INTRODUCTION  Reliable- Policy must be uniform enough so that it can
be efficiently followed by the subordinates.
Policy
 A Policy is a principle or protocol to guide decisions
and achieve rational outcomes.
 A Policy is a statement of intent, and it is implemented
as a procedure or protocol.
 Policies are generally adopted by the Board of
Directors or Senior Governance Body within an
organization whereas procedures or protocols will be
develop and adopted by the senior executive officers.
 The term may apply to government, private
organization, groups and individuals.
Business Policy
 Business policy basically deals with decisions
regarding the future of an ongoing enterprise. Such
policy decisions are taken at the top level after carefully
evaluating the organizational strengths and
weaknesses in terms of product, price, quality,
leadership position, resources etc. in relation to its
environment.
 A business policy is implied overall guide setting up
boundaries that apply the general limit and direction in
which managerial action will take place.
Features of an Effective Business Policy
 Specific- Policy should be specific or definite. If it is
uncertain then the implementation will become difficult.
 Clear- Policy must be unambiguous. There should be
no misunderstanding in following the policy.
 Appropriate- The policy should be appropriate to the
present organizational goal.
 Simple- Policy should be simple and easily understood
by the organization.
 Comprehensive- In order to have wider scope, policy
should be comprehensive.
 Flexible- Policy should be flexible in
operation/application. This does not imply that a policy
should be altered always, but it should be wide in
scope as to ensure that the line managers use them in
repetitive/routine scenarios.
 Stable- Policy should be stable or else it will lead
uncertainty in minds.
Scope of Business Policy
 It covers many aspects in a business.
 It involves choice of purposes and defining what needs
to be done in order to identify the organization.
 It deals with the determination of the future courses of
the action that the organization has to adopt.
 It includes the functions of and responsibilities of the
senior management related to organizational problems,
which affect the success of the enterprise.
Importance of Business Policy
A. From the view point of course, itself
• It “integrates knowledge and experience”
gained in various functional areas of
management.
 • It enables the learner to understand the
complex interaction that takes place between
different functional areas.
B. For the understanding of Business Environment
• It creates an understanding of how policies
are formulated.
• This helps in understanding the complexities
of the environment that the senior management
faces in the policy formulation.
C. For understanding the organization
• It provides a basic frame work for
understanding strategic decision making while a
person is at the middle level of the
management.
• It brings to the organization and to its
managers “the benefit of years of distilled
experience in strategic decision making”
D. For personal Development
• It is beneficial for an executive to understand
the impact of policy shifts on the status of one’s
department.
• It enables the executives to avail an
opportunity with regard to career planning and
development
Purpose of Business policy
• To integrate the knowledge gained in various functional
areas of management
• To adopt a generalist approach to problem-solving.
• To understand the complex inter-linkages operating within an
organization through the use of systems approach to decision
making and relating them to changes taking place in the
external environment.
Objectives of Business Policy
A. In terms of knowledge:
• Learner understands the various concepts like
strategy, polices, plans, programs etc.
• Gives knowledge about the environment (external
& internal) and how it affects the functioning of an
organization.
B. In terms of skills:
• Attainment of knowledge leads to the
development of skills.
• Develop an analytical ability and use it to
understand the situation
C. In terms of attitude:
• Development of generalist attitudes enables the
learner to approach and assess a situation from all
possible angles.
• A generalist is able to function under conditions of
partial ignorance by using his judgment.
On the Basis of Source According to source
Originated Policy- It is also known as formulated policy. It is
formulated by top management to guide decision making at
lower levels. Such policies are broad in scope and affect
usually the whole organization or its major segments. These
policies are often written ones, typically in the form of a policy
manual of the organization.
Appealed Policy- It is a policy formulated on the appeal or service policy, credit policy, market research policy
request of subordinates for filling the gaps left by originated and important examples in this category.
policies. In other words, when a subordinate refers an Customer’s complaint must be responded within
exceptional problem of frequent nature not covered by existing the next day is an example of Customer Service
policies, to his superior and appeals for a policy decision. Policy.
When the superior makes decision in such a case, it becomes 4. Finance Policy
a precedent (policy) for future action. Such policies may be Capital structure policy, fixed capital policy, working
formulated at any level and are in the nature of flowing upward
capital policy, investment policy, research policy,
policies.
dividend policy are some examples in this category.
On the Basis of Functions Excess capital, if any should be invested for short
term only, preferably in limited company shares
1. Production Policy
registered in stock exchange is an example of
Raw material, purchase policy, repairs and
Investment Policy.
maintenance policy, technology adoption and
5. Accounting Policy
development policy, quality control policy, inventory
Inventory valuation policy, depreciation policy,
policy and research and development policy are
provisions policy (for bad debts etc) deferred
some examples in the category. Indent for the
revenue expenditure policy etc. are examples in
purchase of raw materials should be made at least
this category. Deferred revenue expenditure (e.g., a
a week in advance is an example of Raw Materials
huge amount spent on advertisement) should be
Purchase Policy.
spread over the years of its benefit generation and
2. Human Resource Policy
written off every year accordingly, is an example of
Examples in this category are recruitment policy,
Deferred Revenue Expenditure Policy.
training policy, employee career development
policy, wages and salary policy, placement policy, Factors Influencing Business Policy
promotion policy and transfer policy, employee
• Internal Factors: new problems arise in org, new
participation policy. Any vacancy shall be filled first
by promotion from within the organization and then, budget of dept, internal financial matters, shareholders
if need be, from outside sources Is an example of influence, and trade union
Recruitment Policy.
• External Factors: consumers, government,
3. Marketing Policy
Capital structure policy, packaging policy, international convention, competitors,
distribution policy, advertising policy, customer
Limitations of Business Policy
• Inadequate Coverage: don’t cover each and every
problem
• Limited Area: Policies don’t give enough room to
managers to decide • Consistency in policies: not very
fruitful in rapidly changing business environment
• Policies are medium not end
• Cannot be covered all the aspects
5 Tips for Creating a Business Policy
Drafting a new business policy is not merely a task of
writing it down and telling other employees the new rule.
Creating a new business policy requires consideration of the
type of policy, ensuring it suits your business (and is
compatible with your partner's ideas, if applicable). Below are
five things to consider when developing a business policy.
The Policy's Impact
Your foremost concern should be how that policy will
affect your business's daily operations. In any policy change,
there is always someone who is unhappy. While the majority
of the time this unhappiness is irrelevant to the policy's
necessity, it can sometimes make the policy more of a problem
than a benefit. If a policy will unduly burden yourself or your
employees, you might want to consider making changes to the
policy or to scrap the policy altogether. • Many business
partners prefer to discuss and mutually agree on instituting a
new policy. If you believe that your partner would consult
rather than be told the new policy, consider setting a private
meeting to discuss the topic.
The Policy's Implementation
Some policies are necessary, but impossible to
implement. Some policies are desirable, but not worth the
effort. Some policies are simple, but require complex steps to
properly implement. Prior to establishing a business policy,
consider what you must do to put it into effect. If you are able
to complete the tasks necessary to implement a new policy,
analyze whether it is worthwhile to do so. A policy that seems
problematic or difficult to implement may need to be altered or
abandoned. The
Policy's Relevancy
A policy can be formal or informal, but whichever it is, it
must still conform to your business's operations. An extremely
formal policy in an informal business will seem out of a place
and, potentially, need to be changed or simply forgotten soon
after its implementation. This consideration requires you to
analyze the intent of the policy. If the intent of a policy
conforms to the general feel and operation of your business,
its implementation will likely be valuable.
The Policy's Effect on Efficiency and Reliability
Efficiency and reliability are directly related to a
company's success. An inefficient or unreliable business will
most likely fail quite quickly. If your policy is designed to create
a more efficient or reliable company, its implementation, no
matter how troublesome or problematic, will benefit the
business in the long term. This may indicate that the policy is
worth instituting, regardless of the effort it requires.
The Policy's Foundation
You should also consider the impetus(drive/thrust) for
the policy. If you develop the policy in response to a problem
or complaint, analyze whether it will truly fix the problem. If,
however, you developed the policy solely because you wanted
to, you may be creating additional, unnecessary work.
THE FIVE-STEP DECISION MAKING PROCESS
You can adapt the familiar five-step decision making
process (outlined below) to decide which program or service to
assess.
Step 1 Identifying/clarifying the decision to be made. If the
decision has not yet been isolated, it should be identified as a
first step. Sometimes the decision to be made will have been
presented to the decision maker. In those situations, Step 1
calls for the clarification of what the decision actually entails.
Step 2 Identifying possible decision options. The next step
requires the decision maker to spell out, as clearly as possible,
just what the decision alternatives really are. For instance, if
one were attempting to buy a bicycle, do the decision options
only consist of the different types of bicycles, or is another
option to refrain from buying a bicycle altogether?
Step 3 Gathering/processing information. Next, the
decision maker collects or processes information that can help
guide the decision. If such information is already at hand, then
it simply needs to be processed; that is, studied and
understood by the decision maker. If there is no relevant
information available, or if there is insufficient information, then
such information must be collected so it can be processed.
The more significant the decision, the more rigorous the
information-gathering process.
Step 4 Making/implementing the decision. After the
information has been considered according to its relevance
and significance, a decision based on that information should
be made and, thereafter, implemented.
Step 5 Evaluating the decision. In recognition of the fact that
not all of one's decisions are likely to be defensible, the final
step in the five-step decision making process.
DETERMINE WHETHER THE DECISION WAS
APPROPRIATE. ORDINARILY, THIS WILL BE DONE BY
ASCERTAINING THE DECISION'S CONSEQUENCES.
1. Identify Problem/Demand/Need/Objective
2. Environment Study And Analyses
3. Background Of Problem/Study Of Existing policy
4. Facts/information gathering and analyses
5. Designing options
6. Evaluating options
7. Identifying better option
8. Identifying implementing authority as per requirement
9. Evaluation of implementation time to time
HISTORICAL DEVELOPMENT OF
MANAGEMENT IN PHILIPPINE CONTEXT
Filipinos give the impression of being highly westernised, a
distinctive Filipino management
style is kept in place by indigenous values. The predominant
corporate culture is derived from social traditions on the
importance of kinship, which have been influenced but not
substantially changed by the integration of Spanish
Christianity, American liberalism, and Chinese mercantilism.
Family connections are relied upon for almost all business
situations, be it a small family-owned enterprise or a large
publicly listed corporation. Group membership are used to
procure various favours, from tax breaks and kickbacks to
lucrative business contracts.
It has been estimated that about 80 individuals control 450 of
the country's major corporations, and six families control 90
per cent of the economy. Without access to this elite group of
business people who can ease one’s entrance into the
cohesive network of inter-relationships, there is little hope of
success. The social status of a particular kinship network is
exhibited by the prominence of the godparents of the baby or
the wedding couple. As it is commonly accepted and widely
practiced that one’s ninongor compadrehas higher status,
distinguished members of the high society can have hundreds
if not thousands of godchildren. Community leaders are sought
after as godparents even by those with whom their social
relationship is tenuous, since the compadrenetwork is the
main channel for ensuring the child’s future and extending the
parent's political clout, business connections, or job
references.
Early social studies pointed out that the peculiar characteristic
of Filipino collectivism is high
segmentation, through the division of society into mutually
exclusive ingroups (Lynch, 1970). The awareness of tayo(us
with you) as opposed to kami (us without you) results from
loyalty to one's primary group and a disregard for nonmembers
(Hollnsteiner, 1981; Silos, 1985). Such groupcentredness
explains the inevitable rivalry between various
barkada(ingroup). Filipino bureaucrats are under constant
pressure to respond to their group members and ignore
others, including their bosses (Engholm, 1991; Roces&Roces,
1985). The presence of factionalism stresses the importance
of intragroup cooperation and intergroup conflict in Filipino
organizations (de Leon, 1987).
The Filipino culture cultivates great respect for fellow humans,
regardless of rank or status. Typically a beggar’s supplication
is rejected with the polite phrase of "patawarinpo" ("forgive me,
sir"). When service is required by customers, salesmen or
waiters are called euphemistically as "boss, boss”. Elders are
respectfully referred to as “Tito/Tita” (uncle/aunt), even when
the parties have no blood relations.
Filipinos take great care to protect others from hiya, mainly
through the avoidance of overt conflict. Aggression is evaded,
because the Filipino seek to honour the dignity of the other
person (Jocano, 1989, 1997). Preventing the occurrence of
hiyais more important than telling the truth. Filipinos may
perceive what constitutes constructive criticism in Western
organisations as insults. Objective feedback and standard
performance evaluation can cause a Filipino to experience
shame and lose self-esteem. To prevent the hiyaof their
superiors, Filipino workers are reluctant to say "no" to any
request or instruction; such that, the Filipino "yes" has many
nuances, including the implicit "no" (Andres, 1985). Available
literature concurs that cultural values have profound impact on
management practices in the Philippines (Gonzalez, 1994).
The Filipino manager is typically person-oriented, who is
committed to maintaining smooth interpersonal relationship
with subordinates, fellow managers, supervisors, and even
competitors. At the workplace, there is little hesitancy to mix
informal matters with official issues, pleasure with duties,
social interaction with work discussion; so much so,
employees find it difficult to differentiate the organiational from
the personal (Andres, 1988). Whereas a Western manager
designs work around equipment and production process, a
Filipino manager prefers to view machines and systems as
simply extending a person’s abilities.
Personalistic considerations are seldom separated from task
issues, because human capital is often given priority over
profitability. Practitioners of organisation development (OD) in
the Philippines tend to address “individual or interpersonal
needs, where in other countries it might it might focus on the
total organisational structure” (Suleiman, 1994). A prominent
business leader described the ideal Filipino manager: “In the
final analysis, what makes us motivate people is our genuine
interest in them as individuals” (Buenaventura, reported in
Ortigas, 1994, p. 70).
Intertwined with person-orientation, Filipinos would give
serious deliberation to the moral dimensions of managerial
behavior (Andres, 1985). They are compelled not only to
consider the earnings of the enterprise, but also to have
conscientious regard for a fellow human being. In lieu of
organizational growth, Filipino OD practitioners tend to focus
on the humanistic goals of helping individuals cope with
problems and develop abilities (Suleiman, 1994). A sense of
gratitude to a person who supported the company during
previous difficult times may give a Filipino manager enough
reason to retain an employee whose skills are no longer
needed. The ideal Filipino predilection would be to subsume
work performance to the welfare of the worker and his family
(Fajardo, 1994), as a sense of reciprocal loyalty between
managers and employees should be paramount.
On the other hand, the primary value for pakikisamarequires
the Filipino to make sacrifices in personal welfare for the sake
of one’s group (Engholm, 1991). There is a natural willingness
to share whatever one has with others in one’s circle of
relationships. It has been observed that Filipinos prefer to work
as groups, whereby face-to-face interaction increased
productivity (Gatchalian, reported in Andres, 1985). Filipino
workers specified helpful co-operation (pagtutulungan) as the
desired characteristic of work-relationships, because it
motivates job efficiency and increases job satisfaction. Social
acceptance and fear of rejection were shown to be critical
factors of work satisfaction among Filipino managers,
explained by the desire to preserve social harmony within the
work organisation (Marzan, 1984).
In comparison to managers from other Asian countries
(Singapore, Thailand, Indonesia, Malaysia), Filipinos
expressed high fulfilment in social needs (Oltramare, 1986).
The collective identity so central to the Filipino psyche
operates through the informal, fluid, and interdependent
personal networks within the larger organisational and social
systems. Filipinos working in groups produced higher morale,
lower absenteeism, and lower turnover (Andres, 1985). The
camaraderie and loyalty of the group, expressed through
pakikisamaand pagtutulungan, are the primary motivators in
Filipino organisations (Jocano, 1984; Ordonez, 1982).
Filipino values underlie the participative nature of managerial
decision making, seemingly democratic but essentially socially
harmonious. Pagsanggunimeans "to consult", a social value
for seeking and encouraging others’ opinions. Filipinos expect
their views to be heard and respected on all matters, because
normative interaction should emphasise social acceptance and
foster collective identity. Pagkakasundois a cultural
mechanism towards group consensus, as mutual agreement is
preferred in all situations. Filipino culture is not confrontational
but consensual in orientation, as any violation of the core
principles of smooth interpersonal relationships should be
avoided. Since decisions as made only after consultation, a
Filipino believes participative decision-making is a mechanism
for validating the importance of one’s role in the organisation.
Modes of communication are also peculiarly Filipino, even in
the formal organisational setting. Filipinos expect not only to
be consulted but also to be persuaded by others, so as to be
given a sense of belonging (Andres, 1988, 1991).
Paghihikayatmeans “to persuade or to convince”, specifically
referring to friendly argumentation (often with the use of
humour) to facilitate a meeting of minds. The consciousness of
a collective identity is the underlying motive as to why Filipinos
use banter as a preface to evidence, avoid going directly to the
point, and are almost always ambiguous (de Leon,1987).
Ideas are presented as tentative and flexible, to enable one to
change one’s opinion without personal humiliation. When
Filipinos move from an original viewpoint (usually presented as
an innuendo) to achieve compromise, they are attesting to
group cohesiveness (pakikisama) and preventing loss of face
(hiya) for everyone including themselves.
 CORPORATE PLANNING AND STRATEGY
Corporate planning
- is a process used by businesses to map out a course of
action that will result in revenue growth and increased profits.
-it defines the strategies that the employees will take to meet
the business' goals and missions.
Difference between Corporate Planning and Business
Planning
Business pplanning
o Defines the strategies the business will use to meet its
goals and missions.
o It planning provides details on the business’ operations,
products and services, and marketing strategies as it
relates to the inclusive industry.
o Strategic planning requires a close look at the
company’s missions, strengths and weaknesses.
Corporate planning
o Defines the strategies that the employees will take to
meet the business’ goals and missions.
o This type of planning, also known as strategic planning,
focuses on staff responsibilities and procedures.
o Identifies the step-by-step process of the business,
such as the actual steps the staff will take to counteract
challenges, train employees and achieve
accomplishments.
o Corporate planning also provides specific, measurable
goals with realistic time lines.
Process of Corporate planning
1. GOALS AND TARGETS
-The first step is to establish or identify overall goals.
2. SITUATIONAL ANALYSIS
-To reach goals, the business must have a clear idea of the
starting point. Planners perform an analysis of the company's
current situation, often with the concept of identifying
strengths, weaknesses, opportunities and threats.
3. STRATEGIES AND TACTICS
-Strategies are the action plans that lead to the desired results
in terms of the overall goals and targets. Tactics characterize
the actions that lead to successful implementation of the
strategies.
(ex.; If the goal is to double sales and the SWOT analysis
shows that a competitor has cost advantages, an effective
strategy might be to emphasize product features or quality.
Corresponding tactics are to advertise the product
characteristic, obtain expert endorsements and offer samples
to key media personalities.)
4. PLAN FOR EXECUTION
- Once the strategies and tactics are clear, planners mist
develop the concept for the implementation of the strategies.
They have to plan for assignment of personnel, use of
resources amd create a schedule. Each action and tactic has
to fit intoan integrated plan.
5. EVALUATION
- The overall plan has to provide for an evaluation of the
initiative once it is complete. Typical planning calls for a
comparison of the targets with the actual values. The concrept
of an evaluation of the effectiveness of the overall plan leads
to learning and an improvement in the future planning
activities.
Strategic and Operational Corporate Planning
Strategy
- the direction and scope of an organization over the
long-term; which achieves advantage for the
organization through its configuration of resources
within a challenging environment, to meet the needs of
markets and to fulfill stakeholder expectations.
Strategic Corporate Planning
- the managerial process of developing and maintaining
a strategic fit between the organization’s objectives and
resources and its changing market opportunities.
- an organization’s process of defining its strategy, or
direction, and making decisions on allocating its
resources to pursue this strategy.
- it has many definitions, but generally involves setting
goals, determining actions to achieve the goals, and
mobilizing resources to execute the actions. A strategy
describes how the ends (goals) will be achieved by the
means (resources).
Objective
- A long-range purpose
- Not quantified and not limited to a time period
- A specific result that a person or system aims to
achieve within a time frame and with available
resources.
Goals
- A measurable objective of the business
- Attainable at some specific future date through planned
actions
- An observable and measurable end result having one
or more objectives to be achieved within a more or less
fixed timeframe.
Operational or Tactical Planning:
Operational planning, is also known as tactical or short-term
planning, usually, covers one year or so. Operational planning
involves the conversion of strategic plans into detailed and
specific action plans. These plans are designed to sustain the
organisation in its products Operational planning is done at the
middle or lower level of management Operational planning can
be defined as follows:
“Operational planning is the process of deciding, the most
effective use of the resources already allocated and to develop
a control mechanism to assure effective implementation of the
actions so that organisational objectives are achieved.”
An Operational plan is an annual work plan:
It narrates short term business strategies; it explains how a
strategic plan will be put into operation (or what portion of a
strategic plan will be put into operation (or what portion of a
strategic plan will be addressed) during a given operational
period (fiscal year).
These plans are to support strategic plans whenever some
difficulty is faced in its implementation. Any changes in internal
organisation or external environment have to be met through
tactical plans.
For examples, there is sudden change in prices of products,
difficulty in procuring raw materials, unexpected moves by
competitors; tactical plans will help in meeting such
unforeseen situations. The success of tactical plan depends
upon the speed and flexibility with which management acts to
meet sudden situation.
Operational planning is concerned with the efficient use of
resources already allocated and with the development of a
control mechanism to ensure efficient implementation of the
action so that business objectives are attained.
Short Term Corporate Planning
Business owners develop plans to reach their overall goals,
and they usually find it useful to separate planning into
phases. This allows you to track immediate improvements
while evaluating progress toward eventual goals and targets.
The different time frames of the planning process place the
focus on time-sensitive aspects of the company's structure and
environment. You can differentiate planning based on the time
frames of the inputs and expected outcomes.
Planning Characteristics
Many businesses develop strategic planning within a short-
term, medium-term and long-term framework. Short-term
usually involves processes that show results within a year.
Companies aim medium-term plans at results that take several
years to achieve. Long-term plans include the overall goals of
the company set four or five years in the future and usually are
based on reaching the medium-term targets. Planning in this
way helps you complete short-term tasks while keeping
longer-term goals in mind.
Short-Term
Short-term planning looks at the characteristics of the
company in the present and develops strategies for improving
them. Examples are the skills of the employees and their
attitudes. The conditions of production equipments or product
quality problems are also short-term concerns. To address
these issues, you put in place short-term solutions to address
problems. Employee training courses, equipment servicing
and quality fixes are short-term solutions. These solutions set
the stage for addressing problems more comprehensively in
the longer term.
A short term plan can have several goals. Here are some
examples:
To identify any periods of vulnerability in the business’s cash
flow
 Ensure that a new business or project is feasible
 To see when a new business or project will become
profitable or break even.
 Identify free cash next year for a new project or hire
 Find out the current worth and risk of the business in
order to attract investment
 Each of these goals seems like a static goalpost to aim
for in building the plan – but short term plans are not
built for just one purpose. A plan should be adaptable,
testable, and able to answer as many questions as
possible about the future of the business.
Examples of Techniques in making a Short term plan:
 To take Point 1. above, once vulnerabilities in the cash
flow have been identified, that’s not the end of this
plan’s task but the beginning. What you plan to do to
 mitigate these vulnerabilities becomes part of the plan,
along with the financial ramifications of these activities.
 Short term planners can afford to spend time on
accuracy, as the assumptions they make about the
future are based on today’s knowledge.
 We can guess the price of bread, or rises in inflation
over the course of a short term plan. Any variance
between our educated guesswork and the real world is
likely to be minimised by the short amount of time we
are planning for.
 Variance between the real world and the plan is going
to be easier to highlight if the plan carries accurate data
to begin with.
 However, intense focus on detail can have its
downsides. A short term plan is more likely to be
regularly updated than a long term plan.
 If the processes of updating the plan becomes arduous
due to the volume of data, then consider adjusting how
the plan is structured. Plans are tools, not chores. They
don’t need to be a 1:1 replica of your accounts.
 Be careful that the data you put in is there to generate
the results you need from the plan, not just because
you can add it in in that much granularity
COMPANY AND ITS ENVIRONMENT
A. Nature of a Company`s Environment
Company`s Environment
The combination of internal and external factors that
influences business operating situation. The business
environment can include factors such as: clients and suppliers;
its competition and owners; improvements in technology; laws
and government activities; and market, social and economic
trends.
IMPORTANCE OF BUSINESS ENVIRONMENT
(a) Determining Opportunities and Threats: The interaction
between the business and its environment would identify
opportunities for and threats to the business. It helps the
business enterprises for meeting the challenges successfully.
(b) Giving Direction for Growth: The interaction with the
environment leads to opening up new frontiers of growth for
the business firms. It enables the business to identify the
areas for growth and expansion of their activities.
(c) Continuous Learning: Environmental analysis makes the
task of managers easier in dealing with business challenges.
The managers are motivated to continuously update their
knowledge, understanding and skills to meet the predicted
changes in realm of business.
(d) Meeting Competition: It helps the firms to analyze the
competitors’ strategies and formulate their own strategies
accordingly.
 (e) Identifying Firm’s Strength and Weakness: Business
environment helps to identify the individual strengths and
weaknesses in view of the technological and global
developments.
TYPES OF COMPANY`S ENVIRONMENT
1. TECHNOLOGICAL ENVIRONMENT
Technology makes information available to decision makers,
helping to improve the quality and speed of decision making.
Technology also makes it easier for people to collaborate so they 2. ECONOMICS
can execute joint business decisions. Organizations use
communication technology to update employees on business
decisions and ensure the right people implement those decisions.
those decisions.
-It is the application of knowledge to the world that allows
people to affect their environment by controlling or changing
it.
Importance
Small business owners can use technology to reduce
business costs. Business technology helps automate back
office functions, such as record keeping, accounting and
payroll. Business owners can also use technology to create
secure environments for maintaining sensitive business or
consumer information. Many types of business technology or
software programs are user-friendly. This allows business
owners with a minor background in information technology to
use computer hardware and software.
Function
Small businesses can increase their employees' productivity
through the use of technology. Computer programs and
business software usually allow employees to process more
information than manual methods. Business owners can also
implement business technology to reduce the amount of
human labor in business functions. This allows small
businesses to avoid paying labor costs along with employee
benefits. Business owners may also choose to expand
operations using technology rather than employees if the
technology will provide better production output.
Managers study economic environments to estimate
how market trends and government policy influence the
performance of a company.
The survival and success of each and every business
enterprise depend fully on its economic environment.
The main factors that affect the economic environment
are:
(a) Economic Conditions: The economic conditions of a
nation refer to a set of economic factors that have great
influence on business organisations and their operations.
These include gross domestic product, per capita income,
markets for goods and services, availability of capital, foreign
exchange reserve, growth of foreign trade, strength of capital
market etc. All these help in improving the pace of economic
growth.
(b) Economic Policies: All business activities and
operations are directly influenced by the economic policies
framed by the government from time to time. Some of the
important economic policies are:
(i) Industrial policy (ii)
 Fiscal policy
(iii) Monetary policy
(iv) Foreign investment policy
(v) Export –Import policy (Exim policy)
(c) Economic System: The world economy is primarily
governed by three types of economic systems, viz., (i)
Capitalist economy; (ii) Socialist economy; and (iii) Mixed
economy. India has adopted the mixed economy system
which implies co-existence of public sector and private
sector.
3. SOCIO-CULTURALENVIRONMENT
Include belief systems and practices, customs, traditions and
behaviors of all people in given country, fashion trends and
market activities influencing business decisions.
Social factors affecting business
 social classes and their influence on the society,
 average disposable income level,
 wealth of people,
 level of education,
 access to education (free, paid),
 level and access to health-care,
 health consciousness in society (smoking, drinking, drug use,
safe driving, etc.),
 buying habits and consumer preferences,
 average retirement age (for men and women),
 personality of average consumer,
 susceptibility to influence,
 social organization (communities, social groups, gangs, ad-
hoc gatherings, etc.),
Cultural factors affecting business
 fashion trends,
 lifestyle,
 social media influence (blogging, etc) vs traditional media
(press, tv, radio),
 dominant communication technology in social groups,
 participation in cultural events,
 willingness to pay for tickets,
 popular actors, music styles, design forms, etc.
 creativity of people,
 relative population of local (folk) artists vs. global imported
culture,
4. Administrative-Political
The political environment of business are the political
factors that can affect the way in which businesses operate,
the businesses that are present, the obstacles that a business
may face, and the likelihood of success of different types of
businesses. According to the Business Dictionary the political
environment is the government actions which affect the
operations of a company or business. These actions can be
present on several different levels including the local, state,
regional, national, and international level. Those who own
businesses often pay close attention to these factors to
deduce the way in which government actions will affect their
business.
5. International Factors
Environmental factors for international business
comprise the external relations a firm will face in going global.
These include, most importantly, the economic, political and
legal environments, each of these always entangled with the
others.
Basic Issues
The central issues for the decision to go global are concerned
with minimizing risk. A company, when considering the
environment that it will deal with when entering a new market,
has to deal with certain variables. These concern, for example,
the cultural barriers to investment, the ability to reach a
competitive edge with new investments and the strategic use
of new technologies and natural resources that international
investment might bring.
Economic Environment
Closely tied to the economic environment is the political one,
itself also dealing with the nature of systems and institutions.
Many variables to consider here are the stability of the political
system, the existence of local or international conflict, the role
of state enterprises and the nature of the bureaucracy.
Political Environment
Closely tied to the economic environment is the political one,
itself also dealing with the nature of systems and institutions.
Many variables to consider here are the stability of the political
system, the existence of local or international conflict, the role
of state enterprises and the nature of the bureaucracy.
Legal Environment
The existence of bureaucratic systems and cultures is central
in making the decision to invest globally. The nature of
corruption, local values and assumptions that are built into
national ideologies are major variables in this field. A great
concern is the extent to which there is a culture of law or a
culture of personal patronage, where negotiations are done on
a personal rather than a legal basis. The impact of
international lending agencies such as the International
Monetary Fund or the World Bank is also important in creating
a legal culture that a business will have to take seriously.
Social Structure
Experts such as Robert Brown and Alan Gutterman hold that
social structure comprises the basic values of a people and
transcends the institutions mentioned above. Issues such as
the relation between the individual and the collective, religion,
family life and even time concepts and gender roles are all
significant in terms of dealing with a new population. Being
sensitive to these might be the difference between success
and failure.
B. Tracking the Changing Environment
In the business world, change is inevitable. The business
environment in which firms operate lies outside them. It is their
external environment, which is always changing. Some
changes are so dramatic that everybody notices them, but
others may creep upon an industry over the years and be
largely ignored for too long.
No matter what kind of change comes up, you'll need to learn
how to anticipate them and frame how you think about them.
By reframing your mindset about change to be positive and by
understanding the scope of the change, you can adapt to it in
a more thoughtful way. In a business environment, you can
research the change and find out how it could impact your
work. You can also speak with your co-workers and
understand how it might impact your workplace.
Method 1: Choosing a Positive Mindset
1. Assess your current mindset about the change.
At the beginning of this process, you will need to fully
understand your current thoughts about the change.
2. Accept that change is inevitable in business. Change is
bound to happen, especially if you work in a field that is quickly
growing and adapting, like technology. You may love how your
business environment is at this moment, and a change may
feel like a blow to your confidence.
3. Reflect on how you’ve handled past changes.
You have responded to changes in the past, even if they
weren’t in your current work place or career. Think about what
that change was, and how you reacted to it.
4. Take responsibility for your response to change.
Whether you have reacted poorly or positively to change in the
past, you will have to take responsibility for your response.
Understandably, some changes are much more difficult to
cope with others. Some have profound impacts on the way
that we live our lives, and they can present other unanticipated
challenges.
5. Adopt a positive attitude.
Your attitude and mindset will frame how you respond to the
change and whether you are able to adapt to it within your
workplace. Think about how you have responded to changes
in the past and realize that a positive attitude can improve your
future responses.
6. Hold yourself accountable for adapting to the new
change.
Whether the change has already gone into effect, or if it is still
in the future, you can hold yourself responsible for how you will
respond to it.
Method 2: Assesing the Impact of Change
1. Anticipate how this change might impact your current
work.
In order to adapt to a change in a business environment, you
need to be able to anticipate how the change will impact you,
your work, and the workplace environment.
2. Research the policy , if needed.
In the business world, some changes require companies and
teams to undergo major overhauls. These policies may
change how the company handles clients, impacts sales, or
changes the leadership of the organization.

3. Talk to your boss or to management.
Ideally, your management will have open lines of
communication and be receptive to hearing questions and
concerns about the new change that is being made.
4. Talk to your coworkers about how they are adapting.
If you work in a business environment where other members
of your team have to adapt to the same change, you can talk
to them about the steps that they are taking.
Method 3: Creating a work-life balance
1. Take a vacation.
Coping with changes in the workplace can be stressful. It can
be helpful to take a day off, or a few days, to spend time at
home and relax.
2. Build healthy relationships with your co-workers.
Friendships both in and outside of work are very helpful in
reducing stress.
3. Establish boundaries.
Setting boundaries between your work and home life, like not
checking your email after 6pm or not taking work phone calls
on the weekend, can help you compartmentalize your work
and keep the two separate. These boundaries can help to limit
the amount of stress that this change can have on your life.
Your adaption to changes in the work place shouldn't affect
your home life.
4. Ask for support when you need it.
Adapting to change can be difficult and it can wear on you,
especially when the change is large and impacts a lot of
different parts of your work.
C. Identifying Opportunities and Threats
Opportunities and Threats is the foundation of every
business finding the right opportunity to gain profit and benefits
from it by identifying every threat that upon creating that
business and making counter measures on every threat or
obstacles you will face in the process.
It is the 2 key parts of the so called SWOT analysis by
analyzing your Strengths, Weakness, Opportunities and
Threats you will be a more capable entrepreneur or business
man that can handle any obstacles that you will encounter
upon running your own business or corporation.
D. Identifying Strengths and Weaknesses
Strengths and Weaknesses
Strengths
-is the quality of being strong and emotional or mental qualities
necessary in dealing with difficult or distressing situation.
Weaknesses
-is the state or condition of lacking strength and the quality or
feature regarded as a disadvantage of a person.
Strengths and Weaknesses of a Company:
This is the positive or negative aspects of internal and external
environments that are under direct control of a firm. Strengths
is the positive characteristics of internal and external
environments that the company possessed while Weaknesses
is the characteristics of internal and external environments that
is insufficient or lack in the company.
Supply chain management (SCM)
- is the oversight of materials, information, and finances as
they move in a process from supplier to manufacturer to
wholesaler to retailer to consumer.
Activities under SCM:

Few Categories to Consider in Determining Strengths and  Product development

Weaknesses of the Company:  Planning
 Sourcing
o Financial Resources  Manufacturing
o Buildings and Equipments  Transportation
o Human Resources  Inventory management
o Employee Programs  Delivery
o Market Position Four main areas that should be the focal point of your
o Online Presence supply chain management assessment:
o Branding and Reputation
o Technology 1. The level of coordination between different operations
from forecasting to manufacturing to order fulfillment as
ASSESSING THE COMPANY’S COMPETITIVE well as the effectiveness of the current supply chain
planning operations
STRENGTH
2. A comparison of the operations with best-in-class
Questions frequently asked when assessing the supply
operations to determine areas of improvement
position of a company:
3. An assessment of the Information Technology (IT)
1. How is our supply chain performing?
systems currently being used to support the operations,
2. How are the teams under supply chain process
to identify specific gaps and improvement potential
performing?
3. What metrics should we continue to use and what new 4. Business process changes and organizational needs to
ones might we considers? support a best-in-class supply chain operation
Steps in Assessing the Supply Chain of a Company:
1. GATHER DATA. Confirm Objectives. Review past
projects. Identify Competitors. Select key suppliers.
2. ANALYSIS. Review documents supplied by client.
Review metrics and past performance. Research
Competitors. Analyze transportation. Analyze product
losses.
3. INTERVIEW. Conduct interview. Confirm Feedback.
Compare with the documents provided.Develop issues
list.
4. FINAL REPORT.
Porter's Five Forces is a business analysis model that
helps to explain why different industries are able to sustain
different levels of profitability.. The model is widely used to
analyze the industry structure of a company as well as its
corporate strategy. Porter identified five undeniable forces
that play a part in shaping every market and industry in the
world. This five forces are:
1. Competition in the Industry- The importance of this
force is the number of competitors and their ability to
threaten a company. The larger the number of
competitors, along with the number of equivalent
products and services they offer, the lesser the power
of a company.
2. Potential of New Entrants Into an Industry - A
company's power is also affected by the force of new
entrants into its market. The less time and money it
costs for a competitor to enter a company's market and
be an effective competitor, the more a company's
position may be significantly weakened.
3. Power of Suppliers- This force addresses how easily
suppliers can drive up the price of goods and services.
It is affected by the number of suppliers of key aspects
of a good or service, how unique these aspects are,
and how much it would cost a company to switch from
one supplier to another. The fewer the number of
suppliers, and the more a company depends upon a
supplier, the more power a supplier holds.
4. Power of Customers- This specifically deals with the
ability customers have to drive prices down. It is
affected by how many buyers or customers a company
has, how significant each customer is, and how much it
would cost a customer to switch from one company to
another. The smaller and more powerful a client base,
the more power it holds.
5. Threat of Substitutes - Competitor substitutes that can
be used in place of a company's products or services
pose a threat.
The Market Position of the Company
 Market Position
What is market position?
In marketing and business strategy, market position refers to
the consumer’s perception of a brand or product in relation to
competing brands or products. Market positioning refers to the
process of establishing the image or identity of a brand or
product so that consumers perceive it in a certain way. It is
also A ranking of a brand, product, or company, in terms of its
sales volume relative to the sales volume of its competitors in
the same market or industry.
For example, a car maker may position itself as a luxury status
symbol. Whereas a battery maker may position its batteries as
the most reliable and long-lasting. And a fast-food restaurant
chain may position itself as a provider of cheap and quick
standardized meals. A coffee company may position itself as a
source of premium upscale coffee beverages. Then a retailer
might position itself as a place to buy household necessities at
low prices. And a computer company may position itself as
offering hip, innovative, and use-friendly technology products.
 Positioning of a Brand
The positioning of a brand or product is a strategic process
that involves marketing the brand or product in a certain way
to create and establish an image or identity within the minds of
the consumers in the target market. Market positioning of a
brand or product must be maintained over the life of the brand
or product. Doing this requires ongoing marketing initiatives
intended to reinforce the target market’s perceptions of the
product or brand.
Repositioning Definition
Repositioning a brand or product means altering its place in
the minds of the consumer, or essentially changing the brand’s
or product’s image or identity. When you are repositioning, or
trying to change the consumers’ perception of a brand or
product after it has already been solidified, may confuse or
alienate consumers in the target market.
For example, if a premium luxury car maker suddenly slashed
the prices of its vehicles and began selling them at the same
prices as cheaper brand-name vehicles, consumers would no
longer perceive the vehicles made by the luxury car maker as
prestigious status symbols, even though the car features may
remain unchanged.
Cost Leadership and Differentiation
There are two broad categories of market position: cost
leadership and differentiation. Cost leadership and
differentiation market positioning strategies are applicable to
any business and any industry. A business can choose to
position itself using a cost leader strategy or a differentiation
business strategy.
 Cost Leader Strategy
A company using a cost leader strategy attempts to position
itself in the minds of the consumers as a company that
provides products the consumers want at a price that is lower
than competing products available in the marketplace.
Consumers expect basic products with no bells and whistles
from a company using a cost leader strategy. Instead,
consumers just expect the products to meet their needs and
nothing more or less.
 Differentiation Business Strategy
A company using a differentiation business strategy attempts
to position itself in the minds of the consumers as a company
that provides unique products that consumers will pay more for
because they cannot find comparable products or product
features anywhere else in the marketplace. Consumers expect
more from a differentiated product and therefore are willing to
pay a premium for a differentiated product. This is true as long
as the unique features of the product add some value to the
product that makes it more valuable to the consumer, whether
a functional feature or an aspect of image or prestige that
enhances the perception of the product.
A market positioning strategy is built on business data and
seeks to compose the precise chain of words to balance
concepts of differentiation, distinction, and similarity in a
unified brand-narrative. It is a long-term effort to solidify the
identity of a company, and its products or services, in a unique
space within the minds of the target audience. It is an
organized attempt for a brand to set itself apart from the crowd
and influence the way their target audience perceives them.
The idea of market positioning was first introduced in 1969 by
Jack Trout in a paper published by Industrial Marketing
Magazine. The concept was later popularized when Trout and
co-author Al Ries published a bestselling book under the title,
Positioning – The Battle for Your Mind, in 1981. Ries and
Trout’s book describes the positioning strategy as an
organized system for finding a window in the customer’s mind,
based on the idea that communication can only take place at
the right time and under the right circumstances.
The Steps to an Effective Positioning Strategy
The process is best broken down into its steps to keep the
concept as simple as possible. But, do not assume that
knowing the steps makes execution easy. It takes a great deal
of clarity and conviction to follow through. Knowing the steps
should help with the clarity part, but conviction is something
that must be developed internally if it doesn’t already exist. It’s
very important for marketers to muster the conviction of the
organization, because following the process through to the end
creates degrees of certainty moving forward that can’t be
substituted any other way.
Plenty of companies out there get by without much conviction,
and without a dedicated market position strategy. But without
some degree of certainty and conviction, most companies will
eventually default to the status quo when the waters get
choppy. It’s only a matter of time. But, those who can follow
the process through to the end will find that every action that
follows becomes an expression of the market positioning
strategy.
Market positioning follows seven basic steps listed below:
1. Draft a positioning statement — There are four simple
questions that will yield a set of basic facts about the identity
you have determined for your company (see below). The
positioning statement is the result of plugging those facts into
a basic, formulaic sentence structure.
2. Compare and contrast to identify your own uniqueness
— Differences between your own messaging strategy and
communication channels, and those of your competitors reveal
openings in the market that your positioning message should
address.
3. Competitor analysis — Investigating and analyzing the
competition helps to determine the strengths and weaknesses
of your own business measured against the competition.
Understanding the differences between a business and its
competitors is central to finding gaps in the market that can be
filled.
4. Determine current position — Determining your existing
market position is every bit as vital as any competitor analysis.
That’s because you have to understand your own market
position to be able to properly compete for your share.
5. Competitor positioning analysis — An accessory to the
competitor analysis, competitor positioning analysis identifies
the conditions of the market that influence how much power
competitors are able to exercise.
6. Develop a unique positioning idea — With all the
analytical data in hand, you should have a better idea of who
you are, who you are not, and who your best audience is. It’s
time to make a statement about those facts.
7. Test the effectiveness of your brand positioning —
Testing methodology will consist of qualitative and quantitative
data gathering, mainly determined by the steps prior to this,
but may also include focus groups, surveys, in-depth
interviews, ethnography, polls, etc. The results of the testing
should then be rated against a set of criteria listed below.

Determining Current Market Position
One of the telltale signs that a brand has neglected their
market positioning is that they feel misunderstood by their
target audience. If your audience misunderstands you, there’s
a good chance that you misunderstand yourself on some level.
To sort this predicament out, or avoid it altogether, there are a
few questions you need to answer decisively.
• Who are you as a brand and what do you stand for?
The most unique attributes of your business will set you apart
from the competition, but establishing difference or uniqueness
is not all there is to an effective positioning strategy.
‘Distinction’ of those attributes and values that only your
company can provide to customers, also needs to be
established. So does ‘attraction’, which can be expressed in
terms of attributes and values that the target customer base
genuinely wants or needs.
• Who are your target customers and what do they want
or need?
With difference, distinction, and attraction determined, you can
then shift the focus outward to determine which customers
your company best serves. Those customers will represent the
market segment your final market position will be set up to
serve.
• How will you reliably meet those needs?
Great brands understand that it simply isn’t possible to please
all people, in all ways, all the time. Instead they rely on a
clearly defined market segment where they can serve the
customer base more meaningfully because of their unique
attributes.
• Who are your competitors and what do you do
differently?
Trying to slot your company into a market position already
occupied by a competitor entails a tough uphill battle. It’s also
a bad idea to try and leverage another brand by likening yours
to it. Imitation may be the highest form of flattery, but in
business, flattering the competition too much can weaken your
brand just as easily as it can strengthen it.
Special Competitive Considerations
Strategic management in connection with competitiveness of
the company
Basically the purpose of corporate strategy is
to harness the opportunities available in the
environment, countering the threats embedded
therein
The fundamental goal of strategic
management is to increase an organization's
competitiveness in the market. Medium-term and
long-term strategies should always be focused on
gaining an advantage over competitors. Short-term
goals are often more internally focused (quarterly
revenue goals, for example), and can be less
"strategic. A key to increasing competitiveness is
having all of the information needed to accurately
assess competitors' positions in the marketplace,
and using that information to spot gaps and
opportunities to gain advantages.
1.1 Strategic Management
In a competitive market, companies can
operate successfully by creating and delivering
superior value to target customers and also learning
how to adapt to a continuously changing business
environment. In order to meet changing conditions in
their industries, companies need to be farsighted and
visionary, and must develop long-term strategies
1.2 Overall Objective of strategic management;
I. To create competitive advantage, so
that the company can outperform
the competitors in order to have
dominance over the market.
II. To guide the company successfully
through all changes in the
environment.
Changes can be external to the firm or it
may be change introduced to the firms by the
managers. It may manifest in the blurring of
industry and firm boundaries, driven by
technology, deregulation, or, through
globalization. The tasks of crafting, implementing
and executing company strategies are the heart
and soul of managing a business enterprise.
2.1 The Dynamics of competitive strategy
Strategic thinking involves orientation of the
firm’s internal environment with the changes of the
external environment. The competitive strategy
evolves out of consideration of several factors that
are external to the firm as shown in the figure -
Context in which competitive strategy is formulated.
2.2 Factors to be considered
Internal Factors;
 The strengths and weaknesses of
organizations are the internal
factors, which determine the
corporate strategy. It is to be
analysed and find out in which
functional area such as marketing, R
& D, operations, etc. the
organization has superiority over
the competitors.
 The personal values of the key
implementers also play major roles in
formulating the competitive strategy.
External Factors;
 The economic and technical components of
the external environment are considered as major
factors leading to new opportunities for the
organization and also closing threats.
 Similarly the broader expectation of the
society in which the organization operates is again
an important factor to determine the competitive
strategy.
3.1 Framework
Framework of strategic management:
Stage one - Where are we Now? (Beginning):
This is the starting point of strategic planning and
consists of doing a situational analysis of the firm
in the environmental context. Here the firm must
find out its relative market position, corporate
image, its strength and weakness and also
environmental threats and opportunities. This
is also known as SWOT (Strength, Weakness,
Opportunity, Threat) analysis. You may refer third
chapter for a detailed discussion on SWOT
analysis.
Stage two - Where are we Want to Be? (Ends):
This is a process of goal setting for the
organization after it has finalised its vision and
mission. A strategic vision is a roadmap of the
company’s future – providing specifics about
technology and customer focus, the geographic
and product markets to be pursued, the
capabilities it plans to develop, and the kind of
company that management is trying to create.
Stage three - How Might we Get There?
(Means): Here the organization deals with the
various strategic alternatives it has.
Stage four - Which Way is Best? (Evaluation): Out
of all the alternatives generated in the earlier stage
the organization selects the best suitable alternative
in line with its SWOT analysis.
Stage five - How Can we Ensure Arrival? (Control): This
is an implementation and control stage of a suitable
strategy. Here again the organization continuously does
situational analysis and repeats the stages again.
3.2 Importance of strategic management
Strategic planning and implementation have
become must for all organizations for their survival and
growth in the present turbulent business environment.
‘Survival of fittest ‘as propagated by Darwin is the only
principle of survival for organization, where ‘fittest’ are not
the ‘largest’ or ‘strongest’ organization but those who can
change and adapt successfully to changes in business
environment.
SELECTING THE ORGANIZATION’S STUDY
Domain Sought
- This pertains to what will be the product or intangible service
that a business or organization will sell to a group of
customers. The domain sought of an organization is its
customer’s demographics. This is important and the initial part
of selecting a strategy because this will be the basis as to how
the organization will make a strategy.
In doing the domain sought, Propitious niche - important to
select the growth and profit prospects, has to be identified.
There may be more than one domain sought in an
organization and those have to be analyzed separately.
Domain sought is not static because products get mature as
well. When product maturation occurred, new propitious niche
has to be identified again.
Differential Advantage in Selected Domain
When companies look to expand their customer or client
base, one of the first things they analyze is their competition
and how to chip away at their market share. Mostly, this
analysis focuses on comparative advantages like a lower cost
for goods and services versus the competition, but that’s too
narrow of a scope to be effective. Companies must also
consider their differential advantage, which is more subjective
and complicated but ultimately a better competitive metric.
A company’s differential advantage is a culmination of the
unique benefits or characteristics of the company or product
that set it apart from the competition in the customer’s
viewpoint. In fact, differential advantages allow companies to
charge a premium for products or services when customers
not only recognize the advantage but deem it valuable enough
to pay higher prices. Many people assume “better quality” is
an essential differential advantage, and while it can be in some
cases, the most effective differential advantages are those
related to customer experience. Here are some examples:
- Faster and/or more thorough customer service
- More accessible products or services
- More expertise
- Nicer facility
- Friendlier staff
- More pleasant purchase experience
Understanding company’s differential advantage is only the
beginning—they must also explain it to their target market
clearly, succinctly, persuasively, and memorably. If customers
don’t understand what they do better than thei competitors,
they won’t be convinced to choose the company. That’s where
marketing management comes in.
Strategic Thrust
• The strategic theory of Wiseman helps the firm in
obtaining the maximum information from the resources of the
firm for its competitive advantage.
• High-level initiatives arising from the strategic vision
and serve to guide the action plans towards some over-
arching goals.
• The strategic thrust defines the future direction of the
business.
• Sets out what you need to do or execute in order to
secure eventual competitive advantage.
• Is a vital, positive undertaking that moves a company
toward its differential advantage in its desired domain.
• Is a major competitive move (defensive or offensive)
made by a firm, aimed at one or more strategic targets.
There are three main parties to the strategic theory of
Wiseman, including suppliers, competitors and customers. To
gain the competitive advantage these parties are combined
together to form five kinds of strategic thrust. These are:
Differentiation thrust
This helps in focusing on the information that has been left
unfulfilled or there is some gap in the expected and provided
service.
Cost thrust
This kind of thrust focuses on minimizing the cost and
increasing the competitor cost.
Innovation thrust
This kind of thrust focuses on doing something different which
includes making new products with differentiating features and
specifications.
Growth thrust
This kind of thrust focuses on increasing the horizon of the
business that includes increasing volume and market size.
Alliance thrust
This kind of thrust focuses on the mergers and acquisitions for
increasing the business and making the firm more competitive.
Target Result Expected
1. Criteria in judging/choosing strategy
- The goal of criteria development is to learn what matters to
your team and organization so you can choose from various
strategy possibilities. Here are some of the questions you'll
need to answer:
• Where do we want to be?
• How will we know when we're winning?
• What will success look like?
Criterion Explanation
• Size/Revenue It will be big enough to be a material
focus for the division.
• Timeframe It will match our needs in # of
quarters/years to yield.
• Portfolio It will match our portfolio of products / services
/ offers.
• Region It will appear in regions where we are strong.
• Certainty We will have the right data available to make
a good decision.
• Affinity - we will need to follow what our team wants,
and they really want to do this.
• Defensive Move -we will do it because we want to
prevent others from doing it.
• Sales Model - we will already be set up to sell it.
• Customer - The account type will match buyers that we
know how to reach.
• Leverage -it will use our core strengths (product,
channel, know-how) best.
• Service - We will be able to perform to meet customer
satisfaction expectations.
• Profitability -it will support add-on of items like
professional services.
2. How to meet those criteria?
In able to meet those criteria, there are two key points to
remember.
First, keep in mind that the purpose of criteria development is
to expose tacit assumptions about the project goal. It's about
helping the team come to a common understanding about
what matters. There may be disagreement about what
success looks like. If so, discussions during criteria
development will test people's assumptions about what really
matters to the team and the organization. The discussions will
also verify that the assumptions are current and valid.
Second, the act of making criteria explicit will help each team
member know how to make decisions at any point in the
process where they need to make a trade-off. People will be
aware of the logic and beliefs underlying the strategy and will
be able to articulate them.
3. How do we measure the success of business using the
chosen strategy? Here are just a few methods of measuring
business performance at your company:
 Look At Your Business’s Financial Statements
When you think about measuring the success of your small
business, you need to see how much money it’s generating.
Obviously, money is important when you run a business.
Without it, your business is done. With it, you can grow your
business and continue pursuing your entrepreneurial dream.
How much money is going in and out of your business?
The three main financial statements you can use at your small
business are the income statement, balance sheet, and cash
flow statement.
The income statement measures the profitability of your
business during a certain time period by showing your
business’s profits and losses. The balance sheet shows your
business’s financial health, measuring how much you owe and
own. And, the cash flow statement shows how liquid cash is at
your business.
Measuring business performance means checking out the
money flow of your business. If you want to see how profitable
your business is, check out the financial statements.
 Check Customer Satisfaction
One important measurement of small business success is
customer satisfaction. If your customers aren’t satisfied after
buying from your business, they probably won’t do it again.
How do you measure customer satisfaction? There are a few
different ways, including through surveys, reviews, or even
asking, “Did you find everything you were looking for?”
At Patriot, we pride ourselves on excellent customer
satisfaction. We are all about reviews and making sure that
our customers are happy with the software we provide. When
we receive reviews, we post them on our company website.
That way, others know what real people have to say about our
products.
Customers help us improve our products. My customers know
what they need, and I learn how to satisfy their needs by
listening to them. Many of the features we add to our software
are because of customer requests.
 Average How Many New Customers You Get
Knowing how many new customers you get is a great way to
measure your business’s success and predict growth. If your
business is stagnant with the same 25 customers, you might
need to kick up your marketing strategy.
4. Conduct Performance Reviews
Let’s not forget about your employees. Employees are
essential — without them, you would have a hard time running
and growing your business. One way to measure business
success is through conducting performance reviews to see
how your employees are doing.
I try to conduct performance reviews twice a year. They let me
see how happy my employees are at their jobs, as well as how
effectively they complete tasks. Performance reviews help
employees see what they need to improve and gives me
further insight into their workload.
For example, you might have an employee who has extra time
on their hands. Through the performance review, you find out
that the employee is unhappy because they want more
responsibilities. You can then delegate more tasks to that
employee to make them happier and increase workplace
productivity without increasing the number of workers on
payroll.
5. Stay Current On The Market
Sometimes, you need to know how the market is doing in
order to measure the success of your own business. If you and
your competitors aren’t doing well, it might be because there is
a lull in the market.
Don’t be down if your business’s profitability decreases. It
might be a result of the national market and out of your control.
Decreased profitability could be a good time to introduce new
products if demand for your current product or service is put
on hold.
6. Assess Your Own Expectations
How do you feel about the success of your business?
According to one study, 55% of small business owners are
satisfied with being a small business owner.
You might not think about it, but assessing your own
happiness is important when measuring your business
success.
When I measure my business’s success, I try to consider my
perception. How do I feel the business is doing? I know the
numbers are good, but are they where I want them to be?
Make sure you’re happy with your progress to encourage all-
around success.
MARKETING POLICY- PRODUCT LINE AND CUSTOMERS
I. Market Segmentation
 Is the process of defining and subdividing a large
homogenous market into clearly identifiable segments
having similar needs, wants, or demand characteristics.
 Its objective is to design a marketing mix that precisely
matches the expectations of customers in the targeted
segment.
 It always comes before targeting, which helps a
company be more selective about who they are
marketing their products to.
 Marketing segmentation and targeting are equally
important for ensuring the overall success of a
company.
Market segmentationwas coined by Wendell R.
Smith and has been used by marketers since the late
1900’s up to the present time as an efficient tool in forming
marketing plans that would cater the firm’s target groups of
possible consumers. Market segmentation basically exists
in order to give aid to some of the major problems of
marketers; more conversions. More conversion is possible
through personalized marketing campaigns which require
marketers to segment market and draft better product and
communication strategies according to needs of the
segment.
Four basic factors that affect market segmentation are;
 Clear identification of the segment,
 Measurability of its effective size,
 Its accessibility through promotional efforts, and
 Its appropriateness to the policies and resources of the
company.
Importance of Market Segmentation
 Marketers can better define customer needs.
 Companies can create better products and hence
maximize their potential profit.
 Segmenting the markets creates further opportunities
for business growth.
 It can help the firm to establish a life-long relationship
with its consumers.
 The company’s resources are utilized for the right
product and right people.
Companies will not survive if the marketing strategy
is dependent upon targeting an entire mass market. The
importance of market segmentation is that it allows a
business to precisely reach a consumer with specific
needs and wants. In the long run, this benefits the
company because they are able to use their corporate
 resources more effectively and make better strategic
marketing decisions.
Market Segment
A market segment is a group of people who share one
or more common characteristics, lumped together for
marketing purposes. Each market segment is unique, and
marketers use various criteria to create a target market for
their product or service. Known to respond somewhat
predictably to a marketing strategy, plan or promotion. This is
why marketers use segmentation when deciding a target
market.
Nature of a market segment
A market segment needs to be homogeneous. There
should be something common among the individuals of the
segment that the marketer can capitalize on. Marketers also
need to check that different segments have different
distinguishing features which make them unique. But
segmenting requires more than just similar features. Marketers
must also ensure that the individuals of the segment respond
in a similar way to the stimulus. That is, the segment must
have a similar type of reaction to the marketing activities being
pitched
Types of Market Segmentation
 Geographic segmentation divides the market on the
basis of geography. This type of market segmentation
is important for the marketers as people belonging to
different regions may have different requirements.
People belonging to different regions may have
different reasons to use the same product as well.
Geographic segmentation helps marketer draft
personalized marketing campaigns for everyone.
 Demographic segmentation divides the market on
the basis of demographic variables like age, gender,
marital status, family size, income, religion, race,
occupation, nationality, etc. This is one of the most
common segmentation practice among the marketers.
Demographic segmentation is seen almost in every
industry like automobiles, beauty products, mobile
phones, apparels, etc. and is set on a premise that the
customers’ buying behavior is hugely influenced by
their demographics.
 Psychographic Segmentation divides the audience
on the basis of their personality, lifestyle and attitude.
This segmentation process works on a premise that
consumer buying behavior can be influenced by his
personality and lifestyle. Personality is the combination
of characteristics that form an individual’s distinctive
character and includes habits, traits, attitude,
temperament, etc. Lifestyle is how a person lives his
life.
 Behavioral Segmentation divides a population based
on their behavior, the way the population respond to,
use or know of a product. The market is also
segmented based on audience’s behavior, usage,
preference, choices and decision making. The
segments are usually divided based on their knowledge
of the product and usage of the product. It is believed
 that the knowledge of the product and its usage affects
the buying decision of an individual.
The segments created are composed of consumers
who will respond similarly to marketing strategies and who
share traits such as similar interests, needs, or locations.
II. Product Line Policy
What is a 'Product Line'
 A product line is a group of related products under a
single brand sold by the same company.
 Companies sell multiple product lines under their
various brands.
 Companies often expand their offerings by adding to
existing product lines, because consumers are more
likely to purchase products from brands with which
they are already familiar.
BREAKING DOWN 'Product Line'
 Companies create product lines as a marketing
strategy to capture sales of consumers already buying
the brand.
 The operating principle is that consumers are more
likely to respond positively to brands they know and
love and are willing to buy the new products based on
their positive experiences with the brand.
For example, a cosmetic company that's already selling a
high-priced product line of makeup (that might include
foundation, concealer, powder, blush, eyeliner, eye shadow,
mascara and lipstick) under one of its well-known brands
might launch a product line under the same brand but at a
lower price point. Product lines can vary in color, size, quality
and price.
Companies use product lines to gauge trends, which helps
them determine which markets to target.
Reaching New Customers:
 Companies add new items to their product lines,
sometimes referred to as a product-line extension, to
introduce brands to new customers.Extending product
lines allows companies to maximize their reach. The
way that companies use product lines is evident in the
auto industry.
 Consumers who have no interest in a company's
sporting good products, for example, might be more
interested in buying its product line of granola bars or
sports beverages.
Auto manufacturers famously produce various product lines of
vehicles to reach the widest possible range of consumers. For
this reason, they produce lines of economy vehicles,
environmentally friendly vehicles and luxury vehicles all under
their leading brands.
Diversifying Markets Product lines
 Allow companies to reach regions and socioeconomic
groups, sometimes worldwide.
 In some cases, such as the cosmetic industry,
companies also launch product lines under their best-
 selling brands to capture sales from consumers of
various ethnic groups.
 Multinational corporations, such as restaurants, often
launch product lines specifically for the countries in
which they operate, as is the case with fast food
restaurants operating in Asia.
Examples of Famous Product Lines Microsoft Corporation as a
brand sells several highly recognized product lines including
Windows, Office, Xbox and SharePoint. Nike Inc. has product
lines for various sports, such as track and field, basketball, and
soccer. The company's product lines include footwear, clothing
and equipment. Starbucks Corporation's product lines include
coffee, ice cream and drinkware.
The important advantages are:
(a) It provides for fuller utilisation of productive capacity.
(b) It facilitates entry into new items without extra marketing
expenses.
(c) It enables the marketer to consolidate his advertising and
promotional strategy. (d) It promotes consumer satisfaction.
(e) It acts as a deterrent to competitors who try to step in.
(f) It increases the profitability of the company.
(g) It also satisfies the dealers.
(h) It reduces the risk.
(i) It avoids seasonal fluctuations in sales.
Product Line Decisions: In fact, decision about adding a new
product is not different from other managerial decisions.
Taking decision of the product line depends upon a
number of factors:
(a) Company’s objectives
(b) Product specialisation
(c) Product influences
(d) Elimination of unsought goods
(e) Marketing influences
(f) Buying habits
(g) Changes in market demand
(h) The distribution net-work
(i) The company’s cost structure
(j) The availability of raw material
III. Customer Policy
A customer service policy is a set of procedures that instruct
the overall customer service attitude and structure of the
business. Policies allow all members of the company to
approach and handle situations in a very similar manner.
A customer service policy is a reflection of the company’s
understanding of what customers want – attention,
trustworthiness, best in class, promptness, responsiveness
and other such traits. It is statement of commitment that tells
customers that the company would do everything possible to
ensure their happiness. It is also a measure of the success (or
failure) of the customer service teams – they would know
exactly what is expected of them making it easier for them to
deliver. It is not possible to put something into action, if one is
not aware of the expectations. A customer service policy sets
the guidelines and training of service for the customer service
staff in particular and also across the organization. With the
clarity that such a written down policy brings, employees are
better positioned to perform their assigned tasks without
ambiguity.
Any policy is a strategic connection between the company’s
goals, its employees and its daily operations. A customer
service policy serves the same purpose only that it would be
focused on the customers and their needs. With a clear policy
in place, employees would know their responsibilities and
domain with certain limits and would be able to function better
without the need for constant supervision. It is not hard to see
why every company, irrespective of size must have a properly
documented and robust customer service policy in place.
Customer Service Policy includes:
 Customer service statement
 Service standards
 Loyalty schemes
 Complaints procedure
PRODUCT POLICY
VERTICAL INTEGRATION
Vertical integration is a strategy where a company expands its
business operations into different steps on the same
production path, such as when a manufacturer owns its
supplier and/or distributor. Vertical integration can help
companies reduce costs and improve efficiencies by
decreasing transportation expenses and
reducing turnaround time, among other advantages. However,
sometimes it is more effective for a company to rely on the
established expertise and economies of scale of
other vendors rather than trying to become vertically
integrated.
2 TYPES OF VERTICAL INTEGRATION
Backward integration is a form of vertical integration that
involves the purchase of, or merger with, suppliers up the
supply chain. Companies pursue backward integration when it
is expected to result in improved efficiency and cost savings.
For example, this type of integration might cut transportation
costs, improve profit margins and make the firm more
competitive.
BREAKING DOWN 'Backward Integration'
Vertical integration is the integration of two or more companies
at different places on the supply chain. A supply chain is the
summation of individuals, organizations, resources, activities
and technologies involved in the manufacturing and sale of a
product. The supply chain starts with the delivery of raw
materials from a supplier to a manufacturer, and ends with the
sale of a final product to an end-consumer. Backward
integration occurs when a company initiates a vertical
integration by moving backward in its industry's chain.
A general example of backward integration is when a bakery
business moves up the supply chain to purchase a wheat
processor and/or a wheat farm. In this scenario, a retail
supplier is purchasing one of its manufacturers.

Forward integration is a business strategy that involves a
form of vertical integration whereby business activities are
expanded to include control of the direct distribution or supply
of a company's products. This type of vertical integration is
conducted by a company moving down the supply chain. A
good example of forward integration is when a farmer sells his
crops at a local grocery store rather than to a distribution
center that controls grocery store placement.
Forward integration is a operational strategy implemented by a
company that wants to increase control over its suppliers,
manufacturers or distributors, so it can increase its market
power. For a forward integration to be successful, a company
needs to gain ownership over other companies that were once
customers. This differs from backward integration in which a
company tries to increase ownership over companies that
were once its suppliers.
Benefit of vertical integration
 Increased competitiveness.
 Greater process control.
 Increased market share.
 Increased supply chain coordination.
 Decreased cost.
Production Process
The process of production is concerned with transforming a
set range of inputs, depending on the product, into those
outputs that are required by the market (demand).
In the process of production, a business or firm must first
purchase all the necessary raw materials (inputs) for
production. Then use the production process to transform
them into the finished product (outputs) that it wishes to sell.
This basically involves two main sets of resources - the
resources to be transformed, and the resources that do the
transforming.
The resources to be transformed are in fact the raw materials
and components that are transformed into end products. The
resources that do the transforming include the buildings,
machinery, computers, staff, and even the electricity that are
needed to carry out the transforming processes.
Any production process involves a series of links in a
production chain. At each stage value is added in the course
of production. Adding value involves making a product more
desirable to a consumer so that they will pay more for it.
Adding value therefore is not just about manufacturing, but
includes the marketing process including advertising,
promotion and distribution that make the final product more
desirable.
It is very important for businesses to identify the processes
that add value, so that they can enhance these processes to
the ongoing benefit of the business.
Main Types of Production:
● Job Production - Job production is unique in the fact
that the project is considered to be a single operation,
which requires the complete attention of the operative
before he or she passes on to the next job.
● Batch Production - Producing a number of items
together as a batch. Batches are continually processed
through each machine before moving on to the next
 operation. This method is sometimes referred to as
'intermittent' production as different job types are held
as work-in-progress between the various stages of
production.
● Flow Production - Flow production is a continuous
process of parts and sub-assemblies passing on from
one stage to another until completion.
Technology Choice
Technology is the process of applying the finding of science
and other forms of enquiry to applied situations. Production
technology therefore involves applying the work of researchers
to develop new products and processes.
There are a range of new technologies that are being applied
to improving production methods and outputs. For example, in
recent years we have seen the development of ice cream
varieties of chocolate products in the confectionery industry -
an example of food technology.
Production Technology relates inputs to outputs.
● Labor- Intensive Technology: Technology that relies
heavily on human labor rather than capital.
● Capital- Intensive Technology: Technology that relies
heavily on capital rather than labor.
Specialization – is a strategy in which the company focuses
all of its resources into a single product line and targets
specific market segments.
Engaging in specialization has its advantages and
disadvantages; for one, if the company chooses to specialize
in one product line they can establish reputation for quality in
brand development. While specialization offers a lot of
advantages there are also disadvantages, if the product line
that the company focused on matures or dies they either suffer
or gain more profit.
Automation – is a strategy where the company invests on
machines that will further increase the production. It will also
lessen the labour cost.
Based on mwes.com, “Automation is best implemented into an
environment where the equipment is seamless and intuitive.
The automation should flow with the conventional
manufacturing methods, create an obvious workflow, robust
capability, and common operator interface. The result is an
automation plan that achieves superior performance objectives
and is welcomed by the workforce.” Meaning, automation is a
big factor in helping the increase of production.
Decentralization – in this strategy the company will focus on
different products, unlike specialization, this strategy promotes
investing into different product lines. Based on Chron.com “an
organization where the marketing department is decentralized,
the operations of the department are determined by each of
the individual constituent divisions within the department
itself.” Through decentralization, the company will be able to
produce different product (line) that can satisfy different market
segments.
Production Capacity
 is the volume of products or services that can
be produced by an enterprise using current
resources.
 is the maximum output that can be produced in
a business with available resources. They are
usually calculated over a month or days and
 compared over the same. It is a measure of
efficiency such that we can adjust our
production according to the demand.
Production - the action of making or manufacturing from
components or raw materials, or the process of being so
manufactured.
Capacity - the maximum amount that something can contain.
Understanding production capacity allows a business to
estimate future financial performance and create a timeline for
delivering products. The formula for production capacity is
machine-hour capacity divided by the time it takes to produce
one product. Production capacity can be calculated based on
a single type of product or a mix of products.
Machine-Hour Capacity
The first step in understanding production capacity is to
calculate the machine-hour capacity of the factory or
manufacturing plant. For example, say that a plant has 50
machines and workers can use the machines from 6 a.m. until
10 p.m., or for 16 hours a day. The daily plant capacity in
hours is 16 hours multiplied by 50 machines, or 800 machine
hours.
Production Capacity with One Product
Production capacity planning for a single product is a fairly
straightforward calculation. Determine how long it takes to
produce one unit of product, then divide the daily plant
capacity in hours by the time it takes to produce a product to
arrive at the daily production capacity. For example, say it
takes a worker half an hour (0.5 hours) on a machine to make
a widget and the capacity is 800 machine hours. The
production capacity is 800 divided by 0.5, or 1,600 widgets per
day.
Production Capacity with Multiple Products
Calculating production capacity for a mix of products can be
more complex. For example, say that in addition to producing
widgets that take half an hour, the business also manufactures
buttons that take 15 minutes (0.25 hours) on the machine. In
this scenario, the number of widgets multiplied by 0.5 plus the
number of buttons multiplied by 0.25 equals the total hourly
capacity (800). Solve for the two variables: number of widgets
and number of buttons. At 800 machine hours, one possible
combination could be production of 800 widgets and 1,600
buttons.
Production-Capacity Utilization Rate
If you know your production capacity, you can measure how
well you are using your capacity. Capacity-utilization rate is a
measure of what percentage of capacity a business is
currently performing at. The formula for capacity-utilization rate
is actual output divided by the potential output. For example,
say that a business has the capacity to produce 1,600 widgets
a day (as above) but is only producing 1,400. The capacity
utilization rate is 1,400 over 1,600, or 87.5 percent. The higher
the percentage, the closer the business is to performing at full
capacity.
& Replacement Levels
Maintenance:
• The process of maintaining or preserving something.
• Process of which working condition of plant or
machinery is maintained at the optimum level as to give
maximum output.
 • Maintenance is done through repair, partial
replacement and total replacement
Significance of Maintenance:
• Ensures that equipments are always ready and in
reliable conditions.
• Equipments are always calibrated to provide good
quality products and competitive advantage.
• Ensures that there are no major breakdowns.
• Ensures that costs are always controlled.
If the organizations are not able to implement an effective
maintenance then it can result in the following results:
• Full capacity of utilization may not be achieved.
• Increased in production cost.
• Increased in maintenance cost.
• Reduction in product quality.
• Safety of workers in jeopardy.
Maintenance Management
• Maintenance management is process where available
resources are regulated in a manner that plant and
machinery can perform at specific levels. Maintenance
management involves planning, scheduling and
execution of maintenance-related activities.
The main objectives of the maintenance management are as
follows:
• Minimum level of production loss and minimum
incidence of breakdown.
• Minimum level of wastage.
• Optimum usage of maintenance equipment and
personnel.
• Quality of product is improved.
The following are key points to plan maintenance:
• Identify the equipment for maintenance and technique
for maintenance.
• Categorize maintenance into routine, priority and
emergency.
• Plan maintenance considering cost, time, space etc.
• Material planning for maintenance requirements.
• Budget time and money requirements.
The need to schedule maintenance can be best described as
follows:
• To optimize usage of plant, machinery and tools.
• To optimize usage of manpower in maintenance.
• To ensure smooth production flow.
Replacement Levels
• The action or process of replacing someone or
something.
Factors to take into consideration when deciding whether to
repair or replace a piece of equipment:
• Ongoing maintenance costs over the remaining life of
the equipment
• The impact any repair would have on productivity and
quality
• Costs incurred from the equipment downtime
• Health, safety, and environmental costs that come with
equipment breakdown
• Training costs for a new piece of equipment
• Disposal costs
• Installation costs
Product Maintenance and Replacement
Product Maintenance
• Product maintenance is very important for keeping the
product competitive in the market. Completion of the
development of a product begins the process of its
maintenance. The most significant need for Product
maintenance is to upgrade it to the next version, with
necessary modifications based upon the feedback from
the users.
The maintenance activities are primarily categorized into:
• Corrective maintenance:
Corrective maintenance is reactive in nature. The
product is subjected to modifications to rectify the defects,
discovered on use of the product.
• Adaptation maintenance:
Adaptation maintenance is modulator in nature. The
product is modified to keep it in tune with the changed
business-environment and also make it adaptable to the
prospective changes in its usage.
• Preventive maintenance:
Preventive maintenance is to detect and correct the
dormant faults in the product.
• Maintenance for Perfection:
Maintenance for perfection is to enhance the
performance of the product.
Replacement of a Product
• If a product or service you buy fails to meet a consumer
guarantee, you have the right to ask for a repair,
replacement.
• You can ask a business for your preference of a free
repair, replacement or refund, but you are not always
entitled to one.
• If you have a minor problem with a product or service,
the business can choose to give you a free repair
instead of a replacement or refund.
• When you have a major problem with a product, you
have the right to ask for your choice of a replacement
or refund.
• Replaced products must be of an identical type to the
product originally supplied.
• Products require ongoing maintenance and support to
effectively handle evolving and growing needs.
PREVENTIVE
- Directing analysis and action toward correcting the
variances in the output of a process. Takes activities
and practices aimed at anticipating, avoiding, and
removing possible causes to preclude a hazardous
event from happening. Preventive (sometimes
maintenance is regularly performed maintenance on a
piece of equipment to reduce the likelihood of failure.
Preventive maintenance ensures that anything of value
to your organization receives consistent maintenance
to avoid unexpected breakdowns and costly
disruptions.
- In the same way you would not wait until your car’s
engine fails to get the oil changed, machines,
equipment, buildings and anything of value to your
organization need consistent maintenance to avoid
breakdowns and costly disruptions.
- The quality of the prevention of the risk of product
failure, the history of marketing reveals glaring
examples of the failure of a majority of new products
because of lack of marketing insight. It has been noted
that a large number of products abort in the process of
development even before they are put in the market
Steps in preventive maintenance
1. Get The Right People on Board
Before you begin to organize your preventive
maintenance plan, you need to have the right people on board
with the plan. Include top management, maintenance
managers, maintenance technicians, and any other staff who
understands the way your system operates. This could include
people from data processing, accounting, craftsmen, and
members of production and production control.
You may not need input from each of these people at
every step of the process, but it’s important to have them on
board and kept up to date so you can get important feedback
as you go.
2. Set Goals for Your Preventive Maintenance Plan
Using your task force’s input, set goals you hope to
achieve using the system. Begin training your task force on the
computer skills they’ll need when your preventive maintenance
plan goes into full effect.
3. Inventory the Equipment and Assets
Go through your facility and inventory all the equipment
you’re considering including in your preventive maintenance
plan, tagging the equipment as you go. Create a list of all the
assets you have responsibility for. Record the following details
as you go, and keep in mind that this process is much easier
to carry out and organized with the assistance of a good
preventive maintenance software program.
 Make and model of the equipment
 Serial number
 Basic specification and capabilities
 Asset number, brass tag number, or unit number
 Category (HVAC, plumbing, etc)
 The location of the equipment
 The department who holds responsibility
 Any high cost items of the asset
This information will help you later track costs and help
determine whether a piece of equipment needs to be replaced
now.
Take note of the equipment’s current condition, and rate its
level of priority in relation to your overall operation.
4. Make Decisions
What is the health status of each piece of equipment?
You can determine this by asking these questions:
 Is it operating to manufacturers’ specifications?
 Is it a high priority asset?
Once you’ve used these questions to analyze your
equipment and have determined your highest priority asset,
determine how your assets are performing and set a
reasonable operational goal. Keep in mind that no system will
ever run at a 100% average capacity. Compare your system’s
actual performance to your operational goals to determine
which systems need the most attention.
It is important to remember that not every piece of
equipment should be added to your preventive maintenance
plan. Some equipment is just too old and worn out, and
reactive maintenance may actually be a more cost-efficient
method in these cases. Look at the cost of repairs or
replacement, how often this maintenance is typically
performed, and what level of priority the equipment has.
Then create a task list per piece of equipment. Include
approximate labor time and skill level required for each task in
the plan. If you’re going to need parts for the task, make sure
you budget for it and plan for delivery time.
A good candidate for inclusion in your preventive
maintenance plan will have the following characteristics:
 The repair/replacements costs are high
 Maintenance has to be performed routinely
 The equipment is critical to your company’s success
 You’ll find that some items are better left to be replaced
or repaired once they break. If so, make sure to schedule
modernization of those units. If possible, plan to retire bad
units. It is a good idea to actually leave bad units off the
system since nothing will be done for them between
inspections.
5. Get to Know the Owner’s Manuals
Now that you have a list of candidates for your
preventive maintenance program, you need to determine what
is best for each piece of equipment individually. Read up on
the manufacturer guidelines, as well as the warranty
conditions to help you figure out the best tasks for preventive
maintenance.
Decide which preventive maintenance clocks you’ll be
using. The clock will indicate wear on your piece of equipment.
You can set the clock by number of days elapsed, run-time
hours, yards or tons of product, etc. Preventive maintenance
software allows for these clocks to be set easily, taking a huge
task off your plate.
6. Schedule for Long Term Preventive Maintenance
You want to aim to get as many of your high cost/high
priority pieces of equipment on a preventive maintenance
schedule, but you don’t have to do it all at once. Your tasks
should be directed to how the unit might fail, and your goal
should be to prevent as many failures as possible.
Start with one piece of equipment and add as you go.
Using the first piece of equipment, create a schedule for the
year, broken down into daily, weekly, monthly, quarterly, bi-
annual, and/or annual tasks. You can use the manufacturer’s
guidelines to help you determine your schedule. Continue with
each piece of equipment until everything has a long-term plan.
Preventive maintenance software will allow you to auto-
schedule preventive maintenance based on elapsed time
periods or other readings, and will automatically generate an
editable schedule of pending and active work orders.
Regularly review your reports from your preventive
maintenance software to watch for items you need to plan for.
Your long-term operating procedure will likely be revised many
times throughout your first year.
7. Schedule for the Short Term Preventive Maintenance
Now that you have planned your year, you can more
easily create weekly plans for your maintenance crew. Plan
preventive maintenance tasks to be performed at pre-planned
equipment downtime, but give yourself some flexibility for work
orders that come in from preventive maintenance inspection or
reactive maintenance needs.
Prioritize the tasks, eventually creating a balance by adding or
subtracting maintenance tasks and crew members. You’ll
enjoy a longer life on your equipment, lower maintenance
costs, and shorter downtime.
8. Train, Train, Train!
Don’t let the careful planning and hard work go out the
window by neglecting to train the people who will be working
with and managing the maintenance of your equipment. Talk
to each machine operator, and demonstrate correct
procedures for daily maintenance and adjustments. Train them
in service and repair procedures, and make sure they
understand how to safely use the equipment. Use simple log
forms so that machine operators will use them. Schedule a few
minutes before and after each shift to inspect, lubricate, and
clean up.
TIMING
- Market timing is a strategy in which the investor tries to
identify the best times to be in the market and when to
get out. Relying heavily on forecasts and market
analysis, market timing is often utilized by brokers,
financial analysts, and mutual fund portfolio managers
to attempt to reap the greatest rewards for their clients.
- Proponents of market timing say that successfully
forecasting the ebbs and flows of the market can result
in higher returns than other strategies. Their specific
tactics for pursuing success can range from what some
have termed "pure timers" to "active strategic
allocation."
- Pure timing requires the investor to determine when to
move 100% in or 100% out of one of the three asset
classes -- stocks, bonds, and money markets. Perhaps
the riskiest of market timing strategies, pure timing also
calls for nearly 100% accurate forecasting, something
nobody can claim.
- On the other hand, dynamic asset allocators shift their
portfolio's weights or redistribute their assets among
the various classes based on expected market
movements and the probability of return versus risk on
each asset class. Professional mutual fund managers
who manage asset allocation funds often use this
strategy in attempting to meet their funds' objectives.
PROCUREMENT POLICY
Procurement Policy is the act of obtaining or buying goods and
services. The process includes preparation and processing of
a demand as well as the end receipt and approvalof payment.
It often involves:
1. Purchase planning,
2. Standards determination
3. Specifications development,
4. Supplier research and selection,
5. value analysis,
6. financing,
7. price negotiation,
8. making the purchase,
9. supply contract administration,
10. inventory control and stores, and
11. disposals and other related functions.
The process of procurement is often part of a company's
strategy because the ability to purchase certain materials will
determine if operations will continue.
A business will not be able to survive if it's price of
procurement is more than the profit it makes on selling the
actual product.
A. MAKE OR BUY POLICIES
 What is Make or buy policy?
Make or buy is a valid consideration in any cost reduction
or product improvement program. Advantages and
disadvantages of possible alternatives should be
evaluated and the choice that identifies the minimum
cost makes for the final decision.
Make or buy decision is always a valid concept in
business. No organization should attempt to make
something by their own, when they stand the opportunity
to buy the same for much less price.
Make:
It requires appropriate production equipment, suitable
personnel, material, adequate space, supervision, design
standards and involves overheads, maintenance, taxes,
insurances, management attention and other indirect and
hidden costs. It provides work for idle equipment and
personnel utilize scrap material, shorten delivery period,
permits strict adherence to the raw material specification
and quality of final product. It ensures continuity of
supply, may cost less than purchase and keep design
and research infor-mation secret.
Buy:
Permits lower investment in facilities, smaller labor
force, less handling, lower plant cost for building and
upkeep, less overhead or taxes, insurance and
supervision and less problems of man-management
relations. Buy permits specialization, allows
manufacture by most efficient equipment, lowers
inven-tories, change of design without loss of
investment in equipment or inventory, obtaining best
price of product, and supplying more varied experience
and encourages growth of ancillaries.
The following situations demand for the evaluation
of make or buy decisions:
1. When the organization introduces new products.
2. The fluctuating demand for the company’s products.
3. When the organization carries out value analysis or
cost reduction programs.
4. Deteriorating quality and delivery commitment of the
supplier if presently the item is bought.
5. The scarcity of funds for investment in additional
plant and equipment.
Reasons which favors Making:
 Cost concerns
 Desire to expand the manufacturing focus
 Need of direct control over the product
  Intellectual property concerns
 Quality control concerns
 Supplier unreliability
 Volume too small to get a supplier attracted
 Reduction of logistic costs (shipping etc.)
 Political and environment reasons
 Organizational pride
Reasons which favors Buying:
 Lack of technical experience
 Supplier's expertise on the technical areas and the
domain
 Cost considerations
 Need of small volume
 Insufficient capacity to produce in-house
 Brand preferences
 Strategic partnerships
B. SELECTION OF SUPPLIES (VENDORS)
This guide illustrates a step-by-step approach you can
follow that should help you make the right choices. It will
help you decide what we need in a supplier, identify
potential supplier and choose you supplier.
 Thinking strategically when selecting suppliers.
- The most effective suppliers are those who offer
products that match the needs of your business.
So when you are looking for suppliers, it's best
to be sure of your business needs and what you
want to achieve by buying, rather than simply
paying for what suppliers want to sell you.
 What should you look for in a suppliers
- Reliability
Trustworthy suppliers is one of the key
consideration for choosing suppliers.
- Quality
The quality of your supplies needs to be
consistent. Or your customers associate poor
quality with you, not your suppliers.
- Price
The lowest price is not always the best value for
money. If the quality of your supplier's product
or service is poor, you may incur extra costs for
returns and replacements.
- Strong service and clear communication
 The best suppliers will want to talk with you
regularly to find out what needs you have and
how they can serve you better.
- Sustainability and financial stability
The last thing you want is to have to change
your vendors very quickly because one of them
has gone out of business.
 Identifying potential suppliers
- Recommendations
Asking friends, family, friends of friends,
workmates for supplier recommendation and
asking for honest assessment of the business'
strengths and weaknesses as they're familiar
with their services.
- Exhibitions and events
Attending exhibition or events is also useful in
selecting suppliers. Talking to different suppliers
in same place at the same time.
- Directories
Looking in yellow pages for suppliers in your
local area.
- Online
The best ways to look for suppliers such as
manufacturer and wholesaler.
 Drawing up a shortlist of supplier
When considering the firms on your shortlist, ask
yourself the following questions:
o Can these suppliers deliver what you want, when you
want it?
o Are they financially secure?
o How long have they been established?
o Do you know anyone who has used and can
recommend them?
o Are they on any approved supplier lists from trade
associations or government?
 CHOOSING A SUPPLIER
Once you have a manageable shortlist, you can approach the
potential supplier and ask for a written quotation and, if
appropriate, a sample. It's best to provide them with a clear
brief summarizing what you require, how frequently you'll
require it and what level of business you hope to place.
o Get a quotation
 It's worth asking potential suppliers to give you a
firm price in writing for say, three months. You can
also ask about discounts for long term or high-
volume contracts.
o Compare potential suppliers
o Negotiate
o GETTING THE RIGHT SUPPLIER FOR YOUR
BUSINESS
Know your needs
Make sure you know what you need. Don't be tempted by
sales pitches that don't match your requirements. Understand
the difference to your business between a strategic supplier,
who provides goods or services that are essential to your
business- such a high value raw materials - and non-strategic
suppliers who provide low value supplies such as office
stationery.
1. Spend time on research
2. Ask around
People or other businesses with first-hand experience
of suppliers can give you useful advice.
3. Credit check potential suppliers
4. Price isn't everything
5. Agree on service levels before you start
6. Don't buy from too many suppliers
It will be easier for you to manage- and probably more
cost-effective- if you limit the number of sources you
buy from. This is particularly the case with low value-
added suppliers.
C.COORDINATING PRODUCTION, PURCHASES AND
SALES
This Purchasing Policy applies to and binds all
directors, managers and employees of the organisation in any
situation where they are involved in a purchasing process,
whether as requisitoners or specifiers, purchasers or
negotiators, or those who validate or authorise payment.
‘Purchasing’ includes all procurement activities including
leasing and hiring, and may where appropriate include other
activities accompanying the life cycle of goods (or service
contracts) and the end-of-life disposal of goods which have
been procured (whether or not they remain in our ownership).
Adherence to the Purchasing Policy is both an individual and a
corporate responsibility. Wilful breach of this policy, or
unauthorised departure from the Procedures derived from this
Policy, may constitute a disciplinary offence.
Why does Sales has to Coordinate with Purchasing and
Production Planner?
 There is direct relationship between this three
departments. First sales department should expect the sales
volume for the next period then the production department
demands the row material from the purchasing department to
start producing and achieve the organization goals .
If it is a production company: Production department should
produce the products that Sales can sell. In this case, Sales
should inform Production how much should they produce.
Further, Production will coordinate with Procurement to
purchase the necessary supplies needed to produce the
necessary products. Sales has nothing to do with Procurement
department.
If the company is a reseller: Sales has to coordinate with
Procurement to purchase the products Sales can sell.
1-production management:
If the management function of production is the
production of what is needed and requested by the consumer,
the task of determining what asks the consumer rests with the
management of the institution, which must be informed in a
timely management of production, even programmed or
modify production processes consistent and desires of the
consumer in the product, and then the need for a permanent
correlation between the two departments, and vary and means
of linkage between one institution to another, in small
enterprises are directly the relationship between them, while
arise in the organization of large private offices mission is the
link between the various departments of the institution.
2-procurement management:
Often prefer this administration in large enterprise productivity
and be close correlation between them, they are responsible
for buying all production requirements, but for the business
enterprise procurement management occupies a place of
production management in the enterprise productivity, so it will
be a close correlation between the two.
The process of procurement is often part of a company's
strategy because the ability to purchase certain materials will
determine if operations will continue.
A business will not be able to survive if it's price of
procurement is more than the profit it makes on selling the
actual product.
HUMAN RESOURCES POLICY
A. SELECTING AND DEVELOPING PERSONNEL
Selection Procedure:
1. Reception of Applicants
- The receptionist in the personnel department is assigned to
provide information about the company and current job
openings and to assist with the completion of application
forms.
2. Preliminary Interview
- The preliminary interview is designed to assess if the
applicant has the general skill, interests, abilities and
temperaments to compete with other applicants who have
those attributes.
3. Application Blank
- Certain companies ask the applicants to complete the
identifying data relating to his/her personal information such as
name, education, employment, place of residence, sex, etc.
4. Employment Test
- Employment testing is the practice of administering written,
oral, or other tests as a means of determining the suitability or
desirability of a job applicant. The premise is that if scores on
a test correlate with job performance, then it is economically
useful for the employer to select employees based on scores
from that test
5. Interview
- A job interview is a one-on-one interview consisting of a
conversation between a job applicant and a representative of
an employer which is conducted to assess whether the
applicant should be hired.
6. Investigation of Previous History
- This step is used to check accuracy of application form
through former employers and references. Verification of
education and legal status to work Credit History Criminal
records is also made. Personal reference checks may provide
additional insight into the information furnished by the
applicant and allow verification of its accuracy. Past behavior
is the best predictor of future behavior. It is important to gain
as much information as possible about past behavior to
understand what kinds of behavior one can expect in the
future.
7. Preliminary Selection
-
8. Final Selection
- Based on all information gathered during the recruitment and
selection process, including résumés, interviews, test results,
applicant ratings, reference checks, and the advice of the
selection team, decide which candidate best satisfies the pre-
established requirements of the vacancy.
9. Medical Examination
- is the process by which a medical professional investigates
the body of a patient for signs of disease. It generally follows
the taking of the medical history—an account of the symptoms
as experienced by the patient. Together with the medical
history, the physical examination aids in determining the
correct diagnosis and devising the treatment plan. This data
then becomes part of the medical record.
10. Placement or hiring
- It is a process of assigning a specific job to each of the
selected candidates. It involves assigning a specific rank and
responsibility to an individual. It implies matching the
requirements of a job with the qualifications of the candidate.
Orientation
Orientation is a systematic and planned introduction of
employees to their jobs, their co-workers and the organization.
Induction, also called orientation is designed to provide a new
employee with the information he or she needs to function
comfortably and effectively in the organization. It is a planned
introduction of new hires to their jobs, their peers and the
company.
Typically, orientation conveys three types of information – (i)
general information about the daily work routine; (ii) a review
of the firm’s history, founding fathers, objectives, operations
and products or services, as well as how the employee’s job
contributes to the organization’s needs; and (iii) a detailed
presentation, perhaps, in a brochure, of the organization’s
policies, work rules and employee benefits
Training
After recruiting and placing the employees in the right place
the next step is to train and develop the Human Resources
collected recently. It is vital part of every employee and
manager.
Regardless of his previous background, any new staff member
needs to be able to employ his skills in the specific ways
required by his new position and by the organization. He also
may need to learn new skills related to what he already knows,
since the demands of the position may be somewhat different
from what he's done in the past. The organization's training
guidelines need to take into account what it is about the
position that is different in this organization than in others, and
just what a particular new staff member is likely to need to
learn.
B. DESIGNING A REALISTIC COMPENSATION PACKAGE
A compensation strategy defines how an organization views and
manages employee pay and benefits.
The strategy serves as a guide and should be defined in a
written document that clearly articulates the organization’s
approach to compensation management.
An effective compensation strategy serves to motivate
current employees and attract new ones. Some people think of
compensation as merely salary, but the real cost of total
compensation includes every aspect of employee benefits.
The cost of health benefits, retirement benefits, tuition
reimbursement, bonuses or other incentives are real costs that
need to be considered part of total compensation.
7 THINGS TO CONSIDER WHEN DEVELOPING A
COMPENSATION STRATEGY:
1. Budget Allocation The strategy should include the
organization’s approach to allocating compensation dollars
into salary and benefits. How much of total compensation
budget will be spent on salary and what percentage will be
spent on benefits and other incentives.
2. Develop Salary Ranges
Developing salary ranges is critical to ensuring employee pay
is competitive with other organizations. To be competitive, it is
important to benchmark like jobs within the same industry and
create a pay structure. Salary ranges can be developed
internally by conducting research or utilizing sites like
salary.com or payscale.com to determine average salaries in a
particular geographic area. Smaller organizations often pay a
vendor to help develop salary ranges, whereas larger
organizations may have the HR resources to conduct the
research internally. Regardless, it is important to look at all
jobs and determine what work is done, how the job is slotted
and establish salary ranges that match all job descriptions.
3. Salary Audits
Markets change therefore it is important to perform routine
salary audits to ensure salary ranges reflect current
compensation trends in a particular industry. How competitive
are those particular jobs and what is the external market
demanding? Is it a growing or dying profession? Failing to
keep up with market competition can lead to loss of valuable
employees.
4. Benefit Package
Many organizations use benefit packages, in addition to
salary, to attract and retain employees. Their goal is to be
competitive with health, retirement, tuition reimbursement and
other benefits because they understand that it can be the
determining factor for a job candidate who is deciding whether
to accept a position with an organization, or an employee who
is considering leaving.
For instance, I know employees who have stayed with
organizations because the benefits were too good to walk
away from.
5. Performance Management System
It is important to have a structured performance management
process to ensure employees are meeting corporate
objectives and are assessed on a regular basis. This process
should include development of annual goals, annual
performance appraisals and a structured process for coaching
and mentoring employees. Compensation strategies can
positively influence employee engagement and improve
employee productivity.
6. Legal Compliance
A well-defined compensation strategy will incorporate legal
requirements to ensure the organization is in compliance with
all federal and state laws.
The goal is to eliminate natural biases made in hiring decisions
and ensure compliance with DOL FLSA laws such as minimum
wage, overtime pay or Lilly Ledbetter Fair Pay.
7. Structured Administration
As with any other business process, structure is important.
Developing an annual review process, salary audit, raise
process timeline and making sure someone is responsible to
ensure all areas are completed is critical to successful
compensation management.
Finally, a comprehensive compensation strategy can be the
foundation for creating an environment that recognizes and
rewards employee performance and helps to establish a
strong culture of employee engagement.
Organizations are only as successful as their approach to
hiring the right people, setting clear expectations, managing
performance and recognizing and rewarding employees for a
job well done.
C. INDUSTRIAL RELATION
Industrial relation is defined as relation of Individual or group of
employee and employer for engaging themselves in a way to
maximize the productive activities. In the words of Lester,
“Industrial relations involve attempts at arriving at solutions
between the conflicting objectives and values; between the
profit motive and social gain; between discipline and freedom,
between authority and industrial democracy; between
bargaining and co-operation; and between conflicting interests
of the individual, the group and the community.
IMPORTANCE OF INDUSTRIAL RELATION
Uninterrupted production
The most important benefit of industrial relations is that this
ensures continuity of production. This means, continuous
employment for all employees who contribute to production
process, i.e.., from chief executive officer to floor workers to
pantry boy. The resources including row materials and time
are fully utilized, resulting in the maximum possible production.
Reduction in Industrial Disputes
Good industrial relations reduce the industrial disputes.
Disputes are reflections of the failure of basic human urges or
motivations to secure adequate satisfaction or expression
which are fully cured by good industrial relations.
High morale
Good industrial relations improve the morale of the employees.
Employees work with great zeal with the feeling in mind that
the interest of employer and employees is one and the same,
i.e. to increase production. Every worker feels that he is a co-
owner of the gains of industry. The employer in his turn must
realize that the gains of industry are not for him along, but they
should be shared equally and generously with his workers.
Mental Revolution
One of the main objects of industrial relation is a complete
mental revolution of workers and employees. Both should think
themselves as partners of the industry and the role of workers
in such a partnership should be recognized. On the other
hand, workers must recognize employer’s authority.
Reduced Wastage
Good industrial relations are maintained on the basis of
cooperation and recognition of each other. It will help increase
production. Wastages of man, material and machines are
reduced to the minimum and thus national interest is
protected.
VIEWS OF INDUSTRIAL RELATION approach where it demands loyalty of all employees.
Trade unions are deemed as unnecessary and conflict
is perceived as disruptive.
MARXIST PERSPECTIVE OF INDUSTRIAL RELATION

 This view of industrial relations is a by-product of a PLURALISTIC-PERSPECTIVE

theory of capitalist society and social change. Marxists
 In pluralism the organization is perceived as being
argue that industrial relation is a relation of clashes of
made up of powerful and divergent sub-groups –
class interest between capital and labour. Employer
management and trade unions. This approach sees
(capital) tries to maximize profit by holding surplus
conflicts of interest and disagreements between
value and underpaying workers remuneration. Workers
managers and workers over the distribution of profits
clash for his share in the outcome of wealth because
as normal and inescapable. Consequently, the role of
he is the human means of production, so the most
management would lean less towards enforcing and
important factor of production. Industrial relation is a
controlling and more toward persuasion and co-
continuous process of clash of interest between
ordination. Trade unions are deemed as legitimate
capitalist and labour. This clash will finish in the
representatives of employees. Conflict is dealt by
socialist society only, where capital is controlled by
collective bargaining and is viewed not necessarily as a
labour class.
bad thing and if managed could in fact be channeled
towards evolution and positive change.
UNITARY PERSPECTIVE OF INDUSTRIAL RELATIONS
TRADE UNIONS
 Unitary Perspective of Industrial Relations views the
A trade union is an organization of employees formed on a
industrial organization as an entity unified by one aim,
continuous basis for the purpose of securing diverse range of
and that is success. In unitarism, the organization is
benefits. It is a continuous association of wage earners for the
perceived as an integrated and harmonious system,
purpose of maintaining and improving the conditions of their
viewed as one happy family. A core assumption of working lives.
unitary approach is that management and staff, and all The Trade Union Act 1926 defines a trade union as a
members of the organization share the same combination, whether temporary or permanent, formed
objectives, interests and purposes; thus, working primarily for the purpose of regulating the relations between
together, hand-in-hand, towards the shared mutual workmen and employers or between workmen and workmen,
goals. Furthermore, Unitarianism has a paternalistic or between employers and employers, or for imposing
restrictive condition on the conduct of any trade or business,
and includes any federation of two or more trade unions.
COLLECTIVE BARGAINING
Collective Bargaining is the “negotiation of wages and other
conditions of employment by an organized body of employees”
Collective bargaining is process of joint decision making and
basically represents a democratic way of life in industry. It is
the process of negotiation between firm’s and workers’
representatives for the purpose of establishing mutually
agreeable conditions of employment. It is a technique adopted
by two parties to reach an understanding acceptable to both
through the process of discussion and negotiation.
The collective bargaining process comprises of five core steps:
Prepare: This phase involves composition of a negotiation
team. The negotiation team should consist of representatives
of both the parties with adequate knowledge and skills for
negotiation. In this phase both the employer’s representatives
and the union examine their own situation in order to develop
the issues that they believe will be most important.
Discuss: Here, the parties decide the ground rules that will
guide the negotiations. A process well begun is half done and
this is no less true in case of collective bargaining. An
environment of mutual trust and understanding is also created
so that the collective bargaining agreement would be reached.
Propose: This phase involves the initial opening statements
and the possible options that exist to resolve them. In a word,
this phase could be described as ‘brainstorming’. The
exchange of messages takes place and opinion of both the
parties is sought.
Bargain: negotiations are easy if a problem-solving attitude is
adopted. This stage comprises the time when ‘what ifs’ and
‘supposes’ are set forth and the drafting of agreements take
place
Settlement: Once the parties are through with the bargaining
process, a consensual agreement is reached upon wherein
both the parties agree to a common decision regarding the
problem or the issue. This stage is described as consisting of
effective joint implementation of the agreement through shared
visions, strategic planning and negotiated change.
Levels of Collective Bargaining
Economy-wide (national) bargaining is a bipartite or tripartite
form of negotiation between union confederations, central
employer associations and government agencies. It aims at
providing a floor for lower-level bargaining on the terms of
employment, often taking into account macroeconomic goals.
Sectoral bargaining, which aims at the standardization of the
terms of employment in one industry, includes a range of
bargaining patterns.
Bargaining may be either broadly or narrowly defined in terms
of the industrial activities covered and may be either split up
according to territorial sub units or conducted nationally.
The third bargaining level involves the company and/or
establishment. As a supplementary type of bargaining, it
emphasizes the point that bargaining levels need not be
mutually exclusive.
Financial Policy-Allocating Capital
Types of Collective Bargaining
A.) Regulating Fixed Assets Investments
Integrative bargaining:
This involves negotiation of an issue on which both the parties Fixed Assets
may gain, or at least neither party loses. For example,
–It is an asset that is not consumed or sold during the
representatives of employer and employee sides may bargain
normal course of business, such as land, buildings,
over the better training program or a better job evaluation equipment, machinery, vehicles, leasehold improvements,
method. Here, both the parties are trying to make more of and other such items.
something. In general, it tends to be more cooperative than
distributive bargaining. This type of bargaining is also known
as cooperative bargaining. Fixed Assets Investment
Attitudinal restructuring:
This involves shaping and reshaping some attitudes like trust - is a measure of capital spending. It refers to any
or distrust, friendliness or hostility between labor and investment within the measurement period in physical
management. When there is a backlog of bitterness between assets, such as real estate infrastructure, machinery, etc.
both the parties, attitudinal restructuring is required to maintain that are held for more than one year. FAI can be a good
indicator for how much investment is occurring in a country
smooth and harmonious industrial relations. It develops a
or region.
bargaining environment and creates trust and cooperation
among the parties.
Intra-organizational bargaining:
Long-Term Outlook of Investment in fixed assets
It generally aims at resolving internal conflicts. This is a type of
maneuvering to achieve consensus with the workers and It is an investment extending over a long time.
management. Even within the union, there may be differences
between groups. For example, skilled workers may feel that
they are neglected, or women workers may feel that their Minimum Rate of return of investment in fixed assets
interests are not looked after properly. Within the management
A rate of return is the gain or loss of an investment over a
also, there may be differences. Trade unions maneuver to
specified time period, expressed as a percentage of the
achieve consensus among the conflicting groups.
investment’s cost. Gains on investments are defined as
 income received plus any capital gains realized on the sale
of the investment.
Capital budgeting in regulating fixed assets
investment
- It is a technique which is widely utilized to screen various
investment proposals.
- the screening of a proposal calls for the identification of
alternatives, feasibility studies, cash flow forecasts,
assessments of economic worth together with the degree
of risk involved, and expected rate of return.
Effective investment criteria should have the following
features:
1. It should clearly screen the projects which are to be
accepted or dropped;
2. It should provide a logical base for the ranking of
projects in the order of their priority;
3. It should furnish a scientific basis for choice from among
alternatives.
The important technique of screening investment
proposals includes the following:
- Payback method;
- Accounting rate of return;
- Net present value method;
- Internal rate of return;
- Profitability index.
B.) Policy in Restraining Current Asset.
Current Asset - An asset such as receivables,
inventory, work in process, or cash, that is constantly
flowing in and out of an organization in the normal
course of its business, as cash is converted into goods
and then back into cash.
Restrictive Short-term Financial Policy- A restrictive
short-term financial policy means a high proportion of
short-term debt relative to long-term financing.
Restrictive short-term financial policies regarding
current asset management include three basic
actions:
- Keep low cash and securities balances.
- Keep low levels of inventory.
- Strict credit policies or no credit sales.
C.) CALCULATION OF PROFIT D.) DISTRIBUTION OF EARNINGS

PROFIT Distribution of earnings represents a portion of the profits a

Is a financial benefit that is realized when the amount
of revenue gained from a business activity exceeds the
expenses, cost and taxes needed to sustain the
activity.
FORMULA
PROFIT = TOTAL SALES – TOTAL COST
EXAMPLE:
For Instance,
Cost price of cupcakes = 10 pesos
company decides to give to its shareholders, while retained
earnings represent the portion of profits that a company
chooses to keep. Companies choose to share profits in the
form of dividends because it encourages shareholders to
continue investing in the company.
Distribution of earnings is commonly known as dividend
that refers to a reward, cash or otherwise, that a company
gives to its shareholders. A company's dividend is decided
by its board of directors and it requires the shareholders'
approval. However, it is not obligatory for a company to
pay dividend. Dividend is usually a part of the profit that the
company shares with its shareholders. It is the distribution
of current or accumulated earnings to the shareholders of
a corporation pro rata based on the number of shares
owned.

Selling price of cupcakes = 15 pesos Dividends represent a distribution of corporate earnings to

company shareholders and usually take place in one of
two forms -- cash or stock. Dividends are usually issued in
Profit= Php.15 –Php.10 cash. However, they may be issued in the form of stock or
property. The dividend on preferred shares is generally a
Profit= Php.5 fixed amount; however, on common shares the dividend
varies depending on such things as the earnings and
available cash of the corporation as well as future plans for
PERCENTAGE PROFIT the acquisition of property and equipment by the
corporation. Each organization's board of
Percentage profit = profit ÷ cost price × 100% directors determines the actual dividend amount that the
= Php 5 ÷ Php 10 × 100% firm will pay out. Most cash dividends are paid on a
quarterly basis. Meanwhile, stock dividends are generally
= 0.5 × 100% paid at infrequent intervals
Percentage profit = 50 %
 Debt Financing
Debt financing involves borrowing funds from creditors with the
stipulation of repaying the borrowed funds plus interest at a
specified future time. For the creditors the reward for providing
the debt financing is the interest on the amount lent to the
borrower.
Debt financing may be secured or unsecured. Secured debt
has collateral. Conversely, unsecured debt does not have
collateral and places the lender in a less secure position
relative to repayment in case of default.
Debt financing (loans) may be short term or long term in their
repayment schedules. Generally, short-term debt is used to
finance current activities such as operations while long-term
debt is used to finance assets such as buildings and
equipment.
Friends and Relatives
Founders of start-up businesses may look to private sources
such as family and friends when starting a business. This may
be in the form of debt capital at a low interest rate. However, if
you borrow from relatives or friends, it should be done with the
same formality as if it were borrowed from a commercial
lender. This means creating and executing a formal loan
document that includes the amount borrowed, the interest rate,
specific repayment terms (based on the projected cash flow of
the start-up business), and collateral in case of default.
Banks and Other Commercial Lenders
Banks and other commercial lenders are popular sources of
business financing. Most lenders require a solid business plan,
positive track record, and plenty of collateral. These are
usually hard to come by for a start- up business. Once the
business is underway and profit and loss statements, cash
flows budgets, and net worth statements are provided, the
company may be able to borrow additional funds.
Commercial Finance Companies
Commercialfinance companies may be considered when the
business is unable to secure financing from other commercial
sources. These companies may be more willing to rely on the
quality of the collateral to repay the loan than the track record
or profit projections of your business. If the business does not
have substantial personal assets or collateral, a commercial
finance company may not be the best place to secure
financing. Also, the cost of finance company money is usually
higher than other commercial lenders.
Government Programs
Federal, state, and local governments have programs
designed to assist the financing of new ventures and small
businesses. The assistance is often in the form of a
government guarantee of the repayment of a loan from a
conventional lender. The guarantee provides the lender
repayment assurance for a loan to a business that may have
limited assets available for collateral. The best known sources
are the Small Business Administration and the USDA Rural
Development programs.
Bonds
Bonds may be used to raise financing for a specific activity.
They are a special type of debt financing because the debt
instrument is issued by the company. Bonds are different from
other debt financing instruments because the company
specifies the interest rate and when the company will pay back
the principal (maturity date). Also, the company does not have
to make any payments on the principal (and may not make
any interest payments) until the specified maturity date. The
price paid for the bond at the time it is issued is called its face
value.
When a company issues a bond it guarantees to pay back the
principal (face value) plus interest. From a financing
perspective, issuing a bond offers the company the opportunity
to access financing without having to pay it back until it has
successfully applied the funds. The risk for the investor is that
the company will default or go bankrupt before the maturity
date. However, because bonds are a debt instrument, they are
ahead of equity holders for company assets.
Lease
A lease is a method of obtaining the use of assets for the
business without using debt or equity financing. It is a legal
agreement between two parties that specifies the terms and
conditions for the rental use of a tangible resource such as a
building and equipment. Lease payments are often due
annually. The agreement is usually between the company and
a leasing or financing organization and not directly between
the company and the organization providing the assets. When
the lease ends, the asset is returned to the owner, the lease is
renewed, or the asset is purchased.
A lease may have an advantage because it does not tie up
funds from purchasing an asset. It is often compared to
purchasing an asset with debt financing where the debt
repayment is spread over a period of years. However, lease
payments often come at the beginning of the year where debt
payments come at the end of the year. So, the business may
have more time to generate funds for debt payments, although
a down payment is usually required at the beginning of the
loan period.
SELECTING CAPITAL SOURCES
You’ve recently met with your management team, and have
decided to capitalize on recent success by moving forward on
a major expenditure. You’ll be building a new facility,
expanding a market, investing in an acquisition, or some other
growth strategy. Now you have to determine how to pay for it.
The good news: assuming you are profitable and/or have a
great business plan, there exists a supply of firms looking to
provide debt or equity capital to companies like yours. How
can you focus your search for that new financial partner?
Let’s start with your commercial banker. Approximately 70% of
small and mid-size businesses turn to their commercial banker
for funding. Good idea? Sometimes. The bank can certainly
offer competitive interest costs, but they usually come with
restrictive terms. They also may not be able to offer all the
capital that you need. A good start, but probably not a
complete package.
An independent investment banker will suggest that you turn
to what you might consider “non-traditional” sources of
financing. These can include sources of both equity and debt,
and are almost always funded by private investors. Don’t be
alarmed — in most cases, these are sophisticated sources of
capital that are looking to make investments in good
companies like yours. They’re an extension of the banking
market, and can provide far more than your hometown banker.
 How do you make sense of the options? Here are the initial represents a minority stake in your business, you must
considerations that we consider when selecting potential confine your search for equity to firms that prefer minority,
sources of capital for our clients. non-control investments.

 Culture: Finally, the cultural fit between your company and

 Structure: Are you looking for debt or equity? Often, investors
specialize in one or the other, and some investors offer both.
How you’re willing to structure your financing will play a
central role in whom you approach. Debt has the advantage
of avoiding dilution of your ownership stake (and those of your
existing equity investors), but comes with principal payments
and interest expense. Remember that your ability to attract a
debt investor depends on your ability to pay interest and
principal.
 Price: Of course, minimizing the cost of capital is a top
concern. Costs of debt are apparent: interest and fees are
plainly disclosed in term sheets. But remember that required
principal payments can restrict your pool of capital, and if your
growth plan requires more money than is available after debt
service, the debt could result in an opportunity cost if it’s
restricting your growth. The cost of equity is a bit more
complicated and depends, in part, on how much in future
profit you’ll give up to the new investors.
the capital source is of utmost importance. While often
overlooked, this aspect of your financial relationship can
significantly affect your ability to execute your growth strategy.
Will the financial partner require significant oversight and/or
reporting, or only periodic phone calls? Is the intensity of the
potential relationship appropriate for you and your
colleagues? Do you anticipate a collegial relationship, or an
adversarial one? All these aspects should be considered.
Mid-market business owners sometimes overlook the
importance and complexity of selecting a capital source. It is at
least as important as choosing your business partners, and
critical to the execution of your growth strategy.

 Focus: An investor’s expertise in your industry is important,

especially if you plan to maximize the relationship by using the
firm’s expertise in executing your business plan. We have
seen investors provide operational expertise, knowledge of
financial controls, and new sales opportunities. The value of
your new capital can be enhanced by these non-financial
benefits.
 Control: Many capital sources follow the strategy of only
investing in companies in which they can take a controlling
interest. If your strategy is to seek an amount of capital that