Management Theory and Practice - Bulletin Board - May 2012

Engineering and Management News  -  Knowledge@Wharton  - HBR Blogs

Cost Accounting Introduction - Updated

Risk Manager's job is to quantify the risk and when the project is approved by management with the quantified risk, the project managers is allowed to fail and the failure is well tolerated by the organized.
Permission to fail - HBR blog post by Aaron Brown 30 May 2012

Innovation Projects need to be supported by Executives who can say Yes without Permission
Vijay Govind Rajan and Mark Sebell in HBR blogs
29 May 202

Six Keys to Being Excellent at Anything
Tony Schwartz
HBR Blogs August 2010


Marketing Management - Online Book
updated with more entries

Managing Risky Behavior
HBR Insight Center

Leaders Make or Break Employee Engagement


Lecture Transcripts of Financial Accounting Course

Professor Larry Tomassini

Professor provides transcripts for all his courses and additionally video lectures and audio lectures.

Management Videos

What are strategies?
_____________________________ _____________________________
Integrity - What  is it?

_____________________________ _____________________________
Electronic Records Management
UC Berkeley Even April 2012
______________________________ _______________________________

Five Employee Management Strategies To Start Using ASAP


Management Theory - Literature Review Papers

Strategic Issue Management Theory
Peter Kunnas

Decision Making


Decision making is the actual selection from among alternatives of a course of action.
Decision making is involved in various functions of management. Hence, it is a step in planning. Planning occurs in managing organizations or in personal life whenever choices are made in order to gain a goal in the face of such limitations as time, money, and the desires of other people. The steps involved in planning are:
1. Being aware of opportunity
2. Establishing objectives
3. Premising
4. Determining alternative courses of action
5. Evaluating alternative courses
6. Selecting a course
7. Formulating derivative plans

Developing Alternatives

Planning comes into picture whenever a goal is to be attained. Choice of goal itself is a planning problem. If we assume that there is a goal to be achieved, the next step in the planning is to develop planning premises. Premises are planning assumptions, the future setting in which planning takes place. We can term them as the environment of plans in operation. Premises include forecast data of a factual nature, applicable basic policies, and existing company plans.
Developing alternative courses of action is taken as the first step in decision making. Managers have to develop alternative courses for any decision to be made. A sound adage for the manager is that, if there seems to be only one way of doing a thing, that way is probably wrong. More rationally, a planning priniciple called principle of alternatives can be specified. In every course of action, alternatives exist, nd effective planning involves a search for the alternative representing the best path to a desired goal.
The ability to develop alternatives is often as important as making a right decision among alternatives. Ingenuity, research, and perspicacity are required to make sure that the best alternatives are considered before a course of action is selected.

Principle of Limiting Factor

Chester Barnard has written, "the analysis required for decision is in effect a search for the "strategic factors."

Stategic factors and limiting factors are synonyms but Barnard suggests that we use the term limiting factor for physical things and when personal or organizational action is the element, we should use the term strategic factor. When we want to achieve some goals of system, we examine its parts or factors. Strategic factors or limiting factors are those parts or factors which if changed would accomplish the desired purpose if other factors or parts remain unchanged. The principle of limiting factor says, if in developing alternatives, the more an individual can recognize and solve for those factors that are limiting or critical to the attainment of a desired goal, the more effectively and efficiently he can select the most favorable alternative.
Discovery of limiting factor lies at the basis of selection from alternatives and hence of planning.
Process of Evaluation
After a reasonable number of alternatives have been developed, the next step in decision making is evaluating these alternatives. In most decisions, there are certain tangible factors to be assessed in terms of dollars, man-hours, machines hours, units of output, rates of return on investment, or some other quantitative unit. There are other factors that can be hardly quantified. However, both the tangible and intangible factors must be weighed in deciding upon a course of action.

Basis for Selection Among Alternatives

Business Research and Analysis
Operations Research

Evaluating the Decision's Importance

Size or length of commitment: If a decision commits the enterprise to heavy expenditure of funds it should be subjected to suitable attention at top management level.
Flexibility:Decisions involving inflexible courses of action need attention.
Certainty of goals and premises: Production decisions based on order backlog are more routine in comparision to made to stock decisions.
Quantifiability of variables: If variable can be quantified decision making is more routine.
Human impact: Where the human impact of a decision if great, its importance is high.
 Rationality in Decision Making

Economics is a subject that is developed under the assumption that people take rational decisions. When is a person thinking or deciding rationally? A rational decision making implies that the decision maker has a clear understanding of all alternative courses of action by which the goal sought can be reached under existing circumstances and limitations. The decision maker also must have the knowledge to analyze the alternatives in light of the goal sought with a desire to find out the best solution that effectively and efficiently satisfies the goal achievement.

Herbert Simon proposed that managers may not achieve complete rationality in many decisions. It is difficult to recognize all alternatives to reach a goal and also it may not be possible to analyze all alternatives. Hence managers resort to satisficing and find solutions that appear satisfactory to them and their associates in the circumstances.

Creativity and Innovation

Developing alternatives and finding novel ways that are profitable alternatives requires creative thinking. Weihrich and Koontz explain creative thinking as four step process.

1. Unconscious scanning
Allowing the mind to think over the problem and do its process without a conscious effort.

2. Intuition
Intuition is an answer to the problem that is thrown up by the mind. This is the output of the unconscious scanning effort.

3. Insight
Insight also an idea that comes up during investigations to solve a problem. They are to be captured immediately on paper to make us of them later.

4. Logical formulation or verification
Intuition as well as insight is to be tested through logic or experiment. The logical verification is done first by the person himself and then by inviting critiques from others.


Video Lecture - Presentation - Making Great Decision



Updated 29.5.2012
Original knol - http://knol.google.com/k/narayana-rao/decision-making/ 2utb2lsm2k7a/ 188

Management - Definition and Process

Definition of Management: Its Nature and Purpose

Management of an organization is the process of establishing objectives and goals of the organization periodically, designing the work system and the organization structure, and maintaining an environment in which individuals, working together in groups, accomplish their aims and objectives and goals of the organization effectively and efficiently (Narayana Rao). (3rd December 2008, Version 1 of this article)
The above definition was a modification of the definition given by Koontz and O'Donnell.

The definition implies the following.

(i) Management is a process.
(ii) Management applies to every kind of organization, government, profit making, or nonprofit making.
(iii) It applies to managers at all levels in the organization.
(iv) Management is concerned with effectiveness and efficiency.  Effectiveness is producing the product or service the customer wants in business context with the required functional benefits and product attributes at the price he is willing to pay. Efficiency is minimization of resources to produce the saleable output.
Weirich and Koontz

Weihrich and Koontz defined Management and explained it as follows in the tenth edition of their book Management: A Global Perspective (p.4).

"Management is the process of designing and maintaining an environment in which individuals, working together in groups, efficiently and accomplish selected aims." This definition needs to be expanded:

1. As managers, people carry out the managerial functions of planning, organizing, staffing, leading, and controlling.
2. Management applies to any kind of organization.
3. It applies to managers at all organizational levels.
4. The aim of all managers is the same: to create a surplus.
5. Managing is concerned with productivity; this implies effectiveness and effciency.

Functions of Management

The process of management can be better understood by breaking it down into the five basic functions of a manager – planning, organizing, resourcing, leading and controlling. All the management concepts, principles, theories and techniques can be grouped under these five functions.

Management Functions at Different Organizational Unit Levels

All managers carry out managerial functions. However the proportion of time spent for each function may differ from level to level. The top managers may spend more time on planning in choosing the corporate objectives and business unit objectives and in developing the work system and the organization structure. The first level supervisors may spend more time in leading the staff under them and in doing operational control.

Managerial Skills

Managers require four kinds of skills: technical, human, conceptual and design.

1. Technical skills are knowledge of and proficiency in working with the tools and specific techniques on given processes. For example, mechanics work with tools, and their supervisors should have the ability to train them how to use these tools and periodically evaluate and improve the skills of the staff under them. Similarly accounts use various formats of accounting records like journal, ledger, trial balance, balance sheet and use various procedures like entry, posting, reconciliation and reversing etc. and the supervisor of the accountants has to know these records and procedures to train the staff under him and evaluate their work for accuracy. The first level supervisors have to demonstrate or use their technical skills on a day to day basis as managers.

2. Human skills are the concepts, methods and techniques that facilitate working with people. Managers have to create an environment in which people feel comfortable, motivated, secure, and committed to the objectives and goals of the group or the organizational unit in which they are members.

3. Conceptual skill is the ability to see the “big picture.” It is the ability to recognize significant issues or elements in a situation and to understand the relationships among these key issues.

4. Design skill is the ability to solve problems in ways that benefit the enterprise. To be effective managers in the organization must be capable of doing more than just seeing a problem (If they merely confine their attention to the problem, they become ‘problem watchers’ and they will not fulfill their responsibility). They Must have, in addition to the skill of identifying key problems, the skill of a good design engineer to work out a practical solution to a problem in the light of the realities they face in the situation.

The intensity or frequency with which these groups of skills are applied varies with the managerial level.

First line supervisors use their technical skills on a day to day to basis to observe the working of the staff in the department or section and guide them in carrying out the allotted tasks as per the specification of the customer or the design and in proper use of machines and tools. Quality and quantity control on a continuous becomes the important responsibility of first line supervisors and technical skills play a very important part in this role.

At the top level, conceptual skills and design skills have to be employed to recognize the opportunities and threats that keep on emerging in the environment. Solutions to benefit from the opportunities and contain the ill effects of threats have to be developed.

My article in my blog on the same topic

Video Introduction to Management



Related Knols

Original post - http://knol.google.com/k/narayana-rao/management-definition-and-process/ 2utb2lsm2k7a/ 547

Managerial Skills

Principles of Management Revision Articles Series

Managerial skills are identified and links are given to knols containing detailed explanation of various skills. Number of videos are also available on various managerial skills.



Managerial skills are classified as technical, human and conceptual by Katz.
For a manager managing any activity, the actual work involved in the activity is technical skill.
Ability to communicate with other persons in the department or organizations and the ability to understand their desires and persuade them to ones point of view are human skills. Conceptual skills are understanding of how customers of the department or organization react as a group to various activities.
Similarly a manager has to understand how suppliers to his department react as a group. Here economic consequences, political consequences, and social consequences come into play and a manager must be able to visualize all these likely outcomes in coming out with his objectives, strategies and tactics. (http://arulmj.tripod.com/mgrlskls.html).
In words of Katz, the administrator needs: (a) sufficient technical skill to accomplish the mechanics of the particular job for which he is responsible; (b) sufficient human skill in working with others to be an effective group member and to be able to build cooperative effort within the team he leads; (c) sufficient conceptual skill to recognize the interrelationships of the various factors involved in his situation, which will lead him to take that action which achieves the maximum good for the total organization.

I define engineering management using this explanation. Engineering management refers to management of those functional areas of an organization where the main skills applied are related to engineering and technology.
To understand the idea of managerial skills, we need to understand the meaning of the word skill.

Skill - Dictionary meanings   

a: the ability to use one's knowledge effectively and readily in execution or performance b: dexterity or coordination especially in the execution of learned physical tasks
a learned power of doing something competently: a developed aptitude or ability
skill: Definition
Ability and capacity acquired through deliberate, systematic, and sustained effort to smoothly and adaptively carryout complex activities or job functions involving ideas (cognitive skills), things (technical skills), and/or people (interpersonal skills). 
Noun: skill  skil
An ability that has been acquired by training
- accomplishment, acquirement, acquisition, attainment
Ability to produce solutions in some problem domain
"the skill of a well-trained boxer"

The familiar knowledge of any art or science, united with readiness and dexterity in execution or performance, or in the application of the art or science to practical purposes; power to discern and execute; ability to perceive and perform; expertness; aptitude; as, the skill of a mathematician, physician, surgeon, mechanic, etc.

Managerial Skills – A View

The above dictionary definitions indicate that  skill denotes the ability to perform a task effectively and efficiently. The ability to use one's knowledge effectively and readily in execution or performance points out it. The meaning, "The familiar knowledge of any art or science, united with readiness and dexterity in execution or performance," also denotes it.

So managerial skill is to be understood as the ability to perform managerial tasks effectively with readiness and dexterity.  Skills requires knowledge and ability to apply that knowledge competently and efficiently has to be acquired by practice. A skilled person is one who has done the job effectively number of times and in the process of doing so, improved his efficiency at the job.
Various authors identified certain tasks of management discipline. Some authors have identified a list of managerial skills many of them being the tasks of management..
The book by William R. Tracey, Leadership Skills can be used to develop an understanding of  managerial skills.

Leadership Skills by William R. Tracey, Amacom 1990

Main Chapters
1. Forecasting: prelude to planning
2. Strategic planning
3. Budgeting
4. Marketing
5. Innovating
6. Resolving conflict
7. Disciplining
8. Rewarding
9. Improving Productivity
10. Managing costs
11. Managing time
12. Managing change
13. Managing ethics
14. Developing yourself
15. Leading

Managerial Skills

Whetten and Cameron provided an empirical derivation of effective leadership skills. They are:
1. Verbal communication (including listening)
2. Managing time and stress
3. Managing individual decisions
4. Recognizing, defining, and solving problems
5. Motivating and influencing others
6. Delegating
7. Setting goals and articulating a vision
8. Self awareness
9. Team building
10. Managing conflict
David A. Whetten and Kim S. Cameron, Developing Management Skills, Harper Collins, New York, 1991.

Profit Sense - An Important Managerial Skill

I now feel profit sense is an important managerial skill. Every manager should spot profit opportuniites and evaluate them for assuring that the profit is there in the proposal and select the best portfolio of  profitable projects and initiatives for his department or section.

Links to Knols with Material on Managerial Skills

1. Forecasting: prelude to planning
2. Strategic planning
What is Business Strategy?
3. Budgeting
Budget, Budgeting and Budgetary Control
4. Marketing
The Marketing Concept - Kotler
5. Innovating
6. Resolving conflict
7. Disciplining
8. Rewarding
9. Improving Productivity
Earlier link was provided to 7 Principles for Improving Workflow. A new link is to be given now.

10. Managing costs
11. Managing time
12. Managing change
13. Managing ethics
14. Developing yourself
15. Leading



Videos on Managerial Skills

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 A Recent Book Recommended for Trainers and Self Learners
Original Knol - Number 428

Business Logistics - An Introduction

Logistics – Introduction

A dictionary definition of logistics is “the branch of military science having to do with procuring, maintaining, and transporting material, personnel, and facilities.”
The definition promulgated by the Council of Logistics Management (CLM), is: “Logistics is the process of planning, implementing, and controlling the efficient, cost-effective flow and storage of raw materials, in-process inventory, finished goods and related information from point of origin to point of consumption for the purpose of conforming to customer requirements.”
Ballou explained that in the context of manufacturing it appears from the definition that the logistician is concerned with flow of goods to and from his firm. But the responsibility extends to the flow of components and goods through the production process as well. But the logistician may not deal with detailed production processes, machine scheduling, quality control etc. in the production process. Also the manufacturing logistics definition excludes maintenance which is a part of military logistics.
The mission of logistics in a business firm is to get the right goods or services to the right place, at the right time, and in the desired condition, while making the greatest contribution to the firm. Value in logistics is a combination of time, place and cost.
Logistics is about creating value – value for customers, value for suppliers and value for the firm’s stakeholders.

The Activities of Logistics Function

Council of Logistics Management identified the following:

  • Customer Service
  • Demand Forecasting
  • Distribution Communications
  • Inventory Control
  • Material handling
  • Order Processing
  • Part and Service Support
  • Plant and Warehouse Site Selection
  • Purchasing
  • Packaging
  • Return Goods Handling
  • Salvage and Scarp Disposal
  • Traffic and Transportation
  • Warehousing and Storage

Case for Organizing a Separate Logistics Department

Both marketing and production have recognized the importance of logistical activities. According to Philip Kotler, “Marketing management is the process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, and services to create exchanges with target groups that satisfy individual and organizational objectives.”

Therefore distribution of goods is identified as an important activity in marketing. Ballou quotes, McClain and Thomas, who stated that operations management has the responsibility for the production and delivery of physical goods and services. Hence delivery of goods at destinations required by the customer or the sales department is recognized as a part of operations management function.

But Ballou argued that both marketing and production have more important core activities to perform and hence logistic activities may not get adequate attention. According to him marketing may be given the job of creating possession value and production may be given the job of creating form value. A separate logistics department would be concerned with providing time and place value. Ballou recognized the interface problems that arise as more departments are created and hence stresses the need for coordination.

Objectives of Business Logistics Function

The logistics function has to earn the highest possible return on investment over time as far as internal objective is concerned. But to achieve this internal objective it has to first achieve external objectives. It has to earn revenue and minimize costs.

Therefore a logistics system has to be designed and operated considering its impact on revenue contribution that comes through the quality of customer service provided and cost of logistics facilities, system and operation.

Costs of logistics function include capital costs are operating costs. Wages, public warehousing (rented warehouses or warehouse space) expenses, public transport expenses, financial expenses related to inventory investment, other administrative expenses are examples of operating costs. Capital costs are one time costs, own warehouse, own trucks are examples of capital costs.

The financial objective of the logistics function can be expressed as “Maximize over the time the ratio of the annual revenue (due to the customer level provided) less the operating costs of the logistics system to the annualized investment in the logistic system.”

Time value of money may be considered and the objective can be expressed in net present value (NPV) terms or internal rate of return (IRR) terms.

Study of Logistics

Study of logistics can focus on management process and the skills needed to perform the activities involved. Management process can be briefly described as planning, organizing and controlling. The three important domain areas of logistics are facilities location, inventory levels and mix, and transport facilities. Logistics function is concerned with providing service levels to customers and managing costs appropriately for the company. All decision making requires information. Study of logistics includes principles and practices related to the above issues.  Some of the issues are discussed in detail in specialized texts related to those areas and a logistician has to examine them now in the context of logistics.


Ronald H. Ballou, Business Logistics Management, Fourth Edition,  Prentice Hall Int. Inc., USA,  1999.
Joh O. McClain and L. Joseph Thomas, Operations Management: Production of Goods and Services, Second Edition, Prentice Hall, USA, 1985.

Dean Clemente - Presentation on Logistics and Distribution


http://knol.google.com/k/narayana-rao/business-logistics-an-introduction/ 2utb2lsm2k7a/ 1384

Financial Management - An Overview

Financial Management - An Overview

Financial Management - An Overview

Financial management revision article series


Financial Management - The Scope

Financial management is concerned with monitoring financial markets, approving financial investment projects in the organization, procuring the finance from the market to finance the project, and conforming to the contracts signed with the providers of finance.
Thus the important activities are
1. Monitoring financial markets to understand the desires of the providers of finance
2. Investment decisions within the company
3. Financing decisions - From whom to procure funds?
4. Dividend decisions - Conforming to the contracts.

Evolution of Corporate Finance Area or Subject

The early phase of corporate finance subject had  focus on episodic events in the life cycle of a corporation. The typical and popular book of this phase is the book, The Financial Policy of Corporations by Arthur S. Dewing, Professor of Finance at Harvard University (published in 1918). The book had a descriptive and institutional material regarding formation of company, issuance of capital, major expansion, merger, reorganisation, and liquidation.
In the early 40s a transition occurred and along with the external focus related to major events, greater emphasis was placed on the day-to-day internal activities of financial management in the area of funds requirement analysis, planning, and control. A representative work of this phase is Essays on Business Finance by Wilford J . Eiteman et al. (published in 1953).
The modern phase began in mid-fifties with application of economic theory and quantitative methods of analysis. Financial decision making has become analytical and quantitative and financial decision making activity has become dominant.

Goals of Financial Management

Financial theory, rests on the premise that the objective of the firm should be to maximize the value of the firm to its equity shareholders.
This value is could be equal to the market price of shares in stock market with good liquidity. But financial managers may have to calculate the discounted value of expected future cash flows and compare with the market price. In case of discrepancies they may have to communicate to the financial markets their point of view.

Basic Considerations of Financial management: Risk and Return

In the context of evaluating an investment proposal, from the point of view of finance function, risk and return are the relevant dimensions. Higher return from a proposed project increases market value and higher risk decreases market value.

Financial Decisions in a Firm

While a formally specified person performs the financial market monitoring and procurement of finance functions, the investment decisions and performance of investments are in the hands of operating executives. Finance sense has to be there in each and every employee of an organization to make an organization financially viable and successful.
The marketing persons who do market research provide estimates of market size, revenue generation which form the basis of project proposals.
The engineers, who select location for the plant, equipment shape the investment decision of the firm by providing various alternatives.
The purchase managers actions influence the level of inventories.
The sales managers' assessments determine the receivables policy.
Department managers actually plan and control expenditures.
Thus many activities that are a part of financial function are performed by operating executives. But there are many tasks of finance function that can be done by specialist financial officers. Traditionally, the financial officers are grouped into controller's office and treasurer's office.
The treasurer's office is responsible for
Obtaining finance
Banking relationship
Cash management
Credit administration
Controller's office is responsible for
Financial accounting
Internal auditing
Management accounting and control



Prasanna Chandra, Financial Management, 5th Ed.,  Tata McGraw Hill, 2001
Brealey and Myers, Corporate Finance, Fifth Edition, Prentice Hall India, 2001


 Video Lecture on Introduction to  Financial Management

__________ __________

Analysis of Firm's External Environment for Strategy Making

Analysis of  a company's external situation involves finding answers to the following seven  main aspects or questions:

1. What are the industry's dominant economic features? 

Industries differ significantly on such factors as market size and growth rate, the number and relative sizes of both buyers and sellers, the geographic scope of competitive rivalry, the degree of product differentiation, the speed of product innovation, demand–supply conditions, the extent of vertical integration, and the extent of scale economies and experience/learning curve effects.

In addition to setting the stage for the analysis to come, identifying an industry's economic features also promotes understanding of the kinds of strategic moves that industry members are likely to employ (Question 5).

2. What kinds of competitive forces are industry members facing, and how strong is each force? 

Porter's five force analysis is the basis for this step.

The strength of competition is a composite of five forces:
(1) competitive pressures stemming from the competitive maneuvering among industry rivals,
(2) competitive pressures associated with the market inroads being made by the sellers of substitutes, (3) competitive pressures associated with the threat of new entrants into the market,
(4) competitive pressures stemming from supplier bargaining power and supplier–seller collaboration, and
(5) competitive pressures stemming from buyer bargaining power and seller–buyer collaboration.

The nature and strength of the competitive pressures associated with these five forces have to be examined force by force to identify the specific competitive pressures they each comprise and to decide whether these pressures constitute a strong or weak competitive force.

The next step in competition analysis is to evaluate the collective strength of the five forces and determine whether the state of competition is conducive to good profitability.

Working through the five-forces model step by step not only aids strategy makers in assessing whether the intensity of competition allows good profitability but also promotes sound strategic thinking about how to better match company strategy to the specific competitive character of the marketplace. Effectively matching a company's strategy to the particular competitive pressures and competitive conditions that exist has two aspects: (1) pursuing avenues that shield the firm from as many of the prevailing competitive pressures as possible, and (2) initiating actions calculated to produce sustainable competitive advantage, thereby shifting competition in the company's favor, putting added competitive pressure on rivals, and perhaps even defining the business model for the industry.

3. What forces are driving changes in the industry, and what impact will these changes have on competitive intensity and industry profitability? 

In this step, variables in the economy that are driving the industry variables are analyzed.

Industry and competitive conditions change because forces are in motion that create incentives or pressures for change. The first phase is to identify the forces that are driving change in the industry; the most common driving forces include changes in the long-term industry growth rate, globalization of competition in the industry, emerging Internet capabilities and applications, changes in buyer composition, product innovation, technological change and manufacturing process innovation, marketing innovation, entry or exit of major firms, diffusion of technical know-how, changes in cost and efficiency, growing buyer preferences for differentiated versus standardized products (or vice versa), reductions in uncertainty and business risk, regulatory influences and government policy changes, and changing societal and lifestyle factors. The second phase of driving-forces analysis is to determine whether the driving forces, taken together, are acting to make the industry environment more or less attractive. Are the driving forces causing demand for the industry's product to increase or decrease? Are the driving forces acting to make competition more or less intense? Will the driving forces lead to higher or lower industry profitability?

4. What market positions do industry rivals occupy—who is strongly positioned and who is not? 

This is a competitor position analysis most focused on individual players.

Strategic group mapping is a valuable tool for understanding the similarities, differences, strengths, and weaknesses inherent in the market positions of rival companies. Rivals in the same or nearby strategic groups are close competitors, whereas companies in distant strategic groups usually pose little or no immediate threat. The lesson of strategic group mapping is that some positions on the map are more favorable than others. The profit potential of different strategic groups varies due to strengths and weaknesses in each group's market position. Often, industry driving forces and competitive pressures favor some strategic groups and hurt others.

5. What strategic moves are rivals likely to make next? 

This competitor strategy analysis.

This analytical step involves identifying competitors' strategies, deciding which rivals are likely to be strong contenders and which are likely to be weak, evaluating rivals' competitive options, and predicting their next moves. Scouting competitors well enough to anticipate their actions can help a company prepare effective countermoves (perhaps even beating a rival to the punch) and allows managers to take rivals' probable actions into account in designing their own company's best course of action. Managers who fail to study competitors risk being caught unprepared by the strategic moves of rivals.

6. What are the key factors for competitive success? 

An industry's key success factors (KSFs) are the particular strategy elements, product attributes, competitive capabilities, and business outcomes that spell the difference between being a strong competitor and a weak competitor—and sometimes between profit and loss. KSFs by their very nature are so important to competitive success that all firms in the industry must pay close attention to them or risk becoming an industry also-ran. Correctly diagnosing an industry's KSFs raises a company's chances of crafting a sound strategy. The goal of company strategists should be to design a strategy aimed at stacking up well on all of the industry KSFs and trying to be distinctively better than rivals on one (or possibly two) of the KSFs. Indeed, using the industry's KSFs as cornerstones for the company's strategy and trying to gain sustainable competitive advantage by excelling at one particular KSF is a fruitful competitive strategy approach.

7. Does the outlook for the industry present the company with sufficiently attractive prospects for profitability? 

If an industry's overall profit prospects are above average, the industry environment is basically attractive; if industry profit prospects are below average, conditions are unattractive. Conclusions regarding industry attractive are a major driver of company strategy. When a company decides an industry is fundamentally attractive, a strong case can be made that it should invest aggressively to capture the opportunities it sees and to improve its long-term competitive position in the business. When a strong competitor concludes an industry is relatively unattractive, it may elect to simply protect its present position, investing cautiously if at all and looking for opportunities in other industries. A competitively weak company in an unattractive industry may see its best option as finding a buyer, perhaps a rival, to acquire its business. On occasion, an industry that is unattractive overall is still very attractive to a favorably situated company with the skills and resources to take business away from weaker rivals.

A competently conducted industry and competitive analysis generally tells a clear, easily understood story about the company's external environment. Different analysts can have different judgments about competitive intensity, the impacts of driving forces, how industry conditions will evolve, how good the outlook is for industry profitability, and the degree to which the industry environment offers the company an attractive business opportunity. However, while no method can guarantee a single conclusive diagnosis about the state of industry and competitive conditions and an industry's future outlook,  Managers become better strategists when they know  the answers given to the questions posed by experienced professionals.  There's no substitute for doing cutting-edge analysis of company's external situation—anything less weakens managers' ability to craft strategies that are well matched to industry and competitive conditions.


Summary of the chapter in Student Resources of the Thompson and Strickland Text.

The Strategic Management Process - Review Notes

The tasks of developing  and executing company strategies are the heart and soul of managing a business enterprise and winning in the marketplace.

A company's strategy is the plan management is using to acquire a market position and  conduct its operations. This involves  attracting and pleasing customers, competing successfully against and the current and future rivals, and achieving organizational objectives.

The central thrust of a company's strategy is undertaking moves to build and strengthen the company's long-term competitive position in its chose target market segments as well as in the overall market and  gain a competitive advantage over rivals that then becomes a company's ticket to above-average profitability and performance. A company's strategy typically evolves over time as a blend of (1) proactive and purposeful actions on the part of company managers and (2) as-needed reactions to unanticipated developments and fresh market conditions.

Closely related to the concept of strategy is the concept of a company's business model.

A company's business model is management's story line for how and why the company's product offerings and competitive approaches will generate a revenue stream and have an associated cost structure that produces attractive earnings and return on investment—in effect, a company's business model sets forth the economic logic for making money in a particular business, given the company's current strategy.

A winning strategy fits the circumstances of a company's external situation and its internal resource strengths and competitive capabilities, builds competitive advantage, and boosts company performance.

Crafting and executing strategy are core management functions and especially the core top management functions in an organization. Whether a company wins or loses in the marketplace is directly attributable to the potential of that company's strategy and the zeal and controls with which the strategy is executed.

Managerial Process

The managerial process of crafting and executing a company's strategy consists of five interrelated and integrated phases:

Developing a strategic vision of where the company needs to head and what its future product/market/technology focus should be. This managerial step provides long-term direction, infuses the organization with a sense of purposeful action.

Objectives are derived from the  strategic mission and  vision and larger in number and they address the aspirations of all the stakeholders. Goals spell out how much of what kind of performance by when.  Companies need to both financial objectives and goals and strategic objectives and goals. A balanced scorecard approach provides the basis for both.

Crafting a strategy to achieve the objectives and move the company along the strategic course that management has charted. Crafting strategy is concerned principally with forming responses to changes under way in the external environment, devising competitive moves and market approaches aimed at producing sustainable competitive advantage, building competitively valuable competencies and capabilities, and uniting the strategic actions initiated in various parts of the company. The more that a company's operations cut across different products, industries, and geographical areas, the more that strategy making becomes a collaborative effort involving managers and company personnel at many organizational levels. The total strategy that emerges in such companies is really a collection of strategic actions and business approaches initiated partly by senior company executives, partly by the heads of major business divisions, partly by functional-area managers, and partly by operating managers on the frontlines.

The larger and more diverse the operations of an enterprise, the more points of strategic initiative it has and the more managers and employees at more levels of management that have a relevant strategy-making role.

Three Levels of Strategy

A single-business enterprise has three levels of strategy—business strategy for the company as a whole, functional-area strategies for each main area within the business, and operating strategies undertaken by lower-echelon managers to flesh out strategically significant aspects for the company's business and functional area strategies.

Four Levels of Strategy

In diversified, multibusiness companies, the strategy-making task involves four distinct types or levels of strategy: corporate strategy for the company as a whole, business strategy (one for each business the company has diversified into), functional-area strategies within each business, and operating strategies. Typically, the strategy-making task is more top-down than bottom-up, with higher-level strategies serving as the guide for developing lower-level strategies.

Implementing and executing the chosen strategy efficiently and effectively. 

Managing the implementation and execution of strategy is an operations-oriented (Marketing, Production, Sales, Distribution and Service), make-things-happen activity aimed at shaping the performance of core business activities in a strategy-supportive manner. Management's handling of the strategy implementation process can be considered successful if  the company meets or beats its strategic and financial performance targets and shows good progress in achieving management's strategic vision.

Evaluating performance and initiating corrective adjustments in vision, long-term direction, objectives, strategy, or execution in light of actual experience, changing conditions, new ideas, and new opportunities.

This phase of the strategy management process is the trigger point for deciding whether to continue or change the company's vision, objectives, strategy, and/or strategy execution methods.
A company's strategic vision plus its objectives plus its strategy equals a strategic plan for coping with industry and competitive conditions, outcompeting rivals, and addressing the challenges and issues that stand as obstacles to the company's success.

Activities -  The Managers have to do

Successful managers have to do several things in leading the drive for good strategy execution and operating excellence.

First, they stay on top of things. They keep a finger on the organization's pulse by spending considerable time outside their offices, listening and talking to organization members, coaching, cheerleading, and picking up important information.

Second, they are active and visible in putting constructive pressure on the organization to achieve good results. Generally, this is best accomplished by promoting an esprit de corps that mobilizes and energizes organizational members to execute strategy in a competent fashion and deliver the targeted results.

Third, they keep the organization focused on operating excellence by championing innovative ideas for improvement and promoting the use of best practices to ensure value creating activities are performed in a first-rate fashion.

Fourth, they exert their clout in developing competencies and competitive capabilities that enable better execution.

Fifth, they serve as a role model in displaying high ethical standards, and they insist that company personnel conduct the company's business ethically and in a socially responsible manner. They demonstrate unequivocal and visible commitment to the ethics enforcement process.

Sixth and finally, when a company's strategy execution effort is not delivering good results and the organization is not making measured progress toward operating excellence, it is the leader's responsibility to step forward and push corrective actions.

Role of The Company Board

Boards of directors have a duty to shareholders to play a vigilant role in overseeing management's handling of a company's strategy-making, strategy-executing process. A company's board is obligated to (1) critically appraise and ultimately approve strategic action plans; (2) evaluate the strategic leadership skills of the CEO and others in line to succeed the incumbent CEO; (3) institute a compensation plan for top executives that rewards them for actions and results that serve stakeholder interests, most especially those of shareholders; and (4) ensure that the company issues accurate financial reports and has adequate financial controls.



Management Theory and Practice - Bulletin Board - April 2012

May 2012
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April 2012

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