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MB0052 – Strategic Management and Business Policy (Assignment) Parichay Kumar Pathak

Name: - Parichay Kumar Pathak

Course: - M. B. A. Semester-4

Specialization :- Total Quality Management(TQM)Roll Number: 511019431


Name: - Parichay Kumar PathakRoll Number: 511019431Course: - Master of Business Administration Semester- 4th

Subject: - MB0052 – Strategic Management and Business PolicyBook ID: B1241

Strategic Management and Business Policy


Fall 2011

Master of Business Administration-MBA Semester 4“Total Quality Management” Specialization

MB0052 – Strategic Management and Business Policy - 4 CreditsNote: Each question carries 10 Marks. Answer all the questions.

(Book ID: B1241)Assignment Set- 1

(60 Marks)

Q.1 What similarities and differences do you find in BCG business portfolio matrix, Ansoff growth matrix and GE growth pyramid. (10 marks)

Answer :-

BCG portfolio matrix 2 Igor Ansoff growth matrixThe BCG matrix is a portfolio management tool used in product life cycle. BCG matrix is often used to highlight the products which get more funding and attention within the company. During a products life cycle, it is categorised into one of four types for the purpose of funding decisions. Figure 3.5 below depicts the BCG matrix.

Figure :- BCG Growth Share MatrixQuestion Marks (high growth, low market share) are new products with potential success, but they need a lot of cash for development. If such a product gains enough market shares to become a market leader,

The Ansoff Growth matrix is a tool that helps organisations to decide about their product and market growth strategy. Growth matrix suggests that an organisations attempts to grow depend on whether it markets new or existing products in new or existing markets. Ansoff's matrix suggests strategic choices to achieve the objectives. Figure 3.6 depicts Ansoff growth matrix.

Figure :- Ansoff Growth MatrixMarket penetration Market penetration is a strategy where the business focuses on selling existing products into existing markets. This increases the revenue of the organisation.

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which is categorised under Stars, the organisation takes money from more mature products and spends it on Question Marks.Stars (high growth, high market share) are products at the peak of their product life cycle and they are in a growing market. When their market rate grows, they become Cash Cows. Cash Cows (low growth, high market share) are typically products that bring in far more money than is needed to maintain their market share. In this declining stage of their life cycle, these products are milked for cash that can be invested in new Question Marks.Dogs (low growth, low market share) are products that have low market share and do not have the potential to bring in much cash. According to BCG matrix, Dogs have to be sold off or be managed carefully for the small amount of cash they guarantee.The key to success is assumed to be the market share. Firms with the highest market share tend to have a cost leadership position based on economies of scale among other things. If a company is able to apply the experience curve to its advantage, it should able to produce and sell new products at low price, enough to garner early market share leadership.Limitations of BCG matrix:The use of highs and lows to form four categories is too simpleThe correlation between market share and profitability is questionable. Low share business can also be profitable.Product lines or business are considered only in relation to one competitor: the market leader. Small competitors with fast growing shares are ignored.Growth rate is the only aspect of industry attractivenessMarket share is the only aspect of overall competitive position

Market development Market development is a growth strategy where the business seeks to sell its existing products into new markets. This means that the product is the same, but it is marketed to a new audience.Product development Product development is a growth strategy where a business aims to introduce new products into existing markets. This strategy may need the development of new competencies and requires the business to revise products to appeal to existing markets.Diversification Diversification is the growth strategy where a business markets new products in new markets. This is an intrinsically riskier strategy because the business is moving into markets in which it has little or no experience.For a business to adopt a diversification strategy, it should have a clear idea about what it expects to gain from the strategy and an honest assessment of the risks.

McKinsey/GE growth pyramidThe McKinsey/GE matrix is a tool that performs a business portfolio analysis on the Strategic Business units in an organisation. It is more sophisticated than BCG matrix in the following three aspects:

Industry (market) attractiveness - Industry attractiveness replaces market growth. It includes market growth, industry profitability, size and pricing practices, among other possible opportunities and threats.Competitive strength - Competitive strength replaces market share. It includes market share as well as technological positions, profitability, size, among other possible strengths and weaknesses.

McKinsey/GE growth pyramid matrix works with 3*3 grids while BCG matrix is 2*2 matrixes.External factors that determine market attractiveness are the following:


1. Market size2. Market growth 3. Market profitability 4. Pricing trends 5. Competitive intensity/rivalry 6. Overall risk of returns in the industry 7. Opportunity to differentiate products and services 8. Segmentation 9. Distribution structure (e.g., retail, direct, wholesale)10. Internal factors that affect competitive strength are the following:11. Strength of assets and competencies12. Relative brand strength13. Market share14. Customer loyalty15. Relative cost position (cost structure compared to competitors)16. Distribution strength17. Record of technological or other innovation18. Access to financial and other investment resources

Figure :- depicts Mckinsey/GE growth pyramid.

Q.2 Discuss the investment strategies applicable for businesses and methods to rectify faulty investment strategies. (10 marks)

Answer:-

Business Investment Strategies

Strategies of investment for new and existing businesses. Some elementary ideas to make effective business investments are:

Use of income to eliminate debtReinvestment of funds to nurture the business

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Investment in other businessesInvestment is defined as the commitment of money or capital (e.g. purchasing assets, keeping funds in a bank account etc) to generate future returns. A proper understanding of the investment strategies and a thorough analysis of the options helps an investor to create a portfolio that maximises returns and minimises exposure to risks.

Following are the ways to invest successfully:Leave a margin of safety Always leave a margin of safety in your investments to protect your portfolio.

The following are the two ways to incorporate the above principle in your investment selection process.Be conservative in your valuation assumptionsOnly buy assets dealing at substantial discounts to your conservative estimate.Invest in business which you understand Invest in a business in which you have a thorough understanding of the customers, products/services etc.

Make assumptions Make assumptions about your future performance by recognising your own limitations. Never purchase the stock until you understand the industrial economy and able to forecast the future of the company with certainty.

Measure your success Evaluate your performance by the underlying measures in business.Have a clear disposition towards price The more you pay for an asset in relation to its earnings, the lesser is your return value. So have a clear outlook towards the price.

Allocate capital by opportunity cost Allocate investments/assets to the choice which has been opted as the best among several mutually exclusive choices.

Investment strategies for new businessesA new business always involves a certain amount of risk and money. Risk might arise during development, execution, administration and making profit.

The following are the factors which affect the investment strategies of a new business:Accurate addressing of subjects in the guide It involves choosing the right name for the company, drawing up the first business plan, thoroughly updating the taxation advices and banking and insurance tips.

Developing certain character traits Determination and originality are the key traits to survive in a business. You must have the ability to organise your time and sincerely arrange the requisite effort in your work during the early days.Be focused and alert during sudden declination with immediate solutions Success can never be guaranteed in a business, but your aim must be to minimise the complicated elements. Setting up a new business always deal with certain risks, common pitfalls and financial crisis. You must be focused towards such disaster at any time with immediate solutions.Available resources Resources can be in the form of manpower, raw materials etc. Starting up a business can be a discouraging prospect. Availability of resources influences the proliferation of the new business. Investment strategies for existing businessesAn existing business needs to implement the investment strategies for a constant and enhanced proliferation. The factors implemented by an existing business are as follows:


1. Targeting long-term revenue growth2. Driving profits by revenue synergies3. Enhancing geographical footprints4. Increasing exposure to develop markets globally5. Consistent growth by acquisition activities

Example:- Krafts acquisition of Cadbury depicts the investment strategy of an existing business. Kraft Foods Inc (KFT) is the worlds second largest food company and the largest in North America. Kraft implemented its investment strategies to be one among the global powerhouses in the world market.Problems due to faulty and poor investment strategies

Faulty and poor investment strategies decline the growth of any organisation. It mainly occurs due to the poor planning process in an organisation. Certain factors which lead to faulty investment strategies are as follows:

1. Lack of training2. Poor documentation3. Lack of consultation4. Unnecessary meetings and reports5. Faulty parts/goods6. Replacing staff frequently7. Poor filing/knowledge management8. Storage and warehousing errors

The problems that arise due to faulty and poor investment strategies are as follows:1. Increase in cost due to redesigning and maintenance of faulty products/services2. Distribution problems3. Faulty time management4. Reduction of growth due to lack of competition with the business competitor

The ultimate results of faulty investment are heavy financial loses and enhanced risks.Internal methods to rectify faulty investment strategies

The methods to rectify faulty investment strategies.

Some of the methods are as follows:

1. Internal transformation2. Corporate restructuring and reorganisation 3. Financial restructuring4. Divestment strategy5. Expansion strategy6. Diversification strategy7. Vertical and horizontal integration strategy8. Building core competencies and critical success factors9. Frequent assessment report assists in detecting the problems associated with faulty investment

strategies in an organisation.10. Internal transformation

Internal transformation takes place in an organisation to sustain constant growth, survival and maintain profitability. It includes corporate restructuring, downsizing of employees etc.


The following are the reasons for internal transformation of a company:1. Pressure on owner to decrease costs2. Overstaffing3. Large and complicated company structure4. Low flexibility of staff5. Financial instability

The main objective of a company which adopts internal transformation is to increase efficiency by reaching the standards in the global market. This is achieved by holding high quality level of productivity.

The essential components of a successful business transformation are as follows:

1. Achievement2. A new level of sustainably high performance emerges3. Extraordinary and unexpected results appear throughout4. Improved synergy5. Collaboration naturally occurs across all levels6. Creativity and innovation flourishes7. Aliveness

Employees flourish as they openly express their passion, commitment and creativity towards work.Growth and development occurs both personally and professionally Shared future.

The entire organisation unites to accomplish the future and live consistently with core values

The two internal transformation processes

1. Corporate restructuring and re-organisation2. Layoffs and employee terminationCorporate restructuring and re-organisationCorporate restructuring and re-organisation are the corporate management tools for the act of re-organising and restructuring the operational, ownership and other structures of a company. Their purpose is to enhance the productivity of the organisation. Corporate restructuring and re-organisation is required by the company when it is unable to clear its debts.Corporate restructuring deals with the following factors:Correction of inadequate authority patternsCreation of a more focused diversification strategyAugmentation of strategic controlReduction of trust on bureaucratic control through reduced corporate staffDevelopment of the performance of the firm and shareholder wealthRestructuring plans include merger and acquisitions, capital reduction, debt rescheduling, rights of secured and unsecured creditors, shareholders' rights, administrative costs etc. A firm's restructuring process also includes discontinuation of business processes, closing several plants, making extensive employee cutbacks, etc.Layoffs and employee terminationLayoffs typically point to a lack of work for the employee, usually caused by economic conditions or shifts in the production of the organisation. Layoffs mean that the employee would be eligible for rehire or to be brought back to its position if conditions change or improve in the organisation.


On the other hand employee termination/downsizing/right-sizing means that the employee is terminated from job without any chances of reappointment in the organisation. The reasons for payoffs and downsizing are poor performance of the employee, violation of rules of the organisation etc.If layoffs and downsizing are used repeatedly without a thoughtful strategy, it can destroy the effectiveness of the organisation. The following are the reasons which depict how layoffs and downsizing influences the growth of the organisation:Employee layoffs allow the organisation to cut costs while preserving the relationship with its most critical and valuable employees.It motivates and maintains positive morale of the employees who survive the layoffs. It creates a better workplace and increases productivity as the future outcome.Employee downsizing and layoffs prepares the dismissed employees to rectify their mistakes and minimise the damages in the workplace.Financial restructuringAll businesses must focus towards financial matters in order to remain operational and to grow sustainably over the time. From this perspective, we define financial restructuring as a tool which ensures that the corporation is making the most efficient use of available resources and also generating the highest amount of net profit.Financial restructuring is the re-organisation of the financial assets and responsibilities of a corporation to create the most beneficial financial environment for the company. The reordering of corporate assets and liabilities help the company to remain competitive even in a depressed economic condition.Sometimes restructuring process happens during allocation of resources for a new marketing campaign or the launch of a new product line. It is also carried out as a means of eliminating waste (e.g. improper budget, faulty time management etc) from the operations of the company. This ultimately reduces the costs without impairing the ability of the company.Financial restructuring is also implemented to continue operations in an organisation. This happens when sales decline and the corporation do not generate a consistent net profit. A financial restructuring process includes a review of the costs associated with each sector of the business, identifying ways to cut costs, reduction or suspension of obsolete production facilities etc.Driving forces of restructuring are as follows:Globalisation of organisation, consumer preferences, supply chains and financial flowsRapid technological changesChanging capital ownershipChanging expectations and value systemsGrowing direct foreign investmentChanging demographicsObjectives of restructuring are as follows:Optimising management processesEnhancing performanceReducing costsIncreasing productivityIncreasing sales and improving servicesControlling costsMaximising utilisation of critical resourcesDivestment strategyDivestment is a form of economising strategy used by businesses when they downsize/right-size the scope of their business activities. Divestment is commonly the result of a growth strategy and it involves the elimination of a business portion. When the product demands changes and firms alter their strategies, some portions of the business do not perform according to the management's expectations. Such an


operation is a prime target for divestment, placing the company in a much stronger competitive position.The following are the reasons which make an organisation to divest:Too small market share Firms may divest when their market share is too small for them to be competitive or to provide the expected rates of return.Availability of better alternatives Firms may also decide to divest because they see better investment opportunities. Due to the scarcity of resources, organisations divert resources from a marginally profitable line of business to one where the same resources can be used to achieve a greater rate of return.Need for increased investment Firms sometime reaches a point where it needs to invest largely in equipment, advertising, research and development, etc. Rather than investing in the management resources, the firm may elect to divest that portion of the business.Lack of fit strategy A common reason for divesting is that the acquired business is not consistent with the image and strategies of the firm.Legal pressures to divest Firms may be forced to divest operations to avoid penalties.The implementation of divestment strategies by a firm occurs to eliminate unrelated, unprofitable and unmanageable operations in the firm. The following are the ways by which a firm implements divestment strategies:Developing a portion of the business and allowing it to operate as an independent business entity.Selling a portion of the business to another organisation.Closing a portion of the firms operations.Expansion strategyExpansion strategy is a business strategy in which business proliferation is achieved by increasing the stores/services and productivity. It deals with opening several branches in different physical locations while still maintaining the current business locations.The four types of expansion strategy are as follows:Legal restructuringFranchisingStrategic alliancesMergers and acquisitions

Table below explains the various types of expansion strategy.Table : Types of Expansion Strategy

Legal restructuring Franchising Strategic alliances Mergers and acquisitions

Legal restructuring allows product and market expansion by growing existing operations.

Expanding business without much financing and strict quality controls.

Strategic alliances expand without transformation .It is strategically beneficial to both the parties. It ranges from loose alliances to front-end alliances.

These are most intensive in terms of time and resources required. So they are most difficult to implement. These involve high risks and delicate cultural issues that require careful execution of change management.

The following are the ways by which the expansion of an organisation occurs:Market concentration Market concentration is required to expand the business. During market study you


must look for certain factors like availability of resources, business of the competitors etc.Innovation You can find ideas to upgrade new products, features or related services from customers, employees and suppliers. Tactics for introducing new products within existing markets are:Replacement of productsIntroducing additional featuresIntroducing completely new items by extending the brandPenetration If your local market have saturated then you need to reach out to new buyers. Few ways of penetrating into a new market are as follows:Segmentation Segmentation is the process of dividing a large homogenous market into clearly identifiable segments having similar needs or demand features.Geographic outreach Penetrating geographically according to the need of the business.Export Proper export of product is necessary to expand the business. It enhances the ties with the client. The following are the ways by which we can enhance export:Register with databaseGet assistance from the expertsAttend trade showsGet financial aid

Diversification The most radical and risky among all the organisational growth strategies is the diversification process. It deals with the requirement of new capital investment, new product development and a new business plan. We will discuss next about diversification strategy in detail.Diversification strategyDiversification is one of the major expansion strategies and considered as most risky; therefore it requires proper research before implementation. Accuracy in determining the target fragment is the key to a successful diversification strategy of a company. Several methods are available for the implementation of diversification strategy in an organisation. The most common among them are acquisitions and joint ventures.The diversification strategy is a corporate strategy planned to increase profits by increasing sales volume. The sales volume is increased by launching new products and identifying new market fragments.Diversification strategy can be applied at the business unit and corporate level. In case of business unit level, the strategy can be implemented by introducing a new segment related to the existing business unit. Whereas, in corporate level the target area is a new business unit which is not related to the existing business unit.Types of diversification strategyDiversification strategy of a company includes several plans like development of new product, licensing of new technologies, etc. There are three different types of diversification strategies which are explained as follows:Concentric diversification In concentric diversification strategy, the technology used in the industry remains the same, but the marketing plan changes to a significant extent. It requires similarities in the technologies between the two business ventures. Technical knowledge in respective domain is the advantageous factor for such a strategy.Horizontal diversification In horizontal diversification strategy, the applied technology is not related to the existing business of the company. Although the existing products are not related to the new venture, the current customer base is taken into consideration.Lateral diversification The lateral diversification strategy focuses on the products which are not related to the existing line of products. The only exception in this strategy lies in the fact that the company targets a new segment of customers.Advantages of diversification strategy


Diversification helps company to achieve their potential in developing the economy.In case of concentric diversification, a strong brand name helps in influencing the new products belonging.Diversification strategy helps the company in spreading their customer base.Diversification strategy helps in enhancing the product portfolio of the company by introducing better products in the market.Vertical integration and Horizontal integration strategiesVertical integration is a business strategy that seeks to possess and control all the activities including production, transportation and marketing of a product.There are three types of vertical integration strategy. They are backward vertical integration strategy, forward vertical integration strategy and balanced vertical integration strategy.A backward vertical integration strategy is implemented when a company establishes subsidiaries to supply product inputs.A forward vertical integration strategy controls the distribution and marketing of a product.A balanced vertical integration strategy is a strategy in which a firm owns the subsidiaries that produce inputs and also distributes outputs.Benefits of vertical integration strategy are:Reduces transportation costsImproves supply chain coordinationCaptures upstream or downstream profit marginsExpands core competenciesFacilitates sound investmentFactors favouring vertical integration strategy are:Taxes and regulations on market transactionsObstacles to the formulation and monitoring of contractsSufficiently large production quantitiesHorizontal integration strategiesThe horizontal integration strategy involves the incorporation of companies which produces the same types of goods or operating at the same stage of the supply chain process.Growth of the organisation due to horizontal integration strategies can be achieved by internal or external expansion through mergers and acquisitions of firms which increases its market share. Example A car manufacturer merging with another car manufacturer to increase its market shares in the market.Benefits of horizontal integration strategy are:Achieves economies of scale by selling more of the same productAchieves economies of scope by sharing resources common to different productsMarket power increasesBuilding core competencies and critical success factorsAs we have already discussed in the previous units that building core competencies and critical success factors help in the smooth functioning of the management process in an organisation. Building core competencies and critical success factors rectifies the faulty and poor investment strategies to a significant extent.Core competencies are the characteristics of an organisation. An organisation can utilise core competencies as a tool to develop and provide superior services.On the other hand, critical success factors ensure proper success in the business by determining the central achievement of the future of that organisation.Developing core competencies and critical success factors rectify the faulty investment strategies in the following ways:Better human resource planning


More effective training programsHelp with outsourcing optionsGuidance for development or changeDeveloping vision of the whole organisation

Q.3. a. Distinguish policy, procedure and programmes with examples. (5 marks) b. Give a short note on synergy. (5 marks) Answer :-

Definitions of Policy, Procedures, Process and ProgrammesAn organisation achieves its goals through different methods. They are policy, procedure, process and programmes.PolicyPolicy is a predefined course of action set up by top level management to provide guidance towards business strategies and objectives. It identifies the fundamental activities and provides strategic ways to handle different issues. It recommends the manner in which the objectives are achieved. Types of PoliciesPolicies provide a backbone for organisational behaviour. The different types of policies in an organisation are:General and specific policies - General policies are stated in a wider range to broaden the limitations of the organisation. They are used by middle level managers and cover a large part of the organisation. Example -Preference to local supplier in purchases. On the other hand, specific policies are designed to limit the freedom of action. They are for the guidance of the lowest level managers. They are used for conducting day to day activities in a specific department. Example Submission of leave application.Written and implied policies Written policies are declared in writing. Example Health and safety policy statement. Implied policies depend on the conduct and behaviour of the top level executives. When policy is not written on a particular topic, subordinates interpret the actions of their superiors and make decisions. Example A promotion based on seniority is an implied policy even if it is not expressed in writing.Originated, imposed and appealed policies Originated policies are formulated by top level managers on their ideas to guide the action of their subordinates. These policies are written and incorporated in the policy manual. Imposed policies are formulated from the influence of external factors like trade unions,


government policies, laws and such other factors. Appealed policies are formulated on the request of subordinates. An appeal can be made by the subordinates to deal with a particular circumstance that is not incorporated in the earlier policies.Organisational and functional policies Organisational policies covers the overall policies of an organisation that are formulated by the top level management. They are also called as the basic policies as they are used consistently throughout the organisation. Functional policies are intended for specific departments of business. They are derived from the organisational policies. Example- Sales policy, production policies so on.

A policy is a guiding principle used to set direction in an organization. It can be a course of action to guide and influence decisions. It should be used as a guide to decision making under a given set of circumstances within the framework of objectives, goals and management philosophies as determined by senior management. But is it?There are really two types of policies. The first are rules frequently used as employee policies. The second are mini-mission statements frequently associated with procedures. Think rules versus missions.

Definition of Business PolicyBusiness Policy defines the scope or spheres within which decisions can be taken by the subordinates in an organization. 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 organization to govern its actions. They define the limits within which decisions must be made. Business policy also deals with acquisition of resources with which organizational goals can be achieved. Business policy is the study of the roles and responsibilities of top level management, the significant issues affecting organizational success and the decisions affecting organization in long-run.

Features of Business PolicyAn effective business policy must have following features-

1. Specific- Policy should be specific/definite. If it is uncertain, then the implementation will become difficult.

2. Clear- Policy must be unambiguous. It should avoid use of jargons and connotations. There should be no misunderstandings in following the policy.

3. Reliable/Uniform- Policy must be uniform enough so that it can be efficiently followed by the subordinates.

4. Appropriate- Policy should be appropriate to the present organizational goal. 5. Simple- A policy should be simple and easily understood by all in the organization. 6. Inclusive/Comprehensive- In order to have a wide scope, a policy must be comprehensive. 7. 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.

8. Stable- Policy should be stable else it will lead to indecisiveness and uncertainty in minds of those who look into it for guidance.

ProcedureA procedure is a specific method to achieve a goal. It consists of a series of steps to be followed regularly or in a cycle to achieve the end result. An organisation has a set of methods to manage different matters like training, auditing etc. It provides a clear and understandable plan of action required to implement the


policy.ProcessA process is a specific event in a series of business activities. The event changes the state of data or product and generates an output (e.g., receiving orders, updating information, setting budget etc.). Business process occurs at all levels of an organisation.ProgrammesA programme lays down the principle steps to attain a specific objective. It sets a time limit for each stage. They are concrete methods to accomplish a task. It identifies the resources to be used, the steps to be taken, the timeframe for the steps and the role assigned to each person to attain the specified objective. Programmes provide a sequence of activities in an order in which it has to be implemented. A main programme can be supported by several derived programmes. Example To manufacture a new product several programmes may be used. They can be machines, raw material, technical staff, etc. A sequence is created to prioritise the work and each work is scheduled to ensure that it is completed within the time limit.Differences between policy, procedure, process and programmesIn the previous topic we discussed the definition and meaning of policy, procedure, process and programmes. Now we will analyse how each concept is different from the other.Policy is general in nature and identifies the company rules. Policy explains the reason for existence of an organisation. Policy shows how rules are enforced and describes its consequences. It defines an outcome or a goal. They are described by using simple sentences. Policies are guidelines for managerial actions. It is a planned way to handle certain issues in the organisation. It is framed by the top level management. Policies are a part of the strategies of the organisation.Procedure identifies the specific actions and explains when an action needs to be taken. It describes emergency procedures which include warnings and cautions. It is systematic way of handling routine actions. Procedure defines the means to achieve the goals. Procedures are written in an outline format. It is generally detailed and rigid. It is a part of tactical tools.Process is a set of activities conducted by people to achieve organisational goals. Process defines the method in which the work is done. It is a long term rule that drives an organisation.Programme is a concrete scheme of activities designed to accomplish a specific objective. It provides step by step approach to the activities taken to achieve the goals. Programming helps in developing an economical way of doing things in a systematic manner.

Difference between Policy and StrategyThe term “policy” should not be considered as synonymous to the term “strategy”. The difference between policy and strategy can be summarized as follows-

1. Policy is a blueprint of the organizational activities which are repetitive/routine in nature. While strategy is concerned with those organizational decisions which have not been dealt/faced before in same form.

2. Policy formulation is responsibility of top level management. While strategy formulation is basically done by middle level management.

3. Policy deals with routine/daily activities essential for effective and efficient running of an organization. While strategy deals with strategic decisions.

4. Policy is concerned with both thought and actions. While strategy is concerned mostly with action.

5. A policy is what is, or what is not done. While a strategy is the methodology used to achieve a target as prescribed by a policy.

What is A Procedure?

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A procedure is a particular way of accomplishing something. It should be designed as a series of steps to be followed as a consistent and repetitive approach or cycle to accomplish an end result. Once complete, you will have a set of established methods for conducting the business of your organization, which will come in handy for training, process auditing, process improvement, or compliance initiatives.You can view free sample procedures at our samples section.Procedures provide a platform for implementing the consistency needed to decrease process variation, which increases procedure control. Decreasing process variation is how we eliminate waste and increase performance.The Difference Between Policies and ProcedureA policy is a guiding principle used to set direction in an organization. A procedure is a series of steps to be followed as a consistent and repetitive approach to accomplish an end result. Together they are used to empower the people responsible for a process with the direction and consistency they need for successful process improvement.

Definition of Business PolicyBusiness Policy defines the scope or spheres within which decisions can be taken by the subordinates in an organization. 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 organization to govern its actions. They define the limits within which decisions must be made. Business policy also deals with acquisition of resources with which organizational goals can be achieved. Business policy is the study of the roles and responsibilities of top level management, the significant issues affecting organizational success and the decisions affecting organization in long-run.

Features of Business PolicyAn effective business policy must have following features-

1. Specific- Policy should be specific/definite. If it is uncertain, then the implementation will become difficult.

2. Clear- Policy must be unambiguous. It should avoid use of jargons and connotations. There should be no misunderstandings in following the policy.

3. Reliable/Uniform- Policy must be uniform enough so that it can be efficiently followed by the subordinates.

4. Appropriate- Policy should be appropriate to the present organizational goal. 5. Simple- A policy should be simple and easily understood by all in the organization. 6. Inclusive/Comprehensive- In order to have a wide scope, a policy must be comprehensive. 7. 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.

8. Stable- Policy should be stable else it will lead to indecisiveness and uncertainty in minds of those who look into it for guidance.

Difference between Policy and StrategyThe term “policy” should not be considered as synonymous to the term “strategy”. The difference between policy and strategy can be summarized as follows-

1. Policy is a blueprint of the organizational activities which are repetitive/routine in nature. While strategy is concerned with those organizational decisions which have not been dealt/faced before in same form.

2. Policy formulation is responsibility of top level management. While strategy formulation is basically done by middle level management.

3. Policy deals with routine/daily activities essential for effective and efficient running of an

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organization. While strategy deals with strategic decisions. 4. Policy is concerned with both thought and actions. While strategy is concerned mostly with

action. 5. A policy is what is, or what is not done. While a strategy is the methodology used to achieve a

target as prescribed by a policy.

Q.4. Select any established Indian company and analyse the different types of strategies taken up by the company over the last few years. (10 marks)

Answer :-

COCA COLA INTERNATIONAL

HISTORY:HISTORY:Coca-Cola Enterprises, established in 1986, is a young company by the standards of the Coca-Cola system. Yet each of its franchises has a strong heritage in the traditions of Coca-Cola that is the foundation for this Company. The Coca-Cola Company traces it’s beginning to 1886, when an Atlanta pharmacist, Dr. John Pemberton , began to produce Coca-Cola syrup for sale in fountain drinks. However the bottling business began in 1899 when two Chattanooga businessmen, Benjamin F. Thomas and Joseph B. Whitehead , secured the exclusive rights to bottle and sell Coca-Cola for most of the United States from The Coca-Cola Company. The Coca-Cola bottling system continued to operate as independent, local businesses until the early 1980s when bottling franchises began to consolidate. In 1986, The Coca-Cola Company merged some of its company-owned operations with two large ownership groups that were for sale, the John T. Lupton franchises and BCI Holding Corporation's bottling holdings, to form Coca-Cola Enterprises Inc. The Company offered its stock to the public on November 21, 1986, at a split-adjusted price of $5.50 a share. On an annual basis, total unit case sales were 880,000 in 1986.In December 1991, a merger between Coca-Cola Enterprises and the Johnston Coca-Cola Bottling Group, Inc. (Johnston) created a larger, stronger Company, again helping accelerate bottler consolidation. As part of the merger, the senior management team of Johnston assumed responsibility for managing the Company, and began a dramatic, successful restructuring in 1992.Unit case sales had climbed to 1.4 billion, and total revenues were $5 billion

MANAGEMENT:MANAGEMENT:

The hierarchy of Coca Cola Company is as follows.


MARKET SHAREMARKET SHARE:

Being the biggest company in the soft drink industry, Coca Cola enjoys the largest market share. This company controls about 59% of the world market.

GLOBAL MARKET SHARE:GLOBAL MARKET SHARE:

The following table can show the worldwide operating segments.

(Table)

Unit case growth Non-alcoholic

drink

All commercial Beverages

10 year compound annual growth

5-year compound annual growth

2001 annual growth 2002 2002

Company Industry Company Industry Company Industry Company share

Company share

Company per capitaIncome

6% 5% 5% 5% 4% 4% 18% 9% 70

This shows that the market of the company is geographically vast and it is controlling it with great success. In 2002, the company grew their carbonated soft-drink business by nearly 250 million unit cases and generated record volumes. Because carbonated soft drinks are the largest growth segment within the nonalcoholic ready-to-drink beverage category measured by volume, that is why they are focusing more on this and they are continually increasing the pace because they know that accelerating this pace is

ChairmanBoard of governors

Vice Chairman and chief operating officer

Executive Vice Presidents

Senior Vice Presidents

Vice Presidents


crucial to their future success. Thus they are increasing their market day by day. The operation income earned by Coca Cola Company can be illustrated by the following pie chart.

(Figure)

This strategy has worked a lot and it has helped them to become the World’s leading Soft Drink Company. The global unit sale of the Coca Cola Company is increasing from the last ten years. The data of the global unit sale of the Coca Cola Company can be represented by following chart.

(Figure)

1971 1981 1991 2002

0

2

4

6

8

10

12

unit sale in billions

So there is positive growth in the market of the Coca Cola Company. There is a worldwide volume increase by 4% with strong international growth of 5%. This is only due to the innovative marketing programmers, which has deepened the relationship of the customers and Coca Cola. The financial health and success of their bottling partners is a critical component of The Coca-Cola Company's ability to build and deliver leading brands.

In 2002, the company had worked with their bottlers to turn good intentions into reality by improving the system economics. The results in 2002 reflect this steadily improving and mutually constructive relationship between the Company and their bottling partners. The main reason behind this relationship is to continue realizing shared opportunities for growth, with closer coordination of operations including customer relationships, logistics and production.


MARKET SHARE BY AREA:MARKET SHARE BY AREA:

Coca Cola is the world-renowned soft drink and the company is currently operating through out the world. The world wide total is about 17.8 billion.The operation review according to the segments is as follows.

Operation Review

(2002 worldwide unit case volume by operating segment)

NORTH AMERICA

LATINAMERICA

EUROPE &MIDDLE EAST

ASIA AFRICA

30% 25% 22% 17% 6%

NORTH AMERICA

LATIN AMERICA

EUROPE & MIDDLE EAST

ASIA

AFRICA

So the volume is least in the Africa and most in the North America. The data about the market share of this company area wise is given in the following table.

The above table shows the geographical earning of the Coca Cola Company and from this data; we can find out that the customers of Coca Cola are increasing which is shown by the company’s per capita income. Unit case equals 24 eight-ounce servings. The column, which shows the non-alcoholic beverages consist of commercially, sold beverages, as estimated by the Company based on available industry sources. The country column is derived from

The Company's unit case volume while the industry column includes nonalcoholic ready-to-drink beverages only, as estimated by the Company based on available industry sources.

(Table)


Country Unit case growth Non-alcoholicDrinks

All commercial Beverages

10 year compound annual growth

5-year compound annual growth

2002 annual growth 2002

Company Industry Company Industry Company Industry Company share

Company share

North America

4 5 3 3 2 2 22 15

United States

4 5 3 3 2 2 23 16

Latin America

6 7 6 6 3 4 24 15

Argentina 7 4 6 2 7 2 20 10Brazil 5 5 3 6 3 5 23 13Chile 9 6 5 3 (2) 3 56 23

Mexico 7 10 8 9 2 5 22 18Europe

& Middle East

6 3 5 3 2 4 12 6

Eurasia 17 8 6 5 (14) 1 14 5France 8 3 9 3 7 3 9 5

Germany 1 2 (1) 1 (6) 1 14 7Great

Britain8 2 11 2 8 3 17 6

Italy 1 3 4 3 2 2 9 6Middle

East12 12 7 5 4 8 8 3

Spain 6 4 8 5 4 4 17 12Asia 7 6 6 7 10 7 14 5

Africa 7 6 8 3 10 6 34 11

In Asian population, which is the satisfied customer of Coca Cola, is approximately 3.2 billion and the average consumer enjoys close to two servings of our products each month. Through an intense focus on Coca-Cola, innovation and new beverages, the company has achieved volume growth of 10 percent in 2002. With developing economies and

populations, this region has strong long-term potential, and the company is building an exciting family of beverage brands in addition to expanding the popularity of our core brands, led by Coca-Cola. In China,


for example, sales of Coca-Cola increased 6 percent. The total unit case sale of Coca Cola in Asia can be shown by the following pie chart.

(Figure)

So the company is emphasizing more in this area and is trying to develop a strategy, which can increase the growth of the consumption of Coca Cola by the people of Asia. Among the countries of Asia, Japan has the highest percentage, which is about 29%. Among others, Pakistan, India and Bangladesh are those countries where the average consumption is increasing day by day.

FINANCIAL REPORT:FINANCIAL REPORT:

This company is financially very strong. It is due to the strong finances, the company is still surviving the ups and down of the business world. The financial report of Coca Cola Company of the year 2001 and 2000 along with the percentage change is as follows.

(Table)

Year Ended December 31,(In millions except per share data, ratios and growth rates)

2002 2001 Percentage change

Net operating revenues 20,092 19,889 1%Operating income 5,352 3,691 45%Net income 3,969 2,177 82%Net income per share (basic) 1.601 0.882 82%Net income per share (diluted) 1.601 0.882 82%Net cash provided by operating activities 4,110 3,585 15%Business reinvestment (963) (779) 24%Dividends paid (1,791) (1,685) 6%Share repurchase activity (277) (133) 108%Free cash flow 3,147 2,806 12%Return on capital 26.6% 16.2% -Return on common equity 38.5% 23.1% -


Unit case sales (in billions) International operations 12.5 11.9 5% North America operations 5.3 5.2 2% Worldwide 17.8 17.1 4%

2002 basic and diluted net income per share includes a non-cash gain of $.02 per share after taxes, which was recognized on the issuance of stock by Coca-Cola Enterprises Inc., one of the equity investors of this company.

2002 basic and diluted net income per share includes the following charges: $.24 per share after income taxes related to an organizational Realignment. $.19 per share after income taxes related to the Company's portion of charges recorded by the

investors of the company. $.16 per share after income taxes related to the impairment of certain bottling, manufacturing and

intangible assets. $.05 per share after income taxes related to the settlement terms of a discrimination lawsuit. $.01 per share after income taxes related to incremental marketing expenses in Central Europe.

These charges are partially offset by a gain of $.05 per share after income taxes related to the merger of Coca-Cola Beverages plc and Hellenic Bottling Company S.A. and $.04 per share after income taxes related to benefits from a tax rate reduction in Germany and from favorable tax planning strategies.

DIVIDEND AND CASH INVESTMENT PLAN:

The Dividend and Cash Investment Plan permits shareowners of record to reinvest dividends from Company stock in shares of The Coca-Cola Company. The Plan provides a convenient, economical and systematic method of acquiring additional shares of our common stock. All shareowners of record are eligible to participate. Shareowners also may purchase Company stock through voluntary cash investments of up to $125,000 per year.At year-end, 76 percent of the Company's shareowners of record were participants in the Plan. In 2002, shareowners invested $36 million in dividends and $31 million in cash in the Plan.

COMPANY STATISTICS:

The statistics of this company is impressive. Since it is operating through out the world that is why the number of employees and the bottling equipments is highest among the other bottling companies. There is a constant increase in every aspect when we compare the statistics of 2001 and the statistics of 2002. This is because; Coca Cola Company is increasing its volume day by day. The expansion of this company, which shows the success of Coca Cola brands, results in the percentage change in the statistics of the two years. The statistics is as follows.

(Table)

2002ª 2001


Equivalent cases 4.2 billion 3.8 billionBottle and cans 87% 87%

Fountain 13% 13%Employees 72,000 67,000Vehicles 54,000 52,000Cold drink equipments 2.4 million 2.3 millionFacilities

Production only 25 25Distribution 385 361Combination 53 50

Total 463 436Percent of North America population coverage 80% 72%Number of States of Operation 46 46Bottle and can equivalent case package distribution

Cans 44% 45%Non-refillable bottles 52% 51%

Refillable bottles 4% 4%Capital structure

Net debt to total capital ratio 63% 59%EBITDA interest coverage 3 3

Weighted average cost of debt 6.3% 6.8%Key Statistics

Constant territory bottle and can volume growth 3% ½%Bottle and can net revenues per case change Flat 2%

Bottle and can cost of sales per physical case change 1 ½%Reported EBITDA (in billions) $1.95 $2.39

Reported EBITDA change (18)% 9%Capital expenditures( in billions) $0.97 $1.18%-age of net operating revenues 6% 8%

Coverage of North American Can/bottle volume 83% 74%

EBITDA is the Earnings before interest, taxes, depreciation, and amortization, and other non-operating items.

Net Debt is the Long-term debt plus current portion of long-term debt less cash and marketable securities.

Equivalent Case or Unit Case is the p hysical case and fountain gallons converted to a standard unit of measure defined as 24 eight-ounce servings or 192 ounces per equivalent case sold by Coca-Cola Enterprises.

PRODUCTS:

There are different brands of the Coca Cola Company, which are currently in use through out the world. This company not only deals in the carbonated drinks but also other drinks. While launching its product, the marketing team considers the culture of the country.


Major brands of coca cola Coke Sprite Fanta Diet coke Coke classic

The over all volume of this company is as follows.

(Figure)

The commitment of the company is to devote resources to water only in markets where it expects profitable growth. This strategy has paid dividends. The company has successfully applied it’s approach to brands in several key markets, including Ciel in Mexico, Mori No Mizudayori in Japan, Bonaqua in Russia and Kinley in India. Backed by a strong network of bottling partners through out the United States, Dasani became the nation's fastest-growing water brand. In Eurasia, the entire Turkuaz brand team worked together to launch Turkey's first purified water brand. This year, Coca-Cola Company also successfully energized a major piece of its beverage strategy—water. By the end of 2001, it’s bottled water volume exceeded 570 million unit cases, making it the second biggest contributor to the growth of the company after carbonated soft drinks. Three of the water brands, Dasani, Ciel and Bonaqua each achieved sales of over 100 million unit cases for the year.

In 2001and 2002, the company has also made good progress in coffees and teas. Beverage Partners Worldwide, the renewed and strengthened marketing partnership with Nestlé S.A., began operations in 2001. This partnership combines Nestlé's knowledge in life science, research and development with the expertise of Coca Cola Company in brand building and distribution.

At the same time, the company grew Georgia coffee in Japan by 3 percent through award-winning


marketing in a category that was flat for the year. Also in Japan—where The Coca-Cola Company is the leader in the total tea category, the second-largest category in the non-alcoholic ready-to-drink segment—it launched Marocha Green Tea. With sales of 46 million unit cases for the year, Marocha Green Tea is the fastest-growing product in the fastest-growing category: green tea. The popularity of Marocha is also recognized by the industry with a leading trade journal naming Marocha the most popular new food and beverage product of the year.

Know the most recognized word on the planet after “OK”!


Among the soft drinks Fanta and Sprite become successful along with the major brand Coca Cola and Diet Coke. In key markets, the company has created new packaging sizes to satisfy consumer demands.

Increasingly, Mexican families have lunch together at home. The average Mexican household drinks two-and-a-half liters or more of soft drinks during that break, while a two-liter bottle was the largest available package. So the company introduced a convenient 2-½ liter bottle to select regions, contributing to the sale of nearly 1.5 billion unit cases of Coca-Cola in Mexico this year. This larger bottle will complete its nationwide rollout in 2002. In China, Coca-Cola is an integral part of holiday celebrations and the family get-togethers that accompany such events. Through an intense focus on Coca-Cola, innovation and new beverages, it has achieved volume growth of 10 percent in 2001. In China, sales of Coca-Cola increased by 6 percent. In the United States, recognizing that consumers often enjoy their diet Coke with a slice of lemon, the company "bottled" the concept. The result—diet Coke with lemon—contributed to volume growth of 4 percent for the number-one diet.

Soft drink in North America: diet Coke. The company increased its two largest bottle sizes during the 2001 holidays, and festival packaging helped drive a 6 percent volume increase for Coca-Cola. The packaging innovations do not just involve resizing. The company has also responded to consumers' changing fashion styles with new bottles.

With brands such as Minute Maid, Hi-C, Simply Orange and Disney juices and juice drinks in the United States, Qoo in Asia, Kapo in Latin America and Bibo in Africa.

This year, the company re-launched its global sports-drink business, investing in new products, packaging, positioning and marketing. The results speak for themselves: it’s global sports drinks, led by Powerade and Aquarius, grew by 13 percent in 2002, nearly double the growth rate of the worldwide sports-drink category. Revitalized in the United States, the company introduced Powerade in nearly every major Western European market, including Great Britain, Germany and Spain, as well as in Mexico and Latin America. The company launched 27 products in 2001.

The commitment of the company to packaging innovation also resulted in new initiatives for our fountain business, a channel through which many consumers enjoy Coca-Cola. In the United States, the company developed Fountain, a total beverage dispensing system that is more flexible and more reliable. Two years of research resulted in a dispensing system that provides exceptional beverage quality, easy to upgrade technology, brand and graphic customization and improved reliability.

STRATEGIC PLANNING

In the year 2002, the company had a great success, as the strategy worked which resulted in making Coca Cola Company the world’s leading company. In 2001, company accomplished the crust of it’s strategy as

Worldwide volume increased by 4 percent with strong international growth of 5 percent and clear


signs that our North American business is growing solidly and predictable. Earnings per share grew by 82 percent, as we delivered on our commitment to create volume

growth while aggressively Return on common equity grew from 23 percent in 2000 to 38 percent this year. Return on capital increased from 16 percent in 2000 to 27 percent in 2001. The company has generated free cash flow of $3.1 billion, up from $2.8 billion in 2000, a clear

indication of its underlying financial strength.

The strategy for the future of the company is very straightforward. The marketing strategy for the year 2002 is as follows,

Accelerate carbonated soft-drink growth, led by Coca-Cola. Selectively broaden the family of beverage brands to drive profitable growth. Grow system profitability and capability together with our bottling partners. Serve customers with creativity and consistency to generate growth across all channels. Direct investments to highest potential areas across markets. Drive efficiency and cost-effectiveness everywhere.

PROMISE OF COKE

The basic proposition of our business is simple, solid and timeless. When we bring refreshment, value, joy and fun to our stakeholders, then we successfully nurture and protect our brands, particularly Coca-Cola. That is the key to fulfilling our ultimate obligation to provide consistently attractive returns to the owners of our business.

TARGET MARKET

Coke’s commercials basically based on young generations, So, the young generation is the target market of Coke because they want to represent Coke with the youth and energy but they also consider about the old people they take then as a co-target market.

MAJOR SEGMENTSMajor segments are basically those people who take this drink daily and those areas where the demands is higher then the other areas. There are so many people who take this drink daily and those people who take weekly and those who take less often are always there as well. So, their basic segments are those people who take this drink regularly.

FACTORS EFFECTING SALES

There are so many factors, which affects the sale of coke. Here we are discussing three major factors which effects coke. Per capita income Competitors Weather Per Capita Income

First we will discuss about “ Per capita income”. This is major factor that affects the sale of this soft drink. Because which every passing year budgets are becoming very strict and tight in order to purchase things. So the disposable incomes of the people are coming down. They spend heavily on rents, utilities,


and education and basic necessities and after that when they get extra money they think about this soft drink .So the decreasing per capita income effects badly in selling and production of this soft drink.

And to get through with this difficulty there is need to increase the level of per capita income of Pakistan because it is much lesser than the rest of the countries.Competitors

Coke’s major competitor is “PEPSI” and there is no hesitation to say this because every one knows that and all the other cold drinks and water, coffee, tea are the competitors.

Weather

Weather is the third major factor in effecting the Coke’s selling. This is underdeveloped market so the coke’s consumption in summers is 60% and in winters is 40%.

MAJOR CUSTOMERS NEED

First of all the majority don’t care that what they are going to have. In other words, they don’t care before drinking that whether it is “Pepsi” or “coke”. They don’t actually differentiate between these two brands in order to their tastes.Consumers basically drink what they get.They believe on “WHAT COLD THEY SOLD”Consumer’s availability in brands is basically works like:Push availability Pull consumer’s demand.

For this reason Coca-Cola have provided their coolers and freezers in the market. They have maximum number of coolers and freezers in the market. They provide this infrastructure free of cost just to provide child coke to their customer, which they want to be purchase.Their salesman and mechanics regularly visit all the shops where coke has its infrastructure to check that either it is in proper condition or not, if not then they immediately change or repair it.

MAJOR COMPETITORS

Consumers firstly decide that they are going to have a soft drink. Then they compete brands with each other. Like they compete Coke with Pepsi and Sprite with 7up and team .So the major competitor of Coke is Pepsi.When they motivate to any other brand or on Coke it’s in instinct basically that based on messages derive certain feelings.But Coca Cola thinks in a different way, they believe that RC Cola, new coming AMRAT Cola, and all juices, even they take water and tea as their competitors.

STRATEGIES OF QUALITY

After Micro and macro analysis Brand “coke” is primarily role 1. Enhance competition moments 2. When people watch cricket3. Through commercialization


4. Fun time Though these strategies there could be better understanding and better connection with the public. These are the “key consumption”.

THREATS FROM COMPETITORS

Threats are well planned. Price is the major threat. When price goes certain beyond the exact price whether come down or go higher its effects the consumption of soft drink.Because when the price go higher people go for the substitute of “coke” i.e. Pepsi.And when price goes down they think that there is must be some thing wrong in it.In short it all depends on customer’s perception.

TARGETS THAT WOULD LIKE TO ATTAIN

Every organization runs on the bases of profit maximization so Coke is also looking for a high profit margin.

There are three major ways of making money

Over night profit Windfall profit Ethical and un-ethical ways

Over Night Profits

They could be over night profit that is for the number 1 brand for the year. This could be got my increasing sales volume

Windfall Profit

Can be windfall profit. They are the extras profit. When the consumption the consumption is on boom. So, there is different kind of profits.

Ethical And Unethical Ways

Profit can also get through ethical and unethical ways. They believe on this quote“ Every thing is fare in love and war”.

Some profits stays for some time like “over night profits” and some just come and go like “wind fall profits”. And they can also get profit through different approaches.

EXPANDING TARGET MARKET

In last 2 years Coke has come back in aggressive manner.

Consumer has choice Attractive brand name Brand differentiating


Consumer Has Got Choice

Now the consumer has got choice. Because now they know the name of another big brand, though coke is the 2nd best name but it can get a better position after some time

Attractive Brand Name

Now the consumers know the Name of Coke, because Coke is the name, which is the most popular after the word “ok”. So people can better differentiate brands with each other.

Brand Differentiation

Now different companies have got different brand names. So, people can distinguish between brands. Two major brands “coke” and “Pepsi” also have brand names.

Coca Cola’s Brand

Coca cola is “US” brand. Because they believe in the togetherness, being people together and friends are being together. Coca Cola strongly believes that Pakistani temperament is “US” not “ME”

Pepsi’s Brand

Pepsi’s brand is basically is basically “ME” branded. They use the temperament of “ME”. In contrast to Coke they believe on individual struggle.

THREATS AND OPPORTUNITIES FOR PRICE

Opportunities

If Coke is considered a luxury product. Then there is the tax rate system15% - sales tax20% - excise duty27% - goes to government03% - In making Budget

After paying all these taxes coke has to pay electricity charges. We have to spend on distributions. After paying all these expenses Coke’s margin squeezed and consumers have to pay for increasing tariffs.These are the opportunities through which we can increase the price and can get profits.

Threats

There are much more threats in increasing prices. Because same problem of substitute. If Coke increase the price lets say 1 rupee. Then people definitely won’t go for coke. They have the best substitute of Coke that is Pepsi. So these are the threats in increasing prices. Coke will lose the margin of its profit and can face loss.


STRATEGIES OF GETTING GOALS I.E. “HIGH PROFITS”

To increase the price is the least thing, which Coke can adopt. There are so many ways through which Coke can increase the profits. Some major ways are as follows.

Volume can be increased Interest level of consumers To take part in energetic festivals

How to increase the volume of consumers?

Coke can increase the volume by expanding the industry of coke. Through advertisements, offering different interesting things to attract people towards this product.

How to increase the interest level of consumers?

Coke is increasing the interest level of consumers by offering different flavors. For example Coke is increasing the number of flavors in “Fanta”, this is one of the product of coke. Through offering different flavors Coke can increase the Level of consumers and through this profits can be gained.

How to take part in energetic festivals?

Coke is already taking part in the festival like “Basant” since last 3 years. Coke offers different attractive things in their festival and through this Coke gained high profit and consumption of coke increased on these occasions.

And this year in this year 2002 people were anxiously waiting that what interesting thing coke is going to offer.

MARKETING STRATEGY

Our local marketing strategy enables Coke to listen to all the voices around the world asking for beverages that span the entire spectrum of tastes and occasions. What people want in a beverage is a reflection of who they are, where they live, how they work and play, and how they relax and recharge. Whether you're a student in the United States enjoying a refreshing Coca-Cola, a woman in Italy taking a tea break, a child in Peru asking for a juice drink, or a couple in Korea buying bottled water after a run together, we're there for you. We are determined not only to make great drinks, but also to contribute to communities around the world through our commitments to education, health, wellness, and diversity. Coke strives to be a good neighbor, consistently shaping our business decisions to improve the quality of life in the communities in which we do business. It's a special thing to have billions of friends around the world, and we never forget it.

MARKET POSITIONING

Product Range


The total range of Coca Cola company in Pakistan includes: Coke. Sprite. Fanta. Diet Coke.

And company offers their products in different bottle sizes these includes:

SSRB (standers size returnable bottle) LRB (litter returnable bottle) NRB (no return bottle) or disposable bottle PET 1.5 (1.5 litter plastic bottle) CANS (tin pack 330 ml)

Packing

Coca cola products are available in different packing 24 regular bottle shell 6 bottle pack for 1.5 pets 12 bottles in a pack for disposable bottle 24 cans in one pack.

PRICE STRATEGY

Trade Promotion

Coca cola company gives incentives to middle men or retailers in way a that they offer them free samples and free empty bottles, by this these retailers and middle man push their product in the market. And that’s why coca cola seen more in the market. And they have a good sale in the market because according to the expert which product seen more in the market that sells more. “Seen as sold”

They do agreements with a shop keepers and stores to exclusive sale in that stores. These stores are called as KEY accounts in their local language. And coke also invest heavy budget on these stores and offers them free samples and free bottles and some time cash incentives.

Different Price In Different Seasons

Some times Coca Cola Company change their product prices according to the season. Summer is supposed to be a good season for beverage industry in Pakistan. So in winter they reduce their prices to maintain their sales and profit. But normally they reduce the prices of their pet bottles or 1 litter glass bottle.

PROMOTION STRATEGIES

Getting shelves


They gets or purchase shelves in big departmental stores and display their products in that shelves in that style which show their product more clear and more attractive for the consumers.

Eye Catching Position

Salesman of the coca cola company positions their freezers and their products in eye-catching positions. Normally they keep their freezers near the entrance of the stores.

Sale Promotion

Company also do sponsorships with different college and school’s cafes and sponsors their sports events and other extra curriculum activities for getting market share.

UTC Scheme

UTC mean under the crown scheme, coca cola often do this type of scheme and they offer very handy prizes in it. Like once they offer bicycles, caps, tv sets, cash prizes etc. This scheme is very much popular among children.

DISTRIBUTION CHANNELS

Coca Cola Company makes two types of selling Direct sellingIndirect selling

Direct Selling

In direct selling they supply their products in shops by using their own transports. They have almost 450 vehicles to supply their bottles. In this type of selling company have more profit margin.

Indirect Selling

They have their whole sellers and agencies to cover all area. Because it is very difficult for them to cover all area of Pakistan by their own so they have so many whole sellers and agencies to assure their customers for availability of coca cola products.

FACILITATING THE PRODUCT BY INFRASTRUCTURE

For providing their product in good manner company has provided infrastructure these includes: Vizi cooler Freezers Display racks Free empty bottles and shells for bottles

ADVERTISEMENT

Coca cola company use different mediums


Print media Pos material Tv commercial Billboards and holdings

Print Media

They often use print media for advertisement. They have a separate department for print media.

POS Material

Pos material mean point of sale material this includes: posters and stickers display in the stores and in different areas.TV Commercials

As everybody know that TV is a most common entertaining medium so TV commercials is one of the most attractive way of doing advertisement. So Coca Cola Company does regular TV commercials on different channels.

Billboards And Holdings

Coca cola is very much conscious about their billboards and holdings. They have so many sites in different locations for their billboards.

EXPECTATIONS FOR THE COMING YEAR

Every thing starts from the attitude of consumer’s behavior. And the basic key to attract the consumers is to throw the “money away”.

And positive feeling felling with the brand, which they used to have Coke wants to advertise their products heavily in the coming year. And it will take the 10% of their profits. And when we take it as a global level it is $ I billion.

Coming year is the challenging year for the industry of Coke. They have to take lots of decisions that how to increase the production and where they have to spend money.For gaining success in coming year they have to have some important things like:

1. Loyal consumers are important for company’s success.2. Workers should be the brand centric not the promotion centric.3. They should know how much to for the brand activities.4. They should also know that how much to do with the promotion activities for brand.

HOW COKE DETERMINE THE YEARLY BUDGET

Coke determines its yearly budget by the Sales volume Profitability Target volume


Sales Volume

Coke determines its yearly budget through the sales volume. They first concentrate on the thing is “what is the condition of their sales?” if the condition is good of their sales then they definitely increase their production and sales volume. Otherwise they concentrate on their old strategies.

Profitability:

The second thing through which they determines budget is the “profit” .if they r getting profits with the high margin, then they definitely want to increase their profits in the next coming year. Every organization runs on the basis of getting high profits. No organization wants to face Loss in their business. To get profit is the first priority of the Coke.

Target Volume:

To run the business every industry has some targets, which they want to achieve in a specific time period. If industry achieves those goals in that period then for the coming year it increases the volume of the target.So Coke Follow the same thing it has also some goals and targets to achieve in the given time period. When they succeed to achieve that target then they increase their target volume in the next year.

SALES PROMOTION ACTIVITIES

Coca-Cola Cricket

Cricket the most sought after; watched & played game in Pakistan .the game of cricket has been owned by various brands in the industry for the promotion of their products over a period of time. It has ranged from tobacco to lubricants to communication companies to banks to airlines & lately to the beverage industry. The competition has become tougher & tougher as the time has progressed.

Coca-Cola signed a sponsorship agreement with eight of Pakistan’s National cricket players. Coca-Cola realizing the fact that cricket is a very strong element by which it can reach it consumers & masses invested in the opportunity and launched a massive campaign on mass media showing all these cricket stars endorsing & complimenting Coca-Cola brand. The Coca-Cola Company developed three TV commercials & four testimonial ads with the player & ran them on the national net work during various cricket matches. These bold steps taken by the Coca-Cola marketing unit acclaimed them many acknowledgements across the board. This campaign helped Coca-Cola to establish its association with the game & the player.

Coca-Cola Concerts

Abrar-ul-haq’s distinct style, lyrics & songs have made him an instant hit among the masses in Pakistan. His enormous popularity in the country & abroad is supported by Coca-Cola’s commitment towards providing healthy & fun-filled entertainment for the youth of Pakistan. Coca-Cola brought Abrar to his fans through holding concerts & featuring Abrar in a much-appreciated TVC & MMT featured


throughout the country.

The TVC campaign focused on the hectic lifestyle of a pop star who found respite & relief through Coca-Cola in short moments that he had to himself during a concert. Coca-Cola’s brand positioning of providing deep down refreshment for the body, soul & mind were captured accurately in the TVC & depicted aptly how the drink completes the moment for Abrar. Coca-Cola Food Mela

With a splash of food, fun & prizes to be won, the Coca-Cola food mela treated the people of Karachi, to a festive food festival comprising of 50 restaurants, spread out all over the bustling city’s map. The promotion saw the avid families & friends enjoying the delicacies at the restaurants; all resiliently upholding the Coca-Cola identity.

Coca-Cola Basant Festival

In February the month of basant the parks & horticulture authority in Lahore nominated Coca-Cola the official sponsor of the basant festival .Coca-Cola added to the carnival atmosphere by making the festival free to enter & decorating all main roads in Lahore with illuminated kites. Coca-Cola also hosted a concert of pop idol Abrar-ul-haq, had children’s parade & held the Coca-Cola kite flying championship during the basant festival. Now “where there is basant there is Coca-Cola”, it has been impossible to envisage basant without Coca-Cola. Coca-Cola give the more refreshing flavor to the colors of basant by adding more life to the festival, giving the consumer a unique experience which they had never tasted before. Coca-Cola GO-RED

Quenching the thirst of motorist, pedestrians & passerby’s during Lahore’s hottest summer season, Coca-Cola’s “GO-RED” teams went out into the cities main quadrants to “serve & refresh” on the spot with ice-cold Coca-Colas at discounted prices backed by a heavy FM announcement campaign the “GO-RED” stall, served well to promote the Coca-Cola industry.

Coca-Cola Party in a Park

In June 2000, Coca-Cola created an experiential musical evening in Lahore, where Junoon performed. This program was recorded and one-hour program shown in the national TV for free.10 million households saw Coca-Cola ‘Party in a Park’ while 10 thousand people attended the event.

Coca-Cola Shopping Festival

Coca-Cola hosted “The Coca-Cola Shopping Festival” Lahore’s first shopping festival, a resounding success with tempting discounts, live music, great prizes & fire works. Liberty marketing Gulberg was a hive of activity during the weeklong shopping extravaganza. The in augural event proved so popular that it is now set to become an annual fixture.

Coca-Cola Pet Promotion

In 1996, Coca-Cola launched 1.5 liter Pet contour bottle for the first time in Pakistan. Targeting house


wives & family home, Coca-Cola’s 1.5 liter Pet bottle, took the limelight & gained momentum with a campaign promoting the unique packaging and its numerous consumer benefits .A treat for the family, Coca-Cola’s PET was offered through a “price-off” promotion that said……….Go out & get some

Coca-Cola Ramzan Campaign

A very special occasion for the people of Pakistan Ramzan saw another very special Coca-Cola’s promotion, marketing the popular 1.5 liter PET bottle & the 1 liter bottle with a super price-off promotion. The emphasis on enjoying Coca-Cola at “Iftar” with friends & family.

Coca-Cola Wonder of the World Promotion

In July 2000, Coca-Cola set the stage of the grand UTC promotion. Coca-Cola went ahead with the idea of giving consumer chances to win fabulous, magical “dream vacation” to numerous “wonder destination” throughout the world on every purchase of a 250 ml RGB bottle of Coca-Cola, Sprite, & Fanta.The promotion gave consumers a chance to win free drink, a trip to PARIS, HOLLYWOOD, NEWYORK, SINGAPORE & CAIRO along with airfare & four nights free stay in these dream lands. The promotion saw avid consumer collecting Coca-Cola ‘Crown caps’ & sparked a keen response from the public , rendering an outstanding testimonial campaign in the second phase, highlighting the winners over whelmed in the magical delight of their favorite beverage Coca-Cola.

Coca-Cola & Nokia

In August 2001, the new under-the-crown promotion “Nikla Kiya?”(What have u won) was launched in collaboration with Chimera Nokia.The promotion gave consumer a chance to win thousand’s of Coca-Cola branded Nokia 3310 cellular phones on every purchase of 750ml RGB bottle of Coca-Cola ,Sprite, & Fanta.The other highlight of promotion was the “Caught Red Handed” campaign. Branded Coca-Cola with ‘caught red handed’ team in them went to Lahore & Karachi for three days, with target that anyone being caught drinking Coca-Cola will be awarded a nokia 3310 mobile phone & if someone is caught talking on a nokia mobile will win free supply of Coca-Cola. Caught red handed become a huge success among the masses as it was one to one interaction between the Coca-Cola brand & the consumers. This activity helped billed confidence and brand loyalty among core consumers.

Coca Cola TV Mazza

The coca cola new campaign is coca cola tv mazza, it is a utc scheme in which people are getting television sets of different sizes. These days this scheme is very popular among the people.

Coca-Cola & Mc Donald’s

Coca-Cola & key account of MC Donald’s launched the “we go together” joint promotion to reinstate amongst consumers a real sense of the affinity that, both shares globally. The promotion kicked off with pos material (Danglers, Bunting etc) displayed at all MC Donald’s restaurants along with a special offer for coke & fries.

Fanta & Sprite Launched

In November 2000moving on to the Sprite & Fanta brands, the consumers in Pakistan witnessed a soft


launch in essence. The Coca-Cola Company declared the new “Non-Returnable” bottles of Sprite & Fanta as the “New, On the Go Packs” flaunting the innovative packaging convenience. Fanta & Sprite are sure to enjoy considerable success in Pakistan. Diet Coke

After the acquisition of the individual local franchise bottling facilities in 1996, the company has successfully launched its first new product, diet coke, for the first time in almost 3 years. The was linked with three fashion shows as Diet Coke is related to fashion & fitness, but the major hit was thematic fashion shows in restaurants, which are the key accounts of the company as this has been never done before in Pakistan.

CONCLUSION

After thorough research, we come to the conclusion that the marketing strategy of Coca Cola is working for them and the product is gaining popularity among youth day by day.

RECOMMENDATIONS

After completing our project we have concluded some recommendation for the coca cola company, which are following.

Coca Cola Company should try to emphasis more on providing their infrastructure in the market to facilitate their customers.

According to the survey, conducted by the international firm Pakistani people like little bit sweeter cola drink. So for this coca cola company should produce their product according to the local demand.

Marketing team should try to increase the availability of Coke in rural areas. They should also focus the old people. Now young generation has a trend to drink a coke 2 regular bottles at same time, so providing

more satisfaction to them company should introduce ½ liter disposable bottle.

Q. 5 Why do you think it is necessary for organisations to have vision and mission statements and also core competencies? Support your answer with relevant examples. (10 marks)

Strategic Intent through Vision and Mission StatementsA strategic intent statement is a one-page document that defines the goals of an organisation for a specific period of time in future. A strategic intent statement motivates the employees to achieve short-term and long-term goals. This statement encourages the employees to work as a team and to explore new methods, skills and technologies that help in achieving these goals. The strategic intent is a particular viewpoint of the competitive position that an organisation expects to build in the coming years. The strategy intent statement sets the organisations long-term expansive policy directions. It gives a clear direction to the organisation for the future.Strategic intent describes the purpose of existence of an organisation and how it will continue to sustain its competitive benefits. It provides a clear picture about what an organisation should do to achieve the company vision. It clarifies the vision of the organisation and motivates its employees. It helps the


management to accentuate and concentrate on the priorities. It emphasises on developing new resources and capabilities to create future opportunities. It influences the organisations resources and core competencies to achieve the vital goals in the competitive environment.Vision and Mission statementsA well-articulated strategic intent guides the development of goals and helps in inspiring the employees to achieve targets. It also facilitates in utilising the intent to allocate resources and in encouraging team participation. It comprises of the vision and mission statements.Vision statementA vision statement defines the purpose and principles of an organisation in terms of the values of the organisation. It is a concise and motivating statement that guides the employees to select the procedures to attain the goals. Vision statement is the framework of strategic planning. A vision statement describes the future ambition of an organisation. A vision is the ability to view what the organisation wants to be in future. It is prepared for the organisation and its employees. It should be implanted in the organisation being collectively shared by everyone in the organisation. It conveys an effective business plan. It integrates an understanding about the nature and aspirations of the organisation and develops this conception to lead the organisation towards a better objective. It must synchronise with the organisations principles. The ambition should be rational and achievable.Example - Wal-Marts vision is to become worldwide leader in retailing.Vision statement of L&TL&T employees shall be innovative and the empowered team will constantly create values and attain global benchmarks.L&T shall promote a culture of trust and continuous learning. It shall meet the expectations of employees, stakeholders and society.Mission statementA mission statement is the extensive definition of the mission of an organisation. It is a concise description of the existence and fundamental purpose of an organisation. It describes the present potentials and activities of the organisation. It conveys the purpose of the organisation to its employees and the public. It is vital for the development and growth of the organisation.Mission statement is the responsibility by which an organisation aims to serve its stakeholders. It gives a framework on the operations of the organisation within which the strategies are devised. It describes the present capabilities, the stakeholders and the reason for existence of an organisation. The statement distinguishes an organisation from its other competitors by explaining its scope of activities, technologies, its products and services used to achieve the goals and objectives. It should be practical and achievable. It should be clear and precise so that the actions can be taken based on it. It should be unique and different to leave an impact on everyone. It should be credible so that the stakeholders accept it.Example -Wal-Marts mission is to provide ordinary customers the chance to buy the same thing as rich people.Mission statement of IBMAt IBM, we strive to be the forerunner in inventing, developing and manufacturing most advanced information technologies, including computer systems, software, storage systems and microelectronics.The distinction between mission statement and vision statement is that the mission statement focuses on the present position of the organisation and the vision statement focuses on the future of the organisation.Core Competencies in BusinessCore competencies are those skills that are critical for a business to achieve competitive advantage. These skills enable a business to deliver essential customer benefit like the selection of a product or service by a customer. Core competency is the key strength of business because it comprises the essential skills. These are the central areas of expertise of the company where maximum value is added to its services or products. Example - Infosys has a core competency in information technology.


It is a unique skill or technology that establishes a distinct customer value. As the organisation progresses and adapts to the new environment, the core competencies also adjust to the change. They are not rigid but flexible to advancing time. The organisation makes the maximum utilisation of the competencies and correlates them to new opportunities in the market. Resources and capabilities are the building blocks on which an organisation builds and executes a value-added strategy. The strategy is devised in a manner that an organisation can receive reasonable profit and attain strategic competitiveness.Core Competencies are not fixed. They change in response to the transformation in the environment of the company. They are adaptable and advance over time. As an organisation progresses and adapts to new circumstances, the core competencies also adapt to the transformation.The characteristics of core competencies are:To provide potential access to a wide range of marketShould be difficult to imitate by competitorsShould make considerable contribution to the customersExample - Microsoft has expertise in IT-based innovations and technologies. Customers receive many benefits by purchasing and using Microsoft products. For many reasons including unique skills, it is difficult for competitors to imitate Microsoft's core competences.Resources are the key inputs of the organisations production process. These can be manpower, financial, technological, or services. For the organisation to have core competency the resources should be unique, beneficial and specialised in the particular field. Resources should be built on the strengths of the organisation and not on its weaknesses.Organisational capabilities are the ability of the organisation to identify and integrate its resources so that it can be used in the most efficient manner. If an organisation lacks the capability to utilise these resources productively then the organisation cannot create its core competency. The organisation can devise strategies to either develop new resources and capabilities or improve the existing resources and capabilities to build core competencies of the organisation.A company can continue to reinvest in its core competencies. When the core competencies are advanced to those of the competitors they are called distinctive competencies. The distinctive competencies should be unique and advanced to the competitor capacity. It should be used to develop new product or service. Core competencies of an organisation distinguish it from its competitors. They can help in deciding the future of the organisation. For the strategy to have the best probability of success, it should be built on core competencies. The competencies are enhanced continuously. They are developed through a continuous process of improvement and enhancement.Critical Success Factors (CSFs)Critical success factors (CSFs) are used extensively to identify the key features that an organisation should focus on to be successful. The CSFs are important sections of activities that are performed perfectly to achieve the mission and objective of the business. It refers to the main areas which ensure successful competitive performance for an organisation. Identifying the CSFs is important as the organisation can focus on its efforts to develop its resources to meet the CSFs and measure the success of the business. It is important for the organisation to decide in building the essential requirements to meet the CSFs.Critical Success Factors are associated with the strategic goals of an organisation. They also focus on the essential areas that affect the business. The chief areas that affect the business are:Industry - These factors result from specific industry characteristics. The organisation should consider these factors to remain competitive.Environmental These are the factors that are the result of environmental influences on an organisation like the economy, competitors, and technological advancements.Strategic - These factors are the result of particular competitive strategy selected by the organisation.Temporal - These factors are the result of the organisation's internal influence like challenges and


directions.The CSFs are essential for the success of an organisation. Identifying CSFs helps to ensure that the business is focused and thus avoids wasting effort on insignificant areas. To keep the project on track towards common aims and goals, CSFs should be specific and should be communicated to everyone involved.

Q. 6. What is SBU? Explain its features, functions and roles. Mention some of the successful SBU of MNC’s. (10 marks) Fall 2011

Answer:- Strategic Business UnitsIn this section we will study about Strategic Business Units (SBUs).We define SBU as the autonomous divisions in an organisation which deals with specific business concerns.A strategic business unit is a significant organization segment that is analyzed to develop organizational strategy aimed at generating future business or revenue. Exactly what constitutes an SBU varies from organization to organization. In larger organizations, an SBU could be a company division, a single product, or a complete product line. In smaller organizations, it might be the entire company.1 Although SBUs vary drastically in form, they have some common characteristics. All SBUs are a single business (or collection of businesses), have their own competitors and a manager accountable for operations, and can be independently planned for.

Meaning and features of SBUsSBU is a business tool whose main concept is to serve a clear and defined market segment with a defined strategy.The features of SBU are as follows:SBU contains all the needs and corporate capabilities of its organisation.There is managerial and capital resource allocation for serving the overall interest of the organisation.SBU segments the activities of the company in a strategic manner and allocates resources competitively.For an organisation to have an SBU, it must fulfill the following criteria:Possess different missionsSet up original plansHave a definable group of competitorsAdminister resources in key areasFunctions or roles of an SBUThe SBUs have their own set of functions and roles. The following are the roles of an SBU:Encourages new ways of thinking and acting as a separate autonomous unit

http://www.1000ventures.com/business_guide/sbu.html#SBUs

http://www.1000ventures.com/business_guide/sbu.html#SBUs


Reduces the affect of bureaucracy in the organisationFollows the corporate strategic plan but differs in significant aspects. Planning steps include mission, market opportunity analysis, target market evaluation, marketing program and impact analysis.The table 4.3 describes the advantage and disadvantage of an SBU.Table: Advantage and disadvantage of SBU

Advantages Disadvantages

Reduces problems associated with sharing resources across functional areasResponses quickly to the environmental changesIncreases focus on products and markets

Distortion of information occursDifficulty in maintaining a uniform corporate imageGives too much emphasis on short term performances

Benefits of SBU to parent company/MNCsAn MNC realises parenting advantages in certain factors like global scale and scope efficiencies, regional differences, global risk diversification etc. The SBU adds value through parenting advantages by defining its roles and strategic priorities.The benefits to the parent company are as follows:Optimisation of the competitive advantages lies within the companys global network of business units and people.Reforming the business model and achieving the objectiveServing a defined external market where it can conduct strategic planning in relation to products and markets


Master of Business Administration-MBA Semester 4 MB0052 – Strategic Management and Business Policy - 4 Credits Assignment Set- 2 (60 Marks) Note: Each question carries 10 Marks. Answer all the questions.

Q.1 Explain with respect to policies – steps in framing business policy and stages of policy cycle. Will these help in decision making? (10 marks)

Answer :-

Policy Cycle and its StagesPolicy cycle is the process of analysing, planning, designing, and implementing the policies in the organisation. Every organisation typically has high and low level policies. The high level policies govern the entire company in all circumstances. They mainly deal with the organisations needs. It forms a standard and does not lend procedures. The low level policies deal with a set of specific circumstances. It helps in creating procedures to govern the organisation in specific situations.These policies are necessary to govern the organisation. Hence it must be reviewed and reshaped as the objectives of the organisation changes. The policy cycle is necessary to implement this process.Stages of policy cycleThe policy cycle consists of the following stages:Setting the policy agendaPolicy agenda is the process of describing the sequence of business activities in the organisation and planning the measures to frame a policy. A list of factors is considered which includes processes, resources, revenue etc. The top level management organises committee meetings to discuss these factors and make a detailed planning for framing a policy.Writing policyIt is the process of drafting the policy for the organisation. The policy is drafted based on the various factors discussed in the meetings. A separate team under framing business policies is responsible for writing policies. The policy statements must be clear, concise and easily implemented in the organisation. The policies are created in such a way that it does not lead to controversies. The drafted policies adhere to the organisations objectives.Implementation of policy The implementation process is necessary to effectively communicate the drafted policies. This phase makes the policy visible to the employees in the organisation. An environment of compliance is achieved between the organisation norms and the employees only if the employees are aware of policies in the organisation. Generally, employees view the policies as restrictions. Hence, implementing the policies systematically reduces the negative perception of the employees.Policy implementation tasks are:Policy legitimating The proposed policy must obtain authenticity from the team implementing the policy.Constituency structure The policy must be marketed in such a way that it promotes the


relationship between the beneficiaries.Resource allocation The resources that are supporting the implementation of policy must be acquired or reallocated depending on the implementation of the strategy.Organisational design and modification The existing organisation must be re-engineered or modified according to the new policy.Resource mobilisation The resources in the organisation must be redirected to provide the capacity to conduct action as per the implemented policy.Enforcing policyEnforcing policy is the process of applying the drafted policies in situations that are in compliance between the organisation and the employees. The top level management has the clear responsibility for enforcing the policies. If the employees are found exploiting the policies then the organisation has powers to impose penalties to the employees. Hence enforcing policies develops responses to the problems faced in the organisation without hampering the organisations success.Reviewing the policyReviewing the policies is the process of checking whether the policies are matching the business activities in the organisation. This phase includes re-examining the existing policies. All the policies must be reviewed on daily basis. If any errors are found that are not compatible to the organisations views then it is reverted to the policy drafting team to re-draft. Reviewing policies ensures that they reflect the business realities of the moment.Updating policyIf any changes are made in the process of the business activities then the existing policies also must be changed. The review team holds the responsibilities of updating policies. If the policies are not updated then the organisation experiences issues with various factors in the organisation.Figure 7.1 given below depicts the policy cycle.

Figure : Policy Cycle



Factors Considered Before Framing Business PoliciesThe management process includes planning, implementation and evaluation of strategies in most of the organisations. To obtain an effective process in the organisation, the management defines the policies that assess the operating environment by forming a sphere to make decisions in the organisation.Following are the factors considered before framing business policies:Resources of the organisation - Resources can be defined as the physical and virtual entities in the control of the management that can be utilised to obtain the organisations objectives. Resources include existing resources and expected future resources.The different resources in the organisation are:The property possessed by the organisationThe human resources in the organisationInventories of product and materialThe other intangible resources are:Knowledge of the business and the environmentSkills and capabilities of the employees in the organisationThe resources of the organisation must be analysed to frame the business policies to ensure that the decisions taken in the organisation with respect to resources lies within the boundary of the policies.Economic conditions The growth rate of economy in the country lays a heavy impact on the organisations effort. If the economy of the country goes down even the organisations economy decreases. The major economic factors to be considered are the current stage of business cycle, interest rates that influence business policies.Competition The competitive environment in the organisation is major and relies on the efforts and success of the organisation. The current status of the organisation in the market must be obtained to frame business policy. This specifies the position of the organisation in the competitive market.The three types of competitions are:Competition among the organisations which produce similar productsOrganisations produce products that are substitute of another productThe general competition that arise between the organisations like consumer goods, acquiring customers etcPolitical and legal forces Political influence plays a major role in the organisations growth. Some of the laws enforced by the government restrict the business activities and protect consumers rights. Hence before framing the business policy, the political and legal forces must be considered such that it does not harm the business activities in future.Technology .Technology is the key aspect of the organisation. It includes the use of machinery, processes and products. The advancement of the technology leads to increase in the cost of the machinery and requires training for the employees. Hence technology factor affect the business policy in terms of cost. Therefore it is required to consider technology before framing business policy. As technological environment keeps changing and is very dynamic, a certain degree of flexibility must be considered to pick up the gaps in the near future. Policy makers should also consider regular up-gradation of technologies used in the business and obsoleteness of existing technologies.Internal environment of the organisation The shaping of business policy also depends upon the internal environment of the organisation. The internal environment includes the organisations production, finance and the employees activities. It is necessary to analyse the vision, mission,


strength, weakness and the co-ordination between the departments in the organisation. The business policy can be framed based on these factors.In this section we discussed the various factors to be considered before framing business policy. Next section deals with the steps involved in framing the business policy.

Steps Involved in Framing Business PoliciesPolicy formulation is the process of designing the policy. The major function of designing the policy relies upon the managers. Policy framing is one of the phases of strategic planning in the organisation. It is based on the underlying objectives of the organisation. Framing and monitoring the policy is one of the critical tasks in the organisation.The process of framing policies consists of the following steps:Definition of purpose The first step towards framing policies includes the process of identifying the objectives and the philosophy of the organisation. The purpose is to select the guidelines for measuring the performance based on the organisations strengths and weaknesses, its available resources and the personnel. The basic concept of the business activities is defined in this phase.Example The perception of the garment company is to develop the finest cloth at less cost. Adding to such a conceptual view, the company must define the purpose in terms of guidelines needed for measuring the performance and obtaining the desired targets.Preparation of strategic intelligence This step involves analysing the internal environment of the organisation. The strategic intelligence is the process of detailed description of what the company is and assessing its sphere of operations. The prediction of the future happenings including the opportunities and risks must be known because it lays heavy impact on the companys position in the market.Policy alternatives Alternating policies must be identified and analysed once the objectives of the organisation are defined. The managers recognise the problems faced by the organisation and discover the alternative policies. This step is the central phase of framing a policy. A list of policy alternatives is generated by considering the probabilities of the problems faced by the organisation.Example Inventory systems in Das n Das CompanyThe Das n Das Company invested on control systems to avoid taking decisions on the routine matter regarding the orders, timings of production, etc. In such a situation, many factors are considered by the top level management to increase the production rate and the size of orders. Hence meetings are held to discuss the implementation of the policy that suits the best.The top level management introduced an alternative to the inventory control policy that consisted of determination and evaluation of various conflicting factors. The policy is adopted to represent a balance between the internal factors like employees, resources and the production.Policy analysis This step involves analysing the alternative policies and examining its contribution towards the objectives of the organisation. An alternative policy is based on the consequences to be faced by the organisation. The elements of policy analysis process include evaluating the consequences of various alternatives and their effects on the objectives of the organisation.Strategic choice It is the process of selecting the policies that is best suited for the organisation. This is done by the top level management. The policies act as guidelines to fulfill the organisations purpose. Establishing the specific policies represents the strategic commitment towards achieving the objective of organisation.Policy review Policy review is the process to evaluate whether the framed policy is matching the organisational performance. A periodical review of policies is necessary to maintain the policies


up to date.This section explained the various steps involved in framing business policies. The next section defines policy cycle and describes the stages of policy cycle.

Q.2 Assess the challenges involved in Strategic Management in the near future. (10 marks)

Answer:-

What is Strategic management?3 Process in Strategy FormulationIn this section, we will discuss about the strategy formulation process. The main processes involved in strategy formulation are as follows:Stimulate the identification - Identifying useful information like planning for strategic management, objectives to achieve the goals of the employees and the stakeholders.Utilisation and transfer of useful information as per the business strategies - A number of questions arising during utilisation and transfer of information have to be solved The questions that arise during utilisation and transfer of information are the following:Who has the requested information?What is the relationship between the partners who holds the requested information?What is the nature of the requested information?How can we transfer the information?4.3.1 Henry Mintzbergs contribution to strategic planningWe will learn about Henry Mintzbergs contribution to strategic planning in this section. Henry Mintzberg is a well-known academician and generalist writer who has written about strategy and organisational management. His approach is broad, involving the study of the actions of a manager and the way the manager does it. He believes that management is about applying human skills to systems, but not systems to people. Mintzberg states certain factors as the reason for planning failure. The factors are as follows:Processes - The elaborate processes used in the management such as creation of bureaucracy and suppression of innovation leads to strategic planning failure.Data - According to Mintzberg, hard data (the raw material of all strategists) provides information whereas soft data (the data gathered from experience) provides wisdom which means that soft data is more relevant than the hard data.Detachment Mintzberg says that effective strategists are people who do not distance themselves from the details of a business. They are the ones who immerse themselves into the details and are able to extract the strategic messages from it.In 1993, Henry Mintzberg concluded that planning is a formalised procedure to produce a coherent result in the form of an integrated system of decisions. The objectives must be explicitly labeled by words after being carefully decomposed into strategies and sub-strategies.Critical Success FactorCritical Success Factor (CSF) is the critical factor required to ensure proper success in a business. CSF is a variable element. Therefore we can determine success through the CSFs by determining the central achievement of the organisations future.The types of CSFs are as follows:Industry CSF It results from respective industry characteristics. Example The AMSAR future


airborne program among Thomson in France, GEC in the United Kingdom and Dasa in Germany is an example of the industrial CSF. Resources and experiences were shared effectively and duplication of efforts was avoided because the quality of relationships improved between the different teams of the industries.Strategy CSF It results from the chosen competitive strategy of the business. Example The energy efficiency of Wipro has improved by 19%, which is from 335 units of electricity per employee per month (pepm) to 274 units over the last five years. It was due to the transition towards green buildings, centralised cooling and energy efficient computing equipment used by it.Environmental CSF It results from economic or technological changes. Example - According to the strategy, Amazon executed a contextual tracking technology which enabled it to monitor people when they visit its campus and track their activities.Temporal CSF It results from the internal organisational needs and changes. Example Coca cola implemented temporal CSF due to the issues related to foreign exchange. The temporal features are income earned at average exchange rate etc.The five key sources of CSFs are as follows:The industry An industry has its own unique CSFs. Some of the CSFs are successfully coping with technical issues, focused performance measures, enhancing ties, effective utilisation of resources etc.Competitive strategy and industrial position A firm's position in the industry, its strategy, its resources and capabilities will define CSF. Example - In 2005, Caterpillar defined a new strategy which defined specific CSFs to its firm. These include developing proper organisational culture, quality control and focus on resource cost.Environmental factors It includes industry regulation, political development, economic performance of a country and population trends. Example - If a company establishes its business and has just acquired a business license, it will face few industrial adaptation issues to establish its business.Temporal factors Temporal factors are linked with some specific temporary events. Example - A firm which builds its business in the international market needs a core group of executives in its new markets. Thus, its CSF is to build an executive group in a specific market.Managerial position The primary source of CSF is managerial position. Manufacturing managers have the CSFs of product quality, inventory control and cash control.The key aspects of a company while working on its CSFs can be listed as follows:Develop a mission statementDevelop high level goalsDevelop a hierarchy of goals and their success factorsList the requirements, problems and assumptionsImplement analysis matricesImplement problems versus requirements matrixObtain results of the analysisReasons for Strategy Failure and Methods to OvercomeA decline in productivity occurs due to failure of strategy. Let us discuss one such incident with HP, one of the technology giants. HP was unsuccessful in its competition with IBM, Dell, Sony and others. HP had issues in enterprise computing. What do you think were the reasons for its downfall? Why did strategic planning failed? Externally, it appeared that the major reason for its failure was due to the lack of trust and support among employees. Nevertheless, HP overcame its strategic failures and has grown since then in a sustainable manner. In this section, we will analyse the internal reasons for strategic failure.


4.5.1 Major reasons for strategy failureThere are various reasons which lead to strategic failure and that ultimately affects the management system. Some of them are as follows:Improper communications Failure in communicating the vision and strategic objectives to the stakeholders means that the developers of the strategy are not disclosing enough information to the others. If the expectations and the opinions relating to a matter are not communicated properly, there will not be sufficient growth in the environment. The final outcome is a result of strategic failure.Lack of effective leadership Leadership plays an important role in successful strategies. Lack of a true motivating leader hampers the management system. This results in improper resource allocation, poor follow-through, inadequate checks, misaligned goals, strategies, etc.No plan behind the idea Those of you who have attempted to execute thin plans can relate to the term strategic initiative. But it is not strategic or initiative at all. Inadequate planning means undeveloped intentions that lead to strategic failures.Passive management Passive management is characterised by assuming that, work progresses by itself without any action. When the management relaxes without updating the process constantly, the whole management process loses steam. Consequently the implementation phase lacks enough follow-up.Lack of motivation and personal ownership People want to create a difference in comparison to others. They do not understand the purpose and objective of the organisation and this leads to employees lacking goal and losing the vision of the organisation. In simple words they lack motivation. Employees need to understand that achieving the goals of the company supports their personal goals.4.5.2 Effects of strategic failureStrategic failures affect the root of the strategic management system. A major effect is the financial crisis of the organisation. The consequences of financial crisis are the following:Gradual declination in the growth of the organisationSystemic instabilityFewer employment opportunities or increased salary cut-offsLoss of reputation in the global market4.5.3 Methods to overcome strategic failureThere must be minimal strategic failures in an organisation for the management process to be effective. The important methods required to overcome strategic failures in an organisation are as follows:Defining your system value A value is a belief that is meaningful to you. Every individual has their own personal values whether they are consciously aware of it or not. To succeed you must know the importance of certain factors in business and in life.Defining your vision A competitive vision helps you succeed and extract the most from your business relationships.Defining your mission Defining the mission elaborates the process that helps you develop your mission statement. It also assists you in identifying your personal goals and objectives.Live from choice You must develop the ability to accept rejections. Firmly believing in your choice helps in consciously choosing the results you desire.Change management and strategic planning Change management minimises strategic failure. It deals with changes in management in terms of organisational and individual level. You must also follow a proper strategic plan.Employees and managing workers Workers rarely start off with a mastery of all their duties. The new employees can learn from their mistakes and this makes them better performers in future.


Create a plan and take substantial action Always remember the statement, If you fail to plan, you plan to fail, by Svetlana Simakova. Top performers understand that success is about taking actions. You must always create a plan with result based outcomes.Turn-around A downward trend in a business helps in identifying the mistakes and finding its solution.Replacement of the committee with a mastermind group Surround yourself with excellence from which you can seek objective advice, motivation, group synergy and different perspectives to accomplish the most important goals. In a mastermind group, the plan belongs to the group, and each person's participation is essential to the success of the group.

Q.3 Four years back, Pure Ltd. was a newly started company. It deals in designer fabrics. Its top management comprises mainly of young talented persons. They would to know to make the company follow ethical codes and practice CSR as the company moves ahead. They are also interested in meeting its business obligations. Could you suggest to the management on how to go about it? (10 marks)

Answer :- First Pure Lted. needs to know the Ethics and Values needed in corporate cultureEthics and ValuesThis section explains business ethics and business values followed by an organisation to maintaining consistent growth in an organisation. Business ethics is the behaviour that an organisation holds firmly in its daily dealings with the world. The ethics of an organisation is specific from others. Good business ethics should be a part of every business organisation. If a company does not adhere to its business ethics properly and breaks the laws, they usually end up being charged for penalty.Values are the image of, what an organisation stands for and are the basis for the behaviour of its members. Values provide the basis for judgements about the important factors essential for an organisation to succeed.There is a relation between ethics and values. Values determine the right and wrong act in an organisation, whereas doing the right or the wrong act is termed as ethics.Meaning, definition and code of ethicsEthics is defined as the rules or standards which govern the conduct of an individual or an organisation. The ethical behaviour of an employee depends upon the factors such as the individuals ethical philosophy, ethical decision ideology, individual perceptions, beliefs and attitudes, so on.Organisations can manage ethics in their workplaces by establishing an ethics management program. Basically an ethics management program conveys corporate values; suggest policies to guide decisions, etc. It includes extensive training and evaluation of the practices. A corporate ethics management program is made up of values, policies and activities which influence the behaviour of the organisation. The greater the potential risk, the more important are the ethical practices in an organisation.Benefits of developing ethical standards in an organisation are as follows:Reduces risks and cost in an organisationProtects the organisation from unethical employees and agentsEnhances performance, productivity, and competitive positionExpands access to capital, credit and foreign investment


Cultivates strong teamwork and productivityManages values associated with qualityPromotes a strong public imageIncreases profits and sustains long-term growthThe following are the characteristics of an organisation which are integrated with ethical standards:A clear vision and image of integrity exists throughout the organisationThe mission and vision of the organisation is possessed and represented by the top managementPolicies and practices of the organisation are aligned according to the vision of the organisationThe organisation has different dimensions which are of proper ethical valuesThe roles of ethics management program are as follows:Establishing ethics committee at the board levelEstablishing ethics management committeeAssigning an ethics officerCode of ethicsThe code of ethics is the written guidelines issued by an organisation to its management which assists in conducting its actions according to the ethical standards.Every organisation needs to develop the code of ethics. The prime goal of the code of ethics is to focus on the top ethical values needed in the organisation and to avoid potential ethical dilemmas.The following are the guidelines to develop the code of ethics in an organisation:Reviewing the values that must adhere to the relevant laws and regulations in an organisationReviewing the values which produce the best traits of a highly ethical and successful product or serviceIdentifying values that address the current issues in the workplaceIdentifying values which needs to undergo proper strategic planningConsidering the ethical values that are appreciated by stakeholdersCollecting the high priority ethical values in the organisation. Ethical values include the following features:Trustworthiness honesty, integrity, promise-keeping, loyalty so on.Respect autonomy, privacy, dignity, courtesy, tolerance, acceptance so on.Responsibility accountability, pursuit of excellence, so on.Care compassion, consideration, giving, sharing, kindness, so on. Justice and fairness procedural fairness, impartiality, consistency, equity, equality, and due process so on.Civic virtue and citizenship following laws, community service, and environment protection so on. Composing the code of ethics and associating examples with each value which reflect the idea of each value.Phrasing the terms which indicates that all employees are expected to obey the rules to the values stated in the code of ethicsObtaining the reviews from key members of the organisationAnnouncing and distributing the new code of ethicsUpdating the code, at least once a yearRole of business ethics and business valuesBusiness ethics and business values play a significant role in maintaining standards of an organisation. The following are the roles played by them:


Maximises profit The importance of ethics in business can be understood by the fact that ethical businesses tend to make more profits than the others. The reason for this is that the customers of the business which follows ethics are loyal and satisfied with their services and product offerings. Thus business ethics create loyalty in customers and maximises the profits.Efficient utilisation of business resources In an organisation, if the top management officials follow ethical business practices like not appreciating bribe, not cheating the customers, investors and suppliers etc, then the employees are expected to follow the same practices. This will result in better and efficient utilisation of the business resources.Creates goodwill in the market An organisation, which is well known for its ethical practices always creates goodwill in the market. Investors or venture capitalists always want to invest in a trustable business. The shareholders also remain satisfied with the practices of an ethical business.Impact of ethical conduct on business policiesBusiness policies are the guidelines developed by an organisation to govern its actions. A business policy defines the scope within which decisions can be taken by the subordinates of an organisation. A business policy must be clear, specific, reliable and flexible.The impact of ethical conduct in implementing business policies in an organisation are as follows:Assists in fulfilling the applicable lawsHelps in providing a safer work placeTreats employees with respect and dignityProtects the confidential information of the clientAvoids conflicts of interestProjects a positive image of the organisationActs ethically in handling and reporting dataImpact of ethical conduct on business strategiesMany organisations have officially adopted a code of ethical conduct and statement of company values. The board of directors and top executives of the organisation should make sure that the ethical standards and corporate values are observed in crafting the organisations strategy. Ethical principles and core values in actions and decisions should be followed by every member in the organisation. The ethical conduct should be incorporated in the business strategy and should be practiced in the day to day activities. It is necessary to observe the ethical principles sincerely. Unethical strategies are incompatible with the concept of socially responsible business behaviour.According to Robert Haas, the Chairman of Levi Strauss, an organisation should have its ethical principles. It should be capable of making profits and making the world a better place to live.Example - Levis does not conduct business with those who violate their stringent standards of work environment and ethics. In 1993, Levis Corporation pulled its business worth millions, out of the Chinese market in protest of human rights violations.Ethical and Unethical ConductThe difference between ethical and unethical conduct in a business environment arises due to the respective proper and improper execution of ethical codes and standards by the management.We will discuss the various principles of ethical conduct followed in an organisation:Observing high standards of honesty, integrity and fairness in dealing with the clientActing for the best interests of the clientsTaking reasonable care to maintain fair judgments in performing professional activitiesImproving the professional competence


Obeying all applicable laws, rules, regulations and the code of ethical standardsThe unethical conduct in an organisation is the result of violation of the above mentioned principles. The organisation faces the following outcomes because of unethical conduct:Increased risk which might severely damage the companys brand and imageDecreased productivityIncreased misconduct and conflictDecreased performance levels of the employeesDecreased probability of reporting the misconduct and unethical behavior of the employeesIncreased dysfunctional behaviours in the organisation such as under delivering, over promising, not giving credit to others, lowering goals, misrepresenting results, etc.Decreased value or reputation of the company in the market.Now we come to CSRCorporate Social Responsibilities (CSR)Corporate Social Responsibility (CSR) is the continuing obligation of a business to behave ethically and contribute to the economic development of the organisation. It improves the quality of life of the organisation. The meaning of CSR has two folds. On one hand, it exhibits the ethical behaviour that an organisation exhibit towards its internal and external stakeholders. And on the other hand, it denotes the responsibility of an organisation towards the environment and society in which it operates. Thus CSR makes a significant contribution towards sustainability and competitiveness of the organisation.CSR is effective in number of areas such as human rights, safety at work, consumer protection, climate protection, caring for the environment, sustainable management of natural resources, and such other issues. CSR also provides health and safety measures, preserves employee rights and discourages discrimination at workplace. CSR activities include commitment to product quality, fair pricing policies, providing correct information to the consumers, resorting to legal assistance in case of unresolved business problems, so on.Example TATA implemented social welfare provisions for its employees since 1945.Features of CSRCSR improves the customer satisfaction through its products and services. It also assists in environmental protection and contributes towards social activities. The following are the features of CSR:Improves the quality of an organisation in terms of economic, legal and ethical factors CSR improves the economic features of an organisation by earning profits for the owners. It also improves the legal and ethical features by fulfilling the law and implementing ethical standards.Builds an improved management system CSR improves the management system by providing products which meets the essential customer needs. It develops relevant regulations through the utilisation of innovative technologies in the organisation Contributes to countries by improving the quality of management CSR contributes high quality product, environment conservation and occupational health safety to various regions and countries.Enhances information security systems and implementing effective security measures CSR enhances the information security measures by establishing improved information security system and distributing them to overseas business sites. The information system has improved by enhancing better responses to complex security accidents.Creates a new value in transportation CSR creates a new value in transportation for the greater safety of pedestrians and automobiles. This is done by utilising information and technology for automobiles. The information and technology helps in establishing a safety driving assistance system.


Creates awareness towards environmental issues CSR serves in preventing global warming by reducing the harmful gases emitted into the atmosphere during the process of business activities.Roles played in terms of ethical conductCSR plays a significant role in maintaining ethical conduct in an organisation. The following are the roles played by CSR:Improves the relationships with the investment community and develops better access to capital and risksEnhances ability to recruit, develop and retain staffImproves the reputation and branding of the organisationImproves innovation, competitiveness and market positioningImproves the ability to attract and build effective and efficient supply chain relationshipsImproves relationships with regulatorsReduces the costs through re-cycling processEnhances stronger financial performance and profitability through operational efficiency gains

Q.4. What is BCP? Discuss its importance and influence on strategic management. How contingency planning is related to BCP? (10 marks)

Answer:-

Concepts of Business Continuity Plan (BCP)According to the Business Continuity Institute, a Business Continuity Plan (BCP) is defined as:A document containing the recovery timeline methodology, test-validated documentation, procedures, and action instructions developed specifically for use in restoring organisation operations in the event of a declared disaster. To be effective, most Business Continuity Plans also require testing, skilled personnel, access to vital records, and alternate recovery resources including facilities.BCP is a collection of procedures which is developed, recorded and maintained in readiness for use in the event of an emergency or disaster.Relevance and Importance of BCPEvery organisation is at risk due to natural disasters like flooding, hurricanes or earthquakes, or any common causes of systems disasters. Sometimes it can also be due to human interference like hacking or virus attack. Business Continuity Planning is important to the continued success of an organisation. They are critical for the continuous operations in all types of businesses. Every company needs a detailed contingency plan that ensures continuous business operations in case of any unforeseen, difficult or catastrophic event occurs. Recently most of the organisations rely on technology to do business and give more importance to IT and communication services. They become highly vulnerable to loss of information and service a result of catastrophe.BCP is very important due to the following reasons:Advanced planningThreatsAdvanced planning


Many companies have realised that it is not sufficient to implement a generic BCP. For an efficient response, with respect to continuous operations, it must adopt to specific risks and catastrophic situations which could range from major building loss to local system failure.Organisations must plan for the recovery of critical business functions, using priorities and timescales that were obtained from assessed risks and accompanying data. BCP must cover the requirements of IT, data and voice communications as well as of essential personnel and offsite locations. In today's scenario, it is no longer sufficient for an organisation to recover its technology and communications infrastructure but it must also have accessible people and accommodations in which they can work.ThreatsNatural disasters are not the only threats to a business operation. Corporate espionage organised crime, hacking, whacking packet sniffing etc are some of the man-made disasters. Hackers could destabilise an organisation's entire operation. To respond to this threat, it is important to use results generated from risk analysis and management activity to undertake focused, organisation-specific security testing, including vulnerability assessment and penetration testing of the network infrastructure.Where an event causes a company to close down its entire network, it is critical to ensure that employees and other users still get access to their data and applications as quickly and securely as possible. To accomplish this, companies can organise various information management solutions by implementing network management procedures.In spite of giving attention to Business Continuity Planning following recent terrorist activities, organisations are still failing to put strategic contingency plans in place. Gartner, an analyst firm estimates that only 35% of the organisations have a comprehensive disaster recovery plan in place and fewer than 10% have crisis management, contingency, business recovery and business resumption plans. This is an alarming statistic.Example for corporate espionage and organised crime An employee of Ellery Systems Inc. resigned and took the computer software codes with him. The codes had a potential market value of billion dollars. As they didnt implement BCP, Ellery systems went out of business and its employees lost their jobs. Millions of dollars invested and many years of hard work were lost.Steps in Business Continuity PlanThe BCPs senior management committee is responsible for the initiation, planning, approval, testing and audit of the BCP. The BCPs senior management committee also implements the BCP, coordinates its activities, supervises its creation and reviews the results of quality assurance activities. These steps are discussed below:InitiationBusiness impact analysisDisaster readiness strategiesDevelop and implement the planMaintenance and testing8.4.1 InitiationThe senior management initiates the project and conducts the meeting to review the following:Establish a business continuity planning committee The senior management identifies a team and discusses the business continuity planning project with them. The management forms a team and clearly defines the roles of project team members.Draw up business continuity policies The team establishes the basic principles and framework necessary to ensure emergency response for resumption and recovery, restoration and permanent recovery of the organisational operations and business activities during a business interruption event.


BCP and its Influence on Policy MakingBCP policy is a set of policies and procedures for formalising business continuity program. It provides guidelines for developing, maintaining and exercising BCPs. The purpose of BCP policy is to ensure that the organisation has a response to major disruptions. Most of the organisations are embracing BCP policy as a management principle.Organisation performs a series of iterative activities to formulate a BCP policy. The steps to formulate BCP policy are as follows:Ensure that the BCP program supports the objectives and culture of the organisationDecide on the scope of BCP programA project should be initiated to enable the organisation to develop a Policy and undertake the activities required to implement it. The contents of BCP policy are as follows:IntroductionPrecursorsPurposeConcepts and assumptionsProcessMethods and techniquesOutcomes and deliverablesReviewIntroduction The BCP policy of organisation provides the framework around which the BCP capability is designed and built.Precursor It gives an organisational understanding of BCM and its importance.Purpose The purpose of a BCP is to provide a documentation of the principles to which the organisation aspires and against which its performance is audited.Concepts and assumptions Though the senior management of organisation owns a BCP policy, it is assumed that the BCP team will actually produce and review it.Process The process to develop a BCP policy are as follows:Identify and document the elements of a BCP policy.Identify the relevant standards, regulations and legislation that are needed to be included in the BCP policy.Identify any good practice guidelines or other organisations policies that could acts as a benchmark.Review and conduct gap analysis of the organisations current BCP policy and external benchmark policy or new BCP policy requirements.Develop a draft of a new or amended BCP policy.Review the draft BCP policy against the organisational standards for policies or similar related activities.Circulate the draft policy for consultation.Amend the draft BCP policy based on consultation feedback.Agree the sign-off of the BCP policy and a strategy for its implementation by the organisations executive / senior management.Publish and distribute the BCP policy using an appropriate version control system and techniques.Methods and techniques The methods and techniques of developing a BCM policy are as follows:Review of organisations current BCP policy, industry goods and professional bodiesResearch on external sources for guidance (e.g. regulatory, legal etc).


Personnel communication with industry and professional bodies to understand current and developing BCP issues.Identification and adoption of components of a BCP policy of another organisation that is considered as good practice.A current review of internal and external policies to derive core components of a new or amended BCP policy.Outcomes and deliverables The BCP policy will include the following as a reference in subsidiary document:The organisations definition of BCPA definition of the scope of the BCP programA documented BCP operational frameworkA documented BCP operational framework for the management of the organisations BCP program also includes responsibilitiesA documented set of BCP principles, guidelines and minimum standardsImplementation and maintenance plan for the policyReview Even though all organisational policies are reviewed on an on-going basis, a formal review of policy is likely to be activated by a change in the external environment in which the organisation operates. Such changes could be regulatory.

Contingency PlanningContingency planning is a planning strategy that deals with uncertainty by identifying specific responses to possible future conditions. Contingency planning realises that future is impossible to predict, so it is best to have a variety of flexible and responsive solutions available. It is an alternative course of action that can be implemented in the event when a primary approach fails to function as it should. Contingency plans allow the businesses and other entities to quickly adapt to the changing circumstances.ConceptsContingency plans are developed by identifying possible failure in the usual flow of operations and strategies. Contingency plans should overcome these failures and continue with the functions of the organisation. Organisations create contingency plans to achieve the objectives that are listed below:Day to day operations of the organisation continue without a great deal of interruption or interference.Backup plan is capable of remaining functional as long as it takes to restore primary plan.Emergency plan minimizes inconvenience to customers, allowing the organisation to continue providing good and services.ImplementationContingency plans can be practically applied to any level of organisation as a part of planning process. It involves the following steps:Identify the objectives and targetsIdentify various strategies that help to achieve objectives and targets.Evaluate the costs and benefits of each strategy, and rank them according to cost-effectiveness or benefit/cost ratios. The ranking can take other significant factors into account such as implementation and other additional benefits.Implement the required strategies to achieve the targets. It generally starts with the most cost effective and easy to implement strategies, and working down the list to more costly and difficult strategies.After they are implemented, assess the programs and strategies with regard to various


performance measures, to ensure that they are effective.Evaluate overall results with regard to targets to decide if the additional strategies should be implemented.

Q. 5 Mention any 5 successful strategic alliances and discuss the key aspects concerned with it. What kinds of problems were faced by companies that were involved in these strategic alliances? (10 marks)

Answer :- Strategic AlliancesStrategic alliance is the process of mutual agreement between the organisations to achieve objectives of common interest. They are obtained by the co-operation between the companies. Strategic alliance involves the individual organisations to modify its basic business activities and join in agreement with similar organisations to reduce duplication of manufacturing products and improve performance. It is stronger when the organisations involved have balancing strengths. Strategic alliances contribute in successful implementation of strategic plan because it is strategic in nature. It provides relationship between organisations to plan various strategies in achieving a common goal.The various characteristics of strategic alliances are:The two independent organisations involving in agreement have a similar idea of achieving objectives with respect to alliances.The organisations share the advantages and organise the management of alliance until the agreement lasts.To develop more areas in alliances, the organisations contribute their own resources like technology, production, R&D, marketing etc to increase the performance.According to Faulkner (1995) Strategic alliance is the inter-organisational relationship in which the partners make substantial investment in developing a long-term collaborative effort, and obtain common orientation.11.2.1 NeedThe need for strategic alliance is:The new economy enables the organisations to use business policy to gain competition in market share, technologies, partners resources etc.The fast growing organisations extensively rely on forming alliances so that it enables the organisations to add and balance resources among them. This helps the organisations to grow at a faster rate in technology and operations.Strategic alliances are required to increase productivity ratio. When two organisations involve in manufacturing the desired product, it helps in saving time for the individual organisations.An increasing desire of global operations requires strategic alliances to converge the industry in many international markets.The intention for geographic expansion makes the organisations to enter into alliances for reducing the cost and manufacturing more innovative products.Example Cisco accelerated the collaboration across departmental and corporate boundaries due to the changing nature of work. The focus was on the network based collaboration that


required tight integration of the application stack with networks, communications, and mobility. This made Cisco develop relationship with several leading IT solution providers and vendor organisations.11.2.2 BenefitsThe organisation can enter into strategic alliances for the following benefits:Gaining resources and capabilitiesStrategic alliance is the opportunity for the organisation to achieve its objectives that lacks in the areas of knowledge, technology, and expertise. The resources and capabilities are shared among the organisations to increase the productivity. These capabilities and resources can be used by the organisation for its own purposes in future.Ease of market entryThe advancements in telecommunications and computer technology have made the organisations to alliance with foreign organisations. This benefits the organisation in terms of economies of scale and increment in marketing and distribution. The organisations enter into strategic alliance with international firm to reduce the cost of production. It also provides a strategic partnership to overcome many obstacles like entrenched competition and hostile government regulations.Shared risksRisk sharing technique is another common way of a mutual arrangement that specially occurs when the market has newly launched. If there are any ambiguities or unsteadiness in a specific market, sharing risks will become a significant factor. The aggressive nature of business is to launch a new product in the market as well as, developing a well planned association is one of the processes to minimise the firm's risks.Shared knowledge and expertiseOrganisations are competent in some areas and lack expertise in other areas. Such organisations form strategic alliance and gain knowledge and expertise in the lacking areas. The intangible resources gained by the organisation can not only be used in joint venture but also in other projects. The knowledge gaining includes the learning to deal with government regulations, manufacturing process and methods to acquire resources.Easier access to target marketsIt is difficult to introduce a new manufactured product in the market since it is exposed to various obstacles. The organisation experiences entrench competition, hostile government, expensiveness etc. There are risks of direct financial losses due to improper analysis of the market situation before releasing the product. Therefore the organisations choose strategic alliance as the entry mode to overcome such problems and reduces the entry cost.Example Flexera, a software organisation licensed an enterprise optimisation solutions, a component of strategic solution. It helped the companies and the government institutions that used applications based on management to gain continuous software compliance.Winning the political obstacleThe organisations experience difficulties in introducing a new product in other countries due to the political obstacles. Therefore the organisations form alliances with foreign organisations to introduce new products. This reduces the political factors and strict regulations imposed by the national government and also help in increasing economic standard of the country.Achieving synergy and competitive advantageSynergy and competitive advantage act as the elements that lead businesses to greater success. Being an individual organisation, it might not be strong enough to achieve these elements. Hence the organisations enter into alliance and combine individual strengths to achieve success more effectively.


The organisations indulging in strategic alliance benefits in various forms like cooperation in sharing the production facilities, sharing of knowledge, skills and technology, marketing, financing for projects etc 11.2.3 Different stages involved in a strategic allianceFollowing are the different stages of strategic alliances:Strategy developmentPartner assessmentContract negotiationAlliance operationAlliance terminationFigure 11.2 illustrates the stages of strategic alliances.

Figure 11.2 Stages of Strategic AlliancesStrategy developmentIt is the process of identifying the objectives of forming alliances, analysing the advantages of entering into alliances, observing the major issues, challenges and development of resource strategies for production.Partner assessmentThis process involves selecting the appropriate partner to join into alliance. The main elements the organisation focuses in selecting the partner are; analysing the partners strength and weakness, framing appropriate strategies, managing the partners needs and understanding the partners motives. These make the organisations under alliance to coordinate in an efficient manner to achieve effective production.Contract negotiationIt is the process of determining the two partys realistic objectives such that a high calibre is formed in negotiating between the two organisations. It defines the contribution of the parties towards achieving the goal. The process also includes penalties for poor performance and highlights the negotiation procedures that are clearly stated and understood if any controversies occur between the organisations.Alliance operation

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This phase involves the commitment of senior management in the organisation towards forming alliance. It is the process of identifying the calibre of available resources dedicated to the alliance. According to the strategic priorities the budgets are linked with resources and performance of the alliance is measured.Alliance terminationIt is the process of ending the alliance between the organisations when the objectives are met. All the transactions, meetings, financial venture and agreements of the organisations are terminated if both the organisations agree to terminate the alliance. This termination can either be positive or negative. If the organisations achieve its common goal, then the alliance terminates in a positive manner. But if the objective or the goals of the organisations are not met, then it ends with negative attitude.The advantages of implementing the strategic alliance are learning unknown technologies from partner and implementing it elsewhere, ability of the participating organisations to concentrate on activities that matches their capabilities in the best way, sufficiency and suitability of resources and competencies of organisation for its survive in the market.This section described the need, benefits and stages of strategic alliance. Next section deals with different types of strategic alliances.Types of Strategic Alliances and Business DecisionsThe mutual agreements between the organisations can take a number of forms and are increasing their common goals to get upper hand over their competitors.The different types of strategic alliances are listed below:11.3.1 Joint ventureJoint venture is the most powerful business concept that has the ability to pool two or more organisations in one project to achieve a common goal. In a joint venture, both the organisations invest on the resources like money, time and skills to achieve the objectives. Joint venture has been the hallmark for most successful organisations in the world. An individual partner in joint venture may offer time and services whereas the other focuses on investments. This pools the resources among the organisations and helps each other in achieving the objectives. An agreement is formed between the two parties and the nature of agreement is truly beneficial with huge rewards such that the profits are shared by both the organisations.The advantages of joint venture are:A long term relationship is built among the participating organisationsIt Increases integrity by teaming with other reputable and branded organisationsHelps in gaining new customersIt helps in investing little money or no moneyIt provides the capability to compete in the market with other organisationsReduces production time as the organisations are into join ventureMore new products and services can be offered to the customersThe disadvantages of joint venture are:Sometimes the organisations deal with wrong people, thereby losing investmentsThe organisations do not have the opportunity to take up decisions individuallyThere are risks of disputes among the organisations that lead to poor performanceIf the organisation enters into joint venture agreement with unprofessional selfish organisation, then it increases the risk of hurting business reputation and devastating customers trust.Example The China Wireless Technologies, a mobile handset maker is getting into an agreement with the Reliance Communications Ltd (RCom) to launch its new mobile. The joint venture between the two companies is to gain profits and provide affordable mobile phones to the market that consists of advanced features and aims to earn eight billion dollars in the next


five years. The new mobile consists of dual SIM smart phone with 3G technology at a cheaper rate.11.3.2 Mergers and acquisitionsMerger is the process of combining two or more organisations to form a single organisation and achieve greater efficiencies of scale and productivity. The main reason to involve into mergers is to join with other company and reap the rewards obtained by the combined strengths of two organisations. A smart organisations merger helps to enter into new markets, acquire more customers, and excel among the competitors in the market. The participating organisation can help the active partner in acquiring products, distribution channel, technical knowledge, infrastructure to drive into new levels of success.With the perception of the organisation structure, here are a few types of mergers. The different types of mergers are:Horizontal merger The horizontal merger takes place when two organisations competing in the same market join together. This type of merger either has a maximum or minimum effect on the market. The minimum effect could also be zero. They share the same product line and markets. The results of the mergers are less noticeable if the small organisations horizontally merge. Consider a small local drug store that horizontally merges with another small local drug store, then the effect of this merger on drug market would be minimal.But when the large organisations set up horizontal merger, then higher profits are obtained in the market share providing advantages over its competitors. Consider two large organisations that merge with twenty percent share in the market. They achieve forty percent increase in the market share. This is an added advantage of the organisations over its competitors in the market.Vertical merger This involves the union of a customer with the vendor. It is the process of combining assets to capture a sector of the market that it fails to acquire as an individual organisation. The participating organisations determine the intentions of joining forces that will strengthen the current positions of both the organisations and lay basis for expanding into other areas. The purpose of a vertical merger is to build the strengths of the two organisations for an effective future growth. In order to explore new methods of using existing products to create a new product line for wider markets, it is also important to consider the assets like property, buildings, inventories and cash assets. The vertical merger involves careful planning.Market-extension merger It is the process of merging two organisations that sell same products in different geographical areas. The main purpose of this merger is to make the merging organisations to achieve higher positions in bigger markets and ensure a bigger base for client.Product-extension merger Most of the organisations execute product extension merger to sell different products of a related category. They serve the common market. This merger enables the new organisations to pool their products to serve a common market.Conglomerate merger This merger involves organisations alliance with unrelated type of business activities. The organisations under conglomerate merger are not related either horizontally or vertically. There are no important common factors among the organisations in terms of production, marketing, research, development and technology. It is the union of different kinds of businesses under one management organisation. The main purpose of this merger is to utilise financial resources; enlarge debt capacity and obtaining synergy of managerial functions. The organisations do not share the resources; instead it focuses on the process of acquiring stability and using resources in a better way to generate additional revenue.Acquisition is the process of purchasing an organisation by another organisation, either through the purchase of its shares or assets.


Massive growth can only be achieved in less time by buying other organisations. Acquisitions have become the major entity for growth in market these days. Most of the organisations choose to grow by acquiring other organisations to increase market share, gain access to new technologies, achieve synergies in the operations, to develop distribution channels, and to obtain control of undervalued assets. There are many risks in acquisition like clashes in the culture of organisation, key employees may leave, synergies may fail to emerge, assets may be less valued than perceived etc. Table 11.1 distinguishes between mergers and acquisitions.Table 11.1 Distinction between Mergers and Acquisitions

Mergers Acquisitions

It happens when two similar organisations proceed to become a single organisation.

When one organisation takes over another and clearly states itself as the new owner, such purchase is called acquisition.

Both organisations stocks are submitted and new stock is issued.

The acquiring organisation swallows the business of acquired organisation and the acquiring organisation stock continues to be traded.

The term purchase is also called as merger when the top level managers with similar interests join together.

When the organisations deal is unfriendly, it leads to purchasing of the other organisation. It is termed as acquisitions.

Example Transocean and GlobalSantaFe, the top oil drilling companies, merged to consolidate their position in a fast-growing market.

Example Google acquired Postini to introduce services of message security, archiving, encryption, and policy enforcement.

Mergers and acquisitions are often similar. In many cases, a larger firm may acquire a relatively less powerful organisation and force it to announce the process as merger. But in reality, an acquisition has taken place. Most of the firms declare it as merger to avoid disputes and negative impression.11.3.3 Collaborations and co-brandingCollaboration is the process of cooperative agreement of two or more organisations which may or may not have previous relationship of working together to achieve a common goal. It is the beginning to pool resources like knowledge, experience and sharing skills of team members to effectively contribute to the development of a product rather working on narrow tasks as an individual team member in support to the development. Such collaborations are the foundation for concepts like concurrent engineering or integrated product development.Collaboration is a win-win methodology. It means that both the organisations insist upon each other to gain equal profits with no negative attitude of acquiring each others possessions.Effective collaboration can be obtained by the following actions:The organisations must get involve in the process from the beginning and avail the necessary resources for collaboration.The work culture in the organisation must encourage teamwork, cooperation and collaboration.There must be effective team work and cooperation among the employees of both the organisations to achieve the goal.Systematic approach of product development process must be based on sharing of information, technology etc.Co-branding involves the process of combining two or more brands into a single product or service. It is becoming a positive way to associate different brands and develop a strong brand


in the market. It creates synergy among the various brands. An organised co-branding strategy leads the co brand partners to a win-win situation and helps in realising large demands in the market.The co-branding agreement includes the important aspects such as rights, obligations, and restrictions that are abiding to both the organisations. It also includes important provisions and the needs must be carefully drafted to provide clear guidelines to the involved organisations. The organisations form co-branding to accomplish many goals which include expansion of customers, obtain financial benefits, respond to the needs of customers, strengthening its competitive position, introducing new product with strong image and to gain operational benefits.It is more frequently used in the field of fashion and apparels. It can also be used for promoting campaigns, using cartoons on T-shirts, logos, distributing through branded retailer etc.Example The sportswear giant Nike formed co-branding agreements with Philips consumer electronic products. The Philips electronic products will contain Nikes logos and it is mainly marketed in United States since the market share of Philips is not much impressive. The newly introduced digital audio player and portable CD players of Philips will be unveiled with the Nike logo to enhance profits in the market share in United States.11.3.4 Technological partneringIt is the process of associating the technologies of two different companies to achieve a common goal. The two organisations work as co-owners in business and share the profits and losses. The technologies of individual organisations are shared to achieve desired outcome. The required resources like knowledge, machinery, and expertise are collaborated between the organisations.Example The software giant, Infosys Technologies Ltd. has entered into partnership with US based NVIDIA, GPU inventor and the world's visual technologies giant. The purpose of this partnering is to develop NVIDIA CUDA (Compute Unified Device Architecture). This technology is viewed as the next big revolution in the field of technology in lending high performance in computing. The software helps the developers of various applications to tap into the previously uncultivated power of the GPU. This will enable certain applications to achieve high performance. The capacity of CUDA is expected to multiply fifty times the performance of existing computing and reduce the run time to advance the user enterprise.11.3.5 Contractual agreementsIt is the process of agreement with specific terms between two or more organisations which guarantee in performing a specific task in return for a valuable benefit. The contractual agreement is the heart of business dealings. It is the most significant areas of legal concern and involves variations in certain situations and complexities.The organisations require analysing fundamental factors before involving in contractual agreements.The elements to be analysed are:It is necessary to identify the type of offer being laid by the organisation to make an agreement.The acceptance of the information involved in offer which results in meeting the market needs.The organisations are required to recognise the strong commitment towards the contractual agreement.Systematic scheduling of the process involved in manufacturing product without any hindrances to both the organisations.Discover the terms and conditions for manufacturing the product and the guarantee of the organisations in fulfilling it.The contract agreement includes several documents such as letters, orders, offers and


counteroffers. There are various types of contractual agreements. They are:Conditional It is based on occurrence of an event.Joint and several The organisations promise to perform together but still they possess individual responsibilities.Implied The judicial court will determine the contract between the organisations based on circumstances. The parties will be able to buy all manufactured products, enter into a contract to supply others requirements, or renewal of the existing contract.11.3.6 OutsourcingIt is the process of entering into a contract with an organisation or a person to perform a particular function. Most of the organisations outsource the work in numerous ways. The function being outsourced is considered as noncore to the organisation.The external firms that provide outsourcing services are called as third parties or it is commonly called as service providers. The concept of outsourcing existed from the era of work specialisation. Usually organisations adopt this concept to carry out narrow functions such as payrolls, billing, and data entry. Since most organisations lack in many resources, it outsources these processes to other organisations which consists of specialised tools, facilities and trained personnel.The four stages involved in the process of outsourcing are:The first phase involves strategic thinking for developing the organisational philosophy about the role of business activity outsourcing.The second phase is the process of evaluating and selecting the appropriate outsourcing projects and choosing the potential location for the work force.Third phase is the process of contractual agreement such that the business activities are worked legally in terms of pricing and service level agreement (SLA) terms.The final phase is to outsource management to refine the present working relationship between client and outsourcing service providers.Example Tatvasoft is an Indian outsourcing company that offers software development services to its clients in United States, Canada and Australia. They provide software outsourcing services and solutions with the focus on secure, scalable, and reliable business systems. The key benefits of outsourcing are cost efficiency, availability of trained staff, flexible manpower utilisation, and risk minimisation.11.3.7 Other methodsThe various other methods in forming strategic alliances can include the following:Affiliate marketing It is the process of revenue sharing between the website owner and the online merchant. This process includes the website owner to advertise the merchants products or send the potential customers to the merchants website. It provides added advantage to both the website owner and the merchant, since the website owner earns money in advertising and the merchants products are advertised globally instead of self marketing. Example amazon.com was the pioneer of affiliate marketing in promoting various products of the merchants.Technology licensing It is the contractual agreements where trademarks intellectual property and trade secrets are licensed to an external organisation. The main disadvantage of licensing is the loss of control over the technology. When it belongs to other organisation, there are chances of exploitation.Product licensing This is similar to technology licensing. The only difference is that it deals with manufacturing and selling of certain products. The organisations owning the product license is provided with an opportunity to sell products within certain geographical area. The license allows selling the products within the prescribed boundary.


Franchising It is a quick process of achieving a successful objective nationwide. The organisation pays certain amount of fee in setting up franchise and agrees to constant payments so that the process is financially risk-free for the organisation.Sharing R&D The organisations set up strategic alliances to venture into research field. The main purpose of the organisations is to embark in the field of research and development to form a new entity.Distributors Most of the organisations market their products by outsourcing it to various companies. These companies act as distributors where each one is located in different geographical areas. This ensures the effective distribution of products and provides employment opportunities in the various geographical areas.Problems Involved in Strategic AlliancesThere are numerous problems related to strategic alliances. Some of them are:One of the organisations suffers benefits due to incoherent goalsLack of trust between the organisations lead to poor performance in achieving the desired goalThe existence of conflicts between the organisations due to internal issues like personnel and resources causes problem to the strategic allianceLack of commitment between the organisations leads to termination of the alliance contractMany organisations experience the risk of sharing too much knowledge with the partner organisation to become a competitorReduces the possibility of future opportunities of getting into agreement with partners competitors

Q. 6 Give a note on and strategic control. (10 marks)

Answer:-

Strategy EvaluationThe core aim of strategic management succeeds only if it generates a positive outcome. Strategic evaluation and control consists of data and reports about the performance of the organisation. Improper analysis, planning or implementation of the strategies will result in negative performance of the organisation. The top management needs to be updated about the performance to take corrective actions for controlling the undesired performance.All strategies are subject to constant modifications as the internal and external factors influencing a strategy change constantly. It is essential for the strategist to constantly evaluate the performance of the strategies on a timely basis. Strategic evaluation and control ensures that the organisation is implementing the relevant strategy to reach its objectives. It compares the current performance with the desired results and if necessary, provides feedback to the management to take corrective measures.Strategic evaluation consists of performance and activity reports. If performance results are beyond the tolerance range, new implementation procedures are introduced. One of the obstacles to effective strategic control is the difficulty in developing appropriate measures for important activities. Strategic control stimulates the strategic managers to investigate the use of strategic planning and implementation. After the evaluation, the manager will have knowledge about the cause of the problem and the corrective actions.The five step process of strategic evaluation and control is illustrated in figure 5.1.


Figure 5.1: Strategy Evaluation and Control ProcessRetrieved from Concepts in Strategic Management and Business Policy by Thomas L.Wheelen, J.David Hunger (2002), Pearson Education, New Delhi.Recognise the activity to be measured Top management including the operations manager has to specify the implementation processes and the results that are to be evaluated. The processes and results must be compared with the organisations objectives in a consistent manner. The strategy of all the important areas must be evaluated irrespective of the difficulty. However, focus should be on the most significant elements in a process. Example The process that accounts for the highest proportion of expense, the greatest number of problems etc.Create the pre-established standards Strategic objectives provide a crystal view of the standards to measure performance. Each standard defines a tolerance range for acceptable deviations. Standards can also be set for the output of intermediate stages of production along with the final output.Measure actual performance Actual performance must be measured on a timely basis.Status of actual performance If the results of the actual performance are within the tolerance range, the evaluation process stops here.Take remedial action If the actual performance result exceeds the tolerance range, corrective actions must be taken to control the deviation. The following questions must be answered:i) Is the variation, a minor or temporary fluctuation?ii) Are the procedures being implemented appropriately?iii) Are the procedures appropriate to the achievement of the desired standard?5.2.1 Requirements of strategic evaluationInformation of strategic evaluation activities needs to be economical, crisp, clear and concise. It should be directly related to the organisations objectives. It should provide valuable information



to the managers about the activities over which they have control and authority. Strategic activities should provide well-timed information. At times, managers need this information on a regular basis. Strategic management should provide an accurate picture of the current activities of the organisation. Example In a severe financial dip, profit ratio will fluctuate irrespective of the hard work of the employees and the managers. Strategic evaluation should deliver action oriented reports rather than information oriented. These reports should be directed to those individuals who are influenced to take corrective measures.This process should not dictate the decision but rather promote reasonability, faith and mutual understanding between the personnel and the organisation. Strategic evaluation needs active participation and cooperation of all the departments in the organisation. Strategic evaluation should be simple, manageable and encourage to achieving the common goal. Strategic evaluation is rewarding only when it is effectively used.It is more difficult to organise and develop cooperation between different departments and functional areas in large organisations. So, they need highly structured and in depth strategic evaluation system. Small companies just need a brief report of evaluation as their familiarity and internal communication within the organisation to gather and evaluate information from local environment is at ease. The key to an effective strategic evaluation lies in the managers ability to convince participants. Strategic evaluation system differs for every organisation depending on its objectives, strengths, challenges, size, management style etc.5.2.2 Importance of effective strategic evaluationThe strategic-evaluation process with constantly updated corrective actions results in significant and long-lasting consequences. Strategy evaluation is vital to an organisations well-being as timely evaluations can alert the management about potential problems before the situation becomes critical. Successful strategists combine patience with a willingness to take corrective actions promptly, when necessary.The process of evaluating the implemented strategy is explained in Figure 5.2.


Figure 5.2: Evaluation Process of an Implemented StrategyRetrieved from Concepts in Strategic Management and Business Policy by Thomas L.Wheelen, J.David Hunger (2002), Pearson Education, New Delhi.Frequent strategic evaluation activities can control the negative consequences of the environmental complexity and instability issues. Success today does not guarantee success tomorrow! However, the frequencies of strategic evaluation performed were surprisingly found to be vice-versa in stable and unstable industries. Management in dynamic industries seems to have performed fewer strategic evaluation activities when compared to those in stable industries. Lindsay and Rue concluded that forecasting is more difficult under complex and unstable environmental conditions. So, strategists may see less need for frequent evaluation of their long-range plans.5.2.3 Barriers of strategy evaluationThe critical part of strategic evaluation is the measurement of actual performance. The two noticeable barriers of effective strategic evaluation are lack of clear objectives and incapability of the management to provide well-timed and justifiable information. It is very difficult to take operational decisions without clear objectives and well-timed and justifiable information. However, the use of well-timed and justifiable standards does not guarantee efficient performance. The most common negative side effects of strategy evaluation are:Short term arrangement Most of the top executives reveal that they neither analyse the long term implications of current strategic operation nor the current operational impact of the strategy on the organisation. The reasons behind this sort of behaviour are:The top management dont realise its importance.They believe that short term considerations are sufficient and more important.Lack of time to conduct a long term analysis.



No real justification is available for the first and last reasons for not conducting long term evaluations. Short term strategy evaluation is always good; however certain strategies can be evaluated only on a long term basis. Example Strategies based on the financial position of the company requires information about annual turnover of the company and profit and loss statements of the past years.Goal displacement Improper analysis and measurement of performance can result in the decline of the overall corporate performance. The term goal displacement is given when the activities to achieve the goals gain more importance when compared to the actual goal. The two types of goal displacement are:Behaviour substitution It is used when wrong activities are being rewarded. This phenomenon refers to replacing the activities that do not contribute to the goal with the activities that lead to goal accomplishment. Managers tend to pay more attention to the behaviours that are clearly measureable.Sub-optimisation This phenomenon is about the situation when a unit optimises its goal accomplishment which detriments the performance of the organisation as a whole. One divisions attempt to accomplish its goals might cause other divisions to fall behind and results in a negative effect on the performance of the organisation as a whole. Example An organisation has limited time to submit an order for 500 refrigerators. It informs the employees to work extra hours to submit the order in time. At the end of the project, the organisation is able to submit the order in time. However, it hampered the quality of the product with a direct impact on the quality control system of the organisation.The three most widely used techniques for international performance evaluation are return on investment, budget analysis and historical comparisons. Most corporate companies still follow the same evaluation methods for their foreign and domestic operations. However, return on investment may create issues when it is applied to foreign operations due to factors like foreign currencies, variations in prices and tax laws etc. International transfer pricing is mainly used to minimise taxes that varies for different countries.5.2.4 Strategy evaluation methods The methods to evaluate strategies through Return on Investment (ROI) and Earnings Per Share (EPS) are becoming outdated these days. Analysts recommend a broad range of methods like stakeholder measures; shareholder value and the balanced score card approach to evaluate the performance of the strategy. The current trend supports increasing use of non-financial and complicated financial measures of corporate performance.Stakeholder measuresStake holders have their own set of criteria to determine the performance of the organisation. These criteria have a direct or indirect impact of the corporate activities on the stake holders interests. The top management should establish measures to keep a track of their concerns. It is mandatory to analyse and meet the needs of stake holders to maintain the legitimacy and sustainability of the business.Share holder valueIt is difficult to measure an organisations economic value with accounting numbers like return on investment, return on equity and earnings per share as they are never stable. Share holder value can be defined as The present value of the predictable future stream of cash flows from the business plus the value of the company if liquidated. The value of a corporation is the value of its cash flows discounted back to their present value, using the businesss cost of capital as the discount rate.The most popular methods to measure the share holders wealth are:Economic Value Added (EVA) - EVA measures the difference between the pre-strategy and


post-strategy value of a business. It is the difference between the after-tax operating income and the total annual cost of capital. The total cost of capital is the multiplicative amount of total investment in assets of an organisation and the weighted average cost of capital.EVA = after tax operating income (total cost of capital)Positive EVA indicates that the strategy is generating positive value for the shareholders and vice versa.Market Value Added (MVA) MVA is the difference between the market value of an organisation and the capital contributed by the shareholders and lenders. The process to calculate MVA is as follows:Calculate the total amount of capital that is invested in the organisation.Reclassify the investments that are made for the future earnings of the organisation (e.g., R & D). This provides the firms total capital.Using the current stock price, sum up the value of all the outstanding stocks that adds to the companys debt. This is the companys market value.The firms MVA is positive if its market value exceeds the total capital. This means that the management is creating wealth. Negative MVA means that the management is destroying wealth.Balanced scorecard approachRobert Kaplan and David Nortons approach of balanced scorecard is especially useful when the non-financial assets contribute 50 to 80 percent of a firms value. The balanced scorecard is also a collection of procedures used to analyse difficulties. This approach focuses on four major areas of performance to avoid information overload. These four areas are as follows:FinancialCustomerInternal business perspectiveInnovate and LearningIn addition to measuring the current financial performance, the balanced scorecard evaluates the organisations efforts for future development with process, customer, and learning and growth metrics. The term scorecard indicates quantified performance measures and balanced indicates that the system is balanced between:Short term objectives and long term objectivesFinancial and non-financial measuresLagging and leading indicatorsInternal and external performance perspectivesThe balanced scorecard illustrates, communicates and aligns the strategy throughout the organisation, along with measuring the strategic performance.Strategic ControlStrategic control is established to focus on the resources used in the performance (input), activities that generate the performance (behaviour) and the result of actual performance (output). Strategic control involves tracking the strategy as it is being planned, implemented and take necessary actions when it indicates any negative performance.Example - Consider an air conditioner fixed inside a room. The air conditioner registers a specific temperature to the thermostat. When the thermostat senses an increase in temperature, the motorised fans circulate conditioned air to ensure that the temperature of the room is maintained. In this example, strategic control is related to the method by which the target temperature is maintained.An effective strategic control should ensure that strategic aims are translated into effective action plans that are designed and monitored to achieve these aims. The three types of


strategic control are:Feedforward/input controls These focus on input resources like knowledge, skills, abilities, values and motives of employees. Concurrent/behaviour controls These take place when an activity is in progress. They guide on how the strategic activities need to be performed through top management orders, standard operating procedures, policies, and rules. The managers must harmonise resources and capabilities within the different departments of the organisation. Feedback/output controls These focus on the end results of the behavior controls to achieve the objectives and performance targets. These are more appropriate when the connection between the activities and results is not clear. Input, behaviour and output controls are not interchangeable. Input controls are more appropriate when it is difficult to measure the end result and when there is no clear cause between the behaviour and performance of the organisation. Behaviour controls are more appropriate in situations when the performance results are hard to measure but the cause-effect relationship between the activities and results is clear. Output controls are used in situations when the performance results are achievable but the causeeffect connection between the activities and results is unclear.5.3.1 Guidelines for effective strategic controlThe top management should not forget that controls are established to follow strategies. The guidelines for effective strategic control are:It should contain only the most important information.It should examine only meaningful activities and results.It should be well-timed.It should use long-term and short-term controls.It should be able to identify the activities that do not fall within the tolerance range.It should determine the rewards for meeting or exceeding standards.

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