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           The Examinations of ICAP are a demanding test of student’s ability to master the wide
           range of knowledge and skills required of the modern professionals. Subject of “Business
           Management” is one of the efforts made by ICAP in this context for enhancing student’s
           knowledge about detailed overview of effective management of businesses.

           The best and recommended book for this subject is “Study Text by PBP” that covers each
           and every area of syllabus in extraordinary detail. The basic problems faced by the
           students in going through PBP are its size and the language used. Students who are new to
           this subject have to spend most of their precious time in understanding the theme conveyed
           in any chapter. Moreover students feel it very hard to revise the complete course near or on
           the exam day.

           For these reasons there arise needs to have some short and easy to revise notes for this
           subject that covers the extent of PBP in a concise form. For this purpose we used short
           notes of PBP prepared by Muhammad Asif (Ex A.M, AFF & Co Lahore) 3 years earlier.
           After compiling the notes Faraz Ahmad reorganized the notes and updated it using the
           PBP. Now those notes are finalized and presented to you in a booklet form. Hopefully it
           will help you all.

           I would suggest that first of all you should read BM from PBP and afterwards you may
           consult these notes for revision purposes. An Annexure has been given at the end of this
           booklet to help you deciding how you can use this booklet in combination with PBP.

           May ALLAH bless you with success in every exam of both lives.


                                                                     For notes & other study
           Talib e Doa                                               material for module E visit
                                                                     and download mails from
           Syed Atif Hassan Abidi
           Faraz Ahmad                                               E-Mail id:

           March 31, 2009                                            Password:
             (Updated: Oct. 19, 2009)                                a4atif

                                                                     These notes are also
                                                                     available at
                                                                 HTU                                                                                 1
                                                                     To create Value for Money, funds                  must   be   applied
Chapter 1 : Objectives of                                            Economically, Efficiently and Effectively.
                                                                               Chapter 2 & 3: Strategy
                    Introduction to Strategy
Strategy:                                                                      Formulation and Choice
“Course of actions, including specification of resources required,
to achieve a specific objective”                                                       Strategy formulation/choice

Influences on /Determinants of Strategy:                                 1.  How to gain competitive advantage?(question                of
        External                                                             survival)
            o Society                                                     i. Porter’s Generic Strategies (5 forces)
            o Organized groups                                           2. Which Direction to go
        Nature of business                                                     i. Growth direction
            o Market situation and conditions                                       a. Organic growth
            o Products of company                                                           Ansoff’s Product Market Matrix
            o Technology used                                                       b. Joint development
        Organization’s Culture                                                ii. Defensive/Non growth strategies
            o Organizational system and structure                                 a. Capital Restructure Scheme
            o Leadership style                                                    b. Downsizing
            o Organization’s history                                              c. Divestment
            o Organization’s founder
        Stakeholders’ powers (mapping) and Internal coalition        Porter’s Generic Competitive Strategies (to achieve
        Economic objectives                                          competitive advantage):
        Social responsibility                                        Competitive position is the market share, costs, prices, quality
                                                                     and accumulated experiences of an organization/product relative
Environmental conditions affecting Strategic Planning:               to competition.
    1. Resources (mineral)
    2. Disaster                                                      Competitive strategy is taking offensive or defensive action to
    3. Logistics                                                     create a defendable position in an industry, and to cope with
    4. Government                                                    competitive forces yielding superior ROI.
Environmental Management Accounting is a solution: examples
are                                                                  Competitive advantage is anything which gives one organization
     1. Eco – Balance                                                an edge over competitors.
     2. Cleaner Technology                                           There are following Competitive Strategies for companies to
     3. Lifecycle assessment                                         achieve Competitive Advantage.
     4. Performance appraisal                                                         Lower Cost        Differentiation
     5. Budgetary planning and control                                              Cost Leadership         Differentiation
     6. Corporate liabilities (a factor in PERT)                     Broad
Characteristics of Strategic Decision:                                                Cost Focus                 Differentiation Focus
Scope: Overall long-term direction.                                  Niche                                       (for luxury goods)
Matching: Matches activities to environment & resources              Focus
Affect: Affected by values, beliefs and powers of people in
organization. & Affect operational decisions.                        Differentiation is “creating value through uniqueness”. It could be
Implications for change.                                             at following levels of product i.e.
Complex in nature.
Allocation or reallocation of resources.                                               1. Actual Product
                                                                                                a). Features.
Strategic Financial Management:                                                                 b). Quality level.
It is identification of strategies able to maximize NPV and to                                  c). Design.
allocate scarce resources, and implementing and monitoring of                                   d).Brand name
such strategy.                                                                                  e). Packaging.
Financial management decision:                                                         2. Augmented Product
         Investing decisions (merger, divestment etc.)                                        i. Delivery and credit
         Financing decisions (Capital structure and Working                                  ii. Warranty
         Capital Management)                                                                iii. Installation
         Dividend decisions (Cash or Bonus share)                                          iv. After sale service
Financial objectives:
         Primary object is to maximize wealth of shareholders        Cost Leadership is “having lowest cost of producing”. It could be
         Others are                                                  achieved by:
               o Decrease in debt.                                       Mass Production (economies of scale)
               o Profit retention.                                       Latest Technologies
               o Sales growth.                                           Favorable access to raw materials
Non financial objectives:                                                Automation
         Service provision.                                              Minimizing overhead by exploiting bargaining power
         Fulfillment of responsibility to suppliers and customers.       Constantly improving efficiency and economy e.g. through
         Welfare of Society                                              value chain analysis
         Welfare of Management
         Welfare of Employees                                        Focus involves a restriction of activities to only part of the market
                                                                     (a segment) through
Government organizations:                                              − Providing goods/services at lower cost (Cost focus)
External Financing Limit.                                              − Providing a differentiated product/service (Differentiation
                                                                           focus)                                                                                                2
     Advantages/Comparison of Competitive Strategies:
     Competitive  Cost Leadership strategy                              Differentiation strategy
     Rivalry      Profitable even in price competition.                 Reduces direct competition.
     New Entrants Low price is entry barrier.                           Customer loyalty is entry barrier.
     Substitutes  Firm is less vulnerable than competitors.             Brand loyalty is weapon.
     Customers    Customers won’t switch.                               Low price sensitivity.
     Suppliers    High bargaining power because of market share.        Supplier may raise prices but higher margin offsets it.

Ansoff’s Product-Market Matrix:                                                −    Related diversification is when product is new but
                                                                                    still within broad confines of industry. e.g.
                 Present Product               New Product                     Vertical integration (control over supply chain)
Present Market                                                                      Forward integration (control/ownership over
                        Market                    Product
                        Penetration               Development                       distributors or retailers)
New Market                                                                          Backward integration (control/ownership over
                        Market                    Diversification
Market                                                                         Horizontal       integration    (control/ownership over
Penetration: (low risk; no capital investment)                                 competitors)
  − To increase usage by existing customers or                                 − Unrelated diversification is where development is
  − To increase market share through Competitive pricing,                           beyond industry and product is entirely new
      Advertising, Sales promotion taking share of competitors                      having no relation with existing technology,
Market Development: (low risk; less investment)                                     market or products.
         − New geographical area
         − New segment                                                                   Joint Development Strategies
         − New packing size                                                    Take Over/ Acquisition
Product Development: (riskier; requires investment)                            Mergers
         − Company can exploit followings                                      Joint Ventures
                 Existing marketing arrangements (e.g.                         Strategic Alliance
                 Promotion, Distribution)                                      Licenses
                 Knowledge of customers and habits                             Agency Agreement
         − Cost of entry will go up for competitors.                           Franchising
Diversification (high risk; requires investments and new

              Franchising                             Unrelated                                      Forward

                             Diversification                        Vertical
                                                      Related                              Backward
     Growth                                                         Horizontal

                             Organic Growth
                                                                    Required rate of return, adjusted by
Chapter # 4: Planning and Control                                      Return %age
                                                                       Payback period
                                                                       Finance (strict rules of financing i.e. out of profits)
                            Planning                                Quantification risk:
Planning:                                                              Rule of Thumb (best estimate of value within worst to best
“Planning involves making choices between alternatives and is          possible range)
primarily a decision making activity”                                  Probability Theory (likelihood of occurrence of a forecast
2 approaches to planning:                                              result)
Top-down approach means strategic management starts from               Standard Deviation (calculate Standard Deviation of
top management and flows down the structure.                           Expected Value, the higher it is the higher risk is)
Bottom-up approach means information is accumulated at lower
level and presented to top management along with summary and        Budgetary Control
options available.                                                  Control:
                                                                    “Control is comparing actual results with planned performance
Planning cycle                                                      and taking appropriate actions”
  1. Identify objectives
  2. Identify available strategies                                  Control Cycle
  3. Evaluate each strategy                                             1. Actual results are recorded and analyzed for each
  4. Choose strategy (course of action)                                     responsibility center.
  5. Implement long-term plan in the form of annual budgets             2. Feedback is reported to management.
                                                                        3. Management compares actual results with plans or
Risk factors in planning:                                                   targets.
Types of risks:                                                         4. Do one of three things
         Physical                                                                            i. Decide to do nothing
         Economical                                                                         ii. Take control actions
         Political                                                                         iii. Alter the plan or target
         Financial                                                  Feedback:
         Business                                                   “The process of reporting back control information to
         Product lifecycle                                          management and the control information itself”
Accounting for Risk:                                                        It may be Single Loop or Double Loop.                                                                                              3
         It may be Positive or Negative.                                 1.   Motivates employees
                                                                         2.   Establish system of control
Feed forward Control:                                                    3.   Responsibility accounting
        Control actions taken in advance.                                4.   Achievement of goals
        Actual results are compared with Budgeted (i.e.                  5.   Communication
        adjusted by past results)                                        6.   Coordination
Well organized system of control should have:                            7.   Compel planning
        Hierarchy of budget center.
        Clearly defined responsibilities.                           Responsibility Accounting:
        Responsibilities for Cost, Revenue, and Capital             Each manager has a clearly defined area of responsibility and
        Employed.                                                   authority to make decisions within that area. No uncertainty as to
                                                                    who is responsible for what (sometimes dual responsibility
Budget Center:                                                      exists).
“Each section of the organization for which budget is prepared”     There      are   3     different    areas     of   responsibility.
Objectives of budgeted planning and control:

  Type of responsibility center      Cost Center     Profit Center      Investment Center
  Manager has control over…          Controllable       Controllable        Controllable cost
                                     cost               cost                Sales prices
                                                        Sales Price         Sales volume
                                                        Sales volume        Investment in fixed and current assets
  Principal performance measures     Variance        Profit             Return on investment and residual income

  Responsibility Center is a unit of organization headed by a manager who has a direct responsibility for its performance.
  Controllable Cost is an item of expenditure which can be directly influences by a given manager within a given time span.
  Controllability of fixed cost:
          Committed fixed cost (e.g. PPE-------non-controllable in short term)
          Discretionary fixed cost ( e.g. R.&D. or Advertisement ---------- controllable in short term)

     Chapter 4 & 5: Strategic                                                            o   Analyzing       internal     environment
   Management: Traditional and                                                               (Situation analysis/Position audit)
                                                                                          o Resources Audit
         other models                                                                     o BCG and GEBS matrices
                                                                                          o Value chain
                                                                                          o System structure
                                                                                          o SWOT Analysis
   Traditional and other models of Strategic Management
                                                                                          o Gap analysis
Strategic Management:                                                    o    Strategy formulation/Choice (how we can go)
“Strategic Management is the analysis, choice, implementation            o    Strategy implementation
and control of agreed strategies”                                        o    Strategy evaluation and Control
Strategy is a course of action including the specification of
resources required to meet a specific objective.                       Favor of rational model: (Ansoff and Drucker support it)
Tactics is the deployment of resources to execute an agreed                  1. Corporate level first
strategy.                                                                    2. Strategies are best generated from Top-Down
Policy is a general statement providing guidelines for                       3. Provide a common thread
management of decision-making.                                               4. Enables decision making in conditions where
                                                                                                  i. Partial ignorance (Ansoff)
Levels of strategy: (by Hofer and Schendel)                                                      ii. Risk is inevitable (Drucker)
Corporate Strategy determines the overall purpose and scope                  5. Basis for strategic control
of the organization. It is concerned with what types of business             6. Improves stakeholders’ perception
the organization is in.                                                Problems with rational model: (Mintzberg criticizes it)
Defining aspects of corporate strategy:                                   1. Organizations are incapable of having objectives
          − Scope of activities (whole organization)                           because
          − Faces environment (opportunities and threats)                           i. Objectives may conflict with each other.
          − Resources (how to obtain and allocate them)                            ii. Objectives will change from time to time
          − Values (of people in power in organization affect                     iii. Objectives are unlikely to be directly related to
              it)                                                                      economic benefits of shareholders.
          − Time scale (long term)                                     2. Senior management should not be only strategy- setter.
          − Complexity (uncertainty of future)                         3. In reality formulation is not a simple step by step process.
Business Strategy is how an organization approaches a                  4. Strategies that firms follow are not the same as ones they
particular product market area (applied at SBU level).                    set in plans.
Functional/Operational strategies deal with specialized area           5. Over reliance on formalization.
of activity within an SBU e.g. Production, Marketing, HRM,             6. Predetermination
Finance.                                                               7. Failure in practice (suitable for only stable environment)
                                                                       8. Hinders innovation and radical change.
Traditional approach to make strategy: (through Planning in
a systematic way)                                                      Other models of (making strategy) Strategic
  o Strategic analysis                                                 Management
             Analyzing Vision, Mission and Objectives
             (Strategic Direction)
             Corporate appraisal (where we are)                        Mintzberg’s emergent strategy model: (Considers random
                  o Analyzing external environment                     shocks)
                           SLEPT analysis                                      It is unlikely that a firm’s environment is totally
                           Porter’s 5 forces model                             predictable.                                                                                             4
         Emergent strategy is a non-conscious strategy arising                        Strategic Management is to control and shape/craft
         from patterns of behavior.                                                   these emergent strategies as they arise.

            Intended                                                    Deliber
                                               Unrealized                                            Strategies

          Patterns of
                                     Unexpected                       Emergent
          behavior                   Contingencies                    Strategies

Activities affecting Crafting Strategy:                                        3.   Pattern - ideas of emergent strategies
          Manage stability                                                     4.   Position - “environmentally fit” & relationship with other
              o Implement, not just plan                                            organizations
              o Obsession to change is dysfunctional; know                     5.   Perspectives      - approach towards world
                    when to change
          Manage patterns                                                Strategy and managerial intent: (Johnson and Scholes) not
              o Detect patterns and help them shape; grow                emergent
                    positives and eliminate negatives.
          Know the business operations                                   The Command view:
          Detect discontinuing and significance of environmental              Strategy develops through the direction of an individual or
          changes.                                                            group, but not necessarily through formal planning.
          Crafting strategy---- requires natural synthesis of past,           Control of strategy direction is possessed by autocratic or
          present and future. (reconcile change and continuity)               charismatic leader.
Mintzberg’s 8 styles of strategic management:
  1. Planned strategies (imposed by central leadership, large            Paradigm and Politics:
       no. of controls, precise intentions)                                  Paradigm (basic assumption and beliefs common in
  2. Imposed strategies (imposed by environment e.g.                         organization’s decision makers) is inhabitant and
       influential customers)                                                conservative than culture.
  3. Ideological strategies (collective vision of organization’s             Politics is process of bargaining and negotiation of strategy
       members, shared values)                                               among powerful stakeholders.
  4. Umbrella strategies (ends are defined, means are                        Process by which Paradigm and Politics influence process of
       emergent, target based)                                               strategy development.
  5. Disconnected strategies (members mind their own                         o Issue awareness (by internal results, customer response or
       business, strategies are deliberate for sub-units but                    environmental change)
       emergent for organization)                                            o Issue formulation (analysis of issue to get its root)
  6. Consensus strategies ( groups shares common patterns)
  7. Entrepreneurial        strategies   (visioned    from   strong            o    Solution development
       leadership)                                                                         Memory search (from past experience)
  8. Process strategies                                                                    Passive search (time will tell)
Mintzberg’s 5 ways to describe strategy:                                       o    Solution selection
    1. Plan         - consciously intended course of action                                Eliminate unacceptable plans (politics)
    2. Ploy         - a competitive game (e.g. discouraging                                Endorsement to junior management
          competitors to enter)

Incrementalism:                                                                   a) Managers do not take best
Bounded Rationality Theory: (Herbert Simon)                                           decisions but satisfactory
      Mangers are limited by time, information and skills.                            ones.
      They satisfice rather than maximize.                                        b) Managers do not pursue the
                                                                                      whole rational model but take
Incrementalism: (Lindblom)                                                            small-scale decisions.
      It involves small-scale extension of past practices.
      Organizations change incrementally, during which time, strategies form gradually.
Disadvantages of Incrementalism:
    1. Not suitable where radical new approaches are needed.
    2. Some changes are dramatic not incremental.
    3. Ignores influence of corporate culture.
    4. Applicable to stable environment only.

Logical Incrementalism: (mid way)
Managers have a vague notion as to where the organization should go, but strategies should be tested in small steps because of
uncertainty about future.
                                        Knowledge as a source              tacit knowledge
Learning based strategy:
                                        Knowledge creation                 explicit knowledge

Strategy development is a learning process.
Learning organization will generate a flow of fresh ideas and insights; This will promote renewal and prevent stagnation.
Learning organization is one which is skilled at creating, acquiring, and transferring knowledge, and at modifying its behavior to reflect
new knowledge and insights.                                                                                                   5
Double loop learning is where purpose is also reviewed. (derived from control theory)
                                                     Future will change incrementally
Future Orientation: (Hamel and Prahalad)
                                                     Future will be radically different

                   Future is not just something that happens to organization.
                   Organizations can create the future.
They offered a ‘diagnostic’ to indicate how future oriented an organization is.
                                              Protect the past                         Create the future
  Diagnostic statement
  Senior management, view about future            Reactive                             Distinctive
  Senior management, spending most                Re-engineering current practices     Regenerating core strategies
  time on
  Are managers……                                  Engineers of present                 Architect of future
  Are employees…..                                Anxious                              Hopeful
  The company is better at                        Operational efficiency               Building new businesses
  Within the industry, the company                Follows the rules                    Makes the rules
  Competitive advantage is pursued by             Catching up with competitors         Creating new sources of competitive advantage
  Agenda for change is set by                     Competitors                          Vision of future

How to cope with future:                                                          o Focus on key factors and distinctive competences)
- simply more far-sightedness                                                    How strategic thinking operates
- imaging products and services that do not exist.                                o Ask right question
- spend less time in positioning in competitive environment                       o Find solution of problem, not remedy or symptom.
- future orientation is embodied in the corporate culture.                        o Observe the problem
                                                                                  o Group problems together (e.g. by brainstorming) to see
Environmental Fit: (Hofer and Schendel)                                             key factors.

    Strategy is a mediating force between organization and                Competition: (Ohmae & Porter)
    Fit or Suitability means ‘ Organizations are successful when          Competitive strategy is the taking of offensive or defensive
    they intentionally achieve internal harmony and external              actions to create a defendable position within an industry------ and
    adaptation.                                                           a superior return on investment.
    Strategic logic requires that strategy must:
                                                                          Successful strategy is the interplay of 3 Cs (strategic
       o Be consistent with objectives
       o Match organization’s capabilities with environment.
                                                                               1. Competitor
                                                                               2. Customer
Survival and growth are process of adaptation :
                                                                               3. Company
Why: because environment gives physical resources and
                                                                          3 assumptions of theory: (focus: survival in competitive
financial resources
                                                                              1. Survival of business is impossible without a competitive
Hence: choice of strategy must follow a strategic logic.
                                                                              2. Actual strategy will be unique.
Ecology Model:
                                                                              3. Marketplace is a battlefield.
Organization’s environment changes radically, it will only survivor
if it adopts its environment and evolves i.e. finding niche areas
                                                                          Competitive strategy:
which provide both demands for output and resources to be used
                                                                          “A strategy by which a firm can have significant ground on its
as input to the system.
                                                                          competitors at an acceptable costs”
Pattern and Competencies: (Andrew)
        Corporate strategy is the pattern of management decisions
                                                                          Competitive Advantage:
        in a company
                                                                           - Re-adjust current resources           i.e. identify key success
           o That determines and reveals its objectives,
                purposes or goals,
                                                                           - Relative superiority        i.e.      exploiting    competitors
           o That produces the principal policies and plans to
                achieve those goals,
                                                                           - Challenge assumptions
           o Defines the range of business, and
                                                                           - Degree of freedom                    i.e. segmenting
           o Kind of human and economic organization it is or
                intends to be.
                                                                          How to create sustainable strategic position:
           Strategy is exploitation of competencies.
                                                                           - operational effectiveness
           o The distinctive competence is what it does well,
                                                                           - doing unique things
                uniquely or better than rivals. It comes through
                                                                           - doing trade-off
                                                                           - combining good individual activities
                     Quality of co-ordination
                                                                           - making own choices i.e. not blindly imitating competitors.
                     Talents and potentials of individuals

Strategic Thinking: (Kenichi & Ohmae)
    Strategy is a creating process
    Success business strategies result not from rigorous analysis
    but from a particular state of mind.
    Aspects of strategic thinking
      o Flexible thinking (what if ?questions)
      o Keeping details in perspective (specially uncertain)                                                                                                   6
                                                                                                             Implicit & Explicit Strategies
                                     Realized Strategies
                                                                                                   (Depends upon extent to which strategies are
                                                                                                   deliberate or emergent)
      Intended or planned strategies                    Emergent strategies
                                                                                                   Implicit Only in head of chief executive
                                                                                                   Explicit Properly documented
      - Senior management decisions                     - not planned
      - Imposed from top                                - not fore thought
      - Well planned                                    - not the result of mangmnt intentions
                                                                                                       -    Purely deliberate strategy prevents
      - Well thought-out                                - caused by pattern of behavior
                                                                                                            learning from experience.
      - Time consuming
                                                                                                       -    A purely emergent strategy defies
      - Deliberately planned

      Descriptive and Prescriptive Strategies

      Descriptive : “what is actually happening in the organizations i.e. paradigm, politics, pattern of decisions, incremental approach
      Prescriptive : “to prescribe something” i.e. rational model, strategic thinking, learning based environment, resource based model

                                                                                     Competitive     Benchmarking  information about   direct
              Chapter 6 : Performance                                                competitors is gathered through techniques e.g. reverse
               Appraisal & Analysis                                                  engineering.
                                                                                     Strategic Benchmarking aimed at strategic action and
                                                                                     organizational change.
                 Performance Appraisal
 Measurement of Performance:                                                         Levels of Benchmarking:
 Measurement of Growth and effects of inflation:                                         1. Resources through resources audit
    1. Revenue                                                                           2. Competences in separate activities through analyzing
    2. Profits                                                                               activities
    3. Assets                                                                            3. Competences in linked activities through analyzing
    4. Cash Flow                                                                             overall performances.
    5. ROCE/ROI
    6. Market share                                                                  Inflation:
    7. Number of employees                                                             -     effect of inflation on accounting system
    8. Number of products                                                              -     effect of inflation on strategy in reference to operating in
                                                                                             competitive market and exporting goods overseas
               -     fixed costs                                                     Performance measurement and inflation:
               -     variable costs                                                  i)    fixed asset values & depreciation         historical costing
               --------------------------------------                                      problem
               -     directly attributable costs                                     ii)   cost of sales and inflation       increased profits but low
               -     shared general overheads                                              stock turnover (overstated profits)
               --------------------------------------                                iii)  need for working capital
               -     Controllable costs                                              iv)   borrowing benefits in period of inflation      real value of
               -     Uncontrollable costs                                                  loan decreases over times
                                                                                     v)    comparability of financial figures              figures are
 4 profit concepts to measure performance of divisions:                              vi)   ratios for control   ratios will be unaffected, as both side
        Contribution (sales – variable cost)                                               of balance sheet will be inflated
        Controllable profit ( sales - variable costs - Fixed cost
        Controllable margin ( Controllable profit – other costs                          Chapter 7 : Mission Goals and
        directly traceable)
        Net Profit/Margin ( Controllable margin – allocated
        service center costs and general management overhead)
 Value added is cost of material and bought in service.                              Analyzing Vision, Mission and Objectives
 Measuring performance of Profit Center:                                             Vision--------Mission----------Goals (objectives and aims) at 3
      1. ROI/ROCE                                                                    levels----------strategy at 3 levels
      2. Residual Income (measure of center’s profit after                           Vision:
         deducting notional or imputed interest cost)                                “Where the organization wants to be”
 Benchmarking:      (adoption of best practices)
 Benchmarking is establishment of targets and comparators                            Advantages of vision:
 (through data gathering) through which relative levels of
 performance can be identified.                                                         -   gives general directions to organization
                                                                                        -   gives hope and motivation
 Types of Benchmarking:                                                                 -   establishes scope and boundaries
 Internal Benchmarking comparing one operating unit with                                -   enables flexibility in choice
 another within same industry.
 Functional Benchmarking internal functions compared with                            Problems with vision
 best external regardless of industry.                                                          It ignores real, practical problems
                                                                                                It can degenerate into wishful thinking                                                                                                              7
Strategic intent:
“Vision with an emotional core to energize and stretch”
              -   similar to vision
              -   stretch current competencies                        3 levels of goals/objectives and strategy:
              -   gives sense of direction                                     Corporate level
              -   gives coherence to plans                                     SBU level
                                                                               Operational level
Mission Statement:
This is a statement purpose of existence-What it wants to             Corporate level objectives: (trade off between objectives)
accomplish in the larger environment.                                    1. Profit (Accounting Profit = Economic Profit = Sale price
Mission statement includes Purpose, Competence, Strategic                    – Explicit Cost – Implicit Cost i.e. Opportunity Cost)
Scope, Product, Targeted customers, and Values of various                2. Market share and growth
stakeholders.                                                            3. Cash flow
It should be market oriented, specific, realistic, motivating            4. Customer satisfaction
and consistent with market environment.                                  5. Quality of product
e.g. “ To provide best satisfaction to customers and fair return         6. Industrial relations
on investment, keeping environment healthy and clean and                 7. ROCE
promising secure future to employees”.                                   8. EPS

Place of mission statement:                                                               Objectives
    -    annual reports
    -    publicity materials                                                    Primary           Secondary
    -    in chairman’s office
    -    communal work area                                                     Long-term         Short-term
Elements of mission statement:
    -    purpose ( e.g. creating wealth, satisfy shareholders)
    -    strategy ( e.g. logic, product, service)
    -    scope                                                        Unit Objectives:
    -    politics & behaviors                                               Commercial sector
    -    values & culture (e.g. commitment)                                 • Increase number of customer by 15% (sales
Characteristics of mission statement:                                         department)
    -    brevity                                                            • Decrease number of rejects by 50% (production
    -    flexibility                                                          department)
    -    distinctiveness                                                    Public sector
Problems with mission statement:                                            • To provide cheaper, subsidized bus traveling (local
    -    ignorance in practice                                                transport department)
    -    only for public showment and not for internal decision             • Responding more quickly to calls (police, fire station,
         making                                                               hospital)
    -    only rationalizing existence of organization                 Types of Goals:
    -    wish list, full of generalizations                               1. System Goals              [Derived from organization’s
Functions/Importance of mission                                           2. Ideological Goals [Focus on organization’s mission]
   1. Employee motivation                                                 3. Formal Goals[Imposed goals; e.g. from Shareholder’s]
   2. Contributes to profitability                                        4. Shared Personal Goals     [Consensus b/w individual
   3. Focus for strategic decision making                                     and collective goals]
   4. Replaces national or divisional subculture with a               System goals (subverting Mission)
        corporate culture                                                     Survival
   5. Communicates nature of organization to insiders and                     Efficiency
        outsiders                                                             Control
Problems with mission = Problems with Rational model of
Strategic Management                                                  Dealing with goal conflict (inter departmental):
                                                                              Rational evaluation (financial criteria)
Goals:                                                                        Satisficing (not aiming to maximize profit)
Goals could be                                                                Bargaining (b/w different goals of managers)
        Objectives (quantifiable)                                             Sequential attention (one by one)
        Aims                                                                  Priority setting
A goal must be SMART.
                                                                      Goal Congruence is the state of individuals to take actions
S           Specific                                                  which are in their own interest and also in best interest of
M           Measurable                                                organization.
A           Attainable
R           result-oriented                                           Trade off between objectives:
T           time-bounded                                                      One at expense of other.
                                                                      Primary and secondary objectives:
                  Goals                                                       Based on importance.
Operational goals       Non-operational goals
Measurable              not measurable
   Stakeholders are Groups or Individuals whose interests are directly affected by activities of a firm or organization.
   Stakeholders and their objectives:

    Stakeholder           Objectives
    Shareholders          To maximize wealth
                                  Increased by (dividend, capital gain of shares, EPS, ROCE)                                                                                               8
                                   Measured by (increase in Retained earnings, Market Value listed or non-
   Lenders                Timely repayment of interest and principal
   Trade creditors                 Timely payment
                                   High prices
                                   Continuing profitable relations
   Employees                       High wages
                                   Job security
                                   Job satisfaction
   Retailers  and                  Continued supply
   customers                       Quality products
   Management                      Maximize own reward
                                   Training and career development
   Society                         SHE Issues
                                   Level of employment
   Govt.                           Taxes
                                   Legislation compliance

   2 approaches to stakeholders:
       1.          Strong view (To balance all stakeholders is important)
       2.          Weak view (Primary objective is profit, stakeholders are satisfied indirectly)

   Stakeholders’ mapping: (Mendelow)
                High Interest                                             Low Interest
   High Power            Key Players                                               Pessimist
                         Strategy must be acceptable for them                      Should be kept satisfied.
                         E.g. major customer                                       E.g. large institutional stakeholders
   Low Power             Influence powerful stakeholders                  Negligible
                         Should be kept informed
                         E.g. Community representatives/ Charities
                                                                           2.   System       (technical system e.g. Accounting, HRM,
                     Organization’s Culture                                     MIS)
                                                                           3.   Strategy    (org plans, tackling competitors, achieving
Culture/Organization’s Culture:                                                 objectives)
“Culture is sum total of belief, knowledge, attitudes, norms,
customs, values and peculiarities that prevail in a society/ an        4 Soft elements: [Informal Aspects]
organization”.                                                             4. Shared values
                                                                           5. Staff          (own concerns and priorities)
Influences on organization’s culture:                                      6. Style           (ways of working, attitude of management)
        Organization’s founder                                             7. Skills
        Organization’s history                                         French and Bell’s iceberg:
        Leadership and management style                                          Overt formal aspects (= 3 hard S)
        Structures and Systems                                                     i. Goals
                                                                                  ii. Structure
Levels of Culture:                                                               iii. Policies and procedures
There are 3 levels of culture in an organization:                                iv. Products
    1. Basic, underlying assumptions (guide the behavior of                       v. Financial resources
        individuals and groups in organization)                                  Covert informal aspects ( = 4 soft S)
    2. Overt beliefs (expressed by organization and its                            i. Attitude, belief, feelings, perception
        members)                                                                  ii. Value
    3. Visible artifacts (e.g. style of offices, display of trophies             iii. Informal interactions
        etc.)                                                                    iv. Group norms

Important concepts:                                                    Theories on Culture

Belief is what we feel to be the case on the basis of objective        Harrison and Handy’s Work:          (gods of management)
and subjective information.                                            There are 4 types of culture in organizations:
Values are beliefs which are relatively general and widely
accepted as culturally appropriate behavior.                           i) Power Culture (Zeus)
Customs is culturally accepted behavior in response to given                   All decisions are centered on one person i.e. founder of
situation.                                                                     business
Artifacts are physical tools designed by human beings for their                For small entrepreneurial companies
physical and psychological well being including works of arts
and technology.                                                        ii) Task Culture (Athena)
Rituals are activities which take on symbolic meanings.
Ethics is a set of moral principles to guide behavior.                           No dominant leader
                                                                                 Principal concern is to get the job done
McKinsey’s 7-S model                                                   iii) Role Culture (Apollo)
Explains relationship of different aspects of business: [Link b/w                Organization has formal structure and well established
organizational & individual behavior]                                            rules and procedures
                                                                                 People do their jobs as specified in their contracts
3 Hard elements: [Formal Aspects]                                                For large organizations where work is predictable
    1. Structure (division of tasks and hierarchy of authority)        iv) Person/Existential Culture: (Dionysus)
                                                                                 Organization’s purpose is to serve interest of
                                                                                 individuals within it.                                                                                                 9
                                                                      (e.g. designers)
Miles and Snow’s Work: (models of strategic culture)                            Take initiatives
There are 4 approaches to strategy in organizational culture.
                                                                      3. Analyzers
1. Defenders (doing things right)                                             Balance risk and profit
         Low risk, low profits                                                Using core stable products & markets
         Secured niche market                                                          e.g. managers
(e.g. accountants, engineers etc)                                             Follow the change, do not initiate change
         Tried and trusted solution
                                                                      4. Reactors
2. Prospectors (doing the right thing)                                        Do not have viable strategy
         High risk, high profits
         Move into new ways
    Denision’s model:

                                              Strategic orientation of firm towards environment
                           Focus on internal                               Focus on external
   Stable                  Consistency Culture                             Mission Culture
   environment             Formal ways of behavior, predictability Customer oriented. (hospital, church)
                           and reliability(bureaucratic)
   Changing                Involvement Culture (satisfied employees Adaptability Culture ( fashion co.)
   environment             give performance e.g. Orchestra)                Focus on external environment which is
   Deal and Kennedy’s work: (Association of culture & risk)
   Culture is function of “willingness of employees to take risk” and “Their feedback”
                     Slow feedback                                               Fast feedback
   High risk         Bet your company Culture                                    Hard ‘Macho’ Culture
                     “Slow and steady wins the race”                             “Find a mountain and climb it”
                                Long decision cycles                                       Entertainment,
                                Stamina required                                           Advertisement,
                                Oil company, Aircraft company, Architects                  Consultancy
   Low risk          Process Culture                                             Work hard/Play hard culture
                     “It is not what you do, it is the way you do”               “Find a need and fill it”
                                Attention to excellence of technical detail.               All action and fun
                                Risk management                                            Team spirit
                                Procedures and Status symbol                               Computer companies
                                Banks, Financial services, Government

Peter and Waterman’s Excellence Culture:                              SEP will fall into 3 fields:
“Dominance and coherence of culture was an essential feature             1. Product related
of excellent companies”.                                                 2. Market related
Employees are loyal and make efforts if:                                 3. Functional
          Cause is great.                                             SEP can be developed only if culture supports it.
          They are treated as winners.
          They can satisfy dual needs of team and own interest.
 Key attributes of excellence                                                     Chapter 8 : Corporate
     1. Autonomy and Entrepreneurship
     2. Bias for action
     3. Customer orientation                                          Defensive Strategies
     4. Stick to core activities                                                       Capital Restructuring Scheme
     5. Simple organizational structure                               “A capital reconstruction scheme is a scheme whereby a
     6. Simultaneous loose-tight properties (competition              company reorganizes its capital structure”.
          between individuals and group within organization)          Procedure of designing a capital restructuring scheme:
Pumpin’s dynamic company               (Cultural characteristics of        1. Calculate what each party’s position would be in a
dynamic companies)                                                             liquidation
“Dynamic company is one that considerably increases the                    2. Assess possible sources of finance
benefits for its stakeholders within a relatively short time”              3. Design the reconstruction
4 aspects of such a culture                                                4. Assess each party’s position as a result of the
          Speed                                                                reconstruction
          Productivity                                                     5. Check that the company is financially viable.
          Expansion                                                   Exit strategies for a venture capitalist:
          Risk taking                                                      1. Sale of shares to public or institutional investors
                                                                               following a flotation
Weak areas in a dynamic company                                            2. Sale of shares to another company
       Customer service                                                    3. Sale to company itself or its owners
       Innovation                                                          4. Sale to institution management
       Attitude to workforce                                          Downsizing
       Company spirit and loyalty
                                                                                     Divestment- (selling of business)
Strategic Excellence Position: (similar to excellence)                                                                                                  10
“Divestment is a proportional or complete reduction in ownership     Disadvantages:
stake of an organization” e.g.                                              No trading of shares on stock exchange
           Demerger                                                         Loss of repute
           Sell off                                                         Loss of some value of share
           Spin off
           Management Buy Out (MBO)                                  Disadvantages of De-Merger
           Privatization                                                            Loosing economies of scale
Reasons for Divestment:                                                             Lower turnover
           To concentrate on a particular part of business                          Higher overhead cost
           Selling a loss making unit                                               Less ability to raise finance
           Liquidity problems
           Selling a subsidiary with high risk                          Chapter # 9 : Ethics and Social
           Selling a subsidiary at profits
           Provide an exit route for investors
           Remove value gaps to avoid takeover
Demerger is splitting up of a corporate body into two or more                                          Ethics
separate and independent bodies.
Sell off is a form of divestment involving the sale of a part of a   Ethics:
company to third party usually another company.                      Ethics is a set of moral principles to guide behavior. It concerns
Liquidation is extreme form of liquidation where the entire          with what is right and what is wrong.
business is sold and funds are distributed to shareholders in
their proportion.
Management Buy Out. (MBO) management buyout is the                   Levels of
purchase of all or part of a business from its owners by its         Practicing ethics
Management Buy Out.(MBI) where purchase of a business is                                  Individual
made by group of managers from outside the business.
Spin Off : a new company is created whose shares are owned              Personal ethics       professional ethics
by the shareholders of the original company which is making the
distribution of assets.
Management Buy Out:                                                     Org. culture          Org. System
Possible reasons for MBO:
        All reasons of Divestment                                    Ethical problems faced by organization:
        Best offer from management                                   While achieving a higher ROI, an organization faces following
        Sale can be arranged quickly                                 problems:
        Group can still maintain relations
                                                                       − SHE Issues (Safety, Health, Environment)
                                                                       − Extra payments to govt. officials
Success factors of MBOs: (Advantages)
                                                                                  Extortion (when officials threaten company with
       Favorable buyout price
                                                                                  complete closure)
       Personal motivation and determination
                                                                                  Bribery (where organization is not entitled to
       Quicker decision making and more flexibility
       Saving in overheads
                                                                                  Grease money ( where organization is entitled but
       Healthy relationship with subsidiary
                                                                                  unable to receive services)
Questions in evaluating MBOs for investment:
       Does management has full range of skills?                       − Honesty in advertisement (e.g. Marketing ethics)
       Why is the company for sale?                                    − Competitive behavior (e.g. putting others to competitive
       Projected benefits and cash flows?                                  disadvantage)
       What is being bought?
       Price?                                                        Ethical systems in an organization:
       Fund availability?                                                − Personal ethics (e.g. religious, political, personality
       Exit routes?                                                           ethics)
                                                                         − Professional ethics            (e.g. CA code of ethics,
Problems faced by MBOs: (Disadvantages)                                       medical ethics, fit and proper criteria)
       Little experience of financial management                         − Organization culture (e.g. customers first)
       Tax and other legal complications                                 − Organization system (ethics must be contained in
       Changing the attitude of employees                                     formal code e.g. part of ethical sys. and mission
       Deciding the bid price                                                 statement)
       Cash for maintenance of fixed assets
       Change in HR (loss of key employees)                          2 approaches to manage ethics:
       Maintenance of relations with suppliers/customers             Compliance based approach aims to remain within letter of
                                                                     law by establishing system of audit and review so that violations
Going Private                                                        are prevented, detected and punished. It works from outside the
“A public company goes Private when a small group of                 Integrity based approach combines a concern for the law with
individuals buys all of the company’s shares (possibly including     an emphasis on managerial responsibility. This approach
existing shareholders)”                                              incorporates ethics in organization’s culture in which managers
Advantages:                                                          will do the right thing e.g. shared accountability, sound behavior,
          Cost saving (cost of meeting statutory requirements are    defining values. It works from within the system
          Limited number of members                                  Whistle blowing:
          Similar objectives of shareholders                         It is the disclosure by an employee of illegal, immoral or
          Shareholders are close to management                       illegitimate practices on part of the organization.
          Protection against volatility in share price                                                                                               11
Four types of ethical leaderships in organizations:
i) Creative:-reflecting founder, such leaders create ethical style.
                                                                                     Chapter 10: Corporate
ii) Protective:-they sustain value of customer services                                  Governance
iii) Integrative: - aim through consensus through people                  Corporate Governance is the system by which companies are
iv) Adaptive: - changing culture as per new environment                   directed and controlled.
                                                                          Patterns of share ownership: (Who are shareholders of
Social Responsibility                                                     company)
Objectives of a company:                                                  Types of institutional investors:
  − Economic objectives                                                                Pension funds
  − Social/Ethical objectives                                                          Insurance companies
  − Boundaries                (Imposed rules; they restrict                            Investment trusts
      management’s freedom of action)                                                  Unit trust
  − Responsibilities (Voluntarily undertaken obligations e.g.                          Venture capital organizations
                                                                          Range of shareholders:
Social/Ethical objectives of a company:                                   Advantages:
  − SHE Issues (e.g. minimum wages, job security)                                − Greater activity in firm’s shares
  − Good employer (e.g. good working environment, job                            − No individual controlling whole firm
       satisfaction)                                                             − Less effect on share price if anyone sells
  − Good Public image (e.g. good quality products)                               − No threat of takeover
  − Society well being (e.g. regular order and timely                     Disadvantages:
       payments to suppliers)                                                    − Administrative cost is high.
         Pollution                                                               − Various objectives in holding shares.
         Financial assistance (e.g. Charity, Sports)
(For other objectives see Stakeholders’ objectives)                       Why knowing shareholders:
                                                                            − To get support by exchanging views.
Arguments against and favoring Social Responsibility                        − Knowledge of shareholders’ preference about Dividend
recognition:                                                                     Policy.
Social responsibility is expected from all types of organizations.          − To explain recent share price movement.
                                                                            − Shareholders’ attitude to risk and gearing.
AGAINST:                                                                    − Key shareholders to consult in the event of takeover bid.
Organizations should concern wealth only because                          Agency Theory:
    − Shareholders own assets.                                            “Although individual members of the business team act in their
    − Shareholders are part of society.                                   own self-interest, the well being of each individual depends on
    − Taxes on revenues are given to build society.                       the well being of other team members and on performance of
    − Businesses exist for profit.                                        the team in competition with other teams”

FAVOUR: (by Mintzberg)                                                    Assumptions of theory:
   − Most shareholders are passive.                                       −    Behavioral
   − Ultimately consumer pays taxes via higher prices.                              o Individual welfare maximization.
   − Govt. support                                                                  o Individual rationality.
   − Firms produces 2 outputs:                                                      o Individuals are risk-averse.
               Goods and services                                         − Structural
               Social consequences of activities e.g.                               o Investments are not infinitely divisible.
               Pollution                                                            o Individuals vary in their access to funds and their
   − Responsibility recognition (e.g. charity) improves:                               entrepreneurial ability.
               Public relations.                                          Agency Problem:
               Business success and development as part of                Arises from separation of ownership from management.
   − Decisions by organization affects society                            Goal Congruence: (solution for agency problem)
                                                                          It is accordance between objectives of agents (acting within
Externality is a social/environmental cost of organization’s              organization) and objectives of organization as a whole. Via
activities not borne by organization.                                     (e.g.)
                                                                               Profits related pay e.g. bonuses, commission, incentive etc.
Boundary Management:                                                           Rewarding managers with shares
                                                                               Executives Share Option Plans
- good public image
- securing political environment                                          Non-executive directors are directors not running the day to day
- protect environment from pollution - improving quality of life          operations of the company.
- good employer
- protecting minorities
- welfare of local community                                              Chapter 11 : Leadership (New
Compliance Based Approach
e.g.      - audit
          - review                                                        Chapter 12 : Human Resource
          - questioning
          - system for employees                                      -   Management
disciplinary procedures (lawyers)
Integrity Based Approach                                                          Human Resource Management-Introduction
- internal commitment                                                     Human Resources Management is concerned with people at
- guiding values                                                          work and their relationship as they arise in working environment.
- pattern of thoughts
- share accountability (managers)                                                                                                   12
  Roles/Scope of HR Manager:                                        Objectives of HRM:
  Staffing:                                                                     Cooperative Relationships
             Job Analysis                                                       Development of motivated employees
             HR Planning                                                        Effective response to change
             Recruitment                                                        Fulfilling social and legal requirements
             Retirement, Resignation, Redundancy                    Advantages of HRM:
                                                                               Decrease in Staff Turnover
  HR Development:                                                              Increase in Productivity
            Performance Appraisal                                              Increase in Group learning
            Career Planning                                                    Increase in initiative
            Training                                                           Decrease Absenteeism
            Development                                                        Lesser conflicts
                                                                               Increase quality
  Motivation/ (Individuals):                                                   Increased co-operation
               Job Analysis and Design                                         Increased commitment
               Pay and Promotion
                                                                    HRM Theories
  Leadership and Groups:                                                       Scientific management          [Clearly      defined
              Creating effective teams                                         principals]
              Managing conflicts between teams                                 Human Relation       [Fulfillment of needs]
                                                                               Rational             [Division of authority]
  Other Aspects:                                                               Contingency theory [Change         according      to
                Health and Safety                                              situation]
                Workforce     diversity   (Equal     Employment
                Opportunity)                                        4 Roles/Areas of HR Planning: (by Tyson as per new
                Maternity                                           strategic viewpoint)
                Compliance with legal and other standards                        To represent organization’s central value system
                Personnel record and Information System                          To maintain boundaries of organization
  Necessity of separate HR Department depends on Size and                        To provide stability and continuity
  Activities of organization.                                                    To adapt the organization to change

     Views of HRM:

     Traditional Odd Job view
                                                            New Strategic Viewpoint
     “It is a collection of incidental techniques without
     much internal cohesion” (Drucker)
     Manager was partly a Clerk, housekeeper, social
     worker and fire fighter.
     It dealt mainly with Hiring and Firing.                It is concerned about Organization, Motivation,
                                                            Employee’s relations and service.
     Reactive and defensive role                            Proactive and constructive role
     Employee’s Consent was obtained.                       Employee’s Commitment is obtained.

                          HR Planning                              description and data for recruitment, training, job evaluation &
Human Resource Planning:                                           performance management.
“HR Planning is forecasting demand of human resources,             Systematic way to gather and analyze information about the
forecasting its supply and closing gap between demand and                    Content
supply”                                                                      Context
It considers When employees needed. How many employees                       Human requirements of the job.
needed. So basically HR Plan deals with recruitment, retention,
downsizing & training of workforce.                                       Type of information needed
                                                                                   Purpose of the job
Process of Human Resource Planning                                                 Content of the job
                                                                                   Relations to other job
       1. Strategic Analysis (of)                                                  Performance criteria
               a. Environment                                                      Responsibility
               b. Organization’s objectives                                        Accountabilities
               c. Manpower’s SWOT                                                  Organizational factors
       2. Job Analysis                                                             Development factors
               a. Job description                                                  Environmental factors
               b. Job specification
               c. Employee specification                           Job analysis results in:
                                                                             Job description
        3.   Forecasting of                                                  Job specification
                  a. Internal Demand and Supply                              Employee specification
                  b. External Supply                               Job Description
         4. Implementation                                         A written statement of duties, responsibilities and tasks of job.
                  a. HR Plan                                       It should be written in outputs and performance levels.
         Job Analysis
The process of collecting, analyzing & setting out information     Purpose of Job description:
about the contents of job in order to provide basis for job                                                                                             13
         Organizational---------     Defines    job’s   place  in      HR Plan is prepared on the basis of personnel requirements,
         organizational structure (job evaluation).                    productivity and cost.
         Recruitment------------ Provides person specification
         Legal-------------------- Provides basis for contract of      Meeting Shortage of HR (Less supply More Demand)
                                                                          Internal Promotions, Transfers (Redevelopment Plan) and
         Performance----------- Performance objectives can be
                                                                          Training (Training Plan) etc.
                                                                          Reducing Labor turnover (Retention Plan)
                                                                          Overtime (Productivity Plan)
Contents of Job description:
                                                                          External recruitment (Recruitment Plan)
A job description should be a formal, written document, usually
from one to three pages long. It should include the following:
   Date written.                                                       Meeting Surplus of HR (Less Demand More supply)
   Job Status (full-time or part-time; salary or wage).                   Restricting recruitment
   Position title.                                                        Part-time working
   Job summary (a synopsis of the job responsibilities).                  Redundancies (Redundancy Plan)
   Detailed list of duties and responsibilities.
   Supervision received (to whom the jobholder reports).                                Recruitment (a part of HR plan)
   Supervision exercised, if any (who reports to this employee).       Definition:
   Principal contacts (in and outside the organization).               “Recruitment is the process of generating a pool of qualified
   Related meetings to be attended and reports to be filed.            applicants for organization’s job”
   Competency or position requirements.                                Strategic Recruitment Decisions:
   Required education and experience.                                           1. Organization based Vs. Outsourcing
   Career mobility (position[s] for which job holder may qualify                2. Regular Vs. Contractual Vs. Leased
   next).                                                                       3. Internal Vs. External recruitment
Alternative to Job Description is Role Definition. (wider)                      4. EEO and Diversity issues

Job Specification                                                      Systematic approach to recruitment and selection:
Minimum acceptable qualification (i.e. knowledge, skills, abilities,       HR Planning
experience and other characteristics needed to do a particular             Job analysis
job.)                                                                      Identification whether employee is to be recruited from
                                                                           outside or promoted inside (from HR Plan)
Person Specification                                                       Evaluation and use of Sources of Recruitment
Identifies the type of person needed to do a particular job.               Selection
Following characteristics are assessed: (Fraser’s 5 point to               Notification of result
assess pattern of personality)                                             Induction training
     1. Impact on other
     2. Motivation                                                     Sources of Recruitment:
     3. Acquired knowledge or qualification                            Internal Search:
     4. Innate ability (initiative, innovative)                             1. Organizational database (HRIS) to sort employee data
     5. Adjustment and emotional balance                                         according to job requirement.

Methods of Job Analysis:                                                   Capacity of a person that leads to behavior that meets
             Logos/Diaries                                                 the job demands.
             Interviews                                                               Intellectual Competence (Strategic, judgment,
             Observations                                                             planning)
             Questionnaires                                                           Interpersonal Competence (managing staff)
HR managers write job description & specification for review by                       Adaptability (flexibility with change)
managers                                                                              Results
Managers identify performance standards based on job analysis              2. Employee referrals
information.                                                               3. Promotion and Transfers
Forecasting Demand and Supply of manpower:                                      Good employee relations
Demand is estimated from:                                                       Encourages ambitious individuals
              New markets                                                       Less costly
              New product/service                                               No adjustment or orientation time required, because
              New technology                                                    already familiar
              Divestment                                                            i. Individual with organization and policies
              Organizational restructuring                                         ii. Organization with individual
Supply is estimated from:                                              Disadvantages:
              Current workers’ Stocks and Flow analysis                         No new blood, no innovation and new perspectives
              External labor market                                             Political fight for promotion
A Position Survey compares demand and supply. (Grade, skills,                   Morale problems of those not promoted
location etc)                                                                   Diversity lacking
                                                                                Requires training
Closing the gap between Demand and Supply- HR Plan:                    External Search:
(along with subsidiary plans of HR Plan)                                   1. Advertisement (method depends on organization and
                                                                                nature of job)
                                                                           2. Agencies and Professional organization
                                                                           3. Blind Box ads                                                                                           14
    4.   Schools, Colleges and Universities                                      Fail to provide accurate prediction (error of judgment)
    5.   Unsolicited applications                                                Halo and Horns Effect (based upon single attribute)
    6.   Creative recruitment methods                                            Stereotyping candidates on the basis of dress, hairstyle,
                  Banners                                                        accent etc.
                  Announcing prizes for
                       o Referee                                        Discrimination in selection is justified only if required by law.
                       o Applicants
                                                                        Induction Training:
What must be included in job advertisement:                                     Identify area for later learning or training (e.g. detailed
           Information about organization                                       technical knowledge)
                       Primary business                                         Explain nature of job and goal of each task
                       EEO Employer                                             Explain working hours
           Information about job and application process                        Explain structure of organization hierarchy and his
                       Title and responsibility                                 position
                       Job location                                             Introduce with people in office.
                       Starting pay range                                       Plan and implement training program.
                       Contact address                                          Appraise after 3,6 or 12 months.
                       Closing date for application
           Desired qualification of candidate                                  Chapter 13 : Motivation and
                       3----5 Characteristics needed
Internet Search:
      1. Employer website                                                                        Individuals
      2. Professional career websites                                   Variables affecting Job performance:
                       Cost saving                                      Organizational and Social variables
                       Time saving                                                  Social environment
                       Global in nature                                             Type of Incentives
Disadvantages:                                                                      Type of Training and Supervision
           Non-serious application
           Difficult to process large number of application
                                                                        Situational variables
           Not accessible to all
Selection: (part of Recruitment)                                                     Characteristics of Organization
Definition                                                                           Physical environment
“The process of choosing individuals who have needed
qualification to fill job in an organization”                           Physical and Job variables
Purpose of selection:                                                               Methods of work
“Filling a right person to the job” ensuring                                        Work space and arrangements
           Person fits job             (matching people with job                    Designing and condition of work equipment
           Person fits organization (Objectives, culture, values etc.   Individual (non work) variables
           of organization)
Steps in selection process:                                                          Age
           Initial screening                                                         Sex
           Complete application (on specific form)                                   Physique
           Employment tests                                                          Education
           Comprehensive interview (keeping in mind job                              Experience
           description & job specification)                                          Intelligence
           Background information (depends on nature and                             Aptitude
           sensitivity of job)                                                       Motivation
           Medical examination                                                       Personality
           Conditional job offer
           Permanent job offer                                          Personality and individual Development:
                                                                        (Individuals are different because their personality is difference
                                                                        and personality differences affect work behavior).
Why and What tests are conducted
                                                                        Personality is the total patterns of thinking; feeling and behaving
       Cognitive ability tests                                          that constitute the individual’s distinctive method of relating to the
                   o       Thinking, memory, reasoning                  environment.
                   o       Mathematical abilities                       According to Chris Argyris, as people mature they display
                   o       Communication abilities                      certain characteristics:
       Physical ability tests                                           1. Increasing self awareness
       Writing analysis                                                 2. Acceptance of equal or superior relationship to others
       Performance simulation test (requiring to perform                3. A tendency to move from dependence towards independence
       actually a small segment of the job)                             4. Diversification of behavior patterns
                                                                        5. An increasing tendency to activity, rather than passivity
Advantages of interview                                                 6. Deepening and more stable interests
       Most valid to determine applicant’s
           o Organization fit                                           Factors affecting personality differences:
           o Level of motivation                                        - Authoritarianism          - Need of achievement
           o Interpersonal skills                                       - Self-esteem               - Attitude
                                                                        - Feedback on performance- controls and standard
Limitations of Interviews                                               - Moderately difficult tasks- levels of risk taking
                                                                        - Psychological success - challenging goals and achievement
         Unreliable assessment (wrong decision)                         - Commitment                - willingness                                                                                                  15
Motivation          (Content theories VS Process Theories)
Motivational Theories                                                 McClelland’s needs:
McGregor’s theory X and theory Y:                                                 Need for achievement, Need for power, Need for
           Theory X---People dislike work and responsibility,                     affiliation
           they have to be controlled, threatened, and                            These needs could be taught from top to lower
           punished to get work done.                                             managers.
           Theory Y---Work is as natural as play and rest, they                   Top management         Power
           accept responsibility, and they give way to                            Entrepreneur           Achievement
           consultation and self growth.                                          Employees              Affiliation

Maslow’s hierarchy of needs:
(A ranked structure of behavior stimulating within individual which   Hertzberg’s two factor theory:
explains motivation)                                                  There are 2 groups of work related factors.
             Self actualization (fulfillment of personal potential,                Hygiene factors (remove dissatisfaction e.g. Salary,
             freedom, fairness, justice)                                           Job security, Working conditions, Interpersonal
             Esteem needs        (Independence, status, respect,                   relations)
             gaining knowledge)                                                    Motivators (creates satisfaction e.g. Status, growth
             Social needs (relationship, affection, belonging)                     in job, power authority and responsibility)
             Safety needs (security, threat)
             Physiological needs (food, cloth, shelter)               Vroom’s expectancy theory:
                                                                      Motivation shall depend upon expected results of his efforts i.e.
Alderfer’s ERG theory:                                                value attached to an outcome.
             E-----Existence                                          F (Force i.e. motivation) = V (valence i.e. strength for preference
             R---Relatedness                                          of outcome) * E (Expectancy i.e. expectation that performance will
             G---Growth                                               lead to outcomes)

     Porter and Lawler’s model: (extension of expectancy theory)

       Valence                                            Force                                      Expectancy

                                         Ability                      Understanding

     Satisfaction                                    Actual Performance

       Importance of                                                                              Success/Failure

     Intrinsic rewards           Extrinsic rewards
     (interest, enjoyment)       (pay, bonus)

Equity theory:                                                             -    bonus schemes
Reward of 1/Output of 2 = Reward of 2/ Output of 2                         -    profit sharing e.g. opportunity of being member of the
Satisfaction = (at least fair reward, not maximum reward)                       company.
     -    people compare results and rewards
     -    people get upset if inequity in rewards                               Job Design (with parameters of Mintzberg)
Goal theory:
                                                                      “Job design is the process of
Goals can motivate.
                                                                               determining the specific tasks to be performed (Job
     o Psychological contracts
“Members will expend efforts and organization will reward them in
                                                                               methods used in performing these tasks (training and
                                                                               indoctrination in organizational values), and
     − Coercive         contract      (returns    are  inadequate              how job relates to other works in organization
          compensation; involuntary contribution)                              (regulation of behavior).
     − Calculative contract (returns are defined; voluntary           Change in job design may be :
          contribution)                                                        Job enrichment
     − Cooperative contract (employees participate also in                          Vertical expansion of responsibilities
          decision making)                                                          Change in the content and responsibility of job to
                                                                                    provide greater challenge
Pay and Job satisfaction                                                       Job enlargement
Under Hertzberg’s theory, Pay is the most important of all                          Horizontal expansion of duties
hygiene factors.                                                                    Provides greater variety of tasks
Under Expectancy theory, Pay motivates if pay is linked with
performance and is valued by individual.                              Job Components:
Difficulties in incentive schemes:                                    Occupation------Jobs-----------Position----------Duties------------
− No motivation if employee already enjoys good package.              Tasks (Responsibilities)
− External factors may affect output and reward.
− Not suitable in groups                                              Job restructuring and redesign:
Assessment of satisfaction and moral:                                 Job redesign     suiting of jobs according to motivational factors.
Through Productivity, Absenteeism and Turnover.
                                                                      Job rotation     allowing         variety      and        understanding,
Types of incentive schemes:                                           development of extra skills
   -    performance related pay (PRP) i.e. commission
                                                                      Job enlargement       adding extra and related tasks to current job                                                                                                   16
Job enrichment      increases depth of responsibility by adding             1. Check list appraisal (yes/no)
planning and control of current job.                                        2. Forced choice appraisal (MCQs)
                                                                            3. Essay appraisal/ Overall assessment (paragraph)
                                                                            4. Grading, result oriented schemes, and self appraisals
Working arrangements:
  attitude and values          flexible working arrangement              An appraisal system:
  high performance work systems             multi-skilling                   − Identify criteria for assessment
  empowerment                               flexi time                       − Preparation of appraisal report
  compressed week                           job sharing                      − Appraisal interview
  part-time work                               home-working   (distant       − Review assessment
working)                                                                     − Action/plan preparation
       i) Numerical flexibility                                              − Monitoring progress (follow-up)
       ii) Financial flexibility
       iii)Task flexibility                                              Methods of appraisal:
                                                                         i) Upward appraisal sub-ordinates upraise their seniors
                       Employee Appraisal                                ii) Customer appraisal        internal & external
“Appraisal is a systematic review and assessment of an                   iii) 360 degree appraisal
employee’s performance”                                                  Mair’s 3 approaches to appraisal interview:
Why: Employee Development:                                                     − The tell and sell method
             Specific Job performance feed back                                − The tell and listen method
             Career opportunity information                                    − The problem solving approach
             Assessing employee potential
Decision Making for Action by Administration: (Results of                Effective Appraisal:
appraisal)                                                                        Job related criteria
             Promotion                                                            Standardization
             Demotion                                                             Trained appraisers
             Transfer                                                             Employee access
             Termination                                                          Purpose must be understood by both
Organizational Research: (Importance of appraisal)                                It must be participative, problem solving activity
             HR Planning (Promotability and Potential)                            Regularly conducted.
             Evaluation of Selection and Training methods                         Effort, integrity and ability of line managers.
             To motivate employees giving feedback
             Inventory assessment for planning                           Lockett’s appraisal barriers:
             To assess training needs                                       − Lack of agreement on performance level
Purpose of appraisal:                                                       − Rater is biased.
             Reward review for deserving employees                          − Recency effect (weighting recent events)
             Performance review to confirm whether any training
                                                                            − Disagreement on long term prospects
             is required or not
                                                                            − One sided process
             Potential review to confirm whether any
             management career planning is required or not.                 − Central tendency
Objectives:                                                                 − Many targets at annual meeting become out of date.
             Achieving objectives                                           − Central tendency (giving average rating to anyone)
             Performance levels                                             − Sampling Error (available information is insufficient or
             Training needs                                                   inaccurate)
             Identifying lacking areas
             Communication                                               Interview and counseling:
                                                                         1) Tell and sell method              (manager tells, and then try
360-degree feedback -Sources:                                            to gain acceptance)
                      Senior                                             2) Tell and listen method        (manager tells, the
                      Peers                                              subordinates responds, and consensus is achieved)
                      Assessment centers                                 3) Problem solving approach                    (manage becomes
                      Customers                                          counselor, and ask work problems)
Upward appraisal is better.
                                                                         Managing Careers:
Types:    (What could be assessed)
   Traits                                                                Career management is a technique whereby the progress of
   Behavior                                                              individuals within an organization from job to job is planned
   Performance                                                           keeping organization needs and individual capacity in mind.

      Difference between Functional Manager and General Manager:

                                   Functional Manager           General Manager
              Goals                Short term                   Long term
              Orientation          Task oriented                Goal oriented
              Role                 Organizer                             Facilitator
                                                                         Coordinating interdepartmental
                                                                         Obtaining      and     allocating
              Information                    Defined                     Poorly defined sources
                                             sources                     Informal channels                                                                                                  17

          Chapter 14 : Groups in                                  Indications of Effective Team:
              Organization                                        Quantitative factors
                                                                            − Productivity
                     Groups in Organization                                 − Absenteeism
Groups:                                                                     − Turnover rate
“A group is any collection of people who perceive themselves to             − Accident rate
be a group”.
                                                                            − Targets
         Sense of identity
                                                                            − Interruption to work rate
         Loyalty to group
                                                                  Qualitative factors
         Purpose & Leadership
                                                                            − Commitment
 “A team is a small number of people with complementary skills              − Understanding
who are committed to a common purpose, performance goals                    − Communication
for which they hold themselves accountable”                                 − Feed back
A team could be:                                                            − Job satisfaction
         Multi-disciplinary teams                                           − Motivation
                Contains specialists in different areas
                Freer and faster communication between            Conflict in organizations: (Individual / Group level)
                disciplines in organization                       Different views conflict in organizations:
         Multi skilled teams                                      The happy family view:
                Contains people who possess many skills                         Organizations are essentially harmonious.
                Tasks can be shared in flexible way.                            There are cooperative structures to achieve
Development of team: (by Tuckman) Important                                     common goals with no systematic conflict of
         Forming (collection of individuals)                                    interest.
         Storming (targets are set and trust increases)           The conflict view:
         Norming (work sharing, individual requirements and                     Organizations have conflict on individual and
         expectations)                                                          group level.
         Performing (execution of task)                                         Members battle for limited resources, status and
Members/Roles of team:          (by Belbin)                                     reward.
     − Coordinator (presides and coordinates)                                   Conflict could be destructive if not handled
     − Shaper (dominant, extrovert, task oriented)                              carefully.
     − Plant (introverted, source of ideas)                       The evolutionary view:
     − Monitor evaluator(analytical rather than creative)                       Conflict is seen as a useful basis for evolutionary
                                                                                change and not for revolutionary change.
     − Resource investigator
                                                                                Could be constructive if handled by arguments or
     − Implementer (administrator not leader, scheduling,
     − Team worker (supportive, noticed in absence)
                                                                  Causes and tactics of conflicts between departments:
     − Finisher
                                                                             Operative goal incompatibility
Problems with team:                                                          Personality differences
     − Group norms restrict individual personality.                          Task interdependence (if managed badly)
     − Conflict in roles and relationship                                    Scarcity of resources
     − Personality problems                                                  Power distribution (Boundaries of authority)
     − Rigid leadership                                                      Uncertainty (in change)
                                                                             Reward systems (not being fair)
     − Not suitable for all jobs
     − Too much harmony (group think) or differences of
Creating an effective team work: (A contingency approach by
Handy)                                                            Conflict – constructive and destructive
     − The Given
                             Group’s members                      How constructive                   How destructive
                             Group’s task
                             Group’s environment                  Different solutions                Distract attention from
     − Intervening factors
                             Motivation                           Creativity and testing of ideas    Objectives    may     be
                                                                                                     subverted for secondary
                             Process                                                                 goals.
                             Procedure                            Attention     on      individual   Disintegration of the
                                                                  contribution                       group
     − The Outcomes
                             Productivity                         Brings emotions into open          Emotional/      Win-lose
                             Affectivity                          Motivational factors brings out    conflicts may arise.
                             Objective is met within time                                            (Close competition)
                             Group satisfaction
Management can operate on both ‘givens’ and ‘intervening          Effects of Conflicts within groups:      (Sherif and Sherif) PTCL
factors’ to affect the ‘outcomes’.                                vs. Union
                                                                  Within a group:                                                                                            18
         − Group becomes more structured and organized.                             Game to change the organization
         − Members eliminate their differences, get close and         At senior level political activities occur in following cases
           demand loyalty.                                                                − Allocation of resources.
        − Climate becomes task oriented.                                                  − Management Succession
        − Members’ individual needs are subordinated to                                   − Interdepartmental coordination
           achievement.                                                                   − Structural change
        − Leadership moves from democratic to autocratic
           with group’s acceptance.                                          Chapter 15 : Strategies for
Winning group:
        − Cohesion
                                                                                 Critical Periods
        − Relaxation
                                                                                     Large Vs. Small organizations
        − Return to group maintenance and concern for
           members’ needs.                                            Issues/problems in large organizations:
                                                                      Organization’s structure:
        − Assertion for group self-concept with little
           reevaluation.                                                       − Sharing roles and responsibilities (who does
Losing group:                                                                      what?)
        − It may deny defeat or blames on others.                              − How much specialization
        − Loses cohesion.                                                      − How many levels of management
        − Turn to regrouping.                                                  − Delegation       of authority   (centralized or
        − Reevaluates perception of itself and other group.
                                                                      Planning and control:
        − Might become cohesive and effective unit if defeat
                                                                               − Vague accountability
           is accepted.
                                                                               − MIS should be in place
Managerial response to conflicts: (by Hunt)                                    − Coordination
        − Denial/Withdrawal (if conflict is trivial)                           − Reward
        − Suppression (preserve working relations despite             Slow adoption to change
            minor conflicts)                                          Motivation is down
                                                                      No self-esteem
        − Dominance (application of power to settle the
                                                                      Slow decision-making
        − Compromise (bargaining, negotiating, conciliating)
        − Integration/Collaboration (emphasis must be put
                                                                          − Decentralized and delegation of authority
            on task and individuals must modify behavior)
                                                                          − Fair pay policies with bonus, awards and rewards
To reduce conflict behavior:
                                                                          − MIS
        − Limited communication
                                                                          − Delayering in hierarchy
        − Structural separation
                                                                          − Job design
        − Bureaucratic authority (use of)
To encourage cooperative behavior:
                                                                      Issues/problems in small organizations:
        − Job rotation
                                                                              − Over reliance on a few key persons
        − Inter-group training
                                                                              − NO economies of scale
        − Integration devices (e.g. problem solving teams,
                                                                        − Small market area/ restricted range of products
            force to work together)
                                                                        − Low bargaining power
Group think: (IL Janis)                                                 − Cannot raise money
“Psychological drive for consensus at any cost that suppresses          − Can not afford help (from experts)
dissent and appraisal of alternatives in cohesive decision            Solutions:
making groups”                                                                − Growth
Symptoms of group think:                                                      − Specialist servicing
        − Moral blindness (might is right)                                    − Key person’s insurance
        − Perception of unanimity
        − Strong group pressure to quit dissent                       Corporate decline
        − Rationalization for inconsistent facts.                     3 types of decline:
        − Mutual support to guard the decision.
                                                                      1. Declining industries (i.e. Environment                   entropy;
Group subculture:                                                     environment is no longer supportive)
Subcultures are cultures which exist within cultures.
Characteristics:                                                               − Temporary decline (product revitalization)
             Group share distinctive way of life, beliefs.                     − Permanent decline (end game)
             Learned from others in the group.                        2. Vulnerability
             Way of life has somehow become traditional.                  − SLEPT
                                                                          − Porter’s 5 forces
Political behavior:                                                   3. Declining company (i.e. organization atrophy)
Organizations are political systems because people within them            − Symptoms (by Stuart Slatter)
have their own objectives and priorities.                                                      Decrease in sales revenue
Political behavior is concerned with competition, conflict, rivalry                            Decrease in profitability
and power relationships in organization.                                                       Decrease in liquidity
                                                                                               Decrease in market share
Political Game:                                                                                Lack of planning
Mintzberg identifies various Political Games played in                                         Increase in gearing
organization which can be useful or harmful.                                                   Top management fear
             Game resist authority                                                             Change in senior executive
             Game to counter this resistance                                                   Financial engineering (change in
             Game to build power basis (control over resources                                 accounting policies, auditors etc.)
             and superiors, colleagues, subordinates etc.)                                     Restriction on dividend policy
             Game to defeat rivals (interdepartmental)                    − 4 stages in the crisis (by Stuart Slatter)                                                                                                  19
                          Blind stage/Crisis denial                                          Faulty action/Disintegration
                          Inaction/Hidden crisis                                             Crisis/Collapse/Dissolution

   Causes of decline and strategies to overcome:
                            Causes                                                  Strategies
      − Poor management                                      −    New management + restructuring
      − Poor financial controls                              −    Tighter     controls    +    delegation of
      − High cost structure                                       responsibilities
      − Poor marketing                                       −    Cost focus strategy + Ansoff’s matrix
      − Competitive weakness                                 −    Redevelop marketing mix + motivate sales
      − Big projects/acquisition                                  force
      − Escalation of commitment of bad decisions            −    Porter’s generic strategies
                                                             −    Feasibility reports
   Reasons for escalation:
       − They think decision was right; implementation was wrong.
       − Humiliation of climb down.
       − Consistency is valued.
       − Mistakes are viewed as failure not learning
       − Outcomes are uncertain.
       − Failure to understand principle of relevant cost.
   Turnaround of decline:
       − Visionary leader required.
       − Contraction and cost cutting.
       − Reinvestment in organization’s capability.
       − Rebuilding with innovation.
     Chapter 16 & 17 : Change Management and Changing Environment
   Types of change:
           − Changes in environment (Cause)
           − Changes in organization (Effect)
                                Changes in products/services
                                Changes in technology and working conditions
                                Changes in management and working relations
                                Changes in organizational structure and size
   Change is small and gradual whereas Transformation is crucial and significant.

   Factors forcing change:                              Changes may occur due to
   Environmental factors:                                  -    threat of new entrants
           − SLEPT                                         -    bargaining power of suppliers
           − Porter’s 5 competitive forces                 -    bargaining power of customers
   Changes in Technology:                                  -    threat of substitutes
           − Computerization                               -    rivalry between competitors
           − New products
           − Better MIS
   Change in Working conditions:                                        Nature of strategic change:
           − New offices                                                                              Incremental
           − Varied work times                                          Change may be
           − Emphasis on health                                                                       Transformational
           − Govt. regulations
   Change in Management:                                                                              Reactive
           − New style of leadership                                    Management may
           − Participation in decision making                           Be                            Pro-active
           − Collaboration between management staff and unions
   Change in Personal policies:                                                                       Step change
           − Change in rules and procedures (e.g. smoking)              Types of                      Planned change
           − Promotion, transfer, training , development                Changes
   Change in structure and size:                                                                      Emergent change
           − Due to Takeovers
           − Delegation of authority
           − Centralization
           − Downsizing

Model for change:                                                                Reaction of people (Acceptance, Indifference,
 − Determine need/desire for change in a particular area.                        Passive resistance, Active resistance)
 − Prepare tentative plan (via Brainstorming)                                    Driving and Restraining forces (Force Field
 − Analyze probable reactions to change.                                         Analysis)
 − Make a final decision (Coercive or Adaptive)                      −   Communicate the plan for change
 − Establish time table for change. Speed of implementation          −   Implement, review and modify change.
     will depend on:                                                 −   Review the change
              Type of change (Coercive, Adaptive or
              Managed resistance change)                           Approaches to change:
                                                                      i)      unfreeze – move – refreeze                                                                                               20
    ii)        Adaptive change approach                                      3. Period of maturity
    iii)       Coercive change approach                                      4. Organization begins to decline.
    iv)        Using Change agent                                  Such a lifecycle is not inevitable, if organization is able to adapt.
    v)         Integrative VS segmentalist
    vi)        Theory E & Theory O
                                                                   Greiner’s growth model: (Growth & Organizational
                        Resistance to change                       Development)
                                                                   As an organization ages, it grows in size.
           Active resistance           passive resistance          This growth takes place in 5 discrete phases.
                                                                   Each phase has 2 characteristics i.e.
                                                                            − Evolution (distinctive factor that directs growth)
Force Field Analysis: (Lewin)                                                    and              Growth (“Move” Stage)
It is an interplay of restraining and driving forces that keeps             − Revolution. (crisis to pass to enter next phase)
things in equilibrium.                                                                  Crisis (“Unfreeze” Stage)

Introducing change:
3 factors to consider minimizing resistance.                       Phase 1:                     (Focus)
Pace of change:                                                            −     Evolution (Small organization focusing on
   − Adapt strategy according to time available.                                 operations, personnel issues and innovation)
Manner of change:                                                          −     Revolution (Need for leadership skills)
   − Resistance should be welcomed.                                Phase 2:                     (Management/group)
   − Reasons and results of change should be circulated.                   −     Evolution (Management is professionalized, there
   − Change must be sold to people concerned.                                    are more employees but less enthusiasm)
   − Individuals must be helped to learn.                                   −    Revolution (delegation is problem; lack of detailed
Scope of change:                                                                 control; no initiation)
   − Small or Transformation.                                      Phase 3:                     (System)
                                                                           −     Evolution (decentralized decision making)
Change process: (by Lewin/Schein)                                          −     Revolution (no coordination between departments,
Unfreeze existing behavior:                                                      sub optimization occurs)
         − Most difficult and neglected stage.
         − Selling the change.                                     Phase 4:                    (Internal Controls)
         − Give motive for change.                                         −     Evolution (Internal control systems and
Behavior change:                                                                 procedures are developed for coordination and
         − Identify new behavior.                                                optimal use of resources)
         − Encourage individuals to own change.                             −    Revolution (new procedure inhibits useful actions)
Refreeze new behavior:
         − Through positive or negative reinforcement              Phase 5:                     (Communication / collaboration)
Effect of change on People:                                                −     Evolution (Increased informal collaboration;
    − Physiological effect (e.g. pattern of shift working affect                 control is cultural rather than formal)
         eating, walking and sleeping habits)                               −    Revolution (Crisis of psychological saturation in
    − Circumstantial effect (e.g. working environment and                        which individuals become exhausted by
         working relations)                                                      teamwork)
    − Psychological effect (e.g. feeling of disorientation,
         Insecurity, risk of rejection, feeling of misfit)         Criticism on lifecycle models:
    − Effect on Self concept (New psychological contract,            − Formation could also be by Merger or Joint venture. i.e.
         Uncertainty affects sense of competence)                         not always founded by visionary ppl.
                                                                     − Too many issues for growth and control. (i.e. org.
Changing culture:                                                         structure, org. culture)
Hamper Turner suggests 6 modes of intervention:                      − Growth is not the same as effectiveness. (i.e. not a
       1. Find the dangers (locate black sheeps)                          normal state of affair)
       2. Brings conflicts in open.                                  − No idea of time scale involved in any stage. (i.e. Linear
       3. Discuss culture with members (play out corporate                development)
           drama)                                                    − Growth seen as linear development over time; there
       4. Reinterpret the corporate myths.                                might be different rates of growth at different times and
       5. Look at symbols, images, rituals.                               even loss.
       6. Create a new learning system.                              − Model does not clearly indicate relationship with
                                                                          environment. (i.e. it ignores environment)
Pattern of unhealthy culture: (by Edwin Baker)                       − Effect of competition in market is also ignored.
        − Flourished initially by founder.
        − Founder retired, employees become rigid and              Measurement of Growth: (how Adamjee is the largest
             insular.                                              insurance co.)
        − Speed, innovation, flexibility, concern for survival            Sales revenue
             and customer disappeared.                                    Profit (in absolute term or ROCE)
        − Formalization                                                   No. of goods/services sold.
        − Departmentalism/ Sub optimization                               No. of outlets
        − Coercive actions needed to compete.                             No. of employees
                                                                          No. of countries reached.
                   Organizational life cycle:                             No. of markets served.
Handy’s sigmoid curve:
Application of concept of lifecycle to organization with 4 broad
         1. The organization is established.
         2. Organization grows in size and scope.                                                                                               21
                                                                    Satisfaction is whether performance meets or exceeds
    Chapter 18 : The evolution of                                   expectations.
        marketing concept                                           Exchange, Transaction and relationship:
                                                                    Exchange is an act of obtaining a desired object from someone
“The right product or service to the right customer, at the right
                                                                    by offering something in return.
price, at the right time and right place”
                                                                    Transaction is a trade of value between two parties.
Marketing Department: Functions (Research, Demand, Design,
                                                                    Elements of Marketing:
                                                                    Company        Supplier                Market Intermediaries
Marketing Environment: PESTEL (Political, Economical, Social,       End user        Competitors            Environment
Technological, Ecological, Legal)
                                                                    Customer’s life time value: Value of entire stream of
                                                                    purchases by customer over his lifetime.
Chapter 1- Introduction                                             Customer Equity:
                                                                    Total lifetime value of all of company’s customers.
Marketing, :                                                        Marketing Management: Marketing management has four
Managerial definition: Managing profitable customer                 functions: Analysis, Planning, Implementation and control.
relationships, by delivering superior value to customers.           De-marketing is aim is to reduce demand temporarily or
Social definition: “a social and managerial process by which        permanently. It is done when product is not feasible from
individuals and groups obtain what they need and want through       supplier or customers’ point of view. i.e. intentional and non-
creating and exchanging products and value with others.”            intentional reduction in demand.

Core Marketing concepts:                                            Marketing Management Orientations
Needs, Wants and Demands                                            The production concept holds that consumers will favor
Markets                                                             products that are available and highly affordable and that
Marketing Offers                                                    management should, therefore, focus on improving production
Exchange, Transaction and relationship                              and distribution efficiency.
Value and satisfaction                                              The product concept states that consumers will favor products
                                                                    that offer the most quality, performance, and features, and that
Market: .                                                           the organization should, therefore, devote its energy to making
A market is the set of actual and potential buyers of a product.    continuous product improvements.
                                                                    The selling concept is the idea that consumers will not buy
Needs, wants and demands:                                           enough of the organization’s products unless the organization
Needs      are fulfilled : a state of felt deprivation.             undertakes a large-scale selling and promotion effort.
Wants      are satisfied : the form taken by a human need as        The marketing concept holds that achieving organizational
shaped by culture and individual personality.                       goals depends on determining the needs and wants of target
Demands                are extinguished : Human wants that are      markets and delivering the desired satisfactions more effectively
backed by buying power.                                             and efficiently than competitors do.
                                                                    The societal marketing concept holds that the organization
Marketing Offer:                                                    should determine the needs, wants, and interests of target
Combination of good-service offered to market to satisfy need       markets. It should then deliver the desired satisfactions more
or want.                                                            effectively and efficiently than competitors in a way that
                                                                    maintains or improves the consumer’s and the society’s well-
Value and Satisfaction                                              being.
Customer’s perceived value is the difference between the
values that the customer gains from owning and using a product
and the costs of obtaining the product.

               CONCEPT                         CUSTOMER WANTS                             COMPANY SHOULD
   Production concept                    Availability and affordability        Improve production, distribution efforts
   Product concept                       Quality, performance, features        Continues product improvement
   Selling concept                       No feelings to purchase               Large scale selling, promotion
   Marketing concept                     Needs & wants of target market        Effective & efficient than competitor

   Two Steps of marketing:
             determine need, wants and interest of target market
             then satisfy them effectively and efficiently
   Marketing Vs. Selling:

                            Starting point   Focus              Means                    Ends
     Selling concept        Factory          Existing products  How to increase          Profits    through  sales
                                                                demand                   volume
    Marketing concept     Market           Customer needs       How to satisfy           Profits through customer
                                                                demand                   satisfaction
   Despite adoption of market oriented approach; there is need for sales force:
            − To create awareness
            − To convince to buy from company, not from competitors
            − To reassess benefits to customers
            − To convince that average customers’ requirements are met

   Problems in introducing the marketing approach:
               Understand what marketing orientation actually means
               Organizational, structural and cultural changes are required.                                                                                                  22
                 Assessment of Product, logistic, level of services and marketing techniques
                 Organization wide dedication
                 Working together as whole                                    Types of Marketing

                                                    Strategic Marketing                            Tactical Marketing

   Scope of Marketing = Marketing Planning          Tied with corporate strategy                   Short term, and focuses
                                                    e.g. which product of market to choose         on place, promotion,
   Marketing Vs. R&D department:
   Marketing has commercial and competitive atmosphere whereas R&D has University atmosphere with open-end work and
   consumption of substantial resources.
   Customers’ needs and change in product specification tighten them.

   Consumerism is a term describing importance and power of consumers.
                                                     Customer Database
   Customer Relationship Management:
                                                     Customer Portfolio

   Defined narrowly as a customer database management activity.
   “CRM is managing detailed information about individual customers and carefully managing customer touch points to
   maximize customer loyalty”.
   Companies look for touch points. These includes customer purchases, sales force contact, service, and support calls, Web
   site visits, satisfaction surveys, credit and payment interactions, market research studies, etc.
   To be effective in CRM, the marketer must forego short-term profit maximization on individual transactions.

                                                              How to Get Customer Touch Points:
   Elements of Marketing Mix:
                                                                      -   Purchasing trend
                                                                      -   Payment trend
       − Product
                                                                      -   Service obtaining trend
       − Price                                                        -   Family trend
       − Place                                                        -   History
       − Promotion                                                    -   Support calls
   Uncontrollable: (Marketing environment)                            -   Website visits
       − SLEPT Analysis                                               -   Emotional attachments
       − Porter’s 5 forces model
                                 i)      Threat of new entrants
                                 ii)     Threat of substitutes
                                 iii)    Bargaining power of customers
                                 iv)     Bargaining power of suppliers
                                 v)      Rivalry among competitors
   Service industry:
       − People
       − Processes
       − Physical evidence

Important Points for discussion questions:
   1. Expectation = Perceived value                                 Internal Customer Concept: Department in an organization
   2. Customers often do not judge product’s value and cost         treat each other as ‘customers’, it encourages service-oriented
        accurately and objectively.                                 attitude. Hence when every department is satisfied ultimately the
   3. A Customer buys the highest perceived value.                  quality will be enhanced.
   4. Satisfied customers give benefits of
              i. Loyal                                              Relationship Marketing: To build long term relationship with
             ii. Being less price sensitive                         existing customers, rather than focusing on products, focus is on
            iii. Talk favorably                                     relationship i.e. selling more products to same customer, rather
   5. Two fold object of marketing                                  than to new customers.
          i. Retain existing customer by providing satisfaction
         ii. Attract and grow new customers by promising            Model of Consumer behavior:
                superior value
                                                                    A model of consumer behavior helps managers answer
Marketing Approaches                                                questions about what, where, how and how much, when and
Push Approach                                                       why they buy.
                                                                    The stimulus-response model of buyer behavior shows that
Focused on pushing goods to reseller and customer. The focus        marketing (made up of the four P’s—product, price, place, and
Is on sale volumes.                                                 promotion) and other environmental stimuli (Micro and Macro)
                                                                    center on the consumer’s “black box” and produce certain
Pull Approach                                                       responses.
Focused on pulling resellers by satisfying them, Fulfilling their   Marketers must figure out what is “in” the consumer’s “black
demands to attract them to the company.                             box.”

Three Important Concepts:                                           Marketing and other environmental stimuli: (i.e. Stimulus –
Value-Chain : How activities of organization contributes towards    response model)
creating value in goods or services.                                                                                                  23
Already discussed                                                           For frequent/regular purchases.
Consumer’s Black box:                                                  o    External search:
The “black box” has two parts.                                                Personal     sources    (family,  friends,    neighbors,
      1). The buyer’s characteristics influence how he or she                 acquaintances)
perceive and react to                                                         Commercial sources (advertisement, dealers, websites,
          stimuli. (Uncontrollable)                                           salesmen)
      2). The buyer’s decision process itself affects the buyer’s             Public sources ( Mass media, consumer rating
behavior. (Semi-controllable)                                                 organizations)
                                                                              For new products.
Characteristics affecting consumer behavior:                         “Word of Mouth” or “Personal sources” has 2 major advantages
Marketer can not control them but should learn them.                 (through satisfied customers):
    •   Cultural                                                              1. Convincing, i.e. of consumers by consumers for
             o Culture                                                             consumers
             o Subculture                                                     2. Costs are low.
             o Social class                                          At the end of this stage, customer arrives at a set of final brand
    •   Social                                                       choices.
             o Reference group
             o Family                                                iii) Evaluation of alternatives:
             o Roles and status                                      Assessing value.
                                                                     Customer may be interested in many attributes. E.g. for Camera
    •   Personal
             o Age and lifecycle stage                                         •    Picture tube
             o Occupation                                                      •    Ease of use
             o Economic situation                                              •    Size
             o Lifestyle                                                       •    Price
             o Personality and self concept                          However sometimes consumer has to base his decision only on
    •   Psychological                                                one attribute.
             o Motivation
             o Perception                                            iv) Purchase Decision:
             o Learning                                                          o The best rated camera will be bought.
             o Beliefs and attitudes
                                                                     v) Post-Purchase behavior:
Culture is the set of basic values, perceptions, wants, and          Either
behaviors learned by a member of society from family and other                •  Dissatisfied
important institutions.                                                       •  Satisfied
Subculture is a group of people with shared value systems                     •  Delighted
based on common life experiences and situations. Subcultures         A policy by firms is to understate performance because
might be nationality groups, religious groups, racial groups, or     customers are delighted with better-than-expected performance.
geographic area groups.
Social classes are society’s relatively permanent and ordered        Why satisfaction of Customer/study of this stage is
divisions whose members share similar values, interests and          important:
behaviors.                                                              1. To attract new customers cost more than to retain
Reference group has a direct (face to face) or indirect points of            current customers.
comparison or reference in forming a person’s attitudes or              2. Satisfied customers are less price sensitive.
behavior.                                                               3. Satisfied customers tell others (words of mouth). Bad
Aspirational group is one to which an individual wishes to                   words travel farther and faster.
Opinion leader is a person within a reference group who,             Decision process for new product i.e. stages in adoption
because of special skills, knowledge, personality or other           process (from hearing to adoption):
characteristics, exerts influence on others.                             1. Awareness:
Personality is a person’s unique psychological characteristics           2. Interests: seek information i.e. through external sources
that lead to relatively consistent and lasting responses to his or       3. Evaluation: whether to try or not
her own environment.                                                     4. Trial: on small scale to improve estimate of value
A motive (drive) is a need that is sufficiently pressing to direct       5. Adoption: decides to make full and regular use
the person to seek satisfaction.
Perception is the process by which people select, organize, and                Chapter 2 Company and marketing strategy
interpret information to form a meaningful picture of the world.                          Strategic Planning Process:
Learning is changes in an individual’s behavior arising from         “Strategic Planning is the process of developing and maintaining
experience.                                                          a strategic fit between organization’s goals and capabilities and
Belief is a descriptive thought that a person holds about            its changing marketing environment.
something.                                                           Following are steps of strategic planning:
Attitude is a person’s consistently favorable or unfavorable                  1. Defining mission
evaluations, feelings, and tendencies toward an object or idea.               2. Analysis of Business Portfolio
                                                                              3. Setting strategic objectives and goals
2. Purchase Decision Process                                                  4. Developing Competitive strategies
                                                                                         i. Porter’s 5 forces
i) Problem Recognition:                                                                 ii. Cost-Differentiation-Focus Triangle
Perceiving a need.                                                                     iii. Growth        Strategies     (product/market
It can be stimulated by:                                                                     expansion grid)
     • Consumer’s depleted assortment (e.g. empty paste) or                   5. Developing detailed marketing and departmental
     • Marketing efforts                                                            plans and strategies

ii) Information Search:                                              Mission Statement:
To clarify options available to consumers.                           This is a statement of organization’s purposes- What it wants to
   o Internal search: Scanning of memory (experience) or             accomplish in the larger environment.
        knowledge about solution of problem/need sufficient                                                                                               24
It should be market oriented, specific, realistic, motivating         Marketing control is the process of evaluating the results of
and consistent with market environment.                               marketing planning and its implementation, and taking corrective
e.g. “To provide best satisfaction to customers and fair return on    action to ensure that marketing objectives are attained.
investment, keeping environment healthy and clean and                 Two broad forms of control are important:
promising secure future to employees”                                 1). Operating control involves checking ongoing performance
                                                                      against the annual plan and taking corrective action when
Designing the business portfolio:                                     necessary.
Business portfolio is the collection of businesses and products
that make up the company.                                             2). Strategic control involves looking at whether the company’s
Business portfolio planning involves 2 steps:                         basic strategies are well matched to its opportunities. The major
        1. Analysis of current business portfolio.                    tool for accomplishing this form of control is the marketing audit.
        2. Developing strategies
                                                                      The marketing audit is a systematic analysis and evaluation of
1. Portfolio Analysis:                                                organization’s marketing position and performance. It may cover
A tool by which management identifies and evaluates SBUs to           all marketing activities or some of them.
determine which business should receive more, less or no              Audit will focus on 3 things:
investment.                                                                  1. Marketing capabilities
BCG growth-share matrix is used to evaluate a company’s                      2. Performance evaluation (are sales meeting forecasts?)
SBUs in terms of market growth rate and relative market share.                  3. Competitive effectiveness (competitive advantage,
SBU is a unit of company that has a separate mission and                             product differentiation)
objectives and that can be planned independently from other
company businesses.                                                   Partnership relationship management:
                                                                      “Working closely and jointly with
2.Developing strategies for growth and downsizing:                                  Other departments of company
The product/market expansion grid is a portfolio-planning tool for                  Other companies
identifying company growth opportunities through:                     to bring greater value”.

                          Existing Product       New Product          Value Chain and Value delivery network:
                                                                      Value Chain is series of departments within the company
          Existing        Market Penetration     Product              carrying out value-adding activities e.g.
          Market                                 Development                        Designing
          New Market      Market                 Diversification                    Producing
                          Development                                               Marketing
Downsizing:                                                           Value delivery network is network of suppliers, company,
When a firm reduces business portfolio by eliminating products        intermediaries, and consumers who partner with each other to
or business that is not profitable or no longer fit its overall       improve performance of entire system.

Setting strategic objectives and goals:                                Chapter 19 : Strategic Marketing
Firm’s mission is translated into set of objectives for the current
period for each SBU.                                                             & Planning
Developing plans and strategies                                       1. Market Segmentation
Marketing Process:                                                    Market segmentation is dividing a market into smaller group of
The marketing process is the process of                               distinct buyers who have different needs, characteristics or
    1. segmenting the market,                                         behavior and might require different marketing mixes.
    2. selecting target markets,                                      Market segment is a group of buyers who respond in a similar
    3. marketing positioning                                          way to a given set of marketing mix.
    4. developing the marketing mix, and
    5. managing the marketing effort.                                              Basis of segmenting markets:
                                                                      Segmenting consumer market
Marketing mix:
The marketing mix is the set of controllable factors that the firm    Geographic segmentation calls for dividing the market into
blends to produce the response it wants in the target market. i.e.    different geographical units such as states, regions, counties,
Product, Price, Place, Promotion                                      cities, or neighborhoods.
                                                                      Demographic segmentation calls for dividing the market into
Managing the Marketing Effort:                                        groups based on variables like age, gender, family size, family
Marketing Management has four functions of analysis, planning,        life cycle, income, occupation, education, religion, race,
implementation, and control..                                         generation, and nationality.
Marketing Analysis                                                    Psychographic segmentation calls for dividing a market into
           o Analysis of company’s Strength and Weakness              different groups based on social class, lifestyle, or personality
                     [Internal]                                       characteristics.
           o Analysis of environment’s Opportunities and              There are four possible lifestyle categories:
                Threats.        [External]                               1. Upward mobile, ambitious
Marketing Planning involves deciding on marketing strategies                       i. Seek better or more affluent lifestyle
to attain its overall strategic objectives of company.                            ii. Higher standard of living
Marketing Implementation is the process that turns marketing                     iii. Will try new products
strategies and plan into marketing actions in order to accomplish        2. Traditional and sociable
strategic marketing objectives. Implementation addresses the                       i. Compliant and conform to group norms
who, where, when, and how.                                                        ii. Purchasing pattern will be ‘conformist’
                                                                         3. Security and Status seeking
                                                                                   i. Stresses security and ego-defensive needs                                                                                                25
         ii. Purchase of known and established products and            Target marketing strategies: (Product affecting Promotion)
             brands e.g. Insurance                                     The firm can adopt one of four target marketing strategies:
  4. Hedonistic preference                                             A. Undifferentiated marketing (or mass marketing) a
          i. Emphasis on “enjoying life now”                               market-coverage strategy in which a firm decides to ignore
         ii. Immediate satisfaction of needs and wants                     market segment differences and go after the whole market
Behavioral segmentation involves dividing a market into                    with one offer
groups based on consumer knowledge, attitudes, uses, or                B. Differentiated marketing (or segmented marketing) a
responses to a product. E.g.                                               market-coverage strategy in which a firm decides to target
    •   Occasion segmentation: dividing market according into              several market segments and designs a separate offer for
        groups according to occasions when buyers get the                  each.
        idea to buy, actually make their purchase, or use              C. Concentrated marketing (or niche marketing) a market-
        purchased item.                                                    coverage strategy in which a firm goes after a large share of
    •   Benefit sought: Dividing market into groups according              one or a few segments or niches.
        to different benefits that consumers seek from the             D. Micromarketing is the practice of tailoring products and
        product. Consumers seek unique combination of                      marketing programs to suit the tastes of specific individuals
        benefits e.g. for a laundry detergent, from cleaning and           (individual marketing) and local customer groups (Local
        bleaching to economy, fresh smell, strength or mildness            marketing).
    •   User status and user rate                                      Market offers can be differentiated along the lines of:
    •   Loyalty status                                                                        Product
Segmenting Business Markets                                                                   Channels
Demographic segmentation                                                                      Image
               Industry (which industry)                               Considerations while choosing strategy:
               Company size (what size)                                              Company, resources and objectives
               Location                                                              Competitor, strategies
Operating variables                                                                  Product
               Technology (what technology to focus)                                     o stage in the life cycle
               User- nonuser status (heavy, medium or light user)                        o variability
               Customer capabilities (many services or few                           Market, variability
               services)                                               Evaluating Market Segments
Purchasing approaches                                                                    Segment size and growth
               Purchasing function organization (centralized or                          Segment structural attractiveness
               decentralized)                                                                      Level of competition
               Power structure                                                                     Substitute products
               Nature of existing relationship                                                     Power of buyers
               General purchasing policies (leasing, service                                       Power of suppliers
               contracts, or sealed bidding)                                             Company objectives and resources
               Purchasing criteria (quality, service or price)
Situational factors                                                    Product Positioning
               Urgency (quick delivery/service?)
               Specific application                                    Product positioning is imaging the product in the minds of
               Size of order                                           consumers relative to competing products.
Personal characteristics                                               Positioning task (or choosing a positioning strategy) consists of
               Buyer-seller similarity of values                       following four steps:
               Attitude towards risk (risk taking or averse)                 1. Identifying possible competitive advantages
               Loyalty (to companies who show high loyalty to                2. Choosing right competitive advantages
               suppliers)                                                    3. Selecting an overall positioning strategy
Segmenting International Markets                                             4. Developing a positioning statement
Companies can segment international markets using one or               1) Identifying possible competitive advantages:
more of a combination of variables. The chief factors that can be      Competitive advantage (making a difference) is an advantage
used are:                                                              over competitors gained by offering consumers greater value,
       1). Geographic location: location or region                     either through lower prices or by providing more benefits that
       2). Economic factors: Population income or level of             justify higher prices.
economic development                                                   2) Choosing the right competitive advantages:
       3). Political and legal factors: Type / stability of            How many to promote:
government, monetary regulations, amount of bureaucracy, etc.          Only one difference. Aggressive approach
        4). Cultural factors: Language, religion, values, attitudes,   More than one differences. Where more than one firms are
customs, behavioral patterns.                                          claiming to be the best at same attribute. However it risks
Requirements for Effective Segmentation                                disbelief and a loss of clear positioning.
Substantial—segment must be substantially large or profitable.         Which ones to promote:
Accessible—segment must be reached and served easily.                             Important for buyers
Differentiable—It must be conceptually distinguished and                          Distinctive than competitors offer
should have the ability to respond differently to different                       Superior
marketing mix elements and programs.                                              Communicable and visible difference
Actionable—It should be possible to design effective programs                     Competitors can not copy easily
for attracting and serving market segment.                                        Affordable for buyers
Measurable—Size, purchasing power, and profiles of a market                       Profitable for company
segment should be measurable.                                          3) Selecting an overall competitive positioning strategy:
                                                                       What offer to make in relation to competitor’s offer (Use 2x2 or
Target Marketing                                                       3x3 Grid)
Target market is a set of buyers sharing common needs or                                                      Price
characteristics that the company decides to serve.                                                                                                 26
                     More          Same        Less                     Research procedure:
            More     Premium                   Super                    The marketing research process consists of following steps:
                     brand                     bargain                         1. Defining the problem
Quality                                        brand                           2. Designing the research (basis of research
            Same                   Average     Bargain                              objectives)
                                               brand                           3. Collection of data
                                                                               4. Analysis of data (Pre and Post testing etc)
            Less     Cow boy                   Economy
                                                                               5. Presentation of report
                     brand                     brand
                                                                               6. Management decision
Other strategies are:
          − More for same (Penetration)                                 Defining the problem and designing the research
          − Same for less                                               After the problem has been defined carefully, the manager and
          − Less for much less                                          researcher must set the research objectives.
4) Developing positioning statement:
Positioning statement is a statement that summarizes                    Collection of data (Research work)
company or brand positioning, it takes following form:                  Marketing Research data comprises of
“To (target segment and need) our (brand) is (concept) that                      Primary Data (Field search)
(point of difference)”                                                           Secondary Data (Desk Search)
e.g.                                                                    Researchers usually start from secondary data.
“To young, active, soft-drink consumers who have little time for
sleep, Mountain Dew is the soft drink that gives you more energy        1. Collecting secondary data: (Desk research)
than any other brand because it has the highest level of                Secondary data collection is information that is neither direct
caffeine”.                                                              nor specific.
 Chapter 20 : Marketing Research                                        Sources of secondary data:

                                                                        Internal databases: (i.e. MkIS)
                        Marketing Research                                    Advantages            Disadvantages
Marketing Research:                                                           Quick access          Incomplete
“It is the objective gathering, recording, and analyzing of all facts         Cheaper               Wrong form
about problems relating to the transfer and sales of goods and                Regular & Reliable    Ages quickly
services from producer to consumer or user”                                   Confidentiality       Not expert
Marketing research helps in
                                                                        External sources:
    a. Regulating systems                                                           Information about Competitors (annual reports,
    b. Reducing risks
                                                                                    press releases, web pages, business publications,
    c. Decision making
                                                                                    advertisements etc.)
                                                                                    Analyzing competing products
Types of Marketing Research:
                                                                                    Rival    companies’      personnel      (executives,
Market research:
                                                                                    engineers, sales force, purchasing agents)
                 Study and analysis of
                                                                                    Trade suppliers
         − Characteristics of market                                                Outside suppliers
         − Market share                                                             Online databases
         − Market trends                                                            New patents or applications for patents
         − Sales forecasting for all products
         − Market potential for existing products                       2. Collecting primary data:( Field research)
         − Likely demand for new products
                                                                        Primary data is information collected for the specific purpose at
Product research:
         − Comparative study between competitive products
         − Studies into packaging and design                            A plan for primary data collection calls for a number of decisions
         − Forecasting new uses for existing products                   on
         − Customer acceptance of proposed new products                     •    Research approaches,
         − Development of new product lines                                           o Observational research
         − Test marketing                                                             o Survey research
Price research:                                                                       o Experimental research
         − Analysis of elasticity of demand                                 •    Research methods
         − Analysis of cost and profit margins                                        o EPOS (Electronic Point of Sale system)
         − Effect of change in credit policy on demand                                o DSS (Decision Support system)
         − Customers’ perception of price and quality                                 o Data Warehousing
Place (Distribution) research:                                                        o Internet
         − The location and design of distribution centers              •   Contact methods,
         − Analyzing the packaging for transportation and                               Mail questionnaires
             shelving                                                                   Telephone interviewing
         − Cost of different methods of transportation and                              Personal interviewing
             warehousing                                                                    •  Individual interviews
         − Dealer supply requirements                                                       •  Group interviews (including focus-group
         − Dealer advertisement requirements                                                   interviews)
Promotion research:                                                                     Online (Internet) marketing research
         − Analyzing the effectiveness of sales force                                   Mechanical instruments
         − Analyzing the effectiveness of advertising on sales                            i.   People meters
             demand                                                                      ii.   Supermarket scanners
         − Establishing sales territories                                               iii.   A galvanometer measures strength of
                                                                                               interest or emotions aroused by a
                                                                                               subject’s exposure to different stimuli,
                                                                                               such as an ad or picture.                                                                                                 27
               iv.    Eye cameras are used to study                 E. Marketing is the marketing side of E.Commerce. Company
                      respondents’     eye    movements       to    efforts to communicate about, promote and sell products and
                      determine at what points their eyes focus     services over internet. It includes only Business and Consumers.
                      first and how long they linger on a given
                      item.                                         Advantages:
•   Sampling plans                                                                Geographical reach
            As surveying the whole population would be too                        Speed
            expensive & time consuming, so a sample is                            Information sharing of any kind e.g. text, audio,
            selected.                                                             video, animation, graphics
            Sample is a segment of population selected for                        Shopping at home (Consumer)
            marketing research to represent population as a                       No physical barriers (Consumer)
            whole.                                                                Doing business 24 hours (Business)
            Sample should be a true representative of                             Paperless business (Business)
            population and should not be biased
Types of samples:                                                              Security concerns (consumer)
Random sampling:                                                               Whom to complaint (consumer)
Every member has a known and equal chance of selection)                        What you see is sometimes not what you get
Non-random sampling:                                                           (consumer)
    1. Systematic (Every n item is selected)                                   Sometimes physical presence is necessary e.g.
    2. Stratified (Population is divided into mutually exclusive               smelling a perfume or fitting clothes (consumers)
        groups e.g. age groups and selecting random samples                    Logistic, shipping, distribution and delivery
        from each group.                                                       challenges (business)
    3. Multistage (Process of subdividing population and                       Availability   of    secure        and     affordable
        selecting sample again and again till a suitable                       communication network
        selection is made)
    4. Quota (Different categories of populations are made          E.Business Models:
        and a specific quota from each category is selected)                       Government Business Consumer Employee
    5. Cluster (Investigators are told to examine every item in
        a small population that fits the required definition)       Government G2G                G2B        G2C          G2E

Potential faults in sampling:                                       Business       B2G            B2B        B2C          B2E
    − Insufficient data
    − Unrepresentative data                                         Consumer       C2G            C2B        C2C          X
    − Bias (where chance of occurrence is not equal)
    − Omission of an important item in questionnaire                B2C E.Commerce occurs when an average citizen interacts
    − Carelessness                                                  with a company (like Bata Pakistan or through a
    − Misinterpretation of data                                     website to buy shoes or books online or making inquiries.
                                                                    B2B E.Commerce is companies doing business electronically
3—Implementing the Research Plan                                    with other businesses e.g. a business selling up, down or across
This involves processing, and analyzing the information.            the supply chain involving business partners. Such as All
                                                                    Pakistan Textile Association Mills
4—Interpreting and Reporting the Findings                           B2E E.Commerce is use of intranet technology to handle
                                                                    activities that take place within a business. Using B2E
Distributing the information:                                       E.Commerce employees collaborate with each other, exchange
                                                                    data and information and access in-house database, sales
MkIS:                                                               information, market news and competitive analysis.
“Marketing Information System represent a systematic attempt to     Its need arises when branching out and spreading business
supply continuous, useful, usable marketing information within      across geographical areas. E.g. H/O receiving and processing
an organization to decision makers often in the form of a           Timesheets, Expense Claims, and Absent forms.
database”.                                                          C2C E.Commerce is consumers selling goods directly to
                                                                    consumers in an auction process. E.g.
Audits:                                                                           EBay
Trade audits: count of stock at wholesalers and retailers                         Chat rooms for information and advertisement
Retail audits: count of stock at retailers only                                   Over personal websites
                                                                                  Advertisement on papers
                 Marketing in the Digital age                       G2C E.Commerce is the use of E.Commerce technology by the
                                                                    government to handle activities electronically in which govt. is
                                                                    involved with. E.g.
E.Business is the all electronic based information exchange
                                                                                  To publish and disseminate information by Govt.
within company or between companies and consumers using
                                                                                  Change in address, marital or family status
following platforms:
                                                                                  Submission of tax returns
                                                                                  To cast vote
                                                                    Customization and Customerization:
Intranet is a network that connects people within a company to
                                                                    Customization is individualizing the marketing offer. E.g. taking
each other and to the company network.
                                                                    measurement of jeans for a customer.
Extranet connects a company with its suppliers, distributors, and
                                                                    Customerization is leaving it to individual customers to design
other outside partners.
                                                                    the marketing offer, allowing customers to be prosumers rather
Internet is a vast public web of computer networks, which
                                                                    than consumers. E.g. adding specific features to jeans like
connects users of all types all around the world to each other.
                                                                    colorful patches.
E.Commerce is more specific than E.Business. It is the ability to
buy and sell goods and services electronically primarily by
                                                                    New technology in Distribution:
                                                                           − DRTV
                                                                           − Internet (B2C)                                                                                             28
                  o   Websites
                  o   Email                                             Part F : International Business
Expenditures on promotion gives rise to brands.                                       Theories on International Trade
A Brand is a name, term, sign, symbol or design intended to          Scarce resource is a resource for which the quantity demanded
identify the product of a seller to differentiate it from those of   at a nil price would exceed the available supply.
competitors.                                                         4 scarce resources are Land, Labor, Capital and Enterprise.
Reasons for branding:                                                Scarcity is the excess of human wants over what can be
    − Product differentiation                                        produced.
    − Conveying lot of information quickly and concisely             Production Possibility Curve illustrates limits of possible
    − Advertisement needs a brand name.                              production of two products within given resources.
    − The more similar a product is to competing goods; the          Opportunity Cost is the cost of sacrificed alternative.
          more branding is necessary.
    − It facilitates self selection.                                 Mercantilism:
    − It reduces price sensitivity.                                          Export > Import
    − Brand loyalty gives control over marketing strategy.                   Zero-sum game (benefit at the expense of other)
    − Other products (i.e. new flavors/sizes) can be                 Absolute advantage:
          introduced into brand name/range. (Brand extension)                Absolute advantage is producing goods more efficiently
                                                                             than any other country.
    − Eases personal selling
                                                                             Country should produce goods for which they have an
    − Eases market segmentation
                                                                             absolute advantage and then trade these goods for
Brand strategies:
                                                                             other goods produced by other countries.
    − Brand extension                                                Comparative advantage:
    − Multi branding (different names for similar nature goods               One step further than absolute theory introducing
          serving similar consumer habits)                                   concept of opportunity cost.
Product----------------Names----------------Brands in each name              Country should specialize in the production of those
    − Family branding                                                        goods in which it has lowest opportunity cost.
Relationship Marketing: (Keeping customers; not getting
                                                                     Why countries avoid specialization
Sale is not end of process; but start of relationship.                       Comparative advantage is never stable.
It is easy, cheaper and profitable to retain old customers than to           Diversification protects fall in world demand.
make new customers because:                                           Agriculture industry is subject to uncertainties of climate.
      − Old are valuable                                              Import restrictions are possible by other governments to
      − Old have trust in company                                     develop self sufficiency.
      − Old are satisfied.                                            Multi nationals may assemble or manufacture in different
                                                                      countries for political or logistic reasons.
Key account management: (Key Customer Database)
                                                                     Competitive advantage (national):
     − Like relationship marketing but more specific
                                                                     Porter states that Comparative Advantage is too general
     − It refers to how an organization manages its
                                                                     concept to explain success of individual companies and
     relationship with those customers identified as key to the
     organization in achieving its objectives.
                                                                     He believes 4 conditions (diamonds) within a country help firms
     − Factors used to identify a key account:                       to compete.i.e.
              o Historic value of purchases                               1. Factor conditions
              o Expected future purchases                                 2. Demand conditions
              o Other competitive factors                                 3. Firm strategy, structure and rivalry
                          Status within the marketplace                   4. Related and supported industries
                          Personal relationship of people
                          To prevent a competitor getting a hold
                                                                       Orientations of International Business Management (by
                          in market
     − Extra services given to key account
                             Time                                    Ethnocentrism:
                             Finance                                        Company focuses on domestic market and export is
                             Procedure                                      secondary.
                             Hospitality                                    No local research, marketing mix is standardized.
Auditing Customer satisfaction: (why customers are not                      Same products with same market programs.
satisfied ? )
     − Customer satisfaction surveys                                 Polycentrism:
                                                                             Each country is unique and requires customization.
     − Work won and lost
                                                                             Product and market programs must match with local
     − Changes in market shares
     − Revenue from newly released products                                  Company establishes independent local subsidiaries
     − Rude and unhelpful staff                                              and decentralizes marketing management.
     − A policy is to encourage customers to complain( 96%
          do not)                                                    Geocentrism:
                                                                            Synthesis of two approaches.
Technology Development – Interactive marketing:                             Think globally, act locally.
Interactive marketing in instant communication and responses                Integrated approach to create a global strategy that is
between promoter and customers. It may be called sometimes                  fully responsive to local market.
as Computerized Personal Selling e.g.
     − DRTV (Direct Response Television)                             Regiocentrism:
     − Interactive Internet websites                                        It is Geocentricism but that it recognizes regional
     − Interactive Kiosk                                                    differences.
 CH 21 : Strategic Options (NEW)                                                                                            29
  Evolution and Reasons of Global Business (by Ohmae)                          For Govt.
  Evolution:                                                                     i. Surplus deficit balance
                                                                                ii. Political advantages
                                                                               iii. To support govt. policies (e.g. Balance of Payment)
                                                                               For Company
      1. Export (extension of home sales)                                        i. Large market encouraging economies of scale.
      2. Overseas branches (when turnover is large, greater                     ii. Increased competition at home market
         investment)                                                           iii. Mature or declining home market
      3. Overseas production (exploits cheap labor and reduces                 iv. To dispose excessive/discontinued products.
         exporting cost)                                                Exchange rate:
                                                                        Purchasing Power Parity theory calculates exchange rate
  Polycentrism                                                          based on relative cost of purchasing same basket of goods in
      4. Insiderisation (full functional organization having            two countries.
         production and distribution system is set-up overseas,         A currency’s exchange rate is also determined by Demand and
         company is multinational)                                      Supply. They in turn are determined by Inflation, Speculation,
                                                                        Interest rates, Govt. policies and Balance of Payment.
  Geocentrism                                                           Exchange rate risk is the risk that foreign currency will
                                                                        exchange in smaller amount of domestic currency in future.
     5. The Global Company
  Reasons:                                                              This can arise under any of three Exchange Rate Systems i.e.
  5 Cs                                                                      1. Fixed (Central bank interferes to fix the rate)
      1. Customer (market convergence)                                      2. Managed (Like fixed but allowed to vary between
      2. Company (economies of scale)                                            preset limits)
      3. Competition (Keeping up)                                           3. Floating (depends on supply and demand)
      4. Currency (exchange rate risk)                                  Managing exchange risk:
      5. Country (Absolute and comparative advantage, local                 − Hedging devices
                                                                            − Flow         of     money       in    both       directions.
  Other reasons:

     Design for global business (by Bartlett and Ghoshal )

                               Low     requirement      for     local     High requirement for local adaptation                 and
                               adaptation and responsiveness              responsiveness
                               Global environment                         Transitional environment
     High    pressure     to            Geocentric orientation                      Polycentric orientation
     Globalize                          Global product divisions                    Integrated system and structure
                                        Chemicals, Construction                     Pharmaceutical, motor vehicles
                                                                          (focus of organization is heteroarchy)
     Low    Pressure      to   International Environment                  Multinational environment
     Globalize                           Ethnocentric orientation                   Polycentric orientation
                                         International division                     National or regional divisions
                                         Paper, textile                             Fast food, tobacco

                                                                           −    Strategic options
Planning to enter Foreign Market                                           −    Budgets
Phase 1: Preliminary analysis and screening:                               −    Action programs
    − Evaluation of available markets (to exclude obvious unfit)
    − Applying screening criteria to evaluate remaining             Phase 4: Implementation and Control
        markets (criteria might include Profit, Market Share,           − Objectives and Standards
        Quality)                                                        − Assign responsibilities
    − Analysis of environment conditions in each country                − Measure performance
                          Porter’s 5 forces analysis                    − Corrective actions
    − Choosing country (i.e. Target Market)                         Problems in International Planning:
Screening Process consists of : (by Jeannet and Hennessy)               − Foreigners don’t know local culture, feelings, attitudes
        Marco level research                                            − Local level problems
                          Environmental analysis                                     Different attitude to product and marketing task
                          Climate and demographic                                    Lack of strategic outlook and marketing
        General Market factors                                                       expertise
                          Size of market                                             Resentment at being bossed around
                          Regulations                                                Unclear goals
                          Culture                                                    Inadequate control
        Micro level research                                            − HR considerations to be managed at local level
                          Competition                                   − Poor IS and Communication
                          Transportation                                − Diversification of countries over population, income,
                          Healthcare                                        development, education etc.
                          Education                                     − Time horizon
        Target Market
                                                                                  International Marketing Research
Phase 2: Adapting the marketing mix to target markets:
Deciding Adaptation or Standardization                              Objectives:
                                                                        − Availability and quality of information is enhanced for
Phase 3: Developing the marketing plan:                                     planning.
   − Situation analysis                                                 − Change in customers needs and preferences is timely
   − Objectives                                                             observed.
                                                                        − Competitors’ plan and strategy                                                                                               30
    −    Finding of new markets                                                    Wish to preserve secrecy
    −    Opportunities and Threats                                                 Cultural taboos and norms
    −    Trends of market                                                −    General problems (developed vs. undeveloped)
    −    SLEPT analysis                                                            No suitable list (sampling frame)
    −    Technology – Quality of information                                       Inadequate communication infrastructure
                                                                                   Low level of literacy
Information sources for International Markets:                                     Problems of language and comprehension
    − Human sources
                Managers of subsidiaries, associates, branches       Entry in International Market
                (relevant + unpublished + biased)                    Entry in International Market could be through:
                Consumers, Customers, Distributors, Suppliers            Foreign Direct Investment/Overseas production
                and even Competitors                                          100% owned subsidiary
    − Documentary sources (Publications etc., not to the point)               Joint venture
    − Direct sources                                                            o Industrial cooperation/Contractual (fixed period)
                Direct observation and specialist knowledge                     o Joint-equity venture (continued)
                Direct observation and background information            Export
                Personal     experience    supporting   indirect              Direct (greater control but lesser market knowledge)
                information                                                     o To Branch office
                Export publications                                             o To Agents between importer and exporter
                Export Market Information Centers                               o To Wholesaler, Retailer or Consumers
                                                                              Indirect (greater market knowledge but lesser control)
IMR Process:                                                                    o Through Export houses
    − Monitoring                                                                o Through Specialist export management firms
               Passive information gathering (Market not yet                    o Through UK buying offices of foreign stores and
               targeted)                                                             government
               Identification of market for which information                   o Through Complimentary Export (i.e. Piggy back
               needs to be gathered.                                                 export)
    − Investigation    (accurate    assessment     of   market           Licensing
       opportunities)                                                         Giving right to use production process for Royalty.
               Existing demand; where customer’s needs are
               already being served.                                                    Critical analysis of entries
               Latent demand; where potential customers are
               currently recognized but are not being served.        Foreign Direct Investment is direct investment in business
               Incipient demand; where there is foreseeable,         operations in a foreign country. It may be:
               but not a present, market for products.                   1. Horizontal FDI (investment in same industry abroad)
    − Research                                                           2. Vertical FDI (investment in an industry abroad which
               Define scope of project                                        provides input to firm’s domestic operations.
               Define projects, information needs                                             i. Backward Integration (to acquire raw
               Evaluate available sources for required                                            material)
               information                                                                   ii. Forward Integration        (to establish
               Undertake desk research                                                            final product)
               Undertake field research
                                                                     Selection criteria for entry mode: (Factors to be considered)
Using IMR data:                                                      Mode varies among firms, according to markets and over time.
                                                                             Firm’s marketing objectives (in relation to volume, time
    − To estimate patterns of demand/consumption in
                                                                             scale and coverage)
        individual markets by
                 Demand pattern analysis                                          − Low ----------export
                 Income elasticity of demand                                      − High----------produce locally
    − To compare patterns of demand/consumption in different                 Firm’s size
        markets by                                                                − Small--------export
                 Comparative analysis                                        Mode availability
                 Intermarket timing differences                                   − Govt. may restrict modes
    − To identify clusters of markets with similar characteristics           Mode quality
    − To identify strategically equivalent segments                               − Qualified, trained staff is necessary for export of
                                                                                        high technology goods.
Problems in IMR:                                                             Human Resource Requirement
    − Secondary data problems                                                     − If staff is suitable---------Direct export
                Lack of data                                                      − If staff is not suitable----Indirect export (agent
                Not timely, out of date information gathered on                         based)
                unpredictable schedules                                      Market information feedback
                Not comparable, different data definitions in                     − Is received in case of Direct export.
                different countries                                          Learning curve requirement
                Lack of reliability                                          − Heavy investment calls for learning curve i.e. close
    − Response problems (People’s unwillingness to provide                      observation through direct export before investment.
       info)                                                                 Political risks
              Tax evasion and avoidance of responsibilities                  Control needs.                                                                                               31
      FDI vs. Export vs. License:
               FDI(Foreign Direct Investment)                Export                            License
                   − Lower production cost                      − Concentration          on        − Avoids costs and hassle
                   − Better understanding of                        production                         of setting up overseas.
                       Market and Customers.                    − Economies of scale               − Rapid penetration
                   − Lower         transportation               − Consistency of product           − No investment
                       cost.                                        quality                        − No Political risk, No
                   − Overcomes tariff and                       − International experiment             Protectionism

                       non-tariff barriers.                         on small scale
                                                                − Easiest, cheapest, most
                                                                − Political      risks  are
                            −   Political risks.                − Protectionism                    −    Small cash inflows
                            −   Partnership                     − Exchange rates                   −    Quality standards issues
                            −   Managing          overseas      − Usually less involvement         −    Indirect      competition
          Key Issues

                                facilities                                                              where both export
                            −   Usually               more                                         −    Licensee may become
                                involvement            but                                              competitor (by transfer of
                                subsidiary       may   act                                              knowledge             and
                                independent.                                                            technology)

      If FDI, 100% owned subsidiary or Joint venture:

                       Wholly owned subsidiary (as compared to Joint venture)
                       Advantages:                                Key Issues:
                          − No sharing in profit                       − Heavy investment needed
                          − No sharing in decision making              − Suitable managers not available
                          − No communication problem                   − Govt. discourages 100% ownership
                          − Operation of integrated international      − No local knowledge
                          − Varied experience

                                                                                      iii.     Exchange controls through
Protectionism (discouraging imports) by Govt.                                                       a. Rationing supply of foreign exchange
Government and Local producers get benefit not consumers.                                           b. Blocking funds of foreign parent
     1. Tariff (tax on imports)                                                                     (counter ways)
     2. Non-tariff barriers                                                                           − Dividend
       a. Official                                                                                    − Selling goods/ services (volume and
               i. Subsidy                                                                               transfer pricing)
              ii. Import Quotas/ Export Restraint                                                     − Royalty
             iii. Local Content Requirement (specific fraction must                                   − Loan and high interest rates
                   be produced locally)                                                               − Management charges
            iv. Anti-dumping policies (e.g. special duty)                        4.   Nationalization
              v. Administrative policies (informal instruments or
                   bureaucratic rules)                                       How to cope with political risk:
            vi. Embargo (total ban)                                             1. Negotiation (agreement) with Government
       b. Un-Official                                                                       i. Transfer of capital
               i. Quality and inspection procedures                                        ii. Access to local finance
              ii. Packing safety and documentation standards                              iii. Govt. interference
             iii. Restriction of distribution                                             iv. Taxation
     3. Exchange control (making difficult to obtain required                              v. Transfer policy
          currency)                                                             2. Insurance
     4. Exchange rate policies (e.g. competitive devaluation of                 3. Contacts with markets
          currency)                                                             4. Management structure (joint venture or giving control to
Dumping is selling goods in foreign market below cost or market                      local)
value to:                                                                       5. Financial management (obtain finance locally)
                 Unload excessive production                                    6. Production strategies (giving control to local to produce
                 Capture market.                                                     Or to supply chain management)
Political risk in FDI for multinationals
Political risk is the risk that political actions will affect the position   Regional trading groups/blocks--- A way to overcome
and value of a company.                                                      Protectionism and Political risks
                                                                             Regional trading group promotes trading between members of
How Political actions can affect:                                            group. Following are common types:
   1. Tariff and non-tariff barriers e.g. Quotas                             Free trade area:
   2. Govt. interference in contracts                                                 Internal barriers to trade are removed.
   3. Imposition of                                                                   Each company determines its own external trade policy.
         i.      Increased tax rates                                         Customs Union:
        ii.      Price controls                                                       Internal barriers to trade are removed.                                                                                                   32
      Common external trade policy is adopted.                       Issue of equity in a market outside the company’s own domestic
Common Market:                                                       market.
      Similar to customs union except it allows factors of           Not developed like Euro bonds, hence ‘sweeteners’ are added
      production to move freely between countries.                   e.g. Rolling Put Option
Economic Union:
      It is Common market but more closer integration                Euro bond:
      including establishment of common currency and tax             Currency differs country of issue (underwritten by international
      rates.                                                         syndicate of banks and sold internationally)
                                                                     Euro bonds are suitable when:
                      Taxation issues in FDI                             − Large organization with excellent credit rating
By structuring the group, tax advantages could be availed.               − Requires long term loan for capital expansion
Foreign tax credit avoids double taxation in both countries.             − Requires borrowing not subject to national exchange
Tax havens is a country with exceptionally low or even no                     control
income tax but there should be:                                          − Interest rates are fixed or floating with minimum.
          Stable currency and Govt.                                  Investors of Eurobonds will be concerned about:
          Adequate financial services support facilities.                     Marketability
Capital Structure Decisions                                                   Return on Investment
         Equity or borrowing                                                  Security
         If equity, Parent’s or Subsidiary’s
         If externally, from host or other country                   Euro currency:
         What Currency (same to avoid fluctuation             and    Eurocurrency is any currency banked outside of its country of
         symmetry)                                                   origin e.g. Eurodollars are dollars banked outside United States.
         How much and what period                                    Euro Currency loan:
Factors influencing choice of financing:                             UK company borrows in US $ from a UK bank, it is a Euro Dollar
    1. Local finance cost                                            loan.
    2. Taxation system
    3. Restriction on dividend remittance                            Euro credits: like Euro currency loan
    4. Flexibility in repayment                                      Commercial papers:
                                                                              An example of Securitization.
                                                                              Short term financial instruments
Global Capital Market
                                                                              Issued in the form of unsecured promissory notes with a
International banks (provide financial and other services)                    fixed maturity date.
Factors affecting development of international banks:                         Issued in bearer form
     1. Globalization (Trade of securities world wide e.g. Euro               Issued on discount basis
         equity)                                                              Companies with net capital of 25 million can issue it.
     2. Securitization (Debt via issuance of securities e.g. Euro    Syndicated credit market:
         bonds, Euro commercial papers)                                   − Provides credit at high rates over LIBOR.
     3. Deregulation (national barriers)                                  − Suitable for
     4. Disintermediation (directly from investor)                                                 Takeover bids
     5. Increased foreign exchange and interest rate volatility                                    Govt. borrowings
                                                                                                   Project financing
Benefits of international banks:                                     Credit is a facility whereas Loan is a transaction.
   1. Financing of foreign trade                                     MOFs:
   2. Financing of capital projects                                  Multiple Options Facilities (MOF) comprise variety of
   3. Provision for advice and information                           instruments through which company can raise funds and include:
   4. Providing full local banking services in different countries                        Note Issuance Facilities (NIF)
   5. International Cash Management services                                              Revolving Underwriting Facilities (RUF)
   6. Trading in foreign exchange and currency options
   7. Participation in syndicated loan facility
                                                                     Counter Trade
   8. Lending and borrowing in foreign and euro currency
        markets                                                      Counter trade is a trade of goods and services for other goods
   9. Underwriting of euro bonds                                     and services.

Borrowing in Euro market Vs. Domestic market                         Types/arrangements of Counter Trade:
                                                                             Barter (direct exchange of goods/services between two
       Domestic banking is subject to tighter regulation                     parties without a cash transaction)
       Domestic banking is subject to security requirements                  Counter purchase (A reciprocal buying agreement
       Euro finance may have                                                 between two parties whereby seller also undertakes to
                       i. Flexibility in draw-down dates                     purchase a certain amount of merchandize from other
                      ii. Early redemption penalties                         country)
                     iii. Commitment fee                                     Offset (like counter purchase but party can purchase
       Euro is suitable for very large finance requirements                  from any firm in the country)
                                                                             Switch Trading (A third party trading house buys the
Euro Currency:                                                               firm’s counter purchase credits and sells them to another
Following types of currency is available in Euro Markets:                    firm that can better use them)
                  1. Euro equity                                             Buyback (One country supplies capital goods and
                  2. Euro bond                                               receives its output as partial/full payment)
                  3. Euro currency
                  4. Euro Currency loan                              Advantages of Counter Trade:
                  5. Euro credits                                       1. A mode to finance exports when other modes are not
                  6. Commercial papers                                      available.
                  7. Syndicated credits                                 2. Competitive advantage over parties preferring cash
                  8. MOFs                                                   transactions.
Euro equity issue:                                                   Disadvantages of Counter Trade:                                                                                            33
    1.   Goods received may be unusable, poor quality, or                5.   Exporter ships and gives documents and draft to own
         unprofitable.                                                        bank.
    2.   Expensive and time consuming to develop a separate in-          6. Exporter’s bank sends documents to importer’s bank
         house trading department to dispose those goods                      and gets the draft accepted.
    3.   Unrealistically high value may be imposed on goods.             7. Importer’s bank informs importer about arrival of
    4.   Cost may exceed expectation. (Cost includes                          documents and merchandize.
         Consultancy fee, Discount, Bank fee, Insurance, Any fee         8. Importer pays (or not pays) his bank.
         paid to third party)                                            9. On maturity, importer’s bank pays to exporter’s bank that
                                                                              pays to exporter.
Why Countries do Counter trade:                                     International Credit Unions:
      Countries lack commercial credit or convertible FCY.          These are organizations/associations of finance houses/banks in
      Countries use it as an instrument of political, economical    different countries having reciprocal arrangements for providing
      policies (e.g. Balance of Trade, relationships)               installment credit finance.
      To boost developing manufacturing industries
      To obtain more trade or new technology                        Export Credit Guarantee Scheme:              (where L/C is not
                                                                    acceptable by strong importer)
Which Countries do Counter trade:                                   Preshipment Facility:
       Oil exporting companies.                                              Guarantee is issued to banks to indemnify them against
       Less developed and developing countries.                              losses on finance given to exporters to manufacture and
       Unusual in industrial countries with exception of defense,            process goods for export.
       aviation and big advanced technology.                                 Risks covered are:
                                                                                  o Insolvency of exporter
Financial problems in Foreign Trade                                               o Inability to repay or deliver on due date
                                                                    Postshipment Facility:
Foreign Trade raises special financial problems i.e.
                                                                             Exporter submits application with required particulars to
             Bad debts’ risk is greater
             Large investment appears in receivable and stocks
                                                                             ECGS will issue a guarantee specifying maximum
Reducing bad debts’ risk:
                                                                             amount covered and rate of premium.
             1. Export factoring
                                                                             Risks covered are:
             2. Forfaiting
                                                                                  o Insolvency of buyer
             3. Documentary Credit (L/C)
                                                                                  o Political and Economic risks
             4. International Credit Unions
                                                                                  o Risks of refusal to take delivery
             5. Export Credit Guarantee Schemes
                                                                                  o Risk of any loss (beyond control of buyer or
Export factoring:
                                                                    Reducing large investment in Receivables and Stocks:
Factoring company provides administration of:
         Client invoicing                                               − Advance against collection
         Sales accounting                                               − Documentary credit
         Debt collection                                                − Negotiation of bills or cheques
         Credit protection
Forfaiting: (providing medium term export finance)                  International Marketing Mix Policies
         Exporter sends Capital goods to overseas buyer who         International place policies:
         wants medium term loan.                                                 Exclusive
         Buyer makes down payment and issues notes/ accepts                      Selective
         draft.                                                                  Intensive
         Notes/drafts are guaranteed by Availising bank.
         Exporter discounts them from Forfaiting bank.              International product policies:
Documentary Credit (L/C):                                                Standardized/Undifferentiated marketing      (same product,
    1. Importer orders.                                                  price, marketing program for all markets)
    2. Exporter accepts.                                                 Adapted/Differentiated marketing
    3. Importer’s bank issues L/C to exporter’s bank.                    Concentrated marketing.
    4. Exporter’s       bank   authorizes   exporter    to ship

     Standardization Vs. Adaptation: whether to adopt or not is linked with promotional issues.
                                      Product Standardization           Product Adapted
                                              Occasional exporters              Single product meets the same
     Communication                            Also major companies              need in all markets but need to
     Standardization                          seeking economies of              be adapted.
     Communication Adaptation                 Same product for                  Costly
                                              different    uses   in            Required to exploit market fully
                                              different countries

  Barriers to International Standardization:                                          −     Consumers’ tastes and habits
           Law                                                                        −     Language and attitude differences
                    − Price control                                            Economy
                    − Product regulation                                              −     Income level
                    − Distribution restrictions                                       −     Media availability
                    − Advertising and media restrictions
           Competition                                                 Domestic business as compared to International business:
                    − Nature of existing products                      Social factors:
                    − Competitors’ prices                                            No language problem.
           Culture                                                                   Homogenous market.                                                                                             34
               Rules of game are understood.
               Similar purchasing habits.                        Cash Pooling is netting of Debit and Credit balances with same
Economic factors:                                                bank to reduce interest cost.
           Single currency
           Uniform financial climate                             Short term Investment:
           Stable business environment
Competitive factors:                                             How Cash surplus arises
           Data collection is easy and accurate.
                                                                          −    By profitability
Political factors:
           Relatively unimportant                                         −    By low capital expenditures
Technological factors:                                                    −    By receipt from selling part of business
           Standard production and measurement systems
                                                                 How Cash surplus is utilized
Motivating international agents:                                      −    Takeover bids
    − Communication                                                   −    Buy back of shares
    − Assuring long term business relationships                       −    Short term investments
    − Regular and frequent personal contacts                                 o Banks
    − Exclusivity                                                            o Investment in listed shares
                                                                             o Investment in debt instruments
Hofstede’s model of national culture:                                               Certificate of Deposits (certificates by bank
Hofstede pointed out that countries differ on following                             acknowledging deposit for specified time)
dimensions:                                                                         Treasury bills (IOUs by govt. issued weekly for
    1. Power distance how for superiors are expected to                             91 days to finance govt. projects)
        exercise power                                                              Eligible bank bills (IOUs by those top rated
    2. Uncertainty avoidance some cultures prefer clarity                           banks whose bill Bank of England agrees to
        and order while others prefer novelty                                       buy)
    3. Individualism in some cultures, it is individual                             Bills of exchange
        achievement what matters.                                                   Local authority bonds
    4. Masculinity in such culture, roles of sexes are clearly                      Commercial papers
        differentiated.                                          Certificate of Deposits, Treasury bills and Eligible bank bills are
                                                                 Negotiable and Resalable.
Hofstede grouped countries into eight clusters:
    1. More developed Latin                                      International payment modes:
    2. Less developed Latin                                               Cheque
    3. More developed Asian                                               Lock boxes (speeds up payment by cheque)
    4. Less developed Asian                                               Bills of exchange
    5. Near Eastern                                                       Bank draft (cheque by a bank drawn on one of its own
    6. Germanic                                                           account)
    7. Anglo                                                              Mail Transfer
    8. Nordic                                                                       It is a written payment order authenticated by
Type of industry and size of company is also important.                             official in sending bank which
                                                                                    Instructs by Airmail to pay a certain sum of
Finance in International Business                                                   money to a beneficiary.
Treasure ship:                                                            Telegraphic Transfer
Treasure ship is the function used with provision and use of                        Like mail transfer but instructions are sent by
                                                                                    cable or telex instead of by airmail.
finance. It covers
          Provision of short term borrowings/ capital                               Speeder, Costly and Confidentiality than Mail
          Foreign Currency management
          Banking                                                         SWIFT (Society for Worldwide Interbank Financial
          Collection                                                      Telecommunication)
                                                                                    Provides rapid electronic fund transfer
          Money market investment
                                                                                    In addition to banks, users include Security
Treasury department should be cost center or profit center?
                                                                                    houses, Exchanges, Money brokers, Fund
Cash Management:                                                                    managers etc.
Centralized Cash Management:                                              International Money Orders
   1. Avoids mix of cash Surplus and overdraft.
                                                                 Transfer pricing:
   2. Large volumes of cash are available to invest
   3. Any borrowing could be arranged in bulk at lower rates.    Basis include
   4. Foreign currency risk management in improved.                       Standard Cost
                                                                          Marginal Cost/ Full Cost/ Opportunity Cost
   5. Specialist Treasury Department will employ experts.
                                                                          Market Price
Decentralized Cash Management:                                            Market Price – discount
   1. Great autonomy                                                      Negotiated Price (any other basis)
   2. Quick and more response to needs of individual
       operating units                                           Advantages of having Market          Disadvantages of having
   3. More opportunities to invest on short-term basis.          Price as Transfer Price              Market Price as Transfer
Float is amount of money tied up between initialization and      1.   For buying department           1. Market prices may be
finalization of payment.                                                i. Better     quality    of       temporary.
Measures to reduce Float include:                                          services                   2. Disincentive to use
      − Lodgment delay should be minimum                               ii. Greater flexibility            spare resources as
                                                                      iii. Dependability of supply        compared           to
      − BACS
                                                                 2.   For both departments                incremental      cost
      − CHAPS
                                                                        i. Lower       cost      of       approach.
      − Standing orders/ direct debit for regular payments                 administration, selling    3. Buying department may
      − Lock boxes for international payments                                                                                           35
         and transportation                        enforce discount.                        − Increased scrutiny of business decisions by govt.
                                             4.    Many products don’t                        and public.
                                                   have equivalent market                 − Increased deregulation
                                                   prices.                                − Changing business practices (e.g. outsourcing,,
                                                                                              downsizing, reengineering)
HRM in International Business                                                             − Changing social and business relationship
                                                                                              between companies, employees, customers and
 HRM issues in International Business:                                                        other stakeholders.
     1. Expatriate or local management                                           Porter’s national competitive advantage:
Expatriate (as compared to local)                                                There are 4 determinants of national competitive advantage.
Advantages:                   Key Issues:
 − Poor                        − Costs more                                      Factor conditions
   educational/technical       − Lesser              local                       These are a country’s endowment of inputs to production e.g.
   opportunities in local          knowledge                                     Human Resources, Physical resources, Capital, Knowledge and
   market                      − Culture shock                                   infrastructure.
 − Greater control             − Language/                                       These factors could be
 − Better central                  Communication                                           − Basic (inherited and creation involves less
   communication                   training required                                            investment e.g. natural resources) or
 − Corporate picture is clear                                                              − Advanced           (include       modern  digital
     2. Recruitment and Training                                                                communications, highly educated people and
     3. Career management within firm                                                           research laboratories etc.)
     4. Appraisal schemes                                                        Demand conditions
     5. Communication with staff (e-mails, conferences and                       The home market determines how firms perceive, interpret and
          news letters etc.)                                                     respond to buyer needs.
 Changes in World marketplace: (by Jerry Wind)                                   Related and supported industries
          − Globalization of businesses                                          Competitive success in one industry in liked to success in
          − Science and Technology development                                   related industries.
          − Strategic alliances                                                  Firm strategy, structure and rivalry.
          − Changing customer value and behavior
    Annexure “A”
    Topic                                              PBP Reference   Topic                                       PBP Reference
    Chapter 4 & 5 : Strategic Management :                             Chapter 18 : The Evolution of Marketing
    Levels of strategy                                 Figure          Concept
    Traditional approach to make strategy              Explanation     Marketing management                        Explanation
    Activities affecting Crafting strategy             Explanation     Elements of marketing mix - Promotion       Details
    Learning based strategy                            Explanation     Value-chain                                 Explanation & examples
    Competitive strategy                               Overview        Marketing process                           Details
    Chapter 7 : Performance Appraisal &                                Chapter 19 : Strategic Marketing &
    Measuring performance of profit center.            Exp. & exmp     Planning
    Inflation                                          Detail          Development in segmentation                 Details
    Chapter 9 : Corporate Re-organization                              Benefits of market segmentation             Details
    Management buy-out                                 Details
    Chapter 10 : Ethics and Social Resp.                               Target Market                               Explanation
    Social responsibility - Favors - Externality       Explanation     Evaluating market segments - porter’s 5 F   Explanation
    Chapter 12 :Human Resource Management                              Competitive strategy options                Details
    Different concepts -                               Pg : 298        Identifying gap in market positioning       Explanation
    Termination                                        Details         Chapter 20 : Marketing Research
    Chapter 14 : Groups in Organization                                Research procedures - Analysis of data      Explanation
    Effects of conflicts within groups - Groups &      Details         Collecting secondary data - internal and    Details
    Departments                                                        external databases
    Chapter 15 : Strategies for Critical periods                       Questionnaires                              Details
    Corporate Decline - 3 types of decline             Explanation     Marketing Information System (MkIS)         Explanation
    Chapter 16, 17 : Change Management Env.                            Marketing Decision Support System           Explanation
    Nature of strategic change                         Explanation     Market Sensing                              Explanation
    Model for change                                   Explanation     Service Quality (SERVQUAL)                  Explanation
    Approaches to implement change                     Explanation     Sales Forecasting [Forecasting demands]     Explanation
    Force Field Analysis                               Explanation     Marketing Communication                     Explanation
    Change process                                     Details         Chapter : International Business
    Pressure groups                                    Explanation &   Competitive advantage                       Details                                                                                                              36

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