Level III: IMPROVE BUSINESS PRACTICE

Module Objective
This module aims to develop the learner’s knowledge,
attitudes and skills required in promoting, improving and
growing business operations.
3.1 DIAGNOSE THE BUSINESS
Objectives of the Lesson
• To enable trainees to get knowledge and skills needed to
conduct business diagnosis, and
• To enable trainees to have a clear idea concerning
models and tools to be used in business diagnosis.

3.1.1 Organizational Diagnosis

Diagnosis is a cyclical process that involves data gathering,
interpretation and identification of the problem areas and
possible action programs.
Organization diagnosis is a process that helps organizations
to improve their capacity to assess and change inefficient
patterns of organizational behavior as a basis for greater
effectiveness. An organizational diagnosis programs should
be based on a sound analysis of relevant data about the
problem situation. Organizational diagnosis is an effective
way of looking at an organization to determine gaps between
current and desired performance and how it can achieve its
goals. It is very much data based approach that can set a
beginning and the changing objective. Within the diagnosis
and assessment phase, we are trying to uncover essential
information about the future in which the organization must
operate and we are beginning to understand the capacity of
the organization to manage its part in the future. Effective
diagnosis provides the systematic understanding of the
organization necessary for designing appropriate change
interventions intended to resolve problems and improve
organizational functioning.
There are seven step processes for major organization
development efforts. These are:
1. Clarification of whole organization objectives,
 2. Data gathering and sharing,
3. Diagnosis of organization strengths and weaknesses,
4. Joint action presentation of organizational
development interventions to correct weaknesses,
5. Implementation of organizational development
intervention, and
6. Periodic progress review of results.
During the diagnosis process, it is important to look at both
the environment and the organization. The environmental
factors to be assessed will depend upon the nature of the
organization but will always include cultural factors. Each
organizational culture profile reflects underlying attributes
including the management style, strategic plans, climate,
reward system, leadership, and basic values of the
organization. So, changing the culture requires that these
various elements of culture be identified and altered.
Organizations try to achieve a sustainable competitive
advantage by learning its environment through a scanning
process as the environment is a determinant of human
resource management. Diagnosing the environment is an
assessment process that focuses on determining the readiness
of the target group to accept change.

The first area of diagnosis comprises the interacting sub-

elements that compose the organization, such as:
departments, divisions, products and services and the
relationship among them.
The second area of diagnosis is the organizational-
processes, such as: internal and external communication
networks, leadership styles, team conflict resolution,
decision making and planning methods.
To effectively improve organizational performance, as well
as individual and group development, organizational
diagnosis practitioners must be knowledgeable of
quantitative and qualitative methods, as well as, the different
diagnosis models to choose the most appropriate, given the
intervention’s objectives, resources, and organizational
culture and context. Choosing an appropriate diagnostic
model is very essential; and organizational diagnosis
practitioners should be very careful about the model which
addresses the organization’s problems as well as ensures
comprehensiveness. An effective diagnostic model allows
identifying reliable data to help organizations better
understand their strengths, deficiencies, and opportunities for
improvement, to later articulate a targeted intervention and
measurement strategy. Some major data gathering methods
are:
 Secondary sources of data, which are generated for
other organizational purposes that can be used in
identifying problem areas, such as: performance
indicators, accounting data, productivity and quality
data.
 Direct observation of people behaviors is another
important source of data. This can include member
actions or reactions to specific situations, and
communication patterns. It leads to a greater
understanding of the situation and collect more
 qualitative data. It can be done by site visits to
compare the operated behavior to the observed one.
 The other method of data collection is employee
survey. The data provide a snapshot of an existing
situation, and can be used to compare an organization’s
current state with some desired state. This method is
based on questionnaires used to provide large number
of important quantitative information about the values,
attitudes and believes of members.
 Questionnaire-based surveys are one of the most
effective tools for organizational diagnosis practitioners
to understand and evaluate organizational issues.
 Interviews (can be structured, semi-structured or
informal) are also the most widely used data gathering
technique in organizational diagnosis programs. They
are more direct, flexible and not public than surveys.
Interviewing provides subjective data that are virtually
unobtainable by other methods.
 Strengths (what is good/going well), weaknesses
(what are bad/needs improvements), opportunities
(what opportunities are there?) and threats (what
dangers/problems lie ahead?) (SWOT) analysis is one
of the important tools to help understand the
organizations’ internal and external environments helps
in diagnosing the gaps and recommendations of
possible suitable organization development program.
 Task analysis is conducted to exactly identify the
employee needs to do his/her job effectively. This
technique is a process analysis model used in order to
design an effective HRD programs.
 The other model for organizational diagnosis is
Growth-share matrix. This matrix was developed
during the 1970s by the Boston Consulting Group
(BCG).
3.1.2 Growth-Share Matrix
According to the growth-share matrix, developed during the
1970s by the Boston Consulting Group (BCG), two relatively
simple factors predict whether an individual business will be
a cash producer or a cash user.
i. The growth rate of the market within which the business
competes and
ii. The market share of the business in that market.
Businesses in fast growing markets usually have a greater
need for cash to scale up production, open new facilities,
advertise, develop new products, and so on.
On the other hand, businesses in declining markets may have
already lived through their peak periods of product demand
and are more likely to have sufficient assets to serve the
present dwindling demand. Businesses in this situation
generally produce considerable cash but do not have a ready
place to invest it. Thus, businesses in growing markets may
need more cash than they have, while businesses in mature or
declining markets may have more cash than they need.
Additionally, businesses with large market shares are more
likely to enjoy economies of scale and greater experience
curve benefits. Lower costs mean higher profits, and higher
profits mean greater cash flows. In short, the BCG’s
framework suggests that higher market shares are associated
with greater cash flows.
The matrix classifies the businesses or the firm into four
distinct categories on the basis of the above evaluations, i.e.,
on the basis of the two parameters, industry growth and
market share relative to other main players:
 Stars
 Question Marks (Problem children)
 Cash Cows
 Dogs
Stars and Question Marks are both company businesses
that operate in high growth industries. What distinguishes a
Star from a Question Mark, though both belong to high-
growth industries, is the firm’s market share relative to other
main operators in the industry. Whereas a Star is a market
leader, a Question Mark is a follower.

Similarly, Cash Cows and Dogs are both company

businesses that operate in low-growth industries. It is the
market share position that distinguishers a Cash Cow from a
Dog, though both operate in low-growth industries. A Cash
Cow is a market leader while a Dog is a poor follower.

Figure: Growth-share matrix

 Stars: Stars are net users of resources and leaders in the
business so they should also generate large amounts of
cash. A Star needs a good deal of investment support as
it operates in a high-growth market. It normally does not
bring in immediate profits, but holds out great potential
for the future. The recommended strategy is to nurture
them, maintaining their health and waiting for market
growth to slow so that cash flows will increase.
Theoretically, the cash-hungry Stars will be transformed
into Cash-rich Cows that can be milked to nurture still
another generation of business.
 Question Marks: Question Marks too are net users of
resources. But, unlike the Stars, their future is uncertain.
In addition, they are in the high-risk category while Stars
are in the medium-risk category. Developing a strategy
for Question Marks means either investing large sums in
hope of gaining a viable market share or not investing
and possibly missing a growth market.
  Cash Cows: Cash Cows are net generator of resources.
A Cash Cow brings a lot of cash to the company. It also
brings in higher profits. It does not need heavy
investment; being in a low-growth market, expansion
possibility and hence investment needs of a Cash Cow,
are minimal. Such businesses are often “milked” to
finance other businesses on which the future of the
corporation may depend.
 Dogs: Dogs being businesses with weak market shares in
low-growth markets are generally a drag on a company
and its resources. They are actually cash traps. A
strategy often suggested for such businesses is to
“harvest” them by not investing in them and instead
shifting cash flows to more promising businesses.

The firm locates the position of each of its business in the

Growth-Share Matrix: one or two businesses may be Stars,
one or two may be Cash Cows, a few may be Question Marks
and a few may be Dogs. The purpose of the exercise is to
decide what to do with each business. Actually, when the
firm completes this exercise, the cards are clearly laid out.
The position of the various businesses is located in the
matrix.
The aim is
 to keep the cows,
 sell the dogs to finance the question marks
 and work to turn the stars into cows
 before the cows you have turn into dogs.
Benefits
 If a company is able to use the experience curve to its
advantage, it should be able to manufacture and sell new
products at a price that is low enough to get early market
share leadership. Once it becomes a star, it is destined to
be profitable.
 BCG model is helpful for managers to evaluate balance
in the firm’s current portfolio of Stars, Cash Cows,
Question Marks and Dogs.
 BCG method is applicable to large companies that seek
volume and experience effects.
 The model is simple and easy to understand.
 It provides a base for management to decide and prepare
for future actions.

Limitations
 It neglects the effects of synergy between business units.
 High market share is not the only success factor.
 Market growth is not the only indicator for
attractiveness of a market.
 Sometimes Dogs can earn even more cash as Cash
Cows.
 The problems of getting data on the market share and
market growth.
 There is no clear definition of what constitutes a
"market".
 A high market share does not necessarily lead to
profitability all the time.
 The model uses only two dimensions: market share and
growth rate. This may tempt management to emphasize
a particular product, or to divest prematurely.
 A business with a low market share can be profitable
too.
 The model neglects small competitors that have fast
growing market shares.
3.2 BENCHMARK THE BUSINESS

Objective of the Lesson

• To enable trainees to get clear knowledge and skills
needed to conduct benchmarking the business

3.2.1 What is benchmarking?

Benchmarking is simply the process of measuring the
performance of one's company against the best in the same or
another industry. Benchmarking is basically learning from
others. It is using the knowledge and the experience of others
to improve the organization. It is analyzing the performance
and noting the strengths and weaknesses of the organization
and assessing what must be done to improve.

Therefore, benchmarking is a continuous systematic/

structured/formal process for assessing/measuring/comparing
the organizations that are recognized/acknowledged as best-
in-class/ best practices for the purpose of organizational
improvement

In business, benchmarking has come to mean variety of

things. It has assumed a very special significance in today’s
competitive world. It is now recognized as an effective
approach towards improvement of productivity, quality and
other dimensions of performances that are determinants of
competitiveness. Benchmarking is one of the many
techniques that one can employ to gather management
information.

The knowledge that is available for comparing operations

and processes are vast. An organization’s ability to evaluate
its practices against specific business strategies and
objectives is critical to leveraging its knowledge capital.
Information is there for organizations and it should be
evaluated, used, and shared. This is one of the primary goals
of benchmarking. It is the process of using all of the
knowledge and experience of others to develop new and fresh
ideas.

3.2.2 Role of Benchmarking

The role of benchmarking is to provide management with
knowledge of what constitutes ‘best performance’ or
‘superior performance’ in a particular field. Best performance
relates to output, efficiency, quality and any other
measurement relevant to performing the job. Benchmarking
not only investigates what best practice means in terms of
performance yardsticks but also examine how best practices
is achieved. Benchmarking is, therefore, not only the practice
of obtaining measurements but also involves understanding
the conditions, resources and competence necessary to
deliver top performance.

No individual, team, or operating unit-no matter how creative

or prolific can possibly parent all innovation. No single
department or company can corner the market on all good
ideas. In view of this reality recognizing human limitations, it
makes eminently good sense to consider the experience of
others. Those who always go it alone are doomed to
perennially reinvent the wheel, for they do not learn and
benefit from others progress. By systematically studying the
best practices and by innovative adaptations an organization
can accelerate the progresses of improvement.

Generally, there are three reasons that benchmarking is

becoming more commonly used in industry. These are:
 Benchmarking is a more efficient way to make
improvements. Managers can eliminate trial and error
process improvements. Practicing benchmarking focuses
on tailoring existing processes to fit within the
organization.
 Benchmarking speeds up organization’s ability to make
improvements.
  Benchmarking has the ability to bring organizational
performance up as a whole significantly. If every
organization has excellent production and total quality
management skills then every company will have world
class standards.

Benchmarking is not just making changes and improvements

for the sake of making a change, benchmarking is about
adding value. No organization should make changes to their
products, processes, or their organization if the changes do
not bring benefits. When using benchmarking techniques, an
organization must look at how processes in the value chain
are performed.

3.2.3 Types of benchmarking

There are four primary types of benchmarking that are in use
today. These are process benchmarking, performance
benchmarking, and strategic benchmarking.
 Process benchmarking: focuses on the day-to-day
operations of the organization. It is the task of improving
the way processes performed every day. Some examples
of work processes that could utilize process
benchmarking are the customer complaint process, the
billing process, the order fulfillment process, and the
recruitment process. All of these processes are in the
lower levels of the organization. By making
improvements at this level, performance improvements
are quickly realized. This type of benchmarking results
in quick improvements to the organization.
 Performance benchmarking: focuses on assessing
competitive positions through comparing the products
and services of other competitors. When dealing with
performance benchmarking, organizations want to look
at where their product or services are in relation to
competitors on the basis of things such as reliability,
quality, speed, and other product or service
characteristics.
  Strategic benchmarking: deals with top management.
It deals with long term results. Strategic benchmarking
focuses on how companies compete. This form of
benchmarking looks at what strategies the organizations
are using to make them successful. This is the type of
benchmarking technique that most Japanese firms use.
This is due to the fact that the Japanese focus on long
term results.
 Internal benchmarking: is used to identify the best in
house practices in the organization and to disseminate
these practices throughout the organization. Internal
benchmarking allows managers in the organization to be
more knowledgeable about the organization as a whole.

Whichever type is conducted, there are four main steps that

should to be followed to conduct benchmarking. These are:
Step 1 – Plan the study
 Establish benchmarking roles and responsibilities
  Identify the process to benchmark
 Document the current process
 Define the measures for data collection
Step 2 – Collect the data
 Record current performance levels
 Find benchmarking partners
 Conduct the primary investigation
 Make a site visit
Step 3 – Analyze the data
• Normalize the performance data
• Construct a comparison matrix to compare your current
performance data with your partners’ data
• Identify outstanding practices
• Isolate process enablers
Step 4 – Adapt enablers to implement improvements
• Set stretching targets
• “Vision” an alternative process
• Consider the barriers to change
 • Plan to implement the changes
All of these things lead to successful benchmarking a
product, process, or area within an organization.

3.3 DEVELOP BUSINESS GROWTH AND

EXPANSION PLAN

Objective of the Lesson

Upon completion of this lesson, you should be able to:
 Understand strategic planning for small business.
 Correctly identify the importance of proactive planning
and management for small business organizations

3.3.1 Planning for the BUSINESS GROWTH

Business planning has become a very important part of the
top management function due to the influence of external
environmental factors and systems approach to the business
management. Business planning is strategic planning because
it is concerned mainly with the designing of business.
According to Scott, long-range business planning is a
systematic approach to decision making about issues which
are fundamental and of crucial importance to its continuing
long term effectiveness. Long-range strategy is designed to
provide information about an organization’s vision, mission
(or purpose), direction and objectives.

Implementation planning, in contrast to business planning,

explains the details of the policies and procedures, which are
required to accomplish the strategies of the firm. These plans
produce immediate and tangible results in relatively shorter
period. However, the business planning is concerned with:
1. The direction in which the company should move,
2. The implementation of the plan for the subsequent
period, and
3. The alternatives which are to be sacrificed, if the plan is
accepted and implemented.
Business planning provides a means to deal explicitly and
systematically with matters of fundamental importance.
Business planning is, “the process of selecting an
organization’s goals, determining the policies and strategic
programme necessary to achieve specific objectives on the
way to the goals and establishing the methods necessary to
assure that the policies and strategic programme are
achieved.”
3.3.2 Benefits of Business Planning
The systematic business planning helps the business to derive
its advantages and get benefits out of them. The benefits of
business planning include.
1. Business planning helps the company to formulate and
achieve objectives and goals clearly. The company
formulates objectives after discussing thoroughly with
superiors, colleagues and subordinates. These objectives
help the company to achieve stability of business and
maximize profits.
 2. Business planning helps to avoid piece-meal approach
and to have integrated approach.
3. Business planning helps to view the organization in total
rather than department-wise.
4. Business plan aims at the long-range plan rather than
short-range plan.
5. Business plan integrates the company plan with the
national plans and priorities.
6. Business plan helps to see both the internal and external
environmental factors.
7. Effective business plan certainly contributes for the
achievement of high rate of profits.
8. Business plan helps to determine potential growth and
profit.

3.3.3 Proactive Planning and Management

In order to properly address these issues, we will first define
the terms proactive and reactive.
Proactive means anticipating events such as problems,
markets trends, and consumer demands and planning ahead
for them, whereas, reactive is reacting to events when they
occur with little or no anticipation of events.
Proactive Planning
To live within an environment and be responsive to it does
not mean that managers should merely react in the face of
stress. Since no enterprise can be expected to react very
quickly to unforeseen developments, an enterprise must
practice ways of anticipating developments through forecasts.
An alert company, for example, does not wait until its
product is obsolete and sales have fallen off before coming
out with a new or improved product. No enterprise should
wait for problems to develop before preparing to face them.
Proactive planning is an essential part of the planning
process.
3.3.4 Proactive and Reactive Management
First of all, we must state that all management must be both
proactive and reactive to survive. Obviously when significant
events happen it is necessary to react them. But the reaction
most of the time should be planned and well thought out.
Therefore, the best management is primarily proactive and
then reactive. Good management is proactive first and
reactive second.
How to be Proactive
So the question is how can one organization foresee a future
event and be ready for it when other organizations fail to do
this? What do they do?
1. They should plan for short and long term periods of time
2. They should work closely with technical and marketing
staff to determine marketing opportunities that may be
opening up.
3. They should encourage innovation.
4. They should pretest markets. poll
 5. They should consider opinions and suggestions of
employees
6. They should take calculated risks.

3.3.5 Strategy for Small Business Growth

Planning for the small business’s future should begin with a
basic strategy-an overall plan that relates the firm’s
products/services to the needs of the marketplace and the
offerings of competitors. Entrepreneurs formulate strategy by
sizing up the general situation pertaining to the business as a
whole and deciding upon necessary changes of a fundamental
nature.

According to Alfred D. Chandler, “Strategy is the

determination of the basic long-term goals and objectives of
an enterprise and the adoption of the courses of action and
the allocation of resources necessary for carrying out these
goals.”
Note that Chandler refers to three aspects:
  Determination of basic long-term goals and
objectives;
 Adoption of courses of action to achieve these
objectives; and
 Allocation of resources necessary for adopting the
courses of action.

3.3.6 Meaning of Strategic Management

Business strategy is concerned with decisions which shape
the very nature of the firm. Strategic management is a stream
of decisions and actions which leads to the development of
an effective strategy or strategies to help achieve corporate
objectives. According to this definition the end result of
strategic management is a strategy or a set of strategies for
the organization.

Models of Strategic Management Process

 The process of strategic management is depicted through a
model, which consists of different phases; and these phases
are considered as sequentially linked to each other and each
successive phase provides a feedback to the previous phases.
Most of the authors agree on dividing the strategic
management process into four phases consisting of about
twelve elements.
Establishing strategic intent, business definition,
vision, mission (purpose) and objectives

 Formulation of Strategy
 Environmental appraisal
 Organizational appraisal
(SWOT analysis)
 Strategic alternatives and choice
 Strategic plan

 Implementation of strategy
 Project implementation
 Procedural implementation
 Structural implementation
 Functional implementation
 Behavioral implementation
 Resource allocation

Feedback
 Evaluation of strategy

Figure: A comprehensive model of the strategic

management process
In brief we present a bird’s eye view of the different
elements of the process.
1. The hierarchy of strategic intent lays the foundation for
the strategic management. The element of vision in the
hierarchy serves the purpose of stating what an
organization wishes to achieve in long run. The mission
relates an organization to society. The business definition
explains the business of an organization interim of
customer need and alternative technologies. The objective
 of an organization states what is to be achieved in a given
time period.
2. Environmental and organizational appraisal helps to find
out the opportunities and threats in the environment and
the strengths and weaknesses of the organization in order
to create a match between them. In such a manner
opportunities could be availed of and the impact of threats
neutralized in order to capitalize on the organizational
strengths and minimize the weakness.
Strategic alternatives and choice are required for evolving
alternative strategies, out of the many possible options, and
choosing the most appropriate strategy or strategies in the
light of environmental opportunities and threats and
corporate strengths and weaknesses. The procedures (or
processes) used for choosing strategies involve strategic
analysis and choice. The end result of this set of elements
is a strategic plan which can be implemented
3. For the implementation of strategy, the strategic plan is
put into action through six sub-processes:
i. Project implementation: It deals with setting up
the organization.
ii. Procedural implementation: It deals with
different aspects of the regulatory framework
within which organization has to operate.
iii. Resource allocation: It relates to the procurement
and commitment of resources for implementation.
iv. Structural: The structural aspects of
implementation deal with the designing of
appropriate organizational structures and systems
and reorganizing to match the structure to the
needs of the strategy.
v. Functional: The functional aspects relate to the
policies to be formulated in different functional
areas. The operational implementation deals with
productivity, process, people, and peace of
implementing the strategies.
vi. Behavioral: The behavioral aspects consider the
leadership style for implementing strategies and
 other issues like social responsibility, business
ethics, organizational culture and corporate
policies.
4. The last phase is strategic evaluation which appraises the
implementation of strategies and measures to
organizational performance. The feedback from strategic
evaluation is meant to exercise strategic control over the
strategic management process. Strategies may be
reformulated, if necessary.