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Global Sourcing

This document discusses several topics related to global management: 1. The benefits and strategies of global sourcing, including accessing cheaper resources and suppliers internationally. 2. The competencies required of global managers, such as cultural awareness, understanding regional differences, and knowledge of why companies pursue global opportunities. 3. Reasons for and risks of joint ventures when expanding globally, as well as criteria for choosing joint venture partners. 4. Issues that companies face when doing business globally, including political and legal risks, trade barriers, and cultural challenges. 5. Debates around the pros and cons of globalization for both host and home countries.
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0% found this document useful (0 votes)
73 views35 pages

Global Sourcing

This document discusses several topics related to global management: 1. The benefits and strategies of global sourcing, including accessing cheaper resources and suppliers internationally. 2. The competencies required of global managers, such as cultural awareness, understanding regional differences, and knowledge of why companies pursue global opportunities. 3. Reasons for and risks of joint ventures when expanding globally, as well as criteria for choosing joint venture partners. 4. Issues that companies face when doing business globally, including political and legal risks, trade barriers, and cultural challenges. 5. Debates around the pros and cons of globalization for both host and home countries.
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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M-360

Reference: General Management by Hellrigle

Date: August 6, 2010

Global sourcing:
1. Good supplier at lesser cost
2. Going across globe for resources
3. BPO = 1/3rd cost in India

Competencies of a Global Manager:


1. Informed of international developments
a. Competition
b. Opportunities
2. Ability to work with people from different cultures
a. Adjust with culture
3. Aware of regional differences
a. Greeting women in western culture is different from woman from the gulf
4. Why companies go global
a. Profits – opportunities
b. Customers – larger base
c. Suppliers – cheaper, give more credit
d. Capital – investors from abroad
e. Labor – cheap
5. Market entry strategy
a. Global sourcing
b. Exporting & importing
c. Franchising
6. Direct investment strategy
a. Joint ventures
7. Global Sourcing
a. BPO & Automotive

 China is the biggest global sourcing destination.


 Advantage of global sourcing is reduced cost
 Exporting – finding new markets

Why Joint Venture? (PURPOSE)


 Share expertise and knowledge
 Technical knowhow required from partner
 Mutual benefit
 Forced circumstances for JV:
o Loss
o Legality may not allow you to have your own company
o Example: Life Insurance companies in INDIA

Risk of JV
1. Profits are shared
2. Decisions are dependent
3. Copy of technology and take over
4. Start new separate side company with technology copy of the partner company
5. GM in China
a. Legal requirement for automotive
b. JV with GM – 5 years
c. Process, systems, designed, technology, expertise copied from GM – made
another JV within China – poured investment and made another person to control
to cover his tracks

Criteria for choosing a JV


1. Familiar with your firm’s business
2. Value its customers
3. Performance shown in own company
4. Past track record, profits in its past, good financial standing
5. Large customer base
6. JV partner may not agree to share of the partnership agreement.
7. Has potential for future expansion
8. Strong local markets for its own products
9. Has good profit potential

What are foreign Subsidiaries?


1. Subsidiary: part of the main company
2. Company goes abroad; it does not give its own brand name, starts a sub unit of its
company under a different name. Eg: HSBC = HDPI in India
a. In case outsourcing wing of HSBC is not working well, then brand image of
mother brand will fall
b. Government gives subsidies (tax breaks) for companies who go into foreign lands
and start up subsidiary
3. DST: Direct Sales Team. DSA: Direct Sales Associate. Outsourcing of sales from
Parent company to external agency for a commission

Disadvantage of Subsidiary
 Financial risk: entire investment made by main company

Problems in Global Business
1. Meeting demands of foreign stakeholders
a. Without knowing taste, liking, etc. problem to meet demand
b. Stakeholders systems
2. Differences in legal, political systems
a. Government interference
3. Political risks
a. Terrorism
b. Civil wars
c. Military disruptions
d. Shifting political systems
e. New laws and economic policies
4. Political risk analysis technique
a. Send person from your company to different country to do due diligence
b. no company does global business
c. study rules and regulations
d. study political environment
e. research environment
5. Legal Problems
a. Business ownership
b. Negotiating with foreign parties
c. Patents
d. Trademarks
i. Eg: anti-piracy laws etc.

Trade Agreements, Barriers


1. WTO
a. World Trade Organization
b. Promote trade and solve disputes among participating countries
c. Tariffs as a trade barrier
i. Taxes on imports
ii. Hence, Price of imported good increases
iii. Need to protect domestic produce; domestic goods prices very low due to
imported competition
d. Protectionism
i. Protecting domestic market against foreign investors

Regional Economic Alliances


1. NAFTA
a. North American Free Trade Agreement
b. US, Canada & Mexico
c. Promote free trade among the 3 countries
d. GE
i. Very sensitive to change in environment
ii. Within 3 weeks of NAFTA GE transferred entire business to Mexico
employing 30,000 Mexicans
2. EU – European Union
a. Prevent currency fluctuations
b. One currency
3. APEC
a. Asia Pacific Economic Cooperation
4. ASEAN
a. Association of south east Asian nations
5. SADC

 Nonprofit organizations as MNC’s – Red Cross, World Bank


 Transnational Corporation –
o borderless basis,
o spread across the globe,
o customer perceives you to be a local brand – Sony, Toyota
 Transactional Corporation – company adapts to the culture of the different region

Pro & Cons of Globalization


1. Host country benefits
a. Increased employment opportunity
b. Technology transfers
c. Into of new industries
i. New industry develops
ii. Eg: BPO industries
iii. Other companies start following
d. Development of local resources

2. Host country disadvantages


a. MNCs extract excess profits
i. Exploit local culture and profits
b. Domination of local economy
i. NASCOM – group of various software companies
ii. So powerful in host company that it begins to dominate it
c. Interference with local government
i. Powerful in host country and interfere with local government
d. No respect for local customs and laws
e. Hire most talented personnel
i. Local company will not attract best talent
ii. Best local talent is taken by foreign company
f. Don’t transfer advanced technologies
i. Eg: Coke has various factories around the world but their technologies are
closely guarded secrets

3. Home Country Issue (MNCs Home Country)


a. People resentment
i. Loss of jobs in home country
b. Opposition from government, community leader
c. Sending capital investments abroad
d. Corrupt practices abroad
i. Corrupt practices Act (CPA) – usually prevalent abroad like USA
ii. If one of my countries goes global and engages in corruption to expand
business then entire license to expand will be canceled for anywhere in the
world
4. Ethical Issues in global mgmt
a. Corruption
i. Foreign Corrupt Practices Act (FCPA)
1. From home country business setup abroad – bribing techniques
used to start business – unethical methods
2. Licenses canceled
b. Child Labor
i. Rugmark Foundation
ii. Anti – child labor eliminated
c. Sweat shops
5. Sustainable Development
a. Global warming, industrial pollution, hazardous waste disposal
b. Don’t hurt future generation
c. ISO 14000 Certification
i. ITC
ii. Given if it feels industry is not harming environment
6. Cultural Intelligence
a. Transactional Corporation
b. Ability to accept and adapt to new culture
c. Cultural training to expatriates
d. Culture shock
e. Ethnocentrism
i. Feeling of superior culture
f. Haier group as example in USA
i. Foot Prints culture in China succeeded
ii. Not succeeded in USA
g. McDonalds in India
7. Hofsted’s cultural dimensions
a. Power distance
i. Degree to which society accepts unequal distribution of power
ii. Age, designation
b. Individualism – collectivism
i. Whether u like to work individually or in a group
c. Uncertainty avoidance
i. Whether culture is risk taking or aversive
d. Time orientation – short term vs long term goals
i. Strategic goals or not
Project Globe (Global Leadership and Organizational Behavior Effectiveness)
1. Gender egalitarianism
2. Future orientation
a. Long term goals
3. In-group collectivism
4. Assertiveness
a. How firm am I am of my belief
5. Performance orientation
a. Not bothered on how many hours or working condition to achieve the goal
6. Humane orientation
a. I am more bothered about employees than the task.

Global Management Attitudes


1. Ethnocentric
a. Feeling of superior, first preference to my culture
2. Polycentric
a. Equal importance to both cultures
3. Geocentric
a. First preference to their culture and then my culture

Mintzberg’s Roles of a Manager (session 11 – 8/10/10)

 Entrepreneur
o Managing your own unit
 Disturbance Handler
o Conflicts
o Strikes
 Resource Allocator
o Distribute resource among team
o Time
 Negotiator
o Higher management
o MBO – Management by Objective
 Involvement of subordinates in setting objectives and performance targets
 Figurehead
o Role model
 Leader
o Motivation
 Liaison
o Link between various departments
o With both internal and external environments
 Monitor
o Employees performance
o External environment
 Disseminator
o Distribution of roles
 Spokesperson
o Representation

Some Important Terms


 Core Competency
o What I am really good at
o Use it to achieve competitive advantage
 Restructuring
o Changing structure of organization
o Cut number of levels with regard to cost reductions
 Empowerment & Self managed teams
o Empowering employees to take decisions
o Popularized by IBM
o Self managed teams – employees not monitored by managers
 Mechanistic( and organic structure
o Organic Structure - Give decision to lower management to take decisions
 Time saving
o Customer service industry – organic structure
o Mechanistic – opposite of organic structure
 Attraction-Selection-Attrition Framework
o ASA Framework
o Usually in managerial behavior while hiring he tries to recruit a person who is like
him
o Attrition says that usually if you recruit people who are in contrast to you it leads
to them leaving the company

Personality Traits of a Manager (session 12 – 8/11/10)


 Extraversion
o Manager is extrovert or introvert
 Negative affectivity
o Extremely low: in case of recession, a manager will not show the negativity of the
company to the employee to demoralize him.
o Manager affects employees
 Agreeableness
 Conscientious tradness
o Responsible
 Openness to experience
o Learn from experience
 Locus of control
o External & Internal Locus of Control
o External – result is dependent on external factors
o Internal – I as a manager I am determining the result
o Manager ideally should be high on internal locus of control: has to take care of
the outcome
 Self esteem
o Self respect
o Maslow’s Theory
 Needs for affiliation, achievement, power
o Need for affiliation: social need
o Achievement & power to grow powerful
 Emotional intelligence
o Emotional Quotient
 Mentoring Needs
o Communicate honestly and openly
o Take it as a learning opportunity
o Take time to know your mentee
 Political Skills required

Deming’s Principles for TQM

TQM:
For every function and process in an organization there is an emphasis on quality. Hence, it is
Total Quality Management.

 Constancy of purpose
o Everybody is constantly focused on quality
o Required to not affect the TQM chain
 Adopt new philosophy
o If any new technique to improve quality despite the price, adopt it
 Stop dependence on mass inspection
o Do minute inspection of each and every good produced
 End practice of awarding business on price tag alone
o To achieve TQM one should not customers based on price tag alone
 Forever improve system of production and service
 Develop modern methods of training on the job
o Despite formal training if the subordinate is not performing well, observe him and
use the feedback gained to help improve his skills
 Institute leadership
o Subordinate should come up and object bad quality
 Drive out fear
 Break down barriers between staff areas
o Interaction between departments
 Eliminate slogans, exhortations, Targets for workforce
o Implementation required
 Eliminate numerical quotas
 Remove barriers to pride of workmanship
o If someone is doing a good job applaud him & award him
 Institute a vigorous program of education and Training
 Take action to accomplish transformation

Job Description:
On what parameters you will be rated in the organization. A detailed description will be given
for the job.
Example: Sales Manager
b. Cost of Acquiring a customer
c. Attrition Rate
d. FOS

Operatives:
Anybody in the non-management profile is an operative.

History of Management
 Adam Smith – Division of Labor
 Gantt – Incentives for doing work in less time; bonus for supervisors
 Robert Owen’s theory of HR
o No child labor
o Less working hours
o Good working conditions
o Company furnished told and equipment
o Business involvement in community projects (CSR)
 Hugo Munsterberg
o Psychology tests for selection (Bernard’s Theory)
o Learning in training
o Study of human behavior for motivation
 Mark Follet
o Manager should have Team behavior

Carnegie’s Theory
 Make others feel important by appreciating their efforts
o Self esteem need satisfied
 Make a good first impression
o As a manager do not de-motivate the sub immediately in the beginning
 Let others do the talking, be sympathetic, “never tell a man he is wrong”
 Change people by praising good traits and give offender opportunity
 Quantitative approach – operational research
o Developed in world war II
o Used as a tool for decision making
o Example: Cost benefit analysis
 For every choice you have you associate the cost
 Gives optimum decision but not always the best decision
 Systems Approach
o Organizations as “Open System”
o Process approach

Parochialism View – narrow focus; one sees things from their own view
CK Prahlad’s (Bottom of the Pyramid) BOP Theory

high
est
seg
me
nt
medium segment

lowest segment, poor class, avg


income Rs. 3000 or less.

Guidelines for Acting Ethically


 Know your organization’s policy on ethics
 Understand the ethics policy
 Think before you act
 Seek opinions from others
 Do what “you” believe is truly right
Example:
Recently 3-4 days ago a worldwide CEO of HP lost his job for using $6000.00 by taking out a
lady for dinner and debited the company expense account for business.

Session 14
Quiz Solutions
 Market Research = “evidence based management”
 Attrition = efficiency drops, cost incurred for recruiting
 Whistle Blower = frauds revealing to higher authority
 Fayol’s theory centralization = should the manager consult the employees in the team and
to what extent.
Some Failures in Professional Ethics
 For manufacturing and materials management
o Releasing product that are not of consistent quality
 Loose trust of customer
 Shows inconsistency in quality
o Producing batches of the product that are dangerous and can harm customers
 Public will sue
 Huge penalty
o Compromising workplace health and safety reduce costs
 Theory: Sweat shop concept
 Poor working conditions
 For sales and marketing managers
o Making unsubstantiated product claims
 Example: Mutual Funds & Unit Linked Investment Plan (ULIP)
 ULIP: insurance and investment in the stock market
 Agent: sir you will get 35% return (but getting this after deduction of
insurance expense which is not mentioned to the customer)
o Unethical advertising
 Get fair in one week, unethical
 For accounting and finance managers
o “cooking the books”
 Scam
 Fraud
o Authorizing excessive expenses and perks to managers, customers, suppliers
 Managers: Wrongly charging the company and getting personal gain out
of the company
 Customers: charged
o Hiding level and amount of top management compensation
 Concept: Corporate Governance
 When company is suffering, level of compensation should be reduced
relatively to top management also
 Shareholders can stop this
 For HR managers
o Failing to act fairly
 Theory: Fayol’s Equity principle
 Not treating all employees equally
 Salary
o Excessive encroaching on employee privacy
 Crossing the boundaries
 Asking personal questions
 Checking employee mails for new job offers etc.
o Failing to respond to employee concerns

Green Management (ISO 14000)


 TTD uses solar steam cooking system
 MRF has launched new tubeless eco-friendly rubber which reduces rolling resistance and
results in lower fuel consumption
 Bajaj Auto has installed wind power generation units

Entrepreneurship
 Risk of time and money
 Innovation and growth
o To gain competitive advantage constantly
 Identifying opportunities and possible competitive advantage
o Analysis: SWOT
 Look at competition and financing options
 Establish goals, marketing plan, operations, IT, financial accounting systems
 Intrapreneurs
o Companies encourage its talented employees to setup a business
o Company will also have a stake in the setup business
o NIIT was setup by a group of employees working for HCL upon encouragement

Balance work Life


 Personal conflicts and stress
 Working in nights-health issues
 IT – work anytime from any place

Contingency Work Force*


 Part time employees (staffing for peak hours, Job sharing)
 Contract workers
o Contract to hire

Advantages of Contingency Work Force


 Flexibility (example: job cuts when revenues are less)
 Staffing shortages
 Recruiting person with specific skill for particular project
 Advantage for the worker too
o Using this experience he can get a better job
o Chance for becoming permanent employee
 How does manager manage a contingent worker?
o Extrovert behavior needs to be shown
o More motivation required
o Different behavior aspects

Customer Service
 Why?
o Because customer has “many” choices
o Important in both product and service
o Repeat purchase
 “demanding” customer
 Customer – responsive culture, continuous quality improvement
 Example: Amex
o Benchmark for quality in service organizations
o If credit card lost, replaced within 2 hours to the door delivery
 Training – Satisfying – Revenue Generation

Variables Shaping Customer – Responsive Culture


 Employee himself
o Employee needs to be soft-spoken
 Freedom to employees
o Decision taken by employee to serve customer faster
 Good listening skills
 Multi-skilled workers
o Multi-tasking
o Reduce cost by having them
 Rewards
o For employee
o Motivated
 Leader as a role-model

Session 15
Franchiser & Franchisee

Franchiser Perspective
 Royalty to Franchiser – upfront commission
 Market expansion
 No investment
 Franchisee agrees to pay percentage of profits to franchiser

Franchisee Perspective
 Initial entire investment
 Royalty paid regardless of profit or loss
Session 18 - (August 21, 2010)
 Johari Window
o Analyze strengths and weaknesses
o HR technique helping manager to analyze his own performance
o Take inputs from others to improve his own performance
 Intellectual Capital
 Portfolio worker (flexible – full time/part time etc; careers too)
o Shamrock theory
o Able to adapt quickly to different types of works
o Multi-skilled employees
 Productivity
o Effectiveness + Efficiency
 Upside Down pyramid concept
o Lower level management is most important management function than top
management

Level m
o w e r Level
LLower gm t
mgmt
mtt
m
m
mgmtgggm t
M id d m
Middle le le
m vel
level
l
vve e
le
le
p
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TTo o
Elements of Organization Culture
 Heroes
o Top performers examples given to employees to motivate
o Cite performance of hero in the organization
 Ceremonies, rites, rituals
o Inculcating culture of being top performer
o Rewards in open forum
 Legends, stories
o Past successes of people

Multicultural Organization*
Has respect for diversity.
Characteristics:
1. Pluralism:
a. Minority, Majority involved taking decisions in all 3 levels
2. Structural integration:
a. Minority culture people present at all levels
b. I should have minority people in all 3 levels
3. Informal network integration:
a. Mentoring & support groups assist in career development of minority members
4. Absence of discrimination
5. Minimum intergroup conflict

Bi-culturalism
Minority tries to adopt the majority culture
Decision Making Process (UNIT 2)
Why decision making for manager?
 Self Confidence and decision making
o As a manager your job is to take decisions day to day
o A person who is confident enough can take a decision otherwise he is error prone
 Information in decision making
o MIS
 Tough Decisions
o Unstructured decision
o Information is not available in MIS
o Entire information not available to take a decision
 Crisis conditions and decision making
o Risk, certainty (structured decision) and uncertainty
o Risk decision
 There are multiple outcomes
 Probability of each outcome is available based on past data
 Statistically probability can be determined
o Uncertainty decision
 Don’t know the probability of the outcome
 Don’t know what are the chances of failure or success
 Statistically probability not determined
 Unstructured decision
 Crisis condition
 Data vs. Information
 Useful information criteria
o Timely
o High quality (accuracy and reliability)
o Complete (current and up to date)
o Relevant
 Getting a “BUY IN” before implementing a decision
o MBO – Management By Objective
 Everybody involved (top, middle and lower managements)
 Inputs taken from lower management
o Getting acceptance from people who are working for you
 Need to heck if the “environment” has changed during implementation
o External environment conditions; environment maybe dynamic
o Decisions may go wrong is external environment does not support you
 How to gather information
o Sales person goes to field, gets to know competition and customer
o Evidence based management
o Annual reports of the other companies
o Legal advisers in companies to keep you up to date about legalities
 Communicating information to stakeholders
o Shareholder meetings
 MIS
o Performance decision of each individual
o Taking proper action
 Situation in which decision is vital

Rationality & Bounded Rationality of Decision Making

 Any decision taken based on rational model is called rational decision making
 Bounded rationality
o I have information with me through MIS but I am restricting number of
alternatives while taking the decision
o Just satisfying and not maximizing
o Cost benefit analysis is an example
o Intuition Model
 HP – COMPAQ acquisition is an example of rationality failure\
o Fiona headed the acquisition
o Acquisition was not supported by enough data
o Without validating the structure of Compaq, culture, etc.
o Not used any information for taking a decision
 Intuition
o Opposite of rational decision
o Uncertain decisions
o They succeed when the person has expertise in the respective domain area
o Data may not always support
o May not have past data
o Manager
 Based on past experience
 Understanding capabilities
 Structured Decision
o Refer to SOP for such decisions
o Manager should refer to SOP
 Structured Problems:
o Structured problems are those problems that occur on regular basis
o Solution for structured program is programmed decision
o SOP – Standard Operating Procedure - is the solution for structured problems;
programmed decisions; example is salary hike of employees
 Un-structured Problems:
o Does not occur on a regular basis
o Past data is not available
o Risk model can be used for solution
o Uncertainty model for intuition based on domain expertise and past experience

HRO – Highly Reliable Organizations


 Not tricked by their success
 Defer to experts on front line
o Lower level management (interacting with customers)
o Organic structure: giving decision making capabilities given to lower
management
 Embrace complexity
o Satisfactory & Best decision
o Managers don’t work on satisfying decision but they work only best decision
o All possible alternatives are checked before taking the right decision
 Anticipate their limits
 Role of IT
o Implementation of SAP
o Supply information
 Outside information
 Types of managers
o Problem Avoiders
 Defer decision making till the last minute
o Problem Solvers
 Solve problem in logical way
 Solve based on information available to them in a rational way
o Problem Seekers
 Anticipate the problem
 Pro-active
 Predict problem from before hand
 Example: GE was able to predict recession before it came hence they
started lending less 2 years before recession started.
Session 19
Risk & Information
 Market Testing:
o Probabilities secured
o Test product on market
o Success or failure

Criteria for Deciding Alternatives


 Legality
 Ethicalness
 Economic feasibility
 Practicality
 Decision making process
o Get all problems
o Find all possible alternatives
o Attach probability to problems
o Based on this take decision
 Cost benefit analysis in evaluation of alternatives
 Criteria for alternatives
o Cost, benefit, timeliness, acceptability, ethics
o Time based on environment
 Convenient alternatives vs. Best
o Convenient alternative
 The first alternative which solves your problem rather than checking all
alternatives gives satisfying alternative
o Best Alternative
 Checking all possible alternatives to get best alternative
 Consultation and involvement to decrease error
o Lack of participation error
o Manager being the decider can make an error in the decision
o Solution to avoid this error is MBO
 Escalating commitment error
o Continuance even during failure
 Although the decision is in progress, someone has pointed out the error in
the decision but still the decision is not being altered
 NASA “Challenger” as an example

Group Decision Making Techniques


 Brain Storming
o Everybody involved with decision making comes together for a common meeting
o Each manager puts forward his own alternatives or suggestions for decision
making
o Based on a group discussion the alternative is chosen
o Involves only those departments on which the decision affects, does not involve
everybody
 DELPHI technique
o When people involved in decision making are spread across different regions,
DELPHI technique of decision making is used
o A questionnaire is sent to each manager listing all the problems
o Manager replies back with his suggestions
o This process goes on till a final conclusion is reached
o Disadvantage is it is time consuming

How to avoid escalation error?


 Set advance limits
 Make your own decision
 Assess “WHY “continue?
 Be “COST” conscious

Individual vs. Group Decision Making

Group Decision
More information and expertise
Expand number of alternatives
Avoid tunnel vision
Increased understanding by members
Increased acceptance and commitment by
team
Avoidance of “Biases”

Errors in Decision Making


 Availability Bias
o They go with the most recent performance of the team member and forget the past
performance
 Representation Bias
o Similar – to – me effect
o Salience Effect
 More focus to minority group
 Example of good performers in an organization
 Anchoring Bias
o I am committing an error with reference to a starting point
o Salary level
 Framing Error
o Optimist or pessimist
o Market share
 Confirmation Error
o When a manager makes an unethical decision, he tries to rationalize the error by
justifying it
 Escalating Commitment
o Continuance with the wrong option
Session 21

FUNDAMENTALs OF PLANNING

 Demand vs. Supply


o Planning Failure?
o Everything revolves around demand and supply in planning
 Walmart as a Benchmark
o MIS details send to supplier regarding demand and supply
o Complicated systems to ensure demand and supply always stocked
 Formal planning
o Written goal + Time period + How to achieve
 Formal plans are documented not orally told
 They are part of a manual
 MBO – Mgmt by Objective
 Purpose it to make the control function easier; measure the performance of
the employee; performance appraisal
 Written outcomes makes performance control easier
 Goals are shared with other members; people who are involved whom the decision
affects directly

Why Managers Plan


 Provides direction
o What methodology required
o To work for the goal
o Planning gives direction
 Reduces Uncertainty
o Gather past data
o Attach probability to all data
o Decision based on probability
o If proper plan then uncertainty reduced
 Minimizes waste and redundancy
o Wastage of time due to multiple people doing same work
o In plans you specify who is supposed to do what
 Establishes standards used in controlling
 Getting managers to participate in decision making
o All managers of various departments should be involved in decision making
o MBO
 Coordinate managers of different departments
o CISCO as an example
o Takes all managers across all functions
o Managers can give their own inputs
Failures of Planning
 External environment
o Even best plans fail
 Multiple goals (not profit alone)
o Employee benefit goals
o Goals for Corporate Social Responsibility CSR
o Goals for achieving/adapting new technology to increase efficiency
o Goals of keeping the cost under a pre-determined level of control
 A good Plan
o Make a decision before events force them upon you
o Problem seeker managers
 Anticipate the problem at hand
 Look for solution before problem
 Shell as example anticipates well in advance = if oil runs out where should
I acquire it from

Characteristics of Planning
 Alternative Planning
o Benefits of each alternative
o Determine benefit as per the cost
 What affects a plan
o Government regulation
o Global economy
o Technology
 Good plan has focus
o Example customer needs
 Market research
 Good plan is Flexible
 Planning avoids complacency
 Planning improves coordination and control
o Between departments
o Improve the control
 Long range plans
o 3+ years into the future
o Top management involved
 Short range plans
o 1 year or less
o Middle management involved
 Strategic plans
o Vision
o Vision statement is a long term goal
 Operational Plans
o Short term activities to implement strategic plans
o Lower Level
 Specific vs. Directional Plans
o Specific plans contain numeric data
o Directional plans are plans without numeric data
 Single use vs. Standing Plans (SOP)
o Standing plans are for structured types of problems
o Single use plans are for unstructured problems which do not occur on a recurring
basis
 Traditional Goal Setting
o Top level as per vision of company sets a plan
o The same is communicated to middle management
o And lower management executes the plan
o Disadvantage:
 There is no proper communication from lower management
 Top management does not know the ground reality based on external
environments
 Lower & middle management is not involved in decision making
 This becomes a disadvantage because the lower management actually
knows the ground realities and is the point of contact with various stake
holders like customers, suppliers, etc.
o To avoid this disadvantage we go for MBO method of decision making

Session 22
MBO PROCESS
 Overall objectives and strategies are formulated
 Objectives are allocated among divisions
 Unit managers collaboratively set specific objectives for their units with their managers
 Specific objectives are collaboratively set with all department members
 Action plans are specified and agreed upon by managers and employees*
 Action plans are implemented
 Periodic review and feedback
 Performance based rewards
 Procedures (SOP)
 Budget-Plan for resource allocation
 Continuous review planning
o Means the plan is reviewed at predetermined time intervals
o Indirect way of keeping pressure on employee
o Control function
 Zero based budgeting
o Previous year’s budget for allocation of resources is not considered while making
the budget for the current year during the budgeting process
o Why?
 Because environment is dynamic
 Decision may go wrong by considering previous year’s environment

Planning Tools and Techniques


 Forecasting
o Qualitative and Quantitative
 Quantitative is based on past mathematical data the future is predicted
 Regression/extrapolation model of forecasting involves a mathematical
relation/equation; try to find a trend
 Qualitative means it does not involve data, it involves opinions
o Disadvantage:
 Quantitative data is dependent on data
 Qualitative may not always be right, opinions are only opinions
 Scenario planning
o Estimating all possible outcomes and making decisions well in advance
o Example of Shell
 Benchmarking
o Comparing with external competitors
o To understand best practices of my competitor
o Implement after understanding
o Advantage:
 R&D cost need not be incurred
 Since simply replicating the best practices in organization
 Second follower/mover strategy

Staff Planners
 Staff planners are specialist whose only job is to study the environment internally and
externally and suggest best possible plan/strategy to top management
 Taylors principle of Division of Labor
 Disadvantage
o Staff planner is assisting top management to form the plan
o He does not interact with lower management
o He does not know the ground reality
 Staff planner should have proper interaction with line manager and middle management
in order for his strategy to work

Implementing Plans to Achieve Results


 Good Goals for MBO process to succeed are:
o Written outcomes
 Manager documents his goals at the beginning (goal sheet)
 This is the SOP for review
 Based on these goals the manager will review the performance of the
employee
 Most organizations follow this
o Specific
 Have numerical data
o Time frame
 Formal goals
 Time period for achieving goals
o Measurable
 Taylor’s Theory
 Whatever should be managed should be measured
o Challenging but attainable
 Good goal should be attainable
 Should not be far fetched
 If not attainable employee will directly be de-motivated
o Communicated to all
 All those departments affected by decision making process

Performance Objective in MBO


 Improvement objective
o Refers to improvement in performance of manager with reference to his previous
achievement or previous role
 Personal development objective
o Not an organizational objective
o Does not affect organization as a whole
o Manager needs to develop
 Maintenance objective
o Are optional objectives in MBO
o You don’t expect growth
o Environment not conducive to growth

Disadvantages of MBO
 Tying MBO to pay
o Why?
 Employee should not be paid incentives for every performance
 Should be paid only if he goes beyond set targets
 Focusing too much attention on easy objectives
 Excess paper work
 Supervisors simply “TELL” subordinates
 Not effective in dynamic environment change

Advantages of MBO
 Focuses working on most important tasks
 Focuses supervisors on areas of support
 Relationship building
 Giving people an opportunity to “participate”
Disadvantages of Planning Process (Criticisms)
 Creates rigidity
o In dynamic environment you have to keep changing plans to keep up with
competition
 Plans can’t replace intuition/creativity
 Focuses attention today’s competition, not on tomorrow’s survival (entering new
industries)
 Formal planning may reinforce success, which may lead to failure

Session 23
STRATEGIC MANAGEMENT
 Strategy
o Sole purpose to get “sustainable competitive advantage”
 WALMART
o Cut costs to deliver low cost and high quality customer service
o Uses latest techniques (buying trends) and SCM
 Need competitive advantage to stay ahead
 DELL
o Eliminates wholesale markups
o No wholesalers
 Get and stay ahead with strategy
 Competitive advantage
o A “must” to stay ahead
 Dabbawala
o Barrier to entry
o Not everybody can operate on such thin profit margins
 Sustainable competitive advantage can be achieved through strategy
 Strategy is in lines with the mission statement and vision statement of the organization
 COCA COLA
o “to put coke within arm’s reach of every consumer in the world”
o Distribution network so strong that it is accessed by everybody
 PEPSICO
o “to be the world’s premier consumer products company focused on convenient
food and beverages”
o Focuses on both beverages and food products

Levels of Strategy
 Corporate Level
o “in what industries and markets should we compete”
o Whether to sell off a business, merger and acquisition
o Example: JC Penny
 Expanded pharmaceuticals business
 Sold credit card business
o Conglomerate is a group having multiple businesses
 Each business of the conglomerate is called Strategic Business Unit (SBU)
 Example: Tata Group
 Business Level Strategy refers to strategy adopted for each and every SBU
 Functional Level Strategy
o Refers to strategy adopted by the various departments of the SBU
o Marketing, Finance, HR, etc.

Corporate Level Strategy


Whether to enter or exit a Business
"in what industries and markets should we compete”
Example: JC Penny
Expanded phramaceutical business & sold credit card business

Business Level Strategy


Strategy adopted for each and every Strategic Business Unit (SBU)
Example: Tata Group
Conglomorate having many SBUs

Functional Level Strategy


Strategy adopted by various departments in an SBU
Marketing, Finance, HR, etc.
S
trategic Management Process
 Strategic analysis
o Mission statement and stake holders
o Example: mission of EBay
 “to build an online market place that enables practically anyone to trade
practically anything almost anywhere in the world”
o Core values
o Objectives
o SWOT
o Rivalry and industry attractiveness
 Refers to growth rate of industry
 Strategy formulation
 Strategy implementation

Components of Mission Statement


 Who are my customers?
o Segmenting Theory
o Which segment to concentrate on
 Markets – geography
 Survival, growth, profitability
 Values, beliefs, ethics
 Societal and environmental concerns
o CSR objectives
 Major products and services
 Technology
 Competitive advantage
 Concern for employees

Analysis of Rivalry and Industry Attractiveness


 Monopoly
o One player in market
 Oligopoly
o Few players in market
 Hyper-Competition
o Market flooded with very high competition

Porter’s 5 Force Model **


 Industry Competition
 New Entrants
 Substitute Products
 Bargaining Power of Suppliers
o If high, raw material cost is high
o Backward integration; become my own supplier
 Bargaining Power of Customers

Porter’s Method of Choice Making for Competitive Advantage


 Differentiation (quality, service, price etc)
 Cost Leadership (Technology, methods of production etc)
o Means: I have the lowest price in the market over the competitor
 Focus (Niche Market)

Effective Strategic Leader


 Determines organization’s purpose
o Vision & mission statement kept in mind while framing a particular strategy
 Exploits and maintains core competency
o Continuously evolving competitive advantages
o Since they cannot have only 1 competitive advantage forever
o For any competitive advantage there will always be a second mover
 Develop human capital
o Example: Starbucks case, mission & vision around humans
o Attrition rate decreases, giving ESOPs
o Promotion & salary hike
 Creates and sustains strong organization culture
 Emphasize ethical decisions/practices
 Establish balanced controls
o Have continuous review planning in place

Strategic Flexibility
 Environment effect
 Monitor and measure of current strategy
 Encourage employees to share negative information
 Get new ideas from outside the organization
o Benchmarking
 Have multiple alternatives
o Contingency planning or scenario planning
 Learn from mistakes

Strategies for Today’s Environment


 E-Business
o Can reduce costs
 Sales, recruitment, etc.
o Shortened response time
o Chat rooms
o Niche websites
 Customer service strategy
o Customization
 Changing product as per customer’s needs
o Communication/feedback
o Employee “service culture”

Innovation Strategies
 Use of technology
o Cutting down cost
o Helps price product lower w.r.t competition
 Market research
o To know wants & needs of customers
o Preference of their brand
 Process improvement
 Product development

First Mover Strategy


 Developing something new always to stay ahead of competition
 Advantage:
o Reputation for being innovative and industry leader
o Learning benefits
o Opportunity to begin building customer relationship and loyalty

Forecasting Effectiveness
 Environment
 Competitor reaction
o Refers to: if competitor reacts too quickly to strategy, forecasting can go wrong
 Involve “more” people
o All levels of management + staff planners (whose exclusive job is planning)
o Staff planners because spot changes in external environment
 Don’t use single model of forecasting
o Use quantitative and qualitative methods of forecasting
o Quantitative: Rational decision
o Qualitative: Intuitive Model; experts based on experience use intuition to forecast
 Benchmarking – search for “best practices”
o Adopting best practices from competition

Technique for Allocating Resources


 Budgeting
o Decide how many resource required to achieve particular task
 Scheduling
 Breakeven Analysis

Budgeting
 Numerical Plan
 Types of budgets
o Cash budget
 Cash inflow & outflow
o Revenue budget
 Sales
o Expense budget
 Total cost incurred
o Profit budget
 {Revenue} – {Expense} = {Profit}

Scheduling
 What activities need to be done
 Order in which sequence to be done
 Who is to do each activity
 When are the activities to be completed, which will determine overall time for
completion
 CPM
o Critical Path Method
o Used to determine the correct sequence of the various modules in the project
which will result in the least possible time

Contemporary Planning Techniques


 Project Management
o Has a “definite” beginning and ending
o Within time, within budget, as per specifications
o Project manager

Project Management Process


 Define objectives
 Indentify activities and resources
 Establish sequences
 Estimate time for activities
 Determine project completion date
 Compare with objectives
 Determine additional resource requirements

Scenario Planning
 Monitor external environment for trends and changes
 Contingency planning
 Identify potential unexpected events
 Determine if any of these events could have an early indicator
 Setup information gathering system to indentify early indicators
 Have appropriate responses in place
 Taking help of Staff planners for Scenario Planning

Fundamentals of Organizing
 Growth & Complexity
 Empowerment & Structure
o Greater complexity of structure, better is working of organic structure
o Organic structure, giving power to lower mgmt; decentralization
 Taylor’s theory and Organization Management
o Division of labor
 Choosing the most suitable structure as per strategy
 Re-structuring
o Cutting of cost; vertical is too costly
o Existing structure is not giving high efficiency
o Banking & Insurance
 Typical channels for distribution: agents
 Alternate channels: bank assurance mode of issuance
 Formal structures
o Structures as per organizational structures chart/hierarchy
o Better coordination
 Informal structures
o Not as per organizational hierarchy
o Unnecessary functional conflict is disadvantage
o Advantage is greater efficiency
 Social network analysis
o Identify informal structure in an organization
o And formalizing them if necessary

Type of Structures
 Functional
o Divide according departments
o Small business
 Divisional
o Business expansion
 Matrix
o Operating multiple modules
o Every employee has 2 bosses
o Advantage: when work is done employee can move on to next job
o Disadvantage: 2 bosses results in unnecessary conflicts

Functional Structures
 Groups of people with similar skills and doing similar tasks
 Example: marketing, HR, Finance etc
 Advantages:
o Learn from each other
o Cooperation within a function (example: sales, advertising)
o Easier for evaluation
o Can respond to competitors functional strategy
 Disadvantages
o Functional chimneys problems
 Lack of cooperation in between departments
Missed class
Protectionism Strategies
 Tariff
 Quota
o Particular amount of import goods are allotted so that customer can go for
domestic product
 Subsidy
o When country business is selling up in host country than home country,
government provide same taxes to start a business
 Cartel
o Companies coming together to protect themselves from increasing taxes and
increase their profits

Promoting Effective Management of Diversity


 Secure top management commitment
 Increase accuracy of perceptions
 Increase diversity awareness
 Increase diversity skills
 Encourage flexibility

Cash Cow
 As long as industry is growing stow away the money

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