VIEWS: 2,701 PAGES: 36 POSTED ON: 9/30/2010 Public Domain
Business Management and Business Analysis are treated to be very dry subjects. It includes decision making and many more matters. Students of ICAP Module E and ACCA P3 normally face difficulties in the preparation of Business Management and Business Analysis. Keeping in view this, notes of Business Management and Business Analysis have been arranged for your convenience. Following articles cover whole syllabus of ICAP and ACCA under each head. It is also very useful for PIPFA, ACMA and CIMA students.
PREFACE 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. Thanks 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: firstname.lastname@example.org HTU March 31, 2009 Password: (Updated: Oct. 19, 2009) a4atif These notes are also available at www.canotes.multiply.com HTU www.canotes.multiply.com 1 To create Value for Money, funds must be applied Chapter 1 : Objectives of Economically, Efficiently and Effectively. Organization 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 Target Characteristics of Strategic Decision: Cost Focus Differentiation Focus Scope: Overall long-term direction. Niche (for luxury goods) Matching: Matches activities to environment & resources Focus capability. 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) www.canotes.multiply.com 2 Advantages/Comparison of Competitive Strategies: Competitive Cost Leadership strategy Differentiation strategy Force 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 suppliers) Development 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 competence) 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. www.canotes.multiply.com 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 analysis 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) Scenarios 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. www.canotes.multiply.com 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 Strategies t Realized Unrealized Strategies 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) Summary: 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. www.canotes.multiply.com 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. Diagnostic: 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) environment. 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 triangle) 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 environment) 1. Survival of business is impossible without a competitive Hence: choice of strategy must follow a strategic logic. strategy. 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, factors purposes or goals, - Relative superiority i.e. exploiting competitors o That produces the principal policies and plans to weakness 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 Experience - 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) www.canotes.multiply.com 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 Flaws: - 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 control 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 Costs: - 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 deteriorated 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) Controllable margin ( Controllable profit – other costs Chapter 7 : Mission Goals and directly traceable) Net Profit/Margin ( Controllable margin – allocated Objectives service center costs and general management overhead) Value added is cost of material and bought in service. Analyzing Vision, Mission and Objectives Hierarchy 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 www.canotes.multiply.com 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 existence] 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 Growth 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 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) www.canotes.multiply.com 8 Measured by (increase in Retained earnings, Market Value listed or non- listed) 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. www.canotes.multiply.com 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 changing. 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 Reorganization 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 Technology Attitude to workforce Downsizing Company spirit and loyalty Divestment- (selling of business) Strategic Excellence Position: (similar to excellence) www.canotes.multiply.com 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 Liquidation 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 Responsibility 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 managers. 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. Organization 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 services) Saving in overheads Grease money ( where organization is entitled but Healthy relationship with subsidiary unable to receive services) Gifts 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 system. “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 saved) 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 www.canotes.multiply.com 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 charities) 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. society. − 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 Chapter) 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) www.canotes.multiply.com 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 Selection 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 www.canotes.multiply.com 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) employment Internal Promotions, Transfers (Redevelopment Plan) and Performance----------- Performance objectives can be Training (Training Plan) etc. set. 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. Competencies 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 Advantages: 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) Newspaper T.V. Net 2. Agencies and Professional organization 3. Blind Box ads www.canotes.multiply.com 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 Experience 3----5 Characteristics needed Performance Internet Search: 1. Employer website Individuals 2. Professional career websites Variables affecting Job performance: Advantages: 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 characteristics) 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 www.canotes.multiply.com 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 reward 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 specialization), “Members will expend efforts and organization will reward them in methods used in performing these tasks (training and exchange” 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 www.canotes.multiply.com 16 Methods: 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) Self Senior 2) Tell and listen method (manager tells, the Peers subordinates responds, and consensus is achieved) Juniors 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 activities Obtaining and allocating resources Information Defined Poorly defined sources sources Informal channels www.canotes.multiply.com 17 Formal channels 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 Team: “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, competition(Handy). planning) − 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 opinion 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 task. − Intervening factors Motivation Creativity and testing of ideas Objectives may be subverted for secondary Leadership 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: www.canotes.multiply.com 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 decentralized) − 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 conflict) − Compromise (bargaining, negotiating, conciliating) Solutions: − 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) www.canotes.multiply.com 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 Change 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 www.canotes.multiply.com 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 stages: 1. The organization is established. 2. Organization grows in size and scope. www.canotes.multiply.com 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: Selling) 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. www.canotes.multiply.com 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, price 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 Controllable: - 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. www.canotes.multiply.com 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. belong. 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 www.canotes.multiply.com 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 Delivery Supporting 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. strategy.. 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 www.canotes.multiply.com 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). etc. • User status and user rate Market offers can be differentiated along the lines of: • Loyalty status Product Service Segmenting Business Markets Channels People 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. www.canotes.multiply.com 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: hand. − 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. www.canotes.multiply.com 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 Disadvantages: 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) th 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 amazon.com) 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 E.news 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 Intranet To cast vote Extranet Internet 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: internet. − DRTV − Internet (B2C) www.canotes.multiply.com 28 o Websites o Email Part F : International Business Branding: 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 customers) 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 industries. 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 Perlmutter) − 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 environment. − 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) www.canotes.multiply.com 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) Ethnocentrism 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 Types: 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 orientation) − 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 Labor 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 www.canotes.multiply.com 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. www.canotes.multiply.com 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 Advantages non-tariff barriers. on small scale − Easiest, cheapest, most common − Political risks are avoided. − 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 systems − 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. www.canotes.multiply.com 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 Anonymity 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: www.canotes.multiply.com 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 ECGS. 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 exporter) 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 merchandize. 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. scale 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. www.canotes.multiply.com 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 Transfer. 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 Price 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 www.canotes.multiply.com 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 www.canotes.multiply.com 36
Pages to are hidden for
"Business Management - PDF"Please download to view full document