The Examinations of ICAP are a demanding test of student’s ability to master the wide
range of knowledge and skills required of the modern professionals. Subject of “Business
Management” is one of the efforts made by ICAP in this context for enhancing student’s
knowledge about detailed overview of effective management of businesses.
The best and recommended book for this subject is “Study Text by PBP” that covers each
and every area of syllabus in extraordinary detail. The basic problems faced by the
students in going through PBP are its size and the language used. Students who are new to
this subject have to spend most of their precious time in understanding the theme conveyed
in any chapter. Moreover students feel it very hard to revise the complete course near or on
the exam day.
For these reasons there arise needs to have some short and easy to revise notes for this
subject that covers the extent of PBP in a concise form. For this purpose we used short
notes of PBP prepared by Muhammad Asif (Ex A.M, AFF & Co Lahore) 3 years earlier.
After compiling the notes Faraz Ahmad reorganized the notes and updated it using the
PBP. Now those notes are finalized and presented to you in a booklet form. Hopefully it
will help you all.
I would suggest that first of all you should read BM from PBP and afterwards you may
consult these notes for revision purposes. An Annexure has been given at the end of this
booklet to help you deciding how you can use this booklet in combination with PBP.
May ALLAH bless you with success in every exam of both lives.
For notes & other study
Talib e Doa material for module E visit
and download mails from
Syed Atif Hassan Abidi
Faraz Ahmad E-Mail id:
March 31, 2009 Password:
(Updated: Oct. 19, 2009) a4atif
These notes are also
To create Value for Money, funds must be applied
Chapter 1 : Objectives of Economically, Efficiently and Effectively.
Chapter 2 & 3: Strategy
Introduction to Strategy
Strategy: Formulation and Choice
“Course of actions, including specification of resources required,
to achieve a specific objective” Strategy formulation/choice
Influences on /Determinants of Strategy: 1. How to gain competitive advantage?(question of
o Society i. Porter’s Generic Strategies (5 forces)
o Organized groups 2. Which Direction to go
Nature of business i. Growth direction
o Market situation and conditions a. Organic growth
o Products of company Ansoff’s Product Market Matrix
o Technology used b. Joint development
Organization’s Culture ii. Defensive/Non growth strategies
o Organizational system and structure a. Capital Restructure Scheme
o Leadership style b. Downsizing
o Organization’s history c. Divestment
o Organization’s founder
Stakeholders’ powers (mapping) and Internal coalition Porter’s Generic Competitive Strategies (to achieve
Economic objectives competitive advantage):
Social responsibility Competitive position is the market share, costs, prices, quality
and accumulated experiences of an organization/product relative
Environmental conditions affecting Strategic Planning: to competition.
1. Resources (mineral)
2. Disaster Competitive strategy is taking offensive or defensive action to
3. Logistics create a defendable position in an industry, and to cope with
4. Government competitive forces yielding superior ROI.
Environmental Management Accounting is a solution: examples
are Competitive advantage is anything which gives one organization
1. Eco – Balance an edge over competitors.
2. Cleaner Technology There are following Competitive Strategies for companies to
3. Lifecycle assessment achieve Competitive Advantage.
4. Performance appraisal Lower Cost Differentiation
5. Budgetary planning and control Cost Leadership Differentiation
6. Corporate liabilities (a factor in PERT) Broad
Characteristics of Strategic Decision: Cost Focus Differentiation Focus
Scope: Overall long-term direction. Niche (for luxury goods)
Matching: Matches activities to environment & resources Focus
Affect: Affected by values, beliefs and powers of people in
organization. & Affect operational decisions. Differentiation is “creating value through uniqueness”. It could be
Implications for change. at following levels of product i.e.
Complex in nature.
Allocation or reallocation of resources. 1. Actual Product
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
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
Advantages/Comparison of Competitive Strategies:
Competitive Cost Leadership strategy Differentiation strategy
Rivalry Profitable even in price competition. Reduces direct competition.
New Entrants Low price is entry barrier. Customer loyalty is entry barrier.
Substitutes Firm is less vulnerable than competitors. Brand loyalty is weapon.
Customers Customers won’t switch. Low price sensitivity.
Suppliers High bargaining power because of market share. Supplier may raise prices but higher margin offsets it.
Ansoff’s Product-Market Matrix: − Related diversification is when product is new but
still within broad confines of industry. e.g.
Present Product New Product Vertical integration (control over supply chain)
Present Market Forward integration (control/ownership over
Penetration Development distributors or retailers)
New Market Backward integration (control/ownership over
Market Horizontal integration (control/ownership over
Penetration: (low risk; no capital investment) competitors)
− To increase usage by existing customers or − Unrelated diversification is where development is
− To increase market share through Competitive pricing, beyond industry and product is entirely new
Advertising, Sales promotion taking share of competitors having no relation with existing technology,
Market Development: (low risk; less investment) market or products.
− New geographical area
− New segment Joint Development Strategies
− New packing size Take Over/ Acquisition
Product Development: (riskier; requires investment) Mergers
− Company can exploit followings Joint Ventures
Existing marketing arrangements (e.g. Strategic Alliance
Promotion, Distribution) Licenses
Knowledge of customers and habits Agency Agreement
− Cost of entry will go up for competitors. Franchising
Diversification (high risk; requires investments and new
Franchising Unrelated Forward
Required rate of return, adjusted by
Chapter # 4: Planning and Control Return %age
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
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.
It may be Positive or Negative. 1. Motivates employees
2. Establish system of control
Feed forward Control: 3. Responsibility accounting
Control actions taken in advance. 4. Achievement of goals
Actual results are compared with Budgeted (i.e. 5. Communication
adjusted by past results) 6. Coordination
Well organized system of control should have: 7. Compel planning
Hierarchy of budget center.
Clearly defined responsibilities. Responsibility Accounting:
Responsibilities for Cost, Revenue, and Capital Each manager has a clearly defined area of responsibility and
Employed. authority to make decisions within that area. No uncertainty as to
who is responsible for what (sometimes dual responsibility
Budget Center: exists).
“Each section of the organization for which budget is prepared” There are 3 different areas of responsibility.
Objectives of budgeted planning and control:
Type of responsibility center Cost Center Profit Center Investment Center
Manager has control over… Controllable Controllable Controllable cost
cost cost Sales prices
Sales Price Sales volume
Sales volume Investment in fixed and current assets
Principal performance measures Variance Profit Return on investment and residual income
Responsibility Center is a unit of organization headed by a manager who has a direct responsibility for its performance.
Controllable Cost is an item of expenditure which can be directly influences by a given manager within a given time span.
Controllability of fixed cost:
Committed fixed cost (e.g. PPE-------non-controllable in short term)
Discretionary fixed cost ( e.g. R.&D. or Advertisement ---------- controllable in short term)
Chapter 4 & 5: Strategic o Analyzing internal environment
Management: Traditional and (Situation analysis/Position audit)
o Resources Audit
other models o BCG and GEBS matrices
o Value chain
o System structure
o SWOT Analysis
Traditional and other models of Strategic Management
o Gap analysis
Strategic Management: o Strategy formulation/Choice (how we can go)
“Strategic Management is the analysis, choice, implementation o Strategy implementation
and control of agreed strategies” o Strategy evaluation and Control
Strategy is a course of action including the specification of
resources required to meet a specific objective. Favor of rational model: (Ansoff and Drucker support it)
Tactics is the deployment of resources to execute an agreed 1. Corporate level first
strategy. 2. Strategies are best generated from Top-Down
Policy is a general statement providing guidelines for 3. Provide a common thread
management of decision-making. 4. Enables decision making in conditions where
i. Partial ignorance (Ansoff)
Levels of strategy: (by Hofer and Schendel) ii. Risk is inevitable (Drucker)
Corporate Strategy determines the overall purpose and scope 5. Basis for strategic control
of the organization. It is concerned with what types of business 6. Improves stakeholders’ perception
the organization is in. Problems with rational model: (Mintzberg criticizes it)
Defining aspects of corporate strategy: 1. Organizations are incapable of having objectives
− Scope of activities (whole organization) because
− Faces environment (opportunities and threats) i. Objectives may conflict with each other.
− Resources (how to obtain and allocate them) ii. Objectives will change from time to time
− Values (of people in power in organization affect iii. Objectives are unlikely to be directly related to
it) economic benefits of shareholders.
− Time scale (long term) 2. Senior management should not be only strategy- setter.
− Complexity (uncertainty of future) 3. In reality formulation is not a simple step by step process.
Business Strategy is how an organization approaches a 4. Strategies that firms follow are not the same as ones they
particular product market area (applied at SBU level). set in plans.
Functional/Operational strategies deal with specialized area 5. Over reliance on formalization.
of activity within an SBU e.g. Production, Marketing, HRM, 6. Predetermination
Finance. 7. Failure in practice (suitable for only stable environment)
8. Hinders innovation and radical change.
Traditional approach to make strategy: (through Planning in
a systematic way) Other models of (making strategy) Strategic
o Strategic analysis Management
Analyzing Vision, Mission and Objectives
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.
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.
behavior Contingencies Strategies
Activities affecting Crafting Strategy: 3. Pattern - ideas of emergent strategies
Manage stability 4. Position - “environmentally fit” & relationship with other
o Implement, not just plan organizations
o Obsession to change is dysfunctional; know 5. Perspectives - approach towards world
when to change
Manage patterns Strategy and managerial intent: (Johnson and Scholes) not
o Detect patterns and help them shape; grow emergent
positives and eliminate negatives.
Know the business operations The Command view:
Detect discontinuing and significance of environmental Strategy develops through the direction of an individual or
changes. group, but not necessarily through formal planning.
Crafting strategy---- requires natural synthesis of past, Control of strategy direction is possessed by autocratic or
present and future. (reconcile change and continuity) charismatic leader.
Mintzberg’s 8 styles of strategic management:
1. Planned strategies (imposed by central leadership, large Paradigm and Politics:
no. of controls, precise intentions) Paradigm (basic assumption and beliefs common in
2. Imposed strategies (imposed by environment e.g. organization’s decision makers) is inhabitant and
influential customers) conservative than culture.
3. Ideological strategies (collective vision of organization’s Politics is process of bargaining and negotiation of strategy
members, shared values) among powerful stakeholders.
4. Umbrella strategies (ends are defined, means are Process by which Paradigm and Politics influence process of
emergent, target based) strategy development.
5. Disconnected strategies (members mind their own o Issue awareness (by internal results, customer response or
business, strategies are deliberate for sub-units but environmental change)
emergent for organization) o Issue formulation (analysis of issue to get its root)
6. Consensus strategies ( groups shares common patterns)
7. Entrepreneurial strategies (visioned from strong o Solution development
leadership) Memory search (from past experience)
8. Process strategies Passive search (time will tell)
Mintzberg’s 5 ways to describe strategy: o Solution selection
1. Plan - consciously intended course of action Eliminate unacceptable plans (politics)
2. Ploy - a competitive game (e.g. discouraging Endorsement to junior management
competitors to enter)
Incrementalism: a) Managers do not take best
Bounded Rationality Theory: (Herbert Simon) decisions but satisfactory
Mangers are limited by time, information and skills. ones.
They satisfice rather than maximize. b) Managers do not pursue the
whole rational model but take
Incrementalism: (Lindblom) small-scale decisions.
It involves small-scale extension of past practices.
Organizations change incrementally, during which time, strategies form gradually.
Disadvantages of Incrementalism:
1. Not suitable where radical new approaches are needed.
2. Some changes are dramatic not incremental.
3. Ignores influence of corporate culture.
4. Applicable to stable environment only.
Logical Incrementalism: (mid way)
Managers have a vague notion as to where the organization should go, but strategies should be tested in small steps because of
uncertainty about future.
Knowledge as a source tacit knowledge
Learning based strategy:
Knowledge creation explicit knowledge
Strategy development is a learning process.
Learning organization will generate a flow of fresh ideas and insights; This will promote renewal and prevent stagnation.
Learning organization is one which is skilled at creating, acquiring, and transferring knowledge, and at modifying its behavior to reflect
new knowledge and insights.
Double loop learning is where purpose is also reviewed. (derived from control theory)
Future will change incrementally
Future Orientation: (Hamel and Prahalad)
Future will be radically different
Future is not just something that happens to organization.
Organizations can create the future.
They offered a ‘diagnostic’ to indicate how future oriented an organization is.
Protect the past Create the future
Senior management, view about future Reactive Distinctive
Senior management, spending most Re-engineering current practices Regenerating core strategies
Are managers…… Engineers of present Architect of future
Are employees….. Anxious Hopeful
The company is better at Operational efficiency Building new businesses
Within the industry, the company Follows the rules Makes the rules
Competitive advantage is pursued by Catching up with competitors Creating new sources of competitive advantage
Agenda for change is set by Competitors Vision of future
How to cope with future: o Focus on key factors and distinctive competences)
- simply more far-sightedness How strategic thinking operates
- imaging products and services that do not exist. o Ask right question
- spend less time in positioning in competitive environment o Find solution of problem, not remedy or symptom.
- future orientation is embodied in the corporate culture. o Observe the problem
o Group problems together (e.g. by brainstorming) to see
Environmental Fit: (Hofer and Schendel) key factors.
Strategy is a mediating force between organization and Competition: (Ohmae & Porter)
Fit or Suitability means ‘ Organizations are successful when Competitive strategy is the taking of offensive or defensive
they intentionally achieve internal harmony and external actions to create a defendable position within an industry------ and
adaptation. a superior return on investment.
Strategic logic requires that strategy must:
Successful strategy is the interplay of 3 Cs (strategic
o Be consistent with objectives
o Match organization’s capabilities with environment.
Survival and growth are process of adaptation :
Why: because environment gives physical resources and
3 assumptions of theory: (focus: survival in competitive
1. Survival of business is impossible without a competitive
Hence: choice of strategy must follow a strategic logic.
2. Actual strategy will be unique.
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
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
in a company
- Re-adjust current resources i.e. identify key success
o That determines and reveals its objectives,
purposes or goals,
- Relative superiority i.e. exploiting competitors
o That produces the principal policies and plans to
achieve those goals,
- Challenge assumptions
o Defines the range of business, and
- Degree of freedom i.e. segmenting
o Kind of human and economic organization it is or
intends to be.
How to create sustainable strategic position:
Strategy is exploitation of competencies.
- operational effectiveness
o The distinctive competence is what it does well,
- doing unique things
uniquely or better than rivals. It comes through
- doing trade-off
- combining good individual activities
Quality of co-ordination
- making own choices i.e. not blindly imitating competitors.
Talents and potentials of individuals
Strategic Thinking: (Kenichi & Ohmae)
Strategy is a creating process
Success business strategies result not from rigorous analysis
but from a particular state of mind.
Aspects of strategic thinking
o Flexible thinking (what if ?questions)
o Keeping details in perspective (specially uncertain)
Implicit & Explicit Strategies
(Depends upon extent to which strategies are
deliberate or emergent)
Intended or planned strategies Emergent strategies
Implicit Only in head of chief executive
Explicit Properly documented
- Senior management decisions - not planned
- Imposed from top - not fore thought
- Well planned - not the result of mangmnt intentions
- Purely deliberate strategy prevents
- Well thought-out - caused by pattern of behavior
learning from experience.
- Time consuming
- A purely emergent strategy defies
- Deliberately planned
Descriptive and Prescriptive Strategies
Descriptive : “what is actually happening in the organizations i.e. paradigm, politics, pattern of decisions, incremental approach
Prescriptive : “to prescribe something” i.e. rational model, strategic thinking, learning based environment, resource based model
Competitive Benchmarking information about direct
Chapter 6 : Performance competitors is gathered through techniques e.g. reverse
Appraisal & Analysis engineering.
Strategic Benchmarking aimed at strategic action and
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.
6. Market share Inflation:
7. Number of employees - effect of inflation on accounting system
8. Number of products - effect of inflation on strategy in reference to operating in
competitive market and exporting goods overseas
- fixed costs Performance measurement and inflation:
- variable costs i) fixed asset values & depreciation historical costing
- directly attributable costs ii) cost of sales and inflation increased profits but low
- shared general overheads stock turnover (overstated profits)
-------------------------------------- iii) need for working capital
- Controllable costs iv) borrowing benefits in period of inflation real value of
- Uncontrollable costs loan decreases over times
v) comparability of financial figures figures are
4 profit concepts to measure performance of divisions: vi) ratios for control ratios will be unaffected, as both side
Contribution (sales – variable cost) of balance sheet will be inflated
Controllable profit ( sales - variable costs - Fixed cost
Controllable margin ( Controllable profit – other costs Chapter 7 : Mission Goals and
Net Profit/Margin ( Controllable margin – allocated
service center costs and general management overhead)
Value added is cost of material and bought in service. Analyzing Vision, Mission and Objectives
Measuring performance of Profit Center: Vision--------Mission----------Goals (objectives and aims) at 3
1. ROI/ROCE levels----------strategy at 3 levels
2. Residual Income (measure of center’s profit after Vision:
deducting notional or imputed interest cost) “Where the organization wants to be”
Benchmarking: (adoption of best practices)
Benchmarking is establishment of targets and comparators Advantages of vision:
(through data gathering) through which relative levels of
performance can be identified. - gives general directions to organization
- gives hope and motivation
Types of Benchmarking: - establishes scope and boundaries
Internal Benchmarking comparing one operating unit with - enables flexibility in choice
another within same industry.
Functional Benchmarking internal functions compared with Problems with vision
best external regardless of industry. It ignores real, practical problems
It can degenerate into wishful thinking
“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
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,
- only rationalizing existence of organization Types of Goals:
- wish list, full of generalizations 1. System Goals [Derived from organization’s
Functions/Importance of mission 2. Ideological Goals [Focus on organization’s mission]
1. Employee motivation 3. Formal Goals[Imposed goals; e.g. from Shareholder’s]
2. Contributes to profitability 4. Shared Personal Goals [Consensus b/w individual
3. Focus for strategic decision making and collective goals]
4. Replaces national or divisional subculture with a System goals (subverting Mission)
corporate culture Survival
5. Communicates nature of organization to insiders and Efficiency
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.
R result-oriented Trade off between objectives:
T time-bounded One at expense of other.
Primary and secondary objectives:
Goals Based on importance.
Operational goals Non-operational goals
Measurable not measurable
Stakeholders are Groups or Individuals whose interests are directly affected by activities of a firm or organization.
Stakeholders and their objectives:
Shareholders To maximize wealth
Increased by (dividend, capital gain of shares, EPS, ROCE)
Measured by (increase in Retained earnings, Market Value listed or non-
Lenders Timely repayment of interest and principal
Trade creditors Timely payment
Continuing profitable relations
Employees High wages
Retailers and Continued supply
customers Quality products
Management Maximize own reward
Training and career development
Society SHE Issues
Level of employment
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
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
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.
Miles and Snow’s Work: (models of strategic culture) Take initiatives
There are 4 approaches to strategy in organizational culture.
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
2. Prospectors (doing the right thing) Do not have viable strategy
High risk, high profits
Move into new ways
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)
Changing Involvement Culture (satisfied employees Adaptability Culture ( fashion co.)
environment give performance e.g. Orchestra) Focus on external environment which is
Deal and Kennedy’s work: (Association of culture & risk)
Culture is function of “willingness of employees to take risk” and “Their feedback”
Slow feedback Fast feedback
High risk Bet your company Culture Hard ‘Macho’ Culture
“Slow and steady wins the race” “Find a mountain and climb it”
Long decision cycles Entertainment,
Stamina required Advertisement,
Oil company, Aircraft company, Architects Consultancy
Low risk Process Culture Work hard/Play hard culture
“It is not what you do, it is the way you do” “Find a need and fill it”
Attention to excellence of technical detail. All action and fun
Risk management Team spirit
Procedures and Status symbol Computer companies
Banks, Financial services, Government
Peter and Waterman’s Excellence Culture: SEP will fall into 3 fields:
“Dominance and coherence of culture was an essential feature 1. Product related
of excellent companies”. 2. Market related
Employees are loyal and make efforts if: 3. Functional
Cause is great. SEP can be developed only if culture supports it.
They are treated as winners.
They can satisfy dual needs of team and own interest.
Key attributes of excellence Chapter 8 : Corporate
1. Autonomy and Entrepreneurship
2. Bias for action
3. Customer orientation Defensive Strategies
4. Stick to core activities Capital Restructuring Scheme
5. Simple organizational structure “A capital reconstruction scheme is a scheme whereby a
6. Simultaneous loose-tight properties (competition company reorganizes its capital structure”.
between individuals and group within organization) Procedure of designing a capital restructuring scheme:
Pumpin’s dynamic company (Cultural characteristics of 1. Calculate what each party’s position would be in a
dynamic companies) liquidation
“Dynamic company is one that considerably increases the 2. Assess possible sources of finance
benefits for its stakeholders within a relatively short time” 3. Design the reconstruction
4 aspects of such a culture 4. Assess each party’s position as a result of the
Productivity 5. Check that the company is financially viable.
Expansion Exit strategies for a venture capitalist:
Risk taking 1. Sale of shares to public or institutional investors
following a flotation
Weak areas in a dynamic company 2. Sale of shares to another company
Customer service 3. Sale to company itself or its owners
Innovation 4. Sale to institution management
Attitude to workforce Downsizing
Company spirit and loyalty
Divestment- (selling of business)
Strategic Excellence Position: (similar to excellence)
“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
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
Selling a subsidiary with high risk Chapter # 9 : Ethics and Social
Selling a subsidiary at profits
Provide an exit route for investors
Remove value gaps to avoid takeover
Demerger is splitting up of a corporate body into two or more Ethics
separate and independent bodies.
Sell off is a form of divestment involving the sale of a part of a Ethics:
company to third party usually another company. Ethics is a set of moral principles to guide behavior. It concerns
Liquidation is extreme form of liquidation where the entire with what is right and what is wrong.
business is sold and funds are distributed to shareholders in
Management Buy Out. (MBO) management buyout is the Levels of
purchase of all or part of a business from its owners by its Practicing ethics
Management Buy Out.(MBI) where purchase of a business is Individual
made by group of managers from outside the business.
Spin Off : a new company is created whose shares are owned Personal ethics professional ethics
by the shareholders of the original company which is making the
distribution of assets.
Management Buy Out: Org. culture Org. System
Possible reasons for MBO:
All reasons of Divestment Ethical problems faced by organization:
Best offer from management While achieving a higher ROI, an organization faces following
Sale can be arranged quickly problems:
Group can still maintain relations
− SHE Issues (Safety, Health, Environment)
− Extra payments to govt. officials
Success factors of MBOs: (Advantages)
Extortion (when officials threaten company with
Favorable buyout price
Personal motivation and determination
Bribery (where organization is not entitled to
Quicker decision making and more flexibility
Saving in overheads
Grease money ( where organization is entitled but
Healthy relationship with subsidiary
unable to receive services)
Questions in evaluating MBOs for investment:
Does management has full range of skills? − Honesty in advertisement (e.g. Marketing ethics)
Why is the company for sale? − Competitive behavior (e.g. putting others to competitive
Projected benefits and cash flows? disadvantage)
What is being bought?
Price? Ethical systems in an organization:
Fund availability? − Personal ethics (e.g. religious, political, personality
Exit routes? ethics)
− Professional ethics (e.g. CA code of ethics,
Problems faced by MBOs: (Disadvantages) medical ethics, fit and proper criteria)
Little experience of financial management − Organization culture (e.g. customers first)
Tax and other legal complications − Organization system (ethics must be contained in
Changing the attitude of employees formal code e.g. part of ethical sys. and mission
Deciding the bid price statement)
Cash for maintenance of fixed assets
Change in HR (loss of key employees) 2 approaches to manage ethics:
Maintenance of relations with suppliers/customers Compliance based approach aims to remain within letter of
law by establishing system of audit and review so that violations
Going Private are prevented, detected and punished. It works from outside the
“A public company goes Private when a small group of Integrity based approach combines a concern for the law with
individuals buys all of the company’s shares (possibly including an emphasis on managerial responsibility. This approach
existing shareholders)” incorporates ethics in organization’s culture in which managers
Advantages: will do the right thing e.g. shared accountability, sound behavior,
Cost saving (cost of meeting statutory requirements are defining values. It works from within the system
Limited number of members Whistle blowing:
Similar objectives of shareholders It is the disclosure by an employee of illegal, immoral or
Shareholders are close to management illegitimate practices on part of the organization.
Protection against volatility in share price
Four types of ethical leaderships in organizations:
i) Creative:-reflecting founder, such leaders create ethical style.
Chapter 10: Corporate
ii) Protective:-they sustain value of customer services Governance
iii) Integrative: - aim through consensus through people Corporate Governance is the system by which companies are
iv) Adaptive: - changing culture as per new environment directed and controlled.
Patterns of share ownership: (Who are shareholders of
Social Responsibility company)
Objectives of a company: Types of institutional investors:
− Economic objectives Pension funds
− Social/Ethical objectives Insurance companies
− Boundaries (Imposed rules; they restrict Investment trusts
management’s freedom of action) Unit trust
− Responsibilities (Voluntarily undertaken obligations e.g. Venture capital organizations
Range of shareholders:
Social/Ethical objectives of a company: Advantages:
− SHE Issues (e.g. minimum wages, job security) − Greater activity in firm’s shares
− Good employer (e.g. good working environment, job − No individual controlling whole firm
satisfaction) − Less effect on share price if anyone sells
− Good Public image (e.g. good quality products) − No threat of takeover
− Society well being (e.g. regular order and timely Disadvantages:
payments to suppliers) − Administrative cost is high.
Pollution − Various objectives in holding shares.
Financial assistance (e.g. Charity, Sports)
(For other objectives see Stakeholders’ objectives) Why knowing shareholders:
− To get support by exchanging views.
Arguments against and favoring Social Responsibility − Knowledge of shareholders’ preference about Dividend
Social responsibility is expected from all types of organizations. − To explain recent share price movement.
− Shareholders’ attitude to risk and gearing.
AGAINST: − Key shareholders to consult in the event of takeover bid.
Organizations should concern wealth only because Agency Theory:
− Shareholders own assets. “Although individual members of the business team act in their
− Shareholders are part of society. own self-interest, the well being of each individual depends on
− Taxes on revenues are given to build society. the well being of other team members and on performance of
− Businesses exist for profit. the team in competition with other teams”
FAVOUR: (by Mintzberg) Assumptions of theory:
− Most shareholders are passive. − Behavioral
− Ultimately consumer pays taxes via higher prices. o Individual welfare maximization.
− Govt. support o Individual rationality.
− Firms produces 2 outputs: o Individuals are risk-averse.
Goods and services − Structural
Social consequences of activities e.g. o Investments are not infinitely divisible.
Pollution o Individuals vary in their access to funds and their
− Responsibility recognition (e.g. charity) improves: entrepreneurial ability.
Public relations. Agency Problem:
Business success and development as part of Arises from separation of ownership from management.
− Decisions by organization affects society Goal Congruence: (solution for agency problem)
It is accordance between objectives of agents (acting within
Externality is a social/environmental cost of organization’s organization) and objectives of organization as a whole. Via
activities not borne by organization. (e.g.)
Profits related pay e.g. bonuses, commission, incentive etc.
Boundary Management: Rewarding managers with shares
Executives Share Option Plans
- good public image
- securing political environment Non-executive directors are directors not running the day to day
- protect environment from pollution - improving quality of life operations of the company.
- good employer
- protecting minorities
- welfare of local community Chapter 11 : Leadership (New
Compliance Based Approach
e.g. - audit
- review Chapter 12 : Human Resource
- 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)
Roles/Scope of HR Manager: Objectives of HRM:
Staffing: Cooperative Relationships
Job Analysis Development of motivated employees
HR Planning Effective response to change
Recruitment Fulfilling social and legal requirements
Retirement, Resignation, Redundancy Advantages of HRM:
Decrease in Staff Turnover
HR Development: Increase in Productivity
Performance Appraisal Increase in Group learning
Career Planning Increase in initiative
Training Decrease Absenteeism
Development Lesser conflicts
Motivation/ (Individuals): Increased co-operation
Job Analysis and Design Increased commitment
Pay and Promotion
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
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:
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.
The process of collecting, analyzing & setting out information Purpose of Job description:
about the contents of job in order to provide basis for job
Organizational--------- Defines job’s place in HR Plan is prepared on the basis of personnel requirements,
organizational structure (job evaluation). productivity and cost.
Recruitment------------ Provides person specification
Legal-------------------- Provides basis for contract of Meeting Shortage of HR (Less supply More Demand)
Internal Promotions, Transfers (Redevelopment Plan) and
Performance----------- Performance objectives can be
Training (Training Plan) etc.
Reducing Labor turnover (Retention Plan)
Overtime (Productivity Plan)
Contents of Job description:
External recruitment (Recruitment Plan)
A job description should be a formal, written document, usually
from one to three pages long. It should include the following:
Date written. Meeting Surplus of HR (Less Demand More supply)
Job Status (full-time or part-time; salary or wage). Restricting recruitment
Position title. Part-time working
Job summary (a synopsis of the job responsibilities). Redundancies (Redundancy Plan)
Detailed list of duties and responsibilities.
Supervision received (to whom the jobholder reports). Recruitment (a part of HR plan)
Supervision exercised, if any (who reports to this employee). Definition:
Principal contacts (in and outside the organization). “Recruitment is the process of generating a pool of qualified
Related meetings to be attended and reports to be filed. applicants for organization’s job”
Competency or position requirements. Strategic Recruitment Decisions:
Required education and experience. 1. Organization based Vs. Outsourcing
Career mobility (position[s] for which job holder may qualify 2. Regular Vs. Contractual Vs. Leased
next). 3. Internal Vs. External recruitment
Alternative to Job Description is Role Definition. (wider) 4. EEO and Diversity issues
Job Specification Systematic approach to recruitment and selection:
Minimum acceptable qualification (i.e. knowledge, skills, abilities, HR Planning
experience and other characteristics needed to do a particular Job analysis
job.) Identification whether employee is to be recruited from
outside or promoted inside (from HR Plan)
Person Specification Evaluation and use of Sources of Recruitment
Identifies the type of person needed to do a particular job. Selection
Following characteristics are assessed: (Fraser’s 5 point to Notification of result
assess pattern of personality) Induction training
1. Impact on other
2. Motivation Sources of Recruitment:
3. Acquired knowledge or qualification Internal Search:
4. Innate ability (initiative, innovative) 1. Organizational database (HRIS) to sort employee data
5. Adjustment and emotional balance according to job requirement.
Methods of Job Analysis: Capacity of a person that leads to behavior that meets
Logos/Diaries the job demands.
Interviews Intellectual Competence (Strategic, judgment,
Questionnaires Interpersonal Competence (managing staff)
HR managers write job description & specification for review by Adaptability (flexibility with change)
Managers identify performance standards based on job analysis 2. Employee referrals
information. 3. Promotion and Transfers
Forecasting Demand and Supply of manpower: Good employee relations
Demand is estimated from: Encourages ambitious individuals
New markets Less costly
New product/service No adjustment or orientation time required, because
New technology already familiar
Divestment i. Individual with organization and policies
Organizational restructuring ii. Organization with individual
Supply is estimated from: Disadvantages:
Current workers’ Stocks and Flow analysis No new blood, no innovation and new perspectives
External labor market Political fight for promotion
A Position Survey compares demand and supply. (Grade, skills, Morale problems of those not promoted
location etc) Diversity lacking
Closing the gap between Demand and Supply- HR Plan: External Search:
(along with subsidiary plans of HR Plan) 1. Advertisement (method depends on organization and
nature of job)
2. Agencies and Professional organization
3. Blind Box ads
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.
What must be included in job advertisement: Identify area for later learning or training (e.g. detailed
Information about organization technical knowledge)
Primary business Explain nature of job and goal of each task
EEO Employer Explain working hours
Information about job and application process Explain structure of organization hierarchy and his
Title and responsibility position
Job location Introduce with people in office.
Starting pay range Plan and implement training program.
Contact address Appraise after 3,6 or 12 months.
Closing date for application
Desired qualification of candidate Chapter 13 : Motivation and
3----5 Characteristics needed
1. Employer website Individuals
2. Professional career websites Variables affecting Job performance:
Cost saving Organizational and Social variables
Time saving Social environment
Global in nature Type of Incentives
Disadvantages: Type of Training and Supervision
Difficult to process large number of application
Not accessible to all
Selection: (part of Recruitment) Characteristics of Organization
Definition Physical environment
“The process of choosing individuals who have needed
qualification to fill job in an organization” Physical and Job variables
Purpose of selection: Methods of work
“Filling a right person to the job” ensuring Work space and arrangements
Person fits job (matching people with job Designing and condition of work equipment
Person fits organization (Objectives, culture, values etc. Individual (non work) variables
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
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
Satisfaction Actual Performance
Importance of Success/Failure
Intrinsic rewards Extrinsic rewards
(interest, enjoyment) (pay, bonus)
Equity theory: - bonus schemes
Reward of 1/Output of 2 = Reward of 2/ Output of 2 - profit sharing e.g. opportunity of being member of the
Satisfaction = (at least fair reward, not maximum reward) company.
- people compare results and rewards
- people get upset if inequity in rewards Job Design (with parameters of Mintzberg)
“Job design is the process of
Goals can motivate.
determining the specific tasks to be performed (Job
o Psychological contracts
“Members will expend efforts and organization will reward them in
methods used in performing these tasks (training and
indoctrination in organizational values), and
− Coercive contract (returns are inadequate how job relates to other works in organization
compensation; involuntary contribution) (regulation of behavior).
− Calculative contract (returns are defined; voluntary Change in job design may be :
contribution) Job enrichment
− Cooperative contract (employees participate also in Vertical expansion of responsibilities
decision making) Change in the content and responsibility of job to
provide greater challenge
Pay and Job satisfaction Job enlargement
Under Hertzberg’s theory, Pay is the most important of all Horizontal expansion of duties
hygiene factors. Provides greater variety of tasks
Under Expectancy theory, Pay motivates if pay is linked with
performance and is valued by individual. Job Components:
Difficulties in incentive schemes: Occupation------Jobs-----------Position----------Duties------------
− No motivation if employee already enjoys good package. Tasks (Responsibilities)
− External factors may affect output and reward.
− Not suitable in groups Job restructuring and redesign:
Assessment of satisfaction and moral: Job redesign suiting of jobs according to motivational factors.
Through Productivity, Absenteeism and Turnover.
Job rotation allowing variety and understanding,
Types of incentive schemes: development of extra skills
- performance related pay (PRP) i.e. commission
Job enlargement adding extra and related tasks to current job
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
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
Demotion Trained appraisers
Transfer Employee access
Termination Purpose must be understood by both
Organizational Research: (Importance of appraisal) It must be participative, problem solving activity
HR Planning (Promotability and Potential) Regularly conducted.
Evaluation of Selection and Training methods Effort, integrity and ability of line managers.
To motivate employees giving feedback
Inventory assessment for planning Lockett’s appraisal barriers:
To assess training needs − Lack of agreement on performance level
Purpose of appraisal: − Rater is biased.
Reward review for deserving employees − Recency effect (weighting recent events)
Performance review to confirm whether any training
− Disagreement on long term prospects
is required or not
− One sided process
Potential review to confirm whether any
management career planning is required or not. − Central tendency
Objectives: − Many targets at annual meeting become out of date.
Achieving objectives − Central tendency (giving average rating to anyone)
Performance levels − Sampling Error (available information is insufficient or
Training needs inaccurate)
Identifying lacking areas
Communication Interview and counseling:
1) Tell and sell method (manager tells, and then try
360-degree feedback -Sources: to gain acceptance)
Senior 2) Tell and listen method (manager tells, the
Peers subordinates responds, and consensus is achieved)
Assessment centers 3) Problem solving approach (manage becomes
Customers counselor, and ask work problems)
Upward appraisal is better.
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
Obtaining and allocating
Information Defined Poorly defined sources
sources Informal channels
Chapter 14 : Groups in Indications of Effective Team:
Organization Quantitative factors
Groups in Organization − Absenteeism
Groups: − Turnover rate
“A group is any collection of people who perceive themselves to − Accident rate
be a group”.
Sense of identity
− Interruption to work rate
Loyalty to group
Purpose & Leadership
“A team is a small number of people with complementary skills − Understanding
who are committed to a common purpose, performance goals − Communication
for which they hold themselves accountable” − Feed back
A team could be: − Job satisfaction
Multi-disciplinary teams − Motivation
Contains specialists in different areas
Freer and faster communication between Conflict in organizations: (Individual / Group level)
disciplines in organization Different views conflict in organizations:
Multi skilled teams The happy family view:
Contains people who possess many skills Organizations are essentially harmonious.
Tasks can be shared in flexible way. There are cooperative structures to achieve
Development of team: (by Tuckman) Important common goals with no systematic conflict of
Forming (collection of individuals) interest.
Storming (targets are set and trust increases) The conflict view:
Norming (work sharing, individual requirements and Organizations have conflict on individual and
expectations) group level.
Performing (execution of task) Members battle for limited resources, status and
Members/Roles of team: (by Belbin) reward.
− Coordinator (presides and coordinates) Conflict could be destructive if not handled
− Shaper (dominant, extrovert, task oriented) carefully.
− Plant (introverted, source of ideas) The evolutionary view:
− Monitor evaluator(analytical rather than creative) Conflict is seen as a useful basis for evolutionary
change and not for revolutionary change.
− Resource investigator
Could be constructive if handled by arguments or
− Implementer (administrator not leader, scheduling,
− Team worker (supportive, noticed in absence)
Causes and tactics of conflicts between departments:
Operative goal incompatibility
Problems with team: Personality differences
− Group norms restrict individual personality. Task interdependence (if managed badly)
− Conflict in roles and relationship Scarcity of resources
− Personality problems Power distribution (Boundaries of authority)
− Rigid leadership Uncertainty (in change)
Reward systems (not being fair)
− Not suitable for all jobs
− Too much harmony (group think) or differences of
Creating an effective team work: (A contingency approach by
Handy) Conflict – constructive and destructive
− The Given
Group’s members How constructive How destructive
Group’s environment Different solutions Distract attention from
− Intervening factors
Motivation Creativity and testing of ideas Objectives may be
subverted for secondary
Procedure Attention on individual Disintegration of the
− 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)
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:
− 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
Large Vs. Small organizations
− Return to group maintenance and concern for
members’ needs. Issues/problems in large organizations:
− Assertion for group self-concept with little
reevaluation. − Sharing roles and responsibilities (who does
Losing group: what?)
− It may deny defeat or blames on others. − How much specialization
− Loses cohesion. − How many levels of management
− Turn to regrouping. − Delegation of authority (centralized or
− Reevaluates perception of itself and other group.
Planning and control:
− Might become cohesive and effective unit if defeat
− Vague accountability
− 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
− Dominance (application of power to settle the
− Compromise (bargaining, negotiating, conciliating)
− Integration/Collaboration (emphasis must be put
− Decentralized and delegation of authority
on task and individuals must modify behavior)
− Fair pay policies with bonus, awards and rewards
To reduce conflict behavior:
− 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)
Blind stage/Crisis denial Faulty action/Disintegration
Inaction/Hidden crisis Crisis/Collapse/Dissolution
Causes of decline and strategies to overcome:
− Poor management − New management + restructuring
− Poor financial controls − Tighter controls + delegation of
− High cost structure responsibilities
− Poor marketing − Cost focus strategy + Ansoff’s matrix
− Competitive weakness − Redevelop marketing mix + motivate sales
− Big projects/acquisition force
− Escalation of commitment of bad decisions − Porter’s generic strategies
− Feasibility reports
Reasons for escalation:
− They think decision was right; implementation was wrong.
− Humiliation of climb down.
− Consistency is valued.
− Mistakes are viewed as failure not learning
− Outcomes are uncertain.
− Failure to understand principle of relevant cost.
Turnaround of decline:
− Visionary leader required.
− Contraction and cost cutting.
− Reinvestment in organization’s capability.
− Rebuilding with innovation.
Chapter 16 & 17 : Change Management and Changing Environment
Types of change:
− Changes in environment (Cause)
− Changes in organization (Effect)
Changes in products/services
Changes in technology and working conditions
Changes in management and working relations
Changes in organizational structure and size
Change is small and gradual whereas Transformation is crucial and significant.
Factors forcing change: Changes may occur due to
Environmental factors: - threat of new entrants
− SLEPT - bargaining power of suppliers
− Porter’s 5 competitive forces - bargaining power of customers
Changes in Technology: - threat of substitutes
− Computerization - rivalry between competitors
− New products
− Better MIS
Change in Working conditions: Nature of strategic change:
− New offices Incremental
− Varied work times Change may be
− Emphasis on health Transformational
− Govt. regulations
Change in Management: Reactive
− New style of leadership Management may
− Participation in decision making Be Pro-active
− Collaboration between management staff and unions
Change in Personal policies: Step change
− Change in rules and procedures (e.g. smoking) Types of Planned change
− Promotion, transfer, training , development Changes
Change in structure and size: Emergent change
− Due to Takeovers
− Delegation of authority
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
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)
3 factors to consider minimizing resistance. Phase 1: (Focus)
Pace of change: − Evolution (Small organization focusing on
− Adapt strategy according to time available. operations, personnel issues and innovation)
Manner of change: − Revolution (Need for leadership skills)
− Resistance should be welcomed. Phase 2: (Management/group)
− Reasons and results of change should be circulated. − Evolution (Management is professionalized, there
− Change must be sold to people concerned. are more employees but less enthusiasm)
− Individuals must be helped to learn. − Revolution (delegation is problem; lack of detailed
Scope of change: control; no initiation)
− Small or Transformation. Phase 3: (System)
− Evolution (decentralized decision making)
Change process: (by Lewin/Schein) − Revolution (no coordination between departments,
Unfreeze existing behavior: sub optimization occurs)
− Most difficult and neglected stage.
− Selling the change. Phase 4: (Internal Controls)
− Give motive for change. − Evolution (Internal control systems and
Behavior change: procedures are developed for coordination and
− Identify new behavior. optimal use of resources)
− Encourage individuals to own change. − Revolution (new procedure inhibits useful actions)
Refreeze new behavior:
− Through positive or negative reinforcement Phase 5: (Communication / collaboration)
Effect of change on People: − Evolution (Increased informal collaboration;
− Physiological effect (e.g. pattern of shift working affect control is cultural rather than formal)
eating, walking and sleeping habits) − Revolution (Crisis of psychological saturation in
− Circumstantial effect (e.g. working environment and which individuals become exhausted by
working relations) teamwork)
− Psychological effect (e.g. feeling of disorientation,
Insecurity, risk of rejection, feeling of misfit) Criticism on lifecycle models:
− Effect on Self concept (New psychological contract, − Formation could also be by Merger or Joint venture. i.e.
Uncertainty affects sense of competence) not always founded by visionary ppl.
− Too many issues for growth and control. (i.e. org.
Changing culture: structure, org. culture)
Hamper Turner suggests 6 modes of intervention: − Growth is not the same as effectiveness. (i.e. not a
1. Find the dangers (locate black sheeps) normal state of affair)
2. Brings conflicts in open. − No idea of time scale involved in any stage. (i.e. Linear
3. Discuss culture with members (play out corporate development)
drama) − Growth seen as linear development over time; there
4. Reinterpret the corporate myths. might be different rates of growth at different times and
5. Look at symbols, images, rituals. even loss.
6. Create a new learning system. − Model does not clearly indicate relationship with
environment. (i.e. it ignores environment)
Pattern of unhealthy culture: (by Edwin Baker) − Effect of competition in market is also ignored.
− Flourished initially by founder.
− Founder retired, employees become rigid and Measurement of Growth: (how Adamjee is the largest
insular. insurance co.)
− Speed, innovation, flexibility, concern for survival Sales revenue
and customer disappeared. Profit (in absolute term or ROCE)
− Formalization No. of goods/services sold.
− Departmentalism/ Sub optimization No. of outlets
− Coercive actions needed to compete. No. of employees
No. of countries reached.
Organizational life cycle: No. of markets served.
Handy’s sigmoid curve:
Application of concept of lifecycle to organization with 4 broad
1. The organization is established.
2. Organization grows in size and scope.
Satisfaction is whether performance meets or exceeds
Chapter 18 : The evolution of expectations.
marketing concept Exchange, Transaction and relationship:
Exchange is an act of obtaining a desired object from someone
“The right product or service to the right customer, at the right
by offering something in return.
price, at the right time and right place”
Transaction is a trade of value between two parties.
Marketing Department: Functions (Research, Demand, Design,
Elements of Marketing:
Company Supplier Market Intermediaries
Marketing Environment: PESTEL (Political, Economical, Social, End user Competitors Environment
Technological, Ecological, Legal)
Customer’s life time value: Value of entire stream of
purchases by customer over his lifetime.
Chapter 1- Introduction Customer Equity:
Total lifetime value of all of company’s customers.
Marketing, : Marketing Management: Marketing management has four
Managerial definition: Managing profitable customer functions: Analysis, Planning, Implementation and control.
relationships, by delivering superior value to customers. De-marketing is aim is to reduce demand temporarily or
Social definition: “a social and managerial process by which permanently. It is done when product is not feasible from
individuals and groups obtain what they need and want through supplier or customers’ point of view. i.e. intentional and non-
creating and exchanging products and value with others.” intentional reduction in demand.
Core Marketing concepts: Marketing Management Orientations
Needs, Wants and Demands The production concept holds that consumers will favor
Markets products that are available and highly affordable and that
Marketing Offers management should, therefore, focus on improving production
Exchange, Transaction and relationship and distribution efficiency.
Value and satisfaction The product concept states that consumers will favor products
that offer the most quality, performance, and features, and that
Market: . the organization should, therefore, devote its energy to making
A market is the set of actual and potential buyers of a product. continuous product improvements.
The selling concept is the idea that consumers will not buy
Needs, wants and demands: enough of the organization’s products unless the organization
Needs are fulfilled : a state of felt deprivation. undertakes a large-scale selling and promotion effort.
Wants are satisfied : the form taken by a human need as The marketing concept holds that achieving organizational
shaped by culture and individual personality. goals depends on determining the needs and wants of target
Demands are extinguished : Human wants that are markets and delivering the desired satisfactions more effectively
backed by buying power. and efficiently than competitors do.
The societal marketing concept holds that the organization
Marketing Offer: should determine the needs, wants, and interests of target
Combination of good-service offered to market to satisfy need markets. It should then deliver the desired satisfactions more
or want. effectively and efficiently than competitors in a way that
maintains or improves the consumer’s and the society’s well-
Value and Satisfaction being.
Customer’s perceived value is the difference between the
values that the customer gains from owning and using a product
and the costs of obtaining the product.
CONCEPT CUSTOMER WANTS COMPANY SHOULD
Production concept Availability and affordability Improve production, distribution efforts
Product concept Quality, performance, features Continues product improvement
Selling concept No feelings to purchase Large scale selling, promotion
Marketing concept Needs & wants of target market Effective & efficient than competitor
Two Steps of marketing:
determine need, wants and interest of target market
then satisfy them effectively and efficiently
Marketing Vs. Selling:
Starting point Focus Means Ends
Selling concept Factory Existing products How to increase Profits through sales
Marketing concept Market Customer needs How to satisfy Profits through customer
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.
Assessment of Product, logistic, level of services and marketing techniques
Organization wide dedication
Working together as whole Types of Marketing
Strategic Marketing Tactical Marketing
Scope of Marketing = Marketing Planning Tied with corporate strategy Short term, and focuses
e.g. which product of market to choose on place, promotion,
Marketing Vs. R&D department:
Marketing has commercial and competitive atmosphere whereas R&D has University atmosphere with open-end work and
consumption of substantial resources.
Customers’ needs and change in product specification tighten them.
Consumerism is a term describing importance and power of consumers.
Customer Relationship Management:
Defined narrowly as a customer database management activity.
“CRM is managing detailed information about individual customers and carefully managing customer touch points to
maximize customer loyalty”.
Companies look for touch points. These includes customer purchases, sales force contact, service, and support calls, Web
site visits, satisfaction surveys, credit and payment interactions, market research studies, etc.
To be effective in CRM, the marketer must forego short-term profit maximization on individual transactions.
How to Get Customer Touch Points:
Elements of Marketing Mix:
- Purchasing trend
- Payment trend
- 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
− 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:
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.
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
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 Perception iv) Purchase Decision:
o Learning o The best rated camera will be bought.
o Beliefs and attitudes
v) Post-Purchase behavior:
Culture is the set of basic values, perceptions, wants, and Either
behaviors learned by a member of society from family and other • Dissatisfied
important institutions. • Satisfied
Subculture is a group of people with shared value systems • Delighted
based on common life experiences and situations. Subcultures A policy by firms is to understate performance because
might be nationality groups, religious groups, racial groups, or customers are delighted with better-than-expected performance.
geographic area groups.
Social classes are society’s relatively permanent and ordered Why satisfaction of Customer/study of this stage is
divisions whose members share similar values, interests and important:
behaviors. 1. To attract new customers cost more than to retain
Reference group has a direct (face to face) or indirect points of current customers.
comparison or reference in forming a person’s attitudes or 2. Satisfied customers are less price sensitive.
behavior. 3. Satisfied customers tell others (words of mouth). Bad
Aspirational group is one to which an individual wishes to words travel farther and faster.
Opinion leader is a person within a reference group who, Decision process for new product i.e. stages in adoption
because of special skills, knowledge, personality or other process (from hearing to adoption):
characteristics, exerts influence on others. 1. Awareness:
Personality is a person’s unique psychological characteristics 2. Interests: seek information i.e. through external sources
that lead to relatively consistent and lasting responses to his or 3. Evaluation: whether to try or not
her own environment. 4. Trial: on small scale to improve estimate of value
A motive (drive) is a need that is sufficiently pressing to direct 5. Adoption: decides to make full and regular use
the person to seek satisfaction.
Perception is the process by which people select, organize, and Chapter 2 Company and marketing strategy
interpret information to form a meaningful picture of the world. Strategic Planning Process:
Learning is changes in an individual’s behavior arising from “Strategic Planning is the process of developing and maintaining
experience. a strategic fit between organization’s goals and capabilities and
Belief is a descriptive thought that a person holds about its changing marketing environment.
something. Following are steps of strategic planning:
Attitude is a person’s consistently favorable or unfavorable 1. Defining mission
evaluations, feelings, and tendencies toward an object or idea. 2. Analysis of Business Portfolio
3. Setting strategic objectives and goals
2. Purchase Decision Process 4. Developing Competitive strategies
i. Porter’s 5 forces
i) Problem Recognition: ii. Cost-Differentiation-Focus Triangle
Perceiving a need. iii. Growth Strategies (product/market
It can be stimulated by: expansion grid)
• Consumer’s depleted assortment (e.g. empty paste) or 5. Developing detailed marketing and departmental
• Marketing efforts plans and strategies
ii) Information Search: Mission Statement:
To clarify options available to consumers. This is a statement of organization’s purposes- What it wants to
o Internal search: Scanning of memory (experience) or accomplish in the larger environment.
knowledge about solution of problem/need sufficient
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
Downsizing: Value delivery network is network of suppliers, company,
When a firm reduces business portfolio by eliminating products intermediaries, and consumers who partner with each other to
or business that is not profitable or no longer fit its overall improve performance of entire system.
Setting strategic objectives and goals: Chapter 19 : Strategic Marketing
Firm’s mission is translated into set of objectives for the current
period for each SBU. & Planning
Developing plans and strategies 1. Market Segmentation
Marketing Process: Market segmentation is dividing a market into smaller group of
The marketing process is the process of distinct buyers who have different needs, characteristics or
1. segmenting the market, behavior and might require different marketing mixes.
2. selecting target markets, Market segment is a group of buyers who respond in a similar
3. marketing positioning way to a given set of marketing mix.
4. developing the marketing mix, and
5. managing the marketing effort. Basis of segmenting markets:
Segmenting consumer market
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
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
ii. Purchase of known and established products and Target marketing strategies: (Product affecting Promotion)
brands e.g. Insurance The firm can adopt one of four target marketing strategies:
4. Hedonistic preference A. Undifferentiated marketing (or mass marketing) a
i. Emphasis on “enjoying life now” market-coverage strategy in which a firm decides to ignore
ii. Immediate satisfaction of needs and wants market segment differences and go after the whole market
Behavioral segmentation involves dividing a market into with one offer
groups based on consumer knowledge, attitudes, uses, or B. Differentiated marketing (or segmented marketing) a
responses to a product. E.g. market-coverage strategy in which a firm decides to target
• Occasion segmentation: dividing market according into several market segments and designs a separate offer for
groups according to occasions when buyers get the each.
idea to buy, actually make their purchase, or use C. Concentrated marketing (or niche marketing) a market-
purchased item. coverage strategy in which a firm goes after a large share of
• Benefit sought: Dividing market into groups according one or a few segments or niches.
to different benefits that consumers seek from the D. Micromarketing is the practice of tailoring products and
product. Consumers seek unique combination of marketing programs to suit the tastes of specific individuals
benefits e.g. for a laundry detergent, from cleaning and (individual marketing) and local customer groups (Local
bleaching to economy, fresh smell, strength or mildness marketing).
• User status and user rate Market offers can be differentiated along the lines of:
• Loyalty status Product
Segmenting Business Markets Channels
Demographic segmentation Image
Industry (which industry) Considerations while choosing strategy:
Company size (what size) Company, resources and objectives
Location Competitor, strategies
Operating variables Product
Technology (what technology to focus) o stage in the life cycle
User- nonuser status (heavy, medium or light user) o variability
Customer capabilities (many services or few Market, variability
services) Evaluating Market Segments
Purchasing approaches Segment size and growth
Purchasing function organization (centralized or Segment structural attractiveness
decentralized) Level of competition
Power structure Substitute products
Nature of existing relationship Power of buyers
General purchasing policies (leasing, service Power of suppliers
contracts, or sealed bidding) Company objectives and resources
Purchasing criteria (quality, service or price)
Situational factors Product Positioning
Urgency (quick delivery/service?)
Specific application Product positioning is imaging the product in the minds of
Size of order consumers relative to competing products.
Personal characteristics Positioning task (or choosing a positioning strategy) consists of
Buyer-seller similarity of values following four steps:
Attitude towards risk (risk taking or averse) 1. Identifying possible competitive advantages
Loyalty (to companies who show high loyalty to 2. Choosing right competitive advantages
suppliers) 3. Selecting an overall positioning strategy
Segmenting International Markets 4. Developing a positioning statement
Companies can segment international markets using one or 1) Identifying possible competitive advantages:
more of a combination of variables. The chief factors that can be Competitive advantage (making a difference) is an advantage
used are: over competitors gained by offering consumers greater value,
1). Geographic location: location or region either through lower prices or by providing more benefits that
2). Economic factors: Population income or level of justify higher prices.
economic development 2) Choosing the right competitive advantages:
3). Political and legal factors: Type / stability of How many to promote:
government, monetary regulations, amount of bureaucracy, etc. Only one difference. Aggressive approach
4). Cultural factors: Language, religion, values, attitudes, More than one differences. Where more than one firms are
customs, behavioral patterns. claiming to be the best at same attribute. However it risks
Requirements for Effective Segmentation disbelief and a loss of clear positioning.
Substantial—segment must be substantially large or profitable. Which ones to promote:
Accessible—segment must be reached and served easily. Important for buyers
Differentiable—It must be conceptually distinguished and Distinctive than competitors offer
should have the ability to respond differently to different Superior
marketing mix elements and programs. Communicable and visible difference
Actionable—It should be possible to design effective programs Competitors can not copy easily
for attracting and serving market segment. Affordable for buyers
Measurable—Size, purchasing power, and profiles of a market Profitable for company
segment should be measurable. 3) Selecting an overall competitive positioning strategy:
What offer to make in relation to competitor’s offer (Use 2x2 or
Target Marketing 3x3 Grid)
Target market is a set of buyers sharing common needs or Price
characteristics that the company decides to serve.
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
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
a. Regulating systems Information about Competitors (annual reports,
b. Reducing risks
press releases, web pages, business publications,
c. Decision making
Analyzing competing products
Types of Marketing Research:
Rival companies’ personnel (executives,
engineers, sales force, purchasing agents)
Study and analysis of
− 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
− 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.
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
• Sampling plans Geographical reach
As surveying the whole population would be too Speed
expensive & time consuming, so a sample is Information sharing of any kind e.g. text, audio,
selected. video, animation, graphics
Sample is a segment of population selected for Shopping at home (Consumer)
marketing research to represent population as a No physical barriers (Consumer)
whole. Doing business 24 hours (Business)
Sample should be a true representative of Paperless business (Business)
population and should not be biased
Types of samples: Security concerns (consumer)
Random sampling: Whom to complaint (consumer)
Every member has a known and equal chance of selection) What you see is sometimes not what you get
Non-random sampling: (consumer)
1. Systematic (Every n item is selected) Sometimes physical presence is necessary e.g.
2. Stratified (Population is divided into mutually exclusive smelling a perfume or fitting clothes (consumers)
groups e.g. age groups and selecting random samples Logistic, shipping, distribution and delivery
from each group. challenges (business)
3. Multistage (Process of subdividing population and Availability of secure and affordable
selecting sample again and again till a suitable communication network
selection is made)
4. Quota (Different categories of populations are made E.Business Models:
and a specific quota from each category is selected) Government Business Consumer Employee
5. Cluster (Investigators are told to examine every item in
a small population that fits the required definition) Government G2G G2B G2C G2E
Potential faults in sampling: Business B2G B2B B2C B2E
− Insufficient data
− Unrepresentative data Consumer C2G C2B C2C X
− Bias (where chance of occurrence is not equal)
− Omission of an important item in questionnaire B2C E.Commerce occurs when an average citizen interacts
− Carelessness with a company (like Bata Pakistan or 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.
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
Submission of tax returns
To cast vote
Customization and Customerization:
Intranet is a network that connects people within a company to
Customization is individualizing the marketing offer. E.g. taking
each other and to the company network.
measurement of jeans for a customer.
Extranet connects a company with its suppliers, distributors, and
Customerization is leaving it to individual customers to design
other outside partners.
the marketing offer, allowing customers to be prosumers rather
Internet is a vast public web of computer networks, which
than consumers. E.g. adding specific features to jeans like
connects users of all types all around the world to each other.
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 (B2C)
o Email Part F : International Business
Expenditures on promotion gives rise to brands. Theories on International Trade
A Brand is a name, term, sign, symbol or design intended to Scarce resource is a resource for which the quantity demanded
identify the product of a seller to differentiate it from those of at a nil price would exceed the available supply.
competitors. 4 scarce resources are Land, Labor, Capital and Enterprise.
Reasons for branding: Scarcity is the excess of human wants over what can be
− Product differentiation produced.
− Conveying lot of information quickly and concisely Production Possibility Curve illustrates limits of possible
− Advertisement needs a brand name. production of two products within given resources.
− The more similar a product is to competing goods; the Opportunity Cost is the cost of sacrificed alternative.
more branding is necessary.
− It facilitates self selection. Mercantilism:
− It reduces price sensitivity. Export > Import
− Brand loyalty gives control over marketing strategy. Zero-sum game (benefit at the expense of other)
− Other products (i.e. new flavors/sizes) can be Absolute advantage:
introduced into brand name/range. (Brand extension) Absolute advantage is producing goods more efficiently
than any other country.
− Eases personal selling
Country should produce goods for which they have an
− Eases market segmentation
absolute advantage and then trade these goods for
other goods produced by other countries.
− Brand extension Comparative advantage:
− Multi branding (different names for similar nature goods One step further than absolute theory introducing
serving similar consumer habits) concept of opportunity cost.
Product----------------Names----------------Brands in each name Country should specialize in the production of those
− Family branding goods in which it has lowest opportunity cost.
Relationship Marketing: (Keeping customers; not getting
Why countries avoid specialization
Sale is not end of process; but start of relationship. Comparative advantage is never stable.
It is easy, cheaper and profitable to retain old customers than to Diversification protects fall in world demand.
make new customers because: Agriculture industry is subject to uncertainties of climate.
− Old are valuable Import restrictions are possible by other governments to
− Old have trust in company develop self sufficiency.
− Old are satisfied. Multi nationals may assemble or manufacture in different
countries for political or logistic reasons.
Key account management: (Key Customer Database)
Competitive advantage (national):
− Like relationship marketing but more specific
Porter states that Comparative Advantage is too general
− It refers to how an organization manages its
concept to explain success of individual companies and
relationship with those customers identified as key to the
organization in achieving its objectives.
He believes 4 conditions (diamonds) within a country help firms
− Factors used to identify a key account: to compete.i.e.
o Historic value of purchases 1. Factor conditions
o Expected future purchases 2. Demand conditions
o Other competitive factors 3. Firm strategy, structure and rivalry
Status within the marketplace 4. Related and supported industries
Personal relationship of people
To prevent a competitor getting a hold
Orientations of International Business Management (by
− Extra services given to key account
Finance Company focuses on domestic market and export is
Hospitality No local research, marketing mix is standardized.
Auditing Customer satisfaction: (why customers are not Same products with same market programs.
satisfied ? )
− Customer satisfaction surveys Polycentrism:
Each country is unique and requires customization.
− Work won and lost
Product and market programs must match with local
− Changes in market shares
− Revenue from newly released products Company establishes independent local subsidiaries
− Rude and unhelpful staff and decentralizes marketing management.
− A policy is to encourage customers to complain( 96%
do not) Geocentrism:
Synthesis of two approaches.
Technology Development – Interactive marketing: Think globally, act locally.
Interactive marketing in instant communication and responses Integrated approach to create a global strategy that is
between promoter and customers. It may be called sometimes fully responsive to local market.
as Computerized Personal Selling e.g.
− DRTV (Direct Response Television) Regiocentrism:
− Interactive Internet websites It is Geocentricism but that it recognizes regional
− Interactive Kiosk differences.
CH 21 : Strategic Options (NEW)
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)
1. Export (extension of home sales) i. Large market encouraging economies of scale.
2. Overseas branches (when turnover is large, greater ii. Increased competition at home market
investment) iii. Mature or declining home market
3. Overseas production (exploits cheap labor and reduces iv. To dispose excessive/discontinued products.
exporting cost) Exchange rate:
Purchasing Power Parity theory calculates exchange rate
Polycentrism based on relative cost of purchasing same basket of goods in
4. Insiderisation (full functional organization having two countries.
production and distribution system is set-up overseas, A currency’s exchange rate is also determined by Demand and
company is multinational) Supply. They in turn are determined by Inflation, Speculation,
Interest rates, Govt. policies and Balance of Payment.
Geocentrism Exchange rate risk is the risk that foreign currency will
exchange in smaller amount of domestic currency in future.
5. The Global Company
Reasons: This can arise under any of three Exchange Rate Systems i.e.
5 Cs 1. Fixed (Central bank interferes to fix the rate)
1. Customer (market convergence) 2. Managed (Like fixed but allowed to vary between
2. Company (economies of scale) preset limits)
3. Competition (Keeping up) 3. Floating (depends on supply and demand)
4. Currency (exchange rate risk) Managing exchange risk:
5. Country (Absolute and comparative advantage, local − Hedging devices
− Flow of money in both directions.
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
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
− 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
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.
FDI vs. Export vs. License:
FDI(Foreign Direct Investment) Export License
− Lower production cost − Concentration on − Avoids costs and hassle
− Better understanding of production of setting up overseas.
Market and Customers. − Economies of scale − Rapid penetration
− Lower transportation − Consistency of product − No investment
cost. quality − No Political risk, No
− Overcomes tariff and − International experiment Protectionism
non-tariff barriers. on small scale
− Easiest, cheapest, most
− Political risks are
− Political risks. − Protectionism − Small cash inflows
− Partnership − Exchange rates − Quality standards issues
− Managing overseas − Usually less involvement − Indirect competition
facilities where both export
− Usually more − Licensee may become
involvement but competitor (by transfer of
subsidiary may act knowledge and
If FDI, 100% owned subsidiary or Joint venture:
Wholly owned subsidiary (as compared to Joint venture)
Advantages: Key Issues:
− No sharing in profit − Heavy investment needed
− No sharing in decision making − Suitable managers not available
− No communication problem − Govt. discourages 100% ownership
− Operation of integrated international − No local knowledge
− Varied experience
iii. Exchange controls through
Protectionism (discouraging imports) by Govt. a. Rationing supply of foreign exchange
Government and Local producers get benefit not consumers. b. Blocking funds of foreign parent
1. Tariff (tax on imports) (counter ways)
2. Non-tariff barriers − Dividend
a. Official − Selling goods/ services (volume and
i. Subsidy transfer pricing)
ii. Import Quotas/ Export Restraint − Royalty
iii. Local Content Requirement (specific fraction must − Loan and high interest rates
be produced locally) − Management charges
iv. Anti-dumping policies (e.g. special duty) 4. Nationalization
v. Administrative policies (informal instruments or
bureaucratic rules) How to cope with political risk:
vi. Embargo (total ban) 1. Negotiation (agreement) with Government
b. Un-Official i. Transfer of capital
i. Quality and inspection procedures ii. Access to local finance
ii. Packing safety and documentation standards iii. Govt. interference
iii. Restriction of distribution iv. Taxation
3. Exchange control (making difficult to obtain required v. Transfer policy
currency) 2. Insurance
4. Exchange rate policies (e.g. competitive devaluation of 3. Contacts with markets
currency) 4. Management structure (joint venture or giving control to
Dumping is selling goods in foreign market below cost or market local)
value to: 5. Financial management (obtain finance locally)
Unload excessive production 6. Production strategies (giving control to local to produce
Capture market. Or to supply chain management)
Political risk in FDI for multinationals
Political risk is the risk that political actions will affect the position Regional trading groups/blocks--- A way to overcome
and value of a company. Protectionism and Political risks
Regional trading group promotes trading between members of
How Political actions can affect: group. Following are common types:
1. Tariff and non-tariff barriers e.g. Quotas Free trade area:
2. Govt. interference in contracts Internal barriers to trade are removed.
3. Imposition of Each company determines its own external trade policy.
i. Increased tax rates Customs Union:
ii. Price controls Internal barriers to trade are removed.
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
It is Common market but more closer integration Euro bond:
including establishment of common currency and tax Currency differs country of issue (underwritten by international
rates. syndicate of banks and sold internationally)
Euro bonds are suitable when:
Taxation issues in FDI − Large organization with excellent credit rating
By structuring the group, tax advantages could be availed. − Requires long term loan for capital expansion
Foreign tax credit avoids double taxation in both countries. − Requires borrowing not subject to national exchange
Tax havens is a country with exceptionally low or even no control
income tax but there should be: − Interest rates are fixed or floating with minimum.
Stable currency and Govt. Investors of Eurobonds will be concerned about:
Adequate financial services support facilities. Marketability
Capital Structure Decisions Return on Investment
Equity or borrowing Security
If equity, Parent’s or Subsidiary’s
If externally, from host or other country Euro currency:
What Currency (same to avoid fluctuation and Eurocurrency is any currency banked outside of its country of
symmetry) origin e.g. Eurodollars are dollars banked outside United States.
How much and what period Euro Currency loan:
Factors influencing choice of financing: UK company borrows in US $ from a UK bank, it is a Euro Dollar
1. Local finance cost loan.
2. Taxation system
3. Restriction on dividend remittance Euro credits: like Euro currency loan
4. Flexibility in repayment Commercial papers:
An example of Securitization.
Short term financial instruments
Global Capital Market
Issued in the form of unsecured promissory notes with a
International banks (provide financial and other services) fixed maturity date.
Factors affecting development of international banks: Issued in bearer form
1. Globalization (Trade of securities world wide e.g. Euro Issued on discount basis
equity) Companies with net capital of 25 million can issue it.
2. Securitization (Debt via issuance of securities e.g. Euro Syndicated credit market:
bonds, Euro commercial papers) − Provides credit at high rates over LIBOR.
3. Deregulation (national barriers) − Suitable for
4. Disintermediation (directly from investor) Takeover bids
5. Increased foreign exchange and interest rate volatility Govt. borrowings
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
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:
1. Goods received may be unusable, poor quality, or 5. Exporter ships and gives documents and draft to own
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
Foreign Trade raises special financial problems i.e.
Exporter submits application with required particulars to
Bad debts’ risk is greater
Large investment appears in receivable and stocks
ECGS will issue a guarantee specifying maximum
Reducing bad debts’ risk:
amount covered and rate of premium.
1. Export factoring
Risks covered are:
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
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
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
Notes/drafts are guaranteed by Availising bank.
Exporter discounts them from Forfaiting bank. International product policies:
Documentary Credit (L/C): Standardized/Undifferentiated marketing (same product,
1. Importer orders. price, marketing program for all markets)
2. Exporter accepts. Adapted/Differentiated marketing
3. Importer’s bank issues L/C to exporter’s bank. Concentrated marketing.
4. Exporter’s bank authorizes exporter to ship
Standardization Vs. Adaptation: whether to adopt or not is linked with promotional issues.
Product Standardization Product Adapted
Occasional exporters Single product meets the same
Communication Also major companies need in all markets but need to
Standardization seeking economies of be adapted.
Communication Adaptation Same product for Costly
different uses in Required to exploit market fully
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.
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.
Uniform financial climate Short term Investment:
Stable business environment
Competitive factors: How Cash surplus arises
Data collection is easy and accurate.
− By profitability
Relatively unimportant − By low capital expenditures
Technological factors: − By receipt from selling part of business
Standard production and measurement systems
How Cash surplus is utilized
Motivating international agents: − Takeover bids
− Communication − Buy back of shares
− Assuring long term business relationships − Short term investments
− Regular and frequent personal contacts o Banks
− Exclusivity o Investment in listed shares
o Investment in debt instruments
Hofstede’s model of national culture: Certificate of Deposits (certificates by bank
Hofstede pointed out that countries differ on following acknowledging deposit for specified time)
dimensions: Treasury bills (IOUs by govt. issued weekly for
1. Power distance how for superiors are expected to 91 days to finance govt. projects)
exercise power Eligible bank bills (IOUs by those top rated
2. Uncertainty avoidance some cultures prefer clarity banks whose bill Bank of England agrees to
and order while others prefer novelty buy)
3. Individualism in some cultures, it is individual Bills of exchange
achievement what matters. Local authority bonds
4. Masculinity in such culture, roles of sexes are clearly Commercial papers
differentiated. Certificate of Deposits, Treasury bills and Eligible bank bills are
Negotiable and Resalable.
Hofstede grouped countries into eight clusters:
1. More developed Latin International payment modes:
2. Less developed Latin Cheque
3. More developed Asian Lock boxes (speeds up payment by cheque)
4. Less developed Asian Bills of exchange
5. Near Eastern Bank draft (cheque by a bank drawn on one of its own
6. Germanic account)
7. Anglo Mail Transfer
8. Nordic It is a written payment order authenticated by
Type of industry and size of company is also important. official in sending bank which
Instructs by Airmail to pay a certain sum of
Finance in International Business money to a beneficiary.
Treasure ship: Telegraphic Transfer
Treasure ship is the function used with provision and use of Like mail transfer but instructions are sent by
cable or telex instead of by airmail.
finance. It covers
Provision of short term borrowings/ capital Speeder, Costly and Confidentiality than Mail
Foreign Currency management
Banking SWIFT (Society for Worldwide Interbank Financial
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.
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.
Decentralized Cash Management: Market Price – discount
1. Great autonomy Negotiated Price (any other basis)
2. Quick and more response to needs of individual
operating units Advantages of having Market Disadvantages of having
3. More opportunities to invest on short-term basis. Price as Transfer Price Market Price as Transfer
Float is amount of money tied up between initialization and 1. For buying department 1. Market prices may be
finalization of payment. i. Better quality of temporary.
Measures to reduce Float include: services 2. Disincentive to use
− Lodgment delay should be minimum ii. Greater flexibility spare resources as
iii. Dependability of supply compared to
2. For both departments incremental cost
i. Lower cost of approach.
− Standing orders/ direct debit for regular payments administration, selling 3. Buying department may
− Lock boxes for international payments
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,,
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
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