IGNOU

MMPC-12

IMPORTANT QUESTIONS AND ANSWERS

Q1) Why is corporate governance necessary for business organizations? Elucidate

with examples.

A) Every company may have policies, rules, or principles which dictate how it functions.
These policies differ for each company. However, there are some areas within
companies that operate similarly. Furthermore, some areas within a company are
critical and need proper attention.

What Is Corporate Governance?

Corporate governance is a set of rules, principles, regulations, or processes through

which companies are controlled and directed. The need for corporate governance arose
due to various corporate failures in the past. Therefore, by following these rules and
principles, companies can regulate their processes better. Corporate governance applies
to both a company’s daily operations to management or strategic activities.

Corporate governance allows companies to regulate their relationships with their

stakeholders better. These may include both internal and internal stakeholders. It
ensures that the board of directors only pursue objectives that are in line with
stakeholders’ expectations. Corporate governance deals with the integrity and
objectivity of a company’s board of directors in their dealings with the stakeholders.

For some companies, following corporate governance may be optional. However, in

most jurisdictions, public companies must follow these principles. There are various
objectives that corporate governance tries to achieve. These objectives come from the
underlying principles that corporate governance implies over companies.

What Is The Importance Of Corporate Governance?

Some companies may view corporate governance as an unnecessary and costly process.
However, a proper corporate governance system has many advantages. While corporate
governance can benefit companies, its importance relies on how companies use it. As
mentioned, corporate governance defines the rules, principles, and regulations that
companies can use for control and direction. But for these to be effective, companies
must use them properly.

There are several reasons why corporate governance is important. As stated above, the
need for corporate governance comes from past high-profile failures. Corporate
governance ensures these companies don’t suffer problems. For the purpose of this
article, we bring in the 8 importance of corporate governance as below.

#1. Minimize Agency Problems

Agency is when one entity acts as another entity’s agent. In companies, the management
acts on behalf of the shareholders, which is a type of agency relationship. In some
instances, the board of directors may not act in the shareholders’ best interests.
Corporate governance tackles that problem by ensuring the objectives of both the
shareholders and the management are in line.

#2. Protect Stakeholders

Apart from minimizing agency problems, corporate governance protects a company’s

other stakeholders as well. These may include both internal and external stakeholders.
Corporate governance defines the relationship that companies must have with their
stakeholders. By doing so, it ascertains that each stakeholder’s rights are clear for
companies to fulfill.

#3. Attract Investors

Corporate governance provides companies with a system for best practices. Through
this, it ensures a company’s operations are efficient. As mentioned, it also protects
shareholders’ and other stakeholders’ rights. When investors look for companies to
invest in, they will always prefer companies with good corporate governance. This way,
corporate governance can attract new investors.

#4. Promotes Accountability

A good corporate governance system ensures that companies follow a sound,

transparent, and credible financial reporting system. This way, corporate governance
helps promote accountability in a company. This accountability can also help in the
above aspects, helping attract more investors or protect stakeholders.

#5. Mitigate Risks

Corporate governance also focuses on risk mitigation for companies. One of the areas
that help with this is the audit committee or risk committee. These committees are
responsible for managing and mitigating a company’s risks from various sources. By
defining such committees, corporate governance ensures that the risks that companies
face are minimal.

#6. Ensure Compliance

Companies are complex business structures. Therefore, they must comply with various
rules and regulations. Corporate governance also applies to this area as it ensures
companies meet these obligations. Compliance with rules and regulations is also a part
of a company’s risk management process. By complying with rules and regulations,
companies can avoid any unnecessary issues.

#7. Improve Efficiency

Corporate governance also helps companies maximize operational and organizational

efficiency. Many companies have ineffective governance, which also translates into
below-average performance. Corporate governance lays the foundation for how a
company handles its operations, uses its resources, applies innovation, and implements
corporate strategies. Through these, it also improves a company’s efficiency.

#8. Ensure Corporate Social Responsibility

One area that corporate governance introduces is corporate social responsibility. It

usually applies to how companies interact with the environment in which they operate.
Corporate social responsibility enables companies to consider the impact their
operations have on the environment. Similarly, it promotes sustainability and social
responsibility.

Conclusion

Corporate governance is a set of rules, regulations, or principles that define how

companies should be controlled and directed. It is a crucial part of a company’s
management. Corporate governance is important for several reasons. These many
including minimizing agency problems, protect a company’s stakeholders, attracting
investors, and much more.

Q2) What do you mean by strategy? Explain the nature of strategy.

A) Strategy is an action that managers take to attain one or more of the organization’s
goals. Strategy can also be defined as “A general direction set for the company and its
various components to achieve a desired state in the future. Strategy results from the
detailed strategic planning process”.

A strategy is all about integrating organizational activities and utilizing and allocating
the scarce resources within the organizational environment so as to meet the present
objectives.

While planning a strategy it is essential to consider that decisions are not taken in a
vaccum and that any act taken by a firm is likely to be met by a reaction from those
affected, competitors, customers, employees or suppliers.

Strategy can also be defined as knowledge of the goals, the uncertainty of events and the
need to take into consideration the likely or actual behavior of others.

Strategy is the blueprint of decisions in an organization that shows its objectives and
goals, reduces the key policies, and plans for achieving these goals, and defines the
business the company is to carry on, the type of economic and human organization it
wants to be, and the contribution it plans to make to its shareholders, customers and
society at large.

Features of Strategy

1. Strategy is Significant because it is not possible to foresee the future. Without a

perfect foresight, the firms must be ready to deal with the uncertain events
which constitute the business environment.
2. Strategy deals with long term developments rather than routine operations, i.e. it
deals with probability of innovations or new products, new methods of
productions, or new markets to be developed in future.
3. Strategy is created to take into account the probable behavior of customers and
competitors. Strategies dealing with employees will predict the employee
behavior.

Strategy is a well defined roadmap of an organization. It defines the overall mission,

vision and direction of an organization. The objective of a strategy is to maximize an
organization’s strengths and to minimize the strengths of the competitors.

Strategy, in short, bridges the gap between “where we are” and “where we want to
be”.

Q3) What are the various levels at which a strategy may exist?

A) Business-level strategy

The Business-level strategy is what most people are familiar with and is about the
question “How do we compete?”, “How do we gain (a sustainable) competitive
advantage over rivals?”. In order to answer these questions it is important to first have a
good understanding of a business and its external environment. At this level, we can use
internal analysis frameworks like the Value Chain Analysis and the VRIO Model and
external analysis frameworks like Porter’s Five Forces and PESTEL Analysis. When good
strategic analysis has been done, top management can move on to strategy formulation
by using frameworks as the Value Disciplines, Blue Ocean Strategy and Porter’s Generic
Strategies. In the end, the business-level strategy is aimed at gaining a competitive
advantage by offering true value for customers while being a unique and hard-to-
imitate player within the competitive landscape.

Functional-level strategy

Functional-level strategy is concerned with the question “How do we support the

business-level strategy within functional departments, such as Marketing, HR,
Production and R&D?”. These strategies are often aimed at improving the effectiveness
of a company’s operations within departments. Within these department, workers often
refer to their ‘Marketing Strategy’, ‘Human Resource Strategy’ or ‘R&D Strategy’. The
goal is to align these strategies as much as possible with the greater business strategy. If
the business strategy is for example aimed at offering products to students and young
adults, the marketing department should target these people as accurately as possible
through their marketing campaigns by choosing the right (social) media channels.
Technically, these decisions are very operational in nature and are therefore NOT part
of strategy. As a consequence, it is better to call them tactics instead of strategies.

Corporate-level strategy

At the corporate level strategy however, management must not only consider how to
gain a competitive advantage in each of the line of businesses the firm is operating in,
but also which businesses they should be in in the first place. It is about selecting an
optimal set of businesses and determining how they should be integrated into a
corporate whole: a portfolio. Typically, major investment and divestment decisions are
made at this level by top management. Mergers and Acquisitions (M&A) is also an
important part of corporate strategy. This level of strategy is only necessary when the
company operates in two or more business areas through different business units with
different business-level strategies that need to be aligned to form an internally
consistent corporate-level strategy. That is why corporate strategy is often not seen in
small-medium enterprises (SME’s), but in multinational enterprises (MNE’s) or
conglomerates.

Q4) What is mission? How is it different from purpose? Discuss the essentials of a
mission statement.

A) A mission provides the basis of awareness of a sense of purpose, the competitive

environment, degree to which the firm's mission fits its capabilities and the
opportunities which the government offers".

The mission statement outlines the activities conducted by the organisation and
communicates them to the society. The values and beliefs held by the organisation play
an important role in fulfilling the mission as it is built on the foundation set by the
organisational values.

The mission statements provide an internal direction to the organisation for its future.
It is necessary for the employees to have motivation and enthusiasm to achieve the
goals of the organisation.

Characteristics of Good Mission Statements :

A good mission statement should have the following characteristics :

1) Feasibility :
A good mission statement should always be a wide-ranging goal, but it should also be
achievable. It should not be an impossible statement. The organisational employees
should find it feasible and credible. However, feasibility of a mission relies upon the
availability of organisational resources.

For example : it was a mission of U.S. National Aeronautics and Space Administration
(NASA) to land on the moon during 1960's, which was finally accomplished between
1960s and 1970s.

2) Precise :

An effective mission statement should be neither too narrow nor too wide. A narrow
mission statement will not be able to convey the operations performed by the
organisation and a wide mission statement will fail to define the organisational
objectives and goals.

For example : for a soft drink manufacturing company, writing "manufacturing soft
drinks" is too narrow, and writing "satisfying customers" is too broad.

3) Clarity :

A mission statement should clearly state the organisational goals so that it stimulates
actions. Sometimes, organisations mislead the public by using superlative terms to
emphasise their identities and features. A mission statement is beneficial only when it is
stated in clear terms and leads to action. For example, the mission statement of India
Today is the complete news magazine".

4) Encouraging :

A good mission statement should be capable of encouraging its employees and its
customers. The employees, customers, and other stakeholders should feel valued by
being a part of organisation. This will lead to enhanced skills and expertise in the
employees and will create a sense of loyalty in the stakeholders.

For example : Eureka Forbes encourages its employees to provide superior 'customer
service' to the customers at their home as per their convenience. This increases
customer loyalty towards the company.

5) Uniqueness :

A mission should be distinct and unique in every sense from that of the competitors. If
all the companies which are in same business write their mission statements in the
same way, it would hardly create a unique identity and a positive impact on the public.

6) Indication of Strategy :

A good mission statement should indicate the strategy to be adopted for achieving the
long-term goals.
For example : the mission statement of Ashland is, “We are a market-focused, process-
centred organisation that develops and delivers innovative solutions

customers, consistently outperforms our peers, produces predictable earnings for our
shareholders, and provides a dynamic and challenging environment for our employees.
This indicates that the organisation focuses on market structure and policy as well as on
the organisational processes.

7) Should Specify the Ways to Achieve Objectives :

An efficient mission statement should define the ways in which the organisational
objectives can be achieved. This helps the organisation to determine the time-period in
which it needs to accomplish these goals.

Components of Mission Statement :

Mission statements can differ by content, length, format, specifications, etc. It is one of
the most noticeable parts of an organisation. Usually, a good mission statement has
following components :

1) Products or Services :

A mission statement should indicate the products or services the organisation deals in.

For example : the mission statement of Assurant is, "to be the premier provider of
targeted specialised insurance products and related services in North America and
selected other markets".

2) Target Market :

An organisation should indicate the type of market it serves in a mission statement.

For example : while the mission of a cosmetic company may serve only for women, a
company producing shaving creams and after shave lotions would serve only for men.

3) Technology :

A mission statement should describe about the technology being implemented for
achieving the organisational goals. This helps the organisation in acquiring better
technology vendors.

4) Philosophy :

An efficient mission statement should outline the values held by the organisation. The
values may include bringing inspiration and innovation, adopting customer centric
approach, creating lasting solutions to poverty as well as hunger, and raising voice
against social injustice, etc.
5) Policy for Employees :

A mission statement should indicate its policies regarding its employees so that they
realise their importance in the organisation.

6) Self-Concept :

A mission statement should always define the competitive advantage of the

organisation.

For example : the mission statement of Toyota is "Toyota will lead the way to the future
of mobility, enriching lives around the world with the safest and most responsible ways
of moving people. Through commitment to quality, constant innovation and respect for
the planet, we aim to exceed expectations and be rewarded with a smile. We will meet
challenging goals by engaging the talent and passion of people, who believe there is
always a better way".

7) Concern for Survival, Growth, and Profitability :

For a commercial organisation it is essential to mention its financial objectives in the

mission statement. This will allow the stakeholders to know the financial motives and
strategies.

For example : the mission statement of McGraw-Hill is, "to serve the worldwide need for
knowledge at a fair profit by adhering, evaluating, producing, and distributing valuable
information in a way that benefits our customers, employees, other investors, and our
society".

8) Public Images :

By formulating a mission statement, strategic leaders are able to convey the basic
features and functions of the organisation which helps in creating a positive public
image. It helps the managers to guide the employees as per the approved public image.

Q5) What are objectives? How are they set? State the characteristics of objectives.

A) Definition: In business terminology, the objective is something that is expected as the

end result to be achieved by the firm within a definite period of time, through its
operations.

It prescribes the scope and also directs the efforts of the concern. The objectives of the
organization are expressed in relation to the future.

It is the fundamental step in the planning process, which are set by the company’s top
management while considering the broad and general issues. All the other components
 of planning, i.e. policy, procedure, schedule, budget, etc. depends on it. It deals with the
‘why’ aspect of planning.

Characteristics of Objectives

The objectives of the firm break down the company’s strategy into a number of
achievable targets. The points below will discuss the characteristics of objectives:

 Based on vision and mission: The objectives of the organization are extracted from its
vision and mission statement.
 Long term or short term: The objectives of the concern can be long term or short term.
For instance, the growth and expansion of the business is a long-range objective
whereas sales maximization, and the increase in the margin are considered as short
term objectives.
 Time-bound: It is a time-bound desired end, i.e. they must be achieved within the
specified time.
 Hierarchical: It has a hierarchy, in the sense that objectives can be arranged according
to their importance and priority. Indeed, for each position in the organization,
objectives are laid down.
 Social Sanction: It should be created keeping in mind the society’s interest and norms.
Hence, it needs social sanction.
 Forms a network: These are interdependent and mutually supportive, however, it does
not mean that the achievement of one objective leads to the automatic achievement of
the another. Further, it should not be assumed that one objective shall be achieved
regardless of the fact that other objectives are achieved or not.
There must be good coordination amidst the activities at the time of planning and its
implementation because when the objectives support one another, they can be achieved
simultaneously.

 Multiple: The organizations do not exist with a single objective and so every
organization has several numbers of objective, which they need to balance so as to run
the business effectively. The objectives can be profit generation, customer satisfaction,
service to society and nation, market leadership, innovation, development of human
resource and so forth.
 Dynamic: They are dynamic in nature as it can be reviewed, modified and replaced
according to the circumstances.
 Verifiable: Objectives must be verifiable, i.e. expressed in numerical terms. When the
objectives are verifiable they provide standards against which actual performance of
the organization and its employees can be measured. However, all the objectives cannot
be expressed quantitatively and so in such circumstances, these are expressed
qualitatively.
It specifies the future state of affairs, which the organization seeks to achieve and acts as
a guide for the entire business planning. Each department, division, levels and unit of
the organization may have its own objective. It is in the form of a written statement of
the desired ends which can be realised within a given period of time.
 Process of Setting Objectives

The process of setting objectives is not an easy one, as the major problem is to set
realistic and achievable targets while showing a high level of efficiency. Now we will
discuss the process of setting objectives:

1. Grouping objectives: The first step to set business objectives is to classify the
objectives – Major and derivative objectives. Major objectives are the ones having a
wider scope and character, and they are applicable in general. Thereafter these
objectives are classified into departmental and individual objectives.
2. Reasonableness and consistency: The selected objectives must represent the
expectation and intent of the organization, however, it has to be responsible, consistent
and attainable. It is a fact that different organizations have different objectives, and each
organization has multiple objectives. Hence each objective must be established in the
light of another.
3. Aspects of objectives: According to experts, there are eight aspects which are to be
considered while setting the objectives for performance and result. These aspects are:
o Market standing
o Physical and financial resources
o Innovation
o Profitability
o Productivity
o Manager’s performance and development
o Employees performance and attitudes
o Public responsibility
4. Practicality: Objectives have to be established in practical terms and not in idealistic
terms. When the objectives are practical it results in job satisfaction and incentives for
high performance.
5. Balancing the objectives: Short-term objectives are acknowledged as a distinct step to
achieve the long term objectives, so as to easily realize the latter. The objectives need to
be balanced so as to remove the conflict.
6. Change of adjustments: As the business environment is dynamic in nature, so are its
objectives and they demand change in terms of time and circumstances. Nevertheless,
these are more stable than the other components of the plan. Time by time adjustments
is to be made so as to keep pace with the progress.
Conclusion

Objectives are needed in every sphere where the performance and outcome have a
direct and significant impact on the company’s survival, growth and market value. The
direction, nature and quantum of efforts depend on the objectives solely.
Q6) What do you understand by scenario planning? Illustrate in a stepwise
manner

A) What is Scenario Planning

Scenario planning attempts to eliminate the two most common errors made in any
strategic analysis - Overprediction and Underprediction of the company's future. Most
of the organizations make this error while analyzing their strategies. Even if the rate of
change in our life is accelerated to a great extent, the future might not hold what we
expect.

Imagine how hard it was 50 or 100 years ago even to imagine the advancement in
technology we have now. But still, there are some limitations to what technology can do.
Our expectations failed in some places when it came to promotion. For example, we are
still unable to find a cure for cancer. The people who predicted this were scientists and
entrepreneurs who were successful in their fields. But due to that success, they started
over predicting the future.

Scenario planning will help us draw a line between over and under predictions. It will
expand the range of opportunities your see while keeping you from drifting into some
science fiction movie. Scenario planning will do this by segregation of the knowledge we
have into two areas.

1. Things we know about

2. Things we are uncertain about

There are several steps that management can follow to perform it.

Step #1 – Predict the drivers of future

Several drivers may affect society. In the early 90 s technological growth started to
boom. So like that, one should predict the next driver of the economy. It can be that a
particular sector is about to boom, or a sector will lose its demand. Like this, an
estimation needs to be done for the next driver in the economy.

Step #2 – Understanding the impact of drivers in your business

After predicting the future drivers, you will have to calculate the effect of that Driver on
your business. Whether the next economic change will help you in your business or it
will take a hit at your profit levels. Correct calculation of the impact of future drivers is
very crucial in scenario planning.

Step #3 – Gauging the effect of Future Scenario

Carry out a calculation that will help you to understand the possible effects of the
predicted economic scenario in the future. The possibilities may start from Best to
Worst. This will help you to understand the maximum gain you can pull from the
scenario if everything goes as per planning and the maximum loss you may incur if
things don’t go as per plan.

Step #4 – Always test unfavorable outcomes even in case of positive Future Scenario

Management should always be prepared for an unprecedented outcome, and plans

should always be placed if the estimation of positive future outcomes fails. There are
businesses from the past that believed so much in the positive Future Outcome that they
didn’t see the competition and adverse change in the economic condition. It should
always include the positive and negative impact of a scenario.

Example of Scenario Planning

Company XYZ is an Automobile manufacturing company. They are in the business for 20
years. They did scenario analysis 5 years back and realized that there would be a time
when crude will not be available in the future. So they started planning for this scenario
and bought a battery manufacturing company 3 years back. They are spending a huge
amount of money in Research and Development

to build a battery that will last 500 km with One Time Charge. The company estimated
the change in the scenario for crude supply and planned its existence without crude.

Q7) What do you understand by scenario planning? Illustrate in a stepwise

manner

A) What is Strategic Analysis?

Strategic analysis is a process that involves researching an organization’s business

environment within which it operates. Strategic analysis is essential to formulate
strategic planning for decision making and smooth working of that organization. With
the help of strategic planning, the objective or goals that are set by the organization can
be fulfilled.

In a constant strive to improve, organizations must periodically conduct a strategic

analysis which will, in turn, help them determine what areas need improvement and
areas that are already doing well. For an organization to function efficiently, it is
important to think about how positive changes need to be implemented.

Strategic analysis is essential if a company has a goal and a mission for themselves. All
leading organization who are well known for their achievements have years of strategic
planning being implemented at various stages. Strategic planning is a long-term task
involving continuous and systematic planning and resource investment.
The main question that a company should consider when performing a strategic
analysis is: How is the market constituted? How are the active clients in this sector?
While conducting strategic analysis, organizations must know their competitors and
thus be able to define a strategy that will help them an unbeatable player in that market.
One of the most important functions of strategic planning is to predict future events and
deduce alternative strategies if a certain plan doesn’t work out as expected.

Let us further break down these attributes and understand how an organization can
conduct a complete strategic analysis to be able to plan and perform better with each
passing year.

Strengths of a company: There are several attributes within the company that are
positive, that you can control in order to obtain better results, they are your strengths,
which makes you stand out from others. Surely there are certain resources or strategies
that have led to your organization’s process year on year. Knowing these resources or
strategies are also considered as strengths. Knowing this type of information is very
important because these are the elements that give you an advantage over your
competition.

Business weakness: It is practically impossible for an organization or a company to have

only strengths and not have weaknesses. Therefore, there are certain characteristics of
an organization that they need to be improved in order to be able to perform better and
compete in the market. These are called business weaknesses. Most of the factors are
foreseeable and an organization needs to identify them well in advance and approach
the problems with a corrective measure.

Threats to an organization: There are going to negative factors that will affect the
growth of the organization and these factors can be analyzed too. These factors need to
detected and a risk management strategy needs to be put in place so that threats like
stronger brand value of the competitors, better relationship of competitors with
retailers etc. don’t have an adverse effect on the company’s growth. Also, threats like
multiple players in the market with the same products, downturn in economy, better
advertising of the same product by competitors are some threats that have to be dealt
with carefully so that competitors don’t take advantage of the situation.

Opportunities for the company: Detect the opportunities you have to grow. Knowing the
path organizations must follow is a great step towards success. Take advantage of all
those external factors that are positive for the organization. Identify all the
opportunities and take advantage of them.

Q8) How will you set objectives for a large organization? Take a hypothetical
example.
A) Setting goals is often an important part of a business's development toward success.
Writing business objectives can help you not only articulate the ultimate objectives for
an organization but also create a strategy for reaching them. They often indicate a
specific period of time and a way of measuring how successfully you are working
toward achieving those objectives. In this article, we explore the definition of business
objectives, why business objectives are important and how to write business objectives,
including examples.

What are business objectives?

Business objectives are a written explanation of your goals as a business. Business

objectives usually have to do with the most important operating factors of a company's
success, such as revenue, operations, productivity and growth. To be most successful,
some companies find that a business objective needs to be specific, measurable,
attainable and time-based. Large and small businesses alike might find value in
developing written business objectives.

Business objectives are sometimes sorted into two categories: strategic objectives and
operational objectives. When someone uses the phrase strategic objectives, they are
often referring to long-term goals that relate directly to the company's mission
statement and drive large-scale organizational change. When someone uses the phrase
operational objectives, they are probably referring to shorter-term goals that might
support a company's strategic objectives. You might see these phrases used
interchangeably, depending on the context.

Why are business objectives important?

Business objectives can be an important way to unify a company's intentions and vision.
Business objectives might vary significantly between one industry or department and
the next, or they might be very similar. In addition to providing a framework for
innovation at every level of a company's operations, business objectives can help:

Increase revenue

Recruit and retain high-quality employees

Enhance customer satisfaction

Improve company culture

Maximize workplace safety

Develop leadership

Expand productivity

Increase product quality

Encourage innovation

When drafted carefully and revisited often, business objectives can structure many key
business improvements.

How to write a business objective

Writing business objectives may be an in-depth process, depending on the age and stage
of the company's operations. You can maximize the value of business objectives by
thinking strategically about the following steps:

1. Brainstorm

Think creatively about the challenges you face as a company. Consider making a list of
potential goals to incorporate into your business objectives. It is fine to eventually
discard some of the ideas you generate at this stage of the process. Generating many
ideas for potential positive outcomes will provide you with a wider array of goals to
choose from. You may also want to combine or break up specific goals based on
patterns you notice in the brainstorming process.

2. Crowdsource

Leaders who ask their employees to contribute ideas for business objectives may find
they generate more ideas than they would think of by themselves. Consider asking your
employees at all levels what kinds of challenges and solutions they notice in their daily
work. You might choose to use a digital tool, such as survey software, to get information
from your employees and help develop business objectives. You may also use personal
strategies, such as focus groups or targeted conversations.

3. Organize

Noticing patterns in the information you brainstorm and gather from employees can
help you write meaningful business objectives. For example, if many of your ideas relate
to revenue, it might reveal that you prioritize profits. Similarly, if many employees
remark on training gaps, you may wish to write a business objective emphasizing
employee learning opportunities. You may also wish to categorize multiple business
objectives in groups to help find a specific piece of language at a later time.

Some common categories for business objectives include:

Research and development

Diversity and inclusion

Recruitment and retention

Customer satisfaction
Financial growth

Shareholder value

Sales and marketing

4. Choose your wording

When you are writing your business objectives, you can use the acronym SMART to help
guide your thinking. In setting goals, SMART stands for Specific, Measurable, Attainable,
Relevant and Time-Based. For example, if you notice a need for improving teamwork in
your organization, you might specifically note the type of team you want to improve,
measurable outcomes a team could achieve, reasons why improvement is within reach,
ways team improvement will benefit the company overall and a period of time after
which you expect to see results.

5. Reflect

Well-written business objectives are unlikely to change frequently for many companies
because they often address perennial challenges and goals. However, it can still be
valuable to periodically revisit your business objectives to make sure they serve the
company's best interests. For example, a specific business objective related to
technology might evolve as new tools become available and best practices change.
When you reflect on a business objective, try to balance the company's short- and long-
term goals.

Example business objectives

Here are some examples of business objectives that can help you shape your own:

Example 1

Our company will prioritize employee training to minimize errors and maximize
productivity. We will assess employee performance using standard metrics at monthly,
yearly and five-year intervals.

Example 2

Our business will implement a new communication system by the end of the year, using
a proprietary messaging system developed by our engineering team. We will know this
communication system is successful if we can increase our customer interactions by
25%.

Example 3

Our production floor will maximize profit by emphasizing quality work conditions and
appropriate supports for our employees. At the end of the year, we will gauge success
by comparing production metrics with an employee satisfaction survey.
Example 4

Our market research team will support maximum profits by finding increasingly
efficient ways to measure the competition. They will report their results bi-monthly.

Example 5

By providing new and exciting incentive programs, we will increase employee retention
by 50% by the end of the second year.

Q9) Distinguish between global environment and domestic environment.

A) Definition of Domestic Business

The business transaction that occurs within the geographical limits of the country is
known as domestic business. It is a business entity whose commercial activities are
performed within a nation. Alternately known as internal business or sometimes as
home trade. The producer and customers of the firm both reside in the country. In a
domestic trade, the buyer and seller belong to the same country and so the trade
agreement is based on the practices, laws and customs that are followed in the country.

There are many privileges which a domestic business enjoys like low transaction cost,
less period between production and sale of goods, low transportation cost, encourages
small-scale enterprises, etc.

Definition of International Business

International Business is one whose manufacturing and trade occur beyond the borders
of the home country. All the economic activities indulged in cross-border transactions
comes under international or external business. It includes all the commercial activities
like sales, investment, logistics, etc., in which two or more countries are involved.

The company conducting international business is known as a multinational or

transnational company. These companies enjoy a large customer base from different
countries, and it does not have to depend on a single country for resources. Further, the
international business expands the trade and investment amongst countries.

However, there are several drawbacks which act as a barrier to entry in the
international market like tariffs and quota, political, socio-cultural, economic and other
factors that affect the international business.

Key Differences Between Domestic and International Business

The most important differences Between domestic and international business are
classified as under:

Domestic Business is defined as the business whose economic transaction is conducted

within the geographical limits of the country. International Business refers to a business
which is not restricted to a single country, i.e. a business which is engaged in the
economic transaction with several countries in the world.

The area of operation of the domestic business is limited, which is the home country. On
the other hand, the area of operation of an international business is vast, i.e. it serves
many countries at the same time.

The quality standards of products and services provided by a domestic business is

relatively low. Conversely, the quality standards of international business are very high
which are set according to global standards.

Domestic business deals in the currency of the country in which it operates. On the
contrary, the international business deals in the multiple currencies.

Domestic Business requires comparatively less capital investment as compared to

international business.

Domestic Business has few restrictions, as it is subject to rules, law taxation of a single
country. As against this, international business is subject to rules, law taxation, tariff and
quotas of many countries and therefore, it has to face many restrictions which are
barriers in the international business.

The nature of customers of a domestic business is more or less same. Unlike,

international business wherein the nature of customers of every country it serves is
different.

Business Research can be conducted easily, in domestic business. As against this, in the
case of international research, it is difficult to conduct business research as it is
expensive and research reliability varies from country to country.

In domestic business, factors of production are mobile whereas, in international

business, the mobility of factors of production are restricted.

Conclusion

Carrying out the activities of international business and its management is far more
difficult than conducting a domestic business. Due to changes in political, economic,
socio-cultural environment across the nations, most business entities find it difficult to
expand their business globally. To become a successful player in the international
market firms need to plan their business strategies as per the requirement of the
foreign market.
Q10) Describe the EPRG framework with respect to global business.

A) Different attitudes towards company’s involvement in international marketing

process are called international marketing orientations. EPRG framework was
introduced by Wind, Douglas and Perlmutter. This framework addresses the way
strategic decisions are made and how the relationship between headquarters and its
subsidiaries is shaped.
Perlmutter’s EPRG framework consists of four stages in the international operations
evolution. These stages are discussed below.
Ethnocentric Orientation
The practices and policies of headquarters and of the operating company in the home
country become the default standard to which all subsidiaries need to comply. Such
companies do not adapt their products to the needs and wants of other countries where
they have operations. There are no changes in product specification, price and
promotion measures between native market and overseas markets.
The general attitude of a company's senior management team is that nationals from the
company's native country are more capable to drive international activities forward as
compared to non-native employees working at its subsidiaries. The exercises, activities
and policies of the functioning company in the native country becomes the default
standard to which all subsidiaries need to abide by.
The benefit of this mind set is that it overcomes the shortage of qualified managers in
the anchoring nations by migrating them from home countries. This develops an
affiliated corporate culture and aids transfer core competences more easily. The major
drawback of this mind set is that it results in cultural short-sightedness and does not
promote the best and brightest in a firm.

Regiocentric Orientation
In this approach a company finds economic, cultural or political similarities among
regions in order to satisfy the similar needs of potential consumers. For example,
countries like Pakistan, India and Bangladesh are very similar. They possess a strong
regional identity.
Geocentric Orientation
Geocentric approach encourages global marketing. This does not equate superiority
with nationality. Irrespective of the nationality, the company tries to seek the best men
and the problems are solved globally within the legal and political limits. Thus, ensuring
efficient use of human resources by building strong culture and informal management
channels.
The main disadvantages are that national immigration policies may put limits to its
implementation and it ends up expensive compared to polycentrism. Finally, it tries to
balance both global integration and local responsiveness.
Polycentric Orientation
In this approach, a company gives equal importance to every country’s domestic
market. Every participating country is treated solely and individual strategies are
carried out. This approach is especially suitable for countries with certain financial,
political and cultural constraints.
This perception mitigates the chance of cultural myopia and is often less expensive to
execute when compared to ethnocentricity. This is because it does not need to send
skilled managers out to maintain centralized policies. The major disadvantage of this
nature is it can restrict career mobility for both local as well as foreign nationals, neglect
headquarters of foreign subsidiaries and it can also bring down the chances of achieving
synergy.

Q11) Briefly explain the PESTLE framework

A) A PESTEL analysis is an acronym for a tool used to identify the macro (external)
forces facing an organisation. The letters stand for Political, Economic, Social,
Technological, Environmental and Legal. In this blog, we will look at what a PESTEL
analysis is used for as well as the advantages and disadvantages of using it in a business
setting.

In marketing, before any kind of strategy or tactical plan can be implemented, it is

fundamental to conduct a full situational analysis. This analysis should be repeated
every six months to identify any changes in the macro-environment. Organisations that
successfully monitor and respond to changes in the macro-environment can
differentiate from the competition and thus have a competitive advantage over others.

Let’s look at each element of a PESTEL analysis.

Political Factors

These determine the extent to which government and government policy may impact on
an organisation or a specific industry. This would include political policy and stability as
well as trade, fiscal and taxation policies too.

Economic Factors

An economic factor has a direct impact on the economy and its performance, which in
turn directly impacts on the organisation and its profitability. Factors include interest
rates, employment or unemployment rates, raw material costs and foreign exchange
rates.

Social Factors

The focus here is on the social environment and identifying emerging trends. This helps
a marketer to further understand consumer needs and wants in a social setting. Factors
include changing family demographics, education levels, cultural trends, attitude
changes and changes in lifestyles.
Technological Factors

Technological factors consider the rate of technological innovation and development

that could affect a market or industry. Factors could include changes in digital or mobile
technology, automation, research and development. There is often a tendency to focus
on developments only in digital technology, but consideration must also be given to new
methods of distribution, manufacturing and logistics.

Environmental Factors

Environmental factors are those that are influenced of the surrounding environment
and the impact of ecological aspects. With the rise in importance of CSR (Corporate
Sustainability Responsibility) and sustainability, this element is becoming more central
to how organisations need to conduct their business. Factors include climate, recycling
procedures, carbon footprint, waste disposal and sustainability

Legal Factors

An organisation must understand what is legal and allowed within the territories they
operate in. They also must be aware of any change in legislation and the impact this may
have on business operations. Factors include employment legislation, consumer law,
healthy and safety, international as well as trade regulation and restrictions.

Political factors do cross over with legal factors; however, the key difference is that
political factors are led by government policy, whereas legal factors must be complied
with.

How to do a PESTEL Analysis?

There are several steps involved when undertaking a PESTEL analysis. At first, it is
important to get a group of people together from different areas of the business and
brainstorm ideas.

Next, you will want to consult and seek the opinions of experts from outside your
business. These could be your customers, distributors, suppliers or consultants who
know your business well.

The third stage will involve you researching and gathering evidence for each insight in
your Analysis. Then you will want to evaluate and score each of the items for
‘likelihood’; how likely it is to happen and ‘impact’; how big an impact it could have on
your business.

The final stage involves refining your ideas and repeating the proves until you have a
manageable number of points in each of the six categories.
Advantages and Disadvantages of a PESTEL Analysis

It is an essential analysis tool for any strategist’s toolkit but there are some benefits and
challenges associated with it.

Advantages of a PESTEL Analysis:

It can provide an advance warning of potential threats and opportunities

It encourages businesses to consider the external environment in which they operate

The analysis can help organisations understand external trends

Disadvantages of a PESTEL Analysis:

Many researchers argued that simplicity of the model that it is a simple list which is not
sufficient and comprehensive

The most significant disadvantage of the model is it is only based on an assessment of

the external environment

Final Thoughts

A PESTEL analysis helps an organisation identify the external forces that could impact
their market and analyse how they could directly impact their business. It’s important
when undertaking such an analysis that the factors affecting the organisation are not
just identified but are also assessed – for example, what impact might they have on the
organisation? The outcomes can then be used to populate the opportunities and threats
in a SWOT analysis.

Q12) Explain what is external analysis and its relationship with strategy
formulation?

A) External analyses can help businesses adapt to change and streamline their current
products to fit the needs of their customer base better. Regardless of whether you are a
business owner or finance professional, conducting an external analysis can help guide
your company to success. First, however, you need to understand the benefits and
necessary components of an external review.

What is external analysis?

External analysis, also called environmental analysis, is the process by which businesses
objectively assess the changes made to their industry and broader world that could
affect their current business operations. Companies do this to ensure they can adapt to
changes and continue to succeed within an industry.
What is the difference between external and internal analyses?

The difference between external analysis and internal analysis is the area of focus.
External analysis focuses on how external factors such as industry trends affect a
business and its success. In contrast, an internal analysis focuses on the internal
processes of a business, such as company culture and employee onboarding and how
those factors affect the success of the business.

Benefits of external analysis

Conducting an external analysis can provide many benefits to a business. Here are a few
common benefits:

Encourages business growth into new areas

External analyses can benefit businesses by encouraging them to be proactive in how

they operate their company. For example, if a retail company sees a trend in free trade
clothing among the public, this might help them decide to expand their business model
to include the sale of free trade products.

Helps anticipate and adapt to change

External analysis helps businesses adjust to potential changes within their industry that
could save their business. For example, a catering company changes the way they store
their food products to comply with new FDA regulations. This helps them maintain their
status as a catering service.

Creates opportunities to rise above the competition

Conducting an external analysis can help businesses identify operational elements that
they could change or improve to set them apart from their industry competitors. For
example, a staffing solutions firm identifies that they provide the same staffing solutions
as their competitors: marketing, business administration and IT.

However, they could surpass their competitors in clientele by expanding their business
to include staffing for the trade professions and healthcare facilities.

Elements of an external analysis

Businesses should complete individual analyses of the following elements to conduct an

external analysis successfully:

Supply chain

Industry

Economic trends

Competitors
Market demographics

PEST analysis

Supply chain

A business's supply chain is a component of an external analysis because it focuses on

the following factors:

The source of raw materials

The manufacturing process that turns raw materials into company products

The transportation of the finished products to retail locations

These factors are external because they typically take place in a different area from the
company headquarters. Therefore it is crucial for companies to monitor this process
and look for ways to refine it to maximize efficiency while also adhering to laws and
regulations.

Example: A business reviews its manufacturing process and compares it to the current
labor laws that protect employee rights. They realize that their current practices allow
factory employees to get within five feet of dangerous equipment, whereas current
legislation says employees must stand 10 feet away from hazardous machinery. They
revise their practices so that factory workers can perform their job duties while
maintaining the required distance.

Industry

A business's industry, or more specifically its market, is another essential component of

external analysis. This component requires businesses to consider the following factors:

Present risks and opportunities within their industry

Current size of the industry

Projected growth of the industry

Alternative industries to explore

By reviewing these factors, businesses can take proactive measures to ensure that their
business continues to thrive, despite changes made to their industry.

Example: A local jeweler currently uses a B2C (business to customer) model to sell
handcrafted rings, necklaces, bracelets and earrings to their community. After
conducting an external analysis, they discover a new trend in small businesses
expanding their market by selling their items for wholesale prices to other companies to
include in their product lines.
Because of this, they decide to expand their business model to cater to both B2C and
B2B (business to business), so they can make an additional profit while also expanding
their market.

Economic trends

Watching for potential changes in economic trends such as interest rates, inflation,
trading laws and recession levels helps businesses adapt. More specifically, it helps a
business owner determine how these elements could affect how much they profit
during a given period.

Example: A business uses an external analysis to determine a possible economic

recession in the coming months. Because of this, they decide to decrease the number of
products they purchase from a wholesale company to anticipate a slow in business.

Competitors

Another component to consider in a business's external analysis is its competitors.

Focus on areas such as:

Number of current industry competitors with similar products, prices, target audience
and overall company size

Potential barriers to entering a new industry such as government laws, product

saturation or brand loyalty

Acceptable pricing businesses can assign to goods that encourage sales while
maintaining profit and staying on the same level as competitors

Effects that competitors' goods will have on another business's sale of the same type of
goods

Results of complementary products or services on the business's success

Reviewing these factors concerning a business's industry competitors helps that

business determine the best price points to use, alternative industries to pursue,
measures to improve product quality and marketing tactics to maintain a successful
business.
Example: A gift shop conducts an external analysis of other local shops that sell the
same skincare line. They identified the price points used by their competitors and set
their own prices just below theirs to encourage profit.

Market demographics

Market demographics help businesses determine if their current products and

marketing tactics meet the needs of their target audience. Factors include:
Age

Income/economic status

Location of residence

Hobbies and interests

How your products or services help improve their life.

Considering these factors help businesses revise their current marketing campaigns and
even the products or services they offer to provide their customers with messages that
resonate with them and products that help them in their daily life.

Example: A wine company previously identified its target audience as young adults in
their 20s, but after conducting an external analysis of their market demographics, they
discover that over 20% of wine sales have come from middle-aged adults in the 30s-
40s. They make an alternative marketing campaign to attract both types of customers.

PEST analysis

Another way to evaluate all of the external factors that could influence a business is by
conducting a PEST analysis. This method allows business owners to look at the political,
economic, social and technological influences on their success:

Political: Laws, regulations and trade barriers

Economic: Inflation, exchange rates and interest rates

Social: Age and population

Technological: New industry technology and R&D investments

A PEST analysis is an excellent way to give business owners an overview of these

components to make sure they do not forget an essential factor in their external analysis
of their business.

Example: An IT software company uses the PEST analysis to identify the following
factors that could affect their business:

*Political: Trade barriers with countries outside of North America*

*Economic: Exchange rates between the U.S., Canada and Mexico*

*Social: Customers tend to be businesses in the eastern region of the U.S.*

*Technological: Updates being made to programming languages like Java, C++ and
Python that could help benefit software creation*

Q13) Explain the Industrial Organization Model.

A) Using models from industrial organization can help a business decide on the best
pricing and output level for its market. These models are an economic description of
the firms in an industry, including their optimal production choices. The models use
game theory to explore the actions and reactions of real-life businesses in
competition.
Game Theory Basics
Game theory is a sub-field in mathematics and economics. In a game, there are players
who can take certain actions and a variety of payoffs for those actions. For example, a
market with two firms that can each choose a price point and a level of production is a
two-player game. The actions of each business affect the best choices for the other. For
example, if one company decides on a low-price, high-volume strategy, the other
company can either compete directly at that price and volume or attempt to capture
the high-end market with a high-price, low-volume strategy.
Industrial Organization Models
There are three major industrial organization models that are easiest to define in
terms of two firms. The most basic is the Cournot model: two firms that each choose
their price and output level at the same time. The optimal output for each firm is the
quantity where marginal cost equals marginal revenue. The Bertrand model is similar
but involves companies choosing their prices rather than their outputs -- the outcome
will be the same. The final basic model is the Stackelberg leader-follower model, in
which one firm gets to enter the market first. That firm will get to produce more and
earn more revenue than the follower firm.
Other Models
The models above are best suited to industries with few numbers of competitors.
However, the real world often has markets with many competing businesses.
Industrial organization has more general models of industry that allow for more firms.
They are arranged on a continuum- on one extreme is the monopoly, with only one
firm, and on the other extreme lies perfect competition, with a vast number of small
firms. There are variations in between- an oligopoly is a market with only a few firms,
while an industry that has a dominant firm with a competitive fringe will have one
large company that faces many small competitors.
Benefits of Modeling Strategy
Modeling the local market can inform a business owner about the possible actions of
their competitors. The number of competitors and the typical production levels of
each one can offer clues about price and output strategy. In most models, producing at
the level where marginal cost equals marginal revenue will optimize profits, but it is
informative to learn about the different models and how firms behave in each one. The
models let the manager decide how much product to sell and the price level of the
product.

Q14) Discuss the various strategic decisions involved at different levels of

strategy. Illustrate your answer with the help of examples.
A) Strategic decisions are the decisions that are concerned with whole environment in
which the firm operates, the entire resources and the people who form the company
and the interface between the two.
Characteristics/Features of Strategic Decisions

a. Strategic decisions have major resource propositions for an organization. These

decisions may be concerned with possessing new resources, organizing others or
reallocating others.
b. Strategic decisions deal with harmonizing organizational resource capabilities
with the threats and opportunities.
c. Strategic decisions deal with the range of organizational activities. It is all about
what they want the organization to be like and to be about.
d. Strategic decisions involve a change of major kind since an organization operates
in ever-changing environment.
e. Strategic decisions are complex in nature.
f. Strategic decisions are at the top most level, are uncertain as they deal with the
future, and involve a lot of risk.
g. Strategic decisions are different from administrative and operational decisions.
Administrative decisions are routine decisions which help or rather facilitate
strategic decisions or operational decisions. Operational decisions are technical
decisions which help execution of strategic decisions. To reduce cost is a
strategic decision which is achieved through operational decision of reducing the
number of employees and how we carry out these reductions will be
administrative decision.

The differences between Strategic, Administrative and Operational decisions can be

summarized as follows-

Strategic Decisions Administrative Operational Decisions

Decisions

Strategic decisions are long- Administrative decisions Operational decisions are

term decisions. are taken daily. not frequently taken.

These are considered where These are short-term These are medium-period
The future planning is based Decisions. based decisions.
concerned.

Strategic decisions are taken These are taken according These are taken in
in Accordance with to strategic and accordance with strategic
organizational mission and operational Decisions. and administrative
vision. decision.

These are related to overall These are related to These are related to
Counter planning of all working of employees in production.
Organization. an Organization.

These deal with These are in welfare of These are related to

organizational Growth. employees working in an production and factory
organization. growth.

Q15) How do the environmental factors affect the organization? Explain with
respect to the PESTLE framework.

A) PESTLE analysis is a tool used in business to gain information about a company’s

circumstances (its “environment”), and what may come of them. This simple analysis,
which revolves around the Political, Economic, Social, Technological, Legal, and
Environmental factors that affect a business, is an extension to PEST analysis (which
only looks at the first four of the aforementioned factors).

What are Environmental Factors?

In business analysis, the word ‘environmental’ can sometimes be used refer to all
external factors that affect a business (just like in environmental analysis), from
Political to Legal, and everything in between.

However, in the context of PESTLE analysis, environmental factors — which are also
sometimes called ‘ecological factors’ — refer to variables regarding the physical
environment (the climate of Earth, for example). This can include things like consumer
health, climate change, the availability of energy, or any direct consequences of these
things.

How can environmental factors affect business?

From the sound of it, it may seem that environmental factors have very little to do with
business. On the contrary, though, environmental factors can affect many
different important aspects of business. Examples include customer willingness to buy a
product (who needs heaters in a hotter climate?), employee efficiency, and
crop/resource availability.

Examples of environmental factors affecting business include:

 Climate
 Climate change
 Weather
 Pollution
 Availability of non-renewable goods

And consequently,

 Availability of certain renewable goods

 Existence of certain biological species
 Workplace efficiency
 Environment-related laws

Here is how some of the aforementioned examples can affect business:

Availability of non-renewable goods — The availability of non-renewable goods,

especially popular ones like oil or natural gas, can vastly change the market. Should the
supply of these goods drop (as is currently happening), prices might grow higher,
greatly affecting businesses that use the fuels in any significant amounts — like
industrial or logistical ones.

Existence of certain biological species — This point doesn’t need too much
explaining. Hypothetically speaking, if climate change were to make every cow and goat
extinct, it would not mean good things for any businesses in the dairy industry.

Q16) What is ‘differentiation’? How does ‘differentiation’ help the organization to

develop the competitive edge? Explain with suitable examples.

A) Definition of differentiation in business

Essentially, differentiation in business refers to the principle of setting your company

apart from the competition through a specific element, such as your distribution
network or price-point. It provides a superior level of value to your customers and helps
your company to distinguish itself in the marketplace. As such, the main aim of any
differentiation strategy is to increase your business’s competitive advantage.

The importance of differentiation in business

The importance of differentiation in business is clear – it helps companies develop

unique niches within competitive industries or markets, thereby enabling them to
thrive. Many business owners try to create companies that mean all things to all men,
but that’s a largely impossible aim. Instead, creating a more focused path for your
business can be extremely beneficial, providing several distinct advantages:

Compete without lowering prices – Differentiation strategies in business can give you a
way to compete against other firms without getting into a price war. Whether you’re
making a commitment to ethical business practices or focusing on high-quality products
that are built to last, you’ll have a USP that other companies won’t that doesn’t simply
involve lowering your prices until you’re dealing with unsustainable, razor-thin
margins.

Develop unique products – In addition, differentiation in business can help you build a
unique product/service, even if there isn’t much to distinguish your products from your
competitors. For example, bottled water companies (which largely produce the same
product), can distinguish themselves from the competition and develop brand loyalists
through differentiation strategies, such as focusing on a lower price-point, advertising
the fact that the business is family owned, and so on.

Increase customer loyalty – The importance of differentiation in business also extends

to customer loyalty. By improving the perceived quality of your products, you can
increase brand loyalty even at a higher price-point, which can help your business to
prosper.

Bottom line – focusing on a specific niche within your industry can help propel you to
the next stage of growth, helping to make your brand stand out and deliver value-added
service to customers.

Top 5 differentiation strategies in business

When it comes to the application of differentiation in business, you need a solid game
plan. From price to product, image to distribution, there are many differentiation
strategies in business to explore. Look at these options to find one that’s right for your
company:

Price differentiation

For many businesses, the first port-of-call is price differentiation. When you
differentiate by price, you’ll split up your potential customers into segments and
maximise your potential revenue by offering each segment a differentiated
product/service at a different price-point. While price differentiation can be effective
and recognises the fact that the value of goods is largely subjective, it can mean that
you’ll need to reduce prices.

Product differentiation

Another popular differentiation strategy in business is product differentiation. This is

probably the most visible form of differentiation as it revolves around both actual and
perceived differences in your products compared to the competition, such as features,
performance, aesthetics, and so on. However, product differentiation tends to be short-
lived and innovations are relatively easy to duplicate.
Distribution differentiation

The application of differentiation in business can also extend to your channels of

distribution. By offering greater coverage or availability, your business can become the
de-facto choice for customers within your industry. In addition, improving your
distribution is a time-staking process and it can be intensely difficult for your
competitors to duplicate this level of differentiation, meaning that it may be more
effective than standard forms of product differentiation.

Image differentiation

Next, there’s image or reputational differentiation. Simply put, this refers to the practice
of making your brand stand for something in the mind of your customers, from ethical
buying processes to community outreach. A great example of this sort of differentiation
in business is the Dove Campaign for Real Beauty, which has helped to associate a
multinational personal care brand with social justice and body image campaigns in the
eyes of many consumers around the world.

Q17) Explain briefly the five forces framework and use it for analyzing
competitive environment of any industry of your choice.

A) Porter theorized that understanding both the competitive forces at play and the
overall industry structure are crucial for effective, strategic decision-making, and
developing a compelling competitive strategy for the future.

In Porter’s model, the five forces that shape industry competition are

1. Competitive rivalry

This force examines how intense the competition is in the marketplace. It considers the
number of existing competitors and what each one can do. Rivalry competition is high
when there are just a few businesses selling a product or service, when the industry is
growing and when consumers can easily switch to a competitor’s offering for little cost.
When rivalry competition is high, advertising and price wars ensue, which can hurt a
business’s bottom line.

2. The bargaining power of suppliers

This force analyzes how much power a business’s supplier has and how much control it
has over the potential to raise its prices, which, in turn, lowers a business’s profitability.
It also assesses the number of suppliers of raw materials and other resources that are
available. The fewer supplier there are, the more power they have. Businesses are in a
better position when there are multiple suppliers. Learn more about finding suppliers
and B2B partners.
3. The bargaining power of customers

This force examines the power of the consumer, and their effect on pricing and quality.
Consumers have power when they are fewer in number but there are plentiful sellers
and it’s easy for consumers to switch. Conversely, buying power is low when consumers
purchase products in small amounts and the seller’s product is very different from that
of its competitors.

4. The threat of new entrants

This force considers how easy or difficult it is for competitors to join the marketplace.
The easier it is for a new competitor to gain entry, the greater the risk is of an
established business’s market share being depleted. Barriers to entry include absolute
cost advantages, access to inputs, economies of scale, and strong brand identity.

5. The threat of substitute products or services

This force studies how easy it is for consumers to switch from a business’s product or
service to that of a competitor. It examines the number of competitors, how their prices
and quality compare to the business being examined, and how much of a profit those
competitors are earning, which would determine if they can lower their costs even
more. The threat of substitutes is informed by switching costs, both immediate and
long-term, as well as consumers’ inclination to change. Learn how to perform a
competitive analysis to stay ahead of other players in the market. To take full advantage
of this strategy make sure you’re able to properly calculate cost of goods sold (COGS).

Example of Porter’s Five Forces

There are several examples of how Porter’s Five Forces can be applied to various
industries. The ultimate goal is to identify the opportunities and threats that could
impact a business. As an example, stock analysis firm Trefis looked at how Under
Armour fits into the athletic footwear and apparel industry.

Competitive rivalry: Under Armour faces intense competition from Nike, Adidas, and
newer players. Nike and Adidas, which have considerably larger resources at their
disposal, are making a play within the performance apparel market to gain market
share in this up-and-coming product category. Under Armour does not hold any fabric
or process patents, hence its product portfolio could be copied in the future.

Bargaining power of suppliers: A diverse supplier base limits supplier bargaining

power. Under Armour’s products are produced by dozens of manufacturers based in
multiple countries. This provides an advantage to Under Armour by diminishing
suppliers’ leverage.

Bargaining power of customers: Under Armour’s customers include wholesale

customers and end-user customers. Wholesale customers, like Dick’s Sporting Goods,
hold a certain degree of bargaining leverage, as they could substitute Under Armour’s
products with those of Under Armour’s competitors to gain higher margins. The
bargaining power of end-user customers is lower as Under Armour enjoys strong brand
recognition.

Threat of new entrants: Large capital costs are required for branding, advertising, and
creating product demand, which limits the entry of newer players in the sports apparel
market. However, existing companies in the sports apparel industry could enter the
performance apparel market in the future.

Threat of substitute products: The demand for performance apparel, sports footwear
and accessories is expected to continue to grow. Therefore, this force does not threaten
Under Armour in the foreseeable future.

Strategies for success

Once your analysis is complete, it’s time to implement a strategy to expand your
competitive advantage. To that end, Porter identified three generic strategies that can
be implemented in any industry (and by companies of any size.)

Cost leadership

Your goal is to increase profits by reducing costs while charging industry-standard

prices, or to increase market share by reducing the sales price while retaining profits.

Differentiation

To implement this strategy, your company’s products need to be significantly better

than the competition’s, improving their competitiveness and value to the public. It
requires thorough research and development, plus effective sales and marketing.

Q18) How does the nature of markets determine the competitive rivalry between
business organizations? Explain with suitable examples.

A) What is competitive rivalry?

Competitive rivalry is the measurement or intensity of competition between companies

in the same field or industry. Some competitive rivalry is often healthy for all businesses
involved, as it encourages product and service innovation and discourages unnecessary
price increases for customers. However, excessive competitive rivalry can pose
challenges to some companies.

Forms of industry rivalry

Competitive rivalry, or industry rivalry, can take a variety of forms, depending on the
resources available to the businesses involved in the competition. A few of the most
common forms of industry rivalry include:
Price: One of the easiest ways to increase your company's perceived value in a
competitive market is through lowering your prices to undercut competitors.

Advertising: Increased or innovative advertising can draw more customers to your

business and away from competitors.

Product or service differentiation: Innovating your product or service to be better than

the competition can also maximize your market share.

What factors determine competitive rivalry?

Competitive rivalries exist for a number of reasons. These factors can influence the
existence and intensity of a competitive rivalry:

Market saturation

Markets that have a substantial number of businesses offering similar products or

services have a higher likelihood of encountering competitive rivalries than those with
fewer direct competitors. Companies facing this type of competitive rivalry often feel
compelled to spend time and money demonstrating their uniqueness to consumers.

Slow market growth

In a slowly growing market, there's increased competition over the few available
consumers, regardless of market saturation. Often, in this situation, the only way to gain
new customers is to find ways to get consumers to switch from a competitor to you.

High overhead

Some industries have higher overhead, or fixed costs, than others. In markets where
overhead is costly, companies must set higher price points to accommodate their fixed
costs, leading to increases in other methods for gaining market share aside from pricing.

Lack of differentiation

Some industries have little product or service differentiation from one company to the
next. A lack of differentiation can increase the chances a consumer will select a product
based purely on price or availability rather than brand loyalty, leading to competitive
rivalry.

Low switching costs

There are industries and fields in which switching from one product or company to
another takes very little time or money. In these industries, competitive rivalry is often
high because consumers have little reason to remain loyal to one company over
another.
Supply and demand

Changes to consumer demand or supply availability can impact an industry's overall

competitive rivalry. Often, in cases of supply and demand shift, the increase in
competitive rivalry is short-lived.

Business diversity

Some industries have multiple options for marketing, pricing and selling their products
of services. Diversity in any of these areas can increase competitive rivalry, since some
strategies might be more effective than others when increasing market share.

Strategic planning

Strategic planning, like focusing on long-term growth and development over short-term
profit increases, can affect competitive rivalry by shifting the focus of the market.

Exit barriers

It's more difficult to leave some industries than others, resulting in businesses taking
drastic measures to remain profitable rather than to find a way to exit the market,
leading to an increase in competitive rivalry.

Pros and cons of competitive rivalry

Competitive rivalry can offer advantages and disadvantages to the companies involved.
Consider a few of the primary benefits and obstacles competitive rivalry can present:

Pros of competitive rivalry

Competitive rivalries can motivate your company to make positive changes and
improve your profitability. Consider a few of the opportunities competitive rivalry
presents:

Improved customer service: Improving your business's customer service offerings is an

easy and practical way to increase customer loyalty.

Higher innovation: You'll find new ways to innovate and demonstrate your creativity
when faced with a saturated marketplace.

Regular self-assessment: In order to stay relevant to customers and continue improving

market share, you'll likely spend more time identifying your strengths and weaknesses.

Increased customer focus: You'll likely improve your customer outreach and focus to
gain more customers than your competitors.

Growth in the market: Competition encourages everyone in the industry to find

alternative ways to do business and grow the field overall.
Identifying industry solutions: The more competitors there are in the market, the more
group negotiating and regulating power the whole industry has.

Cons of competitive rivalry

Sometimes, competitive rivalry can present challenges to the companies involved. Be

aware of these common disadvantages to prepare for and neutralize them before they
negatively impact your business operations:

Increased costs: When the market is saturated with companies selling similar products
or services, the need to spend money on advertising and differentiation often increases.

Fewer customers: The more options a customer has, the fewer individuals each
company has access to.

Development pressure: Since a saturated, highly competitive marketplace has fewer

customers to cater to, you may need to find ways to expand your operation and engage
a new demographic to stay profitable.

Decreased market share: Manufacturing too many products in a saturated market can
lead to forced discounts and other profit loss measures to keep commodities from
stagnating on a shelf or in a warehouse.

Q19) Perform a SWOT analysis for an organization of your choice.

A) What Is a SWOT Analysis?

SWOT stands for Strengths, Weaknesses, Opportunities, and Threats, and so a SWOT
analysis is a technique for assessing these four aspects of your business.

SWOT Analysis is a tool that can help you to analyze what your company does best now,
and to devise a successful strategy for the future. SWOT can also uncover areas of the
business that are holding you back, or that your competitors could exploit if you don't
protect yourself.

A SWOT analysis examines both internal and external factors – that is, what's going on
inside and outside your organization. So some of these factors will be within your
control and some will not. In either case, the wisest action you can take in response will
become clearer once you've discovered, recorded and analyzed as many factors as you
can.

Use a SWOT (strengths, weaknesses, opportunities, threats) analysis to grow your

business.

 A SWOT analysis is a compilation of your company’s strengths, weaknesses,

opportunities and threats.
 The primary objective of a SWOT analysis is to help organizations develop a full
awareness of all the factors involved in making a business decision.
  Perform a SWOT analysis before you commit to any sort of company action,
whether you are exploring new initiatives, revamping internal policies,
considering opportunities to pivot or altering a plan midway through its
execution.
 Use your SWOT analysis to discover recommendations and strategies, with a
focus on leveraging strengths and opportunities to overcome weaknesses and
threats.

To run a successful business, you should regularly analyze your processes to ensure you
are operating as efficiently as possible. While there are numerous ways to assess your
company, one of the most effective methods is to conduct a SWOT analysis.

A SWOT (strengths, weaknesses, opportunities and threats) analysis is a planning

process that helps your company overcome challenges and determine what new leads
to pursue.

Strengths

The first element of a SWOT analysis is Strengths.

 Things your company does well

 Qualities that separate you from your competitors

 Internal resources such as skilled, knowledgeable staff

 Tangible assets such as intellectual property, capital, proprietary technologies, etc.

Weaknesses

Once you’ve figured out your strengths, it’s time to turn that critical self-awareness on
your weaknesses.

 Things your company lacks

 Things your competitors do better than you

 Resource limitations

 Unclear unique selling proposition

Opportunities

Next up is Opportunities.

 Underserved markets for specific products

 Few competitors in your area

 Emerging needs for your products or services

 Press/media coverage of your company

Threats

The final element of a SWOT analysis is Threats – everything that poses a risk to either
your company itself or its likelihood of success or growth.

 Emerging competitors

 Changing regulatory environment

 Negative press/media coverage

 Changing customer attitudes toward your company

Q20) Explain and identify the type of resources which an organization may
possess.

A) A resource, in broad sense, refers to anything that enables an individual or an

organisation to work effectively. It can be money or it can be the employees of an
organisation. The higher the availability of resource more is the value addition. All the
natural elements that help us to sustain ourselves in this world are our resources. Some
resources have immense economic value while others do not. Many resources have
cultural and artistic value too. In today’s technology-driven era, even biological wastes
can be converted into efficient resources. Fossil fuel is a great example of this.
Types of Resources
All resources can be broadly categorized into types- natural resources and man-made
resources. They again are of various types. Following are the different types of
resources and their significance:
1. Natural Resources
All things and resources that are naturally abundant are referred to as natural resource.
These can again be classified into:
a. Biotic and Abiotic Resources
Biotic and abiotic resources refer to the living and non-living forms available in nature.
Humans, plants and animals fall in the first category while rocks, metals and stones are
of second type. These can be renewable and non-renewable also.
Renewable Resource
Those resources which can renew themselves and are abundant in nature are
renewable sources such as wind, sunlight etc.
Non-renewable Resources
Those which are available in nature in limited quantity and are not able to renew
themselves are non-renewable resources. Minerals and fossil fuels are such example.
They take millions of years to form and pose a chance to be exhausted.
b. Potential, Developed and Stock Resources
There are some resources which are available naturally and quite easily too. But till date
the full potential of these resources have not been identified by the human being. Such
resources are identified as potential resources. In today’s times, these resources are
being utilised by the mankind to some extent but there are more to discover. The true
potential is yet to be explored. Solar and wind power are two such potential resources.
There are some resources that we, the human beings, have fully explored and use them
extensively. These resources are developed over the time and their full potential is
already put to use. Such resources are referred to as developed resources. Fossil fuel is
an excellent example of this resource. Minerals and water are also members of this
category. Capacities and abilities that we extract from plants and animals for our use till
date are also developed resources.
2. Manmade Resources
These refer to resources that are produced by humans from already available natural
things. These then functions as value addition elements. These resources are renewable
in most cases. Wood, cement, sand, etc are naturally available resources. Man takes
them and applies techniques to make buildings or bridges and roads and so on. These
are the manmade resources. The technology that is developed almost every day utilising
the marvels of science and other natural resources is also a manmade resource. Being
renewable, the buildings or other developments can be broken down and rebuilt for
numerous times.
3. Human Resource
The skills and intelligence humans possess, are put to use to make the new man-made
resources. Thus, human beings themselves are also rendered as a valuable resource.
The knowledge of taking natural resources and developing new valuable resources
make for human resource. Stronger human resource ensures efficient growth and
development.
Conservation of Resource
Any resource is largely dependent on their availability. Thus the conservation of these
resources is necessary. Saving water and trees or forest is the primary step of resource
conservation. Opting for renewable sources like solar and wind power instead of fossil
fuels is a wise option.
Controlled utilisation of the resources would lead to retention of the same. We will be
able to use them for longer period and leave some in store for the future generations
too. Sustainable development should be concentrated upon.
Conclusion
Use of resources should be balanced so that the stock is ever exhausted. Utilisation and
development of these resources will be such that environment is left unharmed. Then
only we can attain sustainability. Our beloved planet earth can remain resourceful only
if we are cautious about utilising its resources in a responsible manner.

Q21) Briefly discuss the value chain framework.

A) A value chain is a concept describing the full chain of a business's activities in the
creation of a product or service -- from the initial reception of materials all the way
through its delivery to market, and everything in between.
The value chain framework is made up of five primary activities -- inbound operations,
operations, outbound logistics, marketing and sales, service -- and four secondary
activities -- procurement and purchasing, human resource management, technological
development and company infrastructure.

A value chain analysis is when a business identifies its primary and secondary activities
and subactivities, and evaluates the efficiency of each point. A value chain analysis can
reveal linkages, dependencies and other patterns in the value chain.

How do value chains work?

The value chain framework helps organizations identify and group their own business
functions into primary and secondary activities.

Analyzing these value chain activities, subactivities and the relationships between them
helps organizations understand them as a system of interrelated functions. Then,
organizations can individually analyze each to assess whether the output of each
activity or subactivity can be improved -- relative to the cost, time and effort they
require.

When an organization applies the value chain concept to its own activities, it is called a
value chain analysis.

Primary activities

Primary activities contribute to a product or service's physical creation, sale,

maintenance and support. These activities include the following:

 Inbound operations. The internal handling and management of resources coming

from outside sources -- such as external vendors and other supply chain sources.
These outside resources flowing in are called "inputs" and may include raw
materials.

 Operations. Activities and processes that transform inputs into "outputs" -- the
product or service being sold by the business that flow out to customers. These
"outputs" are the core products that can be sold for a higher price than the cost of
materials and production to create a profit.
 Outbound logistics. The delivery of outputs to customers. Processes involve
systems for storage, collection and distribution to customers. This includes
managing a company's internal systems and external systems from customer
organizations.

 Marketing and sales. Activities such as advertising and brand-building, which seek
to increase visibility, reach a marketing audience and communicate why a consumer
should purchase a product or service.

 Service. Activities such as customer service and product support, which reinforce a
long-term relationship with the customers who have purchased a product or
service.

As management issues and inefficiencies are relatively easy to identify here, well-
managed primary activities are often the source of a business's cost advantage. This
means the business can produce a product or service at a lower cost than its
competitors.

Secondary activities

The following secondary activities support the various primary activities:

 Procurement and purchasing. Finding new external vendors, maintaining vendor

relationships, and negotiating prices and other activities related to bringing in the
necessary materials and resources used to build a product or service.

 Human resource management. The management of human capital. This includes

functions such as hiring, training, building and maintaining an organizational
culture; and maintaining positive employee relationships.

 Technology development. Activities such as research and development, IT

management and cybersecurity that build and maintain an organization's use of
technology.

 Company infrastructure. Necessary company activities such as legal, general

management, administrative, accounting, finance, public relations and quality
assurance.
Benefits of value chains
The value chain framework helps organizations understand and evaluate sources of
positive and negative cost efficiency. Conducting a value chain analysis can help
businesses in the following ways:

 Support decisions for various business activities.

 Diagnose points of ineffectiveness for corrective action.

 Understand linkages and dependencies between different activities and areas in the
business. For example, issues in human resources management and technology can
permeate nearly all business activities.

 Optimize activities to maximize output and minimize organizational expenses.

 Potentially create a cost advantage over competitors.

 Understand core competencies and areas of improvement.

A value chain analysis can offer important benefits; however, when emphasizing
granular process details in a value chain, it's important to still give proper attention to
an organization's broader strategy.

Q22) Discuss the concept of cost leadership in the present context

A) What is a cost leadership strategy?

Cost leadership occurs when a company is the category leader for low pricing. To
successfully achieve this without drastically cutting revenue, a business must reduce
costs in all other areas of the business, such as marketing, distribution and packaging. A
cost leadership strategy is a company’s plan to become a cost leader in its category or
market.

Benefits of being a cost leader

There are many benefits to being a cost leader. Cost leaders can charge the lowest
amount for a product while remaining profitable. Other companies may have to sell
their products at a loss to compete with a cost leader’s prices.

Cost leaders can also withstand recessions better than competitors because they are
experienced in appealing to consumers with budgets in mind. A company with very low
operational costs could go longer without achieving sales goals than a company with
high costs.
Also, cost leaders can be more flexible. Since their costs are low, they can discount
prices more often or potentially try out other product offerings that other companies
might not be able to. Companies with flexibility are likely to attract a larger customer
base.

While there are many benefits to being a cost leader, it should also be noted that
choosing a cost leadership strategy can be risky. As opposed to offering superior
products or brand appeal, a cost-leadership company’s greatest value to consumers
tends to be low pricing. Therefore, if a competitor can reduce costs more, it will pose a
substantial threat to a company’s consumer base.

How to become a cost leader

Most cost leaders rely on a variety of these methods at the same time to keep their
operational costs extremely low and maintain their cost leadership status. Ways to
become a cost leader include:

Increasing the production scale

Implementing advanced technology

Sourcing raw materials

Improving efficiency

Limiting products and services

1. Increasing production scale

Scaling a business can have a significant impact on its ability to become a cost leader.
Scaling occurs when a company reduces costs by increasing the volume of materials. For
instance, if a company purchases a large amount of fabric instead of only the amount it
requires, the company can reduce the cost of goods with a lower per-yard price. Scaling
the business helps to secure larger orders of raw materials and supplies, which can
further reduce the cost of goods. It also gives a company more power over suppliers,
since the company’s orders will make a larger share of the supplier’s business
operations.

Scaling a business also insulates it against the competition. Cost leaders that scale tend
to have more negotiating power, more flexibility with pricing and the ability to
withstand competition more effectively. If a company is in an industry with intense
competition, scaling gives it the ability to offer prices that competitors cannot. That
company also gains the ability to offer inventory on a much larger scale, so it can
capture a bigger segment of the market without worrying about running out of
inventory.
2. Implementing advanced technology

Creating or investing in innovative technology can help companies become cost leaders.
Sometimes, a company can lower costs by creating a technology that can manufacture
more products per hour, limit the number of employees needed for production or
provide some other benefit to the process’s efficiency. Patenting a unique technology
will also ensure that other companies, including competitors, can’t use it for their own
benefit. A company could also sell its patented technology later on to generate more
revenue.

Sometimes, already existing software programs can benefit companies by saving time or
reducing costs. If the program can reduce the number of employees a company needs in
the operational process or the number of errors in the production process, it might be
worth the investment. As companies grow, it is only natural to try to find ways to
streamline processes along the way.

3. Sourcing raw materials

Buying raw materials for the manufacturing process can be expensive because the
supplier also marks up their prices to make a profit. If possible, sourcing raw materials
and reducing the reliance on third-party products can lower operational costs.

Sourcing materials directly also gives a company the ability to supply other companies.
If a business’s raw material supply greatly exceeds its needs, it can resell it to other
manufacturers at a market price as another source of income.

4. Improving efficiency

Increased efficiency can often translate into operational cost savings for companies. One
example of this is to use software to reduce the number of people required to work on
the process, which would reduce salary payments.

However, reducing employees is not the only way to improve efficiency and reduce
costs. Quicker manufacturing times for custom orders means that a company might be
able to charge more for speedy service even though a company doesn’t have to pay as
much for the electricity and related expenses for making a product. Better efficiency can
help companies without custom products, too.

For instance, a company can make 100 cloth diapers an hour in its sewing factory per
day. It costs $3,000 a day to run the plant, pay the staff members and cover other
expenses. If the company increases efficiency through technology, reorganizing the
process to become more efficient, or bulk cut fabrics instead of one piece at a time, that
company might be able to manufacture 200 cloth diapers a day for $3,500. The company
immediately reduces the operational cost per cloth diaper sold with very little effort.

5. Limiting products and services

One strategy to become a cost leader is for a company to limit its products and services.
By having fewer products to manufacture and sell, that company can focus more of its
efforts on a few highly profitable products or services. This makes it easier and more
likely that that company will be able to scale its operations and get the lowest costs on
raw materials and other supplies.

Q23) What is competitive strategy? Discuss with illustrations.

A) What is a Competitive Strategy?

Competitive strategy is a long-term action plan of a company which is directed to gain

competitive advantage over its rivals after evaluating their strengths, weaknesses,
opportunities and threats in the industry and compare it with your own. Michael Porter,
a professor at Harvard presented competitive strategy concept. According to him there
are four types of competitive strategies that are implemented by businesses globally. It
is necessary for businesses to understand the core principles of this concept that will
help them to make a well-informed business decisions in the course of action.

Definition of Competitive Strategy

As mentioned above, competitive strategy is a long-term action plan of firms so as to

gain a competitive advantage over its rivals in the industry. This strategy is focused to
achieve above average position and generate a superior Return on Investment (ROI).
This strategy is very important when firms having a competitive marketplace and
several similar products available for consumers.

Four Types of Competitive Strategy

Michael Porter divided competitive strategy in four different types of strategies.

Cost Leadership Strategy

Cost leadership strategy is difficult to implement for small scale businesses as it

involves making long term commitment for offering products and services at lower
prices in the market. For this purpose firms need to produce products at low cost
otherwise it will not make profit.

Since the cost leadership means to become low cost producer or provider in the
industry, Any large-scale business which can provide and manufacture products at low
cost by attaining economies of scale. There are many cost leadership factors such
efficient operation, large distribution channels, technological advancement and
bargaining power. Here Walmart is a good example.

Differentiation Leadership Strategy

Identifying attribute of a product which are unique from competitors in the industry is
the driving factor in the differentiation leadership strategy. When a product is able to
differentiate itself from other similar products or services in the market through
superior brand quality and value added features it will be able to charge premium
prices to cover the high cost.
There are few business examples who successfully differentiated their brands e.g.
Apple, Clif Bar and Company, Ben & Jerry’s and T Mobiles.

Cost Focus Strategy

This strategy is quite a resemblance to the cost leadership strategy; however, a major
difference is that the cost focus strategy businesses target a particular segment within
the market and that segment is offered the lowest price of the product or service. This
type of strategy is very useful to satisfy your consumer and increase brand awareness.

For example, beverage companies manufacturing mineral water can target market
segment like Dubai, where people need and use only mineral water for drinking, can be
sold at a lower than competitors.

Differentiation Focus Strategy

Similar to the cost focus strategy, differentiation focus strategy targets a particular
segment within the market; however, instead of offering lower prices to consumer;
firms differentiate itself from its competitors. Differentiation strategy offers unique
features and attributes to appeal its target segment. For example, Breezes Resorts, is a
company having several resorts and caters only couple having no children and offer
peaceful environment without any children disruption.

Examples of competitive Strategies

Case Study of Aldi

The rise of Aldi in the food retail industry is very impressive and this position is mainly
associated with its competitive strategy which is its use of ‘Lean Production’ which
makes the organization more efficient. Through lean production, Aldi aims to reduce the
number of resources that are used in the provision of goods and services to consumers.
Additionally, the concept also involves eliminating waste and utilizing lesser material,
space, labour and time. The overall result is a reduced cost of production.

Another competitive strategy which stands for Aldi and against its competitors is that
its investment in staff members. Every member undergoes a comprehensive training
program which makes them multi-skilled and they are able to undertake different roles
in the workplace. In this way, Aldi has to hire lesser staff to run its stores.

Case Study of Apple

Apple Inc. is the manufacturer and marketer of computers and consumer electronic
products including tablets, smartphones, and music players. The company has attained
a distinct position in the industry through its competitive strategy which is innovation
and premium pricing policy. Apple has a consistent practice of developing new products
and its ability to make product complement with each other and strengthens customer
loyalty and helps in creating a barrier for competitors in the market.
The company also sets premium prices for its products. The aim of the company is to
offer a high-quality product with unique features and uses higher prices to reinforce the
perception of added value along with maintaining profitability.

Q24) Explain the concept of competitor analysis.

A) What is competitor analysis?

A competitor analysis refers to an assessment of your competitor's strengths ad

weaknesses. This type of analysis helps you determine how your competitors compare
to your own business. Essentially, it involves obtaining information about your
company's biggest competitors to improve your own business.

The main goals of a competitor analysis include the following:

To identify your strongest competitors

To determine your competitors' strategies

To anticipate their actions

To anticipate their reactions based on the actions of your own business

To influence their actions in a way that benefits your company

Having this information can help you create, implement and adjust strategies to
improve your company's efforts. It also helps you identify any potential threats your
business may face.

Many businesses conduct competitor analysis through impressions, conjectures and

intuition. Because of this, blindspots may arise which can lead to an inadequate amount
of information to create a well-informed strategy. To avoid this, companies must
conduct a thorough analysis at various stages of business.

Benefits of a competitor analysis

Now that you understand what a competitor analysis is, consider whether or not it's
useful for your own business. Here are some of the benefits this type of analysis
provides:

Helps build better marketing strategies

When you understand your competitor and what they're capable of, you're more
equipped to use this information to your advantage. In other words, a thorough analysis
can help you build strategies to market your business more effectively. A solid
marketing strategy can even raise profits and help you achieve finance or performance
goals.
Identifies under-served opportunities

Conducting a competitor analysis helps identify any products or services your

customers want but don't currently have access to. When you determine these under-
served opportunities, it gives you a chance to come up with a solution to fill a customer
need.
Lets you capitalize on their weaknesses

When you understand your competitor's weaknesses, you can use them to your
advantage. For example, if they don't have the resources or capabilities to do XYZ and
you do, you can help fill that need and grow in your market.

Helps you make well-informed decisions

Whether you're planning for the future or making real-time decisions, using a
competitor analysis can help you make more strategic decisions and investments to
benefit your business.

How to identify competitors

Before you start a competitor analysis, understand who your competitors are. A
competitor refers to any business or company in the same industry that offers a similar
product or service. While it's important to identify your existing competitors, you also
need to have information regarding your potential competitors that may enter your
market in the future. Here are some simple ways to identify your competitors:

Conduct market research

Determine what other companies offer a similar product or service in your market that
directly competes with yours. You can also consult with your sales team to identify
which competitors often come up throughout the sales process.

Seek customer feedback

Ask your customers which other businesses, products or services they were or are
considering. This can help identify competitors you may not have previously realized.

Use the internet

To better identify your competitors, review customer conversations via online

communities, forums and social media. Since many customers seek advice or
recommendations online, this can help you determine who your competitors are.

Perform keyword research

Conduct a search engine optimization analysis to identify companies competing for the
same place in search engine rankings. If a website competes for the same keywords, it
may be one of your competitors.

Q25) What is corporate level strategy? Why is it important for a diversified

organization?

A) What is a corporate-level strategy?

A corporate-level strategy is a multi-tiered company plan that leaders use to define,

outline and achieve specific business goals. A corporate-level strategy can be used by a
small business to increase its profits over the next fiscal year, whereas a large
corporation might be overseeing the operations of multiple businesses to achieve more
complex goals like selling the company or entering a new market.

Types of corporate-level strategy

When you're constructing your company's corporate-level strategy, you're seeking the
best ways to evenly distribute resources to serve the needs of the company to complete
planned objectives. It can also help you come up with a contingency plan, you remain
prepared to work under unforeseen circumstances.

Let's review the different types of corporate-level strategies that you can employ:

Stability strategy

The stability strategy is when you proceed in working with clients in your industry. This
strategy also assumes that your company is doing well under this current business
model. Since the pathway to growth is uncertain, you should employ a stability strategy
to ensure incremental progress that still brings in revenue, which includes practices
such as research and development and product innovation. An example can be offering
free trials of your existing products to your target audience to increase its engagement.

Expansion strategy

The expansion strategy is great for you if your company is planning on creating new
products and reaching new audiences. It can also be used if you're upgrading the level of
activity within your business like taking on new clients and hiring more employees. You
can apply this strategy if the region you're operating in has a strong economy or if your
focus is to enhance your performance. Overall, this strategy has large earnings potential
for executives, which can lead to raises and expansion to employee benefits packages as
well.

Retrenchment strategy

A retrenchment strategy requires you to strongly consider switching your business

model. This may involve stopping the manufacturing of a product or reducing its
functionality. You may need to allocate more energy to accounts receivable to ensure
you're still getting payments of services you provided to maintain your organization's
cash flow.

This strategy is only used when the company is looking to take protective measures in
keeping the solvency of the business. You should compile a SWOT (Strengths,
Weaknesses, Opportunities and Threats) analysis to see which marketing you can
successfully operate in.

Combination strategy

A combination strategy is a hybrid of the previous three strategies to create your

business model. Its main purpose is to increase the company's performance and find out
which areas of your company can grow and retract based on market conditions. This
approach makes it easier for you to make adjustments to your strategy because you can
be more flexible with your time and how much should be allocated to each function of
your strategy.

Q26) What do you mean by stability strategy? Does this strategy mean that an
organization stands still? Explain

A) Stability Strategy

Definition: The Stability Strategy is adopted when the organization attempts to

maintain its current position and focuses only on the incremental improvement by
merely changing one or more of its business operations in the perspective of customer
groups, customer functions and technology alternatives, either individually or
collectively.

Generally, the stability strategy is adopted by the firms that are risk averse, usually the
small scale businesses or if the market conditions are not favorable, and the firm is
satisfied with its performance, then it will not make any significant changes in its
business operations. Also, the firms, which are slow and reluctant to change finds the
stability strategy safe and do not look for any other options.

Stability Strategies could be of three types:

 To have a better understanding of Stability Strategy go through the following examples
in the context of customer groups, customer functions and technology alternatives.

1. The publication house offers special services to the educational institutions apart from
its consumer sale through the market intermediaries, with the intention to facilitate a
bulk buying.
2. The electronics company provides better after-sales services to its customers to make
the customer happy and improve its product image.
3. The biscuit manufacturing company improves its existing technology to have the
efficient productivity.
In all the above examples, the companies are not making any significant changes in their
operations, they are serving the same customers with the same products using the same
technology.

Q27) What is meant by diversification? What are the pros and cons of a
diversification strategy?

A) Diversification is an act of an existing entity branching out into a new business

opportunity. This corporate restructuring strategy enables the entity to enter into a new
market segment in which it does not already operate. The decision to diversify can
prove to be a challenging decision for the entity as it can lead to extraordinary rewards
with risks.

Some very famous success stories of diversification are General Electric and Disney.
However, the entry of Quaker oats into the fruit juice business, Snapple, lead to a very
costly failure.

Why Do Companies Diversify?

The following are the reasons why firms opt for diversification:

 For growth in business operations

 To ensure maximum utilization of the existing resources and capabilities
 To escape from unattractive industry environments
For learning and gaining more knowledge of the concept of diversification, let’s look at
its advantages and disadvantages.

Advantages Of Diversification
The following are the advantages:

 As the economy changes, the spending patterns of the people change.

Diversifying into a number of industries or product lines can help create a
balance for the entity during these ups and downs.
  There will always be unpleasant surprises within a single investment. Being
diversified can help in balancing such surprises.
 It helps to maximize the use of potentially underutilized resources.
 Certain industries may fall down for a specific time frame owing to economic
factors. Diversification provides movement away from activities that may be
declining.
Disadvantages Of Diversification
The following are the disadvantages:

 Entities entirely involved in profit-making segments will enjoy profit

maximization. However, a diversified entity will lose out due to having limited
investment in the specific segment. Therefore, it limits the growth opportunities
for an entity.
 Diversifying into a new market segment will demand new skill sets. Lack of
expertise in the new field can prove to be a setback for the entity.
 A mismanaged diversification or excessive ambition can lead to a company over
expanding into too many new directions simultaneously. In such a case, all old
and new sectors of the entity will suffer due to insufficient resources and lack of
attention.
 A widely diversified company will not be able to respond quickly to market
changes. The focus on the operations will be limited, thereby limiting the
innovation within the entity.

Q28) What is a turnaround strategy? Describe the different steps involved in

turnaround process.

A) Turnaround Strategy

Definition: The Turnaround Strategy is a retrenchment strategy followed by an

organization when it feels that the decision made earlier is wrong and needs to be
undone before it damages the profitability of the company.

Simply, turnaround strategy is backing out or retreating from the decision wrongly
made earlier and transforming from a loss making company to a profit making
company.

Now the question arises, when the firm should adopt the turnaround strategy?
Following are certain indicators which make it mandatory for a firm to adopt this
strategy for its survival. These are:

 Continuous losses
 Poor management
 Wrong corporate strategies
 Persistent negative cash flows
 High employee attrition rate
 Poor quality of functional management
 Declining market share
 Uncompetitive products and services
Also, the need for a turnaround strategy arises because of the changes in the external
environment Viz, change in the government policies, saturated demand for the product,
a threat from the substitute products, changes in the tastes and preferences of the
customers, etc.

Example: Dell is the best example of a turnaround strategy. In 2006. Dell announced the
cost-cutting measures and to do so; it started selling its products directly, but
unfortunately, it suffered huge losses. Then in 2007, Dell withdrew its direct selling
strategy and started selling its computers through the retail outlets and today it is the
second largest computer retailer in the world.

3 Stages of Turnaround Management

Stage 1 – Assess Viability

This consists of a high level and detailed investigation of the business and its situation,
and can take 2-4 weeks.

The investigation acquires a wide range of information including:

 Current and historical financials (P&L, balance sheet, cash flow and verification
these are reliable including costing systems)
 Stakeholders and debtors
 Management capability
 Cause of situation
 Potential solutions
 Assess if business issues are controllable
 Assess if ongoing business is viable
 Develop SWOT analysis to provide clarity on options.

This is summarised to provide decision-makers with a concise assessment, including

options, risks and priorities to consider in implementing a turnaround.
With current legislation in most countries, the directors have to make the decision on
what to do with this information. The turnaround specialist’s role is to provide the
advice and likely scenarios with the issues.

Stage 2 – Stabilise and Develop Strategy

Once the issues and priorities have been identified and agreed to, Stage 2 focuses on
stabilising the business and planning the recovery strategy. The timeframe can vary
widely depending on the business situation and complexity and can take from 4 weeks
to 3 months. In many cases the foundations of Stage 2 are being formed through the
Stage 1 discovery.

The turnaround strategy consists of the following, and may occur concurrently and in
any order:

 Crisis stabilisation – taking control, cash management, short term financing,

first step cost reduction.
 New or improved leadership – due to inadequate skills, instability in
management, need for fresh ideas, or to bolster a tired team.
 Stakeholder focus – advising and engaging stakeholders dependent on the
outcome and includes financiers, creditors, employees, customers, industry
associations and even government officers (sometimes a source for grants). The
benefit of this aspect is often underestimated and often provides the greatest
source of solutions and support.
 Strategic focus – redefining the core business, restructuring, M&A, divestment.
 Organisational change – engaging key staff, improving communication,
improving morale.
 Process improvements – operational improvements that provides low hanging
fruit, and focus on key issues that may be key risks.
 Financial restructuring – implementing tighter control and monitoring of cash
(implementing a rolling 13 week cash flow forecast), equity injection, asset
reduction or selling under-utilised assets to generate cash or use as security for
short term funding.

Stage 3 – Implementation and Monitoring

Once Stage 2 is underway, the focus will be the detailed implementation and
monitoring.
This may include setting up an advisory board to assist the owners, directors, or board
to maintain focus on the implementation.

The business may bring on board a Chief Restructuring Officer whose prime role is to
implement the turnaround strategy – this allows management to maintain focus on
their core skills.

Stage 3 can over lap stage 2, and can vary from 3 – 12 months.

For more information on turnaround, listen to our podcast on this website.

The next update will expand on the Chief Restructuring Officer role, how it works and
the benefits.

Q29) Discuss the different functions of leadership

A) Seven functions of leadership

Here are seven functions a leader needs to perform:

1. Setting goals

A leader's most important function is to set goals for team members to encourage them
to work confidently and enthusiastically. They also then make strategies to achieve
those goals. Their motive is to create a roadmap for their team members to how to
direct them on the right path and help them achieve the set goals.

2. Organising

A leader's other important function is to organise the group of people into a task which
they can perform effectively. They should know how to assign the roles to the
individuals as per their ability to bring out the best from them. Thus, this function is
vital to increase the team's and individual's productivity.

3. Take initiatives

One of the important functions of leaders is to take initiatives in the team's interest or
the organisation. Leaders should be confident to share their new ideas and also
encourage others to do the same. They should also ensure that each individual in the
group feels comfortable sharing their innovative ideas with them.

4. Cooperation among employees

Leaders have to work to align the interests of the individuals with the organisation. A
leader's approach plays a vital role in doing the same. They have to ensure the
individuals of the group voluntarily cooperate to work towards the common objectives.

5. Motivation and direction

Motivating and showing the right direction to the team or the individual is the primary
function of the leader. They need to motivate the team members to work towards
achieving their goals and guide them when they face difficulties during working in that
direction. They also constantly encourage them by appraising their work and
supporting them when required.

6. Liaison between workers and management

A leader plays a very important role in acting as a link between workers and the
management. They explain the policies and rules created by management to their team
members and help them understand how these policies will be beneficial for them. Also,
a good leader represents the expectations and interests of its subordinate in front of the
management.

7. Policy making

Policy making is a very important function of a leader for the smooth functioning of the
work. The policies leaders make include the rules to follow for effective delivery of
operations of the work. By creating policies, leaders also devise the mechanism to be
followed by all team members to work towards the organisation's goals.

Q30) What do you understand by corporate culture? Should the organization have
a corporate culture of its own? Discuss

A) What is corporate culture?

Corporate culture refers to the values, behaviour and working style of a company. It
indicates how a company treats its employees, customers and community. For example,
one company may give more importance to the environment than profitability, while
another one may be more concerned about increasing its bottom line even if its
operations negatively impact the environment. Similarly, one company may want to get
the most out of its employees, even at the cost of their health and personal life, while
another one may be more generous towards its workforce.

Although one policy or instance of behaviour does not constitute the corporate culture
by itself, it definitely indicates the culture of the company. For example, a company
guided by the belief of developing quality products would never try to pass on
substandard quality products to its customers, even if that translates into higher profits.
Companies may define their culture through company culture statements just like they
define their mission through mission statements. However, it mostly develops
organically over a period of time from the cumulative personality and attitude of the
management and the employees it recruits.
External factors like local customs and traditions, national economic policy and the
industry in which the company operates may also influence the culture of a company.
Corporate culture often reflects in the dress code, office environment, recruitment
policy, client satisfaction and all other aspects of the company operations. Companies
with good corporate culture usually have higher employee retention rates, productive
employees and a motivating work environment.

Why is corporate culture important?

Corporate culture is important because it influences a company's policies, operations

and working style. Following are some reasons and examples that underline the
importance of corporate culture:

Employees often get attracted to companies with a culture they identify with.

Corporate culture impacts the way a company treats its employees, which in turn
impacts employee retention, turnover and productivity.

Corporate culture impacts the way a company deals with its customers.

Corporate culture can help build a strong brand identity as it creates a certain image
and perception in the minds of the customers.

Strong corporate culture can transform employees and customers into brand advocates.

Good corporate culture can promote a healthy team environment.

Elements of corporate culture

Following are the essential elements of corporate culture:

1. Vision

The vision of a company defines its business objectives and what it strives to achieve. It
indicates why the company exists and where it sees itself in the future. Companies
usually communicate their vision through a vision statement. The vision of a company
strongly influences its corporate culture. Customers, suppliers, creditors, potential
employees and other stakeholders can get a fair idea of a company's culture through its
vision statement.

2. Values

The values of a company guide the behaviour and approach it takes to realise its vision.
A value statement declares the priorities of the company and tells you how it conducts
itself. Thus, values greatly impact the mindset and behaviour of the employees and the
expectations of the company's external stakeholders.
3. Practices

The vision and values of a company reflect in the practices it follows. For example, how
a company communicates its policies, how much freedom it gives its employees, what
process it follows for making decisions and how it looks after its customers' concerns all
give you an idea about its culture.

4. People

A company's culture exists largely because of the people it employs. The mindset,
attitude and behaviour of the people working for the company can give you a strong
hint about the company's culture.

Q31) Briefly explain the importance of values and ethics in an organization.

A) Values and ethics in simple words mean principle or code of conduct that
govern transactions; in this case business transaction. These ethics are meant to
analyse problems that come up in day to day course of business operations. Apart from
this it also applies to individuals who work in organisations, their conduct and to the
organisations as a whole.

We live in an era of cut throat competition and competition breeds enmity. This enmity
reflects in business operations, code of conduct. Business houses with deeper pockets
crush small operators and markets are monopolised. In such a scenario certain
standards are required to govern how organizations go about their business operations,
these standards are called ethics.

Business ethics is a wider term that includes many other sub ethics that are
relevant to the respective field. For example there is marketing ethics for marketing,
ethics in HR for Human resource department and the like. Business ethics in itself is a
part of applied ethics; the latter takes care of ethical questions in the technical, social,
legal and business ethics.

Origin of Business Ethics

When we trace the origin of business ethics we start with a period where profit
maximisation was seen as the only purpose of existence for a business. There was no
consideration whatsoever for non-economic values, be it the people who worked with
organisations or the society that allowed the business to flourish. It was only in late
1980’s and 1990’s that both intelligentsia and the academics as well as the corporate
began to show interest in the same.

Nowadays almost all organisations lay due emphasis on their responsibilities towards
the society and the nature and they call it by different names like corporate social
responsibility, corporate governance or social responsibility charter. In India Maruti
Suzuki, for example, owned the responsibility of maintain a large number of parks and
ensuring greenery. Hindustan unilever, similarly started the e-shakti initiative for
women in rural villages.
Globally also many corporations have bred philanthropists who have contributed
compassion, love for poor and unprivileged. Bill gates of Microsoft and Warren Buffet of
Berkshire Hathaway are known for their philanthropic contributions across globe.

Many organisations, for example, IBM as part of their corporate social responsibility
have taken up the initiative of going green, towards contributing to environmental
protection. It is not that business did not function before the advent of business ethics;
but there is a regulation of kinds now that ensures business and organisations
contribute to the society and its well being.

Nowadays business ethics determines the fundamental purpose of existence of a

company in many organisations. There is an ensuing battle between various groups,
for example between those who consider profit or share holder wealth maximisation as
the main aim of the company and those who consider value creation as main purpose of
the organisation.

The former argue that if an organisations main objective is to increase the shareholders
wealth, then considering the rights or interests of any other group is unethical. The
latter, similarly argue that profit maximisation cannot be at the expense of the
environment and other groups in the society that contribute to the well being of the
business.

Nevertheless business ethics continues to a debatable topic. Many argue that lots of
organisations use it to seek competitive advantage and creating a fair image in the eyes
of consumers and other stakeholders. There are advantages also like transparency and
accountability.

Q32) Describe different models of Corporate Governance.

A) Corporate Governance Models

The Corporate governance models are broadly classified into following categories:

1. Anglo-American Model
2. The German Model
3. The Japanese Model
4. Social Control Model

Anglo-American Model

Under the Anglo-American Model of corporate governance, the shareholder rights are
recognised and given importance. They have the right to elect all the members of the
Board and the Board directs the management of the company. Some of the features of
this model are:
  This is shareholder oriented model. It is also called Anglo-Saxon approach to
corporate governance being the basis of corporate governance in Britain,
Canada, America, Australia and Common Wealth Countries including India
 Directors are rarely independent of management
 Companies are run by professional managers who have negligible ownership
stake. There is clear separation of ownership and management.
 Institution investors like banks and mutual funds are portfolio investors. When
they are not satisfied with the company’s performance they simple sell their
shares in market and quit.
 The disclosure norms are comprehensive and rules against the insider trading
are tight
 The small investors are protected and large investors are discouraged to take
active role in corporate governance.

German Model

This is also called European Model. It is believed that workers are one of the key
stakeholders in the company and they should have the right to participate in the
management of the company. The corporate governance is carried out through two
boards, therefore it is also known as two-tier board model. These two boards are:

1. Supervisory Board: The shareholders elect the members of Supervisory Board.

Employees also elect their representative for Supervisory Board which are
generally one-third or half of the Board.
2. Board of Management or Management Board: The Supervisory Board
appoints and monitors the Management Board. The Supervisory Board has the
right to dismiss the Management Board and re-constitute the same.

Japanese Model

Japanese companies raise significant part of capital through banking and other financial
institutions. Since the banks and other institutions stakes are very high in businesses,
they also work closely with the management of the company. The shareholders and
main banks together appoint the Board of Directors and the President. In this model,
along with the shareholders, the interest of lenders is recognised.

Social Control Model

Social Control Model of corporate governance argues for full-fledged stakeholder

representation in the board. According to this model, creation of Stakeholders Board
over and above the shareholders determined Board of Directors would improve the
internal control systems of the corporate governance. The Stakeholders Board consists
of representation from shareholders, employees, major consumers, major suppliers,
lenders etc.

Indian Model

In India there are mainly three types of companies’ viz. private companies, public
companies and public sector undertakings. Each of these companies has distinct kind of
shareholding pattern. Thus the corporate governance model in India is a mix of Anglo-
American and German Models.

Q33) Explain the concept of business ethics citing examples

A) What Is Business Ethics?

Business ethics is the study of how a business should act in the face of ethical dilemmas
and controversial situations. This can include a number of different situations, including
how a business is governed, how stocks are traded, a business' role in social issues, and
more.

Business ethics is a broad field because there are so many different topics that fall under
its umbrella. It can be studied from a variety of different angles, whether it's
philosophically, scientifically, or legally. However, the law plays the biggest role in
influencing business ethics by far.

Many businesses leverage business ethics not only to remain clean from a legal
perspective, but also to boost their public image. It instills and ensures trust between
consumers and the businesses that serve them.

The modern idea of business ethics as a field is relatively new, but how to ethically
conduct business has been widely debated since bartering and trading first arose.
Aristotle even proposed a few of his own ideas about business ethics.

However, business ethics as we know it today arose in the 1970s as a field of academic
study. As part of academia, business ethics were both debated philosophically and
measured empirically. As this field of study became more robust, the government began
legislating leading ideas in the field into law, thus forcing businesses to abide by certain
rules and regulations that were deemed ethical.

Why Is Business Ethics Important?

Business ethics are important for a variety of reasons. First and foremost, it keeps the
business working within the boundaries of the law, ensuring that they aren't
committing crimes against their employees, customers, consumers at large, or other
parties. However, the business also has a number of other advantages that will help
them succeed if they are aware of business ethics.

Businesses can also build trust between the business and consumers. If consumers feel
that a business can be trusted, they will be more likely to choose that business over its
competitors. Some businesses choose to use certain aspects of business ethics as a
marketing tool, particularly if they decide to highlight a popular social issue. Leveraging
business ethics wisely can result in increased brand equity overall.

Being an ethical business is also highly appealing to investors and shareholders. They
will be more likely to sink money into the company, as following standard ethical
business practices and leveraging them properly can be a path to success for many
businesses.
 Following business ethics can also be beneficial for the business' employees and
operations. Attracting top talent is significantly easier for ethical businesses. Employees
not only appreciate a socially aware employer, but will also perceive them as the kind of
business that will act in the best interest of their employees. This produces more
dedicated employees and can also reduce recruitment costs.

Q34) Discuss the strategic control process

A) Strategic controls take into account the changing assumptions that determine a
strategy, continually evaluate the strategy as it is being implemented, and take the
necessary steps to adjust the strategy to the new requirements. In this manner, strategic
controls are early warning systems and differ from post-action controls which evaluate
only after the implementation has been completed.

Important types of strategic controls used in organizations are:

1. Premise Control: Premise control is necessary to identify the key assumptions, and
keep track of any change in them so as to assess their impact on strategy and its
implementation. Premise control serves the purpose of continually testing the
assumptions to find out whether they are still valid or not. This enables the strategists
to take corrective action at the right time rather than continuing with a strategy which
is based on erroneous assumptions. The responsibility for premise control can be
assigned to the corporate planning staff who can identify key asumptions and keep a
regular check on their validity.
2. Implementation Control: Implementation control may be put into practice through
the identification and monitoring of strategic thrusts such as an assessment of the
marketing success of a new product after pre-testing, or checking the feasibility of a
diversification programme after making initial attempts at seeking technological
collaboration.
3. Strategic Surveillance: Strategic surveillance can be done through a broad-based,
general monitoring on the basis of selected information sources to uncover events that
are likely to affect the strategy of an organisation.
4. Special Alert Control: Special alert control is based on trigger mechanism for rapid
response and immediate reassessment of strategy in the light of sudden and unexpected
events called crises. Crises are critical situations that occur unexpectedly and threaten
the course of a strategy. Organisations that hope for the best and prepare for the worst
are in a vantage position to handle any crisis.

Process of Strategic Control

Strategic control processes ensure that the actions required to achieve strategic goals
are carried out, and checks to ensure that these actions are having the required impact
on the organisation. An effective strategic control process should by implication help
an organisation ensure that is setting out to achieve the right things, and that the
methods being used to achieve these things are working.
Regardless of the type or levels of strategic control systems an organization needs,
control may be depicted as a six-step feedback model:

1. Determine What to Control: The first step in the strategic control process is
determining the major areas to control. Managers usually base their major controls on
the organizational mission, goals and objectives developed during the planning process.
Managers must make choices because it is expensive and virtually impossible to control
every aspect of the organization’s

2. Set Control Standards: The second step in the strategic control process is establishing
standards. A control standard is a target against which subsequent performance will be
compared. Standards are the criteria that enable managers to evaluate future, current,
or past actions. They are measured in a variety of ways, including physical, quantitative,
and qualitative terms. Five aspects of the performance can be managed and controlled:
quantity, quality, time cost, and behavior.

Standards reflect specific activities or behaviors that are necessary to achieve

organizational goals. Goals are translated into performance standards by making them
measurable. An organizational goal to increase market share, for example, may be
translated into a top-management performance standard to increase market share by
10 percent within a twelve-month period. Helpful measures of strategic performance
include: sales (total, and by division, product category, and region), sales growth, net
profits, return on sales, assets, equity, and investment cost of sales, cash flow, market
share, product quality, valued added, and employees productivity.

Quantification of the objective standard is sometimes difficult. For example, consider

the goal of product leadership. An organization compares its product with those of
competitors and determines the extent to which it pioneers in the introduction of basis
product and product improvements. Such standards may exist even though they are not
formally and explicitly stated.

Setting the timing associated with the standards is also a problem for many
organizations. It is not unusual for short-term objectives to be met at the expense of
long-term objectives. Management must develop standards in all performance areas
touched on by established organizational goals. The various forms standards are
depend on what is being measured and on the managerial level responsible for taking
corrective action.

3. Measure Performance: Once standards are determined, the next step is measuring
performance. The actual performance must be compared to the standards. Many types
of measurements taken for control purposes are based on some form of historical
standard. These standards can be based on data derived from the PIMS (profit impact of
market strategy) program, published information that is publicly available, ratings of
product / service quality, innovation rates, and relative market shares standings.
Strategic control standards are based on the practice of competitive benchmarking – the
process of measuring a firm’s performance against that of the top performance in its
industry. The proliferation of computers tied into networks has made it possible for
managers to obtain up-to-minute status reports on a variety of quantitative
performance measures. Managers should be careful to observe and measure in
accurately before taking corrective action.

4. Compare Performance to Standards: The comparing step determines the degree of

variation between actual performance and standard. If the first two phases have been
done well, the third phase of the controlling process – comparing performance with
standards – should be straightforward. However, sometimes it is difficult to make the
required comparisons (e.g., behavioral standards). Some deviations from the standard
may be justified because of changes in environmental conditions, or other reasons.

5. Determine the Reasons for the Deviations: The fifth step of the strategic control
process involves finding out: “why performance has deviated from the standards?”
Causes of deviation can range from selected achieve organizational objectives.
Particularly, the organization needs to ask if the deviations are due to internal
shortcomings or external changes beyond the control of the organization. A general
checklist such as following can be helpful:

Are the standards appropriate for the stated objective and strategies?

Are the objectives and corresponding still appropriate in light of the current
environmental situation?

Are the strategies for achieving the objectives still appropriate in light of the current
environmental situation?

Are the firm’s organizational structure, systems (e.g., information), and resource
support adequate for successfully implementing the strategies and therefore achieving
the objectives?

Are the activities being executed appropriate for achieving standard?

6. Take Corrective Action: The final step in the strategic control process is determining
the need for corrective action. Managers can choose among three courses of action: (1)
they can do nothing (2) they can correct the actual performance (3) they can revise the
standard.

When standards are not met, managers must carefully assess the reasons why and take
corrective action. Moreover, the need to check standards periodically to ensure that the
standards and the associated performance measures are still relevant for the future

Q35) What can be the characteristics of an effective control system? Discuss.

A) Characteristics Of Effective Control Systems

Effective control systems have certain characteristics. For a control system to be

effective, it must be:

Accurate. Information on performance must be accurate. Evaluating the accuracy of the

information they receive is one of the most important control tasks that managers face.

Timely. Information must be collected, routed, and evaluated quickly if action is to be

taken in time to produce improvements.

Objective and Comprehensible. The information in a control system should be

understandable and be seen as objective by the individuals who use it. A difficult-to
understand control system will cause unnecessary mistakes and confusion or
frustration among employees.

Focused on Strategic Control Points. The control system should be focused on those
areas where deviations from the standards are most likely to take place or where
deviations would lead to the greatest harm.

Economically Realistic. The cost of implementing a control system should be less than,
or at most equal to, the benefits derived from the control system.

Organizational Realistic. The control system has to be compatible with organizational

realities and all standards for performance must be realistic.

Coordinated with the Organization's Work Flow. Control information needs to be

coordinated with the flow of work through the organization for two reasons: (1) each
step in the work process may affect the success or failure of the entire operation, (2) the
control information must get to all the people who need to receive it.

Flexible. Controls must have flexibility built into them so that the organizations can
react quickly to overcome adverse changes or to take advantage of new opportunities.

Prescriptive and Operational. Control systems ought to indicate, upon the detection of
the deviation from standards, what corrective action should be taken.

Accepted by Organization Members. For a control system to be accepted by

organization members, the controls must be related to meaningful and accepted goals.

Q36) Discuss the application of portfolio analysis.

A) Definition: Portfolio analysis is an examination of the components included in a mix

of products with the purpose of making decisions that are expected to improve overall
return. The term applies to the process that allows a manager to recognize better ways
to allocate resources with the goal of increasing profits. It might also refer to an
investment portfolio composed by securities.
What Does Portfolio Analysis Mean?

When a company markets a range of different product or services it is required to

conduct portfolio analysis periodically. This means to analyze each product separately
in terms of profitability, contribution to the company’s income and growth potential.
This analysis facilitates the identification of products that are not profitable at all or
play poorly within the group.

The products are categorized by pre-defined criteria such as sales value, market share,
gross profitability, contribution margin and life cycle. The results could clearly point to
products that should be taken out of the market or simply receive fewer resources. It
might also indicate that the company must increase its investments and efforts to some
star products that have a higher potential. The analysis is made to improve the global
portfolio’s performance since the ultimate objective is maximizing profit for
shareholders.

Example

Shine Shoes manufactures and markets 55 models of women shoes. The General
Manager realized that sales increased but profitability steadily decreased over the past
two years. He did not know what happened and he asked a consultant to conduct a
portfolio analysis. The study provided some interesting results. The top five models
represented 17% of total sales. However, those five were not profitable at all because
production costs were too high.

At the same time other models were highly profitable but their sales were negligible
within the overall portfolio. The Manager decided that higher investment in marketing
and sales effort should be made in the most profitable models and thus to push the
overall profit up. The results were positive and the company improved notably its
finances thanks to the insights obtained by the portfolio analysis.

Q37) What is the purpose of transfer pricing? What are the merits and demerits of
transfer pricing?

A) Transfer Pricing Meaning

A small company sells its products only to outside customers but as far as big company
is concerned such companies not only sells its products to outside customers but it also
supplies goods within the company to other divisions according to their requirement
and in order to account for such transfer within divisions company uses transfer pricing
method as transfer price is always lower than normal selling price of the company.
Transfer pricing in simple words refers to that price at which divisions or departments
within the company transfer products or resources with each other, in order to
understand this concept better one should look at advantages and disadvantages of
transfer pricing –
Advantages of Transfer Pricing

Cost saving for Departments

It results in cost savings as far departments are concerned because transfer price is
usually lower than the market price of the product, hence for example if the
multinational company produces batteries as well as mobiles than mobile division can
purchase batteries from battery division of the company resulting in cost savings for
mobile division of the company.

Transparency

It makes dealings between various departments transparent because in the absence of

transfer price mechanism departmental heads will charge price arbitrarily resulting in
them exploiting the department who is in need of the product and thus creating
animosity between departments which in the long term can cause irreversible damage
to the company.

Readily Available

Another advantage of this mechanism is that since goods are manufactured in the
company itself as far as other departments are concerned they do not have to depend
on suppliers as goods are readily available in the company itself which saves the
company from the exploitation of the suppliers of the goods.

Disadvantages of Transfer Pricing

Complicated Process

The biggest disadvantage of transfer price is that it is a complicated process as unlike

market price which is determined by the demand and supply of the good transfer price
is not decided by market forces alone rather many other variables come into play which
makes this process complicated as well as questionable.

Animosity between Departments

It can create an unnecessary rift between the departments because departments which
supply goods to other departments will feel that they are sacrificing their profit by not
selling their products to the market as market rates are higher than transfer price. In
simple words suppose you own a home and due to some reason for 6 months you have
to give that home on rent to your relative or friend then you will be taking less rent than
market rent, the mechanism of transfer price is somewhat similar and hence can cause
anger as well as frustration in the company.

Sub Standard Products

If a company follows a transfer pricing strategy than it forces the departments to buy
products from within the company even if those products are of inferior quality which
in turn make products of other departments also inefficient. In simple words it compels
the department heads to buy products from other departments of the company even
when there are better substitutes for the product is available in the market.

As one can see from that deciding transfer price puts the company in a tricky position
and that is the reason why a company should first read above pros and cons and then
formulate the transfer pricing so that all departments or divisions of the company
remains happy as well as motivated for contributing to the success of the company.

Q38) Discuss the importance of the Balanced Score Card in the present context.

A) 1. Better Strategic Planning

The Balanced Scorecard provides a powerful framework for building and

communicating strategy. The business model is visualised in a Strategy Map which helps
managers to think about cause-and-effect relationships between the different strategic
objectives. The process of creating a Strategy Map ensures that consensus is reached
over a set of interrelated strategic objectives. It means that performance outcomes as
well as key enablers or drivers of future performance are identified to create a complete
picture of the strategy.

2. Improved Strategy Communication & Execution

Having a one-page picture of the strategy allows companies to easily communicate

strategy internally and externally. We have known for a long time that a picture is worth
a thousand words. This ‘plan on a page’ facilitates the understanding of the strategy and
helps to engage staff and external stakeholders in the delivery and review of the
strategy. The thing to remember is that it is difficult for people to help execute a
strategy which they don’t fully understand.

3. Better Alignment of Projects and Initiatives

The Balanced Scorecard help organisations map their projects and initiatives to the
different strategic objectives, which in turn ensures that the projects and initiatives are
tightly focused on delivering the most strategic objectives.

4. Better Management Information

The Balanced Scorecard approach helps organisations design key performance

indicators for their various strategic objectives. This ensures that companies are
measuring what actually matters. Research shows that companies with a BSC approach
tend to report higher quality management information and better decision-making.

5. Improved Performance Reporting

The Balanced Scorecard can be used to guide the design of performance reports and
dashboards. This ensures that the management reporting focuses on the most
important strategic issues and helps companies monitor the execution of their plan.

6. Better Organisational Alignment

The Balanced Scorecard enables companies to better align their organisational

structure with the strategic objectives. In order to execute a plan well, organisations
need to ensure that all business units and support functions are working towards the
same goals. Cascading the Balanced Scorecard into those units will help to achieve that
and link strategy to operations.

7. Better Process Alignment

Well implemented Balanced Scorecards also help to align organisational processes such
as budgeting, risk management and analytics with the strategic priorities. This will help
to create a truly strategy focused organisation.