L. G Hrebiniak (2006), ‘Obstacles to Strategy Implementation,’ Organizational Dynamics, 35, no.1:12-31. Tandon A (2010); Business Policy and Strategic Management; Anmol Publications Pvt.Ltd. Rao Subba P(2014);Business Policy and Strategic Management: Text and Cases; Himalaya Publication House , New Delhi. Reference Books Bonardi, J.P. (2004). Global and political strategies in deregulated industries: The asymmetric behaviours of former monopolies. Strategic Management Journal, 25: 101-120. Brockman, P., Rui, O. M., & Zou, H. (2013). Institutions and the performance of politically connected M&As. Journal of International Business Studies, 44: 833-852. Ahlstrom, D. (2010). Innovation and growth: How business contributes to society. Academy of Management Perspectives, 24(3): 10-23. Allen, L., &Pantzalis, C. (1996). Valuation of the operating flexibility of multinational corporations. Journal of International Business Studies, 27: 633-653. Websites https://www.businessmanagementideas.com/strategic-management/ https://www.investopedia.com/ https://www.valuebasedmanagement.net/ 200 CU IDOL SELF LEARNING MATERIAL (SLM)
UNIT 9: BEHAVIOURAL ISSUES IN IMPLEMENTATION Structure Learning Objectives Introduction Managing Resistance to Change McKinsey’s 7s Framework Strategy Supportive Culture Corporate Ethics and Social Responsibility Code of Business Ethics Ethics Culture Social Policy Summary Keywords Learning Activity Unit End Questions References LEARNING OBJECTIVES After studying this unit, the student will be able to: Explain managing resistance to change. Describe Mckinsey’s 7s framework. Illustrate corporate ethics and social responsibility. INTRODUCTION It is crucial to remember that any organizational change is not a process that is just involved with the elegant and ever-more complex organizational structures. It is more about its humane side, that is, changing people’s behaviour, attitude and feelings. The key component 201 CU IDOL SELF LEARNING MATERIAL (SLM)
is the behaviour of employees that influences the success of any organization. Any strategic policy implementation requires the support, discipline, and motivation from all employees including the manager. Influence Tactics: An organizational leader has to successfully implement strategies and aim to achieve the desired objectives. . To achieve the objectives, the leader has to thus alter the behaviour of their superiors, peers, and subordinates. To do so, they must first develop the future vision, communicate it and also motivate the organizational members towards its achievement. Power: A person can influence others’ behaviour. Leaders often have to use their power in influencing others in an organization to implement strategies. Formal authority is a power that comes with the leaders’ position in the overall organization. However, they cannot use this power to influence outsiders like customers and government officials. In such cases, the leaders have to use something that is more than that of a formal authority. For example, their expertise, their charisma, power of rewards, power of information, legitimate power, or sometimes even coercive power. Empowerment is a way of influencing behaviour : Sometimes, the top executives empower their lower-level employees through training g, self-managed workgroups , and aggressive use of automation. Political implications of Power: Organizational politics are those activities that some people use to acquire or enhance power and other resources so as to achieve desired outcomes in an organizational setting that is characterized by several uncertainties. All organizations must attempt to manage such political behaviours Leadership style and Culture change : An organization’s Culture is defined to be a set of values, beliefs, and behaviours that helps its members to understand what it stands for, how it does things, and what it considers important. An organization’s culture should be appropriate and be in support of it. Further, the culture should have some values in it. To change a corporate culture, people often have to be persuaded to abandon several of their existing values and beliefs, the behaviours that result from them, and instead, adopt new ones. In this process, the first difficulty is to identify the existing cultures’ principal characteristics. Several consultants have developed standard and properly validated questionnaires to measure characteristics of the corporate culture. Such questionnaires can help in understanding and gaining an insight into the existing corporate culture. These questionnaires also offer the benefit of being able to compare the corporate culture with those of other organizations that have used the same instrument. However, the disadvantage is that the information obtained tends to be superficial and less rich than the material from other sources like interviews, group discussions and, through the study of a company’s history. While 202 CU IDOL SELF LEARNING MATERIAL (SLM)
carrying out this exercise, these methods can be supported by employee surveys, and customer survey, suppliers surveys or the survey of the overall public. MANAGING RESISTANCE TO CHANGE It is typical to experience some resistance whenever there is change. By understanding that, one can anticipate resistance, recognize its sources and reasons, and adapt the efforts needed to manage the issues arising out and thus, overall, ensure the triumph of the change efforts. Any resistance to change is considered healthy. It is important not to react against it in a defensive manner. It is good because it makes one check their assumptions, and it needs them to clarify their actions. One must always review the objections raised to find the actual reason for the resistance. It is seen that many a time, it is only personal fear which is the root cause for the resistance. A leader must take time to appreciate the resistance and may have to look at it from different angles before it is conquered. One must try to comprehend the employees’ feelings and thinking. A few ways to reduce any resistance to the change process are: By involving the interested parties in change planning process and asking them for their suggestions and incorporating the suggested ideas. By clearly defining the need for change and communicating the strategic decision personally and in written form. By addressing the “people need” of those who are involved. Any disruption should be only to what is needed to be changed. People should be encouraged to retain friendships through comfortable settings and group norms, wherever it is possible. By Designing flexibility into the change process by phasing it in, if possible. That would permit people to complete their current efforts and assimilate new behaviours simultaneously. Employees should be allowed to redefine their roles during the change implementation process. By being open and honest. By not leaving any openings for people to come back to the status quo. If the organization is not ready to commit itself to the change wholly, then the strategy should not be announced till it is ready to do so. By continually focusing on the positive features of the change process. One should aim to be specific wherever one can. By delivering training programs that develop basic skills as against processes like conducting meetings, team building, communicating, improving self- esteem, and coaching. 203 CU IDOL SELF LEARNING MATERIAL (SLM)
Mckinsey’s 7s Framework ‘McKinsey 7s model’ is an instrument that analyses a firm’s organizational design by observing the 7 key-internal elements which are its strategy, its structure, its systems, its shared values, its style, its staff, and its skills. They are looked at to identify if they have been effectively aligned and thus allow the organization to achieve its objectives. This model was developed by McKinsey consultants named Tom Peters, Robert Waterman and Julien Philips with help of Richard Pascale and Anthony G Athos in the 1980s. Since its introduction, the model has been used widely by people from both the academics and the practical world. Itis one of the most popular strategic planning tools. It emphasizes human resources (Soft S), instead of the traditional mass production tangibles of capital like infrastructure and equipment. The aim of this model was to show how the 7 elements of a company which is Structure, Strategy, Skills, Staff, Style, Systems, and Shared values, can be aligned together to achieve maximum effectiveness. The key point of this model is that all these seven areas are interconnected between themselves and any change in one area will require change in the rest of the areas too. The McKinsey model, which represents the interconnection between the seven areas and also divides them into two categories of ‘Soft Ss’ and ‘Hard Ss’ is below. It can be seen that the shape of the model focusses on interconnectedness between the elements. Figure 9.1 : McKinsey 7s Model The McKinsey 7S model is applicable to several situations and can be considered as a valuable tool for organizational design. The framework is commonly used for: To facilitate change in an organization. 204 CU IDOL SELF LEARNING MATERIAL (SLM)
To implement new strategy. To identify how any area may change in the future. To facilitate merger of organizations. 7s Factors As seen above, in McKinsey model, the seven areas of any organization are divided into ‘soft’ and ‘hard’ areas. The ‘hard’ elements are Strategy, Structure and Systems and are much easier to identify and manage. The ‘soft’ areas, although harder to manage, are the foundation of an organization and are considered to create a more sustainable competitive advantage. A Strategy is a plan that is developed by an organization in an attempt to achieve sustainable competitive advantage to be able to successfully participate in the market. In the 7s McKinsey model, a sound strategy is one that is clearly articulated, is long-term, is reinforced by strong vision, mission and values and thus helps the organization to achieve competitive advantage. But it is difficult to judge if such a strategy is aligned with the other elements well if it is analysed alone. Hence, the important factor in the McKinsey7s model is that a great strategy should not be looked at alone, but to see if it is aligned with the other elements. For example, a short-term strategy may generally not be a good choice but if it is well aligned with the other 6 elements, then it can generate the desired results. Structure is the way the different business divisions and units in a company are organized. It also includes the information of the hierarchy of accountability or in simpler words, who is accountable to whom. Simply put, structure is an organizational chart and is one of the easiest and most visible way to change the framework. Systems represent the processes and procedures in an organization that reveals its business’ daily activities and how the decisions are made in the organization. Systems are the area that decides how any business is being done and thus should be the primary focus for all managers during any changes in the organization. Skills represent the abilities that the employees use to perform well. They also comprise of competences and capabilities. During any change, the question that most frequently rises is what skills will really be needed for an organization to reinforce its new strategy or structure. Staff deals with how many and what type of employees the organization will need and how will they be recruited, or trained, or rewarded and motivated. Style is the way an organization is managed by its top -level managers. It lays emphasis on their interaction, their actions and most importantly, their symbolic value. In short, it is about the organization leaders’ management style. 205 CU IDOL SELF LEARNING MATERIAL (SLM)
Shared Values are in the centre of the McKinsey 7s model. They represent the standards and norms that guide the employee behaviour and organizational actions and thus, are considered to be the very ‘foundation’ in every organization. Using the Tools As said earlier, the McKinsey 7s model is often used when the organizational design and its effectiveness are questioned. While it is easy to understand, it is much harder to apply due to a common misunderstanding of what should well-aligned elements in the model look like. The following steps can be used to apply this tool: Step 1. Identify the areas that are not aligned effectively In the first step, the aim is to look at all the 7S elements and identify whether they are aligned effectively with each other or not. Normally, before starting with this step one should already be aware of how the 7 elements are aligned in the company. After the questions outlined there have been answered, one should look for any gaps, inconsistencies or weaknesses between the relationships of these elements. For example, a strategy that depends on introduction of products quickly, has been designed but in the matrix structure, is in conflicting relationships, then it hinders the process. So, a change in either the strategy or the structure is required. Step 2. Determine the optimal organization design In the second step, with the aid from top management, one has to determine the effective organizational design to be achieved. By knowing the desired alignment, one can set goals and make the action plans. However, this step is not as easy as it appears. Identifying how the seven areas are aligned in the organization currently is difficult for several reasons. Firstly, one needs to find out the optimal alignment, that may or may not be known at the present moment. So, the process requires more than answering questions and collecting data. Secondly, there are no templates or predetermined organizational designs that one can use, and so one may have to research a lot or benchmark with other organizations to understand out how they coped or are coping with their respective organizational change or even what organizational designs they are using. Step 3. Decide what and where changes should be made Basically, this is the action plan. It will point out the areas one may want to realign and also how one would do that. If the firm’s structure or even its management style is not aligned with its values, one should then resolve how to reorganize its reporting relationships, or which top managers should either be let gone off or influenced to change their style of management so the firm could work better. 206 CU IDOL SELF LEARNING MATERIAL (SLM)
Step 4. Make the necessary changes Implementation is the most important part in any processd only a well-implemented change can exhibit positive results. Therefore, one should find people in the organization or hire external consultants who are most equipped to implement aforesaid changes. Step 5. Continuously review the 7s All the elements of the 7S model are dynamic in nature and constantly change. As elaborated in the model, any element change always has effects other elements and subsequently may require implementation of a new organizational design. As a result, each area should be continuously reviewed. STRATEGY SUPPORTIVE CULTURE Once a strategy is established, it is hard to make changes in it. Therefore, it is the strategy- maker’s responsibility to select a strategy compatible with the organization’s prevailing corporate culture. If that is not possible, then once a strategy is chosen, it is the responsibility of the strategy implementer to bring changes in the corporate culture that hinders effective execution of a chosen strategy. Changing A Problem Culture Changing a company’s culture to align it with strategy is one of the toughest management tasks. This is due to the deeply held values and habits are heavily anchored, and people cling emotionally to that which is older and familiar. It takes concerted management action over a period of time to root out certain unwanted behaviours and instil behaviours that are more strategy supportive. Changing culture requires competent leadership at the top. A great deal of power is often required to effect major cultural changes and to overcome any resistance from ingrained cultures. This great power is found normally at the top level. Changing a problem culture involves the following four steps: Step 1: Identifying facts of the present culture that are strategy – supportive and those that aren’t. Step 2: Clearly defining desired new behaviours and specifying key features of “new” culture Step 3: Talking openly about problems of the present culture, and how new behaviours will improve performance. Step 4: Following up with visible, aggressive actions to modify culture. Managing Culture Change 207 CU IDOL SELF LEARNING MATERIAL (SLM)
As already explained in earlier sections, any culture that an organization wishes to develop is conveyed through rites, rituals, myths, legends, actions and so on. Only with bold leadership and rigorous actions on many fronts , an organization can try to succeed in embarking upon a major change in its culture. Top leadership should play a key role in communicating the need for a cultural change and personally launching actions to prod the culture into better alignment with strategy. Changing culture requires both (a) Symbolic actions and (b) Substantive actions. They require serious commitment at the top management level. The following measures are helpful in building a strategy supportive culture: Emphasise key themes or dominant values: Leaders must emphasise dominant values through internal company communications. They must repeat at every opportunity the messages of why cultural change are advisable for the organization. Stories and legends: Leaders must tell stories, anecdotes and legends in support of basic beliefs. Organisational members must identify with them and be able to share those beliefs. Rewards: Visibly praising and generously rewarding people who display new cultural norms will slowly change the culture. Recruiting and hiring: New managers and employees need to be recruited who display the desired cultural values. Revising policies and procedures in ways that will benefit the new culture. Leading by example: If the organisation’s strategy involves low-cost leadership, senior management must display in their own actions and decisions, inexpensive decorations in the executive suites, conservative expense accounts and entertainment allowances, lean corporate allowances, few executive perks, and so forth. Ceremonial events: In ceremonial functions, companies must honour individuals and groups who exhibit cultural norms and reward those who achieve strategic milestones. Group gatherings: Top management must participate in employee training programmes etc. to stress strategic priorities, values, ethical principles and cultural norms. Every group gathering should be seen as an occasion to repeat and reinforce the organizational values, praise the good deeds of employees reemphasise the cultural norms and most importantly , encourage all changes that would assist in strategy implementation. Thus, best companies and best executives expertly use role models, symbols, , and ceremonial occasions to accomplish a strategy-culture fit. Managing Culture Clash 208 CU IDOL SELF LEARNING MATERIAL (SLM)
When merging or acquiring another company, top management must give some consideration to a potential clash of corporate cultures. Integrating cultures of the merging companies is a top challenge for most of the companies. It is dangerous to presume that the firms can simply be joined into the same reporting structures. The greater the gap between the cultures of the merging firms, the faster the executives in the acquired firm may quit their jobs, and thus, valuable talent is lost. Figure 9.2 : Methods of Managing Culture There are four methods of managing two different cultures in general, as listed below: i. Integration involves merging the two cultures in a manner that separate cultures of both firms are preserved in the resulting culture. ii. Assimilation: Here, the acquired firm willingly surrenders its culture and adopts the acquiring company’ culture. iii. Separation: Here, a separation of the merging companies’ cultures exists. They are structurally separated, without cultural exchange. iv. Deculturation: This involves imposition of the acquiring firm’s culture forcefully on the acquired firm. This often results in much confusion, conflict, resentment and stress. 209 CU IDOL SELF LEARNING MATERIAL (SLM)
CORPORATE ETHICS AND SOCIAL RESPONSIBILITY Code of Business Ethics Ethics is the branch of philosophy that is concerned with the meaning of all facets of human behaviour. Theoretical ethics or normative ethics is about demarcating the right from the wrong. It is extremely intellectual and, as a part of philosophy, is rational in nature. It is a reflection on what is right and what is wrong, what is just and what is unjust, what is good and what is bad, in terms of human behaviour. It helps in developing the rules and principles by which one judge’s others and helps in making meaningful decisions. Business ethics or Corporate ethics is a part of applied ethics or professional ethics. It examines the ethical and moral principles and problems that arise in a business environment. It is the written and unwritten codes of principles and values, that are determined by an organization’s culture, that further govern the decisions and actions within that organization. It applies to all parts of business conduct, on the part of both its individuals and the entire organization. Basically, business ethics is about knowing the difference between right and wrong and then choosing to do what is right. There are three parts to business ethics: personal which is on a micro level, professional which is on an intermediate level, and corporate which is on a macro level. All these three levels are intricately related with each other. It is helpful to differentiate between them because each of them rests on a somewhat different set of assumptions and thus require somewhat different focus so as to be understood. Ethics Culture Another characteristic of industry leaders in sustainability is a strong ethical culture that encourages just and honest practices. It refers to the degree of an organizations’ commitment to ethical responsibilities of corporate citizenship. It defines the appropriate behaviours of an organizations’ employees and suppliers. Often, ethics is not considered in corporate social responsibility discussions ; yet a culture that monitors and promotes ethical standards is the initial principle for responsible companies. Organization establishes an ethical culture through their business ethics programs that guide the employees, the suppliers, and the distributors to understand the expected conduct. The ethical culture is established through training and communications, advice and reporting mechanisms, and monitoring through auditing systems. Following questions help to identify key characteristics of ethical culture of industry leaders in sustainability: Does the organization have a comprehensive ethics code? Does it have a confidential procedure to report any misconduct? Is fairness towards the employees an integral part of the processes? Do the employees follow professional standards? 210 CU IDOL SELF LEARNING MATERIAL (SLM)
A comprehensive ethics code sets the standard on how a corporation handles its relationships with its employees, the customers, , its suppliers, the government, and the overall community. The strength of an ethics code depends on how much it is being encouraged and implemented by the top management. When executed by all the employees, it can significantly enhance the reputation of an organization while reducing risks. Large organizations are more likely to have a formal ethics code than small and medium-sized enterprises. A lack of an ethics code can put an organization at the risk of employee or supplier actions, which may result in criminal prosecution, harassment claims, product recalls, or toxic waste spills. Therefore, it is important that a formal statement of ethics code should include the environmental and social issues that may affect the business. Globally, businesses are creating an infrastructure for reporting any wrongdoings. This infrastructure could be in the form of ethics hotlines or ethics' officers, to comply with legislations like the Federal Sentencing Guidelines and Sarbanes-Oxley Act in the United States and similar legislations in Europe. Several studies have shown that employees respond in five ways when exposed to ethical misconduct in the workplace. These are inaction, confronting the wrongdoer(s), reporting to management, calling an internal hotline, and external whistleblowing. However, it is seen that many employees remain silent from fear of damaging relationships and thus lead others to view them in a negative light. In an organization, employees must have the confidence that they can freely voice their concerns or report if and when they witness any misconduct taking place. A strong pointer to gauge the ethical culture of an organization is the perception of the employees about workplace fairness. A stress on the fair treatment of an organization’s workers is essential to establish its responsiveness to social issues of human rights and diversity. Studies have shown that the ethical leadership of an immediate supervisor often demonstrates the degree of concern for others, fairness, and trustworthiness for employees that contribute to an environment that values ethical conduct. Ethical leadership reduces employee stress and affects job satisfaction of the employees. For example, a worker in a multinational company has said: \"I am thankful that I am at a company that I don't have to 'go there' (meaning compromise his/her ethics)—I'm fortunate enough that I don't have to make those decisions. It is something that the company is very proud of.\" Along with organizational ethics codes, employees of ethical companies also abide by the professional standards for their respective discipline, like accounting, marketing, finance, , or engineering. Unfortunately, in large organizations, this aspect is not significantly high. Companies that are operating in highly regulated industries, like financial services, health care, governmental contracting, value compliance with professional standards so as to maintain its market legitimacy. Organizations may also comply with voluntary standards and conduct codes to address legal, ethical, social responsibility, and environmental issues. . Over the past two decades, several 211 CU IDOL SELF LEARNING MATERIAL (SLM)
business associations, NGOs, and international government institutions have developed a body of global standards for responsible business. For example, a global network of business leaders who are committed to principled business leadership provide principles for responsible business. The ‘Caux Round Table’ believes that a business has a vital role in developing and promoting equitable solutions to key global issues. The International Organization for Standardization has an environmental management standard (ISO 1400) and social responsibility standard (ISO 26000), that assists companies to operate in an environmentally and socially responsible manner. The ‘Global Reporting Initiative’ provides applicable guidelines globally for reporting on economic, environmental, and social performance. Social Policy The role of social policy is related to economic, social and political. The search for coordination and coherence of policies should consider the fact that ideas on social policy and its role in development have changed over time. This presents difficulty to find a clarity on approaching social investment, equity and poverty alleviation. The result of implementing social policies have gone through deep changes in its design due to social inequalities and the consideration of the welfare of the individuals in society. A Social policy chiefly refers to the guidelines and the interventions required for changing, maintaining or creating living conditions that are favourable to human welfare. Social policy includes education, employment, health, food and housing, for all people. Although Social policy is a part of public policy, but public policy is more than that. Public policy comprises of economic policy, industrial policy, and also social policy. . A definitive answer to problems like poverty, inequality and supply is likely to remain elusive, and as such, it is imperative to sustain opportunities for discussion, experimentation, innovation and learning in social development. Finding the ways to preserve these conditions and encourage deeper appreciation for the contextual factors that shape development outcomes, can have significant contribution, despite new and counterintuitive forms of coherence and international cooperation. In brief, social policy is that part of public policy that deals with social issues. The Malcolm Wiener Centre for Social Policy at Harvard University describes it as \"public policy and practice in the areas of health care, human services, criminal justice, inequality, education, and labour.\" Rittel & Webber, 1973 said that Social policy often deals with issues which are called as ‘wicked problems’. Social Policy is also distinct in the academic field which focuses on the systematic evaluation of societies' responses to social need. For example, in Iran, some pioneer universities have specific university courses and studies on policy. Tarbiat Modarres University is as an example of a pioneer policy making university that has a good background on this aspect of studies. . Social Policy is the study of social services and the welfare state. In layman’s terms, it looks at the idea of social welfare, and its relationship to politics and society in overall. 212 CU IDOL SELF LEARNING MATERIAL (SLM)
The nature of policy issue is thus relevant not only to scientists and politics scholars, sociology scholars and public administration scholars but also for scholars and practitioners in institutions and organizations of different governments, businesses, NGOs and the society in general. While social policy and its impact has been debated couple of times, often critically, the evidence continues to gather that a better formulation, design and implementation of an adequate social policy has a positive impact on social development. Specifically, it also considers detailed issues in Policy and administration of social services, like policies for health, income, housing, , education, social work, and so on. Needs and issues affecting the users of services, including poverty, health, old age, , disability and so on. The delivery of welfare (Spicker, 2007: Irani & Noruzi, 2011). Therefore, the purpose of discussing the research progress on social policy is an important step to stimulate the debate on a controversial issue. Keeping this in mind, research symbolises an important contribution to the generation of scientific knowledge, the creation of theoretical and methodological models for analysis and communication and dissemination of key findings in the context of the state and civil society . What does social policy do: Social policy will aid the overall community improvement in different way. For example, some of the following come to mind: Quality of life Education Citizenship Culture Income Economic Rural area residents SUMMARY Whenever there is change, it is normal to expect some resistance. By understanding that there will be a resistance to change will help in anticipating the resistance, identify its reasons and sources, and modify the efforts to manage the change to finally ensure the success of the change efforts. 213 CU IDOL SELF LEARNING MATERIAL (SLM)
Resistance should actually be considered as healthy. Instead of reacting defensively, one should consider it to be good for as it makes one check the assumptions, and forces one to clarify what they are doing. Resistance to any change within an organization is as common as the necessity for change. After an organization decides on making some organizational change (s), it is typically met with employee resistance that tries to prevent the change from occurring. Studies have shown that people will only accept change if they believe themselves that the risk of doing nothing is greater than the risk of changing. Thus, if people do not understand why a change is needed, they will question why one is changing something that they believe works well. It is vital that those implementing change and the stakeholders are involved in its design together. A collaborative effort will engage people in the change, and in the identification of potential issues and solutions. Further people are far less likely to resist change that they have helped to create. Resistance to change also happens when people feel they will be negatively affected. . This may be due to a perception that their career potential will be harmed or that the rewards of the change are not worth the effort that is required. Strategy supportive cultures engage and empower people while creating affective commitment and organizational citizenship behaviours. People work towards established and collectively agreed upon goals if they are intrinsically motivated. Culture building is a deliberate process and thus must start from the top. Leaders should demonstrate genuine care and communicate the vision of the change. Equally important is to recruit people who would be a good fit and socialize them well. Broadly, ethics, is concerned with all aspects of human behaviour. Theoretical/ normative ethics tries to distinguish between right and wrong. A company’s culture sets the standards for determining the difference between good and bad decision making. Ethics in business is knowing to differentiate between right and wrong and then choosing to do what is right. There are three intricately related parts to business ethics which are personal, professional, and corporate. KEYWORDS Symbolic Actions: action, or procedure as symbolic, it represents an important change, though it might have little practical effect. Substantive Actions: are the real actions taken by an organization to meet certain expectations and often require changes in core practices, long-term commitments and investments in corporate culture 214 CU IDOL SELF LEARNING MATERIAL (SLM)
Rewards: something that is given in return for good or evil done or received or that is offered or given for some service or attainment the police offered a reward for his/her capture Cultural Norms: are the agreed‐upon expectations and rules by which a culture guides the behaviour of its members in any given situation. Sociologists speak of at least four types of norms: folkways, mores, taboos, and law Deculturation: is to bring about the neglect or loss of particular cultural characteristics, either deliberately or incidentally. For example, the indigenous traits of aboriginals which have often been lost due to industrialization and/or acculturation. LEARNING ACTIVITY 1. Visit different corporate websites and discuss different Business ethics codes followed and highlight key points related to culture/regional impact on business ethics code. 2. Highlight key points related to culture/regional impact on business ethics code. ……………………………………………………………………………………………… ……………………………………………………………………………………………… UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. Define ethics? 2. Define corporate governance. 3. What is social policy? 4. Define Ethics code. 5. Define Social Responsibility. Long Questions 1. Explain McKinsey’s 7s framework? 2. Explain strategy supportive culture. 3. Discuss impact of culture on business ethics. 4. Explain business ethics code. 5. Explain behavioural issues in strategy implementation. B. Multiple Choice Questions 215 CU IDOL SELF LEARNING MATERIAL (SLM)
1. Who is closer to the customers? a. Corporate level manager b. Business level managers c. Functional level manager d. None of these 2. can be observed through male & female workers, young & old workers, etc. a. Empowerment b. Workforce diversity c. Redesigned ethics d. Vibrant culture 3. means authorizing every member in an organization to take up his/her own destiny to his/her full potential. a. Empowerment b. Workforce diversity c. Redesigned ethics d. Vibrant culture 4. Creating & sustaining a strategy supportive culture is a job for the team. a. Whole management b. Functional level managers c. Supportive staff d. None of these 5. Changing a is difficult due to the heavy anchor of deeply held values and habits as people cling emotionally to the old & familiar. a. Problem culture b. Strategic control c. Support process d. None of these Answers: 1 c, 2 b, 3 b, 4 a, 5 a REFERENCES Textbook Harzing, A.W. (2000). An Empirical Analysis and Extension of the Bartlett and Ghoshal Typology of Multinational Companies. Journal of International Business Studies. Verbeke, A. (2013). International Business Strategy. Cambridge University Press. 216 CU IDOL SELF LEARNING MATERIAL (SLM)
Cherunilam Francis (2015), Business Policy and Strategic Management, Himalaya Publication House , New Delhi. C Appa Rao, B Parvathiswara Rao, K Sivaramakrishna (2008); Strategic Management and Business Policy, Excel Books, New Delhi. Tandon A (2010); Business Policy and Strategic Management; Anmol Publications Pvt.Ltd. Rao Subba ;Business Policy and Strategic Management: Text and Cases; Himalaya Publication House , New Delhi. Reference Books Barnard, C.I. (1938), The Functions of the Executive, Harvard University Press, Cambridge, MA. Bentham, J. (1948), Introduction to the Principles of Morals and Legislation, in J. Lafter (ed), Hafner, New York. Hosmer, L. (1987), The Ethics of Management (1st ed), Richard D. Irwin, Homewood, IL. Hosmer, L. (1992), The Ethics of Management (2nd ed), Richard D. Irwin, Homewood, IL. Kohlberg, L. (1981), The Philosophy of Moral Development: Essays in Moral Development. Harper and Row, New York. Websites https://www.coursehero.com/ https://qsstudy.com/business-studies/ https://www.directionias.com/ 217 CU IDOL SELF LEARNING MATERIAL (SLM)
UNIT 10: FUNCTIONAL PLANS AND POLICIES STRUCTURE Learning Objectives Introduction Marketing Financial Operations Human Resources Information Management Summary Keywords Learning Activity Unit End Questions References LEARNING OBJECTIVES After studying this unit, the student will be able to: Understand the importance of international/global marketing. Explain functional policy, plans and strategy. Describe marketing plans and policies. Explain operations and production policies and plans. Identify human resource plans and policies. Explain information technology policies and plans. INTRODUCTION In this section we will discuss a range of functional plans and policies like marketing, human resources, production, and Information technologies plans and policies in detail. A functional strategy is one of the short-term tactics for key functional areas within a company. Such strategies define impressive strategy by laying out specific details on how key functional areas should be managed in the future. 218 CU IDOL SELF LEARNING MATERIAL (SLM)
Functional Policies and Plans Effective application of strategies is crucial for accomplishing strategic management. To implement proper strategy, one must have an in-depth knowledge of the functional plans and policies. Depending on the size and nature of an organisation, the count of functional areas where policies and plans are varied. In small organizations, few functional policies and plans are needed. However, in a large organization, greater number of functional policies and plans are prepared. A functional policy is a board 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 make sure that functional policies and plans are in tune with business and corporate strategies. Functional policies and plans help strategy implementation in a following way: Top management can guarantee that strategic decisions are implemented by all parts in the organization. Financial policies and plans identify how things are to be done and thus limit direction for managerial action. Functional mangers can handle similar situations in different functional areas in the consistent manner. Coordination between different functions is guaranteed. Functional policies and plan serve as bases for controlling activities in different functional areas. Functional Strategies Functional Level Strategy are the day-to-day strategy which is formulated to assist in the implementation of corporate and business level strategies. These strategies are framed with the guidance of the top-level management. Functional Level Strategy is about the operational level decision making, or commonly referred to as tactical decisions, for different functional areas like production, finance, marketing, personnel, research and development, and so on. Since these decisions have to be taken within the business strategy framework, strategists need to provide proper direction and suggestions to the functional level managers with respect to the plans and policies being opted by the business. Role of Functional Strategy It supports the overall business strategy, by providing information about the management of business activities. 219 CU IDOL SELF LEARNING MATERIAL (SLM)
It describes the ways in which the functional managers should work, so as to achieve desired results. Functional Strategy elaborates on what is to be done, how it is to be done and when it is to be done at the functional level. It ultimately acts as a guide to the functional staff. In order to do so, strategies have to be divided into achievable plans and policies, which should work in tandem with each other. Thereafter, the functional managers can implement the strategy. Functional Areas of Business As discussed under, there are several functional business areas that require strategic decision making: Figure 10.1: Functional Areas MARKETING Marketing Mix A marketing mix is a set of marketing variables to obtain favourable response from a target market. It includes everything that an organization can do to increase the demand for its products. These variables known as 4Ps,are Product, Price, Place and Promotion. It is evident that the 4Ps are from a marketer’s angle. When translated to the buyers’ angle, they can be re- termed as 4Cs. Product can be Customer solution, Price can be customer Cost, place can be Convenience and Promotion can be Communication. The 4Ps are discussed as follows- 220 CU IDOL SELF LEARNING MATERIAL (SLM)
Products It stands for the goods or services or both which the company offers in the market. Strategies are needed for managing the existing products and for establishing the new ones. Both products and markets are dynamic by nature. The customer demand for a product is also dynamic as some products have consistent customer demand while some have very short demand. Further there are differential products like industrial products, consumer products, durable or perishable products, luxury products, and so on. All products can be segregated on the basis of its size, colour, shape, , packaging, service, brand name, and so on. Organizations try to hammer into a customer’s mind that their products are different from others. It is immaterial if the differentiation is real or imaginary. Organization have often differentiated their products by creating brand name of the products since through this, a customer knows the products and the organization behind it. Price It stand for the amount of money that customers have to pay to obtain the products. The price of products is generally determined by its demand, quality, safety, reliability, the desired profit, the competition it faces, and so on. In the market there are broadly two types of organizations: one that has low-cost products and one that has high-cost products. Organizations are increasingly adopting a cost-plus margin method where the margin is the profit. To decide the final price of the product, margin is added to it. When an organization is deciding on the price of its products, they should keep in mind (a) to make the products acceptable to the customers (b) To producing reasonable margin (c) To acquire the market (s) s that would help in developing the organization’s market share. Generally, in the initial stages, the price of the product is kept low so as to attract customers towards it as most of the customers are price sensitive. Place It stands for all activities that make products available to the customers. Choosing the most appropriate marketing channel is one of the most important marketing decisions. . Marketing channels are able to distribute products within reasonable time to customers at a very low cost to the organization. The strategies that would apply to the middleman, like distributors and retailers, must be designed properly. Promotion It stands for activities that describe the product to the customers. . There are four methods of promotion that are generally used : (i) Personal Selling: - The oldest method of promotion, it involves face- to-face interaction with customers. It allows a high degree of personal attention to them. Oral communication with the intention of making a sale is made with buyers. It involves high costs as salary of the required personnel is very high. Hence, in the current era this is not a cost-effective method to lure customers. 221 CU IDOL SELF LEARNING MATERIAL (SLM)
(ii) Advertising It is a non-personal and a highly flexible method. Advertising is done through pamphlets, newspapers, brochures, hoardings, , radio, display boards, television or internet. The choice of appropriate media is very important for effectiveness. Hence the media can be local, regional or/and national. Although advertising maybe the best method of promotion, its effectiveness against the expenditure can’t be measured directly. (iii)Publicity It is also a non-personal form of promotion. It is a communication of the products, brand or business by giving information about it in the media without advertising it. So, it can be considered to be a better way to reach customers at little cost. (iv) Sales Promotions All other activities that an organization does for promoting its products, except the above three, are covered in sales promotions. They include activities like money refund, discounts, payment through instalments, exhibition and fairs. Sales promotions, done periodically, can help in gaining a large market share. (v) People All humans who play a role in market offering and thereby influence the buyers’ perception fall in this category. (vi) Physical Evidence The environment in which products are delivered and the place where firms and customers interact. (vii) Process The actual procedure and flow of activities through which the products or services are delivered to the customer. Marketing Strategy and Techniques Some of the major marketing strategies and techniques are as follows- Social Marketing: It is the design, implementation and control of programs that aim to increase the acceptance of social ideas or practices among customers. Augmented Marketing: It is the deliberate efforts that are made to obtain better marketing returns through extra means. It means giving additional services and benefits, for example movies-on-demand, online computer repairing service and so on. Such type of services has been known to attract customers. Direct Marketing: It is marketing through an advertising media that directly interacts with the customers. Relationship Marketing: It refers to the process of creating, maintaining and enhancing a strong relationship with both the customers and other stakeholders. Person Marketing: Activities that have been undertaken to create, maintain or change attitudes or behaviours towards particular people fall in this category. For example, politicians, film stars, sport stars, , professionals promote their career and income. 222 CU IDOL SELF LEARNING MATERIAL (SLM)
Organization Marketing: Activities that are done to create, maintain or change the attitudes or behaviours of an audience towards a particular organization. Place Marketing: Activities that aim to create, maintain or change attitudes or behaviours towards a place. For example, business site marketing or tourism marketing. Enlightened Marketing: It helps an organization to support the best long-term performance of the marketing system which is based on five principles: (i) Customer oriented marketing; (ii) Innovative marketing; (iii) Value marketing; (iv) Sense-of-mission marketing; (v) Societal marketing. Service Marketing: The concepts, techniques and tools of marketing that are applied to service. A Service is intangible and non-perishing and can be any activity or benefit that one party is offering to another. .Differential Marketing: A strategy through which an organization decides to target certain market segments and designs different marketing strategies separately for each of them. Such difference can be achieved through variations in size, colour, shape, , brand name, and so on. Synchro Marketing: When the demand of a product is irregular leading to idle capacity or over-worked capacity, this process can be used to find ways to alter the pattern of demand so that it is in tandem with the supply pattern. De – marketing: A strategy used to reduce demand temporarily or permanently without destroying the demand completely but only by reducing or shifting it. This strategy can be adopted when demand for a product is too much to handle. It can be applied to regulate the demand. FINANCIAL 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, a company’s ability to raise funds will control the sum total of funds and their usage. Policies and plans are formulated to guarantee that strategies are implemented effectively. 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 board sources of funds – equity and debt. Equity funds are shares, preference shares and retained earnings. Debentures and borrowings are sources of debt. Policies and plans concerning fund sources relate to capital structure, procurement of funds, and relationships with leaders. Companies differ in their tactics used to source funds. A few of them depend primarily on internal financing while others rely more on external borrowings. Otherwise said, debt equity ratios vary from one company to another. Indian companies raised funds from Indian sources before 1991. Since 223 CU IDOL SELF LEARNING MATERIAL (SLM)
liberalization, many of these Indian companies raise funds through American Depository Receipts (ARDs), Global Depository Receipts (GDRs), Foreign Institutional Investors (FIIs), foreign private equity funds, foreign venture capitalists and other foreign sources. Usage of Funds: A judicious use of funds is necessary for successful strategy implementation. An organization can distribute funds between its fixed assets and current assets depending on its needs. Investment in fixed assets could be (a) to obtain new fixed asset for expansion and growth, and/or (b) to substitute the existing fixed assets. Investment in fixed assets has long-term implications because these assets create benefits over a long period of time. These benefits or returns, however must be greater than the capital cost. To optimize investment in fixed assets, a company can take the below mentioned steps: (i) Choice of appropriate technology – The latest in fully automated technology may involve huge investment resulting in high interest cost. Cost minimization and technical factors should be considered while choosing technology. (ii) Proper mix of various fixed assets –Assets critical for project implementation should be given priority over the supporting assets. For example, a township can be developed after the project starts generating profits. During the carrying out 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 asset is known as working capital. Volume of operations, type of technology, manufacturing cycle, seasonal and cyclical fluctuations, etc. are in working capital without affecting operations are as below: (a) Maintain inventory at proper level. (b) Rationalize credit policy so as to match debtors and trade creditors. (c) Keep cash and bank balance at right-levels by investing surplus funds. Management of Funds: Sound management of funds plays an important role in strategy implementation through conservation and optimum utilization of funds. In this process, policies and plans are developed for accounting and budgeting credit and risk management, cost reduction and control, tax planning, etc. severe cost control helps to improve a company’s financial health. Sound cash management is not merely a timely collection of receivables and disbursement of payment now. Companies now outsource cash management to banks to make certain effective management of cash flows and to earn higher interest. Risks arising from technology and environment require more robust systems in 224 CU IDOL SELF LEARNING MATERIAL (SLM)
internal audit and control. Management of earnings is a critical decision. A Dividend policy is about allocation of earning between dividend distribution and reinvestment in business. Company’s future needs for funds, expectations of shareholders, legal constraints, and etc. influence dividend policy. Some companies reinvest a principal part of their earnings as dividends. Firms pursuing expansion/growth strategies are more likely to look at 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. OPERATIONS Production or operations function is related to the transformation of inputs into outputs. Materials, equipment, information and talent are main inputs, which are converted into goods and services, the output. The main objectives are to produce the required quantity and quality at the precise time and at the lowermost possible cost. Policies and plans are framed with regard to production system, research and development, operations planning and control, and modernization. Production System: The production system involves decisions relating to location, layout, capacity, work system, extent of automation, design of product/ service, degree of vertical integration. These decisions are critical and type of R &D activities. The item is for the organization Need to ensure regular supply. Organization’s financial and managerial capabilities. Government policy e.g., Reservation of some items for production in the small-scale sector. For those items to be bought, the organization has to choose the criteria for selection of vendors and their number. For example, Maruti Suzuki could achieve cost and quality advantages owing to its vendor development policy. Operations Planning and Control: The twin objectives of operations planning, and control is optimum utilization of resources and efficient management of day-to-day operation. Aggregate production planning, materials supply, cost and supply, cost and quality of output inventory management, repair and maintenance of plant and machinery are the key issues in operations planning and control. Focused differentiation, high quality is some of the policies which companies use to gain competitive advantage. Research and development(R&D): Activities undertaken to introduce new products, improve existing products, absorb new technology, and so on are the 225 CU IDOL SELF LEARNING MATERIAL (SLM)
sphere of R&D Policy. Decisions in the area of R&D policy relate to R&D spending and the type of R&D activities. The resource allocation for R&D depends on the nature of organization and the type of R&D activity. For example, firms operating in pharma and other such industries have rapid changes in product and thus need to spend more on R&D. Foreign multinational companies are increasing setting their R&D facilities In India due to low-cost engineering and technical skills. Several companies have used R&D as a way to gain competitive advantage, to help in implementation of product development & diversification strategies. Firms that do not have their R&D centres collaborate with research agencies. Modernisation: Modernization strategy involves up-gradation of plants and machinery to reduce cost per unit and improve product quality. An organization gains competitive advantage by serving its customers better. For example, TATA steel became a lowest cost steel producer using its modernization programming. HUMAN RESOURCES It is people who invent and implement strategies in the post – liberalization era human resource management as undergone significant changes companies are now allying their human resource plans and policies with their corporate and business strategies, they are outsourcing operational or administrative duty in human resource management so as to spotlight on strategic aspects for instance, HUL outsource routine human resource functions from an Accenture. Involvement of top management in HR, setting up training and skill development centres alignment of performance and appraisals system with business goals are some instances of the initiative companies have undertaken in area of human resource management. Human resource plans and policies are needed ease respect of procurement, development, appraisals, rewards and industrial relations. Procurement: The main activities involved in procurement of the right people are manpower planning, recruitment and selection. Right selection is essential for efficient working and success full strategy implementation. Firms use multiple sources and techniques to match new hires with their corporate culture. Development: rapid change, technology and increasing complexities of job require continuous training and development of people therefore, companies use both in house and outside facilities to train their Staff. Organizations has built up strategic competition to its management development system. Appraisal: Performance evaluation systems have become more transparent. The focus is now more on grooming people for higher responsibilities. 226 CU IDOL SELF LEARNING MATERIAL (SLM)
Continuous monitoring is replacing the traditional once-a-year appraisal. There is a closer link between performance and rewards. Retention: Retaining talent has emerged as a major challenge owing to high attrition rates especially in information technology sector. HCL Technologies adopted the employee first policy to engage and retain high quality employees. 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 engagement in management, collective bargaining, open door policy, etc. to build and maintain cordial relations with workers and their unions. Improvement in working conditions, better pay scales, involvement of families in company programs, better training and career advancement opportunities, medical and other welfare facilities can be mentioned as some of the features of industrial relations system. INFORMATION MANAGEMENT Information capability factors relate to the design and handling of the flow of information within and outside an organization. The engagement of information technology helps the organization to derive benefit that is typically present in a company. Information management is a distinct functional area within organization, which if properly managed can supplement their ability to develop strategic advantages. Following are the different factors within information management system that play a vital role in strategic management. Acquisition and retention of Information: Plans and policies that are related to the processing and synthesis of information. It deals with factors like sources, quality, quantity, , retention capacity, and security of information. Processing and Synthesis of Information: These policies deal with issues like data base management, computer system, software capability and the ability to synthesis information. Retrieval and usage of Information: It deals with factors like availability and correctness of information formats and the ability to incorporate and use information. Information retrieval is done at various levels in an organization. Integrative, Supportive and Systematic Factors : These last set of factors deal with the integrative, systematic, and support factors, like the availability of IT infrastructure, its relevance and compatibility to the organizational needs, up-gradation of facilities, the 227 CU IDOL SELF LEARNING MATERIAL (SLM)
inclination to invest in state– of–the art systems , availability of computer professionals and most importantly, support from the top management. SUMMARY A functional policy is a board guideline indicating the criteria that a functional manager should use while making decisions in his/her functional area. A list of activities that are to be undertaken during the plan period form a functional plan. These policies and plans are formulated by various functional heads within the framework of higher authorities’ guidelines. Financial policies and plans are concerned with raising, usage and management of funds for business operations. A marketing mix is a set of marketing variables that are used to obtain a desired response from the targeted market. It comprises everything that an organization can do for enhancing the demand of its products. Production or operations function is about the transformation of inputs into outputs. Materials, equipment, information and talent are the main inputs, which are converted into final output in the form of goods or services. The main objectives are to produce the required quantity and quality at the appropriate time and at lowest possible cost. Policies and plans are formulated for production system, research and development, operations planning and control and modernization. Human resource policies are needed to ease the process of procurement, development, appraisals, rewards, industrial relations and other such human factors. Information capability factors are about the design and management of information flow, both within and from outside an organization. Information management is viewed as a distinct functional area within the organization, which if properly managed can supplement its ability to develop a strategic advantage. KEYWORDS Tactical Decisions: these are decisions and plans that are concerned with the more detailed implementation of directors' general strategy, usually with a medium-term impact on a company. Tactical points requiring decisions include but are not limited to size and structure of a work force. Marketing Mix: It refers to E. Jerome McCarthy's four Ps model where the P’s stand for Product, Price, Placement, and Promotion. Different elements of a marketing mix work in tandem with one another. Consumer-centric marketing mixes integrate a focus on customers in their approaches. 228 CU IDOL SELF LEARNING MATERIAL (SLM)
Foreign Venture Capitalists: Start-up companies with a potential to grow need a certain amount of investment. Wealthy investors often are interested in investing their capital in such businesses with a long-term growth perspective. This capital is known as venture capital while the investors are called venture capitalists. Research and Development(R&D): Research and development, is a set of innovative activities that are undertaken by corporations or governments to develop new products or services and improving upon the existing ones. IT Infrastructure: Information technology infrastructure is defined broadly as a set of information technology components that are the foundation of an IT service; typically, physical components, but also various software and network components. LEARNING ACTIVITY 1. Discus Policies implemented by any organization of your choice. ……………………………………………………………………………………………… ……………………………………………………………………………………………… 2. Segregate Policy ins any organisation of your choice across different organizational Functions. ……………………………………………………………………………………………… ……………………………………………………………………………………………… UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. Explain sources of funds in financial strategy. 2. Explain production system. 3. Discuss rewards and appraisals. 4. Explain information acquisition and retention. 5. Explain different methods of promotion. Long Questions 1. Write a brief note on functional policies and plans. 2. Write a brief note on financial policies and plans. 3. Write a brief note on marketing policies and plans. 4. Write a brief note on human resource policies and plans. 5. Write a brief note on information management policies and plans. B. Multiple Choice Questions 229 CU IDOL SELF LEARNING MATERIAL (SLM)
1. Which of these includes marketing strategies to reduce a demand temporarily or permanently? a) Concentrated marketing b) Differential marketing c) Demarketing d) Synchro marketing 2. Which is a social & managerial process through which individual & groups obtain what they need and want by creating, offering & exchanging products of value with others? a) Production b) Marketing c) Financing d) Research & Development 3. Which of these stands for activities that a company undertakes to make its product available to target customers? a) Product b) Promotion c) Place d) Prize 4. Marketing by environment where market offering is delivered & where the firm and customers interact. a) People. b) Process. c) Physical evidence. d) Publicity. 5. Which of the following is not a ‘4P’ variable in the market mix? a) Product b) Promotion c) Place d) Portfolio Answers: 1 c, 2 b, 3 c, 4 d, 5 d REFERENCES Textbook: Cherunilam Francis (2015), Business Policy and Strategic Management, Himalaya Publication House , New Delhi. 230 CU IDOL SELF LEARNING MATERIAL (SLM)
C Appa Rao, B Parvathiswara Rao, K Sivaramakrishna (2008); Strategic Management and Business Policy, Excel Books, New Delhi. Tandon A (2010); Business Policy and Strategic Management; Anmol Publications Pvt.Ltd. 4. Rao Subba ;Business Policy and Strategic Management: Text and Cases; Himalaya Publication House , New Delhi. References Books Hoffman, W.M (1990), The Ford Pinto, In W. M Hoffman and J. M Moore, (Eds), Business Ethics (2nd ed), McGraw-Hill, New York p 589. Teece, D.J. (1990), Innovation and the organisation of industry, Working Paper no. 90-6, Consortium on Competitiveness and Cooperation, Berkeley, USA. Wicks, A., Gilbert, D., Freeman, R. (1994), A feminist reinterpretation of the stakeholder concept, Business Ethics Quarterly, Vol. 4 No.4, pp.475-97. Robin, D.P., Reidenbach, R.E. (1987), Social responsibility, ethics and marketing strategy: closing the gap between concept and application, Journal of Marketing, Vol. 51 No.1, pp.44-58. Websites https://spcasestudyandprojectreports.blogspot.com/ https://www.coursehero.com/ 231 CU IDOL SELF LEARNING MATERIAL (SLM)
UNIT 11: STRATEGIC EVALUATION AND CONTROL Structure Learning Objectives Introduction Nature of Strategy Evaluation Process Evaluation Strategies Strategy Evaluation Framework Characteristics of Effective Evaluation system Contingency Planning Strategy Audit and Control Summary Keywords Learning Activity Unit End Questions References LEARNING OBJECTIVES After studying this unit, the student will be able to: Explain nature of strategy evaluation. Illustrate strategy evaluation framework. Describe contingency planning. Differentiate strategy audit and control. INTRODUCTION The process of strategic evaluation is to evaluate the efficacy of a strategy in achieving organizational objectives. Strategic evaluation and control can be said to be a process to determine the effectiveness of a given strategy in achieving desired organizational objectives and taking corrective action, if and wherever required. From this definition, it can be inferred that the nature of strategic evaluation and control process is to test the effectiveness of a strategy and take corrective action to keep it continuously effective. 232 CU IDOL SELF LEARNING MATERIAL (SLM)
In the two proceeding phases of the strategic management process, strategists formulate a strategy to achieve some defined objectives and then go about implement it. There has to be some means of measuring the performance of the strategy and how it is helping the organisation achieve the intended objectives. Strategic evaluation and control are employed to keep a check keeping the organization on its correct path. The process requires the strategists to lay down the planned objectives of the company and then engage in building strategies and plans to achieve them. This process of implementation starts with identifying key managerial task or tasks which may later form the basis for the creation of the organizational structure and eventually lead to design of systems. It should be noted that the classification of key managerial task implies that individual managers perform small portions of the task and collectively work towards implementation of a strategy. The task that an individual manager performs must correlate to the other tasks. The essence of strategic evaluation lies in its ability to sum up or coordinate tasks to be done by managers in singularity and also by groups, or divisions or business units by keeping a check on their performance. In case there are no control mechanisms in place, the individual managers may work towards goals which are not in line with the overall organisational or departmental objectives. NATURE OF STRATEGY EVALUATION The Nature of Strategy Evaluation A strategic-management process often results in outcomes that has a significant and long- lasting set of consequences. Incorrect strategic decisions can cause severe penalties and is next to impossible to reverse. Therefore, it is essential that strategy evaluation is in place to gauge an organization's well-being; timely and regular evaluations can alert the management to identify problems or issues that could make the situation critical. Strategy evaluation includes three basic activities: Studying the bases of an organisation’s strategy. Comparing actual results with desired results. Undertaking course correction measures to ensure that the performance aligns to the plans. Feedback, in a timely and adequate fashion, is the core of an effective strategy evaluation. Strategy evaluation depends solely on the information on which it runs. Unreasonable pressure from top level managers can result in lower-level managers fudging numbers that they think will make the performance satisfactory for the top management. Strategy evaluation is a sensitive and complex undertaking. Too much focus on evaluating strategies could be costly and counterproductive. The more attempts by managers to evaluate other’s behaviour are made, the lesser control they have. At the same time, too less or no evaluation 233 CU IDOL SELF LEARNING MATERIAL (SLM)
can cause even worse issues. Strategy evaluation is required to ensure that the stated objectives are achieved or being achieved. In many firms, strategy evaluation is an appraisal of how an organization is performing. Have the organisation's assets grown? Have profits increased? Have sales grown? Is the productivity increasing? Have profit margins, return on investment (ROI), and earnings per- share increased? Some organisations may counter that their organisational strategy must have been right if the answers to the above questions are a yes. This type of reasoning could be misleading as strategy evaluation must have a long term as well as a short-term focus. Strategies often don’t have an impact on short-term operating outcomes until it is too late for change. PROCESS OF EVALUATING STRATEGIES Strategy Evaluation equal significance as strategy formulation since it helps analyse the effectiveness and efficiency of the all-inclusive plans in realising the desired results. Managers can also ascertain how appropriate the current strategy is in today’s dynamic world with technological, socio-economic and political innovations. Strategic Evaluation is the last phase of strategic management. The efficacy of strategic evaluation is in its capability to co-ordinate tasks performed by individual managers, departments, groups and so on through the control of performance. Strategic Evaluation is noteworthy on the account of various factors like - collecting actionable inputs for planning, the need for feedback, appraisal and recognition, development of the overall strategic management process, validating strategic choices and so on. The Strategy Evaluation process contains the following steps- Setting Benchmark for Performance: While setting the benchmark for performance, strategists come across questions like - what are benchmarks to set, how to define them and how to articulate them. To determine the benchmark to be set for performance, it is crucial to uncover the special requirements or skills for performing the task. The indicator that best encapsulates the special requirements may then be used for evaluating performance. The organization can employ both qualitative and quantitative criteria for an exhaustive performance assessment. Quantitative criteria such as ascertaining of net profit, return on investment (ROI), earning per share, production cost, employee turnover and so on. Some of the Qualitative factors include subjective evaluation of aspects such as – competencies and skills , flexibility, risk taking potential, and so on. Measuring performance: The standard performance is a benchmark against which the on-ground performance is compared. The communication and 234 CU IDOL SELF LEARNING MATERIAL (SLM)
reporting system helps in measuring performance. If appropriate ways are available for measuring performance and if the standards are set correctly, strategy evaluation becomes a lot easier. At the same time, factors such as managers contribution are difficult to quantify. Similarly, performance of a division is sometimes difficult to quantify as compared to an individual performance. Hence, variable objectives should be drawn against which performance measurement can be done. The performance measurement must be done at correct time else evaluation will not serve its purpose. For measuring performance, financial statements like - profit and loss account, balance sheet, must be prepared annually. Analysing Variance: Variances must be accounted for while comparing actual performance to the standardised performance. Strategists must define the acceptable tolerance limits between standard and actual performance metrices. A positive deviation is indicative of a better performance but is unusual to always exceed the target. A negative deviation is concerning because it is an indicator of a shortfall. Therefore, in case of a negative deviation, the strategists must find the causes of such a deviation and must apply corrective measures to overcome it. Taking Corrective Action: After the performance deviation in is identified, it is imperative to plan for corrective measures. If performance is constantly lower than the standardised performance, the strategists should conduct a deep analysis of the reasons therein. If during analysis it is discovered that the organisational potential, then the standards must be corrected. Another drastic but rare corrective action is to reformulate the strategy. This requires getting back to the whole process of strategic management, replanning based on new resource allocation trends and consequently it means going to the starting point of the whole process. The Importance of Strategic Evaluation Strategic evaluation occurs as the final step in the final step in a strategic management cycle. This is the only way a business can gauge whether the strategic management plans and strategies are working or not. Strategic management attempts to align business resources and actions with the vision and mission of the business. The strategic plans outline the steps necessary for reaching strategic business goals. Why Evaluate? Evaluations gives an objective method for checking the efficiency and efficacy of business strategies. Additionally, it acts as a way to ascertain whether the strategy is working in its intended fashion or not. Evaluations can help in identifying what and when corrective actions are required for course correction. 235 CU IDOL SELF LEARNING MATERIAL (SLM)
Performance Measurement Strategic evaluations begin by defining an ideal performance as per business objectives. This includes both quantitative and qualitative performance benchmarks against which the actual performance of the whole business and it’s individual employees. Qualitative benchmarks are qualitative or subjective factors such as, competencies, skills and flexibility. Quantitative benchmarks on the other hand are “hard facts” such as net profit, staff turnover rates or earnings per share. Ongoing Analysis In strategic evaluations it is assumed that since any business environment is constantly changing, there will be a variance between ideal and actual performance. Regular evaluations provide an effective and objective way for a firm to analyse, evaluate and correct performance expectations. A positive variance can confirm that the strategy is working as expected, whereas a negative variance mostly tells the firm that the performance of the staff as well as the management needs to change. Corrective Actions When strategic evaluations zero in on areas where the business is not performing, corrective actions can be attempted to solve the problem. For example, if a business learns that strategic technical objectives are not being met due to employees not having up-to-date qualifications, the organisation can introduce training programs that build skillsets that align with technical objectives. If a firm discovers the business objective is out of line – like overly aggressive sales target – it can realign the objective and align it with real-life potential. STRATEGY EVALUATION FRAMEWORK Activities of Strategy Evaluation 236 CU IDOL SELF LEARNING MATERIAL (SLM)
Figure 11.1 : Activities of Strategy Evaluation Reviewing Bases of Strategy Both internal strengths and weaknesses, and external opportunities and threats, form the bases for a strategy. Opportunities, threats, strengths, or weaknesses are not likely to remain valid for a long period of time. So, if the strategy implementation takes a long period of time (like some strategies may even take several years for their full implementation), these bases or the SWOT data of the strategy must be reviewed. A review at regular intervals can show how the competition has reacted to the organization’s strategies, if and how the competitors have changed their strategies in response, whether the strengths and weaknesses of the strategy has changed, if new opportunities or threats have emerged, and almost importantly whether the already-identified strengths, weaknesses , opportunities, and threats, are still existing as they were at the time of the SWOT analysis, and several other issues like these. Periodic review of the strategy bases helps the managers to identify the real reasons for any unsatisfactory results. Through the review, it can be judged if an ineffective strategy has been chosen or a strategy has been implemented poorly, or sudden changes in the external factors (like changes in demand, technology, new government policies, or competitor activities) have led the company from achieving its desired objectives. A review helps in determining these changes. 237 CU IDOL SELF LEARNING MATERIAL (SLM)
Measuring Organizational Performance The second component of the strategy-evaluation framework is the measurement of organizational performance. Managers have to compare the actual results achieved with the planned results, or in other words, the planned activities against the actual progress toward achieving stated objectives. After this evaluation, deviations, if any, are detected. An evaluation is also done of individual performances where progress toward achieving original objectives is evaluated. Taking Corrective Actions If there are no significant differences between the planned and actual results, then corrective actions are not necessary Managers can then continue with the present a course of action. They need to take corrective actions only if significant deviations between the two results exist. Based on the nature of the deviation and its cause, action need to be taken. . Some such actions can be to make directives in objectives, the strategy itself, the organization structure, the human resources deployed on the strategy implementation, the policies, the resource allocation, the reward systems and more such areas. CHARACTERISTICS OF EFFECTIVE EVALUATION SYSTEM Strategy evaluation can be a sensitive process due to the human factor involved. A too rigorous evaluation and control can be expensive or sometimes even counterproductive. Too much evaluation can result in authority and flexibility being challenged, minimized or even eliminated. On the other hand, too little or no evaluation may create the opposite effect. There can be lack of responsibility and accountability. In some organizations, strategy evaluation simply means performance appraisal of the organization, which is also not correct. The evaluation method should be balanced in its approach and follow some standards. Strategic analysts have laid down certain requirements which an evaluation should comply with, in order for it to be effective. A strategy evaluation process should be meaningful. They should be able to specifically relate to the objectives/targets and the plan. It should have a clear focus and there should not be any scope of ambiguity. A strategy evaluation and control process should be economical. It should not be made unnecessarily elaborate or incur too much cost on itself. 238 CU IDOL SELF LEARNING MATERIAL (SLM)
An evaluation process should conform to a proper timeline for control and information retrieval or dissemination. The time dimension of control should coincide with the time span of the activity or the implementation phase. Also, feedback or information on developments should be timely so that the evaluation process and control measures are more appropriate. A strategy evaluation system should be able to give a true picture of what is actually happening as the objective of the process is not merely fault finding. Sometimes, performances may be overshadowed by external factors or the environment. Like, during a severe economic/business slump, the productivity and profitability of the organization may decline despite the best efforts of the managers to implement the strategy. A strategy evaluation process should not dominate or curb decisions. On the contrary, it should promote mutual understanding, trust and common cause. All functional and operational areas should be able to cooperate with each other in evaluating and controlling strategies. A strategy evaluation process should not be complex or restrictive but be simple in nature. It is true that there may not be any ideal or the only strategy evaluation system as all organizations are unique by themselves. The organizations’ vision/mission, objectives, culture, size, management style, strengths, weaknesses, , together determine the exact nature of an evaluation system, and also the implementation process. . Waterman (1987) has made some useful observations about strategy evaluation process of successful organizations. Contingency Planning A basic principle of a good strategic management is that organization can plan ways to deal with favourable and unfavourable events before they occur. It is seen that too many organizations prepare contingency plans only for unfavourable events. This can be deemed as a mistake because by both minimizing threats and capitalizing on opportunities, an organization can improve its competitive position. Irrespective of how carefully strategies are formulated, implemented, and evaluated, there can be unforeseen events like natural disasters, strikes, boycotts, government actions, arrival of foreign competitors, and so on, which can make a strategy obsolete. To minimize the effect of potential threats, organizations should thus develop contingency plans as a part of their strategy-evaluation process. Contingency plans are alternative plans that can be put into effect if certain key events do not occur as they were expected. Only high-priority areas require the insurance of contingency plans. It is not possible for strategists to cover all bases by planning for all possible contingencies. In any case, contingency plans should be as simple as possible. Some contingency plans commonly established by organizations include the following: If a major competitor withdraws from a particular market or markets as intelligence reports indicate, what actions should the company take? 239 CU IDOL SELF LEARNING MATERIAL (SLM)
If the sales objectives are not achieved, what actions should the company take to avoid losses? If the demand for the new product or products exceeds plans, what actions should the company take to meet the higher demand? If certain disasters occur, like a hostile takeover attempt, loss of computer capabilities, , destruction of manufacturing facilities due to natural events like earthquakes, tornados, or hurricanes , loss of patent protection, —what actions should the company take? If a technological advancement makes the company’s new product obsolete sooner than expected, what actions should the company take? Several organizations discard alternative strategies although analysing these options could render valuable information. Alternative strategies that are not selected for implementation can be used as contingency plans in case the chosen strategy or strategies does not work. When strategy-evaluation process reveals the need for a major change, an appropriate contingency plan can be executed quickly from these available options. Contingency plans are useful for promoting a strategist's timely response to significant changes in the internal and external bases of a company’s current strategy. Like, if underlying assumptions about the economy turn out to be wrong and contingency plans are ready, then managers can make appropriate changes promptly. Several times, external or internal conditions present unexpected opportunities for the company. Contingency plans could allow a company to capitalize on such opportunities quickly. Linneman and Chandran found that contingency planning gave companies like DuPont, Consolidated Foods, Dow Chemical, , and Emerson Electric major benefits, like: It permitted them to quickly respond to changes; It prevented panic; and it made managers more adaptable by allowing them to appreciate how variable the future could be. They suggested that an effective contingency planning is a seven-step process: (i) Identifying both favourable and unfavourable events that could possibly disrupt the strategy or strategies. Specifying the trigger points by calculating when contingent events are likely to occur. Assessing the impact of each contingent event and estimating the potential benefit or harm of each such event. Developing contingency plans and making sure that the contingency plans are compatible with the current strategy and are economically viable. Assessing the counter impact of each contingency plan or estimating how much each contingency plan will capitalize on or cancel out its associated contingent events. By doing this one can quantify the potential value of each contingency plan. Determining the early warning signals for key contingent events and monitoring the early warning signals. 240 CU IDOL SELF LEARNING MATERIAL (SLM)
Developing advance action plans for contingent events to take advantage of the available lead time. STRATEGY AUDIT AND CONTROL A strategic audit assesses how appropriate the business strategy is and how well the company is positioned for its execution. For small organizations, periodic strategic audits can mean a difference between a road map to success and a drift into financial struggles which is caused by a poorly thought-out or outdated plan that did not reflect on the changing market conditions. Ask the Right Questions A strategic audit aims to answer basic questions about the future of the business, both for the near and the extended future. Few of the questions could be quite basic. If one asks, \"what business am I in?\", one should already know the answer. But thinking should be done beyond the obvious. For example, if one has a small clothing store which is \"selling affordable vintage clothing to teenage girls\", then it would be a different business from \"selling prom dresses and formal apparel to high-schoolers.\" One should also ask whether they are doing the right things as a business. For example, if one is selling prom dresses in a market which does not have a lot of teens, then probably one need to reassess the strategy. Assessing Current Strategy A Strategic audit start by assessing the current strategy. One should look at how the business sees itself in the marketplace. A SWOT analysis can be conducted to reassess the strengths, weaknesses, opportunities and threats to support both internal and external factors that influence success. It should be then comparing with the strategic vision for the company. This allows one to map a path forward while assessing whether one might be better off by making an adjustment to increase the chances of success. Identify Strategic Risks Companies can go under because they failed to anticipate strategic risks. These are factors that rarely come up in a traditional audit but have massive repercussions if they occur. Risks in this category may include a decline in demand for the company’s core offerings or even a critical manager departing for a competitor. A strategic audit brings these dangers to light and allows one to assess which ones are most critical. It promotes proactive action to avoid what could otherwise have been a critical situation down the road. Resource Adjustment A strategic audit allows one to map goals to the resources and evaluate where the discrepancies lie. If the two don't match, either the goals need to be adjusted or the resources 241 CU IDOL SELF LEARNING MATERIAL (SLM)
must be changed. Like, if one’s strategic vision says that one will bring innovative products to market on a regular basis and one does not have the resources dedicated to research and development, one is not giving oneself a chance to succeed. Similarly, if one wants to add two new stores in the next calendar year but has a negative cash flow at the existing location, then one has to ask whether that goal is affordable or realistic. Implementation The strategic audit not only requires implementation, but also requires a method for performance evaluation and control. It is necessary to develop a measure-of-effectiveness plan to determine whether the implementation works as intended. It should be noted as to who is accountable for each task and what metrics will be tracked. It is also prudent to set a time frame for when the strategy should be re-evaluated in light of the audit data. In absence of periodic strategic audits, one might not know that the environment has shifted and that one might head down the wrong path until it's too late to change. STRATEGIC CONTROL Strategic Control – Meaning Strategic controls are planned to steer an organization towards its long-term strategic direction. After a particular strategy has been selected, it is implemented over time, so as to guide the organization in a rapidly changing environment. Strategies are future-looking and based on assumptions by the management about events that are yet to occur. Traditional Control approaches seek to compare actual results against a standard one. After the work is done, a manager evaluates the work and uses the evaluation as an input to control future efforts. Although this approach is not entirely useless, it is not appropriate as a way to control a strategy. Often, waiting until a strategy has been fully implemented involves a period of five or more years, during which many changes can occur, that can have a major impact on the success of the strategy. Thus, traditional control concepts must be replaced with strategic controls that understand the unique control needs of long-term strategies. Strategic control is about tracking the strategy as it is being executed, detecting problems or changes in the framework and making necessary adjustments to it. It is in contrast to post- action control process. Strategic control is thus, controlling and guiding efforts on behalf of the strategy as it is being executed. Strategic Control – 4 Major Types: Premise, Implementation, Strategic Surveillance and Special Alert Control 242 CU IDOL SELF LEARNING MATERIAL (SLM)
Premise Control A business strategy assumes a premise of how things will occur in the future. Premise controls allow one to examine whether this assumption will hold true once it is put into action. Premises can be affected by environmental factors like inflation, interest rates and social changes or by industry factors like competitors, suppliers and barriers to entry. These controls will help one to recognize any change in the premises so that one can adapt the strategy accordingly. Implementation Control Once a strategy for the business is designed, it needs to be implemented. As necessary steps are taken to put the plan into action, implementation controls are used to ensure no adjustments to the strategy is necessary. Two basic types of implementation controls are monitoring strategic thrusts and doing milestone reviews. The former means one analyses the tactics that one is using to gain market share. The latter allows one to undertake a full-scale assessment of the business at designated points in the strategy. Special Alert Control One will need mechanisms to assess the business position in case of sudden events, such as natural disasters, product recalls or market spikes. Special alert controls allow one to reconsider the relevancy of the strategy in light of these new events. One should prepare how they will handle these special alerts with procedures to be followed, priorities to keep and tools to be used. Strategic Surveillance Controls Small-business owners need to protect their businesses from external threats that may hinder the success of their respective strategy. Strategic surveillance controls allow them to monitor numerous sources for these threats. They can continually safeguard their strategy by attending conferences, following trade journals, and keeping awareness on industry trends. Strategic Control – Purpose The purpose of strategic control is to identify if the company should continue with its chosen strategy or modify it in light of changed circumstances. Operational control should be able to assist a company to be both efficient and effective, and subsequently be able to help the chosen strategy be successful. The basic forms of strategic control are concerned with physical systems. For example, a wall thermostat may control a house’s central healing system. If a room temperature falls below 243 CU IDOL SELF LEARNING MATERIAL (SLM)
the desired temperature set on the thermostat, the boiler gets started to heat the water in the radiators and the temperature rises to desired level. Many of the quality control processes within organizations are physical control mechanisms that are designed to indicate whether or not a particular physical process is operating at a desired efficiency level. For example, at the end of a manufacturing process, a product can be checked to see if it operates as it should. If it is rejected, then it can be scraped or reworked. It is better to discover any faults at an initial stage, and the usual way to do so is sampling units of the product to check if they confirm with the agreed specifications. Modern Control techniques are based on an ‘ever free’ or ‘zero-defect’ approach and ‘doing it right first time’. At the strategic level, quality can be built into the planning of the product or service, so that it confirms to design specifications and processes are introduced to get it right time. These process controls can also be applied to people to assess those parts of their work which can be measured. For example, a salesman can be subject to sales targets which may be in terms of the number or the value of their sales. Often doubled lazing sales are based on this system, so that the people who are employed to make the initial approach to households, may also be rewarded according to the number of sales interviews they are able to arrange. The salesmen are then paid according to the value of the sales they make. Similarly, people in telesales can be monitored by a central control system to measure precisely the number of calls per hour or per day they make and the number of successes. Most general control methods that are used in an organization, encourage a high level of efficiency and effectiveness in employees by including quality assurance (QA) and QUEST (Quality in Every Single Task). QA supports employee teams with systems and resources, to help them understand the quality characteristics of their products and services, and to take on quality controls. QUEST is based on the idea that every individual or group, is both a customer and a supplier to other people in the organization. It considers how best they can meet the needs of their ‘customer’ and ‘suppliers’. The Key Result Area (KRA) is a technique that focusses on realistic outcomes for each individual or team. It works by identifying a range of quality characteristics which are consistent with the company’s strategy, and the realistic standards for each of these quality characteristics and then devising a system which can be measured and monitored. Total Quality Management (TQM) is based on the idea that all employees in the company have both-a clear focus on their aims and goals and an understanding of the context in which they are working. They are also ready to take responsibility for work over which they have control. 244 CU IDOL SELF LEARNING MATERIAL (SLM)
Quality improvement and accountability has become a question of peer pressure within the ‘internal customer’ framework. Quality improvement is a responsibility of each employee and everyone actively participates in it. ” Strategic control can be described as the continuous critical evaluation of plans, inputs, processes and outputs to provide information for future action”. The controls are concerned with not just what has happened but also aim at anticipating what may happen. The control of manufacturing processes by sampling and testing the products generally occurs after the processes have taken place. A control that is applied through the company culture and by quality assurance systems attempts to provide a solution where problems are anticipated. Like, public relations are both about the quality of the relationships with external agents and also about the way of achieving favourable relationships. Publicity and public relations attempt to maintain and enhance the reputation of a company , so it is not just concerned with reacting to problems but also encouraging an environment that allows the company to work through its problems without losing its reputation. An example would be that some toilets soaps have a strong reputation for being reliable. But when a particular brand soap proves to be unreliable, it is the ‘example that proves the rule’ in the sense that it is seen to be very unusual and therefore does not dent the reputation of the company. Strategic Control – 4 Important Steps: Setting Performance Standards, Measuring Actual Performance, Analysing Variance and Taking Corrective Actions To exercise control, following four steps should be taken Setting Performance Standards Every function in an organization starts with plans which specify the objectives or targets to be achieved. Keeping the in mind, standards are established which are the criteria against which actual results are measured. In order to set standards for control purposes, it is important to identify precisely and clearly the desired results. A high level of precision in the statement of these standards is thus important. After setting the standards, it is also important to decide about the achievement or performance level which will be regarded as good or satisfactory. The desired level of performance or achievement should be reasonable and feasible. The level should also have some amount of flexibility and should preferably be stated in terms of a range, that is a maximum and a minimum. Measuring Actual Performance 245 CU IDOL SELF LEARNING MATERIAL (SLM)
Measurement of performance is the second major step in control process. This step involves measuring the performance in terms of control standards. The presence of standards indicates a corresponding ability to observe and comprehend the nature of existing conditions and to ascertain the degree of control that is being achieved. The comparison of performance against standards should be on an ongoing basis, so that any deviations can be detected before their actual occurrence and thus be avoided by appropriate actions. An appraisal of the actual or expected performance becomes easy if the standards are properly determined and the methods of measuring performance be expressed explicitly. Analysing Variance The comparison of actual and standard performance is the third major step in a control process. . It involves the following two steps – (i) finding out the extent of variations, and (ii) identifying the cause or causes of these variations. When adequate standards are developed and actual performance is measured accurately, any variation will be clearly revealed. If the standards are achieved, no further action is necessary, and the control process is deemed complete. However, standards may not be achieved in all cases and the extent of variations may differ from case-to-case. If the variation between the standard and actual performance is beyond a prescribed limit, an analysis should be made about the cause(s) of such a variation. For controlling and planning purposes, ascertaining the causes of variations together with computation of variations is important, as such analysis helps the management in taking up appropriate corrective actions. Taking Corrective Actions The last step in the control process requires that actions be taken to maintain the desired degree of control in the system or operation. An organization is not a self-regulating system like a thermostat that can operate in a state of equilibrium which is put there by engineering design. In a business organization, this type of automatic control cannot be established because the state of affairs that exists, is the result of several factors in the total environment. Some additional actions are required to maintain control. Such actions can be on the following lines: i. Improvement in performance by taking suitable actions if the performance is not up to the desired level. ii. Resetting the performance standards if they are too high or unrealistic. iii. Changing the objectives, strategies, and plans if they are not workable. 246 CU IDOL SELF LEARNING MATERIAL (SLM)
Strategic Control – Strategic and Operational Control Control in an organization can be exercised at three stages: – (i) feed forward control, which is evaluation of inputs and taking corrective actions before a particular sequence of operation is completed;; (ii) concurrent, real-time, or steering control, which is evaluation of the action and taking corrective actions during the operation of the action;; and (iii) feedback control which is evaluation of results of the action and taking corrective actions after the action is completed so that the same type of action produces desired results in future.. Traditionally, control has generally been based on feedback control, which is also known as operational or management control. However, in recent times, many management experts have questioned the efficacy of this type of control owing to the dynamic environment in which businesses operate. To overcome this problem, they have suggested strategic control that operates on the principle of feed forward and concurrent control while considering the changing assumptions, both external and internal, on which a strategy is based, constantly evaluating the strategy as it is being implemented, and taking corrective actions to adjust the strategy according to the changing conditions or taking necessary actions to realign the strategy implementation. For Strategic Control, The Following Questions Are Relevant Are the premises made during the strategy formulation process proving to be correct? Is the strategy being implemented properly? Is there any need for change in the strategy? If yes, what is the type of change required to ensure strategic effectiveness? Operational control focuses on the results of strategic action and evaluates the performance of the organization as a whole, or for different SBUs, or other units. The Relevant Questions for Operational Control Are How is the business performing? Are the firm’s resources utilised optimally? What are the actions required to ensure the proper utilisation of resources to meet organizational objectives? Strategic control and operational control differ from each other in terms of their aim, focus , main concern, , time span, and techniques used. Strategic Control – Contribution: Measurement of Organizational Progress, Feedback for Future Actions and Linking Performance and Rewards 247 CU IDOL SELF LEARNING MATERIAL (SLM)
Strategic control is more often than not overlooked by strategists due to the belief that once a strategy is formulated, the role of the strategist is complete . They remain indulged in daily reports which can be handled at lower levels. This approach can be especially dangerous if the stakes are high. Without control, strategists do not have any means to measure if the strategy is working or not. Measuring Organizational Progress Strategic control gauge organizational progress on how it is performing towards its objectives. The chosen strategy outlines the likely and relevant outcomes of the organisational objectives. The strategy is a means for an organisation to achieve success. Hence, measuring this success of the implementation is a primary concern for any strategist. Measurements must be accessed during the implementation and after the implementation to ensure that the progress is quick and corrective measures, if required, are taken at an appropriate time. Feedback for Future Actions Strategic management is a continuous process with no apparent beginning or end. Hence control gives clues for recycling actions which are relevant an organization. . This is possible only if strategic planning process and control process are well integrated. Thus, control activities are commenced in the light of the criteria set by the company’s strategic plan. At the same time, control gives inputs for adjusting the same strategic plan or making future strategic plans. This is how an organization progress over time. They take a strategic plan, implement it through actions, and find its results. If the results are in tune with what was intended, similar types of strategic actions are taken in future. Thus, there is a chain between strategic plan, actions, and control. Linking Performance and Rewards Many organizations fail to link performance and rewards, although this is the most important part of strategic control. This happens not only for different organizations but even for a country as a whole. Abe glen has observed that “the dispersion of part of the rewards by the organizations without regard to performances is more common in the less modern parts of the country than in the more advanced ones, and in less developed than in more developed countries. It is one of the reasons why organizational control is less effective in less developed countries.” Linking performance and rewards is a big issue. If done objectively, a control process also provides inputs for relating performance and rewards. This linking is important for motivating the employees more so in an era when there is fight not only for market share 248 CU IDOL SELF LEARNING MATERIAL (SLM)
but also for human talent. A performance-based motivation system works much better than the one that considers other factors. Strategic Control – Three Groups of Personnel Actively Involved: Board of Directors, Chief Executives and Role of Other Managers As strategic control is a part of a strategic management process, all persons who participated in the strategy formulation and implementation should also participate in the strategic control process, except those who were in an advisory capacity. The Board of directors, chief executives, managers, corporate planning staff, and consultants are the usual participants in a strategic management process. Of these, the corporate planning staff and consultants acted either as advisors or as facilitators. Three groups of personnel are actively involved in the strategic control process though their area of control differs. Sometimes, outside agencies like financial institutions or government(mostly for public sector companies), also participate in the strategic control process either through their participation in the board of directors or by having power to interfere with the management practices. However, the role of financial institutions in strategic control process is quite limited except through their nominees on the board of directors. In case of public sector companies, the government participates in the strategic control process through nomination of board members and by controlling ministries of particular enterprises. In some cases, authorities may be constituted above the board level to evaluate the performances of group companies. Like, Tata Group has set up a Group Executive Office (GEO) and Business Review Committees (BRCs) to review the performance of its group companies which are around one hundred in number. If one excludes such specific cases, the role of board of directors, chief executive, and other managers in strategic control is quite significant. Role of Board of Directors The Board of directors in a company, are the trustee of shareholders’ property, are directly answerable to them. Thus, the board should be directly involved in the process of strategic control. However, as the board does not participate in the day-to-day management process, it evaluates the performance of the concerned company , after certain intervals in its meetings. The role of a board of directors is limited to controlling those aspects of the organizational functioning which have long-term implications. Such aspects include overall financial performance, overall social concern and performance, and certain key management practices having significant impact on the organization’s long-term survival. Generally, the control information used by the board is concise but comprehensive as compared to the control reports used at lower levels. 249 CU IDOL SELF LEARNING MATERIAL (SLM)
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