Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
STRATEGIC MANAGEMENT UNIT I - STRATEGY AND PROCESS Conceptual framework for strategic management, the Concept of Strategy and the Strategy Formation Process – Stakeholders in business – Vision, Mission and Purpose – Business definition, Objectives and Goals - Corporate Governance and Social responsibility-case study. TABLE OF CONTENTS 1.1 INTRODUCTION TO STRATEGIC MANAGEMENT ....................................................................... 2 1.1.1 STRATEGY - MEANING ........................................................................................................ 2 1.1.2 DEFINITION(S) FOR STRATEGY ........................................................................................... 2 1.1.3 STRATEGY EVOLUTION ....................................................................................................... 3 1.1.4 LEVELS / HIREACHY/ FORMS/ TYPES OF STRATEGIES ........................................................ 4 1.1.4. A CORPORATE LEVEL STRATEGY ................................................................................... 4 1.1.4. B BUSINESS LEVEL STRATEGIES ..................................................................................... 5 1.1.4.C FUNCTIONAL LEVEL STRATEGIES ................................................................................ 5 1.1.5 STAKEHOLDERS TO BUSINESS ............................................................................................ 5 1.1.7 ADVANTAGES OF STRATEGIC MANAGEMENT ................................................................... 6 1.1.8 DISADVANTAGES OF STRATEGIC MANAGEMENT .............................................................. 8 1.2 STRATEGIC PLANNING MODEL AND FRAMEWORK ................................................................... 9 1.2.1 MODEL OF STRATEGIC PLANNING PROCESS ...................................................................... 9 1.2.2 STRATEGY FORMULATION PROCESS / STRATEGIC FRAMEWORK .................................... 11 1.3. VISION, MISSION AND STRATEGIC OBJECTIVES ..................................................................... 14 1.3.1 VISION - MEANING ........................................................................................................... 14 1.3.2 DEFINITION FOR A VISION ................................................................................................ 14 1.3.3 PROPERTIES/ ELEMENTS/COMPONENTS OF A GOOD VISION STATEMENT .................... 15 1.3.4 STEPS INVOLVED IN DEVELOPING A VISION .................................................................... 15 1.3.5 MISSION - MEANING ........................................................................................................ 16 1.3.6 MISSION – DEFINITION..................................................................................................... 16 1.3.7 CHARACTERISTICS / COMPONENTS OF AN EFFECTIVE MISSION STATEMENT ................ 16 1.3.8 OBJECTIVES – MEANING .................................................................................................. 18 1.3.9 TYPES OF OBJECTIVES ...................................................................................................... 18 1.3.10 MISSION Vs VISION ........................................................................................................ 18 1.4 INTRODUCTION TO CORPORATE GOVERNENCE ..................................................................... 20 1.4.1 MEANING AND DEFINITION OF CORPORATE GOVERNANCE ........................................... 20 1.4.2 BENEFITS OF CORPORATE GOVERNANCE ........................................................................ 21 1.5 CORPORATE SOCIAL RESPONSIBILITY (CSR) ............................................................................ 22 1.5.1 CORPORATE SOCIAL RESPONSIBILITY – MEANING .......................................................... 22 1.5.2 GENERAL OVERVIEW AND EVOLUTION OF CSR .............................................................. 23 1.5.3 CSR – DEFINITION ............................................................................................................. 24 1.5.4 BENEFITS OF CSR .............................................................................................................. 24 1.6 QUESTION BANK ...................................................................................................................... 25 1.6.1 2 MARKS ........................................................................................................................... 25 1.6.2 16 MARKS ......................................................................................................................... 25 Saranya PB | Assistant Professor | KVIMIV STRATEGIC MANAGEMENT 1.1 INTRODUCTION TO STRATEGIC MANAGEMENT 1.1.1 STRATEGY - MEANING Strategy is all these — it is perspective, position, plan, and pattern. Strategy is the bridge between policy or high-order goals on the one hand and tactics or concrete actions on the other. Strategy and tactics together straddle the gap between ends and means. In short, strategy is a term that refers to a complex web of thoughts, ideas, insights, experiences, goals, expertise, memories, perceptions, and expectations that provides general guidance for specific actions in pursuit of particular ends. 1.1.2 DEFINITION(S) FOR STRATEGY According to B. H. Liddell Hart strategy is "the art of the employment of battles as a means to gain the object of war’ According to Moltke: "the practical adaptation of the means placed at a general’s disposal to the attainment of the object in view.". According to George Steiner “A way of referring to what one did to counter a competitor’s actual or predicted moves”. Strategy is that which top management does that is of great importance to the organization. Strategy refers to basic directional decisions, that is, to purposes and missions. Strategy consists of the important actions necessary to realize these directions. According to Henry Mintzberg Strategy is a plan, a "how," a means of getting from here to there. Strategy is a pattern in actions over time; for example, a company that regularly markets very expensive products is using a "high end" strategy. Strategy is position; that is, it reflects decisions to offer particular products or services in particular markets. Strategy is perspective, that is, vision and direction. According to Kenneth Andrews "Strategy is the pattern of decisions in a company that determines and reveals its objectives, purposes, or goals, produces the principal policies and plans for achieving those goals, and defines the range of business the company is to pursue, the kind of economic and human organization it is or intends to be, and the nature of the economic and non-economic contribution it intends to make to its shareholders, employees, customers, and communities”. Saranya PB | Assistant Professor | KVIMIV STRATEGIC MANAGEMENT According to Michael Porter "It means deliberately choosing a different set of activities to deliver a unique mix of value." In short, Porter argues that strategy is about competitive position, about differentiating yourself in the eyes of the customer, about adding value through a mix of activities different from those used by competitors. Porter defines competitive strategy as "a combination of the ends (goals) for which the firm is striving and the means (policies) by which it is seeking to get there." 1.1.3 STRATEGY EVOLUTION PHASE 1 - The first phase in the evolution of the strategy paradigm involved “basic financial planning” in the 1950s where the typical planning focus for the firm was the preparation of the financial budget with a time horizon barely beyond 12 months. These rganisations tended to exhibit strong strategies however these strategies were rarely documented. The success of the organisation was dependent on the quality of the CEO and the top management team and their knowledge of products, markets and rivals (Gluck et al, 1980). In the literature Drucker (1954, p. 77) drew attention to this issue arguing that it is the role of top management to address the key questions with respect to strategy: “What is our business and what should it be?” PHASE 2 The second phase of “forecast-based planning” in the 1960s resulted in organizations embracing a longer time horizon, environmental analysis, multi-year forecasts and a static resource allocation as the firm responded to the demands of growth (Gluck et al, 1980). Important contributions to the evolution of the strategy literature were offered in this period by Chandler (1962), Andrews (1965) and Ansoff (1965). In particular Andrews (1965) and Ansoff (1965) were the first writers to address explicitly strategy content and process. Chandler’s (1962) contribution from an historian’s perspective explained the development of large corporations and the way their administrative structures changed to accommodate the demands thrust upon management as a result of business growth. Chandler (1962, p. 13) offered a broad definition of strategy which did not distinguish between strategy formulation and content noting: “Strategy can be defined as the determination of the basic long-term goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals.” PHASE 3 In the 1970s there was a move to the third phase of “externally oriented planning” in response to markets and competition as strategic planning enjoyed the peak of its popularity. Planning in this form included a thorough situation analysis and review of competition, an evaluation of alternative strategies and dynamic resource allocation (Gluck et al, 1980). Prescriptive techniques for strategy were at their peak at this time with the planning school dominant (Mintzberg, Ahlstrand and Lampel, 1998) and numerous simplified frameworks for strategic analysis were put forward mainly by industry consultants. These frameworks included the Experience Curve, the Boston Saranya PB | Assistant Professor | KVIMIV STRATEGIC MANAGEMENT Consulting Group’s (BCG) portfolio matrix and the Profit Impact of Marketing Strategies (PIMS) empirical project. PHASE 4 - In the 1980s firm’s embraced what became known as the strategic anagement phase - the fourth phase - being the combination of the firm’s resources to achieve competitive advantage. This phase included: “(1) A planning framework that cuts across organizational boundaries and facilitates strategic decision making about customer group s and resources. (2) A planning process that stimulates entrepreneurial thinking. (3) A corporate values system that reinforces managers’ commitment to the company strategy” (Gluck et al, 1980, p. 158). The strategy process came to be increasingly performed by line managers with occasional assistance from internal strategy experts operating in fewer numbers compared with the past. Initiatives in the field were driven by unprecedented levels of change and complexity confronting organisations (Prahalad and Hamel, 1994) as firms endeavoured to keep pace with environmental developments. At this time there was also a shift from quantitative forecasting to greater use of qualitative analysis (Stacey, 1993). The focus became establishing the firm’s mission and vision for the future, analysis of customers, markets, and the firm’s capabilities (Wilson, 1994). 1.1.4 LEVELS / HIREACHY/ FORMS/ TYPES OF STRATEGIES Corporate Level Strategies Business Level Strategies Functional Level Strategies 1.1.4. A CORPORATE LEVEL STRATEGY This comprises the overall strategy elements for the corporation as a whole, Making the necessary moves to establish positions in different businesses and achieve an appropriate amount and kind of diversification. A key part of corporate strategy is making decisions on how many, what types, and which specific lines of business the company should be in. This may involve deciding to increase or decrease the amount and breadth of diversification. Initiating actions to boost the combined performance of the businesses the company has diversified into: This may involve vigorously pursuing rapid-growth strategies in the most promising line of business’s, keeping the other core businesses healthy, initiating turnaround efforts in weak-performing line of business’s with promise, and dropping line of businesses that are no longer attractive or don't fit into the corporation's overall plans. It also may involve supplying financial, managerial, and other resources, or acquiring and/or merging other companies with an existing line of business.. Saranya PB | Assistant Professor | KVIMIV STRATEGIC MANAGEMENT Pursuing ways to capture valuable cross-business strategic fits and turn them into competitive advantages -- especially transferring and sharing related technology, procurement leverage, operating facilities, distribution channels, and/or customers. Establishing investment priorities and moving more corporate resources into the most attractive line of business. 1.1.4. B BUSINESS LEVEL STRATEGIES Business strategy is about being different. It means deliberately choosing to perform activities differently or to perform different activities than rivals to deliver a unique mix of value. (Michael E. Porter) The essence of strategy lies in creating tomorrow's competitive advantages faster than competitors mimic the ones you possess today. 1.1.4.C FUNCTIONAL LEVEL STRATEGIES Functional strategies are relatively short-term activities that each functional area within a company will carry out to implement the broader, longer-term corporate level and business level strategies. Each functional area has a number of strategy choices that interact with and must be consistent with the overall company strategies. Functional strategy deals with the major functional areas such as, marketing, finance, production/operations, research and development, and human resources management. Marketing strategy deals with product/service choices and features, pricing strategy, markets to be targeted, distribution, and promotion considerations. Financial strategies include decisions about capital acquisition, capital allocation, dividend policy, and investment and working capital management. The production or operations functional strategies address choices about how and where the products or services will be manufactured or delivered, technology to be used, management of resources, plus purchasing and relationships with suppliers 1.1.5 STAKEHOLDERS TO BUSINESS A party that has an interest in an enterprise or project. The primary stakeholders in a typical corporation are its investors, employees, customers and suppliers. However, modern theory goes beyond this conventional notion to embrace additional stakeholders such as the community, government and trade associations. Christopher Bart says a mission statement is A person, group or organization that has interest or concern in an organization. Saranya PB | Assistant Professor | KVIMIV STRATEGIC MANAGEMENT Stakeholders can affect or be affected by the organization's actions, objectives and policies. Some examples of key stakeholders are customers creditors directors employees government (and its agencies) owners (shareholders) suppliers unions Community from which the business draws its resources. 1.1.6 SIGNIFICANCE/ IMPORTANCE OF STRATEGIC MANAGEMENT Strategic management takes into account the future and anticipates for it. A strategy is made on rational and logical manner, thus its efficiency and its success are ensured. Strategic management reduces frustration because it has been planned in such a way that it follows a procedure. It brings growth in the organization because it seeks opportunities. Strategic management also adds to the reputation of the organization because of consistency that results from organizations success. Often companies draw to a close because of lack of proper strategy to run it. With strategic management companies can foresee the events in future and that’s why they can remain stable in the market. Strategic management looks at the threats present in the external environment and thus companies can either work to get rid of them or else neutralizes the threats in such a way that they become an opportunity for their success. Strategic management focuses on proactive approach which enables organization to grasp every opportunity that is available in the market. 1.1.7 ADVANTAGES OF STRATEGIC MANAGEMENT DISCHARGES BOARD RESPONSIBILITY The first reason that most organizations state for having a strategic management process is that it discharges the responsibility of the Board of Directors. FORCES AN OBJECTIVE ASSESSMENT Saranya PB | Assistant Professor | KVIMIV STRATEGIC MANAGEMENT Strategic management provides a discipline that enables the board and senior management to actually take a step back from the day-to-day business to think about the future of the organization. Without this discipline, the organization can become solely consumed with working through the next issue or problem without consideration of the larger picture. PROVIDES A FRAMEWORK FOR DECISION-MAKING Strategy provides a framework within which all staff can make day-to-day operational decisions and understand that those decisions are all moving the organization in a single direction. It is not possible (nor realistic or appropriate) for the board to know all the decisions the executive director will have to make, nor is it possible (nor realistic or practical) for the executive director to know all the decisions the staff will make. Strategy provides a vision of the future, confirms the purpose and values of an organization, sets objectives, clarifies threats and opportunities, determines methods to leverage strengths, and mitigate weaknesses (at a minimum). As such, it sets a framework and clear boundaries within which decisions can be made. The cumulative effect of these decisions (which can add up to thousands over the year) can have a significant impact on the success of the organization. Providing a framework within which the executive director and staff can make these decisions helps them better focus their efforts on those things that will best support the organization's success. SUPPORTS UNDERSTANDING & BUY-IN Allowing the board and staff participation in the strategic discussion enables them to better understand the direction, why that direction was chosen, and the associated benefits. For some people simply knowing is enough; for many people, to gain their full support requires them to understand. ENABLES MEASUREMENT OF PROGRESS A strategic management process forces an organization to set objectives and measures of success. The setting of measures of success requires that the organization first determine what is critical to its ongoing success and then forces the establishment of objectives and keeps these critical measures in front of the board and senior management. PROVIDES AN ORGANIZATIONAL PERSPECTIVE Addressing operational issues rarely looks at the whole organization and the interrelatedness of its varying components. Strategic management takes an organizational perspective and looks at all the components and the interrelationship Saranya PB | Assistant Professor | KVIMIV STRATEGIC MANAGEMENT between those components in order to develop a strategy that is optimal for the whole organization and not a single component. 1.1.8 DISADVANTAGES OF STRATEGIC MANAGEMENT THE FUTURE DOESN'T UNFOLD AS ANTICIPATED One of the major criticisms of strategic management is that it requires the organization to anticipate the future environment in order to develop plans, and as we all know, predicting the future is not an easy undertaking. The belief being that if the future does not unfold as anticipated then it may invalidate the strategy taken. Recent research conducted in the private sector has demonstrated that organizations that use planning process achieve better performance than those organizations that don't plan regardless of whether they actually achieved their intended objective. In addition, there are a variety of approaches to strategic planning that are not as dependent upon the prediction of the future. IT CAN BE EXPENSIVE There is no doubt that in the not-for-profit sector there are many organizations that cannot afford to hire an external consultant to help them develop their strategy. Today there are many volunteers that can help smaller organizations and also funding agencies that will support the cost of hiring external consultants in developing a strategy. Regardless, it is important to ensure that the implementation of a strategic management process is consistent with the needs of the organization, and that appropriate controls are implemented to allow the cost/benefit discussion to be undertaken, prior to the implementation of a strategic management process. LONG TERM BENEFIT VS. IMMEDIATE RESULTS Strategic management processes are designed to provide an organization with longterm benefits. If you are looking at the strategic management process to address an immediate crisis within your organization, it won't. It always makes sense to address the immediate crises prior to allocating resources (time, money, people, opportunity, cost) to the strategic management process. IMPEDES FLEXIBILITY When you undertake a strategic management process, it will result in the organization saying "no" to some of the opportunities that may be available. This inability to choose all of the opportunities presented to an organization is sometimes frustrating. In addition, some organizations develop a strategic management process that become Saranya PB | Assistant Professor | KVIMIV STRATEGIC MANAGEMENT excessively formal. Processes that become this "established" lack innovation and creativity and can stifle the ability of the organization to develop creative strategies. In this scenario, the strategic management process has become the very tool that now inhibits the organization's ability to change and adapt. A third way that flexibility can be impeded is through a well-executed alignment and integration of the strategy within the organization. An organization that is well aligned with its strategy has addressed its structure, board, staffing, and performance and reward systems. This alignment ensures that the whole organization is pulling in the right direction, but can inhibit the organization's adaptability. Again, there are a variety of newer approaches to strategy development used in the private sector (they haven't been widely accepted in the not-for-profit sector yet) that build strategy and address the issues of organizational adaptability. 1.2 STRATEGIC PLANNING MODEL AND FRAMEWORK 1.2.1 MODEL OF STRATEGIC PLANNING PROCESS The Strategic planning process model consists of the following steps: 1. 2. 3. 4. 5. Define the organization’s Vision Define the strategic mission, Define the strategic objectives, Define the competitive strategy, Implement strategies DEFINE THE ORGANIZATION’S VISION A vision enables an organization to move forward with clarity. It links the business' specific objectives and targets with the core values that govern how the business will operate in order to meet those targets. It therefore goes further than a mission statement. DEFINE THE STRATEGIC MISSION An organization’s strategic mission offers a long-range perspective of what the organization strives for going forward. A clearly stated mission will provide the organization with a guide for carrying out its plans. Elements of a strong strategic mission statement should include the values that the organization holds the nature of the business, special abilities or position the organization holds in the Marketplace, and the organization’s vision for where it wants to be in the future. DEFINE THE STRATEGIC OBJECTIVES Saranya PB | Assistant Professor | KVIMIV STRATEGIC MANAGEMENT This third step in the strategic formulation process requires an organization to identify the performance targets needed to reach clearly stated objectives. These objectives may include: market position relative to the competition, production of goods and services, desired market share, improved customer services, corporation expansion, advances in technology, and sales increases. Strategic objectives must be communicated with all employees and stakeholders in order to ensure success. All members of the organization must be made aware of their role in the process and how their efforts contribute to meeting the organization’s objectives. Additionally, members of the organization should have their own set of objectives and performance targets for their individual roles. DEFINE THE COMPETITIVE STRATEGY (INTERNAL & EXTERNAL ANALYSIS) The next step in strategy planning requires an organization to determine where it fits into the marketplace. This applies not only to the organization as a whole, but to each individual unit and apartment throughout the enterprise. Each area must be aware of its role within the company and how those roles enable the organization to maintain its competitive position. Another step in the competitive strategy process requires an organization to develop proactive responses to potential changes in the marketplace. An organization must not wait for events in the marketplace to occur before taking steps; they must identify possible events and be prepared to take action. The final step in defining a competitive strategy is identifying an organization’s Resources and determining how those resources will be used. Each department, division, or location will have its own set of needs, and a company must determine how it will allocate resources in order to meet those needs. Three factors must be considered when determining the overall competitive strategy: the industry and marketplace, the company’s position relative to the competition, and the company’s internal strengths and weaknesses. The Industry When evaluating the overall industry, factors to be looked at include: size of the market, past and potential market growth, competitive profitability, new market entries, and Industry threats. These market factors must be evaluated on a regular basis, as small changes may have a large impact on an organization’s business activities. For example, if an organization becomes aware of new technology that is on the verge of being introduced into the marketplace, then it can avoid making any new plans that would involve the older, existing technology available. Also, if an organization is considering global expansion, then it would be beneficial to be aware of emerging markets, other areas of potential growth, and what other companies have already entered in those markets. Saranya PB | Assistant Professor | KVIMIV STRATEGIC MANAGEMENT The Competition An organization cannot be successful unless it has a full understanding of the other players in marketplace. A company must be able to identify the strengths and weaknesses of the competition and analyze the ways in which the competition’s products or services meet the needs of its customer base. Has the competition created a significant product differentiation strategy? Has the competition cornered a specific target market? Is the competition in full-scale competition with another company? It is essential for these questions to be answered in order to develop the appropriate strategy for successful competition. As mentioned earlier, we discussed how competition for an airline is not only other airlines, but also other modes of transportation. valuating competition requires a company to look at organizations that provide substitutes for its product or service as well as those who provide the same products and services. Strengths, Weaknesses, Opportunities, and Threats. Opportunities and threats are external factors; strengths and weaknesses are internal factors. When developing a competitive strategy, it is vital for an organization to be fully aware of its internal strengths and how those strengths relate to the competition. These strengths should be maximized and leveraged to the company’s advantage as well as highlighted in all business and marketing activities that the company undertakes. It is equally important for an organization to take an honest look at its areas of weakness. This is where a company can become vulnerable to outside market conditions, such as competitive gains, advances in technology, economic shifts, and other factors. By identifying areas in need of improvement and taking steps to remedy those areas, a company will be in a stronger competitive position. IMPLEMENT STRATEGIES Developing a strategy is only effective if it is put into place. An organization may take all the necessary steps to understand the marketplace, define it, and identify the competition. However, without implementing the strategy, the organization’s work will be of little to no value. The methods employed for implementing strategies are known as tactics. These individual actions enable an organization to build a foundation for implementation. Companies are able to identify which of their efforts are more successful than others and will uncover new methods of implementation, if necessary 1.2.2 STRATEGY FORMULATION PROCESS / STRATEGIC FRAMEWORK 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 Saranya PB | Assistant Professor | KVIMIV STRATEGIC MANAGEMENT steps. Though these steps do not follow a rigid chronological order, however they are very rational and can be easily followed in this order. STEPS INVOLVED IN STRATEGIC MANAGEMENT / STRATEGY FORMULATION PROCESS Strategy Formulation Strategy Implementation Saranya PB | Assistant Professor | KVIMIV STRATEGIC MANAGEMENT Strategy Evaluation And Control STRATEGY FORMULATION Planning consists of all those managerial activities related to preparing for the future. Specific tasks include forecasting, establishing objectives, devising strategies, developing policies, and setting goals Setting Organizations’ Vision, Mission and 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. 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. Setting Strategies- 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. 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 opportunities. STRATEGY IMPLEMENTATION Organizing includes all those managerial activities that result in a structure of task and authority relationships. Specific areas include organizational design, job specialization, Saranya PB | Assistant Professor | KVIMIV STRATEGIC MANAGEMENT job descriptions, job specifications, span of the control, and unity of command, coordination, job design, and job analysis. Motivating involves efforts directed toward shaping human behavior. Specific topics include leadership, communication, work groups, behavior modification, and delegation of authority, job enrichment, job satisfaction, needs fulfillment, organizational change, employee morale, and managerial morale. Staffing activities are centered on personnel or human resource management. Included are wage and salary administration, employee benefits, interviewing, hiring, firing, training, management development, employee safety, affirmative action, equal employment opportunity, union relations, career development, personnel research, discipline policies, grievance procedures, and public relations. STRATEGY EVALUATION AND CONTROL Controlling refers to all those managerial activities directed toward ensuring that actual results are consistent with planned results. Key areas of concern include quality control, financial control, sales control, inventory control, and expense control, analysis of variances, rewards, and sanctions. 1.3. VISION, MISSION AND STRATEGIC OBJECTIVES 1.3.1 VISION - MEANING A vision statement is sometimes called a picture of a company in the future Vision statement is the inspiration, the framework for all strategic planning. It reminds of what a business is trying to build. A vision statement may apply to an entire company or to a single division of that company. Whether for all or part of an organization, the vision statement answers the question, "Where we want to be?" 1.3.2 DEFINITION FOR A VISION Kotter (1990) defines it as a “description of something (an organization, corporate culture, a business, a technology, an activity) in the future”. ElNamaki (1992) considers it as a “mental perception of the kind of enviro nment an individual, or an organization, aspires to create within a broad time horizon and the underlying conditions for the actualization of this perception”. Miller and Dess (1996) view it simply as the “category of intentions that are broad, all inclusive, and forward thinking”. The common strand of thought evident in these definitions and several others available in strategic management literature relates to Saranya PB | Assistant Professor | KVIMIV STRATEGIC MANAGEMENT ‘vision’ being future aspirations that lead to an inspiration to be the best in one’s field of activity 1.3.3 PROPERTIES/ ELEMENTS/COMPONENTS OF A GOOD VISION STATEMENT A good vision is a mental model of a future state. It involves thinking about the future, and modeling possible future states. A vision doesn't exist in the present, and it may or may not be reached in the future. t A good vision is idealistic. The vision is realistic enough so that people believe it is achievable, but idealistic enough so that it cannot be achieved without stretching. If it is too easily achievable, it will not set a standard of excellence, nor will it motivate people to want to work toward it. A good vision is appropriate for the organization and for the times. A vision must be consistent with the organization's values and culture, and its place in its environment. It must also be realistic. A good vision sets standards of excellence and reflects high ideals. The vision does reflect measurable standards of excellence and a high level of aspiration. The actual measure could be the external reputation of the company, as assessed by having users evaluate the company and its products. A good vision clarifies purpose and direction. In defining that "realistic, credible, attractive future for an organization," a vision provides the rationale for both the mission and the goals the organization should pursue. A good vision inspires enthusiasm and encourages commitment. An inspiring vision can help people in an organization get excited about what they're doing, and increase their commitment to the organization. A good vision is well articulated and easily understood. In order to motivate individuals, and clearly point toward the future, a vision must be articulated so people understand it. Most often, this will be in the form of a vision statement A good vision reflects the uniqueness of the organization, its distinctive competence, what it stands for, and what it is able to achieve.. 1.3.4 STEPS INVOLVED IN DEVELOPING A VISION 1. Understand the organization - Understanding the organization’s mission and purpose are, what value it provides to society, what the character of the industry is, what institutional framework the organization operates. 2. Conduct a vision audit. - Assessing the current direction and momentum of the organization through the organization's structures, processes, personnel, incentives, and information systems support the current direction? 3. Target the vision. – Starting to narrow in on a vision. Saranya PB | Assistant Professor | KVIMIV STRATEGIC MANAGEMENT 4. Set the vision context. -This is where you look to the future, and where the process of formulating a vision gets difficult. Your vision is a desirable future for the organization. 5. Develop future scenarios 6. Generate alternative visions. 7. Choose the final vision. 1.3.5 MISSION - MEANING The Mission Statement is a crucial element in the strategic planning of a business organization. Creating a mission is one of the first actions an organization should take. This can be a building block for an overall strategy and development of more specific functional strategies. By defining a mission an organization is making a statement of organizational purpose. 1.3.6 MISSION – DEFINITION Thompson (1997) defines mission as the “essential purpose of the organization, concerning particularly why it is in existence, the nature of the businesses it is in, and the customers it seeks to serve and satisfy” Hunger and Wheelen (1999) say that mission is the “purpose or reason for the organization’s existence”. Drohan says "A vision statement pushes the association toward some future goal or achievement, while a mission statement guides current, critical, strategic decision making”. Jeffrey Abrahams defines a mission statement as, "A mission statement is an enduring statement of purpose for an organization that identifies the scope of its operations in product and market terms, and reflects its values and priorities” 1.3.7 CHARACTERISTICS / COMPONENTS OF AN EFFECTIVE MISSION STATEMENT FUNCTION The mission statement needs to include some description of the function of the business. For example, "to promote industrial excellence," tells customers and employees nothing. A more effective description would be "To provide management consulting services." Saranya PB | Assistant Professor | KVIMIV STRATEGIC MANAGEMENT TARGET CONSUMERS An effective mission statement sets out, in broad terms, the target market. A manufacturer that makes nuts and bolts might set its target market as retail hardware stores, machine manufacturers, or both. TARGET REGION The business must determine what region it serves best and relay that information by way of the mission statement. A garage, for example, might limit its target region to the community while a magazine company might target an entire country. VALUES Mission statements typically include a statement of company values. Values such as customer service, efficiency and eco-consciousness often appear on lists of company values. At their best, company values should express principles the company explicitly tries to affirm in day-to-day operations. TECHNOLOGY For businesses that rely heavily on technology, the mission statement should include a description of the essential technology the company does or plans to employ. If nothing else, this directs purchasing agents toward the appropriate vendors for goods and services. EMPLOYEES Every company has a policy regarding its relationship with employees. A mission statement provides an opportunity to describe that policy in brief so employees know the essentials of where they stand. STRATEGIC POSITIONING Effective mission statements also include a brief description of the business's strategic position within the market. For example, the company might excel at serving residential clients and seek to maximize that strategic advantage. FINANCIAL OBJECTIVES For for-profit ventures, businesses require clear financial objectives. A start-up company might set one of its financial objectives as making an initial public offering of common stock within two years. This lets the employees and potential investors know the Saranya PB | Assistant Professor | KVIMIV STRATEGIC MANAGEMENT company intends to go public, with all of the legal and record keeping ramifications that entails. IMAGE Like people, companies develop public images. Careful companies craft the public image they want to establish and lay out the major features of it in the mission statement. This helps manager’s direct employees that stray from the sanctioned public image. 1.3.8 OBJECTIVES – MEANING MISSION converted into performance targets Creating yardsticks to track performance Establish performance oriented goals Push firm to be inventive, intentional and focused 1.3.9 TYPES OF OBJECTIVES Financial Objectives - that relate to improving firm's financial performance Strategic Objectives - that will result in greater competitiveness and stronger long-term market position 1.3.10 MISSION Vs VISION Mission Statement A Mission statement talks about HOW you will get to where you want to be. About Defines the purpose and primary objectives related to your customer needs and team values. Answer Time Vision Statement A Vision statement outlines WHERE you want to be. Communicates both the purpose and values of your business. It answers the question, “What do we do? What makes us different?” It answers the question, “Where do we aim to be?” A mission statement talks about the present leading to its future. A vision statement talks about your future. It lists the broad goals for which the organization is formed. Its prime Function function is internal; to define the key measure or measures of the organization's success and its prime It lists where you see yourself some years from now. It inspires you to give your best. It shapes your understanding of why you are working here. Saranya PB | Assistant Professor | KVIMIV STRATEGIC MANAGEMENT Mission Statement Vision Statement audience is the leadership, team and stockholders. Your mission statement may change, but As your organization evolves, you it should still tie back to your core values, might feel tempted to change your customer needs and vision. vision. However, mission or vision Change statements explain your organization's foundation, so change should be kept to a minimum. What do we do today? For whom do we Where do we want to be going Developing a do it? What is the benefit? In other forward? When do we want to reach statement words, Why we do what we do? What, that stage? How do we want to do it? For Whom and Why? Purpose and values of the organization: Who are the organization's primary Features of "clients" (stakeholders)? What are the an effective responsibilities of the organization statement towards the clients? Clarity and lack of ambiguity: Describing a bright future (hope); Memorable and engaging expression; realistic aspirations, achievable; alignment with organizational values and culture. 1.5.11 EXAMPLES OF VISION AND MISSION STATEMENTS VISION STATEMENTS Disney – To make people happy. Microsoft – A computer on every desk and in every home; all running Microsoft software. Nike – Current: To be the number one athletic company in the world. Wal-Mart – Become a $125 billion company by the year 2000. Ford – To become the world’s leading Consumer Company for automotive products and services. Coca Cola – To achieve sustainable growth, we have established a vision with clear goals: MISSION STATEMENTS Saranya PB | Assistant Professor | KVIMIV STRATEGIC MANAGEMENT Ferrari - To Build Unique Sports Cars Destined To Represent The Excellence Of Italian Cars, Whether On The Road Or On Racing Microsoft's - "To Create A Family Of Devices And Services For Individuals And Businesses That Empower People Around The Globe At Home, At Work And On The Go, For The Activities They Value Most. Coca Cola - To Refresh The World, To Inspire Moments Of Optimism And Happiness, To Create Value And Make A Difference. Infosys - Work To Understand The Needs And Requirements Of Our Clients Before Proposing A Solution, Develop Responsive Proposals That Provide Cost-effective Solutions To Our Clients Needs, Deploy The Right Mix Of People And Products To Deliver Value-added Services And Solutions To Our Clients, Follow-up On The Quality Of Our Services And Solutions To Our Clients, Appreciate The Trust That Our Clients Put In Us As We Work With Them To Improve Their Business And Information Technology. 1.4 INTRODUCTION TO CORPORATE GOVERNENCE Corporate governance is about good decisions being made by the right person and is not just the domain of companies – small businesses need corporate governance too. A good structure will allow you to ensure that the start-up of your business occurs smoothly, with minimal confusion about responsibilities. As this can have many flow-on benefits to your business, it’s worthwhile considering how to implement a corporate governance structure best suited to your business. Corporate governance is often associated with public companies, but small businesses can also benefit from this practice. Corporate governance consists of rules that direct the roles and actions of key people rather than processes. Unlike simple policies and procedures, such as a dress code or expense reimbursement procedure, corporate governance rules focus on creating better management and fewer ethical or legal problems. Examples of corporate governance include setting rules for using business funds for personal use; serving on a board of directors; hiring family members; conflicts of interest; notifying owners, investors and partners of key meetings and decisions; and disbursing profits. 1.4.1 MEANING AND DEFINITION OF CORPORATE GOVERNANCE The framework of rules and practices by which a board of directors ensures accountability and transparency in company’s relationship with all stakeholders explicit and implicit contracts between the company and the stakeholders for distribution of responsibilities, rights, and rewards, procedures for reconciling the sometimes conflicting interests of stakeholders in accordance with their duties, privileges, and roles, and procedures for Saranya PB | Assistant Professor | KVIMIV STRATEGIC MANAGEMENT proper supervision, control, and information-flows to a system of checks-and-balances. serve as 1.4.2 BENEFITS OF CORPORATE GOVERNANCE CREATING AND DELEGATING AUTHORITY When making important decisions, it’s important to have the right person making them. Simply by setting up and communicating clear lines of authority, you can guide your employees to recognize the decisions that they can and cannot make on their own. DEVELOPING CLEAR POLICIES AND PROCEDURES Written policies and procedures are essential for creating planned business outcomes. These are particularly helpful in communicating clear steps to achieving a goal, such as a sale, which you wish your staff to repeat frequently. The best policies are clear, concise, and easy to understand. They should also reflect your brand, compliment your business goals and objectives as well as your risk management plans. Creating formal policies and procedures allows you and your staff to make better decisions. They also add legitimacy to a decision. Having an agreed process will allow you to guide behaviours and reduce risk within your business. MANAGING EMPLOYEES AND ENSURING ACCOUNTABILITY With policies and procedures in place, everyone can be more accountable and comfortable about the decisions they make. Accountability is important and can involve rewarding or disciplining staff. Your established policies and procedures can also help Saranya PB | Assistant Professor | KVIMIV STRATEGIC MANAGEMENT when providing constructive feedback and ensuring that better decisions are made in the future. With a good governance structure, your employees become enabled to take on more responsibility. As the business owner, you can then focus more on other core management activities that can help make your business a success IMPROVED REPUTATION A corporate governance program can boost your company's reputation. If you publicize your corporate governance policies and detail how they work, more stakeholders will be willing to work with you. This can include lenders who see you have strong fiscal policies and internal controls, charities you might partner with to promote your business, government agencies, employees, the media, vendors and suppliers. The practice of sharing internal information with key stakeholders is known as transparency, which allows people to feel more confident you have little or nothing to hide. FEWER FINES, PENALTIES, LAWSUITS Corporate governance includes instituting policies that require the company to take specific steps to stay compliant with local, state and federal rules, regulations and laws. For example, as part of corporate governance, an executive management team or board of directors might conduct a review of the company’s hiring practices if it falls under the guidelines of the Equal Opportunity Employment Commission. You might require that your accounting department undergo an external audit by an independent auditor every quarter or year. DECREASED CONFLICTS AND FRAUD Corporate governance limits the potential for bad behavior of employees by instituting rules to reduce potential fraud and conflict of interest. For example, the company might draft a conflict of interest statement that top executives must sign, requiring them to disclose and avoid potential conflicts, such as awarding contracts to family members or contracts in which an executive has an ownership interest. The company might forbid loans to officers and family members or the hiring of family members. External audits or requiring checks over a certain amount to be approved and signed by two people help reduce errors and fraud. 1.5 CORPORATE SOCIAL RESPONSIBILITY (CSR) 1.5.1 CORPORATE SOCIAL RESPONSIBILITY – MEANING Mallen Baker says CSR is about how companies manage the business processes to produce an overall positive impact on society. That is Saranya PB | Assistant Professor | KVIMIV STRATEGIC MANAGEMENT The quality of their management - both in terms of people and processes (the inner circle). The nature of, and quantity of their impact on society in the various areas. A company’s sense of responsibility towards the community and environment (both ecological and social) in which it operates. Companies express this citizenship (1) through their waste and pollution reduction processes, (2) by contributing educational and social programs, and (3) by earning adequate returns on the employed resources. See also corporate citizenship. 1.5.2 GENERAL OVERVIEW AND EVOLUTION OF CSR Social responsibility becomes an integral part of the wealth creation process - which if managed properly should enhance the competitiveness of business and maximise the value of wealth creation to society. When times get hard, there is the incentive to practice CSR more and better - if it is a philanthropic exercise which is peripheral to the main business, it will always be the first thing to go when push comes to shove. It is a key difference, when many business leaders feel that their companies are ill equipped to pursue brooders societal goals, and activists argue that companies have no democratic legitimacy to take such roles. That particular debate will continue. Traditionally in the United States, CSR has been defined much more in terms of a philanthropic model. Companies make profits, unhindered except by fulfilling their duty to pay taxes. Then they donate a certain share of the profits to charitable causes. It is seen as tainting the act for the company to receive any benefit from the giving. The European model is much more focused on operating the core business in a socially responsible way, complemented by investment in communities for solid business case reasons. Saranya PB | Assistant Professor | KVIMIV STRATEGIC MANAGEMENT 1.5.3 CSR – DEFINITION The World Business Council for Sustainable Development defines “Corporate Social Responsibility is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large” CSR definition used by Business is: Operating a business in a manner that meets or exceeds the ethical, legal, commercial and public expectations that society has of business. 1.5.4 BENEFITS OF CSR IMPROVED FINANCIAL PERFORMANCE: A recent longitudinal Harvard University study has found that “stakeholder balanced” companies showed four times the growth rate and eight times employment growth when compared to companies that focused only on shareholders and profit maximization. ENHANCED BRAND IMAGE & REPUTATION: A company considered socially responsible can benefit -both by its enhanced reputation with the public, as well as its reputation within the business community, increasing a company’s ability to attract capital and trading partners. For example, a 1997 study by two Boston College management professors found that excellent employee, customer and community relations are more important than strong shareholder returns in earning corporations a place an Fortune magazine’s annual “Most Admired Companies” list. INCREASED SALES AND CUSTOMER LOYALTY: A number of studies have suggested a large and growing market for the products and services of companies perceived to be socially responsible. While businesses must first satisfy customers’ key buying criteria – such as price, quality, appearance, taste, availability, safety and convenience. Studies also show a growing desire to buy based on other value-based criteria, such as ” sweatshop-free” and “child labor-free” clothing, products with smaller environmental impact, and absence of genetically modified materials or ingredients. INCREASED ABILITY TO ATTRACT AND RETAIN EMPLOYEES: Companies perceived to have strong CSR commitments often find it easier to recruit employees, particularly in tight labor markets. Retention levels may be higher too, Saranya PB | Assistant Professor | KVIMIV STRATEGIC MANAGEMENT resulting in a reduction in turnover and associated recruitment and training costs. Tight labor markets as well the trend toward multiple jobs for shorter periods of time are challenging companies to develop ways to generate a return on the consideration resources invested in recruiting, hiring, and training. REDUCED REGULATORY OVERSIGHT: Companies that demonstrate that they are engaging in practices that satisfy and go beyond regulatory compliance requirements are being given less scrutiny and freer rein by both national and local government entities. In many cases, such companies are subject to fewer inspections and paperwork, and may be given preference or “fasttrack” treatment when applying for operating permits, zoning variances or other forms of governmental permission. EASIER ACCESS TO CAPITAL: The Social Investment Forum reports that, in the U.S. in 1999, there is more than $2 trillion in assets under management in portfolios that use screens linked to ethics, the environment, and corporate social responsibility. It is clear that companies addressing ethical, social, and environmental responsibilities have rapidly growing access to capital that might not otherwise have been available. 1.6 QUESTION BANK 1.6.1 2 MARKS 1.6.2 16 MARKS Saranya PB | Assistant Professor | KVIMIV