
Chapter VII................................................................................................................................................. 83
Implementation of Strategy....................................................................................................................... 83
Aim............................................................................................................................................................... 83
Objectives..................................................................................................................................................... 83
Learning outcome......................................................................................................................................... 83
7.1 Activating Strategy.................................................................................................................................. 84
7.2 Strategy Formulation vs. Strategy Implementation................................................................................ 84
7.3 Aspects of Strategy Implementation....................................................................................................... 85
7.4 Steps in Implementation of a Strategy.................................................................................................... 85
7.5 Issues in StrategyImplementation........................................................................................................... 87
7.5.1 Project Implementation........................................................................................................... 87
7.5.2 Procedure implementation...................................................................................................... 87
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7.6 Importance of Organisational Structure.................................................................................................. 90
7.6.1 Structural Considerations........................................................................................................ 90
7.7 Other Important Strategies...................................................................................................................... 91
7.8 BCG Matrix............................................................................................................................................ 91
7.8.1 Market Growth........................................................................................................................ 92
7.8.2 The Growth Share Model and Cash Position.......................................................................... 92
7.8.3 Uses and Benefits of the BCG Matrix.................................................................................... 93
7.8.4 Limitations of the BCG Matrix............................................................................................... 93
7.9 G. E. Multi Factorial Analysis................................................................................................................ 94
7.10 Factors Affecting Market Attractiveness.............................................................................................. 94
7.11 PEST Analysis....................................................................................................................................... 94
Summary...................................................................................................................................................... 96
References.................................................................................................................................................... 97
Recommended Reading.............................................................................................................................. 97
Self Assessment............................................................................................................................................ 98
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List of Figures
Fig. 1.1 Environment forces (influences) on business.................................................................................... 6
Fig. 1.2 Components of business environment............................................................................................... 9
Fig. 1.3 External environment.......................................................................................................................11
Fig. 1.4 Micro environment elements........................................................................................................... 12
Fig. 1.5 Macro environment elements.......................................................................................................... 13
Fig. 3.1 Process of strategic management..................................................................................................... 41
Fig. 5.1 Board of directors............................................................................................................................ 61
Fig. 7.1 BCG matrix..................................................................................................................................... 92
Fig. 7.2 PEST analysis.................................................................................................................................. 95
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List of Tables
Table 2.1 Difference between policy and strategy........................................................................................ 26
Table 6.1 Strengths and weaknesses of SWOT analysis............................................................................... 71
Table 6.2 Opportunities and threats of SWOT analysis................................................................................ 72
Table 7.1 Business attractiveness and business strengths............................................................................. 94
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Abbreviations
BCG - Boston Consulting Group Approach
BG - General Electric Approach
CEO - Chief Executive Officer
CFO - Chief Financial Officer
CICA - Capital Issues Control Act
CIO - Chief Information Officer
COO - Chief Operation Officer
DSS - Decision Support System
FEMA - Foreign Exchange Management Act
IDRA - Industries Development and Regulation Act
MIS - Management Information System
MRTP - Monopolies and Restrictive Trade Practices
PEST - Political Economical Social Technological
SWOT - Strengths, Weaknesses, Opportunities and Threats
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Chapter I
Business Environment
Aim
The aim of this chapter is to:
Objectives
The objectives of this chapter are to:
Learning outcome
At the end of this chapter, you will be able to:
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Business Environment
1.1 Introduction
Business is an important institution in society. Be it for the supply of goods or services, creation of employment
opportunities, offer of better quality life, or contribution to the economic growth of a country, the role of business
is crucial. So the first question arises in anyones mind is what really a business is? The following definition is an
attempt to provide appropriate answer.
A Business is nothing more than a person or group of persons properly organized to produce or distribute goods
or services. The study of business is the study of activities involved in the production or distribution of goods
and services-buying, selling, financing, personnel and the like. Practically the above said definition is true but in
theoretical sense it is incorrect. Before any activities can be considered in the business, there must exist both the
goal of profit and the risk of loss. Thus, business can be accurately defined by K. Ashwathapa as Complex field
of commerce and industry in which goods and services are created and distributed in the hope of profit within a
framework of laws and regulations.
The concept of strategy has been borrowed from the military and adapted for use in business. In business, as in the
military, strategy bridges the gap between policy and tactics. Together, strategy and tactics bridge the gap between
ends and means. We shall discuss about business, and its major objectives like survival, stability, growth, efficiency
and profitability, environmental influence to business, environment analysis, characteristics of business environment
,components of business environment, to know the relationship between the organisation and its environment, the
micro and macro environment and its demographic, economic, government, legal, political, cultural, technological
and global environment impact on business..
Business is any organisation which makes distribution or provides any article or service to the customers, who are
members of the society. Business aims to satisfy the needs of the customers as they are able and willing to pay for
these purposes. Business may be defined as the organised effort by individuals to produce goods and services, to
sell these goods and services in a market place and to reap some reward for this effort. Functionally, we may define
business as those human activities which involves production or purchase of goods with the object of selling them
at a profit margin. Business can be interpreted in various ways and they are as follows:
It refers to the state of being busy for an individual, group, organisation or society.
It is also interpreted as ones regular occupation or profession or economic activities.
It deals with particular entity, company, organisation, enterprise, firms or corporation.
It is also interpreted as particular market segment sector like computer business and various other segments
included under the term business.
It is wide and willing to use different activities
It consists of purchase, sale, manufacture, processing, marketing of products, services like manufacturing,
trading, transportation, warehousing, banking and finance, insurance and advertising, etc.
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Profit is the tool for measuring and evaluating business efficiency and productivity at the managerial
competence.
It helps strategic managers to take proper decisions and actions which in turn are effective as they are able to
combine and utilise the available resources and are able to sustain the organisation with growth..
Business efficiency is expressed in terms of percentage of profit, sales volume, capital employed, and market
value of corporate shares.
Outside investors are eager to know the profit of the firm and to make an assessment about their commit funds
as effective utilisation of funds is possible only in the business entity.
There are various people and personalities who have defined business according to their perspectives. Some of
them are discussed below. According to Prof. R. N. Owens, Business is an enterprise engaged in the production
and distribution of goods for sale in a market or rendering of services for a price. L.R. Dicksee states, Business
is a form of activity pursued primarily with the object of earning profits for the benefit of those on whose behalf
the activity is conducted. According to Urwick and Hunt, Business is any enterprise which makes, distributes
or provides any article or service which other members of the community need and are willing to pay for. Haney
defines it as, Human activity directed towards producing or acquiring wealth through buying and selling of goods.
Peter F Drucker has drawn some conclusions about what a business is, what is useful from the business and how to
understand the term business. His conclusions are listed below:
Business is created and managed by the people.
A group of people who will take decisions that will determine whether an organisation is going to prosper or
decline, whether it will survive or will eventually perish in market.
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Business Environment
1.4.1 Industry
In broad sense, industry is the branch of business activity which is concerned with raising production, fabrication
or possessing of goods and services. In other words, industry is an activity concerned with conversion of raw
materials or semi-finished goods into finished goods. Industry provides two types of goods namely consumer goods
and industrial goods. Consumer goods are those goods which are manufactured by the industry for ultimate use of
a customer. For instance brush, paste, cloth and food products, etc. Industrial\Capital goods are those goods which
are produced and used for further production. For instance the machineries, tools and raw materials used in the
various processes of production.
Types of industry
Industry is further classified into five broad types. They are as listed below:
Extractive industries
Genetic industries
Manufacturing industries
Construction industries
Tertiary\Service industries
Extractive industries
Extractive industries are those industries which are concerned with the extraction of wealth from the surface of the
earth, soil, forest, and water; for instance agriculture, mining, etc.
Genetic industries
Genetic industries are those industries which are concerned with reproduction and multiplication of plants and animals
for the purpose of making profit by their sale. For example, Nurseries, cattle building and poultry farming.
Manufacturing industries
Manufacturing industries are engaged in the conversion and processing of raw materials through separation,
combination and transformation into finished goods. Examples such as machinery and plants of all types- iron and
steel, sugar, paper, cotton cloth, electrical appliances, zinc ore, paper pulp, water power, etc.
Construction industries
Construction industries are concerned with the construction of roads, railways, dams, canals, buildings, bridges, .
There are mainly concerned with the manufacture of non-moveable items.
1.4.2 Commerce
Commerce has been defined as the sum total of those processes which are engaged in the removal of the
hindrance of persons (trade), place (transport and insurance), and time (warehousing) in the exchange (banking)
of commodities.
Trade
Trade means sale, transfer, or exchange of goods and services, through certain ancillary functions like packing,
warehousing, banking, transportation, insurance, and advertising.
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1.5 Purpose of a Business
Business has some purpose. These purposes are listed below:
It is to create customers clients in market.
It is to create customers for selling their products and services.
It is to create market for redlining and buying of product and services.
Customers determine the main purpose of the business.
Customers are the basic foundation of the business and keep their existence in the market.
It is to be catering to material needs and requirement of the society, individual persons, government institutions,
company, firms and enterprise.
Business should be running within the purview of the legal and general public interest.
It is the ultimate result of an economic expansion, growth and change of firm.
In general sense, enterprise pursues multiple objectives rather than a one objective. Strategic manager will identify
a set of main business objectives. These will be pursued by a large cross-section of enterprises. Profitability,
productivity, efficiency, growth, technological, dynamism, stability, self-reliance, survival, competitive strength,
customer services, financial solvency, product quality, diversification, employee satisfaction and welfare and so on
are the major objectives of an enterprise. Enterprises look for balance of these objectives in appropriate and suitable
manner. Important business objectives are listed below:
Survival
Stability
Growth
Profitability
Efficiency
Environment is complex
Business environment principally consists of a number of factors and events conditions. These are influenced by
different departmental sources in the organisation. These conditions do not exist in isolation and create entirely new
set of influences which interacts with each other. It brings comprehensive influence to business environment but it is
difficult to influence the organisation. All these factors have to be considered as environment analysis is complex and
rigid and totally very difficult to grasp by the functional manager and top level employees in the organisation.
Environment is dynamic
Business and company environment is constantly evolving and changing in various aspects. Micro and macro
environment factors are influenced in business. It impacts to change the business conditions. Dynamic environment
is flexible in nature. This is caused due to change; the strategic manager can shape strategy and formulate short
term and long term objectives.
Environment is multifaceted
Strategic observer can shape and observe different characters prevalent in the environment. Strategic observer can
observe a particular change or latest development in the business. It may be viewed differently by different observers
in the organisation. These things are frequently seen when the development happens. All are happy to welcome it
and think of it as an opportunity for the company but sometimes it can even be treated as a threat to the company.
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Business Environment
According to Barry M. Richman and Melvyn Copen, Environment factors or constraints are largely if not totally
external and beyond the control of an individual or industrial enterprises and their arrangements. These are essentially
the givers within which the firms and their managements must operate in a specific country and they vary, often
greatly from country to country. According to Glueck and Jauch, The environment that exists outside the firm
can lead to opportunities for or threats to the firm. Although, there are many factors, the most important ones are
socioeconomic, technical, supplier, competitors, and government.
Environment diagnosis principally consists of managerial decisions which is made by the strategist for analysing
the significance of the data like strengths, weakness, opportunities and threats of the organisation, and to design
their own strategy for formulation, implementation and controlling the internal environmental factors of the firm.
Environmental analysis helps the executive and manager to diagnosis the strategic competitive force and components
of strategic management. However, internal environment of the organisation is quite an essential and important
factor, from the point of view of the environment analysis. It is the cornerstone of the new and existing business
opportunity.
Environmental forces
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The figure above indicates the environmental forces that influence the business. For instance, the individual life success
depends on his innate capabilities like psychological factors, traits and skills. These are to cope with the environment,
only then it will be a success otherwise it will lead to failure. The survival is the basic element and success of the
business organisation; it depends on its own strengths in terms of resources like money, men, machinery, materials,
market and methods as its commands. Organisational success depends on effective utilisation of physical resources,
financial resources and human resource skills. These are adaptable to the business environment. Environment is
the total of several external and internal forces that affects the functions of business. Every business organisation
principally consists of internal environmental factors and a set of external environmental factors. Environmental
factors influence the business directly and indirectly by controlling, managing and administrating the business
activities in the organisation. Environment is the basic tool for living for all human beings and living creatures.
Human environment consists of family, friends, peers, and neighbours except the natural environment. In addition
it also includes manmade structures like buildings, furniture, roads and other physical infrastructure. These are
continuously interacting with the business environment.
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Business Environment
According to Clifton Garvin, environment analysis is, Positive trends in the environment breed complacency.
That underscores a basic point: in change there is both opportunity and challenge. Business environment analysis
involves the analysis, the diagnosis, and the managerial decisions which are likely to be taken for the betterment of
the company. It reduces the length process and the time pressure faced by the managers and the board of directors in
the company. However, sometimes the strategic managers neglect the environment analysis and its impact on business
changes, and are ready to face anticipated problems in future. Therefore, the strategic managers can concentrate on
environmental influences on the organisation or enterprise.
In general sense, Environmental analysis has three basic goals which are as follows:
Environmental analysis must provide the current and potential changes which are understood by the strategist
and its suitable place in the business environment. Strategist should be aware of the existing environment;
this is most important to company. At the same time, the strategist must have to take and consider a long term
perspective about the future.
Environment analysis basically provides strategic inputs for strategic decision making. It is not a mere collection
of data and it is not enough to analyse the environment. Whatever information is collected by the strategist
should be useful to the company while making strategic decisions.
Environment analysis is the basic tool and it should make, facilitate and foster strategic thinking in the
organisation. It is, typically, a rich resource of capabilities and ideas which understands the context and purview
of the business organisation. It should be about current challenges, growth, development and opportunities.
Strength
Strength is an inherent resource capability of the organisation or company which can be used to gain strategic
advantages from their competitors in the market. For example, strength is skill required for research and innovation
which helps in the development of advance skills which can be then used for getting a new product, a new material,
and a new customer. In this way we achieve to gain competitive strengths in the business.
Weakness
A weakness is an inherent limitation or constraint or problem of the organisation. It creates strategic disadvantages
to the company or organisation. For example, a manufacturing companys over-dependency on a single supplier in
the market can be potentially risky for the company at the time of crisis.
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Opportunity
An opportunity is a favourable condition in the business organisations environment which enables it to consolidate
the resource and strengthen its position. For example, increase in the products and services of the company due to
the demands from the customer. It is the best opportunity for the company to serve products and services to their
customers.
Threat
A threat is an unfavourable condition in the business organisations environment which causes a risk for, or damage
to, the organisation. For example, an emerging strong competitor in the market who is likely to offer stiff competition
to the existing companies in the industry, trade and business. This is one of the threats to the organisation.
Components of business
environment of firm
The relation between the organisation and its environment is based on the factors listed below:
Exchange of Information
Exchange of Resource
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Business Environment
Exchange of Information
It refers to data or information that is exchanged with business enterprises and its internal and external environment.
Exchange of information occurs in the following ways:
Business organisation scans the components of the external environment and internal environment components
along with their behavioural changes and thereby generates important information and valuable uses for the
business; and this leads to proper planning, decision making and control of the environment variables in the
organisation.
Business organisation structure and functions are adjusted towards the external environment information.
Generation of external environment information is complex and it is one of the major problems as it involves
uncertainty to business organisation.
A business project looks for current and future information related to demography, competition, technical, legal,
political, existing government policies and procedures.
Apart from collecting information, a business organisation itself transfers information in the following ways:
The organisation transfers its own information to several external agencies either voluntarily, inadvertently or
legally.
Other organisations and interested individuals are also approached by business organisation to obtain valuable
information relating to functions, products and services and social responsibility towards the stakeholders of
the company.
The organisation collects its own information in the form of annual reports, occasional advertisements and
media reports, etc.
Business organisations is generally legally bound to supply valuable information to government, society, financial
institution, shareholders, creditors, debtors, investors, employees, trade unions, business bodies and the like.
Exchange of Resource
Exchange of resource dominates the relationship of the business enterprise and its environment. Exchange of
resources in the business involves in the following ways:
Business enterprise receives inputs like finance, materials, manpower, equipment and labour force from the
external and internal environment through contractual and other arrangements. Organisational employees are
very important as conversion of these inputs (raw materials) leads into outputs like products and services.
The organisation interacts with suppliers for getting the inputs. For this purpose, an organisation does not depend
on a single supplier and collaborates with other organisations in the process to ensure a consistent supply of
quality inputs.
An organisation is also dependent on the external environmental factors for disposal of its products and services
to the wide range of clients and customers.
Disposal of products and services are involved in the interaction process of the external environment for
perceiving its needs and in this way satisfying the expectations and demands of clients, customers, employees,
shareholders, creditors, suppliers, local community, and general public and so on.
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Internal analysis of the organisation is a very difficult and challenging task for the strategist. An internal analysis
has the capacity to design a realistic organisation profile. It frequently involves trade-off, value system judgments,
educated and skilled guess as well as objective and standardised analysis. A systematic internal analysis leads to
the main objective of the organisation profile. It is essential to develop strategy, and design a realistic mission for
achievement of the strategy.
Internal analysis of the organisation must identify the strengths, opportunities, weakness and threats that are based
on organisation strategy. Organisational analysis identifies suitable strategy that is based on SWOT. Internal
analysis can be achieved by firstly by identifying the key and internal factors like value system, mission objectives,
management structure and nature, integrated power relationship, human resource, company/organisation image
and brand equity, physical assets, research and development (R&D) aspects, technological capabilities, marketing
resource and financial resource factors; and secondly by evaluating all these factors.
External
environment
Micro Macro
environment environment
External environment of the business can be categorised into two broad categories, as outlined below:
Micro environment
Macro environment
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Micro/Operating Environment
The micro/operating environment consists of the organisation or companys immediate environment that affects the
performance of the organisation/company. They are listed in the figure below:
Consumers/Customers
Competitors
Organisation
Suppliers
Intermediaries
Publics
It is quite important that micro/operating environment factors are more intimately linked with the organisation
or company than macro/remote environment factors. The micro/operating forces need not necessarily affect all
organisations in a particular industry. Some of the micro factors particularly affect an organisation. For instance,
an organisation that depends on a supplier may have a supplier environment that is quite entirely different from
that of an organisation whose supply source is also different. When competing organisations in an industry have
the same micro elements, the relative success of the organisation depends on their relative effectiveness in dealing
with these elements.
Macro/remote environment
Macro/remote environment is largely external to the business enterprise. Macro environment factors are uncontrollable
factors and beyond the direct influence and control of the organisation. The factors are powerfully influenced by
its functions. External environment consists of individuals, groups, agencies, organisations, events, conditions
and forces. These are frequently contacted by the organisation for its functions. It establishes good interaction
and inter-dependent relations in the form of business transitions. Proper designing and administration of macro
environment enable appropriate strategies and policies to cope with and make changes. Macro environment force
is uncontrollable.
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The macro/remote environment principally consists of the following elements which are listed in the figure
below:
Demographic
Economics
Government
Legal
Macro environment elements
Political
Cultural
Technological
Global
These are the very important determinants of business strategy in the organisation for formulating, implement and
controlling the economic policies. Economic environment refers to the nature and direction of the economy within
which the business organisation should operate. For instance, in the developing countries, the low income may be
the reason for the very high demand for the product and services of the business. In countries where the investments
and income are steadily and rapidly rising, business prospects are generally bright and further investments are
encouraged.
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In developed economies, replacement demand accounts for a considerable part of the total demand whereas it is
negligible in the developing countries. Money is the lifeblood of any business organisation and the economic system.
The economy consists of micro-economics and macro-economics. Micro and macro elements are important from the
point view of strategic decisions. Strategist must scan, monitor, forecast and assess the following critical elements
of the macro and micro economic environment:
Economic system
Nature of the countrys economy
The monetary and fiscal policies of the country
Autonomy of the economy
Functions of economics
Factors of productions
Economic trends and structures
Economic policy statements and structure
Economic legislation
Economic problems
Import and export policy
Tax rates
Interest rates
Government budget
Consumption pattern
Price fluctuations
Global movement of labour and capital
Trends in the Stock market
Coalitions of countries and regional states
Availability of credits
Inflation trends in country
Unemployment trends
Economic conditions of Foreign countries
Economic environment encourages liberalisation, privatisation and globalisation of the economic policies in the
business environment. Every countrys development is based on the economic environment activities that focus on
the development process of the country.
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The political environment is based on the uncertainty; therefore, demographic countries consist of number of
political parties. Political parties arent got clear majority to form a government. In this situation, industry and
commerce collapsed their business activities due to hung government. The political parties are unable to formulate
stable government, it affect and fluctuate the government policies. Therefore, business organisation and public are
needed to the stable government.
Government
Government policies, rules and regulation are controlling and monitoring the business enterprises and its activities
in the state. Secondly, the type of government administration of the state and what is the business policy of state?
These things should be evaluated by the strategist from point of view of business. Strategist should study about the
changes in the regulatory framework of the government and impact on the business. Government tax policies are
critical and affect to the business organisation in the state.
Legal
Sound legal system is the basic requirement for running of the business operating within the state. Strategist should
aware of various business laws which are protecting consumers, competitors, and organisation. Business organisation
should aware of the laws which relevant to companies, competitors, intellectual property, foreign exchange, labor
and so on.
Political
Political system is also influenced to business and its activities.
Political pressure groups influence to government and in this way some extent to control and regulate business
activities within the country.
Recently, special interest groups and political action committee put pressure to business organisation and to pay
more attention towards consumers rights, minority rights and women rights.
Apart from the sporadic movements against certain products and services and some business organisation in
the state.
Socio-cultural factors are beliefs, values, norms and traditions of the society that determine how individuals and
organisations should be interrelated. The difference in language sometimes poses a serious problem, even necessitating
a change in the brand name. The value and beliefs associated with colour vary significantly between different cultures.
For instance, white indicates death and mourning in China and Korea; but in some countries it expresses happiness
and is the colour of the wedding dress of the bride.
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Some of the socio-cultural factors are influences operating environment of organisation as outlined:
Social issues like the role of the business in the society, environment pollution, corruption, use of mass media
and consumption of products and services which are offered by the company.
Social attitude and value issues like social customs, beliefs, rituals and practices, changing life style patterns
and materialism are expectations of society from the business.
Family structure, value and attitude towards the family and these changes also influence business and its
operation.
Role of the women, position, and nature of responsibilities in society is also influences business and its operation
in market.
Educational levels, awareness and consciousness of rights and work ethics of the society can influence business
and its operation.
Social practice, beliefs and associated factors are helpful for promotion of the certain products, services or
ideas; the success of marketing depends on a large extent, on the success in terms of changing social attitude
or value systems.
These factors are relevant to the business for formulating and implementing strategy for controlling and
accomplishment of the objectives of the organisation.
Demographic factors like size of the population, population growth, rate, age, composition, life expectancy, family
size, spatial dispersal, occupational status, employment pattern, etc., affect the demand for goods and service. The
growth of population and income results in increased demand for goods and services. A rapidly increasing population
indicates a growing demand for many products. For instance, developing countries like India, Pakistan, etc., high
population growth rate that indicates an enormous increase in labour supply. The occupational and spatial nobilities
of population have implications for business. If labour is highly heterogeneous in respect of language, caste and
religion, ethnicity, etc., personal management is likely to become more complex. The heterogeneous population
with its varied tastes, preferences, beliefs, temperaments, etc., gives rise to different demand patterns and calls for
different marketing strategies.
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Business organisation needs to study different demographic issues which particularly address the following issues
as listed below:
What democratic trends which will affect the market size of the different types of industry?
What democratic trends will represent opportunities or threats?
Difference in geographical conditions between markets may sometimes call for changes in the marketing mix.
Geographical and ecological factors also influence industries which help material index tend to be located near the
raw material sources. Climate and weather conditions affect the location of certain industries like textile industry.
Ecological factors have recently assumed great importance. The depletion of natural resources, environmental
pollution and the disturbance in the ecological balance has caused great concern. Government policies aimed at
presentation of environmental purity and ecological balance, conservation of non-replenishable resources, etc., have
resulted in additional responsibilities and problems for business, and some of these have affected in increasing the
cost of production and marketing, externalities also become an important problem of the business has to confront
with.
Internet and telecom system is the part of technological development in the world. These things today changed
whole world. It changes people and business operation. It leads to many new business opportunities apart from the
many existing systems. Technological environment characteristics are outlined:
The find of technological change
Opportunities are arising out of technological developments.
Risk and uncertain is the major feature of the technological developments.
Research and development role to country
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Technology and business activities are to be highly considerable, interrelated and interdependent. Technology output/
fruits available to society through business activities in this way improve the quality of life in the society. Therefore,
technology nurtured by business. Technologies issues relating with companies are listed below:
Access to the internet communication facilities which enables to connect large numbers of employees to work
from one place/ home to another place in the globe. Information Highway provides opportunity to strategist to
access richer source of information.
It helps business for sales and exchange of goods and services.
It provides opportunity to customers to shop online through the internet technology.
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Summary
A Business is nothing more than a person or group of persons properly organized to produce or distribute goods
or services.
Business principally comprises of an all profit seeking activities of the organisation which provide goods and
services that are necessary to economic system.
Business may be defined as the organised effort by individuals to produce goods and services, to sell these
goods and services in a market place and to reap some reward for this effort.
Business is to provide goods and services to the people. It provides the public with the things it needs and wants
in order to survive, enjoy life and improve in a material sense.
Commerce has been defined as the sum total of those processes which are engaged in the removal of the
hindrance of persons (trade), place (transport and insurance), and time (warehousing) in the exchange (banking)
of commodities.
Business and company environment is constantly evolving and changing in aspects.
Environmental analysis helps the executive and manager to diagnosis the strategic competitive force and
components of strategic management.
Environmental factors plays an important role and influences to identify the key issues, and find the ways for
coping with complex and rigid issues which are considered as challenging by managers.
Environment analysis is to analyse the changing pattern and its impact on business.
SWOT is acronym of strengths, weakness, opportunity and threats.
External environment offers wide range of opportunities, problems, threats and pressures and thereby influences
the structure of the business enterprise and its functions.
Exchange of resource dominates the relationship of the business enterprise and its environment.
Formulation of an effective and efficient strategy is based on a clear definition of the organisation mission, an
accurate assessment of the external environment and a thorough internal analysis of the organisation.
External environment is an attempt to understand the outside forces of the organisational boundaries that help
to shape the organisation.
Micro environment of business enterprise refers to the study of a small area or an immediate periphery of the
business organisation.
Macro environment, on the other hand, study the overall issues of firms and its broader dimensions. It principally
consists of economical, technological, political, legal and socio-cultural aspects.
The economic environment constitutes of economic conditions, economic policies, and the economic system
which is important to the external factors of business
References
Dr. Pal, K., Business Environment, [Pdf] Available at: <http://www.ddegjust.ac.in/studymaterial/mcom/mc-103.
pdf> [Accessed 15 May 2013].
Business Environment, [Pdf] Available at: <http://www.newagepublishers.com/samplechapter/001610.pdf>
[Accessed 15 May 2013].
Jain, T. R., Trehan, B. & Trehan, R., 2010. Business Environment, FK Publications.
Goyal, A. & Goyal, M., 2010. Business Environment, FK Publications.
The Global Business Environment, [Video online] Available at: <http://www.youtube.com/watch?v=mcmsSV
LQIXk&list=PL502F3D01E0D87E47> [Accessed 15 May 2013].
2008. Globalisation of Indian Business, [Video online] Available at: <http://www.youtube.com/
watch?v=NTtztNM3vLg> [Accessed 15 May 2013].
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Recommended Reading
Aswathappa, K., 2009. Essentials of Business Environment, Global Media.
Dave, B., 2009. Business Environment in Modern Era, Global Media.
Cherunilam, F. 2009. Business Environment, Global Media
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Self Assessment
1. The term _________ typically refers to the development and processing of economic values in society.
a. Business
b. Land
c. Profit
d. Economics
2. Goods B. Biggest stimulus for the survival of the business and its future development
3. Profit C. Permits business to earn profit as a reward for assuming the risks of operating it.
4. _____________ are those industries which are concerned with the extraction of wealth from the surface of the
earth, soil, forest, and water.
a. Manufacturing Industries
b. Extractive Industries
c. Genetic Industries
d. Construction Industries
5. _________ means sale, transfer, or exchange of goods and services, through certain ancillary functions like
packing, warehousing, banking, transportation, insurance, and advertising.
a. Media
b. Service
c. Commerce
d. Trade
6. Environment __________ is helpful in the survival of the business and prospers the business activities.
a. analysis
b. diagnosis
c. strategy
d. change
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8. A __________ is an unfavourable condition in the business organisations environment which causes a risk for,
or damage to, the organisation.
a. strength
b. threat
c. opportunity
d. demand
10. Economic environment encourages liberalisation, privatisation and ____________ of the economic policies in
the business environment.
a. integrity
b. globalisation
c. accountability
d. movement
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Chapter II
Introduction to Business Strategy
Aim
The aim of this chapter is to:
Objectives
The objectives of this chapter are to:
Learning outcome
At the end of this chapter, you will be able to:
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2.1 Introduction
Strategy is the direction and scope of an organisation in the long term, which achieves advantage for the organisation
through its configuration of resources within a challenging environment, to meet the need of markets and to fulfil
stakeholders expectations. In other words strategy is about:
The direction where the business is trying to get into in the long term.
The market in which a business should compete in and the scope of the activities that are to be involved.
The advantage as to how can the businesses performs better than the competition in the market.
The resources like skills, assets, finance, relationships, technical competence, and facilities required in order to
be able to compete with other businesses in the market.
The environmental factors that affect the businesses ability to compete.
The values and expectations of the stakeholders who have the power in and around the business.
Strategy is a managements game plan for strengthening the performance of the enterprise. It states how to conduct
business to achieve the desired goals.
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2.3 Nature of Business Policy
Business policy defines the scope or spheres within which decisions can be taken by the subordinates in an
organisation. It permits the lower level management to deal with the problems and issues without consulting top
level management every time for decisions. Business policies are the guidelines developed by an organisation to
govern its actions. They define the limits within which decisions must be made. Business policy also deals with
acquisition of resources with which organisational goals can be achieved. Business policy is the study of the goals
and responsibilities of top level management, the significant issues affecting organisational success and the decisions
affecting organisation in the long-run.Some useful definitions of Business Policy are as follows:
A business policy is an implied overall guide setting up boundaries that supply the general limit and direction
in which managerial action will take place.
A business policy is one, which focuses attention on the strategic allocation of scarce resources. Conceptually
speaking, strategy is the direction of such resource allocation while planning is the limit of allocation.
A business policy represents the best thinking of the company management as to how the objectives may be
achieved in the prevailing economic and social conditions.
A business policy is the study of the nature and process of choice about the future of independent enterprises
by those responsible for decisions and their implementations.
The purpose of a business policy is to enable the management to relate properly the organisations work to its
environment. Business policies are guides to action or channels to thinking.
Financial/Economic policy
Economic policy refers to the actions that government takes in the economic field. It covers the systems for setting
interest rates and government budget as well as the labour market, national ownership, and many other areas of
government interventions into the economy.
Personnel policy
Is a set of rules or guidelines that defines the way in which an organisation deals with matters relating to staff, or a
particular rule or guideline relating to a particular issue affecting staff.
Clear
Policy must be unambiguous. It should avoid use of jargons and connotations. There should be no misunderstanding
in following the policy.
Reliable/Uniform
Policy must be uniform enough so that it can be efficiently followed by the subordinates.
Appropriate
Policy should be appropriate to the present organisational goal.
Simple
A policy should be simple and easily understood by all in the organisation.
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Inclusive/Comprehensive
In order to have a wide scope, a policy must be comprehensive.
Flexible
Policy should be flexible in operation/application. This does not imply that a policy should be altered always, but it
should be wide in scope so as to ensure that the line managers use them in repetitive/routine scenarios.
Stable
Policy should be stable else it will lead to indecisiveness and uncertainty in minds of those who look into it for
guidance.
Policy Strategy
a. Strategy is concerned with those organisational
a. Policy is a blueprint of the organisational activity
decisions which have not been dealt/faced
which is repetitive/routine in nature.
before in same form.
b. Policy formulation is the responsibility of top level b. Strategy formulation is basically done by
management. middle level management.
d. Policy is concerned with both thought and actions. d. Strategy is concerned mostly with actions.
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Human objectives
National objectives
Global objectives
Profit earning
Profit is the lifeblood of business, without which no business can survive in a competitive market. In fact profit
making is the primary objective for which a business unit is brought into existence.
Profits must be earned to ensure the survival of business, its growth and expansion over time.
Profits help businessmen not only to earn their living but also to expand their business activities by reinvesting
a part of the profits.
In order to achieve this primary objective, certain other objectives are also necessary to be pursued by business,
which are as follows:
Creation of customers
A business unit cannot survive unless there are customers to buy the products and services.
Again a businessman can earn profits only when he provides quality goods and services at a reasonable price.
For this it needs to attract more customers for its existing as well as new products.
This is achieved with the help of various marketing activities.
Regular innovations
Innovation means changes, which bring about improvement in products, process of production and distribution
of goods.
Business units, through innovations, are able to reduce cost by adopting better methods of production and also
increase their sales by attracting more customers because of improved products.
Reduction in cost and increase in sales gives core profit to the businessman.
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Development of human resources
Employees as human beings always want to grow.
Their growth requires proper training as well as development.
Business can prosper if the people employed can improve their skills and develop their abilities and competencies
in course of time.
Thus, it is important that business should arrange training and development programmes for its employees.
Creation of employment
One of the important national objectives of business is to create opportunities for gainful employment of
people.
This can be achieved by establishing new business units, expanding markets, widening distribution channels,
etc.
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Summary
Strategy is the direction and scope of an organisation over the long term, which achieves advantage for the
organisation through its configuration of resources within a challenging environment, to meet the need of markets
and to fulfil stakeholder expectations.
It is a managements game plan for strengthening the performance of the enterprise.
Strategy is significant because it is not possible to foresee the future.
Strategy deals with long term developments rather than routine operations.
Business policy defines the scope or spheres within which decisions can be taken by the subordinates in an
organisation.
Business policies are the guidelines developed by an organisation to govern its actions.
A business policy is an implied overall guide setting up boundaries that supply the general limit and direction
in which managerial action will take place.
Marketing, Financial and Personnel are three types of policies.
An objective of business means the purpose for which the business is established.
Economic objectives of business refer to the objective of earning profit and also other objectives that are necessary
to be pursued to achieve the profit objective, which includes creation of customers, regulating innovations and
best possible use of available resources.
Social objectives are those objectives of business, which are desired to be achieved for the benefit of the
society.
Human objectives refer to the objectives aimed at the well-being as well as fulfilment of expectations of employees
as also of people who are disabled, handicapped and deprived of proper education and training.
References
Dr. Reddy, P. N., 2007. Strategic Management. 2nd ed., Himalaya Publishing House.
Aaker, D. A., 2001. Developing Business Strategies. 6th ed., Wiley.
Business Strategy, [Online] Available at: <http://www.tutor2u.net/business/strategy/what_is_strategy.htm>
[Accessed 14 May 2013].
Strategy - Definition and Features, [Online] Available at: <http://www.managementstudyguide.com/strategy-
definition.htm> [Accessed 14 May 2013].
Business Strategy, [Video online]Available at: <http://www.youtube.com/watch?v=2fUIQhFjuWg> [Accessed
14 May 2013].
The Five Components of a Business Strategy, [Video online]Available at: <http://www.youtube.com/
watch?v=BnNW5VViGJs> [Accessed 14 May 2013].
Recommended Reading
Ghosh, P. K., 1996. Business Policy Strategic Planning and Management. 2nd ed., Sultan Chand & Sons.
Litman, J., 2008. Driven: Business Strategy, Human Actions, and the Creation of Wealth. 1st ed., Strategy &
Execution, LLC.
Robinson, R. B. & Pearce, J., 2007. Strategic Management: Formulation, Implementation, and Control. 10th
ed., McGraw-Hill.
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Self Assessment
1. Which of the following statements is false?
a. Strategy is about the direction where the business is trying to get to in the long term.
b. Strategy is about the market in which a business should compete in and the scope of the activities that are
to be involved.
c. Strategy is about the environmental factors that affect the businesses ability to compete.
d. Strategy is about the direction where the business is trying to get to in the short term.
2. Strategy is a/an ____________ game plan for strengthening the performance of the enterprise.
a. financial
b. organisations
c. managements
d. CEOs
5. What is concerned with the overall purpose and scope of the business to meet stakeholder expectations?
a. Business unit strategy
b. Corporate strategy
c. Operational strategy
d. Business policy
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8. Which of the following statements is true?
a. Business strategy defines the scope or spheres within which decisions can be taken by the subordinates in
an organisation.
b. Corporate policies are the guidelines developed by an organisation to govern its actions.
c. Business policy defines the scope or spheres within which decisions can be taken by the subordinates in an
organisation.
d. Business policies are the guidelines developed by CEO of the organisation to govern its actions.
9. What is the basic attitude underlying a companys marketing activity known as?
a. Business policy
b. Financial policy
c. Economic objective
d. Marketing policy.
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Chapter III
Strategic Management for Business
Aim
The aim of this chapter is to:
Objectives
The objectives of this chapter are to:
Learning outcome
At the end of this chapter, you will be able to:
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3.1 Introduction
Strategic management is the process of specifying an organisations objective, developing policies and plans to
achieve these objectives, and allocating resources so as to implement the plans. It is the highest level of managerial
activity, usually performed by the companys Chief Executive Officer (CEO) and executive team. It provides overall
direction to the whole enterprise. An organisations strategy must be appropriate for its resources, circumstances
and objectives. The process involves matching companies strategy advantages to the business environment. One
objective of an overall corporate is to put the organisation into a position to carry out its mission effectively and
efficiently. A good corporate strategy should integrate an organisations goals, policies and action sequences into
a cohesive whole.
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Opportunities and threats are the elements of external environment over which organisation does not have any control.
Strength and weaknesse are the variables of the internal environment. These include available resources, culture,
organisational structure, etc. Based on the opportunities, organisation can use its available core competencies to gain
competitive advantage over its competitors. Proper blend of organisational resources certainly help the organisation
to exploit the opportunities and minimise the weaknesses.
Mission
An organisations mission is the purpose or reason for the organisations existence.
It tells what the company is providing to society - service or a product.
Mission statement clearly specifies the purpose of the organisation.
Mission statement describes what the organisation is now and what it would like to become.
Therefore, mission of business provides a statement to insiders and outsiders of what the company stands for.
Objectives
Objectives are formulated to accomplish organisation mission.
Objectives can be defined as the long term results that an organisation seeks to achieve in pursuing its basic
mission.
Objectives should not be static, they should be dynamic. That is, changes in the environment or the changes in
the organisational strengths and weakness may call for modification to objectives.
Objectives are operational definitions of the organisations goals.
They provide measurable parameters for evaluating the performance of the organisation.
Importance of objectives
Objectives indicate the purpose and aims and thereby the social justification for the existence of an
organisation.
Objectives provide directions for the functioning of an organisation.
Objectives help an organisation to adjust itself to the existing environment.
Objectives help in attaining employees co-ordination and thereby reduce conflicts.
By making clear what the result should be, objectives provide the basis for control and assessment of organisational
performance.
Objectives help decentralisation by assigning decision making to lower level personnel.
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Features of objectives
Objectives should be understandable Objectives should not be weak and ambiguous. They should be expressed
clearly. Also, this should be made clearly known to the people who work for their accomplishment.
Objectives should be related to the time frame Objectives must specify the time frame within which the stated
objectives must be achieved.
Objectives should be specific Objectives should state what exactly the company is trying to achieve within
a specified time.
Participation To the possible extent, formulation of objectives should involve in the participation of important
people responsible for the accomplishment of the objectives. The sense of participation will provide morale,
motivation and a moral responsibility for the achievement of the objectives.
Objectives must be realistic Objectives should be reasonable and realistic in the sense that they should be
achievable taking the existing environment into consideration.
Consistency Objectives should be mutually consistent throughout the organisation. If objectives are set
concentrating on one area disregarding other areas, it will lead to problems. Therefore, different objectives of
various functional areas should correlate with each other and they must be mutually supportive to accomplish
the overall objectives.
Measurability Objectives should be capable of being measured. To measure the performance of an objective
it should be clearly defined either in quantitative or qualitative terms.
Flexibility Objectives should not be very rigid. It must provide scope for flexibility. Changes in the environment
or changes in organisation strengths and weaknesses may call for modifications to the objectives.
Ranking An organisation with multiple objectives should assign relative priorities and indicate the time frame
within which these objectives must be attained.
Strategic intent
A strategic intent is a companys vision of what it wants to achieve in the long term. It must convey a significant
stretch for a company, a sense of direction, discovery, and opportunity that can be communicated as worthwhile to
all employees. It should not focus so much on todays problems, which are normally dealt with by company visions
and missions, but rather on tomorrows opportunities.
Programs
A program is a statement of activities or steps needed to accomplish a single used plan. It takes the action oriented
strategy. It may involve restructuring the organisational change in the internal culture, etc.
Budgets
A budget is a statement of organisations programs in numeric terms. Budgets are expressed in financial terms.
Budget lists the detailed cost of each program. There may be different budgets like capital expenditure budget,
sales budget, cash budget, etc.
Procedures
Procedures are a system of sequential steps that describe in detail how a particular task is to be done. They are
stated in detail to avoid confusion and duplication. Procedures define step by step execution of different activities.
Hence, procedures can be defined as a series of related steps expressed in chronological order to achieve a specific
purpose.
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Evaluation and control is the process in which corporate activities and performance results are monitored with an
intention of comparing actual performance with desired performance. Managers at all levels use the information
collected to take corrective action. The evaluation and control function complete the strategic management model.
Based on performance result, management may need to make adjustments in its strategy formulation, implementation
or both.
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3.4.8 Boost Profits
Number of research studies has suggested that a well designed strategic management can boost profits. Strategic
management helps in identifying, evaluating and adopting best course of action from out of the alternatives available.
This careful selection helps the company to go for improved action which would really improve the profitability
of the organisation.
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Executive in charge of strategy must know the principles of management, effect of business cycles and internal
working condition.
In addition, (s)he must also know government policy and existing competition.
The executive cannot ignore human aspects in organisation.
Corporate strategy can be made successful if all these factors are incorporated in it.
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3.8 Reasons behind Failure of Strategic Management
Following are the resaons for failure of strategic management:
Strategy is concerned with future course of action and the future being uncertain due to various reasons, definite
strategy cannot be determined. It is likely to be erroneous if adopted. Hence, it leads to failure of strategic
management.
Business cycles, government rules, competitors role, etc, make strategy planners weak and force them to change
strategy very often. Frequent changes indicate poor planning and then the management loses faith in strategy
programme.
Risk involved in the implementation of a strategy is more since strategy involves long-range planning which is
subject to greater degree of uncertainty. As a result of it, strategy is likely to be erroneous.
Success of strategy depends on the joint efforts and co-operation of people in the organisation and in practice,
it is seldom expected and therefore, there are more unforeseen impediments in the successful implementation
of the strategy.
Conflicts between managers goals and the company goals may be an additional impediment. Because of
such conflict, the manager is likely to use his/her own strategy which may defeat the overall strategy of the
company.
Management is generally reluctant either to drop or modify the predetermined strategy for achieving the benefits
of market opportunities. Management, therefore, depends on short-term benefits, which could have been a
change in the established strategy.
To communicate, a strategy requires as much trouble and time as to conceive it.
Under changing circumstances, strategy becomes obsolete unless it is suitably modified.
Corporate Business
strategic
intent Functional
Competitive Issues
Strategy
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Summary
Strategic management is the process of specifying an organisations objective, developing policies and plans to
achieve these objectives, and allocating resources so as to implement the plans.
Strategic management helps the top executives to forecast changes well in advance and to take advantage of
the opportunities and reduce the risk.
Strategy formulation includes defining corporate mission, specifying objectives, developing strategies and
setting policy guidelines.
A strategic intent is a companys vision of what it wants to achieve in the long term.
A budget is a statement of organisations programs in numeric terms. Budgets are expressed in financial
terms.
The performance of strategic management is justified in terms of its ability to improve an organisations
performance, typically measured in terms of profits and return on investment (ROI).
Top level management formulates overall objective and develops corporate strategy based on the objectives to
be accomplished.
Success of strategic management is dependent not only on the strategy formulation but also on affective
implementation.
Executive in charge of strategy must know the principles of management, effect of business cycles and internal
working condition.
Risk involved in the implementation of a strategy is more since strategy involves long-range planning which is
subject to greater degree of uncertainty.
Success of strategy depends on the joint efforts and co-operation of people in the organisation and in practice,
it is seldom expected and therefore, there are more unforeseen impediments in the successful implementation
of the strategy.
References
Harrison, J. S., 2009. Foundation in Strategic Management. 5th ed., South-Western College Pub.
Hunger, J. D., 2006 Essentials of Strategic Management. 4th ed., Prentice Hall.
THE STRATEGIC MANAGEMENT PROCESS, [Pdf] Available at: <http://www.romans-group.com/pdfs/crafting.
pdf>[Accessed 14 May 2013].
The Strategic Management Process, [Pdf] Available at: <http://sbaer.uca.edu/publications/strategic_management/
pdf/04.pdf>[Accessed 14 May 2013].
2012, Introduction to Strategic Management [Video online]Available at: <http://www.youtube.com/
watch?v=rJ2tmqRkiCM> [Accessed 14 May 2013].
2008. Strategic Management, 2012. [Video online]Available at: <http://www.youtube.com/
watch?v=5b6QacnMFsw> [Accessed 14 May 2013].
Recommended Reading
Hoskisson, R. E., 2006. Strategic Management Concepts. 7th ed.,South-Western College Pub.
Greer, C. R., 2000. Strategic Human Resource Management: A General Managerial Approach. 2nd ed., Prentice
Hall.
Thompson, J. L., 1997. Strategic Management: Awareness and Change. 2nd ed., International Thompson
Business Press, London.
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Self Assessment
1. Which of the following statements is false?
a. A companys strategy provides a central purpose and direction to the activities of organisation.
b. Strategic management including the nature and extent of competition and exploits available opportunities.
c. Strategic management exercises systematic and disciplined approach towards policy making.
d. Strategic formulation exercises systematic and disciplined approach towards policy making.
3. Strategic management helps the _________ to forecast changes well in advance and to take advantage of the
opportunities and reduce the risk.
a. middle level management
b. first line management
c. top executives
d. CEO
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9. _________ helps a company to adopt suitable strategies for exploiting opportunities and fight threats.
a. Strategic formulation
b. Strategic planning
c. Strategic management
d. Strategic intent
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Chapter IV
Corporate Strategy
Aim
The aim of this chapter is to:
Objectives
The objectives of this chapter are to:
Learning outcome
At the end of this chapter, you will be able to:
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4.1 Introduction
Corporate management is a broad phenomenon and covers a wide spectrum of activities. It is the direction an
organisation takes with the objective of achieving business success in the long term. Recent approaches have focused
on the need for companies to adapt to and anticipate changes in the business environment, i.e., a flexible strategy.
The development of a corporate strategy involves establishing the purpose and scope of the organisations activities
and the nature of the business it is in, taking the environment in which it operates, its position in the marketplace,
and the competition it faces into consideration; mostly analysed through a SWOT analysis.
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4.3.2 Steps of Corporate Planning Process
Following are the steps of corporate planning process:
Formulation of strategic intent
Environmental appraisal
General of strategic alternatives
Evaluation of alternatives
Decisions in terms of strategy, policies and programmes
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4.5.1 Objectives
Corporate objectives should be stated in such a way that they may provide a clear idea about the scope the enterprises
business. Objectives give direction for which action plan is formulated. Objectives are open-ended attributes denoting
a future state. Objectives translate the purpose into goals. An objective should be:
with a timeframe
attainable
challenging
understandable
measurable and controllable
For having clarity in objectives, the business domain is defined specifically in terms of a product class, technology,
customer group, market need or some other combination.
4.5.2 Vector
Vector gives directions within an industry and across industry boundaries which the firm proposes to pursue. If an
organisation has the objective to maximum sales, the series of decisions will be to enhance salesmans commission,
release nationwide advertisement, introduce total quality management and introduce new product range. Vector
signifies that a series of decisions are taken in the same direction to accomplish the objectives.
4.5.4 Synergy
Synergy means measurement of the firms capability to take advantage of a new product market move. If decisions
are made in the same directions to accomplish the objectives there will be synergic impacts. The corporate strategy
will give the synergy benefit.
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4.6 Functions of Corporate Strategy
Following are the functions of corporate strategy:
It provides a dual approach to problem solving. Firstly, it exploits the most effective means to overcome
difficulties and face competition. Secondly, it assists in the deployment of scarce resources among critical
activities.
It focuses attention upon changes in the organisational set up, administration of organisational process affecting
behaviour and the development of effective leadership.
It offers a technique to manage changes. The management is totally prepared to anticipate, respond and influenced
to look at changes. It also offers a different way of thinking.
It furnishes the management with a perspective whereby, the latter gives equal importance to present and future
opportunities.
It provides the management with a mechanism to cope with highly complex environment characterised by
diversity of cultural, social, political and competitive forces.
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Following are the distinct views regarding policies categorised in three board groups:
The first category holds the opinion that policy and strategy are synonymous.
The second group of experts view that corporate policy is the process of implementing strategy.
The third view considers corporate policy to be decisions regarding the future of an organisation.
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Achievement of objectives Corporate policy is aimed at the fulfilment of organisational objectives. They
provide a framework for action and thus help the executives to work towards the set goals.
Qualitative, conditional and general statement Corporate policy statements are qualitative in nature. They are
conditional and defined in general manner. These statements use words as to maintain, to follow, to provide,
etc. They can be specific at times but most of the times, a corporate policy tends to be general.
Guide for repetitive operations Corporate policies are formulated to act as a guide for repetitive day to day
operations. They are best as a guide for the activities that occur frequently or repeatedly.
Hierarchy Corporate policies have a hierarchy, i.e. for each set of objectives at each level of management
there is a set of policies. The top management determines the basic overall policy, then the divisional and / or
departmental policies are determined by the middle level management and lower level policies are more specific
and have a shorter time horizon than policies at higher levels.
Decision making process Corporate policy is a decision making process. In formulating corporate policy one
has to make choices and the choice is influenced by the interests and attitudes of managers engaged in making
the policies.
Mutual application Corporate policies are meant for mutual application by subordinates. They are made for
some specific situation and have to be applied by the members of the organisation.
Unified structure Corporate policies tend to provide predetermined issues and thus avoid repeated analysis.
They provide a unified structure to other types of plans and help managers in delegating authority and having
control over the activities.
Positive declaration Corporate policy is a positive declaration and a command to its followers. It acts as a
motivator for the people following it and thus they work towards the attainment of the objectives effectively.
The corporate policy lays down the values which dominate organisations actions.
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4.13.5 Classification on the Basis of Functional Areas
In an organisation, various functional areas are seen. The policies are classified according to functional areas, i.e.
production policies, marketing and sales policies, financial policies and personnel policies.
Production policies: These policies are concerned with production of a product, type of technology, equipment,
selection of plant layout, location and size, manufacturing cost, inventory control, quality control, etc.
Marketing & sales policies: The policies which relate to policies in market analysis, business law, salesmanship
and advertising are concerned with total process of marketing mix and product mix. These include decisions
with respect to customers, channels of distribution, dealers, sales control, promotion, etc.
Financial policies: The success of business depends upon these policies. These consist of policies with respect
to capital structure, methods of raising funds, the utilisation of funds, credit policy, dividend decisions, profit
policy, costing and accounting policy, etc.
Personnel policies: Employees are very important for the organisation and the personnel policies are concerned
with issues like recruitment, selection, training and development, promotion and transfer, wages and incentives,
etc.
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Summary
Corporate management is a broad phenomenon and covers a wide spectrum of activities.
Corporate strategy is formulated at the higher level of management. At operational level, operational strategies
are also formulated.
Corporate planning is a comprehensive planning process which involves continued formulation of objectives
and the guidance of affairs towards their attainment.
The process of corporate planning integrates strategic planning with short range operational plans.
A formal planning system can help the management in responding to a dynamic environment and in managing
a strategically complex organisation with limited resources.
The chief executive must be totally committed and involved in the corporate planning process.
The process of corporate planning should be introduced on continuous basis to cope with ever changing
environmental factors.
Corporate strategy improves the capability of management in coping with the volatile external environmental
forces.
The corporate strategy formulation process calls for considerable time, money and effort.
Corporate policy helps the manager to identify the solution to the problems.
Corporate policy consists of a variety of subject that affects various interest groups in the organisation and
outside it.
Corporate policy areas have two broad categories namely, major and minor policies.
Good policies provide a direction in which all management activities are focused.
References
Corporate Strategy, [Pdf] Available at: <http://educ.jmu.edu/~gallagsr/WDFPD-Corporate.pdf> [Accessed 14
May 2013].
Concept of Corporate Strategy, [Pdf] Available at: <http://alumni.pondiuni.edu.in/dde/downloads/mbaii_sm.pdf>
[Accessed 14 May 2013].
Dransfield, R., 2001. Corporate Strategy, Heinemann.
Colley, J., 2002. Corporate Strategy, Tata McGraw-Hill Education.
2008. What is Good Corporate Strategy? [Video online] Available at: <http://www.youtube.com/
watch?v=43kZDnyDXOc> [Accessed 15 May 2013].
2008. Corporate Strategy [Video online] Available at: <http://www.youtube.com/watch?v=gkxMy-HiZU8>
[Accessed 15 May 2013].
Recommended Reading
Thompson, J. L., 2001. Understanding corporate strategy,Cengage Learning EMEA.
Leontiades, J., 1987. Multinational corporate strategy, Lexington Books.
Sutton, C. J., 1980. Economics and Corporate Strategy, CUP Archive.
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Self Assessment
1. Which of the following statements is false?
a. Corporate strategy is related mostly to external environment.
b. Corporate strategy is formulated at the higher level of management.
c. Corporate management is a broad phenomenon and covers a wide spectrum of activities.
d. Corporate planning is a broad phenomenon and covers a wide spectrum of activities.
2. Which is a comprehensive planning process which involves continued formulation of objectives and the guidance
of affairs towards their attainment?
a. Corporate planning
b. Corporate policy
c. Corporate strategy
d. Strategy planning
3. The _________ must be totally committed and involved in the corporate planning process.
a. managers
b. middle level managers
c. chief executive
d. first line managers
4. _________ signifies that a series of decisions are taken in the same direction to accomplish the objectives.
a. Synergy
b. Vector
c. Policy
d. Strategy
5. What means measurement of the firms capability to take advantage of a new product market move?
a. Synergy
b. Policy
c. Vector
d. Objective
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8. _________ is concerned with the various functional areas like production, human resources, marketing and
finance.
a. Corporate objective
b. Corporate policy
c. Corporate strategy
d. Strategic planning
9. Which policies are framed by the top management and spell out the basic approach of a company to its activities
and its environment?
a. General policies
b. Basic policies
c. Specific policies
d. Expressed policies
10. The policies which are understood by the employees, code of conduct or behaviour and are not expressed orally
or through written statements are known as _________.
a. expressed policies
b. general policies
c. implied policies
d. basic policies
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Chapter V
Top Management
Aim
The aim of this chapter is to:
Objectives
The objectives of this chapter are to:
Learning outcome
At the end of this chapter, you will be able to:
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5.1 Introduction
Highest ranking executives with titles such as chairman, chief executive officer, managing director, president,
executive directors, executive vice-presidents, etc, are responsible for the growth of the entire enterprise. Top
management translates the policy formulated by the board of directors into goals, objectives and strategies and
projects a shared vision of the future. It makes decisions that affect everyone in the organisation, and is held entirely
responsible for the success or failure of the enterprise.
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5.2.3 First Level Managers
Following are the functions of first level managers:
First level managers are also called first-line managers or supervisors.
These managers have job titles such as: Office Manager, Shift Supervisor, Department Manager, Foreperson,
Crew Leader, Store Manager.
First line managers are responsible for the daily management of line workers, the employees who actually
produce the product or offer the service.
There are first-line managers in every work unit the organisation.
Although first-level managers typically do not set goals for the organisation, they have a very strong influence
on the company.
These are the managers that most employees interact with on a daily basis, and if the managers perform poorly,
employees may also perform poorly, may lack motivation, or may leave the company.
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Subcommittee meetings may also be closed to the public for privacy reasons, particularly when open committee
meetings cannot be held in closed sessions for legal reasons and committee members want a chance to meet
officially without public oversight.
Serving on a subcommittee can require some diplomatic skills. Members of a subcommittee must keep the spirit
of the larger group in mind, and since they may end up speaking on behalf of other members of the committee,
they have to be careful to ensure that their statements and positions are worded appropriately.
In the case of an executive standing subcommittee, members must also consider issues like budgeting, which
can become critical when making executive decisions.
5.5.1 Planning
Objectives are the goals that management wants to achieve and planning is the process to accomplish these
objectives.
It is a road map of improvement.
Planning should be realistic based and framework within which a new strategy will be implemented.
But it is evident that mostly top management considers planning as the starting point only not as the integral
part of managing necessary tasks.
Top management assigns the planning process to planning department yet it plays a vital role in recognising the
hidden opportunities and clear understanding of goals, market and completion.
5.5.2 Organising
Organising is the act of arranging certain elements following some rules.
The entire role of organising is to achieve the overall completion of organisations objectives.
It is obligatory to organise all kind of resources including men, material, money and machine to make the optimum
use in achieving certain specialisation. This specialisation can be achieved through employing different tasks
to specify people who are specialists in that area.
Top managements ability to organise all resources well helps in expanding business.
5.5.3 Controlling
Controlling is one of the foremost managerial functions like planning and organising but it is continuous, and
can be entrenched at any of hierarchy.
It is very important for the top management to check the errors, and then take the corrective action so that deviation
from standards should be visualised clearly and declared purposes will be attained in a preferred mode.
5.6.1 Responsibilities
Following are the responsibilites of CEO:
The responsibility of the chief executive officer is to align the company, internally and externally, with strategic
vision.
The core duty of a CEO is to facilitate business outside the company while guiding employees and other executive
officers towards a central objective.
The size and sector of the company will dictate the secondary responsibilities.
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A CEO must have a balance of internal and external initiative to build a sustainable company.
For corporations, the chief executive officer primarily coordinates external initiatives at a high level. As there
are many other c-level executives (e.g. marketing, information, technical, financial, etc) seldom do corporate
CEOs have low-level functions.
For emerging entrepreneurs, their acting position as a CEO is much different than that on the corporate level.
As often other c-level executives are not incorporated in small operations, it is the duty of the CEO to assume
those positions.
Chairman
Board of
Chief Financial
Directors
Officer
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Summary
Highest ranking executives with titles such as chairman, chief executive officer, managing director, president,
executive directors, executive vice-presidents, etc, are responsible for the growth of the entire enterprise.
Managers are organisational members who are responsible for the work performance of other organisational
members.
In organisations, there are typically three levels of management, namely, top level, middle level, and first
level.
Top level managers or top managers are also senior management or executives.
Middle level managers are those in the levels below top level managers. Middle managers job titles include
General Manager, Plant Manager, Regional Manager and Divisional Manager.
First level managers are also called first-line managers or supervisors.
First line managers are responsible for the daily management of line workers, the employees who actually
produce the product or offer the service.
A board of directors is a body of elected or appointed members who jointly oversee the activities of a company
or organisation.
A subcommittee is a subordinate committee consists of members who belong to a larger committee. Subcommittees
are a critical part of committee organisation, as they allow committees to focus on several issues without needing
to involve all of the members, and they create more flexibility within the committee structure.
Planning should be realistic based and framework within which a new strategy will be implemented.
Organising is the act of arranging certain elements following some rules.
Controlling is one of the foremost managerial functions like planning and organising but it is continuous, and
can be entrenched at any of hierarchy.
The executive officer is the highest ranking corporate officer or administrator in charge of total management
of an organisation.
References
Levels of Management, [Pdf] Available at: <http://www.managementstudyguide.com/management_levels.htm>
[Accessed 14 May 2013].
Top Level Management, [Online] Available at: <www.boundless.com/management/introduction-to-management/
management-levels-and-types/top-level-management/> [Accessed 16 May 2013].
Koontz, H. & Weihrich, H., 2007. Essentials Of Management, 7th ed., Tata McGraw-Hill Education.
Dubrin, A. J., 2008. Essentials of management, 8th ed., Cengage Learning.
2009. Organizational Management, [Video online] Available at: <http://www.youtube.com/watch?v=pB7-
c2bKixg> [Accessed 17 May 2013].
2011. Business Environment and Corporate Environment, [Video online] Available at: <http://www.youtube.
com/watch?v=duKOsvvSxf8> [Accessed 17 May 2013].
Recommended Reading
Shaikh, S., 2010. Business Envrionment, 2nd ed., Pearson Education India.
Prasad, V., 2010. Business Environment, Gyan Publishing House.
Reddy, J., 2010. Business Environment, APH Publishing.
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Self Assessment
1. Which of the following statements is false?
a. Managers are organisational members who are responsible for the work performance of other organisational
members.
b. Board of directors has formal authority to use organisational resources and to make decisions.
c. In most organisations, the number of managers at each level is such that the hierarchy resembles a
pyramid.
d. Managers have formal authority to use organisational resources and to make decisions.
4. Who is responsible for carrying out the goals set by top management?
a. Executives
b. First line managers
c. Officers
d. Middle level managers
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7. A __________ is a body of elected or appointed members who jointly oversee the activities of a company or
organisation.
a. sub committee
b. working committee
c. standing committee
d. board of directors
8. In a non-stock corporation with no general voting membership, e.g. a university, who is the supreme governing
body of the institution?
a. The committee
b. The sub committee
c. The board
d. The standing committee
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Chapter VI
Strategic Planning
Aim
The aim of this chapter is to:
Objectives
The objectives of this chapter are to:
Learning outcome
At the end of this chapter, you will be able to:
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6.1 Introduction
Strategic planning consists of a set of decisions which leads to the development of an effective strategy. This
includes matching of external threats and opportunities with strategic advantage factors. Strategic planning also
develops possible alternative strategies and evaluates pros and cons of various alternatives so as to choose the most
appropriate alternative. Strategic planning can be defined as the continuous process of making present entrepreneurial
decisions systematically and with the greatest knowledge of their futurity; organising systematically the efforts
needed to carry out these decisions; and measuring the results of these decisions against the expectations through
organised systemic feedback.Strategic planning is a well organised effort aiming at fulfilling business objectives
in a systematic manner.
6.2.1 Methodologies
There are many approaches to strategic planning but typically a three step process may be used:
Situation Evaluate the current situation and how it came about.
Target Define goals and/or objectives (sometimes called ideal state).
Path Map a possible route to the goals/objectives.
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Four managerial activities are involved in strategic planning process. These are:
Environmental adaptation
Resource allocation
Internal co-ordination
Organisational awareness
These four activities together help formulating a workable strategy. However, the following broad outline is
given in strategy formulation which takes into account these four managerial activities. The outline includes
the following steps in strategic planning.
Organisational mission and purpose
Setting organisational goals and objectives
Swot analysis
Formulation of strategic alternatives
Selecting the best strategy
Preparing an operational plan
Resource allocation
Co-ordinating internal factors
Integrating strategy and operation plan
Implementing the strategic plan
Evaluation
Redesign the strategy if necessary
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The primary goal of any business is to increase stakeholders value. The most important stakeholders are shareholders
who own the business, employees who work for the business and clients or customers who purchase products and/or
services from the business. Many people may mistake vision statement for mission statement. The vision describes
a future and the mission describes why it will be achieved. A mission statement defines the purpose or broader
goal for being in existence or in the business. It serves as an ongoing guide without time frame. The mission can
remain the same for decades if crafted well. Vision is more specific in terms of objective and future and future state.
Vision is related to some form of achievement if successful. Features of an effective vision statement may include
following points:
Clarity and lack of ambiguity
Paint a vivid and clear picture, not ambiguous
Describing a bright future
Memorable and engaging expression
Realistic aspirations, achievable
Alignment with organisational values and culture
Time bound if it talks of achieving any goal or objective
In order to become really effective, an organisational vision statement must acclimatise into the organisations
culture. Leaders have the responsibility of communicating the vision regularly, creating narratives that illustrate the
vision, acting the vision, and encouraging the vision, creating short-term objectives compatible with the vision, and
encouraging others to craft their own personal vision compatible with the organisations overall vision.
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6.3.6 Developing a Vision Statement
The vision statement includes vibrant description of the organisation as it effectively carries out its operations.
Developing the vision can be the most enjoyable part of planning, but the part where time easily slips away. Note
that, originally, the vision was a compelling description of the state and function of the organisation once it had
implemented the strategic plan, i.e. a very attractive image toward which the organisation was attracted and guided
by the strategic plan. Recently the vision has become more of a motivational tool, too often including highly idealistic
phrasing and activities which the organisation cannot realistically aspire
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when expansion and diversification take place, or when a collaboration is made, the goals and objectives
change
In the initial stages objectives may be informal and they will be formalised and priorities are given when the
organisation grows.
These objectives help the organisation to take further step in strategy formulation by conducting SWOT
analysis.
However, SWOT analysis gives a clear picture to formulate sound strategy, and it calls for matching capabilities and
opportunities. SWOT analysis helps the strategic planner to ascertain what the organisation is capable of doing in the
light of its strengths, and what is ought to be done in the context of the external environment in which it operates.
SWOT analysis is a strategic planning tool used to evaluate the strengths, weaknesses, opportunities and threats
involved in a project or in a business venture. It involves specifying the objective of the business venture or project
and indentifying the internal and external factors that are favourable and unfavourable to achieving that objective.
If SWOT analysis does not start with defining a desired end state or objective, it runs the risk of being useless.
A SWOT analysis may be incorporated into the strategic planning model. If a clear objective has been identified,
SWOT analysis can be used to help in the pursuit of that objective. In this case, SWOTs are:
Strengths Attributes of the organisation that are helpful to achieve the objective.
Weaknesses Attributes of the organisation that are harmful to achieve the objective.
Opportunities External conditions that are helpful to achieve the objective.
Threats External conditions that are harmful to achieve the objective.
Identification of SWOTs is essential because subsequent steps in the process of planning for achievement of the
selected objective are to be derived from the SWOTs.
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6.4.2 Avoiding Errors
Following are points to be considered for avoiding errors:
Conducting a SWOT analysis before defining and agreeing upon an objective. SWOTs should not exist in the
abstract. They can exist only with reference to an objective. If the desired end state is not openly defined and
agreed upon, the participation may have different end states in mind and the results will be ineffective.
Opportunities external to the company are often confused with strengths internal to the company. They should
be kept separate.
SWOTs are sometimes confused with possible strategies. SWOTs are descriptions of conditions, while possible
strategies define actions. This error is made especially with reference to opportunity analysis. To avoid this error,
it may be useful to think of opportunities as auspicious conditions.
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Corporate Planning
Following are the steps in corporate planning:
Set objectives Defining what the organisation is intending to do.
Internal appraisals of the organisations SWOT - This needs to include an assessment of the present situation as
well as a portfolio of products/services and an analysis of the product/service life cycle.
Analysis of existing strategies This should determine relevance from the results of an internal/external appraisal.
This may include gap analysis which will look at environmental factors.
Strategic issues defined Key factors in the development of a corporate plan which needs to be addressed by
the organisation.
Develop new/revised strategies Revised analysis of strategic issues may mean the objectives need to
change.
Establish critical success factors The achievement of objectives and strategy implementation.
Preparation of operational, resource, projects plan for strategy implementation.
Monitoring results Mapping against plans, taking corrective action which may mean amending objectives/
strategies.
Environmental scanning
Human Resources
In SWOT, strengths and weaknesses are internal factors.
Strength could be:
A new, innovative product or services
Quality processes and procedures
Patents
Strong brand names
Good reputation among customers
Cost advantages from proprietary know-how
Exclusive access to high grade natural resources
Favourable access to distribution networks
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Weakness could be:
Lack of marketing expertise
Undifferentiated products or services
Poor quality goods or services
Damaged reputation
Lack of patent protection
A weak brand name
Poor reputation among customers
High cost structure
Lack of access to the best natural resources
Lack of access to key distribution channels
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Strengths Weaknesses
Opportunities S-O strategies W-O strategies
Threats S-T strategies W-T strategies
S-O strategies pursue opportunities that are a good fit to the companys strengths.
W-O strategies overcome weaknesses to pursue opportunities.
S-T strategies identify ways that the company can use its strengths to reduce its vulnerability to external
threats.
W-T strategies establish a defensive plan to prevent the companys weaknesses from making it highly
susceptible to external threats.
SWOT analysis is an important tool for auditing the overall strategic position of a business and its environment.
Functional strategies
These strategies are related to functional areas like marketing, finance, production, human resource management,
accounting, etc.
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Major and minor strategies
Strategies relating to major objectives like product-strategy, change of business definition, change of mission
and purpose and market strategies.
Low growth or forced growth strategies are minor strategies.
In the period of depression existing activities are monitored, fine-tuned for minor defeats and the operations
move on a low key to save investment, but still they will be effective and managed for maximum cash flows.
Defensive strategies are designed to meet contingency and it is called minor strategy.
Much of the business which leads to dangerous situations will be withdrawn and limited operations are done
and kept under absolute control.
They focus on limited special opportunity.
Turn-around strategies
Turn-around means changing the whole scenario for the good of the organisation.
In this situation every activity will be restructured for achieving positive results. This will put the company on
a proper track.
The organisations which have turned to loses will be brought back to its successful path, by adopting certain
strategies. This is called turn-around strategy.
There are different types of strategies in this category.
Strategies adopted for sick units to turn them into viable units.
Fire fighting strategy is adopted to infuse new spirit or vigour into the corporate culture or morale or to
improve the image of the company.
Restoration strategy is one that is adopted to restore the original position. In times of contingency, the
organisations drift from original activities and resort to operations which are approved by the market. After
sometime, they feel that they have to get back to the original activity and they adopt strategy to restore the
position. This is called restoration strategies.
Consolidation strategy which is adopted to consolidate a strategy after conducting periodical performance
appraisal of that particular strategy.
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Any strategic choice which considers these factors will be able to project itself to effective operations and identify
priority areas for operation. Choosing a strategy is a very tough job. It is not a subtle activity.
Organisational plan focuses on current operations. This is a part of long term strategy of the corporate enterprise.
However, strategic planning and operational planning should go hand in hand. There should be harmonious
relationship between the two. Operational plans are the plans formulated by managers at all levels. In well-managed
organisations there will be direct relationship between strategic planning and operational plan. The distinguishing
features of strategic plan and operational plan are as follows:
The strategic plan will have a focus on growth, development and competitive situation of the organisation,
whereas the operational plan will have its focus on operating problems and survival.
Time strategic plan is a long-range plan. But operational plan is a short-range plan.
Strategic plan concentrates on constant growth, future profit and comparative strategy. Whereas operational
plan works for operation success, current profit and short term success.
The strategic plan is adaptive, whereas the operational plan is a contingency plan, real time plan and a shorter
one.
As far as strategy is concerned strategy plan is a stable and a major one. Operational plan adopts contingency
strategy and a minor one.
Strategic planning works for getting reward in the form of potentiality development and constant good corporate
citizenship. Operational plan seeks reward in the form of efficiency, profitability and good corporate image.
Management level: strategy planning is prepared by top executives whereas operational planning is prepared
by operational managers like middle level and lower-level managers.
Decisions are analysed in strategic management. But in operational plan it is immediate and intuitive.
As far as scope is concerned strategic planning concentrates on future opportunities and operational plan works
on current business.
Strategic planning is dynamic and flexible, whereas operational plan is static and functional.
Operational plan is prepared and implemented within the framework of strategic plan. At the operational level two
types of plans are adopted namely, Single-use plan and standard plan. Single-use plans are operated once and not
repeated. It is a specific plan used only once. Standard plans are used for repeat operation and guided by procedures
and rules.
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6.5.4 Resource Allocation
Resources refer to both monetary and non-monetary resources. When strategies are designed, money, technology
and other infrastructure are required for development and implementation. Scarce resources have to be allocated
according to the priorities and needs. While making resource allocation the type of strategy will be considered.
Major and fast-growth strategies need more resources. A major growth oriented strategy requires more funds for
implementation. It also demands more of non-monetary resources. The management cannot overlook the resource
demand of this strategy because it is a strategy which brings more profit and contributes for the growth of market
share.
In case of minor strategies, the resources requirement will be less. Therefore, strategy classification is made. There
are strategic business units which have a high share of low-growth market. These organisations bring in more cash
but need little resources for operation.
The operations are of routine type and do not require growth. But still they are essential products and bring resources
to the organisation. There are also business units with low share of high growth market. In such cases, the management
has to spend money to adopt strategic plan. The business units with share of a low growth market need no allocation
of resources as they will be contemplating to close down the activities. Therefore, resources allocation is a difficult
task in strategy formulation. The type of strategy decides the size of resources required for developing a strategy.
Operational plan should have compatibility with overall strategy of the firm. Therefore, strategies are to be closely
linked to operational plans for their success. Operational plans have current and temporary objectives and to be
performed according to the tasks. Strategic plan is a long-range plan formulated mostly to achieve the objectives
of the organisation. Therefore, these two plans are to be integrated for the success of the organisation. Harmonious
integration of both generates a genuine emotional consensus among the managers as to what they want to do and
how they want to go about achieving success. In the process of integration, continued examination of goals should
take place.
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Continuous discussions relating to strategy and operations at all levels should be done until they are mutually
understood and accepted by the key members of the management and then transmitted to the entire organisation
continuously so that organisations objectives and strategies are imbibed in operational plans. This is the real
integration. When once the integration takes place, execution of the strategy and operational plan becomes easy.
After integrating these two, the controls are to be adopted and implemented.
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Summary
Strategic planning consists of a set of decisions which leads to the development of an effective strategy.
Strategic planning can be defined as the continuous process of making present entrepreneurial decisions
systematically and with the greatest knowledge of their futurity; organising systematically the efforts needed
to carry out these decisions; and measuring the results of these decisions against the expectations through
organised systemic feedback.
Strategic planning is a systematic and disciplined exercise to formulate strategy.
Strategic planning is an organisations process of defining its strategy or direction, and making decisions on
allocating its resources to pursue this strategy, including its capital and people.
Formulation of a strategy needs complete analysis of the situation.
Strategic plan is a long range plan of action in which plan and strategy are integrated.
Mission statement tells the current position of the organisation. It informs you about the desired level of
performance needed for the organisation.
Vision statement outlines what a company wants to be. It concentrates on the future. It is a source of inspiration.
It provides clear decision-making criteria and process.
Values main values protected by the organisation during the progression, reflecting the organisations culture
and priorities.
Corporate vision is a short, concise and inspiring statement of what the organisation intends to become and
to achieve at some point in the future and is often stated in competitive terms.
Vision is the image that a business must have about its goals before it sets out to reach them.
A mission statement is an organisations vision translated into written form. It makes the leaders view of the
direction and purpose of the organisation concrete.
A mission statement defines the purpose or broader goal for being in existence or in the business. It serves as
an ongoing guide without time frame.
Vision is more specific in terms of objective and future and future state. Vision is related to some form of
achievement if successful.
When wording the mission statement, consider the organisations products, services, markets, values and
concern for public images, and maybe priorities of activities for survival.
When refining the mission, a useful exercise is to add or delete a word from the mission to realise the change
in scope of the mission statement and assess how concise is its wording.
Strategic planning takes place at the highest levels; other managers are involved with operational planning.
SWOT analysis is a very vital activity in strategy planning.
SWOT analysis is a strategic planning tool used to evaluate the strengths, weaknesses, opportunities and
threats involved in a project or in a business venture.
Conducting a SWOT analysis before defining and agreeing upon an objective. SWOTs should not exist in the
abstract. They can exist only with reference to an objective. If the desired end state is not openly defined and
agreed upon, the participation may have different end states in mind and the results will be ineffective.
The strategies should also know the business conducted by the organisation, what type of business should it
be over coming years, whether the same business should be continued or diversified, what technology should
be adopted, know the type of market the organisation has, the consumers of the organisation, etc.
Strategies formulated in accordance with the policy will have a common language which communicates the
policies to the lower level of management; convince the managers about the relevance of mission, vision and
purpose of the enterprise to implement the strategy and to obtain strategic commitment from all concerned.
Strategies formulated in accordance with policies should be consistent with overall strategies implemented
for various purposes, like meeting competition in the market, create a favourable image for the enterprise in
the market, to tackle extreme competition situation, etc.
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The business units with share of a low growth market need no allocation of resources as they will be contemplating
to close down the activities.
Every employee and every operation should be properly linked and co-ordinated. This facilitates smooth
implementation of strategy.
Continuous discussions relating to strategy and operations at all levels should be done until they are mutually
understood and accepted by the key members of the management and then transmitted to the entire organisation
continuously so that organisations objectives and strategies are imbibed in operational plans. This is the real
integration.
References
S.W.O.T. Analysis, [Pdf] Available at: <http://www.ciri.org.nz/downloads/SWOT%20Analysis.pdf> [Accessed
17 May 2013].
Mamoria, 2001. Business Planning and Policy. Himalaya Publishing House.
Steiner, G. A., 2010. Strategic Planning. Kindle edition. Free Press.
2012. What is Strategic Planning, Really?, [Video online] Available at: <http://www.youtube.com/
watch?v=mLJ34L5UW4E> [Accessed 17 May 2013].
2012. Overview of the Strategic Planning Process, [Video online] Available at: <http://www.youtube.com/
watch?v=sU3FLxnDv_A> [Accessed 17 May 2013].
SWOT analysis -an introduction, [Pdf] Available at: <http://gametlibrary.worldbank.org/FILES/907_How%20
to%20do%20SWOT%20analysis.pdf> [Accessed 17 May 2013].
Recommended Reading
Smith, R. D., 2004. Strategic Planning. 2nd ed.,. Routledge.
Abell, D. F., 1980. Defining the Business: The Starting Point of Strategic Planning. Prentice Hall.
Thompson, J. L., 1997. Strategic Management: Awareness and Change. 2nd ed., International Thompson
Business Press, London.
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Self Assessment
1. Which of the following statements is false?
a. Strategic planning is a forward-looking exercise which determines the future posture of the enterprise.
b. Strategic plans helps in enhancing and sustaining the organisational competitive advantage based on external
and internal variables.
c. Strategic planning is a well organised effort aiming at fulfilling business objectives in a systematic
manner.
d. Strategic management is a well organised effort aiming at fulfilling business objectives in a systematic
manner.
2. __________ is a long range plan of action in which plan and strategy are integrated.
a. Strategic management
b. Strategic plan
c. Business strategy
d. Business policy
3. _________ tells the current position of the organisation. It informs you about the desired level of performance
needed for the organisation.
a. Mission statement
b. Value statement
c. Vision statement
d. Business statements
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8. _________ is a strategic planning tool used to evaluate the strengths, weaknesses, opportunities and threats
involved in a project or in a business venture.
a. Strategic planning
b. SWOT analysis
c. Mission statement
d. Strategic management
9. _________ of the corporate enterprises provide the direction in which the strategies are to be formulated.
a. Policies
b. Strategies
c. Planning
d. Corporate planning
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Chapter VII
Implementation of Strategy
Aim
The aim of this chapter is to:
Objectives
The objectives of this chapter are:
Learning outcome
At the end of this chapter, you will be able to:
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7.3 Aspects of Strategy Implementation
Strategy implementation includes the following:
Strategies
Policies
Procedures
Programs
Rules
Methods
Budgets
Authority delegation
For the smooth running of each strategic operational plan, the concerned managers and the key workforce like
managers, have to be delegated with certain authority and power. This is required for smooth execution of the
plans.
It will be still good, if they are properly defined in the operational plan itself.
This will facilitate the workforce to work uninterruptedly within the framework of company objectives.
Formulating methods
The co-ordination between various operations within the same task is very essential for smooth discharging of
the task.
Every operation should be cohesive and work flow from one operation to another should be smooth.
There should not be back tracking.
The task should be completed within the time period.
The co-ordination takes place through the scientific operational methods to be formulated.
Each operation should have uninterrupted system, methods and procedure.
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There is a necessity of decision support system. The quality of decision depends on understanding the
circumstances surrounding an issue and knowing the available alternatives and states of nature.
Management Information System (MIS) reduces risk and uncertainty in decision-making.
Arrangements has to be made to provide relevant and just required information which converts raw data into
information that strategist can actually use. This is what Decision Support System (DSS) does.
DSS shapes the information to management needs which is provided by MIS.
MIS should be a two way system. This means that while top management provides information to the strategist,
another system should provide feedback to the top management regarding operations.
Thus, feedback should be the part of MIS which helps in completing the circuit of operation i.e. assigning the task
by the top management, performance of the task and feedback to the top about results of the task performed.
Implementation
After undergoing all the steps discussed earlier, the plan will be systematically implemented.
Every operation will be monitored.
Results are analysed and compared with the strategies formulated for the success of the operation.
It is not sure that strategies and plans do match with the actual results
There will be little difference between the actual and planned programmes. This has to be closely observed and
the deviations have to be informed to the top management through a sound feedback system.
There should be an inbuilt evaluation system, incorporated in the strategy implementation.
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7.5 Issues in StrategyImplementation
Successful implementation of a strategy depends on how efficient the organisation is in allocating resources, designing
suitable structure, formulating functional strategies, etc. It should be noted that the objectives give rise to issues; issues
lead to plans and plans result in different projects and programmes. It may include modernisation of existing facilities
or installation or new or additional plants, etc. Important issues relating to strategy implementation are as follows:
Project implementation
Procedure implementation
Resource allocation
Conceptual stage
Environmental scanning reveals various potential opportunities to the organisation. These opportunities are to
be categorised into various projects.
The organisation may not be in a good position to take up all these activities simultaneously. Therefore, assigning
priorities to these projects is vital in project implementation.
Priority helps organisation to choose an appropriate alternative for further development.
Analysing stage
After a project is identified, detailed analysis has to be made regarding possibility and feasibility.
Examination of technical, financial, marketing, ecological, economical and legal aspects are to be made.
Project feasibility report has to be prepared to decide whether the project can be taken up or not for further
action.
Planning stage
Once it is decided that the project idea is feasible and workable, the organisation should begin planning and
organising the project.
Plan should mention in detail about the infrastructure, finance, manpower, etc. needed for the accomplishment
of the proposed project.
Implementation stage
Activities needed to accomplish the project are put to action at this stage.
Test trials are undertaken to ensure that the project is ready for the final take-off.
Launching stage
Implementation stage ensures that the project is ready for the operation.
At the launching stage, project is handed over for the actual execution to those involved in its operation.
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Licensing procedures
Licensing procedure indicates the permission to be obtained from the government. Industries Development and
Regulation Act, 1951 (IDRA) provides licensing system for the industries.
According to the Act, industries are divided into three categories.
Industries which are under the direct control of the government are included under the first category.
Second category includes those industries promoted by government and supported by private sector.
All industries under private sector are covered under third category. Secretary of Industrial Approval scrutinises
the application for license and issue a license only if the stipulated conditions are complied with.
SEBI requirements
SEBI Act was passed in the year 1992 to replace Capital Issues Control Act, 1956 (CICA).
SEBI has three objectives, which are as follows:
protection of the interests of investors in securities
to develop security market
to regulate securities market
SEBI issues guidelines from time to time to supervise matters under its control.
These guidelines influence those companies to collect their required funds from the capital market.
FEMA requirements
Foreign Exchange Management Act (FEMA) was introduced in the year 2000 to replace FERA.
Several rules are formulated to facilitate foreign exchange by increasing Indian exports.
The objective of exchange control is to regulate the demand for foreign exchange within the limits set by the
available supply.
MRTP requirements
Monopolies and Restrictive Trade Practices (MRTP) Act, 1969 aims at preventing monopolistic, unfair, restrictive
trade practices and concentration of economic power in the hands of big industrialists.
The Act aims at curbing price discrimination, selling goods below cost to beat completion, restricting a dealer
to sell products in selected areas, restricting a dealer to sell companys product only, etc.
While formulating strategies, company must be careful enough to see whether the decisions taken lead unfair
or restrictive trade practices.
Business Incentives
The central and state governments offer incentives for the promotion of industries in the country.
Strategies cannot ignore such incentives while formulating strategies.
Some of the incentives offered by the government are infrastructural incentives, promotional incentives, small-
scale industries, incentives, backward area incentives, etc.
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Import and export requirements
Common tendency of modern business unit is to go global. This necessitates modernisation, diversification or
expansion strategies.
If an organisation is engaged in international trade, import and export activities become a regular
phenomenon.
Import may involve import of capital goods, raw materials, etc.
There may be restrictions on such imports.
In the same manner, government may restrict export of certain scarce products from the country. Therefore, it
is essential that the strategy makers understand the prevailing export and import requirement while formulating
relevant strategies.
Labour legislation
Labour constitutes a vital resource for a company.
Government formulates policies to safeguard the interests of the labour. These legislative rules certainly influence
strategy formulation.
There are several laws related to labour working in different industries. Therefore, strategists must be aware of
the labour legalisation applicable to his/her industry and company.
Patenting requirements
Organisation will always be on the look out of continuous development and innovations. They wish to patent
their products and ideas.
There are formulations to be followed while patenting their products or ideas. Strategies must know the procedure
and practice involved in getting patent right to the organisation.
It has been a proven fact that the organisation with a string patent right can gain competitive advantage more
quickly than its competitors.
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Under top-down approach, discretion regarding resource allocation lies with the top management. They start
allocating available resources from top level to the lowest level of operation. In such allocation, some operation
departments may or may not receive expected amount of resources. If any of the operational areas suffer, the
whole strategic process gets affected.
Under bottom-up approach, allocation of resource starts from the operating departments. It is due to the fact
that the success of the organisation is based on the performance of these operational areas. Flow of allocation
of resource allocation more viable and flexible.
Under the mixed approach, allocation is made with mutual consent between different levels of management.
This approach makes resource allocation more viable and flexible.
For the success of structure of an organisation, following principles are to be borne in mind:
Principle of activity Structure must be formulated to suit the basic objective of the organisation. The structure
should not contradict the basic objective.
Principle of span of control Span of control refers to the number of persons an individual can effectively
control. Span of control is based on several factors like ability, the nature of job, etc. these factors must be
carefully considered before deciding the structure.
Principle of exception Only exceptional matters should be referred to the executives and the routine matters
should be decided by the subordinates themselves.
Principle of specialisation Fundamental division of activities should take place and tasks must be assigned to
an individual based on his/her specialisation.
The scalar principle In order to make management effective, there must be clear line of authority from top
to bottom.
The principle of unity of command According to this, each subordinate should have only one supervisor
and dual subordination should be avoided.
Principle of delegation Organisation structure should provide for delegation of authority at every level.
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Principle of responsibility According to this principle superiors are not allowed to avoid responsibility
by delegating responsibilities to their subordinates. Superiors are held responsible for the acts of their
subordinates.
Principle of flexibility The organisation structure must be flexible so that it can be adaptable to the changing
circumstances. If the structure is rigid, modification is not possible and expansion becomes difficult.
Principle of simplicity Organisation structure must be simple both in its expressions and constitution. It
should have minimum number of levels. People must be in a position to understand the system clearly.
Principle of continuity An organisation has got perpetual existence. So long the organisation exists,
organisation structure exists. Structure must be dynamic and should be adoptive to the changing
circumstances.
Principle of unity of direction The group acting towards the same objective must have one plan and
direction. If different plans are given to different people in the group, co-ordination cannot be achieved.
Principle of efficiency Structure must facilitate effective functioning of the organisation with minimum
cost and effort.
Principle of balance Human, technical and financial factors must be properly balanced towards the
accomplishment of the objectives.
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High Low
The basic purpose of using matrix is that the higher the market share a product has, the higher the growth rate and
the faster the market for that product grows. The BCG growth share displays the various business units on a graph
of the market growth rate vs. market share relative to competitors.
The idea is to provide the products, services and talents necessary to satisfy customer needs and create customer
value. One of the tools used in analysing market scenario and strategic decisions concerning product mix is the
portfolio analysis. Portfolio techniques help marketing managers evaluate alternative strategies and allocate resources
across a number of business and markets. There are two major portfolio analysis that are used in marketing planning.
They are as follows:
The Boston Consulting Group Approach (BCG)
The General Electric Approach (BG)
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Dogs are low market share, low growth business that drain capital and produce little or zero profit. The organisation
should consider liquidating or divesting such business.
Cash cows are dominant business in low growth industries that require little investment to maintain their market
share and consequently produce substantial profits. Because they are no longer growing, these businesses should
be milked for funds to invest in stars and question marks.
Question marks are business in industries that are doing well, but where the specific business unit is not doing
as good as the industry. They are called question marks because they are an unknown for management.
In general the theory suggests that, given the proper investment in product development, plant capacity, and
marketing, the business can gain market share and become stars, but without proper investment the business
eventually go into decline and become dogs.
The level of proper investment for each business, however, is industry and business specific, and the growth
share model is not helpful at that level of decision making.
Cash Cow
A business unit that has a large market share in a mature, slow growing industry. Cash cows require little investment
and generate cash that can be used to invest in other business units. Keep investments low, while keeping profits
high. Profits and cash generation should be higher because of low growth. (high market share, low growth)
Star
A business unit that has a large market share in a fast growing industry. Stars may generate cash, but because the
market is growing rapidly they require investment to maintain their lead. If successful, a star will become a cash
cow when its industry matures. Invest further in these- they incur high costs, but they are market leaders and should
also generate lots of cash. (high market share, high growth)
Dog
A business unit that has a small market share in a mature industry. A dog may not require substantial cash, but it
ties up capital that could better be deployed elsewhere. Unless a dog has some other strategic purpose, it should be
liquidated if there is little prospect for it to gain share. Avoid and reduce the number of dogs. (low market share,
low growth)
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The problems of getting data on the market share and market growth.
There is no clear definition of what constitutes a market.
A high market share does not necessarily lead to profitability all the time.
The model uses only two dimensions market share and growth rate. This may temp management to emphasise
a particular product, or to divest prematurely.
A business with low market share can be profitable too.
The model neglects small competitors that have fast growing market shares.
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Social forces
Technological forces
Political forces
Your
business
Economic forces
Political factors
Political factor includes government regulations and legal issues and define both formal and informal rules under
which the firm must operate.
Economic factors
Economic factors affect the purchasing power of potential customers and the firms cost of capital.
Social factors
Social factors include the demographic and cultural aspects of the external micro-environment. These factors affect
customer needs and the size of potential markets.
Technological factors
Technological factors can lower barriers to entry. Reduce minimum efficient production levels, and influence
outsourcing decisions.
The PEST analysis is a useful tool for understanding market growth or decline, and as such the position, potential
and direction for a business.
A PEST analysis is a business measurement tool.
PEST is an acronym for political, economical, social and technological factors, which are used to assess the
market for a business or organisational unit.
PEST analysis is similar to SWOT analysis, it is simple, quick and uses four key perspectives.
As PEST factors are essentially external, completing a PEST analysis is helpful prior to completing a SWOT
analysis.
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Summary
After designing strategies to be adopted in plans and finalising them, the top management should take necessary
steps for implementing the designed strategy.
Necessary resources, both monetary and non-monetary, are to be provided to the concerned departments for
implementations.
Strategy formulation and implementation are intertwined. They are not separate activities.
Strategy formulation is concerned with the development of long-term plans for effective management of
environmental opportunities and threats, in the light of the organisational strengths and weaknesses.
Strategy implementation is the process by which strategies and policies are out to action through the development
of programs, budgets and procedures.
For the smooth running of each strategic operational plan, the concerned managers and the key workforce like
managers, have to be delegated with certain authority and power. This is required for smooth execution of the
plans.
The co-ordination between various operations within the same task is very essential for smooth discharging of
the task.
There is a necessity of decision support system. The quality of decision depends on understanding the
circumstances surrounding an issue and knowing the available alternatives and states of nature.
Management Information System (MIS) reduces risk and uncertainty in decision-making.
There will be little difference between the actual and planned programmes. This has to be closely observed and
the deviations have to be informed to the top management through a sound feedback system.
Successful implementation of a strategy depends on how efficient the organisation is in allocating resources,
designing suitable structure, formulating functional strategies, etc.
Environmental scanning reveals various potential opportunities to the organisation. These opportunities are to
be categorised into various projects.
Implementation stage ensures that the project is ready for the operation.
Licensing procedure indicates the permission to be obtained from the government. Industries Development and
Regulation Act, 1951 (IDRA) provides licensing system for the industries.
SEBI issues guidelines from time to time to supervise matters under its control.
Foreign collaboration, in a way, is a partnership between home and foreign industrialist for the establishment
of joint venture in the home country.
The objective of exchange control is to regulate the demand for foreign exchange within the limits set by the
available supply.
Government formulates policies to safeguard the interests of the labour. These legislative rules certainly influence
strategy formulation.
Customers are the central focus of any activity of an organisation.
Strategists should prioritise activities for the optimum utilisation of available resources.
Organisation structure is not a mere graphical representation of activities and people responsible for various
activities. All products and services have certain life cycles. The life cycle refers to the period from the products
first launch into the market until its withdrawal.
The BCG method is based on the product life cycle theory that can be used to determine what priorities should
be given in the product portfolio of a business unit.
Market growth rate is assumed to indicate market maturity.
Cash cows are dominant business in low growth industries that require little investment to maintain their market
share and consequently produce substantial profits.
Question marks are business in industries that are doing well, but where the specific business unit is not doing
as good as the industry.
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BCG model is helpful for managers to evaluate balance in the firms current portfolio of Stars, Cash Cow,
Question Marks and Dogs.
The GE matrix is a technique used in brand marketing and product management to help a company decides what
products to add to its product portfolio, and which market opportunities are worthy of continued investment.
The acronym PEST is used to describe a framework for the analysis of the macro-environmental factors.
Technological factors can lower barriers to entry. Reduce minimum efficient production levels, and influence
outsourcing decisions.
References
The BCG Growth-Share Matrix, [Online] Avaialble at: <http://www.netmba.com/strategy/matrix/bcg/> [Accessed
17 May 2013].
PEST Analysis [Pdf] Available at: <https://depts.washington.edu/oei/resources/toolsTemplates/PEST_analysis.
pdf> [Accessed 17 May 2013].
Jeffs, C., 2008. Strategic Management, SAGE.
Katsioloudes, M., 2006. Strategic Management, 2nd ed., Routledge.
2012. BCG MATRIX, [Video online] Available at: <http://www.youtube.com/watch?v=RVJ7Gc0yIL4> [Accessed
17 May 2013].
2013. BCG MATRIX, [Video online] Available at: <http://www.youtube.com/watch?v=TXKU7gVnBqs>
[Accessed 17 May 2013].
Recommended Reading
Ghosh, P. K., 1996. Business policy strategic planning and Management. 2nd ed., Sultan Chand & Sons.
Litman, J., 2008. Driven: Business Strategy, Human Actions, and the Creation of Wealth. 1st ed., Strategy &
Execution, LLC.
Saloner, G., Shepard, A. & Podolny, J., 2008. Strategic Management, 2nd ed., John Wiley & Sons.
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Self Assessment
1. ___________ and implementation are intertwined.
a. Strategy formulation
b. Strategic management
c. Strategic planning
d. Strategic implementation
3. What is the secondary function of the organisation, based on the strategy formulated?
a. Strategy formulation
b. Strategic management
c. Strategic planning
d. Strategy implementation
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7. Which of the following statements is true?
a. SEBI requirement indicates the permission to be obtained from the government.
b. Foreign collaboration indicates the permission to be obtained from the government.
c. Licensing procedure indicates the permission to be obtained from the government.
d. Business incentives indicate the permission to be obtained from the government.
8. _________, in a way, is a partnership between home and foreign industrialist for the establishment of joint
venture in the home country.
a. Foreign collaboration
b. Business incentives
c. Licensing procedure
d. SEBI requirement
10. In ____________, human, technical and financial factors must be properly balanced towards the accomplishment
of the objectives.
a. principle of efficiency
b. principle of unity of direction
c. principle of continuity
d. principle of balance
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Chapter VIII
Social Responsibility
Aim
The aim of this chapter is to:
Objectives
The objectives of this chapter are:
Learning outcome
At the end of this chapter, you will be able to:
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8.1 Introduction
The social responsibility of a business refers to such decisions and activities of a business firm which provide for the
welfare of the society as a whole along with the earning of profit for the firm. The business firm functions and acts
in such a way that it will accomplish social gains along with the traditional economic gains in which the business
firm is interested. The concept of social responsibility is based on the idea that a business functions in the society
and uses the physical and human resources of the society for its operations and hence it is under the obligation to
serve the society. The concept of social responsibility is also based on the idea that anything good done by a business
firm for the society is good for the business itself in the long run.
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8.4 Arguments Against Social Responsibility of Business
Social responsibility is an additional responsibility. Business enterprise has economic responsibility of maximising
profits to serve the interests of the owners, employees and creditors. Assumptions of two responsibilities simultaneously
are certainly not in the best interest of the business.
The concept of social responsibility is quite vague. What welfare activities are regarded as activities undertaken in
discharging their social responsibilities are not specifically mentioned.
Business units have already rendered great services to the society by providing goods at lower prices.
Business concern is not accountable for the poor welfare service rendered by it.
The social welfare is the responsibility of the Government and not that of business concerns.
Business concern should justify its basic objective of economic performance. It is not concerned with any other
obligations including social responsibility.
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8.10.4 Social Performance Audit
In developed countries, several interest groups including church groups, universities, mutual funds, consumer
activists regularly measure, evaluate and rank socially responsible companies on the basis of their social performance.
Regular opinion polls are carried out to find companies that initiate social efforts in a proactive manner and earn
the goodwill of the general public.
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Summary
The social responsibility of a business refers to such decisions and activities of a business firm which provide
for the welfare of the society as a whole along with the earning of profit for the firm.
The concept of social responsibility of business applies to all business organisations both in private and public
sectors which have been established for earning profits.
The responsibility of business enterprises towards their owners is payment of a fair rate of dividend regularly.
Social responsibility is an additional responsibility. Business enterprise has economic responsibility of maximising
profits to serve the interests of the owners, employees and creditors.
Business units have already rendered great services to the society by providing goods at lower prices.
Business concern should justify its basic objective of economic performance. It is not concerned with any other
obligations including social responsibility.
Organisations must utilise available opportunities in the environment for the economic development of the
society.
Every organisation obtains critical inputs from the environment and converts them into products and services
to be used by the society at large.
Business may postpone investments in social areas, while trying to maximum profits, and expect others to take
the initiative. This way, it is hoped, the organisation would be able to price its products much cheaper and get
ahead of competition.
The macro social factors include the social goals expected by society in terms of health, safety, education,
housing, accidents, pollution control measures, etc. The micro social indicators are measures of the performance
of the company in those areas measured by macro social indicators.
References
Thomas, G., Corporate Social Responsibility: A definition, [Pdf] Available at: <http://business.curtin.edu.au/
local/docs/GSB_Working_Paper_No._62_Corp_Social_Resp_A_definition_Thomas___Nowak.pdf> [Accessed
13 May 2013].
WHAT IS CORPORATE SOCIAL RESPONSIBILITY?, [Pdf] Available at: <http://www.pathfinder.org/
publications-tools/pdfs/CATALYST-What-is-Corporate-Social-Responsibility-8-Questions-and-Answers.pdf>
[Accessed 13 May 2013].
Harrison, J. S., 2009. Foundation in Strategic Management. 5th ed., South-Western College Pub.
Robinson, R. B. & Pearce, J., 2007. Strategic Management: Formulation, Implementation, and Control. 10th
ed., McGraw-Hill.
2011. Social Responsibility: What is social responsibility?, [Video online] Available at: <http://www.youtube.
com/watch?v=_F8IYViE04M> [Accessed 17 May 2013].
2008. Corporate Social Responsibility, [Video online] Available at: <http://www.youtube.com/
watch?v=iXsaYR1Izqw> [Accessed 17 May 2013].
Recommended Reading
Hitt, M. A., 2010. Strategic Management: Concepts and Cases: Competitiveness and Globalization. 9th ed.,
South-Western College Pub.
David, F. R., 2008. Strategic Management: Concepts and Cases. 12th ed., Prentice Hall.
Hoskisson, R. E., 2006. Strategic Management Concepts. 7th ed., South-Western College Pub.
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Self Assessment
1. Which of the following statements is false?
a. The business firm functions and acts in such a way that it will accomplish social gains along with the
traditional economic gains in which the business firm is interested.
b. The concept of social responsibility is based on the idea that a business functions in the society and uses
the physical and human resources of the society for its operations and hence it is under the obligation to
serve the society.
c. The concept of social responsibility is also based on the idea that anything good done by a business firm for
the society is good for the business itself in the long run.
d. The concept of social welfare is also based on the idea that anything good done by a business firm for the
society is good for the business itself in the long run.
2. The concept of ___________ of business applies to all business organisations both in private and public sectors
which have been established for earning profits.
a. business strategy
b. social responsibility
c. strategic planning
d. strategic formulation
3. The responsibility of business enterprises towards their _________ is ensuring full participation of owners in
the management of the affairs of the enterprise.
a. workers
b. society
c. owners
d. consumers
4. Developing appropriate products and services for satisfying the needs of the consumers, towards who is this
responsibility of the business enterprise?
a. Workers
b. Society
c. Owners
d. Consumers
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7. Which type of audit tries to measure the effectiveness of those activities of the organisation which are largely
taken up to meet certain social objectives?
a. Financial statements format social audit
b. Macro-micro social indicator audit
c. Social process audit
d. Social performance audit
8. _________ type of audit requires evaluation of a companys performance in terms of social measures against
macro social measures.
a. Financial statements format social audit
b. Macro-micro social indicator audit
c. Social process audit
d. Social performance audit
10. _______ is not accountable for the poor welfare service rendered by it.
a. Business concern
b. Business strategy
c. Strategic planning
d. Strategic implementation
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Case Study I
Trouble at Tiffany in Japan
The internationally renowned jewellry company, Tiffany had been facing problems in their second largest market,
Japan, since 2002. After performing commendably even during the times of deep economic recession in Japan,
Tiffanys sales in Japan was slipping since the last couple of years, while other jewellry retailers were flourishing.
The case explores the probable reasons for Tiffany not performing as per their expectation. Tiffanys core customers
had remained the affluent class, but to attract younger and less affluent customers, it also introduced and promoted
less expensive products which had tarnished its elite image. Their retailing strategy of opening majority stores in
department stores through which traffic of their target customers was decreasing, had backfired. Tiffanys principal
strategy in Japan had been to focus on their expensive bridal jewellry especially traditional engagement rings. With
changes in the Japanese traditions, preferences of Japanese consumers and with the aging of the Japanese population
their strategy has turned questionable. Managing the fluctuation in the Yen-Dollar exchange rate, also became a
matter of concern.
Questions
1. What is the ranking of Tiffany in Japanese market?
Answer
Tiffany is the second largest market in Japan.
3. Why was Tiffany not performing well in the market? Provide a suggestion to your answer.
Answer
Tiffany was targeting only at the affluent class people, their retailing strategy of opening majority stores in
department stores through which traffic of their target customers was decreasing, had backfired. Tiffany should
concentrate more on younger and less affluent class people to perform well in the market.
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Case Study II
Indias Branded Vada Pav Chain Jumbo Kings Ambitious Plans
Jumbo King, a branded Vada Pav fast food chain which started its business in the Indian city, Mumbai in 2001 with a
capital of INR200,000 decided to expand its business across the other Indian States. The companys business model
was inspired by McDonalds and Subway and hoped to stimulate customers taste buds with its INR8 ($0.16) Vada
Pavs in line with 15 cent McBurgers. Most of the companys outlets were situated near the railway stations and busy
places where a constant stream of commuters as potential customers was assured. Jumbo Kings business focused
on delivering good service, quality, cleanliness and value. But, presence of the multinational food chains, roadside
vendors and Udipi restaurant etc., proved to be a challenge for Jumbo King to attract customers. It remained to be
seen whether Jumbo King would be able to deliver McDonalds and Subways experience in the long run.
(Source: Indias Branded Vada Pav Chain Jumbo Kings Ambitious Plans, [Online]Available at: <http://www.
ibscdc.org/Case_Studies/Strategy/Vision,%20Mission%20and%20Goals/VMG0016IRC.htm> [Accessed 17 May
2013]).
Questions
1. Who were the competitors for Jumbo King?
2. Provide an emergence and growth strategy of Jumbo King.
3. What are the oppurtunities and challenges for Jumbo King?
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Case Study III
MindTree Consulting: Designing and Delivering its Mission and Vision
MindTree Consulting is an international IT consulting company with revenues of about $103 million in 2006, an
increase of over 85% from the previous years revenue of $55 million. Besides, MindTree had several laurels to its
credit. It was the worlds youngest company to be assessed at Level 5 in both CMMI and P-CMM. The company
was ranked among the top five Great Places to Work in 2004 in a study conducted by Grow Talent Company and
Business world and rated as one of the Best Employers in India in 2004 by Hewitt Associates.
When MindTree was established in 1999, the founders had set a clear Mission and Visions keeping in mind a
timeframe of 2005. The company had almost reached the vision parameters. It went on to set bigger Vision targets
for the future. However, there were questions raised whether a mid-sized IT firm like MindTree can battle the big
players like Wipro, Infosys, Satyam and TCS. At the same time, it was also important how the company would keep
its core values and culture which formed the foundation of the company from getting diluted as the company grew
bigger in size. With hurdles to cross, would MindTree achieve its vision for the future?
(Source: MindTree Consulting: Designing and Delivering its Mission and Vision, [Online]Available at: <http://
www.ibscdc.org/Case_Studies/Strategy/Vision,%20Mission%20and%20Goals/VMG0013B.htm> [Accessed 17
May 2013]).
Questions
1. Develop a mission and vision statement for MindTree?
2. Explain how a mid sized IT firm can achieve its vision in a short span of time?
3. What are the challenges faced by MindTree?
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Self Assessment Answers
Chapter I
1. a
2. d
3. c
4. b
5. d
6. a
7. c
8. b
9. d
10. b
Chapter II
1. d
2. c
3. a
4. a
5. b
6. c
7. a
8. b
9. d
10. c
Chapter III
1. d
2. a
3. c
4. c
5. b
6. c
7. d
8. a
9. c
10. b
Chapter IV
1. d
2. a
3. c
4. b
5. a
6. d
7. c
8. b
9. b
10. c
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Chapter V
1. b
2. a
3. c
4. d
5. a
6. c
7. d
8. c
9. b
10. b
Chapter VI
1. d
2. b
3. a
4. c
5. d
6. a
7. c
8. b
9. a
10. b
Chapter VII
1. a
2. b
3. d
4. a
5. c
6. b
7. c
8. a
9. b
10. d
Chapter VIII
1. d
2. b
3. c
4. a
5. a
6. b
7. c
8. b
9. a
10. a
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