Business Environment

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Index I. Content....................................................................... II II. List of Figures........................................................ VII III. List of Tables.......................................................VIII IV. Abbreviations.........................................................IX V. Case Study.............................................................. 109 VI. Bibliography......................................................... 112 VII. Self Assessment Answers................................... 115 Book at a Glance

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Contents
Chapter I........................................................................................................................................................ 1 Business Environment.................................................................................................................................. 1 Aim................................................................................................................................................................. 1 Objectives....................................................................................................................................................... 1 Learning outcome........................................................................................................................................... 1 1.1 Introduction............................................................................................................................................... 2 1.2 Definition of Business. .............................................................................................................................. 2 1.3 Characteristics of Business....................................................................................................................... 3 1.4 Components of Business........................................................................................................................... 3 1.4.1 Industry..................................................................................................................................... 4 1.4.2 Commerce................................................................................................................................. 4 1.5 Purpose of a Business............................................................................................................................... 5 1.6 Characteristics of Business Environment................................................................................................. 5 1.7 Environmental Influences and Analysis on Business............................................................................... 6 1.7.1 Environmental Analysis............................................................................................................ 8 1.7.2 Environment influence on SWOT............................................................................................ 8 1.8 Components of Business Environment..................................................................................................... 9 1.9 Relationships between Organisation and its Environment....................................................................... 9 1.10 Internal Analysis of the Organisation/Company................................................................................... 10 1.11 External Environment............................................................................................................................11 1.11.1 Micro Environment................................................................................................................11 1.11.2 Macro Environment ............................................................................................................. 12 1.12 Economic Environment........................................................................................................................ 13 1.13 Political-Legal Environment................................................................................................................. 14 1.14 SocioCultural Environment................................................................................................................ 15 1.15 Demographic Environment................................................................................................................... 16 1.16 Natural Environment. ............................................................................................................................ 17 1.17 Technological Environment.................................................................................................................. 17 Summary. ..................................................................................................................................................... 19 References.................................................................................................................................................... 19 Recommended Reading.............................................................................................................................. 20 Self Assessment . ......................................................................................................................................... 21 Chapter II.................................................................................................................................................... 23 Introduction to Business Strategy............................................................................................................. 23 Aim............................................................................................................................................................... 23 Objectives..................................................................................................................................................... 23 Learning outcome......................................................................................................................................... 23 2.1 Introduction............................................................................................................................................. 24 2.1.1 Features of Strategy................................................................................................................ 24 2.2 Strategy at Different Levels of Business................................................................................................ 24 2.2.1 Corporate Strategy.................................................................................................................. 24 2.2.2 Business Unit Strategy............................................................................................................ 24 2.2.3 Operational Strategy............................................................................................................... 24 2.3 Nature of Business Policy....................................................................................................................... 25 2.3.1 Types of Policies..................................................................................................................... 25 2.3.2 Features of Business Policy.................................................................................................... 25 2.3.3 Difference Between Policy and Strategy................................................................................ 26 2.4 Objectives of Business............................................................................................................................ 26 2.5 Classification of Objective of Business.................................................................................................. 26 2.5.1 Economic Objectives.............................................................................................................. 27 2.5.2 Social Objectives.................................................................................................................... 27 2.5.3 Human Objectives. .................................................................................................................. 28
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 2.5.4 National Objectives. ................................................................................................................ 29 2.5.5 Global Objectives................................................................................................................... 30 Summary. ..................................................................................................................................................... 31 References.................................................................................................................................................... 31 Recommended Reading.............................................................................................................................. 31 Self Assessment............................................................................................................................................ 32 Chapter III. .................................................................................................................................................. 34 Strategic Management for Business.......................................................................................................... 34 Aim............................................................................................................................................................... 34 Objectives..................................................................................................................................................... 34 Learning outcome......................................................................................................................................... 34 3.1 Introduction............................................................................................................................................. 35 3.2 Need for Strategic Management............................................................................................................. 35 3.2.1 Due to Change........................................................................................................................ 35 3.2.2 Provides Guidelines................................................................................................................ 35 3.2.3 Better Performance................................................................................................................. 35 3.2.4 Improved Allocation of Resources......................................................................................... 35 3.2.5 Competitive Advantage. .......................................................................................................... 35 3.2.6 Provides Holistic Approach.................................................................................................... 35 3.2.7 Improved Integration.............................................................................................................. 35 3.2.8 Systematise Business Decisions............................................................................................. 35 3.3 Strategic Management Process............................................................................................................... 36 3.3.1 Environmental Scanning......................................................................................................... 36 3.3.2 Strategy Formulation.............................................................................................................. 36 3.3.3 Strategy Implementation......................................................................................................... 37 3.3.4 Evaluation and Control........................................................................................................... 38 3.4 Benefits of Strategic Management.......................................................................................................... 38 3.4.1 Proactive Approach................................................................................................................. 38 3.4.2 Facilitates Better Delegation. .................................................................................................. 38 3.4.3 Exploiting Opportunities. ........................................................................................................ 38 3.4.4 Assists in Realistic and Effective Plans.................................................................................. 38 3.4.5 To Gain Competitive Advantage. ............................................................................................ 38 3.4.6 Minimises Weaknesses........................................................................................................... 38 3.4.7 Promotes Employees Participation........................................................................................ 38 3.4.8 Boost Profits........................................................................................................................... 39 3.4.9 Systematic Approach for Management Decision. ................................................................... 39 3.4.10 Empowerment of Employees................................................................................................ 39 3.5 Limitations of Strategic Management. .................................................................................................... 39 3.6 Strategies and their Role in Strategic Management................................................................................ 39 3.7 Role of Strategy in Strategic Management............................................................................................. 40 3.7.1 Deliberate Attempt to Counteract Actions of Opponents....................................................... 40 3.7.2 Emergence of Tactful Decision............................................................................................... 40 3.7.3 Creates System Approach....................................................................................................... 40 3.7.4 Helps in Formulating General Policies................................................................................... 40 3.7.5 Provides Integrated Approach. ................................................................................................ 40 3.7.6 Minimises Risk....................................................................................................................... 40 3.7.7 Optimum Use of Organisational Resources. ........................................................................... 40 3.7.8 Continues Review................................................................................................................... 40 3.8 Reasons behind Failure of Strategic Management. ................................................................................. 41 Summary. ..................................................................................................................................................... 42 References.................................................................................................................................................... 42 Recommended Reading.............................................................................................................................. 42 Self Assessment............................................................................................................................................ 43

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Chapter IV................................................................................................................................................... 45 Corporate Strategy..................................................................................................................................... 45 Aim............................................................................................................................................................... 45 Objectives..................................................................................................................................................... 45 Learning outcome......................................................................................................................................... 45 4.1 Introduction............................................................................................................................................. 46 4.2 Corporate Strategy.................................................................................................................................. 46 4.2.1 Scope of Corporate Management........................................................................................... 46 4.3 Corporate Planning................................................................................................................................. 46 4.3.1 Essentials of Corporate Planning............................................................................................ 46 4.3.2 Steps of Corporate Planning Process...................................................................................... 47 4.3.3 Benefits of Corporate Planning. .............................................................................................. 47 4.3.4 Reasons Attributed to the Failure of Corporate Planning....................................................... 47 4.3.5 Prerequisites for Success in Corporate Planning.................................................................... 47 4.4 Need for Corporate Management. ........................................................................................................... 47 4.5 Components of Corporate Strategy. ........................................................................................................ 48 4.5.1 Objectives............................................................................................................................... 48 4.5.2 Vector...................................................................................................................................... 48 4.5.3 Competitive Advantage. .......................................................................................................... 48 4.5.4 Synergy................................................................................................................................... 48 4.6 Functions of Corporate Strategy............................................................................................................. 49 4.7 Kinds of Corporate Strategy................................................................................................................... 49 4.7.1 Stability Strategy. .................................................................................................................... 49 4.7.2 Expansion Strategy................................................................................................................. 49 4.7.3 Retrenchment Strategy. ........................................................................................................... 49 4.7.4 Combination Strategies........................................................................................................... 49 4.8 Significance of Corporate Strategy......................................................................................................... 50 4.9 Limitations of Corporate Strategy.......................................................................................................... 50 4.10 Concept and Meaning of Corporate Policy. .......................................................................................... 50 4.11 Features of Corporate Policy. ................................................................................................................ 50 4.12 Scope of Corporate Policy.................................................................................................................... 51 4.13 Classification of Corporate Policies .................................................................................................... 52 4.13.1 Classification on the Basis of Scope..................................................................................... 52 4.13.2 Classification on the Basis of Expression............................................................................. 52 4.13.3 Classification on the Basis of Level..................................................................................... 52 4.13.4 Classification on the Basis of Origin.................................................................................... 52 4.13.5 Classification on the Basis of Functional Areas................................................................... 53 4.13.6 Classification of Policies on the Basis of Nature of Management....................................... 53 4.14 Importance of Corporate Policy............................................................................................................ 53 References.................................................................................................................................................... 54 Recommended Reading.............................................................................................................................. 54 Self Assessment............................................................................................................................................ 55 Chapter V. .................................................................................................................................................... 57 Top Management. ........................................................................................................................................ 57 Aim............................................................................................................................................................... 57 Objectives..................................................................................................................................................... 57 Learning outcome......................................................................................................................................... 57 5.1 Introduction............................................................................................................................................. 58 5.2 Management Levels................................................................................................................................ 58 5.2.1 Top Level Managers............................................................................................................... 58 5.2.2 Middle Level Managers.......................................................................................................... 58 5.2.3 First Level Managers.............................................................................................................. 59 5.3 Board of Directors. .................................................................................................................................. 59 5.3.1 Duties of Board of Directors. .................................................................................................. 59
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5.4 Sub Committee....................................................................................................................................... 59 5.5 Chief Responsibilities and Skills of Top Management........................................................................... 60 5.5.1 Planning.................................................................................................................................. 60 5.5.2 Organising............................................................................................................................... 60 5.5.3 Controlling.............................................................................................................................. 60 5.6 Chief Executive Officer (CEO).............................................................................................................. 60 5.6.1 Responsibilities....................................................................................................................... 60 Summary. ..................................................................................................................................................... 62 References.................................................................................................................................................... 62 Recommended Reading.............................................................................................................................. 62 Self Assessment............................................................................................................................................ 63 Chapter VI................................................................................................................................................... 65 Strategic Planning....................................................................................................................................... 65 Aim............................................................................................................................................................... 65 Objectives..................................................................................................................................................... 65 Learning outcome......................................................................................................................................... 65 6.1 Introduction............................................................................................................................................. 66 6.2 Strategic Planning................................................................................................................................... 66 6.2.1 Methodologies........................................................................................................................ 66 6.3 Strategic Planning Process...................................................................................................................... 66 6.3.1 Organisation Mission and Purposes........................................................................................ 67 6.3.2 Importance of Vision Statement. ............................................................................................. 67 6.3.3 Importance of Mission Statement........................................................................................... 67 6.3.4 Benefits of Vision................................................................................................................... 68 6.3.5 Developing a Mission Statement............................................................................................ 68 6.3.6 Developing a Vision Statement. .............................................................................................. 69 6.3.7 Setting Organisational Goals and Objectives......................................................................... 69 6.4 SWOT Analysis...................................................................................................................................... 70 6.4.1 Internal and External Factors.................................................................................................. 70 6.4.2 Avoiding Errors....................................................................................................................... 71 6.5 The SWOT Matrix.................................................................................................................................. 73 6.5.1 Formulating Strategic Alternatives......................................................................................... 74 6.5.2 Selecting the Best Strategy..................................................................................................... 75 6.5.3 Preparing an Operational Plan................................................................................................ 76 6.5.4 Resource Allocation................................................................................................................ 77 6.5.5 Co-ordinating Internal Factors................................................................................................ 77 6.5.6 Integrating Strategy and Operational Plan.............................................................................. 77 Summary. ..................................................................................................................................................... 79 References.................................................................................................................................................... 80 Recommended Reading.............................................................................................................................. 80 Self Assessment............................................................................................................................................ 81 Chapter VII................................................................................................................................................. 83 Implementation of Strategy....................................................................................................................... 83 Aim............................................................................................................................................................... 83 Objectives..................................................................................................................................................... 83 Learning outcome......................................................................................................................................... 83 7.1 Activating Strategy. ................................................................................................................................. 84 7.2 Strategy Formulation vs. Strategy Implementation................................................................................ 84 7.3 Aspects of Strategy Implementation....................................................................................................... 85 7.4 Steps in Implementation of a Strategy.................................................................................................... 85 7.5 Issues in StrategyImplementation........................................................................................................... 87 7.5.1 Project Implementation........................................................................................................... 87 7.5.2 Procedure implementation...................................................................................................... 87
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7.6 Importance of Organisational Structure.................................................................................................. 90 7.6.1 Structural Considerations. ....................................................................................................... 90 7.7 Other Important Strategies...................................................................................................................... 91 7.8 BCG Matrix............................................................................................................................................ 91 7.8.1 Market Growth. ....................................................................................................................... 92 7.8.2 The Growth Share Model and Cash Position. ......................................................................... 92 7.8.3 Uses and Benefits of the BCG Matrix.................................................................................... 93 7.8.4 Limitations of the BCG Matrix. .............................................................................................. 93 7.9 G. E. Multi Factorial Analysis................................................................................................................ 94 7.10 Factors Affecting Market Attractiveness.............................................................................................. 94 7.11 PEST Analysis. ...................................................................................................................................... 94 Summary. ..................................................................................................................................................... 96 References.................................................................................................................................................... 97 Recommended Reading.............................................................................................................................. 97 Self Assessment............................................................................................................................................ 98 Chapter VIII.............................................................................................................................................. 100 Social Responsibility................................................................................................................................. 100 Aim............................................................................................................................................................. 100 Objectives................................................................................................................................................... 100 Learning outcome....................................................................................................................................... 100 8.1 Introduction........................................................................................................................................... 101 8.2 Characteristics of Social Responsibility............................................................................................... 101 8.3 Components and Areas of Social Responsibility.................................................................................. 101 8.3.1 Towards Owners of Enterprise. ............................................................................................. 101 8.3.2 Towards Workers.................................................................................................................. 101 8.3.3 Towards Consumers.............................................................................................................. 102 8.3.4 Towards the Society.............................................................................................................. 102 8.3.5 Toward the Government....................................................................................................... 102 8.3.6 Toward the Weaker Section of Society................................................................................. 102 8.3.7 Towards the Economic Policy of State................................................................................. 102 8.4 Arguments Against Social Responsibility of Business......................................................................... 103 8.5 Importance of Business Ethics.............................................................................................................. 103 8.6 Social Responsibility for Economic Growth........................................................................................ 103 8.7 Outcomes of Social Responsibility....................................................................................................... 104 8.8 Social Audit. .......................................................................................................................................... 104 8.9 Need for Social Audit. ........................................................................................................................... 104 8.10 Types of Social Audit.......................................................................................................................... 104 8.10.1 Social Process Audit .......................................................................................................... 104 8.10.2 Financial Statements Format Social Audit. ......................................................................... 104 8.10.3 Macro-Micro Social Indicator Audit. .................................................................................. 104 8.10.4 Social Performance Audit................................................................................................... 105 8.11 Uses of Social Auditing. ...................................................................................................................... 105 Summary. ................................................................................................................................................... 106 References.................................................................................................................................................. 106 Recommended Reading............................................................................................................................ 106 Self Assessment.......................................................................................................................................... 107

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List of Figures
Fig. 1.1 Environment forces (influences) on business.................................................................................... 6 Fig. 1.2 Components of business environment............................................................................................... 9 Fig. 1.3 External environment.......................................................................................................................11 Fig. 1.4 Micro environment elements........................................................................................................... 12 Fig. 1.5 Macro environment elements.......................................................................................................... 13 Fig. 3.1 Process of strategic management. .................................................................................................... 41 Fig. 5.1 Board of directors............................................................................................................................ 61 Fig. 7.1 BCG matrix..................................................................................................................................... 92 Fig. 7.2 PEST analysis.................................................................................................................................. 95

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List of Tables
Table 2.1 Difference between policy and strategy........................................................................................ 26 Table 6.1 Strengths and weaknesses of SWOT analysis. .............................................................................. 71 Table 6.2 Opportunities and threats of SWOT analysis................................................................................ 72 Table 7.1 Business attractiveness and business strengths............................................................................. 94

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Abbreviations
BCG - Boston Consulting Group Approach BG - General Electric Approach CEO - Chief Executive Officer CFO - Chief Financial Officer CICA - Capital Issues Control Act CIO - Chief Information Officer COO - Chief Operation Officer DSS - Decision Support System FEMA - Foreign Exchange Management Act IDRA - Industries Development and Regulation Act MIS - Management Information System MRTP - Monopolies and Restrictive Trade Practices PEST - Political Economical Social Technological SWOT - Strengths, Weaknesses, Opportunities and Threats

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Chapter I Business Environment

Aim
The aim of this chapter is to: introduce the concept of business explain characteristics of profit elucidate the components of business

Objectives
The objectives of this chapter are to: explore the micro environment and macro environment elaborate the components of business environment enlist the characteristics of business

Learning outcome
At the end of this chapter, you will be able to: identify the types of industries understand the competitive environment define the relationship between organisation and its environment

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Business Environment

1.1 Introduction
Business is an important institution in society. Be it for the supply of goods or services, creation of employment opportunities, offer of better quality life, or contribution to the economic growth of a country, the role of business is crucial. So the first question arises in anyones mind is what really a business is? The following definition is an attempt to provide appropriate answer. A Business is nothing more than a person or group of persons properly organized to produce or distribute goods or services. The study of business is the study of activities involved in the production or distribution of goods and services-buying, selling, financing, personnel and the like. Practically the above said definition is true but in theoretical sense it is incorrect. Before any activities can be considered in the business, there must exist both the goal of profit and the risk of loss. Thus, business can be accurately defined by K. Ashwathapa as Complex field of commerce and industry in which goods and services are created and distributed in the hope of profit within a framework of laws and regulations. The concept of strategy has been borrowed from the military and adapted for use in business. In business, as in the military, strategy bridges the gap between policy and tactics. Together, strategy and tactics bridge the gap between ends and means. We shall discuss about business, and its major objectives like survival, stability, growth, efficiency and profitability, environmental influence to business, environment analysis, characteristics of business environment ,components of business environment, to know the relationship between the organisation and its environment, the micro and macro environment and its demographic, economic, government, legal, political, cultural, technological and global environment impact on business..

1.2 Definition of Business

The term business typically refers to the development and processing of economic values in society. Normally, the term is applied to portion of economic activities whose primary purpose is to provide goods and services for society in an effective manner. It is also applied to economics and commercial activities of institutions having other purposes. Business principally comprises of all profit seeking activities of the organisation which provide goods and services that are necessary to economic system. It is the major economic pulse of a nation, striving to increase societys standard of living. Business is any organisation which makes distribution or provides any article or service to the customers, who are members of the society. Business aims to satisfy the needs of the customers as they are able and willing to pay for these purposes. Business may be defined as the organised effort by individuals to produce goods and services, to sell these goods and services in a market place and to reap some reward for this effort. Functionally, we may define business as those human activities which involves production or purchase of goods with the object of selling them at a profit margin. Business can be interpreted in various ways and they are as follows: It refers to the state of being busy for an individual, group, organisation or society. It is also interpreted as ones regular occupation or profession or economic activities. It deals with particular entity, company, organisation, enterprise, firms or corporation. It is also interpreted as particular market segment sector like computer business and various other segments included under the term business. It is wide and willing to use different activities It consists of purchase, sale, manufacture, processing, marketing of products, services like manufacturing, trading, transportation, warehousing, banking and finance, insurance and advertising, etc.

Profit is the main motive of business It is clearly stated that the main purpose of all business activities is to earn profit. Profit is a surplus of business and it accrues and is then distributed to the owners of the business. Business has to pay wages to workers who are employed. People invests money in business to get retain. Retain is profit from the business. This is awarded to investor for taking the risk. Profit is the motive for the investor who serves and runs the business and it is also the stimulation effort of the business for growth and its survival. For every kind of business organisation, profit is often regarded as motive for the entrepreneurs and it measure the overall performance of the business.
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Profit is the tool for measuring and evaluating business efficiency and productivity at the managerial competence. It helps strategic managers to take proper decisions and actions which in turn are effective as they are able to combine and utilise the available resources and are able to sustain the organisation with growth.. Business efficiency is expressed in terms of percentage of profit, sales volume, capital employed, and market value of corporate shares. Outside investors are eager to know the profit of the firm and to make an assessment about their commit funds as effective utilisation of funds is possible only in the business entity.

There are various people and personalities who have defined business according to their perspectives. Some of them are discussed below. According to Prof. R. N. Owens, Business is an enterprise engaged in the production and distribution of goods for sale in a market or rendering of services for a price. L.R. Dicksee states, Business is a form of activity pursued primarily with the object of earning profits for the benefit of those on whose behalf the activity is conducted. According to Urwick and Hunt, Business is any enterprise which makes, distributes or provides any article or service which other members of the community need and are willing to pay for. Haney defines it as, Human activity directed towards producing or acquiring wealth through buying and selling of goods. Peter F Drucker has drawn some conclusions about what a business is, what is useful from the business and how to understand the term business. His conclusions are listed below: Business is created and managed by the people. A group of people who will take decisions that will determine whether an organisation is going to prosper or decline, whether it will survive or will eventually perish in market.

1.3 Characteristics of Business

The characteristics of business are as follows: Business is to provide goods and services to the people. It provides the public with the things it needs and wants in order to survive, enjoy life and improve in a material sense. From the point of view of consumer, it satisfies the needs and desire of the customer and fulfils demands which should be provided by business in order to meet the requirements of the consumer in the society. Goods that have been produced or procured for sale in retail enter the realm of business. This activity of selling results in the creation of wealth for the society. In satisfying the demand, business uses the resources of land, labour and capital. These resources have little value when taken separately; but business combines them together to structure and refine the resources and add to the value of the society. Further, it is business which employs people who exchange their talents for wages and salaries. Therefore, these people exchange their compensation for the desired goods and service. Business is a profit seeking activity firm. It supplies goods and services to customers, satisfy their demand and desire, and add to the societys value by earning profit. Profit is the biggest stimulus for the survival of the business and its future development. Society has permitted business to earn profit as a reward for assuming the risks of operating it. Business is also an essential participant in the society. It satisfies the societys demand of supplying goods and services, and earning profits. Business involves the most fundamental activities of the society. As a result, the society looks to business for something more than products, services and profits. It looks to business for leadership and direction in helping to achieve the societys objectives. It expects business to assist in the establishment of a better service to the society.

1.4 Components of Business

Business includes the total enterprise of the country. Business activity has two branches. They are as follows: Industry Commerce

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Business Environment

1.4.1 Industry In broad sense, industry is the branch of business activity which is concerned with raising production, fabrication or possessing of goods and services. In other words, industry is an activity concerned with conversion of raw materials or semi-finished goods into finished goods. Industry provides two types of goods namely consumer goods and industrial goods. Consumer goods are those goods which are manufactured by the industry for ultimate use of a customer. For instance brush, paste, cloth and food products, etc. Industrial\Capital goods are those goods which are produced and used for further production. For instance the machineries, tools and raw materials used in the various processes of production. Types of industry Industry is further classified into five broad types. They are as listed below: Extractive industries Genetic industries Manufacturing industries Construction industries Tertiary\Service industries

Extractive industries Extractive industries are those industries which are concerned with the extraction of wealth from the surface of the earth, soil, forest, and water; for instance agriculture, mining, etc. Genetic industries Genetic industries are those industries which are concerned with reproduction and multiplication of plants and animals for the purpose of making profit by their sale. For example, Nurseries, cattle building and poultry farming. Manufacturing industries Manufacturing industries are engaged in the conversion and processing of raw materials through separation, combination and transformation into finished goods. Examples such as machinery and plants of all types- iron and steel, sugar, paper, cotton cloth, electrical appliances, zinc ore, paper pulp, water power, etc. Construction industries Construction industries are concerned with the construction of roads, railways, dams, canals, buildings, bridges, . There are mainly concerned with the manufacture of non-moveable items. Tertiary or service industries Tertiary or Service industry is the one which produces intangible goods (those which cannot be seen or touched). Intangible goods included in this category are banking, transport, insurance, communication and services of professional nature such as lawyers, doctors, dentists, management consultants, advertisers, chartered accountants and engineers, etc. 1.4.2 Commerce Commerce has been defined as the sum total of those processes which are engaged in the removal of the hindrance of persons (trade), place (transport and insurance), and time (warehousing) in the exchange (banking) of commodities. Trade Trade means sale, transfer, or exchange of goods and services, through certain ancillary functions like packing, warehousing, banking, transportation, insurance, and advertising.

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1.5 Purpose of a Business

Business has some purpose. These purposes are listed below: It is to create customers clients in market. It is to create customers for selling their products and services. It is to create market for redlining and buying of product and services. Customers determine the main purpose of the business. Customers are the basic foundation of the business and keep their existence in the market. It is to be catering to material needs and requirement of the society, individual persons, government institutions, company, firms and enterprise. Business should be running within the purview of the legal and general public interest. It is the ultimate result of an economic expansion, growth and change of firm.

In general sense, enterprise pursues multiple objectives rather than a one objective. Strategic manager will identify a set of main business objectives. These will be pursued by a large cross-section of enterprises. Profitability, productivity, efficiency, growth, technological, dynamism, stability, self-reliance, survival, competitive strength, customer services, financial solvency, product quality, diversification, employee satisfaction and welfare and so on are the major objectives of an enterprise. Enterprises look for balance of these objectives in appropriate and suitable manner. Important business objectives are listed below: Survival Stability Growth Profitability Efficiency

1.6 Characteristics of Business Environment

The characteristics of business environment will be indicated by the major challenges, opportunities, threat and weakness that the business comes across. Environment is complex Business environment principally consists of a number of factors and events conditions. These are influenced by different departmental sources in the organisation. These conditions do not exist in isolation and create entirely new set of influences which interacts with each other. It brings comprehensive influence to business environment but it is difficult to influence the organisation. All these factors have to be considered as environment analysis is complex and rigid and totally very difficult to grasp by the functional manager and top level employees in the organisation. Environment is dynamic Business and company environment is constantly evolving and changing in various aspects. Micro and macro environment factors are influenced in business. It impacts to change the business conditions. Dynamic environment is flexible in nature. This is caused due to change; the strategic manager can shape strategy and formulate short term and long term objectives. Environment is multifaceted Strategic observer can shape and observe different characters prevalent in the environment. Strategic observer can observe a particular change or latest development in the business. It may be viewed differently by different observers in the organisation. These things are frequently seen when the development happens. All are happy to welcome it and think of it as an opportunity for the company but sometimes it can even be treated as a threat to the company.

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Business Environment

Environment has a far reaching impact Environment impact is an essential ingredient for strategist to study changes and take appropriate decisions at appropriate time. If the strategist neglects to take an appropriate decision at the right time, it creates an impact on the organisation. Survival, growth, profitability and development of an organisation depend critically in terms of micro and macro factors of the business environment. Environment impact brings new dimensions to the business.

1.7 Environmental Influences and Analysis on Business

The term Environmental analysis is defined as the process by which strategists monitor the economic, governmental, legal, market, competitive, supplier, technological, geographic, and social cultural settings to determine opportunities and threats to their firms, company and organisation. According to Barry M. Richman and Melvyn Copen, Environment factors or constraints are largely if not totally external and beyond the control of an individual or industrial enterprises and their arrangements. These are essentially the givers within which the firms and their managements must operate in a specific country and they vary, often greatly from country to country. According to Glueck and Jauch, The environment that exists outside the firm can lead to opportunities for or threats to the firm. Although, there are many factors, the most important ones are socioeconomic, technical, supplier, competitors, and government. These definitions clearly reveal the following important factors: Strategist looks on the environment change to analyse the threats of the business along with searching and offering immense opportunities to business enterprises in the market. A successful business enterprise has to identify, appraise and respond to the new dimensions of various opportunities and threats in its internal and external environment. Successful businesses not only recognise business activities but even recognise the different elements related to business. It continuously monitors and adapt to the new environment. Environment analysis is helpful in the survival of the business and prospers the business activities.

Environment diagnosis principally consists of managerial decisions which is made by the strategist for analysing the significance of the data like strengths, weakness, opportunities and threats of the organisation, and to design their own strategy for formulation, implementation and controlling the internal environmental factors of the firm. Environmental analysis helps the executive and manager to diagnosis the strategic competitive force and components of strategic management. However, internal environment of the organisation is quite an essential and important factor, from the point of view of the environment analysis. It is the cornerstone of the new and existing business opportunity. Inputs Human Physical Finance Technology Organisation Processing Outputs

Transformation of inputs to outputs

Product Services

Environmental forces

Fig. 1.1 Environment forces (influences) on business

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The figure above indicates the environmental forces that influence the business. For instance, the individual life success depends on his innate capabilities like psychological factors, traits and skills. These are to cope with the environment, only then it will be a success otherwise it will lead to failure. The survival is the basic element and success of the business organisation; it depends on its own strengths in terms of resources like money, men, machinery, materials, market and methods as its commands. Organisational success depends on effective utilisation of physical resources, financial resources and human resource skills. These are adaptable to the business environment. Environment is the total of several external and internal forces that affects the functions of business. Every business organisation principally consists of internal environmental factors and a set of external environmental factors. Environmental factors influence the business directly and indirectly by controlling, managing and administrating the business activities in the organisation. Environment is the basic tool for living for all human beings and living creatures. Human environment consists of family, friends, peers, and neighbours except the natural environment. In addition it also includes manmade structures like buildings, furniture, roads and other physical infrastructure. These are continuously interacting with the business environment. Problem in understanding the environment influences In strategic business environment, strategic managers face different problems in different circumstance in their business and have to understand the different environmental influence of business as outlined: The environment problems bring different dimensions to strategic managers. Strategic managers have a very difficult task to make decisions regarding the different diversities of the business. A Strategist will list all conceivable environment influences and it is very difficult to get an overall picture of the business environment task. These are emerging problems for the strategist and it also influences the business. Uncertainty is the second problem encountered by strategic managers. Strategic managers typically claim that they know the pace of the technological changes and the speed of the global network communication. The changes are much faster now than ever before in the business environment. Some of the changes are either predictable or unpredictable by the managers. Managers make an effort to understand the external influences on business enterprises in future and this task is very difficult to perform. Strategic managers are not different from individuals in a firm; they are coping with complex and rigid problems. They tend to simplify complex and rigid problems which focus on the various aspects of the environment. These problems are historically important and confirm prior views of the business. Strategic managers are trying to take risk and simplify the complex and rigid problems in this way so as to find out a breakout bias in the understanding of their environment. It will help in achieving a useful and useable level of analysis in business environment.

Framework to understand the environmental influences While understanding the problems in business environment, strategic managers cannot ignore the real problems of the business. It will be an opportunity for them to identify a framework for understanding the business environment of the organisations. Environmental factors plays an important role and influences to identify the key issues, and find the ways for coping with complex and rigid issues which are considered as challenging by managers. First stage for strategic managers is to know the initial structure and nature of the business organisations in terms of uncertainty. This is relatively either static or shows a sign of change.. Second stage is the auditing of the environment that influences the business. During this stage, strategic managers aim to identify different environmental influences that are likely to affect the organisations development or performance. It is done through assessment of external environmental factors like political, economic, social and technological influences. These are the factors that exist at the time of audit of the business. It is helpful to strategic managers to develop overall pictures or scenario of possible future and extent to ascertain change in the business. Strategic managers have to focus more towards an explicit consideration of the immediate environment of the organisations; it is the last stage of assessment for the strategic managers. It involves the five forces analysis of competitive environment and identifies the key forces at work environment. It is also required to analyse the organisations competitive position in form of resources and customers.

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1.7.1 Environmental Analysis Strategist should be aware of the resource capabilities and the effective utilisation of scarce resource available in the company. Environment analysis is to analyse the changing pattern and its impact on business. It also considers an opportunity to use, and time to anticipate the corporate objectives through proper planning, and make optimum utilisation of available resources in the company. These things help the strategist to form, develop and give early warnings to prevent threats or to develop strategies which can turn threats into advantages in the prevailing system. It clearly indicates the future of the company and assessment of the anticipated future. According to Clifton Garvin, environment analysis is, Positive trends in the environment breed complacency. That underscores a basic point: in change there is both opportunity and challenge. Business environment analysis involves the analysis, the diagnosis, and the managerial decisions which are likely to be taken for the betterment of the company. It reduces the length process and the time pressure faced by the managers and the board of directors in the company. However, sometimes the strategic managers neglect the environment analysis and its impact on business changes, and are ready to face anticipated problems in future. Therefore, the strategic managers can concentrate on environmental influences on the organisation or enterprise. In general sense, Environmental analysis has three basic goals which are as follows: Environmental analysis must provide the current and potential changes which are understood by the strategist and its suitable place in the business environment. Strategist should be aware of the existing environment; this is most important to company. At the same time, the strategist must have to take and consider a long term perspective about the future. Environment analysis basically provides strategic inputs for strategic decision making. It is not a mere collection of data and it is not enough to analyse the environment. Whatever information is collected by the strategist should be useful to the company while making strategic decisions. Environment analysis is the basic tool and it should make, facilitate and foster strategic thinking in the organisation. It is, typically, a rich resource of capabilities and ideas which understands the context and purview of the business organisation. It should be about current challenges, growth, development and opportunities.

1.7.2 Environment influence on SWOT Environment influence is a part of SWOT analysis. SWOT is acronym of strengths, weakness, opportunity and threats. Threats and opportunities come under the purview of the external environment of the business. Strengths and weakness come under the purview of the internal environment of the business. These factors are outlined as below: Strengths Weakness Opportunity Threats

Strength Strength is an inherent resource capability of the organisation or company which can be used to gain strategic advantages from their competitors in the market. For example, strength is skill required for research and innovation which helps in the development of advance skills which can be then used for getting a new product, a new material, and a new customer. In this way we achieve to gain competitive strengths in the business. Weakness A weakness is an inherent limitation or constraint or problem of the organisation. It creates strategic disadvantages to the company or organisation. For example, a manufacturing companys over-dependency on a single supplier in the market can be potentially risky for the company at the time of crisis.

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Opportunity An opportunity is a favourable condition in the business organisations environment which enables it to consolidate the resource and strengthen its position. For example, increase in the products and services of the company due to the demands from the customer. It is the best opportunity for the company to serve products and services to their customers. Threat A threat is an unfavourable condition in the business organisations environment which causes a risk for, or damage to, the organisation. For example, an emerging strong competitor in the market who is likely to offer stiff competition to the existing companies in the industry, trade and business. This is one of the threats to the organisation.

1.8 Components of Business Environment

Business environment of the firms/company or organisation can be classified into two broad categories: Internal Environment External Environment Components of business environment of firm

Internal environment

External environment

Micro environment Fig. 1.2 Components of business environment

Macro environment

1.9 Relationships between Organisation and its Environment

Relation of business organisation and its environment is obvious from the point of analysis of strengths, weakness, opportunity and threats of business. Organisation environment consists of internal environment and external environment. Internal environment factors are easily controllable and managed in the organisation. External environment factors are uncontrollable factors due to changes in the legal, social, economic, and technical factors in business enterprise. External environment offers wide range of opportunities, problems, threats and pressures and thereby influences the structure of the business enterprise and its functions. Business enterprise can be treated as a subsystem for drawing certain inputs of resource, information and values extracting from the external environmental system. These things transform into outputs- in the form of products and services, goals and satisfactions and exchange of proper ideas and it transmits to business enterprise. The relation between the organisation and its environment is based on the factors listed below: Exchange of Information Exchange of Resource

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Exchange of Information It refers to data or information that is exchanged with business enterprises and its internal and external environment. Exchange of information occurs in the following ways: Business organisation scans the components of the external environment and internal environment components along with their behavioural changes and thereby generates important information and valuable uses for the business; and this leads to proper planning, decision making and control of the environment variables in the organisation. Business organisation structure and functions are adjusted towards the external environment information. Generation of external environment information is complex and it is one of the major problems as it involves uncertainty to business organisation. A business project looks for current and future information related to demography, competition, technical, legal, political, existing government policies and procedures.

Apart from collecting information, a business organisation itself transfers information in the following ways: The organisation transfers its own information to several external agencies either voluntarily, inadvertently or legally. Other organisations and interested individuals are also approached by business organisation to obtain valuable information relating to functions, products and services and social responsibility towards the stakeholders of the company. The organisation collects its own information in the form of annual reports, occasional advertisements and media reports, etc. Business organisations is generally legally bound to supply valuable information to government, society, financial institution, shareholders, creditors, debtors, investors, employees, trade unions, business bodies and the like.

Exchange of Resource Exchange of resource dominates the relationship of the business enterprise and its environment. Exchange of resources in the business involves in the following ways: Business enterprise receives inputs like finance, materials, manpower, equipment and labour force from the external and internal environment through contractual and other arrangements. Organisational employees are very important as conversion of these inputs (raw materials) leads into outputs like products and services. The organisation interacts with suppliers for getting the inputs. For this purpose, an organisation does not depend on a single supplier and collaborates with other organisations in the process to ensure a consistent supply of quality inputs. An organisation is also dependent on the external environmental factors for disposal of its products and services to the wide range of clients and customers. Disposal of products and services are involved in the interaction process of the external environment for perceiving its needs and in this way satisfying the expectations and demands of clients, customers, employees, shareholders, creditors, suppliers, local community, and general public and so on.

1.10 Internal Analysis of the Organisation/Company

Formulation of an effective and efficient strategy is based on a clear definition of the organisation mission, an accurate assessment of the external environment and a thorough internal analysis of the organisation. The organisation requires at least three ingredients for success. They are as listed: Strategy must be consistent with the conditions in the competitive environment. Strategy must place realistic requirements on the organisation/companys internal resources and capabilities. Strategy must be carefully formulated, implemented, controlled and executed.

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Internal analysis of the organisation is a very difficult and challenging task for the strategist. An internal analysis has the capacity to design a realistic organisation profile. It frequently involves trade-off, value system judgments, educated and skilled guess as well as objective and standardised analysis. A systematic internal analysis leads to the main objective of the organisation profile. It is essential to develop strategy, and design a realistic mission for achievement of the strategy. Internal analysis of the organisation must identify the strengths, opportunities, weakness and threats that are based on organisation strategy. Organisational analysis identifies suitable strategy that is based on SWOT. Internal analysis can be achieved by firstly by identifying the key and internal factors like value system, mission objectives, management structure and nature, integrated power relationship, human resource, company/organisation image and brand equity, physical assets, research and development (R&D) aspects, technological capabilities, marketing resource and financial resource factors; and secondly by evaluating all these factors.

1.11 External Environment

The concept of external environment is important for every kind of business operation. External environment is an attempt to understand the outside forces of the organisational boundaries that help to shape the organisation. The external environment can provide both facilitating and inhibiting influences on organisational performance. Key dimension of the external environment principally consists of a micro environment and a macro environment.

External environment

Micro environment

Macro environment

Fig. 1.3 External environment External environment of the business can be categorised into two broad categories, as outlined below: Micro environment Macro environment

1.11.1 Micro Environment Micro environment of business enterprise refers to the study of a small area or an immediate periphery of the business organisation. Micro environment directly and regularly influences the business organisation. It analyses the following important factors: Human resource (Employees) of the firm, their characteristics and how they are organised in the firm. It analyses the customer base of the firm which includes the major and minor clients of business. It analyses the growth of finance in the firm. It analyses the identity of the suppliers of raw materials and the development of the supply chain network between the supplier and firm. It analyses the local communities of the firm and the locations of its operation. It analyses the direct competition from the competitors and their performance in business.

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Business Environment

Micro/Operating Environment The micro/operating environment consists of the organisation or companys immediate environment that affects the performance of the organisation/company. They are listed in the figure below: Consumers/Customers Competitors Organisation Elements of micro environment Market Suppliers Intermediaries Publics Fig. 1.4 Micro environment elements It is quite important that micro/operating environment factors are more intimately linked with the organisation or company than macro/remote environment factors. The micro/operating forces need not necessarily affect all organisations in a particular industry. Some of the micro factors particularly affect an organisation. For instance, an organisation that depends on a supplier may have a supplier environment that is quite entirely different from that of an organisation whose supply source is also different. When competing organisations in an industry have the same micro elements, the relative success of the organisation depends on their relative effectiveness in dealing with these elements. 1.11.2 Macro Environment Macro environment, on the other hand, study the overall issues of firms and its broader dimensions. It principally consists of economical, technological, political, legal and socio-cultural aspects. The issues of Macro environment are outlined below: It analyses the level of competition, the competitors, their way of operation and the threats that they can create. It analyses the areas of technology which can pose a threat to the current product and services and find out the reasons for threat. It analyses the bargaining power of suppliers and customers. It analyses the nature of competition and also deals with the techniques required to face the threats and weaknesses of the firm.

Macro/remote environment Macro/remote environment is largely external to the business enterprise. Macro environment factors are uncontrollable factors and beyond the direct influence and control of the organisation. The factors are powerfully influenced by its functions. External environment consists of individuals, groups, agencies, organisations, events, conditions and forces. These are frequently contacted by the organisation for its functions. It establishes good interaction and inter-dependent relations in the form of business transitions. Proper designing and administration of macro environment enable appropriate strategies and policies to cope with and make changes. Macro environment force is uncontrollable.
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The macro/remote environment principally consists of the following elements which are listed in the figure below: Demographic Economics Government Legal Political Cultural Technological Global Fig. 1.5 Macro environment elements

Macro environment elements

1.12 Economic Environment

The economic environment constitutes of economic conditions, economic policies, and the economic system which is important to the external factors of business. The economic conditions of the country include: Nature of the countrys economy. The general economic situation prevalent in the region, conditions in resource markets like money, material, raw material components, services, supply markets and so on which influences the supply of inputs to the organisation, their costs, quality, availability and reliability of the supply of products and services. It determines the economic strength and weakness in the market. Purchasing power of the individual depends upon the economic factors like current income, price, savings, debt and credit availability and circulation of money. People income distribution pattern analyses the market possibilities and impacts on enterprise. Development process of the country Availability of economic resources of the country The level of the economic income of the country The distribution of income and assets of the country Public finance of the country

These are the very important determinants of business strategy in the organisation for formulating, implement and controlling the economic policies. Economic environment refers to the nature and direction of the economy within which the business organisation should operate. For instance, in the developing countries, the low income may be the reason for the very high demand for the product and services of the business. In countries where the investments and income are steadily and rapidly rising, business prospects are generally bright and further investments are encouraged.

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Business Environment

In developed economies, replacement demand accounts for a considerable part of the total demand whereas it is negligible in the developing countries. Money is the lifeblood of any business organisation and the economic system. The economy consists of micro-economics and macro-economics. Micro and macro elements are important from the point view of strategic decisions. Strategist must scan, monitor, forecast and assess the following critical elements of the macro and micro economic environment: Economic system Nature of the countrys economy The monetary and fiscal policies of the country Autonomy of the economy Functions of economics Factors of productions Economic trends and structures Economic policy statements and structure Economic legislation Economic problems Import and export policy Tax rates Interest rates Government budget Consumption pattern Price fluctuations Global movement of labour and capital Trends in the Stock market Coalitions of countries and regional states Availability of credits Inflation trends in country Unemployment trends Economic conditions of Foreign countries

Economic environment encourages liberalisation, privatisation and globalisation of the economic policies in the business environment. Every countrys development is based on the economic environment activities that focus on the development process of the country.

1.13 Political-Legal Environment

Political environment refers political, government and legal environment. It has close relationship with the economic system and economic policy. For instance; the communist countries had a centrally planned economic system. Communist government countries laws are control investment and related matters. There are number of laws that regulate the conduct of the business. These laws cover matter such as standards of business and its production and service. The democratic governments countries laws / act are passed in the parliament. Then there are regulating rules and regulation of business according to the act. Political stability, responsibility, political ideology and level of political morality, the law and order situation, and practice of the ruling party and major purposefulness and efficiency of the government agencies. Political agencys nature, its influence to economic and industrial activties in the country. Government policies like fiscal, monetary, industrial, labour, and export and import policies which are influenced to specific legal enactments and framework towards the business organisation political legal function and degree of the effectiveness which are influenced to formulate and implement policy in the legislature.

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The political environment is based on the uncertainty; therefore, demographic countries consist of number of political parties. Political parties arent got clear majority to form a government. In this situation, industry and commerce collapsed their business activities due to hung government. The political parties are unable to formulate stable government, it affect and fluctuate the government policies. Therefore, business organisation and public are needed to the stable government. Elements of political and legal environment There are three important elements are associated with the political and legal environment as listed below: Government Legal Political

Government Government policies, rules and regulation are controlling and monitoring the business enterprises and its activities in the state. Secondly, the type of government administration of the state and what is the business policy of state? These things should be evaluated by the strategist from point of view of business. Strategist should study about the changes in the regulatory framework of the government and impact on the business. Government tax policies are critical and affect to the business organisation in the state. Legal Sound legal system is the basic requirement for running of the business operating within the state. Strategist should aware of various business laws which are protecting consumers, competitors, and organisation. Business organisation should aware of the laws which relevant to companies, competitors, intellectual property, foreign exchange, labor and so on. Political Political system is also influenced to business and its activities. Political pressure groups influence to government and in this way some extent to control and regulate business activities within the country. Recently, special interest groups and political action committee put pressure to business organisation and to pay more attention towards consumers rights, minority rights and women rights. Apart from the sporadic movements against certain products and services and some business organisation in the state.

1.14 SocioCultural Environment

Socio-cultural environment is an important factor that should be analysed while formulating company business strategies. If company is ignoring the customs, traditions, tastes and preferences and education it affects the business. It consists of factors which are related to human relationships and the impact of social attitudes and cultural values. These are bearing on the business of the organisation. Business organisation is successful due to appropriate strategies and effective utilization of socio-cultural environmental factors. Social cultural environment is an important factor for MNC. Therefore, MNC should study the social cultural activities of the region, where they are introducing their own business. Even when the people with different cultures use the same basic product, the mode consumption, conditions of use or perceptions of the product attributes may vary so much that the product attribute method of presentation, promoting product have to be varied to suit the characteristic of different market segments. Socio-cultural factors are beliefs, values, norms and traditions of the society that determine how individuals and organisations should be interrelated. The difference in language sometimes poses a serious problem, even necessitating a change in the brand name. The value and beliefs associated with colour vary significantly between different cultures. For instance, white indicates death and mourning in China and Korea; but in some countries it expresses happiness and is the colour of the wedding dress of the bride.

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Business Environment

Some of the socio-cultural factors are influences operating environment of organisation as outlined: Social issues like the role of the business in the society, environment pollution, corruption, use of mass media and consumption of products and services which are offered by the company. Social attitude and value issues like social customs, beliefs, rituals and practices, changing life style patterns and materialism are expectations of society from the business. Family structure, value and attitude towards the family and these changes also influence business and its operation. Role of the women, position, and nature of responsibilities in society is also influences business and its operation in market. Educational levels, awareness and consciousness of rights and work ethics of the society can influence business and its operation. Social practice, beliefs and associated factors are helpful for promotion of the certain products, services or ideas; the success of marketing depends on a large extent, on the success in terms of changing social attitude or value systems.

1.15 Demographic Environment

Demography refers to study of the population. Demographic factors are as below: The population size Growth rate of population Age composition of the population Family size Economic stratification of the population Education levels Language Caste Religion Race Age Income Educational attainment Asset ownership Home ownership Employment status and location

These factors are relevant to the business for formulating and implementing strategy for controlling and accomplishment of the objectives of the organisation. Demographic factors like size of the population, population growth, rate, age, composition, life expectancy, family size, spatial dispersal, occupational status, employment pattern, etc., affect the demand for goods and service. The growth of population and income results in increased demand for goods and services. A rapidly increasing population indicates a growing demand for many products. For instance, developing countries like India, Pakistan, etc., high population growth rate that indicates an enormous increase in labour supply. The occupational and spatial nobilities of population have implications for business. If labour is highly heterogeneous in respect of language, caste and religion, ethnicity, etc., personal management is likely to become more complex. The heterogeneous population with its varied tastes, preferences, beliefs, temperaments, etc., gives rise to different demand patterns and calls for different marketing strategies.

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Business organisation needs to study different demographic issues which particularly address the following issues as listed below: What democratic trends which will affect the market size of the different types of industry? What democratic trends will represent opportunities or threats?

Domestic environment factors of business We shall briefly discuss a few demographic factors which are interest of business: Population size Geographic distribution Ethnic mix Income distribution

1.16 Natural Environment

Natural environment is the study of an important component of the nature i.e., natural environment. Natural environment includes geographical and ecological factors as below: Natural resource endowments Weather Climate conditions Topographical factors Location aspects in the global context Port facilities are relevant to business

Difference in geographical conditions between markets may sometimes call for changes in the marketing mix. Geographical and ecological factors also influence industries which help material index tend to be located near the raw material sources. Climate and weather conditions affect the location of certain industries like textile industry. Ecological factors have recently assumed great importance. The depletion of natural resources, environmental pollution and the disturbance in the ecological balance has caused great concern. Government policies aimed at presentation of environmental purity and ecological balance, conservation of non-replenishable resources, etc., have resulted in additional responsibilities and problems for business, and some of these have affected in increasing the cost of production and marketing, externalities also become an important problem of the business has to confront with.

1.17 Technological Environment

Technological factors sometimes pose serious problems. A firm that is unable to cope with technological changes may not be survived. Further, the differing technological environment of different markets or countries may be called for product modifications. Technology is the most important elements of the macro environment. Technology is the human beings innovation and it is literally a wonder. Advances in the technologies have facilitated product improvements and introduction of new products and have considerably improved the marketability of the products. These fast changes in technologies also have created problems for enterprises as they render plants and product obsolete. Today adopting changes in technology is must to achieve success in business and industry. Internet and telecom system is the part of technological development in the world. These things today changed whole world. It changes people and business operation. It leads to many new business opportunities apart from the many existing systems. Technological environment characteristics are outlined: The find of technological change Opportunities are arising out of technological developments. Risk and uncertain is the major feature of the technological developments. Research and development role to country

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Business Environment

Technology and business activities are to be highly considerable, interrelated and interdependent. Technology output/ fruits available to society through business activities in this way improve the quality of life in the society. Therefore, technology nurtured by business. Technologies issues relating with companies are listed below: Access to the internet communication facilities which enables to connect large numbers of employees to work from one place/ home to another place in the globe. Information Highway provides opportunity to strategist to access richer source of information. It helps business for sales and exchange of goods and services. It provides opportunity to customers to shop online through the internet technology.

Key issues of technology Strategist should know what of type technology is used by company? Strategist should know which type of technologies is used in the companys business, products and its services? To know the critical issues in technology and know the operating skills in technology related products and services. To know the availability of technology to organisation. And its procedure to get external technology to company for its operations. To know the cost of technology, alternative technology, competitors, design structure T of the technology and production implementation services of the company. To know the companys business applications which are related to technology? To know the additional technologies which is required by company business? And how to get these additional technologies in the world market. Technology helps business for formulation of strategy, implementation of strategy and control of the company performance

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Summary
A Business is nothing more than a person or group of persons properly organized to produce or distribute goods or services. Business principally comprises of an all profit seeking activities of the organisation which provide goods and services that are necessary to economic system. Business may be defined as the organised effort by individuals to produce goods and services, to sell these goods and services in a market place and to reap some reward for this effort. Business is to provide goods and services to the people. It provides the public with the things it needs and wants in order to survive, enjoy life and improve in a material sense. Commerce has been defined as the sum total of those processes which are engaged in the removal of the hindrance of persons (trade), place (transport and insurance), and time (warehousing) in the exchange (banking) of commodities. Business and company environment is constantly evolving and changing in aspects. Environmental analysis helps the executive and manager to diagnosis the strategic competitive force and components of strategic management. Environmental factors plays an important role and influences to identify the key issues, and find the ways for coping with complex and rigid issues which are considered as challenging by managers. Environment analysis is to analyse the changing pattern and its impact on business. SWOT is acronym of strengths, weakness, opportunity and threats. External environment offers wide range of opportunities, problems, threats and pressures and thereby influences the structure of the business enterprise and its functions. Exchange of resource dominates the relationship of the business enterprise and its environment. Formulation of an effective and efficient strategy is based on a clear definition of the organisation mission, an accurate assessment of the external environment and a thorough internal analysis of the organisation. External environment is an attempt to understand the outside forces of the organisational boundaries that help to shape the organisation. Micro environment of business enterprise refers to the study of a small area or an immediate periphery of the business organisation. Macro environment, on the other hand, study the overall issues of firms and its broader dimensions. It principally consists of economical, technological, political, legal and socio-cultural aspects. The economic environment constitutes of economic conditions, economic policies, and the economic system which is important to the external factors of business

References
Dr. Pal, K., Business Environment, [Pdf] Available at: <http://www.ddegjust.ac.in/studymaterial/mcom/mc-103. pdf> [Accessed 15 May 2013]. Business Environment, [Pdf] Available at: <http://www.newagepublishers.com/samplechapter/001610.pdf> [Accessed 15 May 2013]. Jain, T. R., Trehan, B. & Trehan, R., 2010. Business Environment, FK Publications. Goyal, A. & Goyal, M., 2010. Business Environment, FK Publications. The Global Business Environment, [Video online] Available at: <http://www.youtube.com/watch?v=mcmsSV LQIXk&list=PL502F3D01E0D87E47> [Accessed 15 May 2013]. 2008. Globalisation of Indian Business , [Video online] Available at: <http://www.youtube.com/ watch?v=NTtztNM3vLg> [Accessed 15 May 2013].

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Business Environment

Recommended Reading
Aswathappa, K., 2009. Essentials of Business Environment, Global Media. Dave, B., 2009. Business Environment in Modern Era, Global Media. Cherunilam, F. 2009. Business Environment, Global Media

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Self Assessment
1. The term _________ typically refers to the development and processing of economic values in society. a. Business b. Land c. Profit d. Economics 2. Which of the following statements is false? a. Profit is a surplus of business and it accrues and is then distributed to the owners of the business. b. Profit is the tool for measuring and evaluating business efficiency and productivity at the managerial competence c. Business efficiency is expressed in terms of percentage of profit, sales volume, capital employed, and market value of corporate shares. d. The concept of strategy has been borrowed from the history and adapted for use in business. 3. Match the following 1. Business 2. Goods 3. Profit 4. Society A. Produced or procured for sale in retail enter the realm of business. B. Biggest stimulus for the survival of the business and its future development C. Permits business to earn profit as a reward for assuming the risks of operating it. D. Provide goods and services to the people

a. 1-C, 2-B, 3-D, 4-A b. 1-D, 2-B, 3-A, 4-C c. 1-D, 2-A, 3-B, 4-C d. 1-A, 2-D, 3-C, 4-B 4. _____________ are those industries which are concerned with the extraction of wealth from the surface of the earth, soil, forest, and water. a. Manufacturing Industries b. Extractive Industries c. Genetic Industries d. Construction Industries 5. _________ means sale, transfer, or exchange of goods and services, through certain ancillary functions like packing, warehousing, banking, transportation, insurance, and advertising. a. Media b. Service c. Commerce d. Trade 6. Environment __________ is helpful in the survival of the business and prospers the business activities. a. analysis b. diagnosis c. strategy d. change
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Business Environment

7. Which of the following statement is not a characteristic of business? a. Environment is complex b. Environment is multi-faceted c. Environment is dull d. Environment has a far reaching impact 8. A __________ is an unfavourable condition in the business organisations environment which causes a risk for, or damage to, the organisation. a. strength b. threat c. opportunity d. demand 9. Which of the following statements is true? a. Strategy is never consistent with the conditions in the competitive environment. b. Strategy is not about realistic requirements of the organisation/company. c. Strategy does not need to be executed. d. Strategy must be carefully formulated, implemented, controlled and executed. 10. Economic environment encourages liberalisation, privatisation and ____________ of the economic policies in the business environment. a. integrity b. globalisation c. accountability d. movement

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Chapter II Introduction to Business Strategy

Aim
The aim of this chapter is to: introduce the concept of business strategy elucidate the nature of business policy explain the features of business policy

Objectives
The objectives of this chapter are to: explain the objectives of business elucidate the concept of business strategy explicate the difference between policy and strategy

Learning outcome
At the end of this chapter, you will be able to: understand strategy at different levels of business identify the features of business policy describe different types of policies

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Business Environment

2.1 Introduction
Strategy is the direction and scope of an organisation in the long term, which achieves advantage for the organisation through its configuration of resources within a challenging environment, to meet the need of markets and to fulfil stakeholders expectations. In other words strategy is about: The direction where the business is trying to get into in the long term. The market in which a business should compete in and the scope of the activities that are to be involved. The advantage as to how can the businesses performs better than the competition in the market. The resources like skills, assets, finance, relationships, technical competence, and facilities required in order to be able to compete with other businesses in the market. The environmental factors that affect the businesses ability to compete. The values and expectations of the stakeholders who have the power in and around the business.

Strategy is a managements game plan for strengthening the performance of the enterprise. It states how to conduct business to achieve the desired goals. 2.1.1 Features of Strategy Following are the features of strategy: Strategy is significant because it is not possible to foresee the future. Without a perfect foresight, the firms must be ready to deal with the uncertain events which constitute the business environment. Strategy deals with long term developments rather than routine operations i.e., it deals with probability of innovations or new products, new methods of productions, or new markets to be developed in future. Strategy is created to take into account the probable behaviour of customers and competitors. Strategies dealing with employees will predict the employee behaviour.

2.2 Strategy at Different Levels of Business

Strategies exist at several levels in any organisation, ranging from the overall business through to individual working in it. 2.2.1 Corporate Strategy Corporate strategy is concerned with the overall purpose and scope of the business to meet stakeholders expectations. This is a crucial level since it is highly influenced by investors in the business and acts to guide strategic decision making throughout the business. Corporate strategy often stated explicitly in a mission statement. 2.2.2 Business Unit Strategy Business unit strategy is concerned more with how a business competes successfully in a particular market. It concerns strategic decision about choice of products, meeting needs of customers, gaining advantage over competitors, exploiting or creating new opportunities, etc. 2.2.3 Operational Strategy Operational strategy is concerned with how each part of the business is organised to deliver the corporate and business-unit level strategic direction. It therefore focuses on issues of resources, processes, people, etc.

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2.3 Nature of Business Policy

Business policy defines the scope or spheres within which decisions can be taken by the subordinates in an organisation. It permits the lower level management to deal with the problems and issues without consulting top level management every time for decisions. Business policies are the guidelines developed by an organisation to govern its actions. They define the limits within which decisions must be made. Business policy also deals with acquisition of resources with which organisational goals can be achieved. Business policy is the study of the goals and responsibilities of top level management, the significant issues affecting organisational success and the decisions affecting organisation in the long-run.Some useful definitions of Business Policy are as follows: A business policy is an implied overall guide setting up boundaries that supply the general limit and direction in which managerial action will take place. A business policy is one, which focuses attention on the strategic allocation of scarce resources. Conceptually speaking, strategy is the direction of such resource allocation while planning is the limit of allocation. A business policy represents the best thinking of the company management as to how the objectives may be achieved in the prevailing economic and social conditions. A business policy is the study of the nature and process of choice about the future of independent enterprises by those responsible for decisions and their implementations. The purpose of a business policy is to enable the management to relate properly the organisations work to its environment. Business policies are guides to action or channels to thinking.

2.3.1 Types of Policies There are many types of policies. Some of these are as follows: Marketing policy The basic attitudes underlying a companys marketing activity is called marketing policy. Financial/Economic policy Economic policy refers to the actions that government takes in the economic field. It covers the systems for setting interest rates and government budget as well as the labour market, national ownership, and many other areas of government interventions into the economy. Personnel policy Is a set of rules or guidelines that defines the way in which an organisation deals with matters relating to staff, or a particular rule or guideline relating to a particular issue affecting staff. 2.3.2 Features of Business Policy An effective business policy must have following features: Specific Policy should be specific/definite in nature. If it is uncertain, then the implementation will become difficult. Clear Policy must be unambiguous. It should avoid use of jargons and connotations. There should be no misunderstanding in following the policy. Reliable/Uniform Policy must be uniform enough so that it can be efficiently followed by the subordinates. Appropriate Policy should be appropriate to the present organisational goal. Simple A policy should be simple and easily understood by all in the organisation.

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Inclusive/Comprehensive In order to have a wide scope, a policy must be comprehensive. Flexible Policy should be flexible in operation/application. This does not imply that a policy should be altered always, but it should be wide in scope so as to ensure that the line managers use them in repetitive/routine scenarios. Stable Policy should be stable else it will lead to indecisiveness and uncertainty in minds of those who look into it for guidance. 2.3.3 Difference Between Policy and Strategy Following table illustrates the difference between policy and strategy Policy a. Policy is a blueprint of the organisational activity which is repetitive/routine in nature. b. Policy formulation is the responsibility of top level management. c. Policy deals with routine/daily activities essential for effective and efficient running of an organisation. d. Policy is concerned with both thought and actions. e. A policy is what is, or what is not done. Strategy a. Strategy is concerned with those organisational decisions which have not been dealt/faced before in same form. b. Strategy formulation is basically done by middle level management. c. Strategy deals with strategic decisions. d. Strategy is concerned mostly with actions. e. A strategy is the methodology used to achieve a target as prescribed by a policy.

Table 2.1 Difference between policy and strategy

2.4 Objectives of Business

Following are the objectives of business An objective of business means the purpose for which the business is established. It is generally believed that the main objective of business is to make profit and avoid loss. Business objective is something which a business organisation wants to achieve or accomplish over a specified period of time. These may be to earn profit for its growth and development, to provide goods to its customers, to protect the environment, etc.

2.5 Classification of Objective of Business

It is generally believed that a business has a single objective, which is, to make profit. But it cannot be the only objective of business. While pursuing the objective of earning profit, business units do keep the interest of their owners in view. However, any business unit cannot ignore the interests of its employees, customers, the community, as well as the interests of society as a whole. For instance, no business can prosper in the long run unless fair wages are paid to the employees and customer satisfaction is given due importance. Business objectives also need to be aimed at contributing to national goals and aspirations as well as towards international well-being. Thus, the objectives of business can be classified as: Economic objectives Social objectives

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Human objectives National objectives Global objectives

2.5.1 Economic Objectives Economic objectives of business refer to the objective of earning profit and also other objectives that are necessary to be pursued to achieve the profit objective, which includes creation of customers, regulating innovations and best possible use of available resources. Profit earning Profit is the lifeblood of business, without which no business can survive in a competitive market. In fact profit making is the primary objective for which a business unit is brought into existence. Profits must be earned to ensure the survival of business, its growth and expansion over time. Profits help businessmen not only to earn their living but also to expand their business activities by reinvesting a part of the profits.

In order to achieve this primary objective, certain other objectives are also necessary to be pursued by business, which are as follows: Creation of customers A business unit cannot survive unless there are customers to buy the products and services. Again a businessman can earn profits only when he provides quality goods and services at a reasonable price. For this it needs to attract more customers for its existing as well as new products. This is achieved with the help of various marketing activities.

Regular innovations Innovation means changes, which bring about improvement in products, process of production and distribution of goods. Business units, through innovations, are able to reduce cost by adopting better methods of production and also increase their sales by attracting more customers because of improved products. Reduction in cost and increase in sales gives core profit to the businessman.

Best possible use of resources To run any business one must have sufficient capital and funds. The amount of capital may be used to buy machinery, raw material, employ men and have cash to meet day to day expenses. Thus, business activities require various resources like manpower, materials, money and machines. The availability of these resources is usually limited. Thus, every business should try to make best possible use of these resources. This objective can be achieved by employing efficient workers, making full use of machines and minimising wastage of raw materials.

2.5.2 Social Objectives Social objectives are those objectives of business, which are desired to be achieved for the benefit of the society. Since business operates in a society by utilising its scarce resources, the society expects something in return for its welfare. No activity of the business should be aimed at giving any kind of trouble to the society. If business activities lead to socially harmful effects, there is bound to be public reaction against the business sooner or later. Social objectives of business include production and supply of quality goods and services, adoption of fair trade practices and contribution to the general welfare of society and provision of welfare amenities.
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Production and supply of quality goods and services Since business utilises various resources of the society, the society expects to get quality goods and services from the business. The objective of business should be to produce better quality goods and supply them at the right time and at a right price. It is not desirable on the part of the businessman to supply adulterated or inferior goods which cause injuries to the customers. They should charge the price according to the quality of the goods and services provided to the society. Again, the customers also expect timely supply of all their requirements. So it is important for every business to supply those goods and services on a regular basis.

Adoption of fair trade practices In every society, activities such as hoarding, black-marketing and over-charging are considered undesirable. Besides, misleading advertisements often give a false impression about the quality of products. Such advertisements deceive the customers and the businessmen use them for the sake of making large profits. This is an unfair trade practice. The business unit must not create artificial scarcity of essential goods or raise prices for the sake of earning more profits. All these activities earn a bad name and sometimes make the businessmen liable for penalty and even imprisonment under the law. Therefore, the objective of business should be to adopt fair trade practices for the welfare of the consumers as well as the society.

Contribution to the general welfare of the society Business units should work for the general welfare and upliftment of the society. This is possible through running of schools and colleges for better education, opening of vocational training centres to train people to earn their livelihood, establishing hospitals for medical facilities and providing recreational facilities for the general public like parks, sport complexes, etc.

2.5.3 Human Objectives Human objectives refer to the objectives aimed at the well-being as well as fulfilment of expectations of employees as also of people who are disabled, handicapped and deprived of proper education and training. The human objectives of business may thus include economic well-being of the employees, social and psychological satisfaction of employees and development of human resources. Economic well being of the employees In business, employees must be provided with fair remuneration and incentives for performance, benefits of provident fund, pension and other amenities like medical facilities, housing facilities, etc. By this they feel more satisfied at work and contribute more for the business.

Social and psychological satisfaction of employees It is the duty of business units to provide social and psychological satisfaction to their employees. This is possible by making the job interesting, challenging, putting the right person in the right job reducing the monotony of work. Opportunities for promotion and advancement in career should also be provided to the employees. Further, grievances of employees should be given prompt attention and their suggestions should be considered seriously when decisions are made. If employees are happy and satisfied they can put their best efforts in work.

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Development of human resources Employees as human beings always want to grow. Their growth requires proper training as well as development. Business can prosper if the people employed can improve their skills and develop their abilities and competencies in course of time. Thus, it is important that business should arrange training and development programmes for its employees.

Well-being of socially and economically backward people Business units being inseparable parts of society should help backwards classes and also people those are physically and mentally challenged. This can be done by arranging vocational training programmes which may improve the earning capacity of backward people in the community. While recruiting the staff, preference should be given to physically and mentally challenge persons by the business.

2.5.4 National Objectives Being an important part of the country, every business must have the objective of fulfilling national goals and aspirations. The goal of the country may be to provide employment opportunity to its citizens, earn revenue for its exchequer, become self-sufficient in production of goods and services, promote social justice, etc. Business activities should be conducted keeping these goals of the country in mind, which may be called national objectives of business. The following are the national objectives of business. Creation of employment One of the important national objectives of business is to create opportunities for gainful employment of people. This can be achieved by establishing new business units, expanding markets, widening distribution channels, etc.

Promotion of social justice As a responsible citizen, a businessman is expected to provide equal opportunities to all persons whom he deals with. He is also expected to provide equal opportunities to all the employees to work and progress. Towards this objective special attention must be paid to weaker and backward sections of the society.

Production according to national priority Business units should produce and supply goods in accordance with the priorities laid down in the plans and policies of the Government. One of the national objectives of business in our country should be to increase the production and supply of essential goods at reasonable prices.

Contribution to the revenue of the country The business owners should pay their taxes and dues honestly and regularly. This will increase the revenue of the government, which can be used for the development of the nation.

Self-sufficient and export promotion To help the country to become self-reliant, business units have the added responsibility of restricting import of goods. Besides, every business units should aim at increasing exports and adding to the foreign exchange reserves of the country.
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2.5.5 Global Objectives Earlier India had a very restricted business relationship with other nations. There was a very rigid policy for import and export of goods and services. But now-a-days, due to liberal economic and import/export policy, restrictions on foreign investments have been largely abolished and duties on imported goods have been substantially reduced. This change has brought about increased competition in the market. Today; because of globalisation the entire world has become a big market. Goods produced in one country are readily available in other countries, so, to face the competition in the global market every business has certain objectives in mind, which may be called the global objectives. Raise general standard of living Growth of business activities across national borders makes available quality goods at reasonable prices all over the world. The people of one country get to use similar types of goods that people in other countries are using. This improves the standard of living of people.

Reduce disparities among nations Business should help to reduce disparities among the rich and poor nations of the world by expanding its operations. By capital investment in developing as well as underdeveloped countries it can foster their industrial and economic growth.

Make available globally competitive goods and services Business should produce goods and services which are globally competitive and have huge demand in foreign markets. This will improve the image of the exporting country and also earn more foreign exchange for the country.

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Summary
Strategy is the direction and scope of an organisation over the long term, which achieves advantage for the organisation through its configuration of resources within a challenging environment, to meet the need of markets and to fulfil stakeholder expectations. It is a managements game plan for strengthening the performance of the enterprise. Strategy is significant because it is not possible to foresee the future. Strategy deals with long term developments rather than routine operations. Business policy defines the scope or spheres within which decisions can be taken by the subordinates in an organisation. Business policies are the guidelines developed by an organisation to govern its actions. A business policy is an implied overall guide setting up boundaries that supply the general limit and direction in which managerial action will take place. Marketing, Financial and Personnel are three types of policies. An objective of business means the purpose for which the business is established. Economic objectives of business refer to the objective of earning profit and also other objectives that are necessary to be pursued to achieve the profit objective, which includes creation of customers, regulating innovations and best possible use of available resources. Social objectives are those objectives of business, which are desired to be achieved for the benefit of the society. Human objectives refer to the objectives aimed at the well-being as well as fulfilment of expectations of employees as also of people who are disabled, handicapped and deprived of proper education and training.

References
Dr. Reddy, P. N., 2007. Strategic Management. 2nd ed., Himalaya Publishing House. Aaker, D. A., 2001. Developing Business Strategies. 6th ed., Wiley. Business Strategy, [Online] Available at: <http://www.tutor2u.net/business/strategy/what_is_strategy.htm> [Accessed 14 May 2013]. Strategy - Definition and Features, [Online] Available at: <http://www.managementstudyguide.com/strategydefinition.htm> [Accessed 14 May 2013]. Business Strategy, [Video online]Available at: <http://www.youtube.com/watch?v=2fUIQhFjuWg> [Accessed 14 May 2013]. The Five Components of a Business Strategy, [Video online]Available at: <http://www.youtube.com/ watch?v=BnNW5VViGJs> [Accessed 14 May 2013].

Recommended Reading
Ghosh, P. K., 1996. Business Policy Strategic Planning and Management. 2nd ed., Sultan Chand & Sons. Litman, J., 2008. Driven: Business Strategy, Human Actions, and the Creation of Wealth. 1st ed., Strategy & Execution, LLC. Robinson, R. B. & Pearce, J., 2007. Strategic Management: Formulation, Implementation, and Control. 10th ed., McGraw-Hill.

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Self Assessment
1. Which of the following statements is false? a. Strategy is about the direction where the business is trying to get to in the long term. b. Strategy is about the market in which a business should compete in and the scope of the activities that are to be involved. c. Strategy is about the environmental factors that affect the businesses ability to compete. d. Strategy is about the direction where the business is trying to get to in the short term. 2. Strategy is a/an ____________ game plan for strengthening the performance of the enterprise. a. financial b. organisations c. managements d. CEOs 3. Without a ___________, management has no roadmap to guide them. a. strategy b. plan c. business d. enterprise 4. Strategy deals with ___________ developments rather than routine operations. a. long term b. short term c. periodic d. yearly 5. What is concerned with the overall purpose and scope of the business to meet stakeholder expectations? a. Business unit strategy b. Corporate strategy c. Operational strategy d. Business policy 6. Which of the following statements is true? a. Operational strategy is concerned more with how a business competes successfully in a particular market. b. Business policy is concerned more with how a business competes successfully in a particular market. c. Business unit strategy is concerned more with how a business competes successfully in a particular market. d. Corporate strategy is concerned more with how a business competes successfully in a particular market. 7. What focuses on issues of resources, processes and people? a. Operational strategy b. Business strategy c. Corporate strategy d. Business policy

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8. Which of the following statements is true? a. Business strategy defines the scope or spheres within which decisions can be taken by the subordinates in an organisation. b. Corporate policies are the guidelines developed by an organisation to govern its actions. c. Business policy defines the scope or spheres within which decisions can be taken by the subordinates in an organisation. d. Business policies are the guidelines developed by CEO of the organisation to govern its actions. 9. What is the basic attitude underlying a companys marketing activity known as? a. Business policy b. Financial policy c. Economic objective d. Marketing policy. 10. Which of the following statements is false? a. Social objectives are those objectives of business, which are desired to be achieved for the benefit of the society. b. Economic objectives of business refer to the objective of earning profit and also other objectives that are necessary to be pursued to achieve the profit objective, which includes creation of customers, regulation innovations and best possible use of available resources. c. Global objectives refer to the objectives aimed at the well-being as well as fulfilment of expectations of employees as also of people who are disabled, handicapped and deprived of proper education and training. d. Human objectives refer to the objectives aimed at the well-being as well as fulfilment of expectations of employees as also of people who are disabled, handicapped and deprived of proper education and training.

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Chapter III Strategic Management for Business

Aim
The aim of this chapter is to: introduce the concept of strategic management explain the need for strategic management explain the concept of strategy formulation

Objectives
The objectives of this chapter are to: enlist limitations of strategic management explain strategic management process elucidate the benefits of strategic management

Learning outcome
At the end of this chapter, you will be able to: define strategic management understand the benefits and limitations of strategic management describe environmental scanning

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3.1 Introduction
Strategic management is the process of specifying an organisations objective, developing policies and plans to achieve these objectives, and allocating resources so as to implement the plans. It is the highest level of managerial activity, usually performed by the companys Chief Executive Officer (CEO) and executive team. It provides overall direction to the whole enterprise. An organisations strategy must be appropriate for its resources, circumstances and objectives. The process involves matching companies strategy advantages to the business environment. One objective of an overall corporate is to put the organisation into a position to carry out its mission effectively and efficiently. A good corporate strategy should integrate an organisations goals, policies and action sequences into a cohesive whole.

3.2 Need for Strategic Management

A companys strategy provides a central purpose and direction to the activities of organisation. Company must employ strategies to accomplish its basic objectives. These strategies must be clearly communicated to the people working in the organisation. Need for strategic management is felt for the following reasons. 3.2.1 Due to Change Organisation exists within external environment. Changes will keep happening in the external environment. Changes make planning difficult. Strategic management helps the top executives to forecast changes well in advance and to take advantage of the opportunities and reduce the risk. 3.2.2 Provides Guidelines Strategic decision is the basis for the formulation of sub strategies. Operational strategies are formulated based on the strategic decisions. Strategic decision provides a framework within which all supporting decisions should be formulated. 3.2.3 Better Performance Better performance is always related to formulation of better strategies and policies. Therefore, it is true that business which plan strategically have a higher probability of success than those which do not. 3.2.4 Improved Allocation of Resources Strategic management helps in better resource allocation of an organisation. Strategic management matches activities with the available resources. Reallocation of resources will take place whenever there is a change in the strategy due to change in the environment in which the organisation operates. 3.2.5 Competitive Advantage Strategic management aims at gaining a sustainable competitive edge for the firm. Strategic management includes the nature and extent of competition and exploits available opportunities. This certainly helps the organisation to gain competitive edge over the competitors. 3.2.6 Provides Holistic Approach Strategic management helps managers to understand the organisation completely. This helps managers to have holistic approach towards business problems. 3.2.7 Improved Integration Strategic management provides an integrated approach to the decision making process which provides a framework for decision making. Strategic management formulates decision to cover all functional areas and different activities intended to accomplish organisational goals. 3.2.8 Systematise Business Decisions Strategic management exercises systematic and disciplined approach towards policy making. It relates to the enterprise as a whole. Thus, strategic planning is a forward-looking exercise which determines the future directions of the enterprise with special reference to its product-market, profitability, size, rate of innovation and external institutions.
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3.3 Strategic Management Process

Strategic management decision involves four basic elements: Environmental scanning Strategy formulation Strategy implementation Evaluation and control

3.3.1 Environmental Scanning Environmental Scanning is the monitoring, evaluating and disseminating of information from the external and internal environment to the key people within the organisation. Purpose of it is to identify strategic factors. Strategic factors here refer to those external and internal elements that will determine the future of the organisation. The simplest way to conduct environmental scanning is through SWOT (Strength, Weakness, Opportunities and Threats) analysis. Opportunities and threats are the elements of external environment over which organisation does not have any control. Strength and weaknesse are the variables of the internal environment. These include available resources, culture, organisational structure, etc. Based on the opportunities, organisation can use its available core competencies to gain competitive advantage over its competitors. Proper blend of organisational resources certainly help the organisation to exploit the opportunities and minimise the weaknesses. 3.3.2 Strategy Formulation Development of long term plans for the effective management of environmental opportunities and threats, in the light of corporate strengths and weakness is called strategy formulation. Strategy formulation includes defining corporate mission, specifying objectives, developing strategies and setting policy guidelines. Mission An organisations mission is the purpose or reason for the organisations existence. It tells what the company is providing to society - service or a product. Mission statement clearly specifies the purpose of the organisation. Mission statement describes what the organisation is now and what it would like to become. Therefore, mission of business provides a statement to insiders and outsiders of what the company stands for.

Objectives Objectives are formulated to accomplish organisation mission. Objectives can be defined as the long term results that an organisation seeks to achieve in pursuing its basic mission. Objectives should not be static, they should be dynamic. That is, changes in the environment or the changes in the organisational strengths and weakness may call for modification to objectives. Objectives are operational definitions of the organisations goals. They provide measurable parameters for evaluating the performance of the organisation.

Importance of objectives Objectives indicate the purpose and aims and thereby the social justification for the existence of an organisation. Objectives provide directions for the functioning of an organisation. Objectives help an organisation to adjust itself to the existing environment. Objectives help in attaining employees co-ordination and thereby reduce conflicts. By making clear what the result should be, objectives provide the basis for control and assessment of organisational performance. Objectives help decentralisation by assigning decision making to lower level personnel.

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Features of objectives Objectives should be understandable Objectives should not be weak and ambiguous. They should be expressed clearly. Also, this should be made clearly known to the people who work for their accomplishment. Objectives should be related to the time frame Objectives must specify the time frame within which the stated objectives must be achieved. Objectives should be specific Objectives should state what exactly the company is trying to achieve within a specified time. Participation To the possible extent, formulation of objectives should involve in the participation of important people responsible for the accomplishment of the objectives. The sense of participation will provide morale, motivation and a moral responsibility for the achievement of the objectives. Objectives must be realistic Objectives should be reasonable and realistic in the sense that they should be achievable taking the existing environment into consideration. Consistency Objectives should be mutually consistent throughout the organisation. If objectives are set concentrating on one area disregarding other areas, it will lead to problems. Therefore, different objectives of various functional areas should correlate with each other and they must be mutually supportive to accomplish the overall objectives. Measurability Objectives should be capable of being measured. To measure the performance of an objective it should be clearly defined either in quantitative or qualitative terms. Flexibility Objectives should not be very rigid. It must provide scope for flexibility. Changes in the environment or changes in organisation strengths and weaknesses may call for modifications to the objectives. Ranking An organisation with multiple objectives should assign relative priorities and indicate the time frame within which these objectives must be attained.

Strategic intent A strategic intent is a companys vision of what it wants to achieve in the long term. It must convey a significant stretch for a company, a sense of direction, discovery, and opportunity that can be communicated as worthwhile to all employees. It should not focus so much on todays problems, which are normally dealt with by company visions and missions, but rather on tomorrows opportunities. 3.3.3 Strategy Implementation Strategy implementation is the process by which strategy and policies are put into action through the development programs, budgets and procedures. Programs A program is a statement of activities or steps needed to accomplish a single used plan. It takes the action oriented strategy. It may involve restructuring the organisational change in the internal culture, etc. Budgets A budget is a statement of organisations programs in numeric terms. Budgets are expressed in financial terms. Budget lists the detailed cost of each program. There may be different budgets like capital expenditure budget, sales budget, cash budget, etc. Procedures Procedures are a system of sequential steps that describe in detail how a particular task is to be done. They are stated in detail to avoid confusion and duplication. Procedures define step by step execution of different activities. Hence, procedures can be defined as a series of related steps expressed in chronological order to achieve a specific purpose.

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3.3.4 Evaluation and Control Performance is the end result of activities. It includes the actual outcomes of strategic management process. The performance of strategic management is justified in terms of its ability to improve an organisations performance, typically measured in terms of profits and return on investment (ROI). For evaluation and control to be effective, managers must obtain clear, prompt and unbiased information from the people below them in organisational hierarchy. Using this information, managers compare the actual performance with the expected ones. Evaluation and control is the process in which corporate activities and performance results are monitored with an intention of comparing actual performance with desired performance. Managers at all levels use the information collected to take corrective action. The evaluation and control function complete the strategic management model. Based on performance result, management may need to make adjustments in its strategy formulation, implementation or both.

3.4 Benefits of Strategic Management

Following are some of the benefits of strategic management. 3.4.1 Proactive Approach Strategic management helps an organisation to be proactive rather than reactive. Strategic management evaluates opportunities and threats outside the organisation and prepare the organisation to face the future well in advance. Strategic management helps in formulating machine and make objectives clear. 3.4.2 Facilitates Better Delegation Strategic management helps in better delegation and co-ordination. Executives working at the lower levels can formulate their respective functions and operational strategies within the board framework of the organisational strategy. 3.4.3 Exploiting Opportunities Strategic management helps a company to adopt suitable strategies for exploiting opportunities and fight threats. It will also help the company to drop those businesses which are not successful or which do not meet their objectives. 3.4.4 Assists in Realistic and Effective Plans Strategic management will help the company to have constant watch on the environment to identify changes and to modify the strategy when required. Based on these modifications executives are allowed to formulate their policies to suit the modified corporate strategy. This leads to formulations of realistic and effective plans. 3.4.5 To Gain Competitive Advantage Strategic management enables a company to meet competitions more effectively. Careful understanding of changes in the external environment including completion helps the policy makers to frame policies to explore and exploit opportunities for the organisational benefit. Quick adaptation to the changing environment helps the company to gain competitive edge over competitors 3.4.6 Minimises Weaknesses Every organisation will have both strengths and weaknesses. Prudent strategy maker converts these weaknesses into strength reinforcing appropriate strategies. Earlier identification of weakness helps an organisation to reduce it through proper measures. 3.4.7 Promotes Employees Participation Top level management formulates overall objective and develops corporate strategy based on the objectives to be accomplished. Operational functional policies are formulated by the executives working at the bottom line. This in turn helps in employee participation to a greater extent.
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3.4.8 Boost Profits Number of research studies has suggested that a well designed strategic management can boost profits. Strategic management helps in identifying, evaluating and adopting best course of action from out of the alternatives available. This careful selection helps the company to go for improved action which would really improve the profitability of the organisation. 3.4.9 Systematic Approach for Management Decision Well designed strategic management adopts system approach to problem solving. It concentrates on all functional areas of the organisation. It establishes co-ordination and integration between these functional areas. Strategic management designs appropriate authority and responsibility for each functional area. This leads to systematic allocation of organisational resources based on priority and urgency. 3.4.10 Empowerment of Employees Strategic management helps the organisation to achieve commitment from all the members of the organisation. This commitment helps managers and employees to become more creative and innovative. This process results in employee empowerment which in turn increases organisational effectiveness.

3.5 Limitations of Strategic Management

Strategic management is not free from limitations. Strategic management has many advantages. Many firms fail despite adopting strategic management and many firms which do not have strategic management are successful. In short, strategic management by itself does not ensure success. Following are the limitations of strategic management: Strategic management decisions are based on certain assumptions. If these assumptions are not valid, the plans based on them would not be realistic. Strategic management is a means to achieve organisational mission or objectives. If mission or objectives are unrealistic, strategy formulated based on these objectives will also turn out to be unrealistic. Sometimes it argues that strategic management makes an organisation over-ambitious. This over-ambitiousness leads to organisational failure. Strategic management uses SWOT analysis as a powerful tool for making suitable strategies. If this SWOT analysis is not right, strategy formulated to address the opportunities and kill threats is a failure. Strategic management decisions are based on environmental factors. Company do not have any control over external environment. Sudden changes call for alteration of strategies formulated earlier. Frequent changes in strategy reduce confidence of employees. Success of strategic management is dependent not only on the strategy formulation but also on affective implementation. If implementation is not effective, even an excellent strategy would not produce excellent result. Many strategies fall at implementation phase. It is also argued that strategic management is a costly exercise. An elaborate exercise is needed to identify opportunities, understand weaknesses and threats. This also calls for analysis and implementation of best course of alternative. Strategic planning is a complex and difficult task. It requires people with vision, commitment and expertise. For the proper implementation, appropriate system must also exist. As mentioned earlier, strategic management provides for flexibility. It means that strategies will be reviewed and modified based on the change in the environment. People may resist adopting these changes frequently.

3.6 Strategies and their Role in Strategic Management

Following are the strategies and their role in strategic management: Strategy is determination of basic long-term goals and objectives of an enterprise and the adoption of courses of action and the allocation of resources for carrying out these goals. The success of strategy mainly depends on the skill, experience and analytical observations of the executive who is supposed to create and implement it.
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Executive in charge of strategy must know the principles of management, effect of business cycles and internal working condition. In addition, (s)he must also know government policy and existing competition. The executive cannot ignore human aspects in organisation. Corporate strategy can be made successful if all these factors are incorporated in it.

3.7 Role of Strategy in Strategic Management

Following are some roles of strategy in strategic management. 3.7.1 Deliberate Attempt to Counteract Actions of Opponents Strategies are deliberate attempts made by the management to win over its competitors. Strategies are formulated after carefully evaluating external environment including competition. External opportunities and threats are effectively addressed using internal strengths and resources. 3.7.2 Emergence of Tactful Decision Strategies are determined sufficiently in advance having considered companys policies and objectives so that tactful decisions and actions can be taken to accomplish them. Strategies help an organisation to prepare them in advance to face possible future happenings. Strategies help an organisation to prepare them in advance to face possible future happenings. 3.7.3 Creates System Approach Strategy is formulated on the basis of system approach. System approach is the overall planning of corporate enterprise concerned with configuring and directing the resource-conversion process. In this system, the interest and purpose of the total enterprise is given importance over departmental claims in determining objectives, priorities and resource allocation. 3.7.4 Helps in Formulating General Policies Strategy of an organisation is the basis for the formulation of all other policies. In order to translate strategic plans into action operating plans are formulated. Strategy gives framework within which other plans can be formulated. 3.7.5 Provides Integrated Approach Corporate strategy takes into consideration all functional areas needed to accomplish basic objectives of the organisation. Therefore, it provides a mechanism for the interrelated parts to be co-ordinated. It supplies an integrated framework within which each of the functional plans and divisional are integrated and all are tied together into overall plans of the organisation. 3.7.6 Minimises Risk Strategies act as powerful tool in the hands of top management. They reduce business risk and insecurity that are expected on account of complexity of business operations and other social and political contingencies. 3.7.7 Optimum Use of Organisational Resources Strategy helps in structuring the companys human resources for maximum potential performance. The plan lists specific decisions pertaining to structuring of authority and responsibility relationships, workflows, information flows and flow of other resources. 3.7.8 Continues Review Strategy formulation is a continuous dynamic process. Strategy is reviewed and modified or reframed to suit the changed environment. Strategies should be modified and implemented at right time to extract available opportunities to the maximum.

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3.8 Reasons behind Failure of Strategic Management

Following are the resaons for failure of strategic management: Strategy is concerned with future course of action and the future being uncertain due to various reasons, definite strategy cannot be determined. It is likely to be erroneous if adopted. Hence, it leads to failure of strategic management. Business cycles, government rules, competitors role, etc, make strategy planners weak and force them to change strategy very often. Frequent changes indicate poor planning and then the management loses faith in strategy programme. Risk involved in the implementation of a strategy is more since strategy involves long-range planning which is subject to greater degree of uncertainty. As a result of it, strategy is likely to be erroneous. Success of strategy depends on the joint efforts and co-operation of people in the organisation and in practice, it is seldom expected and therefore, there are more unforeseen impediments in the successful implementation of the strategy. Conflicts between managers goals and the company goals may be an additional impediment. Because of such conflict, the manager is likely to use his/her own strategy which may defeat the overall strategy of the company. Management is generally reluctant either to drop or modify the predetermined strategy for achieving the benefits of market opportunities. Management, therefore, depends on short-term benefits, which could have been a change in the established strategy. To communicate, a strategy requires as much trouble and time as to conceive it. Under changing circumstances, strategy becomes obsolete unless it is suitably modified. Process of Strategic Management Analysing Current Situation Situation Analysis Feedback Deciding on Strategies Strategy Formulation Putting Strategies in Action Strategy Implementation Evaluating Changing Strategies Evaluation and Control

External/ Internal Analysis Corporate strategic intent

Strategic Intent

Management Issues

Organisation Issues

Business Functional Issues

Competitive Strategy

Fig. 3.1 Process of strategic management

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Summary
Strategic management is the process of specifying an organisations objective, developing policies and plans to achieve these objectives, and allocating resources so as to implement the plans. Strategic management helps the top executives to forecast changes well in advance and to take advantage of the opportunities and reduce the risk. Strategy formulation includes defining corporate mission, specifying objectives, developing strategies and setting policy guidelines. A strategic intent is a companys vision of what it wants to achieve in the long term. A budget is a statement of organisations programs in numeric terms. Budgets are expressed in financial terms. The performance of strategic management is justified in terms of its ability to improve an organisations performance, typically measured in terms of profits and return on investment (ROI). Top level management formulates overall objective and develops corporate strategy based on the objectives to be accomplished. Success of strategic management is dependent not only on the strategy formulation but also on affective implementation. Executive in charge of strategy must know the principles of management, effect of business cycles and internal working condition. Risk involved in the implementation of a strategy is more since strategy involves long-range planning which is subject to greater degree of uncertainty. Success of strategy depends on the joint efforts and co-operation of people in the organisation and in practice, it is seldom expected and therefore, there are more unforeseen impediments in the successful implementation of the strategy.

References
Harrison, J. S., 2009. Foundation in Strategic Management. 5th ed., South-Western College Pub. Hunger, J. D., 2006 Essentials of Strategic Management. 4th ed., Prentice Hall. THE STRATEGIC MANAGEMENT PROCESS, [Pdf] Available at: <http://www.romans-group.com/pdfs/crafting. pdf>[Accessed 14 May 2013]. The Strategic Management Process, [Pdf] Available at: <http://sbaer.uca.edu/publications/strategic_management/ pdf/04.pdf>[Accessed 14 May 2013]. 2012, Introduction to Strategic Management [Video online]Available at: <http://www.youtube.com/ watch?v=rJ2tmqRkiCM> [Accessed 14 May 2013]. 2008. Strategic Management , 2012. [Video online]Available at: <http://www.youtube.com/ watch?v=5b6QacnMFsw> [Accessed 14 May 2013].

Recommended Reading
Hoskisson, R. E., 2006. Strategic Management Concepts. 7th ed.,South-Western College Pub. Greer, C. R., 2000. Strategic Human Resource Management: A General Managerial Approach. 2nd ed., Prentice Hall. Thompson, J. L., 1997. Strategic Management: Awareness and Change. 2nd ed., International Thompson Business Press, London.

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Self Assessment
1. Which of the following statements is false? a. A companys strategy provides a central purpose and direction to the activities of organisation. b. Strategic management including the nature and extent of competition and exploits available opportunities. c. Strategic management exercises systematic and disciplined approach towards policy making. d. Strategic formulation exercises systematic and disciplined approach towards policy making. 2. What are expresses in financial terms? a. Budgets b. Profits c. Loses d. Strategies 3. Strategic management helps the _________ to forecast changes well in advance and to take advantage of the opportunities and reduce the risk. a. middle level management b. first line management c. top executives d. CEO 4. Which of the following statements is false? a. The simplest way to conduct environmental scanning is through SWOT analysis. b. Opportunities and threats are the elements of external environment over which organisation does not have any control. c. Strength and weaknesses are the variables of the external environment. d. Strength and weaknesses are the variables of the internal environment. 5. _______ statement clearly specifies the purpose of the organisation. a. Strategic b. Mission c. Vision d. Management 6. ________ are operational definitions of the organisations goals. a. Strategic statement b. Strategic intent c. Objectives d. Mission statement

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7. Which of the following statements is true? a. Strategic statement should not focus so much on todays problems, which are normally dealt with by company visions and missions, but rather on tomorrows opportunities. b. Strategic panning should not focus so much on todays problems, which are normally dealt with by company visions and missions, but rather on tomorrows opportunities. c. Strategic intent should focus so much on todays problems, which are normally dealt with by company visions and missions, but rather on tomorrows opportunities. d. Strategic intent should not focus so much on todays problems, which are normally dealt with by company visions and missions, but rather on tomorrows opportunities. 8. What involve restructuring the organisation change in the internal culture? a. Programs b. Procedures c. Budgets d. Profits 9. _________ helps a company to adopt suitable strategies for exploiting opportunities and fight threats. a. Strategic formulation b. Strategic planning c. Strategic management d. Strategic intent 10. _________ is a continuous dynamic process. a. Strategic planning b. Strategy formulation c. Strategic management d. Strategic intent

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Chapter IV Corporate Strategy

Aim
The aim of this chapter is to: introduce the concept of corporate strategy explain corporate planning elucidate the essentials of corporate planning

Objectives
The objectives of this chapter are to: explain various corporate strategies explicate the concept of corporate policy and its features explain the steps in formulation of policy

Learning outcome
At the end of this chapter, you will be able to: identify factors leading to the need for corporate management describe various types of corporate policy understand corporate strategy

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4.1 Introduction
Corporate management is a broad phenomenon and covers a wide spectrum of activities. It is the direction an organisation takes with the objective of achieving business success in the long term. Recent approaches have focused on the need for companies to adapt to and anticipate changes in the business environment, i.e., a flexible strategy. The development of a corporate strategy involves establishing the purpose and scope of the organisations activities and the nature of the business it is in, taking the environment in which it operates, its position in the marketplace, and the competition it faces into consideration; mostly analysed through a SWOT analysis.

4.2 Corporate Strategy

Corporate strategy is related mostly to external environment. Corporate strategy is formulated at the higher level of management. At operational level, operational strategies are also formulated. It requires systems and norms for its efficient adoption in any organisation. Corporate strategy is concerned with a unified direction and efficient allocation of organisational resources and encompasses the entire management process. It is also concerned with the choice of alternatives, determination of future course of action, mobilisation of resources and deployment of resources for attainment of goals. It is both short term and long term. It is related to all levels of management. Strategic issues, however, are related to top management. Corporate strategy is concerned with coping uncertain future with active intervention. It is based on various types of plan namely, strategic plan, functional plan, operating plan, organisational plan, etc. It is all pervasive and integrated. 4.2.1 Scope of Corporate Management The term corporate management is an extension of the term corporate planning and also includes implementation and control aspects. More specifically, the scope of corporate management is spread over different areas. They are as follows: Role of top management in corporate governance. Code of conduct including audit committee, governance committee, etc. Competitive scenario for dynamic and global markets. Market structures and network externalities. Strategic enablers like IT, R&D, knowledge and innovations, etc. Corporate social responsibility including ethics, values and social audit. Philanthropy as a strategic choice.

4.3 Corporate Planning

Corporate planning is a comprehensive planning process which involves continued formulation of objectives and the guidance of affairs towards their attainment. It is undertaken by top management for the company as a whole on a continuous basis. According to Hussey Corporate long range planning is not a technique, it is a complete way of running a business. Corporate planning is a way of keeping the companys eye open. The object of corporate planning is to identify new areas of investments and marketing. The purpose of corporate planning process is to formulate the organisations mission. Objectives, goals, policies, programme strategies and major action plans to achieve its objectives. 4.3.1 Essentials of Corporate Planning Following are the essentials of corporate planning: Corporate planning deals with the future of current decisions. The process of corporate planning integrates strategic planning with short range operational plans. A few authorities use comprehensive corporate planning, strategic planning, long range planning, formal planning, corporate planning, etc, as synonymous to each other. Corporate planning is viewed as an organisational process resulting in developing strategic intent and action plans to achieve the objectives.

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4.3.2 Steps of Corporate Planning Process Following are the steps of corporate planning process: Formulation of strategic intent Environmental appraisal General of strategic alternatives Evaluation of alternatives Decisions in terms of strategy, policies and programmes

4.3.3 Benefits of Corporate Planning Following are the benefits of corporate planning: Corporate planning ensures a rational allocation of resources and improves co-ordination between various units or divisions. With corporate planning, significant improvement in performance is reflected. A formal planning system can help the management in responding to a dynamic environment and in managing a strategically complex organisation with limited resources. With corporate planning, a sense of making a systematic and critical review of business is developed. This develops a visionary approach. A habit of forward thinking is encouraged in forward planning.

4.3.4 Reasons Attributed to the Failure of Corporate Planning Following are the reasons attributed to the failure of corporate planning: Failure to keep the corporate planning system simple. Failure to develop awareness about corporate planning process in the organisation. A low status is given to a planner by the Chief Executive. Failure to modify the corporate planning system with the charging conditions in the company. Planner has only a part time interest in planning. Insufficient time is provided in the corporate planning process.

4.3.5 Prerequisites for Success in Corporate Planning Following are the prerequisites for success in corporate planning: The chief executive must be totally committed and involved in the corporate planning process. Participation of those executives who would be responsible for implementation must be ensured. The process of corporate planning should be introduced on continuous basis to cope with ever changing environmental factors. The executives must understand that the real purpose of corporate planning is to provide direction to the organisation.

4.4 Need for Corporate Management

Following points enlist the need of corporate management: Scarcity of resources Fast technological changes Changing human values Multiplicity of stake holders Growing competition Liberalisation, privatisation and globalisation Growing scale of business operations
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Faster and quicker modes of transportation and communication Professionalism in management

4.5 Components of Corporate Strategy

The major components of corporate strategy are purpose and objectives, vector, competitive advantage, synergy, personal values and aspirations and social obligations. 4.5.1 Objectives Corporate objectives should be stated in such a way that they may provide a clear idea about the scope the enterprises business. Objectives give direction for which action plan is formulated. Objectives are open-ended attributes denoting a future state. Objectives translate the purpose into goals. An objective should be: with a timeframe attainable challenging understandable measurable and controllable

For having clarity in objectives, the business domain is defined specifically in terms of a product class, technology, customer group, market need or some other combination. 4.5.2 Vector Vector gives directions within an industry and across industry boundaries which the firm proposes to pursue. If an organisation has the objective to maximum sales, the series of decisions will be to enhance salesmans commission, release nationwide advertisement, introduce total quality management and introduce new product range. Vector signifies that a series of decisions are taken in the same direction to accomplish the objectives. 4.5.3 Competitive Advantage Corporate strategy is relative in nature. In the formulation of corporate strategy, the management should isolate unique features of the organisation. The steps to be taken must be competitively superior. While making plans, competitors may be ignored. However when we formulate corporate strategies, we cannot ignore competitors. If an organisation does not look at competitive advantage, it cannot survive in a dynamic environment. This aspect builds internal strength of the organisation and enhances the quality of corporate strategy. 4.5.4 Synergy Synergy means measurement of the firms capability to take advantage of a new product market move. If decisions are made in the same directions to accomplish the objectives there will be synergic impacts. The corporate strategy will give the synergy benefit.

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4.6 Functions of Corporate Strategy

Following are the functions of corporate strategy: It provides a dual approach to problem solving. Firstly, it exploits the most effective means to overcome difficulties and face competition. Secondly, it assists in the deployment of scarce resources among critical activities. It focuses attention upon changes in the organisational set up, administration of organisational process affecting behaviour and the development of effective leadership. It offers a technique to manage changes. The management is totally prepared to anticipate, respond and influenced to look at changes. It also offers a different way of thinking. It furnishes the management with a perspective whereby, the latter gives equal importance to present and future opportunities. It provides the management with a mechanism to cope with highly complex environment characterised by diversity of cultural, social, political and competitive forces.

4.7 Kinds of Corporate Strategy

There are four grand strategic alternatives. They are stability, expansion, retrenchment and any combination of these three. These strategic alternatives are also called grand strategies. 4.7.1 Stability Strategy It is adopted by an organisation when it attempts to improve functional performance. They are further classified as follows: No change strategy Profit strategy Pause/Proceed with caution strategy

4.7.2 Expansion Strategy It is followed when an organisation aims at high growth. They operate through: Concentration Integration Diversification Co-operation Internationalisation

4.7.3 Retrenchment Strategy It is followed when an organisation aims at a contraction of its activities. It is done through turnaround, divestment and liquidation in either of the following modes: Compulsory winding up Voluntary winding up Winding up under supervision of the court

4.7.4 Combination Strategies They are followed when an organisation adopts a combination of stability, expansion and retrenchment either at the same time in different businesses or at different times in the same business.

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4.8 Significance of Corporate Strategy

Following points illustrates the significance of Corporate Strategy: Corporate strategy rationalises allocation of scarce resources. Corporate strategy motivates employees examples to shape their work in the context of shared corporate goals. Strategy assists management to meet unanticipated future changes. Organisational effectiveness is ensured through implementing and evaluating the strategy. Corporate strategy is a powerful tool for the management to deal with the future which is uncertain and hazy in all respects. Corporate strategy improves the capability of management in coping with the volatile external environmental forces. Corporate strategy encourages the management to choose the best course of action to realise the objectives. Strategy planning system provides an objective basis for measuring performance.

4.9 Limitations of Corporate Strategy

Following are the limitations of Corporate Strategy: The process of strategy formulation is not an easy task. The process of forming corporate strategy is complex, cumbersome and complicated. Corporate strategies are useful for long range problems. They are not effective to overcome current exigencies. The corporate strategy formulation process calls for considerable time, money and effort. Developing appropriate corporate strategy is not a simple and economical proposition. For financially weak companies, cost becomes a great hindrance. As future is uncertain and cannot be predicted accurately, the strategic planning system based on hazy and uncertain estimates is not exact. Implementation of corporate strategy is influenced by organisational factors, behavioural factors and motivational factors. The gap between formulation and implementation of corporate strategy does not give desired results to the organisation.

4.10 Concept and Meaning of Corporate Policy

Corporate policy is the guide post to decision making. It helps in the managerial thinking process and thus leads to the efficient and effective attainment of the objectives of any organisation. Corporate policy clarifies the intention of management in dealing with various problems faced. It gives managers a transparent guideline to make appropriate decisions. Corporate policy helps the manager to identify the solution to the problems. It provides the framework in which the decisions are to be taken. Following are the distinct views regarding policies categorised in three board groups: The first category holds the opinion that policy and strategy are synonymous. The second group of experts view that corporate policy is the process of implementing strategy. The third view considers corporate policy to be decisions regarding the future of an organisation.

4.11 Features of Corporate Policy

Following are the features of corporate policy: General statement of principles Policies are general statement of principles followed by corporate for the attainment of organisational objectives. These principles provide a guide to action for the executives at different levels. Long term perspective Corporate policies have a long life and are formulated with a long term perspective. They provide stability to the organisation.

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Achievement of objectives Corporate policy is aimed at the fulfilment of organisational objectives. They provide a framework for action and thus help the executives to work towards the set goals. Qualitative, conditional and general statement Corporate policy statements are qualitative in nature. They are conditional and defined in general manner. These statements use words as to maintain, to follow, to provide, etc. They can be specific at times but most of the times, a corporate policy tends to be general. Guide for repetitive operations Corporate policies are formulated to act as a guide for repetitive day to day operations. They are best as a guide for the activities that occur frequently or repeatedly. Hierarchy Corporate policies have a hierarchy, i.e. for each set of objectives at each level of management there is a set of policies. The top management determines the basic overall policy, then the divisional and / or departmental policies are determined by the middle level management and lower level policies are more specific and have a shorter time horizon than policies at higher levels. Decision making process Corporate policy is a decision making process. In formulating corporate policy one has to make choices and the choice is influenced by the interests and attitudes of managers engaged in making the policies. Mutual application Corporate policies are meant for mutual application by subordinates. They are made for some specific situation and have to be applied by the members of the organisation. Unified structure Corporate policies tend to provide predetermined issues and thus avoid repeated analysis. They provide a unified structure to other types of plans and help managers in delegating authority and having control over the activities. Positive declaration Corporate policy is a positive declaration and a command to its followers. It acts as a motivator for the people following it and thus they work towards the attainment of the objectives effectively. The corporate policy lays down the values which dominate organisations actions.

4.12 Scope of Corporate Policy

Corporate policies are statements of guidelines for corporate thinking and action. They lay down the approach before the management to deal with the challenges in the environment. They cover the following broad areas that affect the decisions of the organisation. Corporate policy consists of a variety of subject that affects various interest groups in the organisation and outside it. Corporate policy is concerned with the various functional areas like production, human resources, marketing and finance. We can understand corporate policy areas in two broad categories namely, major and minor policies. The overall objectives, procedures and control are covered in major policies. These policies are concerned with each and every aspect of the organisation, its structure, its financial status, its production stature, its human resources and all those issues which require attention like mergers, research, expansion, etc. Basically, the top management is involved in the framing of such major policies. Further, the operations and activities are also carried out by executives so that the organisational objectives are met. The minor policies are concerned with each segment of the organisation with emphasis on details and procedures. These policies are part of the major policies. The operational control can be made possible only if the minor policies are implemented efficiently. The minor policies are concerned with the day to day operations and are decided at the departmental levels. The minor policies may cover relations with dealers, discount rates, terms of credit, etc. Thus, corporate policies cover wide range subjects ranging from operational level policies to the top level policies.

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4.13 Classification of Corporate Policies

Below given is the classification of corporate policies. 4.13.1 Classification on the Basis of Scope On the basis of scope of an organisation, policies are classified as follows: Basic policies These are framed by the top management and spell out the basic approach of a company to its activities and its environment. General policies These are framed by the middle management level and are more specific. They apply to large segments of the organisation. Specific policies These are framed by the foremen and supervisors and are very specific in nature. They are applicable to routine activities.

4.13.2 Classification on the Basis of Expression On the basis of expression, corporate policies can either be expressed or implied. Expressed policies: The policies which are expressed in clear words either orally or in writing are the expressed policies. These are most suitable for small organisations. Implied policies: The policies which are understood by the employees, code of conduct or behaviour and are not expressed orally or through written statements are known as implied policies. They flow from philosophy, values and traditions of the organisation.

4.13.3 Classification on the Basis of Level Different policies are formed at different levels of management. They are as follows: Top management policies: These are framed by the top management and it is only responsible for them. The policies are derived from top management planning and top management planning and top management sees that they are put into effect and judge the results. Middle level management policies: These are laid down by the middle level managers and deal with the organisational activities like selection of executives, employee training, deciding processes, methods, techniques, etc. Lower level management: Those people who have direct control over the working force comprise the lower level management. These people set up policies with respect to the accomplishment of tasks of sub divisions of the organisations.

4.13.4 Classification on the Basis of Origin On the basis of origin, policies are classified as follows: Original policies: These policies are formed from the company objectives. These are formed by the top management and the top management is responsible for guiding and directing them and the subordinates are responsible in the attainment of organisation objectives. Appealed policies: These are also called suggested policies because they are made by taking into account the suggestions of subordinates or people who implement these policies. Imposed policies: External forces sometimes force the company to accept certain policies forcibly. These policies are called imposed policies. The external forces could include government rules and suggestions, arguments with trade unions etc. Derivative policies: These policies are operational in nature and are derived from companys major policies. They are made as guidelines to perform day to day operations.

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4.13.5 Classification on the Basis of Functional Areas In an organisation, various functional areas are seen. The policies are classified according to functional areas, i.e. production policies, marketing and sales policies, financial policies and personnel policies. Production policies: These policies are concerned with production of a product, type of technology, equipment, selection of plant layout, location and size, manufacturing cost, inventory control, quality control, etc. Marketing & sales policies: The policies which relate to policies in market analysis, business law, salesmanship and advertising are concerned with total process of marketing mix and product mix. These include decisions with respect to customers, channels of distribution, dealers, sales control, promotion, etc. Financial policies: The success of business depends upon these policies. These consist of policies with respect to capital structure, methods of raising funds, the utilisation of funds, credit policy, dividend decisions, profit policy, costing and accounting policy, etc. Personnel policies: Employees are very important for the organisation and the personnel policies are concerned with issues like recruitment, selection, training and development, promotion and transfer, wages and incentives, etc.

4.13.6 Classification of Policies on the Basis of Nature of Management The main functions of an organisation consist of planning, organising, actuating and controlling. The policies may therefore be classified as planning policies, organising policy, actuating policy and controlling policy. Planning policies: These policies are concerned with the determination of ways to attain the objectives of the organisation. Such policies decide corporate objectives, alternative courses of action, comparison of alternatives, establishment of budgets, schedules, procedures, etc. Organising policies: These policies are concerned with allocation of activities to members of the group so that through their collective efforts, objectives could be achieved. These are those policies which provide issues like organisation structures, authority, responsibility, delegation, centralisation and various relationships. Actuating policies: The actuating policies include providing leadership, integrating tasks and communication and organisation environment. These policies are concerned with organising the employees of the organisation. Controlling policies: Controlling is the process by which the performance is compared with the set objectives. These policies provide for establishment of standards, pointing out deviations, ascertaining causes for deviation and taking corrective actions.

4.14 Importance of Corporate Policy

Following points illustrates the importance of corporate policy: Policies are needed to carry out the business activities in a smooth manner. They provide clear cut courses for attainment of business objectives. If a proper explicit policy has been formulated, many of the details could be conveniently handled by the subordinates and management would not unnecessarily waste its time and energy in doing them. Policies provide a guide and framework for decision making. Policies encourage delegation of the power of decision making. Good policies provide a direction in which all management activities are focused. Policies provide stability to the action of the members of the firm. Policies deter the subordinates to rethink on the day to day issues and thus avoid repetitive analysis of issues. Policies facilitate evaluation of performance by acting as a standard. They enhance employees enthusiasm and loyalty for the organisation. They help solving the problems for optimum utilisation of scarce recourses. The sound policies help building good public image of the business. Policies provide the firm with clear objectives with which the managers can decide the future course of action. They act as tool for co-ordination and control.
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Summary
Corporate management is a broad phenomenon and covers a wide spectrum of activities. Corporate strategy is formulated at the higher level of management. At operational level, operational strategies are also formulated. Corporate planning is a comprehensive planning process which involves continued formulation of objectives and the guidance of affairs towards their attainment. The process of corporate planning integrates strategic planning with short range operational plans. A formal planning system can help the management in responding to a dynamic environment and in managing a strategically complex organisation with limited resources. The chief executive must be totally committed and involved in the corporate planning process. The process of corporate planning should be introduced on continuous basis to cope with ever changing environmental factors. Corporate strategy improves the capability of management in coping with the volatile external environmental forces. The corporate strategy formulation process calls for considerable time, money and effort. Corporate policy helps the manager to identify the solution to the problems. Corporate policy consists of a variety of subject that affects various interest groups in the organisation and outside it. Corporate policy areas have two broad categories namely, major and minor policies. Good policies provide a direction in which all management activities are focused.

References
Corporate Strategy, [Pdf] Available at: <http://educ.jmu.edu/~gallagsr/WDFPD-Corporate.pdf> [Accessed 14 May 2013]. Concept of Corporate Strategy, [Pdf] Available at: <http://alumni.pondiuni.edu.in/dde/downloads/mbaii_sm.pdf> [Accessed 14 May 2013]. Dransfield, R., 2001. Corporate Strategy, Heinemann. Colley, J., 2002. Corporate Strategy, Tata McGraw-Hill Education. 2008. What is Good Corporate Strategy? [Video online] Available at: <http://www.youtube.com/ watch?v=43kZDnyDXOc> [Accessed 15 May 2013]. 2008. Corporate Strategy [Video online] Available at: <http://www.youtube.com/watch?v=gkxMy-HiZU8> [Accessed 15 May 2013].

Recommended Reading
Thompson, J. L., 2001. Understanding corporate strategy,Cengage Learning EMEA. Leontiades, J., 1987. Multinational corporate strategy, Lexington Books. Sutton, C. J., 1980. Economics and Corporate Strategy, CUP Archive.

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Self Assessment
1. Which of the following statements is false? a. Corporate strategy is related mostly to external environment. b. Corporate strategy is formulated at the higher level of management. c. Corporate management is a broad phenomenon and covers a wide spectrum of activities. d. Corporate planning is a broad phenomenon and covers a wide spectrum of activities. 2. Which is a comprehensive planning process which involves continued formulation of objectives and the guidance of affairs towards their attainment? a. Corporate planning b. Corporate policy c. Corporate strategy d. Strategy planning 3. The _________ must be totally committed and involved in the corporate planning process. a. managers b. middle level managers c. chief executive d. first line managers 4. _________ signifies that a series of decisions are taken in the same direction to accomplish the objectives. a. Synergy b. Vector c. Policy d. Strategy 5. What means measurement of the firms capability to take advantage of a new product market move? a. Synergy b. Policy c. Vector d. Objective 6. Which of the following statements is false? a. Corporate strategy motivates employees examples to shape their work in the context of shared corporate goals. b. Strategy assists management to meet unanticipated future changes. c. Organisational effectiveness is ensured through implementing and evaluating the strategy. d. Corporate objective motivates employees examples to shape their work in the context of shared corporate goals.

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7. Which of the following statements is true? a. Implementation of corporate planning is influenced by organisational factors, behavioural factors and motivational factors. The gap between formulation and implementation of corporate strategy does not give desired results to the organisation. b. Implementation of corporate policy is influenced by organisational factors, behavioural factors and motivational factors. The gap between formulation and implementation of corporate strategy does not give desired results to the organisation. c. Implementation of corporate strategy is influenced by organisational factors, behavioural factors and motivational factors. The gap between formulation and implementation of corporate strategy does not give desired results to the organisation. d. Implementation of corporate objective is influenced by organisational factors, behavioural factors and motivational factors. The gap between formulation and implementation of corporate strategy does not give desired results to the organisation. 8. _________ is concerned with the various functional areas like production, human resources, marketing and finance. a. Corporate objective b. Corporate policy c. Corporate strategy d. Strategic planning 9. Which policies are framed by the top management and spell out the basic approach of a company to its activities and its environment? a. General policies b. Basic policies c. Specific policies d. Expressed policies 10. The policies which are understood by the employees, code of conduct or behaviour and are not expressed orally or through written statements are known as _________. a. expressed policies b. general policies c. implied policies d. basic policies

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Chapter V Top Management

Aim
The aim of this chapter is to: explain various management levels elucidate the duties of borad of directors explicate the chief responsibilities and skills of top management

Objectives
The objectives of this chapter are to: introduce the ranks of management explain the responsibilities of different management levels expose them to skills and responsibilities of an CEO

Learning outcome
At the end of this chapter, you will be able to: understand various levels/ranks of management identify the roles and responsibilites of top level managers describe top management roles

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5.1 Introduction
Highest ranking executives with titles such as chairman, chief executive officer, managing director, president, executive directors, executive vice-presidents, etc, are responsible for the growth of the entire enterprise. Top management translates the policy formulated by the board of directors into goals, objectives and strategies and projects a shared vision of the future. It makes decisions that affect everyone in the organisation, and is held entirely responsible for the success or failure of the enterprise.

5.2 Management Levels

Managers are organisational members who are responsible for the work performance of other organisational members. Managers have formal authority to use organisational resources and to make decisions. In organisations, there are typically three levels of management, namely, top level, middle level, and first level. These three main levels of managers form a hierarchy, in which they are ranked in order of importance. In most organisations, the number of managers at each level is such that the hierarchy resembles a pyramid; with many more first level managers, fewer middle level managers and the fewest managers at the top level. There are a number of changes that are occurring in many organisations that are changing the management hierarchies in them, such as the increasing use of terms, the prevalence of outsourcing and the flattening of organisational structures. 5.2.1 Top Level Managers Following are the functions of top level managers. Top level managers or top managers are also senior management or executives. These individuals are at the top one or two levels in an organisation and hold titles such as Chief Executive Officers (CEO), Chief Financial Officer (CFO), Chief Operation Officer (COO), Chief Information Officer (CIO), Chairperson of the Board, President, Vice President, Corporate head. Often, a set of these managers will constitute the top management team, which is composed of the CEO, the COO and other department heads. Top level managers make decisions affecting the entirety of the firm. Top managers do not direct the day-to-day activities of the firm; rather, they set goals for the organisation and direct the company to achieve them. Top managers are ultimately responsible for the performance of the organisation, in terms of the growth of the organisation. Top managers in most organisations have a great deal of managerial experience and have moved up through the ranks of management within the company or in another firm. An exception to this is a top manager who is also an entrepreneur; such an individual may start a small company and manage it until it grows enough to support several levels of management.

5.2.2 Middle Level Managers Following are the functions of middle level managers: Middle level managers are those in the levels below top level managers. Middle managers job titles include General Manager, Plant Manager, Regional Manager and Divisional Manager. Middle level managers are responsible for carrying out the goals set by top management. They do so by setting goals for their departments and other business units. Middle level managers can motivate and assist first line managers to achieve objectives. Middle managers may also communicate upward, by offering suggestions and feedback to top managers. Because middle managers are more involved in the day-to-day workings of a company, they may provide valuable information to top managers to help improve the organisations bottom line.

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5.2.3 First Level Managers Following are the functions of first level managers: First level managers are also called first-line managers or supervisors. These managers have job titles such as: Office Manager, Shift Supervisor, Department Manager, Foreperson, Crew Leader, Store Manager. First line managers are responsible for the daily management of line workers, the employees who actually produce the product or offer the service. There are first-line managers in every work unit the organisation. Although first-level managers typically do not set goals for the organisation, they have a very strong influence on the company. These are the managers that most employees interact with on a daily basis, and if the managers perform poorly, employees may also perform poorly, may lack motivation, or may leave the company.

5.3 Board of Directors

A board of directors is a body of elected or appointed members who jointly oversee the activities of a company or organisation. The body sometimes has a different name, such as board of trustees, board of governors, board of managers, or executive board. It is often simply referred to as the board. A boards activities are determined by the powers, duties and responsibilities delegated to it conferred on it by an authority outside itself. These matters are typically detailed in the organisations bylaws. The bylaws commonly also specify the number of members of the board, how they are to be chosen, and when they are to meet. In an organisation with voting members, the board acts on behalf of, and is subordinate to, the organisations full assembly, which usually chooses the members of the board. In a stock corporation, the board is elected by the stockholders and is the highest authority in the management of the corporation. In a non-stock corporation with no general voting membership, e.g. a university, the board is the supreme governing body of the institution. 5.3.1 Duties of Board of Directors Following are the duties of board of directors: Governing the organisation by establishing broad policies and objectives. Selecting, appointing, supporting and reviewing the performance of the chief executive. Ensuring the availability of adequate financial resources. Approving annual budgets. Accounting to the stakeholders for the organisations performance. Setting their salaries and compensation.

5.4 Sub Committee

A subcommittee is a subordinate committee cocsists of members who belong to a larger committee. Subcommittees are a critical part of committee organisation, as they allow committees to focus on several issues without needing to involve all of the members, and they create more flexibility within the committee structure. There are two main types subcommittees: standing and working. A standing subcommittee is one which is always in existence, covering specific issues which pertain to the committee in general. One special type of standing subcommittee, the executive subcommittee, can make executive decisions on behalf of the larger group. A working committee is tasked with dealing with a specific and often temporary issue. Members of a subcommittee are usually chosen or elected by other members of the committee, and they are selected on the basis of experience, qualification and willingness to serve. The subcommittee usually agrees to meet together at set intervals, taking care not to overlap with regular committee meetings and the members may be tasked with making periodic reports to the general committee on their progress and concerns.
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Subcommittee meetings may also be closed to the public for privacy reasons, particularly when open committee meetings cannot be held in closed sessions for legal reasons and committee members want a chance to meet officially without public oversight. Serving on a subcommittee can require some diplomatic skills. Members of a subcommittee must keep the spirit of the larger group in mind, and since they may end up speaking on behalf of other members of the committee, they have to be careful to ensure that their statements and positions are worded appropriately. In the case of an executive standing subcommittee, members must also consider issues like budgeting, which can become critical when making executive decisions.

5.5 Chief Responsibilities and Skills of Top Management

Chief responsibilities and skills of top management are discussed below. 5.5.1 Planning Objectives are the goals that management wants to achieve and planning is the process to accomplish these objectives. It is a road map of improvement. Planning should be realistic based and framework within which a new strategy will be implemented. But it is evident that mostly top management considers planning as the starting point only not as the integral part of managing necessary tasks. Top management assigns the planning process to planning department yet it plays a vital role in recognising the hidden opportunities and clear understanding of goals, market and completion.

5.5.2 Organising Organising is the act of arranging certain elements following some rules. The entire role of organising is to achieve the overall completion of organisations objectives. It is obligatory to organise all kind of resources including men, material, money and machine to make the optimum use in achieving certain specialisation. This specialisation can be achieved through employing different tasks to specify people who are specialists in that area. Top managements ability to organise all resources well helps in expanding business.

5.5.3 Controlling Controlling is one of the foremost managerial functions like planning and organising but it is continuous, and can be entrenched at any of hierarchy. It is very important for the top management to check the errors, and then take the corrective action so that deviation from standards should be visualised clearly and declared purposes will be attained in a preferred mode.

5.6 Chief Executive Officer (CEO)

A chief executive officer is also known as a managing director or chief executive. The executive officer is the highest ranking corporate officer or administrator in charge of total management of an organisation. An individual appointed as a CEO of a corporation, company, organisation, or agency reports to the board of directors. 5.6.1 Responsibilities Following are the responsibilites of CEO: The responsibility of the chief executive officer is to align the company, internally and externally, with strategic vision. The core duty of a CEO is to facilitate business outside the company while guiding employees and other executive officers towards a central objective. The size and sector of the company will dictate the secondary responsibilities.

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A CEO must have a balance of internal and external initiative to build a sustainable company. For corporations, the chief executive officer primarily coordinates external initiatives at a high level. As there are many other c-level executives (e.g. marketing, information, technical, financial, etc) seldom do corporate CEOs have low-level functions. For emerging entrepreneurs, their acting position as a CEO is much different than that on the corporate level. As often other c-level executives are not incorporated in small operations, it is the duty of the CEO to assume those positions. Chairman

Chief Executive Officer

President

Chief Financial Officer Fig. 5.1 Board of directors

Board of Directors

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Summary
Highest ranking executives with titles such as chairman, chief executive officer, managing director, president, executive directors, executive vice-presidents, etc, are responsible for the growth of the entire enterprise. Managers are organisational members who are responsible for the work performance of other organisational members. In organisations, there are typically three levels of management, namely, top level, middle level, and first level. Top level managers or top managers are also senior management or executives. Middle level managers are those in the levels below top level managers. Middle managers job titles include General Manager, Plant Manager, Regional Manager and Divisional Manager. First level managers are also called first-line managers or supervisors. First line managers are responsible for the daily management of line workers, the employees who actually produce the product or offer the service. A board of directors is a body of elected or appointed members who jointly oversee the activities of a company or organisation. A subcommittee is a subordinate committee consists of members who belong to a larger committee. Subcommittees are a critical part of committee organisation, as they allow committees to focus on several issues without needing to involve all of the members, and they create more flexibility within the committee structure. Planning should be realistic based and framework within which a new strategy will be implemented. Organising is the act of arranging certain elements following some rules. Controlling is one of the foremost managerial functions like planning and organising but it is continuous, and can be entrenched at any of hierarchy. The executive officer is the highest ranking corporate officer or administrator in charge of total management of an organisation.

References
Levels of Management, [Pdf] Available at: <http://www.managementstudyguide.com/management_levels.htm> [Accessed 14 May 2013]. Top Level Management, [Online] Available at: <www.boundless.com/management/introduction-to-management/ management-levels-and-types/top-level-management/> [Accessed 16 May 2013]. Koontz, H. & Weihrich, H., 2007. Essentials Of Management, 7th ed., Tata McGraw-Hill Education. Dubrin, A. J., 2008. Essentials of management, 8th ed., Cengage Learning. 2009. Organizational Management, [Video online] Available at: <http://www.youtube.com/watch?v=pB7c2bKixg> [Accessed 17 May 2013]. 2011. Business Environment and Corporate Environment, [Video online] Available at: <http://www.youtube. com/watch?v=duKOsvvSxf8> [Accessed 17 May 2013].

Recommended Reading
Shaikh, S., 2010. Business Envrionment, 2nd ed., Pearson Education India. Prasad, V., 2010. Business Environment, Gyan Publishing House. Reddy, J., 2010. Business Environment, APH Publishing.

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Self Assessment
1. Which of the following statements is false? a. Managers are organisational members who are responsible for the work performance of other organisational members. b. Board of directors has formal authority to use organisational resources and to make decisions. c. In most organisations, the number of managers at each level is such that the hierarchy resembles a pyramid. d. Managers have formal authority to use organisational resources and to make decisions. 2. ___________ make decisions affecting the entirety of the firm. a. Top level managers b. Middle level managers c. First line managers d. Executive officers 3. Which of the following statements is true? a. First line managers do not direct the day-to-day activities of the firm; rather, they set goals for the organisation and direct the company to achieve them. b. Middle level managers do not direct the day-to-day activities of the firm; rather, they set goals for the organisation and direct the company to achieve them. c. Top managers do not direct the day-to-day activities of the firm; rather, they set goals for the organisation and direct the company to achieve them. d. Managers do not direct the day-to-day activities of the firm; rather, they set goals for the organisation and direct the company to achieve them. 4. Who is responsible for carrying out the goals set by top management? a. Executives b. First line managers c. Officers d. Middle level managers 5. Who are also called first-line managers or supervisors? a. First level managers b. Middle level managers c. Top level managers d. Managers 6. There are ___________ in every work unit the organisation. a. managers b. middle level managers c. first level managers d. top level managers

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7. A __________ is a body of elected or appointed members who jointly oversee the activities of a company or organisation. a. sub committee b. working committee c. standing committee d. board of directors 8. In a non-stock corporation with no general voting membership, e.g. a university, who is the supreme governing body of the institution? a. The committee b. The sub committee c. The board d. The standing committee 9. A ___________ is a subordinate committee consists of members who belong to a larger committee. a. committee b. sub committee c. board d. standing committee 10. Which of the following statements is false? a. A working committee is tasked with dealing with a specific and often temporary issue. b. A working subcommittee is one which is always in existence, covering specific issues which pertain to the committee in general. c. Members of a subcommittee are usually chosen or elected by other members of the committee, and they are selected on the basis of experience, qualification and willingness to serve. d. A standing subcommittee is one which is always in existence, covering specific issues which pertain to the committee in general.

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Chapter VI Strategic Planning

Aim
The aim of this chapter is to: introduce the concept of strategic planning explain SWOT analysis explicate the strategic planning process

Objectives
The objectives of this chapter are to: explain the importance of SWOT matrix elucidate the use of SWOT analysis enlist threats of SWOT analysis

Learning outcome
At the end of this chapter, you will be able to: describe strategic planning explain strategic planning and it properties describe SWOT analysis

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6.1 Introduction
Strategic planning consists of a set of decisions which leads to the development of an effective strategy. This includes matching of external threats and opportunities with strategic advantage factors. Strategic planning also develops possible alternative strategies and evaluates pros and cons of various alternatives so as to choose the most appropriate alternative. Strategic planning can be defined as the continuous process of making present entrepreneurial decisions systematically and with the greatest knowledge of their futurity; organising systematically the efforts needed to carry out these decisions; and measuring the results of these decisions against the expectations through organised systemic feedback.Strategic planning is a well organised effort aiming at fulfilling business objectives in a systematic manner.

6.2 Strategic Planning

Strategic planning is a systematic and disciplined exercise to formulate strategy. It is more comprehensive as it concentrates on the whole organisation. Strategic planning is a forward-looking exercise which determines the future posture of the enterprise. Strategic plans help enhancing and sustaining the organisational competitive advantage based on external and internal variables. It is through this plan an organisation can accomplish its stated goals using available resources. Strategic planning is an organisations process of defining its strategy or direction, and making decisions on allocating its resources to pursue this strategy, including its capital and people. 6.2.1 Methodologies There are many approaches to strategic planning but typically a three step process may be used: Situation Evaluate the current situation and how it came about. Target Define goals and/or objectives (sometimes called ideal state). Path Map a possible route to the goals/objectives.

Alternative approach is called Draw-See-Think Draw What is the ideal image or the desired end state? See What is todays situation? What is the gap from ideal and why? Think What specific actions must be taken to close the gap between todays situation and the ideal state? Plan What resources are required to execute the activities?

An alternative to the Draw-See-Think approach is called See-Think-Draw See What is todays situation? Think Define goals/objectives. Draw Map a route to achieving the goals/objectives.

6.3 Strategic Planning Process

Formulation of a strategy needs complete analysis of the situation. While discussing the need for strategic formulation, it is said that business environment provides required information. The environment includes: The economy Technology Society Law and political situation Available resources Consumers Information from these associated factors will help the organisation to prepare a workable strategy to handle a critical situation. Strategic plan is a long range plan of action in which plan and strategy are integrated.

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Four managerial activities are involved in strategic planning process. These are: Environmental adaptation Resource allocation Internal co-ordination Organisational awareness

These four activities together help formulating a workable strategy. However, the following broad outline is given in strategy formulation which takes into account these four managerial activities. The outline includes the following steps in strategic planning. Organisational mission and purpose Setting organisational goals and objectives Swot analysis Formulation of strategic alternatives Selecting the best strategy Preparing an operational plan Resource allocation Co-ordinating internal factors Integrating strategy and operation plan Implementing the strategic plan Evaluation Redesign the strategy if necessary

6.3.1 Organisation Mission and Purposes Following is the importance of mission and vision statement in an organisation: Mission statement: Tells the current position of the organisation. It informs you about the desired level of performance needed for the organisation. Vision statement: Outlines what a company wants to be. It concentrates on the future. It is a source of inspiration. It provides clear decision-making criteria and process. Values: Main values protected by the organisation during the progression, reflecting the organisations culture and priorities.

6.3.2 Importance of Vision Statement Corporate vision is a short, concise and inspiring statement of what the organisation intends to become and to achieve at some point in the future and is often stated in competitive terms. Vision refers to the category of intensions that are broad, all-inclusive and forward-thinking. Vision is the image that a business must have about its goals before it sets out to reach them. It describes aspirations for the future, without specifying the means that will be used to achieve those goals. The corporate success depends on the vision articulated by the chief executive or the top management. For a vision to have any impact of the employees of an organisation, it has to be conveyed in a dramatic and enduring way. The most effective visions are those that inspire, usually asking employees for the best, the most or the greatest. 6.3.3 Importance of Mission Statement A mission statement is an organisations vision translated into written form. It makes the leaders view of the direction and purpose of the organisation concrete. For many corporate leaders it is a vital element in any attempt to motivate employees and to give them a sense of priorities. A mission statement should be a short and concise statement of goals and priorities. In turn, goals are specific objectives that relate to specific time periods and are stated in terms of facts.

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The primary goal of any business is to increase stakeholders value. The most important stakeholders are shareholders who own the business, employees who work for the business and clients or customers who purchase products and/or services from the business. Many people may mistake vision statement for mission statement. The vision describes a future and the mission describes why it will be achieved. A mission statement defines the purpose or broader goal for being in existence or in the business. It serves as an ongoing guide without time frame. The mission can remain the same for decades if crafted well. Vision is more specific in terms of objective and future and future state. Vision is related to some form of achievement if successful. Features of an effective vision statement may include following points: Clarity and lack of ambiguity Paint a vivid and clear picture, not ambiguous Describing a bright future Memorable and engaging expression Realistic aspirations, achievable Alignment with organisational values and culture Time bound if it talks of achieving any goal or objective

In order to become really effective, an organisational vision statement must acclimatise into the organisations culture. Leaders have the responsibility of communicating the vision regularly, creating narratives that illustrate the vision, acting the vision, and encouraging the vision, creating short-term objectives compatible with the vision, and encouraging others to craft their own personal vision compatible with the organisations overall vision. 6.3.4 Benefits of Vision The purpose and outcomes of vision may seem vague and superfluous. The long term benefits are substantial. However vision: Breaks you out of boundary thinking. Provides continuity and avoids the stutter effect of planning. Indentifies direction and purpose. Alerts stakeholders to needed change. Promotes interest and commitment. Promotes laser-like focus. Encourages openness to unique and creative solutions. Encourages and builds confidence. Builds loyalty through involvement. Results in efficiency and productivity.

6.3.5 Developing a Mission Statement The mission statement describes the overall purpose of the organisation. If the organisation elects to develop a vision statement, the question why the image of the vision exists and its purpose should be raised before the mission statement is developed. When wording the mission statement, consider the organisations products, services, markets, values and concern for public images, and maybe priorities of activities for survival. Consider any changes that may be needed in working of the mission statement because of any new suggested strategies during a recent strategic planning process. Ensure that wording of the mission is to the extent that management and employees can infer some order of priorities in how products and services are delivered. When refining the mission, a useful exercise is to add or delete a word from the mission to realise the change in scope of the mission statement and assess how concise is its wording.

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6.3.6 Developing a Vision Statement The vision statement includes vibrant description of the organisation as it effectively carries out its operations. Developing the vision can be the most enjoyable part of planning, but the part where time easily slips away. Note that, originally, the vision was a compelling description of the state and function of the organisation once it had implemented the strategic plan, i.e. a very attractive image toward which the organisation was attracted and guided by the strategic plan. Recently the vision has become more of a motivational tool, too often including highly idealistic phrasing and activities which the organisation cannot realistically aspire 6.3.7 Setting Organisational Goals and Objectives Following are the organisational goals and objectives: The major outcome of strategic road-mapping and strategic planning, after gathering all necessary information, is the setting of goals for the organisation based on its vision and mission statement. A goal is a long-range aim for a specific period. It must be specific and realistic. Long-range goals set through strategic planning are translated into activities that will ensure reaching the goal through operational planning. Setting objectives involves a continuous process of research and decision-making. Strategic planning takes place at the highest levels; other managers are involved with operational planning. The first step in operational planning is defining objectives the result expected by the end of the budget cycle. The objectives must be: focused on a result, not on activity consistent specific measurable related to time attainable Perhaps the very important step in strategy formation is setting objectives and goals. These objectives and goals are guided by mission and purpose. Factors that influenced the settings of objectives are as follows: resources of the organisation past objectives environmental factors thinking and value system of the top management internal power system in the organisation These objectives are considered while forming the objectives. The objectives and goals must neither be too rigid nor too flexible. At various levels of an organisation, nature of goals and objectives may take different forms. At the bottom level, the objective of manager or any other workers will be narrow and is confined to only his/ her task of production or sales or whatever task one performs. Once the objectives are set, they need not remain for ever. They may change: when the objectives do not agree with actual achievement the desires and aspirations of the top management may cause change in objectives at a later stage of organisation when the top management changes goal orientations when an organisation faces crisis, the objectives change the life cycle of the product or services can also influence the organisation to change the objectives
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when expansion and diversification take place, or when a collaboration is made, the goals and objectives change In the initial stages objectives may be informal and they will be formalised and priorities are given when the organisation grows. These objectives help the organisation to take further step in strategy formulation by conducting SWOT analysis.

6.4 SWOT Analysis

SWOT analysis is a very vital activity in strategy planning. It is concerned with scanning the environment both internal and external in terms of SWOT i.e. strengths, weaknesses, opportunities and threats. The organisation should know its strengths and weaknesses and also the threats and opportunities it has. SWOT analysis helps the firm to formulate a workable strategy. Strengths are positively used for smooth implementation of the plan. When threats are analysed, solutions are found to overcome such threats from the competitors. Weaknesses are identified and strategy will be worked out to convert weakness into strength. Opportunities are visualised and seized for the good of the organisation. With this analysis, entire business environment of the firm will be scanned which will help formulating successful strategies. However, SWOT analysis gives a clear picture to formulate sound strategy, and it calls for matching capabilities and opportunities. SWOT analysis helps the strategic planner to ascertain what the organisation is capable of doing in the light of its strengths, and what is ought to be done in the context of the external environment in which it operates. SWOT analysis is a strategic planning tool used to evaluate the strengths, weaknesses, opportunities and threats involved in a project or in a business venture. It involves specifying the objective of the business venture or project and indentifying the internal and external factors that are favourable and unfavourable to achieving that objective. If SWOT analysis does not start with defining a desired end state or objective, it runs the risk of being useless. A SWOT analysis may be incorporated into the strategic planning model. If a clear objective has been identified, SWOT analysis can be used to help in the pursuit of that objective. In this case, SWOTs are: Strengths Attributes of the organisation that are helpful to achieve the objective. Weaknesses Attributes of the organisation that are harmful to achieve the objective. Opportunities External conditions that are helpful to achieve the objective. Threats External conditions that are harmful to achieve the objective.

Identification of SWOTs is essential because subsequent steps in the process of planning for achievement of the selected objective are to be derived from the SWOTs. 6.4.1 Internal and External Factors Following are the inetrnal and external factors: The aim of any SWOT analysis is to identify the key interval and external factors that are important to achieve the objective. SWOT analysis groups key pieces of information into two main categories: Internal factors The strengths and weaknesses internal to the organisation. External factors The opportunities and threats presented by the external environment. The internal factors may be viewed as strengths or weaknesses depending upon their impact on the organisations objectives. What may represent strengths with respect to one objective may be weaknesses for another objective. The factors may include personnel, finance and manufacturing capabilities and so on. The external factors may include macroeconomics matters, technological change, legislation and socio-cultural changes, as well as changes in the marketplace or competitive position. The results are often presented in the form of a matrix.

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6.4.2 Avoiding Errors Following are points to be considered for avoiding errors: Conducting a SWOT analysis before defining and agreeing upon an objective. SWOTs should not exist in the abstract. They can exist only with reference to an objective. If the desired end state is not openly defined and agreed upon, the participation may have different end states in mind and the results will be ineffective. Opportunities external to the company are often confused with strengths internal to the company. They should be kept separate. SWOTs are sometimes confused with possible strategies. SWOTs are descriptions of conditions, while possible strategies define actions. This error is made especially with reference to opportunity analysis. To avoid this error, it may be useful to think of opportunities as auspicious conditions.

Use of SWOT analysis The usefulness of SWOT analysis is not limited to profit-seeking organisations. SWOT analysis may be used in any decision-making situation when a desired end-state has been defined. SWOT analysis may also be used in pre-crisis planning and preventive crisis management. Strengths and weaknesses Resources: financial, intellectual, location Cost advantages from proprietary know-how Exclusive access to high grade natural resources Favourable access to distribution network

Table 6.1 Strengths and weaknesses of SWOT analysis

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Opportunities and threats Takeovers Market trends Economic condition Mergers Joint ventures Strategic alliances Expectations of stakeholders Technology Public expectations Competitors and competitive actions Bad PR Criticism Global markets Environmental conditions Table 6.2 Opportunities and threats of SWOT analysis Corporate Planning Following are the steps in corporate planning: Set objectives Defining what the organisation is intending to do. Internal appraisals of the organisations SWOT - This needs to include an assessment of the present situation as well as a portfolio of products/services and an analysis of the product/service life cycle. Analysis of existing strategies This should determine relevance from the results of an internal/external appraisal. This may include gap analysis which will look at environmental factors. Strategic issues defined Key factors in the development of a corporate plan which needs to be addressed by the organisation. Develop new/revised strategies Revised analysis of strategic issues may mean the objectives need to change. Establish critical success factors The achievement of objectives and strategy implementation. Preparation of operational, resource, projects plan for strategy implementation. Monitoring results Mapping against plans, taking corrective action which may mean amending objectives/ strategies. Environmental scanning

Human Resources In SWOT, strengths and weaknesses are internal factors. Strength could be: A new, innovative product or services Quality processes and procedures Patents Strong brand names Good reputation among customers Cost advantages from proprietary know-how Exclusive access to high grade natural resources Favourable access to distribution networks
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Weakness could be: Lack of marketing expertise Undifferentiated products or services Poor quality goods or services Damaged reputation Lack of patent protection A weak brand name Poor reputation among customers High cost structure Lack of access to the best natural resources Lack of access to key distribution channels

In SWOT, opportunities and threats are external factors. Opportunities could be: Developing market such as the internet Mergers, joint ventures or strategic alliances Moving into new market segments that offer improved profits A new international market A market vacated by an ineffective competitor An unfulfilled customer need Arrival of new technologies Loosening of regulations Removal of international trade barriers A threat could be: A new competitor in your home market Price wars with competitors A competitor has a new, innovative product or service Competitors have superior access to channels of distribution Taxation is introduced on your product or services Shifts in consumer tastes away from the organisations products Emergence of substitute products New regulations Increased trade barriers

6.5 The SWOT Matrix

An organisation should not necessarily pursue the more lucrative opportunities. Rather, it may have a better chance at developing a competitive advantage by identifying a fit between the organisations strengths and upcoming opportunities. In some cases, the organisation can overcome a weakness in order to prepare itself to pursue a compelling opportunity. To develop strategies that take into account the SWOT profile, a matrix of these factors can be constructed. The SWOT matrix is also known as TOWS matrix.

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Strengths Opportunities Threats S-O strategies S-T strategies

Weaknesses W-O strategies W-T strategies

S-O strategies pursue opportunities that are a good fit to the companys strengths. W-O strategies overcome weaknesses to pursue opportunities. S-T strategies identify ways that the company can use its strengths to reduce its vulnerability to external threats. W-T strategies establish a defensive plan to prevent the companys weaknesses from making it highly susceptible to external threats.

Simple rules for successful SWOT analysis are as follows: Be realistic about the strengths and weaknesses of the organisation when conducting SWOT analysis. SWOT analysis should distinguish between where the organisation is today, and where it could be in the future. SWOT should always be specific. Avoid grey areas. Always apply SWOT in relation to competition i.e. better than or worse than the competition. Keep your SWOT short and simple. Avoid complexity and over analysis. SWOT is subjective.

SWOT analysis is an important tool for auditing the overall strategic position of a business and its environment. 6.5.1 Formulating Strategic Alternatives An adoptable strategic plan can be developed only when alternative strategies are prepared. Reasonable number of strategic alternatives matching the opportunity profile and the environmental threats in the context of strategic advantages are to be designed. And then the best strategy amongst the alternatives is to be selected. While formulating alternatives strategies, company mission, purpose, objectives and goals and environmental forces have to be considered. The strategies should also know the business conducted by the organisation, what type of business should it be over coming years, whether the same business should be continued or diversified, what technology should be adopted, know the type of market the organisation has, the consumers of the organisation, etc. Considering these factors strategic alternatives have to be evolved and the type strategy has to be decided. Five types of strategies are identified as follows. Functional strategies These strategies are related to functional areas like marketing, finance, production, human resource management, accounting, etc. Stability and contingency strategies Sticking to the same product or services substantially for a long period. It is a defensive strategy. There may not be progress but reduces risk. Contingency strategy refers to the strategy which will be adopted when the firm faces unforeseen circumstances. The management may foresee and anticipate contingency situations which may arise during a given period.

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Major and minor strategies Strategies relating to major objectives like product-strategy, change of business definition, change of mission and purpose and market strategies. Low growth or forced growth strategies are minor strategies. In the period of depression existing activities are monitored, fine-tuned for minor defeats and the operations move on a low key to save investment, but still they will be effective and managed for maximum cash flows. Defensive strategies are designed to meet contingency and it is called minor strategy. Much of the business which leads to dangerous situations will be withdrawn and limited operations are done and kept under absolute control. They focus on limited special opportunity.

Strategy in tune with policy Companies adopt strategies within the framework of their policies, programmes, purpose, mission, etc. Policies of the corporate enterprises provide the direction in which the strategies are to be formulated. Strategies formulated in accordance with the policy will have a common language which communicates the policies to the lower level of management; convince the managers about the relevance of mission, vision and purpose of the enterprise to implement the strategy and to obtain strategic commitment from all concerned. Strategies formulated in accordance with policies should be consistent with overall strategies implemented for various purposes, like meeting competition in the market, create a favourable image for the enterprise in the market, to tackle extreme competition situation, etc.

Turn-around strategies Turn-around means changing the whole scenario for the good of the organisation. In this situation every activity will be restructured for achieving positive results. This will put the company on a proper track. The organisations which have turned to loses will be brought back to its successful path, by adopting certain strategies. This is called turn-around strategy. There are different types of strategies in this category. Strategies adopted for sick units to turn them into viable units. Fire fighting strategy is adopted to infuse new spirit or vigour into the corporate culture or morale or to improve the image of the company. Restoration strategy is one that is adopted to restore the original position. In times of contingency, the organisations drift from original activities and resort to operations which are approved by the market. After sometime, they feel that they have to get back to the original activity and they adopt strategy to restore the position. This is called restoration strategies. Consolidation strategy which is adopted to consolidate a strategy after conducting periodical performance appraisal of that particular strategy.

6.5.2 Selecting the Best Strategy After developing the alternatives, selection of a best alternative is the formidable task of the strategies. While selecting strategy of the alternatives, strategist must look into the possibilities of gaining in the process of implementation of strategy, at least possible cost. He should give an insight into the problem and find out, which alternative strategy suits well to the problem. Therefore, selecting a best strategy involves, Cost effectiveness Assessing gains from the proposed strategy Difficulties that may creep in when implemented How smoothly the strategy manoeuvres the tough situation, etc.?

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The points to be considered for strategic choice are: Strategy should be clearly identified and be explicit in practice or words Strategy should be capable of exploiting environmental opportunities

It should sustain threats of environment It should be consistent with corporate competence and resources. The risk involved in the strategy should be sustained by the company It should provide stimulus to the effort and commitment of the organisation and people Strategy should generate early response from the market and concerned people.

Any strategic choice which considers these factors will be able to project itself to effective operations and identify priority areas for operation. Choosing a strategy is a very tough job. It is not a subtle activity. 6.5.3 Preparing an Operational Plan Operational plan is one which provides the details as to how the strategic plan should be implemented. This plan converts strategy formulations into actions and decisions. Strategic plan is an overall plan prepared in a wider perspective giving a guideline to overcome several critical situations that may be faced by the organisation. Organisational plan focuses on current operations. This is a part of long term strategy of the corporate enterprise. However, strategic planning and operational planning should go hand in hand. There should be harmonious relationship between the two. Operational plans are the plans formulated by managers at all levels. In well-managed organisations there will be direct relationship between strategic planning and operational plan. The distinguishing features of strategic plan and operational plan are as follows: The strategic plan will have a focus on growth, development and competitive situation of the organisation, whereas the operational plan will have its focus on operating problems and survival. Time strategic plan is a long-range plan. But operational plan is a short-range plan. Strategic plan concentrates on constant growth, future profit and comparative strategy. Whereas operational plan works for operation success, current profit and short term success. The strategic plan is adaptive, whereas the operational plan is a contingency plan, real time plan and a shorter one. As far as strategy is concerned strategy plan is a stable and a major one. Operational plan adopts contingency strategy and a minor one. Strategic planning works for getting reward in the form of potentiality development and constant good corporate citizenship. Operational plan seeks reward in the form of efficiency, profitability and good corporate image. Management level: strategy planning is prepared by top executives whereas operational planning is prepared by operational managers like middle level and lower-level managers. Decisions are analysed in strategic management. But in operational plan it is immediate and intuitive. As far as scope is concerned strategic planning concentrates on future opportunities and operational plan works on current business. Strategic planning is dynamic and flexible, whereas operational plan is static and functional.

Operational plan is prepared and implemented within the framework of strategic plan. At the operational level two types of plans are adopted namely, Single-use plan and standard plan. Single-use plans are operated once and not repeated. It is a specific plan used only once. Standard plans are used for repeat operation and guided by procedures and rules.

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6.5.4 Resource Allocation Resources refer to both monetary and non-monetary resources. When strategies are designed, money, technology and other infrastructure are required for development and implementation. Scarce resources have to be allocated according to the priorities and needs. While making resource allocation the type of strategy will be considered. Major and fast-growth strategies need more resources. A major growth oriented strategy requires more funds for implementation. It also demands more of non-monetary resources. The management cannot overlook the resource demand of this strategy because it is a strategy which brings more profit and contributes for the growth of market share. In case of minor strategies, the resources requirement will be less. Therefore, strategy classification is made. There are strategic business units which have a high share of low-growth market. These organisations bring in more cash but need little resources for operation. The operations are of routine type and do not require growth. But still they are essential products and bring resources to the organisation. There are also business units with low share of high growth market. In such cases, the management has to spend money to adopt strategic plan. The business units with share of a low growth market need no allocation of resources as they will be contemplating to close down the activities. Therefore, resources allocation is a difficult task in strategy formulation. The type of strategy decides the size of resources required for developing a strategy. 6.5.5 Co-ordinating Internal Factors Followng are the internal factors: The success of strategy depends upon how it works with the people inside the organisation. People concerned in the organisation should understand the strategy and work for its success. Every activity of the strategy should effectively take place. So that there will not be any disturbing element which thwarts the strategy. Co-ordination at every level of activity will help the strategy to be successfully implemented. Work flow should be smooth and effective. There should not be obstacle in the flow work. Every employee and every operation should be properly linked and co-ordinated. This facilitates smoothen implementation of strategy. Co-ordination of various functional areas is also needed. Marketing department should work in the close co-operation with production and finance. Inter-departmental co-ordination is very essential. Managers at each level in each functional area co-ordinate their work with each other. A well organised organisational structure helps in effectively co-ordinating the various activities and strategies. Operational plans can be very well integrated for the success of strategic planning.

6.5.6 Integrating Strategy and Operational Plan Both strategy and operation plans are prepared within the framework of objectives. Objectives are the directive principles to formulate strategy and prepare operating plans. Strategic and operational plans although work independently, harmony must be achieved between them. Every activity should have objective orientation. To attain harmony between strategy and operational plan certain operations are to be integrated. Operational plan should have compatibility with overall strategy of the firm. Therefore, strategies are to be closely linked to operational plans for their success. Operational plans have current and temporary objectives and to be performed according to the tasks. Strategic plan is a long-range plan formulated mostly to achieve the objectives of the organisation. Therefore, these two plans are to be integrated for the success of the organisation. Harmonious integration of both generates a genuine emotional consensus among the managers as to what they want to do and how they want to go about achieving success. In the process of integration, continued examination of goals should take place.
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Continuous discussions relating to strategy and operations at all levels should be done until they are mutually understood and accepted by the key members of the management and then transmitted to the entire organisation continuously so that organisations objectives and strategies are imbibed in operational plans. This is the real integration. When once the integration takes place, execution of the strategy and operational plan becomes easy. After integrating these two, the controls are to be adopted and implemented.

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Summary
Strategic planning consists of a set of decisions which leads to the development of an effective strategy. Strategic planning can be defined as the continuous process of making present entrepreneurial decisions systematically and with the greatest knowledge of their futurity; organising systematically the efforts needed to carry out these decisions; and measuring the results of these decisions against the expectations through organised systemic feedback. Strategic planning is a systematic and disciplined exercise to formulate strategy. Strategic planning is an organisations process of defining its strategy or direction, and making decisions on allocating its resources to pursue this strategy, including its capital and people. Formulation of a strategy needs complete analysis of the situation. Strategic plan is a long range plan of action in which plan and strategy are integrated. Mission statement tells the current position of the organisation. It informs you about the desired level of performance needed for the organisation. Vision statement outlines what a company wants to be. It concentrates on the future. It is a source of inspiration. It provides clear decision-making criteria and process. Values main values protected by the organisation during the progression, reflecting the organisations culture and priorities. Corporate vision is a short, concise and inspiring statement of what the organisation intends to become and to achieve at some point in the future and is often stated in competitive terms. Vision is the image that a business must have about its goals before it sets out to reach them. A mission statement is an organisations vision translated into written form. It makes the leaders view of the direction and purpose of the organisation concrete. A mission statement defines the purpose or broader goal for being in existence or in the business. It serves as an ongoing guide without time frame. Vision is more specific in terms of objective and future and future state. Vision is related to some form of achievement if successful. When wording the mission statement, consider the organisations products, services, markets, values and concern for public images, and maybe priorities of activities for survival. When refining the mission, a useful exercise is to add or delete a word from the mission to realise the change in scope of the mission statement and assess how concise is its wording. Strategic planning takes place at the highest levels; other managers are involved with operational planning. SWOT analysis is a very vital activity in strategy planning. SWOT analysis is a strategic planning tool used to evaluate the strengths, weaknesses, opportunities and threats involved in a project or in a business venture. Conducting a SWOT analysis before defining and agreeing upon an objective. SWOTs should not exist in the abstract. They can exist only with reference to an objective. If the desired end state is not openly defined and agreed upon, the participation may have different end states in mind and the results will be ineffective. The strategies should also know the business conducted by the organisation, what type of business should it be over coming years, whether the same business should be continued or diversified, what technology should be adopted, know the type of market the organisation has, the consumers of the organisation, etc. Strategies formulated in accordance with the policy will have a common language which communicates the policies to the lower level of management; convince the managers about the relevance of mission, vision and purpose of the enterprise to implement the strategy and to obtain strategic commitment from all concerned. Strategies formulated in accordance with policies should be consistent with overall strategies implemented for various purposes, like meeting competition in the market, create a favourable image for the enterprise in the market, to tackle extreme competition situation, etc.

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The business units with share of a low growth market need no allocation of resources as they will be contemplating to close down the activities. Every employee and every operation should be properly linked and co-ordinated. This facilitates smooth implementation of strategy. Continuous discussions relating to strategy and operations at all levels should be done until they are mutually understood and accepted by the key members of the management and then transmitted to the entire organisation continuously so that organisations objectives and strategies are imbibed in operational plans. This is the real integration.

References
S.W.O.T. Analysis, [Pdf] Available at: <http://www.ciri.org.nz/downloads/SWOT%20Analysis.pdf> [Accessed 17 May 2013]. Mamoria, 2001. Business Planning and Policy. Himalaya Publishing House. Steiner, G. A., 2010. Strategic Planning. Kindle edition. Free Press. 2012. What is Strategic Planning, Really?, [Video online] Available at: <http://www.youtube.com/ watch?v=mLJ34L5UW4E> [Accessed 17 May 2013]. 2012. Overview of the Strategic Planning Process, [Video online] Available at: <http://www.youtube.com/ watch?v=sU3FLxnDv_A> [Accessed 17 May 2013]. SWOT analysis -an introduction, [Pdf] Available at: <http://gametlibrary.worldbank.org/FILES/907_How%20 to%20do%20SWOT%20analysis.pdf> [Accessed 17 May 2013].

Recommended Reading
Smith, R. D., 2004. Strategic Planning. 2nd ed.,. Routledge. Abell, D. F., 1980. Defining the Business: The Starting Point of Strategic Planning. Prentice Hall. Thompson, J. L., 1997. Strategic Management: Awareness and Change. 2nd ed., International Thompson Business Press, London.

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Self Assessment
1. Which of the following statements is false? a. Strategic planning is a forward-looking exercise which determines the future posture of the enterprise. b. Strategic plans helps in enhancing and sustaining the organisational competitive advantage based on external and internal variables. c. Strategic planning is a well organised effort aiming at fulfilling business objectives in a systematic manner. d. Strategic management is a well organised effort aiming at fulfilling business objectives in a systematic manner. 2. __________ is a long range plan of action in which plan and strategy are integrated. a. Strategic management b. Strategic plan c. Business strategy d. Business policy 3. _________ tells the current position of the organisation. It informs you about the desired level of performance needed for the organisation. a. Mission statement b. Value statement c. Vision statement d. Business statements 4. Which of the following statements is true? a. Corporate mission is a short, concise and inspiring statement of what the organisation intends to become and to achieve at some point in the future and is often stated in competitive terms. b. Corporate value is a short, concise and inspiring statement of what the organisation intends to become and to achieve at some point in the future and is often stated in competitive terms. c. Corporate vision is a short, concise and inspiring statement of what the organisation intends to become and to achieve at some point in the future and is often stated in competitive terms. d. Corporate strategy is a short, concise and inspiring statement of what the organisation intends to become and to achieve at some point in the future and is often stated in competitive terms. 5. Which of the following statements is false? a. The most effective visions are those that inspire, usually asking employees for the best, the most or the greatest. b. A mission statement should be a short and concise statement of goals and priorities. c. Vision is more specific in terms of objective and future and future state. d. Value is more specific in terms of objective and future and future state. 6. What describes the overall purpose of the organisation? a. Mission statement b. Value statement c. Vision statement d. Business statements

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7. What helps the firm to formulate a workable strategy? a. Strategic planning b. Strategic management c. SWOT analysis d. Mission statement 8. _________ is a strategic planning tool used to evaluate the strengths, weaknesses, opportunities and threats involved in a project or in a business venture. a. Strategic planning b. SWOT analysis c. Mission statement d. Strategic management 9. _________ of the corporate enterprises provide the direction in which the strategies are to be formulated. a. Policies b. Strategies c. Planning d. Corporate planning 10. Which of the following statements is true? a. While selecting policy of the alternatives, strategist must look into the possibilities of gaining in the process of implementation of strategy, at least possible cost. b. While selecting strategy of the alternatives, strategist must look into the possibilities of gaining in the process of implementation of strategy, at least possible cost. c. While selecting strategy of the alternatives, strategist must look into the possibilities of losing in the process of implementation of strategy, at least possible cost. d. While selecting strategy of the alternatives, strategist must look into the possibilities of gaining in the process of implementation of policy, at least possible cost.

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Chapter VII Implementation of Strategy

Aim
The aim of this chapter is to: explain strategy implementation explicate BCG matrix elucidate various aspects of implementation

Objectives
The objectives of this chapter are: explain issues in strategy implementation enlist aspects of strategy implementation elucidate the steps in implementation of strategy

Learning outcome
At the end of this chapter, you will be able to: explain strategy implementation in detail describe BCG matrix identify issues and aspects of strategy implementation

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7.1 Activating Strategy

After designing strategies to be adopted in plans and finalising them, the top management should take necessary steps for implementing the designed strategy. The best policies and plans do not produce results until they are translated into action. Many strategies fail to produce desired results because of the failure of the proper implementation of the selected strategy. The management should have the will to adopt itself to changes. All the designed policies and strategies should be effectively communicated in measurable lower levels. Necessary resources, both monetary and non-monetary, are to be provided to the concerned departments for implementations.

7.2 Strategy Formulation vs. Strategy Implementation

Following points illustrates the difference between strategy formulation and strtaegy implementation: Strategy formulation and implementation are intertwined. They are not separate activities. Business organisation is not static. It constantly interacts with the external environment and its own internal environmental changes. According to the situation, organisation should modify the existing strategy or formulate new competitive strategy and implement them at the right time and in the right direction. Strategy formulation is concerned with the development of long-term plans for effective management of environmental opportunities and threats, in the light of the organisational strengths and weaknesses. It defines corporate mission, specify achievable objects, developing strategies and formulating policies. Strategy implementation is the process by which strategies and policies are out to action through the development of programs, budgets and procedures. Implementation requires changes in the culture, structure and management system to the entire organisation. Strategy formulation is the thinking process implementation is the doing process. Primary function of an organisation is to formulate workable and competitive strategy for the overall growth of the organisation, after considering both internal and external factors. Strategy implementation is the secondary function of the organisation. This is based on the strategy formulated. Implementation is an administration task which ensures that the strategy formulated is executed in the right direction to achieve objectives stated at the strategy formulation stage. Necessary adjustments may have to be made to execute the strategy. Success of an organisation is dependent on how the strategy is implemented rather than how the policy is formulated. Implementation of strategy requires arrangement and allocation of resources. While implementing strategy, organisation may either adopt forward linking approach or backward linking approach. Forward linking Under this approach, organisation conducts internal and external analysis. Analysis may need the organisation to modify strategies, organisation structure, modification of behavior, etc. this helps the organisation to decide what changes are needed to be made in the future while implementing the new strategies. Backward linking Instead of modifying the existing facilities entirely, organisation can think of concentrating on the existing one and making an additional effort to explain opportunities and comfort threat. This advocates organisation to go for incremental changes instead of changing right from the root. Organisation can adopt these changes that can be implemented using the present resources with an additional effort.

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7.3 Aspects of Strategy Implementation

Strategy implementation includes the following: Strategies Policies Procedures Programs Rules Methods Budgets

7.4 Steps in Implementation of a Strategy

Following are the steps in implementation of a strategy: Resource allocation The organisation should provide both monetary and non-monetary resources. Fixing key tasks and priorities The top management, when finalises the operational plan should incorporate in each operational plan the task to be performed by the manager and the work to be carried out according to priority. Assigning the tasks As per the operational plan, the tasks have to be assigned to concerned managers and their work force for successful implementation. Authority delegation For the smooth running of each strategic operational plan, the concerned managers and the key workforce like managers, have to be delegated with certain authority and power. This is required for smooth execution of the plans. It will be still good, if they are properly defined in the operational plan itself. This will facilitate the workforce to work uninterruptedly within the framework of company objectives.

Formulating methods The co-ordination between various operations within the same task is very essential for smooth discharging of the task. Every operation should be cohesive and work flow from one operation to another should be smooth. There should not be back tracking. The task should be completed within the time period. The co-ordination takes place through the scientific operational methods to be formulated. Each operation should have uninterrupted system, methods and procedure.

Policies, goals, MIS and feedback After designing the methods and procedure for implementing the strategic plan, what task the concerned manager has to perform, what goal he has to achieve, etc. have to be informed to him for successful methods to provide necessary information to the manager for successful implementation of the plan. The manager has to be supported by proper data to perform his/her task. The management has to develop management information system including feedback methods to provide necessary information to the manager and to get a feed back about the operations. Each manager assigned with the task of implementing a strategic task should get relevant information to take decisions.
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There is a necessity of decision support system. The quality of decision depends on understanding the circumstances surrounding an issue and knowing the available alternatives and states of nature. Management Information System (MIS) reduces risk and uncertainty in decision-making. Arrangements has to be made to provide relevant and just required information which converts raw data into information that strategist can actually use. This is what Decision Support System (DSS) does. DSS shapes the information to management needs which is provided by MIS. MIS should be a two way system. This means that while top management provides information to the strategist, another system should provide feedback to the top management regarding operations. Thus, feedback should be the part of MIS which helps in completing the circuit of operation i.e. assigning the task by the top management, performance of the task and feedback to the top about results of the task performed.

Rewards and incentives Strategies also include the rewards and incentives as a part of the operational plan. Those who succeed in successfully implementing the strategic plan should get the reward. This is a motivational factor. To motivate the people at work, certain incentives and rewards are to be instituted. It should be a part of the strategic plan and should be awarded when particular tasks are fully performed. This reinforces the behavior of workers to new systems.

Training the trainers Another important aspect of strategic implementation is that the trainers and the workforce should be updates and maintained through workshops, seminars, inbuilt continuing training programmes. This is another vital aspect to be looked after, while implementing the strategic plan. Thus, managerial talents are developed and managers are educated in values and styles of the organisation.

Implementation After undergoing all the steps discussed earlier, the plan will be systematically implemented. Every operation will be monitored. Results are analysed and compared with the strategies formulated for the success of the operation. It is not sure that strategies and plans do match with the actual results There will be little difference between the actual and planned programmes. This has to be closely observed and the deviations have to be informed to the top management through a sound feedback system. There should be an inbuilt evaluation system, incorporated in the strategy implementation.

Restructuring the strategy On analysing the operations, the manager notices the changes in result, if any, compared to original operational plan, reports to the top management regarding such deviations. The management then takes a decision to restructure the policies and strategies to make the operational plan perfect and achieve the desired result. In this process action is taken for removing the defects in the strategy formulation noticed at the time of implementation, changing the workplace who implements the strategy, reallocation of resources, etc. are to be carefully done.

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7.5 Issues in StrategyImplementation

Successful implementation of a strategy depends on how efficient the organisation is in allocating resources, designing suitable structure, formulating functional strategies, etc. It should be noted that the objectives give rise to issues; issues lead to plans and plans result in different projects and programmes. It may include modernisation of existing facilities or installation or new or additional plants, etc. Important issues relating to strategy implementation are as follows: Project implementation Procedure implementation Resource allocation

7.5.1 Project Implementation Project implementation involves decision regarding the project to be undertaken in future and to see that they are properly executed. Following are the different phases pertaining to project implementation: Conceptual stage Environmental scanning reveals various potential opportunities to the organisation. These opportunities are to be categorised into various projects. The organisation may not be in a good position to take up all these activities simultaneously. Therefore, assigning priorities to these projects is vital in project implementation. Priority helps organisation to choose an appropriate alternative for further development.

Analysing stage After a project is identified, detailed analysis has to be made regarding possibility and feasibility. Examination of technical, financial, marketing, ecological, economical and legal aspects are to be made. Project feasibility report has to be prepared to decide whether the project can be taken up or not for further action.

Planning stage Once it is decided that the project idea is feasible and workable, the organisation should begin planning and organising the project. Plan should mention in detail about the infrastructure, finance, manpower, etc. needed for the accomplishment of the proposed project.

Implementation stage Activities needed to accomplish the project are put to action at this stage. Test trials are undertaken to ensure that the project is ready for the final take-off.

Launching stage Implementation stage ensures that the project is ready for the operation. At the launching stage, project is handed over for the actual execution to those involved in its operation.

7.5.2 Procedure implementation Procedure is a regularity framework within which the management is supposed to implement its plans, projects and policies as per government approval. These government regulations affect strategy formulation and implementation in the company. Following are the various government regulations

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Licensing procedures Licensing procedure indicates the permission to be obtained from the government. Industries Development and Regulation Act, 1951 (IDRA) provides licensing system for the industries. According to the Act, industries are divided into three categories. Industries which are under the direct control of the government are included under the first category. Second category includes those industries promoted by government and supported by private sector. All industries under private sector are covered under third category. Secretary of Industrial Approval scrutinises the application for license and issue a license only if the stipulated conditions are complied with.

SEBI requirements SEBI Act was passed in the year 1992 to replace Capital Issues Control Act, 1956 (CICA). SEBI has three objectives, which are as follows: protection of the interests of investors in securities to develop security market to regulate securities market SEBI issues guidelines from time to time to supervise matters under its control. These guidelines influence those companies to collect their required funds from the capital market.

Foreign collaboration policy Foreign collaboration, in a way, is a partnership between home and foreign industrialist for the establishment of joint venture in the home country. It is an agreement under which industrially leading country provides machinery, technical assistance, financial assistance, etc. Expansion and diversification may need sophisticated equipment technology, huge amount of capital investment and know-how. Foreign collaboration certainly needs government approval. Government allows foreign investment and collaboration selectively.

FEMA requirements Foreign Exchange Management Act (FEMA) was introduced in the year 2000 to replace FERA. Several rules are formulated to facilitate foreign exchange by increasing Indian exports. The objective of exchange control is to regulate the demand for foreign exchange within the limits set by the available supply.

MRTP requirements Monopolies and Restrictive Trade Practices (MRTP) Act, 1969 aims at preventing monopolistic, unfair, restrictive trade practices and concentration of economic power in the hands of big industrialists. The Act aims at curbing price discrimination, selling goods below cost to beat completion, restricting a dealer to sell products in selected areas, restricting a dealer to sell companys product only, etc. While formulating strategies, company must be careful enough to see whether the decisions taken lead unfair or restrictive trade practices.

Business Incentives The central and state governments offer incentives for the promotion of industries in the country. Strategies cannot ignore such incentives while formulating strategies. Some of the incentives offered by the government are infrastructural incentives, promotional incentives, smallscale industries, incentives, backward area incentives, etc.

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Import and export requirements Common tendency of modern business unit is to go global. This necessitates modernisation, diversification or expansion strategies. If an organisation is engaged in international trade, import and export activities become a regular phenomenon. Import may involve import of capital goods, raw materials, etc. There may be restrictions on such imports. In the same manner, government may restrict export of certain scarce products from the country. Therefore, it is essential that the strategy makers understand the prevailing export and import requirement while formulating relevant strategies.

Labour legislation Labour constitutes a vital resource for a company. Government formulates policies to safeguard the interests of the labour. These legislative rules certainly influence strategy formulation. There are several laws related to labour working in different industries. Therefore, strategists must be aware of the labour legalisation applicable to his/her industry and company.

Patenting requirements Organisation will always be on the look out of continuous development and innovations. They wish to patent their products and ideas. There are formulations to be followed while patenting their products or ideas. Strategies must know the procedure and practice involved in getting patent right to the organisation. It has been a proven fact that the organisation with a string patent right can gain competitive advantage more quickly than its competitors.

7.5.3 Resources Allocation Following are the points illustrated in resource alloctaion: To accomplish stated objectives, organisation requires various resources like physical, financial and human resources. Organisation must utilise scarce resources for the maximum benefit of the organisation. Therefore, resource allocation is the process of investment decision based on cost benefit theory. Resource allocation process is continuous and complex. Success of the project largely depends on the timely availability of resources. Strategists should prioritise activities for the optimum utilisation of available resources. It is advised to take co-operation of departmental and operational heads at the time of resources allocation to avoid conflict later. Basically, three important resources are identified for the success of the organisation namely, men, material and money. Of all resources, money plays a vital role. Proper arrangement of this resource enables the organisation to acquire all the short-term funds. Identification of proper sources of supple is also crucial. Based on the requirement suitable source must be identified. To the extent possible, organisation must use internal financial resources created by way of retained earning. There are three different approaches adopted for resource allocation mentioned as follows: Tip-down approach Bottom-up approach Mixed approach
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Under top-down approach, discretion regarding resource allocation lies with the top management. They start allocating available resources from top level to the lowest level of operation. In such allocation, some operation departments may or may not receive expected amount of resources. If any of the operational areas suffer, the whole strategic process gets affected. Under bottom-up approach, allocation of resource starts from the operating departments. It is due to the fact that the success of the organisation is based on the performance of these operational areas. Flow of allocation of resource allocation more viable and flexible. Under the mixed approach, allocation is made with mutual consent between different levels of management. This approach makes resource allocation more viable and flexible.

7.6 Importance of Organisational Structure

Following points illustrates the importance of organisational Structure It determines the nature of work to be done by different people in the organisation. It establishes relationship between various activities in the organisation. It establishes an effective communication system in the organisation. It ensures proper delegation of authority and responsibility. It ensures smooth functioning of the organisation. It ensures co-ordination among workers. It helps in effective use of human resource of the organisation. It encourages creativity. It helps in measuring performance of people in the organisation.

7.6.1 Structural Considerations Organisation structure is not a mere graphical representation of activities and people responsible for various activities. It covers various activities like: Identification of different activities needed to accomplish the strategy under consideration Group the activities based on the skill required Establish proper authority and responsibility Establish effective information system and administration of the same Designing and administration of motivation Designing and administration of appraisal system

For the success of structure of an organisation, following principles are to be borne in mind: Principle of activity Structure must be formulated to suit the basic objective of the organisation. The structure should not contradict the basic objective. Principle of span of control Span of control refers to the number of persons an individual can effectively control. Span of control is based on several factors like ability, the nature of job, etc. these factors must be carefully considered before deciding the structure. Principle of exception Only exceptional matters should be referred to the executives and the routine matters should be decided by the subordinates themselves. Principle of specialisation Fundamental division of activities should take place and tasks must be assigned to an individual based on his/her specialisation. The scalar principle In order to make management effective, there must be clear line of authority from top to bottom. The principle of unity of command According to this, each subordinate should have only one supervisor and dual subordination should be avoided. Principle of delegation Organisation structure should provide for delegation of authority at every level.

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 Principle of responsibility According to this principle superiors are not allowed to avoid responsibility by delegating responsibilities to their subordinates. Superiors are held responsible for the acts of their subordinates. Principle of flexibility The organisation structure must be flexible so that it can be adaptable to the changing circumstances. If the structure is rigid, modification is not possible and expansion becomes difficult. Principle of simplicity Organisation structure must be simple both in its expressions and constitution. It should have minimum number of levels. People must be in a position to understand the system clearly. Principle of continuity An organisation has got perpetual existence. So long the organisation exists, organisation structure exists. Structure must be dynamic and should be adoptive to the changing circumstances. Principle of unity of direction The group acting towards the same objective must have one plan and direction. If different plans are given to different people in the group, co-ordination cannot be achieved. Principle of efficiency Structure must facilitate effective functioning of the organisation with minimum cost and effort. Principle of balance Human, technical and financial factors must be properly balanced towards the accomplishment of the objectives.

7.7 Other Important Strategies

Product life trategy All products and services have certain life cycles. The life cycle refers to the period from the products first launch into the market until its withdrawal. The life cycle is split up into different phases. During this period significant changes are made in the way that the product is behaving in the market. Since an increase in profits is the major goal of a company that introduces a product into a market, the products life cycle management is very important. Some companies use strategic planning and others follow the basic rules of the different life cycle phase that are analysed later. The understanding of a products life cycle can help a company to understand and realise when it is time to introduce and withdraw a product from a market, its position in the market compared to competitors, and the products success or failure.

7.8 BCG Matrix

The BCG matrix method is the most well-known portfolio management tool. The BCG method is based on the product life cycle theory that can be used to determine what priorities should be given in the product portfolio of a business unit. Companies that are large enough to be organised into strategic business units, face the challenge of allocating resources among those units. To ensure long-term value creation, a company should have a portfolio of products that contains both high growth products in need of cash inputs and low growth products that generate a lot of cash. There are two dimensions, market share and market growth.

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Relative Market Share High Low

Market Growth Rate

High

Fig. 7.1 BCG matrix

Low

The basic purpose of using matrix is that the higher the market share a product has, the higher the growth rate and the faster the market for that product grows. The BCG growth share displays the various business units on a graph of the market growth rate vs. market share relative to competitors. 7.8.1 Market Growth Executives develop and organise the companys strategic infrastructure, the corporate configuration that produces the companys distinctive or core competencies and provide the resources necessary to satisfy customer wants. This often means dividing the business into functional units and determining which core competencies to develop. The idea is to provide the products, services and talents necessary to satisfy customer needs and create customer value. One of the tools used in analysing market scenario and strategic decisions concerning product mix is the portfolio analysis. Portfolio techniques help marketing managers evaluate alternative strategies and allocate resources across a number of business and markets. There are two major portfolio analysis that are used in marketing planning. They are as follows: The Boston Consulting Group Approach (BCG) The General Electric Approach (BG)

7.8.2 The Growth Share Model and Cash Position Following are the features of the Growth share model and cash position: The theory behind the growth-share model makes specific assumptions about market growth rate and relative market share. Market growth rate is assumed to indicate market maturity. High market growth indicated emerging markets with a promising future, low market growth indicates mature markets with limited future potential and negative growth indicates declining markets. Relative market share are considered strong competitors, and business with low relative market share are considered weak competitors. The theory behind the growth-share model also assumes that an organisation must generate cash flows from business with a strong competitive position in mature markets and invest these funds in business with high future potential. Stars are highly desirable business because they have a high market growth rate and high relative market share. But because they are in high competitive industries, they require large investments to sustain their position, and they consequently produce low profit.

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Dogs are low market share, low growth business that drain capital and produce little or zero profit. The organisation should consider liquidating or divesting such business. Cash cows are dominant business in low growth industries that require little investment to maintain their market share and consequently produce substantial profits. Because they are no longer growing, these businesses should be milked for funds to invest in stars and question marks. Question marks are business in industries that are doing well, but where the specific business unit is not doing as good as the industry. They are called question marks because they are an unknown for management. In general the theory suggests that, given the proper investment in product development, plant capacity, and marketing, the business can gain market share and become stars, but without proper investment the business eventually go into decline and become dogs. The level of proper investment for each business, however, is industry and business specific, and the growth share model is not helpful at that level of decision making.

Cash Cow A business unit that has a large market share in a mature, slow growing industry. Cash cows require little investment and generate cash that can be used to invest in other business units. Keep investments low, while keeping profits high. Profits and cash generation should be higher because of low growth. (high market share, low growth) Star A business unit that has a large market share in a fast growing industry. Stars may generate cash, but because the market is growing rapidly they require investment to maintain their lead. If successful, a star will become a cash cow when its industry matures. Invest further in these- they incur high costs, but they are market leaders and should also generate lots of cash. (high market share, high growth) Question Mark (or Problem Child) A business unit that has a small market share in a high growth market. These business units require resources to grow market share, but whether they will succeed and become stars in unknown. These have poor cash inflow, but have high demands and low returns due to low market share. Efforts should be made to change market share. If this is not possible, this will likely turn into a dog as growth slows down. (low market share, but high growth) Dog A business unit that has a small market share in a mature industry. A dog may not require substantial cash, but it ties up capital that could better be deployed elsewhere. Unless a dog has some other strategic purpose, it should be liquidated if there is little prospect for it to gain share. Avoid and reduce the number of dogs. (low market share, low growth) 7.8.3 Uses and Benefits of the BCG Matrix Following are the uses and benefits of the BCG matrix: BCG model is helpful for managers to evaluate balance in the firms current portfolio of Stars, Cash Cow, Question Marks and Dogs. BCG method is applicable to large companies that seek volume and experience efforts. The model is simple and easy to understand. It provides a base for management to decide and prepare for future actions.

7.8.4 Limitations of the BCG Matrix Following are the limitations of BCG matrix: It neglects the effects of synergy between business units. High market share is not the only success factor. Market growth is not the only indicator for attractiveness of a market. Sometimes Dogs can earn even more cash as Cash Cows.
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The problems of getting data on the market share and market growth. There is no clear definition of what constitutes a market. A high market share does not necessarily lead to profitability all the time. The model uses only two dimensions market share and growth rate. This may temp management to emphasise a particular product, or to divest prematurely. A business with low market share can be profitable too. The model neglects small competitors that have fast growing market shares.

7.9 G. E. Multi Factorial Analysis

The GE matrix is a technique used in brand marketing and product management to help a company decide what products to add to its product portfolio, and which market opportunities are worthy of continued investment. The business portfolio is the collection of businesses and products that make up the company. The optimal business portfolio is one that fits perfectly to the companys strengths and helps to exploit the most attractive industries or markets. The best business portfolio is one that fits the companys strengths and helps exploit the most attractive opportunities.

7.10 Factors Affecting Market Attractiveness

Following are the factors affecting market attractiveness Market Attractiveness Market size Market growth Market profitability Competitive pressure Government regulations Environmental factors Prices levels Social factors Overall risk of returns in the industry Opportunity to differentiate products and services R&D Material supplies Business Strengths Market share Customer & Market knowledge Customer satisfaction Cost efficiency Technology Product quality Financial strength Promotional activities Brand image Distribution channels Managerial skill Segmentation

Table 7.1 Business attractiveness and business strengths

7.11 PEST Analysis

The acronym PEST is used to describe a framework for the analysis of the macro-environmental factors. A PEST analysis fits into an overall environmental scan. PEST analysis helps scanning the external macro environment in which the firm operates.

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Social forces

Technological forces

Political forces

Your business

Economic forces

Fig. 7.2 PEST analysis Political factors Political factor includes government regulations and legal issues and define both formal and informal rules under which the firm must operate. Economic factors Economic factors affect the purchasing power of potential customers and the firms cost of capital. Social factors Social factors include the demographic and cultural aspects of the external micro-environment. These factors affect customer needs and the size of potential markets. Technological factors Technological factors can lower barriers to entry. Reduce minimum efficient production levels, and influence outsourcing decisions. The PEST analysis is a useful tool for understanding market growth or decline, and as such the position, potential and direction for a business. A PEST analysis is a business measurement tool. PEST is an acronym for political, economical, social and technological factors, which are used to assess the market for a business or organisational unit. PEST analysis is similar to SWOT analysis, it is simple, quick and uses four key perspectives. As PEST factors are essentially external, completing a PEST analysis is helpful prior to completing a SWOT analysis.

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Summary
After designing strategies to be adopted in plans and finalising them, the top management should take necessary steps for implementing the designed strategy. Necessary resources, both monetary and non-monetary, are to be provided to the concerned departments for implementations. Strategy formulation and implementation are intertwined. They are not separate activities. Strategy formulation is concerned with the development of long-term plans for effective management of environmental opportunities and threats, in the light of the organisational strengths and weaknesses. Strategy implementation is the process by which strategies and policies are out to action through the development of programs, budgets and procedures. For the smooth running of each strategic operational plan, the concerned managers and the key workforce like managers, have to be delegated with certain authority and power. This is required for smooth execution of the plans. The co-ordination between various operations within the same task is very essential for smooth discharging of the task. There is a necessity of decision support system. The quality of decision depends on understanding the circumstances surrounding an issue and knowing the available alternatives and states of nature. Management Information System (MIS) reduces risk and uncertainty in decision-making. There will be little difference between the actual and planned programmes. This has to be closely observed and the deviations have to be informed to the top management through a sound feedback system. Successful implementation of a strategy depends on how efficient the organisation is in allocating resources, designing suitable structure, formulating functional strategies, etc. Environmental scanning reveals various potential opportunities to the organisation. These opportunities are to be categorised into various projects. Implementation stage ensures that the project is ready for the operation. Licensing procedure indicates the permission to be obtained from the government. Industries Development and Regulation Act, 1951 (IDRA) provides licensing system for the industries. SEBI issues guidelines from time to time to supervise matters under its control. Foreign collaboration, in a way, is a partnership between home and foreign industrialist for the establishment of joint venture in the home country. The objective of exchange control is to regulate the demand for foreign exchange within the limits set by the available supply. Government formulates policies to safeguard the interests of the labour. These legislative rules certainly influence strategy formulation. Customers are the central focus of any activity of an organisation. Strategists should prioritise activities for the optimum utilisation of available resources. Organisation structure is not a mere graphical representation of activities and people responsible for various activities. All products and services have certain life cycles. The life cycle refers to the period from the products first launch into the market until its withdrawal. The BCG method is based on the product life cycle theory that can be used to determine what priorities should be given in the product portfolio of a business unit. Market growth rate is assumed to indicate market maturity. Cash cows are dominant business in low growth industries that require little investment to maintain their market share and consequently produce substantial profits. Question marks are business in industries that are doing well, but where the specific business unit is not doing as good as the industry.

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BCG model is helpful for managers to evaluate balance in the firms current portfolio of Stars, Cash Cow, Question Marks and Dogs. The GE matrix is a technique used in brand marketing and product management to help a company decides what products to add to its product portfolio, and which market opportunities are worthy of continued investment. The acronym PEST is used to describe a framework for the analysis of the macro-environmental factors. Technological factors can lower barriers to entry. Reduce minimum efficient production levels, and influence outsourcing decisions.

References
The BCG Growth-Share Matrix, [Online] Avaialble at: <http://www.netmba.com/strategy/matrix/bcg/> [Accessed 17 May 2013]. PEST Analysis [Pdf] Available at: <https://depts.washington.edu/oei/resources/toolsTemplates/PEST_analysis. pdf> [Accessed 17 May 2013]. Jeffs, C., 2008. Strategic Management, SAGE. Katsioloudes, M., 2006. Strategic Management, 2nd ed., Routledge. 2012. BCG MATRIX, [Video online] Available at: <http://www.youtube.com/watch?v=RVJ7Gc0yIL4> [Accessed 17 May 2013]. 2013. BCG MATRIX, [Video online] Available at: <http://www.youtube.com/watch?v=TXKU7gVnBqs> [Accessed 17 May 2013].

Recommended Reading
Ghosh, P. K., 1996. Business policy strategic planning and Management. 2nd ed., Sultan Chand & Sons. Litman, J., 2008. Driven: Business Strategy, Human Actions, and the Creation of Wealth. 1st ed., Strategy & Execution, LLC. Saloner, G., Shepard, A. & Podolny, J., 2008. Strategic Management, 2nd ed., John Wiley & Sons.

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Self Assessment
1. ___________ and implementation are intertwined. a. Strategy formulation b. Strategic management c. Strategic planning d. Strategic implementation 2. Which of the following statements is false? a. Business organisation is not static. It constantly interacts with the external environment and its own internal environmental changes. b. Strategy implementation is concerned with the development of long-term plans for effective management of environmental opportunities and threats, in the light of the organisational strengths and weaknesses. c. Strategy formulation is concerned with the development of long-term plans for effective management of environmental opportunities and threats, in the light of the organisational strengths and weaknesses. d. Strategy implementation is the process by which strategies and policies are out to action through the development of programs, budgets and procedures. 3. What is the secondary function of the organisation, based on the strategy formulated? a. Strategy formulation b. Strategic management c. Strategic planning d. Strategy implementation 4. What reduces risk and uncertainty in decision-making? a. Management Information System (MIS) b. Decision Support System (DSS) c. Industries Development and Regulation Act(IDRA) d. Capital Issues Control Act, 1956 (CICA) 5. _______ shapes the information to management needs which is provided by MIS. a. MIS b. IDRA c. DSS d. CICA 6. Which of the following statements is false? a. Successful implementation of a strategy depends on how efficient the organisation is in allocating resources, designing suitable structure, formulating functional strategies, etc. b. Environmental scanning does not reveal potential opportunities to the organisation. c. Priority helps organisation to choose an appropriate alternative for further development. d. Environmental scanning reveals various potential opportunities to the organisation. These opportunities are to be categorised into various projects.

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7. Which of the following statements is true? a. SEBI requirement indicates the permission to be obtained from the government. b. Foreign collaboration indicates the permission to be obtained from the government. c. Licensing procedure indicates the permission to be obtained from the government. d. Business incentives indicate the permission to be obtained from the government. 8. _________, in a way, is a partnership between home and foreign industrialist for the establishment of joint venture in the home country. a. Foreign collaboration b. Business incentives c. Licensing procedure d. SEBI requirement 9. What must be formulated to suit the basic objective of the organisation? a. Principle of span of control b. Principle of activity structure c. Principle of specialisation d. Principle of exception 10. In ____________, human, technical and financial factors must be properly balanced towards the accomplishment of the objectives. a. principle of efficiency b. principle of unity of direction c. principle of continuity d. principle of balance

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Chapter VIII Social Responsibility

Aim
The aim of this chapter is to: introduce the concept of social responsibility explain various responsibilities of an organisation towards society elucidate social audit

Objectives
The objectives of this chapter are: enlist the characteristics of social responsibility explain the components and areas of social responsibility elucidate the importance of business ethics

Learning outcome
At the end of this chapter, you will be able to: explain social responsibility in detail describe social audit explain components of social responsibility

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8.1 Introduction
The social responsibility of a business refers to such decisions and activities of a business firm which provide for the welfare of the society as a whole along with the earning of profit for the firm. The business firm functions and acts in such a way that it will accomplish social gains along with the traditional economic gains in which the business firm is interested. The concept of social responsibility is based on the idea that a business functions in the society and uses the physical and human resources of the society for its operations and hence it is under the obligation to serve the society. The concept of social responsibility is also based on the idea that anything good done by a business firm for the society is good for the business itself in the long run.

8.2 Characteristics of Social Responsibility

Following are the characteristics of social responsibility: The concept of social responsibility of a business applies to all business organisations both in private and public sectors which have been established for earning profits. Social responsibility of a business is continuous process as business is a regular and an on-going activity. The concept of social responsibility of business lays emphasis on the all-round development of all the sectors of the business. The concept of social responsibility of business is the basis of the success of business. Today, the business cannot survive without the active support of the society.

8.3 Components and Areas of Social Responsibility

Following are the components of social responsibility: 8.3.1 Towards Owners of Enterprise The responsibilities of business enterprises towards their owners are: Payment of a fair rate of dividend regularly. Maximisation of the net present value of the business through effective management. Ensuring full participation of owners in the management of the affairs of the enterprise. Supplying of accurate and comprehensive reports giving full information on the working of the company. Disclosing of financial information and clarifying doubts, if any. Accessibility of chairman and directors to the owners for getting information relating to the company.

8.3.2 Towards Workers Some of the responsibilities of a business enterprise towards its workers are: Security of job with fair wages, bonus, profit-sharing, etc. Fair promotional practices. Equal opportunity for growth and development within the organisation. Facilities for training and opportunity to the workers for improving their skill. Encouraging participative management in the company. Providing employee welfare and social security and better working facilities. Protecting workers from occupational hazards. Encouraging the development of good trade union leadership. Change in the attitude of management towards workers and realise the fact that the management is the management of men and not machines.

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8.3.3 Towards Consumers The responsibilities of business enterprise towards consumers of its products are: Ensuring availability of products in the right quantity, at the right place and at the right time. Supplying products of high quality. Charging reasonable prices for its products. Using correct measures. Providing good after sales services. Avoiding restrictive trade practices and other undesirable methods to exploit the consumers. Encouraging the formation of associations of consumers and consumers advisory councils and maintaining close links with them. Developing appropriate products and services for satisfying the needs of the consumers. Taking such measures which would promote consumer satisfaction and welfare.

8.3.4 Towards the Society The obligations of a business to the society are: Optimising the use of resources. Producing goods and services efficiently and contributing to the economic well-being of the society. Providing public amenities and avoiding the conditions of slum and congestion. Maintaining environmental ecology and adopting anti-pollution measures. Participating in social welfare programmes, such as adopting villages for their all-round development, providing for medical facilities, sanctioning educational scholarships to deserving student, constructing shelters at the bus stops, contributing to funds meant for the benefits of the society, etc. Ensuring that the gains of improved production of the enterprises are shared by all the constituents of the society namely, management, shareholders, workers and consumers.

8.3.5 Toward the Government The obligations of business enterprise to the government are: Strictly observing the provisions of the various laws and enactments. Paying taxes and other dues to the government regularly and honestly. Extending full support to the government in its efforts to solve national problems such as unemployment, food, inflation, regional imbalance in economic development, etc.

8.3.6 Toward the Weaker Section of Society The obligations of business enterprise to the weaker section of the society are: Helping the weaker sections by providing them opportunity for growth. Encouraging voluntary organisations and agencies engaged in improvement of the weaker section.

8.3.7 Towards the Economic Policy of State The obligations of a business enterprise towards the economic policy of State are: Encouraging development of small business, import substitution and self-reliance and dispersal of economic activity. Producing goods to meet the needs of the various sections of society. Helping the government in its efforts to hold the price lines.

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8.4 Arguments Against Social Responsibility of Business

Social responsibility is an additional responsibility. Business enterprise has economic responsibility of maximising profits to serve the interests of the owners, employees and creditors. Assumptions of two responsibilities simultaneously are certainly not in the best interest of the business. The concept of social responsibility is quite vague. What welfare activities are regarded as activities undertaken in discharging their social responsibilities are not specifically mentioned. Business units have already rendered great services to the society by providing goods at lower prices. Business concern is not accountable for the poor welfare service rendered by it. The social welfare is the responsibility of the Government and not that of business concerns. Business concern should justify its basic objective of economic performance. It is not concerned with any other obligations including social responsibility.

8.5 Importance of Business Ethics

Following points illustrates the importance of business ethics: They determine business objectives. They contribute to better management decisions. They compel business units to meet basic human needs. They increase goodwill of the enterprise. The business unit which is ethical in its activities will be respected by the society. They act as tool for evaluating the business practices of a concern.

8.6 Social Responsibility for Economic Growth

Organisations draw inputs from the society in which it operates. These inputs are converted into products or services which serve the society the most. Organisations must not concentrate only on the principle of profit maximisation. Consideration of economic growth of the society is vital. Organisations must utilise available opportunities in the environment for the economic development of the society. Undertaking new ventures, organisation can bring in more revenue into the organisation. This also leads to generation of new employment opportunities to the people of the society. Employment opportunities increase standard of living of the people. Following are the ways in which social responsibility helps developing economy: Optimum utilisation of resources: Resources are limited in nature. By following social responsibilities, an organisation is expected to use resources in a justified way. Resources are to be used for the productions of those goods and services which are not detrimental to the interest of the society. Organisation is not expected to produce unnecessary and unwanted goods. Production of such goods not only reduces national resources, but also encourages people to spend on unnecessary consumption. Producing goods and services efficiently and contributing to the economic well-being of society: Organisations are expected to produce goods without wastage. Organisations are expected to practice business process reengineering. This helps the organisation to identify new and improved ways of doing improvement in the product. Product safety is also taken care of. All these factors contribute to the economic well-being of the society. Providing public amenities and avoiding the conditions of slums and congestion: Organisations are expected to protect the surrounding environment. It cannot handover this responsibility to the government. If healthy environment exists, the organisation takes initiative to avoid slums and congestion and pollution of surroundings. Maintain environmental ecology and adopting anti-pollution measures. Helping the weaker section of the society by providing them an opportunity for growth. Encouraging development of small business, import substitution and self-reliance and dispersal of economic activity.
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8.7 Outcomes of Social Responsibility

Following are the outcomes of social responsibility: Their environment concerns may enable them to charge premium prices and gain brand loyalty. Their trustworthiness may help them generate enduring relationships with suppliers and distributors. They can attract outstanding employees who prefer to work for a responsible job. They are more likely to be welcomed into foreign country. They can utilise the goodwill to take advantage of government support when needed. They can get capital more easily from the investors.

8.8 Social Audit

Every organisation obtains critical inputs from the environment and converts them into products and services to be used by the society at large. Hence, it should not be money making machine alone; it has to take care of society interest in all its operations. It is not, therefore, supposed to pollute the environment, discriminate in employment, make money through illegal means, resort to misleading advertising, offer products of dubious quality, etc. whenever an organisation tries to exploit customers through immoral ways, society of large comes out with certain checks and balances. The customers may protest violently, seek justice through courts and press the government to put an end to such unlawful operations.

8.9 Need for Social Audit

Business may postpone investments in social areas, while trying to maximise profits, and expect others to take the initiative. This way, it is hoped, the organisation would be able to price its products much cheaper and get ahead of competition. The general public, government and social activists, such organisations may not pursue socially responsible actions in the longer interest of society. Business is a part of society. It receives various inputs from society, obtains benefits from the government and services only when both these external agencies welcome its products positively. While converting the crucial resources into useful products, it must, therefore, behave responsible without using its power in any unfavorable way.

8.10 Types of Social Audit

Following are the types of social audit. 8.10.1 Social Process Audit It tries to measure the effectiveness of those activities of the organisation which are largely taken up to meet certain social objectives. Corporate executives in this vase try to examine what they are doing and how they are doing it. The method involves four steps: Find circumstances leading to the commencement of the social audit programme. List goals of the social programme. State how the organisation is going to meet such goals. Quantitatively evaluate what is actually done as against what has been planned.

8.10.2 Financial Statements Format Social Audit In this type, the financial statements show conventional financial information plus information regarding social activities. The balance sheet should show a list of social assets on one side and social commitments, liabilities and equity on the other side. The income statement should reveal social benefits, social costs and the net social income provided by the company operations to the staff, community, general public and clients. 8.10.3 Macro-Micro Social Indicator Audit This type of audit requires evaluation of a companys performance in terms of social measures against macro social measures. The macro social factors include the social goals expected by society in terms of health, safety, education, housing, accidents, pollution control measures, etc. The micro social indicators are measures of the performance of the company in those areas measured by macro social indicators.
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8.10.4 Social Performance Audit In developed countries, several interest groups including church groups, universities, mutual funds, consumer activists regularly measure, evaluate and rank socially responsible companies on the basis of their social performance. Regular opinion polls are carried out to find companies that initiate social efforts in a proactive manner and earn the goodwill of the general public. 8.10.5 Partial Social Audit In this case, the company undertakes to measure a specific aspect of its social performance because it considers that aspect to be very important or because its social efforts for the time being are confined to that area only.

8.11 Uses of Social Auditing

Following are the uses of social auditing: To monitor the social and ethical impact and performance of the organisation. To provide a basis for shaping management strategy in a socially responsible and accountable way, and to inform marketing and other strategies. To facilitate organisational learning about how to improve social performance. To facilitate the strategic management of institutions. To inform the community, public, other organisations and institutions in the allocations of their resources (time and money), this refers to issues of accountability, ethics and marketing.

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Summary
The social responsibility of a business refers to such decisions and activities of a business firm which provide for the welfare of the society as a whole along with the earning of profit for the firm. The concept of social responsibility of business applies to all business organisations both in private and public sectors which have been established for earning profits. The responsibility of business enterprises towards their owners is payment of a fair rate of dividend regularly. Social responsibility is an additional responsibility. Business enterprise has economic responsibility of maximising profits to serve the interests of the owners, employees and creditors. Business units have already rendered great services to the society by providing goods at lower prices. Business concern should justify its basic objective of economic performance. It is not concerned with any other obligations including social responsibility. Organisations must utilise available opportunities in the environment for the economic development of the society. Every organisation obtains critical inputs from the environment and converts them into products and services to be used by the society at large. Business may postpone investments in social areas, while trying to maximum profits, and expect others to take the initiative. This way, it is hoped, the organisation would be able to price its products much cheaper and get ahead of competition. The macro social factors include the social goals expected by society in terms of health, safety, education, housing, accidents, pollution control measures, etc. The micro social indicators are measures of the performance of the company in those areas measured by macro social indicators.

References
Thomas, G., Corporate Social Responsibility: A definition, [Pdf] Available at: <http://business.curtin.edu.au/ local/docs/GSB_Working_Paper_No._62_Corp_Social_Resp_A_definition_Thomas___Nowak.pdf> [Accessed 13 May 2013]. WHAT IS CORPORATE SOCIAL RESPONSIBILITY?, [Pdf] Available at: <http://www.pathfinder.org/ publications-tools/pdfs/CATALYST-What-is-Corporate-Social-Responsibility-8-Questions-and-Answers.pdf> [Accessed 13 May 2013]. Harrison, J. S., 2009. Foundation in Strategic Management. 5th ed., South-Western College Pub. Robinson, R. B. & Pearce, J., 2007. Strategic Management: Formulation, Implementation, and Control. 10th ed., McGraw-Hill. 2011. Social Responsibility: What is social responsibility?, [Video online] Available at: <http://www.youtube. com/watch?v=_F8IYViE04M> [Accessed 17 May 2013]. 2008. Corporate Social Responsibility, [Video online] Available at: <http://www.youtube.com/ watch?v=iXsaYR1Izqw> [Accessed 17 May 2013].

Recommended Reading
Hitt, M. A., 2010. Strategic Management: Concepts and Cases: Competitiveness and Globalization. 9th ed., South-Western College Pub. David, F. R., 2008. Strategic Management: Concepts and Cases. 12th ed., Prentice Hall. Hoskisson, R. E., 2006. Strategic Management Concepts. 7th ed., South-Western College Pub.

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Self Assessment
1. Which of the following statements is false? a. The business firm functions and acts in such a way that it will accomplish social gains along with the traditional economic gains in which the business firm is interested. b. The concept of social responsibility is based on the idea that a business functions in the society and uses the physical and human resources of the society for its operations and hence it is under the obligation to serve the society. c. The concept of social responsibility is also based on the idea that anything good done by a business firm for the society is good for the business itself in the long run. d. The concept of social welfare is also based on the idea that anything good done by a business firm for the society is good for the business itself in the long run. 2. The concept of ___________ of business applies to all business organisations both in private and public sectors which have been established for earning profits. a. business strategy b. social responsibility c. strategic planning d. strategic formulation 3. The responsibility of business enterprises towards their _________ is ensuring full participation of owners in the management of the affairs of the enterprise. a. workers b. society c. owners d. consumers 4. Developing appropriate products and services for satisfying the needs of the consumers, towards who is this responsibility of the business enterprise? a. Workers b. Society c. Owners d. Consumers 5. Which of the following statements is false? a. Business concern is accountable for the poor welfare service rendered by it. b. The social welfare is the responsibility of the Government and not that of business concerns. c. Business concern should justify its basic objective of economic performance. It is not concerned with any other obligations including social responsibility. d. Business concern is not accountable for the poor welfare service rendered by it. 6. Which of the following statements is true? a. Organisations draw outputs from the society in which it operates. These outputs are converted into products or services which serve the society. b. Organisations must not concentrate only on the principle of profit maximisation. c. Organisations draw inputs from the society in which it operates. These inputs are converted into products or services which do not serve the society. d. Organisations must concentrate only on the principle of profit maximisation.

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7. Which type of audit tries to measure the effectiveness of those activities of the organisation which are largely taken up to meet certain social objectives? a. Financial statements format social audit b. Macro-micro social indicator audit c. Social process audit d. Social performance audit 8. _________ type of audit requires evaluation of a companys performance in terms of social measures against macro social measures. a. Financial statements format social audit b. Macro-micro social indicator audit c. Social process audit d. Social performance audit 9. Which of the following statements is true? a. Organisations must utilise available opportunities in the environment for the economic development of the society. b. Organisations must concentrate only on the principle of profit maximisation. c. Organisations must not utilise available opportunities in the environment for the economic development of the society. d. Organisations must not concentrate only on the principle of profit minimisation. 10. _______ is not accountable for the poor welfare service rendered by it. a. Business concern b. Business strategy c. Strategic planning d. Strategic implementation

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Case Study I
Trouble at Tiffany in Japan The internationally renowned jewellry company, Tiffany had been facing problems in their second largest market, Japan, since 2002. After performing commendably even during the times of deep economic recession in Japan, Tiffanys sales in Japan was slipping since the last couple of years, while other jewellry retailers were flourishing. The case explores the probable reasons for Tiffany not performing as per their expectation. Tiffanys core customers had remained the affluent class, but to attract younger and less affluent customers, it also introduced and promoted less expensive products which had tarnished its elite image. Their retailing strategy of opening majority stores in department stores through which traffic of their target customers was decreasing, had backfired. Tiffanys principal strategy in Japan had been to focus on their expensive bridal jewellry especially traditional engagement rings. With changes in the Japanese traditions, preferences of Japanese consumers and with the aging of the Japanese population their strategy has turned questionable. Managing the fluctuation in the Yen-Dollar exchange rate, also became a matter of concern. (Source: Trouble at Tiffany in Japan, [Online]Available at: <http://www.ibscdc.org/Case_Studies/Strategy/ Troubled%20Times/TRT0080A.htm> [Accessed 17 May 2013]). Questions 1. What is the ranking of Tiffany in Japanese market? Answer Tiffany is the second largest market in Japan. 2. Which customer class was Tiffany targeting at? Answer Tiffany was targeting at affluent class customer. 3. Why was Tiffany not performing well in the market? Provide a suggestion to your answer. Answer Tiffany was targeting only at the affluent class people, their retailing strategy of opening majority stores in department stores through which traffic of their target customers was decreasing, had backfired. Tiffany should concentrate more on younger and less affluent class people to perform well in the market.

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Case Study II
Indias Branded Vada Pav Chain Jumbo Kings Ambitious Plans Jumbo King, a branded Vada Pav fast food chain which started its business in the Indian city, Mumbai in 2001 with a capital of INR200,000 decided to expand its business across the other Indian States. The companys business model was inspired by McDonalds and Subway and hoped to stimulate customers taste buds with its INR8 ($0.16) Vada Pavs in line with 15 cent McBurgers. Most of the companys outlets were situated near the railway stations and busy places where a constant stream of commuters as potential customers was assured. Jumbo Kings business focused on delivering good service, quality, cleanliness and value. But, presence of the multinational food chains, roadside vendors and Udipi restaurant etc., proved to be a challenge for Jumbo King to attract customers. It remained to be seen whether Jumbo King would be able to deliver McDonalds and Subways experience in the long run. (Source: Indias Branded Vada Pav Chain Jumbo Kings Ambitious Plans, [Online]Available at: <http://www. ibscdc.org/Case_Studies/Strategy/Vision,%20Mission%20and%20Goals/VMG0016IRC.htm> [Accessed 17 May 2013]). Questions 1. Who were the competitors for Jumbo King? 2. Provide an emergence and growth strategy of Jumbo King. 3. What are the oppurtunities and challenges for Jumbo King?

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Case Study III

MindTree Consulting: Designing and Delivering its Mission and Vision MindTree Consulting is an international IT consulting company with revenues of about $103 million in 2006, an increase of over 85% from the previous years revenue of $55 million. Besides, MindTree had several laurels to its credit. It was the worlds youngest company to be assessed at Level 5 in both CMMI and P-CMM. The company was ranked among the top five Great Places to Work in 2004 in a study conducted by Grow Talent Company and Business world and rated as one of the Best Employers in India in 2004 by Hewitt Associates. When MindTree was established in 1999, the founders had set a clear Mission and Visions keeping in mind a timeframe of 2005. The company had almost reached the vision parameters. It went on to set bigger Vision targets for the future. However, there were questions raised whether a mid-sized IT firm like MindTree can battle the big players like Wipro, Infosys, Satyam and TCS. At the same time, it was also important how the company would keep its core values and culture which formed the foundation of the company from getting diluted as the company grew bigger in size. With hurdles to cross, would MindTree achieve its vision for the future? (Source: MindTree Consulting: Designing and Delivering its Mission and Vision, [Online]Available at: <http:// www.ibscdc.org/Case_Studies/Strategy/Vision,%20Mission%20and%20Goals/VMG0013B.htm> [Accessed 17 May 2013]). Questions 1. Develop a mission and vision statement for MindTree? 2. Explain how a mid sized IT firm can achieve its vision in a short span of time? 3. What are the challenges faced by MindTree?

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Goyal, A. & Goyal, M., 2010. Business Environment, FK Publications. Harrison, J. S., 2009. Foundation in Strategic Management. 5th ed., South-Western College Pub. Harrison, J. S., 2009. Foundation in Strategic Management. 5th ed., South-Western College Pub. Hunger, J. D., 2006 Essentials of Strategic Management. 4th ed., Prentice Hall. Jain, T. R., Trehan, B. & Trehan, R., 2010. Business Environment, FK Publications. Jeffs, C., 2008. Strategic Management, SAGE. Katsioloudes, M., 2006. Strategic Management, 2nd ed., Routledge. Koontz, H. & Weihrich, H., 2007. Essentials Of Management, 7th ed., Tata McGraw-Hill Education. Levels of Management, [Pdf] Available at: <http://www.managementstudyguide.com/management_levels.htm> [Accessed 14 May 2013]. Mamoria, 2001. Business Planning and Policy. Himalaya Publishing House. PEST Analysis [Pdf] Available at: <https://depts.washington.edu/oei/resources/toolsTemplates/PEST_analysis. pdf> [Accessed 17 May 2013]. Robinson, R. B. & Pearce, J., 2007. Strategic Management: Formulation, Implementation, and Control. 10th ed., McGraw-Hill. S.W.O.T. Analysis, [Pdf] Available at: <http://www.ciri.org.nz/downloads/SWOT%20Analysis.pdf> [Accessed 17 May 2013]. Steiner, G. A., 2010. Strategic Planning. Kindle edition. Free Press. Strategy - Definition and Features, [Online] Available at: <http://www.managementstudyguide.com/strategydefinition.htm> [Accessed 14 May 2013]. SWOT analysis -an introduction, [Pdf] Available at: <http://gametlibrary.worldbank.org/FILES/907_How%20 to%20do%20SWOT%20analysis.pdf> [Accessed 17 May 2013]. The BCG Growth-Share Matrix, [Online] Avaialble at: <http://www.netmba.com/strategy/matrix/bcg/> [Accessed 17 May 2013]. The Five Components of a Business Strategy, [Video online] Available at: <http://www.youtube.com/ watch?v=BnNW5VViGJs> [Accessed 14 May 2013]. The Global Business Environment, [Video online] Available at: <http://www.youtube.com/watch?v=mcmsSV LQIXk&list=PL502F3D01E0D87E47> [Accessed 15 May 2013]. The Strategic Management Process, [Pdf] Available at: <http://sbaer.uca.edu/publications/strategic_management/ pdf/04.pdf>[Accessed 14 May 2013]. THE STRATEGIC MANAGEMENT PROCESS, [Pdf] Available at: <http://www.romans-group.com/pdfs/crafting. pdf>[Accessed 14 May 2013]. Thomas, G., Corporate Social Responsibility: A definition, [Pdf] Available at: <http://business.curtin.edu.au/ local/docs/GSB_Working_Paper_No._62_Corp_Social_Resp_A_definition_Thomas___Nowak.pdf> [Accessed 13 May 2013]. Top Level Management, [Online] Available at: <www.boundless.com/management/introduction-to-management/ management-levels-and-types/top-level-management/> [Accessed 16 May 2013]. WHAT IS CORPORATE SOCIAL RESPONSIBILITY?, [Pdf] Available at: <http://www.pathfinder.org/ publications-tools/pdfs/CATALYST-What-is-Corporate-Social-Responsibility-8-Questions-and-Answers.pdf> [Accessed 13 May 2013].

Recommended Reading Abell, D. F., 1980. Defining the Business: The Starting Point of Strategic Planning. Prentice Hall. Aswathappa, K., 2009. Essentials of Business Environment, Global Media. Cherunilam, F. 2009. Business Environment, Global Media Dave, B., 2009. Business Environment in Modern Era, Global Media.
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David, F. R., 2008. Strategic Management: Concepts and Cases. 12th ed., Prentice Hall. Ghosh, P. K., 1996. Business Policy Strategic Planning and Management. 2nd ed., Sultan Chand & Sons. Ghosh, P. K., 1996. Business policy strategic planning and Management. 2nd ed., Sultan Chand & Sons. Greer, C. R., 2000. Strategic Human Resource Management: A General Managerial Approach. 2nd ed., Prentice Hall. Hitt, M. A., 2010. Strategic Management: Concepts and Cases: Competitiveness and Globalization. 9th ed., South-Western College Pub. Hoskisson, R. E., 2006. Strategic Management Concepts. 7th ed., South-Western College Pub. Hoskisson, R. E., 2006. Strategic Management Concepts. 7th ed., South-Western College Pub. Leontiades, J., 1987. Multinational corporate strategy, Lexington Books. Litman, J., 2008. Driven: Business Strategy, Human Actions, and the Creation of Wealth. 1st ed., Strategy & Execution, LLC. Litman, J., 2008. Driven: Business Strategy, Human Actions, and the Creation of Wealth. 1st ed., Strategy & Execution, LLC. Prasad, V., 2010. Business Environment, Gyan Publishing House. Reddy, J., 2010. Business Environment, APH Publishing. Robinson, R. B. & Pearce, J., 2007. Strategic Management: Formulation, Implementation, and Control. 10th ed., McGraw-Hill. Saloner, G., Shepard, A. & Podolny, J., 2008. Strategic Management, 2nd ed., John Wiley & Sons. Shaikh, S., 2010. Business Envrionment, 2nd ed., Pearson Education India. Smith, R. D., 2004. Strategic Planning. 2nd ed.,. Routledge. Sutton, C. J., 1980. Economics and Corporate Strategy, CUP Archive. Thompson, J. L., 1997. Strategic Management: Awareness and Change. 2nd ed., International Thompson Business Press, London. Thompson, J. L., 1997. Strategic Management: Awareness and Change. 2nd ed., International Thompson Business Press, London. Thompson, J. L., 2001. Understanding corporate strategy,Cengage Learning EMEA.

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Self Assessment Answers

Chapter I 1. a 2. d 3. c 4. b 5. d 6. a 7. c 8. b 9. d 10. b Chapter II 1. d 2. c 3. a 4. a 5. b 6. c 7. a 8. b 9. d 10. c Chapter III 1. d 2. a 3. c 4. c 5. b 6. c 7. d 8. a 9. c 10. b Chapter IV 1. d 2. a 3. c 4. b 5. a 6. d 7. c 8. b 9. b 10. c

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Chapter V 1. b 2. a 3. c 4. d 5. a 6. c 7. d 8. c 9. b 10. b Chapter VI 1. d 2. b 3. a 4. c 5. d 6. a 7. c 8. b 9. a 10. b Chapter VII 1. a 2. b 3. d 4. a 5. c 6. b 7. c 8. a 9. b 10. d Chapter VIII 1. d 2. b 3. c 4. a 5. a 6. b 7. c 8. b 9. a 10. a

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