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Objectives
After reading this unit, you shoulcfbe able to:
define strategy and understand its meaning;
understand the essence of strategy;
distinguish between strategy, policy, tactics, programmes, procedures and rules;
understand strategic decisions and its difference with operational decisions;
understand different levels of strategy; and
know the importance of strategy.
Structure
1.1 l ntroduction
1.2 Meaning of Strategy
1.3 Nature of Strategy
1.4 Essence of Strategy
1.5 Strategy vls Policies and Tactics
1.6 Strategy vls Programmes, Procedure and Rules
1.7 Levels of Strategy
1 .8 1 m portance of Strategy
1.9 Summary
1.10 Key Words
1.1 1 Self Assessment Questions
1.12 References and Further Readings
1 INTRODUCTION
The top management of an organizatio~iis concerned with selection of a course of
action from among different alternatives to meet the organizational objectives. The
process by which objectives are formulated and achieved is known as strategic
management and strategy acts as the means to achieve the objective. Strategy is tlie
grand design or an overall 'plan' which an organization chooses in order to move or
react towards tlie set objectives by using its resources. Strategies most often devote a
general programme of action and an implied deployment of emphasis and resources to
attain cornprehensive objectives. An organization is considered efficient and
operationally effective if it is characterized by coordination betweerf objectives and
strategies. There has to be integratioli of the parts into a complete structure. Strategy
helps the organization to meet its uncertain situations with due diligence. Without a
strategy, the organization is like a ship witl~ouat rudder. It is like a tramp, which has
no particular destination to go to. Without an appropriate strategy effectively
implemented, the future is always dark and hence, more are the chances of business
failure.
..
Introduction to Strategic
Management 1.2 MEANING'W STRATEGY
Thc \cord 'stl-atcg\' has entered in the field ofmanagement from tlie military services
where it reli.r\ ro apply the forces against an enemy to win a war. Originally, tlie word
strateg) has been derived from Greek 'strategos' whicli means generalship. The word
was used for tlie first time in aroulid 400 BC. The word strategy means the art of tlie
general to fight in war.
The dictionary meaning of strategy is, "the art of so moving or disposing the
instrument of warfare as to impose upon enemy, tlie place time and conditions for
1 fighting by one self."
terms. According to .
I In management, the concept of strategy is taken in more broader
Glueck, "Strategy is the unified, comprehensive and integrated plan that relates
the strategic advantage of the firm to the challenges of the environment and is
designed to ensure that basic objectives of the enterprise are achieved through
7 proper implementation process."
:I Competitive Advantage
Whenever strategy is formulated, managers have to keep in mind tlie co~npetitoros f
the organization. Tlie environment has to be conti~iuouslym onitored for forming a
strategy. Strategy has to be made in a sense that the firm may have competitive
advantage. It makes tlie organization competent e~ioughto meet the external threats I
and profit from tlie environmental ~pportut~iri.r The changes that take place over a
period oftime in the environ~ne~hi3tv e made .r.r, rf strategy Inore beneficial.
thab
While making plans, competitors may be igilored LAin, making strategy, competitors 1
are given due importance.
Vector
Strategy involves adoption of the course of action and allocation of resource for
meeting tlie long term objectives. From among tlie various courses of action
available, the, managers have to choose tlie one which utilizes the resources oftlie
organization in the best possible manner and helps in tlie ac1iievement oftlie
organizational objectives. A series of decisions are taken and they are in tlie
same direction.
Strategy provides direction to tlie whole organization. When the objective has bee11
set, they bring about clarity to tlie whole organization. They provide clear direction to
persons in the organization who are responsible for implementing the various courses
of action. Most people perform better ifthey know clearly what they are expected to
do and where tlie organization is going.
Synergy
Once we take a series of decisions to acco~nplisltil ie objectives in the same direction,
there will be synergy. Strategies boost the prospects by providing synergy.
Let us now take an example to illustrate the essence of strategy in a firm dealing with
chemicals. Tlie scope of the firm relating tlie product is basic chemicals and
pharmaceuticals. The objectives of tlie firm can be:
Return on Investment: Threshold 20%, goal 35%.
Sales growth rate: Threshold lo%, goal 15%.
The strategy which comprises of the competitive advantage, growth vector
and synergy can be:
Competitive advantage: Patent protection and well developed R & D
division.
Growth vector: Product development and concentric diversification.
Synergy: Use of the firm's research capabilities and production technology.
In this manner each firm can individually have its own strategy.
Activity 1
1 . Ask tlie managers of three organizations about their perception regarding concept
of strategy.
..........................................................................................................................
2. Explain tlie term vector. How is it important in decision making?
3. Discuss the nature of strategy.
1.5 STRATEGY VIS POLICIES AND TACTICS
In this section, the concept of strategy is compared with concept.of policies and
tactics.
Strategy v/s Policies
Strategy has often been used as a synonym of policy. However, both are different and
shoi~ldn ot be used interchangeably.
Policy is the guideline for decisions and actions on the part of subordinates. It is a
general statement of understanding made for acliieve~nenot f objectives. Policies are
statements or a co:nmonly accepted i~nderstandingo f decision making. They are
thought oriented. Power is delegated to tlie subordinates for implementation of
policies. In general terms, policy is concerned with course of action chosen for the
fulfillment oftlie set objectives. It is an overall guide that governs and controls
managerial actions. Policies may be general or specific, organizational or functional,
I written or implied. They should be clear and consistent. Policies have to be integrated
so that strategy is implemented successfully and effectively. For example, when the
performance oftwo employees is similar, the promotion policy may require the
promotion oftlie senior employee and hence lie would be eligible for promotion.
I
Strategies on the other hand are concerned with the direction in wliicli Iii~mana nd
physical resources are deployed and applied in order to maximize the chances of
achieving organizational objectives in the face of environmental variable. Strategies
are specific actiol~ssu ggested to achieve the objectives. Strategies are action oriented
and everyone in the organization are empowered to implement them. Strategy cannot
be delegated downward because it may require last minute decisions.
I Strategies and polices both are the nieans towards the end. 111 otlier words, both are
directed towards meeting organizational objectives. Strategy is a rule for makillg
decision while policy is contingen~c lecision.
Concept of Strategy
Introduction to Strategic Strategy v/s Tactics
Management
Strategies are on one end ofthe organizational decisions spectriun while tactics lie on
tlie other end.
Carl Von Clausewitz, a Prussian army general and military scientist defines military
strategy as making use of battles in the furtherance of tlie war and tlie tactics as "the
use of arined forces in battle". A few points of distinction between the two are as
follows:
i) Strategy determines tlie major plalis to be undertaken while tactics is the means
by which previously determined plans are executed.
ii) Tlie basic goal of strategy according to military science is to break tlie will of the
army, deprive the eneiny of the means to fight, occupy his territory, destroy or
obtain control of his resources or make him surrender. The goal of tactics is to
achieve success in a given action and this forms one part of a group of related
military action.
iii) Tactics decisions can be delegated to all the levels of an organization while
strategic decisions cannot be delegated too low in the organization. The authority
is not delegated below the levels than those which possess the perspective
required for taking decisions effectively.
iv) Strategy is formulated in both a continuous as well as irregular manner. The
decisions are taken on the basis of opportunities, new ideas etc. Tactics is
determined on a periodic basis by various organizatio~~As .f ixed time table may
be made for following tactics.
v) Strategy has a long term perspective and occasionally it may have a short term
duration. Thus, the time horizon in terms of strategy is flexible but in case of
tactics, it is short run and definite.
vi) The decisions taken as part of strategy for~nulationa nd imple~nentationh ave a
high element of uncertainty and are taken under the conditions of partial
ignorance. In contrast tactical decisions are more certain as they work upon the
framework set by the strategy. So the evaluation of strategy is difficult than the
evaluation of tactics.
vii) Since an attempt is made in strategy to relate the organization with its
environment, the requirement of information is more than that required in
tactics. Tactics use information available internally in an organization.
viii) The formulation of strategy is affected considerably by the personal values of the
person involved in the process but the same is not tlie case in tactics
implementation.
ix) Strategies are the most important factor oforgaliization because they decide the
future course of action for organization as a whole. On the other hand tactics are
of less importance because they are concerned with specific part of the
organization.
Activity 2
1 List the policies of any organization and also state the strategies it undertook.
2. ,Distinguish between strategy and tactics. Concept of Strategy
..........................................................................................................................
3. Distinguish between strategy and policy.
1.6 STRATEGY V/S PROGRAMMES,
PROCEDURE AND RULES
In this section, the relationship of strategy is explained with programmes, procedure
and rules.
Programmes
A prograninie is a single use comprehensive plan laying down the principle steps for
acco~nplisl~ian gsp ecific objective and sets an approximate time limit for each stage.
It is basically concerned witli providing answers to questions like: By whom will
the actions be taken up? When will the actions be taken? Where will the actions be
taken'? Program~nesa re guided by organization's objectives and strategies and cover
Inany of the other types of plans. Therefore, they provide a step by step approach to
guide the action necessary to meet the objectives as set in the strategy. Programmes
provide the sequence of activities in a proper order which are designed to
imple~nenpt olices. Progra~nmeas re the instruments for coordination as they
require system, thinking and action. They also involve integrated and coordinated
planning efforts.
Procedure
I11 general terms, a procedure can be defined as " A series of functions or steps
performed to accomplish a specific task or undertaking." Strategies, programmes,
policies, budgets etc. need to be supplemented with detailed specifications i.e. how
they are to operate or would operate. A procedure is a precise means of making a step
by step guide to action that operates within a policy framework. Most companies have
hundreds of procedt~~.Ie isk e selection, promotion, transfer etc. They are essential for
smooth opernt ll>n of the business activities. For example, procedure may include
calling tentle~s for purchasing materials, keeping them in stock roo111 and issuing them
against requisition slips. Procedures are concerned witli com~nunicatioo~fit asks to be
perfor~ncdo, rganization interfaces and the responsibilities ofthe individuals involved.
The) describe the customary method for handling a future activity. It gives sequence
of actions directed at a single goal (usually short term) that is repeatedly pursued, i.e.
adopting budget, making procedures or granting sick leave to an employee against
medical certificate etc. Procedures are more rigid and allow no freedom as against
Introduction to Strategic Rules
Management
A rule is principle to which an action or a procedure conforms or is intended to
conform. It is a standard or a norm to be followed in the conduct of a business in a
particular situation. It is more rigid and demands a specific action with respect to
particular situation. It does not mention any kind oftime estimate or sequence as in
the case of procedures. It is much more specific than a policy. It allows no liberty or
leniency and does not tolerate much deviati In. Rules have to be strictly followed and
lion compliance may entail penalty or punishment. For example, "NO Smoking" is a
rule wliicli has to be adhered to, by all tlie levels of management.
1.7 LEVELS OF STRATEGY
It is believed that strategic decision making is the responsibility oftop management.
However, it is considered useful to distinguish between the levels of operation ofthe
strategy. Strategy operates at different levels vis-a-vis:
Corporate Level
Business Level
Functional Level
There are basically two categories of companies- one, which have different businesses
organized as different directions or product groups known as profit centres or strategic
business units (SBUs) and other, wliicli consists of co~npaniesw liicli are single
product companies. The example of first category can be that of Reliance Industries
Limited which is a highly integrated company producing textiles, yarn, and avariety
of petro chemical products and the example of the second category could be Asliok
Leyland Limited wliicli is engaged in the manufacturing and selling of heavy
commercial vehicles. The SBU concept was introduced by General Electric Company
(GEC) of USA to liialiage product business. The fundamental concept in the SBU is
tlie identification of dicrete independent product/ market segments served by the
organization. Because ofthe different environments served by each product, a SBU is
created for each independent product/ segment. Eacli and every SBU is different from
another SBU due to the distinct business areas (DBAs) it is serving. Eacli SBU has a
clearly defined productlmarket segment and strategy. It develops its strategy
according to its own capabilities and needs with overall organizations
capabilities and needs. Eacli SBU allocates resources according to its individual
requirements for the achievement of organizational objectives. As against the multi
product organizations, the single prodi~cot rganizations have single Strategic
Business Unit. In these organizations, corporate level strategy serves tlie whole
business. The strategy is implanted at tlie next lower level by functional strategies. I11
multiple product company, a strategy is formulated for each SBU (known as business
level strategy) and such strategies lie between corporate and functional level
The three levels are explained as follows:
Carporate Level Strategy
At the corporate level, strategies are formulated according to organization wise
polices. Tliese are value oriented, conceptual and less concrete than decisions at tlie
other two levels. Tliese are cliaracterized by greater risk, cost and profit potential as
well as flexibility. Mostly, corporate level strategies are futuristic, i~i~iovativaned
pervasive in nature. They occupy the highest level of strategic decision making and
cover tlie actions dealing with the objectives ofthe organization. Such decisions are
made by top management of the firm. The example of such strategies include
acquisition decisions, diversification, structural redesigning etc. The board of
Directors and the Chief Executive Officer are the primary groups involved in this level
of strategy making. In s~nalaln d family owned businesses, the entrepreneur is both the
general manager and chief strategic manager.
Business Levelstrategy
The strategies formulated by each SBU to make best use of its resources given the
environment it faces, come under the ganiut of business level strategies. At such a
level, strategy is a comprehensive plan providing objectives for SBUs, allocation of
resources among functional areas and coordination between them for achievement of
corporate level objectives. These strategies operate within the overall organizational
strategies i.e. within the broad constraints and polices and long term objectives set by
the corporate strategy. The SBU managers are involved in this level of strategy. The
strategies are related with a unit within the organization. The SBU operates within the
defined scope of operations by the corporate level strategy and is limited by the
assignment of resources by the corporate level. However, corporate strategy is not the
sum total of business strategies of the organization. Business strategy relates with the
"how" and the corporate strategy relates with the "whaf"' Business strategy defines
the choice of product or service and market of individual business within the firm. The
corporate strategy has impact on business strategy.
Functional Level Strategy
This strategy relates to a single functional operation and the activities involved
therein. This level is at the operating end ofthe organization. The decisions at this
level within the organization are described as tactical. The strategies are concerned
with how different functions of the enterprise like marketing, finance, manufacturing
etc. contribute to the strategy of other levels. Functional strategy deals with a
relatively restricted plan providing objectives for specific function, allocation of
resources among different operations within the functional area and coordination
between them for achievement of SBU and corporate level objectives.
Sometimes a fourth level of strategy also exists. This level is known as the operating
level. It comes below the functional level strategy and involves actions relating to
various sub functions of the major function. For example, the functional level strategy
of marketing function is divided into operating levels such as marketing research, sales
promotion etc.
Three levels of strategies have different characteristics as shown in the following
table.
Table 1.1: Strategic Decisions at Different Levels
Dimensions Levels
Corporate Business Functionnl
Impact Significant Major Insignificant
Risk Involved High Medium Low
Profit Potential High Medium Low
Time Horizon Long Medium Low
Flexibility High Medium Low
Adaptability Insignificant Medium Significant
Concept of Strategy
Introduction to Strategic
Management 1.8 IMPORTANCE OF STRATEGY
With the increase in the pressure ofexternal threats, companies have to make clear
strategies and implement them effectively so as to survive. There have been companies
like Martin Burn, Jessops etc. that have completely become extinct and some
companies which were not existing before they became the market leaders like
Reliance, Infosys, Technologies etc. The basic factor responsible for differentiation
has not been governmental policies, infrastructure or labour relations but the type of
strategic thinking that different companies have shown in conducting the business.
Strategy provides various benefits to its users:
Strategy helps an organization to take decisions on long range forecasts.
It allows the firm to deal with a new trend and meet competition in an effective
manner.
With the help of strategy, the management becomes flexible to meet unanticipated
changes.
Efficient strategy formation and implementation result into financial benefits to
the organization in the form of increased profits.
4
( Political
I . Government stability
2. Political values and beliefs shaping policies
3. Regulations towards trade and global business
4. Taxation policies
5. Priorities ill social sector
Economic Factors
1. GNP trends
2. Interest rates/savings rate
3. Money supply
4. Inflation rate
5. Une~i~ployment
6. Disposable i~icoliie
7. Business cycles
8. Trade deficit/surplus
Socio-cultnral Factors
1. Population demograpliics
e ethnic composition
e aging of population
e regional cliariges in population growth and decline
2. Social mobility
3. Lifestyle changes
4. Attitudes to work aiid leisure
5. Education - spread or erosion of educational stalidards
6. I-lealth and fitness awareness
7. Multiple income families
Technological
I . Bioteclinology
2. Process innovation
3. Digital revolution
4. Government spendilig 011 research
5. Govelnniellt and industry foc~losn techllological effort
6. New discoveries/development
7. Speed of teclil~ologytr ansfer
8. Rates of obsolesce~ice
Legal
1. Moliopolies legislatioii/Aiititr~lsrte gulation
2. Employment law
3. I-lealth aiid safety
4. Product safety
-
Political: Politics lias a serious impact on the ecolio~nicen vil.onrnent o f a country.
Political ideology and political stability or illstability strotigly iiiflueilce the pace and
direction oftlie economic growth. Also it co~itribuiesto tlie econo~nice nviroiilnent
wliicli is conducive for some busiliesses to grow or relnaitis illdifferent for some
busillesses and at ti~liesis a hurdle. Subsequent to general elections of 2004 in the
country, there has been a change in the governmeut at tlie ceiitre. A new coalitioli
United Progressive Allialice (UPA) led by tlle Congress party and supported by Left is
ruling at tlie ceiitre and the implications on business can be seen through few of tlie
policy statements aniiouliced by tlie gover~imentE. ve11t hough the broad policy
direction is in line with tlie policy of an open econolny alld private sector initiative, the
Environmentrl Analysis
Strntegic Analysis Coinmon Minimum Programme has identified few priority areas which is going to
have an impact different tlian before. Particularly when there are certain ideologies
which view differently the issues like FDI and privatization, the future ofdifferent
sectors like insurance and banking, aviation and telecommunication have become
uncertain.
Looking back into tlie history dueto certain ideological beliefs prevalent in some
section of politics, foreign companies like Coca Colaand IBM had to move out of
India in the late 70s. Entry barriers, protectionist policies, high tariffs, nationalist
pursuits all worked towards a closed economy which continued till tlie time
liberlization policies were introduced in 1991. This situation had a cumulative effect
on making the economy weak and the busi~iessesw ere hardly competitive as compared
to tlie international standards. However in subsequent years, tlie political colisensus
developed on issues such as labour reforms, power sector reforms, importailce of
infrastructure sector is doing a lot good for business. Nevertheless, the deteriorating
standards in politics, i~lcreasiilgc orruption and the criminal nexus are creating hurdles I
for business in certain areas.
t
1
Activity 1
Identify few key active political forces. Discuss how they are sliapi~lgth e overall
environme~i~n tt he country.
................................................................................................................
................... I
Economic: Exhibit 2 gives you a view of broad inbicators which give the economic
picture of the general eiivironment and these should be carefully Iooked into while
doing the environmental analysis. I
Values in society also determines the work culture, approacl~to wards stakeholders and
the various responsibilites the organization thinks of owing to its stockholders and the
society.
Activity 3
There has been a thrust on women literacy. Discuss the influences you see in the social
environment and their impact on business.
Technology: Technological factors represent major opportunities and threats which
must be taken illto accou~lwt hile formulating strategies. Techtlological brealdhrougl~s
can dramaticall y influence the organisat ion's products, services markets, suppliers,
distributors, competitorss, customers, ~nanufacturi~plgro cesses, marketing practices
and con~petitivep osition. Technological advancements can ope11 up new marlcets,
change the relative position of a11 industry and render existing products and services
obsolete. Technological changes can reduce or elimiate cost barriers between
businesses, create shorter production runs, create shortages in technical skills and
result in changing valuesand expectations of customers and employees.
The impact of information tecl~tlology(I T) which co~nbinefsr uits of both
teleco~n~nunicatioannsd co~nputerhs as been revolutionary in every field. Not only has
it opened up new vistas of business but also has changed the way the businesses are
done. 1T has specificaIIybrought i n another di~nension'S peed' which orga~lizations
recognize as theadditional source of competitive advantage beyond low cost and
differentiation. Matlufacturers, bankers and retailers have used IT to carry out their
traditional tasks at lower costs and deliver higher value added products and sel-vices.
Activity 4
Enulnerate few of the technological advances in the field of agriculture and discuss its
role in tapping better opportunities in the overseas market.
Environment: Environment conservation and protection is an issue, which
has gained pro111i nence because of deteriorating environ~nentabl alance which is
threatening the sustainability of life and nature. Largely, business is also held
responsible for such situations as emissions from industries poluting the air,
excessive chemical affluents drained out in water making it ~O~SODOLanISd unfit for
use, usage of bio non-degradable resources affecting the bio-chain adversely and
exposure of employees to hazardous radiations bring their life in danger. All these
have been tal<en very seriously by different stakeholders in the society including the
government and legislations and movements are creating pressure for an
environment friendly business. These have far reacl~ingi ~nplicationfso r business
ranging from the kind of business, the product being manufactured, I~owit is
~nan~~facturaencdl how friendly it is for mankind a~n~atudre . Big companies like Coca
Cola ancl Pepsi have also come under the purview ofthe society regarding the
environmental hazards. Ifthe chal.ges on them of using chemicals beyond accepted
levels for man~~facturinsogf t dri~~akrse confirmed, they will have a black spot on their
names and business. So, it is important for the organisations to take care of the
environment as we1 1.
Environmental Annlysis
Activity 5
List out five major industries which in your view, pose danger to environ~nental
conditions. Mentioning your reasons suggest how these industries may correct the
situation.
Legal: Licensing policies, quota restrictions, import duties, Forex regulations,
restrictions on FDI flows, controls on distribution and pricing of commodities
together made business difficult during license per~nirta j before the liberalizatio~l
policy of I 99 1. However, with economic reforms things I~avech anged and legal
formalities have eased. Nevertheless with globalization, the rules of competition, trade
mark rights and patents, WTO rules and ililpl ications, price controls and product
quality laws and a number of other legal issues in individual csuntries have become
important and therefore they need to be included while understanding the general
environment.
Activity G
Discuss the legislation 011 patents in I~ldiaandc onunent on its impact on the
business.
Strntegic Analysis 4.4 MCKINSEU'S 7s FRAMEWORK I
Let us now use blank grid for PESTEL analysis to understand the role of McKinsey7s
7s framework.
Exhibit 3
BLANK GRID FOR PESTEL ANALYSIS I
The sta~~tipnogi nt would be to brainstorm an appropriate PESTEL checklist, using the
boxes in Exhibit 3. The PESTEL checklist can be used to analyze which factors in the
e~lvironmenat re helpful to the unit, and which inay impede progress ofthe unit in ,
acllieving its aims. There is of course a danger, common to all checklists, that once an
entry has been made under each of the headings it is deemed complete, regardless of
whether or not the list reflects the conlplexity of the reality. Another comtnon error in
the i~nplelnentationis that 'boxes' are co~npletedw ithout reference to the aims of the
organisation. This can lead to considerable expenditure oftime and energy for little
benefit.
' Local
National
Global
Let us now discuss ill brief Mckinsey's 7s framework. According to Waterman et al.,
organizational clla~lgeis not only a matter of structure, althougll strucutre is a
significant variable in the management of change. When we talkof an effective
organizational change, we can see that it is a complex relationship between strategy,
structure, systems, staff, style, shared values, skills and superordinate goals. This
relationsl~ipis represented ill a pictorial manner
in Figure 4.1.
Structure
Political
(7
Figure 4.1: The Mckinsey 7-S Framework
12
Source:Thomas J. Peters and Roberts H. Waterman, Jr., In Search of Excellence: Lessons
from Americal's Best Run Companies (p. 10)
Economic Social Environmental Techno!ogical
Tlle framework suggests that there is a lnultiplicity of factors that influence an EnvirunmentaI An~lySis
orga~lisatioll's ability to change and its proper mode of change. Because of the
interconnectedness of the variables, it would be difficult to make significant progress
in one area without making progress in the others as well. There is no starting point or
implied hierarchy in tlle shape of the diagram, and it is not obvious whicl~o fthe seven
factors would be the driving force in changing a particular organisation at a ce~tain
point in time. Tlle critical variables would be different across organisations and in the
same organisatioll at different points of time.
In this context there may be a role for using 'McKinsey's 7s Framework' llelping a
clnit, structure the analysis. Let us first discuss the concept of McKinsey's 7s
framework in brief:
Superordinate Goals: are the fundamental ideas around which a business is built;
Structure: Salient features of tlie unit's organisational chart (e.g. degree of hierarcl~y,
presence of internal market, extent of centralization/decentralization) and
interconnections wit11i11th e ofice;
Systems: procedures and routine processes, including how i~lforlnationln oves around
tlie unit;
Staff: Personnel categories within the unit and the use to which staff are put, sltiII .
base, etc.;
Style: Characterization of how key lnaliagers behave in order to achieve the unit's
goals;
Shared Values Strategy: The significant meanings or guiding concepts that the unit
imbues on its members;
Skills: Distinctive capabilities of key personnel and the unit as a whole.
Tile 7s nlodel can be used in two ways:
e Considering the links between each ofthe Ss one can identify strengths and
weakliesses of an organization. No S is strengtli or a weakness in its ow11 riglit; it
is o111yi ts degree of support, or otherwise, for the other Ss whicl~is relevant. Any
Ss that harlnonises with all the other Ss can be thought of as strengths and
weaknesses.
e The model liigliliglits how a change made in any one of the Ss will have an
impact on all the others. Thus if a planned change is to be effective, then cllanges
in one S must be accompanied by complementary changes in the others.
4.5 GENERAL ENVIRONMENT AND
ORGANIZATIONS' STRATEGY
As a next important step the manager needs to analyze the kind of impact the change
may bring in their own indi~strya s the impacts are never same for all industries. For
example, the emerging younger demographic profile of India will have very different
consequences for businesses say in health care or entertainment. While the former will
face an adverse effect, the latter will have a positive effect and this needs to be
analyzed and integrated into strategic decision making. In response to these
assessments of differential impacts, managers will be able to take advantages of the
opportunitiesor guard themselves of the threats. Exhibit 4 shows in how different
ways various industries get affected by the different environmental trends.
Responding to these variocls impacts with new strategic initiatives the managers must
take notice oftlle fact that ifthe changes are significant, it may have tlie potential of
changing the competitive rules of the game in the industry. For example, in India the
Strategic Analysis competitive rules of the game for sectors like telecoin, banking and insurance etc, in
the post liberalization period changed specially in last two years. With the easing of
FDI and particiption of major global players, norms have changed drainatically which
is reflected in the strategies of most of tlie firms in the sector. These changes can be
seen in the area oftechnology and pricing, intensity of advertisii~ga nd promotions,
their business alliances and iletwork in the country.
Managers need to be cautioils of tlie fact that there may be developments, wllich are
not so easy to be predicted and therefol-en eed fi~rthear ttention so that they can be
incorporated in their strategy. In the global context, the managers must see the kind of
impact any single change will have in different markets. It is quite possible that they
are very different both in degree and their nature.
Exhibit 4
Environmental Potentially positive Probably neutral Probably negative
Trends effects effects effects
1. Aging population meclical services minerals colleges atid schools
2. Multiple income fast food machine tools grocer's supplies
families
3. Deregulation shippilig financial sector
4. Increased waste management softwarc leather
envisonmental
lelgislation
5. Growing global telecolntnut~ication competition mining
small scale~handicrafts
Structural Drivers to Change
The PESTEL analysis gives a number of factors and their likely infliiences. However
it is iinportant to identify the specific factors wl~ichi nay influence an industry and
force them towards competitive adjustments. These factors are ter~neda s stluctural
drivers of change which have the likely effect on the structure of an industry or on the
competitive e~~vironinent.
As a first step based on PESTEL analysis, the key driving forces need to be identified
and then impact ofthe combined effect ofthese forces sllould also be made. Increasing
globalization of the industry and the E enabled era could be such driving forces
capable of affecting the structure of an industry or its enviro~lment.
4.6 ENVIRONMENTAL SCANNING
The factors or the forces u~lderstood under PESTEL framework put together, present
ahiglily co~nplexan d uncertain environme~w~ht icll are difficult to predict or foresee.
From a long tern1 view of strategy I~oweverr,e aching somewhat closer to such forces
are important in uilderstanding the key factors influencing the success of such
strategies.
E~~vironinentsacla nning is one ofthe few ways to detect filture driving forces early
and this involves studyiilg and iilterpreting the developments of social, political,
economic, ecological and technical events that could become driving forces. It
attempts to figure out few radical happendings or path breaking develop~nelltsw hich
may be catchiilg on and see their possible i~nplicatioils5 to 20 years into the future.
The purpose of the environmental scanning is to raise the consciousness of managers
about potential developments that could have an impact on industry conditions and
bring in new threats or opportunities.
Environmental scanning is normally accolnplislied by systematically monitoring and Environnientnl
Analysis
studying currellt events, constructing scenarios and employing the Delphi method (a
technique for finding consensus among a group of k~iowledgeablee xperts).
Co~istr~ctis~ciegn arios involves a detailed plausible view of liow the business
environment of an organization might develop ill the future based on the groupings of
lcey environmental influences and drivers of change about which there is high level of
uncertainty. For exa~iiplein industries like energy, transportation, defence equipment
etc. there is a need for views of the business e~ivironmenot f Inore than 10- 15 years
and factors lilte raw materials, substitutes, consumption patterns, geo politics etc.
would be of crucial importance. Foreseeing precisely for such a longer duration may
be vely difficult but drawing up possible fiitures [nay be possible. It is not unnatural
to believe that several scenarios could unfold ovel-ti~nea nd these need to be
ilnderstood.
Scenario Planning technique is briefly discussed in Unit 5 i~lldetrh e colnpetitive
environmelit.
4.7 SUMMARY
Understanding ofthe general environ~nenitn which an organization operates is tlie
forelnost pre-requisite towards strategy formulatioii. The six broad dinlensions which
the PESTEL fralneworlt provides oftlie environment-political, economic, sociocultural,
leclinological, environmental and legal are capaable of giving a
comprehensive overview of liow tl~i~imgsa y be il~ifoldi~iTph. e objective of the
aiialysis out orthis framework llowever should not only restrict to the present and past
but the real focus should be on projectiiig the trends into filti~rein order to get tlie real
feel oftlie ellvironnient then. Tliis shall enable the finii to proactively strategize for
future considering the general environment, it is going to face and tlie issues which
will be of importance.
4.8 KEY WORDS
PESTEL Framework: Tliis framework categorizes environuiiental influelices into Six
maill types - political, etco~iomics,o cial, technological, environmental and legal.
Shared Values: The significant meanings or guiding concepts that tlie illlit inbues on
itsmembers.
Structural Drivers of Change: factors which have the likely effect on the structure of
an industry or on the competitive environment.
Environmental Scanning: One of tlie few ways to detect fiiture driving forces.
4.9 SELF ASSESSMENT QUESTIONS
1) Briefly sulnrnarize what you iuiderstand by the general environment and its
i~nporta~lfcoer business.
2) Explain what is external analysis and how is it connected to strategy
formulation?
3) Briefly explaiu the PESTEL framework.
4) Discuss tlie role of McKiiisey 7s inodel in analyzing external environment.
5) Iildelltify an industry of your choice and do a PESTEL analysis. Draw lip few
inference points.
15
4.10 REFERENCES AND FURTHER READINGS
Johnson, Gerrry & Scholes, Kevan. (2004). Exploring Corporate Strategy. Sixth
edition, Prentice-Hall oflndia, New Delhi.
Thoiiipso~iA, . Arthur, Jr. and Strickland, A.J. 111. (2003). Strategic Management,
Concepts ai~clCasesT, hirteenth edition. Tata McGraw Hill Publislling, New Delhi.
Miller, Alex. Strategic Managenzent, Third edition. Irwin McGraw Hi 11.
Peters, Thomas J. and Robert, H. Water~nanJ, r. (I 982). In Search of Excellence:
Lessonsfionz Anlerica 's Best-Run Conipanies, New York: Harper and Row.
David, R. Fred. (I 997). Concepts of Strategic Managenzent. Prentice Hall
I~iten~atioiiIanlc .
UNIT 5 COMPETITIVE FORCES
Objectives
After reading this unit you should be able to understand the:
@ competitive environment ;
National
President
Ministry of
Education
Ministry of
Information
Province A
Government
Community
Organizations
Regional
Offices
Field Staff
Ministry of
Health
Religious
Groups
Province B
Government
Foreign
Assistance
Agencies
BOARD
23
Activity 7 Structural Dimensions
What structure would you suggest for a development authority
i) Which acquires all its single type of inputs (e.g., coffee seeds) from farmers in a
certain region?
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ii) Which depends on several agencies, public and private, provincial and local
governments, for its diverse inputs and functions?
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13.10 PERSPECTIVES ON STRATEGY AND STRUCTURE
In this section we will learn some recent or widely acclaimed perspectives on strategy
and structure. Two perspectives are provided here: one by Michael E. Porter
(Competitive Strategy, The Free Press, New York, 1980) and the other by Thomas J.
Peters and Robert H. Waterman Jr. (In Search of Excellence, Warner Books, 1982).
We shall first take up Porters view.
Porters Perspective
Porter has enunciated three generic strategies: Overall Cost Leadership,
Differentiation and Focus. According to him the successful implementation of the
three generic strategies requires not only different resources and skills but also imply
different organizational arrangements, control procedures and inventive systems.
These strategies are discussed in block-4. Let us briefly recapitulate these three
generic strategies.
Overall cost leadership (common in 1970s in the USA) is achieved through a set of
functional policies culminating into what is popularly known as the Experience Curve
Effect. This strategy requies construction of efficient scale facilities, vigorous pursuits
of cost reduction from experience, tight cost and overhead control and cost
minimisation in areas like R&D, sales force, advertising and so on. A great deal of
managerial attention to cost control is necessary to achieve the aims.
The differentiation strategy implies offering a product or service by the firm which is
perceived in the industry as being unique. Differentiation can be approached in many
ways (one or more at the same time); product design features, brand image,
technology, customer services, dealer network and other dimensions.
The focus strategy means concentrating on a particular buyer group, segment of
product lines, or geographic market.
24
Implementation
and Control
As with differentiation, focus may take many forms. Whereas the low cost and
differentiation strategies aim at achieving their objectives industry-wise, the focus
strategy is built around serving a particular target very well. All functional policies
are geared in that direction. This strategy rests on the premise that the firm is able to
serve its narrow strategic target more effectively and efficiently than those competitors
who are engaged in broader activities.
We now turn our attention to the organizational requirements for each strategy.
Some common implications of the generic strategies in terms of skills and
resources and organizational requirements are presented in Table 13.1 which are
self-explanatory.
Table 13.1 : Organizational Requirements for Different Generic Strategies
Generic Commonly Required Common Organizational
Strategy Skills and Resources Requirements
Overall Cost Sustained capital investment Tight Cost Control
Leadership and access to capital Frequent, detailed control reports
Process engineering skills Structured organization and
Intense supervision of labour responsibilities
Products designed for ease in Incentives based on meeting strict
manufacture quantitative targets
Low-cost distribution system
Differentiation Strong marketing abilities Strong Coordination among
Product engineering functions in R & D, product
Creative flair development, and marketing
Strong capability in basic Subjective measurement and
research incentives instead of
Corporate reputation for quality quantitative measures
or technological leadership Amenities to attract highly skilled
Long tradition in the industry or labour, scientists, or creative
unique combination of skills people
drawn from other businesses
Strong cooperation from
channels
Focus Combination of the above Combination of the above
policies directed at the policies directed at the
particular strategic target particular strategic target
Source: Porter, Michael E., p. 40-41.
Industry Maturity and Organizational Arrangements: According to Porter, not
only different organizational arrangements, leadership and motivation systems are
needed for different generic strategies, different organizational structures and systems
are also needed as the industry transitions to maturity. Some suitable adjustments
must take place in the area of control and motivation system as well. As the industry
matures, more attention to costs, customer service and true marketing (as opposed to
selling) may be required. More attention to refining old products rather than
introducing new ones may be necessary. The less creativity and more attention to
detail and pragmatism is often what is needed in the mature business. These shifts in
competitive focus obviously require changes in the organizational structures and
systems to support them. Systems designed to highlight and control different areas of
business are necessary. The various elements of the structural and system
requirements of mature business are tabulated in Exhibit 2.
In short, it may be stated that there has to be more emphasis on formal arrangement
than on the informal ones as hitherto. The competitive shifts (e.g., aggressive
marketing, price competition) and new organizational requirements may be presented
to by people within the organization who till the other day found pride in pioneering
25
Exhibit 2 : Organizational System Requirements of Mature Business Structural Dimensions
l Tight budget;
l Strict control;
l Performance based incentive systems;
l Control of financial assets such as inventory and accounts receivable;
l More coordination across functions and among manufacturing facilities;
l Major changes in plant managers job.
high quality products. Sacrificing quality for costs and close monitoring of costs may
be resisted. Furthermore, new reporting requirements, new controls, new
organizational relationships and other changes may sometimes be seen as a loss in
personal autonomy and as a threat. A company thererore must be prepared to reeducate
and remotivate personnels at all levels as it enters the maturity stage.
Peters and Watermans Perspective
Large companies tend to be complex. Unfortunately, many of such companies,
according to Peters and Waterman, respond to complexity by designing complex
systems and structures rather than simple ones. A favourite candidate for the wrong
kind of complex response is the matrix organization structure. For a multiproduct,
multi-location and multi-market company, with several functional departments, a four
dimensional matrix may be a normal choice. However, such a matrix is a logical
mess. The matrix is quite confusing: people arent sure to whom they should report
for what. The most critical problem, it seems, is that in the name of balance,
everything is somehow hooked to everything else. The organization gets paralysed
because the structure not only does not make priorities clear, it automatically dilutes
priorities. In fact, it says to people down the line: everything is important; pay equal
attention to everything.
None of the excellently managed companies, according to the authors, had matrix
structures, except for the project management companies like Boeing. Even early
users of the matrix technique such as Boeing and NASA emphasised one key
dimension of the organization structure to which they accorded clear-cut primacy,
and this could be either product, or geography or function. How have the
excellent companies avoided matrix forms? They have done so by sticking to
simple forms. Most of the excellent companies have a fairly stable, unchanging
formperhaps the product divisions that provides the essential touchstone
which everybody understands, and from which the complexities of day-to-day life can
be approached.
Excellent companies are quite flexible in responding to fast changing conditions in the
environment. They make better use of small divisions or other small units. They can
reorganise more flexibly, frequently, and fluidly. And they can make better use of
temporary forms such as task forces and product centres and other ad hoc devices.
Most of the reorganization takes place around the edges. The fundamental form rarely
changes that much.
Product divisions are the building blocks in the structure of the excellent
companies. A characteristic of structures in such companies is the shifting of people
and even products or product lines among divisions on a regular basis and without
acrimony.
The simple form is not limited to companiesspecialized in creating niches for
themselves. Other companies such as HP, Emerson, Digital, Dana and 3M have also
simple structures. Regardless of industry or apparent scale needs, virtually all the
companies pushed authority far down the line and tried to preserve or maximise
26
Implementation
and Control
practical autonomy for a large number of people. Simplicity in basic structural
arrangement actually facilitated organizational flexibility.
Clean staff at the corporate level is a characteristic feature of excellent companies.
And whatever staff these companies have tends to be out in the field solving problems
rather than being stayput in the home office. Some increasing examples are given
below:
l Emerson Electric has 54,000 employees, with fewer than 100 in the corporate
headquarters.
l Dana employs 35,000 employees and has cut its corporate staff from about 500
in 1970 to around 100 by 1982.
l Schlimberger, a $ 6 million diversified oil service company, runs its world wide
empire wth a corporate staff of 90.
That less is more also holds true for some of the top performing smaller companies.
ROLM, for instance, manages a $ 200 million business with about 15 people in
corporate headquarters. Virtually every function in the excellent companies is
radically decentralized down to the divisional level at least. Though strategic
planning is regarded as a corporate function, yet, some companies such as 3-M, HP,
J & J have no planners at the corporate level. Fluor runs its $ 6 million operations
with three corporate planners.
In some excellent companies the research staffers come in from line operations and
then go back after sometime. At IBM, management adheres strictly to the rule of
three year staff rotation. Few staff jobs are manned by career staffers. The others are
manned by line officers. If you know you are going to become a user within thirty six
months, you are not likely to invent an overbearing bureaucracy during your brief
sojourn on the other side of the fence.
A structural form for the future should respond to three prime needs or properties: a
Simple, basic underlying
form
Dominating values
(superordinate goals)
Minimizing/simplifying
interfaces
Entrepreneurial, small is
beautiful, units
Cabals, other problem-solving
implementation groups
Measurement systems based
on amount of entrepreneurship,
implementation
Figure 13.11: The Three Pillars of the Structure of the Eighties
Source: Peters and Waterman, p. 316.
Breaking
old habits
(shifting
atention)
Stability Entrepreneurship
Regular reorganization
Major thrust overlays
Experimental units
Systems focusing on one
dimension
s
s
s
s
s
s
27
need for efficiency around the basics (stability pillar); need for regular innovation Structural Dimensions
(entrepreneurial pillar), and a need to avoid calcification by ensuring at least modest
responsiveness to major threates (habit breaking pillar). The structural form should be
based on these three pillars, each one of which responds to one of the three basic
needs. The idea about the structural form for the future is depicted in Figure 13.11.
The authors further say that an effective structure should have loose-tight property
simultaneously. It is in essence the co-existence of firms central direction and
maximum individual autonomy which the author calls having ones cake and
eating it too. Organizations that live by the loose-tight principle do so through
Faith, through value systems. Beleif in customer, belief in granting autonomy,
belief in quality are some of the values which great managers have demonstrated in
their lives.
13.11 SUMMARY
Successful implementation of strategy, among several other factors, depends upon the
appropriateness of the organization structure. The latter must meet the needs of the
strategy. The various forms of organizational structuring may not be equally
supportive of a particular strategy at hand. In designing an appopriate structure,
tasks and functions which are critical to the achievement of strategy must be first
identified. The organization designer should then think of other supporting and
routine activities which are connected with the critical tasks and place all these in one
unit. In this way various building blocks would be formed.
Though strategy and structure are interactive and interrelated, it has been often
observed that structure follows strategy. Since structure is a tool to realise the aims of
strategy, it helps people pull together in the performance of their diverse tasks to
accomplish those aims. The experience of many firms indicates that organization
structure evolves through different stages. The Stages Model provides useful insights
into why structure tends to change in accordance with changes in size, geographic
spread, technologies, and strategies of an enterprise.
Various forms of organization structuring are available: Functional, Product
Divisions, Strategic Busines Units, Holding Comapny, Matrix, etc. Each form has its
benefits and limitations when looked from a particular strategy point of view. There is
nothing like the best or ideal structure. The best organization structure is the one
that best fits the overall situation.
13.12 KEY WORDS
Global Structure: A kind of structure used by multinational companies. Under a
global area structure, the firms operations are segmented geographically into several
regions in the world.
Holding Company: A company which has one or more subsidiary companies.
International Division: A division (in addition to domestic divisions) created by a
multinational company to which all operating units (subsidiaries) in foreign companies
report for performance based on formal procedures. Accountability thus can be fixed
for performance.
Matrix Structures: In the context of multinational organizations, under a matrix
structure authority and responsibility are assigned along at least two dimensions
which are often product and region.
28
Implementation
and Control
Mother-daughter Type Structure: A form of organization used by (European)
multinational companies where relationship between the parent company and the
subsidiaries is informal, personalised and where most of the staff on important
positions is appointed by the parent company.
Network Structure: Under network structure a lead agency creates a network of
relevant public and private agencies which have an influence on a development
programme initiated by the government.
Stages Model of Structure: The proposition that organization structure evolves
through different stages (Stages I to IV).
Strategy related Critical Talks: Tasks which are critical to the success of strategy of
the organization. Such tasks must be performed exceedingly well for the strategy to
succeed.
13.13 SELF-ASSESSMENT QUESTIONS
1) Why is the question of appropriateness of an organization important for
management?
2) While distributing authority to various units of the organization, what general
considerations you would bear in mind? Discuss.
3) In what ways would you provide for coordination for several units of the
organization? Explain.
4) Explain the Stages Model of structure. Is it necessary for an organization to pass
through all successive stages of growth?
5) What is a holding company? Discuss the strategy related benefits and limitations
of this form of organization.
7) Write short notes on the following:
a) Global structure
b) Mother-daughter type structure
c) Matrix structure
13.14 REFERENCES AND FURTHER READINGS
Chandler, Alfred D. (1962). Strategy and Structure, MIT Press, Cambridge, Mass.
Leontiades, James C. (1985). Multinational Corporate Strategy, Lexington Books.
Miles, Raymond E. and Snow, Charles C. (1978). Organization, Strategy, Structure
and Process, McGraw-Hill.
Paul, Samuel (1983). Strategic Management of Development Programmes,
(Management Development Series No. 19), International Labour Office, Genevga.
Peters, Thomas J. and Robert H. Waterman Jr. (1982). In Search of Excellence,
Warner Books (Chapters 11 and 12).
Rao, Subba P. (2004). Business Policy and Strategic Management, Himalaya
Publishing House.
Salter, Malcolm S., Spring (1970). Stages of Corporate Development, Journal of
Business Policy 1, No.1, pp.23-27.
29
Behavioural Dimensions
UNIT 14 BEHAVIOURAL DIMENSIONS
Objectives
The objectives of this unit are to:
l explain the role of leadership in strategic management;
l discuss the concept of leadership;
l acquaint you with various functions of leaders;
l understand different leadership styles; and
l understand the importance of ethics and values.
Structure
14.1 Introduction
14.2 Role of Leadership
14.3 Concept of Leadership
14.4 Functions of Leadership
14.5 Leadership Styles
14.6 Corporate Culture
14.7 Ethics and Values
14.8 Functional Strategies
14.9 Summary
14.10 Key Words
14.11 Self-Assessment Questions
14.12 References and Further Readings
14.1 INTRODUCTION
Leadership means to guide or to influence into an action. In todays highly
competitive world, it becomes important for organizations to have a good leader. The
well-known book In Search of Excellence concludes that every company that has
maintained its excellence over the years has done so because it had a leader or two
who gave it its structure. This conclusion has since been reinforced in a recent study
by the Stanford Research Institute. It concluded that 12 per cent of effective
management strategy is knowledge and 88 per cent is dealing appropriately with
people. Indeed, dealing appropriately with people is Leadership.
We know instinctively that in every human activity involving a group of people, there
is a need for the guiding hand of a leader. The head of a family is the most ubiquitous
leader since the dawn of human history. It is well accepted that on the quality and
effectiveness of this leader, be it father or the mother, depends the progress and
fortunes of the family.
In the modern complex society thousands of individuals are appointed or elected to
shoulder roles and responsibilities of leadership in junior, middle and senior levels in
factories and farms, schools and colleges, business and financial institutions,
dispensaries and hospsitals, in civil and military organs of the States scientific and
30
Implementation
and Control
research institutions and so on. On their quality and effectiveness depends the
strength, prosperity and happiness of society. In history an effective leader has always
been a force multiplier.
Here in this unit we present to you a holistic and practical approach to leadership as
the behavioural dimension and how it helps in the successful implementation of the
strategy.
It is important to remember that leadership cannot be taught. However, a man does
have the capability to perform himself/herselfto reprogramme his/her personality.
And, it is here, that the most exciting part of human endeavour lies.
14.2 ROLE OF LEADERSHIP
Some researchers have shown that if the executives have good leadership qualities, the
productivity of the nation can increase to a large extent without additional finance or
new technology. It is important to note that the theoretical approach of leadership
taught in classrooms is less effective than the practical approach.
In the prevailing environment in India, it is often argued, that things can improve only
if the top leadership in the country sets the right example. Alternatively, the
educational system should be reformed so that slowly perhaps in 50 years, things may
improve. Both the views do have some theoretical merit: but do not appear to be
practical.
Consequently the only way is to find a method of improving the leadership potential of
those already shouldering responsibilities and of those who are getting ready to enter
the field of leadership in any walk of life. This is the basic philosophy of the practical
and holistic approach to leadershipit is perfectly possible to improve myself; I
can hope to improve others only by personal example is its message.
Consequently the key to effective Strategic Management is to ensure that leadership
runs like a uniform thread through all functions of management to integrate them into
a culture of excellence. One of the primary needs for effective strategic management is
to understand, in practical terms, the meaning of leadership, its functions; and, finally
to ensure that effective leaders are groomed and developed at every level in an
organization. Only then will strategic managers be able to conceive strategic plans and
translate these plans into reality.
Activity 1
Has there been any change in the top leadership of the organization with which you
are associated? If the answer is affirmative, explain in what ways it has affected the
quality of strategic decisions and overall productivity.
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..........................................................................................................................................................................
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..........................................................................................................................................................................
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..........................................................................................................................................................................
................
........................................................................................................................................................................
.................
14.3 CONCEPT OF LEADERSHIP
However, when it comes to evolving a definition or a theory of leadership we run into
difficulties. If we know all too much about our leaders, we know far too little about
leadershipis it essentially inspiration? Is the leader a definer of values? Satisfier of
31
needs? If leaders require followers, who leads whom, from where to where, and why? Behavioural
Dimensions
How do leaders lead followers without being wholly led by followers? Leadership is
one of the most observed and least understood phenomenon on earth.
However, despite Maslows very perceptive diagnosis, almost a quarter of a century
ago, an integrated view on this vital and age-old function in human society has not yet
crystallised. Commenting on group dynamics laboratories Maslow observed:
What I smell here is again some of the democratic dogma and pity in which all
people are equal and in which the conception of a factually strong person or natural
leader or dominant person or superior intellect or superior decisiveness or whatever is
bypassed, because it makes everybody uncomfortable, and because it seems to
contradict the democratic philosophy (of course, it does not really contradict it)
(Maslow, 1965).
Maslow made the above remarks as he was fully aware that there were serious
reservations among intellectuals and scholars to the very concept of leadership. Ever
since French revolution the academic community had assiduously tried to devalue
leadership as it had got associated with aristocracy and feudalism and was thus
regarded to be out of tune with the democratic ethos of equality. Equality of
opportunity, which is the real sense of democract, somehow got extrapolated to
equality of capability. It was overlooked that even two brothers with common heritage
are not equal in their capabilities. Potential for leadership has no relation to parental
stations in society. Many of the outstanding leaders in history had a non-affluent
background.
Ralph Stogdill, Fiedler, Hersey and Blanchard, have made useful contributions to
understand various facets of this complex phenomena. A view that emerged in the late
eighties is relevant to the study: McClelland, Hall, Peters and Waterman, Jaques,
Bennishave been working on their parts of the puzzle. I believe that we are,
however, ready to start assembling the parts (Sashkin, 1989). It is time that we took
a practical and holistic view of this ancient human capability on which depends the
success or failure of strategic plans in any human activity.
The fact that the literature on leadership has more than 350 definitions of the word,
indicates that it is a complex process. However, its essential nature is the ability to get
the best out of people. The definition which has the touch of practical common sense
is the one evolved by a medical doctorLord Moran. He was the medical officer of a
British Infantry Battalion during World War I. For two long years he served the
Battalion in France and saw how young officers inspired their fellow citizens to fight
the Germans with enthusiasm and courage, knowing fully well that many among them
would get killed or maimed. He wondered how one individual could exercise such a
decisive influence over others. It was not just the military law or discipline, because
despite these there were examples of demeaning cowardice and inability to lead. About
two decades later he rose to become the Chairman of the British Medical Council and
later, during World War II, he was the personal physician to Sir Winston Churchill,
the war time Prime Minister of Great Britain. In that unique capacity he had a ringside
seat to observe the top leaders of the world in every human activitypolitics,
industry, military, labour and so on. Given below is a definition which is based on
what he evolved:
Leadership is the capacity to frame plans which will succeed and the
faculty to persuade others to carry them out in the face of all difficulties.
(Moran, 1984).
The definition has two parts. The first deals with the capacity to frame plans
(programmes, projects or whatever) that have a high probability of success. This
implies that a plan should reflect a leaders grasp and feel of the quality of his
32
Implementation
and Control
resources and the environments in which the plan has to be implemented. The second
part of the definition deals with the implementation of the plan by persuading others to
do what is really expected of them, despite difficulties, discouragement and obstacles.
Indeed, it is this capacity which, as per the Stanford Research Institute, counts for
88 per cent of strategic management.
In common parlance the above definition can be explained in very simple terms. In
any situation, no matter at what level or how complex it amounts to :
knowing what to do + GETTING THINGS DONE
The difference in the size of letters in the two parts indicates the relative importance of
the two components of the leadership process. The faculty to get a plan implemented
is by far the more important, and indeed the more demanding component. In
management terminology leadership can also be expressed as :
capability + EFFECTIVENESS
The best and most realistic explanation is that management is a tool of leadership. The
national bestseller during 1989-90 in the USA. The 7 Habits of Highly Effective
People which is regarded as the handbook of leadership in the USA, has this to say
about this correlationManagement is a bottom line focus. How can I best
accomplish certain things? Leadership deals with the top line. What things I want to
accomplish? In the words of both Peter Drucker and Warren Dennis Management is
doing things right; leadership is doing the right things. Management is efficiency in
climbing the ladder of success; leadership determines whether the ladder is leaning
against the right wall.
Let us now look at the functions of leadership.
14.4 FUNCTIONS OF LEADERSHIP
In practical terms a leader has to achieve the task (mission, objective or goal). For
doing so, s/he has to build his team as a cohesive group and develop every individual
in the team to give his very best. Consequentely, s/he has to harmonise and integrate
the needs related to the accomplishment of the task with those of the group he leads
and individuals in the group. This is best explained diagrammatically by depicting
these needs in three linked circles, as shown in Figure 14.1.
Figure 14.1: Functions of Leadership
Source: Adair, John (1973). Action Centred Leadership.
1) Functions for Task Needs
l Defining the task
l Making the plan
Task Needs
Group Needs Individual
Needs
33
l Allocating work and resources Behavioural Dimensions
l Controlling quality and tempo of work
l Checking performance against plan
2) Functions of Group Needs
l Setting standardsexample
l Maintaining discipline
l Building team spirit
l Encouraging, motivating, giving a sense of purpose
l Appointing sub-leaders
l Ensuring communication within the group
l Training the group
3) Functions for Individual Needs
l Attending to personal problems
l Praising of individuals
l Knowing individuals personally
l Recognising and using individual abilities
l Training individuals
The functions related to the needs of the three areas have been listed separately for
easy understanding. In actual practice, however, most of these are integrated in the
following steps :
l Planning to achieve the task by using the available resources and people
l Initiating work by allocating tasks and resources
l Controlling by monitoring the work; modifying plan
l Supporting by encouragement and by motivating and training
l Evaluating
Activity 2
What functions you think are the most important for a leader from strategic
management point of view and why?
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14.5 LEADERSHIP STYLES
The statement that a good leader varies his/her style between authoritarian to
participative (autocractic to democratic, if you like) depending on the task, the
changing situation s/he encounters and changing group that s/he has to lead sums up
rather briefly, the way an effective leader has to function. However, no effective leader
ever consciously adopts a styleit comes, and indeed it must come, naturally from
within. Style invariably is the reflection of the substance. It is the expression of the
man and the strength and balance of his Universal Inner Structure of Effective
Leaders. Rusi Modi while discussing leadership repeatedly emphasises above all be
yourself.
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Conceptually the changes in style which spread between the two extremes is well
depicted in the model evolved by R. Tannenbaum and W. Smidt shown in Figure 14.2.
It should be seen only as an illustration depicting the range of options available.
Figure 14.2 : Leadership Styles
In practical terms any change in style is merely an intuitive variation in the mix of
personal example, persuasion and compulsion.
Personal example is the most potent factor in the technique to inspire people to do
what they are expected to do. If a leader can work 12 to 14 hours a day then the
message gets across. Personal example in punctuality, integrity, honesty, frugality,
courage, persistence, initiative unselfish love of poeple, or whatever is infectious with
the Indian people. They try and live up to the standards of a leader. TO DO yourself
what you expect your people to do is the secret of leading people.
There are people and there are times when persuasion is necessary to motivate people
to do what has to be done. When they understand the circumstances, people do rise to
the occasion and go through the most irksome tasks. The long-term persuasion lies in
the organizational culture (esprit de corps) in which people take pride in doing
anything to uphold the honour and good name of the organization.
Compulsion by the way of punishing the few indolent, lazy or resentful individuals
who do not perform their share of work is also necessary to maintain discipline. Also,
to let people know unambiguously that the leader is fair and just, but not tolerant of
the incompetent, the crooked and mischievous. There is an innate tendency among
Indians to kill or retard an organization with kindness. Inability to take appropriate
action is rationlised by arguments like pressures from the top, fear of litigation, trade
union agitation and so on. To a degree it is also due to a lack of moral courage.
Leadership in Indian Context
More and more organizations in the country are reflecting the diversity of Indian
people. Executives and workers in organizations often hail from different parts of the
country, speak different languages, have different customs and traditions, profess
different religions and have different ethnic origin. For a leader to be able to handle
such groups of people, s/he must be able to rise above his/her own narrow regional,
religious, linguistic and ethnic origin, and project, by convictions and actions, a true
all-India personality to be able to command, respect and loyalty of his team. There are
two essential requirements for succeeding in this goal.
First, a leader should have a good grasp and pride in the long history and cultural
ethos of India. Second, a leader should have rudimentary knowledge of all religions of
India and s/he should genuinely respect all faiths.
Attributes of successful leader Table 14.1 shows some attributes of successful
leaders.
1. Manager 2. Manager 3. Manager 4. Manager 5. Manager 6. Manager 7. Manager
makes sells presents presents presents defines presents
decision decision ideas and tentative problem, limits, subordinate
and invites decision gets asks to function
announces questions subject suggestions, group within
it to make to make limits
change decision decision defined
by superior
Use of Authority by the Manager
Area of Freedom for Subordinates
35
Table 14.1: Attributes of Successful Leaders Behavioural Dimensions
Ambition : Ability to administer efficiently
Willingness to work hard : Enthusiasm
Enterprise : Capacity to speak lucidly
Astuteness : Singlemindedness
Ability to stick to it : Willing to take risks
Capacity for lucid writing : Leadership
Imagination : Ability to take decisions
Ability to spot opportunities : Analytical ability
Willingness to work long hours : Ability to meet unpleasant
Curiosity : situations
Understanding of others : Openmindedness
Skill with numbers : Ability to adopt quickly to
Capacity for abstract thought : change
Integrity
Activity 3
Ponder over the leadership style of your immediate supervisor in the organization you
are working and answer the following:
a) How do you describe his/her leadership style?
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b) Is his/her leadership style consistent (or does it vary frequently)?
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Developing appropriate leadership is one of the most important elements in the
implementation of a strategy. This is important because leaders are key organic
elements who help an organization cope with changes. Appropriate leadership is
necessary, though not a sufficient condition, for mobilising people, and for developing
effective structure and systems for the success of strategy. Failure of leadership may
lead to difficulties in achieving goal congruence, communication breakdown,
ambiguity with regard to roles of sub-units, and difficulty in obtaining commitment to
a plan, e.g., staff conflicts and lack of strategic thinking. Leadership is the key factor
for developing and maintaining the right culture and climate.
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Implementation
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Risk Planning & Organic, Team Authoritarian
taking Technocracy Flexible, management, values
dominated administrative employee coercively
decisions, relationships oriented secured
employee posture compliance
authority with ones
vested with wishes
situational
expertise
Risk Seat-of Mechanistic, Individual Non-coercive
aversion the-pant rigid decision values
conserv- decisions administrative making and behaviour
atism relationships, orientation
bureaucratic aversions to
values institutionalised
participative
management
External Internal
Market Administration
oriented oriented
Dimensions Dimensions
Figure 14.3 : Dimensions of Leadership Styles
Source: Khandwalla, N.N. (1977) p. 399.
There are several aspects of leadership styles and skills, some of them are more
appropriate to the context/content of a strategy, while others are desirable attributes in
general for the success of an organization.
Leadership styles are manifested through the orientations, Khandwalla has identified
five orientations (dimensions of style) namely, the risk taking (willingness to make
high risk, high return decisions), optimisation (degree of commitment to the use of
planning, and management science techniques in decision making by technically
qualified people vis-a-vis seat-or-the pant decisions), flexibility (degree of looseness
and flexibility in organization structuring), participation (of those other than the ones
holding key positions) and coercion (use of fear and domination) (see Figure 15.3).
For superior performance on key organization goals he proposes that if
l the orientation of top management is risk taking, then it should be at least
moderately organic and coercive in proportion to internal resistance to change.
l the orientation is risk aversive, then it should be moderately mechanistic and
non-coercive.
l the orientation is of highly optimisation type, then it should be strongly
participative.
l the orientation is highly seat-or-the-pant and non-technocratic, then it should be
at least moderately risk taking and non-participative.
Different leadership styles have good fit with different environments. Since the
strategy determines the product/market scope, and also the environment in which the
organization is going to operate in future, it has a bearing on leadership style.
Khandwalla has further categorised leadership styles into seven types to relate them to
environment, each reflecting different mix of the five orientations, as shown in the
table 14.2.
s
s s
s
s
s
s
s
s
s
s
s
Risk Taking
Technocracy
Flexibility
Participation
Coercion
37
Table 14.2: Seven Styles of Top Management Behavioural Dimensions
Leadership Risk Technocracy Flexibility Participation Coercion
Style Taking (Optimisation) Organicity
1. Entrepreneurial High Moderate to Moderate to Moderate to Variable
low high low
2. Neoscientific Variable High Moderate to High Moderate
low to low
3. Quasi-scientific Variable High Moderate to Moderate to Moderate
low low to high
4. Muddling through Moderate Low Moderate to Moderate to Moderate
to low high low to high
5. Conservative Low Moderate to Moderate to Moderate to Variable
low low low
6. Democratic Moderate Moderate to Moderate to High Variable
to low low high
7. Middle of the Moderate Moderate Moderate Moderate to Moderate
Road low to low
Source: Khandwalla, P.N., Some Top Management Styles : Their Context and Performance,
Organisation and Administrative Sciences. Vol. 7 , No. 4, Winter 1976. p. 27.
Like leadership, there are several dimensions of environment also, namely, the degree
of turbulence/volatality (high degree of changeability/unpredictability), hostility
(hostile environment are highly risky and overwhelming), heterogeneity (diversity of
markets/consumers), restrictiveness (economic, social, legal and political constraints)
and the degree of technological sophistication. The leadership styles which are more
appropriate to different types of environment are shown in Table 14.3.
Table 14.3: Environment-Style Fit
Environment Styles
Turbulence High Entrepreneurial, neo scientific
Medium Neo scientific, middle of the road
Low Conservative
Hostility High Entrepreneurial
Medium Neo scientific
Low Neo scientific, Conservative
Diversity High Entrepreneurial, Neo scientific
Medium Muddling through, middle of the road
Low Neo scientific, conservative,
entrepreneurial, quasi-scientific
Restrictiveness High Neo scientific, entrepreneurial
Medium Entrepreneurial, conservative
Low
Technological High Entrepreneurial, Neo scientific
Complexity Medium Quasi-scientific
Low Democratic
Source: Khandwalla, P.N., Some Top Management Styles : Their Context and Performance,
Organisation and Administrative Sciences. Vol. 7 , No. 4, Winter 1976. p. 27.
It should be noted that while the above discussion gives a good idea of orientations
and the styles of leadership to respond effectively to the environmental demands, it
does not cover the leadership skills required for revitalisation or transformation of
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the organization. The above discussion gives the attributes of a manager who is a
transactional leader, and not a transformational leader. The task of a
transformation or revitalisation leader is to take the organization to a dominant
position. This involves managing change or transition. It has three distinctive phases.
l Recognising the need for revitalisation
l Creating a new vision
l Institutionlising change.
The leadership task in the first phase requires the ability to sense the need for change
(often there is a low threshold to catch trigger events in the environment). The second
phase requires communication skills to create a vision for future that excites people to
move, and also the interpersonal skills and creativity to mobilise commitment of at
least at critical mass in the organization. To perform the task in the third phase of the
transformation process the leader should have the ability to understand and manage
powerful conflicting forces in people. The negative emotions and threats to power and
authority have to be transformed into positive emotions and reconciliation. New ways
of working, new styles, new culture, and new norms have to be developed. The shock
of change has to be reduced.
The challenges of leadership in implementation are grave as leadership is the most
scarce resource. Organizations cope with it in several ways, by changing the current
leadership and by developing appropriate leadership styles. The change of current
leadership may not be easy to achieve even though it might be inevitable for effecting
transformation in the situation. The existing leadership might have been cast in a
particular mold which may be inappropriate to the demands of the organization. The
casting effect can be overcome if changes are introduced gradually in the leadership
styles and skills, to avoid accumulated lags or mismatches between existing leadership
styles/skills and companys changed requirements. This would require a blueprint to
indicate the kinds of styles and skills, and the number of persons of different styles
and skills required in future, current talent available and a plan of recruitment and
grooming. The task of human resources development is thus very closely related and
determined by strategy of the organization.
Activity 4
Describe basic features of the top management styles in your organization. Compare
them with the styles necessary to match the demands of your organization.
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14.6 CORPORATE CULTURE
Each organization has its own way of dealing with corporate problems and do have
their own organizational structure. The culture of the organization very much depends
on the behaviour of the employees. If the employees have a strong commitment
towards their organizations, the organization is said to have a strong culture and vice
39
versa. For example, Infosysone of top companies in the area of IT in Indiacan be Behavioural
Dimensions
said to have a strong organizational culture. This is reflected in its annual results.
It is not easy to have a strong culture in the organization. Lot of it depends on
how the leaders of the organization handle their employees. Looking at this
discussion, we can infer that corporate culture is the values and beliefs accepted and
practiced by all the employees of the company. To have an appropriate corporate
culture, the strategy of the organization should match with it. In this section we would
stress more on the role of leaders in shaping the culture of the organization and will
discuss the role of leaders in handling the employees.
When it comes to handling people, the total personality of a leader comes into play.
Managerial effectiveness is the management terminology for leadership. It is well to
remember that this truth is applicable at all the levels of managementJunior, Middle
and Senior. The Katz Model, shown in Figure 14.4 shows the relevant value of
management skills at various levels. Although there have been some minor changes in
the original design, it clearly shows that Human Relation Skill is consistently the
biggest component at all the levels of management.
Figure 14.4: Katz ModelSkills of an Effective Manager
A leader in any organization has to handle people in the following three directions:
a) The firstis downwardshis/her own team which he has to build as an
effective and cohesive group motivated to achieve the coals of the organization.
b) The secondis lateral, which involves winning the support and cooperation of
colleagues over whom the leader has no control, but who have an important
functional relationship with the group/organization headed by the leader.
c) The thirdis a purposeful, constructive and harmonious relation with the higher
authority under whom a leader functionsthe boss.
Human nature: In order to handle people effectively it is useful for a leader to
understand human nature. There are a large number of theories about it. For
developing leadership potential it is useful to focus our attention on two concepts
which have a lasting and practical value for learners.
Once people are convinced that s/he is a person who knows them well and s/he truly
cares about them then they would do anything for the leader. However, it requires a
very major effort to know people and know them better than even their own mothers
effort in terms of time, attention and genuine interest in people.
The difference between indulgence and caring should be clearly understood.
Indulgence means excessive gratificationgiving material thingsmoney,
conveniences and so on. Indulgence, by and large, spoils the recipients. Caring, on the
other hand, is a matter of attitudeit is a quality based on unselfish love.
Consequently, caring is a matter of heart and not related to material resources. A skill
Conceptual Skills
Human Relations Skills
Technical
Skills
Senior Management
Middle Management
Junior Management
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Implementation
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that often helps a leader to know and care for his/her people is the skill of
communication.
Communication : To know people: The ability to know people is the starting point to
handle them and communication skill plays an important role in this ability. These
help a leader TO TELL what s/he wants done. However, some essential features of
this skill relevant to knowing and handling people need discussion.
Most of the strained and fractured relations can be traced to the mutual breakdown of
communications between individuals in a family, group, community, countries and
even among the community of nations. One starts seeing only the uglier side of others
and it leads to alienation. The ability to communicate, on the other hand, puts human
relations on an even keel by removing misperceptions and misunderstandings. The
ability has two sides:
l The skill of expression; and
l The skill of listening.
The Skill of Expression
The skill of expression does not merely mean gift of the gab or cleverness with words.
For a leader the skill of expression is a vehicle to generate trust. Verbal expression
counts for only 30 per cent in this skill, the balance 70 per cent is the body
languageexpression in the eyes, conviction in the tone, the sincerity in the posture,
and generally, the vibrations that a person conveys. Body language communicates the
total personality of a leader, and its effectiveness depends, entirely on the strength and
balance of the Universal Inner Structure of Effective Leaders. In genuine expression
there can be no pretension. Spontaneity, straightforwardness and sincerity are far
more effective than sheer command over the language.
The Skill of Listening
The skill of listening means understanding and knowing the other person. It has been
found that this part of communication skill is even more important, but, unfortunately
less prevalent. Listen with ears and observe body language with eyes. Even nature has
a design in the listen talk ratio. It gives two ears to a person, but only one mouth.
Listening has three ingredients. The first, of course, is the physical process of hearing
what the other person is saying; this involves attention. Comprehending what the
person is saying is the second ingredient, and demands undivided attention. Looking
out of the window, or attending to routine papers while listening are signs of
inattentiveness. Remembering what you listen is the third ingredient of this skill and,
naturally, comes about only if a leader hears and comprehends what is said. The
ability to listen attentively and with sympathy in which a leader shows signs of
warmth, makes the other person feel that s/he is an individual and not merely a
faceless part of the machine. It helps generate trust in the team. Above all, listening to
the body language with eyes gives a leader an opportunity to really know his people
and their characteristics.
Experience shows that effective communication means:
50 per cent listening;
25 per cent speaking;
15 per cent reading;
10 per cent writing.
The operative part of Leadership capability lies in the ability to handle people in a
manner that they give their best for a cause, organization and the task in hand. This
capability depends on the strength and balance of TO BE in a leaderhis/her
41
Universal Inner Structure of Effective Leadership. Reinforcing this structure is within Behavioural
Dimensions
the reach of anyone who applies himself to this exciting endeavour with SINCERITY
and WILL POWER till transformation takes place. Even while one is making an
effort to improve the source of leadership a few practical hints to handle people will
be of value to anyone who desires to be more effective.
Handling people working for a leader
Self-control : No team captain can hope to control and inspire his/her team unless
s/he learns to control and discipline himself. This is a difficult task, but without it
there is little chance for a man to become a successful leader. It requires a certain
amount of philosophical outlook and frugality which is often associated with
aristocrats and saints. Self-control does not only add to the leadership potential, it also
is a source of great happiness.
Success and Failure : It is a basic trait of human nature that an individual ascribes
successes of an organization to the part played by him/her, and blames failures on the
system. On the other hand, a good leader gives credit to his/her men for successes and
takes responsibility for failures. This approach binds men together in a collective
effort to work for the organization.
Setting Targets : It is useful to let individuals themselves set targets for work. In this
event not only are they likely to meet these targets, but even surpass them.
Correcting Mistakes : A leader has often to correct the people who falter, show
traces of weakness or fail. It is better to say This is not what is expected of a person
of your calibre and ability rather than words to the effect what else one could expect
from a clot like you. The first approach enhances a mans self-respect even in failure.
The second approach makes him your enemy.
We and not you : A good leader always projects himself/herself as a part of the team
and invariably talks in terms of We and not You.
Accessibility : It is a leaders responsibility to ensure that s/he is accessible. S/he
should institutionalise the time and place for meeting the members of his team.
Tragedies and illnesses are a frequent occurrence in human life. A good leader makes
it a point to find time for seeing men who are afflicted to who have difficult problems
to tackle. Visiting them, in case they are hospitalised, should also be a matter of
priority time allocation. You win lasting commitment from people thus handled.
Anger : A good leader does not lose his/her temper. However, righteous anger is very
different from uncontrolled rage and should not be suppressed. However, special care
should be taken to uphold the honour and dignity of an individual in the presence of
his colleagues and family members.
Recognition : Good and effective leaders have used the human urge for recognition
with telling effect to foster interpersonal bonds with their people and to motivate them.
They have scruplously used the principle of praise in public and reprimand in
private to create an organizational culture in which people work much beyond call of
duty to maintain excellence in their organization. The real basis of making
individuals feel like heroes is, of course, genuine care and unselfish love by the leader
for his people.
In the ultimate analysis, handling people is a matter of attitude. It is expecting the
utmost from them while caring for them completely. It is possible only if a leader can
create an atmosphere in which there is free communication. Tolerating shirkers and
parasites in the name of being human does a great deal of damage. Fortunately, such
people are few and far between, and must be dealt with strictly.
42
Implementation
and Control 14.7 ETHICS AND VALUES
It is not easy to build a strong coporate culture in any organization. A strong culture is
based on strong ethics and values. This is very important for the success of the
organization in the long-run. It is very easy to adopt short-cut methods to reach the
top but the downfall also comes at the same rate. Ethics and values ensure that the
organization does not adopt short-cut methods to achieve success; insted it stresses on
the concept of sustained success. Every organization has its own code of ethics and
standards in a written form.
The code of ethics normally contain the following points:
l Honesty
l Fairness in practices of the companyDisclosing the inside information;
l Acquiring and using outside informationDisclosure of outside activities by the
employer to the employee;
l Using comapny assets; etc.
The value statements normally include
l Value of customers
l Commitment towards the business practices like quality etc.
l duty towards shareholders, suppliers etc.
l following the environmental protection norms etc.
These were the few areas which were covered. There can be more such points, which
can be discussed under the head value statements and code of ethics. Each
organization has its own set of value statements and code of ethics.
Activity 5
Take the case of the organization of your choice and write the code of ethics and value
statements of that organization.
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For the strategy to be implemented effectively, it is important to have a set of formal
value statements and code of ethics. These should not be merely in a written form but
must be followed by each employee of the organization so as to create a strong
corporate culture, which in turn would result in the success of the organization.
14.8 FUNCTIONAL STRATEGIES
The strategies have to be ultimately translated into business operations. The operating
decisions are taken by middle and junior level managers. Functional policies provide
guidelines to operating managers so that (a) the strategies are implemented,
(b) executive time in decision making if reduced, (c) similar situations are handled
consistently, and (d) coordination across functional units takes place. Once the
strategy of the company is decided, modification in functional policies may become
necessary to meet the demands of new business or new business philosophy,
particularly if a major deviation in product/market scope is contemplated. This
43
becomes all the more necessary in the Indian context where unrelated diversification is Behavioural
Dimensions
not uncommon and where large-scale sickness of business exists. Depending upon the
changes in the present business and the method of its management, the magnitude of
modifications may range from a few minor ones to total revamping of functional
policies. For instance, a company might plan an expansion in sales by introducing
instalment schemes. This may need some alteration in the financial policies. On the
other hand, if a company growing only at a 5% rate wants to be the leader in the
industry and has the ambition of appearing on world scene, major changes may be
imperative not only in financial but also in technology production, marketing,
personnel and R & D policies. The functional policies should be comprehensive; they
should not leave so much choice to operating managers that they work suboptimally or
at cross purposes. At the same time, the policies should be flexible enough to leave
room to managers for responding quickly to situations and make exceptions for good
reasons. The firm should have policies in every major aspect of business, at least in
key functional areas.
In the financial management area, the major policies relate to the arrangement and
deployment of funds. Major issues involved are the sources from where the funds will
come, from owners (equity) or by borrowing. How much of the borrowing will be
short-term and how much long-term? In terms of usage of funds, the policy decisions
would relate to whether and to what extent funds have to be deployed in long-term
(fixed) and short-term (current) assets. The long-term or capital investment decisions
relate to buying or leasing the fixed assets. A retrenchment strategy or paucity of
funds may compel the organization to lease rather than buy. In case of an organization
where capital investment decisions are decentralised, a hurdle rate may be fixed so
as to avoid investment in weaker projects by one division and non-investment by
another division.
Apart from capital budgeting, another consideration in financial management which
influences other functional areas is the cashflow. A company may frame bonus and
dividend policies based on availability of cash. In case a company proposes expansion
through internally generated funds, it may reduce bonus and dividend. This is
particularly so when it has formulated ambitious growth policies which require huge
cash. Similarly, if the firm has high risk business, it should have a conservative debt/
equity ratio to guard against falling in red due to heavy interest burden.
The funds position and optimisation orientation of top management also determine the
accounts receivable and payable policies. Financial polcies may even determine the
account keeping (e.g. LIFO or FIFO) as these affect the profitability, balance sheet
and hence cashflow through tax, dividend, bonus, etc.
Functional policies in marketing area are required for marketing-mix decisions,
namely, the four Ps (Product design, Product distribution, Pricing and Promotion) of
marketing. In terms of specifics, the product decisions relate to such issues as the
variety of product/service (shape, size, models, etc.), completeness of the line, quality
requirements, introduction/withdrawal of products, nature of customers, etc. Specific
policies are also necessary regarding distribution channels, i.e., through retailers or
direct selling? What will be the spread of distribution network? Whether new dealers
will be established or old ones developed? What will be the terms of contract with
dealers and the nature/extent of after-sale service (wherever necessary)? The
promotion policies will relate to mode of promotion, coverage and nature (corporate/
product or brand promotion). Very clear and specific policies are to be made about
pricing, e.g., full cost or standard cost based pricing. In the case of latter, at what
sales levels? Offensive vs. defensive postures also influence pricing policies.
The functions relating to production will need policies relating to quality assurance,
machine utilisation, location of facilities, balancing the line, scheduling of production,
and materials management. The strategy for entering into export market will dictate a
44
Implementation
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different policy regarding quality of products and maintenance. In case of common
facilities policies of prioritisation will have to be made for scheduling production.
Location of facilities may be determined by closeness to market or input supply
points. Policies must be made to determine whether and how much to make or buy, on
the basis of cost differential, certainty regarding availability, criticality of the item,
ability to follow up procurement action for production, capacity utilisation of the
existing plant and facility and alternative uses of expanded capacity if expansion
becomes necessary. In case of bought out items, policies regarding the number of
suppliers and the criteria for selecting them are necessary.
In the area of research and development, functional policies regarding nature of
research are necessary. In case of expansion through new product development, heavy
emphasis has to be laid on basic and applied research. On the other hand, for
expansion in the same line, research emphasis has to be on product/process
improvement to cut cost and on added value. It may be noted that in case of basic
research the firm should be prepared to commit resources and wait for outcome for
several years. It cannot have basic research unless it is prepared to commit resources
on long-term basis.
Lastly, functional policies will be necessary in the area of personnel management:
what will be the compensation/incentive system to get the best out of the people and to
make them fit for desired positions in the organization? What compensation/incentive
system will be able to attract people of the desired type to join the organization so as
to meet the task requirements demanded by the strategy? What policies will be
necessary for grooming internal people for new positions? The problem becomes acute
in the context of turnaround strategies. On the one hand, the most competent people
leave and the firm finds it difficult to attract suitable replacements. On the other hand,
it faces problem of surplus staff. Retrenchment policies, though painful, are quite
necessary but difficult to develop.
The functional policies have a lot of interlinkages between themselves and, therefore,
cannot be developed independent of each other. Attempts to do so, for whatever
reason, may lead to chaos and serious mismatches, resulting in failure of the strategy.
Activity 5
List the main functional policies in your organization. What mismatch, if any, do you
notice among them?
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14.9 SUMMARY
In this unit we have discussed different aspects of behavioural issues, which are
important for the implementation of a strategy in an organization. In this unit, the
stress is more on the concept of leadership and the role of leaders in handling the
people. The key to effective strategic management lies in ensuring the integration of
the functions of management into a culture of excellence. This in itself is a great
challenge for leadership.
45
Whether a leader should change his/her style in according with the demands of the Behavioural Dimensions
situation is rather controversial. It is considered better for a leader to be himself/
herself . The role of leader is important for maintaining the corporate culture of the
organization. S/he should set examples to guide his employees to follow a path of
sound values and ethical principles so as to build a strong corporate culture.
14.10 KEY WORDS
Corporate Culture is the values and beliefs accepted and practiced by all the
employees of a company.
Ethics is the moral philosophy of the organization.
Leadership is the capacity to frame plans which will succeed and the faculty to
persuade others carry them out in the face of all difficulties.
Values are the moral principles of the organization.
14.11 SELF-ASSESSMENT QUESTIONS
1) 12 per cent of effective management strategy is knowledge and 88 per cent is
dealing appropriately with people. Do you agree with the statement? Discuss.
2) Discuss the role of leadership in
a) Strategic Management
b) Improving Productivity
3) Discuss the different functions of leadership.
4) Should a leader change his/her style or continue with his/her style, which is in
consonance with his/her basic personality? Discuss.
5) What do you understand by corporate culture? Should the organization have a
corporate culture of its own? Discuss.
6) Briefly explain the importance of values and ethics in an organization.
14.12 REFERENCES AND FURTHER READINGS
John, Adair. (1973). Action Centred Leadership, McGraw Hill, London.
Journal of Management Development 6.4.
Katz, L. Robert. (1955). Skill of an Effective Administrator. Harvard Business
Review, Jan-Feb. pp. 33-42.
Khandwalla, P.N. (1977). Design of Organizations, Harcourt Brace Jovanovich: New
York, p. 482.
Maslow, A.H. (1965). Eupsychian Management. A Journal. Richard D. Irwin, 1965.
Moran, Lord. (1984). Anatomy of Courage, Book World, Dehradun.
Rao, Subba P. (2004). Business Policy and Strategic Management, Himalaya
Publishing House.
Sashkin, Marshall (1989). A New Vision of Leadership, National Institute of
Education, Washington, D.C.
UNIT 15 CONTROL
Objectives
After stildyi~lgth is unit, you should be able to understand:
e tlie strategic control process;
e importance of strategic control in evaluation;
o different methods used in control process; and
a analysis and follow-up action for control.
Structure
5 1 Introduction
~trate~tCiocn trol Process
Methods of Control
Performance Staildards
Analysis and Follow-up Action for Control
Problems of Control Systems
Suintnary
Key Words
Self-Assessment Questio~is
References and Further Readings
15.1 INTRODUCTION
With the co~npletiono f the strategy impleme~ltationt,h e organization looks forward to
acllievi~lgth e desired goals and ob.jectives. It is necessaly, however, to introduce the
process of strategy evaluatio~ai nd co~ltroiln the early stages of i~nplementationt,o see
whether the strategy is successfi~ol r not and to carry out mid-course corrections
wherever necessary. There are several reasons why a strategy may not lead to desired
results. The external enviro~imennt lay not actllally follow a trend as was expected at
the time of planlii~lgth e strategy. The i~lterllacl hanges within tlie organization such as
the organizational systems consisting of structure, policies and procedures nlay not
reflect harmony with the strategy. Afler a wliile, the top nlarlagelneilt of even middlelevel
managers may find it difficult to exercise a substantial degree of control over
operating systems. The unexpected moves of the co~npetitorsm ight create major gaps
in the strategy. Thus the list of such factors will require a co~~tinuoeuvsa luatioil and
co~ltrool f strategy. In this unit we will describe the control process.
15.2 STRATEGIC CONTROL PROCESS
Tlie evaluation of the strategy of an organization can be done qualitatively as well as
quantitatively. Tlie quantitative evaluatio~ils based on data and is possible through
post facto analysis to detect whether the content of strategy is working or has worked.
However, qualitative evaluation call also be done by addressing the question: Will it
work? The qualitative evaluatio~cia n thus be done before activating plans of change.
The qualitative evaluation and control orstrategy is a real time process. The
performance of strategy is monitored and corrective actions are taken. Tlie basic aim
of any organization is to achieve its goals. But to achieve the goals, the organization
faces lots of 11~11-dleTs.o overcolne these hurdles, it is necessary for any organization
to have a sound stratetgic control process. The word meaning of 'control' itself
means 'to regulate' or 'to clieck'. This means that the top management needs to keep
check on how well the strategy is being i~nple~ne~ittoe adc hieve the objectives ofthe
organization. For example, ifthe business is not giving 1.esu1ts as expected, it may be
necessary to increase p~.ornotionael fforts, or revise the product policy, or as a last
resort, the firm may pull out of a particular business.
The strategic control process is closely related to strategic planning process. Figure
1 5.1 represents the relationship between strategic planning and strategic control
process. Tlie process consists oftliree phases, which are as follows: 1) Evaluation
criteria; 2) Performance evaluation; and 3) Feedback.
The first phase i.e., tlie evaluation criteria consists of selecting ltey success factors,
developing measures and setting standards fo~.thesa me and collecting i11fo1-mation
about actual performance. As discussed, the evaluation criteria can be qualitative as
well as quantitative. In this nit, we will focus on the quantitative aspect. The
Strategic
Planning 4 1
I Ol?jeclives
I 4
I
I
I
Activities L:
Figure 16.1 : Relationsl~ip between Strategic Planning rnd Strntegic Control Process
Source: Aclnptetl l'rom Byars L. Lloyd, Strategic Management, Planning and Implementation Concepts
ant1 Cases. 1987.
Qurintitrrtive criterifria.fore vnkintion : This is i~nportanft or measuring the
organizational performance whereby the actual results are compared wit11 tlie expected
results. Usually the organizations use financial ratios as quantitative criteria for
evaluating strategies. These are used due to the followiilg reasons:
I ) To compare the perrormance ofthe orga~lizationo ver different time periods;
2) To cotllpare the performance of the organization with its competitors in the
industl-y;
3) To compare the organizations' performance to industry averages.
Some of tlie major financial ratios which can be used as criteria for evaluation of strategy are:
1) Return on invest~nent
2) Return on equity
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47
Impletnentsltion
and Contrbl
3) Profit margin
4) Market share
5) Debt to equity
6) Earnings per share
7) Sales growth
8) Asset growth
These ratios are used by different organizations to measurethe perfonnance oftlle
organization. Here, one thing is to be noted that the qualitative criteria are related
more to short-term objectives than tlle long-term ones. This is the reason why
qualitative criteria are very importallt in evaluating strategies. Therefore, to evaluate
strategies certain qualitative questions sl~oulda lso be taken into consideration. These
questions can be:
e Whether the strategy is inter~iallyco nsistent or not?
. ID Whether it is appropriate col~sideringth e available resources or not?
e How is the firm balancing its investments between high-risk and low-risk
prospects?
This shows that answers to all these qualitative questions is important to evaluate and
control the strategy.
15.3 METHODS OF CONTROL
There are many methods/tecl~niq~~uesesd in strategic control systems. Every
organizatioil has its own way of using a particular technique according to the
requirement of the organization. Most ofthe methods related to the strategic
management are regarding the financial coni%ol systems. Figure 16.2 sl~owosn e ofthe
effective systems of financial co~ltrolw, hich is universally accepted and is used by
many organizatio~ltsh rougho~t~het world. This is system of financial control is known
as DuPont ' s system of financial control.
1 Return on Total Assets I
1 Net Profit Margill 1
Net Income
Net Sales +/-
+,kq
Non Opcrating
Surplus/Dedcil
Expenses
Cash, Bank, Receivables
and Marketable
Having identified the measures relevant for asessing the success of the strategy, the
next important issue is to set the standards against which actual perfor~nanceis to be
measured. The standards of perfor~nanceco uld be any of the following three types.
a) Historical Standards
In this type of standards, co~nparisono f present performance is made with the past
performance. Though simplest, this type does not take into account the clianges in
environmental conditions between tlie two periods. Moreover, the prior-period
performance itself may not have been acceptable. It also could be misleadii~gin the
fonnative years wl~enth e numerator (previous years figures) is small.
b) Industry Standards
In this type of standards, tl~ceo inparison of a firm's performance is made against
silnilar other firms in the industry. Tlle difficulty here is that all the firms may not be
exactly the same for purposes of comparison.
c) Present. Standards
The goalsltargets are decided by the fir~n'sm anagement to be achieved in a particular
period. Present standards convey the aspiration levels and take into account
environmental conditions, if properly derived. These are more realistic and also
consider the organizations' capaci& to achieve them. These, however, require
tremendous analysis. Absence of such analysis may lead to shocking results. However,
for a colnpany developing a conscious strategy, present standards provide the best
alternative.
Activity 2
What Itinds of standards are being used in your organization? What, in your view, are
the problems arising out of it?
15.5 ANALYSIS AND FOLLOW-UP ACTION FOR
CONTROL
Control
Once the actual operations start, information about the actual performance has to be
collected periodically and compared with tlie standards set. If the objectives or major
co~npo~ienotfs s trategy include such factors as market leadership, information about
market share will also have to be collected. Information may also be collected
regarding performa~~ocfe tlie other key factors. If the perfor~nariceo n key success
factors is ~~nsatisfactortyh,e long-term success of the strategy may be endangered.
This may be despite tlie current success which may be due to favourable current
environ~nentf,o r exalnple, boom in tlie industry, scarcity etc.
If tlie perfbrmance is unsatisfactory, two courses of action are possible. The
responsibility centre lnanager may be asked to improve perfor~nanceo, r if it is not
possible, target or standards of performance may be revised.
TIie evaluation and control reports lnay be oftwo types namely; tlie motivational and
the economic reports. The motivational reports relate to the performance ofthe people
in tlie reslzonsibility centres. Economic reports are concerned with. the ecolio~nic
performance ofthe respo~~sibilicteyn tres. The basic difference in the two is that while
tlie latter gives actual economic perfor~nancec overing all factors, tlie for~nerre ports
tlie performance of a responsibility centre. For instance, while an economic report will
irlclude all costs, tlie motivational report will includeonly those items of cost over
which it has control.
For exa~nplet,l ie division may not have any control over purchase price of materials,
but it may have control over material consulnption. Similarly, the responsibility centre
/
has cont~bol ver market share while it may not have control over industry volume. It is
advisablk to keep the two reports separate. For instance, iftlie economic performance
is going down despite best efforts of the responsibility centre, there may be a need to
make a shift in the strategy. Similarly, strategic performance based 011 economic
reports rnay be satisfactory but still there may be need for modification of the strategy
if the good performance is due to ~~liexpectfeadv ourable developments.
From the control point of view the reports ~niisbt e timely, otherwise corrective action
may not be possible. The frequeilcy of reports is determined by the lead time required
for corrective action and is constrained by the lead time for processing tlie
transactional data and its transmittal to retrieve data in the form of reports. If on tlle
other liancl, tlie evaluatioi~sa re made too early kneejerk reactions are likely which may
hurt tlie plan.
A strategy need not be changed or abandoned just because evaluation has revealed the
causes of poor performance over a short period. It should be tested for a sufficiently
51
lrnplementation
and Control
long period oftime because certain assumptions might have gone wrong and there was
no contingency plan to take care of such situations. Ifeven after reasonable period of
time the performance is not coming up to expectations, it lnay be due to serious
deficiencies in the business strategy. However, before changing the strategy, it would
iI
be advisable to check its i~npleinentationo n the test of adequacy. It is quite possible
that some of the Ss of the 7-S model may be grossly out of line with the strategy. And,
if corrected, the strategy may still be quite useful. However, there might have been
serious errors in assessing the external and internal environ~nentes ven tliough the
evaluatio~ol f implementation reveals 110 major mismatches.
Activity 3
How are the targets fixed for various divisions/departments in your organization?
How and why are the targets revised? Give colnlnents on the duration of target fixing
and revising.
15.6 PROBLEMS OF CONTROL SYSTEMS
'There are a large number of problems associated with control systems for strategy
evaluation. An efficient system may collect a lot of irrelevant data whereas a
sophisticated system might ignore crucial information. Some of the typical problelns
encountered in designing and managing control system are:
e There inay not be a consensus on the criteria for ~neasuringth e effectiveness and
efficiency of the strategy.
e The reporting data may be invalid.
e The perfornlance norms may be based on outputs 011 which the relevant business
inay not have a control.
e Often perfor~nances tandards may be set with inherent co~ltradictionsF. or
example, an increase in market share inay be expected in conjunction with an
absolute decrease in marketing expenditure.
e E~nployeesin ay consider the system to be unfair and therefore nlay not accept it.
e Overemphasis on measuring short-term performance may make managers forget
aboyt the strategy which inherently has long connotations.
e It is very difficult to set "good7', "average" and "poor" levels of performance in
situations where the outputs are not very tangible.
15.7 SUMMARY
An effective system ofevaluatio~al nd control is important for the success of corporate I
1