SM Module 4

Concept And Nature Of Strategy Implementation

According to William Glueck, "Strategy implementation is the assignment or
reassignment of corporate and SBU leaders to match the strategy. The leaders
will communicate the strategy to the employees. Implementation also involves
the development of functional policies, the organisation structure and climate to
support the strategy that helps to achieve the organisational objectives."
In the words of Harvey, "Implementation involves actually executing the
strategic game plan. This includes setting policies, designing the organisation
structure, and developing a corporate culture to enable the attainment of
organisational objectives."
Thus, strategy implementation is the process of creating the necessary
structure, systems, processes, resources, policies and plans, culture, etc and
integrating them to provide a framework within which strategies can be
successfully put into action.
Strategy implementation may be defined as the process of putting a chosen
strategy into action so as to move towards the achievement of strategic
objectives. The essential characteristics of strategy implementation are as
follows:

1. Action-Orientation: Strategy implementation inevitably involves managerial

actions. Managers use knowledge, skills and managerial techniques for
putting strategies into action. The intellectual and theoretical content of
strategy formulation is converted into practical or operational shape
through strategy implementation.

2. Integrated Process: The different phases of strategy implementation are

not stand - alone tasks. They are inter related and form an interconnected
network. Strategic plan is the hub of this network. Therefore, strategy
implementation should be undertaken with a holistic view. Various phases
of strategy implementation process move forward simultaneously on
several fronts.

3. Comprehensive: Strategy implementation comprises practically every

aspect of an organisation. It includes a wide range of functions and
activities. All functional areas -finance, marketing, production/operations,

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 human resources are involved in the implementation of corporate
strategies.

4. Variety of Skills: Due to its comprehensive nature, strategy implementation

requires a wide variety of skills, knowledge, and attitudes. Ability to
communicate and explain strategies, ability to allocate resources
judiciously, ability to design effective structure and systems, ability to
develop right functional strategies, right leadership styles, appropriate
culture are some of these skills.

5. Widespread Involvement: Strategy implementation requires involvement of

managers at all levels of authority. Middle managers must properly
understand the strategies and they must get them executed through
managers at the operating level.

Strategy implementation requires:

(i) An organisation structure that is necessary to put the strategy into action.
The organisation must possess the skills needed to execute the strategy
successfully.
(ii) Adequate resources to carry out the tasks involved in strategy
implementation.

(iii) Administrative systems and processes.

(iv) Corporate culture supportive to strategy.

(v) Strategic leadership that can obtain commitment to strategy and its
accomplishment.

Interdependence Between Formulation And Implementation Of

Strategy
Strategy formulation and implementation are closely interrelated. There are two
types of linkages between these two phases of strategic management [Fig. 9.1]

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 Forward Linkage: Formulation of strategies indicates the changes required for
their implementation. For example, new or modified strategies may require
changes in organisational structure and/or leaderships style. Strategy
formulation, therefore, provides the direction for strategy implementation. In
this sense, formulation of strategies has forward linkage with their
implementation.
Backward Linkage: Past strategic actions influence the choice of future
strategies. An organisation tends to prefer those strategies which can be
implemented with present structure, processes and resources. Moreover, the
feedback from the implementation of strategies serves as a guide in strategy
formulation.
The two-way linkage between strategy formulation and strategy
implementation shows that these two stages in the process of strategic
management operate in an iterative manner. The dynamic interconnection
between them keeps on changing with the emerging conditions.
Sometimes, a new strategy may require refocus by the organisation in terms of
products, markets, technology, etc. Strategy implementation requires a 'fit'
between strategy, and structure, processes, systems, culture and functional
strategies.

Barriers To Strategy Implementation

Strategy implementation (doing) is much move difficult than strategy
formulation (thinking). Most strategies fail not because they are not well
formulated but because they are not effectively implemented. That is why it is
said that "a reasonably good strategy implemented effectively is better than an
excellent strategy implemented poorly".

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 The main factors causing unsuccessful implementation of strategy are as
follows:
Vague or Poor Strategy: In some cases, the chosen strategy cannot be
implemented because it is vague or defective. You might have heard the story
of rats and the cat. In order to escape from a sudden attack by the cat, rats
decided in their meeting to bell the cat. Whenever the cat comes, rats shall hear
the bell's sound and escape before they are attacked. But they could not find
answer to the question "who will bell the cat".

Therefore, the organisation's capability to implement must be considered while

making strategic choice)

1. Lack of Commitment: When the employees are not fully committed to the
chosen strategy, it cannot be implemented successfully. Lack of employee
commitment may be caused by several factors. First, employees may feel
that the new strategy is not practical and the earlier one was better.
Second, strategists may have assumed that employees will willingly accept
the new strategy. Third, most people focus on smooth and efficient conduct
of current operations.

2. Resistance to Changer: A new or modified strategy usually requires major

changes in the organisation. In case the changes are resisted by the
employees, implementation of strategies is likely to be unsuccessful.

3. Ineffective Management: Inadequate leadership, incompetent

administration, ill-defined tasks, inability to manage change are all signs of
poor management. Managers are often trained to plan and not to execute
the plans. Strategy implementation is a time-consuming process and
requires the involvement of all. Top managers often lack the patience and
aptitude needed for execution of strategies The pressure to show short-
term results may hamper strategy implementation.

4. Poor Communication: Strategies need to be communicated and explained

so that those who are to implement understand and accept them. Poor or
inadequate information sharing, unclear responsibilities, poor
comprehension of roles are the major hurdles in successful
implementation.)

5. Power Politics: Internal and external factors may work against the
organisation's power structure. These factors or elements may have vested

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 interests in making strategies unsuccessful.

In order to overcome barriers to strategy implementation and to make it

effective, the following steps may be taken:

(i) Clear guidelines may be laid down for implementing strategies. These
guidelines can specify the major issues/elements in the implementation
process. Otherwise managers act as per their wishes and abilities and
implementation becomes an unsystematic and uneven process.

(ii) Management must manage change effectively. Changes in culture,

leadership style and employee behaviour are much more difficult to carry
out than structural changes. Optimum implementation requires effective
management of the change process.

Three tourists are on a safari in Africa. While they are walking along in a nature
reserve, a ferocious lion suddenly jumps out of the bush in front of them. It is
hungry and sees an opportunity to make an easy kill. It roars loudly, showing its
fangs. Its intentions are clear: it wants to feast on one of the unlucky tourists.

The first tourist, terrified and overcome by fear, turns white, stops dead in his
tracks, and is unable to move. The second tourist, after a moment of reflection,
starts to remove all his unnecessary equipment and clothing and begins to
stretch out. Meanwhile, the third tourist stands there with his hands in his
pockets, calmly assessing the situation. After a couple of moments pass, the
first tourist looks at the second and yells hysterically, "You're crazy! There
leadership styles, technology and employee behaviour.

Resource Mobilisation And Allocation

In order to implement a strategy the organisation must have adequate financial
and human resources. The procurement of these resources is known as
resource mobilisation. The volume and type of resources to be mobilised
depend on the nature and type of strategy. For example, expansion strategy
requires more resources than stability strategy. An organisation can mobilise
resources by owning or leasing. Less critical resources can be outsourced
whereas critical resources are owned. The quality and utilisation of resources
determine the success in strategy implementation.

The mobilised resources need to be allocated judiciously among different units

and functions of the organisation. Resource allocation involves commitment
and risk which depend on the time required to recover the cost of resources.

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 Resource allocation is both a one-time and continuous process, Whenever a
new project is undertaken, it requires allocation of resources. An ongoing
enterprise requires continuous allocation of resources for its day-to-day
activities. While allocating resources, both the needs of various units and
expected returns should be considered.

Importance of Resource Allocation

An organisation's ability to acquire adequate resources to support strategic
initiatives and steer them to various units has a major impact on strategy
implementation. Shortage of resources, delays actions and slows down
execution of strategy. At the same time, too much funding causes wastage and
reduces financial performance. Therefore resource allocation is a critical
aspect in strategy implementation, particularly in case of major shifts in
product/market scope For example, when the strategy is expansion in one line,
withdrawal from another and stability in the rest of the products, then greater
resources will have to flow to the first and lesser to the second and the third.
Similarly, if the strategy is to develop competitive edge through product
development, greater resources will have to be committed to R&D.
Resource allocation is a powerful means of communicating the strategic
priorities of the organisation as it gives the signals to all concerned Resource
allocation decisions should be taken judiciously because using a formula
approach i.e. allocating funds as a percentage of sales or profits may be
inappropriate and counter-productive. Care should be taken to see that the
resources are not allocated or withdrawn because of easy availability or
paucity. For example, cutting down R&D budget in view of sudden fall of
profitability should be avoided as such expenditure may be most critical for
developing future competitive advantage.

Approaches to Resource Allocation

1. Top - down approach: In this approach, resources are allocated through a
process of segregation down to the operating levels. The Board of
Directors, the Managing Director or members of top management typically
decide the requirements of each sub-unit and distribute resources
accordingly.

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 2. Bottom-up approach: In this approach, resources are distributed through a
process of aggregation from the operating level. The operating levels work
out the requirements of each sub-unit and the resources are allocated
accordingly.

3. Strategic budgeting: This approach is a mix of the above two approaches,

and involves Van interactive form of decision-making between different
levels of management.

Strategic Budgeting
Budget is the main instrument for resource allocation. Budgeting may be based
on either of the three approaches. Under the top-down approach, the top
management distributes resources as per the requirements of different units in
the organisation. In the bottom-up approach resources are allocated after
aggregating needs from the operating level upwards. The entrepreneurial mode
of strategy implementation makes use of the top-down approach whereas the
bottom-up approach is adopted in the participative mode of strategy
implementation. Under the combined approach, there is iterative interaction
among different levels of management. This approach to budgeting is called
strategic budgeting.

Factors Influencing Resource Allocation

1. Organisational Objectives: The objectives at corporate, SBU and
operational levels exercise maximum influence on the pattern of resource
allocation)

2. Strategy Makers' Preferences: The preferences of the most influential

strategists determine how corporate resources are allocated. Managers at
SBU and functional levels often present their demands in accordance with
these preferences.

3. Power Politics: Employees usually judge the importance and power of

SBUs and departments on the basis of resources they get. More powerful
or influential heads are often able to get more resources for their units.

4. External Factors: Government, shareholders, lenders and other

stakeholders influence resource allocation. For example, government

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 regulations may require additional investment in labour welfare and social
security, pollution control, energy conservation, etc.

The main criteria for allocation of resources are as follows:

(a) contribution of various units to organisational objectives.

(b) support to development/enhancement of core competencies.
(c) enhancement of value chain activities.

(d) degree of risk involved.

Problems in Resource Allocation

The main difficulties in the resource allocation process are as under:

1. Limited Resources: There is often scarcity of financial, physical and human

resources. New firms find it difficult to procure finance. Machines and
equipment may have to be imported. Personnel with required skills are in
short supply. Resource allocation becomes difficult when an organisation
has limited resources.

2. Overstated Demands: Every SBU, division or department tries to get

maximum possible resources. It overstates its full. Amount of resources
obtained is considered as a symbol of power.

3. Past Allocation: Different units in the organisation usually quote previous

year's allocations the basis of their current claims. They often resist cut in
resource allocation. Units with good performance in the past claim a major
share of available resources.

4. Imitating Competitors: While allocating resources, a company may imitate

its competitors. It may follow a different strategy but may fail to change its
resource allocation.

Procedural Implementation
Procedural implementation of strategy refers to completing all the legal and
administrative formalities prescribed by the Central and State governments.
These regulations and guidelines may differ from industry to industry. Some
major regulations for business firms in India are even below:

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 1. Formation of a Company: The Companies Act, 2013 regulates the
formation of companies. Registration or incorporation of a company
involves formalities that result in the issue of a certificate of incorporation.
A public company is also required to obtain a certificate of commencement
of business. Integration, diversification, joint venture, takeover and other
corporate strategies may involve information of a separate company. The
prescribed formalities have to be completed for this purpose.

2. Licensing Requirements: An industrial licence may be needed for some

industries such as tabucco, liquor, etc., atomic energy, defence equipment,
etc. In order to get a licence a company has to apply in the prescribed form
to the Secretariat for Industrial Approval (SIA). Once a project is approved,
a letter of intent is issued. After fulfilling the prescribed requirements an
industrial licence can be obtained.

3. Foreign Collaboration Procedure: Expansion/diversification in high-

technology industries and international joint ventures may require foreign
collaboration and investment. Similarly, an Indian company may need to
import foreign technology or technical know-how. Approval of the Foreign
Investment Promotion Board (FIPB), Project Approval Board or the Reserve
Bank of India may be required in case of foreign equity and technical
collaborations.

4. FEMA Requirements: Under the Foreign Exchange Management Act

(FEMA), permission of the Reserve Bank of India is needed by foreign
companies and foreign shareholding in excess of the prescribed limits.

5. Import-Export Formalities: In case of imports of raw materials and capital

goods, permission under the Foreign Trade Development and Regulation
Act (FTDRA) 1992 is needed in the prescribed cases. Similar permission
may be necessary for certain exports.

6. Securities and Exchange Board of India (SEBI) Requirements: Companies

wanting to raise capital through public issue of securities are required to
get their prospectuses vetted by SEBI. For raising funds abroad through
Global Depository Receipts (GDRs) and American Depository Receipts
(ADRs), RBI's approval may be needed.

7. Trade Marks and Patents Requirements: Companies wanting to protect

their intellectual property in the form of trade marks, patents and copyrights

SM Module 4 9
 are required to follow the formalities prescribed under the Trade Marks Act,
the Patents Act and the Copyrights Act.

8. Pollution Control Regulations: There are several Central and State laws for
the prevention and control of pollution. A 'no objection' certificate from the
Pollution Control Board must be obtained in case of pollution industries

9. Labour Legislation Requirements: Firms are required to observe the

provisions of various labour laws concerning wages, bonus, working
conditions, social security, trade unions, industrial relations, etc, etc.

10. Consumer Protection Requirements: Laws which are designed to protect

the interests of consumers (e.g., the Consumer Protections Act 1986) are
another set of formalities

11. Incentives and Benefits: Certain incentives and benefits are offered by the
Central and State governments to specified industries. Loans at
concessional rate of interest, tax holidays and tax concessions, subsidies,
etc are examples of these incentives and benefits. Business firms which
want to avail of these incentives and benefits are required to fulfil the
prescribed formalities.

The procedures and formalities given above have a significant implication for
strategy formulation and implementation. Preparation of vision and mission
statements, objective setting, strategic choice, and implementation of
strategics must take these into account.
Regulations increase the time and costs involved in strategy implementation.
Since 1991 Government of India has drastically reduced and simplified the
regulatory framework for business and industry. Still India ranks low when it
comes to starting and operating business. All organisations must be aware of
the regulatory framework that affects formulation and implementation of
strategies. Different companies react to regulations in different ways. Some of
them conform (submission) to the prescribed regulations. Others criticise,
lobby and pressurise against (confrontation) regulations. Still others explore
opportunities in the regulatory framework. Large business houses maintain a
close liaison with government agencies (collaboration) to get quick approvals,
sanctions, permissions and statutory benefits.

Regulatory framework keeps on changing from time to time. Therefore,

strategists must not only follow the existing framework but anticipate changes
in it and be prepared to face these changes.

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 Project Implementation
A project has been defined as "a one-shot, time-bound, goal-oriented major
undertaking. requiring the commitment of varied skills and resources" A project
is characterised by the following features:
(i) Each project is unique and non-repetitive.

(ii) Every project is time-bound.

(iii) It involves investment of funds and other resources.
(iv) It has a specific objective.

(v) It consists of several interdependent tasks.

(vi) The completion of a project at the right time and the right cost is necessary
or critical for the realisation of organisational objectives

The nature, number and size of projects depends upon the corporate strategy.
For example, diversification may lead to a large scale project involving
investment of thousands of crore of rupees while stability may require
modernisation of plant with much lesser investment.
The application of knowledge, skills and techniques to the formulation,
implementation and evaluation of projects is known as project management. It
is the key mode of strategy implementation. Successful implementation of
strategy requires that the organisation undertakes the right projects and
executes them in line with the underlying strategy. This is possible when
project management is aligned with corporate strategy
Fig. 9.4 shows the process of strategy implementation through project
management. Strategy provides the basis for setting objectives/targets of
projects Management of projects leads to certain outcomes or results which in
turn lead to execution of strategy Effectiveness of strategy implementation
depends largely on success in project management In a project-oriented
organisation there is close linkage between project management process and
strategy implementation.

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 The project management process consists of the following steps:

1. Conception Phase: An organisation may undertake a new project to

implement its growth strategy. Several competing projects may emerge at
this stage. These projects are arranged in order of priority on the basis of a
set criteria)

2. Definition Phase: A specific project is selected from the various projects

arranged in order of priority. Detailed feasibility reports are prepared before
making the final choice

3. Planning Phase: The plan document of a project identifies activities, their

sequence, cost estimates, time schedules, resources required and degree
of risk involved. A formal plan document is useful in obtaining funds from
lenders and also in the execution of the project. Necessary clearances are
obtained from various authorities, a project team is constituted and
procedures are drawn for project implementation.

4. Execution Phase: This is the action phase of project management process.

During this phase various activities such as acquisition of land, construction
of factory premises, procurement and installation of plant and machinery
etc., are undertaken. In other words, the project plan is put into action

5. Controlling Phase: This phase involves monitoring and regulating the cost,
time, resource use and risk in the execution of the project.

6. Clean-up Phase: Once the project is completed, the project team and
infrastructure are disbanded. The project is handed over to those who will
run or operate it. This is thus a closing phase

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 MCKINSEY'S 7-S Framework
McKinsey's 7-S framework highlights the interconnection between seven
factors and their role in successful implementation of strategy. When the seven
variables are properly aligned, strategy implementation becomes easy.
Therefore, strategists must achieve a good fit among the seven variables by
making appropriate alterations from time to time.
The 7-S framework developed by McKinsey & Co., world's biggest consultancy
firm, consists of the following seven variables:

1. Strategy: Strategy means a set of decisions and actions aimed at gaining a

sustainable competitive advantage. It is the broad framework to reach
organisational goals.

2. Structure: The organisation structure is a network of authority

responsibility relationships. It indicates interrelationship between different
units of the organisation.

3. Systems: These represent the flow of activities involved in the daily

operations, including core processes and support activities.

4. Style: How managers act and behave, spend their time and attention
represent the style.

5. Staff: Staff means the people, their knowledge, skills and experience.

6. Shared Values: The beliefs, attitudes and assumptions shared by people

represent corporate culture. These indicate what the organisation stands
for and believes in.

7. Skills: These refer to the organisation's capabilities and competencies.

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 The hard elements-strategy, structure and systems- are visible and
management has some control on them. But the soft elements-shared values,
style and skills- are difficult.

Concept Of Organisational Structure

An organisation structure is the framework of authority-responsibility
relationships among different job positions. It is a formal arrangement of tasks
and sub-tasks which are needed to execute strategies. An organisation
structure has two broad dimensions:

1. Vertical Dimension: The vertical dimension is characterised by:

(a) specialisation of tasks

(b) hierarchy of authority or chain of command consisting of several levels

(c) formal reporting relationships

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 (d) grouping of individuals into departments
(e) upward and downward communication through the scalar chain
(f) rules and regulations
(g) centralised decision-making

(h) focus on efficiency

The vertical structure is designed to enable superiors to exercise control over

the work of subordinates. Vertical structures are known as tall structures. Such
structures are appropriate for companies which produce standardised
products/services on a large scale with the help of mass production systems
and well-established technologies.

1. Horizontal Dimension: The horizontal dimension is characterised by:

(a) sharing of tasks
(b) sharing of information

(c) decentralised decision-making

(d) focus on learning
(e) few rules and regulations

The horizontal dimension is designed to ensure cooperation and coordination

among employees working at the same level of authority.

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 Horizontal structures are also known as flat structures. Such structures are
more appropriate for companies making differentiated products/services in
batches and with advanced technologies for niche markets. Medium-sized
manufacturing and service enterprises and non-profit organisations which offer
specific social services are examples of these organisations.

The vertical and horizontal dimensions exist side by side despite their
contradictory features.

Interrelationship Between Strategy And Structure

There is close interdependence between strategy and structure. This
interdependence is both forward are backward (Fig. 10.2)

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 1. Forward Relationship: Effective implementation of strategy requires a
suitable organisational structure. According to Chandler "Structure follows
strategy." Growth strategy requires a different structure then stability
strategy. Organisational structure is not an end itself but a means for
strategy implementation. Therefore, an organisation's structure should be
such that it enables effective implementation of the chosen strategy. When
there is a significant change in strategy the structure has to be redesigned.
Changes in corporate strategy create new administrative problems which
cannot be handled without a new organisational structure.

2. Backward Relationship: Structure also influences strategy. Structural

considerations affect the implementation of present strategy and the
formulation of future strategies.

Forms Or Types Of Organisational Structure

The main types of organisational structures are given below:

1. Entrepreneurial Structure: The entrepreneurial structure is the most

elementary and the simplest type of organisational structure. This structure
is suitable for an organisation that is owned and managed by one person.
Such an organisation is typically a single product/service firm that serves a
local market. The owner-manager makes both strategic and operational
decisions.

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 The entrepreneurial structure offers the following advantages:
(i) It is very simple.
(ii) Decision-making is quick due to centralisation of power in one person
(iii) It can make timely response to environmental changes, i.e., it is flexible.
(iv) It ensures centralised control over the entire business

The entrepreneurial structure suffers from the following disadvantages:

(i) The owner-manager is overburdened.
(ii) Preoccupation with operational matters may lead to overlooking strategic
issues.
(iii) There is very little scope for growth of business.

(iv) Employees feel insecure.

2. Functional Structure: The expansion into the same line of business

necessitates specialisation of tasks and delegation of authority to heads of
different functional areas. Grouping of activities on the basis of functions
performed for strategy implementation creates functional structure. For
example, production, marketing, finance and personnel are the basic
functions in a manufacturing organisation. A basic function may be further
divided into sub-functions) For example, marketing department may be

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 sub-divided into marketing research, advertising and publicity, sales, and
customer service. The process of functional differentiation may continue
through successive levels in the hierarchy. In addition to the basic
functions, secondary functions such as public relations, legal, etc. are
provided.

Functional structure is suitable for medium-sized firms having limited number

of products.
The main advantages of functional structure are as follows:

(i) Specialisation on the basis of functions results in efficient distribution of

work and maximum utilisation of functional skills.
(ii) Delegation of operational matters enables the chief executive officer to
concentrate on strategic issues.
(iii) Structure can be linked to strategy by designing key activities as
functional departments.

(iv) It permits centralised control of strategic results.

(v) (There is minimum duplication of facilities.
(vi) Specialisation increases operational efficiency.
(vii) Coordination within functional areas becomes easy.
(viii) Focussed concentration on functional tasks can develop core
competencies.

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 The functional structure suffers from the following disadvantages:
(i) There is difficulty in maintaining cooperation and coordination among
different functional departments.
(ii) Narrow specialisation may lead to neglect of overall goals of the
organisation.
(iii) Conflicts may arise among functional and advisory staff.
(iv) Decisions that require involvement of two or more functional areas may
get delayed.

(v) There is lack of quick response to environmental changes. Innovation

and creativity may get stifled.
(vi) No single department can be held responsible for sales revenue and
profits.
(vii) Development of managers with cross-functionl experience not possible.
Functional structure is suitable for single business firms which compete on
the basis of technical specialisation in a relative stable environment.

3. Divisional Structure: When a company expands into new products and/or

geographic areas, the functional structure proves unsuitable. Firms which
diversify into related and unrelated businesses tend to adopt the divisional
structure.

Under the divisional structure the organisation is divided into several semi-
autonomous divisions on the basis of product lines, or types of customers or
geographic areas. Each division is self-contained in terms of manufacturing
and marketing facilities. Each division is headed by a divisional manager who is
responsible for efficient and profitable working of the division. All divisional
managers report to the Chief Executive.

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 Multi-product organisations have product divisions. Each product line requires
different manufacturing and marketing knowledge and skills. For example, ITC
has six product divisions: Tobacco Products, Paper and Paperboard, Food and
Beverages, Hotel and Tourism, Ready-to-Wear Garments, Personal Care.
Territorial or geographic divisionalisation is adopted by banks, insurance and
transportation companies. For example' Life Insurance Corporation of India
(LIC) has divided the country into five zones Northern, Southern, Eastern,
Western and Central. Indian Railways has also adopted territorial
divisionalisation.
Divisional structure offers the following advantages:
(i) Adequate attention can be paid to problems specific to each product
line/territory.

(ii) There is sufficient autonomy to each division for efficient management.

(iii) Each division can respond quickly to environmental changes.
(iv) Top management can focus on strategic matters.
(v) There is scope for expansion and growth of business.
(vi) Coordination among functional areas like product design,
manufacturing, marketing is etc is effective.

(vii) Each division can be held responsible for performance.

(viii) Development of general management talent is possible.

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 Divisional structure suffers from some disadvantages:
(i) Operating costs increase due to duplication of facilities.

(ii) Cooperation and coordination among various divisions become difficult.

There may be unhealthy competition among divisions.
(iii) Policies pursued by different divisions may be inconsistent.
Inconsistency may also arise from sharing of authority between corporate
and divisional levels.
(iv) Problems may arise in the allocation of resources among divisions. Inter-
division conflicts may arise on sharing of resources, allocation of common
overheads, etc.
Divisional structure is appropriate for multi business firms operating in a
dynamic environment.

Table 10.3: Advantages and Disadvantages of Geographical Organisation

Structure

Advantages Disadvantages

Allows tailoring of strategy to the Poses a problem of how much geographic

needs of each geographical uniformity headquarters should impose versus how
market. much geographic diversity should be allowed.

Delegates profit/loss Greater difficulty in maintaining a consistent

responsibility to the lowest company image/reputation from area to area when
strategic level. area managers exercise much strategic freedom.

Improves functional coordination Adds another layer of management to run the

within the target market. geographic units.

Can result in duplication of staff services at

Takes advantage of economies
headquarters and regional levels, creating a relative
of local operations.
cost disadvantage.

Area units make an excellent

training ground for higher-level Results in duplication of equipment and personnel.
general managers.

Clarifies profit/loss Encourages dysfunctional competition for

accountability. resources.

Results in good functional

Results in loss of specialization.
coordination.

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 Emphasizes regional rather than company goals.

Contemporary Organizational Structure

Some of the relatively new types of organisational structures are given below:

1. SBU Structure: (Top management may face difficulty in exercising strategic

control over divisions due to increasing size and diversity. SBU structure is
designed to solve this problem. A strategic business unit (SBu) is distinct
part of the business serving specific product markets and having identified
competitors. Each SBU consists of a few divisions. Several information
technology firms in India such as Infosys, HCL, Wipro and TCS have
adopted the SBU structure.

The main advantages of SBU structure are as follows:

(i) Each SBU head can be held accountable for ultimate results and operates
as a stand-alone profit centre.

(ii) Coordination between all divisions within an SBU becomes easier. There
is greater decentralisation of authority.
(iii) SBU structure facilitates strategic control over a large and diverse
organisation.
(iv) There is considerable scope for growth and expansion of business.
(v) Individual SBUs can react quickly to changes in environment.

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 Some of the disadvantages of SBU structure are given below:
(i) It is quite difficult to clearly define the autonomy and responsibility of
various SBU heads and to achieve synergies across SBUs.
(ii) The hierarchy increases due to addition of one more level between
corporate management and divisional management.
(iii) In a large and diversified company, effective handling of several SBUs
may not be easy.
(iv) It may lead to costly duplication of staff and facilities.
(v) There may be rivalry among SBUs for corporate resources.

(vi) Top level managers may lose touch with business level situations

2. Matrix Structure: Matrix structure is a two-dimensional structure. It is a

combination of pure project structure and functional structure. This type of
structure is created by deputing functional specialists to work on special
projects/products. These specialists from different functional areas form a
group or team and report to the team leader (project manager). Once the
project is completed, they go back to their respective departments.

SM Module 4 24
 Matrix structure offers the following advantages:
(i) Matrix structure permits specialists to be assigned where their talent is
required.
(ii) It fosters creativity through pooling of diverse skills without duplication.
(iii) It provides good exposure to functional specialists in general
management. Functional managers can gain hand on experience.
(iv) It allows sharing of resources which helps to reduce costs.
Matrix structure was evolved to overcome the limitations of traditional
organisation structures. It is useful wherever dual focus is required-need for
high information processing and pressure for sharing resources.

Matrix structure, however, suffers from some disadvantages:

1. It violates unity of command. Dual accountability may create confusion and

conflict. Each functional specialist has two bosses-his administrative head
and his project manager.

SM Module 4 25
 2. A high level of vertical and horizontal integration is required due to shared
authority.

3. Problems in communication and control may arise due to shared authority.

4. The organisation may fail to respond quickly due to complexity

5. Timely decision-making may become difficult.

Matrix organisational structure is appropriate when:

(i) management attention must be focused on two or more key issues
(technical issues, consumer needs, functional efficiency.
(ii) large amounts of diverse information need to be processed.
(iii) problem-solving is complex environmental uncertainty, interdependence
among organisational units, complex products or technology.
(iv) economies of scale require the sharing of human resource expertise to
achieve high performance.

3. Network Structure: Network structure has been developed t to cope with

increasing volatility of environment. "Virtual corporation is a temporary
network of independent companies-suppliers, customers, even erstwhile
rivals linked by information technology to share skills, costs, and access to
one another's markets. It has neither central office nor organisation chart; it
has no hierarchy, no vertical integration". In other words, virtual
organisation is a temporary alliance between two or more organisations that
come together to undertake a specified venture. Several virtual
organisations have been created in telecommunication and other
knowledge-based industries in India.

As shown in Fig. 10.8 network structure is composed of several groups or

teams which are linked through cob web like structure. This structure is non-
hierarchical and highly decentralised. The core group is responsible for
coordination between the semi-autonomous groups to which specialised
functions are outsourced. The network structure is most appropriate for
organisations which require strong innovation skills and high degree of
flexibility so as to respond quickly to fast-changing environment.

SM Module 4 26
 The main advantages of network structure are as follows:
(i) There is high degree of adaptability to changes in environment.
(ii) The firm can concentrate on its core competencies.
(iii) The structure can be modified to meet changing business needs.
(iv) Synergy can be achieved by combining complementary skills of
different groups in the network.

The network structure suffers from the following disadvantages:

(i) There may be conflicts among several semi-autonomous groups.
(ii) Coordination and control may become difficult due to several partners.
(iii) As most tasks are performed by others, there are risks of
overspecialisation.
(iv) Duplication of facilities and resources may result in high costs.

4. Virtual Organisation: This is an extension of the network structure. In this

approach, independent organisations form temporary alliances to exploit
specific opportunities, and then disband when their objectives are met. The
term virtual means in effect but not actually so. The virtual organisation
consists of a network of independent companies suppliers, customers or
even competitors-linked together to share skills, costs, markets and
rewards. The members of a virtual organisation pool and share the
knowledge and expertise of each other. The virtual organisation will have
few full-time employees or may temporarily hire outside specialists to
complete a specific project, such as a new software application. These
people do not become a part of the organisation, but join together as a
separate entity for a specific purpose. Sometimes companies use a virtual
approach to harness the talents and energies of the best people for a
particular job, rather than trying to develop those capabilities in house
When an organisation uses a virtual approach, the virtual group typically
has full authority to make decisions and take actions within certain
predetermined boundaries and goals. Most virtual organisations use
electronic media for sharing of information and data. Some organisations

SM Module 4 27
 have redesigned offices to provide temporary space for virtual workers to
meet or work on-site.
Advantages:

1. It can draw on expertise worldwide.

2. It is highly flexible and responsive.

3. It reduces overhead costs.

Disadvantages:

1. Lack of control because the boundaries of a virtual organisation are

weak and ambiguous.

2. Virtual teams place new demands on managers, who have to work

with new people, new ideas and new problems.

3. Virtual organisation poses communication difficulties, and managers

may lose motivation.

The basic question in relating structure to strategy is: which structure best
meets the requirements of a strategy. Whenever there is a change in
strategy, changes are needed in the structure. The external environment
also affects the structure. For example, an organisation operating in a
volatile environment requires a more flexible structure (e.g. matrix
structure) than the one operating in a stable environment (e.g. functional
structure).
Whenever the existing organisation structure does not adequately meet the
needs of the chosen strategy, changes must be made in the structure.
Some of the developments that may create the need for structural change
are as follows:

1. Rapid growth in size of the enterprise.

2. Diversification into related and unrelated businesses.

3. Growing competition and other environmental changes.

4. Shift from centralised family management by professionals.

5. Changes in organisational climate and culture.

SM Module 4 28
 6. Formulation of new strategies.

Structural Change
Structural changes are of several types Changing the organisation structure in
line with changes in strategies and environment is called reorganisation. On the
other hand, radical redesign of business processes so as to reduce cost and
improve quality, service and speed is known as reengineering. Reducing the
number of levels in the hierarchy so as to improve communication and control
is called delayering.

Strategic Change
Once an organisation adopts a particular strategy, it tends to adhere to it. But
strategic change may become necessary due to major change in environment
or organisational capabilities. Strategic change can be a continuum varying
from no variation in strategy to a complete and radical change in the project
procedure, organisational mission, objectives and organisational structure.
Samuel C. Certo and Paul Peter divide strategic change into five discrete
stages. They are stable strategy, routine strategy change, limited strategy
change, radical strategy change and organisational redirection. [Table 10.4]

1. Stable Strategy: Stable strategy is continuation of stability in all aspects of

the business. Therefore, mostly, it requires continuation of strategy from
the previous planning period. It requires running of the business and
performing the same tasks with the same skills. Successful implementation
of stability strategy requires monitoring the activities to ensure that the
objectives are achieved. The learning from previous experience
(experience curve effects) will help to achieve the objectives effectively.

2. Routine Strategy Change: In the routine strategy change, a firm seeks to

attract customers, by making normal, predicted adjustments in the

SM Module 4 29
 methods. The strategy changes include: changing advertising appeals,
update packaging, using different pricing tactics, change the distributors
For example, the strategy of price reduction will enhance the demand for
the product. Hence, the strategist should coordinate the activities of
marketing department and production department to increase production,
capacities of distribution channels and distributors. This strategy does not
require major efforts and major changes for its successful implementation.

3. Limited Strategy Change: This strategy involves offering new products to

new markets within the same general products class. Hence, the managers
have to perform many new activities, such as designing the new products,
procurement of new kinds of inputs, new machinery, producing new
products, arranging new market intermediaries (if necessary), new market
channels and the like.

4. Radical Strategy Change: This strategy involves a major shift for the firm.
The radical strategy change is necessary when the firm adopts the
strategies like mergers and acquisitions in the same basic industry. These
strategies create complex problems in integrating the two firms into one
firm. These complex problems include: restructuring the organisation,
organisational change, change in organisational culture, change in the
positions of key personnel, change in the distributors and distributing
channels etc.

5. Organisational Redirection: This strategy involves mergers and

acquisitions of firms in different industries. The magnitude of strategic
change depends on the degree of variation of the nature of industries and
the degree of centralisation of the new firm. Another form of organisational
redirection involves when a firm leaves one industry and enters new one
For example, a firm enters the hot drinks industry by leaving the soft drinks
industry.

Organisational Systems
Organisational systems are operating mechanisms through which different
elements of an organisation interact. These systems are created to perform the
tasks for implementation strategies. Organisational systems also help to bind
together the various components of the organisation. The major systems are
described below.

SM Module 4 30
 1. Information Systems: In order to perform their tasks effectively and to
relate (coordinate) their work to that of others, managers need information.
Every organisation designs a system for collecting, screening, processing,
storing and disseminating the equired information. Such a system is called
management information system (MIS) Its basic objective is to provide the
right information, in the right form, and at the righ time. MIS plays a vital
role in improving decision-making, planning, coordination and control. It
also enhances the efficiency of other systems and processes in the
organisation Information needs vary from one level of management to
another. (Table 10.5)

Table 10.5: Information Needs at Different Managerial Levels

Level of
Information Needs
Management

Information needed for strategic decision-making and strategic

Top Level
control.

Middle Level Information for operational planning and control.

Lower Level Information for transaction processing, response, etc.

Information Technology (IT) had led to the development of Computerised

Information System and other advancements in MIS.
Information needs depend on the nature and type of strategy. An organisation
pursuing the stability strategy requires a transaction processing system and a
mainframe computer which can support many users in time-sharing mode. It is
designed to ensure efficient performance of clearly defined, routine and
repetitive tasks. On the other hand, under the growth strategy, an organisation
requires considerable information about external environment. Its information
system has to be more flexible, using microprocessor and decision support
system. (Table 10.6)

SM Module 4 31
 Management information system can help an organisation gain competitive
advantage through business strategies of cost leadership and differentiation.
An organisation can achieve a major edge over its competitors by developing
unique product/service and capabilities through information technology.
Information systems and information technology play a strategic role in the
following ways:
(i) Substantially reduce costs through business process reengineering so
that the company becomes a cost leader.

(ii) Differentiate the company's products/services from those of its

competitors or reduce the differentiation advantage of competitors by
introducing new features.
(iii) Developing unique products/services or to develop unique
markets/market niches.
(iv) Expanding the company's capacity to produce goods/services or
diversifying into new products or services.
(v) Creating alliances with suppliers, customers, competitors, consultants,
etc.
Thus, information technology and information system can change the way an
organisation competes and does business.

2. Control System: A control system is needed to monitor behaviour and

performance of people and to ensure that strategies are being implemented
in accordance with predetermined plans. The control process consists of
the following steps:
(i) Setting Performance Standards: First of all, standards are established in
the form of desired results. These serve as the criteria against which actual
results are to be measured. Standards should be reasonable, feasible and

SM Module 4 32
 challenging. It is also necessary to decide how much deviations from the
standards will be allowed. Performance standards are set on the basis of
the company's objectives and strategies.

(ii) Measuring Actual Performance: The actual performance is measured

against the standards on an ongoing basis. This helps in detecting and
correcting deviations quickly.
(iii) Analysing Variances: Differences between standard and actual
performance are called variances. When actual performance exceeds
standard performance, the variance is positive and may require no action.
Excess of standard performance over actual performance is a negative
variance. When such variance is unaccountable, it is analysed to identify the
causes which may be internal or external.
(iv) Taking Corrective Action: Appropriate actions are taken to prevent
undesirable variances. Corrective actions will depend on the causes of
variance. For example, steps may be taken to improve performance.
Alternatively, performance standards may be revised or reset.
An organisation's control system will depend upon its corporate and
business strategies. Traditional, rigid and formal controls (e.g. budgets, cost
standards, etc) may be adequate for stability, concentration and cost
leadership strategies. But diversification, cooperation and differentiation
strategies require informal, flexible and long-term controls.
As organisations are becoming more organic through delayering, flat
hierarchies cross-functional teams and networking, the is need to move
from mechanistic controls to organic controls. But shift from traditional

SM Module 4 33
 control systems (e.g. profit centres, responsibility accounting, budgeting
and cost controls) to modern control system is difficult as a change in the
mindset is needed.

3. Development System: In this fast changing business world, training and

development of personnel is essential. It is necessary to determine the
needs, methods, duration and types of training. People may be trained both
on the job and off the job. The frequency of training has increased due to
rapid advancement in technology and changes in strategies. People at all
levels need training. Suitable trainers both from within and outside the
organisation are employed to impart training. Large firms have set up their
own training centres for this purpose. Companies diversifying into related
and unrelated areas and those going global need highly trained and
experienced managers, technicians, etc.
The importance of training and development has increased due to the
knowledge economy. Continuous and life-long learning are needed to avoid
the mismatch between jobs and jobholders. Attitudinal and behavioural
training are as important as structural training.

4. Appraisal System: A system is needed for continuous and unbiased

evaluation of employee performance. Such an appraisal system provides
the information for deciding incentives, promotion, training and
development. Various methods used in appraisal are classified broadly into
two categories: traditional methods and modern methods. Traditional
methods are largely trait based while modern methods are result based In
designing an appraisal system, decisions are taken regarding objectives,
frequency and methods of appraisal. Moreover, the roles of line managers
and human resource department in appraisal should be specified.

5. Reward System:Employee rewards are usually linked to their performance.

Such linkage helps to control the behaviour of employees. There is, thus, a
close relationship between appraisal system, reward system and control
system.
The reward system helps in strategy implementation by reinforcing
desirable behaviour Rewards are given in several forms e.g. salary
increase, bonus, stock options, perquisites, promotion, etc. In a strategic
reward system the focus is on alignment between rewards and corporate
strategy so as to secure desired behaviour and achievement. For example,
firms pursuing stability strategies focus on improving efficiency in current

SM Module 4 34
 operations, On the contrary, firms pursuing expansion strategies stress
long-term improvement in performance. Team-based rewards and group
incentives are more appropriate in case of diversification and
internationalization strategies.
Thus, strategies and structures influence the design and administration of
reward systems. In case of small and entrepreneurial firms, the owner-
manager has a direct contact with employees.

Therefore, the reward system can be informal. But in case of professionally

managed and large firms, a formal reward system is necessary. The relative mix
of monetary and non-monetary rewards will also differ from one organisation to
another. In non-profit organisations and organisations which provide
opportunities for creative pursuits, there may be less focus on monetary
incentives. Large and growing organisations provide enough opportunities for
career advancement and personal growth.

Matching Structure With Strategy

The steps that can be taken to match organisation structure with the strategy
are given belows:

1. Identify Key Activities: The functions and tasks essential for execution of
strategy are pinpointed. For example, strict cost control is a key task in case
of cost leadership strategy.

2. Understanding Interrelationship Among Activities: The strategic

relationship among the critical, supportive and routine activities should be
analysed. Activities may be related through the flow of material, production
process, types of customers served etc. Geographical location may help in
grouping or regrouping of activities during organisation redesigning.

3. Grouping Activities into Units: The critical activities should be used as the
main building blocks in structuring the organisation. The role and power of
key groups should be duly recognized. Adequate resources should be
allocated to critical activities. The managers in charge of such activities
should be given influential position.

4. Deciding Degree of Authority: Strategies are implemented by managers at

different levels. Enough authority should be delegated to them. But
activities and organisational units with a crucial role in strategy

SM Module 4 35
 implementation process should not be subordinate to routine and non-key
activities. Revenue-producing and result producing activities should not be
subordinate to internal support or staff functions.

5. Coordination Among Units: Coordination among different organisational

units i essential to ensure that these do not work at cross purposes but
supplement efforts of one another.

Behavioural implementation is concerned with the behaviour of strategists. The

individuals and groups who actually implement the company's strategies must
behave properly to ensure achievement of the desired objectives. Leadership
style, corporate culture, corporate governance, personal values and ethics,
social responsibility, politics and power are the key behavioural issues involved
in strategy implementation.

Corporate Culture
Every company has a culture which exercises considerable influence on the
behaviour of its managers and employees. According to O'Reilly,
"organisational culture is the set of assumptions, beliefs, values and norms that
are shared by an organisation's members."
Beliefs are the assumptions about reality. These are derived from and
reinforced by experience. Values are the ideals that are considered desirable
and worth striving for. Norms are the expected standards of behaviour.
Assumptions, beliefs, values and thought processes are abstract and intangible
elements of culture. The tangible and visible elements of culture include
physical settings, artefacts, dresses, ceremonies, stories, slogans, etc. The
corporate culture in an organisation is manifested in:

Shared things (e.g. the way people dress)

Shared sayings (e.g. let's get down to work)

Shared actions (eg. service-oriented approach)

Shared feelings (eg, hard work is rewarded here)

On the basis of these characteristics, an organisation's culture may be
strong or weak. When these characteristics are widely and deeply shared,
the culture is considered strong. It is weak in case these are not shared

SM Module 4 36
 widely and deeply. A company that conducts its business according to a
clear and explicit set of principles and values has a strong culture. In a
weak culture, there are several sub-cultures, environment is politicized,
bureaucracy is high and people do not look outside for best practices.

Impact of Culture
Corporate culture provides the framework within which the behaviour of people
takes place. It influences strategy implementation in several ways:

1. Decision-Making: Culture affects the way managers take decisions about

the company's relationship with its environment and strategy.

2. Resistance to Change: A strong culture facilitates smooth implementation

of strategy by reducing resistance to change.

3. Communication and Control: Strong corporate culture facilitates

communication and control in the organisation.

4. Cooperation and Commitment: In a strong culture, members of the

organisation have a high sense of identity, and a high degree of loyalty and
commitment.

5. Innovation: Organisations with a strong culture are relatively creative and

entrepreneurial.

6. Work Ethics: Culture determines the ethical standards of an organisation

and its members. In a healthy culture employees consider 'work as worship'
and work hard.

7. Motivation Level: Culture determines the attitudes of people to their jobs

and life. In achievement-oriented culture, people are self-motivated.

Thus, corporate culture can be either a strength or a weakness depending

upon whether it is healthy or unhealthy. A strong culture is essential for
success in strategy implementation. In order to build a strong culture there
must be.

a genuine concern for the well-being of all stakeholders;

a founder or leader who establishes high values;

a sincere commitment to run the organisation in accordance with these

values.

SM Module 4 37
 Relating Culture to Strategy
Corporate culture can be a source of sustainable competitive advantage when
there is a proper fit between corporate strategy and corporate culture. It
contributes to competitive advantage by widening the strategic options,
facilitating interaction and assisting information processing. A strong culture
enables the management to predict employee reactions to strategic options
thereby minimising the unintended consequences Corporate culture
determines managerial behaviour which in turn influences implementation of
strategy. Therefore, corporate leaders must create an appropriate fit between
strategy and culture. In creating such a fit, strategists can adopt any of the
following approaches':

1. Ignore Corporate Culture: When it is almost impossible to change the

culture, strategists may ignore it while implementing a strategy. Culture is
built over a long time period and cannot be changed overnight. Cultural
change is a slow and time-consuming process. Overnight changes in
culture may create trauma for members of the organisation.

2. Adapt Strategy Implementation to Suit Culture: An easier alternative is to

change strategy implementation to suit the corporate culture. Strategists
have some flexibility in case of organisation structure, systems and
processes. These variables may be modified to meet the requirements of
corporate culture. However, each specific situation in the organisation may
require an innovative solution. However changing strategy midway

Strategic Leadership
Leadership is the process of influencing others to strive willingly and
enthusiastically towards the achievement of organisational objectives. Strategic
leadership is the process of transforming an organisation through its people
into a unique position. Strategic leaders are mainly at the top level of the
organisation. They manage the process of strategic management. They are the
chiel architect of corporate strategy and mobilise people for strategy
implementation. Bill Gates (Microsoft). Akio Morita (Sony), Jack Welch (General
Electric), Narayana Murthy (Infosys). J.R.D. Tata (Tata Group). Azim Premji
(Wipro) are some examples of strategic leaders.

SM Module 4 38
 The main characteristics of strategic leadership are as follows:
(i) Strategic leadership is visionary and keeps the mission in sight. Its focus
is on effective ness rather than on efficiency.
(ii) Strategic leadership is transformational not transactional. Strategic
leaders recognise the need for change, and create a vision to guide the
change effectively, execute the change.
(iii) Strategic leadership has an external rather than internal focus. It helps
the organisation to be in tune with its environment.
(iv) Strategic leadership inspires people to work together for achieving the
purpose and the mission.

Role of Leadership in Strategy Implementation

Strategic leadership plays a vital role in strategy implementation by performing
the following tasks:

1. Initiating Change: Growing organisations require change. Strategic leaders

act as Change agents. They overcome resistance to change by showing
concern for people and taking them into confidence.

2. Providing Strategic Direction: Strategic leaders provide a sense of

direction in terms of envisioned future and core ideology. The envisioned
future is concerned with the future shape of the organisation. The core
ideology guides members of the organisation. Strategic leaders are
visionary and clarify strategic intent.

3. Shaping Corporate Culture: Corporate culture defines an organisation and

differentiates it from other organisations. Strategy is implemented by people
and culture shapes behaviours of people. Strategic leaders build and
sustain a supportive culture.

4. Reconciling Conflicting Interests: An organisation consists of several

interest groups. Their interests are often at conflict. There exist conflicts
between management and labour, between departments, etc. These
conflicts create problems in strategy implementation. Strategic leaders
integrate different interests by creating commitment to common interest.

5. Setting Ethical Practices: It is necessary that members of the organisation

behave ethically during strategy implementation. Strategic leaders establish

SM Module 4 39
 ethical standards and practices to guide behaviours.

6. Developing Motivation System: The pursuit of strategy by itself does not

meet all the needs of organisational members. Therefore, individuals and
groups involved in strategy implementation must be properly motivated.
Strategic leaders develop a sound motivation system to meet their needs
and to optimise performance.

7. Establishing Effective Controls: Both financial and non-financial controls

are required to ensure effective implementation of strategy. Strategic
lenders establish appropriate controls to monitor and control progress
towards strategic success.

Matching Leadership Style and Strategy

Leadership style means the behaviour pattern of leaders. Broadly, various
leadership styles can be classified into three categories. First is the
authoritarian or autocratic style under which the leader takes unilateral
decisions and asks the people to implement them. Second is the participative
or democratic style wherein the leader decides and acts in association with the
subordinates. Third is the combination of first two styles. It may be called
nurturing of paternalistic style under which the leader is both directive and
participative.
Effective strategy implementation requires that leaders adopt a style that
matches the requirements of strategy. For example, unilateral methods of
implementation may be better for transformational change e.g. changing
culture or 5 organisation structure, systems and processes, whereas
participative methods may be adopted to implement environmental

Corporate Governance
Corporate governance refers to the system by which companies are governed.
It involves relationships amongst the company's board of directors, its
management and various stakeholders. It involves maintaining a balance
between economic and social goals, individual and common goals by aligning
the interests of individuals, companies and society. Accountability of the board
of directors and the management to shareholders, transparency in working and
disclosures, fairness in dealings and integrity are the main pillars of good
governance. Both voluntary and statutory mechanisms have been created to

SM Module 4 40
 ensure good governance in India. The Companies Act 2013; the Securities
Contract (Regulations) Act 1956, the Securities and Exchange Board of India
Act 1992 are the main statutory regulations. Clause 49 of the listing agreement
states the corporate governance practices which all listed companies must
follow,
Organisational mechanisms which help to ensure good governance are as
follows:
(a) an independent and effective board of directors;
(b) commitment to a code of governance;
(c) sound internal control system;
(d) transparency through disclosure of information concerning the
company's financial and operational performance;
(e) proper risk management procedures;
(f) a sound whistleblower policy;
(e) fair exclusive compensaton policy
(h) an effective external audit system.

Role of Corporate Governance in Strategic Management

1. Corporate Governance and Strategic Intent: The strategic intent of an
organisation comprises its vision, mission, business definition, business
model and objectives. The vision and mission must reflect the aspirations
and intentions of all the stakeholders and not only those of shareholders.
There must be a consensus amongst the stakeholders on the business
definition, business model and objectives of the company. Various
mechanisms of corporate governance help the stakeholders in arriving at
such a consensus. Thus, corporate governance plays an important role in
each element of strategic intent.

2. Corporate Governance and Strategy Formulation: Top management must

keep in mind the interests and goals of different stakeholders in making the
strategic choice. Some strategies help in achieving high returns for
shareholders. Other strategies are chosen to ensure long-term growth,
corporate image and decision-making authority of managers. Both-long

SM Module 4 41
 term and short-term goals must be kept in mind while formulating corporate
level and business level strategies.

3. Corporate Governance and Strategy Implementation: The success of an

organisation depends as much on effective implementation of strategy as
on strategy formulation. Strategy implementation is the job of managers.
Shareholders and board of directors usually do not intervene in the job.
Corporate governance mechanisms help to ensure that-managers do not
deviate from the company's strategic intent while implementing the
strategies.

4. Corporate Governance and Strategy Evaluation: Board of directors and

shareholders play a major role in strategic evaluation and control. They
have to ensure that the corporate objectives are achieved. Board of
directors sets up operational and strategic controls to monitor and evaluate
performance. Corporate disclosures and other mechanisms of corporate
governance enable the shareholders to judge whether the company is on
the right track.

Values And Business Ethics

Values are convictions of what an individual or group considers desirable. An
individual imbibes personal values from parents, teachers, elders, etc. These
values are adapted and refined as the individual gains new knowledge and
experience. The values of an organisation åre developed by its founder and
chief executive. For example, the values of the Tata group have been derived
from the ideals of J. N. Tata, the founder of the group.
Honesty, transparency, reliability, trustworthiness and fairness are the core
values of the Tata Group. The core values or moral principles constitute the
ideology of an organisation. The values and beliefs give a common sense of
purpose across all Tata companies. They define the spirit of the group. Core
ideology consisting of enduring tenets is not compromised for financial gain or
short term results. The group does not change its values and beliefs as these
bind, guide and govern its business.
Business ethics refers to the values and beliefs as applied to business
activities. It is a set of moral principles about desirable conduct in business.

SM Module 4 42
 Role of Values and Ethics in Strategic Management
Personal values and business ethics play a vital role in strategic management
process. These

(i) shape the corporate culture of the organisation;

(ii) govern the way politics and power are used in the organisation;
(iii) determine the way in which members of the organisation perceive
situations and problems;
(iv) influence organisational values and the means used to achieve these
goals;
(v) affect the degree to which change is accepted/resisted;
(vi) affect the degree of risk taken; etc.
Values of organisational members particularly those of strategists, exercise
major impact on strategy formulation and implementation. For example, a
service-minded chief executive may lead the organisation to focus on
delighting customers. Similarly, a owner-manager with a benign attitude
towards labour may offer welfare facilities beyond what labour laws require.
Sometimes, strategists face an ethical dilemma when they are under
tremendous pressure to compromise with their values to meet the situational
needs. Their personal values and performance often affect formulation and
implementation of strategies. Strategists are custodians of considerable
economic power and wealth. They determine by their decisions and actions
the destinies of corporations. Therefore, strategists must inculcate high
moral values and beliefs and apply them in strategic decision-making For
example, some strategists may prefer cost minimisation through mass
production whereas others may give priority to product differentiation and
quality. Divergent values of strategists in the same organisation can be a
source of conflict in strategy formulation and implementation.
Problems arise in strategy implementation when there is divergence of
values of the organisation and those of its managers. In such a situation, it
becomes necessary to modify the values of individuals to match the
organisation's core values. Strategists should develop a code of conduct
(do's and dont's) to guide executives in strategy implementation. The
strategists can reconcile personal values, business ethics and corporate
strategy by modifying personal values, matching divergent values and
inculcating the right set of values.

SM Module 4 43
 Economic liberalisation and globalization have created pressure on business
enterprises to be more value driven. Global firms are strengthening their
systems and processes to detect and prevent frauds. But unethical
practices continue to occur in global giants such as Ranbaxy Laboratories,
Adidas, etc.
Business ethics can be a source of competitive advantage. Ethical
organisations outperform those considered unethical. Companies which are
perceived ethical are in a better position to:

Attract global investment;

Attract and retain talent;

Corporate Social Responsibility (Csr)

(Corporate social responsibility means a corporation's obligations to keep
social interest n mind while taking decisions and actions.

Business firms and business leaders all over the world are showing increasing
concern for social problems and issues. Business organisations function within
society and social issues exercise an impact on their operations and
performance. At the same time the decisions and actions of the business
organisation have far reaching impact on different sections of society. Some of
factors which have led to growing concern for corporate social responsibility in
India are as follows:
(i) The well-established tradition of charity and philanthropy in family owned
business houses in India.
(ii) Market pressures on Indian companies to adhere to global standards and
practices of CSR.
(iii) Pressures from non-government organisations (NGOs) and civil society
groups.
(iv) Wide ranging regulations concerning consumers, workers and weaker
sections of society.
(v) The urge to improve corporate image and develop cordial relationships
with shareholders, employees, customers and local community.
(vi) Strong tradition of religious benevolence.

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 In India, public health and eduction, poverty alleviation, rural development,
community welfare and environmental pollution are the major areas of CSR.
Major CSR initiatives in a company are primarily the responsibility of its top
management consisting of board of directors and chief executive officer. They
decide what social activities the company should undertake, how much to do
and how to incorporate social interest in the decision-making process.
A company can operationalise social responsibility through the following
measures:

1. Top Management Commitment: An organisation can incorporate CSR into

its strategic decision-making with commitment of its top management. In
leading organisations formal mechanisms such as a CSR committee, CSR
manager, etc. have been created by top management.

2. Policy Formulation for CSR: An organisation functions on the basis of a set

of -established values, precedents, policies and programmes. CSR policies
can be formulated at the corporate level as well as at functional level.
Corporate level policy lays down guidelines concerning what and how
much social programmes, the organisation will undertake. In functional
areas, a company may, for example, decide that its advertising will be fully
ethical or its product will be safe and healthy for users.

3. Institutionalising CSR: In order to implement its CSR policies, CSR is

injected into the decision-making process. Managers at all levels are asked
to incorporate social considerations in their decisions and actions.

4. Monitoring Social Performance: The performance of managers is

evaluated in terms of both economic results and social achievements.
Rewards are decided accordingly. Several companies in India (e.g. Tata
Steel, ITC, Infosys, Dr. Reddy's Laboratories have adopted the systems of
social audit and social support Social audit is a systematic assessment of
and reporting the social impact of an organisation's activities.
Corporate social responsibility initiatives undertaken by companies reveal
their values and should ideally be part of the employee value proposition.
Managers today should look at employee engagement in CSR as a
"strategic imperative." They should understand that a company's CSR
involvement constitutes a legitimate, compelling and increasingly important
way not just to attract business but also to draw and retain good
employees.

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 A recent survey conducted by Shine. com reveals that the young Indian
workforce prefers working for organisations that exhibit good corporate
citizenship. The survey reveals that the core value of a company can be a
part of the "employee value proposition".

Role of CSR in Strategic Management

Leading organisations treat CSR as a strategic issue rather than an ad hoc or
once-in-a-while charity or just legal compliance. They have incorporated CSR
in their strategic management process.

(i) CSR and Strategic Intent: While deciding its vision, mission, business
definition, business model and objectives, an organisation must incorporate the
social viewpoint. Its strategic intent must reflect its concerns for the society.
The role of the organisation in society must be clear from its vision and mission
statements. Its objectives must indicate both economic and social goals.
(ii) CSR and SWOT Analysis: The strategists can identify the social problems
and issues that need attention through appraisal of social environment.
Organisational appraisal will indicate the organisation's capabilities for tackling
social problems. Environmental appraisal reveals what the company might do.
Organisational appraisal shows what it can do. CSR indicates what it ought to
do.
According to the new Companies Act, from April 1, every company with a net
worth of at least 500 crore, or annual revenues of above₹ 1,000 crore or a net
profit of more than 5 crore will have to spend at least 2% of its average net
profits for the past three years on corporate social responsibility (CSR)
activities.

Result: an additional 22,000 crore will flow into sectors such as education,
healthcare, women and child welfare, etc, and companies and non-government
organisations (NGOs) will need qualified people at all levels to manage the
much larger social sector projects that this humongous sum will generate.
"This spending will also have a multiplier effect and generate many indirect jobs
as well but we don't have any estimate on numbers or sectors," said Parul Soni
executive director and practice leader, development advisory services, EY,
which has done extensive studies on the subject.

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 (iii) CSR and Strategic Choice: Corporate and business strategies must be
chosen to address not only economic issues but social issues too. CSR must be
considered in strategy formulation.
(iv) CSR and Strategy Implementation: Social considerations need to be kept in
mind while allocating resources and assigning duties and responsibility. In
order to discharge CSR, an organisation might need to develop policies and
procedures. Mechanisms are needed for formulation and implementation of
social projects. Strategists have to set an example in promoting social
responsiveness.
Thus, CSR needs to be aligned with each and every phase of strategic
management process.

Organisational Politics And Power

An organisation consists of individuals and groups. Members of the
organisation have their opinions, prejudices, preferences and expectations.
Therefore, politics and power are inevitable features of organisations.
Power means the ability to influence others. Managers derive their power from
their ability to rewards the ability, their official positions, their expertise, and
their charisma. They compete for few top positions which results in jockeying
for power. Struggle for material towards, promotions, prestige, etc. leads to
politics in organisations.

Corporate level and business level strategies are implemented through

functional strategies. On the basis of functional strategies, functional policies
and plans are formulated in different areas such as finance, marketing,
production, human resources, etc.

Functional Strategies
Functional strategies are designed to achieve objectives in different functional
areas. They are concerned with the following:

(i) allocation of resources among different operations within a specific

functional area;
(ii) effective utilisation of resources allocated to various functional areas; and

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 iii) integration of activities in each functional area) (e.g. market research,
promotion, sales, distribution, etc. within the marketing area).
Functional strategies are derived from business strategies (in case of a
multibusiness firm) or corporate strategies (in case of a single business firm).
For example, ITC is a multibusiness company operating in tobacco products,
hotels and hospitality, paper and paperboards, food and beverages, readymade
garments, etc. Suppose, ITC adopts the cost leadership business strategy for
its foods and beverages business. All the functional areas in that business
(marketing. finance, operations, human resources, etc.) must contribute to cost
reduction and low cost structure. Similarly, if differentiation business strategy is
adopted in paper and paperboards business, then all functional areas should
contribute to differentiation in terms of quality and innovation.

Strategic implementation requires that strategies at functional, business and

corporate levels are properly aligned. Such alignment or congruence is known
as vertical fit. Similar alignment or congruence is needed among different
functional strategies. Such alignment or congruence is called horizontal fit)
Vertical and horizontal fits provide the benefit of synergy which means the
whole is greater then the sum of its parts (i.e. two plus two make five). In other
words, alignment among strategies at the three levels helps to achieve
organisational effectiveness.

Table 12.1. Difference Between Functional and Business Strategies.

Category Functional Strategy Business Strategy

Business strategies focus on

Functional strategies focus on the firm’s long-term
Time Horizon
short-term goals (one year). competitive posture (3 to 5
years).

Functional strategies provide more

Nature of Business strategies provide
specific direction to functional
Direction general direction.
managers.

Functional strategy is the Business strategy is the

Level of
responsibility of the operating responsibility of the head of the
Management
managers of the functional area. business unit.

Approval Functional strategies are approved Business strategies are

through negotiation between approved through negotiation

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 business unit managers and between corporate managers
operating managers of the and business unit managers.
functional area.

To help implementation of business To help implementation of

Purpose
strategies. corporate strategies.

Functional strategies are implemented through functional policies and plans.

When the policies and plans in different functional areas are put into operation,
they bring results leading to execution of business strategies and corporate
strategies.

Functional Policies And Plans

Effective implementation of strategies is essential for the success of strategic
management. Proper strategy implementation requires sound functional
policies and plans. The number of functional areas in which policies and plans
are prepared depends on the nature and size of the organisation. In a small
organisation, only a few functional policies and plans are needed. But in a large
organisation, a large number of functional policies and plans are prepared.
A functional policy is a broad guideline indicating the criteria that a functional
manager should use in making decisions in his functional area. A functional
plan is a list of activities. to be performed during the plan period. Functional
policies and plans are prepared by various functional heads within the
framework of guidelines provided by higher authorities. These guidelines are
developed to ensure that functional policies and plans are in tune with business
and corporate strategies) Functional policies and plans help strategy
implementation in the following ways:
(i) Top management can ensure that strategic decisions are implemented by all
parts of the organisation.
(ii) Functional policies and plans specify how things are to be done and limit
direction for managerial action. Therefore, functional managers can make
decisions more quickly.
(iii) Functional managers can handle similar situations in different functional
areas in a consistent manner.
(iv) Coordination among different functions is ensured.
(v) Functional policies and plans serve as the bases for controlling activities in
different functional areas.

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 Functional policies and plans can be judged on the basis of the following
criteria:

(a) Functional policies and plans should cover all the functional areas critical for
strategy implementation.
(b) These should be desired behaviour and practices.
(c) These should be clear and precise.
(d) These must be consistent with one another.

(e) These should be workable in existing and expected situations.

Financial Policies And Plans

Financial policies and plans are concerned with raising, usage and
management of funds for business operations. The three aspects are
interrelated and interdependent) For example, the company's ability to raise
funds will influence the amount of funds and their usage. Policies and plans are
formulated to ensure that strategies are implemented effectively.

1. Sources of Funds: Policies and plans concerning sources of funds

determine how and from where funds will be raised for strategy
implementation. Funds are needed for both long term and short term. There
are two broad sources of funds-equity and debt. Equity shares, preference
shares and retained earnings provide equity funds. Debentures and
borrowings are sources of debt. Policies and plans concerning sources of
funds relate to capital structure, procurement of funds, and relationships
with lenders.
Companies differ in their approach to sources of funds. Some of them
depend primarily on internal financing while others rely more on external
borrowings. In other words, debt equity ratios vary from one company to
another. Indian companies raised funds from Indian sources before 1991.
Since liberalization, many of them raise funds through American Depository
Receipts (ADRs), Global Depository Receipts (GDRs), Foreign institutional
Investors (FIIs), foreign private equity funds, foreign venture capitalists and
other foreign sources.
Companies take into account several factors while deciding their capital
mix. Purpose of financing, period of financing, cost of funds, financial
leverage, desire to retain control are such factors. Companies like

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 Hindustan Unilever, Bajaj Auto, EIH Limited depend mainly on internal
financing. On the other hand, Tata Group and Reliance Industries prefer
external funding for acquisitions and green field projects.

2. Usage of Funds: Judicious use of funds is essential for strategy

implementation. A company can allocate funds between fixed assets and
current assets depending on its needs. Investment in fixed assets (called
fixed capital) may be (a) to acquire new fixed assets for expansion and
growth, and (b) to replace the existing fixed assets. Investment in fixed
assets has long term implications because these assets generate benefits
over the long period. These benefits or returns must be more than the cost
of capital) In order to optimise investment in fixed assets, a company can
take the following steps:
(i) Choice of appropriate technology-The latest or fully automated
technology may involve huge investment resulting in high interest cost.
Cost minimisation as well as technical factors should be considered in
choosing technology.
(ii) Proper mix of various fixed assets Assets critical for project
implementation need be given priority over the supporting assets. For
example, township can be developed after the project starts generating
profits. During the execution of project houses for employees working on
the project can be taken on rent.
(iii) Efficient project implementation-Efficient project implementation helps
to reduce investment. Reliance Industries is known for implementing large
projects without time and cost overruns.
Investment in current assets is known as working capital. Volume of
operations, type of technology, manufacturing cycle, seasonal and cyclical
fluctuations, etc, are some of such factors. Some of the steps that can be
taken to minimise investment in working capital without affecting operations
are as follows:
(a) maintain inventory at proper level
(b) rationalise credit policy so as to match debtors and trade creditors
(c) keep cash and bank balance at right-levels by investing surplus funds)

3. Management of Funds: Sound funds management plays an important role

in strategy implementation through conservation and optimum utilisation of
funds. In the management of funds, policies and plans are developed for

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 accounting and budgeting credit and risk management, cost reduction and
control, tax planning, etc. Stringent cost control helps to improve a
company's financial health. Sound cash management is no longer merely
timely collection of receivables and disbursement of payment. Companies
now outsource cash management to banks to ensure more effective
management of cash flows and to earn higher interest. Risks arising from
technology and environment require more robust internal audit and control
systems

Management of earnings is a critical decision. Dividend policy decision involves

allocation of earnings between dividend distribution and reinvestment in
business. Company's future needs for funds, expectations of shareholders,
legal constraints, etc. influence dividend policy. Some companies reinvest a
major portion of their earnings while others distribute most of the earnings in
the form of dividends. Firms pursuing expansion/growth strategies are likely to
prefer reinvestment of earnings.
Sometimes, the priorities of top management may be in conflict with those of
shareholders and lenders. Strategists must resolve this conflict and develop a
consensus on financial policies and plans.

Table 12.2: Differing Priorities of Management and Shareholders and the

Probable Areas of Conflict

Financial Policy Management Shareholder’s Probable Area of

Area Priorities Priorities Conflict

- Retained earnings - - Debt - Retained - Extent of use of

1. Sources of
Long-term debt - New earnings - New these resources in
funds
common stock common stock financing growth

- External as well as - Cut-off rate of

internal investment acceptable
2. Usage of
- Internal rate of return opportunity rates, investment
funds
on the basis of past including competing opportunities and
(investment
performance business amounts committed
proposals)
organizations of to perpetuate
comparable risk existing investment

3. Management - Measuring financial - Anticipated - Ranking of

of funds performance based on changes in share investment
anticipated changes in values as measured alternatives,
specific cash flows in by trends in earnings depreciation policy,

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 the foreseeable future per share and stock options,
(amount, certainty, and dividends - acquisition,
timing) - Acceptable Acceptable risk mergers, etc. -
risk based on based on a portfolio Diversification of
preserving the of investments over products and
individual corporate several companies markets; debt-
entity and equity proportions
management goals

Marketing Policies And Plans.

Companies are increasingly recognising that the key to success lies in
satisfying needs and wants of customers more efficiently and effectively than
competitors. In the area of marketing, policies and plans are formulated and
implemented with respect to four major elements product, pricing, distribution,
promotion.

1. Product Decisions: Product refers to the goods and services that a firm
offers to its target markets. The organisation may offer a single product or
several products. A group of closely related products is known as a product
line. For example, textiles is a product line consisting of suitings, shirtings,
sarees, dress materials, suits, etc. All the products offered by an
organisation is called product mix. For example, Hindustan Unilever offers
personal care products, soaps and detergents, foods and beverages, etc.
The major policy decisions about products are as follows:
(a) Product Mix: The business definition determines the product mix.
Product mix decision has two aspects: (i) the number of product lines called
breadth of product mix, and (ii) total number of products in product line
known as length of product mix While deciding the product mix, an
organisation seeks three objectives-stability in sales volume, increasing
sales growth, and improving profitability over time. A firm may delete
unprofitable products and add new products in its product mix.
(b) Product Features: An organisation's strategy determines product
characteristics. New and better features like size, shape colour, taste, smell,
etc. may be added under competitive strategy. Product innovations and
customization have become necessary due to global competition. In order
to achieve growth, quality and variety are stressed, For example, the
product policy of Reliance Industries is to offer high fashion fabrics of new
varieties and design.

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 (c) Product Positioning Every organisation attempts to offer its
product/service in such a manner that customers perceive it to be different
from competitive products. Product differentiation may be achieved through
product features (performance, durability, reliability, style, design, etc,) and
services offered with the product (delivery, installation, warranty, credit,
customer training, etc.)
(d) Branding Attaching a brand name to a product helps customers to
identify it and differentiate it from rival products. Policy decisions are made
regarding the type of brand and brand extension. An organisation may use
family brand or individual brand. For example, products offered by the Tata
Group carry the prefix "Tata'. On the other hand, Hindustan Unilever uses
individual branding e.g. Lux, Lifebuoy, Pears, Annapurna, etc. It also has the
policy of brand extension, e.g. Lifebuoy, Lifebuoy Plus Lifebuoy Gold, etc.
(e) Packaging In the area of packaging, policy decisions specify the types
of packaging materials, level of packaging, etc. Packaging materials
depend on the nature and types of product, cost of materials, etc.
Packaging may be done at three levels -primary (e.g. tube of Colgate tooth
paste), secondary (e.g. a carton of one dozen tubes) and shipping (e.g. a
box of ten cartons).

2. Pricing: Price means the money that customers pay in exchange for goods
and services. Price is important both for the seller and the buyer. For a
buyer price is the value assigned to need satisfaction. For the seller, price
determines the return on efforts. Therefore, the price should be beneficial
to both. Several factors such as cost of production, competitor's price,
Government regulations, etc. influence price of a product or service.
Companies use price as a competitive tool. For example, Nirma could
compete with Hindustan Unilever due to its low price policy. Tata Motors
launched their small car Nano with a basic price tag of 1 lac. Budget Airlines
such as Go Air, Spice Jet captured the market through low airfares. Budget
hotels and telecommunications firms use low price to gain competitive
advantage.
Price is also used to segment the market. For example, Hindustan Unilever
sells low priced soaps (e.g. Lifebuoys) and high-priced soaps (e.g. Dove,
Pears).

3. Distribution: Policies and Plans concerning distribution involve decisions

such as channels to be used, transportation, inventory management,

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 customer order processing. etc. A product may be distributed directly to
consumers or indirectly through middlemen. Internet, company owned retail
stores (e.g. Bata), door-to-door selling, mail order selling, vending
machines are forms of direct marketing. Agents, wholesalers and retailers
are employed in case of indirect marketing. Per unit cost of distribution,
control over distribution and flexibility are the main criteria used to evaluate
alternative channels of distribution. While selecting the most suitable
channel characteristics of the product, the market, the company, etc. are
kept in view. An efficient and effective distribution system is essential for
the success of marketing strategies in a competitive environment
Companies are paying increasing attention to supply-chain management
and customer-relationship management to gain a competitive advantage.
Firms such as ITC, Hindustan Unilever, Dabur, Amul have an advantage due
to their countrywide distribution network. In courier service, airlines,
railways, etc. logistics is highly important. For example, Blue Dart pays
special attention to logistics infrastructure to ensure timely and safe
delivery. As a result, it has become South Asia's largest integrated air
express and package distribution company. Pizza Hut has gained through
its '30 minutes delivery' promise.
Havells' company's lighting fixtures, cables, and switchgears are sold
through 4,000 distributors and 100,000 outlets. Its consumer appliances are
available through 2,000 retail outlets, and its plan is to increase distribution
by 10-12% each year.
Havells also plans to open more of its own 'Galaxy' branded franchisee
retail stores. "By the end of March, we will have 250 outlets. We typically
open 50-60 stores each year, but the plan is to open at least 75 stores in
2014-15. We hope to have 400 stores in two years."
ITC plans to shake up distribution of fast-moving consumer goods by rolling
out its entire range of packaged food and personal care products through
lakhs of paan shops across India, taking advantage of relationships it has
built up with pannwalahs over the years through the cigarette business.
The strategy is in sharp contrast with that of rivals, which mostly sell
confectionery, snacks and at best sachets of shampoos and detergent
through panan shops. ITC, on the other hand, even plans to sell its premium
cookies and cream biscuits through them. It will offer Sunfeast biscuits,
Yippee instant noodles, Vivel soaps, Mangaldeep agarbattis Dark Fantasy
Choco Fills and Choco Meltz biscuits, Delishus cookies and Engage

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 deodorants through these outlets, known to the trade as the paan-plus
channel.

4. Promotion: Promotion consists of activities designed to inform and

persuade customers, to buy product/services. Policies and plans relating to
issues - promotion mix, and promotion budget. promotion involve two basic
(a) Promotion Mix: Advertising, personal selling, sales promotion and
publicity are the main elements of promotion mix. The relative mix of these
elements differ among companies and over time. The nature of
product/industry is major determinant of promotion mix. Fast moving
consume Goods (FMCG) firms are the biggest advertisers on television,
radio and other, media. In order to market brand India' as a tourist
destination, Government of India launched a promotional campaign at the
world Economic Forum (Davos), World Travel Market (London), print and
electronic media.

For example, Eureka Forbes uses door-to-door selling and demonstrations at

exhibitions as sales promotion tools. LG Electronics adopted the unique selling
proposition of health to promote its consumer durable brands through the
slogan 'Life is Good'.
There is growing need to harmonise and integrate marketing policies and plans
relating to product, price, distribution and promotion due to environmental
changes. Increasing competition by both existing and new players, declining
profit margins, global quality standards, rising aspirations of customers are
some of the major changes in environment. Decisions about any of the four
elements of marketing mix must be taken keeping in mind their impact on the
other elements.

Production/operations Policies And Plans

Production or operations function is concerned with the transformation of
inputs into outputs. Materials, equipment, information and talent are main
inputs, which are converted into goods and services. The main objectives are
to produce the required quantity and quality at the right time and at the lowest
possible cost. Policies and plans are formulated with respect to production
system, operations planning and control, research and development and
modernisation,

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 1. Production System: The production system involves decisions relating to
location, layout, capacity, work system, degree of automation,
product/service design, degree of vertical integration, etc. These decisions
are critical because they have long-term impact on the organisation's ability
to implement strategies. For example, Reliance Industries achieved
remarkable expansion through vertical integration. Production system is
equally important for service organisations For example, Make my Trip.
com. customises its holiday packages to meet the unique needs and wants
of its clients.
A major decision in designing and developing the production system is the
make or buy decision. The major considerations involved in this decision
are as under:
(a) cost of making vs. cost of buying
(b) how critical the item is for the organisation
(c) need to ensure regular supply
(d) organisation's financial and managerial capabilities
(e) government policy e.g. reservation of some items for production in the
small scale sector.
For those items which are to be bought, the organisation has to decide the
criteria for selection of vendors and the number of vendors. Maruti Suzuki
could achieve cost and quality advantages due to its vendor development
policy.

2. Operations Planning and Control: The twin objectives of operations

planning and control are optimum utilisation of resources and efficient
management of day-to-day operations. Aggregate production planning,
materials supply, cost and quality of output, inventory management, repair
and maintenance of plant and machinery are the key issues in operations
planning and control. Ancilarisation, focussed differentiation, high quality
are some of the policies which companies use to achieve competitive
advantage in operations management.

3. Research and Development (R & D): Activities undertaken to introduce new

products, to improve existing products, to absorb new technology, etc. are
the domain of R & D. Policy decisions in the area of R & D relate to R & D
spending, and type of R & D activities. The resources allocation for R & D
depends on nature of the organisation, type of R & D activities to be taken,

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 nature of industry, etc. Firms operating in pharma and such other industries
where rapid changes in product are necessary spend more on, R & D. For
example, Ranbaxy Laboratories spends about five per cent of its revenues
on R & D while Tata Steel spends about 0.5 per cent on R & D. Similarly,
fundamental research requires more funds than applied research. Firms
which get technology from their parent companies abroad can afford to
spend less on R & D. For example, Hindustan Unilever regularly gets new
technology from its parent company Unilever.
Foreign multinationals are increasing setting up their R & D facilities in India
due to low cost engineering and technical skills. Several companies have
used R & D as a source of competitive advantage. R & D helps in the
implementation of product development and diversification strategies.
Firms which do not have their R & D centres collaborate with research
agencies.

4. Modernisation: The modernisation strategy involves upgradation of plant

and machinery so as to reduce cost per unit and to improve product quality.
The organisation gains a competitive advantage by serving customers
better. Tata Steel became the lowest cost steel producer using its
modernisation programme.

Human Resource Policies And Plans

It is the people who formulate and implement strategies. In the post-
liberalisation era human resource management has undergone significant
changes. Companies are now aligning their human resource policies and plans
with their corporate and business strategies. They are outsourcing operational
or administrative tasks in human resource management so as to focus on
strategic aspects For example, Hindustan Unilever outsources routine human
resource functions form Accenture. Involvement of top management in HR,
setting up training and development centres, alignment of performance
appraisal systems with business goals, etc. are some of the initiatives
companies have undertaken in the area of human resource management
Human resource policies and plans are needed is respect of procurement,
development, appraisal, rewards and industrial relations.

1. Procurement: Manpower planning, recruitment and selection are the main

activities involved in procurement of the right talent. Job-person fit is
essential for efficient working and successful strategy implementation.

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 Firms use multiple sources and techniques to match the new hires with their
corporate culture

2. Development: Rapid changes in technology and increasing complexity of

jobs require continuous training and development of people. Therefore,
companies use both inhouse and outside facilities to train their staff.
Hindustan Unilever has built up strategic competence through its
management development system.

3. Appraisal:Performance evaluation systems have become more transparent.

The focus is now more on grooming people for higher responsibilities.
Continuous monitoring is replacing the traditional once-a-year appraisal.
There is a closer link between performance and rewards.
Hindustan Unilever, for the third year in a row, is the most preferred
employer across all sectors for the 2014 graduating batch of B-school
students, according to the Campus Track Business School survey 2013,
conducted by Nielsen. The FMCG major also retained the 'Dream Employer'
status for the fifth consecutive year and continued to be the top company
considered for application by B-school students.
"The experience of leading large teams, taking independent decisions early
in career, job rotations and diversity of experiences, including international
assignment, provide the best foundation for the brightest mind to be
groomed for leadership".

4. Retention: Retaining talent has emerged as a major challenge owing to high

attrition rates specially in information technology sector HCL Technologies
adopted the 'employee first' policy to engage and retain high quality
employees.

5. Industrial Relations: Policies and plans concerning industrial relations are

developed to secure mutual understanding and cooperation between
management and worker, to avoid industrial conflicts, to increase
productivity and to overcome resistance to change. Companies use several
mechanisms such as grievance redressal system, suggestion scheme, joint
consultation, worker participation in management, collective bargaining,
open door policy, etc. to develop and maintain cordial relations with
workers and their unions, Economic liberalisation and globalisation have led
to a paradigm shift in approach to industrial relations. Improvement in
working conditions, better pay scales, involvement of families in company
programmes, better training and career advancement opportunities,

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 medical and other welfare facilities are some of the features of industrial
relations system. The number and frequency of strikes and lockouts have
significantly declined due to 'Firm and fair' approach of employers.
Looking to "regain" its bellwether status amidst efforts to instill confidence
among its workforce, software services major Infosys is reaching out to its
US-based employees as it seeks to actively involve them in developing the
company's business strategy and shape up its "collective thinking".

Integration Of Functional Policies And Plans

Various functional policies and plans described above are inter related and
interdependent. Therefore, their proper integration is necessary for effective
implementation of business and corporate strategies. According to Glucck, the
main considerations that should be kept in mind in the integration of functional
policies and plans are as follows:

1. Internal Consistency: Various functional policies and plans must be

internally consistent so that they operate in the same direction. Otherwise
these may work at cross-purposes leading to sub-optimisation in strategy
implementation. For example, rapid expansion strategy requires increase in
plant capacity which in turn needs considerable funds, aggressive
marketing and availability of qualified employees.

2. Relevance to Development of Organisational Capability: Integration of

functional policies and plans should focus on developing organisational
capabilities needed for strategy implementation. Synergistic effects occur
across functional areas and core competence emerges as a result of
deploying resources in the areas wherein the organisation wants to build up
strategic advantages. For example, a company which wishes to become a
market leader would have to offer best quality products at competitive
prices through an efficient distribution network supported by aggressive
promotion policy. Policies and plans in other functional areas must
supplement these marketing policies. Liberal approach to sources, usage
and management of funds will be necessary to build high-volume and low-
cost production capacity. Human resource policies will have to focus on
attraction, retention and motivation of employees so as to ensure high
productivity.

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 3. Making Trade-off Decisions: During the integration of functional policies
and plans, an organisation has to make trade-off decisions due to the
inherent nature of the functional areas For example, production-orientation
may require large-volume production with less product variety. On the other
hand, marketing-orientation involves low volume and more product variety.
In order to gain something the organisation has to lose something In such a
situation, the organisation should ensure that what it gains is more than
what it has to sacrifice.

4. Intensity of Linkages: While deciding the degree of coordination between

different functional areas, the intensity of linkages existing between these
areas must be considered. For example, the product differentiation strategy
requires close contact between R & D, product development and production
functions, Similarly, a strategy based on low cost, mass consumption items
needs a high degree of coordination between production and marketing
functions. The intensity of linkages is not constant but varies with changes
in strategy from time to time.

5. Timing of implementation: Policies and plans in different functional areas

should be implemented at the appropriate time so that they reinforce one
another For example, a company facing shortage of funds would have to
postpone costly R & D activities. Likewise, a company entering into high-
tech sector will have to ensure availability of well-trained engineers and
technicians.

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