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UNIT I

DEFINE BUSINESS POLICY? STATE ITS ESSENTIAL FEATURES OF BUSINESS POLICY?


Policies may be defined as the mode thought and the principles underlying the
activities of an organization or an institution. They are used to guide the management for running the
business / enterprise operations; and provide a ready-made answer to a recurring question.
According to Terry, A business policy is an implied overall guide setting up boundaries that supply the
general limits and direction in which managerial action will take place.
According to Flipps, A business policy is a man-made or pre-determined course of action that is established
to guide the performance of work toward the organizations objectives. It is a type of standing plan that
serves to guide subordinates in the execution of their tasks.

ESSENTIAL FEATURES OF BUSINESS POLICY


Policies refer to general statement of principles for the attainment of objectives. They are the means
through which the subordinates move toward their objectives.
Policies will have hierarchy: For instance, the overall corporate policies are framed by the BoD,
whereas the corporate executive policies are framed by the top management; divisional or
department policies are framed by their managers; and so on.
The Policies should restrict the area within which a decision is to be made and ensure consistency in
decision making. Sometimes, the policy may prove harmful to the management. For example,
No exchange of sold goods may lose some genuine customers in business.
Generally policies are determined to suit a specific situation to which they are applied.
Policies should pre-decide issues and avoid repetition and must provide a unified structure to other
types of plans.
Policies should cover all functional areas.
Policies avoid confusion and provide clear-cut guidelines to subordinates; and thus, they help the
business to be carried on smoothly and often without any disturbance. Policies facilitate better and
maximum utilization of resources, human, financial and physical, by adhering to actions for
conservation. E.g. No Material Wastage. Therefore, a business policy is an essential element in
management and the life-blood for the successful functioning of business.
Ultimately, a policy is a position declaration and a command to its followers. It translates the goals
on an organization into selected routes and provides the general guidelines that prescribe programs.

Policies provide the following advantages:


Policies serve as precedents and reduce the repetitive rethinking of all the factors in individual
decisions and they save time.
Policies try to achieve maximum co-ordination: Policies co-ordinate the actions of individuals.
Policies establish stability in the organization.
Policies encourage definite individual decisions: Everyone has a clear understanding of the range
within which he can make decision and give answers to subordinates without any delay.
Policies are treated as a standing or measuring yard for evaluation: The actual results can be
compared with the policies and deviations, if any, can be found out, and remedial actions can be
taken.
Sound policies help build up employee enthusiasm and loyalty for the organsation.
Policies also set the pattern of behavior and lead to better co-operation.
Policies serve as a control guide to ensure consistency and uniformity in decisions on Problems that
recur frequently and under similar but not identical, circumstances.
Policies enable to make the maximum utilization of scarce available resources.
Policies bring reputation & goodwill.
General Policies cover the overall objectives, procedures, and control which affect the
organization as a whole. They cover nearly every phase of enterprise and its products and their products,
methods of financing, its organizational structure, plant locations and its personnel, and issues demanding
special top executives consideration; such as merger of two concerns; research for finding new processes
and procedures for conducting research activities.

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Such policies are designed at the top level management and framework is formulated within
which the managers have to fit themselves to carryout the major objectives of the business.
On the other hand, specific policies cover relationship in a segment of an organization, with
considerable emphasis on details and procedures. Such policies are concerned with meeting day to day
requirements of the departments and are generally decided at the sectional and departmental levels such
policies may cover; rules of promotion (by seniority / merit); relations with dealers, agents and lines of
relationship with these; leave rules; package incentives to employees; rate of discount or cash payment;
terms of credit to be given to the dealers, rate of interest and term of credit, etc.,
A series of functions or steps performed to accomplish a specific task or undertaking.
A Procedure may also be called as a precise means of making a step by step guide to action that operates
within a policy framework.
A Company will have literally hundreds of such procedures and most of them are essential for
smooth operation.
The following are some examples of procedure:
Inviting tenders to procure materials, keeping them in a stock-room and issuing them against
requisition slips.
Recruitment / Selection of employees will have the following procedure of preliminary interview,
application blank, reference check, employment tests, final Interview, medical check-ups,
appointment and induction or orientation.

DIFFERENCE BETWEEN POLICY AND PROCEDURE.


POLICY Procedure is a method to be followed.
Policy provides guidance. Procedure are a reflection of policies ie.,
Policies provide the basis on which Policies take the first place and procedures
procedures are built. next.
Policy making is a kind of Executives Procedures are methods to implement to
responsibility. policy.
A Policy covers a broad area and is A procedure normally is concerned with the
always growth-oriented. It is a long way a policy is carried out. It is a shorter lane
range thing or a basic issue. to operate.
Policies are always concerned directly Procedures are very indirectly connected with
with the organizational goals. The goals. They tell the way to do a task and
Organizational goals determine thereby help the organization in reaching the
policies and policies depend on goals. goals.

In simple words, a procedure is a tool for implementing a policy.


A procedure is always more specific as it enumerates steps to be taken for achieving specified objectives.
PROGRAMME: A programme denotes a small agenda or plan laying down the principal steps for
accomplishing a specific objectives and approximate time limit for each stage. A programme will inform the
actions to be taken by whom, when and where.
RULES: It is a standard or norm to be followed in the conduct of a business in a particular situation. Rules
will always require an organization to take a specific action or not to take with respect to a particular
situation. Rules are always static, rigid, and much more specific than a policy.
For example, No smoking or No Spitting in the verandah or other places is a rule and it has to be
followed to equally by the top executives as well as the operator.
Policies are a guide to action. Generally, in a company, the various policies, procedures, standing
operating plans and rules are all considered to be guides to action but differ in the degree of guidance
provided or the freedom given.
A Procedure contains a series of related steps in a sequence to achieve a certain end.
A well established and formalized procedure may be called a standard operating plan. Rules are specific
courses of action which permit very little flexibility and freedom of interpretation.

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WRITE DOWN THE CLASSIFICATION OF POLICIES?

Based on Based on Based on Based of Based on Based on


Levels of Functional Areas Expression Nature of Scope of Nature of
Manageme Origin Organization Management
nt. Function.

Top Level Production. Expressed. 1Originated Basic Policies


Mgt. Planning.
Marketing Implied. 2. Appealed Generals
Middle Finance & A/c. Organizing.
Level Mgt. 3. Imposed Departmental
Personnel. or Specific Directing.
Lower
Level Mgt 4.Derivative
Controlling.

1. Based on Levels of Management:


Top Level Management Policies:
These policies refer to the policies designed by top management which consists of the
BoD, Chairman/ President and remain responsible for them. These people have the ultimate level of
authority in the operation of the enterprise. They set the objectives, define the goals, establish the
policies, and see that these policies are implemented.
Generally, the top management would deal with a host of long-range policies such as
product selection, Diversification, Acquisitions & Mergers, decisions regarding investment of available
resources in capital and so on.
Middle level Management Policies:
These policies are made by the executives at the upper and middle level. These policies are
concerned with the establishment of organization, selection of the best-suited executives, staff and
employees to carry out plans, installation of proper departments, designing of operating policies and
operating routines, deciding processes, methods and techniques of production, exploration of mew
markets etc.
Lower Level Management Policies
The lower level management people will have direct supervision over the working force in
office, factory, sales field, and other areas of activity of the concern. They are primarily concerned with
the accomplishment of the task set for the small-sub division of the whole enterprise. Eg. Job
assignment, provision of adequate tools, training the workers, issuing of orders, maintenance of quality,
improving working conditions and morale, maintaining discipline & Controlling absenteeism, etc.,
2. Based on Functional Areas:
Production Policies
Area of coverage:
1. The Product to be produced (Product line, Type of product)
2. The type of technology, processes, equipment & tools, to be used;
3. The selection of factory, office / Plant site, location, and lay out;
4. The method & Scale of production.
5. Preparation of production budget, manufacturing cost, deciding about total cost and
cost of installation & its maintenance.
6. The selection of Junior Executives.
7. Inventory Control.
8. Selection of systems of quality cost, and production control and the like.
Marketing & Sales Policies
Area of coverage:
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1. Market Analysis.
2. Business Law.
3. Display, Salesmanship, advertising, etc.,
4. Product Mix the Type, quantity & quality of product, product design, Contents,
Shape, methods and techniques of production etc.,
5. Market Mix Channels of distribution, advertising policies, packaging & branding
decisions, consumer psychology and behavior, pricing of the product, etc.,
Financial Policies
Cover the issues relating to:
1. The Capital requirement.
2. The method of raising funds
3. Utilization of funds.
4. The Credit policy & the distribution of dividend to the shareholders.
5. Profit policy and provisions for taxes, renovations and modernization.
Costing & Accounting Policies
Selecting the method of costing, the method of allocating, apportioning and absorbing
overheads etc.,
1. The method of valuation of the stock of finished goods (Market price / Cost Price).
2. The method of treating the price of raw materials FIFO , LIFO etc.,
3. Depreciation Policy the method to be followed.
4. Capitation of expenditure during construction period.
5. The policy for provision for bad & doubtful debts, etc.,
Personnel Policies
1. Procurement of man power.
2. Training of employees.
3. The Promotion & Transfer Policy.
4. The issues regarding compensation to the employees.
5. Wage incentives and other perks etc.,
3. Based on Expression:
Oral Policies
These are announced by the management orally to its subordinates. It is a direct form & more
effective. These policies are always highly flexible. Therefore, usually oral policies are not in popular use.
Written Policies
These Policies are in written form so that they are easily understood by the persons. Written
policies are required in the following situations:
1. When the subject matter of a policy is of a very controversial nature;
2. When it is an MNC HQ in US.
3. Preciseness & Complete understanding of policies to the employees at different levels.
Implied Policies
These policies are inferred from the code of conduct or from the mode of behavior of
business execution. Eg. TVS Group Brahmins preferred.
4. Based of Nature of Origin:
Generally, these policies are designed by the BoD, the President, GM etc., and passed onto the
executives in the hierarchy for implemented.
Appealed Policies
Also known as Suggested Policies, as they are designed on the basis of the suggestions of
the subordinates. Under this Policy, the main idea is to make a policy more effective. Eg.
Maintenance Policy.
Imposed Policies
These policies imposed upon them by certain external forces:
1. Government Rules & Regulations
2. The Trade Unions & their decisions.
3. Import Export Policies ( Quota System, VAT etc.,)
Without any option, the imposed policies have to be followed by the companies whether they
like them or not.
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5. Based on Scope of Organization:
Basic Policies :
Basic Policies are designed by the top management. They specify the basic approach of a
company to its activities and its environment.
For e.g. Marketing policies as Customer oriented as against Product Oriented is a basic policy.
General Policies:
These policies are more specific and apply to large segments of the organization. Such
policies are designed by the middle level management.
Eg. Purchasing policy will give first preference to local suppliers provided the quality and price of the
materials are standard in comparison with other suppliers.
Specific Or Departmental Policies:
For instance, employees should give casual leave applications one day in advance.
Suppose, the salesman assumes delivery to all customers in a particular area/ Locality say within 3
days from the receipt of orders it is called a specific policy.
6. Based on Nature of Management Function:
Planning Policies:
The determination of overall objectives.
The collection & Classification of relevant information relating to objectives.
The development of alternative course of action;
Comparison of alternatives in terms of objectives, feasibility and consequences.
Selection of optimum course of action
Establishment of policies, procedures, schedules, programs, systems, standards & budgets etc.
Organizing Policies:
These Policies include:
1. The design and maintenance of organization structure.
2. The determination of the role of the BoD, MD, & Top Managerial group.
3. The determination of the authority/ responsibility net-work with in the organization.
4. The line & staff relationships.
Directional / Actuating Policies
These involve:
1. The provision of effective leadership
2. Integration of people and tasks and convincing them to assist in the achievement of the
overall objectives.
3. Effective communication with the members.
4. Providing climate for the subordinates development and their motivation at work.
Controlling Policies
These policies have a series of activities:
Continuous monitoring and study of periodic results of performance in order to identify
potential problems.
Comparison of the performance with the range of standards established beforehand.
Locating the significant deviations.
Ascertaining their exact causes; and
Initiation & implementation of corrective actions or measures.
Generally, policies are formed by tradition. Eg. In a family, the lead is expected to be the
policy-maker for all purposes, though he may also be assisted by other members of the family.
In small scale business units, it is the owner, the entrepreneur, who makes the policy and also sees to
its implementation. In Partnership, two or more members may do the job. In Large scale business
units, it is the professional management/ top management that prepare the policies based on past
history, experience, and tradition and earlier events. Generally those policies are static & inflexible.
In Modern business set up, Policy making is done by the top management /
BoD or special committees set up for the purpose. Normally, these policies are framed after a careful
consideration of the facts & needs of the business.

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WRITE THE MECHANISM OF POLICY MAKING ELEMENTS OF POLICY?
Identification of the Problem:
In simple words, locating the area (refer classification Question & Answer) in which
policies are to be framed. Eg.Sales Policy, Purchase Policy & HR Policy.
Developing of Policy:
Under this stage, the rough draft of the policy is being circulated among the managers
who are expected to operate it for constructive criticism & suggestion. Policies are thus developed
after a thorough discussion with the top and the middle management.
Announcing the Policy:
Announcing the newly framed policy by orally at meetings & seminars and in the form
of written memoranda, posted bulletins, revised policy manuals and company hand-books will also
disseminate the policy.
Educating about the Policy:
The person concerned should be explained, in clear terms; all aspects of the policy
thoroughly its purpose, contents / components, significance, its relevance to the business
environment by explanation, illustration, demonstration, experimentation etc., Eg., VAT
implementation - Traders awareness campaign.
Acceptance of the Policy:
The Company managers who have authority over and responsibility should be in a
position to realize the principles & its queries. These questions require interpretation by managers
responsible for.
Review & Feedback:
It is necessary for the management to review the policy after some time & take required
corrective measures based on opinion, complaints, reactions, comments / suggestions received from
the persons involved.
The policies have to be reviewed in the context of net profits, return on equity capital,
and earnings per share, consistency with the external factors such as appropriateness, acceptability
and workability.

BRIEFLY EXPLAIN THE PROCESS OF POLICY MAKING.



Definition Generation of Evaluation of Choice Communication Application Review
of Policy Policy Policy of of the Policy of the Policy of the
Area Alternatives Alternatives Policy Policy.

Since business policy focuses on top and general management, a basic question
arises in the minds of the students: Why should they particularly when not all of them are expected to
reach at the top or perform general management functions? Normally they start their career in a
functional area. Only very few start in corporate planning division.

Offering Business policy course emphasis two aspects:


Integration of the knowledge and the methods learned in previous courses, eg., Statistics,
Economics, Production, Marketing, Finance, Accounting and Personnel &
Development of analytical and DM skills through cases and other reading materials which are
multi-functional and multi-departmental in nature.

WRITE THE OBJECTIVES OF STUDYING BUSINESS POLICY COURSE?


Thus three basic objectives of business policy course may be: Knowledge, Attitudes and Skills.

Knowledge
1. The basic objective is to gain knowledge and understand the central significance of policy and
Strategy to top management and its organization. This means an understanding of how total
environmental forces affect the functioning of the organization. This is the basic core of systems
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approach in management also which is largely followed in management of large and complex
organizations.
2. The study of policy enables students to understand how various steps of strategic management
process can be carried on; how the strategies can be formulated and implemented; and how the
organization can overcome its weaknesses and emphasis its strengths.

Attitudes
What a manager knows by way of policy course is quite helpful in developing the
attitudes, values, and aspirations which he brings to his tasks. There are several implications of
developing attitudes appropriate for top management functions.

1. A manager takes decisions on the basis of totality of factors involved in them because he tasks a
generalists position. A generalist has a tendency to look at the problem from every corner. This
attitude results in decision making on the basis of all relevant facts rather than on the basis of
one discipline alone. This is likely to yield better results.
2. Policy Course also puts emphasis on innovation in management practices through creativity.
Since the manager has to work in an environment of diversity and variability, he has to find out
a way of living in the world full of uncertainty. He develops such attitudes through his learning
by business policy.
Development of such attitudes is important, particularly in top management. However, it
does not mean that mere attitudes are enough for the success of general manager and he can ignore
the development of knowledge in the field.
Skills
Perhaps, the major contribution of the policy course lies in developing appropriate skills
necessary for viewing the total organization. Effective managers need different skills & the relative
importance of these skills may vary with the level in the organization.
1. Technical Skills
Technical skills are concerned with what is done. These pertain to knowledge and
proficiency in activities involving methods, processes and procedures. These involve working with
tools & specific techniques. These skills are the distinguishing features of Job Performance at the
operative level. Such skills are developed by the actual practice on the job.
2. Human Skills
Human or Administrative skills are concerned with how it is done. These skills are the
ability to work with people effectively thereby getting their full support for achieving
organizational effectiveness.
3. Conceptual Skills
Conceptual skills or general managerial skills are concerned with why it is done. These skills
refer to the ability to see the whole picture; to recognize significant element in a situation; and to
understand the relations among these students. Such skills are necessary to deal with abstractions, to
set models, and to set plans.
Thus, technical skills deal with things, human skills deal with people and conceptual skills
deal with ideas.
Generally as one goes higher up in the organization, one need to develop conceptual skills
more as shown in the following table:

Levels of Management Skills Requirement


Conceptual Human Technical (Functional)
Top-Level Management High Moderate Low
Middle Level Management Moderate High Moderate
Low- Level Management Low Moderate High

END OF UNIT I.

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UNIT II

BUSINESS STRATEGY MEANING, FEATURE AND IMPORTANCE:


A Strategy is the means used to achieve the companys objectives. A strategy is also a comprehensive plan
of action which covers all major aspects of the enterprise. In simple words, a strategy is a unified,
comprehensive and integrated plan of action designed to achieve the basic objectives of an enterprise,
through proper execution by the organization.
Suppose a firm wants to have a sales growth of 25% per year and also decides to achieve this by
acquiring another firm rather than introducing new products developed. It may be said that acquisition was
the strategy chosen by the company. Once that is decided, the acquisition of a company becomes an
objective. The strategic choice then may be between acquiring a large or small firm/ company.
The following are the features of Strategy:
1. It is top level management decisions.
2. Allocation of resources: The management has to ensure the availability of substantial resources in
men and materials and finance from internal and external sources.
3. Forecasting of future strategies: The strategic decisions must be made in the light of projected future
changes.
4. Strategies are concerned with long range planning.
5. Strategic decisions will have implication for multiple functions, product divisions and operating
units.
6. Strategic decisions will have environmental factors.
The strategic decisions are to be made in the light of possible reaction to environmental changes created by
competitors, customers, suppliers and creditors.
Importance of Strategy
1. Strategies are deliberate attempts made by the management to win over its opponents. They are
calculated to counter actions of opponents.
2. They are special plans that deal with opponents.
3. Strategies are overall plans that help management to implement general policies and plans
effectively.
4. Strategies are grown out of policies and plans and thus they direct the activities in the most
appropriate manner.
5. Strategies include related decisions and actions meant for implementation of company objectives and
plans.
6. Strategies are devices to reduce business risk and insecurity that are expected on account of
complexity of business operations and other social and political contingencies. Strategies are
determined sufficiently in advance having considered companys policies and objectives so that
tactful decisions and actions can be taken to accomplish them.
7. Strategies are established on the foundation of uncertainty and unpredictable events.
8. Strategies act not only as guides to subordinates in their decision making but they also control their
(subordinates) overall organizational behavior.
Concept of strategy
Strategy is a kind of management activity, which tells about what an organization intends to do and
it includes the pattern of an organizations responses to its environment over time. Strategy involves
deciding the basic goals and objectives of the organization, the major programs of action to reach these goals
and objectives, and major patterns of resource allocation to relate the organization to its environment.
According to Chandler, Strategy can defined as the determination of the basic long-term goals and
objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary
for carrying out these goals
According to Dan Schendel and Kenneth J Hatten, Strategy means, the basic programs of action chosen to
reach these goals and objectives and major patterns of resources allocation used to relate the organization to
its environment.
STRATEGIC DECISIONS VS ADMINISTRATIVE DECISIONS & OPERATING DECISIONS?
Strategic decisions are different from operating decisions, which are related to day to day activities or
current activities of the firm. For example, resource allocation among various departments, monitoring

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performance and applying controls, designing pricing policies and marketing policies, production planning
and control and inventory control are some of the operating decisions taken by a firm.
Similarly strategic decisions also differ from administrative decisions which are concerned with structuring
the firms resources in order to create maximum performance potentials. The administrative decisions are
mainly concerned with establishment of authority and responsibility relationship, flow of work,
communication, distribution channels, development of resources, improving sources of raw materials,
employees training and development, developing financial resources, acquiring assets, etc.
Strategic Decisions are primarily concerned with the external rather than internal problems and more
specifically with the selection of the product mix to which it will sell. Therefore, a relationship is established
between the organization and its environment.
Among other things the strategy will define the nature of relationship between a firm and its environment.
There are five key decisions which may be said to comprise the overall strategy of any company viz
Customer
The Strategy relating to Product / service
Market Segment.
The strategy relating to Competition and
The Strategy relating to Objectives.

DISCUSS WHAT CORPORATE STRATEGY IS AND DIFFERENTIATE IT FROM BUSINESS


STRATEGY AND FUNCTIONAL STRATEGY?
Strategic decision making, at the Corporate Level, is related to the organization wide policies and is most
useful in the case of multi divisional companies having wide range of business. Corporate business means
major financial policy decisions involving acquisition, diversification and structural redesigning of the
firms assets. At the business level, the decision makers are primarily concerned with immediate product,
market issues and the policies bearing on the integration of the functional units. Among other things,
Strategic Decisions at this level include policies regarding developing new product, marketing mix,
Research & Development etc. Thus, Corporate Strategy may be differentiated from business Strategy mainly
on 3 grounds.
1. Corporate Strategy applies to the whole enterprise where as business strategy applies to the choice of
product or service and market of individual businesses within the firm. Thus, business Strategy is a
narrow term.
2. Business Strategy determines how will a company compete in a good business environment and will
position itself among competitors. Corporate Strategy determines the business in which a company
will compete particularly in getting competitive advantage.
3. Functional Strategy involves decision making at the operational level with regard to production,
marketing, personnel, finance, etc., These decisions are also called tactical decisions.

WRITE BRIEFLY ABOUT STRATEGIC MANAGEMENT PROCESS? AND ITS IMPORTANCE?


Strategic Management Process is a process which involves a set of decisions and actions resulting in
formulation and implementation of strategies designed to achieve the objectives of an organization.
According to A Sharplin, Strategic Management may be defined as the formulation and implementation
of plans and carrying out of activities relating to the matters which are of vital, pervasive, or continuing
importance to the total organization.
Strategic Management is a systematic approach to a major and increasingly important responsibility of
general management to position and relate the firm to its environment in a way which will assure its
continued success and make it secure from surprises -------- H IGOR ANSOFF.
Importance of Strategic Management:
1. To keep pace with Changing Environment: Modern corporations are operating in a highly
dynamic environment, which is ever changing constraining and uncertain. Therefore, they have to
find out ways for its survival. In order to keeps business going, Strategic Management is the need of
hour as by exploring opportunities and minimizing threats, it helps the business to achieve an
optimum level of efficiency.
2. To boost Employees efficiency: The firm embracing strategic management, as a rule, clearly define
what to do, when to do, how to do and who is to do it.

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3. To furnish a Strong base for unified Decision Making: As Strategic Management focuses on the
determination of the major organizational objectives, by identifying the things to be achieved, it
furnishes a strong base for unified decision making.
Strategic Management can be practiced by the following group of persons, namely,
1. Top Managerial Personnel,
2. Board of Directors who reviews the companys working,
3. Executives of Corporate Planning department who assist the Top Management in the formulation &
Execution of Strategies.
4. Management Consultants who are called up on by the Management to give their co-operation in
Strategic Management.
Strategy Formulation
Among other things, Corporate Strategy has two main issues.
1. Strategy Formulation or Strategic Planning.
2. Strategy Implementation.
Formulation of Strategy includes deciding what the Strategy must be. It involves decision making by
Corporate Management that:
Determines and shapes its objectives, purposes or goals,
Defines the major policies and plans for achieving the goals;
Defines the area of business the company wants to have and the economic and non-economic
contribution of the firm to the society.
The Formulation of Strategy requires,
1. Identifying the Opportunities and threats(risk) attached to various alternatives
2. Examination of the companies strength and weaknesses.
In simple words, there are four major determinants for the formulation of Strategy.
1. External Opportunities and Constraints
2. Internal Capabilities and resources
3. Personal Talents and values of the Executives.
4. Obligations to Society.
Among Other things, the determination of Strategy involves the following factors:
The Target group of Customers,
Their Needs and Preferences,
Their Market,
Their geographical area,
Nature of Products & Services,
Market Segment,
Price, Quality and
Competitive advantage of the Product.
Strategic Decisions are multi-functional and inter related ie. Implementing various decisions in respect of
Production, Marketing, Finance and other areas.
Product Customer Market: Customer mix is not possible without deciding the product. Similarly
determining the product mix is not possible without customer mix. Besides, firms are usually facing various
environmental problems like economic, financial, social and political which have a strong bearing on the
setting of objectives.

EXPLAIN THE STEPS INVOLVED IN STRATEGIC MANAGEMENT?


According to Hofer and Schendil, there are six basic steps in the Strategic Management Process.
First, a set of Organizational goals must be established.
Secondly, the process considers the environment which consists of external elements that can influence an
organizations operations. One aspect of Strategic Management, then, must be forecasting of environmental
conditions and threats (risk) that the organization can expect to face in the future.
Third Step is how to formulate Strategy: This step considers 1. The Organizations Goals 2.Its Strategy
(that is, how it will proceed towards its goals).
Fourth, Organizations need to evaluate past strategy and to estimate the success of future strategy.
Estimating future success, requires that the organization. Estimating future success, requires that the
organization anticipate such factors as changes in the environmental, resources and objectives.

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The Fifth step is Strategy Implementation which is somewhat different and is basically an administrative
task. The Last Step is Strategic control. It is a routine matter for the Company to control the activities of the
process. Once a strategy has been implemented, its progress must be monitored.
Goal Determination
Strategy Formulation
Evaluation of Past Strategy (Environmental Analysis)
Strategy Implementation
Strategic Control.
BRIEFLY EXPLAIN SWOT ANALYSIS
It means identification of threats and opportunities in the environment and the strength an weakness
of the firm.
These factors determine the course of action to ensure survival and growth of the firm.
The environment may give many opportunities but a company may not have the strength to exploit
all the opportunities.
Similarly sometimes the firm will not have a company an idea about companys continuance in the
market or business, which will help the firm to take a decision to give up the business or concentrate
on some other business.
The environmental opportunities and threats should be evaluated in the light of the strength and
weaknesses of the internal factors which includes finance, technology, skill, production facilities,
personnel and marketing capabilities.
Most of the firms consider their brand image or its reputation as the main strength in the market.
For Example, Nirma washing Powder Company, which is taking advantage of the brand popularity
has launched the detergent cake with the same strategy of low price and mass production. The sale of
detergent cakes gave a boost to the company. Then the company launched Nirma Toilet Soap.
Understanding the potential threat from the Nirma toilet soap, Godrej (Vigil), Hindustan Level
(Breeze) has introduced popular brands to retain there position in the market.
The strategic decision taken by many companies were only to safeguard them from environmental
threats. Similarly Japanese Companies posed threats automobile threat to automobile companies of
US by launching Fuel Efficient Cars. Because of the success in the market, the Japanese entered
into the American Market.
Due to Proper understanding of environmental and the internal strength, the Japan Government and
Companies work hard to identify attractive global markets.
ETOP ANALYSIS ENVIRONMENTAL THREAT AND OPPORTUNITIES PROFILE?
Is a summarized depiction of the environmental factors and their likely impact on the organization.
ETOP is the most useful way of structuring the results of environmental analysis.
ETOP can be prepared in the following way.
Environmental Factors: The starting point is the identification of different components of relevant
environment. Environment factors may be threats of entry and exit, competitive position of
Competitors, etc.
Assessing Importance of Environmental factors.
Assessing Impact Factor: An Environmental factor either present threat or provide opportunities
depending upon the nature of environmental factors and their behavior. Positive Impact is
opportunity and negative impact is threat.
Combining Importance and Impact Factor.
The following is an example of ETOP of Bharat Heavy Electricals Limited.
Environmental Impact (+ means Opportunity
Factors -- means Threats )
Socio Economic + Continued Emphasis on Infrastructure Development
Technological + Higher Production & Technology Up gradation.
Supplier -- Increasing Scarcity of Technology because of cartel (Grouped together for making
profit without competing with one another) formation.
Government + Liberalization for technology Import.
Competition -- Increasing role of power plants
-- Increasing difficulty in retaining specialists and highly qualified persons.

11
WRITE SHORT NOTE ON BCG Matrix BOSTON CONSULTING GROUP?
Application of the BCG Model:
The first step is to identify a business segment of a product, which is called as the Strategic Business Unit
(SBU) For instance, IT Company Consulting, Software development and technology support etc.
Each business unit after identification is distribution into a matrix position on the basis of two concepts:
1. Market Growth. 2. Relative Market Share.

MARKET SHARE
HIGH LOW
MARKET Growth
HIGH STARS QUESTION
MARKS
LOW CASH COWS DOGS
THE DOGS (Low Growth Low Market Share)
When the growth rate is low and the Companys relative market share is also low, the business is classified
as DOG. In this stage, the strategy applied should be for cutting of cost, divestment, or even liquidation so
that short term cash flow can be maximized.
CASH COWS (Low Growth High Market Share)
Business with high market share in a low growth market is known as cash cows. These businesses tend to
yield substantial cash surplus over and above their investment requirement. Cash cows are not very
attractive for long term developments, but they are needed for generating cash to meet organizational
requirements, such as overheads, dividends, etc.
QUESTION MARKS: These products are characterized by the low market share in a growing market. Low
market share makes it questionable whether profit potential associated with growth can realistically be
captured. In case of make businesses, there are two alternatives:
1. to grow them into STARS if additional investment can bring them into such position.
2. to divest them, if costs of strengthening them are quite high as compared to returns.
STARS
Business with high market share is labeled as STARS as they usually represent the best profit and growth
opportunities in the organizations portfolio.
They are the businesses that the organization needs to nurture and groom for the long run.
WRITE SHORT NOTES ON TOWS MATRIX?
Although SWOT analysis is useful in Strategic Planning its potential is rarely realized. Piercy has identified
the following Matrix: TOWS Matrix.
Having conducted SWOT analysis, managers frequently fail to come to terms with the Strategic Choices that
the outcomes demand.
In order to overcome this, he suggest TOWS Matrix, which while using the same INPUTS(S, O, W & T),
recognizes them and integrates them were fally into the Strategic Management Process.
The author emphasis that the external environments i.e., Environmental Opportunities and threats around
which a Strategy should be woven. The TOWS matrix is given below.

INTERNAL
ELEMENTS ORGANISATIONAL STRENGTH ORGANISATIONAL WEAKNESS

EXTERNAL
ELEMENTS
Environmental Strength is used to capitalize existing Strategies developed need to overcome
Opportunity or emerging opportunities. organizational weaknesses if existing or
emerging opportunities are to be exploited.

Environmental Strength in the Organization can be Strategies pursued must minimize or overcome
Threats used to minimize existing or weaknesses and as far as possible cope with
emerging threats. threats.

END OF UNIT II.

12
UNIT III

After Strategy formulation, the next step is the implementation of Strategy. Whereas Strategy addresses the
WHAT and WHY of actions, Implementation addresses the WHO, WHERE, WHEN and HOW.
In simple way, the implementation can be defined as follows: Implementation of Strategy is the process
through which a chosen Strategy is put into action.
Strategy Implementation may be said to consist of securing resources, organizing these resources and
directing the use of these resources within and outside the organization Mc Carthy et al.

DISCUSS THE IMPORTANCE OF STRATEGY IMPLEMENTATION?


Mc Kinsey 7-s Framework is one of the most important models which provide help in identifying the issues
involved in Strategy Implementation besides the formulation of Strategy itself.

STRUCTURE

STRATEGY SYSTEMS

SHARED

VALUES

SKILLS STAFF STYLE


ILLS STAFF STYLE

Mc Kinsey 7-s Framework


The various components of Mc Kinseys 7-s framework as follows:
1. Strategy: means to achieve organization purpose.
2. Structure: basic framework to designate responsibilities and functions
3. Systems: Management tools for planning, decision making, communication and control.
4. Staff: human resources of the organization.
5. Skills: Organizational and individual capabilities
6. Style: how managers lead and motivate
7. Shared values: Values, objectives, goals which organization pursues.

In this framework, Strategy may be taken as Starting Point and Shared Values as the ending point just for
analysis. However, what is more important is that these factors are interrelated. This interrelationship
suggests that no single factor should be considered in isolation.

The requirement of Strategy Formulation is primarily conceptual and analytical skills while that of
Implementation is administrative skills.
There are two types of linkages between Strategy Formulation and Strategy Implementation.
1. Forward Linkage: Total Implementation activities are geared according to Strategy chosen for
implementation. Organizational processes and Systems will be determined by Strategy for its
successful implementation.
2. Backward linkage: The feedback from the Operations, a result of Strategy Implementation gives
notices of the changing environmental factors. The formulation of Strategy does not end where its
implementation begins; both should be taken as a Continuous process.
Activating Strategy
Activating Strategy involves the following activities:

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Institutionalization of Strategy
Since Strategy does not become either acceptable or effective by virtue of being well
designed and clearly announced, the successful implementation of Strategy requires that the leader acts as its
promoter and defender. Therefore, it is the role of the General Managers not only to make the fundamental
analytical, entrepreneurial decisions which are to determine the character of the organization, but also to
present these to the members of the organization in a way that appeals to them and brings their support.
The form of communication may be oral in small sized organization. However, for a large organization with
multi location units, such a form of Communication may not be adequate, and well documented written form
may be required.
Such documents may contain
The Context in which the particular Strategy has been formulated like organizational mission and
objectives, environmental variables, and organizational variables;
Contents of the Strategy, Such as Contribution of the Strategy to the achievement of organizational
objectives, changes required in existing organizational processes, and what is expected from personnel at
different levels in the organization.
Formulating action plans: Action plans are tactical or operational programmes and decisions whether
major or minor that take place in various parts of an organization. These are derived from a Strategic Plan
and therefore, known as Derivative Plans.
Eg. Planning for procuring a new plant, developing a new product and so on.
However, while formulating action plans, following questions may be put so that action plans contribute
positively in implementing the Strategy.
1. How does the particular action plan contribute to the objectives of the Strategy?
2. When the activities devised under the action plan will be undertaken?
3. Who will take the actions?
4. What supports would be needed by the action plan?
Resource Allocation: Resources include not only money, buildings, plants, or other physical facilities but
what are probably the scarcest resources of management talents and technical skills. The success of an
organization and its units/ sub units depends on the quality of resource availability and its effective
utilization.
The issues which are relevant for resource allocation are as follows:
1. Basis for Resource Allocation.
2. Problems in Resource Allocation.
While allocating the resources, an organization may take two alternative steps:
1. Resources should be allocated at a place where these have their maximum contribution.
2. Resources should be put according to the needs of various organizational units/ sub units.
Policies are guides to action. These provide guidance in decision making to members in respect of any
course of action. But a Policy does not tell the managers how to handle a specific activity; it is only a
general guide to action. It limits the choices of managers in most cases but it does not limit them entirely.
Role of Functional Policies:
Functional Policies play an important role in Strategy Implementation.
Through the functional Policies, Top Management can ensure that Strategy is implemented by all parts of
the Organization.
Policies specify the manner in which things can be done and limit discretion for managerial action.
Policies provide guidelines for managerial decisions. These policies serve the Strategy Implementation in
two ways. First, there will be uniformity throughout the organization in managerial action. Second, Policy is
a guideline as managers are all aware that what kind of actions is required in a given situation.
Functional policies provide basis for Control in respective areas as policies lead to consistent pattern of
behavior. This, in turn, acts as basis for Controlling.
Policies provide co-ordination across different functions. All functions of the Organization are
interdependent and interrelated. Therefore, what is happening in one function has its relevance for other
functions.
Development of Policies: The amount of Policy making will vary with size and complexity of the
organization. If the organization is small one with simple business, only a few policies will be sufficient.
However, in Large and Complex organizations, large numbers of Policies are needed.

14
EXPLAIN THE POINTS TO BE CONSIDERED IN PERSONNEL POLICIES?
Personnel Policies deal with one of the most precious resources human resources in the organization.
It is the people who decide the Organizational strategies; it is people who carry out various functions in the
areas of production, marketing and finance.
Human Capital in any organization consists of people with:
1. Intellectual capital: Specialized Knowledge, tacit knowledge and Skills and Learning Capacity.
2. Social capital: Network or relationships, Sociability and Trustworthiness.
3. Emotional capital- Self Confidence, ambition & Courage, risk-taking ability and resilience.
Therefore, Organizations require right persons at the right place and at the right time. Personnel
policies aim at that.
The major considerations in Personnel Policies are:
1. Recruitment of right personnel.
2. Developing and retaining personnel.
3. Personnel Mobility.
4. Industrial Relations.

1. Recruitment of Right Personnel: Matching Jobs and /with Individual.


2. Developing and retaining Personnel:
Even if right types of persons are recruited, that is not sufficient unless they are developed and
retained in the organization. Thus, there are two aspects which require policy decisions: Developing
personnel for their match with the Jobs and retaining them in the organization so that this matching
continues.
Developing Personnel: It is highly required for better match with the Jobs.
Over a period of time, either the persons may be promoted to higher jobs; or there may be change in the
present jobs due to technological development and increased organizational complexity.
The major issues involved in Training & Development are:
1. Determination of training methods, and
2. Intensity of training programs for different levels of people, both managerial and operatives.
Training Methods:
On the Job Training - Understudy Coaching, Position rotation, apprenticeship and Vestibule Schools.
Off-the-Job Training Special Courses and Lectures, Conferences, Cases, role playing, brain storming
and management games.
Intensity of Training: It includes determination of the level of employees at which training would be
provided, the frequency of training and the sources of resource persons for imparting training.
While operatives need specific training relevant to their immediate jobs, managerial personnel need
training of general nature to develop their conceptual and analytical skills.
Retaining Personnel:
Employee turnover, particularly at the managerial level, is a big problem.
An organization may have several options for retaining its personnel ranging from coercion to
persuasion.
Coercive Policies Methods that may be used here is entering into an agreement in which an employee is
forced to serve the organization for at least certain period of time, commonly known as Bond
Execution; adopting unfair means for delaying the clearances of Long term financial claims of the
employee or threatening with adverse remarks about the employee to his prospective employers, and so
on.
Package for Long term stay An employee leaves the organization because he feels that his market
value is more somewhere else. This feeling may be overcome by designing a suitable long term package
for employees which may include promotional avenues, increasing financial incentives over the period
of time, and increasing financial benefits in the Long run like superannuation allowance or Long term
stay bonus.
Employee Stock Option: In order to retain the employees, in the management cadre, ESOP employees
are offered shares of the Company at lower rate than market price with certain Lock-in period. If an
employee leaves the company before the Lock-in Period, his benefits accruing from shares may be
forfeited. Similar to ESPS Employee Stock Purchase Scheme also offers shares at discount rate to

15
the employees. In order to make these schemes attractive, shares may be given on yearly basis. Thereby
ensuring a cumulative increase in the shareholding of older employees.
Persuasion Key persons/ employees of the organization may be persuaded just like they might have
been persuaded to join the organization. In fact, many progressive organization rely more on this
method. Reliance, ITC & FMCG Companies.
3. Personnel Mobility Involves moving the personnel within the organization or outside it in the form
of promotion, demotion, transfer, separation and deputation.
Purpose: 1. keeping appropriate persons at the right Jobs, and 2. motivating these persons for
better performance.
- Promotion is the process of putting a person at higher level of organizational hierarchy. Promotion
will be based on Merit or Seniority or a combination of both.
- The basic objectives of promotion should be to have the best possible fit between the person and the
job.
- Demotion, this practice is resorted to when either the person is promoted on temporary basis and he
reverts back when a person is promoted but does not fit with the Job.
- Separation this is required in two cases: 1. when incumbent does not fit with the job, or 2. When
there is surplus staff. In both cases, the organization has to frame a policy. Recently, many
organizations have resorted to VRS to overcome the problem of over staffing. In a VRS, the
employees are offered compensation for the loss for their services. The organizations can rationalize
their human resources through this process.
- Transfer refers to moving a person from the present functional area to another area or from the
present place of working to another place. Transfer aims at developing integrative skills so that they
can be highly talented. Transfer is meant for either strengthening the work force of another place or
to avoid the development of inertia.
- Deputation, persons are moved from one company to another company belonging to the same
promoter group. Most of the large industrial houses in India depute their KEY PERSONNEL in the
implementation of a new project either within the same company or in a group company. When the
project is completed, they may revert back to their original place or may be absorbed in the new
project.
4. Industrial Relations:
- Increasing unionization of Labor force and increasing expectations of workers, made the
organizations try to maintain good industrial relations.
- Generally Industrial Relations Policy aims at
- To safeguard the interests of workers and management by securing the highest level of mutual
understanding;
- To avoid industrial conflict and Strike;
- To raise productivity to a level which satisfies both workers and management.
- To overcome resistance to change which are directly related with workers like change in technology.
- There may be several methods for building good IR such as a) participation of workers in decisions
which are relevant to them. B) Provisions of negotiations between labor and management in the
potential areas of conflicts, formulation of grievance handling procedure.
- And above all, creating a feeling in the minds of the labor force that the management is genuinely
concerned with the welfare of the workers.
- What is more important is the feeling which workers develop about the approach of
management towards them.

WHAT ARE THE COMPONENTS IMPORTANT WHILE DEVISING PRODUCTION


POLICIES?
Production function involves the transformation of set of inputs to pre-determined outputs in accordance
with the objectives of the Organization.
Some objectives:
To produce goods and services in quantities and in time to meet Customer needs;
To produce goods and services at the lowest possible costs; and
To produce goods and services of desirable quality.
Major issues involved in production functions requiring policy formulation are as under:

16
Involvement of the organization in production processes
Choice of production processes;
Production Capacity
Maintenance / replacement of the existing production facilities; &
Research and Development.
Involvement of the organization in production processes
The major policy issue involved is to decide whether the Organization will produce the goods on its own or
will procure from outside, commonly known as Make or Buy decisions.
Factors influencing Make or Buy decision are
1. Cost Factor
2. Criticality of the Item
3. Safeguard against uncertainty(No regular Supply)
4. Organizational Capabilities
5. Other Factors, Government Policy, Non-availability of technology etc.
Choice of production processes;
Production processes deal with where and how products will be manufactured.
1. Size and Location of Plants and
2. Technology to be used.
Size and Location of Plants: Policy decisions are required to determine the size of the Plants and where it
will be located. For eg. There can be small plants for manufacturing polyethylene bags, or there may be a
large scale petrochemical plant. Second aspect is the Plant Location. Many organizations opt for multiple
locations even though all plants produce the similar product. Some other factors also influences for plant
location are: Power, transport, water resources, skilled personnel availability etc.
Technology: Though the choice of technology is a technical matter, the Organization has to take various
into account while choosing a technology: Investment required, cost of production, availability of skilled
personnel to operate the plants and acceptability of the technology by the Workers union.
Production Capacity
Depends on the nature of demand of the product. There may be normal demand or seasonal demand.
Therefore, the Organization has to devise policy to meet both types of demand Normal demand and
fluctuating demand. In the case of normal demand situations, the organizations plant Capacity will be built
according to the size of its operations. In the case of fluctuating demand, there may be two situations: Peak
demand or Lean demand.
To meet demand:
Maintaining Standard Level of Production during the Slack season with a view to meet peak demand(
Maintenance Cost / Interest)
Meeting peak demand by Overtime work Operating in Shift.
Stand by arrangements by sub Contracting for Extra Production ( Out sourcing Fee)
However, all these options have additional cost involvement.
Maintenance / replacement of the existing production facilities;
Is necessary for optimization of production.
There can be two options: Maintain the plant regularly known as Preventive maintenance or Get the plant
repaired when it stops working known as Break down Maintenance. However, it is advisable to have
preventive maintenance. Though it appears that it is additional cost but it saves lot by avoiding loss of
production due to breakdown. Preventive Maintenance is regarded as STICT IN TIME THAT SAVES
NINE.
Modernization: This basically involves technological up gradation. It is used to achieve increased
production, operational efficiency, productivity, etc which result into lower costs.
Research and Development.
Research and Development consists of activities through which either a new product can be developed or
an existing product can be improved so that it becomes more useful.
Policy decisions in the area of R & D revolve around two aspects: How much resources should be allocated
for R & D and how these activities will be undertaken. The first aspect depends on the type of
Organizational activities, type of R& D activity to be undertaken, and sources of technology to the
Organization.
The following features R & D spending are important:

17
If the Organization is engaged in an activity where product change is rapid. i.e. Pharmaceutical
Companies have to spend more money on R & D.
Types of R & D activities (Fundamental Research or Applied Research for production improvement).
If the technology is available from outside source i.e. getting technology from their parents on regular
basis.
Another issue in R & D is to decide how R & D activities will be carried on: Whether the Organization will
undertake its entire R & D activities, or it will collaborate with some external research agencies, both
alternatives have cost and benefit implication.

POINTS NEED TO BE CONSIDERED WHILE MAKING MARKETING POLICIES?


SALES / MARKETING, PRODUCT & PROMOTION POLICIES
The major policies decisions involve in marketing area vary to a great length as a result of its evolving
nature. In the early sixties, four Ps i.e. - Product, Price, Place and promotion were considered. From
Strategy implementation point of view, we may take the following aspects of the marketing:
1. The type of Products,
2. Price of the Products,
3. Product Distribution, and
4. Product Promotion.
Product:
Includes goods and services that may be offered by an Organization to its customers.
A product item satisfies a particular need e.g. dress material or Saree in Textile Product.
Product line e.g. Suiting, Shirting, and Saree and dress materials in textile products
Closely related products.
A product mix is the set of all products and items that a particular Organization makes
available to the buyers. E.g. Reliance offers textile products, fiber intermediates,
Polymers, telecom and Chemicals.
The major issues for Policy decisions for product are as follows:
Product Mix,
Market Segmentation
Product Positioning and
Branding.
Product Mix
It has to achieve three possible objectives: a) Improving profitability b) securing stability in Sales,
and c) raising the growth rate of sales.
Product mix breadth which refers to how many different product lines the Organization carries;
Product Mix length which refers to the total number of items in its product mix.
Decision in this regard depends on the Organizations definition of its business, nature of competition,
Organizational capabilities and appetite for growth.
Market Segmentation
To the act of dividing the market into distinct groups of buyers.
Segmentation can be done on the basis of such variables as socio-economic characteristics of buyer
groups(age, income, sex, education, occupation, family, size, etc)
Geographical basis (Location), or Industrial categories(Industrial Products) or buyer behavior
( motive, personality, brand loyalty, usage rate etc)
Each segment needs a specific product in terms of its quality and price.
Product Positioning
Refers to offering a product in a manner that customer perceive it to be distinct from other competing
products.
Products are differentiated on the basis of features, performance, durability, reliability, style and
design.
On the basis of services provided with the product delivery, installation, repair, warranty and the
Organization image.
Branding:
Brand is a name, term, sign, symbol or design, intended to identify the goods and services of one seller
and to differentiate them from those of competitors.

18
Policy decision regarding branding revolving around three aspects:
1) decision to sell the product with or without brand,
2) types of brand to be selected, and
3) brand extension.
The first issue relates to the decision about having a brand or not.
In commodity business, the Organizations dealing with certain products such as petro-products, steel,
generic pharmaceutical products etc do not require brand name.
In Consumer Products, and certain industrial products, brand name is important.
Therefore, the question is: what types of brand names should be selected and it should be easily
recognizable, distinct and must convey some meaning. In this context, the organizations have number of
alternatives:
1) Brand may be selected on the basis of the name of the Organization itself, for instance, Nirma
limited has Nirma brand of laundry Soaps, Toilet Soaps and detergents. Two other versions of
corporate names can be used: by splitting the Corporate Names, such as Colgate Palmolive India
Limited uses COLGATE for its oral care products Tooth paste, tooth powder and tooth brush and
PALMOLIVE for shaving cream, Soaps, etc. Or by suffixing or prefixing the corporate name with
the product, such Reliance uses first two or three letters of its name for its various products like
RECON for Polyesters, RELENE, RECLAIR and REPOL for different polymers; and RELAB for
Linar alkyl benezene.
2) If the brand name is not chosen based on the Corporate name; sometimes, it is not possible because
of large number of brands, e.g. Hind Lever has 110 brands; the brand name should convey meaning
specific to the product. E.g. Hind Lever markets its staple foods rice, atta and salt etc in the name
of Annapurna, the name of Hindu goddess famous for satiating all types of food needs.
The last issue is brand extension, that is, a particular brand is used as the prime with some prefixes or
suffixes like Rin and Rin Shakthi, Lifebuoy and Lifebuoy Plus, Lifebuoy gold and so on.
The basic advantage of this policy is that extended brands get quicker response if the prime brand is well
established one.

II Product Price:
Price denotes the money that customers pay in exchange for goods and services.
Price is important both for the organizations as well as for customers. For the Organizations, price
determines the quantum of returns for their efforts; for the customers, it is the value assigned to the
satisfaction of needs.
Pricing policy involves: how should price be fixed for a product for the first time?
How and when should there be changes in price?
Price Fixation:
A Company may have different range of price choices ranging from no option to price fixation to
extremely favorable price fixation option so as to have maximum returns. There may be some situations
in which the companies have to adhere to externally imposed prices, for example, petro-product prices
are fixed by the Government. In some other words, mark-up prices may be determined such as
pharmaceuticals. Barring such cases, the companies have to adopt product prices depending on the
situations and such situational variables may be value for money, competitors price, and cost plus price.
Let us discuss how these variables affect the determination of price.
Value for money: The price of the product must match its value which customers attach to it. Every
customer wants to have greater value from the product than what he spends for it. For eg. Hind lever,
which is a trend setter in customer products, adopts the maxim price fixation. Check what the consumer
needs and what price he is willing to pay for it; then deduct the expected profit, and target your cost.
Competitors price: Price of the product may be fixed on the basis of what competitors are charging for
similar products, as the base for matching product value and its price has already been in existence in the
market. However, a company may have three options in this context:
Fixation of higher than competitors price if the product is of better quality. E.g. Indian shaving
products has fixed higher price of its blades and shaving razors as compared to its competitors-
Malhotra Shaving products.

19
Fixation of lower price than the competitors price for the product perceived to be similar for market
penetration. E.g. price of Top Ramans noodles of Marico Industries was fixed lower than its
competing brand Maggi Noodles of Nestle.
Fixation of price similar to the competitors price; however, this may not result into any advantages to
the company if it is not able to differentiate it product on Non-price basis like quality, Service, etc.
Cost plus Price: final price would be cost of production of the product plus desired level of profit.
Usually, this pattern is more commonly adopted unless external forces compel to do otherwise.
This type of pricing policy is more appropriate for unique jobs/ contracts where cost of production can
not be estimated much in advance; captive companies supplying parts/ components to assemblers, and
companies operating in monopoly or near monopoly situation.
II Price Change:
There may be a need for price change over the period of time because of the changes in any factors affecting
price. There may be upward revision or downward revision of price.
1) Upward revision: is required if there is any increase in cost of production either because of
increase in the prices of inputs which go into producing the product, or increase in taxes
levied on the product such as excise duty, sales tax and other taxes and levies. If the company
is in a position to pass on total impact of increased cost of inputs and taxes the new price will
be revised to that extent. However, if it is not possible to pass the total impact, the new price
would be base price plus addition of part of costs and taxes.
2) Downward Revision: is required when the company is not able to sell its product at the pre-
determined price. Such a situation may arise of :
1) there is excess capacity creation,
2) to eliminate the competition or its cost structure has become more favorable,
3) any invention which reduces the cost of production, substantially, for instance, in
computer segment.
Some times, other forms of downward revision are followed keeping the base as usual. There may be in the
forms of various types of discounts and allowances like price discount, quantity discount, seasonal discount
etc.
III Distribution:
It deals about how to reach to its ultimate user; directly from the producer to the customer; or through a
series of middleman.
Major issues:
Identification of Channel,
Evaluation of these Channels, and,
Selection of these Channels;
Identification of Channel:
Producer --------- Customer
It is called direct marketing or Zero Level Marketing. Here, the producer sells directly to the
customer. E.g. Banking, Courier, telecommunication, electricity etc. OEM Companies, doing
mail-order business and so on.
Advantage: Cost of production is less. Disadvantage: Can not be adopted when the customers
are dispersed geographically.
Producer ------- Retailer-------- Customer
It is one level channel; the product is first supplied to retailers then to customers;
Companies which can market through selected retailers. E.g. automobile manufacturers; Bata
India and Reliance for marketing its fabrics through retailers.
Many consumer product companies have adopted this practice of marketing through defence
canteens as one-level Channel besides adopting two-level Channel.
Disadvantage: Is costlier than the Zero-level. Advantage: It covers much wider market.
Producer--------Wholesaler----Retailer-------Customer.
It is a two level Channel; Product flows through two intermediateries. This is mostly adopted by
the companies operating in the field of consumer products, both durables and non-durables.
Producer------ Wholesaler-------Jobber---Retailer------Customer.

20
It is three level distribution. Jobber may be in the form of semi-wholesaler who procures
products in substantial quantity and supplies to retailers. Quite prevalent in pharmaceutical
business. However, this practice is not very common in other industry segments.
Evaluation of these Channels,
It is purely depends on: Economic, Control, and adaptive.
- Economic Criteria: A desirable marketing channel is one which involves minimum cost per unit of
sale so that the company keeps its distribution cost at the minimum.
- Control Criteria: Since intermediateries are independent, the producer has to take into account the
controllability of these intermediateries. A better Channel is one which offers such controllability.
- Adaptive Criteria: the Channel should provide flexibility so that changes can be brought whenever
the situations so demand.
Selection of these Channels;
It is determined by a variety of factors such as location of customers; product characteristics, organizational
capabilities etc.
Location of Customers: If the customers are few or located at few places and purchase the product in high
volume, it is better to have zero-level Channel. Reliance sells it linear alkyl benzene directly to its customers
as they are few in number. When customers are spread widely and purchase the product frequently and
in small quantities, two-level channel is more appropriate because it covers wide geographical area.
Product Characteristics: Bulky products with low unit value require lesser middleman in order to avoid
cost of handling at different points. E.g. heavy chemicals and building materials etc.
Products of high unit value are sold directly by the producers or there may be one-level channel.
E.g. Computers, air conditioners, precision instruments, etc.
Products of high technical value are sold directly; e.g. industrial machinery, air craft, etc.
Perishable products having short-shelf life are marketed either by zero level or one-level marketing
Channel, e.g. Milk.
Consumer convenient products are better to be marketed through one level or two level Channels.
Organizational Capabilities: For instance, Reliance has planned to have a chain of departmental stores
with each store costing about five crore to market its petroleum products and other products; Another
instance, Hindustan Lever has a wide product mix; adopts two-level channel with wide control on
middleman.
IV Promotion
Promotion consists of activities through which a company communicates to its potential customers about
itself and its products and to induce them to buy the products. The various activities involved are
advertising, sales promotion; and personal selling.
There are basically two issues involved in promotion: deciding promotion mix and deciding budget for these
issues are interrelated.
Advertising: is a non-personal communication to customers. Consists of Print media, (Newspapers,
Magazine, Direct Mail) broadcast media, (radio, TV) electronic media (audio tape, video tape and video
disc) and display media (bill boards, signs and posters).
The company may communicate with large number of customers at the same time. This is more relevant
when the customers are located dispersedly and personal communication with them is not possible.
Therefore, it is quite helpful for those companies which produce and sell branded products meant for wide
geographical area; e.g. consumer goods.
Sales promotion:
It includes those activities of reaching the customer personally either at office or at home to demonstrate the
product or offer free samples and /or coupons indicating the discount available to the holders. These are
undertaken either to make the customers aware about the product features or to have personal persuasion for
inducing to buy the products. E.g. promotion of Vacuum cleaner or water purifier. Sales promotion may
also be undertaken through display of the product at the retail stores, or temporary price reduction, giving
incentives to middlemen like wholesalers and retailers, organizing contests, etc.
Personal Selling:
Personal selling is affected through the personal contact with one or more prospective buyers. It is more
relevant when the product is expensive and purchased infrequently, e.g. Water purifier, Vacuum Cleaner,
etc. Or when the products is newly introduced in the market; e.g. certain brands of consumer convenient
products. E.g. bikes.

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The decision about selecting a promotion mix, thus, depends on the nature of product itself, companies past
marketing strategies, and budget allocation for promotional efforts.
Promotion budget: Usually, a company can set its promotion budget on the basis of:
what it can afford to spend,
fixing certain percentage of sales revenue, and
Determining marketing objectives to be achieved by the promotion.
After all, promotion is a means to generate sales; it is not an end in itself.
Find below is the promotional expenses of some leading companies:

Hindustan Lever Limited: engaged in variety of consumers products besides industrial and agricultural
products and exports (third party products): Spends about 6.5 % of its sales revenue.

ITC Limited: engaged in Cigarettes, hotels, printing and packaging, specialty papers and exports: Spends
about 6 per cent of it sales revenue.

Bata India Limited: engaged in manufacture and sale of shoes:


Spends 1.7% per cent of its sales revenue.

State Bank of India: engaged in banking services: Spends 0.067 per cent of its revenue.

POINTS TO BE REMEMBER WHILE DESIGNING / MAKING FINANCIAL POLICIES?


Financial aspect of business activities primarily deals with raising, administering, and distribution of funds
for the purpose of business operations. Thus, financial policies have three major dimensions:
1) Determination of total amount of funds to be used by the organization.
2) Determination of what specific assets the organization should acquire, that is,
allocation of funds among various assets in an efficient manner; and
3) Determination of how the needed funds would be financed, that is, obtaining
with relation to the overall valuation of the organization.
Major issues in finance function: 1) Sources of Funds,
2. Usage of funds, and 3) Management of Earnings.
I Sources of Funds:
Long Term Sources Short Term Sources
1. Share Capital 1. Short Term Loans.
Equity Shares Banks & Others.
Preference Shares
2. Borrowings Public Deposits
Debentures Trade Deposits
Long Term Loans Customers advances
3. Retained Earnings Leased Assets.

Financial Mix is a combination of various sources through which funds may be used. Often, a combination
of long term and short term sources is followed. Following factors influence the combination of long term
and short term source i.e. Financing Mix.
Cost of Capital: it is the rate of returns that the suppliers of funds expect.
In case of borrowed capital, it is quite explicit in the form of rate of interests. However, in the case
of equity, it has to be related with the expected returns.
Financial Leverage: is the proportion of fixed cost capital. (like loans and Debentures) in the total
sources of funds. Financial leverage helps in balancing the mix of fixed cost capital and other
sources.
Control and Interference in Management: Financial institutions which advance loans appoint their
own persons on the Board of the company and thereby they control the operations. Shareholders
have a say in the operations of the company. If the equity shareholders are held widely, there may a

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risk of hostile takeover. From this point of view (Control & Interference) of view, it is better to raise
funds through issue of preference shares & debentures.
Nature of Business: where a business is likely to earn almost a fixed rate of return constantly, it is
better to finance through debentures / long term loans, e.g. public utilities like electricity generation
and distribution. Where earning of business is likely to be affected by economic activities like
recession or growth; it is better to have higher proportion of equity.
Purpose of finance: If funds are required for expansion of business through creation of new
facilities; it is better to use long-term sources. For working capital, short term sources are better.
Taking assets on lease, particularly which have high technological obsolescence and are of high
value, is preferable.
Organizational Capabilities: Many companies have to resort to high cost inter corporate deposit to
meet their working capital requirements which affect their earnings. Reliance Industries has used its
capabilities to raise funds at lower costs in the forms of fully-convertible debentures, partly
convertible debentures and issue of Global Depository Receipts (GDPs) to finance its expansion
plans without putting much pressures on its equity. Its Debt / Equity ratio remains around 1:1 which
is considered quite favorable for a fast-growing company.
II Usage of Funds:
An organization can allocate funds between fixed assets and current assets depending on the
requirements.

Fixed Assets Current Assets


Land & Building Inventories
Plant and Machinery Raw materials.
Electrical Installation Work in progress.
Factory Equipments Finished Goods.
Furniture Fixtures Trade Credits
Vehicles Loans & advances
Other fixed assets Current Investments
Cash In hand / with bank(s).

Investment in Fixed Assets: Benefits from these assets accrue over the long period that is the period up to
which these assets can be utilized profitability.
Investments in fixed assets:
Acquisition of new fixed assets for expansion of existing or new products; or for enhancing the existing
the plant capacity, or create R&D facility; and
Replacement of existing fixed assets.
The general principle is that investment in fixed assets should generate more returns than the cost of capital.
Investment in fixed assets can be optimized by: choice of appropriate technology and proper mix of various
fixed assets, and managing project implementation effectively.
1) Technology and asset mix: Modi cement limited, which followed a policy of generous capital
investment in setting up cement plant based on latest technology, incurred Rs.153 Crores, while
similar plant by Jaypee industries cost Rs.120 crores only. Modi cement had to bear lot of
additional costs which affected its financial position adversely. Besides choice of technology, the
company should go for optimum combination of various fixed assets which are critical for project
implementation followed by investment in supporting assets. For example, development of township
which involves lot of investment. Reliance industries took many houses on lease in Surat City just
10 kms away from its Hazira petro chemical project and saved the cost of township development at
the initial stage. The township was developed after the project generating profit
2) Project Implementation: much of the costs can be avoided or reduced if the project implementation
is undertaken properly. Though PERT/CPM techniques help in designing the time table for project
implementation ; and if there is no rigorous following of this, there may be time over-run,
consequently cost over-run. Taking example of Reliance again, it is very particular in implementing
the project well in time. The usual practice is to go slow at the initial stage, deploy resources in

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profitable alternative for time being and as the project implementation progresses, and put all
energies for project completion well within time. This way, Reliance saved lot of costs.
Investment in Current Assets:
Current assets in the form of inventories, trade credits, cash in hand and in banks besides short term loans
and advances and short term loans and advances and short term investments outside the organization
constitute working capital. The requirement of working capital depends on the volume of sales, type of
technology, seasonal and cyclical fluctuations etc. The basic principle of investing in working capital is to
maintain the working capital at a level which facilitates the business operations and minimize the cost of
working capital.
The following steps can be taken to minimize the investment working capital thereby using working capital
more effectively.
Inventory should be maintained at proper level. Seasonal products like woolen products, consumer
electrical fans, etc should be kept minimum in lean season. We have to whether to procure the raw
materials in substantial quantity at the time of harvesting to take advantage of price slum and block
the funds, or to procure the materials when these are required and free the funds. In both cases,
consideration should be given to minimization of costs.
Business organizations have to sell on credit but they can buy on credit also. In fact, many large
organizations/ companies like Hindustan Lever, ITC, and Larsen & Toubro have more amounts of
creditors as compared to debtors.
There should be minimum cash balance in hand or with bank(s) as these idle assets. Cash balance
should be maintained for day-to-day operations and to meet emergency, and surplus funds may be
parked in short term investments and deposits. Bajaj follows the practice of investing in units of UTI
to utilize its cash and earn handsome profits.
III Management of Earnings:
Involves decision about how earnings (net profit after taxes) should be utilized. There may be two extreme
alternatives: 1) to pay the total earnings to equity share holders as returns to the funds contributed by them,
or 2) to retain the entire earnings to meet its future needs of the funds.
Therefore, the question is: how much earnings should be distributed as dividend and how much should be
retained?
A company should take following factors into consideration while deciding dividend / retained earnings
proportion.
Future needs of funds: if it is a growing company, its future need for funds would be very high and a
much higher proportion of earnings has to be retained as compared to a slow growing company. For
example, Reliance retains it substantial portion of earnings to finance its projects.
Shareholders needs: the major stakeholders in equity of company may have great influence on dividend
pay out. For example, multinationals operating in India pay high dividend in order to meet the financial
requirements of their parents.
Dividend stabilization: moderate amount of dividend should be paid irrespective of the companys
fluctuating earnings so that its shareholders get a constant return on their equity. For example, Century
textiles have paid dividends in those years in which it has incurred losses to have stability in dividend
payment.
Legal constraints: The Companies Act stipulates that a manufacturing company will have to retain
certain portion of earnings compulsorily. Similarly, financial institutions advancing long-term loans to a
company also put restrictions on payment of dividend beyond certain limit.

END OF UNIT III.


UNIT IV
Identification of various alternative strategies is an important aspect of strategic management as it provides
the alternatives which can be considered and selected for implementation in order to arrive at certain results.
Thus, this presents two problems: First, identifying what alternative strategies are available and, second,
which of them fit with the environment.
WHAT IS STABILITY STRATEGY? FIND OUT ITS VARIANTS.
In fact, mostly organizations look for growth and do not remain stable over the long period of time.
However, when they adopt some changes in their strategy postures, they try to stabilize in a particular area

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which is consistent with their strengths. Thus, basic approach in the stability strategy is maintain present
course: Steady as it goes.
When to adopt stability Strategy?
Stability is common for most of the organizations at same point of time. In the following conditions, it is
better to adopt stability strategy.
When the organization is serving a defined market or its segments according to its definitions, it can
adopt stable growth strategy. E.g. Nike Shoes and other sports articles shop. Since the organization is
serving the market and fulfilling its mission, it may continue to do so.
If the organization continues to pursue same objectives, it is better to adopt stability strategy
adjusting the level of achievement about the same percentage each year as it has achieved in the past.
For example, renovation of plant and machinery may add to production but by better efficiency and
not through any substantial increase in the production facilities.
For example, if an organization has got certain technological or other break through, it may
continue in the same line so long as it derives certain competitive advantage. This is based on
the principle of learning curve which suggests that over the period, efficiency can be obtained
through learning. Its business implication is that the organization in a new business is likely
to reap the benefits of the learning curve first. Therefore, the strategy may be to jump into the
market first and reap the benefits before the field is crowded. In fact, it is suggested that no
business remains highly profitable over the long run. This happens because of the flooded
entries of competitors at a later stage and at this stage, the organization should think of
alternative strategies.
Following are some important factors which suggest why the organizations follow stability strategy:
1. Perception of management about the performance of the organization may motivate it to pursue
stability strategy.
2. A Stability strategy is less risky in that it offers the safe business to the organization unless there is
major environmental change.
3. Generally larger is the organization and the more successful it has been, the greater is the resistance
to change. Such organization will change its strategies only at extraordinary times.
4. If the organizations past strategy is full of change, it will like to adopt stability so as to become
efficient and manageable and to reap the rich harvest of all such past changes. Developing a stall
into a provision store.
5. For example, if the organization has high market share, it can continue in the same business and
should concentrate on the internal operational efficiency.
Variants of Stability Strategy:
1. Incremental Growth Strategy:
The organizations set their objectives achievement level that was accomplished in the past.
Reason to pursue Incremental Growth Strategy:
a. The organization is doing well or perceives as doing well in its present form,
b. It being a less risky and does not go for higher risk;
c. The organization prefers change only in extraordinary times;
d. It is easier to pursue as it does not disturb the organizational routines.
2. Profit Strategy:
Is also known as end game or harvesting strategy;
It is followed when the main objective of the organization or any its SBUs is to generate cash.
If necessary, even the market share is sacrificed to generate the cash.
If is useful in the following cases:
The Units product is in stable or declining market;
The units product is not prestigious to the organization;
The units market share is small and increase in market share is a costly affair,
The units contribution is not significant to the total sales of the organization;
3. Sustainable growth strategy: when the organization perceives that the external conditions are not
favorable due to certain critical resources constraints like financial resources or raw materials. Other
external constraints may be in the form of Government policy, cheaper import, or entry of big and
capable player in the market.

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4. Stability as a pause strategy: is pursued by those organizations whose past history is full of growth.
In such a case, it is desirable to maintain stability for some time to take the advantages of future
growth opportunities. Therefore, this strategy is known as breathing bell Strategy.

WHY COMPANIES PREFER FOR GROWTH STRATEGY?


A growth strategy is different from stable growth or stability strategy.
Growth Strategy is present in the following cases:
When a firm increases the level of objectives higher than what it has achieved.
When a firm increases the market share of its product, sales revenue etc.
Where the firms strategic decisions centre around increased functional performance in major areas.
Why Executives adopt growth strategies?
In India, during 1980s the executives started engaging themselves in planning for growth. The growth
strategy would be successful under certain conditions. The main reasons underlying growth strategies may
be as follows:
A company which is expanding would attract many people and ensures better management.
In Volatile industries, expansion may be necessary for survival and opportunities must be availed
and threats to be overtaken.
Executives feel that expansion means effectiveness; and the community is much benefited by the
expansion of the firms.
There is an external pressure from then share holders for expansion of the unit.
Executives have a strong belief in the experience curve. There is some evidence that when a firm
grows in size and experience, it gets better position and reduces cost of production and increases the
productivity.
Merits of Growth Strategy
The sales would rapidly increase.
The concentration on market segments within the industry would grow more rapidly.
The products easily enter the market and enjoy market share.
Possible to enter into multinational markets,
Growth is a source of strength for the firms to develop.
The Strategy is necessary for survival.
It helps to expand and diversity the products and market.
Limitations:
Hides serious problems which do not come to light until the growth rate stops or decline is
experienced. Thus there are self imposed limitations.
Small scale operations are always less risky and less harmful to the natural environment than
expanded firms.
SUB STRATEGIES OF GROWTH STRATEGY
Intensive Growth Strategy ( Internal Growth)
Means increasing the sales volume, profits and market share of the existing product line or services.
It involves concentration of resources on a high growth product of market segment.
The following are the cases of Intensive Growth Strategy:
Increasing the quantum of sales in the unexplored areas of economy. E.g. increasing the sale of
popular brands of portable transistor sets in the rural areas.
Increasing to quantum of sales by encouraging new users for the product; e.g. when a company
promoting the sale of instant coffee and instant tea, it is following this Strategy.
Increasing the quantum by introducing minor changes in the product. For.eg. TV sets with remote
control devices, refrigerators with automatic refreezing are cases of this strategy.

DIVERSIFICATION STRATEGY
Corporate Diversification involves broadening or enlarging the companys product range by
introducing new products or extending the range of existing products.
Internal Diversification:
Means development of new products and services by a firm to the existing business. For e.g.
Laxmi Mills a reputed organization has set up spinning mills, textile mills, machine tools etc. in
Tamil Nadu. In recent years, it has added several products to its product line.

26
External Diversification:
Means adding new products and Services through acquisition and merger with other firms. For
e.g. Colgate and Palmolive companies.
Horizontal Integration:
Refers to owning or controlling a number of similar but separate activities in the same kind of
business. In the horizontal integration the firm acquires other firms or products that can use
existing facilities. Usually the acquired firm is a competitor.
For e.g. a firm already in auto service business may take over another company which has auto
service centers. As the facilities for manufacturing and marketing get shared, then cost per unit
may be reduced. Horizontal integration therefore may enhance the profitability of the total
enterprise.
Vertical Integration:
Is a type of growth Strategy where in other products or Services are added to the existing product
line as complementary.
Backward Integration: means addition of activities to the existing business for regular supply of
firms present Inputs. For e.g. In Tamil Nadu, Many sugar Mills have taken up Sugar Cane farming.
Television manufacturers produce picture tubes and accessories.
Forward Integration: means the entry of a firm into the business of production, distribution and
Sales of its present products. Many firms are doing business with their own retail distribution system.
Printers turning as Publishers, timber merchants making furniture are the instances of forward
Integration.

WHAT IS RETRENCHMENT STRATEGIES? TYPES AND DISCUSS THE SITUATIONS TO


ADOPT RETRENCHMENT STRATEGIES?
The third major Strategic alternatives available to a firm.
Growth & Stability Strategy are generally adopted by firms that are in satisfactory competitive
positions.
But, when a firms position is disappointing or; at the extreme, when its survival is at stake, the
retrenchment strategies may be appropriate.
Reasons for adopting Retrenchment Strategies:
Prevalence of poor economic conditions,
Competitive pressures may also cause firms to curtail their operations.
Operating and production inefficiencies, inability of the firm to implement latest technology,
The Company is not doing well & has not met it objectives, pressure from shareholders, to improve
performance.

TYPES OF RETRENCHMENT STRATEGIES:


TURNAROUND STRATEGY:
The aim of Turnaround Strategy is to transform the organization into a learner and more effective
business. Turnaround means reverse the negative trend.
Indicators of adopting Turnaround Strategy:
incurring losses continuously,
declining demand for product and or services,
Increasing debt and debt service,
Continuous problems of working capital
High rate of employee turnover and employee dissatisfaction.

Approaches of Turnaround Strategy:


The approaches of the Strategy include: Surgical approach and HRD Approach.
Surgical Approach:
is mostly mechanic and requires tough attitude of the top executive.
The executive issues direction for change, fires employees, close down divisions/ plants drops
the product lines, replaces the machinery.
This approach continues until the firm is turned around. Later, the chief executive relaxes the
tough environment & Controls.
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HRD approach:
Chief executive conducts a service of meetings, encourages the managers to be open, understand
each other, understand the problems and diagnose the root cause for poor performance of the firm.
Encourages the employees to suggest methods of turning around and active discussions in the
form of brain-storming sessions.
Encourages employees to decide the technique, acquire skills and knowledge, modify their
behavior, etc.
Who will manage the process? Basically, either the present executive and his team or a new executive will
manage the process.
Activities of Turnaround Process:
Diagnosing the problem accurately,
Analyzing the products, suitability to the changing customer tastes, preference and needs etc
against competitors products and substitute products,
Analyzing production process, technology, competition, competitors strategies etc.
Analyzing the financial position cost of capital, cost control, etc.
Feed forward of information to various decision areas and control areas,
Take up activities systematically, feedback and control the deviations immediately through action
research.
CAPTIVE COMPANY STRATEGY:
This strategy is pursued when a firm sells the majority of its products to one customer (Whole
saler / Dealer) who in turn performs some of functions normally done by an independent firm.
The Customer, in this Strategy, provides the product design to the captive manufacturer, who in
turn produces according to this design and supplies the products to the customer.
The firm need not involve the cost of product design and marketing.
The firm can also minimize the risks of marketing.
The firms with marketing problems and the small companies who can not launch the full range of
marketing activities on their own may adopt a Captive Strategy.
The major limitation of this strategy is that the company is limited by the activities of its captor.
TRANSFORMATION STRATEGY:
A Transformation occurs when a firm makes a major change in its outlook and operations,
usually including moving from one kind of business to another.
Companies may undertake this strategy when:
returns on current operations are lower than desired,
opportunities in other areas are especially attractive,
investment needed exceed,
The firm has a strong financial base to support its transformation.
DIVESTMENT STRATEGY:
Company sells or spins off one of its business units under the Divestment Strategy.
Usually adopted when the company is performing poorly or when it no longer fits the companys
Strategic profile.
Causes for adopting Divestment Strategy:
To increase the efficiency of a SBU Strategic Business Unit or major operating division or
product line which has failed to achieve the desired results,
when the market size is small to earn desired profit,
The limited resources often force the firms to divest the resources from less profitable business to
more profitable business,
continuous increase in the cash outflows more than that of cash inflows from a particular unit
forces the firm to divest that unit,
Firms inability to meet the competition,
Divestment, sometimes, is necessary to abide by the provisions of the Law.
Approaches of Divestment:
by spinning off a part of the business,
by selling a business unit to another firm,

28
by simply closing down a portion.
Cautions in adopting Divestment Strategy:
Generally, the firms delay in making decision as it reflects the failure of the firm. Therefore, the
firms should take the decision of divesting a loss making unit at the right time.
The buying firm normally undervalues the assets of the divesting firm or part of the firm. Hence,
the firm should find right time to get better value of the divesting portion. Adopting this Strategy is not
always due to the loss of business failure. It may be due to shifting from less profit making to more profit
making business.
LIQUIDATION STRATEGY:
is generally considered the most extreme retrenchment Strategy. This strategy involves closing
down a business organization and selling its assets.
This is the last alternative as its consequences are severe.
Loss of jobs of all employees and termination of the opportunities of the firm.
Reasons for Adopting:
Partnership firms liquidate when one or more partners/ shareholders want to withdraw.
when one of the partners has to withdraw and all other partners express their inability to buy the
withdrawing partners share,
The value of the assets of the firm is more worthwhile than the rate of return earned by the firm.
Sometimes, owners may receive a God father Offer for their business.
Consequences of Liquidation:
There would be a closure or elimination of an agency performing economic functions in the set
up of economic institutions of the country. Therefore, the Government does not encourage the liquidation of
business, unless it is warranted.
All the jobs will also be liquidated. Hence, employees and trade union do not welcome this
strategy.
Different types of stakeholders (like creditors, dealers, financial companies and banks) will have
to suffer as the obligations of the firm towards them will be fully or partially unmet. Hence, they do not
prefer this strategy, unless it is a must.
Further, it would be difficult to find a buyer as it involves larger amount of finance.

DISCUSS THE COMBINATION STRATEGY?


May involve implementation of two or more Strategies.
In some cases, due to rapid environmental change, adoption of combination Strategy would be
necessary.
Firms may liquidate one unit, develop another unit and allow the third unit to survive
simultaneously to improve the efficiency of the business and maximize the profitability. Once the firms
profitability is satisfactory, it may adopt growth Strategy.
This strategy is common for large-scale organizations with multiple units, diversified products
and national or global markets. Combination of survival, growth and retrenchment Strategies may be either
simultaneously or sequential.
It is also known as portfolio restructuring as it is the mix and percentage make up of the different
types of businesses in the portfolio.
It involves both divestment and acquisition / take over.

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AN INTEGRATIVE MODEL OF STRATEGIC ALTERNATIVES:
FIRMS ENVIRONMENTAL SITUATION
Opportunities are Threats are posed
provided
FIRMS STRONG Ideal Firm: Threatened Firm:
INTERNAL Concentration. Limited growth,
ANALYSIS Vertical Integration, Concentric
Horizontal Diversification,
Integration. Conglomerate
Diversification,
Transformation,
Joint Ventures.
WEAK Opportune Firm: Troubled Firm:
Turnaround, Turnaround
Concentration, Divestment,
Captive Company, Liquidation.
Limited Growth,
Mergers,
Joint Ventures,
Divestment,
Liquidation.

As can be seen from this exhibit, the firms whose strengths, match with the environmental
opportunities are the IDEAL FIRMS.
Firms, whose strengths do not match with the opportunities provided by the environment, but face
with the environmental threats are the threatened firms.
The internally weak firms provided by environmental opportunities are OPPORTUNE FIRMS.
The internally weak firms and posed threats by the environment are troubled firms.

END OF UNIT IV.


UNIT V

WRITE DOWN THE MEANING FOR ETHICS? WHY IT IS NECESSARY FOR BUSINESS?
Business Ethics deals with morality in the business environment. It involves moral judgment based on the
understanding of the norms of society. Ethics extend beyond the legal question and involves goodness or
badness of an act. Therefore, an action may be legally he may be entitled to do so but morally, this is the
application of moral principles to business problems.
Morals refer to any generally accepted customs of conduct and right living a society.
Business ethics is concerned primarily with the relationship of business goals and techniques to
specific human needs. It studies the impact of acts on the good of the individual, the firm, the business
community and the society as a whole.
Need of Business Ethics
There is a need for business ethics, throughout the world. Often, the Government creates statutes and
administrative laws in critical areas of inter-personal conduct where the safety and personal welfare of the
people can be vitally affected by unethical practices. In order to curb unethical practices in business
community, the concept of professional codes or codes of conduct have to be followed.
To promote ethics in business, the following are carried out:
They publish a Code of Ethics which will improve the confidence of customers, clients,
employees etc in the quality of service they may expect;
The Code of ethics will govern the inter-relationships of the members- Vendors & Suppliers,
financiers and government agencies.
Various stakeholders in business have to be protected from the unethical and dubious ways of
dealing and exploitation.
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The consumers right can be protected only when there is moral binding on the business
community.
The consumer has the right to be informed,
He has the right to Safety,
He has the right to choose; and
He has the right to be heard.
Unethical practices:
The grave unethical practices that have grown in business are that of buying business, using baits such as
bribes, grafts, and the entertainment of buyers by providing call girls or presenting them expensive gifts.
Corruption and unethical practices go together and exist side by side.
The competitions will resort to bribe to get a favour,
Bribe is given to get information or business rendered;
To entertain(official/ influential customers) to procure favors,
Under quoting the prices in tenders by getting prior information,
Promoting/ transferring a person on payment of bribe.
Costly presentation to attract deposits/ investment;
Recommendation in employment giving jobs to Sons/ Daughters or relatives than the deserving
people,
During the period of scarcity situation, increasing the price of the articles to make larger margins and
thereby ignoring social obligations to the community,
The contractors and suppliers, etc give bribe to engineers and accountants of the PWD, irrigation or
construction departments.
i. Ethics are relating to what is good / or bad, and having to do with moral duty and obligation.
ii. Ethics is our code of conduct.
iii. Ethics are set of rules and standards that guide our behavior. It may or may not be written down.
iv. Personal Ethics guide our personal behavior. E.g. I will not lie to a friend; respect the elders.
v. Professional ethics, which guide our professional conduct (e.g. I will do everything in my power and
support my subordinates).
vi. Ethics are rooted in our morals but they are modified by group discussions, peer pressure and
circumstances.
vii. When an action is in harmony with our morals, we say that the action is ethical, when it is not, it is
unethical.
viii. Ethics are basically codes governing Dos and Donts.
ix. Ethics involves the study of moral issues & choices. It is concerned with Right Vs Wrong, Good Vs
Bad.
x. Ethical or unethical behavior is the result of person-situation interaction which is influenced by an
individuals moral principles & the organizations ethical climate.
MORAL
Moral is generally used to describe who people are. E.g. a moral person.
In other words, our morals are those principles & values that have internalized. Our
morals are automatic responses to situation. They are part of who we are and our
unique personality.
We make moral decisions without a lot of thought because they are based on the
principles & values we believe in most deeply.
We learn our morals from our parents, teachers, religious leaders, friends and
experience.
Definition:
Carter Mc Namara has defined: Business Ethics is generally coming to know what is right or wrong
in the work place and doing what is right this is in regard to effects of products/ services and in
relationship with stakeholders.
Each society forms a set of rules that establishes the boundaries of generally accepted
behavior to form the moral code.
Sometimes, the rules do not seem to cover new situations. You may strongly support
personal privacy, but in a time when employers are tracking employees e-mail and

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internet usage, what rules do you think are acceptable to govern appropriate use of
company resources?
The term Morality refers to social conventions about right or wrong. Ones view of
what is moral may vary by age, culture group, ethical background, religion and
gender.
However, certain behavior that is accepted in one culture might be unaccepted in
another. E.g. in the US, it is perfectly acceptable to place ones elderly parents to
AGED HOMES.
As another example, attitude towards the illegal copying of software (piracy) range
from strong opposition to acceptance as a standard approach to business.
Nature of Business Ethics:
Ethical issues occur frequently in management and extend for beyond the commonly
discussed problems of bribery, collusion, and theft etc.
Ethics requires a manager to be honest with him and society. The managers
performance and quality reflect in the success of a business.
Sometimes ethical issues occur as managerial dilemmas because they represent a
conflict between organizations economic performance (measured by revenues,
costs, and profit) and its social performance (stand in terms of obligation to
persons both inside and outside the organization.
PRINCIPLES GOVERNING PROFESSIONAL ETHICS:
are guided by six principles.
Honesty, fairness, respect, compassion, integrity, and self-discipline.
are expressed in ones action.
While taking decision must ensure that the above principles are not violated.
may be integrated with the corporate and organization values.
In profession, ethical decisions are required to be taken for the overall benefit of the
organization.
Self- discipline in profession is the key to success which can lift one man above his
colleagues in terms of achievement & Success.
However, no professional can promise how to do good for his client. But the Doctors,
Managers, and Lawyers can promise that they will not knowingly do harm.
WRITE THE IMPORTANCE OF CORPORATE SOCIAL RESPONSIBILITY? VARIOUS STAKE
HOLDERS IN IT?
Being an integral part of society, business must meet the requirements of the Government and live up to the
expectations of Society. Business can not exist in a sick society, it must contribute to the promotion of social
and community welfare and the healthy growth of society. As such a business should be socially
responsible.
Definition:
Social Responsibility is the obligation of decision-makers to take actions which protect and improve the
welfare of the society as a whole along with their own interests.
----- Davis Keith & Robert Blomstorm
DIMENSIONS OF SOCIAL RESPONSIBILITIES
Responsibilities towards Owners (Shareholders)
It is a primary responsibility of the management. The expectations are:
A fair and reasonable rate of interest,
A share in the profit,
capital appreciation,
security for investment,
Corporate image,
Knowledge about the working of the enterprise and its periodical report.
Responsibilities towards Employees
Payment of fair and reasonable wages to labor and fair salaries to the staff members.
Provision of reasonable and just working conditions,
Establishment of fair work standards & norms
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Provision of labor welfare facilities such as medical facilities, accommodation, canteen facilities etc,
Development of leadership qualities,
Offering job security and promotion opportunities,
Arrangement for proper training and education of the workers,
Proper recognition, appreciation and encouragement of special skills of the employees and workers,
and
Provision of religious, social and political freedom to workers.
Responsibilities towards consumers
The goods supplied must meet the needs of the consumers of different classes, tastes and
purchasing power.
The goods must be of appropriate standard and quality, and be available in adequalities at
reasonable prices.
Proper customer service,
There should be a fair and wide spread of goods and services,
The products should not have any adverse effect on the customers,
Taking appropriate steps to prevent profiteering, hoarding, black marketing, etc.
Avoiding misleading, false and exaggerated advertisements,
Redressing the genuine grievances of the consumers.
Responsibility towards Government
The company should conduct its affairs in a law abiding manner.
Should pay its dues and taxes fully and honestly.
Should desist from corrupting public servants or the democratic process for selfish ends.
It should not make any attempt to buy political support by money or patronage.
It should follow honest trade practices and avoid activities leading to restraint of trade.
It should abstain from direct political involvement and should not support any political party.
Responsibility to the Community
Providing employment to the socially weaker sections and physically challenged persons.
Prevent environment pollution and preserve the ecological balance.
Setting up new industries in backward and less developed regions.
Promotion of cottage, village and SSI units.
Protecting & improving the natural environment including forests, lakes, rivers and wild life.
Elimination of crimes in industrial areas and meeting the heavy costs of pollution and waste disposal.
Providing relief to victims of natural calamities,
Contributing to the overall development of the locality in which the business is situated.
Providing liberal contribution to furthering social causes such as promotion & education, population
control, AIDS control programme, etc.
The Indian situation:
It is gratifying to note that a large number of Indian Companies discharge their social responsibilities
quite satisfactorily. There are many companies which have excelled in such activities.
In India, TISCO (Tata Iron and Steel Company) has been a pioneer in discharging social responsibilities.
It has made several contributions in areas such as community development, social welfare, tribal area
development, agricultural and related activities, rural industrialization, etc.
Some of the leading companies have been instrumental in setting up schools, colleges, dispensaries,
hospitals, research institutes, etc.
SUMMARY OF MAJOR ARGUMENTS FOR AND AGAINST SOCIAL RESPONSIBILITY
FOR BUSINESS.
For Social Responsibilities:
It is to promote and improve the community where it does business,
It improves the public image of the firm,
It is necessary to avoid government regulation.
It is in the stockholders best interest: it will improve the price of stock in the long run.
Society should give business a chance to solve problems where government failed to solve.

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Business is considered an institution with the financial and human resources to solve social
problems.
Prevention of problems is better than cures so let business solve problems before they become
too great.
Against Social Responsibility
It might be illegal,
Social actions can not be measured,
It violates profit maximization,
It would dilute businesss primary purposes,
Business has already poses too much power; such involvement would make business too powerful.
Such business involvement lack broad public support.
PYRAMID OF CORPORATE SOCIAL RESPONSIBILITY

Philanthropic Responsibilities
Be a good Corporate Citizen
Contribute resources to the community; improve the quality of life.

Ethical Responsibilities
Avoid harm.
Obligations to do what is right, just and fair.

Legal Responsibilities
Play by the rules of the game.
Obey the Law. --- Law is societys codification of right and wrong.

Economic Responsibilities.
Be profitable.
The foundation upon which all others rest.

WRITE BRIEFLY ABOUT SOCIAL AUDIT? ITS IMPORTANCE?


SOCIAL AUDIT
Social Audit is primarily based on the recognition of the social responsibilities of business.
The term Social Audit generally means a comprehensive evaluation of the way a company
discharges all its responsibilities to share holders, customers, employees, community, and the
Government.
Social audit is an approach for monitoring, appraising, and measuring the social performance of
business.
SPECIAL FEATURES
Encompasses all activities which have a social impact,
Determines only what an enterprise is doing in social areas; but not the amount of social good that
results from these activities.
Very difficult to audit the social results.
BENEFITS:
It provides data for comparison with policies and standards. Hence, the management can
determine how well the organization is living up to its objectives.
In the process of Social Audit, employer become more aware of the social implications of their
actions.
Social Audit supplies cost data on social programs. So, management can prepare the budget.
It shows a business where it is vulnerable to public pressures and where its strength lie.
Provides information to the press, the public and others with regard to the social activities
undertaken by an organization.

END OF UNIT V.
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