Business Policy and Strategy Bba Study Notes

Business Policy and Strategy

Unit-I
Business Policy Meaning Features Classification
Process of Policy Making objectives of business Policy.
Unit II
Business strategy Meaning features importance
Strategic Management Process -SWOT analysis - ETOP analysis
TOWS matrix- BCG matrix.
Unit III
Major business policies Personnel policy - Production policy
Marketing policy - Financial policy.
Unit IV
Major business strategies Stability growth retrenchment
disinvestment mixed strategies.
Unit V
Society and business
business Social audit.
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ethics
Social responsibilities of
UNIT 1
Business
Business is the mainspring of the modern human life. It is the major
economic activity in any society. Each one of us, making some dealing
in our day-to-day life with a number of business concerns.
It includes activities concerned with production, trade, banking,
insurance, finance, agency, advertising, packaging, and other related
activities.
What is important and what needs emphasis in the term business is
that the above activities area being organized and carried on to satisfy
the consumers needs.
Business Policy
The origin of business policy can be traced back to 1911, when the
Harvard Business School introduced an integrative course in
management aimed at providing general management capability.
Policy making is one of the most important components of business
planning. It provides guidelines as to how objectives of business are to
be achieved.
The necessity of guiding the future direction of business arises at
some stage in the course of existence of every company.
Definition
According to Terry, A business policy is an implied overall guide setting
up boundaries that supply the general limits and direction in which
managerial action will take place.
According to Knoontz, Policies define how the company will deal with
stock holders, employees, customers, suppliers, distributors and other
important groups. Policies narrow the range of individual discretion, so
that employees act consistently on important issues.
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As defined by Christensen and Others, business policy is the study of

the function and responsibilities of senior management, the crucial
problems that affect success in the total enterprise, and the decisions
that determine the direction of the organization and shape its future.
Scope of Business Policy
No business organization can either survive or grow without definite
objectives which can only be accomplished by applying different
policies from time to time, depending upon the working conditions.
Business policies are actually the guidelines for organizational thinking,
behavior and action.
Policies as such are formulated pertaining to different aspects of
business organizations and therefore they enjoy a very wide scope in
day-to-day life of any business unit.
Policies in general, have a wide scope as they are concerned with
Aim and objectives of a business unit

Organizational structure
Financial resources available
Regional traditions and social values
Fiscal and commercial policy of the government
Need for Business Policies

It goes without saying that business policy and administration is part
and parcel of management.
No business enterprise can be managed, controlled and administered
effectively if no definite policies are determined.
In fact, it is the policy that guides the course of action
Policies are so framed as to attain the goal of the enterprise and the
pre-determined goal can be achieved only when actions are put into
practice.
When the policies are to be implemented, every care should be taken
by executives to see that implementation of policies will have no
adverse effects on workers as well as on the management.
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Hence, to see that policies are effective as well as fruitful,

implementation has been considered as an important aspect of
management. The executives concerned with policy implementation
should execute them in such a manner as would lead to maximum
return on total investment with minimum amount of discontentment
among people in the organization.
Features of Policy
From the above definitions, following features of a policy can be
identified
A policy provides guidelines to the members of the organization
for deciding a course of action. Policy provides and explains what
a member should do rather that what he is doing.
Policy limits an area within a decision is to be made and assures
that the decision will be consistent with and contributive to
objectives.
Policies are generally expressed in qualitative or general way.
The words most often used in stating policies are to maintain, to
continue, to follow, to provide, to assist, to assure, to employ, to
make, to produce or to be etc.
Policy formulation is a function of all managers in the
organization because some form of guidelines for future course of
action is required at every level.
Policies serve an extremely useful purpose. They avoid confusion
and provide clear-cut guidelines at all levels to subordinates; and
therefore, they enable the business to carried on smoothly and
often without break.
They also lead to better and maximum utilization of resources,
human, financial and physical, by adhering to actions for
conservation.
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Decision-making, planning and coordination of any business

organization are exclusively governed and controlled by
Business Policies.
Consistency in the work performance by different members of
firm is maintained because of clear-cut policies chalked out at
executive level.
Policies normally cover the study of the nature and process of
choice about the future of a business enterprise and are to be
handled by responsible executives.
Classifications
On the basis of levels of Management

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Business policies are framed at different levels of the management,

and accordingly they may be classified as:
Top management policies : These policies are derived from the top
management planning. The top management comprise of the Board of
directors, Chairman, Vice-Chairman, Managing Director, General
Manager, etc.
The top management policies are concerned with the long-range such
as product selection, diversification, acquisitions and mergers, extent
and liability-sales forecasting, etc.
Middle level management policies: These policies are the out
come of the deliberations of the middle management consist of the
deputy heads to the various sections and functional departments.
They frame policies on employment and training, industrial relations,
labour welfare and social security etc. and these policies are known as
middle management policies.
Lower level management policies: The lower level management
people are men who have direct supervision over the working force.
They chalk out policies for the assignment of the jobs to the best
suited persons, the provision of adequate tools, raw materials, training
the workers, issuing of orders, improving working conditions, etc.
On the basis of Functional Areas
Policies relating to various functional areas of the management are
called functional policies.
Production and Purchase policies : The policies for operational are
related to the production system, operational planning and control, and
research and development.
The strategy adopted and affects the nature of product also the
markets to be served and the manner in which the markets are to be
served.
Marketing Policies : Policies related to marketing have to be
formulated and implemented on the basis of the marketing mix i.e
product, price, place and promotion. The major issues and decisions
related to these marketing mix factors.
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The following are considered as major marketing policies.

Product Policies
Pricing Policies
Promotion Policies
Physical distribution Policies
Financial Policies : This policies may be regarded as the most

important business policies, as the entire success or failure of a
business unit depends upon these. Properly framed financial policies
result in prosperity and long survival, while faulty policies result in the
units run.
The financial policies of an organization are related to the availability,
usage and management of funds. Financial policies have therefore to
be determined is the areas of
Sources of Capital Policies
Working Capital Policies
Profit distribution Policies
Depreciation allowances Policies
Personnel Policies: Personnel policies are the tools for the personnel
department to achieve the objectives of the organization. Personnel
policy provides guidelines for a wide variety of employment
relationship in the organization.
The personal policy of the organization should have two types namely
General Objective : The statement of general objective
should express the top managements basic philosophy of
human resources and reflect its deep underlying convictions as
to the importance of people in the organization.
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Specific objectives: The statement of specific objectives

should refer to the various activities of personnel
administration connected with staffing, training, developing,
wage and salary benefits, employee records and personnel
research.
The major areas of the personnel policies are
Recruitment and Selection Policy
Training and Promotion Policy
Remuneration and Benefit Policy
Industrial relation Policy
On the basis of Expression
Business policies may be either express or implied, which in turn may
be oral or written.
Oral Policies : Oral policies are those, which are issued or stated by
the word of mouth. Such policies are generally adopted when an
organization is small and face-to-face communication is desired.
They are often not remembered for long and easily forgotten.
Therefore, usually oral policies are not in popular use.
Written Policies : Written policies are those, which are normally put
in black and white and stated in clear terms so that personal whom
they are addressed to easily understand them. For putting the policies
in writing, much care to be taken.
Implied policies : These are the policies, which are implied from the
code of conduct or from the behavior of business employees; but they
are expressed.
They generally flow from the philosophy of the
business, its social values and even traditions.
For example, smoking and drinking may be prohibited not in writing
but it is implied by the conduct of the executives who refrain theses
habits while on duty.
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On the basis of nature of Origin

On the basis of nature of origin business policies can be classified in to
three types. They are as follows
Formulated Policy : A formulated policy is one, which is specified by
the organization for providing guidelines to its members. Most of the
policies in private sector organizations fall in this category as every
organization formulate various policies on different aspects. This
policy may be broad giving general guidance for the action.
Appealed Policies : Sometimes, policies may not be clearly stated
and the actions of managers particularly at the higher levels provide
guidelines for actions at lower levels.
In such a case, the action of a decision maker, consciously or
unconsciously, depends on his own guidelines. Moreover, in the
absence of any specific guidelines, decision is based on individual
interpretation of the situation and consequent actions.
Imposed Policies : imposed policies arise from the influence of some
outside agencies. Such agencies may be government which provides
policies for all public-sector organizations, parent organizations
overseas in the case of multinational companies operating in a country.
On the basis of scope of Organization
Business policies may also be categorized as basic policies, general
policies and specific policies.
Basic Policies : These policies are basis of the organization and are
framed by the top management. They spell out the approach of a
company to its activities. For example, marketing policy of a firm may
be consumer-oriented as against product-oriented, with the main
purpose of competing with the products of competitors.
General policies : Such policies are generally more specific and
apply to large segments of organization.
The middle level
management, e.g., mainly frames them purchasing policy to give first
preference to local suppliers.
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Specific or Departmental Policies : A departmental policy is

specific in nature. The foremen and supervisors formulate it. It applies
to routine activities in the department.
On the basis of Management Functions
The management undertakes functions, viz., planning, organizing,
actuating, and controlling. Accordingly the policies may be planning
policies, organizing policies, actuating or directional policies and
controlling policies.
Planning Policies : These policies are concerned with the path of
action, which lead to company activities and attainment of its
objectives. Planning policies decide the objectives to be achieved; the
policies paths that should be followed to achieve the objectives and
how the objectives set are to be achieved through programs and
process.
Organizing Policies : Organization is another management function,
which is concerned with the division or allocation of necessary
competent activities to members of the group so that through
collective efforts, the objectives may be achieved.
Actuating Policies :
The actuating policies, therefore include:
providing effective leadership; integrating people and task and
convincing them to assist in the achievement of the overall objectives;
effective communication with the members; and providing climate for
the subordinates development and their motivation to work.
Controlling policies: Controlling is the process of measuring actual
result, comparing with standard of performance, finding out deviations
and taking corrective action when necessary.
Controlling policies involve a series of activities; continuous
observation and study of periodic result of performance in order to
identify potential problems; selection of the best mode of control.
Importance of Business Policy
Business policy is important as a course in the management curriculum
and as a component of executive development programmes for
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middle-level managers who are preparing to move up to the senior

management level. To highlight the importance of business policy, we
shall consider four areas where this course proves to be beneficial.
For
For
For
For
learning the course

Understanding the business environment
understanding the business organization
personal development
For Learning the course

Business policy seeks to integrate the knowledge and experience
gained in various functional areas of management. It enables the
learner to understand and make sense of the complex interaction that
takes place between different functional areas.
Business policy deals with the constrains and complexities of real-life
business. In contrast, the functional area courses are based on a
structured, specialized and well developed body of knowledge,
resulting from a simplification of the complex overall tasks and
responsibilities of the management.
For Understanding the Business Environment
Regardless of the level of management of person belongs to, business
policy helps to create an understanding of how policies are formulated.
This helps in creating an appreciation of the complexities of the
environment that the senior management faces in policy formulation.
By gaining an understanding of the business environment, managers
become more respective to the ideas and suggestions of the
management. Such an attitude on the part of the management makes
the task of policy implementation simpler.
For Understanding the Organization
Business policy presents a basic framework for understanding strategic
decision making while a person is at the middle level of management.
Such a framework, Combined with the experience gained while
working in a specialized functional area, enables a person to make
preparations for handling general management responsibilities. This
benefits the organization in a variety of ways.
For Personal Development
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A study of business policy offers considerable scope for personal

development. It is a fact of organizational life that the different
subunits within an organization have a varying value and importance
at different times.
It often happens that a company which has followed a production
orientation as a matter of policy gradually shifts emphasis to
marketing, maybe due to increasing competition.
The Purpose of Business policy
To integrate the knowledge gained in various functional areas of
management
To adopt a generalist approach to problem-solving
To understand the complex inter-linkages operating within an
organization through the use of a system approach to decision-making
and relating these to the change taking place in the external
environment.
Business Policy Process

Ascertaining the problem
Policy formulation
Dissemination of the policy
Acceptance of the policy
Explanation of the Policy
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Policy Implementation
Policy Control
Ascertaining the Problem
The main object of generating the policy is to have smooth working in
the business organization. Hence, the task of formulating policies
should be assigned only to those in the management who are well
versed and quite conversant with varied situations or problems of the
business concerned.
Policy Formulation
This is the next step to be taken by persons concerned with policy
implementation. Any policy that is to be framed should be quite
suitable both to the management and to its employees.
No policy can be successfully put into practice unless it is properly
approved by the company personnel.
Dissemination of the Policy
Dissemination indicates announcement or making the subject-matter
known to others. One of the basic elements of the policy is that
whatever policy is framed it should be made known to all within the
organization so as to avoid any conflict between the company
management and its personnel.
Acceptance of the Policy

When the policies are formulated, it is advisable to get the draft of the
policy statement approved by those who are supposed to apply it in
the interest of the organization as a whole management and
personnel.
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Once the basic principles on which the policies are designed and the
rules and regulations included in the proposed draft policy are
thoroughly understood and accepted.
Explanation of the Policy
If the policy is to be accepted at all levels of management, every
attempt should be made by policy-makers that the exact meaning,
significance and purpose of policy are explained in clear terms to the
persons concerned.
The policy will have no opposition and an early approved if explained
thoroughly, will hold relevance to the business environment in which
the business enterprise is expected to operate.
Policy Implementation
This is last but one stage in the process of policy-making decisions.
Implementation of policy indicates putting it into practice as and when
any problem or critical situation arises.
Even otherwise, corporate operations are undertaken and are also the
outcome of the policy implementation.
Policy Control
This is a very important element of business policy which is likely to be
implemented at different levels on different occasion.
The
management in this regard should be careful to see that the policy
implementation takes place in conformity with the basic principles,
rules and regulations set by the policy makers.
How Policies Differ from Rules

Policies are in the form of guidance and not the order. Rules are
positive instructions or orders to do or not to do something
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Infringement of rules leads to specific penalties whereas no

stipulated penalties are imposed in case the policies are not
strictly adhered to.
In the case of policies, there is room for variation for their use; it
is not so regarding rules.
Policies give birth to rules and rules support and augment the
policies.
Characteristics of Business Policies
Objectivity
Relationship to other objectives
Complementariness
Stability and Flexibility
Fairness and Honesty
Being known, understood and accepted
Policy in writing
Simple and free from ambiguity
Supplementary to other policies
Ethical standards
Objectives of the Business Policy

It is thus essential that we should first state the objectives of business
policy and only then proceed further. The objectives of business policy
have been stated by authors such as Christensen et.al. and Steiner and
others in terms of knowledge, skills and attitudes. These objectives
could be derived from the purpose of business policy.
In Terms of Knowledge
The learners of business policy have to understand the various
concepts involved. Many of these concepts like strategy, policies,
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plans and programmes are encountered in the functional area

courses too.
It is imperative to understand theses concepts specifically in the
context of business policy.
A knowledge of the external and internal environment and how it
affects the functioning of an organization is vital to an
understanding of business policy. Through the tools of analysis
and diagnosis a learner can understand the environment in which
a firm operates.
Information about the environment helps in the determination of
the mission, objectives, and strategies of a firm. The learner
appreciates the manner in which strategy is formulated.
In Terms of Skills
The attainment of knowledge should lead to the development of
skills so as to be able to apply that which has been learnt. Such
an application can take place by an analysis of case studies and
their interpretation, and by an analysis of the business events
taking place around us.
The study of business policy should enable a student to develop
analytical ability and use it to understand the situation in a given
case of incident.
Further, the study of business policy should lead to the skill of
identifying the factors relevant in decision-making. The analysis
of the strengths and weaknesses of an organization, the threads
and opportunities present in the environment, and the suggestion
of appropriate strategies and policies from the core content of
general management decision-making.
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In Terms of Attitude
The attainment of the knowledge and skill objectives should lead
to the inculcation of an appropriate attitude among the learners.
The most important attitude developed through this course is
that of a generalist. The generalist attitude enables the learners
to approach and asses a situation from all possible angles.
By acing in a comprehensive manner, a generalist is able o
function under conditions of partial ignorance by using his or her
judgment and intuition. Typically, case studies provide only a
glimpse of the overall situation and a case analyst frequently
faces the frustrating situation of working with less than the
required information.
UNIT 2
Business Strategy
The term Strategy is derived from military, where it is taken to mean
the process of planning the movements of troops so as to outplay the
enemy in the battlefield. Originally, the term has been derived from
Greek word strategos.
The word strategy, therefore means the art of general. In corporate
planning, strategy is the grand design, which an organization chooses
in order to move to react towards the set objectives by using its
resources.
Meaning / Definitions
According to knootz O Donnel Strategies are general programme
of action towards the attainment of comprehensive objectives.
According to Andrews, Strategy is the pattern of objectives,
purpose of goals and major policies and plans for achieving these goals
stated in such a way, so as to define what business the company is in
or is to be and the kind of company it is or is to be.
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According to James Brain Quinn, the

pattern of plan that
integrates an organizations major goals, policies and action sequences
into a cohesive whole.
Analysis of Definitions of Strategy

The analysis of various definitions of strategy presents the following
points:
Strategy is a central understanding of the strategic management
process.
Strategy is the determination of basic long-term goals and
objectives of an organization.
Determining the course of action to attain the predetermined
goals and objectives.
Allocating the necessary resources for implementing the course
of action.
Set of decision-making rules making a common thread.
Levels of Strategy
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Corporate Level Strategy is an overarching plan of action covering

the various functions performed by different SBUs. the plan deals with
the objectives of the company, allocation of resources and coordination
of the SBUs for optimal performance.
SBU Level Strategy is a comprehensive plan providing objectives for
SBUs, allocation of resources among functional areas, and
coordination between them for making an optimal contribution to the
achievement of corporate level objectives.
Functional Strategy deals with a relatively restricted plan providing

objectives for a specific function, allocation of resources among
different operations within that functional area, and coordination
between them for optimal contribution to the achievement of SBU and
corporate level objectives.
Features of Strategy
The definition of strategy provides its following features:
Strategy relates the firm to its environment, particularly the external
environment in all actions whether objective setting, or actions and
resources required for its achievement.
Strategy is the right combination of factors both external and
internal. In relating an organization to its environment, the
management must also consider the internal factors too,
particularly its strengths and weakness to taken various courses
of action.
Strategy is relative combination of actions. The combination is to
meet a particular condition, to solve certain problems, or to attain
a desirable objective. It may taken any form; for every situation
varies and therefore requires a somewhat different approach.
Strategy may even involve contradictory action. Since strategic
action depends on environmental variables, a manager may take
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an action today and revise or reverse his steps tomorrow

depending on the situation.
Strategy is forward looking. It has orientation towards the future.
Strategic action is required in a new situation. Nothing new
requiring solutions can exist in the past, and so strategy is
relevant only to the feature.
Importance of Strategic Management
To Provide Guidelines : Strategic management provides guidelines
to the employer about the organizations expectations from them. This
would minimize conflict between job performance and job demands.
Thus it provides incentive for employer and helps the organization in
achieving its objectives.
Developed field Study by Research : Strategic management was
just based on case studies, 30 years ago. But recently, there are
methodological problems in research in this field of study. More
systematic knowledge in this area is available at present. Therefore, it
is worthwhile to study strategic management at present compared to
the past.
Probability for Better Performance : There is no clear research
evidence that strategic management leads to higher performance. But
the majority of studies suggest that there is a relationship between
better performance and formal planning.
Improves Communication : Strategic management provides
effective communication of information from lower level managers to
middle level managers and to top level managers.
Improves Coordination : Strategic management improves
coordination not only among the functional areas of management, but
also among individual projects.
Improve Allocation of Resources: Strategic planning helps in
deciding upon most feasible and viable projects and thereby improves
the allocation of resources to the viable projects.
Benefits of Strategic Management
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It helps organizations not only to respond to its relevant

environment, but also to initiate and influence its environment
and thereby exert control over its destiny.
It helps the organizations to achieve understanding
commitment from all managers and employees.
and
It helps for increased employee productivity, reduced resistance

to change, clear understanding of performance-reward
relationship.
It often brings order and discipline to a firm.
It allows for identification, prioritization and exploitation of
opportunities.
It provides an objective view of management problems.
It represents a framework for improved control of activities.
It minimizes the effects of adverse conditions and change.
Strategic Management Process
Strategic decision making is carried out through the process of
strategic management. The way strategic management is defined the
different phases in the process of strategic management, the elements
that this process contains; and lastly, the model of strategic
management that we have adopted.
Phases in strategic Management
The strategic management as a process consists of different phases
which are sequential in nature.
These four phases could be
encapsulated as follows
Establishing the hierarchy of strategic intent,
Formulation of strategies
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Implementation of strategies and

Performing strategic evaluation and control
The above four phases are considered as sequentially linked to each
other and each successive phase provides a feedback to the previous
phases.
The phases in strategies management are depicted as
following
Each phase of the strategic management process consist of a number

of elements which are discrete and identifiable activities performed in
logical and sequential steps.
Establishing the hierarchy of strategic intent:
Creating and communicating a vision
Designing a mission statement
Defining the business
Setting objectives
Formulation of strategies:
Performing environmental appraisal
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Doing organizational appraisal

Considering corporate-level strategies
Considering business-level strategies
Undertaking strategic analysis
Exercising strategic choice
Formulating strategies
Preparing a strategic plan
Implementation of Strategies
Activating strategies
Designing structures and system
Managing behavioral implementation
Managerial functional implementation
Operational sing strategies
Performing strategies evaluation and control:

Performing strategic evaluation
Exercising strategic control
Reformulating strategies
SWOT Analysis
SWOT is a short form for the internal strengths and weaknesses of a
business and environmental opportunities and threats facing that
business. SWOT analysis is a systematic identification of these factors
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and the strategy that reflects the best match between them. It is
based on the logic that an effective strategy maximizes a businesss
strengths and opportunities but at the same time minimizes its
weaknesses and threats.
Strengths: Strength is resource, skill, other advantage relative to

competitors and the needs of markets a firm serves or anticipates
serving.
It is a distinctive competence that gives the firm a
comparative advantage in the marketplace.
Financial resources,
image, market leadership, and buyer/supplier relations are examples.
Weaknesses: A weaknesses is a limitation of deficiency in resources,
skills and capabilities that seriously impedes effective performance.
Facilities, financial resources, management capabilities, marketing
skills and brand image could be source of weaknesses.
Opportunities: An opportunity is a major favorable situation in the
firms environment. Key trends represent one source of opportunity.
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Identification of a previously overlooked market segment, changes in

competitive or regulatory circumstances, technological changes, and
improved buyer or supplier relationship could represent opportunities
for the firm.
Threats: A threat is a major unfavorable situation in the firms
environment. It is a key impediment to the firms current and or
desired future position. The entrance of a new competitor, slow
market growth, increased bargaining power of key buyers or suppliers,
major technological change, and changing regulations could represent
major threats to a firms future success.
ETOP Analysis
There are many techniques available to structure the environmental
appraisal.
One such technique, suggested by Glueck is that of
preparing an Environmental Thread and Opportunity Profile (ETOP) for
an organization.
The preparation of ETOP involves dividing the environment into
different sectors and then analyzing the impact of each sector on the
organization.
A comprehensive ETOP requires subdividing each environmental sector
into sub-factors and then the impact of each sub-factor on the
organization described in the form of a statement.
The following summary shows the major factors of ETOP. The summary
provides an example of an ETOP prepared for an established company
in the bicycle industry.
The main business of the company is in sports cycle manufacturing for
the domestic and export market.
This example relates to a hypothetical company but the illustration is
realistically based on the current Indian business environment.
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Environmental
Sectors
Social
Nature
of
Impact
Impact of each sector
Customer preference for sport cycles

which are fashionable, easy to ride and
durable
Political
No significance factor
Economic
Growing
affluence
among
urban
consumers; experts potential high
Regulatory
Bicycle industry a thrust area for

Export
Market
Industry growth rate is 7 to 8 percent

per year; for sport cycle growth rate is
30
percent;
largely
unsaturated
demand
Supplier
Mostly ancillaries and associated

companies
supply
parts
and
components; import of RAW material
easily available.
Technological
Technological up gradation of industry
in progress; import of machinery
simple.
International
Emerging threat from cheap imports
from china
Up arrows indicate favorable impact; down arrows indicate unfavorable impact and horizontal arrows indicate natural impact.
As observed from the above summary, sport cycle manufacturing is an
attractive proposition due to the many opportunities operating in the
environment.
The company can capitalize on the growing demand by taking
advantage of the various government policies and concession.
It can also take advantage of high export potential that already exist.
Since the company is an established manufacturer of bicycle, it has a
favorable supplier, as well as technological environment.
But contrast the implications of this ETOP for a new manufacturer who
is planning to enter this industry.
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Though the market environment would still be favorable, much would

depends on the extent to which the company is able to ensure the
supply of raw materials and components, and have access to the latest
technology and possess the facilities to use it.
The preparation of an ETOP provides a clear picture to the strategists.
By means of an ETOP, the organization knows where it stands with
respect to its environment.
Obviously, such an understanding can be of a great help to an
organization in formulating appropriate strategies to take advantage of
the opportunities and counter the threats in its environment.
Corporate level strategic analysis
Corporate-level strategic analysis treats a corporate entity as
constituting a portfolio of business under a corporate umbrella. The
analysis focuses on the question of what should a corporate entity do
regarding the several business that are there in its portfolio.
Corporate Portfolio Analysis
Corporate portfolio analysis could be a set of techniques that helps
strategists in taking strategic decisions with regard to individual
products or business in a firms portfolio. It is primarily used for
competitive analysis and corporate strategic planning in multiproduct
and multi-business firms.
BCG Matrix : The Boston Consulting Group (BCG) matrix, such as the
one shown in the following is provides a graphic representation for an
organization to examine the different business in its portfolio on the
basis of their relative market shares and industry growth rates.
As shown in the table, business could be classified on the BCG matrix
as wither low or high according to their industry growth rate and
relative market share.
The vertical axis denotes the rate of growth in sales in percentage for a
particular industry.
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The horizontal axis represents the relative market share, which is the
ratio of a companys sales to the sales of industrys largest competitor
or market leader.
The low and high market shares are separated by a vertical lines set at
1.0. The means that a company would have a relative market share of
less than 1.0 if it does not have the largest share.
A relative market share of more than 1.0 would occur for companies
that are the largest sellers in their various industries. Still, in order to
get the maximum benefit out of the experience curve, the BCG matrix
indicates that it is necessary to be the market leader.
The result of combining the industry growth rate and relative market
share, each along a high and low dimension, is a four-cell matrix. Each
cell of this matrix has been given an interesting and appropriate name
by the Boston Consulting Group.
The four cells of the BCG matrix have been termed as stars, cash cows,
question marks and dogs. Each of these cells represents a particular
type of business.
These different types of businesses with some contemporary examples
from the Indian corporate world, are described below
A Typical BCG Matrix
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Stars : Stars are high-growth-high-market share businesses which may

or may not be self-sufficient in terms of cash flow.
This cell
corresponds closely to the growth phase of the product life cycle(PLC).
A company generally pursues an expansion strategy to establish a
strong competitive position with regard to a star business.
Cash Cows : As the term indicates, cash cows are businesses which
generate large amounts of cash but their rate of growth is slow. In
terms of PLC, these are generally mature business which is reaping the
benefits of the experience curve.
The cash generation exceeds the reinvestment that could profitable be
made into cash cows. These businesses can adopt mainly stability
strategies.
Where long-term prospects are exceptionally bright, limited expansion
could be adopted.
As cash cow industries lose their attractiveness and tend towards
decline, a phased retrenchment strategy may be feasible.
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Question Marks: Businesses with high industry growth but low

market shares for a company are question marks. They require large
amounts of cash to maintain or gain market shares. question marks
are usually new products or services which have a good commercial
potential.
The logic of the experience curve dictates that the company obtaining
an early lead can expect cost advantages and market leadership and
can successfully create entry barriers.
No single set of strategies can be recommended here. If the company
feels that it can obtain a dominant market share, it may select
expansion strategies, otherwise retrenchment may be a more realistic
alternative.
Dogs: The business which are related to slow-growth industries and
where a company has a low relative market share are termed as
dogs.
They neither generate nor require large amount of cash. In terms of
PLC, the dogs are usually products in late maturity or a declining
stage.
The experience curve for the company shows that it faces cost
disadvantages owing to a low market share. The only possibility for
the company could be to gain market share at the expense of rival
firms, a possibility that is remote owing to the high cost involved. So
retrenchment strategies are normally suggested.
TOWS analysis helps you get a better understanding of the strategic choices that you face.
(Remember that "strategy" is the art of determining how you'll "win" in business and life.) It
helps you ask, and answer, the following questions: How do you:
Make the most of your strengths?

Circumvent your weaknesses?
Capitalize on your opportunities? and
30 | P a g e
Manage your threats?
A next step of analysis, usually associated with the externally-focused TOWS Matrix, helps you
think about the options that you could pursue. To do this you match external opportunities and
threats with your internal strengths and weaknesses, as illustrated in the matrix below:
TOWS Strategic Alternatives Matrix
External
Opportunities
(O)
1.
2.
3.
4.
External Threats
(T)
1.
2.
3.
4.
Internal Strengths
SO
ST
(S)
"Maxi-Maxi" Strategy "Maxi-Mini" Strategy
1.
2.
Strategies that use
Strategies that use
3.
strengths to maximize
strengths to
4.
opportunities.
minimize threats.
Internal
Weaknesses (W)
1.
2.
3.
4.
WO
WT
"Mini-Maxi" Strategy "Mini-Mini" Strategy
Strategies that
minimize weaknesses
Strategies that
by taking advantage minimize weaknesses
of opportunities.
and avoid threats.
This helps you identify strategic alternatives that address the following additional questions:
Strengths and Opportunities (SO) - How can you use your strengths to take advantage of
the opportunities?
Strengths and Threats (ST) - How can you take advantage of your strengths to avoid real
and potential threats?
Weaknesses and Opportunities (WO) - How can you use your opportunities to overcome
the weaknesses you are experiencing?
Weaknesses and Threats (WT) - How can you minimize your weaknesses and avoid
threats?
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UNIT 3
Major Business policies
Personnel Policy
Personnel policies are the tools for the personnel department to
achieve the objectives of the organization. Personnel policy provides
guidelines for a wide variety of employment relationship in the
organization. The personal policy of the organization should have two
types namely
General Objective : The statement of general objective
should express the top managements basic philosophy of
human resources and reflect its deep underlying convictions as
to the importance of people in the organization.
Specific objectives: The statement of specific objectives
should refer to the various activities of personnel
administration connected with staffing, training, developing,
wage and salary benefits, employee records and personnel
research.
Key issues in personnel policy : The close interrelation between the
quality of personnel and strategic management requires the top
executives to be concerned with the following major policy issues
bearing on personnel.
Recruitment, promotion and transfer.
Compensation and supplementary benefits.
Relation with employee unions
Collective bargaining.
Finally, policy decisions have to be taken in connection with personnel
administration, and these relate to personnel selection, training and
promotion, remuneration and benefits and industrial relations.
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Recruitment and Selection Policy : Policy decisions have to be

taken as to how personnel is to be selected in terms of the procedure
to be used. i.e, the extent of interviews requires, psychological resting
to be introduced and the source of recruitment.
Policy decisions may also be taken with regard to the minimum
educational or experience requirements.
Training and Promotion Policy : The question of manpower
development or training is also an important aspect and policy
decisions have to be taken with regard to manpower planning and
filling up higher vacancies by promotion from within.
A policy of promotion from within presupposes the existence of
adequate training policies to develop persons for such higher position.
Remuneration and Benefit Policy : Policy decisions have also to be
taken in terms of the remuneration structure. For example, in case of
the sales force, certain organizations prefer to rely merely on salaries
whereas other which to build in a commission component to provide
the necessary incentive.
The question of the extent of bonus, apart from legal requirements in
India has also to be decided. Policy decisions will also be taken
regarding other benefits such as sick leave, vacations, canteen
facilities and working conditions.
Industrial Relations Policy : Finally, in the light of increasing strikes
in India, proper policy decisions must be taken in connection with
dealing with labour disputes and avoiding them in the future.
Production and Purchase Policy
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The policies for operational are related to the production system,

operational planning and control, and research and development. The
strategy adopted and affects the nature of product also the markets to
be served and the manner in which the markets are to be served.
All these collectively influence the operations system structure and
objective, which are used to determine the operations and policies.
Purchase and production policies like other business policies generate
a number of intricate problems.
A satisfactory handling of these problems is essential if the business is

to keep on its toes. Major production and purchase policies involve the
following issues;
Selection of the production process

Determining the total production capacity
Deciding about the extent of vertical interpretation
Establishing plans for maintenance and replacement
Solving manufacturing or buying problems of supply and services;
Considering how the purchasing functions should be organized
and performed
Key issues in production policy : The major issues in production

policy may be said to include the following
Involvement of the firm in production processes.
Choice of the production processes in includes technology to be
used, division of labour, mechanization of operations and size and
location of plants
Estimate of the production capacity
Maintenance of replacement of the existing production facilities
Production policy decisions will have to be taken in connection with the
size of the run, automation, production stabilization, extent of
marketing or buying components and inventory levels.
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The Size of the Run Policy : This will depend on the backing and
orders as well as the nature of automation introduced. It will also
depend on the type of the market.
The temptation is to increase the size of the run to take advantage of
avoiding the set up costs. However, these have to be weighted against
the cost of heavier inventories.
Automation Policy : Policy decision at the top level may have to be
taken on the question of automation. The modern trend is towards
greater automation but this has to be tempered by social objectives of
avoiding increasing unemployment in India.
Again automation involves consideration of technical problems apart

from economic aspects.
The policy of increasing automation or mechanization may be merely
with a view to avoid repetitive and uninteresting work or it may be to
reduce costs. Policy decisions however, have to be taken in this behalf
at the top-level.
Production Stabilization Policy : The question of production
stabilization is related to the size of the run and the extent of
automation production has to be stabilized through proper timing, as
market demands cannot be overlooked.
In view of seasonality of demands, where they exist production
stabilization is sought to be achieved by manufacturing other products
instead of leaving production facilities idle.
In service industries, like our railways this is a problem where trains
have to be run off-season when they are partially empty. Policy
decisions therefore have to be taken in this behalf.
Make or Buy Policy : Make or buy decision is related to both the
question of marketing policy as well as production policy. Policy
decisions have to be taken as to the extent of the product that has to
be manufactured within the organization itself and the extent, if any of
purchases from outside.
35 | P a g e
For example in the automobile industry there are many small-scale

industries providing component parts for the motorcar. Such a policy
decisions might be arrived at in the light of financial considerations or
because of government control or directions, or in terms of social
obligations of large business.
Inventory Level Policy : Finally, the questions of the levels of
inventories or stocks that can be maintained have to be decided. The
size of the run, product stabilization and the other policies discussed
above are related to the question of inventory level of policies in
connection with stocks.
This is also related to the aspect of marketing as being out of stock
may result in losing customers. As against this, higher inventories
increase the costs and reduce the ultimate profits.
Disposing off heavy stocks may require price slashing or reductions
resulting in wastage of financial resources.
Marketing Policy :
Policies related to marketing have to be formulated and implemented
on the basis of the marketing mix i.e product, price, place and
promotion. The major issues and decisions related to these marketing
mix factors.
In the marketing policy decisions, each firm is naturally expected to
use the set of decision, variables best suited to its own strategy. But
there are certain basic issues, which are common concern to most of
firms.
The more important issues in marketing with respect to which
guidelines need to be provided are; product line and product mix,
customers to be served and channels of distribution, pricing of
products and services, sales, promotion and marketing mix.
Basically marketing policies relate to each of the four Ps in marketing
namely product, pricing, promotion and physical distribution.
Product Polices: In connection with product policies, for example a
policy decision might have to taken as to whether to make or buy the
product. Policy decisions might have to be laid down with regard to the
nature and extent of diversification.
36 | P a g e
For example whether diversification in the future will always be in

terms of related products or whether new product ideas can be
considered in connection with unrelated products.
The make or buy decision can also be a part of the production policy
but can be part of the marketing strategy which is concerned with the
overall strategy of the business.
Pricing Policies: Similarly in the area of pricing policy decisions have
to be taken. The market segment or segments aimed at will determine
the price range.
The policy decisions on pricing are also affected by the type of trade
channels and the discounts that might have to be offered.
Pricing policies also depend on the objectives involved which may be to
skim the cream. i.e, benefit quickly in case of novelty product by
charging a high price, or the policy may be rapid market penetration by
keeping the price as low as possible.
Promotion Policies: The promotional policy is also tied in with the

pricing policies. The policy to concentrate on certain advertising media
would be dictated in terms of product policies and the customer
segment involved.
Policy decisions would also help in arriving at the amount to be spend
on promotional activities.
Certain organizations fix a policy of
budgeting a certain percentage, say 5 percent, of the sales for
advertising expenditure.
Physical Distribution Policies : Finally, policy decisions have to be
taken in the area of physical distribution of the product which involved
considerations of channels of distribution and logistics i.e, questions of
warehousing points and inventory levels.
37 | P a g e
Difficult policy decisions are involved in arriving at the selection of an

appropriate set of distribution channels for the products of the
company. Once established such decisions are difficult to change.
Certain organizations prefer to give sole distributorships.
Financial Policy :
This policies may be regarded as the most important business policies,
as the entire success or failure of a business unit depends upon these.
Properly framed financial policies result in prosperity and long survival,
while faulty policies result in the units run.
The financial policies of an organization are related to the availability,
usage and management of funds. Financial policies have therefore to
be determined is the areas of
Sources of Capital Policies
Working Capital Policies
Profit distribution Policies
Depreciation allowances Policies
Source of Capital Policy: Policy dimensions are taken at the top level
regarding the sources of capital. For example, in the case of the sole
trader, the individual proprietor generally provides the capital, which is
supplemented by loans, which he may be able to obtain from banks
and other financial institutions.
In the case of partnership, the partners provide the basic capital. In

case of joint stock companies, large capital is possible from a large
number of shareholders. In addition, loans are generated through the
issued of debentures. The question of the debt/equity ratio is a policy
decision, which must be taken.
Working Capital Policy: The difference between the current assts
and the current liabilities or the working capital determines how far the
business unit can immediately meet its obligations. It constitutes the
ability of the organization to meet its bills when they fall due.
38 | P a g e
Policy decisions will have to be taken with regard to how for such
current assets should be held in cash or in other readily marketable
securities or placed in fixed deposit to earn interest.
These policies are also concerned with the extent of bank borrowings
permissible and allowances credit facilities that should be extended to
the customers.
Profit Distribution Policy : Policy decisions have to be taken with
regard to how much profits should be distributed by way of dividends
to the share holders and how much should be ploughed back for future
capital requirements.
If adequate dividends are not distributed, when capital is required in
the future it will be difficult to attract investors as new shareholders or
to induce existing shareholders to take up more shares in the company.
Some companies follow a policy of dividend equalization by setting
aside profits in good years to be used for payment of dividend in lean
years.
Depreciation Allowance Policy: Policy decisions have to be taken
on the question of extent of depreciation to be written off while
keeping in mind the tax providing as well as its possible use as source
of funds for the enterprise.
UNIT 4
Major Business Strategies
Strategy refers to the manner of using resources to provide superior
results. In operational terms, strategy is a comprehensive, integrated
plan designed to assure that the basic objectives of the enterprise are
accomplished.
Strategic planning or strategy formulation consists of a set of

decisions, which leads to the development of an effective strategy.
Strategy formulation presupposes environmental analysis and
evaluation of internal capabilities.
39 | P a g e
Therefore, strategic planning is forward-looking exercise, which

determines the future posture of the enterprise with special reference
to its product, market posture, profitability, size, and rate of innovation
and external institutions.
Dimension of Strategic Decisions
What decisions facing a business are strategic and therefore deserve
strategic management attention? Typically, strategic issues have five
identifiable dimensions:
Strategic issues require Top-management Decisions : Strategic
decisions overarch several areas of a firms operations.
Topmanagement involvement in decision making is imperative.
The perspective for understanding, anticipating broad implications,
ramifications, and the power to authorize the resources allocations are
necessary for implementation.
Strategic issues involve allocation of Companys Resources :
Strategic decisions characteristically involve substantial resource
deployment. The people, physical assets, or money needed must be
either redirected from internal sources or secured from outside.
Strategic issues are future Oriented : Strategic decisions are
based on what managers anticipate or forecast rather than they know.
In the turbulent and competitive free enterprise environment, a
successful firm must take anticipatory stance towards change.
Strategic issue usually have multi-business consequences: A
strategic decisions are coordinative. Decisions about such factors as
customer mix, competitive emphasis, or organizational structure
necessarily involve a number of a firms strategic business units
(SBUs), functions, divisions, or program units.
40 | P a g e
Each of these areas will be affected by the allocation or reallocation of

responsibilities and resources related to the decision.
Strategic issue necessitate considering external environment:
All business firms exist in an open system and are influenced by
external conditions largely beyond their control.
They must consider competitors, consumers, suppliers, creditors,
government and labor.
Stability Strategy
A stability strategy arise out of a basic recognition by management
that the firm should concentrate on utilizing its present resources to
develop its competitive strength within a restricted product-market
configuration.
In other words, stability strategy implies that the company will
continue in the sale or a similar business as it now pursues, and with
the same of similar objectives. The stable strategy is desirable for a
firm, which has a smooth sailing and where environment is not
excessively hostile.
This type of strategy is followed by a firm when: there is no deviation
from the existing strategy; it goes on serving customers in similar
product or service sectors as mentioned in the business charter and;
the environment is relatively stable or not much change is expected in
it.
The various sub-strategies of the stable strategy include the following
Incremental Growth Strategy : To start with a strategic move, many
firms prefer to adopt incremental growth as a strategy, concentrating
on one product line at a time, and growing slowly but surely with a
strong base to move on.
The objective may be, for instance, to enter new market segments
gradually. Nothing is attempted by way of a big leap forward.
41 | P a g e
New moves are carefully tested in all respects. Such an incremental

growth strategy may succeed through effective market segmentation,
reducing costs of
Profit Strategy: The profit strategy is also designated as end-game
strategy.
When the objectives of a firm are to generate cash
immediately for itself profit strategies are followed. If necessary, the
firm forgoes its market share to generate the cash.
Stability as a Pause Strategy : Having achieved a high growth
level, some firms may find it difficult to maintain it and thus attempt to
set a lower level of growth for the time being until conditions are
changing are more propitious. It may be called some sort of a
breathing spell strategy.
Sustainable growth strategy: This strategy is desirable when
external conditions are not favorable for pursuing a growth strategy
due to resource constrains. Also there may be other kinds of changes
in external conditions when the executives may find growth strategy
no longer worthwhile.
Growth or Expansion Strategy
Expansion strategy is followed when an organization substantially
broadens the scope of its customer groups, customer functions, and
alternative technologies in order to improve its performance.
When a firm increases the level of objectives in terms of market share,
sales revenue, etc, new products are added to the existing line, or
dissimilar products are taken up for production and sale, or business
activities are expanded through acquisition, merger, or amalgamation
of firms.
In this sense, growth strategy differs from stability strategy in that the
former implies exponential growth while the latter implies an
extrapolation of growth based on past performance.
The growth strategy can be classified into two sub-category namely,
internal growth strategy and external growth strategy.
42 | P a g e
Internal Growth Strategy: In this strategy, the company will take all
necessary effort to grow its business with help of its own resources and
effort.
There are two types of internal growth strategies namely, internal
growth by increasing sales of the single product or service line and
internal growth by diversification.
In internal growth by increasing sales of the single product or service
line, the firm increases its level of objective achievement by increasing
the sales and profit of its present product or service line. This may be
achieved in the following ways;
By expanding sales through increasing primary demand and
encouraging new uses
Expanding sales of product by adopting a different income groups
Expanding sales by adopting a different pricing strategy
Expanding sales to different market segments by producing
goods/services,
which,
cater
to
different
purposes
and
personalities
External growth by Merger and Joint Ventures: An external
growth strategy is one by which a firm increases its level of objective
achievement through mergers, joint ventures and vertical integration.
Merger: A merger is that process by which two of more firms acquire
the assets and liabilities of the other in exchange of stock, or cash, or
both. It can be two types namely, concentric and conglomerate.
A concentric merger is one in which two or more firms, which are
related by the production process, technology and markets combine.
A conglomerate merger involves the combination of two or more firms
not closely related by technology, production process or markets.
Joint Venture: It can take place between two or more firms of the
same country or between the firms operating in different countries. As
43 | P a g e
they are formed with a different purpose and have a different rate of
success.
Vertical Integration: Vertical integration is a growth strategy
characterized by entering or leaving one or more stages in the process
of the manufacture and distribution of goods and services.
It may be backward integration or forward integration. Backward
integration also known as upstream development, it involves addition
to activities to ensure the supply of a firms present inputs.
It is aimed at moving lower on the production process scale so that the
firm is able to supply its own raw materials or basic components.
Retrenchment Strategy
Retrenchment strategy is followed when an organization substantially
reduces the scope of its customer groups, customer functions, or
alternative technologies in order to improve its performance.
Retrenchment involves total or partial withdrawal from a customer
group, customer function, or use of an alternative technology.
Retrenchment strategies may be used on the following circumstances;
Poor performance
Threat to survival
Redeployment resources
Insufficiency of resources
To secure better management and improved efficiency
There are different ways in which a company may defend its existence
and survive, or best serve the interest of owners in the face of internal
or external crises.
The variants or sub strategies of retrenchment strategy are turnaround
strategy, divestment strategy, and liquidation strategy.
Turnaround Strategy: When an enterprise has been suffering from
business losses for a long period because of continued decline in sales,
44 | P a g e
it takes recourse to turnaround strategy to arrest and reverse the

decline performance of the business.
This strategy aims at improving the efficiency of the firm by turning

around its resources. Reducing assets achieving cost reduction and
increasing revenues can bring this about.
There are certain conditions, which point out that a turnaround is
needed. These danger signs are; persistent negative cash flow;
negative profits; declining market share; deterioration in physical
facilities; over-manning, high turnover of employees , and low morale;
uncompetitive products or services and mismanagement.
Divestment Strategy: In this approach the firm decides to close
down a particular area of business. Such an extreme step is taken
when it is found that the particular unit or division or area of business
has been suffering loss for a long time and there is no possibility of any
improvement in the near future.
Divestment decision should be made carefully. Before taking a final
divestment decision it will be appropriate to prepare a profile of
environmental opportunities, threats and strategic advantages for each
division.
A divestment strategy may be adopted due to various reasons;
A project or business that proves to be unviable in the long-term
Persistent negative cash flows from a business create financial
problems
for
the
whole
company,
creating
the
need
for
divestment.
Technological up-gradation is required if the business is to survive
but where it is not possible for the firm to invest in it.
Divestment may be done because by selling off a part of business
the company may be in a position to survive
45 | P a g e
Liquidation strategy: The liquidation strategy may be regarded as a

strategy of last resort. It involves selling off or closing down a firm to
avoid bankruptcy and securing a better deal for shareholders than
running at a loss. Such a decision is taken under the following
circumstances:
When the business condition of a firm is perilous and there is no
hope of recovering from the present crises.
The managers may feel the business is at its peak but the future
is uncertain and the firm is unable to see any direction in which it
can enter and operate. In such a situation, they decide to get out
of the present line of business.
A firm may be suffering from a business crises and it may not
have adequate resources to get out of the present rut.
When a firm has been faring very badly in the past few years and
has consequently suffered considerable losses and some other
firm offers to buy it for tax consideration or any other reason.
Sometimes a firm may be offered a price higher than it real worth
and the management may be tempted to sell off the business.
Evaluation of Alternatives: After the above steps have been
followed, the strategy maker should consider the best one. Quite often
only two alternatives are present i.e to follow are not to follow.
In order to examine the best strategy the relative strength and
weaknesses should be evaluated with respect to technical feasibility.
After analysis of all these factors only the best strategy may be
selected.
Selection of Strategy: The identification and evaluation of various
alternatives will narrow down the range of policies, which can seriously
be considered for choice. Choice is deciding the acceptable alternative
among the several which fits with the organizational objective.
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Normally at this stage, personal values and expectations of decisionmaker play an important role in strategy because he will decide the
course of action depending on his own likings and disliking.
This happens because in one way, the organizational objectives reflect
the personal philosophy of individuals particularly at the top
management level.
Implementation: After the Strategy has been chosen, it is put to
implementation, which is it is put into action. Choice of Strategy is
mostly analytical and conceptual while implementation is operational
or putting into action.
Various factors which are necessary for implementation are design of
suitable organization structure, developing and motivating people to
take up work, designing effective control and information system,
allocation of resources etc.,
When these may produce results, which can be compared in the light
of objectives set, and control process comes into operation. If the
results and objectives differ, a further analysis is required to find out
the reasons for the gap and taking suitable actions to overcome the
problems because of which the gap exists.
This may also require a change in strategy if there is a problem
because of the formulation inadequacy.
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The 7-S-Model
By Dagmar Recklies
The 7-S-Model is better known as McKinsey 7-S. This is because the two persons who
developed this model, Tom Peters and Robert Waterman, have been consultants at McKinsey
& Co at that time. Thy published their 7-S-Model in their article Structure Is Not
Organization (1980) and in their books The Art of Japanese Management (1981) and In
Search of Excellence (1982).
The model starts on the premise that an organization is not just Structure, but consists of
seven elements:
Structure
Strategy
Systems
Shared
Values
Skills
Style
Staff
www.themanager.org
Those seven elements are distinguished in so called hard Ss and soft Ss. The hard
elements (green circles) are feasible and easy to identify. They can be found in strategy
statements, corporate plans, organizational charts and other documentations.
The four soft Ss however, are hardly feasible. They are difficult to describe since
capabilities, values and elements of corporate culture are continuously developing and
changing. They are highly determined by the people at work in the organization. Therefore
it is much more difficult to plan or to influence the characteristics of the soft elements.
Although the soft factors are below the surface, they can have a great impact of the hard
Structures, Strategies and Systems of the organization.
Description
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The Hard Ss
Strategy
Actions a company plans in response to or anticipation of
Structure
changes in its external environment.

Basis for specialization and co-ordination influenced primarily by
Systems
strategy and by organization size and diversity.

Formal and informal procedures that support the strategy and
structure. (Systems are more powerful than they are given
credit)
The Soft Ss
Style / Culture
The culture of the organization, consisting of two components:
Organizational Culture: the dominant values and beliefs, and
norms, which develop over time and become relatively enduring

features of organizational life.
Management Style: more a matter of what managers do than
what they say; How do a companys managers spend their time?

What are they focusing attention on? Symbolism the creation
and maintenance (or sometimes deconstruction) of meaning is a
Staff
fundamental responsibility of managers.

The people/human resource management processes used to
develop managers, socialization processes, ways of shaping basic
values of management cadre, ways of introducing young recruits
to the company, ways of helping to manage the careers of
Skills
employees
The distinctive competences what the company does best,
Shared Values /
ways of expanding or shifting competences

Guiding concepts, fundamental ideas around which a business is
Superordinate Goals built must be simple, usually stated at abstract level, have
great meaning inside the organization even though outsiders
may not see or understand them.
Effective organizations achieve a fit between these seven elements. This criterion is the
origin of the other name of the model: Diagnostic Model for Organizational Effectiveness.
If one element changes then this will affect all the others. For example, a change in HRsystems like internal career plans and management training will have an impact on
organizational culture (management style) and thus will affect structures, processes, and
finally characteristic competences of the organization.
In change processes, many organizations focus their efforts on the hard Ss, Strategy,
Structure and Systems. They care less for the soft Ss, Skills, Staff, Style and Shared
Values. Peters and Waterman in In Search of Excellence commented however, that most
successful companies work hard at these soft Ss. The soft factors can make or break a
49 | P a g e
successful change process, since new structures and strategies are difficult to build upon
inappropriate cultures and values. These problems often come up in the dissatisfying results
of spectacular mega-mergers. The lack of success and synergies in such mergers is often
based in a clash of completely different cultures, values, and styles, which make it difficult
to establish effective common systems and structures.
The 7-S Model is a valuable tool to initiate change processes and to give them direction. A
helpful application is to determine the current state of each element and to compare this
with the ideal state. Based in this it is possible to develop action plans to achieve the
intended state.
UNIT 5
Society and Business
Business is an integral part of the social system; and it influences other
elements of society, which in turn affect business. The type of
products to be manufactured and marketed, the marketing strategies
to be employed, the way the business should be organized, are
influenced by society.
The social system also on the other hand, is influenced by the way the
business functions, innovations, transmission on diffusion of
information and new ideas may affect society.
Thus business activities have greatly influenced by social attitudes,
values, outlooks, customs, traits, etc. Responsibility of business
towards society includes concern for ecology; consumerism; rural
development and new projects.
Business may or may not have direct or day-to-day interaction with
these interest groups. The well being of society is the well being of
business.
Business Ethics
Business ethics is concerned with the relationship of business goals
and techniques to specific human needs. It studies the impact of acts
on the good of the individual, the firm, the business community and
the society as a whole.
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In these words of Garrett, business ethics is a study of moral rightness

and wrongness of the acts involved in the production, distribution and
exchange of economic goods and services.
Need for Business Ethics
The need for business ethics, i.e, for a set of generally standards of
personal conduct, is evident throughout the world. The legislative
representatives establish status and administrative laws in critical
areas of inter-personal conduct where the safety and personal welfare
on the people can be vitally affected by unethical practices, for
furthering ethical practices in business community and professional
people, the concept of Professional Codes or Codes of conduct have
also assumed great importance. These have been and developed by
the trade associations concerned with the following objectives.
Publication of a Code of Ethics is likely to improve the confidence
of customers, clients, employees, etc., in the quality of service
they may expect;
Business codes govern the inter-relationships of the members.
Business cannot be carried on without trust in the ethical
standards of vendors and suppliers, financiers and government
agencies.
The interest of all those who deal with business the stock holders,
employees, customers, competitors, dealers and suppliers and
the local community-need to be protected from the unethical
practices.
The consumers right can be saved and served well only when
there is some type of moral binding on the business community
Business today is confronted with various social issues, such as :
people
oriented
management
ecology
and
environmental
protection consumerism and the energy being inter-related, need

that business should feel some obligation for meeting these
issues.
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Factors affecting business Ethics

The business executive has to decide what is ethical or unethical.
Many factors influence this decision. There are as follows
Personal code of behavior of Individual: The personal Code of
Behavior of the individual is the result of the complex environment that
influences ones life.
The Ethical standards imposed: The ethical code imposed by the
superior on the subordinates also influences the morality of behavior.
If the superior condones unethical activities such as padding expense
accounts, the subordinate is encouraged to look upon this activity as
on acceptable practice.
Policies of the company: Standards of behavior in an industry are
often influenced greatly by the dominant firms in that industry. Garrett
puts this idea when he says the best protection is the example
presented by the conduct of top management and the atmosphere it
creates, when leaders are scrupulous, the employees know what is
considered right.
When example is supported by explicit policy, the followers have a
clear idea of how to translate the example of leaders into action.
Role of Trade Associations in Business Ethics
Trade associations, which are voluntary organizations of businessmen
formed to promote their common interest, can play an important role
to promote business ethics. Trade associations can promote business
ethics in the following ways
Education and persuasion
Code of Ethics
Moral sanctions
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Principles of Business Ethics

There are certain principles of business ethics, which are may be
stated as below
Human value grows with the increase in size of business to which it
applies. Therefore, the importance and dignity of human labor has not
only to be accepted but also practically applied to.
The purpose of all economic activity is to meet consumer needs and to
contribute to the well being of the community; for business is not an
end in itself but is only a mean to achieve an end.
Therefore, business has to contribute to mans material happiness and
to his mental, moral and spiritual growth.
Business must be held in trust legally and morally for the benefit of
the people whom the business wants to serve.
Business must be just, efficient and dynamic. Modern business has
manifold responsibilities; and the task of management is to reconcile
and
harmonize
these
separate
and
sometimes
conflicting
responsibilities.
The social role of business can best be assumed in an atmosphere of
freedom into the least possible restraint on healthy and open
competition and absence of undesirable restriction or interference from
the government.
As such concentration and monopoly have to watched and guarded
and wherever necessary dispersed.
Social Responsibility of Business
Business depends on society for existence, sustenance and
encouragement. Dependence on society is so complete that as long as
the latter wants the former, business has reason to exist. Being so
much dependent, business has definite responsibility towards society.
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This is popularly known as social responsibility. Every decision the

businessman takes and every action he contemplates have social
implications.
According to Raymond Bauer, Social responsibility is seriously
considering the impact of the companys actions on society.
Social Responsibility Models

There are two basic approaches to the concept of social responsibility.
The first concept on the micro level analysis, try to show individual
companies how they can be more socially responsive.
On the other hand, the macro level of analysis, assuming that the
government, not individual companies should establish a countrys
social goals.
ACKERMANS MODEL: Ackerman described three phase through
which companies commonly tend to pass in developing a response to
social issues.
In Phase 1: At this state, no one asks the company to deal with it.
The chief executive officer merely acknowledges the problems by
making a written or oral statement of the companys policy towards it.
In Phase 2: the company hires staff specialists to study the problem
and to suggest ways of dealing with it. Company has limited itself to
declaring its intentions and formulating its plans.
Phase 3 : The company integrates the policy into its ongoing
operations. Unfortunately, implementation often comes slowly and
often not until the government or public opinion forces the company to
act.
Ackerman thus advices that, the management should act early in the
life cycle of any social issue in order to enjoy the largest amount of
managerial discretion over the outcome.
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ORGANIZATIO
NAL
LEVEL
Chief Executive
Staff Specialists
Division
Management
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PHASES OF ORGANIZATIONAL INVOLVEMENT

PHASE -1
PHASE -2
PHASE -3
Issue:
Obtain
Corporate
knowledge. Add
obligation
staff specialists
Action:
Write
and
communicate
policy
Outcome:
Enriched
purpose,
increased
awareness
Issue: Technical
problems.
Action: Design
data
system
and
interpret
environment.
Outcome:
Technical
and
infrastructural
groundwork.
Obtain
organizational
commitment.
Change
performance
expectations.
Provide
response
from
operating units.
Apply
data
system
to
performance
measurement.
Issue:
Management
problem.
Action: Commit
resources
and
modify
Outcome:
Increased
responsiveness.
CARROLLS FOUR-PART MODEL
Archie B. Carrol has promulgated the four-part model. The model
suggests that business firms are basically an economic activity; its
primary responsibility is economic. It mist produce the goods that
society wants and must sell them at a profit. Legal responsibilities are
also basic.
Firms should operate within the law.
In this model, ethical
responsibilities refer to behavior by the firm that is expected by
society. The category of discretionary responsibilities encompasses
voluntary activities undertaken for the public good.
Specific discretionary activities are not mandated by law nor

demanded by public opinion. However, more and more frequently
business are expected to get involved in these of activities.
Economic
Legal
Ethical
Discretionary
Responsibilitie Responsibilitie Responsibilitie Responsibilitie
s
s
s
s
TOTAL SOCIAL RESPONSIBILITIES
Dimensions of Social Responsibilities
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Social Audit
Business unit has obligations to its employees, owners, buyers,
government and environment. The question now is how to assess the
performance of a particular business unit.
The answer is social audit. The social audit is an approach for
monitoring, appraising and measuring the social performance of
business. Kreps may regarded as the founding father of the idea.
He included among these measurements; employment, production,
consumer effort commanded, consumer funds absorbed, pay rolls and
dividend and interest. The basic purpose of a business is to maximize
the financial return earned on its financial investment plus the amount
of social return on its social investment.
To make rational investment decisions in the social area it is necessary
to know what the social returns are, and if we are to assess them by
the same measures as for financial investment, these must be
expressed in monetary terms.
A social audit is a systematic study and evaluation of an organizations
social performance, as distinguished from its economic performance.
It is concerned with the possible influence on the social quality of life
instead of the economic quality of life.
Social audit leads to a report on the social performance of a business
unit. It is the evaluation or assessment of a companys performance
against planned goals in the area of social responsibility.
The internal and external bodies may carry out the assessment,
different people have interpreted the term social audit differently.
To some it means the public disclosure of a companys social
responsibility and to some others social audit is a comprehensive
evaluation of the way a company discharge all its responsibilities to
shareholders, customers, and employees and to the wider community.
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Features of Social Audit

The nature of social audit can be made clearer if we bring out its
salient features.
Social audit include any activity : Social audit include any activity
which has a significant social impact, such as activities affecting
environmental quality, consumerism, opportunities for women and
other disadvantages people in society and similar others.
Difficult to audit : Social performance is difficult to audit because
most of the results of social activities occur beyond the companys
gate and the company has no means of securing data on the result.
Even if data are available it is difficult to establish how of them have
occurred due to companys actions.
Social audit use both qualitative and quantitative data: social
audits use both qualitative and quantitative data. The pressure to use
quantitative approach is strong because of objectivity.
Quantitative data are precise and convincing, but in the area of social
philosophy and human values it is misleading to report only in
quantitative terms.
Assessing organizational commitments to society : Social audit
determine only what an organization is doing in social areas, not the
amount of social good that results from these activities. It is process
audit rather than an audit for results.
Objectives of Social Audit
Because of the differing view about social audits, they have multiplied
motives, which include, increasing the wisdom of social programmes,
improving public relations, and enhancing the credibility of the
business.
The particular issues are minority employment, pollution/environment,
working conditions, community relations and consumerism issues.
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The following are the objectives of the responsible company

The extension, development and improvement of business and
the building up of its financial independence

The payment of fair and regular dividends to the shareholders
The payment of fair wages and bonus to the workers
The reduction of price to the consumers
To assist in promoting the amenities of the locality
Benefits of Social Audit

The benefits of social audit are as follows;
Social audit enables the company to take close look at itself and
understand how for the company has lived up to its social
objectives.
The social
audit
encourages
greater
concern
for
social
performance throughout the organization.

Social audit provides data for comparing effectiveness of the
different types of programmes.
Social audit provides cost data on social programmes so that
management can relate the data to budgets, available resources,
companys objectives and projected benefits of programmes.
Social audit provides information for effective response to
external claimants that make demand on the organization.
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