Retail Notes

RM – 302 RETAIL STRATEGY

Unit 1:

Retail strategic management process: strategists and their role in strategic management. Hierarchy of Strategic intent: vision, mission, business definition, goals and objectives. Environmental appraisal: environmental scanning, appraising the environment, industry analysis, synthesis of external factors, ETOP study

Unit 2:

Organisational appraisal: organisational capability factors, considerations in organisational appraisal, methods and techniques used for organisational appraisal, structuring organisational appraisal.

Company level strategies: grand, stability, expansion, retrenchment and combination strategies and corporate restructuring.

Unit 3:

Business Level Strategy: Business level, generic business and tactics for business strategies. Strategic analysis and choice: Process of strategic choice, Corporate level and business level strategic analysis. Routes to Competitive Advantage.

Unit 4:

Strategy implementation and control: Organisation for action, developing programmes, budgets and procedures, strategy implementation; Mckinsey’s framework, management and control.

Unit 3:

BUSINESS LEVEL STRATEGY:

Business strategies are courses of action adopted by a firm for each of its businesses separately to serve identified customer groups and provide value to the customer by a satisfaction of their needs.

Porter lists two dynamic factors that determine the choice of a competitive strategy:

1. Industry structure2. Positioning of the firm in the industry

Industry structure is determined by the competitive forces. These forces are five in number – threat of new entrants, threat of new products and services, the bargaining power of suppliers, bargaining power of buyers and the rivalry among the existing competitors in the industry.

Positioning of the firm in the industry is the firm’s overall approach to competing. It is designed to attain competitive advantage and is based on two variables:

a. Competitive advantage – can arise due to lower cost or differentiation Lower cost – mass produced products distributed through mass marketing thereby resulting in lower cost per unit.Differentiation – marketing relatively higher priced products of a limited variety but intensely focussed on identified customer groups who are willing to pay the higher price. Product or service is differentiated on some tangible basis.

b. Competitive scope – can be in terms of two factors – broad target and narrow target. Competitive scope is the breadth of the firm’s target within the industry. Breadth on a firm’s target means the range of products, distribution channels, types of buyers, geographic areas served, etc. Broad target approach means full range of products/services to a wider target spread over a larger geographical area. Narrow targeting would mean a limited range of products/services to a few customer groups in a restricted geographical area.

GENERIC BUSINESS STRATEGIES:

Competitive advantage and competitive scope combined together give rise to generic business strategies. There are three types:

1. Cost Leadership (low cost and broad target)

2. Differentiation (differentiation/broad target)

CostLeadership Differentiation

Focussed CostLeadership

Focussed Differentiation

Broad target

Narrow target

Low cost products/services

Differentiated products/services

COM

PETI

TIVE

S

COPE

COMPETITIVE ADVANTAGE

3. Focus (lower cost or differentiation/narrow target)

GENERIC BUSINESS STRATEGIES - PORTER

Cost Leadership Business Strategy: When the competitive advantage of a firm lies in a lower cost of products or services relative to what

the competitors have to offer, it is termed as cost leadership.e.g. Amul (Gujarat Cooperative Milk Marketing Federation – GCMMF)

Moser Baer India – CDsCost leadership strategy – risks involved

Cost advantage is ephemeral Can limit experimentation Technological shifts are a threat to cost leadership

Differentiation Business Strategy:When the competitive advantage of a firm lies in special features incorporated into the

product/service, which are demanded by the customers who are willing to pay for those, then the strategy adopted is differentiation business strategy.

A differentiation firm can charge a premium price for its products/services, gain additional customers who value the differentiation and command customer loyalty.

e.g. GATI, a multimodal transport company differentiated services by offering tangibles like risk insurance, refund on failure to deliver on time, door-to-door pick-up and delivery, etc.

Parle Agro had packaging as a differentiator when it launched Frooti in 1985 in tetra packs.

Focus Business Strategies:These rely on either cost leadership or differentiation but cater to a narrow segment of the total

market. Focus strategies are niche strategies. e.g T-Series focused on low price offerings in 1980’s by introducing cheap cassettes of Hindi film

songs. While Times Music differentiates on the basis of premium pricing.Tanishq differentiates on the basis of certification of gold carats. Pustak Mahals Rapidex English speaking books provide low price publication to price sensitive

audience.

TACTICS FOR BUSINESS STRATEGIES

Time:

Market Location: (as in market leader, market follower, niche, etc.)

STRATEGIC ANALYSIS AND CHOICE:

Process of Strategic Choice: is a decision making process.

Strategic choice – is the decision to select from among the grand strategies considered, the strategy which will best meet the enterprise’s objectives.

Process of Strategic Choice has four steps:

1. Focussing on alternatives: 2. Considering the Selection factors:3. Evaluation of strategic alternatives:4. Making the strategic choice:

Corporate level strategic analysis: the strategies considered under this are stability, expansion, retrenchment and combination. Majority of methods used are grouped under the Corporate Portfolio Analysis while Corporate Parenting Analysis is used in context of corporate headquarters managing Strategic Business Units.

a) Corporate Portfolio AnalysisMethods used for the same under Corporate Portfolio Analysis are:BCG MatrixGE Nine Cell MatrixHofer’s Product Market Evolution MatrixDirectional Policy MatrixSPACE (Strategic Position and Action Evaluation) diagram

b) Corporate Parenting Analysis: A diversified corporation or a multi-business company having a corporate headquarter with SBUs acting as satellites, nurtures individual businesses based on the value created by each and is termed as corporate parenting.

Based on positive contributions and negative effects, five different strategic positions result, each having different implications for corporate strategy. These are:

a. Heartland businesses: parent understands their CSF (critical success factor) better and there are opportunities to make improvements. Expansion strategies suit heartland businesses.

b. Edge of Heartland businesses: in these some parenting characteristics suit business well but others do not. Business would engage the attention of the parent as they would try and understand them better.

c. Ballast businesses: these fit well with parent characteristics but present few opportunities for improvement by the parent. They are somewhat like cash cows. Having been around for a long time, there is not much that can be changed about them. They are better off being retrenched at an opportune time if the realised price exceeds the likely value of future cash flows.

d. Alien territory businesses: there is a misfit between the units parenting characteristics and the units’ CSFs. These SBUs are often the result of misguided diversifications in the past and are best treated with retrenchment.

e. Value trap businesses: fit reasonably well with parenting opportunities but are a misfit with the parent’s understanding of the units’ CSFs. While these present attractive opportunities, they may not be suited to building the core competencies of the corporation.

Business level strategic analysis:

Experience Curve Analysis: It states that the more often a task is performed, the lower will be the cost of doing it. The task can be the production of any good or service. Each time cumulative volume doubles, value added costs (including administration, marketing, distribution, and manufacturing) fall by a constant and predictable percentage.Reasons for the effect include:

Labour efficiency - Workers become physically more dexterous. They become mentally more confident and spend less time hesitating, learning, experimenting, or making mistakes. Over time they learn short-cuts and improvements. This applies to all employees and managers, not just those directly involved in production. Standardization, specialization, and methods improvements - As processes, parts, and products become more standardized, efficiency tends to increase. When employees specialize in a limited set of tasks, they gain more experience with these tasks and operate at a faster rate.

Technology-Driven Learning - Automated production technology and information technology can introduce efficiencies as they are implemented and people learn how to use them efficiently and effectively.

Better use of equipment - as total production has increased, manufacturing equipment will have been more fully exploited, lowering fully accounted unit costs. In addition, purchase of more productive equipment can be justifiable.

Changes in the resource mix - As a company acquires experience, it can alter its mix of inputs and thereby become more efficient.

Product redesign - As the manufacturers and consumers have more experience with the product, they can usually find improvements. This filters through to the manufacturing process. A good example of this is Cadillac's testing of various "bells and whistles" specialty accessories. The ones that did not break became mass produced in other General Motors products; the ones that didn't stand the test of user "beatings" were discontinued, saving the car company money. As General Motors produced more cars, they learned how to best produce products that work for the least money.

Network-building and use-cost reductions - As a product enters more widespread use, the consumer uses it more efficiently because they're familiar with it. One fax machine in the world can do nothing, but if everyone has one, they build an increasingly efficient network of communications. Another example is email accounts; the more there are, the more efficient the network is, the lower everyone's cost per utility of using it.

Shared experience effects - Experience curve effects are reinforced when two or more products share a common activity or resource. Any efficiency learned from one product can be applied to the other products.

Life Cycle Analysis: Organizational life cycle is the life cycle of an organization from birth level to the termination.

There are five level/stages in any organization.1. Birth 2. Growth 3. Maturity 4. Decline 5. Death

According to Richard L. Daft there are four stages in an Organizational Life Cycle.The four stages are:

1. Entrepreneurial stage -> Crisis: Need for leadership 2. Collectivity stage -> Crisis: Need for delegation 3. Formalization stage -> Crisis: Too much red tape 4. Elaboration stage -> Crisis: Need for revitalization

Industry Analysis: Porter’s Five Forces Model

Routes to Competitive Advantage:

Unit 4:

Strategy implementation and control: Organisation for action, developing programmes, budgets and procedures, strategy implementation; Mckinsey’s framework, management and control.

STRATEGY IMPLEMENTATION: MANAGING RESOURCE ALLOCATIONThere are different types of resources – financial, physical and human – derived from different sources. Finance is considered to be the primary source and is used for the creation and maintenance of other resources.

TYPES OF RESOURCESBasically there are two types of finances – long term and short term.Long term finance is required for the creation of capital assets. [Capital assets is “All tangible property which cannot easily be converted into cash and which is usually held for a long period, including real estate, equipment, etc.”]Short term finance is for working capital.

[Working Capital is “Working capital, also known as net working capital, is a financial metric which represents operating liquidity available to a business. Along with fixed assets such as plant and equipment, working capital is considered a part of operating capital. It is calculated as current assets minus current liabilities. If current assets are less than current liabilities, an entity has a working capital deficiency, also called a working capital deficit.”]

Both types of finances can be procured from internal sources and external sources.

Internal sources include retained earnings, depreciation provisions, taxation provisions and other types of reserves like development rebate and investment allowance reserves.

[Retained Earnings: In accounting, retained earnings refers to the portion of net income which is retained by the corporation rather than distributed to its owners as dividends. Similarly, if the corporation makes a loss, then that loss is retained and called variously retained losses, accumulated losses or accumulated deficit. Retained earnings and losses are cumulative from year to year with losses offsetting earnings. Retained earnings are reported in the shareholders' equity section of the balance sheet. Companies with net accumulated losses may refer to negative shareholders' equity as a shareholders' deficit.]

External sources consist of capital market sources such as equity, and loans and money market sources such as bank credit, hire-purchase debt, trade credit, installment credit, etc.

APPROACHES TO RESOURCE ALLOCATION

There could be three approaches to resource allocation –

a) top-down approach: resources are distributed through a process of segregation down to the operating levels. Usually adopted in entrepreneurial mode of strategy implementation.b) bottom-up approach: where resources are allocated after a process of aggregation from the operating level. c) mix of both approaches: involves an iterative form of decision making between different levels of management. This approach has been termed as strategic budgeting.

MEANS OF RESOURCE ALLOCATIONStrategic Budgeting: this is an iterative process involving a multi-level, organization wide effort and needs to carry the approval of all concerned. It takes into account strategic factors such as environmental changes, their likely impact on the implementation of strategy, corporate core competencies and their probable effect on the objective-achieving capability of the organization.BCG Based budgeting: in a BCG matrix, SBU’s or products are identified as cash cows, dogs, stars and questions marks. Investment and cash flow decisions are made on this basis.

PLC based Budgeting: Resource allocation could be linked to the different stages in a products (or SBU’s) life cycle. A product in the introduction and growth phases may attract more resources and these could be diverted from high profit yielding products that have reached the maturity phase.

Capital Based Budgeting: Existing projects in case of restructuring and modernisation could use capital budgeting for resource allocation.

Zero-based budgeting is a technique of planning and decision-making which reverses the working process of traditional budgeting. In traditional incremental budgeting, departmental managers justify only increases over the previous year budget and what has been already spent is automatically sanctioned. No reference is made to the previous level of expenditure. By contrast, in zero-based budgeting, every department function is reviewed comprehensively and all expenditures must be approved, rather than only increases. Zero-based budgeting requires the budget request be justified in complete detail by each division manager starting from the zero-base. The zero-base is indifferent to whether the total budget is increasing or decreasing.

Parta System: Parta is normally made at the start of Project / New Plant / New Machinery / New Product Manufacturing. All information were validated by discussion & questioning with related persons. Finally the management board approves Parta for each unit. Sanction for capital expenditure is given only after the Parta is approved. Working of parta to get details of:

(1) INPUT Raw Material (a) Mix (Quantity), (b) Source, (c) Quality (2) Production Cost, (a) Capacity Utilization, (b) plant no of days running in year (3) Selling & Administrative Cost per Unit of Product, 1) Fixed 2) variable (4) Marketing & Advertising costs: one-time and Regular.

There is a meeting of different units manufacturing the same product (like cement business parta) at a common place which generates healthy competition and sharing of knowledge as well as concerns. Parta system keeps a close watch on efficiency.

FACTORS AFFECTING RESOURCE ALLOCATIONa) Objectives of the organization: which could be official (or explicit) while others would be

operative (or implicit) objectives. Operative objectives tend to influence the pattern of resource allocation to the maximum extent.

b) Preference of dominant strategists: most often the CEO influences the way resources are allocated. c) Internal Politics: resources are often misconstrued as power. Executives who are able to

affect the process of resource allocation in their favour are seen as more effective and powerful in the organization.

d) External Influences: These influences arise due to government policies and stipulations, financial institutions, community and others. E.g. legal requirements may require investments in labour welfare and security, or in pollution control, CSR, etc.

DIFFICULTIES IN RESOURCE ALLOCATIONa) Scarcity of resourcesb) Restrictions on generating unitsc) Overstatement of needs

STRUCTURAL IMPLEMENTATIONWhat is Structure?An organization structure is the way in which the tasks and subtasks required to implement strategy are arranged. It is important for an effective implementation of strategy that there should be a good match between the organization structure and strategy. One alternative is to link the structure to the stage of development that an organization exists in at a given point of time.

Stages of Development: the life-cycle of an organization may be divided into four stages that are not distinct and may overlap.

Stage I organizations are small-scale enterprises usually managed by a single person who is the entrepreneur-owner-manager. These organisations are characterised by the simplicity of objectives, operations and management. It can often be termed as entrepreneurial. The strategies adopted are generally of the expansion type.

Stage II organizations are bigger than stage one organizations in terms of size and have a wider scope of operations. They are characterised by functional specialisation or process orientation. Strategies adopted may range from stability to expansion.

Stage III organizations are large and widely scattered organizations generally having units or plants at different places. Each division is semi-autonomous and linked to the head quarters but function independently. Strategies adopted may either be stability or expansion.

Stage IV organizations are the most complex. They are generally multiplant, multi product organizations that result from the adoption of related and unrelated diversification strategies. The organizational form is divisional. The corporate headquarters assume the responsibility of providing strategic direction and policy guidelines through the formulation of corporate level strategies. The divisions (which may be companies, profit centres and /or SBUs) formulate their business-level strategies and may adopt stage – I, II or III type structures.

STRUCTURES FOR STRATEGIESEntrepreneurial Structure:Advantages:

Quick decision making, as the power is centralised Timely response to environmental changes Informal and simple organizational systems

Disadvantages: Excessive reliance on the owner-manager, hence very demanding for him May divert the attention of the owner manager from strategic decision making to day-to-day

operational matters Increasingly inadequate for future requirements if volume of business expands.

Functional Structure: Functional structures seek to distribute decision-making and operational authority along functional lines.Advantages:

Efficient distribution of work through specialisation

Delegation of day-to-day operational functions

Providing time for the top management to focus on strategic decisions

Disadvantages: Creates difficulty in coordination among different

functional areas Creates specialists which results in narrow specialisation, often at the cost of the overall benefit

of the organization. Leads to functional and line-staff conflicts

Divisional Organization StructureDivisional Organization Structure also called profit decentralisation by Newman and other in built around business units with each unit being relatively self contained and independent of other units. Divisional structure is suited for organisations with several products. Problem with the structure is that all the facilities have to be arranged for each division. Unless a division justifies its cost, it should not be opened. In this form the organisation is divided into fairly autonomous units and each unit is relatively self-contained in that it has resources to operate independently. It is similar to dividing an organization into several smaller organizations.

Advantages: Enables grouping of functions required for the performance of activities related to a division Generates quick response to environmental changes affecting the businesses of different

divisions Enables the top management to focus on strategic matters.

Disadvantages Problems in the allocation of resources and corporate overhead costs Inconsistency arising from the sharing of authority between the corporate and divisional levels

Owner Manager

Employees

Owner Manager

Public Relations Legal

Finance Marketing Personnel

Policy inconsistencies between the different divisions

Matrix Organization StructureMatrix Organization Structure is a violation of the principle of Unity of Command. In a matrix organization structure two complementary structures – pure project structure and functional structure are merged together. It employs multiple command. In a matrix organization structure a project manager is appointed to coordinate the activities of the project. Personnel are drawn from their respective functional departments. On the completion of the project, these people may return to their respective departments for further assignments. Thus, each functional staff has two bosses – his administrative head and his project manager. During his assignment to a project, he works under the coordinative command of a project manager and he may be called upon by his permanent superior to perform certain services needed in the department. Thus, a subordinate in a matrix structure may receive instructions from two bosses. Therefore, he must coordinate the instructions received from two or more bosses.

Similarly the matrix superior has to share the facilities with others. He reports in a direct line to the top, but does not have a complete line of command below. Problems with the structure

1. Power struggle because of overlapping command on resources2. Anarchy can develop3. Delay in decision making4. Quite costly because of top heavy management

Advantages: Allows individual specialists to be assigned where their talent is most needed Fosters creativity because of the pooling of diverse talent Provides good exposure to specialists in general management

Disadvantages: Dual accountability creates confusion and difficulty for individual team members Requires a high level of vertical and horizontal combination

Manager (Production)

Corporate planning Marketing Finance FinanceLegal services Research & development

Consumer product div Marketing FinanceChemicals division Electronics division

Manufacturing

Marketing

Personnel

Purchasing

Accounting

Manufacturing

Marketing

Personnel

Purchasing

Accounting

Manufacturing

Marketing

Personnel

Purchasing

Accounting

Shared authority may create communication problems

BEHAVIOURAL IMPLEMENTATIONBehavioural implementation deals with the impact on the behaviour of strategists in implementing the chosen strategies. There are five major issues of:

Leadership Corporate culture Corporate politics Personal values and business ethics Social responsibility

LEADERSHIP IMPLEMENTATIONRole of the appropriate leader in strategic success is highly significant. Khandwalla has found that there are basically seven management styles: Entrepreneurial, neo-scientific, quasi-scientific, muddling through, conservative, democratic and middle-of-the-road. Each of these can be described on the basis of the five dimensions given below:

1. Risk-taking :Willingness to take risky decisions2. Technocracy :Use of planning, qualified personnel and techniques3. Organicity :Extent of organizational structural flexibility4. Participation :Involvement of managers5. Coercion :Domination by top management

Entrepreneurial stlye could be characterised by high risk-taking, moderate to low technocracy, moderate to low organicity, moderate to low participation and variable coercion.Democratic style could be described as having moderate to low risk taking, moderate to low technocracy, moderate to high organicity, high participation and variable coercion.

It basically demonstrates that when the management style matches with the environment (and strategy), the firm was more effective than when management style did not match the environment.

Development of strategists: three issues are important for top management in developing strategists – The choice of future strategists;

Prod

General Manager

PersonnelFinanceMarketingProduction

Project AMktg Fin Pers

ProdProject B

Mktg Fin Pers

ProdProject C

Mktg Fin Pers

ProdProject D

Mktg Fin Pers

Line authority

Project authority

Their career planning and development and - Succession planning.

CORPORATE CULTUREOrganizational or corporate culture is the set of important assumptions – often unstated – that members of an organization share in common. There are two major assumptions – belief and values.Beliefs are assumptions about reality and are derived and reinforced by experience.Values are assumptions about ideals that are desirable and worth striving for.

Creation of a strategy supportive culture is the main aim of the leadership within the organization. The strategists have four approaches to create a strategy-supportive culture.

1. To ignore corporate culture2. To adapt strategy implementation to suit corporate culture3. To change the corporate culture to suit strategic requirements4. To change the strategy to fit the corporate culture

CORPORATE POLITICSPower is defined as the ability to influence others. Corporate politics is the carrying out of activities not prescribed by polices for the purpose of influencing the distribution of advantages within the organization. Politics is related to the use of power but is not similar to it.

Social psychologists French and Raven, have given five categories of power which reflect the different bases or resources that power holders rely upon. One additional base (informational) was later added.

Positional Power : Also called "Legitimate Power, it refers to power of an individual because of the relative position and duties of the holder of the position within an organization. Legitimate Power is formal authority delegated to the holder of the position. It is usually accompanied by various attributes of power such as uniforms, offices etc. This is the most obvious and also the most important kind of power.

Referent Power : Referent Power means the power or ability of individuals to attract others and build loyalty. It's based on the charisma and interpersonal skills of the power holder. Here the person under power desires to identify with these personal qualities, and gains satisfaction from being an accepted follower. Nationalism or Patriotism counts towards an intangible sort of referent power as well. For example, soldiers fight in wars to defend the honor of the country. This is the second least obvious power, but the most effective.

Expert Power: Expert Power is an individual's power deriving from the skills or expertise of the person and the organization's needs for those skills and expertise. Unlike the others, this type of power is usually highly specific and limited to the particular area in which the expert is trained and qualified.

Reward Power: Reward Power depends upon the ability of the power wielder to confer valued material rewards, it refers to the degree to which the individual can give others a reward of some kind such as benefits, time off, desired gifts, promotions or increases in pay or responsibility. This power is obvious but also ineffective if abused. People who abuse reward power can become pushy or became reprimanded for being too forthcoming or 'moving things too quickly'.

Coercive Power: Coercive Power means the application of negative influences onto employees. It might refer to the ability to demote or to withhold other rewards. It's the desire for valued rewards or the fear of having them withheld that ensures the obedience of those under power. Coercive Power tends to be the most obvious but least effective form of power as it builds resentment and resistance within the targets of Coercive Power.

Charisma Power: Charisma Power is the power of one individual to influences another by force of character, often called personal charisma. A person may be admired because of specific personal trait, and this admiration creates the opportunity for interpersonal influence. Advertisers have long recognized charisma power in making use of sports figures for products endorsements, for example. The charismatic appeal of the sports star supposedly leads to an acceptance of the endorsement, although the individual may have little real credibility outside the sports arena.

Information Power: Information Power is derived from possession of important information at a crtical time when such information is necessary to any organizational functions.

The nature of strategy implementation requires consensus building, managing coalitions and creating commitments, conflict resolution and balancing of interests. With an understanding of the use of power and politics, strategists can perform the tasks of strategic management much better.

PERSONAL VALUES AND BUSINESS ETHICS

Values Scan: Evaluation of Business Culture is Critical Personal values of the Planning team - not to change, but to understand each other Values of Organization as a whole

- profit vs. Growth- to what extent is this to be a value added organization- importance of being a good "corporate citizen"- importance of being a "good" place to work

Company's operating philosophy- How work is done- How conflict is managed- Accounting procedures

Impact of and on other stakeholders

Creating consistency among business values and ethics and the proposed strategy, which can be done through:

a) Inculcating the right set of valuesThis starts right from the first step – recruitment and selection, where it is important to ensure compatibility of the character traits of the potential employee to the ethical system of the organization;Incorporating the statement of values and code of ethics into employee training and educational programmesExample setting by top management in terms of actions and behaviour that reinforce values.Communication of values and code of ethics through wide publicity and explanation of compliance procedures.Constant monitoring of compliance by superior staff and top management.Consistent nurturing of values within the organization through their integration into policies, practices and actions.

b) Reconciling divergent values: divergent values of different groups needs to be reconciled in light of strategic requirements and environmental considerations.

c) Modifying values to create consistency: A judicious use of politics, power and redesigning of corporate culture and making systematic changes in organizations can help to modify values gradually.

SOCIAL RESPONSIBILITYDrivers: Corporations may be influenced to adopt CSR practices by several drivers.Ethical consumerismThe rise in popularity of ethical consumerism over the last two decades can be linked to the rise of CSR. As global population increases, so does the pressure on limited natural resources required to meet rising consumer demand. Industrialization in many developing countries is booming as a result of technology and globalization. Consumers are becoming more aware of the environmental and social implications of their day-to-day consumer decisions and are beginning to make purchasing decisions related to their environmental and ethical concerns.

Globalization and market forcesAs corporations pursue growth through globalization, they have encountered new challenges that impose limits to their growth and potential profits. Government regulations, tariffs, environmental restrictions and varying standards of what constitutes labour exploitation are problems that can cost organizations millions of dollars. Some view ethical issues as simply a costly hindrance. Some companies use CSR methodologies as a strategic tactic to gain public support for their presence in global markets, helping them sustain a competitive advantage by using their social contributions to provide a subconscious level of advertising. Global competition places particular pressure on multinational corporations to examine not only their own labour practices, but those of their entire supply chain, from a CSR perspective.

Social awareness and educationThe role among corporate stakeholders to work collectively to pressure corporations is changing. Shareholders and investors themselves, through socially responsible investing are exerting pressure on corporations to behave responsibly. Non-governmental organizations are also taking an increasing role, leveraging the power of the media and the Internet to increase their scrutiny and collective activism around corporate behavior. Through education and dialogue, the development of community in holding businesses responsible for their actions is growing.

Ethics trainingThe rise of ethics training inside corporations, some of it required by government regulation, is another driver credited with changing the behaviour and culture of corporations. The aim of such training is to help employees make ethical decisions when the answers are unclear. The most direct benefit is reducing the likelihood of "dirty hands", fines and damaged reputations for breaching laws or moral norms. Organizations also see secondary benefit in increasing employee loyalty and pride in the organization. Increasingly, companies are becoming interested in processes that can add visibility to their CSR policies and activities.

Laws and regulationAnother driver of CSR is the role of independent mediators, particularly the government, in ensuring that corporations are prevented from harming the broader social good, including people and the environment. The issues surrounding government regulation pose several problems. Regulation in itself is unable to cover every aspect in detail of a corporation's operations. This leads to burdensome legal processes bogged down in interpretations of the law and debatable grey areas.

e.g. General Electric is an example of a corporation that has failed to clean up the Hudson River after contaminating it with organic pollutants. The company continues to argue via the legal process on assignment of liability, while the cleanup remains stagnant.

Crises and their consequencesOften it takes a crisis to precipitate attention to CSR. One of the most active stands against environmental management is the CERES Principles that resulted after the Exxon Valdez incident in Alaska in 1989. Other examples include the lead poisoning paint used by toy giant Mattel, which required a recall of millions of toys globally and caused the company to initiate new risk management and quality control processes.

In the fall of 1989, Ceres published the Ceres Principles, a ten-point code of corporate environmental conduct to be publicly endorsed by companies as an environmental mission statement or ethic. Ceres (pronounced "series"), a non-profit organization based in the United States, is a national network of investors, environmental organizations and other public interest groups working with companies and investors to address sustainability challenges such as global climate change.The 10 Ceres Principles are:1.Protection of the Biosphere ; 2.Sustainable Use of Natural Resources ; 3.Reduction and Disposal of Wastes 4. Energy Conservation ; 5. Risk Reduction ; 6. Safe Products and Services ; 7. Environmental Restoration 8. Informing the Public 9. Management Commitment and 10. Audits and Reports

Stakeholder PrioritiesIncreasingly, corporations are motivated to become more socially responsible because their most important stakeholders expect them to understand and address the social and community issues that are relevant to them. Understanding what causes are important to employees is usually the first priority because of the many interrelated business benefits that can be derived from increased employee engagement (i.e. more loyalty, improved recruitment, increased retention, higher productivity, an so on). Key external stakeholders include customers, consumers, investors (particularly institutional investors, regulators, academics, and the media).

FUNCTIONAL AND OPERATIONAL IMPLEMENTATION

MARKETING STRATEGYBASIC MARKET-PRODUCT STRATEGIES - THE CUSTOMER-PRODUCT DECISIONMarket penetration strategy - (stay in current markets with existing products)increase rate of purchase/consumption; attract rival’s customers; buy out rivals; convert non-users into current usersMarket development strategy (find new markets for current products)enter new geographical markets; find new uses for existing products; find new target marketsProduct development strategy (develop new products for existing markets)improve features; improve quality/reliability/durability; enhance aesthetics/styling; add modelsDiversification strategy (develop new products for new markets)

THE FOUR P’s OF MARKETING - Marketing mix issues • Product Strategy - Specifying the exact product or service to be offered

• New or existing product? …for new or existing customers?• Promotion Strategy - How the product or service is to be communicated to customers

• “Push” - spend on promotions and discounts to push products• “Pull” - spend to build brand awareness so consumers will ask for it by name

• Channel or “Place” Strategy - Selecting the method for distributing the product or service• Distribute through dealer networks or through mass merchandisers?• Sell directly to consumers through own stores or through internet?

• Price Strategy - Establishing a price for the product or service• “Skim pricing” (high) when you are a pioneer• “Penetration pricing” (low) builds market shares • “Dynamic pricing” (prices vary frequently) based on demand/availability

FINANCIAL MANAGEMENT STRATEGIESCapital acquisitions

– Debt leverage, stock sales, & gains from operations• Equity financing is preferred for related diversification• Debt financing is preferred for unrelated diversification• Leveraged buyouts (lbos) make the acquired firm pay off the debt

Resource allocations– Dividends, stock price, & reinvestment

• Reinvest earnings in fast-growing companies• Keeping the stockholders contented with consistent dividends• Use of stock splits ( or reverses) to maintain high stock prices• Tracking stock keeps interest in company, but doesn’t allow takeover

RESEARCH & DEVELOPMENT STRATEGIES• LEVEL OF INNOVATION

– Pioneer (Leader) v. Copy Cat (Follower)

• Technological leadership fits well with differentiation• A “follower” strategy makes sense with cost-leader strategies• Are we better at finding applications and customer adaptations than actually

inventing something really new?– Different types of R & D (basic, product, process)

• Where is the firm’s historic expertise / advantage?• How competent are the R & D Personnel?

• ACQUISITION OF TECHNOLOGY – Internally developed v. acquired from outside

• Technology “Scouts”• Strategic Technology Alliances • Acquire minority stake in promising high-tech ventures

OPERATIONS STRATEGIES• MANUFACTURING LOCATION

– Internal Production v. Outsourcing– Domestic Plants v. International Locations

• SYSTEM LAYOUT – Product v. Process Layouts

• Continuous production / dedicated transfer lines helps achieve cost leadership • Use of robots and CAD/CAM v. Labor intense manufacturing

PURCHASING STRATEGIES• Sourcing components and supplies - where can the highest quality components be found?

– Outsourcing (our firm buys everything)• Buying on the Open Market (Spot) (prices fluctuate)• Long-Term Contracts with Multiple Suppliers (low bid)• Sole Sourcing (only one supplier) improves quality• Parallel Sourcing (two suppliers) provides protection

– Backward Integration (our firm has an ownership stake in the suppliers we use)• Quasi-integration (minority ownership position in a supplier)• Tapered (produce some of what we need, but not all)• Full (produce all of our own needs)

– Use of Component Inventories v. Just-in-time supply delivery

LOGISTICS STRATEGIES• Type of materials transported (bulky or compact?)

– Raw materials, supplies, & components; Finished goods• Best mode of transportation:

– Air; Rail; Truck; Barge • Outsource transportation or do it yourself?

– Contract with others• Use multiple shippers v. Just one (ups)?• Consider batch deliveries v. Just-in-time arrangements?

- Ownership in distribution chain – Quasi; Tapered; Full

HUMAN RESOURCE STRATEGIES• Talent acquisition

– Recruit from outside v. Internal development– Require experienced, highly-skilled workers v. “we will train you”– Offer “top” wages & benefits v. Mentoring and a career

• Work arrangements – Individual jobs v. Team positions– Narrowly-defined jobs v. Positions with discretion and autonomy

On-premises work v. Telecommuting options• Motivation & appraisal

– Extrinsic v. Intrinsic reward systems– Assessment for development v. Assessment for rewards– Incentives for ideas & originality v. Incentives for conformity?

INFORMATION SYSTEMS STRATEGIESWorker productivity & connectivity Employees networked together across globe; “follow the sun management”…pass projects on to next teamSales & inventory managementInternet sales & dev. of customer databases; Instant sales reports allow immediate inventory reordersShipping & tracking goodsFedex powership software…stores addresses, prints labels, etc.; Tracking the progress of package shipment…fedex

STRATEGIC EVALUATION AND CONTROL Strategic evaluation and control constitutes the final phase of strategic management. Importance of strategic evaluation lies in its ability to coordinate the tasks performed by individual managers. There are other factors that make strategic evaluation important, like the need for feedback, appraisal and reward, check on the validity of strategic choice, congruence between decisions and intended strategy, successful culmination of the strategic management process, and creating inputs for new strategic planning.

BARRIERS IN EVALUATION1. Limits of control – control mechanism presents the dilemma of too much versus too little control. 2. Difficulties in measurement – control system may be distorted and may not evaluate uniformly or

may measure attributes which are not intended to be evaluated. 3. Resistance to evaluation: Evaluation process involving controlling behaviours is resisted by the

managers. 4. Short-termism: Managers tend to rely on short term implications of activities and try to measure the

immediate results. Often the long term impact is ignored.5. Relying on efficiency versus effectiveness: Efficiency is ‘doing the things rightly’ and effectiveness is

‘doing the right things.’

OPERATIONAL CONTROLOperational control is aimed at the allocation and use of organizational resources through an evaluation of the performance of organizational units, such as divisions, SBUs and so on, to assess their contribution to the achievement of organizational objectives.

DIFFERENCE BETWEEN STRATEGIC AND OPRATIONAL CONTROLAttribute Strategic control Operational controlBasic question Are we moving in the right direction? How are we performing?Aim Proactive, continuous questioning of the

basic direction of strategyAllocation and use of organizational resources.

Main concern Steering the organization’s future direction

Action control

Focus External environment Internal organizationTime horizon Long-term Short-termExercise of Exclusively by top management, may be Mainly by executive or middle level

control through lower-level support management on the direction of top management

Main techniques

Environmental scanning, information gathering, questioning and review

Budgets, schedules, MBO

PROCESS OF EVALUATION This basically deals with four steps:

1. Setting standards of performance: quantitative vs qualitative2. Measurement of performance: aspects include difficulties, timing and periodicity in measuring3. Analysing variances: actual performance matching/deviating from budgeted performance4. Taking corrective action: checking performance & standards, reformulating strategies, plans,

objectives

TECHNIQUES OF STRATEGIC EVALUATION AND CONTROLEvaluation techniques for strategic control:Strategic momentum control: aimed at assuring that the assumptions on whose basis strategies were formulated are still valid. There are three techniques:

1. Responsibility control centres – form the core of management control systems and are of four types: revenue, expense, profit and investment centres.

2. The underlying success factors – enables organizations to focus on the CSFs (Critical Success Factors) in order to examine the factors that contribute to the success of the organization.

3. The Generic Strategies – based on the assumption that strategies adopted by a firm similar to another firm are comparable.

Strategic Leap Control: When environment is relatively unstable, organizations are required to make strategic leaps in order to make significant changes. There are four techniques:

1. Strategic Issue Management – aims at identifying one or more strategic issues and assessing their impact on the organization.

2. Strategic Field analysis – is a way of examining the nature and extent of synergies that exist or are lacking between the components of an organization.

3. Systems modelling – is based on computer based models that simulate the essential features of the organization and its environment.

4. Scenarios – are perceptions about the likely environment a firm would face in the future.

Evaluation techniques for operational control:Internal analysis: deals with the identification of the strengths and weaknesses of the organization in absolute terms. Tools used include value chain analysis, qualitative/ quantitative analysis e.g. ABC and EVA.Comparative analysis: compares the performance of a firm with its own past performance or with other firms. Includes historical analysis, industry norms and benchmarking as methods.Comprehensive analysis: adopts a total approach of evaluating the firm rather than one area of activity, unit or department. It includes balanced scorecard method, network techniques e.g. CPM and PERT, MBO.

MCKINSEY’S 7-S MODEL7-S framework of McKinsey The 7-S framework of McKinsey is a Value Based Management (VBM) model that describes how one can holistically and effectively organize a company. Together these factors determine the way in which a corporation operates.Shared ValueThe interconnecting center of McKinsey's model is: Shared Values. What does the organization stands for and what it believes in. Central beliefs and attitudes.StrategyPlans for the allocation of a firms scarce resources, over time, to reach identified goals. Environment, competition, customers.StructureThe way the organization's units relate to each other: centralized, functional divisions (top-down); decentralized (the trend in larger organizations); matrix, network, holding, etc.SystemThe procedures, processes and routines that characterize how important work is to be done: financial systems; hiring, promotion and performance appraisal systems; information systems.StaffNumbers and types of personnel within the organization.StyleCultural style of the organization and how key managers behave in achieving the organization’s goals.SkillDistinctive capabilities of personnel or of the organization as a whole.

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