Website https://en.wikipedia.org/wiki/SWOT_analysis# http://dspace.hmlibrary.ac.in:8080/jspui/bitstream/123456789/1567/7/07_Chapter%20 1.pdf GUBGMHVpwcTsPFvNNVdG5DKtpv6UwksAfzw5aULcGzgG 101 CU IDOL SELF LEARNING MATERIAL (SLM)
UNIT 6: ORGANIZATIONAL APPRAISAL STRUCTURE 6.0 Learning Objectives 6.1 Introduction 6.2 Dynamics of Internal Environment, 6.3 Organizational Capability Factors 6.4 Summary 6.5 Keywords 6.6 Learning Activity 6.7 Unit End Questions 6.8 References 6.0 LEARNING OBJECTIVES After studying this unit, you will be able to: Appreciate the concept of Organizational Appraisal. Explain the Dynamics of Internal Environment. Illustrate the Organizational Capability Factors. 6.1 INTRODUCTION Essential components of carrying out an organizational analysis include evaluating external factors that can affect the organization’s performance as well as strategically assessing the organization’s own resources and potential. Internal strengths and weaknesses along with outside opportunities and threats are keys to an organization’s success. SWOT analysis, which stands for strengths, weaknesses, opportunities and threats, is a strategic planning method an organization’s leaders often use to aid them in establishing business objectives or achieving the organization’s mission goals. Let us discuss the various aspects of organisational appraisal in the following sections Organizational Analysis is the processes of evaluating systematically organizational capabilities which can give it competitive advantage in the market .The capabilities enable the organization to achieve strategic advantage for long term success. Organizational Analysis is also known as internal analysis, corporate appraisal, self-approval, company analysis etc. Organizational Analysis is the analysis of internal environment which refers to all factors within an organization that influence its capabilities to accomplish its strategic 102 CU IDOL SELF LEARNING MATERIAL (SLM)
intent. The main purpose is to determine the capabilities of its strength and weakness of an organization. An organization may adopt a highly systematic approach to analyses. Proactive organization adopts a systematic approach on the other hand reactive organization use the ad hoc approach in response to the crisis. Both secondary and primary sources are used for collecting information needed for organizational analysis. Internal sources of information are employees opinion, company files and documents, financial statements and external sources includes newspapers, magazine, journals, government publications, trade and industry report etc. An appraisal is a valuation of property, such as real estate, a business, collectible, or an antique, by the estimate of an authorized person. The authorized appraiser must have a designation from a regulatory body governing the jurisdiction of the appraiser. Appraisals are typically used for insurance and taxation purposes or to determine a possible selling price for an item or property. Appraisals are used in many types of transactions, including real estate. If a home appraisal, for example, comes in below the amount of the purchase price, mortgage lenders are likely to decline to fund the deal. Unless the prospective buyer is willing and able to come up with the difference between the appraised value and the lender's financing offer, the transaction will not go forward. The appraiser can use any number of valuation methods to determine the appropriate value of an item or property, including comparing the current market value of similar properties or objects. Appraisals are also done for tax purposes when determining the value of charitable donations for itemized deductions. Deductions can reduce your taxes owed to the IRS by deducting the value of your donation from your taxable income. Appraisals can also be a helpful tool in resolving conflicts between heirs to an estate by establishing the value of the real estate or personal property to be divided. An appraisal determines the value of the home to ensure that the price reflects the home’s condition, age, location, and features such as the number of bathrooms. Also, appraisals help banks and lenders avoid loaning more money to the borrower than what the house is worth. In the event of default, which is when the borrower can't make the payments anymore, the bank uses the appraisal as a valuation of the home. If the home is in foreclosure whereby the bank takes possession of the house, it must be resold to help the lender recoup any losses from making the mortgage loan. It's important to remember that when a bank lends for a mortgage, it gives the full amount of the home's value to the seller on the date it's sold. In other words, the bank is out the money and in return, has a promise to pay, plus interest, from the borrower. As a result, the appraisal is important to the lending process since it helps the bank avoid losses and protect itself against lending more than it might be able to recover if the borrower defaults. 103 CU IDOL SELF LEARNING MATERIAL (SLM)
Collectibles or Antiques Professional appraisals can be done for many items, including collectibles, antiques, or grandma's silver. Ideally, you'll want multiple valuations for an item from an accredited professional. Appraisers might charge an hourly rate of a flat fee. A certified appraiser's valuation will likely be fair and unbiased, whereas the local collectible shop has an incentive to offer you less for the item. Also, owners can get an idea of an item's value by checking collectible magazines and online appraisal websites. Most websites charge a small fee, such as $10, to value an item. Of course, obtaining a value online is done through photos of the item and is not an official appraisal, but it should give you an idea of what it's worth before proceeding. If you decide to pursue an appraisal, the American Society of Appraisers has thousands of members and is a great place to begin searching for an accredited professional. Appraisals and Insurance Some types of insurance policies also require appraisals of goods being insured. Homeowners and renters insurance policies protect policyholders against the loss of personal property due to theft or damage. These blanket policies cover items up to a present dollar limit. Obtaining an appraisal of the contents of a home creates an inventory of the owner's property and establishes its value, which helps to ensure a swift settlement if a claim is filed. When the value of specific items exceeds a homeowner’s policy limit, the policyholder may wish to obtain additional insurance that covers luxury items such as jewellery or collectibles, including art objects, and antiques. Prior to issuing personal property insurance policies for high-end items, many insurance underwriters require applicants to have the object appraised. The appraisal creates a record of the item's existence, along with its description. It also helps establish the item's actual value. Some insurance contracts include an appraisal clause that specifies the owner agree to obtain an appraisal from a mutually agreeable expert in the event of a dispute between the owner and the insurance company. Neutral appraisals can speed resolution of a settlement and keep disputes from escalating into lengthy and expensive lawsuits. An appraisal is basically a way to conduct an unbiased analysis or evaluation of an asset, a business or organization, or to evaluate a performance against a given set of standards or criteria. Performed by a qualified appraiser, an appraisal is usually done whenever a property or asset is to be sold and its value needs to be determined, or to establish the tax obligations of a particular business. 104 CU IDOL SELF LEARNING MATERIAL (SLM)
6.2 DYNAMICS OF INTERNAL ENVIRONMENT The business environment comprises of all the factors that affect and support the business activities. It consists of both internal factors as well as external factors. All the personnel, business conditions, physical environment, politics, economic conditions, and other resources determine the working of the business, and the businesses are the main activity of every other activity happening in the world. It is the most dynamic and uncertain. A change in the political party, level of precipitation, or even a statement of an influencer can affect the business environment. The change in the business environment affects the earnings and profits of the companies. The level and cost of production are also determined by the influence of various factors over the business. To know more about the business and its functioning, read on websites like Dynamics Business Central. It will provide a complete guide to the business, and there are different levels of courses available on the site. One can choose the courses according to their preferences and level of knowledge. The significant dynamics of the business environment are as follows. The government of the country handles the production and economic affairs, and the government policies and guidelines affect the working of the business in a very significant manner. The government and other authorities make amendments in the business policies to facilitate trade more smoothly. The political factors are a highly determinant factor in the business environment. The recent change of using computerized and internet technology in the offices has changed the business culture more towards the work-from-home culture. The demand and supply of a product or service depend on consumer choices. The taste and preferences change very rapidly. It depends on the tradition, culture, personal choices, income, and personality of an individual. To control this dynamic factor, a business person must understand consumer behaviour. The right analysis of consumer behaviour and their buying pattern will help you in controlling these changing factors. There are many other determinants; too that affects the choices of an individual. It could be external or internal dependent. The choices and advice of people with whom we are in contact affect our choices. Similarly, the latest trends, fashion, and the choices of our influencers also affect our own will. The technological and innovation in the product and services change its overall demand. Technological changes positively influence products like electronics, gadgets, and the media. As soon as the technology in the product change or the process of its manufacturing, the business also changes. It affects the sale and marketing strategies for a particular service or product. The organizations should keep their working updated according to the changes in the technological process. Many other dynamics affect everyday business working. We can control the internal factors. But it is not possible to control the external factors. So, companies should focus on updating their business activities according to these factors. Analyse the changes carefully and take necessary actions to convert these dynamic factors into opportunities for the organizations. 105 CU IDOL SELF LEARNING MATERIAL (SLM)
The situation analysis, as a separate component of the strategic planning, involves collecting and analysing relevant types of information on the components of the marketing environment and their evolution on the one hand and also on the organization’s resources and capabilities on the other. The main purpose of the study of the analysis techniques of the internal environment is to provide insight on those aspects that are of strategic importance to the organization. The marketing environment consists of two distinct components, the internal environment that is made from specific variables within the organization and the external environment that is made from variables external to the organization. Although analysing the external environment is essential for corporate success, it is not enough unless it is backed by a detailed analysis of the internal environment of the organization. The internal environment includes all elements that are endogenous to the organization, which are influenced to a great extent and totally controlled by it. The study of the internal environment must answer all resource related questions, solve all resource management issues and represents the first step in drawing up the marketing strategy. The present paper accomplished a documentary study of the main techniques used for the analysis of the internal environment. The special literature emphasizes that the differences in performance from one organization to another is primarily dependant not on the differences between the fields of activity, but especially on the differences between the resources and capabilities and the ways these are capitalized on. The main methods of analysing the internal environment addressed in this paper are: the analysis of the organizational resources, the performance analysis, the value chain analysis and the functional analysis. Basically such an analysis of the internal environment allows the organization to identify its resources and capabilities as best as possible, in relation to the threats and opportunities brought about by the crisis situations. The research allows the identification of the organizational behaviour of resource and capabilities capitalization that must be adopted during the economic crisis. The study may be useful to both the academic and the business environment. Any organization represents a component of the marketing environment where it is active. Starting from this statement, the implementation of the market strategy is regarded as a development of long term actions plans, aimed to ensure an efficient management of opportunities and threats within the marketing environment while considering the strengths and weaknesses of the organization in itself. The situation analysis, as a distinct component of the strategic groundwork, involves collecting and analysing the types of relevant information on the marketing environment components and their evolution on the one hand, but also on the company’s resources and capabilities on the other. The marketing environment of the organization consists of two distinct levels, the internal environment that is made from specific variables within the organization and the external environment that is made from variables external to the organization. The external environment is divided further into two distinct categories (sub-environments of marketing): macro-environment and micro- environment. The potential result of the external environment analysis is identifying the organization’s opportunities and threats, both present and future. On the other hand, the 106 CU IDOL SELF LEARNING MATERIAL (SLM)
potential result of the internal environment analysis is identifying the strengths and weaknesses that are present in the organizational structure and culture The internal environment includes all elements that are endogenous to the organization, which are influenced to a great extent and totally controlled by it. The study of the internal environment must answer all resource related questions, solve all resource management issues and represents the first step in drawing up the marketing strategy. All these components are making up a “value chain”; the value chain analysis is based on the connection between the company’s resources and its competitive position and it explores how these components contribute to the profitability. The external business environment comprises are set of factors that make up a complex, heterogeneous structure, consisting of a network of exogenous variables matched by the own resources of the company endogenous variables. The marketing environment consists of two main components: the micro- environment and the macro-environment. The micro-environment of the organization is comprised from those components that are in direct relationship with the company, of mutual inter-dependency, permanent and high intensity, issued from the need of achieving present or future objectives. These components are: merchandise suppliers, services providers, labour force providers, competitors, public organizations. The macro-environment includes all the factors that are influencing indirectly, on the long term and with weak intensity, generating business opportunities for the company or, alternatively, threatening and forcing the organization to adapt, with no possibility of a direct influence of these factors. The macro- environment components are: the demographic environment, the economic environment, the technologic environment, the cultural environment, the politics environment, the legal and institutional environment, and the natural-geographic environment. The present paper accomplished a documentary study of the main techniques used for the analysis of the internal environment. Although analysing the external environment is essential for corporate success, it is not enough unless it is backed by a detailed analysis of the internal environment of the organization. The study of the internal environment must answer all resource related questions, solve all resource management issues and represents the first step in drawing up the marketing strategy. The special literature emphasizes that the differences in performance from one organization to another is primarily dependant not on the differences between the fields of activity, but especially on the differences between the resources and capabilities and the ways these are capitalized on The stages of this method are the following: defining the company resources that generate the organizational strengths and weaknesses; identifying the optimum method to combine the resources and generated capabilities; identifying the extent to which the combined resources and capabilities are generating sustainable competitive advantages; selecting strategies to best exploit the resources and capabilities of the organization in relation to the market opportunities; analysing the main characteristics of the resources and capabilities in terms of sustainability, transferability and repeatability as basic elements in sustaining competitive 107 CU IDOL SELF LEARNING MATERIAL (SLM)
advantage and identifying the resource gaps. The research conducted on the method of analysing resources as a method of internal environment analysis has proven that the development of sustainable competitive advantage depends directly on the company’s resources and capabilities. The analysis of resources is the basis for identifying those resources capable to sustain competitive market strategies. Through their nature, the strategies based on the organization resources are requiring a better understanding of the strategic capabilities of the organization. The marketing professionals may choose to combine the analysis of resources with one of the following methods. Performance analysis PIMS Programme (Profit Impact of Market Strategy) is the most known method of performance analysis and was developed by the American Institute of Strategic Planning to emphasize the influence of the internal strategic factors on the activity of the organization. The main aim of the PIMS method is to empirically develop principles to determine which strategic variables and under which circumstances are producing one result or another, identified as the sales volume or investment profitability. The conclusion following the research was that nine strategic variables are influencing 80% out of the variations in the organizational profit. It must be also considered that there are many other ways to evaluate the organizational performance. Indeed, although most of them suppose financial assessment, there is also a series of non-financial indexes that may offer a long term image on the “health” of the business. Part of these indexes may be the market position, the value of products, managerial development or work productivity. We must also bear in mind that the strategic objectives of the organization may change over time and the financial indicators measuring the business performance must also be modified. For example, when a new product is launched, the key index may be the sales growth rate, while when the product is at its maturity; one may use the return on initial investment or the profitability rate. Considering the importance of both the financial and non-financial indicators Kaplan and Norton have developed the balanced scorecard as a method of evaluating and measuring the company performance. This approach suggests four perspectives to integrate the financial and non-financial performance indicators of the organization: internal perspective, financial perspective, learning and growth perspective and the customer perspective. Identifying the strategic factors with the greatest impact (positive or negative) is also important to be performed by the strategic managers seeking to increase the company’s performance. Otherwise put, the managers should identify those variables that have significant effect on the company’s strengths and weaknesses. A variable may be considered as a strength if it generates competitive advantage, if it brings extra value to the consumer and if the organization is able to capitalize it at a superior level than the competitors on the market. On the other hand, a variable is a weakness for the organization if it is also of value to the consumer but if the company is unable to generate it, or produces it at an inferior level than the competition. Value chain analysis. 108 CU IDOL SELF LEARNING MATERIAL (SLM)
6.3 ORGANIZATIONAL CAPABILITY FACTORS Organizational capability is of particular importance to organizational performance. Existing research in the literature identified a wide range of factors that would contribute to organizational capability. This paper aims to establish a theoretical model that addresses the fundamental elements contributed to organizational capability. We develop an organizational capability model based on a model of individual capability proposed by Nguyen and Zeng. Organizational knowledge, skills and emotion are identified as the three elements determining the organizational capability. In the proposed model, organization is abstracted as a work-centric construct highlighting work, goal and people as the contextual factors influencing emergence of the organizational elements. These elements are explained in details focusing on their characteristics as organizational phenomena. Finally, it is briefly discussed how the proposed organizational capability model can be used for effective organization management All organizations are set up to deal with work to achieve desired performances. Business firms strive to outperform their competitors to excel in the ever changing market Governments aim to serve their people by making good use of their resources. Universities seek to maximize education quality and research contributions to benefit the society. Therefore, organizational performance has drawn continuous research attention especially on what and how to make an organization perform well in its practices Organizational performance is collectively determined by the performances of its individuals in the organization. Individual performance is thus thought of as the “micro-foundation” of the organizational performance Yerkes and Dodson observed the relation between the strength of stimulus and the rate of habit formation for individuals. The observation was generalized into Yerkes-Dodson law, which indicates that human performance varies with stresses following an inverse U curve. The stress, according to the Person-Environment theory of stress, is defined as “subjective appraisal indicating that supplies are insufficient to fulfil the person’s needs.” Under a working environment, stresses arise when the demand of work exceeds a person’s capability. In this sense, individual performance can be associated with the individual’s stress level through his/her workload and capability. At the organizational level, organizational capability has been highly regarded as a determining factor for the organizational performance. In the field of strategic management, dynamic capability of business firms is deemed as the source keeping firms continuously more competitive than their competitors in the market. The capabilities of an organization such as “routine” or “process” of operation determine the basic organizational performance. Alegre and Chiva argued that high organizational learning capability leads to enhanced organizational innovation performance. Given the importance of organizational capability to organizational performance, many researchers have attempted to model what is the organizational capability. lists some representative definitions of organizational capability in the literature. 109 CU IDOL SELF LEARNING MATERIAL (SLM)
These definitions reflect the topics and themes in the research of organizational capability: knowledge integration, routine, process, technology, human resource and emotion. The definitions in suggest that multiple factors would influence organizational capabilities. For example, organizational learning was emphasized as an important approach to developing abilities at organizational level; Managerial cognition can be taken as a building block of organizational capabilities organizational capability development is also viewed as human resource management organizational structure development and emotional management. These influencing factors reflect the perceptions and interests of different research groups. However, is the organizational capability a single factor variant or a result of multiple determinants? Is there a model that can reveal all the factors and relations underpinning the organizational capability? Is there a model which can link scattered approaches and results to facilitate the development of capable organizations? Is this model systematically developed following a rigorous scientific process rather than ad hoc experience? This paper aims to present a comprehensive organizational capability model which provides a theoretical basis for analysing essential factors influencing organizational performance and for integrating different kinds of definitions of organizational capability. Such a comprehensive model will provide a significant guideline in building organizational competencies for practitioners to improve organizational performance. Capability is defined as an individual’s “physical and mental ability to do something” In dualistic philosophy, human being is described as body and mind while human body is the physical basis and human mind is the non-physical part Chalmers argued that human mind can be considered from psychological and phenomenal aspects. The psychological aspect deals with the causal explanation of human behaviour while the phenomenal aspect focuses on the conscious experiences of mental states. In other words, human mind is featured by what it does and how it feels. The two aspects of the human mind correspond to rationality and emotion, respectively. In modern knowledge-intensive organizations, the tasks assigned to most employees would be heavily associated with solving problems and making decisions which are highly dependent on human mental capability. Physical well-being, as the material basis of human mind, sets the boundary for one’s mental capability. In applying Yerkes Dodson law to modelling human capability and competency, Nguyen and Zing proposed a mental stress model indicating that an individual’s mental stress is related with the individual’s perceived workload and mental capacity. The mental capacity depends on knowledge and skills that are necessary for dealing with the workload. Meanwhile, emotions triggered by the workload will in turn affect how well the knowledge and skills can be made use of. The mental capacity was formally represented as: 110 CU IDOL SELF LEARNING MATERIAL (SLM)
In organizational science, organizational capability is manifested as the collective capability by all of the individuals in an organization. Individual capability model can provide a single level perspective to observe organizational capabilities. But this view point leaves open an important question: how does the individual capability describe the collective characteristics of the organizational capability? When an individual becomes a member of an organization, he/she will encounter a complex context: hierarchical or nested structure of people, rules, norms and regulations of the unit, as well as organizational goals and culture. It is these contextual factors and their interrelations that form the collective features of the organizational capability. Therefore, developing organizational capability model shall not only include the elements of individual capability but also take the contextual factors and relations into consideration. In this paper, Multilevel Theory and Axiomatic Theory of Design Modelling are used to relate the individual capability with the organizational capability. MLT lays the theoretical foundation bridging the elements of individual capability to the organizational capability, whereas the ATDM is used to identify factors that can bring the individual capabilities into the organizational capability. The core of MLT is that organizational phenomena are rooted in individual phenomena and collectively determined by them. Individual elements can emerge into higher level phenomena through dynamic interactions among individuals under the influence of contextual factors. Individual elements are thus thought of as the microfoundations of the organizational phenomena. Accordingly, observation of organizational phenomena will rest on both the individual elements and influence from the organization. In this paper, MLT will guide us to focus on how individual elements emerge into organizational phenomena. ATDM is originally developed to study design, including design activities, the structure of design products and their environment. It includes two groups of axioms and a series of corollaries derived from the axioms. The main idea of ATDM is about the nature of objects: everything in the universe is an object. The relation between objects is an object too. Thus the structure of an object is defined as the union of an object and the interaction from the object to itself. If an object includes sub- objects, the interactions between these sub-objects should always be attached as a part of the object structure. By using the axioms and corollaries in ATDM, Environment Based Design is a design methodology developed to deal with open-ended design problem, which includes environment analysis, conflict identification and solution generation . Environment analysis enables us to identify the structure of an object via a semantic model Recursive Object Model which can represent the meaning structure of a linguistic statement. In this paper, ATDM and EBD are used to analyse the contextual factors of emergence process of organizational phenomena. The rest of this paper is organized as follows: Section 2 is the main part of this paper presenting the development of an organizational capability model. Section 3 shows how the organizational capability model can be used in organizational management. Finally, Section 4 concludes this paper and discusses the future work. 111 CU IDOL SELF LEARNING MATERIAL (SLM)
6.4 SUMMARY Knowledge has various connotations. Simply put, knowledge is an understanding of the world in human mind. Traditional knowledge was strictly defined, dated back to Plato, as the “justified true belief”. Although knowledge is suggested to be situated and contested, we will take the argument that knowledge is a stable and objective understanding justified by human rationality Human beings, taking the structure of the world as the object of understanding, draw knowledge from interactions with the world and/or from the appreciation of epistemic accumulation of human beings From the function point of view, knowledge enables human beings to “exercise judgement” or “draw distinctions” or in general, to act. When an individual interacts with the world, he/she establishes his/her own perception of the world in his/her mind which is named after mental model in psychological terminology. Mental models are “the internal representations that individual cognitive systems create to interpret the environment. A mental model is an individual’s image of the world that he/she believes to make sense, which could be evolving continuously along with the time and situations Based on a mental model, an individual can reason, explain, predict his/her world, and guide his/her actions. Personal knowledge is a justified mental model. Individual’s mental model is dynamic and can evolve under the influence of the individual’s environment, when he/she is in a social unit. In the context of an organization, a shared mental model can be developed to respond to the interest of group cognition. Studies show that a shared mental model will enable a better group performance for making reasonable decisions within less time than that of groups absent of a shared mental model. The shared mental model enables group members to act on the work with a similar perception of their work. An organization provides the context and conditions for a shared mental model to be generated, developed and justified. The organization will act as a platform for its people to implement the work and to evaluate the quality of work output in terms of organizational goals. Meanwhile, an organization is featured with propositional rules to organize its work and people according to its accumulated knowledge and experience . In order to achieve organizational goals, an overall work can be perceived as producing certain products or providing certain services through working procedures containing a series of subtasks. In implementing of a working procedure, the following skills are indispensable: understanding organizational goals, identifying resources, evaluating working outcomes, managing organizational employees, and making organizational changes. 112 CU IDOL SELF LEARNING MATERIAL (SLM)
“Doing well” implies that actions shall be effective and efficient for delivering good performances. Efficiency depends on the skills to automate a routine of repetitive pattern of behaviours. Effectiveness relies on the skills to identify the right things to do. In the light of stress model shown in Equation (1) and (2), doing the following may bring about a good performance: perceiving the correct workload, identifying the right knowledge, improving the necessary skills, and coping properly with the emotions. 6.5 KEYWORDS Internal Process Perspective – Internal Process Perspective: The perspective used to monitor the effectiveness of key processes at which the organization must excel in order to achieve its objectives and mission. IT Performance Management – A type of performance management that assists organizations with the increasing demands of maximizing value creation from technology investments; reducing risk from IT; decreasing architectural complexity; and optimizing overall technology expenditures. Other types of performance management include operational performance management and business performance management. Key Outcome Indicator (KOI) – Often used in the public sector to describe key performance indicators, those metrics most critical to gauging progress toward objectives. KOIs are metrics that are: tied to an objective; have at least one defined time-sensitive target value; and have explicit thresholds which grade the gap between the actual value and the target. Key Performance Indicator (KPI) – Distinguished from other metrics, key performance indicators (KPIs) are those metrics most critical to gauging progress toward objectives. KPIs are metrics that are: tied to an objective; have at least one defined time-sensitive target value; and have explicit thresholds which grade the gap between the actual value and the target. Lagging Indicator – Backward-looking performance indicators that represent the results of previous actions. Characterizing historical performance, lagging indicators frequently focus on results at the end of a time period; e.g., third-quarter sales. A balanced scorecard should contain a mix of lagging and leading indicators. 6.6 LEARNING ACTIVITY 1. Create a session on Dynamics of Internal Environment. ___________________________________________________________________________ ___________________________________________________________________________ 113 CU IDOL SELF LEARNING MATERIAL (SLM)
2. Create a survey on Organizational Capability Factors. ___________________________________________________________________________ ___________________________________________________________________________ 6.7 UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. What is organizational resource? 2. Define Future earnings? 3. What is an Appraisal? 4. Define the concept of Internal Environment? 5. Write the meaning of Appraisal? Long Questions 1. Explain the Internal environment analysis techniques. 2. Examine the 3 Important Dynamics Of Business Environment. 3. Illustrate the Dynamics of Internal Environment. 4. Illustrate the Organizational Capability Factors. 5. Examine the advantages of Organizational Appraisal. B. Multiple Choice Questions 1. What does Question Mark (?) symbolize in BCG matrix? a. Remain b. Diversified c. Invest/ Stable d. Liquidate 2. Which is not the limitation of strategic management? a. Time consuming process b. Difficult estimation of competitive responses c. Costly process d. Understandable complex environment 114 CU IDOL SELF LEARNING MATERIAL (SLM)
3. What does developing a vision and mission, identifying an organization's external opportunities and threats, and determining internal strengths and weaknesses are all activities? a. Strategy-formulation b. Strategy-implementation c. Long-range planning d. Short-range planning 4. Which one of the following is not a part of Porter's competitive forces in industry analysis? a. Potential entry of new competitors b. Bargaining power of suppliers c. Development of substitute products d. Bargaining power of union 5. Which strategy would be effective when the new products have a counter cyclical sales pattern compared to an organization's present products? a. Forward integration b. Retrenchment c. Horizontal diversification d. Market penetration Answers 1-c, 2-d, 3-a, 4-d, 5-a 6.8 REFERENCES References book Cyert, Richard M. 1993. Information, market imperfections and strategy. Strategic Management Journal. Daft, Richard. 2004. Organization theory and design. 8th ed. South-Western College. Dasgupta, Partha, and Joseph Stiglitz. 1980. Industrial structure and the nature of innovative activity. Economic Journal (Journal of the Royal Economic Society, London). Textbook references 115 CU IDOL SELF LEARNING MATERIAL (SLM)
Day, George S., and David J. Reibstein. 1997. Wharton on Dynamic Competitive Strategy. New York: John Wiley & Sons. De George, Richard. 1982–1999. Business ethics. Upper Saddle River, NJ: Prentice Hall. De Wit, Bob, and Ron Meyer. 2004. Strategy: Process, content, context. 3rd ed. South-Western College/West, a part of Cengage Learning, Inc. Website 3eb46242aad791aefa762d89a01f631aa5c09f1c73c3bae55df33bcaaa769c33caeea5adb c48 https://www.researchgate.net/publication/320263242_Organizational_Capability_Mo del_Toward_Improving_Organizational_Performance/link/5acc1f194585151e80ab73 57/download https://theintactone.com/2018/12/27/sm-u2-topic-7-organizational-capability-factors/ 116 CU IDOL SELF LEARNING MATERIAL (SLM)
UNIT 7: METHODS STRUCTURE 7.0 Learning Objectives 7.1 Introduction 7.2 Methods 7.3 Technique UsedforOrganizationalAppraisal 7.4 Summary 7.5 Keywords 7.6 Learning Activity 7.7 Unit End Questions 7.8 References 7.0 LEARNING OBJECTIVES After studying this unit, you will be able to: Comprehend the concept of Appraisal. Illustrate the Methods of Organizational Appraisal. Explain the Technique UsedforOrganizationalAppraisal. 7.1 INTRODUCTION Emotion research has been developed rapidly since the 1960’s. Investigation on how emotion occurs has resulted in various theories: physiological theories,, psychoevolutionary theory and cognitive theories . Physiological theories claim that emotion is related with the physical response to stimuli from the environment, while cognitive theories emphasize that emotion is intertwined with cognitive activities of human beings. In cognitive theories, emotion is triggered by certain events, through perceptual and appraisal processes to achieve goals and meanings in actions. In this paper, a cognitive model of emotion generation process is summarized from the literature The two cognitive stages of emotion generation process. Emotion generation starts from the interaction with an event. Individual’s mental model, emotional experience, physical state and emotional state will influence the individual’s perception on the event. Following the individual’s recognition of the event, the individual will appraise the perceived event with his/her goals, objective, and belief, which will lead to a new emotion state expressed by an action tendency. Meanwhile, the perceived event, physiological response, and the new 117 CU IDOL SELF LEARNING MATERIAL (SLM)
emotion will in turn update the individual’s original mental model, physical state and emotional state, which will then generate a new emotional experience. Collective emotion in an organization is the result of the convergence and emergence processes of individual emotions. Convergence and emergence of emotions can be achieved through a bottom-up process which is facilitated through individual interactions together with the top-down influence asserted by the existing sentiments and other organizational factors. Man stead et al. classify the process of emotion convergence into top-down and bottom-up processes. The top-down process aims to enforce a collective emotion through directing a group of people by a norm shared by the group whereas the bottom-up process may lead to a shared emotion through interpersonal interactions among the group members. A collective emotion emerges when a consensus among individual emotions is reached. The convergence process could occur in either recognizing or appraising stage. Von Scheve and Ismerproposed a model of collective emotion elicitation, which reveals three paths of emotional convergence: emotional contagion, I-mode collectively and We-mode collectively. Emotional contagion describes the gradual evolution of diverse individual emotions into similar emotions. The second path refers to the independent generation of shared emotions among organizational members who share the similar perception of an event and the appraisal structure. The third path shares the same mechanism with the second one but emphasizes the awareness of the common affective response among organizational members. The convergence and emergence of collective emotions are triggered and facilitated by interactions and interdependences among organizational members. A group of influencing factors were summarized including structure and practice, leader behaviours, social process and communication, and homogeneity of individual attributes. These factors are associated with both internal and external environments. We argue that individual’s mental models would serve as the internal environment since the mental model, if shared, will lead to similar reactions to an emotion stimuli. External factors would include the objects that interact with the observed individuals in an organization. Fig. 7 illustrates the objects in an organization that may have relations with an observed individual. Among all of these factors in Fig. 7, the most important factor that may trigger the emotion generation is the work/workload. In addition, through communication they are exposed to information such as actions, feelings, values and beliefs from leaders and peers on which individuals build their own identities in the organization. The organizational values, norms, action codes, rules and regulations which represent the well-organized feature of an organization, form the individuals’ knowledge and foster his/her rationality. Individuals in an organization rely on the goals, outcomes, motivation or punishment to adjust their behaviours. Organizational culture: Organizational culture is what an organization developed over time to “hold common assumption, pattern of perceiving, thinking, feeling and behaving providing meaning, stability and comfort”. Organizational culture constrains the cognitive pattern for perceiving events within the organization so that the shared perception will lead to a common 118 CU IDOL SELF LEARNING MATERIAL (SLM)
feeling and behaviour. - Organizational value: Organizational value is constituted by criteria by which the individuals in an organization discern the rightness, importance, and preference. They are the “held assumptions” for assessment during the emotion elicitation and act as the core part of an organizational culture. - Leadership: Leadership is the influence of a leader asserting on his/her subordinates, superiors, colleagues and even customers and suppliers. The influence, coming from the power of situation and personal charisma of the leader, will undoubtedly change people around him/her in perception, value, and even personality. The change will in turn affect the generation of collective emotions. Some researchers suggested that the organizational culture was derived from leadership. This view indicates that leadership will assert influence on organizational emotions. - Communication: Communication is the approach that enables the information spreading among organizational members representing their interaction and interdependence. The spread information triggers emotion contagion within the organization resulting in common emotions - Norms, code of actions, rules and regulations: These are the direct expectations on individual behaviours. Individuals in an organization follow them or accept them through “power of compliance” of organizations to form the shared rationale, which will impact on the future emotion generation and expressions. 7.2 METHODS Organizational appraisal is the systematic evaluation of the internal environment of a firm in order to determine the strength and weaknesses that influences a firm’s ability to achieve its goals. Organizational strengths enable a firm to decide the area which it should undertake. For example firm’s having their strengths in marketing area should go for marketing activities rather than going for production and manufacturing. By analysing the weaknesses, an organization can take various actions to overcome it. Analysing the strength and weaknesses and matching them with the environmental opportunities and threats is very necessary for strategic formulation of a firm. Generally the strengths and weakness of an organization are measured in terms of its environment otherwise it is very difficult to state which factor is strength or which weakness for a firm is. The process of organizational appraisal is described through a sequence of activities which are as follows: Key Factors identification The various factors that can be evaluated to determine the strengths and weakness of the organization are identified in the first step of organizational appraisal. The selection of key factors may relate to marketing, finance, accounting, manufacturing, research and development, organization structure and management pattern etc. The key factors should cover all aspects of the organization. Identification of importance of factors 119 CU IDOL SELF LEARNING MATERIAL (SLM)
The importance of key factors may not be equal, some factors are more important and some are less important. The nature of the organization and its environment determines the relative importance of the factors. The contributions of each factor in the achievement of certain key results also determine their relative importance. Also by relating the key Factors with the critical success factors of the firm, the relative importance of the factors can be determined. Here the importance of the key factors are identified and are compared with the requirements of the critical success factors. Assessing strengths and weaknesses on key factors The strategic key factors help to assess the organizational strengths and weaknesses in respect of these factors. The contributions made by the factors in achieving the organizational objectives define the organizational strength on that factor. The negative contributions made by the factor in achieving the organizational objectives define the organizational weakness on that factor. The organizational strengths and weakness can also be assessing by making the comparative analysis of key strategic factors with those of the competitors. Also there are some techniques like financial analysis, key factor rating, functional area profile and resource development matrix etc. that helps in the assessment of organizational strengths and weakness. Preparing the organizational capability profile The organizational capability profile is prepared on the basis of organizational strengths and weakness. This profile shows the strong areas of the organization in terms of degree. If quantitative measurement is used for strength and weakness then positive number cab is used for strength and negative number can be used for weakness. Relating organizational capability to strategy Here many strategic actions is taken to increase the organizational strengths and reduce the organization weakness. The result of these strategies is long run that fits the organization into its environment taking into account the strategic strengths. 7.3 TECHNIQUE USEDFORORGANIZATIONALAPPRAISAL Organizational appraisal is an important factor for analysing the internal environment. There are few methods and techniques that are used in the organizational appraisal. These methods are to some extent similar to the techniques used for performance evaluation in an organization. Performance appraisal is short term in nature. Performance appraisal means to assess the current behaviour of an organization keeping in mind its efficiency and effectiveness. While, organizational appraisal emphasises on the long-term needs of an organization such as to gain capability to compete in the market and to utilize the available resources optimally. The various methods and techniques of organizational appraisal are as follows: 120 CU IDOL SELF LEARNING MATERIAL (SLM)
Internal Analysis In this analysis, an investigation about the strengths and weaknesses of an organization is carried out using various techniques. Internal analysis provides the value chain analysis and quantitative analysis techniques. Value chain analysis is a way of looking at a business as a chain of activities that converts inputs such as raw materials into outputs such as final product as per the requirement of the customers. In 1985, Michael Porter was the first person to describe value chain analysis in his book called Competitive Advantage. He identified value chain analysis as a set of interrelated generic activities that are common to a wide range of organizations. The main objective of the activities of a firm is to create value, that is, customer satisfactions that exceed cost of providing the service or product that generates the profit margin. Therefore, value chain analysis helps understand how a business creates customer value by examining the contribution of various activities within the business to that value. Value chain analysis is a process in which the point of view of different individuals is considered, In this method, the business in divided into sets of activities such as receiving the raw material, transforming the raw material to a finished product and finally dispatching the finished product to the customers. These activities are described in a model called value chain model. Figure 7.1: Chain model The profit margin depends on the usefulness in performing the activities effectively, so that the amount the customer is ready to pay for the product exceeds the cost of activities in the value chain. It is in these activities that the firm has an advantage in generating high amount of value. The value chain model is an efficient method for defining the core competencies and activities in which it can follow a competitive advantage A firm can create a cost advantage either by reducing the cost of individual chain activities or by rearranging the value chain. A cost analysis can be performed by assigning cost to the 121 CU IDOL SELF LEARNING MATERIAL (SLM)
value chain activities once the value chain is defined. There may be a need to modify the cost that is obtained from the accounting reports so as to assign them properly in the value creating activities. Economies of scale Learning Utilisation of capacity Linkages among activities Interrelationship among business units Degree of vertical integration Timing of market entry 40 Policy of cost and differentiation in a firm Geographic location Institutional factors such as taxes, union activity and regulations. Quantitative Analysis This is one of the most popular techniques to assess the performance of an organization. This technique involves use of financial figures along with other numbers to assess the strengths and weaknesses. The use of financial figures is called financial analysis and the use of numbers is called non-financial analysis. Financial analysis: In this method, evaluation of financial performance is covered in various functional areas within an organization. The traditional technique used for financial analysis. This technique is used to assess the liquidity, profitability and leverage of an organization. It also provides valuable data that can be used in organizational appraisal. It is therefore, a selective approach to measure the effectiveness and efficiency of the activities performed within the organization. the use of ratio analysis in strategic management is limited as it is more used in the financial area. Apart from ratio analysis, some other techniques used, which are considered to be an improvement over ratio analysis such as EVA (Economic Value-Added Analysis) and ABC (Activity-Based Cost analysis). EVA is developed by Stern Stewart & company to determine the wealth of a company. It helps in determining the profitability in terms of returns on capital above the cost of servicing the capital employed. It is considered as a wealth of an organization that is created for the owners and is expressed as the difference of the after-tax operating profits and the total cost of capital. It depicts that an organization needs to earn more form a business as compared to the cost of capital invested. The EVA provides a benchmark for accessing whether the organizations capable to take the strategic action and if the potential returns from that action will be greater than the required cost of capital. The second technique in financial analysis is ABC technique. It helps in identifying the factors that determine cost and the areas 122 CU IDOL SELF LEARNING MATERIAL (SLM)
where there is the involvement of cost. This method is used mostly is the value chain analysis and helps in avoiding the limitation of traditional accounting methods. Non-financial analysis: Non-financial analysis is used where it is not possible to express the result in monetary terms such as rupees, pounds or dollars. To quantify intangible goods such as goodwill or employee morale, non-financial analysis is helpful. The various non-financial measures are employee turnover, absenteeism, market ranking, rate of advertising recall, total cycle time of production, inventory units used per period, etc. Comparative Analysis Comparative analysis is the basis of the assessment of strengths and weaknesses of an organization. It helps in comparing strengths, weaknesses and other competencies of an organization to that of its competitors. It can be done in three ways, historical analysis, industry norms and benchmarking This is one of the ways to compare the organizational performance. It begins with historical analysis of the organization over a period of time. It is a good measure of assessing how well an organization has progressed with respect to its own past performance. The performance of an organization is judged by the comparative figures over the last few years. Various comparative figures can be judged by the balance sheet and profit and loss accounts presented in the annual report of an organization. These comparative figures are common parameters for assessing the organizational performance as with the help of these figures, the overall position of any organization can be judged. All past figures of an organization, which are consistently good over a period of time, are the indicators of strengths and those that are consistently bad are the indicators of weaknesses of an organization. The industry to which an organization belongs also plays a major role in assessing the past organizational performance. Various parameters in this regard such as cost structure, advertising budget, etc. which when compared with the rival organizations helps in knowing about the strengths and weaknesses of an organization. In this analysis, the business environment of various organizations is assumed to be same to make the comparison easier. In this analysis, apart from making the comparisons, evaluation of performances can also be done by taking all those organizations, which follow similar strategies. There are ways in which benchmarking can be followed such as: Performance benchmarking: This analysis is used to compare the performance of an organization with that of another organization. Its purpose is to determine how good an organization is as compared to others. Process benchmarking: This analysis is used to compare the methods and practices followed to perform processes with that of other organization. 123 CU IDOL SELF LEARNING MATERIAL (SLM)
Strategic benchmarking: This analysis helps compare the long-term and significant decisions as well as actions carried out by other organizations to attain their objectives with the strategies and decisions of our organization. Internal benchmarking: It is used to compare that units or departments of the same organization. Competitive benchmarking: It is the simplest analysis in which a comparison made between the performance of an organization with the best competitors. Functional benchmarking: It involves the comparison of process or functions against non-competitive organizations within the same sector or technological area. Generic benchmarking: This type of benchmarking is much similar to competitive benchmarking. It includes comparison of a process of an organization to the best processes in any other organization Value chain analysis as a technique of organizational appraisal The concept of value chain analysis was developed by Porter in 1985. Based on the understanding of the series of activities that a firm performs, this method helps to assess the strengths and weaknesses of an organization. A value chain is a set of interlinked value creating activities performed by an organization. The competitive advantage of a firm can be determined with the linkages and relationships between the various activities that a firm performs. The various activities of a firm may begin with the procurement of basic raw materials, that processes into various stages and end with the product marketed to the ultimate consumer. Primary and support activities are the two main parts into which the porter divides the value chain of a manufacturing concern. Primary activities are further divided into five sub- activities and are directly related to the flow of the product to the customers. These are: Inbound logistics These activities are concerned with the receiving, storing, transporting, and distributing inputs to the production process. These activities includes materials handling, stock control, transport, warehousing etc. Operations These activities are concerned with the transformation of raw materials into final product or service. For example this would include machining, packaging, assembly, fabricating, maintaining and testing etc. Outbound logistics These activities are concerned with the receiving, storing, transporting and distributing the outputs out of the production process. For tangible products these activities could be 124 CU IDOL SELF LEARNING MATERIAL (SLM)
warehousing, material handling, and transport. In case of services it may be more concerned with arrangements for bringing customers to the service if it is a fixed location. Marketing and sales These activities are concerned with all the methods that an organization uses to market and sell its products to the customers. For example typical marketing and sales activities that an organization uses are of pricing, developing products, advertising, promoting and distributing. Services These are concerned with all the activities that an organization uses to enhance/maintain the value of its product or service. For example service activities of an organization can be installation, repair, spares, customers training etc. Each of the primary activities is linked to the support activities and the support activities are provided to sustain primary activities. In order to procure products and to provide services an organization needs to procure inputs. All the efforts headed towards the procurement of inputs for the organization are categorized into procurement activities. The value chain analysis is the interrelation of this chain of various primary and support activities that are required to be undertaken for bringing the finished product to the ultimate consumer. The efficiency of use of these interrelated activities determines the profit margin that an organization can earn. It is a useful method of organizational appraisal. This method provides clarity about the strengths and weaknesses in the internal environment of the organization. In general the activities that provide more value to the customer at less cost are strengths of the organization, and the activities that provide less value to the customers at more cost are weakness of the organization. 7.4 SUMMARY Strength and weaknesses can be identified through organizational appraisal or analysis of the internal environment. Environmental appraisal or analysis of the external environment reveals opportunities and threats. SWOT analysis is also known as WOTS and TOWS analysis. It helps in understanding the internal and external environment. It is very useful in strategy as the organizations strengths and weaknesses can be matched with the opportunities and threats. An effective strategy makes use of strengths to capitalize on the opportunities and minimize the impact of weaknesses to neutralize the threats. After SWOT analysis, an organization had to decide how to maximize its strengths and minimize its weaknesses. It can also decide how to exploit the opportunities and to cover the threats. The interplay of organization’s resources, behaviour, strengths and weaknesses determines the internal environment of the organization. 125 CU IDOL SELF LEARNING MATERIAL (SLM)
Organizational appraisal is the systematic evaluation of the internal environment of a firm in order to determine the strength and weaknesses that influences a firm’s ability to achieve its goals. The process of organizational appraisal is described through a sequence of activities which includes Key factors identification, identification of importance of factors, assessing strengths and weaknesses on key factors, preparing the organizational capability profile and relating organizational capability to strategy. The analysis of internal environment of an organization helps it to determine what it can do given the organizational resources and behaviour and strengths and weaknesses. The interplay of an organization resources, behaviour, strengths, and weaknesses, synergistic effects and competencies helps it to excel in a particular field and thereby giving the organization the strategic advantage. The various components of internal environment of an organization consist of organizational resources, organizational behaviour, strengths and weakness, synergistic effects, competencies, organizational capability and strategic and competitive advantage. A value chain is a set of interlinked value creating activities performed by an organization. The competitive advantage of a firm can be determined with the linkages and relationships between the various activities that a firm performs. The various activities of a firm may begin with the procurement of basic raw materials, that processes into various stages and end with the product marketed to the ultimate consumer. Primary and support activities are the two main parts into which the porter divides the value chain of a manufacturing concern 7.5 KEYWORDS Leading Indicator – Forward-looking in nature, leading indicators are the drivers of future performance. Improved performance in a leading indicator is assumed to drive better performance in a lagging indicator. For example, spending more time with valued customers (a leading indicator) is hypothesized to drive improvements in customer satisfaction (a lagging indicator). Learning and Growth Perspective – May also be termed “Skills and Capability.” Measures in this perspective are often considered enablers of measures appearing in other perspectives; therefore, this perspective is often placed at the bottom or foundation of a strategy plan. Employee skills and training, availability of 126 CU IDOL SELF LEARNING MATERIAL (SLM)
information, and organizational culture are often measured in this perspective. More latterly, this perspective has included ‘Capacity’ to indicate that it is concerned with more than the human aspect and all includes other physical resources. Logic Model – Having gained prominence in the ’90s largely in response to the Government Performance and Results Act (GPRA), the Logic Model is now a widely accepted management tool in the public and non-profit sectors as well as the international arena. The model is a roadmap or picture of a program that shows the logical relationships among resources or inputs (what an organization invests); activities or outputs (what an organization gets done); and outcome-impacts (what results or benefits happen as a consequence). Malcolm Baldridge – Established by the U.S. Congress in 1987, the Malcolm Baldridge performance framework is a rating tool that assesses management systems and helps identify major areas for improvement in seven categories of performance criteria: Leadership; Strategic Planning; Customer and Market Focus; Measurement, Analysis, Knowledge Management; Human Resource Focus; Process Management; and Business Results. Measure (also called metric) – Term to describe a standard used to communicate progress on a particular aspect of a program. Measures typically are quantitative in nature, conveyed in numbers, dollars, percentages, etc. (e.g., $ of revenue, headcount number, % increase, survey rating average, etc.) though they may be describing either quantitative (e.g., sales made) or qualitative (e.g., employee motivation) information. 7.6 LEARNING ACTIVITY 1. Create a survey on Technique Used for Organizational Appraisal. ___________________________________________________________________________ ___________________________________________________________________________ 2. Create a survey on Methods Used for Organizational Appraisal. ___________________________________________________________________________ ___________________________________________________________________________ 7.7UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. Define inbound logistics? 2. Define the term Operations? 127 CU IDOL SELF LEARNING MATERIAL (SLM)
3. What is outbound logistics? 4. What is Strategic benchmarking? 5. Write the main aim of generic benchmarking? Long Questions 1. Explain the characteristics of Organizational Analysis. 2. Outline the factors for Strategic advantage of an organization. 3. Describe the organizational capacity factors that exist within an organization. 4. Explain the methods and techniques in organizational Analysis. 5. Illustrate the other ways in which benchmarking can be followed. B. Multiple Choice Questions 1. Which of the following terms refers to the process of evaluating an employee's current and/or past performance relative to his or her performance standards? a. Recruitment b. Employee selection c. Performance appraisal d. Employee orientation 2. In most organizations, which of the following is primarily responsible for appraising an employee's performance? a. Employee's direct supervisor b. Company appraiser c. Human resources manager d. EEO representative 3. Which of the following is NOT one of the recommended guidelines for setting effective employee goals? a. Assigning specific goals b. Assigning measurable goals c. Assigning challenging but doable goals d. Administering consequences for failure to meet goals 4. What does SMART goals are best described as a. Specific, measurable, attainable, relevant, and timely b. Straight forward, meaningful, accessible, real, and tested 128 CU IDOL SELF LEARNING MATERIAL (SLM)
c. Strategic, moderate, achievable, relevant, and timely d. Specific, measurable, achievable, relevant, and tested 5. Which of the following is not a reasons for appraising an employee's performance a. Assisting with career planning b. Correcting any work-related deficiencies c. Creating an organizational strategy map d. Determining appropriate salary and bonuses Answers 1-c, 2-a, 3-d, 4-a, 5-c 7.8 REFERENCES References book Densetz, H. 1982. Barriers to entry. American Economic Review. Dixit, Avinash K., and Barry J. Nalebuff. 1993. Thinking strategically: The competitive edge in business, politics, and everyday life. New York: W.W. Norton. Dixit, Avinash, and Susan Skeath. 1999. Games of strategy. New York: W.W. Norton. Textbook references Drucker, Peter. 1973–2008. Management. New York: Collins. Dyericks, Ingemar, and Cool, Karel. 1989. Asset stock accumulation and sustainability of competitive advantage. Management Science. Dyericks, Ingemar, and Cool, Karel. 1993. Rivalry, strategic groups and firm profitability. Strategic Management Journal Website http://epgp.inflibnet.ac.in/epgpdata/uploads/epgp_content/S000006CO/P000396/M01 8303/ET/1515757109COM_P12_M14_E-Text.pdf https://kkhsou.ac.in/eslm/E- SLM_Main/3rd%20Sem/Master%20Degree/MBA%203rd%20Sem/Business%20poli cy%20and%20strategic%20Management/BP&SM%20- 2/BPSM%20PDF%20file/BPSM%20Block-1/Unit-6.pdf file:///C:/Users/Sony/Downloads/STRATEGICMANAGEMENTANDSTRATEGICP LANNINGPROCESS-CHAPTER.pdf 129 CU IDOL SELF LEARNING MATERIAL (SLM)
UNIT8: CORPORATE LEVEL STRATEGY STRUCTURE 8.0 Learning Objectives 8.1 Introduction 8.2 Concept 8.3 Stability 8.4 Expansion 8.5 Retrenchment 8.6 Combination 8.7 Strategy 8.8 Summary 8.9 Keywords 8.10 Learning Activity 8.11 Unit End Questions 8.12 References 8.0 LEARNING OBJECTIVES After studying this unit, you will be able to: Appreciate the concept of Expansion. Illustrate the concept of Retrenchment. Explain the concept of Stability. 8.1 INTRODUCTION A corporation is an organization—usually a group of people or a company—authorized by the state to act as a single entity and recognized as such in law for certain purposes. Early incorporated entities were established by charter . Most jurisdictions now allow the creation of new corporations through registration. Corporations come in many different types but are usually divided by the law of the jurisdiction where they are chartered based on two aspects: by whether they can issue stock or by whether they are formed to make a profit. Depending on the number of owners, a corporation can be classified as aggregate (the subject of this article) or sole . 130 CU IDOL SELF LEARNING MATERIAL (SLM)
One of the most attractive early advantages business corporations offered to their investors, compared to earlier business entities like sole proprietorships and joint partnerships, was limited liability. Limited liability means that a passive shareholder in a corporation will not be personally liable either for contractually agreed obligations of the corporation, or for torts (involuntary harms) committed by the corporation against a third party. Limited liability in contract is uncontroversial because the parties to the contract could have agreed to it and could agree to waive it by contract. However, limited liability in tort remains controversial because third parties do not agree to waive the right to pursue shareholders. There is significant concern that limited liability in tort may lead to excessive corporate risk taking and more harm by corporations to third parties. Where local law distinguishes corporations by their ability to issue stock, corporations allowed to do so are referred to as stock corporations; one type of investment in the corporation is through stock, and owners of stock are referred to as stockholders or shareholders. Corporations not allowed to issue stock are referred to as non-stock corporations; i.e. those who are considered the owners of a non-stock corporation are persons (or other entities) who have obtained membership in the corporation and are referred to as a member of the corporation. Corporations chartered in regions where they are distinguished by whether they are allowed to be for-profit are referred to as for- profit and not-for-profit corporations, respectively. There is some overlap between stock/non-stock and for-profit/not-for-profit in that not-for- profit corporations are always non-stock as well. A for-profit corporation is almost always a stock corporation, but some for-profit corporations may choose to be non-stock. To simplify the explanation, whenever \"stockholder\" or \"shareholder\" is used in the rest of this article to refer to a stock corporation, it is presumed to mean the same as \"member\" for a non-profit corporation or for a profit, Non-stock Corporation. Registered corporations have legal personality recognized by local authorities and their shares are owned by shareholderswhose liability is generally limited to their investment. Shareholders do not typically actively manage a corporation; shareholders instead elect or appoint a board of directors to control the corporation in a fiduciary capacity. In most circumstances, a shareholder may also serve as a director or officer of a corporation. Countries with co-determination employ the practice of workers of an enterprise having the right to vote for representatives on the board of directors in a company. In American English, the word corporation is most often used to describe large corporations. In British English and in the Commonwealth countries, the term company is more widely used to describe the same sort of entity while the word corporation encompasses all incorporated entities. In American English, the word company can include entities such as partnerships that would not be referred to as companies in British English as they are not a separate legal entity. Late in the 19th century, a new form of the company having the limited liability protections of a corporation, and the more favourable tax treatment of either a 131 CU IDOL SELF LEARNING MATERIAL (SLM)
sole proprietorship or partnership was developed. While not a corporation, this new type of entity became very attractive as an alternative for corporations not needing to issue stock 8.2 CONCEPT Strategic management deals with the issues, concepts, theories approaches and action choices related to an organization’s interaction with the external environment. Strategy, in general, refers to how a given objective will be achieved. Strategy, therefore, is mainly concerned with the relationships between ends and means, that is, between the results we seek and the resources at our disposal. For the most part, strategy is concerned with deploying the resources at your disposal whereas tactics is concerned with employing them. Together, strategy and tactics bridge the gap between ends and means. Some organizations are groups of different business and functional units, each of them must be having its own set of goals, which may not necessarily be same as the goals of the corporate headquarters looking after the interests of the entire organization. Since the goals are different and the means to achieve them are different, strategies are likely to be different. This understanding has led to the hierarchical division of strategy at two levels: a business-level strategy and a company-wide strategy. In addition to these strategies, many authors also mention functional strategies, practiced by the functional units of a business unit, as another level of strategy. Corporate Strategies: These are concerned with the broad, long-term questions of “what businesses are we in, and what do we want to do with these businesses?” The corporate strategy sets the overall direction the organization will follow. It matterswhether a firm is engaged in one or several businesses. This will influence the overall strategic direction, what corporate strategy is followed, and how that strategy is implemented and managed. Corporate strategies vary from drastic retrenchment through aggressive growth. Top management need to carefully assess the environment before choosing the fundamental strategies the organization will use to achieve the corporate objectives. Competitive Strategies: Those decisions that determine how the firm will compete in a specific business or industry. This involves deciding how the company will compete within each line of business or strategic business unit. Competitive strategies include being a low-cost leader, differentiator, or focuser. Formulating a specific competitive strategy requires understanding the competitive forces that determine how intense the competitive forces are and how best to compete. Functional Strategies: Also called operational strategies, are the short-term (less than one year), goal-directed decisions and actions of the organization’s various functional departments. These are more localized and shorter-horizon strategies and deal with how each functional area and unit will carry out its functional activities to be effective and maximize resource productivity. Functional strategies identify the basic courses of action that each functional department in a strategic business unit will pursue to contribute to the attainment of its goals. In a nutshell, corporate- level strategy identifies the portfolio of businesses that in total will comprise the corporation and the ways in which these businesses will relate. The competitive strategy identifies how to build and strengthen the business’s long-term competitive position in the marketplace while 132 CU IDOL SELF LEARNING MATERIAL (SLM)
the functional strategies identify the basic courses of action that each department will pursue to contribute to the attainment of its goals. Corporate strategy is essentially a blueprint for the growth of the firm. The corporate strategy sets the overall direction for the organization to follow. It also spells out the extent, pace and timing of the firm’s growth. Corporate strategy is mainly concerned with the choice of businesses, products and markets. The competitive and functional strategies of the firm are formulated to synchronize with the corporate strategy to enable it to reach its desired objectives. Defined formally, a corporate-level strategy is an action taken to gain a competitive advantage through the selection and management of a mix of businesses competing in several industries or product markets. Corporate strategies are normally expected to help the firm earn above-average returns and create value for the shareholders. Corporate strategy addresses the issues of a multi-business enterprise as a whole. Corporate strategy addresses issues relating to the intent, scope and nature of the enterprise and in particular has to provide answers to the following questions: l what should be the nature and values of the enterprise in the broadest sense? What are the aims in terms of creating value for stakeholders? Corporate level strategy addresses the entire strategic scope of the firm. It is a “big picture” view of the organisation and includes deciding in which, product or service markets to compete and in which, geographic regions to operate. For a multi-business firm, the resource allocation process-how cash, staffing, equipment and other resources are distributed – is established at the corporate level. Corporate strategy is about strategic decisions about determining overall scope and direction of a corporation and the way in which its various business units work together to attain particular goals. Corporate-level strategy is an action taken to gain a competitive advantage through the selection and management of combination of businesses competing in several industries or product markets. Corporate strategies are normally expected to help the firm earn above- average profits and create value for the shareholders. Corporate strategy addresses the issues of a multi-business firm as a whole. Stability Strategy When a company finds that it should continue in the existing business and is doing reasonably well in that business but no scope for significant growth, the stability is the strategy to be adopted. Jauch and Glueck observe, ‘a stability strategy is a strategy that a firm pursues when- It continues to serve the customers in the same product or service, market, and function sectors 133 CU IDOL SELF LEARNING MATERIAL (SLM)
as defined in its business definition, or in very similar sectors. Its main strategic decisions focus on incremental improvement of functional performance Expansion Strategy Jauch and Glueckdefine expansion strategy ‘as a strategy that a firm pursues when It serves the public in additional product or service sectors or adds markets or functions to its definition. It focuses its strategic decisions on major increases in the pace of activity within its present business definition.’ This strategy involves redefining the business either adding to the scope of activity or substantially increasing the efforts of the present business. When expansion strategy is pursued, it could lead to addition of new products or new markets or functions. Even without a change in business definition many firms undertake major increases in the pace of activities. Expansion strategy is often considered as “entrepreneurial” strategy where firms develop and introduce new products and markets or penetrate markets to build share. Expansion is usually thought as the way to improve performance. Strategists need to distinguish between desirable and undesirable expansion Retrenchment Strategy Retrenchment strategy may require a firm to redefine its business and may involve divestment of a major product line or an SBU, abandon some markets or reduce its functions. Retrenchment in pace may necessitate a firm to use layoffs, reduce R&D or marketing or other outlays, increase the collection of receivables etc. The efforts aimed at redefining the business and reducing the pace of activities can improve performance of a firm. Retrenchment in combination with expansion is not uncommon. “Retrenchment alone is probably the least frequently used generic strategy” Retrenchment strategy involves a partial or total withdrawal either from products, markets or functions in one or more of a firm’s businesses. Retrenchment strategy is generally followed during the period of decline of a business when it is thought possible to bring profitability back to the firm. If the prospects of restoring profitability are not good, abandoning market share, reducing expenses and assets can use controlled divestment. Combination Strategy When an organization adopts a mix of stability, expansion and retrenchment either simultaneously or sequentially for the purpose of improving its performance, it is said to follow the combination generic strategy. With combination strategies, the strategists consciously apply several generic strategies to different parts of the firm or to different future periods. 134 CU IDOL SELF LEARNING MATERIAL (SLM)
“The logical possibilities for a simultaneous approach are stability in some areas, expansion in others; stability in some area, retrenchment in others; retrenchment in some areas, expansion in other; and all three strategies in different areas of the company. The logical possibilities for time-phased combinations are greater, especially when the products, markets, and functions are considered and when the choice occurs through changing the pace or the business definition.” For example a paints company adopts combination strategies when it augments its offering of decorative paints to provide a greater variety to its customers (stability) and increases its product range to add industrial and automotive paints (expansion), and closes down the paint-contracting division (retrenchment). A pause/proceed with caution strategy is, in effect, a timeout—an opportunity rest before continuing a growth or retrenchment strategy. Firms that wish to test the ground before launching a complete generic strategy, follow this approach. This approach is necessary where an intervening period of consolidation is thought essential before embarking on major expansion spree. The objective is to ensure that the strategic changes flow down the organizational levels, necessary structural changes take place and the organizational systems adapt to new strategies. Thus pause/proceed with caution strategy is also a short-run deliberate and conscious effort to postpone major strategic changes to a more appropriate time. Bata India and Liberty Shoes in the Indian shoe market follow this strategy. A no change strategy is a decision to do nothing new-a choice to continue current operations and policies for the foreseeable future. Rarely articulated as a definite strategy, a no change strategy’s success depends on a lack of significant change in a corporation’s situation. The relative stability created by the firm’s modest competitive position in an industry facing little or no growth encourages the company to continue on its current course, making only small adjustments for inflation in its sales and profit objectives. There are no obvious opportunities or threats nor much in the way of significant strengths or weaknesses. Few aggressive new competitors are likely to enter such an industry. The corporation has probably found a reasonable profitable and stable niche for its products. Unless the industry is undergoing consolidation, the relative comfort a company in this situation experiences is likely to encourage the company to follow a no change strategy in which the future is expected to continue as an extension of the present. Most small-town businesses probably follow this strategy before Wal-Mart moves into their areas. The business environment is not as stable as may be presumed by a firm. A firm may not continue with no-change strategy but has to do something. When a firm finds its profitability drifting, the stability strategy can be designed to increase profits through such approach as improving efficiency in current operations with such measures as to reduce investment, cut 135 CU IDOL SELF LEARNING MATERIAL (SLM)
costs, increase productivity and raise price to overcome temporary difficulties. This may be a short run approach to lie low and sustain profitability by currently available means. Market Penetration Market penetration as a deliberate strategy involves gaining market share through improving quality or productivity, and increasing marketing activity. This is true for the long-term desirability of obtaining a dominant market share. However, the nature of the market and the position of competitors determine the ease with which a business can pursue a strategy of market penetration. In a growing market, it may be comparatively easy for companies with a small share, or new competitors, to gain market share because the absolute level of sales of the established companies may still be increasing; and in some cases, those companies may be unable or unwilling to meet the new demand. In static markets, market penetration can be much more difficult to achieve. In mature markets the market penetration is still more difficult due to the advantageous cost structure of market leader that prevent the sudden entry of competitors with lower market share. However, the complacency of market leaders may allow smaller- share competitors to gain share or may build a reputation in a market segment of little interest to the market leader, from which it penetrates the wider market. Sometimes market penetration, particularly of mature markets, can be achieved through collaboration with others. In declining markets, the market penetration is possible to the extent other firms exit from the market. If they do, it may be relatively easy for a company to increase its share of that market. Market Development Market development refers to the attempts of an organization to maintain the security of its present products while venturing into new market areas. It includes- entering new market segments, exploiting new uses for the product and spreading into new geographical areas. In capital-intensive industries a company with specific assets may have its distinctive competence with the product and not the market, and hence the continued exploitation of the product by market development would be a preferred strategy. Most capital goods companies have developed this way by opening up more overseas markets as old markets have become saturated. Exporting is a method of market development. However, there are several reasons why organizations might want to develop beyond exporting and internationalize by locating some of their manufacturing, distribution or marketing operations overseas. Internationalization 136 CU IDOL SELF LEARNING MATERIAL (SLM)
International strategies are a kind of expansion strategies that need firms to market their products or services beyond the domestic market. For this purpose, a firm would have to assess the international environment, evaluate its own capabilities, and devise strategies to enter foreign markets. Some firms, when they face slower growth rates at home or a restricted domestic market, open up new markets in other countries. This has been a major reason for Japanese expansion. Before exploring the international markets further, firms must identify and consider a critical mass of GNP, population growth, competitor activity in the market, ability to produce domestically or in the foreign market. Sometimes firms can introduce new products sooner in a foreign market than at home. For instance, U.S.-based pharmaceutical firms do so. Sometimes firms may find that producing in that location can be more beneficial than exporting to a given country. For example, a host government may restrict imports to the country if there is a given level of ‘domestic-content’ production in existence. Such protective policies serve as a trade barrier; accordingly, companies tend to establish manufacturing and marketing facilities in each major country in which they do business. However, some countries provide incentives to locate production facilities there. For the same reason, supplier will often locate new facilities in countries where their customers are located. Japanese car companies established manufacturing plants in US Supply of raw materials or technology may also be a reason for choosing to locate production facilities in another country. For example Canadian firms have invested in developing nations where new deposits of important ores or other resources have been found. It should be noted that movement toward international markets is frequently incremental. Most firms begin by exporting that involves relatively low investment and risk. Then a firm may engage in a joint marketing venture with a foreign local who will act as its agent. Once a foreign presence is obtained, the firm may decide to expand its activities. Expansion at this stage may take place in the development of specialized products, new investments in local manufacturing facilities or direct investment in the foreign market. 8.3 STABILITY Stability testing of pharmaceutical products is a complex set of procedures involving considerable cost, time consumption and scientific expertise in order to build in quality, efficacy and safety in a drug formulation. Scientific and commercial success of a pharmaceutical product can only be ensured with the understanding of the drug development process and the myriad tasks and milestones that are vital to a comprehensive development plan. 137 CU IDOL SELF LEARNING MATERIAL (SLM)
The most important steps during the developmental stages include pharmaceutical analysis and stability studies that are required to determine and assure the identity, potency and purity of ingredients, as well as those of the formulated products Stability of a pharmaceutical product may be defined as the capability of a particular formulation in a specific container/closure system to remain within its physical, chemical, microbiological, toxicological, protective and informational specifications In other words, it is the extent to which a product retains, within the specified limits, throughout its period of storage and use, the same properties and characteristics possessed at the time of its packaging. Stability testing thus evaluates the effect of environmental factors on the quality of a drug substance or a formulated product which is utilized for prediction of its shelf life, determine proper storage conditions and suggest labelling instructions The data generated during the stability testing is an important requirement for regulatory approval of any drug or formulation Stability testing is termed as a complex process because of involvement of a variety of factors influencing the stability of a pharmaceutical product. These factors include stability of the active ingredient; interaction between active ingredients manufacturing process followed, type of dosage form, container/closure system used for packaging and light, heat and moisture conditions encountered during shipment, storage and handling • In addition, degradation reactions like oxidation, reduction, hydrolysis or racemisation, which can play vital role in stability of a pharmaceutical product, also depend on such conditions like concentration of reactants, pH, radiation, catalysts etc., as well as the raw materials used and the length of time between manufacture and usage of the product. A pharmaceutical product may undergo change in appearance, consistency, content uniformity, clarity (solution), moisture contents, particle size and shape, pH, package integrity thereby affecting its stability. • Such physical changes may be because of impact, vibration, abrasion, and temperature fluctuations such as freezing, thawing or shearing etc. • The chemical reactions like solvolysis, oxidation, reduction, racemisation etc. that occur in the pharmaceutical products may lead to the formation of degradation product, loss of potency of active pharmaceutical ingredient (API), loss of incipient activity like antimicrobial preservative action and antioxidants etc. Stability of a pharmaceutical product can also be affected because of microbiological changes like growth of microorganisms in non-sterile products and changes in preservative efficacy. Stability testing is a routine procedure performed on drug substances and products and is employed at various stages of the product development. 138 CU IDOL SELF LEARNING MATERIAL (SLM)
In early stages, accelerated stability testing (at relatively high temperatures and/or humidity) is used in order to determine the type of degradation products which may be found after longterm storage. Testing under less rigorous conditions i.e. those recommended for long-term shelf storage, at slightly elevated temperatures is used to determine a product’s shelf life and expiration dates. The major aim of pharmaceutical stability testing is to provide reasonable assurance that the products will remain at an acceptable level of fitness/quality throughout the period during which they are in market place available for supply to the patients and will be fit for their consumption until the patient uses the last unit of the product. 8.4 EXPANSION The Expansion Strategy is adopted by an organization when it attempts to achieve a high growth as compared to its past achievements. In other words, when a firm aims to grow considerably by broadening the scope of one of its business operations in the perspective of customer groups, customer functions and technology alternatives, either individually or jointly, then it follows the Expansion Strategy. Expansion Strategy Definition: The Expansion Strategy is adopted by an organization when it attempts to achieve a high growth as compared to its past achievements. In other words, when a firm aims to grow considerably by broadening the scope of one of its business operations in the perspective of customer groups, customer functions and technology alternatives, either individually or jointly, then it follows the Expansion Strategy. The reasons for the expansion could be survival, higher profits, increased prestige, economies of scale, larger market share, social benefits, etc. The expansion strategy is adopted by those firms who have managers with a high degree of achievement and recognition. Their aim is to grow, irrespective of the risk and the hurdles coming in the way. The firm can follow either of the five expansion strategies to accomplish its objectives: 139 CU IDOL SELF LEARNING MATERIAL (SLM)
Figure 8.1: Expansion strategy A business or a company follows the expansion strategy when it wants to achieve a certain high growth level compared to the previous performance. When a company plans to achieve a certain growth level, it employs methods like increasing its business operations to target a more significant customer market and technological tools. The goal and reason behind the business expansion strategies may vary from business to business. It could be increasing the social benefits, increasing the market share, achieving economies of scale, prestige, and higher profit. Only those businesses follow the expansion strategy whose managers and supervisors are ambitious. They’re willing to take risks and grow. 8.5 RETRENCHMENT Retrenchment strategy is a process through which you cut down all of those products and services that aren’t profiting your business to achieve financial stability. It also means leaving the market where your business can’t sustain itself. It usually results in the form of the sale of assets like product line and firing employees. Turnaround strategy is a tool/measure that minimizes the negative trends that impact the company’s performance. It also goes by the name of management measure that could transform the sick business into a healthy position. The measure also reverses the negative trends like decreasing market share, increasing material cost, lower sales, widening debt-equity ratio, less profitability, working capital issues, negative cash flows, and many other problems. The way businesses follow this strategy; varies from situation to situation. 140 CU IDOL SELF LEARNING MATERIAL (SLM)
For instance, Dell Technologies stated in 2006 that the company would follow the cost- cutting strategy by directly selling its products to the customers. The direct sale didn’t work out, and the company faced a tremendous financial loss. Dell turnaround and pulled out from direct sale strategy in 2007. The brand started selling computers through outlets and retailers. Nowadays, Dell is the 2nad largest world’s retailers in the computer industry. A large company that has attained many assets, departments, and product divisions analyses various divisions and departments’ profitability. Whether they’re contributing to the company’s strategy, or they aren’t. If they aren’t achieving the required results, then you cut them loose. In other words, divestment strategy means the sale of a portion of your business, asset, and division. Companies apply divestment strategy when turnaround strategy has already failed Businesses and companies follow the divestment strategy for many reasons like merger plans, creating resources, availability of alternative investment plans, tech up-gradation, persistent issues, negative cash flows, and mismatched assets. For instance, TATA Group of Companies has got a lot of businesses working under its umbrella. They examine their business now and then; if they find any business out of the company’s core ideology, they divest it. TATA divested TOMCO and sold it to Hindustan Levers because it thought detergents and soaps weren’t the company’s core business. Liquidation strategy is the extreme level in the retrenchment strategy where you permanently shut down the business and sell all of your assets. Liquidation is the final option of the problems of any business because it has serious outcomes. It results in the form of saying no to every potential opportunity and firing all the employees. Small businesses usually liquidate. Large companies like suppliers, creditors, trade unions, financial institutions, and government departments don’t liquidate. For instance, online e-commerce is losing traffic on its store daily. The expenses are increasing than the store’s total earning. The management has no other choice but to liquidate the store and pay off the debt. Companies that use a retrenchment strategy are shrinking to survive. Corporations often improve their market position by expanding, diversifying or buying up other firms. A retrenchment business reverses that, withdrawing from certain markets or discontinuing product lines to slash expenses. If retrenchment works, it results in corporate renewal, leaving the company in a stronger, more stable financial position. Retrenchment is only one of several strategies corporations can use. A long-running business may use stability, expansion or retrenchment strategies at different points in its life. 141 CU IDOL SELF LEARNING MATERIAL (SLM)
Corporations use stability strategies when they're satisfied with their current position. Stability tactics are keeping everything the same; waiting before making a decision and making temporary changes to keep profits stable. Expansion strategies help corporations grow. They include concentrating and specializing in a profitable line, diversifying into multiple fields or expanding into new markets. Corporations adopt a retrenchment strategy when they're overextended. The emphasis is on cutting costs or stabilizing cash flow rather than attracting new customers or boosting sales. 8.6 COMBINATION The Combination Strategy means making the use of other grand strategies (stability, expansion, or retrenchment) simultaneously. Simply, the combination of any grand strategy used by an organization in different businesses at the same time or in the same business at different times with an aim to improve its efficiency is called a combination strategy.A combination strategy allows one to profit from the difference in strike prices on or before the expiration date.Such a strategy is followed when an organization is large and complex and consists of several businesses that lie in different industries, serving different purposes. Go through the following example to have a better understanding of the combination strategy: A baby diaper manufacturing company augments its offering of diapers for the babies to have a wide range of its products and at the same time, it also manufactures the diapers for old age people, thereby covering the other market segment, In order to focus more on the diapers division, the company plans to shut down its baby wipes division and allocate its resources to the most profitable division. In the above example, the company is following all the three grand strategies with the objective of improving its performance. The strategist has to be very careful while selecting the combination strategy because it includes the scrutiny of the environment and the challenges each business operation faces. The Combination strategy can be followed either simultaneously or in the sequence. One of the components of a combination advantage is the differentiation strategy. This strategy involves a targeted effort by a business to make its product or service to be perceived as unique and innovative in a market that is full of similar products or services. Companies use various methods to confer this feeling or perception of uniqueness upon their own brand of a product, which already exists in different forms. Such methods include unique packaging, mystery ingredients, or clever promotions. The uniqueness of the product or service is the differentiating factor. Another component of a combination strategy is the cost leadership strategy whereby a company deliberately sets out to utilize all the resources at its disposal to make its products the most cost-effective. Such resources may include the utilization of cheaper labour 142 CU IDOL SELF LEARNING MATERIAL (SLM)
through outsourcing or locating production plants in countries with cheap labour as well as management of distribution costs through the identification of effective distribution channels. Reducing the operating expenditures pays off in terms of reduced costs to consumers. This type of strategy may help the company earn competitive profits, while still attracting customers due to its low price. The third component that may be included in a combination strategy is the focus strategy in which the company selects a niche for concentration. Such a niche could be based on geographic considerations, or by identifying a particular segment in the market. For instance, a company that manufactures female apparel may choose to concentrate on the production of products aimed at teenage girls exclusively. The main reason for this segmentation is the belief that a company will perform more efficiently if it focuses all of its resources on just one market segment. A combination strategy is the combination of any of these strategies at the same time. As such, a company might decide to utilize a differentiation and focus strategy at the same time instead of just concentrating on one. The combination could also be between the cost leadership and the focus, or any other combination the business deems fit. Combination strategies are common, especially for complex organizations operating in dynamic and highly competitive environments. Many, if not most, organizations pursue a combination of two or more strategies simultaneously, but a combination strategy can be exceptionally risky if carried too far. 8.7 STRATEGY Strategy is a general plan to achieve one or more long-term or overall goals under conditions of uncertainty. In the sense of the \"art of the general\", which included several subsets of skills including military tactics, siegecraft, logistics etc., the term came into use in the 6th century C.E. in Eastern Roman terminology, and was translated into Western vernacular languages only in the 18th century. From then until the 20th century, the word \"strategy\" came to denote \"a comprehensive way to try to pursue political ends, including the threat or actual use of force, in a dialectic of wills\" in a military conflict, in which both adversaries interact. Strategy is important because the resources available to achieve goals are usually limited. Strategy generally involves, setting goals and priorities, determining actions to achieve the goals, and mobilizing resources to execute the actions. A strategy describes how the ends will be achieved by the means (resources).Strategy can be intended or can emerge as a pattern of activity as the organization adapts to its environment or competes. It involves activities such as strategic planning and strategic thinking. Henry Mint berg from McGill University defined strategy as a pattern in a stream of decisions to contrast with a view of strategy as planning, while Henrik von Scheel defines the 143 CU IDOL SELF LEARNING MATERIAL (SLM)
essence of strategy as the activities to deliver a unique mix of value – choosing to perform activities differently or to perform different activities than rivals. While Max McKeown argues that \"strategy is about shaping the future\" and is the human attempt to get to \"desirable ends with available means\". Dr. Vladimir Kvint defines strategy as \"a system of finding, formulating, and developing a doctrine that will ensure long-term success if followed faithfully. “Complexity theorists define strategy as the unfolding of the internal and external aspects of the organization those results in actions in a socio-economic context Because counterterrorism involves the synchronized efforts of numerous competing bureaucratic entities, national governments frequently create overarching counterterrorism strategies at the national level. A national counterterrorism strategy is a government's plan to use the instruments of national power to neutralize terrorists, their organizations, and their networks in order to render them incapable of using violence to instil fear and to coerce the government or its citizens to react in accordance with the terrorists' goals. The United States has had several such strategies in the past, including the United States National Strategy for Counterterrorism ;the Obama-era National Strategy for Counterterrorism ; and the National Strategy for Combatting Terrorism. There have also been a number of ancillary or supporting plans, such as the 2014 Strategy to Counter the Islamic State of Iraq and the Levant, and the 2016 Strategic Implementation Plan for Empowering Local Partners to Prevent Violent Extremism in the United States. Similarly, the United Kingdom's counterterrorism strategy, CONTEST, seeks \"to reduce the risk to the UK and its citizens and interests overseas from terrorism, so that people can go about their lives freely and with confidence. The word was used for the first time in around 400 BC. The word strategy means the art of the general to fight in war. The dictionary meaning of strategy is, \"the art of so moving or disposing the instrument of warfare as to impose upon enemy, tile place time and conditions for 1 fighting by one self.\" In management, the concept of strategy is taken in broader terms, According to. Glueck, \"Strategy is the unified, comprehensive and integrated plan that relates the strategic advantage of the firm to the challenges of the environment and is designed to ensure that basic objectives of the enterprise are achieved through 7 proper implementation processes.\" In 1960s, Chandler made an attempt to define strategy as \"the determination of basic long term goals and objective of an enterprise and the adoption of the courses of action and the allocation of resources necessary for carrying out these goals. This is another view in which strategy has been defined. It states that strategy is a way in which the firm, reacting to its environment, deploys its principal resources and marshals its efforts in pursuit of its purpose. Michael Porter has defined strategy as \"Creation of a unique and valued position involving a different set of activities. The company that is strategically positioned performs different activities from rivals or performs similar activities in different ways.\" Tile people who believe this version definition call strategy a unified, Concept of Strategy comprehensive and integrated plan relating to the strategic advantages of the firm to the 144 CU IDOL SELF LEARNING MATERIAL (SLM)
challenges of the environment. After considering both the views, strategy can simply be put as management's plan for achieving its objectives. It basically includes determination and evaluation of alternative paths to an already established mission or objective and eventually, cilice of best alternative to be adopted. 8.8 SUMMARY Strategy has often been used as a synonym of policy. However, both are different and should not be used interchangeably. Policy is the guideline for decisions and actions on the part of subordinates. It is a general statement of understanding made for achievement of objectives. Policies are statements or a commonly accepted understanding of decision making. They are thought oriented. Power is delegated to the subordinates for implementation of policies. In general terms, policy is concerned with course of action chosen for the fulfilmentof set objectives. It is an overall guide that governs and controls managerial actions. Policies may be general or specific, organizational or functional, I written or implied. They should be clear and consistent. Policies have to be integrated so that strategy is implemented successfully and effectively. For example, when the performance oftwo employees is similar, the promotion policy may require the promotion of the senior employee and hence lie would be eligible for promotion. Strategies on the other hand are concerned with the direction in physical resources are deployed and applied in order to maximize the chances of achieving organizational objectives in the face of environmental variable. Strategies are specific action suggested to achieve the objectives. Strategies are action oriented and everyone in the organization is empowered to implement them. Strategy cannot be delegated downward because it may require last minute decisions. I Strategies and polices both are the means towards the end. Other words, both are directed towards meeting organizational objectives. Strategy is a rule for making decision while policy is contingent decision. The basic goal of strategy according to military science is to break the will of the army, deprive the enmity of the means to fight, occupy his territory, destroy or obtain control of his resources or make him surrender. The goal of tactics is to achieve success in a given action and this forms one part of a group of related military action. Tactics decisions can be delegated to all the levels of an organization while strategic decisions cannot be delegated too low in the organization. The authority is not delegated below the levels than those which possess the perspective required for taking decisions effectively. Strategy is formulated in both a continuous as well as irregular manner. The decisions are taken on the basis of opportunities, new ideas etc. Tactics is determined on a 145 CU IDOL SELF LEARNING MATERIAL (SLM)
periodic basis by various organizations. A fixed time table may be made for following tactics Strategy has a long term perspective and occasionally it may have short term duration. Thus, the time horizon in terms of strategy is flexible but in case of tactics, it is short run and definite. The decisions taken as part of strategy for notation and implementation have a high element of uncertainty and are taken under the conditions of partial ignorance. In contrast tactical decisions are more certain as they work upon the framework set by the strategy. So the evaluation of strategy is difficult than the evaluation of tactics. Since an attempt is made in strategy to relate the organization with its environment, the requirement of information is more than that required in tactics. Tactics use information available internally in an organization. The formulation of strategy is affected considerably by the personal values of the person involved in the process but the same is not the case in tactics implementation. ix) Strategies are the most important factor of organization because they decide the future course of action for organization as a whole. On the other hand tactics are of less importance because they are concerned with specific part of the organization. 8.9 KEYWORDS Metric (also called measure) – A framework to establish and collect measurements of success/failure on a regulated, timed basis that can be audited and verified. The term used in commercial organizations to describe a standard used to communicate progress on a particular aspect of the business. Measures typically are quantitative in nature, conveyed in numbers, dollars, percentages, etc. (e.g., $ of revenue, headcount number, % increase, survey rating average, etc.) though they may be describing either quantitative (e.g., sales made) or qualitative (e.g., employee motivation) information. Milestone – The set of specific deadlines or hurdles that signal progress in completing an Initiative. Milestones include progress/completion dates or % completion rates, key presentations/meetings, and key decision points. Mission – Concise statement that describes, in motivating and memorable terms, the current top-level strategic goal of the organization. A mission provides both an internal rallying cry and external validity. Usually financial-, process-, or customer service-oriented, with a mid-term (three to five years) horizon, an effective mission is inspiring as well as easily understood and communicated. Mission Statement – A mission statement defines the core purpose of the organization ‐ why it exists. The mission examines the “raison d’être” for the organization beyond simply increasing shareholder wealth, and reflects employees’ 146 CU IDOL SELF LEARNING MATERIAL (SLM)
motivations for engaging in the company’s work. Effective missions are inspiring, long‐term in nature, and easily understood and communicated. Objective or Outcome Scorecard – A specific application of a scorecard/objective scorecards monitor progress toward a given set of objectives or outcomes using a threshold-based rating scale. Typically, objective status is determined by normalizing one or many key performance indicators and comparing it to a given rating scale. 8.10 LEARNING ACTIVITY 1. Create a session on Expansion. ___________________________________________________________________________ ___________________________________________________________________________ 2. Create a survey on Retrenchment. ___________________________________________________________________________ ___________________________________________________________________________ 8.11UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. What is Retrenchment? 2. What is Stability? 3. Write the meaning of Expansion? 4. Write the meaning of Strategy? 5. Define the term corporate? Long Questions 1. Explain the advantages of corporate level strategy. 2. Explain the disadvantages of corporate level strategy. 3. Illustrate the concept of Internationalization. 4. Illustrate the concept of Stability of corporate. 5. Explain the concept of Market Penetration. B. Multiple Choice Questions 1. Which performance appraisal tool requires supervisors to categorize employees from best to worst on various traits? 147 CU IDOL SELF LEARNING MATERIAL (SLM)
a. Digital dashboard b. Critical incident method c. Graphic rating scale d. Alternation ranking method 2. Which performance appraisal tool is being used when a supervisor places pre- determined percentages of rates into various performance categories? a. Behaviourally anchored rating scale b. Graphic ranking scale c. Alternation ranking d. Forced distribution 3. Which of the following measurement methods is similar to grading on a curve? a. Critical incident method b. Forced distribution c. Graphic rating scale d. Constant sums rating 4. Which of the following is one of the primary complaints regarding the use of the forced distribution method for performance appraisals? a. Difficult to implement b. Harm to employee morale c. High costs of administration d. Standardization of group sizes 5. Which performance appraisal tools require a supervisor to maintain a log of positive and negative examples of a subordinate's work-related behaviour? a. Alternation ranking b. Paired comparison c. Forced distribution d. Critical incident Answers 1-d, 2-d, 3-b, 4-b, 5-d 148 CU IDOL SELF LEARNING MATERIAL (SLM)
8.12 REFERENCES References book Edvinsson, L., and M. S. Malone. 1997. Intellectual capital. New York: Collins. Edvinsson, L. 1997. Developing intellectual capital at Skandia. Long Range Planning. Edvinsson, L. 1998. Intellectual capital. New York: New York University Press. Textbook references Edvinsson, L 2002. Corporate Longitude: What you need to know to navigate the knowledge economy. Financial Times Prentice Hall. Finke, Roger, and Rodney Starke. 2005. The churching of America 1776–2005. 2nd ed. New Brunswick, NJ: Rutgers University Press. Fisher, F. 1989. Games economists play. Rand Journal of Economics Website http://gbpssi.in/admin/coursepack/MBR616Lect01.pdf https://en.wikipedia.org/wiki/Strategy https://bizfluent.com/info-7890404-corporate-retrenchment-strategy.html 149 CU IDOL SELF LEARNING MATERIAL (SLM)
UNIT 9: BUSINESS LEVEL STRATEGY STRUCTURE 9.0 Learning Objectives 9.1 Introduction 9.2 Concept 9.3Types 9.4Advantages, 9.5 Limitations 9.6 Summary 9.7 Keywords 9.8 Learning Activity 9.9 Unit End Questions 9.10 References 9.0 LEARNING OBJECTIVES After studying this unit, you will be able to: Appreciate the concept of Business Level Strategy. Illustrate the advantages of Business Level Strategy. Illustrate the limitations of Business Level Strategy. 9.1 INTRODUCTION In 1976 Steve Jobs and Steve Wozniak created their first computer, the Apple I. This vignette is based on an honours thesis written by Danielle M. Testa, “Apple, Inc.: An Analysis of the Firm’s Tumultuous History, in Conjunction with the Abounding Future”, November 18, 2007. They invested a mere $1,300 and set up business in Jobs’ garage. Three decades later, their business—Apple Inc.—has become one of the world’s most influential and successful companies. Did you ever wonder why Apple flourished while so many other young companies failed? How did it grow from a garage start-up to a company generating $24 billion in sales? How was it able to transform itself from a nearly bankrupt firm to a multinational corporation with locations all around the world? You might conclude that it was the company’s products, such as the Apple I and II, the Macintosh, or more recently its wildly popular iPod and phone. Or you might decide that it was its people: its dedicated 150 CU IDOL SELF LEARNING MATERIAL (SLM)
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