Module - 2

Module 2

Vision

It outlines what the organization wants to be, or how it wants the world in which it operates to be. It is a long-term view and concentrates on the future. It can be emotive and is a source of inspiration. For example, a charity working with the poor might have a vision statement which reads "A World without Poverty." Mission

Defines the fundamental purpose of an organization or an enterprise, succinctly describing why it exists and what it does to achieve its vision. For example, the charity above might have a mission statement as "providing jobs for the homeless and unemployed".

Characteristics of Vision statement

In order to develop an effective shared vision statement, any company also need to be able to describe the kinds of relationships that they want with: a) His Customers, b) His Suppliers, c) His Competitors, and of course with his Team. The main purpose of the vision statement is to outline the :dream state of the business. In other words: if your business could be everything you dreamed, how would it be?

Vision statement of Bill Gates

Bill Gates There will be a personal computer on every desk running Microsoft software. And now perhaps a little less famous, but still real example of a vision statement from the real world (my company):

Components of Mission Statement

A Mission Statement describes how your business is going to accomplish its vision. The Mission Statement describes the what of your business. It states why your organization is in business and what you are hoping to achieve. A typical mission statement contains three components: 1. The overall purpose of your business - what are you trying to achieve. 2. What your business does - products and services it provides. 3. What's important to your business - the values your business lives by.

Mission statement of Dell

"With the power of Dell's team of talented people, we are able to provide customers with superb value; high-quality, relevant technology; customized systems; superior service and support; and products and services that are easy to buy and use". Purpose: provide customers with superb value technology Business: high quality, relevant technology, customized systems Values: superior service and support, easy to buy, easy to use

Objectives & goals

Objectives are open ended attributes that denote the future states or outcomes.

Refer to the operational side of business

Goals are the close ended attributes& are prcised & expressed in specific terms.

Objectives are the ends which state how the goals will be achieved.

An organization tries to its purpose into long term objectives & Short term goals.

Different objectives are pursued like continuity of profits, efficiency, product quality, employee satisfaction etc. Goals are qualitative, objectives are mainly quantitative.

Thus objectives are measurable & comparable.

An organization may pursue multiple objectives.Importance of objectives

Justify the organization

Provide direction

Basis for management by objectives

Helps in strategic planning & management

Helps coordination

Provides standards for assessment & control

Helps decentralization

Characteristics of ideal objectives

Formulation should involve participation

They should be clear

Realistic

Flexibility

Consistency

Ranking (assigning priorities)

Verifiability

Balance

Understandable

Concrete & specific

Challenging

Should be in the constraints

What objectives are set?

Profit

Employee welfare

Marketing

Growth

Quality products & services

Power

Social responsibility of business

Business definition

Dimensions of business:-

Customer functions:-what is being satisfied; freshness, germs fight, protection

Customer groups: - who is being satisfied; oral ,care, dental protection

Alternative strategies: - how the need is being satisfied, paste powder, foam

Business policy

It involves all member of organization

Explicit or implicit

Decision making process

Formulated for frequent happenings

Pyramids of policies policies procedures ,standard operating plans all guide to act but differ in the degree of guidance

Features of business policy

Credibility

Acceptability

Feasibility

Clear and consistent

Proper communication

Flexible

Relative to objectives

Policies should not be the result ofopportunistic decisions

Determinants of business policy

Internal factors -

Mission

Objectives

Strength and weakness

Management value orientation

External factors -

Market structure

Nature of industry

Economic and government policies

Technological social and political situation

Importance of business policy

For learning the course

Integrates knowledge

Deals with constraint and complexity of real life business

Broad perspective

Make study and practice of management more meaningful

For understanding business environment

Formulation of policies

Makes management receptive

Reduces feeling of isolation

For understanding the organization

Presents a basic frame work for understanding decision making

Brings the knowledge in strategic decision making

Importance of job performance

For personal development

Career choice

Offers unique perspective to employees

Purpose of business policy

Integrate the knowledge in various functional areas of management

Generalist approach (problem solving)

Understand complex linkage with the operating system

Formulation of business policy

Goal specification and priorities

Identification of policy alternatives

Evaluation of policy alternatives

Check the acceptability

Choice of policy

Impact of external and internal environment

Function of business policy

Policy establishes indirect control over independent actions

Policy promotes uniform handling of similar activities

Ensures quicker decision

Institutionalize basic aspect of organization

Reduces uncertainty

Counter act resistance

Mechanism of avoiding hasty and ill decisions

Environmental scanning Environmental scanning or analysis of environment is the diagnostic phase of strategic management .It means the monitoring, evaluating& dissemination of information from the external & internal environment to the key people with the corporation. The simplest way to conduct environmental scanning is through SWOT analysis and PESTEL analysis. SWOT is an acronym used to describe the particular strength, weakness, opportunity and threat. The external environment consist of variables that are outside the organization and not within the control of top management .The internal environment of corporation consist of variables that are within the organization and are not usually within the control of outside parties.SWOT AnalysisStrength is an inherent capacity which an organization can use to gain strategic advantage.Weakness is an inherent limitation or constraint which creates strategic disadvantage.Opportunity is a favorable condition in the organizations environment which enables it to strengthen its position.Threat is an unfavorable condition in the organizations environment which creates a risk for or causes damage to the organization.

PESTEL AnalysisThese are the factors affecting external environment .PESTEL is the acronym used to describe the political, economic, social, technological, environmental and legal environment of an industry or corporation.1. Political: These factors determine the extent to which a government may influence the economy or a certain industry. [For example] a government may impose a new tax or duty due to which entire revenue generating

structures of organizations might change. Political factors include tax policies, Fiscal policy, trade tariffs etc. that a government may levy around the fiscal year and it may affect the business environment (economic environment) to a great extent.2. Economic: These factors are determinants of an economys performance that directly impacts a company and have resonating long term effects. [For example] a rise in the inflation rate of any economy would affect the way companies price their products and services. Adding to that, it would affect the purchasing power of a consumer and change demand/supply models for that economy. Economic factors include inflation rate, interest rates, foreign exchange rates, economic growth patterns etc. It also accounts for the FDI (foreign direct investment) depending on certain specific industries whore undergoing this analysis.3. Social: These factors scrutinize the social environment of the market, and gauge determinants like cultural trends, demographics, population analytics etc. An example for this can be buying trends for Western countries like the US where there is high demand during the Holiday season.4. Technological: These factors pertain to innovations in technology that may affect the operations of the industry and the market favorably or unfavorably. This refers to automation, research and development and the amount of technological awareness that a market possesses.5. Legal: These factors have both external and internal sides. There are certain laws that affect the business environment in a certain country while there are certain policies that companies maintain for themselves. Legal analysis takes into account both of these angles and then charts out the strategies in light of these legislations. For example, consumer laws, safety standards, labor laws etc.6. Environmental: These factors include all those that influence or are determined by the surrounding environment. This aspect of the PESTLE is crucial for certain industries particularly for example tourism, farming, agriculture etc. Factors of a business environmental analysis include but are not limited to climate, weather, geographical location, global changes in climate, environmental offsets etc.

Industry and Competitor AnalysisIndustry Analysis An industry is a group of firms producing a similar product or service, such as music, fitness drinks, or electronic games. Industry analysis is business research that focuses on the potential of an industry. Once it is determined that a new venture is feasible in regard to the industry and market in which it will compete, a more indepth analysis is needed toearn the insandouts of the industry the firm plans to enter. This analysis helps a firm determine if the niche markets it identified during feasibility analysis are accessible and which ones represent the University of Zurich ISU Institute for Strategy and Business Economics Ulrich Kaiser A primer in Entrepreneurship Spring semester 2008 3 during feasibility analysis are accessible and which ones represent the best point of entry for a new firm.

When studying an industry, an entrepreneur must answer three questions before pursuing the idea of starting a firm:1) Is the industry accessiblein other words, is it a realistic place for a new venture to enter?2) Does the industry contain markets that are ripe for innovation or are underserved?3) Are there positions in the industry that will avoid some of the negative attributes of the industry as a whole?

It is useful for a new venture to think about its position at both the company level and the product or service level.At the company level, a firms position determines how the entire company is situated relative to its competitors.The Importance of Industry Versus Firm Specific Factors Firmlevel factors include a firms assets, products, culture, teamwork among its employees, reputation, and other resources. Industryspecific factors include the threat of new entrants, rivalry among existing firms, the bargaining power of suppliers, and other factors In various studies, researchers have found that from eight to 30 percent of the variation in firm profitability is directly attributable to the industry University of Zurich ISU Institute for Strategy and Business Economics Ulrich Kaiser A primer in Entrepreneurship Spring semester 2008 6 thevariation in firm profitability is directly attributable to the industry in which a firm competes.Industry Types and the Opportunities They Offer Emerging Industries

Types of industries

Emerging Industries: industries in which standard operating procedures have yet to be developed.

Fragmented Industries: industries that are characterized by a large number of firms of approximately equal size.

Mature Industries: industries that are experiencing slow or no increase in demand

Declining Industries: industries that are experiencing a reduction in demand. Opportunities: leadership, establishing a niche market, and pursuing a cost reduction strategy.

Global Industries:industries that are experiencing significant international sales. Opportunities:multi domestic and global strategies.

Competitor Analysis

After a firm has gained an understanding of the industry and markets in which it plans to compete, the next step is to complete a competitor analysis. A competitor analysis is a detailed analysis a firms competition.It helps a firm understand the positions of its major competitors and the opportunities that are available to obtain a competitive advantage in one or more areas A competitive analysis grid is a tool for organizing the information a firm collects about its primary competitors.

INTERNAL APPRAISAL

Meaning Every company has to develop a clear understanding of what they are good in where they need to do better so that they can plan out their next steps accordingly.

It also involves finding out those internal issues because of which the company might expect threats from the external environment.Purpose, role and importance1. Stands in capabilities and strength & weakness2. Opportunity to be tapped in line with its capability3. Match the Objective in line with its capability4. Asses the capability gap5. Select the specific lines in which it can growInternal factors to be analyzed FINANCIAL & ACCOUNTING:- Financial resources & strength, liquidity cash flow Cost of capital Relations with owners & stock holders. Tax conditions Financial planning MARKETING & DISTRIBUTUING FACTORS:- Product related : variety, differentiation Price related Place : logistics, channels of distribution Promotion : advertising, sales promotion, PR Integrative system : market research, packaging of product

PRODUCTION & OPERATION FACTORS;- Use of RM Production system, capacity Location Service design Operation & control Product planning Material supply Quality control Lower cost, inventory Capacity utilization PERSONNEL CAPABILIY FACTORS:- Use of HR skills Safety welfare, security appraisal Satisfaction morale, compensation, climate , structure, trade unionismINFORMATION CAPABILITY:- Flow of information. Outside & within DBMS, use of information Speed & IT infrastructure GENERAL MANAGEMENT;- Strategic analysis & intent formulation

Rewards & incentives Goals & competence CSR Organization climate & regulations R & D ENGINEERING: New improved production Material , processes Cost advantage Research capability SOURCES OF INFORMATION:-Internal Employee opinion Company files & documents Financial statements MIS Annual reports Functional area profileExternal Comparative appraisal Company reports &magazine Through consultants

Methods & TechniquesINTERNAL ANALYSIS Value chain analysis Qualitative Quantitative Financial Non-financialMETHODS AND TECHNIQUESINTERNAL ANALYSIS Value chain analysis -Value chain analysis allows the firms to understand the parts of its operations that create value and those that do not. Understanding these issues is important because the firm earns above-average returns only when the value it creates is greater than the costs incurred to create the value -In value-chain analysis the business activities are divided into two categories: primary activities and support activities.

Qualitative - Corporate culture - Knowledge - Moral Quantitative - Financial (ratio analysis) - Non-financial (analysis employee turnover, inventory units, absenteeism) Comparative (strength & weakness & distinctive competencies) - Historical - Industry norms - Bench marking (a point for purposeof meeting best practicesperformances,process. Comprehensive - balance score card - Key factor ratingKey factor rating Market - product, service , price Financial -source of funds, usage & management Operations- production system, operation & control Personnel -IR ,employee characteristics information management; acquisition, synthesis & processing, usage

Module 3

Strategy formulation Strategy formulation refers to the process of choosing the most appropriate course of action for the realization of organizational goals and objectives and thereby achieving the organizational vision.The process of strategy formulation basically involves six main steps. 1. Setting Organizations objectives

The key component of any strategy statement is to set the long-term objectives of the organization. It is known that strategy is generally a medium for realization of organizational objectives. Objectives stress the state of being there whereas Strategy stresses upon the process of reaching there. Strategy includes both the fixation of objectives as well the medium to be used to realize those objectives. Thus, strategy is a wider term which believes in the manner of deployment of resources so as to achieve the objectives.While fixing the organizational objectives, it is essential that the factors which influence the selection of objectives must be analyzed before the selection of objectives. Once the objectives and the factors influencing strategic decisions have been determined, it is easy to take strategic decisions.2. Evaluating the Organizational Environment The next step is to evaluate the general economic and industrial environment in which the organization operates. This includes a review of the organizations competitive position. It is essential to conduct a qualitative and quantitative review of an organizations existing product line. The purpose of such a review is to make sure that the factors important for competitive success in the market can be discovered so that the management can identify their own strengths and weaknesses as well as their competitors strengths and weaknesses.After identifying its strengths and weaknesses, an organization must keep a track of competitors moves and actions so as to discover probable opportunities of threats to its market or supply sources.3. Setting Quantitative Targets In this step, an organization must practically fix the quantitative target values for some of the organizational objectives. The idea behind this is to compare with long term customers, so as to evaluate the contribution that might be made by various product zones or operating departments.

4. Aiming in context with the divisional plans In this step, the contribution made by each department or division or product category within the organization is identified and accordingly strategic planning is done for each sub-unit. This requires a careful analysis of macroeconomic trends.5. Performance Analysis Performance analysis includes discovering and analyzing the gap between the planned or desired performance. A critical evaluation of the organizations past performance, present condition and the desired future conditions must be done by the organization. This critical evaluation identifies the degree of gap that persists between the actual reality and the long-term aspirations of the organization. An attempt is made by the organization to estimate its probable future condition if the current trends persist.6. Choice of Strategy This is the ultimate step in Strategy Formulation. The best course of action is actually chosen after considering organizational goals, organizational strengths, potential and limitations as well as the external opportunitiesStrategyA strategy is a plan of action designed to achieve a specific goal or series of goals within an organizational framework.TYPES OF STRATEGY

Type of StrategiesIntegration StrategiesIntensive StrategiesDiversification StrategiesDefensive StrategiesIntegration Strategy

IntegrationStrategyVerticalIntegrationForwardBackwardHorizontal IntegrationVertical IntegrationVertical integration is the degree to which a firm owns its upstream suppliers and its downstream buyers

Vertical Integration: Backward Integration Seven guidelines for when backward integration may be an especially effective strategy are: When an organizations present suppliers are especially expensive, or unreliable. When the number of suppliers is small and the number of competitors is large. When an organization competes in an industry that is growing rapidly. When an organization has both capital and human resources to manage the new business of supplying its own raw materials. When the advantages of stable prices are particularly important. When present supplies have high profit margins, which suggests that the business of supplying products or services in the given industry is a worthwhile venture. When an organization needs to quickly acquire a needed resource.

Vertical Integration: Forward Integration A company tends towardforward vertical integrationwhen it controls distribution centers and retailers where its products are sold.Vertical Integration: Forward Integration Six guidelines for when forward integration may be an especially effective strategy are: When an organizations present distributors are especially expensive, or unreliable When the availability of quality distributors is so limited as to offer a competitive advantage to those firms that integrate forward. When the advantages of stable prices are particularly important. When present supplies have high profit margins, which suggests that the business of supplying products or services in the given industry is a worthwhile venture. When an organization needs to quickly acquire a needed resource. When an organization competes in an industry that is growing and is expected to continue to grow markedly. When the advantages of stable prices are particularly important. When present supplies have high profit margins, which suggests that the business of supplying products or services in the given industry is a worthwhile venture. When an organization needs to quickly acquire a needed resource.Horizontal Integration It is a strategy of seeking ownership of or increased control over a firms competitors. Growth strategy. Mergers, acquisitions and takeovers among competitors allow for increased economies of scale and enhanced transfer of resources and competencies.Horizontal Integration : Examples Horizontal integration is accomplished by expansion into additional business activities that are within the same level of the value chain. Using the gemstones as an example, a wholesale jeweler could acquire or merge with another wholesale jeweler in an attempt to horizontally integrate the company. These five guidelines indicate when horizontal integration may be an especially effective strategy When an organization can gain monopolistic characteristics in a particular area or region without being challenged by the federal government for tending substantially to reduce competition. When an organization competes in a growing industry. When increased economies of scale provide major competitive advantages. When an organization has both the capital and human talent needed to successfully manage an expanded organization. When competitors are faltering due to a lack of managerial expertise or a need for particular resources that an organization possesses

Intensive Strategy

IntensiveStrategyMarket PenetrationMarket DevelopmentProduct Development The strategies require intensive efforts if a firms competitive position with existing products is to improve.Types of Strategies: Intensive StrategiesMarket Penetration A market penetration strategy seeks to increase market share for present products or services in present markets through greater marketing efforts. Market penetration includes increasing the number of salespersons, increasing advertising expenditures, offering extensive sales promotion items, or increasing publicity efforts Market development involvesintroducing present products or services into new geographic areas.These six guidelines indicate when market development may be an especially effective strategy: When new channels of distribution are available that are reliable, inexpensive, and of good quality. When an organization is very successful at what it does. When an organization has the needed capital and human resources to manage expanded operations. When an organization has excess production capacity. When an organizations basic industry is rapidly becoming global in scope.Product Development Product development is a strategy that seeks increased sales by improving or modifying present products or services. Product development usually entails large research and development expenditures. Googles new Chrome OS operating system illuminates years of money spent on product development. Google expects Chrome OS to overtake Microsoft Windows by 2015.DEFENSIVE STRATEGYMeaning

Amanagement approachdesignedto reduce therisk of loss is known as defensive strategies.

Types

1. Joint Venture

Two or more companies form a temporary partnership to reduce each others competition, or to survive in a highly competitive situation.

2.Retrenchment

Regrouping through cost and asset reduction to reverse declining sales and profit. Sometimes it is called turnaround or reorganizational strategy.

3.Divestiture

A divestiture strategy is pursued when a company sells or divests itself of a business or part of a business. It may because of loss, less than target rate of return, urgency to mobilise funds, managerial problems, or redefinition of the business of the company.

4.Liquidation

Selling all of a companys assets, in parts, for their tangible worth.

Strategic AnalysisA strategic analysis for a business is one of the most basic and useful tools for strategic business planning.It is the process of conducting research on the business environment within which an organisation operates and on the organisation itself, in order to formulate strategy. The following attributes are commonly associated with it: 1. Identification and evaluation of data relevant to strategy formulation. 2. Definition of the external and internal environment to be analysed. 3. A range of analytical methods that can be employed in the analysisTools for Strategic Analysis SWOT ANALYSIS INDUSTRY ANALYSIS DRIVING FORCE ANALYSIS BCG MATRIX VALUE CHAIN ANALYSIS McKinsey 7S ANALYSIS1. SWOT Analysis- This tool for strategic analysis was developed by Albert Humprey for identifying opportunities and threats in the business environment as well as strength and weakness within a firm. This tool can be used for analysing the connectivity between environmental forces and strategic capability, in so doing identifying key factors that determine new strategies and providing a platform for testing and validating strategic initiatives.SWOT analysis starts by defining the objective of the project or business activity and identifies the internal and external factors that are important to achieving that objective. strengths and weaknesses are usually internal to the organisation, while opportunities and threats are usually external.

2. Industry Anlysis- This aims at identifying and evaluating all the forces that operates within and around the specific industry where a firm competes. Industry analysis is also known as Five force analysis.The framework for the Five Forces Analysis consists of these competitive forces: Industry rivalry (degree of competition among existing firms)intense competition leads to reduced profit potential for companies in the same industry Threat of substitutes (products or services)availability of substitute products will limit your ability to raise prices

Bargaining power of buyerspowerful buyers have a significant impact on prices Bargaining power of supplierspowerful suppliers can demand premium prices and limit your profit Barriers to entry (threat of new entrants)act as a deterrent against new competitors

3. Driving Force Analysis- This tool is used for identifying the driving forces of change and uncertainties in an industry in addition to assessing their impact and proper solution.How to conduct Driving Force Analysis

Identify all main driving forces in a particular industry. Assess and rank the impact of each driving forces. Consider impact and proper solution.

The link between driving forces and strategySound analysis of an industrys driving forces is a prerequisite to sound strategy making.Without keen awareness of what external factors will produce the biggest potential changes in the companys business over the next one to three years, managers will ill prepare to craft (pay attention to the usage of this wordwhy not use MAKE) a strategy tightly matched to emerging conditions.Similarly, if managers are uncertain about the implications of each driving force or if their views are incomplete or off-base, its difficult for them to craft a strategy that is responsive to the driving forces and their consequences for the industry.So driving forces is not something to take lightly; it has practical strategy-making value and is basic to the task of thinking strategically about where the industry is headed and how to prepare for the changes.Comparative Cost AnalysisCost-Benefit AnalysisCost-Benefit Analysis is the implicit or explicit assessment of the benefits and costs (i.e., pros and cons, advantages and disadvantages) associated with a particular choice.Benefits and costs may be monetary (pecuniary) or non-monetary (non-pecuniary, psychic). Costbenefit analysis is often used by governments and other organizations, such as private sector businesses, to appraise the desirability of a given policy. It is an analysis of the expected balance of benefits and costs, including an account of foregone alternatives and thestatus quo. CBA helps predict whether the benefits of a policy outweigh its costs, and by how much relative to other alternatives (i.e. one can rank alternate policies in terms of the costbenefit ratio). Generally, accurate costbenefit analysis identifies choices that increasewelfarefrom autilitarianperspective. Assuming an accurate CBA, changing the status quo by implementing the alternative with the lowest costbenefit ratio can improvePareto efficiency. An analyst using CBA should recognize that perfect appraisal of all present and future costs and benefits is difficult, and while CBA can offer a well-educated estimate of the best alternative, perfection in terms of economic efficiency and social welfare are not guaranteedEvaluationCBA attempts to measure the positive or negative consequences of a project, which may include:1. Effects on users or participants2. Effects on non-users or non-participants3. Externalityeffects4. Option valueor other social benefits.A similar breakdown is employed in environmental analysis oftotal economic value. Both costs and benefits can be diverse. Financial costs tend to be most thoroughly represented in cost-benefit analyses due to relatively abundant market data. The net benefits of a project may incorporate cost savings or publicwillingness to paycompensation (implying the public has no legal right to the benefits of the policy) orwillingness to acceptcompensation (implying the public has a right to the benefits of the policy) for the welfare change resulting from the policy. The guiding principle of evaluating benefits is to list all (categories of) parties affected by an intervention and add the (positive or negative) value, usually monetary, that they ascribe to its effect on their welfare.The actual compensation an individual would require to have their welfare unchanged by a policy is inexact at best. Surveys (stated preferencetechniques) or market behaviour (revealed preferencetechniques) are often used to estimate the compensation associated with a policy; however, survey respondents often have strong incentives to misreport their true preferences and market behaviour does not provide any information about important non-market welfare impacts.

One controversy is valuing a human life, e.g. when assessing road safety measures or life-saving medicines. However, this can sometimes be avoided by using the related technique of cost-utility analysis, in which benefits are expressed in non-monetary units such asquality-adjusted life years. For example, road safety can be measured in terms of cost per life saved, without formally placing a financial value on the life. However, such non-monetary metrics have limited usefulness for evaluating policies with substantially different outcomes. Additionally, many other benefits may accrue from the policy, and metrics such as 'cost per life saved' may lead to a substantially different ranking of alternatives than traditional costbenefit analysis.

Another controversy is valuing the environment, which in the 21st century is typically assessed by valuingecosystem servicesto humans, such as air andwater qualityand pollution.Monetary values may also be assigned to other intangible effects such as business reputation, market penetration, or long-term enterprise strategy alignment.Present ValueFuture, as well as present, benefits and costs must be included in the analysis.But costs and benefits that accrue in the future are worth less than costs and benefits today. Economic agents and society as a whole will maximize the present value of expected net benefits. Costs and benefits may occur over different periods of time, e.g., costs for a dam built today may be spent primarily during the initial period of the project, but benefits will accrue over the lifetime of the dam. To account for all costs and benefits in the same units across time periods, we calculate the present value of net benefits:PV(NB) = Zigmat NB/(1+r)tNet present valueInfinance, thenet present value(NPV) ornet present worth(NPW)is defined as the sum of thepresent values(PVs) of incoming and outgoing cash flows over aperiod of time. Incoming and outgoing cash flows can also be described as benefit and cost cash flows, respectively. Time value of moneydictates that time has an impact on the value of cash flows. Cash flows ofnominalequal value over atime seriesresult in differenteffectivevalue cash flows that makes future cash flows less valuable over time. If for example there exists atime seriesof identical cash flows, the cash flow in the present is the most valuable, with each future cash flow becoming less valuable than the previous cash flow. Thus, a cash flow today is more valuable than an identical cash flow in the future. This decrease occurs because thediscount factorrepresents theexpected rate of returnof each cash flow in a different investment with identical risk. With each additional period, the present value of a subsequent future cash flow decreases.The NPV of an investment is determined by calculating the present value (PV) of the total benefits and costs which is achieved by discounting the future value of each cash flow (seeFormula). NPV is a useful tool to determine whether a project or investment will result in a net

profit or a loss because of its simplicity. A positive NPV results in profit, while a negative NPV results in a loss. The NPV measures the excess or shortfall of cash flows, in present value terms, above the cost of funds.In a theoretical situation of unlimitedcapital budgetinga company should pursue every investment with a positive NPV. However, in practical terms a company's capital constraints limit investments to projects with the highest NPV whose cost cash flows do not exceed the company's capital. NPV is a central tool indiscounted cash flow(DCF) analysis and is a standard method for using thetime value of moneyto appraise long-term projects. It is widely used throughouteconomics,finance, andaccounting. In the case when all future cash flows are incoming (such as theprincipalandcoupon paymentof abond) the only outflow of cash is the purchase price, the NPV is simply the PV of future cash flows minus the purchase price (which is its own PV). NPV can be described as the difference amount between the sums of discounted cash inflows and cash outflows. It compares the present value of money today to the present value of money in the future, taking inflation and returns into account.The NPV of a sequence of cash flows takes as input the cash flows and a discount rate or discount curve and outputs a price. The converse process in DCF analysis taking a sequence of cash flows and a price as input and inferring as output a discount rate (the discount rate which would yield the given price as NPV) is called theyieldand is more widely used in bond trading.FormulaEach cash inflow/outflow isdiscountedback to its present value (PV). Then they are summed. Therefore NPV is the sum of all terms,

where the time of the cash flow thediscount rate(therate of returnthat could be earned on an investment in the financial markets with similar risk.); theopportunity costof capital the net cash flow i.e. cash inflow cash outflow, at timet. For educational purposes,is commonly placed to the left of the sum to emphasize its role as (minus) the investment.The result of this formula is multiplied with the Annual Net cash in-flows and reduced by Initial Cash outlay the present value but in cases where the cash flows are not equal in amount, then the previous formula will be used to determine the present value of each cash flow separately. Any cash flow within 12 months will not be discounted for NPV purpose, nevertheless the usual initial investments during the first yearR0are summed up a negative cash flow.

Given the (period, cash flow) pairs (,) whereis the total number of periods, the net present valueis given by:

Many computer-basedspreadsheetprograms have built-in formulae for PV and NPV

NPV: decision criteria For a single project, a positive NPV indicates acceptability For multiple (competing) projects, the project(s) with the highest NPVs should receive highest priorityBenefitcost ratioAbenefit-cost ratio(BCR) is an indicator, used in the formal discipline ofcost-benefit analysis, that attempts to summarize the overallvalue for moneyof a project or proposal. A BCR is the ratio of the benefits of a project or proposal, expressed in monetary terms, relative to its costs, also expressed in monetary terms. All benefits and costs should be expressed in discountedpresent values.Benefit cost ratio (BCR) takes into account the amount of monetary gain realized by performing a project versus the amount it costs to execute the project. The higher the BCR the better the investment. General rule of thumb is that if the benefit is higher than the cost the project is a good investment.BCR = Discounted value of incremental benefits Discounted value of incremental costsAccept all projects with a BCR greater than 1, when costs and benefits are discounted at the opportunity cost of capital.Benefit/Cost ratio: decision criteria For a single project, a B/C ratio which is greater than 1 indicates acceptability For multiple (competing) projects, the project(s) with the highest B/C ratios (greater than 1) should receive highest priority

Internal rate of returnTheinternal rate of return(IRR) oreconomic rate of return(ERR) is arate of returnused incapital budgetingto measure and compare theprofitabilityofinvestments. It is also called thediscounted cash flowrate of return(DCFROR).In the context of savings and loans, the IRR is also called theeffective interest rate. The terminternalrefers to the fact that its calculation does not incorporate environmental factors (e.g., theinterest rateor inflation).The internal rate of return on an investment or project is the "annualized effective compounded return rate" orrate of returnthat makes thenet present value(NPV as NET*1/(1+IRR)^year) of all cash flows (both positive and negative) from a particular investment equal to zero. It can also be defined as the discount rate at which the present value of all future cash flow is equal to the initial investment or in other words the rate at which an investment breaks even. In more specific terms, the IRR of an investment is thediscount rateat which thenet present valueof costs (negative cash flows) of the investment equals thenet present value of the benefits (positive cash flows) of the investment.CalculationGiven a collection of pairs (time,cash flow) involved in a project, the internal rate of return follows from thenet present valueas a function of therate of return. A rate of return for which this function is zero is an internal rate of return.Given the (period, cash flow) pairs (,) whereis a positive integer, the total number of periods, and the net present value, the internal rate of return is given byin:

The period is usually given in years, but the calculation may be made simpler ifis calculated using the period in which the majority of the problem is defined (e.g., using months if most of the cash flows occur at monthly intervals) and converted to a yearly period thereafter.Any fixed time can be used in place of the present (e.g., the end of one interval of anannuity); the value obtained is zero if and only if the NPV is zero.In the case that the cash flows arerandom variables, such as in the case of alife annuity, theexpected valuesare put into the above formula.Often, the value ofcannot be found analytically. In this case,numerical methodsorgraphical methodsmust be used.Internal Rate of Return: decision criteria For a single project, an IRR which is greater than the selected (for B/C and/or NPV analysis) discount rate indicates acceptability

For multiple (competing) projects, the one with the largest IRR is the most desirableIt has a certain attraction, but also has some problems The argument that an IRR which is greater than the selected discount rate is desirable can be questioned - discount rates can be arbitrary! Calculation (by hand) is tedious & prone to error (but modern spreadsheets are a help) Under certain conditions there may be more than one correct solution to an IRR problemWhat is Portfolio Analysis ?Portfolio analysis is a systematic way to analyse the products and services that make up an association's business portfolio. All associations (except the simplest and the smallest) are involved in more than one business. Some of these include publishing, meetings and conventions, education and training, government representation, research, standards setting, public relations, etc. Each of these is one of the association's strategic business units (SBUs). Each business consists of a portfolio of products and services. For example, an association's publishing business might include a professional journal, a lay magazine, specialized newsletters geared to different member segments, CDs, a website, social networking sites, etc.Portfolio analysis helps you decide which of these products and services should be emphasized and which should be phased out, based on objective criteria. Portfolio analysis consists of subjecting each of the association's products and services through a progression of finer screens. During a time of cutbacks and scarce resources, it is essential to screen out programs and services that are not essential to most members. Those that appeal to a more limited segment can be funded by those desiring the product or service rather than by dues. There are mainly two models1. BCG Matrix2. GE Matrix1. Boston Consulting Group (BCG) Matrixis a four celled matrix (a 2 * 2 matrix) developed by BCG, USA. It is the most renowned corporate portfolio

analysis tool. It provides a graphic representation for an organization to examine different businesses in its portfolio on the basis of their related market share and industry growth rates. It is a two dimensional analysis on management of SBUs (Strategic Business Units). In other words, it is a comparative analysis of business potential and the evaluation of environment.According to this matrix, business could be classified as high or low according to their industry growth rate and relative market share.Relative Market Share= SBU Sales this year leading competitors sales this year.

Market Growth Rate= Industry sales this year - Industry Sales last year.The analysis requires that both measures be calculated for each SBU. The dimension of business strength, relative market share, will measure comparative advantage indicated by market dominance. The key theory underlying this is existence of an experience curve and that market share is achieved due to overall cost leadership.BCG matrix has four cells, with the horizontal axis representing relative market share and the vertical axis denoting market growth rate. The mid-point of relative market share is set at 1.0. if all the SBUs are in same industry, the average growth rate of the industry is used. While, if all the SBUs are located in different industries, then the mid-point is set at the growth rate for the economy.Resources are allocated to the business units according to their situation on the grid. The four cells of this matrix have been called as stars, cash cows, question marks and dogs. Each of these cells represents a particular type of business.

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Figure: BCG MatrixStars-Stars represent business units having large market share in a fast growing industry. They may generate cash but because of fast growing market, stars require huge investments to maintain their lead. Net cash flow is usually modest. SBUs located in this cell are attractive as they are located in a robust industry and these business units are highly competitive in the industry. If successful, a star will become a cash cow when the industry matures.Cash Cows-Cash Cows represents business units having a large market share in a mature, slow growing industry. Cash cows require little investment and generate cash that can be utilized for investment in other business units. These SBUs are the corporations key source of cash, and are specifically the core business. They are the base of an organization. These businesses usually follow stability strategies. When cash cows lose their appeal and move towards deterioration, then a retrenchment policy may be pursued.

Question Marks-Question marks represent business units having low relative market share and located in a high growth industry. They require huge amount of cash to maintain or gain market share. They require attention to determine if the venture can be viable. Question marks are generally new goods and services which have a good commercial prospective. There is no specific strategy which can be adopted. If the firm thinks it has dominant market share, then it can adopt expansion strategy, else retrenchment strategy can be adopted. Most businesses start as question marks as the company tries to enter a high growth market in which there is already a market-share. If ignored, then question marks may become dogs, while if huge investment is made, and then they have potential of becoming stars.Dogs-Dogs represent businesses having weak market shares in low-growth markets. They neither generate cash nor require huge amount of cash. Due to low market share, these business units face cost disadvantages. Generally retrenchment strategies are adopted because these firms can gain market share only at the expense of competitors/rival firms. These business firms have weak market share because of high costs, poor quality, ineffective marketing, etc. Unless a dog has some other strategic aim, it should be liquidated if there is fewer prospects for it to gain market share. Number of dogs should be avoided and minimized in an organization.2. GE MATRIXG.E. multi factorial analysisis a technique used inbrand marketingandproduct management the market they should continue to invest in. It is conceptually similar toB.C.G analysis, but somewhat more complicated. Like in BCG Analysis, a two-dimensional portfoliomatrixis created. However, with the GE model the dimensions are multi factorial. Onedimensioncomprises nine industry attractiveness measures; the other comprises twelve internal business strength measures. The G.E matrix helps astrategic business unit evaluate its overall strength.

Eachproduct, brand, service, or potential product is mapped in this industry attractiveness/business strength space. The GE multi factorial was first developed byMckinseyfor General Electric in the 1970s.

Aims of the G.E modelThis model aims to evaluate the existing portfolios of strategic business units and to develop strategies to achieve growth by addition of new products and businesses to this portfolio and further, to analyze which business units to invest in and which ones to sell off. Construction of the G.E MatrixThe G.E matrix is constructed in a 3x3 grid withMarket Attractivenessplotted on the Y-axis andBusiness Strengthon the X-axis, both being measured on a high, medium, or low score. Five steps must be considered in order to formulate the matrix; The range of products produced by the SBU must be listed Factors which make the particularmarket attractive must be identified Evaluating where the SBU stands in this market Processes through which calculations about business strength and market attractiveness can be made Determining which category an SBU lies in; high, medium, or low.Market attractivenessThe attractiveness of a market is demonstrated by how beneficial it is for a company to enter and compete within this market. It is based on various factors; the size of the market and the rate at which it is growing, the possibility of profit, the number of competitors within the industry and their weaknessesBusiness/competitive strength]This helps decide whether a company is competent enough to compete in the given market(s). It can be determined by factors within the company itself such

as its assets and holdings, the share it company holds in the market and the development of this share, the position in the market of its brand and the loyalty of customers to this brand,its creativeness in coming up with new and improved products and in dealing with the fluctuating situations of the market, as well as keeping in mind environmental/government concerns such as energy consumption, waste disposal etc.

Measuring market attractiveness and business strengthOnce the factors that determine the two are identified and rated, each factor is then given a certain magnitude and a calculation is made as follows; factor 1 rating x factor 1 magnitude + factor 2 rating x factor 2 magnitude + ..... factor n rating x factor n magnitude. Plotting SBU's in the matrix can be represented as a circle; the radius exhibits the size of the market, the SBU's holdings in the market are equated through a pie

chart within the circle and an arrow outside the circle shows the standing of the SBU expected in the future. In the image attached for example, an SBU holds 45% of the market's shares. The arrow is outwards thus showing that the SBU is expected to grow and gain strength and then its tip indicates the future position of the SBU.Investment StrategiesWhen considering investment, it must first be seen which box of the matrix an SBU falls in;grow,selectivity, orharvest.GrowSBU's that are classified into this category attract various companies investment as they are expecting to yield high returns in the future. These investments should be split into categories such as research and development, acquisition of other SBU's, extensive advertisements and expanding production capacity. Selectivity [SBU's that hold a lot of ambiguity fall into this category. They are usually only invested in if there is any prospect of competencies in managerial and corporate capabilities and if companies have any money left after investments in 'grow' business units.HarvestSBU's performing poorly in unattractive industries are classified into this category. Companies only invest in them if they generate enough cash to equal the investment amount, otherwise, they may be liquidated.Advantages Raises awareness between managers about the performance of their products in the market and aids in developing strategies to get maximum returns from the resources available. Helps extract information about a business unit's strengths and weaknesses and to devise strategies to accelerate and improve performance. Aids the business in growing and in providing information about potential market opportunities.

It is more complex in comparison to the BCG matrix.Limitations There is no set rule to 'weight' factors and this process may be subjective across different business unit's. For example, the weight given to a factor by one business may be different to the weight/importance given to it by another. The formulation of a G.E. matrix is very expensive and time consuming. Investment strategies are often not implemented in an accurate and proper manner. The dynamics among SBU's themselves are not taken into accountComparison with the BCG matrixWhen compared to the BCG matrix consisting of four cells, the GE matrix is more complex with its nine cells.This means it not only takes longer to construct, but also to implement. The BCG matrix is a lot more simpler and the factors needed to construct it are accessed more easily and quickly.It takes into account a wide range of factors when determining market attractiveness and business strengths, which is replaced by market share and market growth in the BCG matrix. Also, where factors are classified in the G.E matrix as high, medium and low, those in the BCG matrix are divided between high and low. Moreover, the G.E matrix overcomes many of the limitations and constraints of the BCG matrix.SupportOperational PlanAnoperational plancan be defined as a plan prepared by a component of an organization that clearly defines actions it will take to support the strategic objectives and plans of upper management. However, to fully understand operational plans, we should first look at the overall planning process within a business. This diagram shows three levels of planning.

Type of PlanCreated ByScopeIncludesLevel of Detail

Strategic planTop managementEntire organizationMission of the company, future goals and ambitionsVery broad and general

Tactical planMid-level managementSingle area of the business as a whole (e.g. a division of the company)Specific actions to support or work towards the strategic planSpecific actions and ideas, but not very detailed

Operational planLow-level managementA unit within a single area of the business (e.g. a department within a division)Specific plans for low level and day-to-day activities and processes that will support and enable the tactical planExtremely detailed (who, what, where and when)

Let's summarize the characteristics of an operational plan. First, it assumes that upper management has prepared both a strategic plan and a tactical plan. This means that lower management should have a clear sense of what they are trying to achieve. They just have to come up with a detailed plan to make it happen!Second, the operational plan is limited to only one part of the organization. For example, a large corporation (strategic plan) has a manufacturing division (tactical plan) that produces products A, B and C. Each product is manufactured in a separate plant run by a plant manager who prepares a separate operational plan. Operational plans can be subdivided into two categories. Single-use plansaddress only the current period or a specific problem. An example would be a plan to cut costs during the next year. On-going planscarry forward to future periods and are changed as necessary. An example would be a long-term plan to retrain workers instead of layoffs.

Example of Operational PlansCongratulations, you have just been appointed plant manager for product C! The division manager (your new boss) has just informed you that part of the corporate strategic plan is to increase the return to shareholders over the next five years. The division manager's tactical plan to support the corporate goal has three parts. First, he wants to cut costs by ten percent over the next year. Next, he also wants to avoid layoffs and to increase production by three percent. He asks you to prepare an operational plan for your plant that will show him what you will do to help him achieve these goals. He wants to know very specifically what actions you will take, when these actions will occur and who will perform them. He also wants to know if you will require any additional financial resources or manpower to implement your plan.Let's get started by looking at the tactical plan items and trying to get some ideas about what you can do.To Cut Costs Ten PercentSingle-use or OngoingResources Required

Improve plant workflowSingle-useEfficiency study, machine relocation costs, training costs

Acquire faster or more efficient machinery and equipmentSingle-usePurchase and installation cost

Reduce inventory levelsSingle-useProduction study, supplier interaction, training costs

Reduce production wasteSingle-useEfficiency study, training costs

Improve materials handling proceduresSingle-useEfficiency study, training costs, new equipment

To Avoid LayoffsSingle-use or OngoingResources Required

Do not replace workers who quit or retireOngoingNone - policy only

Retrain workers for other positionsOngoingTraining costs

Increase or maintain sales and production levelsOngoingMarketing costs, quality control costs

Unlock Your Education 'FINANCIAL PLAN'A comprehensive evaluation of an investor's current and future financial state by using currently known variables to predict future cash flows, asset values and withdrawal plans.

Most individuals work in conjunction with an investment or tax professional and use current net worth, tax liabilities, asset allocation, and future retirement and estate plans in developing the plan. These will be used along with estimates of asset growth to determine if a person's financial goals can be met in the future, or what steps need to be taken to ensure that they areCreate a sound financial plan in six steps1. Establish your goals in life short, medium and long term2. Work out what assets and liabilities you have write them down3. Evaluate your current financial position how close are you to achieving your goals?4. Develop your plan create a route map for achieving your different goals5. Implement your plan make the changes and make it happen6. Monitor and review your plan at least yearly and make adjustments when needed

Module - 4

Strategic choice Choosing one action among several actions selected by the firm to respond to the changes in the environment, in order to benefit from opportunities or to avoid unhealthy effects from threats. The main intention is to achieve the strategic fit between the organization and its environment in order to accomplish the firms objectives by using its strengths to overcome its weakness.Factors to be considered before making a strategic choice 1. An analysis of the environmental analysis 1. SWOT Analysis, 2. PEST Analysis, 3. Market Analysis (Michael Porters five forces of competitive strategies) 2. An analysis of the companys resources 1. Financial resource, 2. Human resource, expertise, 3. core competencies, 4. value chain analysis (Michael Porters) 3. Portfolio Analysis 1. BCG matrix, 2. PLC, 3. GE screening ( 9 CELL Model) 4. SHELL Directional Matrix) Factors to be considered before making a strategic choice 1. Stake holder expectations. 2. The values and preferences of management decision-makers. 3. The realities of organizational climate. 1. Management style 2. Culture 3. Structure

Strategic choices Strategic choices should meet one or all of the following criteria Suitability: refers to considerations as the ability of the strategy to tackle major problems, improve competitive standing, exploit strengths, and the extent to which it meets corporate objectives. Feasibility: It refers to the extent to which that strategy can be achieved given the financial, physical and human resource base of the company. In other words, the capability of the company allows the co. to go ahead with a particular strategy. Acceptability: The strategy to be adopted should be acceptable to various interested parties, such as management, employees, shareholders and customers. Shareholders may be particularly sensitive to strategies of the acquisition. The ultimate acceptance of a particular strategy might depend on the attitude of senior management to risk. Sustainability: this refers to the extent to which the strategy is difficult for others to copy or how definitely the firm can consistently hold on to its chosen strategy. Types of strategic options Miles and Snow (1978) offer four main types of strategy 1. Defensive 2. Prospective 3. Analyser . 4. Reactive Thinking behind....... 1. Defensive to defend the business activities 2. Prospective to gain prospects 3. Analyser to survive and sustain 4. Reactive to keep afloat The defender organization The key focus of most defenders is to reduce cost and achieve efficiency through low-cost operations. The defender is unlikely to innovate and is best suited to stable environments.

The prospector organization The prospector organizations operates with a wide range of products in a growing and usually fast-moving market. Prospectors tend to focus on innovation and new market opportunities. Prospector organizations tend to be flexible and decentralized and tend to be creative while remaining efficient. The prospector organizations tend to emphasize on R&D and marketing as the crucial functions. The analyzer organization The analyzer organizations are rarely first in the market. These organizations follow others after a thorough analysis of the market and the competitors behaviour. Analyzers can be found in both stable environments where they tend to emphasize on cost reduction and in changing environments, where they emphasize product differentiation. The reactor organization The reactor organizations tend to have mismatch between environment and their strategy. These organizations might not have any strategy at all. These organizations find it difficult to respond to the changes in the environment and their strategies could be inappropriate.

ROUTES FOR EXECUTION STRATEGIES

DEFENITION

A strategy is a plan of action designed to achieve a particular goal. Strategic planning is an organization's process of defining its strategy, or direction, and making decisions on allocating its resources to pursue this strategy, including its capital and people.

Routes Execution of strategies Strengthen accountability for results. Get people focused on the results they need to accomplish, instead of overloading them with activities and to-do lists. Start by looking at your organizations position descriptions. If they list 27 tasks and job responsibilities, your employees may be confused about which ones are most important and how to handle so many responsibilities. Instead, identify the 4-8 ongoing results the position is designed to accomplish and for which the person is accountable.

Strengthen accountability for behaviours. Any significant business strategy involves some degree of change in direction, focus, structure, process, or a number of other factors. What makes it successful is how well its sponsored by senior management, both in words and in actions.

Build an employee population that acts like owners. Companies that are excellent at reaching strategic goals have developed employee populations who act like owners; they do the right thing with gusto because its in their own best interests to do so

Strategy implementation A good strategy without proper implementation is like a poor strategy or no strategy at all However having a good strategic plan is half the battle won, and the other half is won through effective strategy implementation

Strategy means A Plan of action intended to accomplish a specific goal.Strategy implementation It is a process that puts plans and strategies into action to reach goals. It involves the design and management of systems to achieve the best integration of ; People, Structure, Processes & Resources in achieving organizational objectives.Strategy implementation affects an organization from top to bottom , it affects all the functional and divisional areas of business.Facts Strategy Implementation is critical to a companys success , addressing the who , where , when and how of reaching the desired goals and objectives. Focuses on entire organization.Implementation occurs after environmental scans, SWOT analysis and identifying strategic issues and goals

Nature of Strategy Implementation Is managing forces during the action. Focuses on efficiency. Is primarily an operational process. Requires special motivation and leadership skills. Requires coordination among many individuals.Implementation process Communication / clarification of the goals, objectives and strategies ( at different levels of hierarchy ). Determine the key managerial and operational tasks to be performed. Assign tasks to the various departments and their managers / leaders (depart mentation). Operationalize those tactics in your strategy. Determine the necessary indicators for measuring performance (participatory styles of leadership / management).Build an information system to provide the required accurate, adequate and timely feedback Establish recognition and reward system for motivating your staff. Delegate authority with responsibility and establish a linking / coordination mechanism.Budget and allocate resources to the implementing divisions / departments / sectionsStrategy Formulation Implementation: InterrelationshipSTRATEGY FORMULATION It is positioning forces before action. It focuses on effectiveness. It is an intellectual process It requires good intuitive and analytical skills. It requires coordination among few individuals. Concepts and tools do not differ greatly for small, large, profit or non-profit organization.

STRATEGY IMPLEMENTATION

It is managing forces during action. It focuses on efficiency. It is primarily and operational process. It requires special motivational and leadership skills. It requires combination of many individuals. Concepts and tools vary substantially among small, large, profit or non-profit organization.

ROLES OF ORGANIZATIONAL STRUCTURE Organizational structure is the structure that establishment pattern of relationship among the components or parts of an organization. It includes; A framework through which the organization operates pattern of relationships duties and positions Existence for purpose. There are two dimensions,1. Horizontal 2. Vertical Traditional and modern structures The achievement of the objectives of the enterprise efficiently Organization involves grouping of activities The responsibility for each group of activities is assigned to a manager who has the authority to carry out the activities Co-ordination horizontally and vertically An organization structure should make clear the role, responsibility and authority of everyone in the organization Proper flow of communication

WHAT IS AN ORGANIZATION? A social unit of people systematically structured and managed to meet a need or to pursue collective goals on a continuing basis.

WHY DO WE NEED AN ORGANIZATIONAL STRUCTURE? All organizations have a management structure that determines the relationships between functions and positions and subdivides and delegates roles, responsibilities and authority to carry out defined tasks.

ORGANIZATIONAL STRUCTURE It is a framework within which an organization arranges its lines of authorities and communications and allocates rights and duties.

TYPES OF ORGANIZATIONAL STRUCTURE

1. Tall organizational structure

Large, complex organizations often require a taller hierarchy. In its simplest form, a tall structure results in one long chain of command similar to the military As an organization grows, the number of management levels increase and the structure grows taller. In a tall structure, a manager from many ranks and each has a small area of control.

2. Flat organizational structure

It has fewer management levels, with each level controlling a broad area or group. Flat organizations focus on empowering employees rather than adhering to the chain of command. By encouraging autonomy and self-direction, flat structures attempt to tap into employees creative talents and to solve by collaboration.

3. Virtual organizational structure

Virtual organization can be thoughts of as a way in which an organization uses information and communication technologies to replace or augment some aspect of the organization. People who are virtually organized primarily interact by electronic means. For example, many customers and consultants together via telephone or the internet and problems solved without ever bringing people together face to face.

4. Boundary less organizational structure A boundary less organizational structure is a contemporary approach in organizational design. It is an organization that is not defined by, or limited to the horizontal, vertical or external boundaries imposed by a pre-defined structure.

It behaves more like an organism encouraging better integration among employees and closer partnership with stakeholders. Its highly flexible and responsive and draws on talent wherever its found.

FEATURES OF ORGANIZATIONAL STRUCTURE Determines the manner and extent to which roles, power and responsibilities are delegated. Depends on objectives and strategies. Depends as a perspective through which individual can see their organization and its environment.IMPORTANCE OF ORGANIZATIONAL STRUCTURE Impacts effectiveness and efficiency. Reduces redundant actions. Promotes teamwork. Improves communication. Contributes to success or failure.PURPOSE OF ORGANIZING Divides work to be done in specific jobs and department. Assigns tasks and responsibilities associated with individual jobs. Coordinates diverse organizational tasks. Establishes formal lines of authority. Allocates organizational resources. Clusters jobs into units.

Chain of commandThe continuous line of authority that extends from upper level of organization to lowest level of organization and clarifies who reports to whom.AuthorityThe rights inherent in a managerial position to tell people what to do and expect them to do it.Responsibility The obligation or expectation to perform. Responsibility brings with it accountability.Unity of commandThe concept that a person should have one boss and should report only to him.DelegationThe assignment of authority to another person to carry out specific duties.

DEPARTMENTALISATIONWhen a company expands to supply goods or services. Produces variety of different products. Engage in several different markets in such conditions the company can adopt departmentalization.FORMS OF FDEPARTMENTALISATION Functional Under each of these five managers, there will be subordinate managers and under them, the subordinate staff.The advantages of this type of structure are as follows:(i)It is a logical reflection of functions.(ii)It follows the principle of specialisation.(iii)Maintains power and prestige of major functions.(iv)Inter-departmental co-ordination is facilitated.(v)The structure is simple, logical and easy to understand.(vi)Provides a good means of control at the top.There are also some disadvantages:(i)Responsibility for profits tends to be at the top.(ii)There may be chances of heavy centralisation in decision-making.(iii)Where geographical centralisation is desirable or required, this form becomes unsuitable.(iv)This is not very suitable where product lines have to be emphasized.(v)There is a lower potential for manager development.

ProductThe advantages of this type of structure are:(i)Places greater effort on individual product line.(ii)Better customer service arising from greater product knowledge.(iii)Simplifies departmentation of profitability of each product line. Responsibility for profits is at the Division level.(iv)Improves co-ordination of functional activities.(v)New department may be added without difficulty. Permits growth and diversity of products and services.

(vi)Detailed information on markets for specific products will be generated.(vii)Extremely suitable where product lines are complex or vary greatly.(viii)Furnishes measurable training ground for Managers.Some of the disadvantages inherent in such departmentation are:(i)A customer has to deal with different salesmen or managers for different products of the same company.(ii)Extra costs of maintaining separate sales force for each product.(iii)Duplication of costs on travel, etc.(iv)Tends to make maintenance of economical central services difficult.(v)Results in increased problems of the top management control. customerSome advantages of this type of structure are:(i)Greater specialized customer service.(ii)Where marketing channels are considerably different for various types of customers, this type of structure is very useful.Some disadvantages of this type are:(i)May not be enough work for certain types of customers. Hence, under employment of facilities and manpower specialized in terms of customer groups.(ii)Problems of co-ordination might pose difficulties.(iii)Unequal development of customer groups.

GeographicThe advantages of such departmentation are:i)Regional expertise is generated and managers can tackle customers or competition better. Places responsibility at lower levels.(ii)Proximity will reduce costs of operation and administration.(iii)Places emphasis on local markets and problems. Local conditions might warrant different types of selling. This is possible only in territorial departmentation.(iv)Improves co-ordination at the regional level.(v)Better face-to-face communication with local interests in mind.(vi)Better manager development.Some disadvantages are listed as follows:(i)Involves higher costs of co-ordination and control from headquarters.(ii)Results in more managerial levels which increases overhead costs.(iii)Unsuitable for departments like Finance, where no gains are possible by specialisation on local factors.(iv)Increases problems of the top management control.

ADVANTAGES OF DEPARTMENTALIZATION Department can be staffed with specialized training Shared management responsibility Supervision is facilitated Coordination within the department is easier.Disadvantages of departmentalization Inter department documentation of activities is not possible Decision- making becomes slow. Delays when there are problems Accountability and performance are difficult to monitor.

MATRIX STRUCTUREAmatrix organizational structureis a company structure in which the reporting relationships are set up as a grid, or matrix, rather than in the traditional hierarchy. In other words, employees have dual reporting relationships - generally to both a functional manager and a product manager.ExampleIn the 1970s, Philips, a Dutch multinational electronics company, set up matrix management with its managers reporting to both a geographical manager and a product division manager. Many other large corporations, including Caterpillar Tractor, Hughes Aircraft, and Texas Instruments, also set up reporting along both functional and project lines around that time.AdvantagesIn a matrix organization, instead of choosing between lining up staff along functional, geographic or product lines, management has both. Staffers report to a functional manager who can help with skills and help prioritize and review work, and to a product line manager who sets direction on product offerings by the company. This structure has some advantages: Resources can be used efficiently, since experts and equipment can be shared across projects. Products and projects are formally coordinated across functional departments. Information flows both across and up through the organization. Employees are in contact with many people, which helps with sharing of information and can speed thedecision process.Disadvantages It may take more time to decision. Under this structure there could be confusion regarding job and task responsibilities. Cost and profit responsibilities may not be very clear in the matrix organization. there should be scope of conflicts It may encourage bureaucratization.

Strategic Management BasicsStrategic management is the planning process through which company leaders formulate strategies for accomplishing company missions and objectives. It has four basic elements, according to the Management Study Guide website's "Strategic Management Process - Meaning, Steps and Components." These elements are environmental scanning, strategy formulation, strategy implementation and strategy evaluation. These four steps outline a sequential strategic process whereby leaders analyze the company's current situation, prepare strategies, implement them and then review strategic effectiveness.Cultural InfluenceOrganizational culture is so impacting it can result in the success or failure of a company. A strong organizational culture is one of the most sustainable competitive advantages a company can have because it is difficult to copy. Culture is simply a collection of shared norms or values within a workplace, or what is generally referred to as a company's way of doing things. Fun, family-friendly, positive, negative, upbeat, demoralizing and stressful are some common adjectives used in describing work cultures. Some of these have positive influences in production and performance, while others are symptomatic or contribute to organizational problems.AlignmentBecause organizational cultures are unique and offer strategic advantages, it makes complete sense that companies would consider culture in strategic management. Consider a high-performing company that has a corporate strategy of providing a fun and friendly customer-centered environment. This would not align well with a stagnant culture or one with very traditional and stoic employees. Instead, it is necessary for the company to hire fun, friendly and customer-oriented workers and provide an environment that is fun and rewards great customer-friendly behavior.External and Internal StrategyAnother way of looking at strategic management that supports the influence of culture is its balance between external and internal strategic elements. Generally, strategy management aids in carrying out corporate missions and visions. Missions and visions state the company's purpose and values. They are intended to offer direction for the company as it interacts with the marketplace, but they also typically connect to internal strategies and culture. For instance, a company that markets itself as a green-friendly organization to get business would likely also promote environmental responsibility internally and make it part of the organizational culture.

Organisational Culture Introduction The culture of an organisation is a set of norms, values and beliefs. These have developed over time, unplanned and emergent. However, the culture of an organisation is something that can have an enormous impact on the way in which an organisation operates, and its effectiveness. It is also something that can be assessed and, if necessary, changed over time. Organisational culture interventions are notorious for their difficulty and duration, 15 Animal Protection Society Management but if culture change is needed this should not deter an organisation from embarking on the process of change. Indeed, it may be the key to its survival. Different cultures are reflected in different organisational structures and systems. Indeed, it is important that structures and systems are appropriate to the organisations culture. Also, different people prefer different organisational cultures. Key Cultures Management theory (Harrison) defines four key cultures: - Power A power culture is frequently found in small campaigning societies. It involves a powerful central character or leader. Its structure is depicted by a web: - Power culture usually operates informally, with few rules and procedures. Control is exercised by the centre and decisions are taken on the basis of power and influence. Size is a problem for power cultures, as the web can break if it becomes too large and complex. Then, the only way the organisation can remain web-structured is to develop other spin-off organisations, each web-structures in their own right. Determinants of Culture There are various factors that contribute towards the development of organisational culture. These include: Owner/Founder Often the owner or founder will have an enormous role in establishing its culture, although the impact will wane over time. Organisations dominated by the owner or founder will tend to have a power culture.Size Culture often changes as an organisation grows. For example, as the number of staff and functions of an organisation expand, a move towards role culture is often seen. Organisational Environment In a rapidly changing environment, task culture may be appropriate. In a static environment, role culture may be preferable. A challenging environment (for example, in times of dictatorship or other challenge, power culture may be appropriate. National Culture Different nationalities may work better in different organisational cultures. Function and Purpose Different cultures may be appropriate for different functions or purposes. For example, as previously examined, a task culture may be more appropriate for campaigning and role culture for service delivery. Goals or Objectives Quality of service delivery is more likely to be achieved under role culture, whereas successful campaigning is more likely under task culture. A power or task culture is more appropriate for growth goals. Staff Different individuals prefer working under different organisational cultures. It may be counter-productive for an organisation to attempt culture change if key staff would feel uncomfortable or alienated in the desired culture. Technology The move towards increased use of technology tends to push organisations towards role culture, with associated procedures and protocols. Policies An organisations policies also become part of its culture, and impact strongly on its work. It follows that these should be formulated and agreed carefully, with full staff consultation. Changing Cultures Most animal protection organisations will feel that a balance of two or more cultures would be appropriate for their organisation. Management consultants have tools for assessing appropriate organisational culture(s) and staff preferences in this regard. Different organisational cultures can be successful, there is no optimum appropriateness and fit are the keys. Organisational culture interventions can be complex and time-consuming. However, it is clear from company analyses that if successful companies fail to adapt their culture when the environment changes, then they cease to be successful.

Strategic LeadershipStrategic leadership refers to a managers potential to express a strategic vision for the organization, or a part of the organization, and to motivate and persuade others to acquire that vision.Strategic Leadership differs from ordinary leadership in the sense that: It has broad scope Its impact is felt over a long time in the life of the business It often involves the creation of significant organizational change both inside and outside the organization.

Role of a leader1. Achieving the task2. Building and maintaining Team3. Developing the individual.

Becoming a strategic leader Strategic Competency Strategic thinking skills Command, Authority, Responsibility Experience , Basic Skills, Knowledge Values, Ethics, Codes, Morals, StandardsPersonal traits for strategic leaders Openness to new experience Curiosity about the world and future Enthusiasm and energy Willingness to listen and learn Ability to adapt rapidly to change Self confidence Result orientation Innovativeness and creativity

Styles of Leadership1. Authoritarian or autocratic2. Participative or democratic3. Delegative or free reign1. Authoritarian or autocraticAutocratic leadership, also known as authoritarian leadership, is a leadership style characterized by individual control over all decisions and little input from group members. Autocratic leaders typically make choices based on their own ideas and judgments and rarely accept advice from followers. Autocratic leadership involves absolute, authoritarian control over a group.Characteristics of Autocratic LeadershipSome of the primary characteristics of autocratic leadership include:Little or no input from group membersLeaders make the decisionsGroup leaders dictate all the work methods and processesGroup members are rarely trusted with decisions or important tasks.

2. Participative or democraticDemocratic leadership, also known as participative leadership, is a type of leadership style in which members of the group take a more participative role in the decision-making process. Researchers have found that this learning style is usually one of the most effective and lead to higher productivity, better contributions from group members, and increased group morale.Characteristics of Democratic LeadershipSome of the primary characteristics of democratic leadership include:Group members are encouraged to share ideas and opinions, even though the leader retains the final say over decisions.Members of the group feel more engaged in the process.Creativity is encouraged and rewarded.Delegative or free reignLaissez-faire leadership, also known as delegative leadership, is a type of leadership style in which leaders are hands-off and allow group members to make the decisions. Researchers have found that this is generally the leadership style that leads to the lowest productivity among group members.Laissez-faire leadership is characterized by:Very little guidance from leadersComplete freedom for followers to make decisionsLeaders provide the tools and resources neededGroup members are expected to solve problems on their ownLaissez-faire leadership can be effective in situations where group members are highly skilled, motivated and capable of working on their own. While the conventional term for this style is 'laissez-faire' and implies a completely hands-off approach, many leaders still remain open and available to group members for consultation and feedback.Theories of leadership1. Trait Theory2. Behavioural Theory3. Contingency Theory4. Situational Theory1. Trait TheoryLeadership trait theory focuses on the leaders values and beliefs; personality; need for achievement or acceptance; orientation to power; gender; confidence; and mental, physical, and emotional attributes. Early leadership trait theory assumed that people were born with specific traits and that some traits aligned with strong leadership. People with the right traits would become the best leaders.Theories that consider personal qualities and characteristics that differentiate leaders from non leaders.Leaders possess a set of traits which make them distinct from followers.2. Behavioural TheoryBehavioral theory contains some very different assumptions from trait theory. Trait theory assumes that a leader is born with specific traits that make him or her good leader. Behavioral theory, on the other hand, assumes that you can learn to become a good leader because you are not drawing on personality traits. Your actionswhat you dodefine your leadership ability.3. Contingency TheoryAccording to contingency theory, what works for