FUNCTIONAL

IMPLEMENTATION:
FUNCTIONAL ISSUES
By: Everlie Redoblado
Bernadeth Resmadero
Ira Tamparong
Tishri James Salazar
 A. OPERATIONAL/PRODUCTION
POLICIES
1. THE OPERATION FUNCTIONS   
• is responsible for producing products and delivering services.      
• defined also as decision making of operations functions and systems whice produced
good or services   
•   the focus in operation management is primarily in decision-making responsibility.
 5 key decisional areas of operation management
Decisional Areas Strategic (Design) Decision Routine (Utilization) Decision

1. Process Select, process and choose equipment Analyze process flows.Provide for maintenance of
equipment

2. Capacity Determine material size. Decide overtime.Arrange for

Determine facilities, location. subcontracting.Determine scheduling.
Set workforce level

3. Inventory Set overall inventory size. Decide when to order and how much to order
Design inventory control system

4. Human Resource Design jobs Provide supervision.Set work standard.Appraise

Design training policies and methods. performance.Improve performance.Maintain sound
Select compensation system industrial relations

5. Quality Set quality standard. Decide and amount of inspection, control and
Design on quality organization quality to meet the standard.
• Operation management in a service organization is different from manufacturing
organization.
• manufacturing organizations produce physical, tangible goods that can be stored in
inventory before they are needed. 
• By contrast, service organizations produce intangible products that cannot be produced
ahead of time. Therefore the delivery of service create a special problem for the inventory
since services are perishable in nature. This is due to the fact that services is consumed at
the same time and place that they are produced
 2. DECISION-MAKING IN OPERATIONS

• Decision making is an act of choosing among alternatives. 

• It is a process which includes problem definition, generation of alternative, evaluation of
alternatives, choose the best solution and the implementation of the solution.
• The criteria for evaluating operation decision includes; COST, QUALITY, DEPENDABILITY
and FLEXIBILITY
• COST - plays a major part in decision making. The strategist should identify and include
all cost affected by the decision and ignore the cost not affected by the decision.
•  QUALITY Quality is affected by the strategic decisions like product design, Process
design, human resources, quality of inputs and approach and System of quality control.
• DEPENDABILITY - It is concerned with the dependability in the supply of goods or
services. It is affected by the strategic decision like scheduling, agregate planning
inventory management, process design etc.
• FLEXIBILITY - concerned with the ability of the Operations to make changes of the
product design, volume and delivery. It is measured by the amount of time it takes to
change from one product design to another form, level of output, quality of output, etc. 
 TRADE OFFS IN PRODUCTIONS/OPERATIONS DECISION

• the strategist should understand the nature of these trade offs. Many failures in Operations
management is due to the absence of awareness of The importance of the trade offs or
faulty analysis of the trade offs available.
 3. PRODUCT DESIGN

New product design play a Crucial rule in survival

and development of most of the firms. New
product introduction is a way of life Fast-changing
industries. the strategist is expected to play a vital
role In the new product design or product
redesign.
• New product development process consist of 6 stage they are IDEA GENERATION,
PRODUCT SELECTION, PRELIMINARY DESIGN,  PROTOTYPE CONSTRUCTION,
TESTING and FINAL DESIGN.
• the strategist should be aware that all the ideas generated will not reached the final stage.
The ideas should be filtered based on their evaluation. -
• There are three stages of product-process interaction during the life cycle of a product.
They are: the FLUID STAGE,  the SEMI-AUTOMATED STAGE,  and the FULLY
AUTOMATED STAGE.
• There is a great deal of interaction between product and process during these stages of
life cycle of a product. The product greatly affects the objectives of operations, viz., cost,
dependability, quality and flexibility. Flexibility may be the first important objective when the
product is first introduced. Cost reduction may be the important objective when the price
competition develops.
 4. PROCESS SELECTION

Process selection decisions determine the type of

productive process to be used and appropriate span of
that process.
There are three types of process flow, viz., line flow,
intermittent flow or job shop and project
• Line operations are extremely efficient and also extremely inflexible
processes utilise specialised equipment.
• An intermittent-flow process is characterised by production in batches
at intermittent intervals. Equipment and labour are organised into work
centres by similar types of skill or equipment. A product or job then will
flow to those work centres that are require and will skip the rest. 
• The project flow is used to make a unique product.
 CHOOSE OF TECHNOLOGY

• Technology is that set of processes, tools, methods, procedures and equipment which is
used to produce goods and/or rendering services.
• Technology is one component of a decision which involves economics, strategy, products
and all aspects of management responsibility.
• Technologies are chosen to optimise both social and technical variables. The choice of
technology should not be based solely on return on investment (ROI). The effect of
technology on operations should also be considered.
 PROCESS FLOW ANALYSIS

Both materials flow and information flow can be analysed

by a common framework and common procedure. The
results of this analysis may lead to changes in any or all
elements of the process. A socio-technical approach is
needed to consider physical flow design result in
processes which are both economically and humanly
rewarding.
 Plant Location
Plant location has direct impact on the cost of
production/operations and on the marketing efficiency. The
company remains in the same locations for many years. Therefore,
the strategist should make an effective decision regarding plant
location. The plant location is influenced by various factors like
nearness to markets, availability of transportation facilities,
availability of human resources, nearness to raw materials, climate
conditions, government factors, etc.
 3 Models of plant location

1. Critical model is based on the availability of critical factors like raw

materials, energy, etc.,
2. Objective model is based on the cost factor, i.e., cost of raw
materials, cost of human resources, etc. 
3. Subjective model is characterised by a qualitative type of
measurement like the influence of trade unions, political factors,
cultural factors and community services
 FACILITIES DECISIONS

• The procedure for analysing facilities decisions includes:

measurement of capacity, forecasting of demand,
determination of capacity needs, generation of alternatives,
evaluation of alternatives, and deciding.
• Facilities decisions are often taken by the chief
executives and the board of directors as these decisions
are encompassing
Facilities locations issues include: single facility
location, plant and warehouse location, retail
store location, and emergency service location.
Each of these issues has different criteria and
utilises different modelling approach.
 AGGREGATE PLANNING

• concerned with matching supply and demand over the medium time range. The overall
input level is planned so as to use the best possible mix of resource inputs. Supply
variables which may be changed by aggregate planning are hiring, firing, overtime, idle
time, inventory, subcontracting  part time labour and cooperative arrangements. -
Variables which influence demand are pricing, promotion, backlog, or reservations, or
complementary products. When demand is given, two pure strategies are available for
adjusting supply, viz., the chase strategy and the level strategy. The chase strategy aims
at chasing demand with the workforce. The level strategy aims at increasing or decreasing
the workforce
 8. INVENTORY MANAGEMENT

• The role of inventory management is to balance the conflicting objectives among the
marketing, finance and operations functions in the best interest of the company as a
whole. Inventory is a stock of materials used to facilitate production or to satisfy customer
demands. Inventories include raw materials, work in process and finished goods.-
• Decision problems in inventory management include: what to carry, how much to order,
when to order, and type of control system to use.
• The inventory management should aim at reducing the cost of inventory and to provide
uninterrupted flow of materials for production.
• The strategist should design the jobs incorporating skill variety, task identity, task
significance, autonomy and feedback. Such design results in employee self motivation,
interest in the job, high commitment and productivity. Similarly, job enrichment also
contributes to such results. Other strategies include. Selecting and retaining competent
people, developing them continuously, maintaining a competitive compensation system
and sound industrial and human relations.
 QUALITY PLANNING AND CONTROL

• Quality is fitness for use by customer. The dimensions of quality include: quality of design,
quality of conformance, the abilities and field service. Management should set an overall
quality policy and it should be implemented through specific objectives set by managers at
different levels.
• The total quality concept utilises a systems approach to quality by integrating quality
programmes and objectives across organisational lines. The strategy of, “Make it perfect
at the first time,” serves to prevent defects from occurring.
Quality control is the conformance to given product
or service specifications. It can be achieved through
the design of quality control systems. This system
design should specify where inspection takes place,
what types of measurements are used, how much
inspection is done and who does the inspecting.
 CONCLUSION

The method of policy and strategy determination for operations is summarised and presented
in Fig. 13.4. Skinner has identified four factors to design and manage from top down. These
four factors area: 
(i) Develop an explicit, brief statement of corporate objectives and strategy, 
(ii) translate the objectives and strategy statement into operations, 
(iii)carefully examine each element of the operations system for consistency with the stated
policy, and
(iv)   recognise the structure of operations to provide a congruent focus.
 MARKETING POLICIES

Marketing is a social and managerial process by which

individuals and groups obtain what they need and want
through creating, offering and exchanging products of value in
the market. Marketing management is the process of planning
and executing the conception, pricing, promotion and
distribution of goods, services, and ideas to create exchanges
with target groups that satisfy customer and organisational
objectives.
 1. MARKET-ORRIENTED STRATEGIC PLANNING

Market-oriented strategic planning is the managerial

process of developing and maintaining a viable fit between
the organisation’s objectives, skills and resources and its
changing market opportunities. The purpose of strategic
planning is to shape and reshape the company’s business
and products so that they yield target profits and growth.
 Analysing Industries and Competitors

Companies must study its competitors and its potential customer in order to prepare an effective
marketing strategy. For this purpose, companies should identify its competitors' strategies, objectives,
goals, strengths, weaknesses and reaction patterns. They should formulate to attack a specific
weakness or strength of the competitors.
 Identifying Market Segments and Selecting Market Targets

Target marketing involves

(i) market segmentation,
(ii) market targeting, and
(iii) marketpositioning.
Companies are increasingly turning to micromarketing at four levels viz., segments, niches, local
areas and individuals. The future is likely to see more self-marketing — a form individual marketing
in which individual consumers decide which products and brands to buy. Market segments should be
measurable, substantial, accessible, differentiable and actionable.
2. Differentiating and Positioning the Market Offering
The key to competitive advantage in a competitive industry is product differentiation. A market offering can be
differentiated along five dimensions, viz., product, services, personnel, channel and functional implementation.
Many marketers promote only one product benefit, thus, creating a unique selling proposition. The position
strategy should be communicated effectively via marketing mix.
3. Developing New Products
Successful new product development requires the firm to establish an effective organization for managing and
development process. New product idea should be evaluated in terms of the product meeting the needs, product's
ability to meet superior profitability, and how it will affect the company's bottom line.
Product Life Cycle Strategies:The general sequences of the stages of the life cycle are: introduction, growth,
maturity and decline. Companies find it necessary to reformulate their strategies several times during a product's
life cycle. Technologies, product forms and brands also exhibit life cycles with distinct stages.
Introduction Stage: The marketing strategies during the introduction stage of a product are:(i) a rapid skimming
strategy consists of launching the new product at a high price and high promotion level , (ii) low skimming strategy
consists of launching the new product at a high price and low promotion, (iii) a rapid penetration strategy consists
of launching the product at a low price at high promotion level, and (iv) a slow penetration strategy consists of
launching the new product at a low price and low level of promotion.
Growth Stage: The growth stage is marked by a rapid increase in sales. Many consumers start buying the product.
Prices remain where they are or fall slightly, depending on how fast demand is increasing. The strategies in the
growth stage include: (i) improving product quality and adding new product features, (ii) adding new models and
flanker products (i.e., products of different sizes and flavour), (iii) entering new market segments, (iv) increasing its
distribution coverage and entering new distribution channels, (v) shifting from product awareness advertising to
product preference advertising, (vi) lowering prices to attract the next layer of price sensitive buyers.
Maturity Stage: At the maturity stage, rate of sales growth will slow down and product reaches relative
stability stage. This stage poses challenges to marketing managers. The maturity stage can be divided into
three phases, viz., growth maturity — the sales growth rate starts to decline, stable maturity, there is more
or less stability in the volume of sales and decaying maturity, the absolute level of sales starts
declining.Marketing strategies in maturity stage include: (i) abandoning the weaker products,
(ii)concentrating the resources on more profitable and new products, (iii) expanding the market for the
mature brand by converting non-users into users, entering new market segments, winning competitors’
customers, by motivating the existing customers to use the product more frequently, by increasing the
usage of the product per occasion, and by increasing new and more varied uses of the product,(iv)
stimulate the sales by modifying the product’s characteristics through quality improvement, feature
improvement, and style improvement. (v) Stimulate the sales by modifying marketing mix like price,
distribution, advertising, sales promotion, personal selling and services.
Declining Stage: During this stage, the sales of the most product forms and brands
eventuallydecline. The sales decline may be slow or rapid. The sales decline may be due to
change in consumertaste and preference, technological advancements and increased
domestic and foreign competition.The
marketing strategies during this stage include: (i) increasing the firm’s investment, (ii)
maintaining the firm’s investment level until the uncertainties about the industry are
resolved, (iii) decreasing the firm’s investment level selectively by dropping unprofitable
customer groups, (iv) harvesting the firm’s investment to recover cash quickly, (v)
divesting the business quickly by disposing of its assets as advantageously as possible.
 Designing Marketing Strategies for Market Leaders, Designing Marketing Strategies for
Market Leaders, Challengers, Followers and Nichers

Market leading firm has the largest market in the relevant product or service area. Other firms in the
industry acknowledge the dominance of the market leading firm, though they may not admire or respect
the leader.(i) expanding the total market by adding new users, new uses to the product, and more usage of
the product. (ii) Depending market share through position defense, flank defense(erect outposts to protect
a weak front or possibly serve as an invasion base for counter attacking addition to guarding its territory),
(iii) Preemptive defense (preemptive defensive believes in prevention rather than cure) is launch an attack
on the enemy before the enemy starts its offense against the leader, (iv) Counter Offensive Defense: It is
responding with a counter attack when attacked. The leader reacts to the strategies of price-cut, promotion
blitz and product improvement of the competitors, (v) Mobile Defense: In mobile defense, the leader
stretches its domain over new territories that can serve as future centres for defense and offense. (vi)
Contraction Defense:Sometimes, large companies find that they can no longer defend all their territories.
Then the best course of action is planned contraction (or strategic withdrawal).
Market-Challenger StrategiesFirms that occupy second, third and lower ranks in an industry are
often call runner-up or trailing firms. These firms can attack the leader and other competitors.
Strategic objective of market challengers is to increase their market share. Market challengers can
also attack the market leader, firms of its own size that are doing the job and are underfinanced.
4. Choosing a General Attack StrategyFive options are available to attack an enemy after knowing
the opponent and their objectivesclearly. These attacks are:(i) Frontal Attack: An aggressor launches
a frontal attack when it masses its forces right upagainst its opponent. It attacks the opponent’s
strengths rather than weaknesses.(ii) Flank Attack: An enemy’s army is strongest where it expects to
be attacked. Its weakspots are natural targets for attack. This attack can be directed along two strategic
dimensions, viz.,geographical and segmental.(iii) Encirclement Attack: This attack is an attempt to
capture a wide slice of the enemy’sterritory through a comprehensive blitz attack (See Box 13.2).
BOX 13.2 WHAT IS MICROSOFT SO AFRAID OF?
Microsoft's unusual behavior over the last few weeks has taken a different form. For the first time, perhaps
since the Netscape threat arose in the 1990s, Microsoft is acting scared. First, of course, there was the attempt
at a hostile takeover of Yahoo. Then Microsoft started making advances at pitiful old AOL instead. The old
Microsoft would have decided that it could win this battle against Google on its own. That's how Microsoft
used to rule the tech world, and it left both enemies and friends quaking in their boots. Since the Yahoo
debacle, Microsoft has been acting strangely, and one can only conclude that the two events are connected.
(iv) By Pass Attack: This attack aims at by passing the enemy and attacking easier markets to broaden one’s
resource base. This strategy consists of diversifying into unrelated products,diversifying into new
geographical markets and leap-fogging into new technologies to supplementexisting products.(v) Guerrilla
Attack: Guerrilla warfare consists of waging small, intermittent attacks on anenemy’s different territories.
 Summary of Product Life-Cycle Characteristics, Objectives, and Strategies Sales

Functional Implementation: Functional Issues 405 

ATTACKER(4) Bypass attack
(2) Flank attack
Frontal attack
DEFENDER
(3) Encirclement attack
(5) Guerrilla attack
The marketer should choose a specific strategy from the different strategies. They are: Pricediscount strategy, cheaper
goods strategy, prestige goods strategy, product-proliferation (large productvariety) strategy, product-innovation strategy,
improved services strategy, distribution innovationstrategy, manufacturing cost reduction strategy, intensive promotion
strategy, etc.
Market-Follower StrategiesTheodore Levitt argued that a strategy of product imitation might be as profitable
as a strategy of product innovation. For example, Sony innovates new products and Panasonic copies from
Sony and sells the products at lower price. Runner-up/follower firms prefer to follow rather than challenge
market leader.
(i) Counterfeiter: The counterfeiter duplicates the leader’s product and package and sells it on the black
market or disreputable dealers.
(ii) Cloner: The cloner emulates the leader’s products, distribution, etc. The cloner’s productsand packaging
may resemble the leader’s while the brand name might be slightly different.Imitator: The imitator copies
some things from the leader and maintains differences in otherareas like packaging, brand, advertising, etc.
Adaptor: The adaptor takes the leader’s products and adapts or improves them. He maychoose different
markets to avoid direct confrontation with the leader.
Market-Nicher StrategiesAn alternative to being a follower in a large market is to be a leader in a
small market or niche. Small firms select local and small markets which are of little or no interest to
large firms. Key idea in nichemanship is specialisation. Nichers play specialist roles like end-user
specialist, vertical-level specialist, job-shop specialist, quality/price specialist, service specialist, and
channel specialist.
5. Managing Product Lines, Brands and PackagingProduct strategy requires for making
coordinated decisions on product mixes, product lines, brands, packaging and labelling. A product
mix is the set of all products and items that a seller offers to customers for sale. Branding is a major
issue in product strategy. Well-designed packages can create convenience value for customer and
promotional value for producers.
 WORLD’S 2 MOST VALUABLE BRANDS: COCA-COLA, IBM

The combined value of the world's top 100 brands as ranked by Interbrand has fallen
for the first time. The list's total value, including brands like Google Inc., Nintendo and
Sony, fell 4.6 percent to $1.15 trillion. Brands are more than just names, colors or logos
— think Coca-Cola's red or McDonald's golden arches. A well-honed brand evokes in
consumers an emotion and a promise of what it will deliver. Each year, Interbrand
ranks companies by the amount of revenue that is attributable to their brands.Financial
companies saw steepest decline in their brands' values this year, with drops by
American Express, HSBC, Citi, and UBS. Automakers also dropped in the rankings as
their sector's sales slumped in the recession. Even Toyota's brand top-ranked among
auto companies at number eight, down from 6 in 2008 suffered.
6. Designing Pricing Strategies and Programmes
Price plays a phenomenal role in marketing mix even though the role of the non-price factors increased in recent years. The company
should formulate the pricing objectives, like survival, current profit, maximum current revenue, highest sales growth, highest market
skimming or product-quality leadership. Price-adaptation strategies include: (a) geographical pricing, (b) price discounts and
allowances, (c) promotional pricing like loss-leader pricing and (d) product-mix pricing. The firm's strategy depends on whether it is
producing homogeneous or non-homogeneous products.
7. Market Channels/PlaceMost of the firms sell the products through middlemen, agents, dealers etc. rather than selling the product
directly to the end user. The host market intermediaries perform a variety of functions and help the manufacturer. There are different
types of marketing channels as presented in Fig. 13. Channel decision is based on analysing customer needs, establishing channel
objectives and evaluating the benefits of major channels.(See Box 13.4).
BOX 13.4 BA BUYS UP FRENCH RIVAL CARRIERBA has bought L'Avion - a French business-class only airline that flies
between Paris and New York. The £54m deal comes just weeks after BA launched OpenSkies, which also serves the route. Move comes
after the collapse of several business class only carriers. Maxjet and EOS have also failed to make the business-only model work
successfully.
7. Promotion/Marketing CommunicationsDeveloping effective communication involves identifying the target audience,
determine the communication objectives, design the message, select the communication channels and establish the total
promotion budget. The marketing communication mix consists of advertising, sales promotion, personal selling, public
relations, publicity and direct marketing. Modern marketing requires that companies should communicate with their present
and potential customers, intermediaries, and other stakeholders.
8. Electronic MarketsElectronic markets are sponsored information utilities that describe the product and services offered
by marketers. They allow customers to get information, identify their needs, and place order. Then the product is delivered
to the customer. Electronic markets permit fast price changes based on yield management and change the role of place in
market mix.
9. Online MarketingThere are two types of online marketing channels, viz., commercial online channels and the internet.
Marketers can conduct their marketing on online by creating an electronic storefront, participating in forums, new groups,
bulletin boards, placing advertisements online and using e-mail. Customers can order for products 24 hours a day just from
home or office. Companies can quickly add products, change prices. The cost of marketing is less to the online marketers.
 Analysing Industries and Competitors

Management information system (MIS) is defined as, “ a formal method of making available to
management accurate and timely information necessary to facilitate the decision – making process
and enable the organisation’s planning, control and operational on the past, present and projected
future and on relevant events inside and outside the organisation. 
 Generally, an organisation’s MIS consists of a series of information system of varying degrees of
complexity, competence and cope. They are:(i) Transaction processing and inquiry response.(ii)
Management information for operational planning, decision-marking and control.(iii) Management
information for tactical planning and decision – marking and(iv) Management information system for
strategic planning and policy planning and decision- making.
 INFORMATION SYSTEM

• An information system is a set of organised procedures which when executed, provides

information to support decision – making information can be defined as a tangible or intangible
entity which series to reduce uncertainty about some future state or event.

A schematic representation of an information system is diagrammed in Figure 13. 10. We should note
that information is not raw data. Rather, data are processed in some way , for example, collected and
summarised to produce output which is interpreted as information by the user decision – maker.
 ESSENTIAL FEATURES OF AN INFORMATION SYSTEM

An information system combines related operations and procedures to perform a major organisation and management activity ( such
as document production). 
The objectives of an information system include:
1. Decision – making by supplying the best possible current information to management
2. Eliminating duplication of work
3. Saving time by using more efficient methods
4. Establishing uniform procedures
5. Identifying responsibility for work and performance
6. Improving service , including providing necessary train for all who operate within the systems
7. Promoting acceptance both of the system and of possible change (resulting from feedback on the system’s effectiveness). To
achieve these objectives , a system must be flexible enough to allow revisions and for interaction with additional sub – systems.
 THE ORGANISATION AS AN INFORMATION PROCESSING ENTITY

There is one feature that all organisations have in common. They must acquire and analyse the information and
take action based on their interpretation of information.

The organisation as an information processing entity is diagrammed in the Figure 13.11.

 MANAGEMENT
Management has been defined in many ways , but for our purpose we define it as the process of
planning, organising and controlling of the physical and human resources on order to achieve the
objectives of the company.
THE MANAGEMENT TRIANGLE

The figure 13.12 indicates the three levels of business activities carried out in operating a company.
 SYSTEM
A system can be defined as a set of interrelated elements working towards a common purpose. A subsystem
is part of a larger system with which we are concerned and all system are parts of larger system.  
 MIS GOALS
The goals of an ideal MIS are to relieve management from converting data into information.To meet these
goals , the MIS would possess the following attributes.1. It would address the primary needs of the
management function and not the needs of person.2. It would address the underlying problem, not just the
symptoms.3. It would present a maximum of information and a minimum of data.4. It would be reliable5.
The outputs would be timely6. The output would contain sufficient and relevant information to minimize
further modification.
STAGES OF MIS DEVELOPMENT
1. Strategic and projects planning stage
2. Conceptual system design stage
3. Detailed system design stage
4. Implementation, evaluation and maintenance stage. 
 GUIDELINES FOR EFFECTIVE DESIGN
(i) The user of the information should be included on the design team(ii) Cost of money and time of the system should be taken
into account, and match them with the benefits derived from the system.(i) Weightage should be given to relevance and
selectivity over sheet quantity.(ii) The system should be tested before it is installed(iii) Adequate training and documentation
should be provided for the operations and users of the system.(iv) Information should be disaggregated and similar decision
should be aggregated.(v) The actual mechanical methods for information processing are designed and controls for the system
developed.
 Financial Policies
Financial manager must adjust his function to his environment or attempt to change it in order to
contribute to the achievement of organisational objective, i.e., maximise owner’s wealth. The value of
the owners’ wealth depends upon (i) their expected future cash flows, and (ii) the dispersion of possible
flows around the expected value-return versus risk. Decisions that affect earning power and financial
leverage may affect both these factors.The financial manager must balance the chance of making
maximum profits for the owners against the greater variability of returns and greater danger of
bankruptcy.
Planning and Managing Assets
Planning and managing assets include management of cash, management of accounts receivables,
management of inventory, management of fixed assets and capital budgeting and preparation of
budgets.
1. Management of Cash
Management of cash brings into sharp focus on the trade-off between risk and return faced by the financial
manager. The financial manager will face the ultimate risk, if cash is not available to meet bills as they are
presented on due date. It is necessary to have a clear understanding of how cash flows are measured and why
reported earnings do not match cash flows, as the financial statements prepared by accountants are used
frequently.There are two stages of the cash management, (i) cash should be managed and near-cash efficiently.
The waste can be reduced by the float of cash represented by incoming collections, payments made sooner than
necessary, scattered deposit balances and excessive and unrewarding balances in checking accounts. This stage
include efficient management of near-cash in order to produce the highest return consistent with a low risk. In
the second stage, given efficient handling of cash flows and balances, the principal task of cash management
can be taken up. It includes: maximisation over some planning horizon of the technical value of the
accumulated returns from payments and investments, less the interest cost of short-term financing.
 Management of Accounts Receivables

The management of accounts receivables involves many complex and interrelated decisions. The company, by
setting its terms of sale, defines in a loose sense the general market that it would like to serve. It involves a decision
on the acceptable grade of risk. Then it must evaluate credit appraisal against this standard. The final step is to
collect the amounts owed.These decisions involve risk and uncertainty. The company does not know clearly when
the customer will pay. However, the company should have an idea of the probability that the customer will pay.
Management of Inventory: Investment in inventories is costly and also a risk of loss. Therefore, the management
should pay considerable attention to inventory. Management must balance the costs of increases in the levels of
inventory against the benefits that will be realised from those increases. The management should not reduce the idle
stocks to zero levels. Some stocks must be maintained to allow for unforeseen changes like failure of a supplier to
deliver on schedule and a sudden increase in demand. Some stocks are maintained to meet forthcoming demand.
Development of a system to make optimal inventory decisions and to facilitate detailed management of inventory is
greatly aided by the use of computers.
Capital Budgeting
Capital budgeting probably spells the difference between success and failure for many business firms. Evaluation of the desirability of
a particular project requires that the company gives greater weight to income that is to be received in the near future. The company
should consider the time value of money. The methods of capital budgeting are net present value and discounted rate of return. The
company should consider the rate of return and risk associated with the project.Major Policies: The major financial policy issues are:
(1) Sources of Finance and(2) Capital Structure Decisions;(3) Dividend Policy.
Sources of Finance
Strategy implementation, fundamentally requires financial resources. The management should take steps to procure finance. The
sources of finances are broadly divided into external sources and internal sources. (i) The external sources of finance include: equity
capital, preference capital, debenture capital, public deposits, long-term loans from development banks. These are the external sources
for long term finances. The external sources for short term finance include loans and advances from commercial banks, short-term
public deposits, bill discounting, overdrafts and cash credits, factoring issues of commercial paper, loans from non-banking financial
companies, etc. (ii) The internal source of finance include reserves of the company for long-term purposes and bank balances and cash
on hand with the company for short-term purposes.
Capital Structure Decisions
The capital structure decisions are concerned with the optimum mix of equity capital and debt capital. These decisions take into
account the interest payment burden, risk of excessive borrowing and the company’s objective of maximisation of owners’ wealth.
Another factor to be taken into consideration is the operating leverage or the proportion of fixed costs in the operating cost structure.
The factors like (a) overall weighted cost of capital, (b) the debt capacity of the firm in terms of adequacy of cash flows to meet the
fixed interest rate burden and principal amount, and (c) the need for flexibility in the capital structure should also be considered in
deciding the capital structure. The desirable debt-equity ratio for private sector firms is 2:1.
Dividend Policy
The policy regarding the proportion of profit to be distributed to shareholders as dividend and the proportion of the profit retained in
the company as reserves is the crucial one. This decision is affected by the factors like:(a) The shareholders’ preference as to current
dividend income against capital gains.(b) The reinvestment opportunities and financial needs of the company.(c) Need for stability of
dividend distribution.(d) Advantages and disadvantages of cash dividend and stock dividend.The priorities of the management of the
companies and the stakeholders vary. Exhibit 13.3 presents the differences in priorities of management and shareholders and the
probable areas of conflict.
 HUMAN RESOURCE POLICIES

1. Employment
The term human resources can be thought of as, “the total knowledge, skills creative abilities, talents and aptitudes of an organisation’s workforce as well
as the value, attitudes and beliefs of the individuals involved.” Objectives of human resources management are influenced by organisational objectives,
individuals and social goals. Human resources are managed to direct and utilise their resources towards and for the accomplishment of organisational
objectives. The objectives of the human resources management include contributing to the organisational objectives and also to meet the needs,
aspirations, values and dignity of individual employees and having due concern, for socioeconomic problems of the community.
The objectives of HRM may be as follows:
(i) to create and utilise an able and motivated workforce, to accomplish basic organisational goals.
(ii) To establish and maintain sound organisational structure and desirable working relationships among all the members of the organisation.
(iii) To secure the integration of individual and groups within the organisation by co-ordination of the individual and group goals with those of the
organisation.
(iv) To create facilities and opportunities for individual or group development so as to match it with the growth of the organisation.
(v) To attain an effective utilisation of human resources in the achievement of organisational goals.
(vi) To identify and satisfy individual and group needs by providing adequate and equitable wages,
incentives, employee benefits and social security and measures for challenging work, prestige,
recognition, security, status, etc.(vii) To maintain high employee morale and sound human relations
by sustaining and improving the various conditions and facilities.(viii) To strengthen and appreciate
the human assets continuously by providing training and developmental programmes.(ix) To consider
and contribute to the minimisation of socio-economic evils such as unemployment, under-
employment, inequalities in the distribution of income and wealth and to improve the welfare of the
society by providing employment opportunities to women and disadvantaged sections of the society,
etc.(x) To provide an opportunity for expression and voice in management.(xi) To provide fair,
acceptable and efficient leadership.(xii) To provide facilities and conditions of work and creation of
favourable atmosphere for maintaining stability of employment.
 Job Design & Analysis
The strategy of the job design includes designing the jobs to the possible maximum
extent by incorporating core job dimensions, viz., skill variety, task identity, task
significance, autonomy and feedback. Job analysis information should include role
analysis also as it contributes for the team work and interacting with the
environment efficiently. Thus, these strategies of job design and job analysis help
the organisation to make the people to commit and contribute to the job and
organisation.
 Recruitment and Selection
The strategies in these areas include identifying the best possible sources and techniques of recruitment, like campus
recruitment head hunters, body shoppers, scouting the efficient employees from other organisations, employing agencies,
executive search consultants, etc. However, other sources may be used particularly for lower level jobs. However,
recruitment strategies are to be formulated within the limitations imposed by the external factors like government
regulations and laws, internal environmental factors like promotional policies of the organisation. Recruitment policy should
take into consideration the government’s reservation policy, policy regarding sons of soil, etc., internal sources for
promotions, social responsibility in absorbing minority sections, women, etc. Recruitment policy should commit itself to the
organisation’s personnel policy like enriching the organisation’s human resources, motivating the employees through
internal promotions, improving the employee loyalty to the organisation by absorbing the retrenched or laid off employees,
casual/temporary employees and dependants of present and former employees.The selection strategies should include the
appointment of external consultants for conducting tests and interviews or the entire selection process, designing selection
tests, deciding the issue of job for the candidate or candidate for the job, choosing the criteria of profile matching, successive
hurdles or multiple correlation. Conducting of selection tests is a crucial step in the selection process.The type of selection
tests include:(i) Aptitude Tests(a) Intelligence test(b) MechanicalAptitude
c) Psychomotor tests (d) Clerical aptitude tests Achievement Tests(a) Job Knowledge Test (b) Work
Sample Test Situational Tests(a) Group Discussion (b) In BasketPersonality Tests(a) Objective
Tests(b) Projective Tests Personality Tests(a) Objective Tests(b) Projective Tests
The strategists should remember that the tests predict the candidate’s failure on the job rather than
success. Therefore, excessive dependence on selection tests is not viable. The human resource
strategists may depend on the techniques like role play, group discussion, etc. for the selection of
executives. Assessment centre’s score may be used for this purpose.
 Human Resource Development
Human resource development (HRD) assumes significance in view of the fast changing organisational
environments and need of the organisations to adopt new techniques in order to respond to the environmental
changes.HRD from organisation point of view is a process in which the employees of an organisation are
helped/motivated to acquire and develop technical, managerial and behavioural knowledge, skills and abilities,
and mould the values, beliefs, attitudes necessary to perform present and future roles by realising highest human
potential with a view to contribute positively to the organisational, group, individual and social goals.Human
resources development plays a crucial role in market economies. HRD to be effective should essentially have a
strong base of human resource planning, recruitment and selection based on effective HRD requirements. The
base factors enable the organisation to develop its human resources effectively. The strategist can use the HRD
process and techniques before the implementation of strategies.The implementation of various strategies like
mergers, take over, absorptions, turn around, expansion, diversification, etc., require the development of human
resources. In fact, successful implementation of all strategies depends on the human resource development.
 Performance Analysis and Development
Appraising the performance of individuals, groups and organisations is a common practice of all
societies. Performance appraisal is a method of evaluating the behaviour of employees in the work-spot,
normally including both the quantitative and qualitative aspects of job performance.Traditionally, the
purposes of performance appraisal were to guide to the job changes and salary changes. Today,
performance appraisal techniques are used for a wider purpose including analysing the performance
without hurting the employees’ feeling, and to develop the employees’ skills and knowledge, Hence, the
term performance appraisal is used in the modern organisations as ‘Performance Analysis and
Development.’ Further, traditionally, performance had been appraised by the superior of the employee
only. But performance of the employees in the contemporary organisations is appraised by not only by
superiors, but also by the peers, subordinates, employees themselves (self appraisal), users of services
(customers) and consultants. Performance appraisal by all these parties is called “360° Performance
Appraisal”.
 Methods of Performance Appraisal

The important methods of performance appraisal include:

(1) Graphic Rating Scales
(2) Ranking Method
(3) Paired Comparison Method
(4) Forced Distribution Method
(5) Checklist Methods:(a) SimpleChecklist (b) Weighted Checklist (c) Forced Choice
(6) Critical Incident Method
(7) Essay or Free from Appraisal
(8) Group Appraisal
(9) Behaviourally Anchored Rating Scales
(10)Assessment Centres
(11)Human Resource Accounting
(12)Management by Objectives/Appraisal by objectives.The strategist should create the view to the employees that the performance appraisal is for employee development
rather than a employee punishment technique. Appropriate techniques of performance analysis are to be applied to the jobs. There is no single technique suitable to all types
of jobs. The strategist should get the cooperation and support of trade unions to implement the performance appraisal techniques sincerely and seriously.
System of Performance Appraisal
Performance appraisal is a nine-step process. At the first stage, performance standards are established based on job
description and job specification. The standards should be clear, objective and incorporate all the factors.
Business Policy and Strategic ManagementThe second stage is to inform these standards to all the employees
including appraisers.The third stage is following the instructions given for appraisal, measurement of employee
performance by the appraisers through observation, interview, records and reports.Fourth stage is finding out the
influence of various internal and external factors on actual performance. The influence of these factors may be
either inducing or hindering the employee performance. The measured performance may be adjusted according to
the influence of external and internal factors. The performance derived at this stage may be taken as actual
performance.Fifth stage is comparing the actual performance with that of other employees and previous
performance of the employee and others. This gives an idea where the employee stands. If performance of all the
employees is ranked either too high or too low, there may be something wrong with the standards and job analysis.
Sixth stage is comparing the actual performance with the standards and finding out deviations.
Deviations may be positive or negative. If employee’s performance is more than the standards, it is
positive deviation and vice versa is negative deviation.
Seventh stage is communicating, the actual performance of the employee and other employees doing
the same job and discuss with him about the reasons for positive or negative deviations from the
preset standards as the case may be.Eighth stage is suggesting necessary changes in standards, job
analysis, internal and external environment.Ninth stage is follow-up of performance appraisal report.
This stage includes guiding, counselling and directing the employee or making arrangements for
training and development of the employee in order to ensure improved performance. If the actual
performance is very poor and beyond the scope of improvement, it may be necessary to take steps for
demotion or retrenchment or any other suitable measure.
guide and coach the employee for his advancement. Thus, the post appraisal interview is designedto achieve
the following objectives:(1) To let employees know where they stand;(2) To help employees do a better job
by clarifying what is expected of them;(3) To plan for employee development and growth;(4) To strengthen
the superior-subordinate working relationship by developing a mutual agreement of goals;(5) To provide an
opportunity for employees to express themselves on performance related issues.Thus, post appraisal
interview is most helpful to the employee as well as his superior.
Training and Development
Organisation and individual should develop and progress simultaneously for their survival and attainment of
mutual goals. The management should develop the individuals and the organisation through training and
development. The changing governmental policies, trends towards globalisation, changes in technology and
increasing competition make the training a crucial and significant function of human resource management.
(k) To promote individual and collective morale, a sense of responsibility, co-operative attitudesand
good relationships.Management development is a systematic process of growth and development by
which managers develop their abilities to manage. The strategist uses the management development to
achieve the following objectives:
Objectives of Management Development
The management development programmes are organised with a view to achieving specific objectives.
They are:(1) To overhaul the management machinery.(2) To improve the performance of the managers.
(3) To give the specialists an overall view of the functions of an organisation and equip them to co-
ordinate each other’s efforts effectively.(4) To identify the persons with the required potential and
prepare them for senior positions.(5) To increase the morale of the members of the management group.
(6) To increase the versatility of the management group.
(7) To keep the executives abreast with the changes and developments in
their respective fields.(8) To create the management succession which can
take over in case of contingencies.(9) To improve thought process and
analytical ability.(10) To broaden the outlook the executive regarding his
role position and responsibilities.(11) To understand the conceptual issues
relating to economic, social, and technical areas.(12) To understand the
problems of human relations and improve human relations skills.(13) To
stimulate creative thinking.
 Career Planning and Developments
Individual career planning assumes greater significance with the unparallel growth of knowledge,
educational and training facilities and widespread increase in job opportunities. The strategist uses the
career planning in order:— To attract competent persons and retain them in the organisation.— To
provide suitable promotional opportunities.— To enable the employees to develop and make them
ready to meet the future challenges.— To reduce employee dissatisfaction and turnover.— To improve
motivation and morale.Promotions: Promotion is an advancement of an employee to a better job —
better in terms of greater responsibility, more prestige or status, greater skill and especially increased
rate of pay or salary. The purposes of promotion include: to utilise the employee’s skill and knowledge
at the appropriate level, to develop competitive spirit and inculcate the zeal in the employees to acquire
additional skill, knowledge, etc.Organisations adopt different bases of promotion depending upon their
nature, size, management, etc. These bases include seniority, merit and seniority-cum-merit.
Promotion Policy
Every organisation has to specify clearly its policy regarding promotionbased on its corporate mission, objectives,
policy and goals.
Transfer
Organization resort to another type of mobility of employees in order to place the right employee in the right job.
This type of mobility is restricted to movement of an employee from one job to another in the same level of
organisational hierarchy is termed as transfer.Transfer is also defined as, “... the moving of an employee from one
job to another. It may involve a promotion, demotion or no change in job status other than moving from one job to
another.” However, transfer is viewed as change in assignment in which employee moves from one job to another in
the same level of hierarchy requiring similar skill involving approximately same level of responsibility, same status
and same level of pay. Thus, promotion is upward reassignment of a job, demotion is a down ward job reassignment
whereas transfer is a lateral or horizontal job re- assignment.
 Transfer Policy
Organization should clearly specify their policy regarding transfer.
Otherwise superiors may transfer their subordinates arbitrarily if they
do not like them. It causes frustration among employees. Similarly
subordinates may also request for transfer even for the petty issues.
Most of the people may ask for transfer to riskless and easy jobs and
places. As such organisation may find it difficult to manage the
transfer policy.
 Wages and Benefits
Wage and Salary: One of the important factors in human resource management is wage and salary administration.
Wage or salary is significant to most of the employees as it constitutes a major share of their income. The strategist
can achieve the following goals through sound wage and salary policies:— Acquiring qualified and competent
personnel— Retain the competent and efficient employees— Secure internal and external equity— Ensure desired
employee behaviour— Utilise human resources to the maximum extent— Convert the employee potentialities into
realities.The strategist while formulating the wage policy, should take the following factors into consideration.l
Remuneration in comparable industriesl Company’s financial positionl Cost of livingl Employees skill, knowledge,
potentialities, etc. l Productivityl Union pressure and strategies l Government legislations.
Fringe Benefits:
Fringe benefits are those which are provided by an employer to or for the benefit of an employee and which are not
in the form of wages, and salaries. The strategist can provide the benefits with a view tol Create and improve sound
industrial relations l Boost up employee morale.