Principles of management

Ch Muhammad Irfan +92-345-4426176 2014
Question No: Management by Objectives
Answer:
Management by Objective (MBO)
Introduction:
Management by objectives (MBO) is a systematic and organized approach that allows management to focus on
achievable goals and to attain the best possible results from available resources.
It aims to increase organizational performance by aligning goals and subordinate objectives throughout the
organization. Ideally, employees get strong input to identify their objectives, time lines for completion, etc. MBO
includes ongoing tracking and feedback in the process to reach objectives.
Principle:
The principle behind Management by Objectives (MBO) is to make sure that everybody within the organization
has a clear understanding of the aims, or objectives, of that organization, as well as awareness of their own roles
and responsibilities in achieving those aims. The complete MBO systemis to get managers and empowered
employees acting to implement and achieve their plans, which automatically achieve those of the organization.
The MBO style is appropriate for knowledge based enterprise when your staff is competent. It is appropriate in
situations where you wish to build employees' management and self-leadership skills and tap
their entrepreneurial creativity, tacit knowledge and initiative.
Advantages:
– Result oriented planning
– Clarification of roles and responsibilities
– Commitment to goals
– Effective controls development
Disadvantages:
– Organization wide understanding of the concept
– Verifiable goals VS the right degree of flexibility
– Emphasis on short term goals VS compromise on long term goals
– Using numbers where they are not applicable
Enlist All Steps in planning:
Management planning is the process of assessing an organization's goals and creating a realistic, detailed plan of
action for meeting those goals. Much like writing a business plan, a management plan takes into consideration
short- and long-term corporate strategies. The basic steps in the management planning process involve creating
a road map that outlines each task the company must accomplish to meet its overall objectives.
1. Establish Goals

The first step of the management planning process is to identify specific company goals. This portion of the
planning process should include a detailed overview of each goal, including the reason for its selection and the
anticipated outcomes of goal-related projects. Where possible, objectives should be described in quantitative or
qualitative terms. An example of a goal is to raise profits by 25 percent over a 12-month period.
2. Identify Resources
Each goal should have financial and human resources projections associated with its completion. For example, a
management plan may identify how many sales people it will require and how much it will cost to meet the goal
of increasing sales by 25 percent.
3. Establish Goal-Related Tasks
Each goal should have tasks or projects associated with its achievement. For example, if a goal is to raise profits
by 25 percent, a manager will need to outline the tasks required to meet that objective. Examples of tasks might
include increasing the sales staff or developing advanced sales training techniques.
4. Prioritize Goals and Tasks
Prioritizing goals and tasks is about ordering objectives in terms of their importance. The tasks deemed most
important will theoretically be approached and completed first. The prioritizing process may also reflect steps
necessary in completing a task or achieving a goal. For example, if a goal is to increase sales by 25 percent and an
associated task is to increase sales staff, the company will need to complete the steps toward achieving that
objective in chronological order.
5. Create Assignments and Timelines
As the company prioritizes projects, it must establish timelines for completing associated tasks and assign
individuals to complete them. This portion of the management planning process should consider the abilities of
staff members and the time necessary to realistically complete assignments. For example, the sales manager in
this scenario may be given monthly earning quotas to stay on track for the goal of increasing sales by 25 percent.
6. Establish Evaluation Methods
A management planning process should include a strategy for evaluating the progress toward goal completion
throughout an established time period. One way to do this is through requesting a monthly progress report from
department heads.
7. Identify Alternative Courses of Action
Even the best-laid plans can sometimes be thrown off track by unanticipated events. A management plan should
include a contingency plan if certain aspects of the master plan prove to be unattainable. Alternative courses of
action can be incorporated into each segment of the planning process, or for the plan in its entirety.
Functions of Management:
– Planning:
Planning is primary function of management. It is process of thinking in advance the future course of actions. It
involves what to do, when to do, where to do and by whom it is to be done. Thus it is actually thinking before
doing. Major activities in planning includes determination of organizational objectives, projects, setting policies
strategies and making rules, procedures and budgets.
– Organizing:

Organizing is process of dividing work into duties, grouping of these duties in the form of positions and grouping
of these positions in the form of departments. It is an important activity which brings together the man power
and resources for accomplishment of goals. It includes identification of activities, grouping them in logical
positions, assigning the duties to individual positions and delegating authority and responsibility to them.
– Staffing:
Staffing involves manning the positions created by the organizing process. Hiring right kind of people and develop
them for well being of organization. Major activities are preparing inventory of available personnel, identifying
required manpower and resources from where people can be selected, selecting people training them for the
work assigned, fixing compensation etc.
– Directing:
Directing is called management in action. It is concerned with commanding the people at work for achievement
of desired organizational goals. Thus directing involves giving instructions or order to subordinates guiding them
motivating them and supervising them.
– Controlling:
Controlling is process of seeing whether the activities have been performed according to the plans or not. It is
checking actual performance against the agreed or given standards. It involves setting the standards,
identification of actual results, comparison of actual results with desired or standard results, identification of
problems if desired results are not achieved and taking corrective actions so that actual performance match with
expected results.
List categories of Departmentation and explain departments by function:
Functional Departmentation: -
This is the simplest form of Departmentation when grouping of departments is done on the basis of functions
such as production finance marketing sales purchase and personnel etc, it is known as functional
Departmentation. Further sub divisions of the functions may be formed like marketing can be divided in to
advertisement sales and after sales service. So we can classify functions into two parts. Functional
Departmentation is useful where there is production of single product or similar kind of product, for example TV
Computer monitor or TFT.
Advantages:
 Advantage of specialization
 Easy control over functions
 Pinpointing training needs of manager
 It is very simple process of grouping
activities.
Disadvantages
 Lack of responsibility for the end result
 Overspecialization or lack of general
management
 It leads to increase conflicts and coordination
problems among departments.

Products: -
When grouping of activities and departments formed are given name on the basis of products manufactured in
an organization, it is called products Departmentation. It is applied where there is a large range of products are
manufactured.
Advantages
 It ensures better customer service
 Unprofitable products may be easily
determined
 It assists in development of all around
managerial talent
 Makes control effective
 It is flexible and new product line can be
added easily.
Disadvantages
 It is expensive as duplication of
service functions occurs in various
product divisions
 Customers and dealers have to
deal with different persons for
complaint and information of
different products.
Territories: -
Like the products basis, geographical regions are
adopted for main division as well as for subdivision
purposes. When activities of an organization are
physically dispersed in different locations territorial
Departmentation is adopted. Units that are located
at different areas are made so many self-contained
divisions of the organization.
Advantages
 Help to cater to the needs of local people
more satisfactorily.
 It facilitates effective control
 Assists in development of all-round
managerial skills
Disadvantages
 Communication problem between head
office and regional office due to lack of
means of communication at some location
 Coordination between various divisions may
become difficult.
 Distance between policy framers and
executors
 It leads to duplication of activities which may
cost higher.
Customers: -
When departments are formed to provide different kind of customers it is known as customer
Departmentation this basis of classification is widely followed in subdividing activities of the marketing
department. When the products are offered to market through various channels and outlets, it has the special
merit of supplying goods in accordance with the peculiar needs of customers. Customers may be classified
according to buying capacity or nature like whole sale, retail and export or government or general public. Most
departmental stores may attempt t reach customers preferring low price or higher price
Advantages  It focused on customers who are ultimate
suppliers of money

 Better service to customer having different
needs and tastes
 Development in general managerial skills
Disadvantages
 Sales being the exclusive field of its
application, co-ordination may appear
difficult between sales function and other
enterprise functions.
 Specialized sales staff may become idle with
the downward movement of sales to any
specified group of customers.
Formal and Informal Organization:
Introduction:
Almost every company has a formal structure in place, even if that structure is only loosely adhered to. Most
organizations also have an informal structure as well. There are times when the informal structure conflicts with
the formal structure, making it important to understand the intricacies of both types. Disregarding the informal
structure as not as significant as the documented structure can mean lost opportunities for your business and for
your personal business success.
Definition:
An organizational structure defines how activities such as task allocation, coordination and supervision are
directed towards the achievement of organizational aims. It can also be considered as the viewing glass or
perspective through which individuals see theirorganization and its environment.
Formal Structure
Formal structure is primarily concerned with the relationship between authority and subordinate. A typical
organization chart illustrates the formal structure at work in a company or part of a company. The hierarchical
organization begins at the top with the most senior leader and then cascades down to the subordinate managers
and then subordinate employees below those managers. There are job titles, financial obligations and clear lines
of authority for each box on the organization chart.
Informal Structure
Informal structures typically develop around social or project groups. Because informal structures are based on
alliance there is often a more immediate response from individuals. This saves people time and effort, thus
making it easier to work with in informal structures. People also rely on informal structure if the formal structure
has stopped being effective, which often happens as the company grows or changes but doesn’t reevaluate its
hierarchy or work groups.
Levels of management

Level of management tells about the position of the manager in an organization on the basis of authority. Thus
on the basis of authority and responsibility management can be divided in three types
Top Management: Top management consists of owner, board of directors, chief executive officer, managing
director and general manager. These people are not engaged in the day to day operational activities of the
organization. Their activities consists of
 Determining the objectives and goals of the enterprises
 Framing policies and plans to achieve the goals
 Assembling the resources like money men material
 Exercising effective control
 Providing overall leadership
Middle Management: Middle management consists of senior middle management or functional heads like
production manager, finance manager, marketing manager and junior middle management like branch heads
divisional heads. This level of the management is basically acts as link between top and low level management.
Their major activities are
 Implementing the policies and plan lay down by the top management.
 Preparation of organizational setup in their departments
 Selecting suitable operative and supervisory personnel
 Assigning duties and responsibilities to lower management
 maintaining Coordination between departments
 Collecting reports and information on performance
 reporting to top management
Lower management: It consists of supervisors, superintendents and foreman. They are direct in touch with
technical work and workers. Actual execution of plans and polices took place at this level. Their activities includes
 planning of day to day work
 Give orders to execute the work
 they arrange material and equipment for workers
 Provide job training to workers
 Maintain proper discipline in section and good relation among the workers
 Communicate the problems of workers to higher levels

Define leadership and also explain any two leadership styles:
People have a boss or coach they remember. The reason could be the person was a candidate worthy of a film
villain role. Or, it could be because that person helped move an organization forward in unanticipated ways. One
of the reasons for a memorable boss could the person's leadership style.
Transactional Leaders:
The transactional leadership style requires hard lines between leaders and followers. This type of leader focuses
on exchanges of benefits or transactions with subordinates. Transactional leaders believe people are motivated
by rewards and punishment. To a transactional leader, the promise of reward drives followers to reach their
maximum potential.
Transformational Leaders:
Transformational leaders view themselves as social engineers in some ways. They seek to make changes and
improvements in individuals and social systems. This type of leader enjoys assessing the strengths and
weaknesses of followers and using that information to help them achieve their best. The transformational leader
also identifies with followers and derives inspiration from interactions with subordinates.
Choosing a Style:
A leader does not have to be purely transactional or purely transformational. Both have pros and cons.
Transactional leaders run a tight ship, so to speak. They clearly define roles and responsibilities. The reliance on
rewards and punishments can result in harsh outcomes, like pay cuts and high turnover for the organization if the
team under-performs.
Employees of a transformational leader may feel highly valued and love their jobs. On the other hand, a
transformational leader's team may not be the most disciplined. Additionally, employees can feel drained if they
are not in the right position.
Adapt to the Situation:
There is no need to strictly adhere to one style or the other. There is room for both. Depending on changes in
situation, having the ability to be both directive and inspirational may be a credit. A coach leading a basketball
team may be inspirational in the locker room prior to the game, but use a mix of rewards and punishments while
on the floor. The right mix of these styles could result in a win. The same is true for other types of leaders.

Advantages and limitations of Organizational chart:
Limitations:

Disadvantages:
Groups:
Groups have become more popular in today’s organizations that they deserve special attention. A group is a
consists on a small number of people with different backgrounds, skills and knowledge who are drawn from
different functional areas of the organization, to work together on a specific task. One member of group is
usually designated as the group leader.
Characteristics of a group:
 A group have a skill diversity
 A group have a clear and sharply defined objectives
 The leadership in a group is a task oriented
 It is always the group as a whole responsible for the task.
Advantages:
 A group is highly receptive to experimentation to new ideas and to new ways of doing things. It is
preferred design for innovative work.
 A group is the best means available for overcoming functional insulation and parochialism.
 Everybody in the group has a clear understanding of each other role’s and flexible enough to adopt the
any role.
 A group assumes responsibility of the whole task. This holistic responsibly reduces the need for
coordination.
Disadvantages:
 A group demands continuous attention to its management to the relationships of people within the
group, to assigning people to their jobs and to explaining to the management, its progress on the job

and its important decisions, which have irrevocable committed the whole company for example it’s a
pricing decision.
 In large group where individual contribution more difficult to identify, some individuals reduce their
effort and performance levels because they think that the performance of others will cover for their
reduced effort. This is called social loafing.
Tows matrix four alternative strategies:
TOWS Matrix gives a set of strategies by analyzing internal capacity of the company and external environment
Of the industry. It is a matching tool for constructing four types of strategies which are: SO, WO, ST, and WT.
Here it should be noted that there is no best set of matching external and internal factors due to which analysis
becomes difficult to some extent. The explanation of SO, WO, ST, and WT strategies is given below.
SO Strategies (Maxi-Maxi)
Firms use such strategies to grab the external opportunities by using the internal strengths. For example, A firm
has a strong financial position but it is losing its market share; now with the help of strong financial position it can
introduce innovative products by investing in research and development sector. Organizations always try to
overcome major weaknesses and make them strengths. Similarly, organizations try to avoid threats and
concentrate on opportunities.
WO Strategies (Min-Maxi)
These strategies are used for the purpose of improving internal weaknesses by using external opportunities. It is
Possible that a firm has good external opportunity but can not avail it due to internal weakness. For example, A
firm may find an opportunity of increasing its production by introducing new technology but the firm may lack
the skilled workers required for the production. In such case, a possible WO Strategies would be to hire and train
people with the essential technical skills.
ST Strategies (Maxi-Mini)
Such strategies are used by the organization for the purpose of reducing the impact of external threats by using
Its internal strengths for example, a firm with strong legal department (strength) can avoid external threats such
as copying ideas, innovations, and patented products. Similarly, an organization with strong line of quality
products may face the threat of low priced products of rivals. In such case the organization can apply ST Strategy
of mass production to reduce the unit cost of production.
WT Strategies (Mini-Mini)
WT Strategies are mainly used by those firms which are not in a good and stable position. Basically, these
strategies are defensive because organizations try to reduce internal weaknesses while avoiding the external
threats. For example, if an organization has weak financial position (weakness) and the demand for its products is
reducing (threat) then the possible WT Strategies would be to retrench or merge.
Question: Illustrate the approach “The Managerial Grid” which is used to define
leadership styles
Answer: The managerial Grid
 Impoverished Management:

Minimum effort to get work done. A basically lazy approach that avoids as much work as
possible.
 Authority- Compliance:
Strong focus on task, but with little concern for people. Focus on efficiency, including the
entitlement of people wherever possible.
 Country Club Management:
Care and concern for the people, with a comfortable and friendly environment and
collegial style. But a low focus on task may give questionable results.
 Middle of the road management:
A weak balance of focus on both people and the work. Doing enough to get things done,
but not pushing the boundaries of what may be possible.
 Team Management:
First on all cylinders people are committed to task and leader is committed to people as well as task.
Topic: Feedback and Feed forward control
Introduction:
Management can implement controls before an activity commences, while the activity is going on, or after the
activity has been completed. The three respective types of control based on timing are feed forward, concurrent,
and feedback.
 Feed forward Control
Feed forward control focuses on the regulation of inputs (human, material, and financial resources that flow into
the organization) to ensure that they meet the standards necessary for the transformation process.
Feed forward controls are desirable because they allow management to prevent problems rather than having to
cure them later. Unfortunately, these controls require timely and accurate information that is often difficult to
develop. Feed forward control also is sometimes called preliminary control, preventive control, or steering
control.
However, some authors use term "steering control" as separate types of control. These types of controls are
designed to detect deviation some standard or goal to allow correction to be made before a particular sequence
of actions is completed.
 Feedback Control
This type of control focuses on the outputs of the organization after transformation is complete. Sometimes
called post action or output control, fulfils a number of important functions. For one thing, it often is used when
feed forward and concurrent controls are not feasible or are too costly. Sometimes, feedback is the only viable
type of control available. Moreover, feedback has two advantages over feed forward and concurrent
control. First, feedback provides managers with meaningful information on how effective its planning effort was.
If feedback indicates little variance between standard and actual performance, this is evidence that planning was
generally on target.
If the deviation is great, a manager can use this information when formulating new plans to make them more
effective. Second, feedback control can enhance employee’s motivation.

The major drawback of this type of control is that, the time the manager has the information and if there is
significant problem the damage is already done. But for many activities, feedback control fulfils number
important functions.
Topic: Strategic Planning Process:
Introduction:
In today's highly competitive business environment, budget-oriented planning or forecast-based planning
methods are insufficient for a large corporation to survive and prosper. The firm must engage in strategic
planning that clearly defines objectives and assesses both the internal and external situation to formulate
strategy, implement the strategy, evaluate the progress, and make adjustments as necessary to stay on track.
 Mission and Objectives
The mission statement describes the company's business vision, including the unchanging values and purpose of
the firm and forward-looking visionary goals that guide the pursuit of future opportunities.
 Environmental Scan
The environmental scan includes the following components:
 Internal analysis of the firm
 Analysis of the firm's industry (task environment)
 External macro environment (PEST analysis)
The internal analysis can identify the firm's strengths and weaknesses and the external analysis reveals
opportunities and threats. A profile of the strengths, weaknesses, opportunities, and threats is generated by
means of a SWOT analysis .An industry analysis can be performed using a framework developed by Michael
Porter known as Porter's five forces. This framework evaluates entry barriers, suppliers, customers, substitute
products, and industry rivalry.
 Strategy Formulation
Given the information from the environmental scan, the firm should match its strengths to the opportunities that
it has identified, while addressing its weaknesses and external threats. To attain superior profitability, the firm
seeks to develop a competitive advantage over its rivals. A competitive advantage can be based on cost or
differentiation. Michael Porter identified three industry-independent generic strategies from which the firm can
choose.
 Strategy Implementation
The selected strategy is implemented by means of programs, budgets, and procedures. Implementation involves
organization of the firm's resources and motivation of the staff to achieve objectives. The way in which the
strategy is implemented can have a significant impact on whether it will be successful. In a large company, those
who implement the strategy likely will be different people from those who formulated it. For this reason, care
must be taken to communicate the strategy and the reasoning behind it. Otherwise, the implementation might
not succeed if the strategy is misunderstood or if lower-level managers resist its implementation because they do
not understand why the particular strategy was selected.
 Evaluation & Control
The implementation of the strategy must be monitored and adjustments made as needed.

Evaluation and control consists of the following steps:
 Define parameters to be measured
 Define target values for those parameters
 Perform measurements
 Compare measured results to the pre-defined standard
 Make necessary changes
Topic: Describe the requirements for establishing effective control
Answer:
The management of any organization must develop a control system tailored to its organization's goals and
resources. Effective control systems share several common characteristics. These characteristics are as follows:
 A focus on critical points. For example, controls are applied where failure cannot be tolerated or where
costs cannot exceed a certain amount. The critical points include all the areas of an organization's operations
that directly affect the success of its key operations.
 Integration into established processes. Controls must function harmoniously within these processes and
should not bottleneck operations.
 Acceptance by employees. Employee involvement in the design of controls can increase acceptance.
 Availability of information when needed. Deadlines, time needed to complete the project, costs
associated with the project, and priority needs are apparent in these criteria. Costs are frequently attributed
to time shortcomings or failures.
 Economic feasibility. Effective control systems answer questions such as, “How much does it cost?” “What
will it save?” or “What are the returns on the investment?” In short, comparison of the costs to the benefits
ensures that the benefits of controls outweigh the costs.
 Accuracy. Effective control systems provide factual information that's useful, reliable, valid, and consistent.
 Comprehensibility. Controls must be simple and easy to understand.
Topic: Portfolio Matrix/ BCG Growth Share Matrix
Companies that are large enough to be organized into strategic business units face the challenge of allocating
resources among those units. In the early 1970's the Boston Consulting Group developed a model for managing a
portfolio of different business units (or major product lines). The BCG growth-share matrix displays the various
business units on a graph of the market growth rate vs. market share relative to competitors:
BCG Growth-Share Matrix
Resources are allocated to business units according to where they are situated on the grid as follows:
Cash Cow:
A business unit that has a large market shares in a mature, slow growing industry. Cash cows require little
investment and generate cash that can be used to invest in other business units.
Star:
A business unit that has a large market shares in a fast growing industry. Stars may generate cash, but because
the market is growing rapidly they require investment to maintain their lead. If successful, a star will become a
cash cow when its industry matures.
Question Mark (or Problem Child):

A business unit that has a small market shares in a high growth market. These business units require resources to
grow market share, but whether they will succeed and become stars is unknown.
Dog:
A business unit that has a small market shares in a mature industry. A dog may not require substantial cash, but it
ties up capital that could better be deployed elsewhere. Unless a dog has some other strategic purpose, it should
be liquidated if there is little prospect for it to gain market share.
The BCG matrix provides a framework for allocating resources among different business units and allows one to
compare many business units at a glance. However, the approach has received some negative criticism for the
following reasons:
– The link between market share and profitability is questionable since increasing market share can be very
expensive.
– The approach may overemphasize high growth, since it ignores the potential of declining markets.
– The model considers market growth rate to be a given. In practice the firm may be able to grow the
market.
Topic: Matrix organization
Introduction:
Organizations can be structured in various ways, and the structure of an organization determines how it operates
and performs.
Definition:
The matrix structure is a type of organizational structure in which individuals are grouped by two different
operational perspectives simultaneously.
Guide Line for making Matrix Management Effective:
– Define the objectives of project or task
– Clarify the roles, authority and responsibilities of managers and team members
– Ensure that influence is based on knowledge and information rather than task
– Balance the power of functional and project managers
– Select an experienced managers for the project who can provide leadership

– Undertake organization and team development
– Install appropriate cost, time and quality controls that report deviations from standards in a timely
manner
– Reward projects managers and team members fairly.
This structure has both advantages and disadvantages but is generally best employed by companies large enough
to justify the increased complexity.
Advantages:
– Oriented toward end results
– Professional identification is maintained
– Pinpoints product profit responsibility
Disadvantages:
– Conflict in organization authority exists
– Possibility of disunity of command
– Requires manager effective in human
relations
Topic: How organizing can be improved by maintaining flexibility and by making
staff more effective. Discuss

Topic: Path-Goal Theory of Leadership
Description
The Path-Goal Theory of Leadership was developed to describe the way that leaders encourage and support their
followers in achieving the goals they have been set by making the path that they should take clear and easy.
In particular, leaders:
– Clarify the path so subordinates know which way to go.
– Remove roadblocks that are stopping them going there.
– Increasing the rewards along the route.
Leaders can take a strong or limited approach in these. In clarifying the path, they may be directive or give vague
hints. In removing roadblocks, they may scour the path or help the follower move the bigger blocks. In increasing
rewards, they may give occasional encouragement or pave the way with gold.
This variation in approach will depend on the situation, including the follower's capability and motivation, as well
as the difficulty of the job and other contextual factors.
House and Mitchell (1974) describe four styles of leadership:
– Directive: The leader informs her followers on what is expected of them, such as telling them what to
do, how to perform a task, and scheduling and coordinating work. It is most effective when people are
unsure about the task or when there is a lot of uncertainty within the environment.
– Supportive: The leader makes work pleasant for the workers by showing concern for them and by
being friendly and approachable. It is most effective in situations in which tasks and relationships are
physically or psychologically challenging.
– Participative: The leaders consult with their followers by consulting with them before making a
decision on how to proceed. It is most effective when subordinates are highly trained and involved in
their work.
– Achievement: The leader sets challenging goals for his followers, expects them to perform at their
highest level, and shows confidence in their ability to meet this expectation. It is most effective in
professional work environments, such as technical, or scientific; or in achievement environments, such as
sales.
Porter's Generic Strategies Model
Michel Porter in his Porter's Generic Strategies Model, has applied firm's competitive advantages or strengths i.e.
cost advantage and product differentiation in either broad or narrow market scope and identified following three
generic strategies :-
1. Cost Leadership Strategy,
2. Differentiation Strategy, and
3. Focus Strategy.
These strategies are applied at business unit level. These strategies are called generic strategies because they are
not dependent on specific firm or industry.
1. Cost Leadership Strategy

This strategy calls for being a low cost producer in an industry for a given level of quality. This strategy usually
targets broad markets. The producer can charge either equal to average industry price to earn a profit higher
than that of competitors, or blow average industry price to gain market share. In the situation of price war, the
firm can earn some profit, but the competitors have to suffer losses. When the industry matures and prices
declines, the firm that produce more cheaply will remain profitable for longer time.
The firm can reduce cost of production by improving processes efficiency, getting lower cost materials, vertical
integration, optimal outsourcing, efficient distribution channels, expertise in manufacturing and engineering.
2. Differentiation Strategy
This strategy calls for the development of product or service that offers unique attributes and that is perceived
by customers different or of greater value than the products or services of the competitors. The unique
attributes makes the product different from the competitors' products and adds value to it. This added value
allows the producer to charge a premium price for its product.
The unique attributes can be brought to the product through scientific research and development, creative and
skilled product development team, proper communication of perceived strength of the product, innovated
design and features. This strategy also targets broader market.
3. Focus Strategy
The focus strategy targets a narrow market or segment and within that segment attempt to achieve either cost
advantage or differentiation. As the entire focus of the firm is on a group or segment, so the needs of the
segment can be serviced better, and firm often gain high degree of customer loyalty.
Conclusion
Competitive strategy is a long term action plan that is devised by an organization to gain sustainable competitive
advantage over its rivals.

Principles of management

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