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BPS slides After midsem

  1. 1. BPS(After Mid-term Exam SICSR) » Deep Shah » Deep.shah1592@gmail.com 1
  2. 2. 2 ----------------------------------------------------------------- Grand Strategies: • Stability, Growth, (Diversification Strategies, Vertical Integration Strategies, • Mergers, Acquisition & Takeover Strategies, Strategic Alliances & Collaborative Partnerships), • Retrenchment, Outsourcing Strategies. (8) -----------------------------------------------------------------
  3. 3. 3 Strategic Option Menu Overall Low Cost Provider Broad Differentiation Best Cost Provider Focussed Differentiation Focussed Low Cost Provider Complimentary Strategic options: 1. Strategic Alliances & Collaborative Partnerships ? 2. Merge with or acquire other companies? 3. Integrate backward or Foreword? 4. Outsourcing? 5. Initiate offensive Strategies? 6. Defensive Strategic moves? 7. Using Internet as Distribution Channel, if so, to what extent? Functional Strategies to support above Strategic Choices: 1. R & D, Engineering. 2. Production. 3. Marketing & Sales. 4. Human Resources. 5. Finance Timing the Company’s Strategic move in marketplace: a) First Mover, b) Fast Mover? And/or c) Late Mover.
  4. 4. 4 Grand Strategies • Having settled on one of the Competitive Generic Strategy, we now need to decide on other Strategic Actions to complement on the choice basic Competitive Strategy chosen. • Grand Strategies are Corporate Level Strategies, Setting a choice of Direction that a firm should adopt. It could be a small entrepreneur firm with single location and single business or a corporate conglomerate with multi-location, diversified several different businesses. The Corporate Strategy in both cases is about setting the basic direction of the firm as a whole. • Corporate Strategies are basic decisions about allocating & transferring resources among different businesses and managing & nurturing portfolios to achieve overall corporate objectives.
  5. 5. 5 Business Dimensions 1 & 2 1. Internal / External Dimensions: a) When the Organisation is an independent entity, it is operating under Internal Dimensions and b) When the Organisation adopts a strategy in association with another entity, it operates under External Dimension. 2. Related / unrelated Dimensions: a) When organisation adopts a Strategy related to its existing Business Definition, the Related Dimension operates and b) When organisation adopts a Strategy that is un-related to its existing business either in terms of Customer Groups, Customer functions or alternative Technology; the unrelated dimension operates.
  6. 6. 6 Business Dimensions 3 & 4 3. Horizontal / Vertical Dimensions: a) The horizontal dimensions operates when an organisation adopts a strategy which results in serving additional customer groups and/or satisfying other customer functions in such a way that they compliment the existing business definition of one or more of its business. b) The vertical dimension operates when an organisation adopts a strategy which results in the expansion or contraction of the existing business definition of one or more businesses in terms of the utilisation of alternative technologies. 4. Active / Passive Dimensions: a) The active dimension operates when an organisation adopts an offensive strategy in anticipation of environmental threats and opportunities. b) The passive dimension operates when an organisation adopts a defensive strategy as a reaction to environmental threats and opportunities.
  7. 7. 7 Thus combination of Four Grand Strategies, four Dimensions and two types in each dimension give rise to 32 possible mixed Strategies and if we consider three dimensions of Business Definition, these possibilities should be 32 x 3 = 96 and if we consider weight-ages for each factor the Strategic alternatives could be mind boggling. However, all alternatives are not feasible or possible and we narrow down the choice of few major strategic alternatives.
  8. 8. 8 1. Stability Strategies: 1.a) No-Change Policy: It is a conscious decision of not doing anything new and continue with present business definition. When environment is stable and predictable with no new significant threats & opportunities in the environment, it may not be worthwhile to alter strategy in present situation. Also no new strengths have been generated and no new weaknesses have been developed. No new threat of substitutes and new entrants. However, this should be a conscious decision and should not arise out of in-activity and owing to inertia. It is dangerous to be complacent. 1.b) Profit Strategy: No change policy cannot sustain for long and situations keep changing. However if company believes that the changes like economic recession, govt. rules, industry downturn, competitive pressures are temporary and will turn favourable after some time,
  9. 9. 9 then firm opts for maintain profit policy by artificial measures like cut costs, hold investments / replacements, raise prices, increase productivity and some such measures to tide over the difficult days. However, if the problems are not temporary, the company position deteriorates. Pause / Proceed – with – caution Strategy is a temporary strategy like profit strategy and is used for consolidation. It is used to test the ground before going ahead with full- fledged Grand Strategy. Sometimes after a major expansion firms need to stabilise, allow strategic change to percolate through organisation structure and allowing existing systems to adopt the strategy and the move for further expansions. It is also used to bide the time for more opportune time and move on with rapid strides again.
  10. 10. 10 2. Expansion Strategies If organisation is not moving ahead, it is actually going backwards. Companies aim for substantial growth to take advantage of Growing economy, liberalisation, burgeoning markets, globalisation, Emerging technologies etc. Expansion Strategies are of 5 types. • 2.a) Expansion through Concentration: Firms tend to rely on doing what they know they are best at doing. Concentration Strategy involves investment of resources in a product line for an identified market. The firm has proven technology, market has high potential for growth and industry is sufficiently attractive for concentration to take place. The firm should also have financial strength to sustain expansion. This is a first preference strategy of firm doing what they are doing already and would like to invest more in known business. (Bajaj, Maruti)
  11. 11. 11 • Concentration strategy involves minimal organisation changes, improves competitive advantage due to in depth knowledge & expertise. • The limitations are putting all resources at one project, it is industry dependent and adverse condition in industry can affect. In the Recession time, it is too difficult for concentrated firms to withdraw. Product obsolescence is another threat for the heavy investment. • 2.b)Expansion through Integration: When firms use their existing base to expand in the direction of their raw material or the ultimate consumer or acquire adjacent businesses; expansion through Integration takes place. This is exploring Vertical and Horizontal dimensions of Grand Strategy. Expansions are pivoted around present base of customers. Scope of business definition is widened. Alternative technologies are used for backward or forward integration. The firm moves up or down the value chain. The firm aims at cost economics. It is also one type of ‘Make or Buy’ decision. All integration strategies require Trade-offs. There are two types of Integrations.
  12. 12. 12 • Vertical Integration: When an organisation start making new products that serve its own need or is for self consumption. • Backward Integration means retreating to source of raw materials while forward integration moves the organisation to its ultimate customers. • Horizontal Integration: When an organisation takes up the same type of products at the same level for production or for marketing. Many a times Horizontal Integration is a merger of like industries. • Integration strategy gives more control on Value chain but carry a risk as industry is set to serve same customer group and in case product fails or becomes obsolete. • 2.c) Expansion through Diversification: Several firms diversify to reduce the risk of dependence on product and same set of customers. Diversification involves all dimensions of Strategic Alternatives. It could be internal or external, related or unrelated, horizontal or vertical, technological etc. It changes business definition.
  13. 13. 13 • Concentric Diversification: The activity is related to existing business definition either in businesses, customer groups & functions and /or alternative technology. It could be market related concentric diversification as different products for same set of customers or Technology related Diversification as related technology to the present business or combination of Market & Technology related diversification. • Conglomerate diversification: Diversification in activities which are totally unrelated to existing business definition of one or more of its businesses. (ITC – Tobacco & Hotel, Essar – Shipping & Steel, Shriram – Nylon Fibre & Ball bearings, etc.)
  14. 14. 14 2.d) Expansion through Co-operation: 1. Mergers Strategy 2. Takeovers or Acquisitions Strategy. 3. Joint Ventures Strategy. 4. Strategic Alliances Strategy 2.e) Expansion through Internationalisation: 1. International Strategy. 2. Multi-domestic Strategy. 3. Global Strategy. 4. Trans-national Strategy.
  15. 15. 15 3. Retrenchment Strategies. • Retrenchment Strategy is followed when an organisation substantially reduces scope of its activities. The organisation need to find out problem areas and diagnose the causes of the Problems, accordingly, various types of Retrenchment Strategies are adopted. • External Developments, Government Policies, Substitute Products, Changing Customer needs, Wrong Strategies, Obsolete Products, could be reasons for decline. • Symptoms are noticed in poor performance, declining profits, dwindling Cash flow, falling sales, Shrinking markets, Shrinking market share, increasing debt. • The organisation with proper monitoring controls can sense impending danger and position itself to find alternatives.
  16. 16. 16 Retrenchment Strategy Situations for Recovery • Slatter has described four types of Retrenchment Strategy situations for recovery Realistically non recoverable situation with little chance of Survival : Not competitive company, Low potential for Improvement, Company with cost dis-advantage, Products or Services are in terminal decline.. Temporary recovery situation but no sustained turn-around: Possible product re-positioning, new forms of Competitive advantage, cost reduction, revenue generation is possible. Sustained survival situation but no potential for future growth: Turnaround is possible but Industry is in slow decline, which cannot be revived. Therefore, a very little potential for growth is possible. Divestment is possible or Turn-around is possible by finding ‘niche’ market, where organisation can be a leader. Sustained recovery situation with genuine possibility of Turn- around: A possible new developed product, Possible market development or a possible market re-positioning. Industry has attractiveness is still available and decline was caused more by internal factors.
  17. 17. 17 3.a) Retrenchment Strategies: Turnaround Strategies: • 3.a.1.: If CEO has credibility with Banks and Financial Institutions and if a qualified Consultant is available, then management team handles the entire turn-around strategy with support of advisory specialist external consultant. • 3.a.2: In another situation, Turnaround specialist is employed to do the job and existing team is temporarily withdrawn. The person could be deputed by banks. 3.a.3: Replacement of existing team, especially CEO and / or merging sick unit with a healthy one. • Possible actions could be: Analysis of Product, market, production processes, competition, market segment positioning, production logic, Target setting, feedback, remedial actions.
  18. 18. 18 3.b) Retrenchment Strategies : Divestment Strategies: • 3.b.1: Divestment is done due to negative cash flows, mismatch of business with the company, project feared to be non-viable in long range, severe competition, Technological up-gradation asking for funds which are not available, Selling a part of company for survival of organisation, a better alternative is available for investment, Divestment as a part of merger plan of mutual exchange, • Divestment is done in two ways : A part of company is divested or firm may sell a unit outright to a buyer, who finds the purchase as a strategic fit.
  19. 19. 19 3.c) Retrenchment Strategies : Liquidation Strategies: • This is most un-attractive strategy, where company shuts down and tries to sell its assets. It is a last resort. Liquidation is difficult due to various legal constraints and protection given to employees in labour law. • Liquidation may be inevitable in spite of best efforts of the entrepreneur. In case of Textile Mills of Mumbai, writing was on wall as Mills did not invest in to new technology for more than 50 years. Secondly, it could be a planned liquidation, in view of prices of real estate in Mumbai. The neglect may have been deliberate. Some times liquidation can happen through court order for compulsory winding up and sometimes winding up can be voluntary.
  20. 20. 20 Combination Strategies • Combination Strategies are mixture of Stability, Expansion and Retrenchment strategies. They are either followed simultaneously or in a sequential way. It is very difficult in the business environment to follow a single pure Strategy. Situation is Complex and business demands different strategies to suit the situational demands made upon the organisation. • As an example, observe a paint company following three strategies together. Addition of new variety of ‘Decorative paint’ for widening customer base, (Stability), and Adding an entirely new product like ‘Automotive Paint’ with new set of customers & functions (Expansion), while eliminating or closing the contract division, which used to take Painting Contracts (Retrenchment).
  21. 21. 21 Complimentary Strategic options: • 1. Strategic Alliances & Collaborative Partnerships? • 2. Merge with or acquire other companies? • 3. Integrate backward or Foreword? • 4. Outsourcing? • 5. Initiate offensive Strategies? • 6. Defensive Strategic moves? • 7. Using Internet as Distribution Channel, if so, to what extent? Timing the Company’s Strategic move in marketplace: • a) First Mover, • b) Fast Mover? And/or • c) Late Mover.
  22. 22. 22 1. Strategic Alliances & Collaborative Partnerships? • In the present era of Privatisation & Globalisation, Industries have to face altogether different challenges not faced hitherto. Rapid advances in technology, free economy, new markets in developed & under developed countries, and invasion of foreign companies are forcing Industries to enter into race of building Global presence and into race of adopting new technologies. • Industries also find that they do not have expertise for running the race of Global leadership. The global environment requires diverse & expensive skills, resources, technological skills. The fastest & surest way to fill up the gap is Alliances with enterprises with desired strengths. • Strategic Alliances are collaborative partnerships where two or more companies join forces to achieve mutually beneficial strategic outcomes. These alliances are more than company to company give & take dealings but fall short of Merger or JV. These alliances are mainly for bridging gap of resources and technology.
  23. 23. 23 Advantages of Alliance: • Alliance is basically between equals, but alliances are also done with suppliers, distributors as partners by many big business houses. These alliances are mostly done with Value chain contributors. • It is now common for companies to pursue their strategies in collaboration with suppliers, distributors, makers of complimentary product and some select companies. e.g. IBM & DELL. Advantages of Alliance: • Get into critical country markets quickly. • Gain, in-side information & knowledge about unknown / unfamiliar markets & cultures. • Access valuable skills & competencies. • Get a handle to participate in target technology or industry. • Master new technology; build new expertise & competencies faster. • Open up broader opportunities.
  24. 24. 24 Stability of Alliances: • Alliances have a very high rate of divorce. In US only about 39% of Alliances are found to be stable. Others are either outright failures or are limping along. • Alliances to be successful should have partners working together. Stability of alliances depend upon their success in adopting to changing internal & external conditions, willingness to bargain on issues, real collaboration and not merely arm length exchange of ideas. Each partner must bring in high value allied skills, resources and contributions and respect each other. They should have co-operative arrangements working for win-win solutions. • Causes for failures of alliances could be, diverging objectives and priorities, in-ability to work together, changing conditions which make initial reason for alliance as obsolete, more attractive technologies and / or rivalry at marketplace. • Alliance partners should guard themselves from undue dependence. Over a period the partners must learn skills and technology. To be a market leader companies must develop their own capabilities or alliance will ultimately lead to Merger or Acquisition.
  25. 25. 25 Merger & Acquisition Strategies: • The phrase Mergers and Acquisitions (abbreviated M&A) refers to the aspect of corporate strategy, corporate finance and Management dealing with the buying, selling and combining of different Companies that can aid, finance, or help a growing company in a given industry to grow rapidly without having to create another business entity. • In the pure sense of the term, a Merger happens when two firms, often of about the same size, agree to go forward as a single new company rather than remain separately owned and operated. This kind of action is more precisely referred to as a “Merger of equals." Both companies' stocks are surrendered and new company stock is issued in its place. For example, both Daimler-Benz and Chrysler ceased to exist when the two firms merged, and a new company, DaimlerChrysler, was created.
  26. 26. 26 Merger & Acquisition Strategies-2: • When one company takes over another and clearly established itself as the new owner, the purchase is called an Acquisition. From a legal point of view, the Target Company ceases to exist, the buyer "swallows" the business and the buyer's stock continues to be traded. • Whether a purchase is considered a Merger or an Acquisition really depends on whether the purchase is friendly or hostile and how it is announced. In other words, the real difference lies in how the purchase is communicated to and received by the target company's Board of Directors, employees and Shareholders. • M & A have not produced hoped-for results on many instances. Resistance of rank and file employees of two large companies is some times too formidable to resolve. Conflicts of management styles and difference in Corporate Cultures create problems in integration. Cost savings, expertise sharing, and enhanced competitive capabilities take substantially long time to materialise in view of above problems.
  27. 27. 27 Strategic objectives of Mergers & Acquisitions: 1. To pave the way for the acquiring company to gain more market share and, further, create a more efficient operation out of combined companies by closing high cost plants and eliminating surplus capacity industry- wise. 2. To expand companies geographic coverage. 3. To extend company’s business into new product categories or international markets. 4. To gain quick access to new technologies and avoid the need for a time consuming R & D effort. 5. To try to invent new industry and lead the convergence of industries whose boundaries are being blurred by changing technologies and new market opportunities 6. To fill resource gaps
  28. 28. 28 Outsourcing Strategies: • Unlike Integration; outsourcing is narrowing boundaries of the business. Integration has problems of mismatch of capacities, as economic size for individual items in value chain could be different and hence such specialised skilled processes or items in value chain could be outsourced to specialists. • A company should generally not perform any value chain activity internally that can be performed more efficiently or effectively by its outside business partners – the exception is when an activity is strategically crucial and internal control over the activity is deemed essential.
  29. 29. 29 Advantages of Outsourcing: 1. Cost reduction – An activity cane be performed more cheaply by outside specialists. 2. A particular skilled activity can be performed better by outside specialist. 3. The activity not connected with core competence and not crucial to firm’s ability to achieve sustainable competitive advantage and will not affect the technical ‘Know-how’ can be outsourced to advantage. 4. Outsourcing reduces company’s risk due to changes in technology and/ or change in buyer preferences. 5. Outsourcing streamlines the Company operations in ways that cut time it takes to get the newly developed product in to the market. 6. Outsourcing allows the company to concentrate on strengthening and leveraging its core competencies.
  30. 30. 30 Offensive Strategy • Offensive Strategic moves include yielding a cost advantage, a differentiation advantage, a resource advantage. These advantages, when used with initiative are termed as Offensive Strategy giving Competitive advantage to the initiator. • However, competent, resourceful rivals won’t take lightly and exert pressure to overcome the disadvantage they are facing because of initiative taken by one of their associates. • The initiator of the Offensive Strategy has to come up follow-up offensive & defensive moves to sustain the initially won competitive advantage.
  31. 31. 31 Types of Offensive Strategies-1 1. Initiatives to match or exceed the competitor strengths: When rivals have strong competitive advantage, then firms are forced to take an initiative and take an offensive stand to whittle away from pressure. In second instance, when competitor is very strong and established, an offensive strategy to offer alternate products at faster pace and at cheaper price sometimes works and afterwards people get used to alternate product. e.g AMD & Intel. One of the options is to offer equally good product at lower price. Other option could be to outsmart competitor by bringing in latest version of product in market before him and making his product obsolete. Adding new features, running Comparison ads, having plant in backyard of rival, superior customer service capability are some other options.
  32. 32. 32 Types of Offensive Strategies-2 2. Initiatives to capitalise on weaknesses of the competitor: This option has better chance than challenging strengths of competitor. Options could be going after rival whose product lag in quality & features, or making special sales campaign, Service camps where rival lacks in service department, or Win away customers with your strong brand appeal over his weak brand, or take advantage of geographic reasons, where rival has weak presence in market, or paying special attention to market segment which your rival is neglecting.
  33. 33. 33 Types of Offensive Strategies-3 • 3. Simultaneous initiatives on many fronts: Company may launch a Grand Offensive on many fronts simultaneously and compel rivals to take defensive actions, Such offensive may include, price cuts, increased advertising, additional performance features, new models & styles, customer service thrust & improvements, free samples, coupons, rebates, in store displays, etc. When a product has sufficient Brand image & when a new specifically attractive product or service is being launched, such an offensive measure has more chances of success
  34. 34. 34 Types of Offensive Strategies- 4 4. End-run offensives: involves going around competitors instead of taking them head on and change rules of game & competition. This may include, introducing new products that redefine the market & terms of competition, e.g. digital camera, wireless communication. It could also include launching initiative in geographic area where competitors have not yet reached, introduce products in new market segments for selected buyers with different attributes & performance features, e.g. sport-utility-vehicles of Honda Accura or ford Lexus. Taking a jump ahead- leapfrogging by using next generation technology, which support existing business & technology such as 3 G hand sets, blackberries, i-phone, LCD screens
  35. 35. 35 Types of Offensive Strategies- 5 5. Guerrilla offensives: This is adopted by small challenger companies, who do not have resources or market visibility to challenge the leaders. This is hit & run technique. Challenger Companies attack in areas neglected by biggies or where they have become vulnerable. Offering quality, when leaders have some quality problems or having a big discount sale week, or offering products at shortest & confirmed deliveries when leaders are facing delivery problems, a short offensive and win away selected client account, prompt technical support when clients are frustrated with leaders. etc.
  36. 36. 36 Types of Offensive Strategies - 6 6. Pre-emptive strikes: This is one of a kind offensive move. Whosoever is first gains maximum competitive advantage! Pre-emptive strategies involve being first to secure an advantageous position, where rivals are kept away and cannot duplicate and then strike competitors by a) May be securing a big renowned distributor, b) New geographic area, new shopping mall, c) Good location for to cheap transportation & raw materials, etc, d) Choose which rivals to attack. It could be leaders, who are always vulnerable or e) Second run firm with weaknesses, here the challenger must be strong to strike weak company, f) Struggling enterprises who are on the verge of going under, g) Small local & regional firms with limited capabilities. The pre-emptive strikes are done on the basis of core competency of challenger, where they are best in areas like Resource strengths and competitive capabilities, otherwise chance of success are dim.
  37. 37. 37 Defensive Strategies: In competitive environment every successful company has to face the threat of challenges from rivals and new entrants. The defensive strategies are used to lower the risk of being attacked and weakening the impact of attack. The defensive strategies do not improve competitive edge but they help to fortify company’s competitive position, protect valuable resources and prevent possibilities of imitation. Two forms of Defensive Strategies are: 1. Blocking the avenues open to Challengers: Defender can participate in alternative Technology to reduce attack of better Technology which may be offered by rivals. • New Products, new features, broaden the product range, close vacant niches,
  38. 38. 38 • Have economy priced product range to ward off price wars. • Lengthening warranty periods, free service training or camps. • Developing capability to provide spare parts. • Providing free coupons, give away samples, sponsoring gift hampers, • Search & appoint creditable distributors & book them with volume discounts & other finance terms so as to discourage them from trying other suppliers. 2. Signalling Challengers that retaliation is likely & let challengers that the battle will cost more than its worth. • Publicly announcing management’s commitment to maintain the firm’s present share. • Publicly committing the company to match competitors’ terms & prices. • Maintaining a war chest & marketable securities. • Making an occasional strong reaction on moves of weak competitor to enhance the company’s image of tough defender.
  39. 39. 39 Strategies for Using Internet as distribution channel • The internet era has brought second wave of Internet entrepreneurship. Companies need to address how best to make internet as part of the business to use as distribution channel. How much emphasis to be placed for use of internet? Managers must decide how to use the Internet in positioning the company in marketplace? • Using Internet Just to Disseminate Product Information: and use internet to direct customers to distribution channel partners for sales transaction or indicate locations retail stores. This is to avoid conflict with already existing distribution channel partners. Direct sale on net will indicate weakening commitment to distributors. Dealers are considered better positioned to deal with “brick & click” Strategy for Company products / services. Company considers that strong support and good will of dealer network is essential. Web is considered in partnership with dealers and not in competition.
  40. 40. 40 Using Internet as Minor Distribution Channel: Here, the strategy is to use Internet to gain online sale experience, doing market research, testing product, getting feed back from web surfers and create sufficient interest about Company’s Product and Services in web community. e.g. ‘Nike’ selling some footwear on line, giving buyers option for colour & features so as to gain more & first hand knowledge about customers’ choices. This path will be beneficial to dealers & will not create resistance.
  41. 41. 41 • Using “Brick and Click” Strategy: Sell directly to customers on line and at the same time use traditional whole sale & retail channels. This policy is beneficial in certain circumstances. e.g. “Software Programmes”, where direct downloading is more comfortable than going to shop and getting a CD. Internet has more reach and geographic constraints are taken care of with help of dealers in that area, though Distribution channels are necessary and customer need to have a physical contact with Product / Services, On-line sell improves profitability as dealer commission could be up to 35 – 40% of retail price. Customers visiting web site are automatic prospective buyers. Also where the technology is more suitable for ‘build to order’ strategy.
  42. 42. 42 First / Fast / Late Mover Strategy • ‘When’ to make a Strategic move is equally important as ‘what’ move to make. It will depend upon the product life cycle, technology requirement. First mover has many advantages, but fast & late mover can also be a profitable move. • First mover builds up reputation & image. • First mover’s early commitment to new technology, new features, new distribution channels can give a cost advantage over rivals. • Being first mover is an offensive move of ‘pre-emptive strike’. Rivals are not ready & this makes imitation difficult. Bigger the first mover advantage, more attractive the move is. • First mover’s customers are likely to retain brand loyalty giving him firm footage in market. However, first mover has to have good financial resources, important competencies, competitive capabilities and high quality management.
  43. 43. 43 • The first move cannot be for name sake. First mover must time his product entry with precise combination of features, customer value & sound revenue – cost – profit economics to sustain the edge over rivals and maintain market leadership. • Being a Fast follower and late starter can also be an advantageous move with wait and see policy. It may be easier to copy first mover and improve upon by learning from errors on part of first mover and de-bug the problems. • Being the first mover need competency and cost. It may be cheaper to copy. If the product life cycle is long, the initial advantages of first mover can be nullified over a time and with safety. A follower and late mover assume that first mover to be slow in learning and updating his products.
  44. 44. 44 Syllabus 10. Strategy implementation: • Project implementation – • Procedural implementation – • Resource Allocation – • Organization Structure – • Matching structure and strategy. (3)
  45. 45. 45 8 Issues in implementation: •Project Implementation. •Procedural Implementation. •Resource Allocation. •Structural Implementation. •Behavioural Implementation. •Functional and Operational Implementation.
  46. 46. 46 Strategies Plans Program Policies, Procedures, Rules & Regulations Projects Budgets
  47. 47. 47 Corporate F u n c t io n al Pl a n Strategies Corporate Plan Sector Plan Divisional Plan Product / technology Plan B r o a d O b j e ct iv e s A n n u al O p e r a t I o n B u d g e t s Business sector Division Product Level Long Term (5-10 years) Medium Term (3 Yrs) Short Term (1 Year) Long Term / Medium Term Objectives : Market Share, ROI, ROE, New Markets. These are integrated and coordinated, consistent, prioritised and measurable objectives.
  48. 48. 48 Advantages of Annual Objectives: – Tangible Growth targets. – Focus on Growth. – Role clarity to managers and sub-ordinates. – Mobilise people and enable them to participate in direction of growth. – Unifying all groups in one direction. – Basis for strategic control. – Motivate employees. – Provide challenges for functional groups – Tool to Operationalising strategies.
  49. 49. 49 1. Project Implementation: • Conception Phase: Extension of Strategy Formulation Phase. Prioritising projects conceived. • Definition Phase: Preparation of Detailed Project Report considering marketing, technical, financial (eligible for scrutiny by financial institutes, economic and ecological aspects), feasibility study, • Organisation, location, whether new or Modernisation or expansion or diversification, backward integration, nature of Industry, nature of products. • Project promoters & Financial details of the company. • Project details detailed Cost of project. • Means of financing, Profitability and cash flow. • Marketing arrangements
  50. 50. 50 • Economic considerations like competition, economic benefits to country or region, contribution to development, ancillaries etc. • Environment aspect • Govt. consents like licence, capital goods, foreign Exchange, technical collaboration permission etc. • Planning and organising phase: Designs, budgets, finance, schedules, manpower, systems and procedures. • Implementation Phase : detailed engineering, order placement, testing, trial and commissioning of the project. • Clean up phase : disbanding the project set up and handing over of the facility to operation.
  51. 51. 51 2. Procedural Implementation • Formation of the company • Licensing procedures • SEBI requirements • MRTP requirements • Foreign collaborations procedures • FEMA requirements • Import and Export Licences / requirements • Patenting and trade mark requirement • Labour legislation requirement • Environmental requirement and Pollution board requirements • Consumer protection requirements • Procedures for availing Incentives and facilities to get benefits.
  52. 52. 52 3. Resource Allocation • Resource allocation deals with procurement and commitment of financial, physical and human resources to strategic tasks. • Project related resources are generally one time requirements and for on-going concern the resources are required on continuous basis. • Finance is primary resource. It is required for creation and maintenance of other resources. Long term resources are required for creation of capital assets and short term finance is required for working capital. • Resources could be internal or external. Internal resources are retained earnings, depreciation provisions, other reserves etc. • External resources are equity and long term loans. Also money market resources such as bank credits, hire purchase debt, instalment credit and fixed deposits. • Resource allocation : This could be top down where resources are allocated by top level to all other levels of organisation based on budgets. In a bottom up scenario budgets are drawn by operation group as required. However Strategic Budgeting is a mix of both and is dynamic. It involves to and fro communications and actions between all levels of management based on strategic decisions.
  53. 53. 53 Top management Corporate Policy Guidelines Goals Short & Long Approvals & sanctions Resources availability Minimising gaps Strategic budget Pr op os al s Core Competencies, Marketing & past Performance, Environment, culture Executive Management Operating Management Targets / Operation Budgets Implementa tion
  54. 54. 54 Types of Strategic Budgets I n d u st r y G r o w t h R a t e High High Relative Market Share 20% 15% 10% 5% Low Stars Question Marks Cash Cows Dogs BCG Matrix for Strategic Decisions Low SBUs / Multi- divisions / Multi- departments are identified for Resource allocations for Investment. Cash flows are based on their strengths in BCG Matrix.
  55. 55. 55 Types of Strategic Budgets • PLC Based Budget: Product / SBU Life Cycle: Resources are allocated based on different stages Product / SBU Life Cycle. • Capital Budgeting: A separate budget is drawn for Capital requirement in case of new SBU or new product or expansion or modernisation. In case of capital sources fund raising are different. • Zero based Budgeting: ZSB is based on present evaluation and not based on past performance. Each requirement is to be justified by operation group on the basis of fresh calculation of costs and targets. In other words the resource allocation demand is based on “ground zero” • Parta System: This system is mainly used by conservative business houses where CEO is basically a financial wizard. This system is based on daily net cash flow (before tax and dividend) statement. The net cash flow is pre determined and agreed figure between SBU In-charge / Operating Management and the Chairperson / owner / major stock holder of the company. This is a daily budgeting and reporting system.
  56. 56. 56 Factors affecting Resource Allocation: • Objectives of the Organisation – Realisation of Strategic Intent. • Dominant Strategists – Powerful Lobbying, influential departmental heads, CEO preferences etc. • Internal Politics – Resource allocation is construed a Power Statement and SBU In-charges, departmental heads strive for grabbing more resources for their departments. • External Influences – Government policies, statutory requirements, demands from financial institutes, Share holders, Community, necessity of Pollution control and safety equipments. • Scarcity of Resources – Financial, physical and human resources, cost of capital and that of cash credits, Government Policies with regards to raw materials and Technology. • Credit-worthiness of organisation– ability to raise funds. • Overstatement of needs – Bottom up or democratic ways of resource allocation gets developed in to every one grabbing his share of pie by overstating and dramatising their needs. • It is a role for CEO for managing resources. He need to have a Strategic Plan and communicate the same to all executives and ensure that resource allocation decisions are taken amicably.
  57. 57. 57 4. Structural Implementation Entrepreneurial: Owner - Manager Employees CEO Public Relations LegalProduction Finance Marktg. Personnel Functional CEO Corporate Finance Legal / PR Gen. Manager- DIV. A Gen. Manager- Div. BDivision Marktg., Operations, Pers., Marktg., Operations, Pers., Divisional / Product Owner - Manager Employees
  58. 58. 58 • SBU Based CEO Head SBU 1 Head SBU 2 Head SBU 3 Div. A,B,C Div. D,E,F Div. G,H,K
  59. 59. 59 CEO Finance Operations Personnel Marketing Head – A Location / Product / Plant Head – B Location / Product / Plant Head – C Location / Product / Plant Corporate Matrix
  60. 60. 60 Corporate Headquarte r Project M Project N Function X Function Y Region A Region B Network
  61. 61. 61 • Product based Structures: In large volume scenario it makes a sense to have a separate organisation dedicated to a product. This enables optimum use of specialised skills. Product separation helps organisation in addition /deletion decisions. • Customer based Structures: Assuming that sales volume justifies the need of separate setup; it enables organisation to concentrate on specific customer group and provide exclusive attention required for that particular product / services. It helps in creating specialised skills and timely response to changing needs of the customers. • Geographic Structures: Set ups at different sites sometimes evolve due to expansions and mergers. It also offers advantage of nearness to raw materials or to markets / customers. It helps in fair degree of de- centralisation. It needs a very good top level co- ordination and communication amongst all locations and corporate office.
  62. 62. 62 • Intrapreneurial Structure: This is a cluster of various owner driven set-ups. It encourages entrepreneurial abilities of its employees. Employees as entrepreneurs with support of parent organisation can apply its full attention to his part of business for development of new ideas for products and services. • There are also “Horizontal Organisations” and “Delaminated matrices.” • In horizontal type; the structure corresponds to process of providing products or services directly served to customer thereby eliminating special corporate functions like marketing, finance etc. Executives have to be multi- functional in such a case as the core process is managed by cross functional teams. • Delaminated Matrices are combination of Horizontal organisations with a Functional structure. The firm employs both process oriented horizontal teams and functional departments. These two layers of matrix organisation are separated providing depth of expertise and capabilities to the organisation.
  63. 63. 63 • Organisations are structured to implement strategic plan in best possible way. All functions and activities that are critical from strategy view point are required to be considered. Thus key activities performed to achieve Objectives and realise the Mission are required to be considered in Organisational design. Organisational Design: 1. Identification of key activities necessary to be performed for achieving Objectives and realising the Mission through the formulated strategy. 2. The activities which are similar in nature and skills are grouped together. 3. Different groups of activities are accommodated in the structure. 4. Creation of Departments, Divisions; Regions and so on to which the group of activities are assigned. 5. Design establishes an interrelationship between these different departments for the purpose of coordination and communications.
  64. 64. 64 • Organisations are structured to implement strategic plan in best possible way. All functions and activities that are critical from strategy view point are required to be considered. Thus key activities performed to achieve Objectives and realise the Mission are required to be considered in Organisational design. Organisational Design: 1. Identification of key activities necessary to be performed for achieving Objectives and realising the Mission through the formulated strategy. 2. The activities which are similar in nature and skills are grouped together. 3. Different groups of activities are accommodated in the structure. 4. Creation of Departments, Divisions; Regions and so on to which the group of activities are assigned. 5. Design establishes an interrelationship between these different departments for the purpose of coordination and communications.
  65. 65. 65 Traditional Organisations Emerging Organisations One large firm Small business units with Cooperative relationship. Vertical Communication Horizontal Communication Centralised and Top-down decision Making Decentralised and participative decision making Vertical Integration Outsourcing and virtual organisations Work / Quality based Teams Autonomous work teams Functional Work teams Functional Work teams Minimum Training Extensive Training Individual-focussed specialised Job Design value chain team-focussed Job Design
  66. 66. 66 Organisational Systems • Control Systems – The measurement and correction of the performance of activities of all the people in structure in order to make sure that enterprise objectives and plan devised to achieve the same is accomplished. Establish Standards Measure Performance Evaluate Performance against Standards Determine corrective performance Establish Standards Measure Performance Evaluate Performance against Standards Determine corrective performance Establish Standards Measure Performance Evaluate Performance against Standards Determine corrective performance
  67. 67. 67 Organisational Systems • Information Systems – The Organisational Arrangements that provides information to managers to perform their tasks and relate their works to others. This is also known as MIS • Appraisal Systems – Evaluating managerial performance. Appraisals are used for salary fixation, awards, incentives, management development, etc. • Motivation Systems – to enforce desirable behaviour. Motivation can be monetary such as Salary, Bonus, Rewards and non monetary such as recognition, designation, perks
  68. 68. 68 Organisational Systems • Planning Systems – Planning is basically formulating strategy. Planning can be centralised or decentralised depending upon Organisational Character. Plans are provided as packaged plan for implementation in centralised planning by planning committee. In decentralised planning corporate strategy performs a directive role for divisions, who in turn does planning taking environment into consideration.
  69. 69. 69 • Development systems – is a process of gradual, systematic improvement in knowledge, skills and performance of mangers to enable them to perform their duties. The process of management Development Individual Characteristics Organisational Characteristics Managerial behaviour Performance Experience Learning Management Development Training & Education, New Experiences
  70. 70. 70 5. Behavioural Implementation. • Behaviour of the strategist has a huge impact on implementing the chosen strategy. Implementation of strategy has thus many behavioural issues. • Leadership. • Corporate Culture. • Corporate Politics. • Use of Power. • Personal Values and Business Ethics.
  71. 71. 71 Leadership in Implementation:1: • Leadership plays a critical role in the success and failure of an enterprise. It is one of the most important elements affecting Organisational performance. • Leaders have Personality traits and Qualities. • Leaders Influence relationship between individuals. • Behaviour of leader lead to actions around. • Situation in which leader has to operate decides the mettle of a leader. Subordinates and situation at times show dependence on a leader. • This generates Contingency behaviour within the leader. • Leader transacts with sub-ordinates and indicates Role differentiation. • Leader with absence of a real concepts provides anti leadership. • Leadership thrives on entire organisational Culture. • Leader uses his influence and creates intrinsic motivation and bring about Transformation of the organisation • Risk Taking Leader: Willingness to take high risks. This is required at times depending on the strategy which involves high returns.
  72. 72. 72 Leadership in Implementation:2: • Technocracy: Optimum decisions based on technical needs • Organicity: The flexibility and adaptability in changing requirements is required to satisfy an agile operating staffs. • Participation: Inviting participation at all levels in the decision-making, Process and strategy implementation. • Coercion involves domination, authoritarianism by top management complied with wishes given in Mission and adjectives. • Key role of Leaders: CEO: Identifying Strategy and implement. He remains accountable for success or failures. He should identify changes in environment and should operate a trigger. He should have interpersonal skills and creativity to Mobilise people. • CEO should develop and choose future strategists. Their career planning and establish a succession plans. Normally a promotion within, is useful for moral of the organisation.
  73. 73. 73 Corporate Culture • Corporate Culture is a set of important assumptions- often un-stated but most members share in common. Something like “people at top do not understand” or “Whether you work or don’t work, you will get salary”, “there is stagnation at Top” or “Turnover is important.” • Thus shared things like uniforms, Shared sayings, shared actions like service oriented approach, shared feelings like “hard work is not rewarded here” creates a Corporate culture. • Strategists have four approaches to create a strategy related supportive culture. This depends on strategy- culture relationship.
  74. 74. 74 Ignore corporate culture: Changes required are very high and compatibility of change is low, then To adapt strategy implementation to suit corporate culture. Changes required are very high and compatibility of change is also high, then To change strategy to fit corporate culture Changes required are very low and compatibility of change is also low, then To change corporate culture to suit strategic requirements :Changes required are very low and compatibility of change is high, then
  75. 75. 75 • Corporate Politics and Power: Power is an ability to influence others and politics is carrying out activities though not prescribed by any Policy to gain advantages and influence distribution. • Corporate politics is not good or bad but it creates divisiveness which is not good. • Sources of Power : ‘Reward Power’ – ability of Manager to reward people of his choice. ‘Coercive Power’ – Ability to penalise negative results. ‘Legitimate Power’ Abilty of Mangers to influence behaviour of sub ordinates. Referent Power is Managers to create liking among subordinates due to charisma or knowledge. Expert Power is due to competence, knowledge and experience of Managers.
  76. 76. 76 Personal Values and Business Ethics • Value is a view of life and a judgement of what is desirable and what is correct. These views forms personality of a leader and creates a group’s morale. Business ethics are traditionally been considered as core values like honesty, trust, respect & fairness. To inculcate these value and ethics: • Consider Values & Ethics of a person during recruitment. • Incorporate in new comer trainees and in training programme. • Top management to set examples. • Communicate Values & Ethics through wide publicity. • Consistently monitor and nurture values and build ethics.
  77. 77. 77 Social Responsibility and Strategic Management • Social Responsibility along with ethics becomes a stated or un-stated requirement. It gets attended in Strategic Planning through environmental appraisals. It has differing views, while some do not want it to be considered in business operations, others boast around it. However, most business houses observe a balance and undertake to deliver social responsibility and business objectives without contradicting each other. • Social Responsibility extends beyond the workforce and stakeholders and many business houses take up activities for community welfare, rural development, sports etc. • Presently, with ISO:14001:2004 which concerns Environment Management Systems, it has become a necessity to address the mode and means of delivering social responsibility. • Like any other strategic functions, for successful implementation, Organisations need to allocate resources, create Organisation Structure and evaluate its effectiveness. But all said and done, the society in large remains a major stake holder and we cannot escape our dues to society and towards social responsibility.
  78. 78. 78 Functional and Operational Implementation. • Enterprise Vision, Mission, Objectives and Goals are of generic nature. • We create various functions like Marketing, Operation, Finance, HRD etc. for effective implementation of the Strategic Plans. • Natural derivation is to develop Functional Plans and Policies. • Functional Strategy deals with limited restricted plan which provides objectives for a specific function. • Resources are allocated function wise for their optimal contribution to the achievement of Business and Corporate level Objectives.
  79. 79. 79 Functional Plans and Policies: • Functional Strategies are implemented through defined plans and policies for various functions. 1. The strategic decisions are implemented by all the functions of the organisations. 2. A basis is created for controlling activities of all different functional areas of business. 3. Plans are laid down clearly for all functional departments and Policies provide discretionary framework. Thus functional mangers do not spend time groping in dark. 4. Functional mangers can handle similar situations effectively. 5. Co-ordination across the different functions takes place where necessary.
  80. 80. 80 Strategy Formulation Nature of Product / Services Nature of market Manner in which Market is to be served Operational System Structure Operational System Objective Operational Policies and plans
  81. 81. 81 Syllabus 11. Behavioural issues in implementation: • Corporate culture – • Mc Kinsey’s 7s Framework – • Concepts of Learning Organization (3)
  82. 82. 82 Description of the 7-S Frame work of MC Kinsey
  83. 83. 83 Description of the 7-S Frame work of MC Kinsey • The 7-S framework of McKinsey is a Value Based Management (VBM) model. Together these factors determine the way in which a corporation operates. • Shared Value: The interconnecting centre of McKinsey's model is: Shared Values. What does the organization stands for and what it believes in. These are Central beliefs and attitudes. • Strategy: Strategy is a Plan for the allocation of a firm’s scarce resources, over a time to reach identified goals. Strategy considers Environment, Competition and Customers. • Structure: The way the organization's units relate to each other: centralized, functional divisions (top-down); decentralized (the trend in larger organizations); matrix, network, holding, etc. • System: The procedures, processes and routines that characterize how important work are to be done: financial systems; hiring, promotion and performance appraisal systems; information systems. • Staff: Numbers and types of personnel within the organization. • Style: Cultural style of the organization and how key managers behave in achieving the organization’s goals. • Skill: Distinctive capabilities of personnel or of the organization as a whole. (Core Competencies).
  84. 84. 84 The McKinsey 7S Framework • Ensuring that all parts of your organization work in harmony • While some models of organizational effectiveness go in and out of fashion, one that has persisted is the McKinsey 7S framework. Developed in the early 1980s by Tom Peters and Robert Waterman, two consultants working at the McKinsey & Company consulting firm, the basic premise of the model is that there are seven internal aspects of an organization that need to be aligned if it is to be successful. • The McKinsey 7S model can be applied to elements of a team or a project as well. The alignment issues apply, regardless of how you decide to define the scope of the areas you study The 7S model can be used in a wide variety of situations where an alignment perspective is useful, for example: • Improve the performance of a company; • Examine the likely effects of future changes within a company; • Align departments and processes during a merger or acquisition;
  85. 85. 85 The Seven Elements Hard Elements Soft Elements Strategy Structure Systems Shared Values Skills Style Staff •"Hard" elements are easier to define or identify and management can directly influence them: These are strategy statements; organization charts and reporting lines; and formal processes and IT systems. •"Soft" elements, on the other hand, can be more difficult to describe, and are less tangible and more influenced by culture. However, these soft elements are as important as the hard elements if the organization is going to be successful.
  86. 86. 86 • The way the model is presented in Figure depicts the interdependency of the elements and indicates how a change in one affects all the others. • Placing Shared Values in the middle of the model emphasizes that these values are central to the development of all the other critical elements. The company's structure, strategy, systems, style, staff and skills all stem from why the organization was originally created, and what it stands for. The original vision of the company was formed from the values of the creators. As the values change, so do all the other elements
  87. 87. 87 How to Use the Model • The model is based on the theory that, for an organization to perform well, these seven elements need to be aligned and mutually reinforcing. So, the model can be used to help identify what needs to be realigned to improve performance, or to maintain alignment (and performance) during other types of change. • Whatever the type of change - restructuring, new processes, organizational merger, new systems, change of leadership, and so on - the model can be used to understand how the organizational elements are interrelated, and so ensure that the wider impact of changes made in one area is taken into consideration. • You can use the 7S model to help analyze the current situation (Point A), a proposed future situation (Point B) and to identify gaps and inconsistencies between them. It's then a question of adjusting and tuning the elements of the 7S model to ensure that your organization works effectively and well once you reach the desired endpoint.
  88. 88. 88 • However, it is not simple. Changing your organization probably will not be simple at all! Whole books and methodologies are dedicated to analyzing organizational strategy, improving performance and managing change. The 7S model is a good framework to help you ask the right questions - but it won't give you all the answers. For that you'll need to bring together the right knowledge, skills and experience. • When it comes to asking the right questions, we've developed a Mind Tools checklist and a matrix to keep track of how the seven elements align with each other. Supplement these with your own questions, based on your organization's specific circumstances and accumulated wisdom.
  89. 89. 89 7S Checklist Questions • Here are some of the questions that you'll need to explore to help you understand your situation in terms of the 7S framework. Use them to analyze your current (Point A) situation first, and then repeat the exercise for your proposed situation (Point B). • Strategy: • What is our strategy? • How to we intend to achieve our objectives? • How do we deal with competitive pressure? • How are changes in customer demands dealt with? • How is strategy adjusted for environmental issues? • Structure: • How is the company/team divided? • What is the hierarchy? • How do the various departments coordinate activities? • How do the team members organize and align themselves? • Is decision making and controlling centralized or decentralized? Is this as it should be, given what we're doing? • Where are the lines of communication? Explicit and implicit?
  90. 90. 90 • Systems: • What are the main systems that run the organization? Consider financial and HR systems as well as communications and document storage. • Where are the controls and how are they monitored and evaluated? • What internal rules and processes does the team use to keep on track? • Shared Values: • What are the core values? • What is the corporate/team culture? • How strong are the values? • What are the fundamental values that the company/team was built on? • Style: • How participative is the management/leadership style? • How effective is that leadership? • Do employees/team members tend to be competitive or cooperative? • Are there real teams functioning within the organization or are they just nominal groups?
  91. 91. 91 • Staff: • What positions or specializations are represented within the team? • What positions need to be filled? • Are there gaps in required competencies? • Skills: • What are the strongest skills represented within the company/team? • Are there any skills gaps? • What is the company/team known for doing well? • Do the current employees/team members have the ability to do the job? • How are skills monitored and assessed?
  92. 92. 92 7S Matrix questions • Using the information you have gathered, now examine where there are gaps and inconsistencies between elements. Remember you can use this to look at either your current or your desired organization. • Check off alignment between each of the elements as you go through the following steps: • Start with your Shared Values: Are they consistent with your structure, strategy, and systems? If not, what needs to change? • Then look at the hard elements. How well does each one support the others? Identify where changes need to be made. • Next look at the other soft elements. Do they support the desired hard elements? Do they support one another? If not, what needs to change? • As you adjust and align the elements, you'll need to use an iterative (and often time consuming) process of making adjustments, and then re-analyzing how that impacts other elements and their alignment. The end result of better performance will be worth it.
  93. 93. 93 • Key points: • The McKinsey 7Ss model is one that can be applied to almost any organizational or team effectiveness issue. • If something within your organization or team isn't working, chances are there is inconsistency between some of the elements identified by this classic model. • Once these inconsistencies are revealed, you can work to align the internal elements to make sure they are all contributing to the shared goals and values. • The process of analyzing where you are right now in terms of these elements is worthwhile in and of itself. • But by taking this analysis to the next level and determining the ultimate state for each of the factors, you can really move your organization or team forward.
  94. 94. 94 Concepts of Learning Organization • Organisational Learning vs. Learning Organisation • There is a difference between Organisational Learning and Learning Organisation. Argyris (1977) defines Organisational Learning as the process of "detection and correction of errors" • while Senge (1990) defines Learning Organisation as "a group of people continually enhancing their capacity to create what they want to create". Senge further remarks that "the rate at which organizations learn may become the only sustainable source of competitive advantage". • Organisational Learning is a Process and Learning Organisation is a Structure. • A Learning Organisation is an Organisation that learns and encourages learning among its people in an effort to create a more knowledgeable and flexible workforce capable to adapt to cultural changes.
  95. 95. 95 • A Learning Organization is the term given to a company that facilitates the learning of its members and continuously transforms itself. Learning Organizations develop as a result of the pressures facing modern organizations and enables them to remain competitive in the business environment. A Learning Organization has five main features; systems thinking, personal mastery, mental models, shared vision and team learning. • Donald Schon. He provided a theoretical framework linking the experience of living in a situation of an increasing change with the need for learning. • The loss of the stable state means that our society and all of its institutions are in continuous processes of transformation. We cannot expect new stable states that will endure for our own lifetimes. We must learn to understand, guide, influence and manage these transformations. We must make the capacity for undertaking them integral to ourselves and to our institutions. • We must, in other words, become adept at learning. We must become able not only to transform our institutions, in response to changing situations and requirements; we must invent and develop institutions which are ‘learning systems’, that is to say, systems capable of bringing about their own continuing transformation. (Schon 1973: 28)
  96. 96. 96 • Subsequently, we have seen very significant changes in the nature and organization of production and services. Companies, organizations and governments and we have to operate in a global environment and that has altered its character in significant ways. • Productivity and competitiveness are, by and large, a function of knowledge generation and information processing. Firms and Territories are organized in networks of production, management and distribution. The core economic activities are global – that is they have the capacity to work as a unit in real time, or chosen time, on a planetary scale. (Castells 2001: 52) • A failure to attend to the learning of groups and individuals in the organization spells disaster in this context. As Leadbeater (2000: 70) has argued, companies need to invest not just in new machinery to make production more efficient, but in the flow of know- how that will sustain their business. Organizations need to be good at knowledge generation, appropriation and exploitation
  97. 97. 97 Why do Learning Organizations develop? • Organizations do not organically develop into Learning Organizations; there are usually factors prompting their change. • It has been found that as organizations grow, they lose their natural capacity to learn as company structures and individual thinking becomes rigid. • When problems arise in the company, the solutions that are proposed often turn out to be only short term (single loop learning) and re-emerge in the future. • To remain competitive, many organizations have restructured, which has resulted in fewer people in the company. This means those who remain need to work more effectively. • To create a competitive advantage, companies need to be able to learn faster than their competitors and also develop a customer responsive culture. • Modern organizations need to maintain knowledge about new products and processes, understand what is happening in the outside environment and produce creative solutions using the knowledge and skills of all employed within the organization. • This requires co-operation between individuals and groups, free and reliable communication, and a culture of trust. These needs can be met through embracing the tenets of the Learning Organization.
  98. 98. 98 Learning Organisation : Definitions • The Learning Company is a vision of what might be possible. It is not brought about simply by training individuals; it can only happen as a result of learning at the whole organization level. (Pedler et. al. 1991: 1) Pedler et al, later redefined this concept to “an organization that facilitates the learning of all its members and consciously transforms itself and its context”, reflecting the fact that change should not happen just for the sake of change, but should be well thought out. • "Organisations where people continually expand their capacity to create the results they truly desire, where new and expansive patterns of thinking are nurtured, where collective aspiration is set free, and where people are continually learning to learn together" (Peter Senge, 1990). • Learning organizations are characterized by total employee involvement in a process of collaboratively conducted, collectively accountable change directed towards shared values or principles. (Watkins and Marsick 1992: 118) • According to Sandra Kerka (1995) most conceptualisations of the learning organisations seem to work on the assumption that ‘learning is valuable, continuous, and most effective when shared and that every experience is an opportunity to learn’.
  99. 99. 99 Characteristics of a Learning Organization-1 • Learning Organization exhibits five main characteristics; Systems thinking, Personal mastery, Mental models, a Shared vision and Team learning. • Systems thinking • This is a conceptual framework that allows people to study businesses as bounded objects. • Learning Organizations employ the method of thinking when assessing their company and develops information systems that measures the performance of the organization as a whole and of its various components. • Systems thinking also state that all the characteristics listed must be apparent at once in an organization for it to be a Learning Organization. If any of these characteristics is missing, then the organization will fall short of its goal. • However O’Keeffee believes that the characteristics of a Learning Organization are factors that are gradually acquired, rather than developed simultaneously.
  100. 100. 100 Characteristics of a Learning Organization-2 • Personal Mastery • Personal mastery is the commitment by an individual to the process of learning. There is a Competitive Advantage for an organisation whose workforce can learn quicker than the workforce of other organisations. • Individual learning is acquired through staff training and development. However learning cannot be forced upon an individual if he or she is not receptive to learning. • Research has shown that most learning in the workplace is incidental, rather than the product of formal training; therefore it is important to develop a culture where personal mastery is practiced in daily life. • A Learning Organisation has been described as the sum of individual learning, but it is important for there to be mechanisms by which individual learning is transferred into Organisational Learning.
  101. 101. 101 Characteristics of a Learning Organization-3 • Mental models • Mental Models are the terms given to ingrained assumptions held by individuals and organisations. • To become a Learning Organisation, these mental models must be challenged. • Individuals tend to espouse theories, which they intend to follow, and theories-in-use, which is what they actually do. • Similarly, organisations tend to have ‘memories’ which preserve certain behaviours, norms and values. In the creation of a learning environment it is important to replace confrontational attitudes with an open culture that promotes inquiry and trust. • To achieve this, the Learning Organisation will have mechanisms for locating and assessing organisational theories of action. If there are unwanted values held by the organisation, these need to be discarded in a process called ‘unlearning’ Wang and Ahmed refer to this as ‘triple loop learning.’
  102. 102. 102 Characteristics of a Learning Organization-4 Shared vision • The development of a shared vision is importantly provides incentive to the workforce to learn as it creates a common identity that can provide focus and energy for learning. • The most successful visions are built on the individual visions of the employees at all levels of the organisation • The creation of a shared vision is likely to be hindered by traditional structures where a company vision is imposed from above. Therefore… • Learning Organisations tend to have flat, decentralised organisational structures. • The topic of shared vision is often to succeed against a competitor, however Senge states that these are transitory goals and suggests that there should also be long term goals that are intrinsic within the company.
  103. 103. 103 Characteristics of a Learning Organization-5 • Team learning is the accumulation of individual learning. • The benefit of sharing individual learning is that employees grow more quickly and the problem solving capacity of the organisation is improved through better access to knowledge and expertise. • Learning Organisations have structures that facilitate team learning with features such as boundary crossing and openness. • Team learning requires individuals to engage in dialogue and discussion, therefore it is important that team members develop open communication, shared meaning and understanding. • Learning Organisations also have excellent knowledge management structures, which allow creation, acquisition, dissemination, and implementation of this knowledge throughout the organisation.
  104. 104. 104 Characteristics of a Learning Organization-6 • The basic rationale for such organisations is that in situations of rapid change, only those that are flexible, adaptive and productive will excel. • For this to happen, it is argued that organisations need to ‘discover how to tap people’s commitment and capacity to learn at all levels’ (Peter Senge, 1990) • And that “the pressure of change in the external environments of organisations... is such that they need to learn more consciously, more systematically, and more quickly than they did in the past... • They must learn not only in order to survive but also to thrive in a world of ever increasing change” (Pearn, 1997). • The key ingredient of the Learning Organisation is in how organisations process their experiences and how they learn from their experiences rather than being bound by their past experiences.
  105. 105. 105 Learning Organisation Concepts • The concept of organisational learning evolved from the individual learning process, but organisational learning is not simply the collectively of individual learning processes, but it engages interaction between: • Individuals in the organisation • Interaction between organisations as an entity • Interaction between the organisation and its environment • The major Learning Organisational concepts focus on “Continuous Improvement”, “Culture” and “Innovation and Creativity”.
  106. 106. 106 Focus The concept of Learning Organisation Practices 1. Continuous Improvement 2. Culture 3. Innovation and Creativity “A learning organisation should consciously and intentionally devote to the facilitation of individual learning in order to continuously transform the entire organisation and its context “ (Pedler et al. 1991) The adoption of Total Quality Management practices “A learning organisation should be viewed as a metaphor rather than a distinct type of structure, whose employees learn conscious communal processes for continually generating, retaining and leveraging individual and collective learning to improve performance of the organisational system in ways important to all stakeholders and by monitoring and improving performance” (Drew & Smith, 1995) Creation and maintenance of learning culture: adopting to cultural change, collaborati ve team working, employee empowerment and involvement, etc. Organisation learning is the process by which the organisation constantly questions existing product, process and system, identify strategic position, apply various modes of learning, and achieve sustained competitive advantage Facilitation of learning and knowledge creation; focus on creative quality and value innovation
  107. 107. 107 Problems / issues that may be encountered in a Learning Organisation: • Even within a Learning Organisation, problems may be encountered that stall the process of learning or cause it to regress. • Most of the problems arise from an Organisation not fully embracing all the facets outlined above that are necessary in a Learning Organisation. • If these problems can be identified, work can begin on improving them. Organisational barriers to learning: • Some organisations can find it hard to embrace personal mastery because as a concept it is intangible and the benefits cannot be quantified. Additionally, personal mastery can be seen as a threat to the organisation. • This threat can be real, as Senge points out, that “to empower people in an unaligned organisation can be counterproductive”.
  108. 108. 108 Organisational barriers to learning: (Contd.) • In other words, if individuals do not engage with a shared vision, personal mastery could be used to advance their own vision. • In some organisations a lack of a pro-learning culture can be a barrier to learning. • It is important that an environment is created where individuals can share learning without it being devalued and ignored. • So more people can benefit from their knowledge and the individual becomes empowered. • A Learning Organisation needs to fully embrace the removal of traditional hierarchical structures. These are a barrier to the development of shared vision and to the sharing of knowledge.
  109. 109. 109 Individual barriers to learning • Resistance to learning can occur within a Learning Organisation if there is not sufficient “buy in” at an individual level. • This is often encountered by people who feel threatened by change or believe that they have the most to lose. • The same people who feel threatened by change are likely to have closed mind sets are not willing to embrace engagement with mental models. • Unless implemented coherently across the whole organisation, learning can be viewed as elitist and restricted to more senior levels within the organisation. • If this is the case, learning will not be viewed as a shared vision. • If training and development is compulsory, it can be viewed as a form of control, rather than a form of personal development. • Learning and the pursuit of personal mastery needs to be an individual choice, therefore enforced take up will not work.
  110. 110. 110 Ideas on the "Why Learning Organisation?" • Because we want superior performance and competitive advantage • For customer relations • To avoid decline • To improve quality • To understand risks and diversity more deeply • For innovation • For our personal and spiritual well being • To increase our ability to manage change • For understanding • For energized committed work force • To expand boundaries • To engage in community • For independence and liberty • For awareness of the critical nature of interdependence • Because the times demand
  111. 111. 111 Syllabus • ===================================== • 12. Functional issues: • Functional plans and policies – • Financial, • Marketing, • Operations, • Personnel, • IT, (2) ======================================
  112. 112. 112 Functional Plans & Policies: • Functional Strategies are derived from Business & Corporate Strategies and are implemented through Functional & operational Implementation. • Functional Strategies deal with limited plan designed to achieve Objectives in a specific Functional area, allocation of resources for that functional area and coordination among different functional operations to achieve Functional Objectives. • Functional Plans & Policies are developed for: 1. The Strategic decisions are implemented by all parts of an Organisation. 2. There is a basis available for controlling activities in different functional areas of Operation. 3. Plans are laid down for what is to be done and Policies provide guideline for discretions and Functional Manager’s time in decision making is reduced. 4. Required Coordination amongst different functions takes place.
  113. 113. 113 Financial Plans & Policies Sources of Funds: 1. Capital Mix Decisions. 2. Capital Structure. 3. Procure of Capital. 4. Working Capital Borrowings. 5. Reserves & Surpluses as source of Funds. 6. Relationships with Lenders, Banks & FIs. Plans & Policies related to sources of funds determine how financial resources will be made available for implementation of Strategies. Usage of Funds: 1. Investment or Asset mix decisions. 2. Capital Investments, 3. Fixed Asset acquisitions, 4. Current Assets, Loans & Advances,
  114. 114. 114 5. Dividend decisions, 6. Relationship with Shareholders, Usage of Funds relates to efficiencies & effectiveness of resource utilisation in the process of Strategy Implementation. Management of Funds: 1. System of Finance, 2. Accounting & Budgeting, 3. Management Control Systems, 4. Cash, Credit and Risk Management, 5. Cost control, cost reduction and Tax planning 6. Aiming at Conservation and Optimum utilisation of Funds. Organisations which implement business strategies of cost leadership must practice proper management of Funds. Good management of funds often creates the difference between strategically successful or unsuccessful Company.
  115. 115. 115 Marketing Plans & Policies • These are 4Ps of Marketing Product: Goods & Services offered by Organisation to its Target market. (Choice of Models, Quality, Features, Brand names, Packaging etc.) Pricing : Money that Customers pay in exchange of Goods & Services. (Discounts, Mode of payment, Allowances, Payment period, Credit terms) Promotion: Marketing communications intended to convey the company and product or service image to prospective buyers. (Advertising, Personal Selling, Sales Promotion and Publicity) Place: Distribution process by which goods or services are made available to the customers. (Transportation, logistics, inventory storage management, coverage of markets, etc.,)
  116. 116. 116 Integrative & Systematic Factors: • This part of the plans & policies related to Marketing Management. (Marketing mix, Segmentation, Targeting, Positioning, Market Standing, Company Image, Marketing Organisation, Marketing System, Marketing Management Information System) Operations Plans & Policies: Production System – Capacity, Location, Layout, Product or Service design, Work systems, Degree of Automation, extent of vertical integration. Operation Plans & Policies deals with vital issue affecting the capability of the Organisation to achieve objectives. Operational Planning & Control – Production Planning, Materials supply, inventory, Cost, Quality Management, Maintenance of Plant and Equipment. Research & Development
  117. 117. 117 Personnel Plans & Policies: • HRM Plans & Policies relate to providing & maintaining human resources: Personnel System: Manpower Planning, Selection, Development, Compensation, Communication and Appraisal Organisational & Employee Characteristics: Corporate image, Quality of Managers, Staff & Workers, Image of Organisation as an Employer, availability of Development opportunities for employees, working conditions etc., Industrial Relations: Union – Management relationship, Collective bargaining, Safety & Security, Employee satisfaction & morale. Information management Plans & Policies: Information capability factors relate to design & management of the flow of information within and from outside. The value of information is source of Strategic Advantage.
  118. 118. 118 • Acquisition and Retention of Information: Sources, Quantity, Quality, and timeliness of Information, retention capacity and security of information. • Processing and Synthesis of Information: Database management, Computer Systems, Software capability and ability to synthesise information. • Retrieval & Usage of Information: Availability and appropriateness of Information formats and the capacity to assimilate and use information. • Transmission & Dissemination of Information: speed, scope, width & depth of coverage of information with willingness to accept the information. • Integrative, Systematic and Supportive Factors: availability of IT infrastructure and its relevance, compatibility to organisational needs, up gradation facilities, investing in state of art systems, Computer professionals, top management support.